Earnings Call: Q3 2020

Nov 3, 2020

Ladies and gentlemen, welcome to the Dufry's Q3 2020 Trading I am Moira, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session. 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, operator, for the introduction. Good afternoon to everyone, and welcome to Dufry's Q3 2020 Trading Update. These are, as always, Julian D'Addoufy's CEO and Ife Gester, CFO. We are going to comment on the presentation disclosure this morning in our website. Please go first to the agenda to Page 2. I will start commenting on group highlights Q3 9 months, continuing with an update of business performance, then packing it to Luis for the financial summary. And finally, I will talk about the outlook and conclusions. Let's now move to page number 4 of this presentation please. Many things have happened since we started in 2020. The expansion of this pandemic is impacting fundamental areas in our lives and in the way we work. Within this environment, we have implemented the most aggressive and important changes in the history of our company in the shortest period of time possible. For protecting us, we repeat many times the liquidity consumption and reducing the cost structure. Today, Dufry is a stronger and more resilient company than before. We started in March a complete restructuring and reorganization and also simplifying the way we used to work, implementing initiatives targeting CHF 1,000,000,000 cost saving in 2020. The new company structure started on September 1 and the restructuring is almost complete. In this process of group wide reorganization and simplification, Hudson's Listing and reintegration in the group is in the last steps and we expect to complete it in Q4 2020. The strength of our financial structure was successfully finished with a second capital increase. The total gross proceeds of Swiss francs 890,000,000 were a significant support from current shareholders and facilitate also the investment of 2 new ones, Advent International and Alibaba. Both reached equity stakes of 11.4% and 8.5%, respectively, creating a solid financial structure with long standing shareholders. The partnership with Alibaba that we are also building through a joint venture company in China will allow Dufry to expand our travel retail activities in this country and accelerate our global digital strategy. And finally, to comment on the end of October, almost 55% of our shops were reopened, representing around 72% of our sales capacity in 2019. Still important shops are closed down and in the process to be reopened. This reopening is part of the reopening shops program that will continue during the next 2 months, based in individual profitability, case by case and in the release of travel restrictions. I think we can move now to page number 5. Top line 9 months reached CHF 2.74 billion, minus 57.8 percent compared with previous year. Q3 turnover reached $487,000,000 minus 79.7%. We had a very promising reinitiation in July August, slowed after the new travel restrictions and quarantines that happened at the middle on the middle of August. But since then, turnover has been stable, including October. Cost saving target established in $1,000,000,000 including rent, minimum annual guarantees in this case, personal expenses and operational expenses with $760,000,000 execute up September 30. In this €760,000,000 euros is enclosed 2.62 minuteimum annual guarantees accrued in the P and L as MAX reliefs, euros 370,000,000 due to personal expenses and euros 125,000,000 due to operational expenses. For next year, we are expecting €400,000,000 recurrent costs for this type of expenses, personal expenses and operational expenses. Acceleration of restructuring plan result in a better than expected cash burn in Q3 with 51,000,000 dollars For the 2nd part of the year, we maintain our guidance with minus 70% in sales, minus $60,000,000 monthly cash burn. Successful execution of our 2nd capital increase with €890,000,000 proceeds, €295,000,000 of this will be used to finance Hudson reintegration and the rest for strategic growth opportunities and reinforce our balance sheet. Dufry has, as I mentioned before, a stronger financial position regarding cash flow and cost control, enhanced by the rights issue and support by the existing and new shareholders. A strong liquidity, dollars 2,065,000,000 pro form a September 30 due to the already mentioned initiatives. Net proceeds of the capital increase, dollars 860 €160,000,000 including the convertible bond, cash on hand €748,000,000 available credit line 745 dollars minus what I mentioned regarding the outflow for Hudson Acquisition 295. Please go to Page 7 and we will comment on organic growth in the group and evolution. First, as I mentioned, turnover reached 2,000,000,000,000 organic total sales with an organic of minus 67.8 percent. In the quarter, 4.87 with minus 79.7 percent. The spend per passenger continues elevated or higher compared with last year. During Q3, we have reached plus 8%. And the normalization supported by countries reopening and spend per passenger like in France, Greece, Malta, Spain, Switzerland, Turkey and UK and during the summer especially have obviously facilitate this stabilization of sales even with more problems along these different countries. If we move now to page number 8, this is the new regional composition. This segment reporting has started on September 1. 2 or 3 ideas here. Reporting the new structure, obviously is also having historical turnover information already provided. I think you can check it in our website and in the annex of the presentation. And the main reasons for this change independently of cost cutting was also to create a more stable and efficient company. 3 main subjects to comment here. Number 1 is this structure was decided to in order to centralize the management of the company worldwide in the 3rd quarters with 2 different steps. 1 was the divisional structure, obviously, at that time before the reorganization. The divisional structure were responsible for managing different divisions and countries and closes in the divisions. All these lawyers of the company has so far disappeared. And then the merger of commercial activities and commercial teams in countries, divisions and platforms, remaining only at the platform level. The second level of critical base for explaining this reorganization is the customer centric passenger profile. This is in fact what we are doing is organizing the countries based in the same customer profile. And the third one is, as a consequence of the previous one, is based this new setup of countries in the distribution centers because the same distribution center will distribute to the same passenger profile in the same group of countries. Those are the ideas that are behind this simplification of the organization. If we move now to page number 9, we will comment on turnover and organic growth by region. North America, minus 63.9 percent, 9 months organic growth, had the fastest recovery due to the high exposure to domestic travel, 85% in a normal year in 2020 even more pronounced. Canada more exposure to international travel is a consequence obviously the duty free activity. Europe organic growth minus 70.6% in 9 months 2020 compared with 20 19. Performance improved in July August, especially in Southern Europe. From middle of August, the decision to start quarantines and other travel limitation is lower down the recovery, but the level of performance was maintained compared with previous months. Mediterranean region including Turkey and Greece and also Eastern Europe, Russia and Middle East remained less impacted and performed above average in the region. Asia, minus 72.7 percent organic growth, 9 months 2020. Dufry's operations more oriented towards international travelers is still limited with the most important shop still closed down in Australia, Indonesia, Hong Kong, South Korea. China recovered faster, supported by domestic travel since Q2 benefiting our duty paid business too. Central and South America, overall performance was minus 64 point 5% in 9 months as the crisis started later. Central American Caribbean performing above region and group average with some countries as Dominican Republic reaching 80% of last year sales. Curios business heavily impacted and all shops almost closed down. South America demand pickup in domestic travel, duty pay perform embedded and duty free due to the acceleration of domestic flights and international flights gradually reinitiating in October. Let's now move to Page 10 and comment on net sales by region and sector. In Dufry by sector, on the right side, we benefit from exposure to domestic traffic due to the reinitiation of domestic flights, plus 17 percentage points compared with 2019. In 9 months, 56% as domestic and intra regional passengers recover. Duty paid domestic and inter regional travel also reflected in share by region on the left side of the slide. North America from 22% to 25% of the total Central and South America from 12% to 17% due to the good performance in the Caribbean. APAC lost share 4 percentage points and EMEA 7 percentage points. I think from here we can move to Page 11 and comment on net sales and pro form a by channel. In sales by channel, only margin changes. Uptake on domestic and interregional travel in Q3 support airport channel development. Cruise Lines, obviously, lost sales because the closing of most of the shops. Other channels like railway stations, border and downtown shops, so also weak demand too, but better obviously performance than cruise line because we were able to continue the operation. If we move now to page 12, reopening plan in line with the re initiation of flights, number of passengers and customer preferences. The first shops open in type of commercial concept are general stores duty free, then convenience and then duty paid in general. Highest demand in food and confectionery, 20 percent of last year sales and tobacco, 24% of last year sales. Luxury goods impacted because most of the shops still are closed down and there are only just limited number of luxury shops open, for example, in Hydro and in Zurich. We are benefiting from a broad range of offerings with full flexibility to open up location by location and offer merchandise in line with the number of passengers and customers' requirement. If we move now to Page 13, we will comment on retail space development. By September 30, a total of 470,000 square meters of commercial space. Gross retail space opened in 2020 during the 1st 9 months, 4,700, including new openings in Odessa, in Ukraine, in Southlake City in the U. S, Singapore, in Tirmishangi, Terminal 2, etcetera. Gro Retail Space refurbished 10,500. We have refurbished shops duty free and duty paid in Mykonos, Korfu and Thessaloniki in Greece, Belgrade in Serbia and Antalya in Turkey. Also important to mention, and the picture is in this slide 2, the new 12 years contract concession in Istanbul Sabihagossen International Airport from November on. This airport is expected to reach 65,000,000 passengers by the year 2024. And finally, to confirm, the CapEx target for 2020 is $100,000,000 with current pipeline opportunities still very high 29,000 by end of October. And now I will pass it through Yves for commenting on financial information. Yves, please. Thank you, Julian, and welcome also from my side to everyone on the line. If you move to Slide 15, let me start with an overview of the financing initiatives taken since the beginning of the crisis. This slide is already well known as we have reacted fast and decisively from March on with the placement of 5,500,000 shares out of the existing authorized capital and treasury shares. The issuance of a CHF 350,000,000 convertible bond and securing loans of CHF 540,000,000 from our syndicated banks and additional COVID related government backed securities. In total, we have secured more than CHF 1,900,000,000 in equity and debt since the beginning of the year. This is split into around CHF 1,000,000,000 in equity supported by an existing and new shareholders, around CHF 400,000,000 in equity linked products and CHF 540,000,000 in additional debt facilities. Going on to the next slide, some further insight on the recent right issue and the mandatory convertible bond. The capital increase that we concluded exactly 2 weeks ago initially indicated intended to raise around CHF 300,000,000 to finance the reintegration of our North American business and the delisting of Hudson from the New York Stock Exchange. The rationale was well understood by the market, and we received positive feedback and support for the underlying transaction itself as well as for the related financing via the rights issue. With the support by our existing shareholders and the commitment of 2 new investors, Advent International and Alibaba Group, we were able to raise gross proceeds of CHF 890,000,000, which increases our financial flexibility, strengthens our balance sheet and overall financial position. Dufry issued around 24,700,000 new registered shares in the rights issue process with high support of existing shareholders of 43%. The remaining ramp shares were taken up by Advent International, having an 11.4% stake in Dufry right after the right tissue and Alibaba Group having a 6.1% stake in Dufry pre mandatory convertible note and 8.5% post conversion of the mandatory convertible note. Within the next few weeks, Dufry will issue the mandatory convertible notes out of its remaining conditional capital of around 2,100,000 shares at market conditions to be placed with Alibaba Group. Moving on to the next slide. We are confirming our cost reduction and cash flow scenarios provided earlier this year and which we have renewed during the half year presentation in early August. The turnover scenarios served as a sensitivity analysis to adapt our cost base and manage our cash flow flexibility in line with top line development. The scenarios have not been a guidance to the market. However, as we have now visibility until the end of October and only 2 more months to go until year end, a scenario with around minus 70% turnover might be a realistic to expect for the full year 2020 given the current environment. In line with the turnover scenarios provided, we expect personnel expenses reductions of around CHF450 1,000,000 for 2020 and around CHF300 1,000,000 permanent cost reductions. This reflects a decrease of around 35% for 2020 and 25% for 2021 compared to 2019 levels. We have provisioned CHF 62,700,000 for restructuring related expenses as end of June, but we expect some additional costs of around CHF 5,000,000. We target cost reduction in general expenses of around CHF 230,000,000 for 2020 and of at least CHF100 1,000,000 in 2021, a decrease of around 40% 20% compared to 2019, respectively. In addition, we have taken actions with respect to CapEx with expected capital expenditure of around CHF 100,000,000 for the full year 2020. Regarding concession fees, we confirm our target of CHF 500,000,000 in relief of minimum annual guarantees for the year compared to 2019, bringing us to an overall concession fee of around 39% of turnover in a minus 70% turnover scenario or around €1,000,000,000 of concession fees in 2020. Going on to the next slide. Let me go into more details with the next slide on the accounting treatment in respect to IFRS 16. According to the IFRS 16 standard, any changes to the underlying contract will trigger modification accounting, which basically means that all IFRS 16 related parameters would need to be reassessed and adapted to the new reality. However, based on the current COVID-nineteen situation, the International Accounting Standard Board allows for a simplified temporary treatment to contractual adjustments if certain criteria are fulfilled. Those criterias are: 1st, the MAC relief must be connected to the COVID-nineteen situation. Secondly, the relief is granted only until June 30, 2021. And third, no other contract terms or conditions are changed. Dufry is in negotiation with the various landlords. We are talking about more than 1,000 partners and contractual agreements here. Naturally, negotiations result in a different outcome, and IFRS 16 requires different treatment on a case by case basis. The most common outcomes we have displayed on the slides and I want to shortly walk you through. In the first case, if a MAC relief is granted until June 30, 2021, and no other term is changed, the full MAC relief will be reflected in the P and L at the moment the amendment is signed. We have already recognized CHF 100 and 61,000,000 in half year 2020 and now additional CHF 121,000,000 in Q3. For the second case, in other negotiation, we conclude with the landlord to MAC relief beyond June 30, 2021 and or we prolong the contract in addition to the MAC relief. This triggers modification accounting, and we need to adjust right of use assets, lease liability and the other parameters in the financials in respect to IFRS 16. And we will only see a positive impact on the successful negotiation in the P and L over time. In that regard, we have even cases in which the P and L impact in 2020 looks worse than without a relief. To give you an unrealistic example, we have cases where the cash flow represents 25% concession fees over sales, but the P and L charge this year is roughly in the area of 70% concession expenses over sales. For the 3rd case, we also see contract changes from a fixed to a variable MAC. For those example, a fixed amount for example, a fixed amount per passenger. This will trigger a derecognition of IFRS 16 balances entirely. There is something important to note here. In all the cases mentioned, the cash out in 2020 remains the same. However, the P and L expense vary considerably. In the derecognition example, the P and L impact would be lower than the cash flow. In the two other examples mentioned, the P and L impact this year would be higher than the cash flow. For Dufry, all of the cases mentioned are positive from a contractual and cash flow perspective with relief and more flexibility. Moving on to the next slide. All of the previously mentioned measures in regard to cost and cash management as well as the financing initiatives result in improvement in our net debt position and especially in change in net debt from Q1 to Q3 2020. Net debt stands CHF 3,735,000,000 at the end of September 2020. If you take into account the right issue and the expected outflow to fully purchase back Hudson, pro form a net debt stands at CHF 3,171,000,000. The position changed by only CHF 69,000,000 since December 2019 pro form a despite the significant drop in turnover. The maturity profile has not changed since August 2020 as no additional debt position have been added. Please note that for the maturity in 2021, this credit facility is currently not used at all. For the maturities in November 2022, it is important to note the following. Dufry always renews its financial debt way ahead of maturity, and we will also do that this time. With ahead, I mean at least 12 to 18 months ahead of the maturity in November 2. Moving on to the next slide. You can see the net debt bridge with the quarterly change in net debt. I have already mentioned the improvement in change in net debt from CHF435,000,000 in Q1 to only CHF76 1,000,000 in Q3 2020 by gradually reducing the monthly cash outflows. Change in net debt can be considered as a proxy for cash consumption. In fact, the numbers provided in Q1 and half year twenty twenty were based on change in net debt. Change in net debt, however, does not consider FX effects on net debt as well as some noncash items like amortization of arrangement fees. We received feedback from the market to show also cash consumption proxy, including FX and other noncash effects. From our perspective, the best proxy would be equity free cash flow, one of our key KPIs. Beside of the net debt bridge, I will therefore show you also the equity free cash flow as the bridge to change in net debt on the next slide. Slide 21 shows the quarterly cash consumption evolution, decreasing from CHF 483,000,000 in Q1 to only CHF 51,000,000 in Q3. As mentioned previously, during the 1st 2 quarters of 2020, some payments related to previous periods affected the cash outflow as well as the inventory build for the high season earlier in the year. However, from Q2 onwards, the decisive measures taken by the company significantly decreased the cash outflow. Please bear also in mind that some of the payments like bond interest or taxes are not linear. We therefore confirm our cash flow guidance for the second half of twenty twenty provided with the half year results. We expect an average monthly cash flow in the second half of twenty twenty of CHF 60,000,000. The full year 2020 turnover decreases 70% compared to 2019 turnover. This includes change in inventory, trade payables and trade receivables, however, does not include changes in other working capital. Moving on to the next slide. Our liquidity position as of September 30 stood at CHF 1,493,000,000. This includes CHF745,000,000 of available credit lines and CHF748,000,000 in cash and cash equivalents. Pro form a, the liquidity position amounts to CHF2.65 billion. This pro form a position also considers 572,000,000 net proceeds from the rights issue and mandatory convertible note and already includes the cash outflow for the buyback of the remaining Hudson shares not already owned by Dufry. Also, it is noteworthy that during the last quarter, we have further reduced our payables by nearly CHF 300,000,000 especially trade related. Those payments are reflected in the current liquidity position as well. Given the current liquidity position and cash outflow, we have achieved a comfortable financial position during the recovery, while we are continuing with our cost reductions and tight cash management measures. With that said, I hand over back to Julian. Thank you, Yves. We will continue with outlook. Let's go straight to Page 24. Hudson reintegration is an essential part of our reorganization that obviously will represent a simplification of our company structure, improving efficiencies. There's lifting synergies that will be created on top of what we have commented on of around $20,000,000 in addition to that. Impact of the current crisis, coronavirus-nineteen in HAPTUNE coronavirus will obviously interfere in the strategy that we have commented on during our presentation to the market regarding the acquisition in food and beverage. To accelerate growth in the U. S. Today, you need as obviously leader of retail to accelerate the growth in food and beverage. And due to the circumstances, this is going to be significantly delayed, if possible, in the future. The low liquidity of and volatility as a consequence of the low liquidity of Hudson's share price. And also the need of to create a more and a stronger group from the financial point of view for Hudson and for Dufry's at the same time. This transaction is in the process of being complete by the last quarter of 2020. Initially, the timeline was forecasting approval by and recommendation by the Board of Directors, a special committee of independent directors of Hudson and Hudson Board of Directors and this was already complete. Then Dufry as a consequence of the closing process, was obliged to deliver lender concern in our existing credit facilities, also shareholders approval for the equity capital increase and complete finally the rights offering for financing this transaction. All these steps were already done. What is the only step pending is Hudson's shareholders approval and this shareholders approval will happen during general assembly that probably will be during the last part of November. If we move to Page 25, the reopening of shops continue. As I said before, in October, organic growth reached minus 76.4 percent, despite restrictions and actions in some countries, especially in Europe. Despite this situation, sales have been stable during September October. And I think it's important to mention that we are benefiting this case from our broad geographical exposure. Europe and U. K. Maybe could be impacted, but Mediterranean, Turkey and Greece, Russia and North America, Central America and Caribbean, above group Avelas' reported information today, will be part of this sustainable situation that we are describing here. If we move to page 26, total number of shops that we were operating before the crisis 2,500, 1350 of these shops already opened by the end of October, around 55% of the total shops with potential sales capacity of 72%. We are in this case going step by step and case by case. In weekly reviews, we analyze the profitability and adjustments in operations needed, opening hours, days of staff, assortment needed, products, promotions, displays, etcetera. And the most important, we have total full cost control in order to plan the next openings. By November 30, we are expecting that 60% of the shops will be open with 73% of sales capacity. The new openings that are in the process to participate in this program are in U. S, Las Vegas, Orlando, Miami, Chicago, Oakland or Tampa, in Bangalore in India, Buenos Aires in South America, Cancun in Mexico Colombo in Sri Lanka Sunsofts in Greece Helsinki Jordan especially available tops and Toronto. Let's move to page 27. We have tried to briefly explain here the last research done with our customers in the shops after the last meeting, after the last presentation in August. We have repeat the questions about what motivate you to purchase during your next flight. And this is at the bottom left side of this sorry, at the top of left side of this slide. 38% of the passengers during these days in the airport are looking for good offers, store discounts, 30% exclusive looking for exclusive products, 20% local products and 12% gifts, purchased gifts. If we continue, the second finding is below at the bottom of this slide is regarding attitudes and behaviors of travelers in an airport when they have to face different activities. And the answer is very clear. It's higher even than in the first part of the pandemic results. 89% of the passengers confirm they are willing to engage with duty free shopping. Other activities are also listed here. And finally, on the right side, some customers post COVID behaviors. I think we have detected different ones, but let me mention something like stay away from crowded areas, avoiding touching or picking items, higher extent to straight items they have planned to purchase with lower time spent in store. I think the most important thing is that learning in this process, what we have done is accommodate and adapt the sales protocol in all the shops that are open to these findings in order to facilitate the customers the best possible experience when they are traveling and they go through shops. If we move to page 28, in terms of conclusions, I think there are probably 5 aspects that I would like to comment on. The first one is, we have been in a very tense last 3 months since half year presentation on the beginning of August. With Dufry and I want to remark that emerging as a stronger and more resilient company. The second one is to thank to all our employees for supporting the incredible transformation we have gone through in this difficult moment. The third one is thanks for obviously the support of all our existing shareholders as well as Advent and Alibaba for joining other long standing shareholders in the company in this specific moment in time. For the year 2020 full year, we expect to be close to minus 70% scenario in sales and will pursue cost cutting initiatives as described by Yves, according with this guidance. And finally, we have sufficient liquidity and financial and managerial flexibility to manage sand slower than expected recovery and also engage in strategic opportunities at the same time. That's all from the point of view of the presentation. And now we could start with the Q and A section. We will now begin the question and answer The first question is from Jorn Ifert from UBS. Please go ahead. Yes. Good afternoon, gentlemen. Thanks for taking my questions. The first one would be, please, on your cash consumption in Q3. It was pretty good. Can you give us some more details how you have achieved this? What kind of amount of payments are falling into Q4, for example, if you economically would fall in Q3? And can you also say if you are paying the employees for the shops which were closed in Q3? And second question please on Q4, can you help us to understand what is the cash flow support from non core working capital in the next 3 months? And the third question, please on the fixed rents. I understand or I expect this is fluid, but have you already made discussions with the landlords for the first half twenty twenty one and have you already some clarity here on the savings? And if you allow me a last question on capital allocation, if there would be opportunity in Asia, for example, for an acquisition, would you avail this or would you prefer to reserve cash for liquidity? Thank you. Okay. I will Jorn, this is Julian. I will start the minimum annual guarantees and the answer is as follows is, we have been obviously discussing and negotiating with the airport for the year 2020 and in some cases also for the year 2021? The answer is yes. We have been no now since the beginning of this process negotiating both. Most of the effort is in 2020, but we have also initiated discussions in 2021. Regarding capital allocation, I think with the uncertainty we have on the table today, what we need is to protect the liquidity and see what the evolution of the business is before we do anything in the short term. If you want to talk about the cash flow, Q3 and Q4? Sure. So look here, thank you very much for the question. In respect to the cash consumption in Q3 and Q4, the key elements, which will apply in Q4, which basically could be allocated to Q3 are on one hand side taxes, it's payments to minorities, it's the restructuring of around 65,000,000 which we have mentioned. And it's also interest. In respect to interest, we have, for example, the bonds where the interests are paid only every 6 months. And we also have some bank debt where there's an accumulation of the cash flow in Q4. So again, as a good proxy, what you can take is basically the guidance we have provided for half year, which is the €60,000,000 per month. Potentially, you're a little bit better than that, but that's a good proxy. And then in respect to the noncore working capital, there it's hard to say. So look, as you know, it really depends on where you do the payment. So basically, the non core working capital is a residual amount of everything reflected on the P and L, which is not cashed. And depending especially on how the process with the landlords in respect to concession fees goes, we will see some swings there in the non core working capital. Okay. Thank you. And can you help me for Q3 regarding the cash consumption, yes, which was pretty low? Did you pay the employees for the shops which were closed in Q3, if I may ask? So look, we paid all the employees, salary to all the employees according to the contractual obligation and the agreement we have with them. Okay. I leave it here. Thank you. The next question is from David Holmes from Bank of America. Please go ahead. First question is just on the permanent cost savings of 400,000,000 euros Can you just give a little bit more color on where you are achieving these and how you are achieving them? And I guess following on from that, should we expect, in the long term, as revenues normalize back to 'nineteen levels, high levels of margin than historically because of this? 2nd question is just on the Alibaba JV. I think you've touched on it too much. What are your intentions for this? How do you get access to the market? And are there particular channels which are most interesting to you in that market? I'll leave it there for now. Okay. David, thank you for the questions. Regarding the permanent €400,000,000 I would say that we are talking here about personal expenses and operational expenses. Regarding this €400,000,000 around especially today, we are talking about €260,000,000 in personal expenses, €270,000,000 that's explained and the difference is operational expenses. This is basically recurring. And depending on the circumstances, in 2021, could be even higher because obviously what we are planning here is just to go back to the normality. And if for whatever reason the normality is not normality in the sense, obviously, recovering, sorry for the explanation. In the recovery, if it's not recovering, the situation will be modified again. The target that we have identified today as recurring is €400,000,000 Regarding Alibaba intentions, I already comment on that. There are 2 aspects. 1 is the joint venture company that we are creating in China right now. We have communicated to the market that the intention of this joint venture company is to expand the duty free and duty paid businesses in China, starting in Henan. Go through the detail what is going on and more specifics. It's difficult to say because obviously this is a competitive environment. But I would say that we have identified several projects that will materialize on Asia and depending on regulatory requirements that will be fulfilled. I hope soon we will be able to communicate more specific things. But still there is not a specific number of issues of projects that will be finally allocated to this joint venture until we know the most important thing is the regulatory approvals. Regarding the second part, we are also very interested that Alibaba will contribute with their obviously probably the best level of the best ever possible digital skills to the digitalization of the company worldwide. We have been for many years right now, 3 years, commenting on different projects. One of them has been developed in 65 countries. The explanation about the evolution of the project has been also provided to the market many times, especially in this Analyst and Investors Day. But I think there is a necessary step that the company should implement. And the only way to do it for engaging with the customers in the whole journey for the travel is through technology, is how to deliver merchandise in any time, in any place at the speed that the passenger customer is expecting it and also with a more flexible way in order to facilitate the customers to decide. And this is something that technology will facilitate. This is a very important project for us. It's a transformation project that will happen during the near future. And when we will be in the position to comment on that, we will be more specific. But it's probably the most relevant thing that has happened in the history of the company if we can do it properly. Thanks a lot. Really useful. Thank you. The next question is from Edouard Aubin from Morgan Stanley. Please go ahead. Yes. Good afternoon, Julien and Yves. Yves, just on the guidance you gave in terms of rental charge, I think you said CHF 1,000,000,000 for the current year. I think ANA in Spain, they published their results last week for the 1st 9 months of the year. And I think, if I'm correct, they are treating the MAG close they have, which I think is around €350,000,000 to be actually paid by you. And I think the cash payment would happen early next year, if I'm not mistaken. So how do you kind of reconcile your €1,000,000,000 kind of guidance for 2020 with what some airports are booking from an accounting standpoint? And just to stay on the topic of the MAC payment, so if the airports are limiting the downside with you this year by kind of waiving the MAC payments, why wouldn't they share some of the upside by having higher close to closes of sorry, return to better fortunes with you, for example, having higher concession fee as a percentage? And lastly, just to come back on the topic of China, am I right in thinking that in order to operate the duty free business in China, you would need to partner with a license holder in China? Or what can you do today without partnering with the license holder? I guess, I assume you can operate a TT Pay business, but what can you do from a duty free standpoint? Thank you. Thank you, Eduardo. Allow me please comment on AENA because I am very close to that. I think what we have said is that in 2020, the fixed minimum annual guarantee that we are targeting savings is €500,000,000 This is what we said. Then total drop in concession fees is also €1,000,000,000 or more than €1,000,000,000 based in variable and fixed. But this is a specific €500,000,000 for 2020 that is added to the other €500,000,000 in OpEx and PEX, total €1,000,000,000 This is the explanation. Regarding AENA, I cannot comment on AENA. I don't know what AENA says. What I know is what we are doing. And I am very sure that we are going to complete this target that I just comment on because we have more than that. As I mentioned, we have today formalized $262,000,000 and we are in the process to formalize the remaining part to reach $500,000,000 maybe above $500,000,000 And there is nothing today that shows that this is going to be different. Whatever I didn't participate in this call. I cannot tell you what they say, but it's not the issue here. The issue here is we are going to deliver €500,000,000 savings in minimum annual guarantees and this is in the process to be complete. One part is already documented, the other part will be documented during the next weeks. Regarding the MAC payments and I don't know. What is the question is, if we are paying higher variable because we don't pay the MAC, the answer is no. I think this is clear. I already comment on that in the past is what we are doing is renegotiating the minimum annual guarantees, sometimes substituting that by variable. By the variable is obviously far away lower than the minimum annual guarantees and providing us the flexibility that we pay in most of the cases is based in passengers, if there are passengers. But the percentage is not going to be by far even close to the minimum annual guarantee. And regarding China, you are totally right. You need a license for operating in China and you need to deal with a license holder today. This is the legal structure today is correct. You need a license holder for operating duty free in China. That's correct. So, it seems you're currently negotiating with 1. And are you going to start duty paid right away basically? Or what are the plans? No. We are planning to start operations in duty free. If we start, obviously, it's depending on many things. But still, I think we are in this position to say that our intention is to start operations in duty free. Okay. Thank you. The next question is from John Cox from Kepler Cheuvreux. Please go ahead. Hey, good afternoon guys. A couple of questions for you. You'd be very kind to provide this long term recurring savings, this $400,000,000 figure. Just wondering, can you give us a rough idea what your concession fees as a proportion of revenue will be next year? Is it possible to do that because you seem to renegotiating everything towards more flexibility? Should we assume it's going to be somewhere around the 30 odd percent, 31% we saw, a 2019 or should we think the new normal is around 35%, 30% 36%? That's the first question. 2nd question, just on the gross margin. Are you confident you can get back to your typical 60% gross margin in the future? Then with this sort of information, we can try and build some building blocks in terms of where your profitability and cash could go depending on where sales are in the future. So that's the sort of first part of the question. And then just in terms of the outlook next year and I can see a lot of airlines and airports are talking about different testing procedures. I just wonder what your take is on what's happening in terms of trying to limit the number of quarantines to encourage people to start flying again as some of the airlines are hoping to do. Because at the moment, it looks like we're going to get this on off poor travel probably lasting well into Q4 next year in the absence of a vaccine unless there is some sort of faster method in terms of quarantines or testing going forward. And I wonder what your take is on that? Thank you. Thank you, John, for the questions. The first one is difficult to answer because as if explained, depending on the final agreement, the concession fee will be accrued in the MAC relief line or will be accrued as a different IFRS 16 treatment. I would say, because you are talking about the future, it's very difficult to say. But let me say, if sales are recovering in the sense of, I don't know, 28%, 40% is the number of passengers drop that the market is forecasting today. But as you know, this figure changes dramatically from one day to the other. But in this line of 28% minus 28%, minus 40%, the 34% is not going to be far away. I think as soon as the situation normalizes, it will be even lower than the previous 30% that you know, 29.9% or 30%. But I am talking about in a pre IFRS 16 situation. I cannot comment on the specifics because depending on how we close down the agreements with airports, this will be different. But I think you have a line of investigation now. Then regarding the gross profit margin, I don't have any issues here. The gross profit margin will reach percent again, not in 2021 because we probably need to clean up some inventory from now to the end of 2021. I think the gross profit margin in our company is very resilient. What is happening now is nothing related with the fundamental gross profit margin. The commercial gross profit margin is still the same. The difference now is the amount of promotions, the amount of activities, the discounts done through inventory cleanups, many other aspects that are impacting the gross profit margin and will impact the gross profit margin, especially during the last quarter of 2020. But depending how the business is evolving in 2021, maybe in 2021, too. But as soon as the business is normalized, the gross profit margin, I am sure, is around 60%. The outlook for next year, this is very difficult to say, I don't know. I think the probably what in the short term will make more difference will be the testing. I think testing procedures implemented will facilitate confidence and the people will travel more and more often. And I think the release of quarantines added to that is probably the best starting point for the reinitiation of business. Today, what we have seen is the business is very small, but it's very resilient. I think there are people traveling and there are people going through the shops with no obstacles. And I haven't seen and we haven't perceived in this research that we have done any concerns. The problem here is obviously number 1 is quarantines and number 2 is these testing procedures. If the testing procedures are implemented, the business will reinitiate faster. Quarantines are depending on the circumstances from the health point of view that I cannot comment on because I think it's very complex and I cannot comment on that. But I think the people still wants to travel. What the research is telling us, passenger results and customer research that we have done is that nothing has changed. Fundamentally, when there is somebody in the shop, they are buying now more than before and the average spend per ticket and the average spend per head is higher than in 2019. This is fact. I am not talking about statistics that are in future development. I am talking about what happened during the last month. That's all from my side. Thanks for that. I want to just have 2 follow ups. You've given us great guidance on the net debt for the year. We can assume it's going to be maybe another $300,000,000 cash burn in Q4, so $3,500,000,000 On the sort of debt and balance sheet side, Just wondering on the P and L side, obviously, it's a very, very messy what's happening. Do you have a guess a best guess for underlying EBIT that figure for this year? I'm sure I'm not the only one thinking that could be anywhere by the end of the year. That's the first follow-up. The second one is, I think some people have mentioned you could move over to Swiss GAAP at some point, which would obviously simplify a lot of the reporting structure, which is incredibly complex on occasion. I wonder if there are any more thoughts on that at all. Thank you very much, Jan, for the question. So look, in respect to EBIT, I believe that well, first of all, we cannot give any guidance for the year. But I think having said or if you summarize what we have said before in respect to savings of personal expenses, concession fees and general expenses and also the top line drop of 70%, you basically get pretty quickly to the EBIT number. Then in respect to the accounting standard, look, that's something also we cannot comment on. So obviously, there are different accounting standards out there. And there is U. S. GAAP, there is Swiss GAAP fair, which would lead to a different treatment of the leases and basically potentially help in respect to the treatment there and generate more transparency in that regard. But then on the other hand, it has other potential disadvantages. So it's something we would need to analyze in detail. And if it's an option, we will inform the market in due course. But so far, I cannot comment more than that. Thanks very much. The next question is from Saree Yafar from Exane BNP Paribas. Please go ahead. Hi, good afternoon. It's Jafar from Exane. Just three questions for me, please. The first one on your revenue guidance or rather indication. So to be at minus 70% revenue for the full year, you cannot have any slowdown from the minus 76% of October. You seem comfortable with that. But this also means, I guess, that you start the year 2021 not too far from minus €70,000,000 So I appreciate you're only showing us 3rd party forecasts on that slide. But how realistic is it that 2021 ends up only 25% or 35% below the pre COVID levels? Second question, just in terms of the proceeds from the equity raise, you're mentioning €300,000,000 Hudson buyouts. But then for the rest, it's a combination of strategic growth and supporting the balance sheet for the remaining CHF 5.70 million. Is there any broad split you could give us on that for how much you could allocate to growth opportunities at a maximum? And how much you will absolutely keep on the balance sheet? And lastly, a very broad question. Right now, it's all about executing on cost savings and capturing every dollar of the revenue recovery, of course. But if you were to start thinking about reinventing the business and venturing into completely new channels in a complete blue sky thinking, what are the options that you have to go get extra revenue outside of airports, outside of cruises, outside of border shops, please? Okay. I think regarding the last quarter is correct, the assumption. We are planning to be stable and in line with what we have seen in October. And the reason is we have seen what happened in the last 2 months regarding the implementation of restrictions and limitations of traveling. And in the last part of the year, we are expecting also more new shops will be reopened. The shops that we have reopened so far are performing, I wouldn't say well because the word is not correct, but are performing. It's not like they are not selling anything. And I think to maintain the minus 70% will require that the new shops that are in the process to be open or already open because there are some of them, especially in South America already open, will maintain the level of whatever happens in Europe so far. Regarding the proceeds, the proceeds are strategically for supporting the financial situation of this company, number 1. And in terms of strategic growth opportunities, we have some of these ones. We have already announced one is the contract in Sabija in Istanbul, the 2nd most important in Turkey and space in Istanbul. And opportunities like new concessions, we will continue. To split it between supporting and non supporting, I cannot do it now. The uncertainty is very high. Probably during the next 2 or 3 months, the only thing that we will be able to do is to be alert to maintain the level of efficiency in the cost cutting, but also to maintain the level of visibility as higher as possible. And finally, well, this is obviously a very interesting question. I think it's probably the most interesting question. Is there a business model that will move this company Dufry as a global travel retailer to something else. And I think we have a model. Of course, we have a model. And Alibaba will play a significant role in that. How to become a global digital travel retail company operating in 65 countries, far away, obviously, number 1. With the combination with an institution like Alibaba with the level of resources they have is part of what we are talking about. We have a completely, obviously, picture about what we would like to do, but this is the point now is how to exchange these ideas and opinions with Alibaba and see what is the next step. I cannot comment on the market on that. It's very early, very, very early. But if the question is, do you have a model as a company for creating a different company after this pandemic and this crisis, the answer is yes. We have a model and it's not our model that will happen in 20 years. It's a model that will happen very soon. Thank you very much for that. The next question is from DiMarco Verro from MainFirst 3 questions on my side. First one on the €400,000,000 cost savings, out of which you mentioned now during the call €270,000,000 related to personnel expenses, and those are then recurring cost savings. So I'm quite surprised, I mean, those CHF 2 70,000,000 accounts for around, let's say, over 20% of what you paid to your employees last year. So how can you achieve such a meaningful cost cutting on a recurring basis? And the second question is in relation to your contracts and competitors. Here, of course, you have very long lasting relationships with landlords and also your contracts have a duration of around 7 years on average. However, contracts might also be at risk, I guess, without giving a touristic background here. How do you assess the risk of competitors such as Lotte or Schiller to replace Dufry for some of the current contracts that are under negotiation with landlords? And then my third question is in relation to your space grow or the retail space grow. You mentioned 4,700 square meter more space, which is a positive grow of 1% versus last year. But just overall, you had a negative net concession growth year to date. So where did you lose some spaces in Travel Retail? Thank you. Well, regarding the €400,000,000 is what I said, is €270,000,000 personal expenses and the remaining part is operational expenses. I think it's obviously different if you were having all the information. What we have done in Dufry is a completely reorganization. The reorganization and restructuring is based in decisions that are oriented, first of all, to change the way we used to work and to become the company more efficient and faster in terms of execution. The main decisions have been so far is replacing in this case, not replacing, is dismissing this line of divisions divisional structures that we used to have in the past, plus the merger of the commercial activities in the country in the commercial activities mean structures, commercial structures in the country, in the divisions and in the platforms, in the global platforms. This has been added to a new way of operating centralized from Dufry in Switzerland instead to decentralize the operation through the territories. And as a consequence, the most important part of probably all of these EUR 270,000,000 dollars is related with dismissal of people. Okay? Contract 7 years, if we can be replaced by competitors. I don't know. I haven't seen one single case like that in my life. I cannot answer the question. Is any competitor of Dufry in the position to step in a contract where we are negotiating the rent? I doubt it because obviously the renegotiation of rent is based in the lack of passengers. As far the passengers are not there. I cannot imagine anybody in the world going to an airport telling, yes, I want this contract at least rent at the Dupuis payment. I cannot believe it, but why not? There are every type of situations, but it's not likely to happen. And the space growth is a significant important aspect of the growth for the future. I think in terms of the model, you need to count in around 5% of net opening in the square meters compared with the 470,000 when the 470,000 will be open, totally open per year. What happened during the last days or weeks is that we have allowed, obviously, to close down some shops that, in our opinion, could not be recovered due to the coronavirus during the termination of the contract. That's the reason of this minus 2.8 percent 2.8 percent, of course, of sales very low. It's not in a total normal circumstances, almost 0. It's nothing. It's irrelevant. But with the normal circumstances, we are not talking here. We are talking here with a significant drop in sales is more than €2,000,000,000 I see, or 2,000,000,000 something that will impact the 2.8 percent is not relevant, believe me. 5% is the target for continuing with a normalization of the company regarding new spaces. Okay. Thank you. Thank you. The next question is from Aman Mahal from PGIM. Please go ahead. Thanks very much. Just had a few questions. The first one is just on the kind of liquidity. It's obviously very significant now and you flagged that you have just over €350,000,000 reduction in liquidity next year from some existing sort of productivity expiring. Can you just give me a sense of how you think about your minimum liquidity levels over the course of next year in a sort of uncertain environment, do you are you thinking you want to be above €1,000,000,000 at all times, for example, over the course of next year? Or just trying to get a sense of how you're thinking about it from a treasury perspective, first of all. Look, not sure if I fully understood the question because the line was not perfect. But if the question is, if we consider for next year a minimum liquidity level, then yes, but I cannot disclose the number. What I can tell you is that you probably are aware that we have a minimum level in respect to the covenants we have, which is CHF 300,000,000 Considering the current pro form a liquidity of more than CHF 2,000,000,000, if you make the math, you can assume that this liquidity will be sufficient to last for around 2 years from now, even in a scenario where we have a severe downturn of the business, which goes beyond the current level. So even if things turn further south, we would be positioned in a way to last for more than 2 years with the current level. Sure. And I guess linked to that, sort of my second question, you provided guidance of the $60,000,000 per month cash burn in the second half of the year. You obviously, you don't know what next year would look like, but assuming conditions in the first half of the next year is similar to the second half of this year. Is it is that $60,000,000 number sort of usable next year Or in light of potential mags that then have to be renegotiated again, does that number start increasing again over the course of next year? So look, I cannot comment on the cash burn rate for next year at this stage. We are working on the budget. We are finalizing that as we speak, but we cannot give a guidance or any insight yet on the cash burn for a specific month next year or for the first half. What I can tell you is that we don't expect any material MAC payments to happen in the Q1 of next year. So if your question is targeting in that direction, then the answer is no. There is no significant cash out in respect to in manual guarantees for this year happening in Q1 next year. Sure. And then I guess one last one in terms of the 2 sort of new large shareholders that you have. I guess the Alibaba JVs obvious logic behind that. In terms of AdVent, is there any are they purely financial investors from your perspective? Or are they adding anything in terms of any communication you or any sort of value adds? Okay. Adan is a financial investor, but as we also had experience in the past, they have facilitate through the offices, they have worldwide opportunities of growth for the company. And I expect that this also happens during this second phase of investment. I think they have been very entrepreneurial. We have been working with them for 9 years in the past, and I hope that this step is still very early, will happen the same thing. It's a collaboration in expanding the business internationally too. Okay. That's great. Thanks very much. The next question is from Anna Murray from Barings. Please go ahead. Hi. Thanks for taking my questions. And the first one is just following up on the previous questioner. It's clearly $2,000,000,000 of liquidity is quite significant. And as we've explained, we do have some maturities next year that reduce that So from $60,000,000 cash burn per month, that gives you quite the flexibility. Can you give us an idea perhaps of if things improve next year and there is additional liquidity left over, what you may be looking to do with that just to give us a bit of an understanding? Because presumably, you won't keep €750,000,000,000 of cash on balance sheet going forward. Sorry, can you repeat the question? I didn't understand it. Sure, absolutely. Dollars 2,000,000,000 of liquidity is quite significant. Is that what you intend to keep on balance sheet going forward? Or is part of that conservative planning in case of a downside case through next year? And if there is in with support a downside case next year, what could you potentially look to do with any cash left over after COVID-nineteen impact going forward? Look, it was hard to understand the question because the line was breaking up constantly. But let me try. So we have the €2,000,000,000 of liquidity pro form a on the balance sheet, and we intend to keep that, as Julian has mentioned before, also for potential strategic opportunities and growth going forward. So it's not intended to reduce this liquidity anytime soon. We first obviously need to go through the crisis and keep the level of liquidity as high as possible before we can think about potential reallocation of that capital going forward. And when you say strategic opportunities, is that restructuring of the business? Do you see a No. Look, it's opportunities, as Julian has mentioned before. It's the No. Look, it's opportunities, as Julian has mentioned before. It's the growth in Asia, it's the growth in Turkey, it's the new opportunities we have, to manage through the crisis. And once we see really the recovery happening, to manage through the crisis. And once we see really the recovery happening, we can think about doing something else with that capital. But so far, we use it for what we have mentioned before. To be prepared for the crisis, A and B, for the potential opportunities we see from a strategical point of view and for the growth. Okay. And my second question is about the changes the U. K. Is proposing to make to tax free shopping in the UK. I just wondered if you have an idea yet what the potential impact might be on your business. So what percentage of sales are UK and what percentage would potentially fall outside those tax free categories going forward? Yes. Well, this is Julian Diaz speaking. What is going to happen is not confirmed yet, number 1. Still, there are negotiations with the government and with other institutions in order to analyze consequences. As final decision is not right yet, I think it's important that we don't comment on the specifics. But just for us, we are going to be able to sell on top of what you mentioned, products in duty free like tobacco to European destinations and to liquor to European destinations. Duty free products, so far we have not been able to sell tobacco at all and duty paid spirits and liquors. On top of that, there is a higher limit for arrival subs in terms of allowances to 3rd country passengers in the arrival to the U. K. This is the positive side. The negative side is if in non subject products to excise taxes, VAT assumptions disappear. And I think this is only possible. The answer to this question is only possible when we will see what the final setup is. But don't forget either that the rest of the operations that we are having in the European Union will be able to sell duty free to the UK. It's still a combination of things that cannot be defined properly. Okay. So you potentially see some upside from the tobacco tax resales offsetting any negative impact you might see? I cannot answer the question. I think it's important that we know exactly what the final setup is in order to confirm what we think is going to happen. Okay. Thanks very much. Today's last question is from Rebecca McKellen from Santander. Please go ahead. Yes. Hi. Good afternoon, Julian and Yves. Just a couple of small questions from me. Firstly, how have the spend per passenger trending now versus the up 20% that you were seeing in July time? And secondly, of the 55% of stores which are currently open, what's their operational hours versus last year? I mean, I'm assuming that they're not working out the entirety of the hours that they were previously. Okay. Regarding passenger trends, let me talk before November 5, I think the last weekend has been the best weekend in a long time for us. Okay? And I think the situation in terms of number of passengers is not clear because we don't have information, but it has been a significant development during the last weekend. I am talking about just the weekend we had. And what is going to happen after November 5 is difficult to say because we are operating more shops now in South America. We just reopened Argentina. We just reopened Peru. We just reopened Colombia. There are many shops. And also in the U. S, we are reopening significant number of shops. As a consequence, the combination of a possible lockdown in the U. K. And other countries in Europe has to be evaluated with time. We need more time in order to say something specific. Regarding the restructuring hours, you are right. We are not working obviously with the full ships. In most of the cases, we are working 1 shift and the most important shops are working with 2 shifts instead with 3 like in the past. They are not open 24 hours a day. So the hourly sort of the operation the hourly operations is a third to perhaps maximum 2 thirds of what it was in a normal it would be normalized? Yes, more or less, yes. Okay. And sorry, just the spend per passenger currently or recently? Spend per passenger versus last year in the quarter 3 was +8%. Okay. And that compares to 20% in July, is that right, plus 20%? It was 18% or 20% in June, I think, was in June. In July, it was also positive, but was double digit lower than that. No, it's slowing. Now it's 8%. Welcome. That was the last question. Okay. Thank you very much to all the participants. As always, we remain alert and willing to answer all the questions in our office and in the Investor Relations department. Thank you very much.