Earnings Call: Q1 2021

May 20, 2021

Ladies and gentlemen, welcome to the First Quarter 2021 Trading Update Conference Call and Live Webcast. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Julian Diaz, CEO of Dufry. Please go ahead, sir. Thank you very much for the introduction, operator. These are Julian Diaz and Ifegester participating in the call from Basel. As always, we are going to use the presentation disclosure in our website. Please go to Page 2 and just a comment regarding the agenda. Are going to start with group financial and business highlights, then we'll comment on trading and finally, financial update and outlook. Please go to Page Organic growth in Q1 was minus 73.9 Percent compared with 2019 and minus 66.7% compared with 2020. Total turnover reached EUR 160,000,000 Good improvement of regions with reinitiating traveling, like obviously related with vaccination, especially in the U. S, Central America and Caribbean. Commenting on cost savings, in line with the Sales scenarios minus 40% and minus 55%, between $530,000,000 $670,000,000 regarding Personal expenses and operational expenses. One single comment regarding minimum annual guarantees, reliefs by March 31, €300,000,000 has been in a yearly basis have been agreed with the different landlords. We would like also to confirm the EUR 400,000,000 sustainable savings in both PEX and OpEx, and we will comment on that later on. An important also part of the highlights is the cash consumption, EUR 219,300,000 during the Q1, In line with our own expectations regarding their scenarios, especially in this one, -55%, even that the sales were We have been able to manage the cash at the level expected, in line also with the seasonality of the business. We also concluded our refinancing with relevant maturities now after 2024. We would like to thank our banks and bondholders for supporting in this process. With a new convertible bond, CHF 500,000,000 With maturity 2026, new senior notes CHF 300,000,000, 20.26 maturity and CHF 7.25 €1,000,000 until with maturity 2028. And I think it's also relevant to mention that the weighted average Maturity increased from 3.3 years to 4.6. And finally, a strong liquidity position, 2,200,000,000 With, in our opinion, sufficient enough liquidity for going through whatever this pandemic will result with 3 different aspects. Number 1, And I would like to remark them. Disciplined cash management, the second one is execution on cost savings and the third one, the successful refinancing already complete. Let's now move to Page 5, please. Business highlights. We have opened so far 1400 shops By April 30, 60% of the total shops with a capacity of 70% of sales. The projection in May and is already confirmed is we were expecting to open 65% of the shops with 75% of sales capacity. Good speed of reopening, especially as is obvious in places with accelerated sales in U. S, Central America and Caribbean. Reopening started with all across obviously, across all the regions. But now probably the most Focus for us in terms of reopening is Europe Continental Europe and UK. Torpino commenting on the reorganization process, Dufry, and this is already announced, move to be a more efficient company with the reorganization With recurring savings, with the intention to simplify also the internal way of reporting. The final step has been with the integration of Hudson and the introduction of new region Americas, including the North, Central and South The segment reporting has been aligned from the beginning of the year. In terms of the situation in China and the collaboration with Alibaba, I think this partnership with Alibaba and HDH result in our 1st duty free shop opened at the end of January of this year In Henan with 3,000 square meters of commercial space. We are expected to open another 30,000 square meters at the end of August, And the project will be complete during the Q1 2022 with a total square meters of 39,000. Dufry is ready. And in order to take advantage of the reopening, I think we need to really focus And create right now the reality of the future. This reality based in The reorganization done in 2020, the tight cash control, the sustainable cost control And the successful refinancing put us in a situation to engage in new opportunities during the reopening and especially during Q2 and Q3 2021. I will remark also because we are continuing being active in the Few opportunities that are available in the market today, we have also signed new agreements for new operations in Brazil, in Jamaica, in UK and several other locations in the U. S. If we move now to Page 6, In terms of explaining the new segment reporting, we have announced management changes yesterday In line with the new organizational structure, following Hudson's Listing and integration, the integration and with the intention to fully simplify the way we work. This new structure is aligned with the country's organization and with the commercial platforms that we have come Just one reminder, commercial platforms are obviously the commercial support of the company, including the supply chain, the buying and the Marketing departments, but basically they are organized not only geographically that is the case, but also based Regional customer profile generated regional platform and now from the operational point of view and with the reintegration of Hudson, We have been able to really align the three areas of the company in order to simplify and be more efficient. The list of countries per region are listed here. Probably, I don't need to repeat it. Let's move to Page 7 and talk about the result of this reorganization in the Global Securities Committee. Let me please take the opportunity to thank Roger Fordyce. Roger has been in Hudson for 30 years and working in Dufry The moment we acquired the company more than 10 years ago for his important contribution to what Hudson and Doofy Represent today in the global travel retail market. The organizational changes in the operational side and is also reflected in the setup in management team with Hudson's CEO from now on reporting to Eugenio Andrade, Global COO And I am also happy to introduce Sarah Brancinho in her new role of Chief Diversity and Inclusion Officer. Dufry is giving a priority as success factor to diversity and inclusion in In the 64 countries we are operating today, a wide variety with nationalities, entities, genders and cultural aspects. Sarah is with Dufry working in the organization since 2015 as Director of External Affairs And has more than 30 years' experience in duty free and especially in organizations managing bodies of duty free. Sarah is a leading member of Women at Dufry Project, an active advocate as a founder, member of The Chair and Chair of Women in Travel Retail. Please go to Page 9 for commenting on trading update. As I commented before, organic growth 2021 compared with 2020 was minus 60 6.3 percent And compared with 2019 minuteus 73.9. Still, we were impacted by the reduction in number of passengers, especially in Europe. But we have seen a solid improvement starting in March and continued in April and beginning of May With the maximum acceleration in U. S, Central America and Caribbean, we continue with a significant spend Per passenger increase. In Q1, duty free increased by 15% and duty paid by 10%. Please, let's move to Page 10. Comments by region. From the left to the right, First of all, Americas. North America has seen, as I repeated in the a few minutes ago, a pickup in the domestic traffic Led by Hudson, well positioned with a strong convenience store presence in the region. Turnover was strongly driven by duty paid With above average minus 61.4 percent drop compared with the regional and group performance. Central America and Caribe, including Mexico, Very good performance, minus 48 percent Dominican Republic, minus 8% and the Caribbean Islands with a robust performance compared with other regions. South America performance was impacted by the lockdowns in Brazil and Argentina, partially justified or mitigated, sorry, for the gradual recovery in other South American countries. In Europe, Middle East and Africa, the performance relatively unchanged compared with Q4 2020 Due to the ongoing restrictions measures including quarantines and lockdowns especially impacted U. K. With minus 95% of sales Central Europe minus 87% and Spain minus 89%. Whereas Eastern Europe, Russia, Middle East And also on top of that Africa remained less affected and performed above average in the region. Demand is current The demand is currently picking up in tourist destinations like Balearic Islands or Turkey. And finally, Asia Pacific It's geared to in our case, the operations we have towards international traffic, which still is highly impacted. Most of the shops Still close in the region also. Cross border travel started to resume, for example, between Australia and New Zealand. The information per region is clear enough here. Let's move now to Page 11. Sales by region and sector. Regional performance, as we commented 1 minute ago, is reflected in net sales Split per region. We have Europe and Middle East representing 30% of the business Asia Pacific 6% North America 53% and the distribution centers, 11%. Most of this 11%, the distribution centers is due to the wholesale supply to Henan activity. On the right side, Dufry by sector. We are obviously Reflecting in this chart what is happening in terms of the profile of the shops open. Domestic traffic in specific countries is generating Better performance in duty paid. As a consequence, duty paid represent 51% of the total sales compared with 47% in 2020 and duty free, 49%. I think during the next weeks, we are going to see a swift in these percentages and this mix because most of the shops that will be reopening In this period of time, we'll be international traffic, especially dedicated to duty free. Now please let's move to Page 12. Regarding performance by channel, Still, airport retail is the most relevant. It's obvious that represent 80% of the total sales, but I would like to comment on other impacts that we have During the Q1, Dufry's operations in downtown performed better than April, minus 63% And minus 77.9 percent compared with 2019. Group ships are still heavily impacted with a full closing in the especially in the Caribbean. Only ferries started to resume operation. This is the consequence of this performance in cruise lines and seaports. Other channel sales had a better performance compared with airports, downtown, etcetera, because our collaboration in Henan. I think this minus 35.1 percent is impacted in a positive way for the wholesale activity dedicated to Reina. If we move to Page 13, net sales performance by category. Product mix It's still the most relevant category is perfume and cosmetics 30% food and confectionery 21% wine and spirits 19 Indicative for reopening patterns already described during the presentation. Fashion and cosmetics continue as prevalent category with food Let's move to Page 14, Retail space development, new concessions contributed 1.66% of the sales. We opened new shops in several regions with new rollout of Hudson non stop concept with Amazon's just walk out technology in the U. S. The first two shops, the first one was in Dallas Lottery Airport. The second one was in Chicago Midway. And in addition, Hudson opened also 6 new shops In a Virgin Hotel in Las Vegas, in line with the diversification strategy. Fewer openings happen also in Porto Alegre, Brazil, Odesa, Ukraine and new shops also in Saint Petersburg, Russia. New projects are beginning to restart, and we are Well positioned worldwide. We also won tenders and were awarded in direct negotiations 101 in Jamaica, in French Guiana, in U. K. And in the U. S. If we move now to Page 15, Just commenting on our presence in China. The first temporary shop, as I mentioned, was opened At the end of January, 3,000 square meters of commercial space. 30,000 new square meters will be opened by the end of August. In Genan, 26,000 during Q1 2022. It's a very good test in all fronts and especially in our collaboration with Alibaba And HDH, 30% of the total sales today are online. Significant omni channel experience For expanding not only in China, but also outside China. This 360 degrees strategy is reflected on the left side Of this slide, at the moment, it's probably the best example of collaborating online and offline. We are connecting with the passengers before they travel, where they can preorder And they can buy before the trip is started. Then during the time they are in the island, we can connect with them during the time they are in the hotels and also Obviously attracting them to the shop with the collet and buy during the trip and then they can repurchase the excess of the limit that has not been consumed during the trip when they are at Now I hand over to Yves for covering our financial update. Thank you, Julian, and welcome to everyone on the line from my side. From a finance perspective, we were busy over the last few weeks Since the full year results beginning of March, when we communicated that we initiated our refinancing of upcoming maturities. As of yesterday, we have successfully concluded the refinancing of overall around CHF 1,600,000,000, including the finalization and signing of the amended of the credit facilities. We made use of a diversified product mix, including convertible bonds, senior notes and bank debt. This allowed us to optimize terms in the current market environment. In detail, Dufry issued around CHF 500,000,000 new convertible bonds due in 2026 with a very attractive 0.75 percent coupon and strong conversion price of CHF 0.87. We early converted our existing CHF 350,000,000 2023 convertible bonds and reduced our net debt position Both transactions were strongly supported by existing and new investors. Further, Dufry priced €725,000,000 senior notes due 2028 and CHF 300,000,000 senior notes due 2026. We used the proceeds to refinance existing bank debt, and we also received an extension of the covenant holiday until June 2022. The September December 2022 testing deadlines require a 5 net debt to adjusted operating cash flow ratio. We will return to our 4.5 times net debt to adjusted operating cash flow thresholds in 2023. The rating agencies S and P and Moody's provided a positive on our rating in March April already and acknowledged our strengthening financial profile. Moving on to the next slide. As of end of March, our net debt amounted to CHF 3,621,000,000. If you consider also the conversion of the 2023 convertible, which happened in April, net debt position End of March stood at CHF 3,330,000,000. This compares to CHF 3,340 CHF4 1,000,000 as of 31 December 2020 and to CHF3,537,000,000 at the end of March 2020. Looking at the updated maturity profile, we have no upcoming relevant maturities before the year 2024. Our weighted average maturity positively increased from 3.3 to 4.6 years. And the 2021 liquidity facility was canceled. The 2024 revolving credit facility is now undrawn. The proceeds of our euro and Swiss francs senior notes were used to fully repay the 2022 euro term loan And to partially repay the 2022 U. S. Dollar term loan. The remaining term loan has been extended to the year 2024. Our main objectives of the refinancing were extending the maturity profile, protecting the liquidity, while executing on best possible terms in current market environment. We have achieved all those objectives. Weighted average interest cost increased only marginally from 2.6% to 2.7% on the main credit facilities. Moving on to Slide number 19, where we bridge the change in net debt with new information on the 1st 3 months of 2021. For the new CHF 500,000,000 2026 Convertible Bond, an amount of CHF 54,000,000 is already accounted for as equity component. Due to the early conversion of the CHF 350,000,000 2023 convertible bond in April this year, The net debt position was positively impacted by an increase of equity of CHF291 1,000,000. Change in net debt is a proxy for cash consumption. However, currency impact on net debt and other non cash impacts are also included. Moving on to slide number 20, where we provide a reconciliation for change in net debt Equity free cash flow and vice versa. Equity free cash flow is defined as cash consumption, which amounted to CHF 219,300,000 in the Q1 of 2021. This is a significant reduction compared to the Q1 of last year and is a direct result of our initiatives and cost and cash management successfully implemented in 2020 and ongoing in 2021. The currency impact on net debt of around CHF 112,000,000 relates to our currency mix We hold a significant part of our debt in U. S. Dollars and euro. During Q1 2021, The U. S. Dollar appreciated by more than 6% versus Swiss francs and the euro appreciated by around 2.3% against Swiss francs. Therefore, our net debt position was subject to a non cash relevant increase. Moving on to the next slide, Slide number 21. The quarterly equity free cash flow evolution provides a clear picture in regard to the normal seasonality of our business and working capital movements throughout the year. Quarter 1 and 4 are therefore typically impacted by lower passenger numbers and demand. In addition, and as addressed now several times already, we sourced the merchandise for the high season, I. E. Q2 23 at the beginning of the year. Cash consumption during Q1 2021 was significantly reduced to the Q1 last year, which represents the beginning of the global health crisis. We will see a lower cash consumption during the remaining of this year with potentially cash inflows in the second half of the year twenty twenty one depending on turnover recovery. Moving on to the next slide. As already mentioned by Julian, we have a strong liquidity position of €2,214,000,000 as of the end of March 2021. We successfully concluded the refinancing yesterday. With that, liquidity stood at CHF 2,185,000,000 considering the new Swiss francs and U. S. Dollar senior notes, The full repayment of the €500,000,000 and partially repayment of the €700,000,000 2022 term loans, The repayment of the revolving credit facility drawdown and transaction related fees and early conversion of the existing convertible. The issuance of the CHF 500,000,000 2026 convertible was already executed at the end of March, Whereas the other refinancing initiatives were concluded in April May. Overall, the refinancing had a positive impact on net debt and while we increased our liquidity position. We are well positioned for the reopening and can focus Completely on the recovery and opportunities ahead with a stable, reliable financial profile. With that, I hand over to Julian. Thank you, Yves. This is obviously move please to Page 24. First of all, I would like to confirm no changes in the scenarios provided during the full year results. I think the scenarios were clear, minus 40% and minus 55% compared with sales in 2019. We also confirm the provided cost and cash flow scenarios with different results included in this page. On the cost savings, we will reach between €530,000,000 €670,000,000 in PEX and OpEx depending on the turnover scenario. There are $400,000,000 recurring fixed cost savings are also included there. We are in continued dialogue with our landlords. And by March 31, we have agreed €300,000,000 minimum annual guarantee in yearly basis for 2021. Thereof €190,000,000 will be a Crude as marked release in the P and L and the remainder recognized as lower lease expenses, depreciation Let's move to Page 25, please. We have, as I mentioned before, reopened 1400 shops and the pattern of the reopen is here. We have opened 80 of the sales potential in Americas, 60% of the sales potential in Europe, Middle East and Africa, and we remain with 50% of the sales potential in Asia Pacific. Please let's move to Page 26. Interesting data that has been collected during the research we have done in April 2021. 54% of Dufry customers interviewed have booked a flight for the next 6 months, And 53% of them book a non single or third country destination. 38% have been already Vaccinated and the vaccine passport that is obviously went on will increase the willingness to travel. 95 percent of our customers expect to engage the same or more with duty free shopping compared, if you remember, with 91% in June 2020, interesting with the staff remains to last activity to be avoided, and it is further decreasing compared with June 2020. All activities see a positive trend and so that safety protocols are well known and in all areas of daily life will facilitate the movement of people. Please let's discuss now the Page 27. We have continued regarding ESG with execution on our sustainability strategy in Q1 2021 and accelerated our employees' experience in all fronts And especially in training, an expansion of dialogues formats for really connecting with them better, knowing them better and to have a more open and open communication. In the trusted partner pillar, We continue with the reinforcement of ESG strategy globally, emphasizing Dufry's role in the industry bodies and also in trade associations. An important part of our customer focus program with the NRI certification of supply code of conduct and complexion of the responsible retailer initiative For really certifying all top staff in selling alcoholic products. In protecting the environment, we have progressed a lot too. Are implementing the substitution of plastic bag globally and also develop the study of potential reduction in emissions. We want also to strengthen and diversify an inclusion focus, now led by Sarah Brancino as the disclosure during this week. Let's move now to Page 28. I think summarizing, we have 4 probably conclusions that I would like to elaborate a bit more. The first one, encouraging re initiation of traffic and operations, especially In Americas, but also right now in Europe, significant cost savings possible this year too. The successful execution of refinancing and the Dufry well positioned situation for reopening. I think basing data, and I am talking now about the reinitiation of operations. Based on data collected last week, we continued a very positive development in regions progressing with vaccination. North America, last week was minus 47% and Central America and Caribbean minus 39% compared with 2019. External forecast increase in ship capacity in the U. S, Europe, Middle East and Africa. Revitalization of Russian market at UK Returned to obviously international traveling with testing but no quarantine requirement. The summer looks ahead positive. Italy reports huge in holiday bookings from the U. K. And the U. S. And Portugal, Spain, accelerating bookings from Continental Europe too. As a matter of example, last week has been the best week in terms of total volume of sales performance since the beginning of the pandemic, and the last weekend Has been the best weekend since the pandemic started. The second subject That is with the conclusion, in my opinion, very important is, independently of what happened this year, the company should be prepared again for controlling the expenses. And I have mentioned during the presentation the potential savings between 530 670,000,000 ImpEx and OpEx based in the scenarios that are 40%, I mean, 55%. I think The relevance about the renegotiation with airport authorities is showing that this business is a real partnership. We have been able, and I am talking about Dufry and the landlords, to renegotiate €300,000,000 extra €1,000,000 on top of what we announced last year In full basis 2021 by March 31, and still obviously there is a lot of time For continued negotiations in 2021. It's very important that we all You now give the credit of what our financial department has done regarding the refinancing in the situation that we are going through right now. The execution of €1,600,000,000 refinancing with a very well diversified mix of resources It's very relevant, especially when you think that the maturity the important maturities will happen after 2024 And the conditions are in line with the conditions we had before the renegotiation. As a consequence of the last two points It's cost control, generation of cash and maintaining, obviously, a significant tight Focus in the cash flow, we have a strong liquidity position, EUR 2,200,000,000 that are, in your opinion, fully in line with expectations. And finally, I would like to remark the same thing. Dufry is very well positioned for The reopening will happen and probably will not happen at the same speed with the same importance and with different complexity depending on the region. But Dufry is global company, and we are positioned in all these territories where we are operating for reopening as soon as the traffic is recovered. Thank you very much. And as always, the Q and A section is starting now. We will now begin the question and answer session. The first question comes from the line of Jordon Iffert with UBS. Please go ahead. Hello, Borje and hello Yves. Thanks for taking my questions. The first one would be, please, I did not get this Fully in the call, what is your plan? How many shops will you have open in the summer period? And given your market intelligence, what is your best guess? What is happening with the average spend per customer also looking on the shopping experience pre And during the COVID-nineteen pandemic. The second question would be, please, on the cash flow scenario you provided. Your MAX savings are higher versus you potentially anticipated 2, 3 months ago, but you left your cash flow statements or scenarios More or less the same. Is this a conservative or how shall we interpret this? And the third question is, please, on gross profit margins. Fully aware of the trading update, but can you comment what how you see gross profit margins trending at the moment and if we should expect a significant improvement in 2021 versus 2020. Many thanks. Thank you, Jan, for the questions. The first one, I will answer the first one. We have opened by April 30, 1400 shops. It's around 60% of the total shops with around 65% of the capacity. By the end of May, We are expecting and they are open, 75% of the sales capacity open by the end of June. The projection we have today is that we are going to be close to 80% of the sales capacity and then will depend along the summer on the locations and the recovery of traffic. Regarding the gross profit margin, obviously, it's not the time to report on gross profit margin, but I want to confirm the same thing that I said. Retail gross profit margin will drop between 100 and Basic points this year. The difference that you are going to see in the P and L is due to the increase in the wholesale activity with lower margin And higher participation in the mix as a consequence, the gross profit margin will be impacted for that. You can do the calculation because so far Wholesale represents 11% of the total sales. And then with respect to cash flow, your third question. So look, you're absolutely right. We did not consider this magnitude of MAC relief in the scenarios we have provided. We still stick to the same scenarios As of this stage, so in that regard, indeed, the scenarios can be seen as conservative. Thank you for this. And if I may follow-up on the first question, End of June, 80% of sales capacity likely open. And given your market intelligence, what is your Expectations for the spend per passenger? Sorry, sorry, I didn't answer the spend per passenger. Spend per passenger will continue, in our opinion, With a similar trend, as I said, it's double digit growth. Obviously, I guess, compared with last year, it's going to be slowing down because last year we had a very Good performance, but I guess that will be double digit. I cannot say specifically, it will be 10% or 12%, but double digit compared to 2020. Thanks a lot. The next question is from Jaafar Mestari with Exane BNP Paribas. Please go ahead. Hi, good morning. I have two questions, if that's Firstly, just following up on your answer just now on rent relief. So €300,000,000 already secured. It was €500,000,000 if I'm correct, the whole of last year, so it is indeed very advanced. You say there's a lot of time left for Further negotiations, is it going to be mostly better and earlier timing? You're just signing early because The process with the landlords is now well established after the lengthy negotiation last year. Or would you say rent relief Could actually be more generous this year? I know it's not apples to apples because traffic is not going to be the same, but are you suggesting it's going to be more generous? And then my second question on cash burn. You've reiterated the guidance. You said there could be some upside. After the €220,000,000 you consumed in Q1, the implied would be anywhere between €30,000,000 €50,000,000 each month in Q2. And if I'm correct, that's exactly how much you consumed in May 2020 And in June 2020. So I'm just wondering how that works. Is it because there is obvious upside? Or is it that when you're in hibernation, You had a lot less cost than now. Are you going to be opening up in Q2? Maybe just beyond that, whether we should just assume There's significant upside. I will start with the Max. I don't understand the sense And the sense of the question, but I would explain it as it is. We have already renegotiated CHF 300,000,000 Swiss francs, Meaning that we have BRL 300,000,000 in agreements, but we have other negotiation processes that are ongoing, Obviously, I will end along 2021. I think the word generous is not probably appropriate in this case because Here, as I said, this is a partnership. And the partnership means that we need to look at the situation And understand what partners should contribute. And I think most of the April authorities have been in this case, And I can confirm that because I have been involved in most of the negotiations, very open to sit down and discuss and look at the situation and also Depending on the future evolution of the traffic, probably will be obviously more negotiations. But if the question is, are these EUR 300,000,000 the only ones, the answer is no. We will continue to try to adapt the reality of the business To the, obviously, concessions payment. Thanks. I think my question on this is very simply. If revenue is the same as last year, Do you think rent relief will be €500,000,000 light last year? Or are you implying that you're negotiating More than last year. If you remember, we have not provided any, let's say, targets for renegotiation of contract this year, what we have to provide is 2 scenarios. And in these scenarios, we have put a percentage That the rents pre IFRS 16 will represent to the in the P and L to the sales. And this is probably the only thing I can say because To say something else is very difficult. We don't know exactly what the final conclusion is. But if you go To the scenarios minus 40% and minus 55%, you will say that you will see that that we are talking about minus sorry, 33% 36% Of minimum annual rent on turnover. This is probably a good reference point for the full year. Okay. Thanks. So then with respect to your second question. So look, there, we probably need to look at the cash flow in a more kind of like long term Expected for other than a single quarters in the sense that there are some timing shifts in some of the elements which Have a certain influence there. So your calculation of €30,000,000 to €40,000,000 per month for the second quarter as an implied cash Consumption in principle is correct, but there are certain shifts. For example, you need to take into account that in the Q2 this year, We have also the refinancing costs, which have to be taken into account, which we did not have last year. And then on top of that, there were a few elements which in the first half of this year, which were, from a timing shift perspective, lower last year, for example, interest expenses where we also have some shifts. And there are a couple of other items. Okay. Thank you. Very clear. The next question comes from the line of John Cox from Kepler. Please go ahead. Yes. Thanks very much, guys. A couple of questions For me, just to come back on this concession fee, 40% decline will be the concession fees will be about 33% of turnover. And then on top, we add the €300,000,000 mag that you have or does your 33% to 35% include this Mag relief. That's just really a point of clarification. That's the first question. And then just secondly, on working capital So for this year, do you have any best guess? I guess there will be an inflow, but do you have any best guess what that might be for the year? Thank you. Yes. John, the BRL300 1,000,000 and obviously the prospect that we are negotiating are enclosed in the 33% and in the 35% It's not on top of these are in these specific models already considered. Regarding the working capital, it's depending on the speed of the reopening. But we are expecting this year, if everything is normal, net working capital will improve €100,000,000 And then maybe just a follow-up. Your sales are down 70% versus 2,009 in April, a little bit over that in the Q1. You're saying things are starting to recover. I just wonder if you could give us a rough idea maybe in the 1st couple of weeks of May where you are versus 2019 to just Sort of get comfortable, there is a sequential improvement there. Well, this information in May is not available in a specific location. What I know The recovery in the U. S. Especially has been tremendous. We have reached in duty paid around 60 5% of the sales in 2019 in 1 single week. In South America, it's even better. Sorry, in South America. In Central America and Caribbean, it's even better. And all the regions are different. But as soon as the traffic is reinitiated, the sales are recovered very fast. Then maybe just to keep going, like it looks like Q1 And potentially even May June, it's going to be worse than everybody thought a few months ago. So of that 40% to 60%, 55% scenario analysis you give us, Do you think now it's going to be probably towards the lower end, I. E. Sales are going to be down closer to 50%, 55% for the year? Or do you think is too early to say because it's all on what happens in Q3 and Q4? As you know, summer is for us the most important period of sales And contribution to profitability in the company since the moment we acquired 2 big conglomerates. I think To project today in May, end of May, what is going to happen in the summer without a very concrete and specific information is very brief on our side. I think it's Better that probably 1 month or 2 months, we will comment on that because today still the visibility is only limited to bookings. And the bookings are very positive? The answer is yes. The number of seats available is going to be very positive. The answer is yes. But we don't know even when This green passport in the European Union will be on place. We don't know when the U. S. Will obviously open the borders. There are many still question marks that should be confirmed, and I think it's very, very early. Okay. And then just really a last one, sorry. Again, back to this minus 40%, minus 55%, you have the personnel expenses and other expenses as a percentage of turnover. This includes the €550,000,000 to €650,000,000 you've mentioned today. You're talking about between 17% of turnover for staff To 19% in a worst case, and then between 8% 10%. So the bank that you're mentioning today, this 5.50 to 6.50 or whatever it is, That's included in your scenarios? Yes. In the 17% turnover turnover and the 8% In terms of personal expenses and other expenses, yes. And in the other scenario, the same. They are included there. Great. All right. Thanks very much, guys. The next question comes from the line of Gianmarco Ferro with ZKB. Please go ahead. Thank you, everybody. Hello, Julien and Yves. Three questions from my side, please. The first one on Slide 11, just Follow-up there, you mentioned especially the Hong Kong operations, who temporarily provide supply to Moa Mall And the shop in Hainan. You say this is a temporarily solution. So what is the midterm strategy to provide supply Or how to report the sales in the Move and Mall shop within Dufry, please? And then the second one on MEG Please. Can you maybe give us a bit of sense about the potential reorganizations Of your future minimum annual guarantees, especially, for example, what share of your contract partners would be willing To switch to more variable structures, such for example, like minimum annual guarantee per passenger? And then in regards to your Alibaba joint venture, you also mentioned Some potential of efficiency gains for the whole group. Maybe you can give us an update there on some potential initiatives that you could to take over the last months. Thank you. Thank you. The first question is regarding this contribution in the sales today of The wholesale sales to Moamal, this is a temporary solution because the company was created in China, in Henan, And didn't have enough time to prepare all the documentation, the teams, etcetera, and Dufry's different buying departments were supporting the And during the next months, probably 2 or 3 months, this will be finished because the company will buy directly from suppliers. This is number 1. I guess it could be 2 or 3 months, maximum 3. The second one is market renegotiation. It's difficult to say How many or what or how much is the percentage of Aipors willing to change from one system to the other system? What I can say is we have already We have already had important negotiations where we have changed the methodology of calculation. And most of these changes have been addressed to the rent per passenger And sometimes also to buy to Mac with a cap. As you know, the most important part of Contracts were not with minimum guarantees. The most important part of the contracts before in 2019 was and still is today, basing By the ability in the different ways. If I may say, I think during the short term, I think we are going to see more Variability, I'm not talking about percentages, talking about also rent per passenger, but it's very difficult to confirm today if we are going to reduce even more The potential mark increase. This is the potential mark impact, sorry. And the third one, Alibaba and efficiencies. I think the idea regarding Alibaba is not efficiencies. It's not basically the idea with Alibaba is to create a sustainable Acceleration in sales and in business in engaging with the customers in a different way. What is this way? It's connecting Dufry With all the platforms, in this case, with Alibaba, we are right now connecting Dufry with different Alibaba platforms for engaging with specific type Customers in Asia and especially in China. I think the contribution with Alibaba is coming in 2 ways in my opinion. One is Obviously, the acceleration of sales in Dufry in the sense that we are going to use technology for accelerated sales in 2 different levels. 1 is global marketing Initiatives regarding customer, the second one is a technology that will be implemented in the shops like face recognition Or payment of method different payment methodologies, etcetera, etcetera. And on the other side is obviously the opportunity to engage with customers That because the split of our own operations today, we are not very close with in Asia. And we have a lot of Customers, I repeat many times that in 2019, we had 7% or 8% of sales to Chinese and Very few other nationalities from Asia. But I think the opportunity we have now for engaging with these people, having 65 countries, having 2,400 shops And represented in the most important cities and airports worldwide is very important, but at the top line level, In my opinion, more than the efficiency level. What is the probably what I mentioned and maybe not today, other opportunities Regarding efficiency. Dufry is in a complete transformation, not only because we have changed the structure of the number of people and how we are organized, It's also because the technology we are using and we are going to use more in order to accelerate And to be more efficient in the way internally work, for example, in human resources, for example, in contacting with the employees, for example, in the financial service centers That we are creating globally for accelerating the concentration and the consolidation of information. Those are Examples of initiatives based in technology, but not specifically with Alibaba. Alibaba is supporting us in the global data center and in many other examples of digitalization, But the consequence of that is what is efficiency. That's more or less the explanation. Thank you very much. Thank you. We now have a follow-up question from Jorn Iffert with UBS. Please go ahead. Thank you for taking the follow-up questions. And the first one would be, Julian, please understand the passenger. Again, if I remember correctly, 2020, we already saw an increase, but this might not be so representative. And now you expect another increase in 'twenty one, which can be double digit over the summer period. What exactly is driving this? And do you think this is really sustainable? And the second question would be, please, on the covenants. If I make the calculation for 'twenty two, let's Fume, you approach 80% or 85% of your 2019 revenues and then you include the cost savings. You should easily meet your normal covenant And in the second half 'twenty two, but you even have increased it now, it was on 4.5 times to 5 times. Is there a special interpretation You should have here, are you more cautious on anything happening going into 2022 or what is rationale behind this? Thanks a lot. Okay. I would like to answer the first question. Regarding the spare per passenger increase for 2021 And obviously, compared with 2020, I'm talking about that was also positive, is the acceleration of, first of all, initiatives And secondly, initiatives from the commercial point of view. For example, we are changing the assortments in the shops. We are changing the pricing policies. And we are having 2 specific tests worldwide today. 1 is with AENA in Spain, the other one is with another airport, I don't remember The name now, where with these initiatives in the past, we have been able to drive around 15%, 20% increase in sales per passenger. And the consequence of that was assortments, different type of assortments, pricing policy and different marketing tools. And I think what we have seen so far Limited to the number of passengers, please, because obviously the number of passengers is very low. That when we start up initiatives like that, The sales accelerated. And the few examples that we have been able to see during the Q1 are confirming that. Then We don't know the passenger profile exactly during the summer. But for this reason, I didn't say that it will be 15% like today. I'd say It will be 2 digit because I believe it's going to be positive, but it's difficult to say at what level. And then respect to the second question, Jan, about the Covenants. So look there, what we try to achieve as always is to get a sufficient headroom. So I agree with you that The increased threshold is potentially not required or most probably not required, but it was also helpful in the discussion with all the stakeholders During the refinancing, especially also for the bond investors for the most recent issuance of the 2 bonds, Which we have issued and priced in April. So to reflect there significant headroom or sufficient headroom under the covenants make the execution of the refinancing significantly easier. Thank you very much. The next question comes from the line of Rebecca McClellan of Santander. Please go ahead. Yes. Good afternoon, Helene and Niamh. Just a quick question, please. Of these Space or the sales capacity that's open, are they typically operating at sort of 100% of trading hours? Or are they operating at sort of reduced The answer is very clear. No, we are not operating at full capacity in terms of hours. Most of the locations are limited in terms of hours of operation because the flights are concentrated in shorter period of time. Obviously, the airports Try to be also efficient, and we adapt the timing of opening to the timing of the flies. So can you is it sort of 50% of trading hours do you think? Or would it be more than that now? I don't know, Rebecca. I cannot answer the question. I don't know how many hours totally we are. I don't know. But I will investigate it, and I will let you know. Thank you. The next question is from Lorenzo Marciotta with Bank of America. Please go ahead. Hi, guys. Thanks for today. Just a quick technical one, sorry. On the €500,000,000 convertible bond, which June 2026, the conversion price of CHF87, is that based on 90,800,000 shares or is that based on, I guess, 80 odd 1000000 at the end of last year or indeed including the Alibaba, mandatory convert or none of the above? Thank you very much for the question. I'm not sure if I entirely understand it. So look, conversion price of CHF 87 is basically what is agreed in the contract. So if the share price of maturities above CHF 87, It will be converted into equity. Okay. And that's not that doesn't adjust then for how many shares outstanding you have at any given point? No, it's not adjusted. Okay, great. Thank you. We now have a follow-up question from Donmarco Ferro with ZKB. Please go ahead. Thank you. Just if I may, Two questions for my side again. And just the tax reclaim in Brazil, if I remember correctly, we talked about that Prior to the pandemic also, there were around EUR 62,000,000 that you tried to reclaim. And maybe they are now you are able now to materialize them this year. Do you have more clarity in relation to this tax reclaim, please? And then the second question is in relation to potential M and A at the current situation. I mean, there might be some Distressed small competitors out there, do you see some potential for attractive M and A opportunities in this perspective? Thank you. Thank you very much. No, we have not materialized yet the tax claim. We were awarded with the tax claim in the final court decision, but still it's a legal procedure to Get the money back and obviously the situation in Brazil for other reasons, not because especially legal reasons, It's very complex, but it's a long process. But the answer is no. It has not been materialized yet, but it has been awarded in the final court decision. Regarding the potential opportunities in M and A in middle and small sized companies, the answer is yes. There are opportunities in the market In small and middle size companies, but I want to be sure that we are all aligned because During the time that there is no visibility, our main priority is to focus in maintaining the cash levels and the control. And as soon obviously, the visibility is better, we will consider any other growth alternative. But today, the priority number 1 is focused The next question comes from the line of Yvonne Cho with Nansong Trinity Hong Kong Limited. Please go ahead. Hi. Thanks very much for taking my question. So we read that in 1Q, the revenue from Hainan is about 7% of total, which is translate to about RMB30 1,000,000. Could you please remind us what's the I remember The shop was opened early this year, but it was only something like 5,000 square feet open. Can you remind us like Yes. The actual shop floor and like the timing of it. And is there any forecast or like estimate that You'll be looking for the full year from Hainan. I know the accounting will be changing, but let's say, for example, revenue, right? 1Q, you achieved EUR 30,000,000 like is there any outlook for the full year? Thanks. [SPEAKER JOSE RAFAEL FERNANDEZ:] Thank you very much for the question. Regarding the steps of the opening, we opened during the last week of January 3,000 square meters, but was 3,000 Temporarily basis was not the final design. It was something that we have done in order to open as soon as possible due to the request from our partners. The second important step will happen in August 2021 by the end of August 2021. We are expecting To renovate the 3,000 square meters that I comment on, plus 30,000 square meters in a new building, And this is 33,000 square meters. By beginning of 2022, we are planning that will happen during Q1 2022, we are going to open another 6,000 square meters. The total commercial space Of Mobile Mall for us is 39,500 Square Meters, something around that. Regarding the difference in the investment, the investment is going to be obviously related with the CapEx and the participation of or participation In the joint venture company with Alibaba, the situation In Genan, it's very positive in terms of sales. We are very satisfied with the results, but we I cannot comment on that specifically because it's information that is not going to impact the P and L this year for sure. And next year, as I commented In previous calls, it's not going to be consolidated. From the full consolidation point of view, it will be an equity consolidated company, and we will have 2 different ways. 1 is incomes due to potential management fees and the other one is dividend compensation of dividend payments. And this will be obviously above the former EBIT and now above the adjusted operating profit in the terminology of IFRS 16. Okay. So can I just confirm, so you're suggesting that it's not going to be material on the P and L this year because you're still opening? So it's more like No, no, no, no, you are right. This year is not going to have any impact in the P and L. Okay. Sorry, for one thing is already we already accrued the sales in wholesale, but this is irrelevant because the margin is almost nothing. But in terms of What you are asking me is the operation in Henan will have an impact in the operation in Dufry in the P and L 2021, except the gross profit margin Collected due to the wholesale activities that we have done? None. Okay. Thanks. Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Mr. Diaz any closing remarks. Yes. Thank you. It's always important that we clarify in this type of presentations, what is happening in the travel retail world and especially in Dufry, We are expecting this reopening during summer. Still, the uncertainty is high, but the signs that we have seen are very positive, Especially in countries that are very relevant for us. And I hope these expectations and pre bookings and pre information regarding number of It's available in the different airlines. It's materialized during the next 30, 60 days. But in any case, I am still thinking, and this is something already commented, That this summer is going to be a bit strange because it will be longer than a standard summer. And probably September October will be relevant more relevant than in the past in terms of participating in the total sales of the company. First of all, because the way these initiatives for opening the countries are in the process to be announced or are already announced, Gradually, the people customers should be used to travel again. It will be fast, but I think we should expect a longer summer in terms of seasonality than other previous years. Thank you again, and we'll remain at 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.