Earnings Call: Q1 2020

May 12, 2020

Ladies and gentlemen, welcome to the Dufry's First Quarter 2020 Trading Update Conference Call and Live Webcast. I am Alice, 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. Thank you, operator. Good afternoon and thank you for participating in this call for the Q1 2020 trading update. Presenting the update here today are myself, Julian Diet, CEO and Yves Gester, CFO. As in previous calls, we are going to use the presentation this morning in our website. Please let's move to Slide 3. We have here the agenda. I will first review our business performance in the period, then Yves will present the initiatives recently launched to support our financial structure. And to conclude, I will return for a trading update on our performance in April and conclusions. Before starting with update, I would also like to remind you that as of this year for the Q1 and Q3 performance Dufry will only provide a trading update and discloses full financial results for the half and full year periods. This approach had already been communicated in the Q3 results presentation 2019. Moving to Slide 5, I would like to highlight the most important topics of the Q1 2020. Our turnover in the 1st 3 months of 2020 amounts to €1,400,000,000 to its France, which based on cost and currencies is a decline of 20.8% on the previous year. To manage the current crisis, Dufry has immediately set up a dedicated committee at the level of the Global Equity Committee in January as I commented on in the previous call and implemented a comprehensive action plan to drive sales, reduce fixed cost and safeguard liquidity. I will discuss the plan in more detail later during the presentation. Moreover, I want to highlight the important financial measures we have been implementing during the past few weeks. In the discussion with the banks, we have been looking at several possible approaches to strengthen the financial structure and the liquidity position, while at the same time reducing as much as possible dilution of our existing shareholders and implemented solutions, which could be executed in short term. The overall result of these negotiations and initiatives is that first, we have signed agreement with the banks to waive covenants until June 2021, an increase of financing lines by $425,000,000 2nd, including the share placement, the new convertible bond and cash available, we have now reached a pro form a liquidity position of CHF1.6 billion. Combined with the comprehensive cost cutting initiatives implemented in parallel, this allows us to sustain a prolonged period of distress until the travel resumes and obviously we can reach the next cash generation cycle. Looking forward, we are ready to resume operation as soon the situation allows and we have already developed a reopening plan on our base of location by location which are individually considered basing profitability scenarios by operation. This allows us to add flexibly and adapt to the business to the local opportunities as soon as the travel restrictions are lifted. In this context we expect to see first domestic obviously 1st development in domestic flights as I commented on in previous calls, followed by Continental flights and in the middle trend for example the second half probably of 2020 intercontinental flights. If we move to Slide 6, we can see that our turnover as I mentioned reached CHF1.4 billion in Q1, business evolution of the Looking at the business evolution of the Q1, we see that it has been characterized by a completely different development and change in business performance in each month. In January, the 1st part of January, we started with accelerated organic growth, then during the 2nd part of January and due to the crisis in starting in Asia, we reached in the full month of January a performance of plus 0.8%, even obviously was positive. In February, we saw sales starting to slow down and we reached minus 7%. Still the main impact was from Asia and international destinations with Asian customers. So that the organic growth for the 1st 2 months reached minus 2.3%. And in March, we saw an increased number of travel restrictions being implemented, especially during the 2nd part of March and drastically reducing passenger floats at airports. This resulted in a sales decline for the month of March close to 56%. Organic growth was in the quarter minus 21.4%. The impact comes from the vast majority from the like for like performance and the respective decline in passenger numbers across all divisions. We have seen many airports being closed or shops having to close because of government regulations regarding especially bans to international arrivals to cancels or limitations of movement of people. If we move to Page 7, we can see more details of the growth components as I mentioned before with the impact main impact of the like for like. With respect to the change in scope, you can see the positive impact generated by the 2 acquisitions executed in 2019, including the Newcogo operation in Moscow and Brook Stone shops across several airports in the United States. Let's move to Slide 8 and look at the FX evolution on the Q1 of 2020, which had a negative impact of minus 2.8% in total sales. This shows a further acceleration as compared to the Q4 2019 and reflects the ongoing appreciation of the Swiss francais of our main currencies, U. S. Dollar minus 2 point 9%, Euro minus 5.6% and British pound minus 4.6%. If we move to Slide 9, we can see how the current crisis impacted each division, with Asia Pacific and Middle East minus 30%. As I said, 1st division started to be impacted in January and North America minus 24%, being exposed the most. Followed by Europe minus 20% and Central South America minus 16.3%. With respect to Central and South America which is the less impacted during Q1, we need to consider that their travel restrictions started later than in other parts of the world. Let's move to Slide 10. Moving on to the division Europe and Africa, organic growth in this division reached minus 20.3% in the period. Performance was negative across most locations in the division and particularly in Italy, Switzerland, UK and Spain with negative double digit growth. Turkey post a positive performance in the quarter supported by a very good passenger traffic in January February, but declining significantly in March due to the travel restrictions. And the performance in Africa was stable with the growth in the 1st 2 months of the year being offset by the slowdown seen in March. If we move to Slide 11, we can see that over the full quarter the division Asia Pacific and Middle East was the division impacted for the longest time, resulting in an organic growth of minus 30.2%. Within the division, Asia Pacific was the most impacted region with a negative performance during the whole quarter. In Eastern Europe, Australia and the Middle East, most operations post negative organic growth. As we move forward as shown in Slide 12, in North America organic growth was minus 24% in the period with a slowdown in both segments, but especially in duty free which is exposed to international and Chinese customers. Here we also saw a temporary closing of a high number of shops especially during the 2nd part of March. If we move to Page 13, Central America and South America performance was less impacted among all divisions with organic growth coming in a minimum 15.3%. Here the most important were the restrictions implemented in March. Performance in Central America and the Caribbean was impacted to a lesser extent and reported a single digit negative organic growth, while the impact in South America was more pronounced. Moving on to Slide 14, you will see the details of the new openings and the refurbishments executed in the Q1. These openings and refurbishments happened most of them during the January February. The new openings for a total of 2,800 square meters are well distributed across all divisions with 8 new shops in the U. S, 5 stores in Brazil, 2 in Perth, Australia and 1 each in Finland and Mexico. In the chart below, we see that with respect to the total refortes, a retail space of 5,500 square meters, the majority renovations were related to Stansted Airport in the UK and the Guayaquil operation in Ecuador with 2,600 and 11 100 square meters respectively. Starting in March, we have stopped fuel refurbishments in order to reduce CapEx in the short term, but we will resume to renew shops as soon as the overall situation normalizes. If we move to Slide 15, we have also continued to sign new contracts, expanding our footprint with 13,800 square meters of shops to be opened in 2020 and in 2021. The largest shop here is the duty paid circle operation at Zurich Airport, which will open during Q4 of this year. With respect to expansion, the chart at the bottom with 36,000 square meters in the current pipeline shows that the travel retail industry continues to propose opportunities and we can benefit from this overall growth trend. If we move to Page 16, In this slide I would like to give you an update on our action plan to manage the crisis. As you know already in January, we have established a special committee at the level of the Group's Equity Committee, which has implemented a comprehensive set of operational initiatives to drive sales, save fixed costs and safeguard liquidity. This committee is supported by 13 dedicated teams centralized driving and supervising the execution of all the initiatives. Important to note is that we have based the action plan on different scenarios, considering different levels of Puglia sales declines of from 40% to 70% and allowing to flexibly adapt measures to the business performance. The scenarios include the following cost reduction and saving levels. In a decline of business by 40%, 70%, the concession related expenses would amount between 32.5% 38% expressed as a percentage of turnover in a pre IFRS 16 situation. Personnel expenses to be reduced by 20% to 35% on the previous year and other expenses to be reduced by 26% to 38% on the previous year. Let me make you through the initiatives in more detail. In order to reduce as much as possible the fixed costs, we have adapted the operating structure of the company to reflect the current situation in the business environment and to leverage as much as possible our flexible cost structure. Looking at the cost reduction measures in detail, the main initiatives are as follows: the reorganization of the personnel costs at the level, including participating in government schemes, implementation of voluntary salary reduction schemes involving both management and employees. I must say that we have received great support and response from all our teams shown by a high adherence to the scheme. Furthermore, we established a high freeze including a limitation to appoint temporary staff and a reduction of personnel expenses in headquarters and divisions and country offices. With our landlords, we have currently a lot of discussions to renegotiate concession fees. In general, we have received positive feedbacks and support by the majority of the landlords and San Aperts has already granted reliefs. Here it is important to note that first for the vast majority of our concessions we pay a variable fee and second, that for our last part of the contract, which contain a fixed component, we have received consent from the landlord to waive the max or are still in discussions to reduce rent and concession. Moreover, if airports have closed operations on their own or if local legislations does not allow shops to be open, our understanding is that for this period we are exempt for paying rents. Moreover, we are reducing as much as possible all operating expenses and monitor every single payment at group level with our dedicated team. Looking now at the net working capital and CapEx initiatives, we have also implemented several initiatives which are well supervised by a dedicated team at group level. Among these initiatives, we are negotiating with suppliers for a higher flexibility in payment trends and accelerate promotions for reducing volume. We presently reduced CapEx to 0 and we will continue to tightly manage them going forward. So that for 2020, the overall CapEx level will be considerably lower as compared to the previous year. In total, the mentioned initiatives at net working capital and CapEx level, total cash savings of around $160,000,000 in the full year 2020. In order to maximize sales in the locations still open and also during the recovery phase, we have set up several initiatives including global promotions and focusing the assortment of offering core products, categories and exclusivities to drive sales and volumes and allowing to increase conversion and maximize sales per customer. I will now hand over to Yves for the presentation of the detailed initiatives implemented to support our financial structure and the liquidity position. Yves? Thank you, Julian, and good morning or good afternoon, everyone, depending from where you're listening to the call. On slide 18, I want to take you through the individual initiatives, which we have implemented in the past few weeks and which strongly support our financial structure and liquidity position. First, we have received commitments by a group of relationship banks for an additional 12 month committed credit facility of approximately CHF425 1,000,000 with 2 6 month extensions. This new facility ranks Paripasu with the existing syndicated facility. This new facility replaces existing uncommitted facilities. The agreement is subject to final documentation, which is currently being finalized. 2nd, we have successfully executed a private placement to institutional investors by means of an accelerated book building procedure of 5,000,000 shares from our existing authorized share capital and 500,000 treasury shares. The placement has generated gross has also been supported by members of the Board of Directors and the management with a meaningful amount. 3rd, we have issued a senior unsecured convertible bond. Due to strong demand, the initial principal amount of CHF300 1,000,000 has been increased by CHF50 1,000,000 to a total size of CHF350 1,000,000. The convertible bond carries a coupon of 1% payable semi annually. The conversion price is CHF 33 corresponding to a conversion premium of 20% over the reference share price. Unless previously converted, redeemed or repurchased and canceled, the convertible bond will be redeemed at par at maturity on May 4, 2023. Moving on to the next slide. In this, it is important to note that our bank consortium consisting of 25 international banks has approved our request to waive the current financial covenants until and including June 2021 and to establish an increased threshold of net debt by adjusted operating cash flow of EUR 5.0 instead of the former EUR 4.5 for the covenant testing in September December 2021. This agreement is signed and has become effective. Moreover, if we look now at the proposals to be made to the upcoming ordinary general meeting on May 18, the Board of Directors reconsidered its initial proposal and decided to cancel the 2020 dividend payment, avoiding a short term cash outflow of close to CHF 200,000,000. Furthermore, the Board of Directors proposed to the upcoming ordinary general meeting to increase the conditional share capital to CHF 63,500,000 divided into CHF 12,700,000 registered Dufry shares with a nominal value of CHF 5 to enable the physical settlement of the convertible bonds upon conversion. In summary, the equity measures presented today as well as the new credit facility, the cancellation of the dividend and the other operational cost cutting measures being implemented will significantly strengthen Dufry capital base and liquidity position. The initiatives are designed to help us to continue operations until the next cash generation cycle in 2021, even under a severe scenario with sales reducing by 40% to 70% on a full year basis, while also providing us with enough flexibility to react to business opportunities arising in the context of the current situation. This concludes my presentation, and I pass the floor back to Julian. Thank you, I will try now summarize in 3 blocks. 1 is regarding operations, the other one is financial structure and the other one is communication. Regarding the first power operations, I think in the Q1 2020, turnover has been dramatically impacted by the crisis. We have reached CHF1.4 million, equal to a minus 20.8 percent in constant currencies as compared with last year and minus 23.6% in reported growth. Looking here at the trends, we have seen sales levels still reducing in the month of April as expected as more locations were impacted in April. Periodic sales were at minus 94.1%. As of January, we have implemented a comprehensive action plan to drive sales, reduce fees costs and safeguard our liquidity position. The action plan considers possible sales decline scenarios for the full year of between 40% to 70% of sales, which depending on the scenario will result in a different cost cutting depending on the type of cost from concession fees to personal expenses and general expenses. With respect to the net working capital and CapEx initiatives, we target savings of CHF160 1,000,000. Furthermore, in view of the reopening, we have already developed the respective plans for each location, obviously based in recovery in gradual recovery. In this case, the plans are based in the profitability of each single location to drive sales and volumes in parallel with the recovery of the different operations. In the second block is in terms of enhance of financial structure. I think in the positive side, I want to highlight again the successful implementation of several financial initiatives executed in a short period of time. New bank facilities, covenant holiday, capital increase and convertible bond. The new liquidity allows us to sustain and even prolong an impact period to obviously reach the net cash generating cycle in the second or third quarter 2021. And the last part is in terms of communication. We have already communicated that we have withdrawn our guidance for 2020 business year as the business environment is very dynamic and visibility is still very low. When the business will reinitiate and how it's going to reinitiate is still uncertain, but what we have seen is a significant number of new scheduled flights for June and especially July. From my side and from the company side, this completes our presentation and we can now move on to the Q and A session. Thank you very much. We will now begin the question and answer session. The first question comes from the line of Jon Cox, Kepler Cheuvreux. Please go ahead. Yes, good afternoon, guys. Jon Cox, Kepler Cheuvreux. I have two questions for you. The first one is really, you talk about this pro form a cash and liquidity you have of €1,600,000,000 as of the end of March, which obviously includes a convertible and all the new facilities, etcetera. Can you tell us what that figure was at the end of April as you've kindly given us your 94% sales decline in April? And then the second question, just on the sort of recovery or whatever may happen. Julian, I think you've said before that your worst case scenario is for 2019 sort of business or passengers to be to where they were at the latest in 2022. In the meantime, you've seen the ACI and IATA and Boeing and Airbus and quite a few airplane operators actually saying the figure is more like to come back maybe 2024 or even 2025. I'm just wondering if you thought about that at all or if you've changed your opinion on when we may be back to those 2019 levels? Thank you. Yes. Regarding the cash position as I told you the last time, in April, we were expecting between $200,000,000 $220,000,000 I think it was $215,000,000 cash burn and it's already confirmed. You can deduct from the $1,600,000,000 to $200,000,000 that I mentioned at that time it was confirmed. This is just for confirming the first thing. The second is a bit more obviously difficult to answer because there are many different scenarios now. And I think if you look at I don't want to mention specific obviously institutions, but if you look at for a simple ACI, they are sorry, IATA and I think this is obviously one of the most relevant ones. They are talking about -57% decrease in income per passenger for the airlines in 2020, we are looking at worst case scenario minus 70. And then in terms of the gradual recovery, when I said at that time and this is based on the information that we have also collected still is very short information. In any case, that the full recovery of this minus 70% scenario will be in along 2022. And I don't have any other information. You think that there are more available information we can share information but still the visibility is very short. I sustain that with minus 70% scenario talking about sales basing a significant number of dropping passengers today, I think what is on the available information is between 50% and 60% drop in number of passengers in 2020. I don't chain anything. I prefer to say that the information that we have collected says that in 2022 the number of passengers could be recovered. It could be 24, could be 25, I don't have a clue, but I don't know what the rationale is to say 22, 23 or 24 today, It's still very early. Thanks. Thanks for that. I wonder if I can have another go. Basically, you said the last time around you think the cash burn should get down to around €70,000,000 from May as you sort of really tightened the screw on all of the cash outflows. Can you just confirm that figure if sales are down? No, no, I didn't say that, Jon. Maybe I explained myself wrongly. You asked me the question the last time, what is the burn case scenario? For me burn case scenario cash burn case scenario is set of sales. With set of sales I maintain the same thing, dollars 70,000,000 $75,000,000 When I think somebody asked me the question about May and I say in May the cash out scenario, not the cash burn scenario, the cash out scenario was half done in April. It's around €90,000,000 €95,000,000 but in a standard way with no sales in a let's say May or June or July scenario, I the same thing, it's €70,000,000 €75,000,000 In May will be due to previous obviously commitments of payments or cash outs during the Q1 will be around half of April. But from now on if there are no sales the cash burn scenario is 70%, 75. Okay. Thank you very much. The next question comes from the line of Jafar Messari with Exane BNP Paribas. Please go ahead. Mr. Masada, your line is open. You may ask your question. Hi, good afternoon, everyone. Just two questions for me, please. The first one is, could you please just repeat your operating cost assumptions? You were speaking fairly fast. I think I heard you say in your minus 40% revenue scenario, your assumption is that rents would represent, I heard, 38 percent of revenue? 32.5 percent. For 40% scenario, it's 32.5 percent. In minus 70% scenario, it's 38%. Thank you. And that's to be compared to the pre IFRS numbers Yes, yes, because if I explain you this in IFRS 16, we are not going to end. I think it's easier. I thought that was easier to compare pre IFRS 16 for the reason I mentioned. Fair. So I think the reference number is 28%. So obviously it's close enough, but just to be very clear, you don't assume all of the contracts will have fully variable rents. You do assume that the rents will No, no. We are assuming depending on the location because there are rents that are not marked, are related with the square meters and things like that. But in most of the cases, let's talk about the minus 70%. -70%, the 38% is considering a vast majority of the MAX and relief. Okay. So some mag relief, but not 100% mag relief? I don't remember now, but most of them. You can count on most of them, because today we have most of the negotiation processes are very advanced or really today closed down and we are losing the 1st month. And my second question is on your reopening scenarios. Do you have flexibility to choose your own schedule of reopenings? Or are you pretty much tied and committed to the schedules that the airports will decide? As an example, could you choose to delay a certain reopening if the airport said we go live tomorrow morning, but do you think that realistically the expected footfall is still too low? Or are you absolutely confident that it's better to have some sales even if it's 10%, 20% and your confidence that paying sales teams, paying support teams, paying rent is worth it even if there's only a small recovery? Well, it's also difficult to answer the question. What we have is a plan that has identified basing in profitability location by location meaning shop by shop, what should be the scenario that we would like to reopen. But there is not one single negotiation process open today with anybody in the world yet in order to discuss how the reopening will happen because I think the first thing probably will be airports especially with better understanding about how the passengers evolution during the next months is going to happen. As soon as this this is a challenge. We need to obviously meet with each one of the landlords and discuss what the reopening plan should be. But what we have done is in this line what we have identified location by location, basic profitability what the shops are that we should open in our case of reopening of an airport. But then depending on the number of passengers and depending on the airport interest, we don't control obviously the second parties. Today if you ask the question, do you ask me the question, do you know if tomorrow you will be obliged to open all the shops in one single location? I don't have a clue. I don't know because depending obviously on the landlord or import authority. But the plan is basically taking into consideration what I have mentioned. Okay. Thank you very much. Your next question comes from the line of Michael Bowen with Sona. Please go ahead. Hi. A few questions from me. It would be very useful to have, I know these are exceptional times and I know that you'd agreed not to file quarterly financials, but the reality is it's very hard to model the business without being able to see what's happening to it on a quarterly basis. Is there any chance you could release Q1 financials so that at least we could do our own math and try and gain further insight into the various business trends? The answer is no, we cannot obviously we disclosure first that we were not having the intention because first of all this business was very volatile due to the seasonality and that was the main reason at that time. If there is volatility now is set up because obviously we don't have any business and the reality of the business is completely different than in the past. We have not yet obviously decide what is the best way of approaching the business from the accounting point of view. We are discussing with auditors and with other people and we don't want to in any case disclosure information that is not completely audited and solid. I cannot answer the question in a yes because it's not possible. Okay. The second question is with respect to the various line items in your P and L and what you commented on because it was rather rapid around concessions, personnel reduction and other line items under the 40% 70% decline in business? Sorry, I couldn't understand the question. I mean, did you expect personnel based on the one? Let me explain. Obviously, I mentioned the lines of the P and L that are related with the operation. I think below is today is easier because nothing has changed. In fact, below the operational performance, what you have is the typical lines of P and L. Financial results. Financial results and that's all. But this is something that nothing changes so far. I know, but what I'm asking you is how much for example your concession rates will come down by? How much for example your personnel costs will come down by under the 40% and some I think I explained it. In that scenario minus 40%, concession fee we are expecting will be 32.5%. In that scenario minus 70%. The concession fee percentage on turnover, we expect is 38%. Personal expenses, in any scenario of minus 40% sales, it's minus 20% personal expenses. In any scenario, minus 70% is a minus 35% drop or lower restaurant expenses. In other expenses, it's minus 26% is minus 40% scenario and minus 38% is a minus 70% scenario. Sorry, because probably I didn't explain it properly. That's okay. Thank you very much. The next question comes from the line of Rebecca McClellan with Santander. Please go ahead. Yes. Good afternoon, Julian and Yves. I hope you're all well. I've had most of my questions answered, but just is there any sort of situation of where lockdown has been easing that you can sort of talk us through in terms of what you're seeing domestic traffic? Or is there anything that you can give us to sort of understand what's going on the ground? Hello, Rebecca. Yes, I think during the last 2 weeks what we have seen still is very, very, very low increase in the U. S. I think especially in the West Coast, we have seen an increase compared with sales and if you compare these sales with previous weeks. Okay. This is probably the best example. The other divisions still in May are at the same level. Right. So what you're saying is on the West Coast, the sales contractions are just of a lesser extent to what they were perhaps in April or? Yes. If you compare the sales in the last 2 weeks in the U. S, let's talk about the U. S, mainly is because the origin of the West Coast. If you compare the sales in the U. S, the last 2 weeks with the sales 1 month ago in order to compare with a period of time where the U. S. Was very hard, the sales are increasing. Increasing in percentage high, but still very low. Right. And that's obviously just domestic travel, right? Or you've got some of the Domestic and in Canada is international because obviously when you say U. S, we are talking all the division. In terms of U. S, the increase in Canada has been again very low numbers, but increase in duty free in Canada, especially Vancouver and the increase in the domestic traffic in the U. S. Right. Okay. And I think Bahrain Air this morning announced that they were going to resume 50% of their flight schedules or something as of July. Do you get visibility on what these plans are? And can you talk about that at all in terms of what the airlines are planning in? The detail is very difficult, Rebecca. What we have seen is a lot more scheduled flights for June July, a lot more. And numbers, what I heard because called some of the airlines directly is they want to move between 15% 25% of the passengers in this way. And in this case, you're just open sort of a minimum necessary stores to accommodate that sort of passenger flow, right? Yes. This is the plan we have. It's a minimum requirement in terms of profitability per shop. Okay. All right. Okay. Thank you. Thank you. The next question comes from the line of Gianmarco Pero with MainFirst. Please go ahead. Hi, everybody. From my side, only a quick question also on the net working capital and the CapEx improvements that you mentioned. So the EUR 160,000,000 in the press release, I just try to understand there a little bit more the background behind it. So I can understand that this is a rough estimate for the current full year. But however, if I just look at your inventories by the end of 2019, which was over €1,000,000,000 on the book. So can we expect that, especially now at current quarter, you are significantly reducing net working capital by stronger amounts than what you mentioned for the full year? Okay. The net working capital when you don't have sales and you buy merchandise and the certain time in percentage, first of all, it's not going to be an issue because you cannot compare, but in terms of value. I think the target that we have in terms of net working capital is reduce the net working capital between $10,000,000 $20,000,000 This is something that we announced probably 3 calls ago or 4 calls ago. The difference with the €160,000,000 is basically a stop in CapEx. And this stop in CapEx is this $140,000,000 this stop in CapEx will depend on the situation of the reopening because if we start with a significant level of activity we will invest more. But the basic minimum CapEx that we will invest this year, including January February and middle of March that were invested before obviously the crisis is around $69,000,000 plus that, that the total CapEx that we are expecting in a maximum crisis scenario this year that the $70,000,000 will be around $80,000,000 $85,000,000 This is the maximum scenario. Then there is the gap to the $140,000,000 depending how the company will evolve in terms of sales. In terms of inventory, it's obvious that we are not selling anything now and that we are trying especially reading off our stock and of solid sales products around $1,000,000 This is the reason of the drop of the $20,000,000 not because we are selling more or less, we are not selling anything now. It's because we are reading off merchandise what is considered obsolescence or merchandise that is close to the expiration day and this is a $20,000,000 improvement in these two lines, not because we are selling more or less. But if you want to model this part, I would say, in terms of CapEx, I would put obviously the company is reinitiating during the next 30 or 60 days, I will consider €140,000,000 saving compared with previous year. And in terms of the net working capital, in equal terms, it will be the target to be the same in value compared with previous year. But in this case, what we are trying is to save $20,000,000 due to obsolescence and 2 expedition days. Okay. Thank you. So this means that you are at the moment just trying to sell back non durable goods to suppliers or even to other retail channels. So all the durable goods you keep them in the stock? Yes. The good products are in the stores we want to sell as soon the shops are open. Thank you. All the best. Thank you. The next question comes from the line of Neil Keeney with Credit Suisse. Please go ahead. Hi, guys. Thank you for your time. Just a couple of technical questions from me. You mentioned with regard to the covenant waiver that you've secured that until June 2021 and then renegotiated to 5 times threshold for September December. Can we assume, therefore, that the covenant test will take place quarterly going forward? I believe it was semiannual prior to this. And secondly, can you confirm if a breach of that covenant would be just a draw stop event? Or would that be an event of default, which would you would need to get cured or waived under your senior facilities agreement? So the first one, the testing has been done on a quarterly basis already before. So that's nothing new. We have quarterly covenants testing, and we going forward will have quarterly covenants testing once the covenant holiday is over. To the second one, a breach of the covenant would result in the event of default. Okay. Thank you for clarifying that. I appreciate it. The next question comes from David Holmes, Bank of America. Please go ahead. Hi, good afternoon, guys. Just a quick question on leases. You mentioned you were at a fairly advanced stage of negotiations with partners. I just wonder if you can comment at this stage whether you expect that to result in any deferrals in minimum annual guarantee payments to the coming years and we should expect that to be a drag on cash? [SPEAKER JOSE RAFAEL FERNANDEZ:] Well, I don't expect this type of result for the negotiation process because as I said, majority of the partners are aligned with the idea that we need to solve this in order to create a sustainable business. If we have 1400 in contracts or I don't know how many and only a small part of these contracts are related to a possible MAC. I mentioned the last time is around 20%, 25% of the contracts who are related with different approaches in terms of Mac. Maybe we are not successful 100%. But I think in these percentages that I provide, we are considering these type of possibilities. The next question comes from Kelly Goncalves from Brube. Please go ahead. Hi, thank you for taking my questions. I have 2 quick clarifications. Can you confirm that the cash burn from June onwards is €70,000,000 €75,000,000 maximum if you have 0% I mean 0 sales? And can you maybe also help us I mean, can you elaborate on how we should be thinking of working capital movement this year and next year across your 3 cases, if that's possible? Thank you. Okay. Regarding the cash burn, in 0 sales scenario, I confirm it. So the 70%, 75%, obviously depending on the circumstances, but yes, I confirm. Regarding the working capital, I think for 2020, what I suggest is that in terms of no percentage, you forget now the percentage because everything is going to be totally different. You have to follow-up the net working capital amount minus 20,000,000 dollars Amount meaning is similar amount that we had at the beginning of the crisis will be alone 2020, this is the intention minus €20,000,000 In 2021, I don't have the information here, but we will discuss it with you in another call. Thank you. The next question comes from the line of Edouard Aubin from Morgan Stanley. Please go ahead. Yes. Good afternoon, guys. So just 2 or 3 questions for me. The first one is, Julien, you were kind enough to give you your assumptions in terms of employee costs in terms of the different scenarios. Could you just please elaborate a little bit in terms of what you're expecting in terms of in terms of prolonging and government support? Because in some of your main markets, some governments like in the U. K. Have announced that the support would be cut quite materially over the next few weeks, few months. So that's question number 1. The second question is on the cash burn. Sorry to come back at that again, but you gave us the €70,000,000 to €75,000,000 in a 0 sale scenario. But sorry to ask the question again, if actually could the cash burn increase actually further in a scenario where the airports reopen, but your sales are very low? So what could be your maximum potential cash burn? If you could answer that question, that would be super helpful. And last question is on the UK and Gatwick. As I'm sure you know, it's quite likely to lose BA, Virgin and Norwegian, so it's a very important airport for you. How material should they lose should Gatwick lose some of these airlines? How material could it be for you for Dufry? Thank you. The first question sorry, I think I give you an ex government support how long they lost. Yes. [SPEAKER JOSE RAFAEL FERNANDEZ:] Yes. Eduardo, you know that there are different approaches depending on the government. I cannot answer the question in one number. If you ask me about the UK, we have one obviously deadline in Spain is another one. There are hundreds of program supports. But I think all these program supports are related with the crisis and also with the tourism and or aviation. I think the crisis understood as obviously lockdowns and things similar to that is not the only supportive decision that obviously establish the support by the government. I don't know, there are 100. I cannot tell you specifically one number. Regarding the cash burn, I repeat it, it's 70%, 75% because this is the 0 sales scenario. If you tell me 10%, 20% of sales, 50% of sales, what I said at the time that we announced the financial initiatives is that with minus 70% scenario in sales, we were in the position to continue until the next cash telco with the initiatives started based in the financing increase, financing facility increase. This is what I mentioned at that time and I confirm now. Then it's dependent, Eduardo, I cannot tell you 20%, 50% is different obviously, but the company is preparing a minus 70% scenario and with the financing increase, lines increase that we have agreed with the banks to continue until the next, let's say first I think it's 2nd quarter, this year will be 2nd quarter because it's going to be April, May. Regarding the UK and Gatweg, I don't know what to say. We are obviously following up all our partners and we would prefer that our partners will maintain and sustain the same level of business, but I don't have any comments to that. I think this is a situation that Gatweg is probably discussing with British Airways and other airlines. Okay, thank you. The next question comes from the line of Stefan Ralves with Serra Global. Please go ahead. Thank you for taking the questions and hope all of you are well. My question is related to basically, I guess, AENA. Clearly, you mentioned 20 percent of negotiations are with airports where you have some kind of mag. Is it possible that even a very difficult sort of partner as AENA could actually maybe give you some leeway or you will have to pay the full mag in January. And so we will see the cash burn actually deferred in 2020, but it will show up in the beginning of 2021. That's the first question. The second question I have, clearly with these times, e commerce is would be nice to have some kind of way to liquidize some of the inventory. Is there any initiatives that you're pursuing with respect to either setting up your own e commerce abilities or through partners to try to basically liquefy somewhat the inventory, get rid of stuff that you can't send back? Official declaration by the minister in Spain and also official declaration by AENA during the last conference call. This is my reference point, but from Dufry we don't have any comment. Regarding any comments, it's obvious that we cannot sell duty free products, not because the suppliers are not allowing us, it's because as you know we are bonded areas. As bonded warehouses, we cannot sell merchandise online. What we can do is preserve, preserve, preserve when you are traveling. I think it's something we cannot do. If you are asking me, can you sell duty free products in duty free online, we cannot do it legally. I see. But is there a way that you can sell some product that you think maybe is not expired, but basically is no longer relevant. For example, if it's spring collection of something, clearly that's not going to be in demand, but you can perhaps sell it on another platform even though you are clearing out your inventory, it's you could do a write off and then basically get some of the money back? If we agree with the suppliers, yes. Okay. Thank you. That's all. Thank you very much. The next question comes from the line of Alexander Kretzler with Barclays. Please go ahead. Hello. Thanks for having the question. Just one question actually for the sort of cash burn in April May. I think on the very beginning of the Q and A where you mentioned that I just didn't get it actually was a deadline. I have noted down that you had in April €50,000,000 of cash burn. Does that include actually your May figure or does this come on top of that? So look, just to clarify again, what we said before is cash burn in April, what we stated last time is €200,000,000 to €215,000,000 not €50,000,000 €215,000,000 what is confirmed is around €200,000,000 that's for April. For May, what we have said before, what Julian mentioned before is about half of April, that's probably shy below €100,000,000 That's one message. And the other message is in a no sales scenario €70,000,000 to €75,000,000 per month. Understood. Thank you. Your next question comes from the line of Aman Mahal from PGIM. Please go ahead. Hello, guys. I have a few questions. The first is, you've obviously modeled out various scenarios for the year between the minus 40 percent and minus 70% stress. What sales decline would it what sales decline do you reach free cash flow breakeven? So it's probably it's difficult to say. Look, it really depends on how you draft the scenario. But in a scenario where we lose 40% of sales, we already see a certain negative element of cash flow for the year. Okay. Do you have a sense what the breakeven decline is then? Are we talking 1% to 30%? So look, I cannot give you a percentage, and I believe it probably would also be misleading. So look, it really depends on how and where you draw the line, how you make the geographical split, etcetera. So I think it's pretty difficult to give a precise percentage. And it's also not the way looked at our models. We looked at the models of minus 40% to minus 70% at this stage, and we were not calculating a breakeven model in that sense. Okay. And then that's obviously kind of your stress assumptions for 2020. How are you thinking about what are your kind of assumptions for obviously when you size the size of your working your liquidity facility? How are you thinking about 2021 in terms of the range of scenarios there? In 2021, what we are expecting is obviously in the first scenario, the 40% that we comment on, what we were expecting is a late recovery in 2020, meaning November, December and or early 2021. In minus 50%, we were talking about a recovery during the middle to late 2021. And minus 70%, we were talking about a full recovery in alone 2020. Those are the 3 basis that we have used. Great. And then just one final question. Guess you talked about it a little bit in terms of the April May cash burn. But just thinking about working capital, for the full year, you see a €20,000,000 improvement year on year. But where do you see peak working capital year on year in terms of cash burn? So look, it's obviously depending on the scenario and the assumptions, the underlying assumptions, certain shift because we started to stop purchasing at some moment in Q1, but obviously with already being partially in the crisis. So the peak in that sense is obviously in the first half and then the effect should or is expected to fade out over time. The next question comes from the line of Julien Martin with Aberdeen Standard. Please go ahead. Yes, hi, good afternoon. Just coming back on the working capital question. I think it's you have a positive net working capital position in that. Your inventories and receivables are quite largely your payables. And so I think in most people's mind, if you have a business that's generating half of the sales you used to do, you should be able to release some cash from that working capital. So it's a bit difficult for Atisme to understand why you would want to have a similar value of working capital going into 2021 when your business is going to be half of what it is and you're only expecting like a mild recovery in 2021 only going into full speed in 2022. So my assumption would be you would be selling most inventories as you can in 2020, not rebuilding any real stock receivable from trade would unwind as well. So you should be seeing some cash inflow from that. I'm struggling to understand why you would not see that. Thank you. Sorry, I didn't say so. What I said regarding 2020 one is that I didn't have here the information as I don't remember exactly all the facts. In terms of 2020 is what I answer. And in terms of 2020, we want to maintain we want. We would like to maintain the same level in value of the net working capital minus the $20,000,000 that we want to improve. Regarding 2021, theoretically this is correct, but we need to obviously answer with the detailed information. Theoretically it's correct, but think about one issue here. You have for certain level of sales, you need to buy merchandise. And this is today uncertain. What is the type of merchandise where we need to buy. We have obviously number for 2021, but I think it's less concrete and less specific. But in terms of 2021, I didn't answer the question because I said we don't have the information here. If there is obviously interest, Renzo in the Investor Relations department could follow-up the questions. The answer was 2020. Okay. But if we exclude the product mix that customers want, I'm not sure what your scenario entails in terms of recovery, in terms of sales, but you would be going into 2021 overstocked, right, if you had the same amount of working capital going into 2020 going into 2021? That depends obviously on the inventory that you sell. Not all the inventory has the same rotation in this. The most important thing is what is the inventory that this company is going to need in terms not the values obviously the amounts, it's in terms of the quality and the type of product and we don't know, nobody knows yet. In previous crisis and I mentioned this before, the most accelerated or what were the first recovered was the categories tobacco, spirits and fashion and cosmetics. And the other categories including fashion, luxury products in general, including fashion watches, etcetera, was obviously more slowing down. And this is an important part because this part of the inventory is also seasonal. For calculating in 2021, the sales, independently of the volume of sales, that it will be in any case below 2019. As I said, the recovery is expected in 2022. You need to really project how these different product lines are going to be impacted due to the crisis. If we are talking about tobacco, spirits and personal cosmetics, we have an advantage because the investment in networking capital in these product lines is lower than in the families, the other product lines, but we don't know yet exactly. In any case, for financial information we have an AMR. Obviously, we have projected and will be communicated by Renzo if you have interest. Okay. And just on the CapEx, so you said about CHF 140 CapEx cuts. So just for modeling purposes, CHF 100,000,000 seems the right ballpark to think of for CapEx this year? Imagine that the situation is not recovering. And what I said, if the situation is not recovering, we are going to invest around €65,000,000 €69,000,000 from the moment the crisis started to the end of the year that we have added to what we have already invested will be around €80,000,000 €85,000,000 If the situation is normalizing in the sense that we are having obviously sales not at the level that probably we would expect, the CapEx compared with previous year, we have today a possible saving of €140,000,000 as a projection. But in a very low case scenario, you have to model around $80,000,000 $85,000,000 in CapEx. In a normal circumstances, it's last year's CapEx minus $140,000,000 but all depends on the circumstances. If the situation is like today, it's €80,000,000 total. The next question comes from the line of Linda Pasquini with Reuters. Please go ahead. Hello. I just wanted to ask since you mentioned in March about reducing personnel, if you're planning further reductions in staff and if we could have an indicative number about how many positions have been cut? No, I don't provide this information at all. This is confidential in total and it's obviously one of the most relevant information for our employees. Okay. Thank you very much. The next question comes from Farida Movaeva from Networks Markets. I just have a small just one question, and it's regarding your concession portfolio. I want to know if you plan to exit some of your existing contracts. For example, 17% of your contracts have like 1 to 2 years of life remaining. So I thought it would be an opportunity to perhaps exit them without paying any penalties. So yes, just your thoughts around that. Thanks. Well, we are not today, we are not planning to exit any contract because if the contract has 1 or 2 years, it's the right time for starting a renegotiation for extending the contract. In principle, the answer is no. But obviously the reality then if there is not a renegotiation maybe, but today the answer very clear answer is no. We are not planning to read off of any of the concessions today. Okay, thanks. The next question comes from Eva Horchikova, Napier Park Global Capital. Please go ahead. Good afternoon, Yves. Good afternoon, and thank you for taking my question. Could you please comment on what you see in terms of rebound in Asia? I know that your presence there is not huge, but what do you see there in terms of increasing passengers that will be really helpful? Thanks. We don't have any positive news for Asia. The only thing positive is probably in the domestic business we have in China, we have seen a slight increase, but not significant at the level to say anything. In the rest of the locations still the situation is similar than in April. Thank you. We have a follow-up question from Mr. John Cox from Kepler Cheuvreux. Please go ahead. Yes. Hi. I just have a just a couple of points of clarification. Just on the you mentioned the personnel costs. Did you say that would be 20% of last year? Or did you say down 20% from last year if you are down 40% for the year as a whole? Yes. It's down, Jon. Down 20% and then down 35% if it was down 70% and same for the other, down 26 and then down 40. Yes, down. Yes. Yes, down. Whereas the concession fee was a share of 1. Percentage on turnover. Okay. And then you also mentioned, I thought you were saying, if your sales continue down around 70%, you could you can last and you're talking about the next cash flow cycle, you can last until Q2 next year. Is that what you were saying? Exactly. That's your assumption? Exactly that. Yes. Okay. Great. Thank you. Next question comes from the line of Guillaume Ravi with Balmain. Please go ahead. Hi, good afternoon. I have a question regarding the rescue loans from governments. I think last call, you mentioned that you were potentially eligible for up to €180,000,000 from such government rescue loans or grants through all the subsidiaries combined. Can you please update on where you are on this? And if you have applied for some of them, do the amounts reflect your estimates of up to EUR 180,000,000? Thank you. Thank you very much for the question. So what we have at this stage, we looked into a number of opportunities. We currently have around €60,000,000 €65,000,000 which we have agreed with governments. As you have rightly pointed out, the potential is probably in the area of €180,000,000 €200,000,000 But look again, the liquidity, we have been able to safeguard over the last 2 weeks the €1.6 6,000,000,000 in total, I. E, new facilities and the existing ones we have on the balance sheet is, from our perspective, sufficient to navigate through the current crisis. If there are additional opportunities, we obviously look into that, but we don't depend on it. We have a follow-up question from Mr. Stefan Albe with Sierra. Please go ahead. Mr. Aldi, your line is open. You may ask your question. Yes, sorry about that. Thank you for taking the question again. Just a quick clarification because I maybe I'm just too thick headed to understand. So the personnel cost will be 20% down in absolute terms in the 40% scenario or 20% of sales? And it was 30%? Sorry, maybe this is a misunderstanding here. I said, in the scenario minus 40%, personnel expenses to be reduced is what I said by 20% and in a scenario minus 70% minus 35% is what I said. I am repeating again, maybe there is a misunderstanding. I appreciate that. It must have been my misunderstanding. And then there are some inventories that are caught on ships from your new cruise line initiative. Those are probably not quite in the same bonded inventory level or are they? Could you be able to liquefy those and what benefit could you get from those? Like the question before, I'm also thinking that perhaps there is a way that you can maybe have the opportunity to have sort of a better mix at the end of 2020 in terms of products that you clearly more skewed towards tobacco, liquor, etcetera, which will sell better in 2021 and perhaps an absolute level decline in value. There could be some also some deflation in prices in the different products as well that could help you? Okay, I think in terms of the cruise lines the inventory is obviously is a combination, is blended. There is a significant part that is related with the ships, is related with branded merchandise and this is merchandise that will be there and as you probably know these cruise lines are planning to reinitiate the different end lines in around August and this is official information I don't know specifics yet. Regarding the rest of the inventory, I already mentioned is we are reading off the inventory that first of all we identify based in of solid sense and based in expiration and this is already in the process. For the rest of the inventory we prefer to keep the inventory until the shops reopen because as you know this type of companies always invest in net working capital. Why? Because obviously the delivery times and the distribution is not like in the domestic market. We need to be sure that we are not losing one single opportunity of sales because we are wholesaling merchandise X, Y or whatever. The strategy today is clear. We prefer as far obviously as the shops will reopen. We prefer to keep the inventory for selling the inventory in the shops with higher margin and obviously using the opportunity of selling merchandise when the customers will go through. For the rest, I think it's another business. We are a retail company. Thank you. And that question that was before about whether 0 sales or maybe 20% or 30% level of sales, is it fair to say that once sales go up, your net working capital sorry, your cash burn actually should decrease? Can you confirm that? So if we have some kind of positive sales or it depends on the geographies? Okay. No, not depending on the geographies. In general when the sales will go up depending on basically how much the sales will go up, there is there are different lines of the P and L that will be positively impacted especially the lines with still fixed costs as you know because obviously the percentage of increase and design will be important. If it's 5%, 10% is in my view more dangerous than if we are talking about 40%, 50% increase. It's a completely different scenario. What I guess is planned and agreed with the different departments is number 1, based in a set of sales scenario. And number 2 is the 3 scenarios that we mentioned before, from 40% to 70%, including the 50% in the middle. And in all these scenarios, the situation with the financing structure that we have implement is solved. Then if it's 10% or 20%, I cannot tell you now, I don't have a clue. But the reality is that 40%, 50% 70% minor, minus in sales are covered completely. And the other one is the cash burn, head of sales scenario is already covered. Then we'll see and we will adapt the company to the reality of the situation. This is one of the things that I mentioned before especially during the first call when we were talking about the crisis in Asia at that time. And we said one thing that is still very valid. The most important thing now is flexibility and adapt the organization to the reality of the business. This reality of the business is still uncertain. And to say one thing specific is very difficult. We work with scenarios. If tomorrow, the day after tomorrow we see that the sales are -forty, -fifty, -seventy we have a plan. If it's -forty we have another plan, but this is a completely different story depending on the circumstances. What I want to say is flexibility, implementation of flexible cost structure and adaptation. Let's say one of the worst scenario of the 3, the cash burn might be higher, but you have the flexibility to take additional measures at that point to try to basically stay within your guardrails of the 70%, 75%, you will do more? This is exactly the point. Got it. Thank you. The next question is a follow-up from Ms. Rebecca McClellan with Santander. Please go ahead, Madeline. Yes. My question is just sort of being sort of addressed. But just in terms of your scenarios, I'm assuming you've incorporated all of the sort of government support or potential government support that is possible for the business, right? If the government support is positive for the business, the answer is yes. No, in your current scenario, they incorporate all of the possible support that you could get, right? In 2020, yes. Okay. Thanks. We have another follow-up coming from Mr. Alexander Kreisler with Barclays. Please go ahead. Yes. Hi, thanks. Just one quick question actually on the state aid or the state loans. You said €60,000,000 to €65,000,000 were already agreed. So does that mean you're actually drawing or basically using these facilities or you still think that the liquidity at the current level is sufficient to reach your goal of Q2 2021? Look, as I've mentioned before, the facilities we have in place, I. E, the CHF 1,600,000,000 is sufficient for the group. Nevertheless, we have those CHF 60,000,000 CHF 65,000,000 equivalent of government supported facilities. And in the cases where we have them, we have also drawn under those facilities. So that's the way they work actually. So they don't work as an RCF, which you just have committed, but you don't draw under it. Understood. And how do they rank versus your other credit facilities? Look, I cannot go into the details of that. Okay. Understood. Thanks. The last question for today comes from the line of Mr. Edouard Aubin with Morgan Stanley. Please go ahead. Yes. Hi, Julien. So just one small follow-up from me, sorry, on the capital structure. So you went into this crisis with quite a bit of debt on your balance sheet, I guess CHF 3,000,000,000 Going forward, if we look at the medium to long term, what kind of optimal kind of capital structure do you envision? Do you see lower obviously, And obviously, would that mean that we should not expect any dividend payment for the next 3, 4, 5 years out? Yes, I think, Eduardo, it's from our side. I think the dividend payment has been suspended due to the circumstances. If the circumstances improve, I think the dividend payment will be reinitiated, number 1. Number 2, regarding the leverage, this company has been in a certain level of leverage depending on acquisitions as you know. And obviously due to the circumstances to mention non acquisitions now is probably not the best case scenario as a consequence. What I think the company will plan for the next 2 years and still is depending on the visibility is to try to reduce the leverage, the level of 3x, 3.5x as we said in the previous obviously in the previous life when we were talking about a different scenario. I can't maintain the same thing. Okay. Thank you. That was the last question. I'd now like to turn the conference back over to Mr. Diaz for any closing remarks. Thank you very much and thank you for all the participants and the questions. Thank you. 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.