Avolta AG (AVOL) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Dufry's Half Year 2020 Results Conference Call and live webcast. I am Alessandro, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions]. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Julián Díaz, CEO of Dufry. He will now be joined into the conference room.

Good afternoon, everybody. Here we are in Zurich. Welcome to our half year results 2020 presentation. I am believe that we can hold a physical meeting. We are a very few people here. But still, obviously, it's important that we are face-to-face. And we also welcome the participants via conference call. There is a long list. With the presentation today, is -- with me is also if Yves Gerster, CFO, as always. Let's move to the Slide 2 of the presentation. Here is a glance at our agenda for today, this meeting. And as always, we are going to dedicate a significant time, I hope, at the end for your questions. If we move to Slide #4, I think what we have here is the highlights of what happened during the first 6 months. In the center is organic growth, minus 60.6%. Sales negatively impacted by, obviously, the pandemia, but with different evolution. First, we started with a significant increase of sales in January. February, gradually slowing down, especially for the impact in Asia and in international destinations with minus 7%. And finally, in October, during the first quarter, with the same trend and in February -- sorry, not October, in March, with the same trend in the first 2 months, and the second part with minus 93%, 90%, minus 94% compared with previous year. And we closed down in the first 3 months, the first quarter, with a minus 21%. During April, May and June, what we have seen is a slowdown in May, but with, obviously, an increase compared with the previous months. We were generating around 4%, 5% of the sales of last year. In May, around 9% of the sales of the previous year. And in June, where we will -- we had, obviously, around 9% of the sales of previous year. In July, and we are going to see that in a minute, we have reached very close to 20% of the sales of previous year. Again, during these 3 first days of August, we have been very close to 40% of the previous year. The message is, obviously, we are still far away, but what we have seen is a positive trend from, obviously, the moment that the situation of life has to close down most of the shops. On the left side is the CHF 1 billion, the CHF 1 billion savings that we have commented on in the past, that are, obviously, a significant -- is a significant challenge. But at the same time, it's also an opportunity for explaining that this company, and we have done in the past, is a company with a very good flexible fixed variable cost structure. The CHF 1 billion that is commented on in this slide on the left is fixed cost, and this is what we are expecting for the year -- full year 2020. So far in the P&L, what you are going to see is CHF 470 million impact in fees costs, plus CHF 137 million that are minimum annual guarantees waivers that, due to the pending documentation, have not been reflected, but it will be reflected during the next months. Specifically, talking about CHF 200 million in personnel expenses savings, around CHF 115 million related to operational expenses and around CHF 161.2 million regarding minimum annual guarantees release of cost. Continuing with the highlights, I think it's also very relevant that this company has been able, during the last 3 months, to really enhance and reinforce the financial situation with a significant number of initiatives that it will present and will introduce that as a consequence of we reached by June 30, very close to CHF 1.6 billion liquidity. On the right side of organic growth, one of the probably numbers that I would like to remind more because it's the most -- is the closer to the proxy of the former EBITDA before IFRS 16, minus CHF 103.5 million. This is a consequence of all these initiatives of savings that have been implemented and also the consequence of, obviously, the cash protection that we have done. On the right side, the equity free cash flow this time is CHF 750 million negative. It is a consequence of what we are obviously discussing today. But it's also relevant to mention that the most important part of this is due to 3 factors, 3 facts. One is payments coming from the previous year, concession fees and other type of payments that were originated in 2019. There were also expenses that were related with the halt of purchases that we have started. And finally, obviously, there is a significant impact also here about the slowdown of the sales. And as a consequence, the -- as a consequence of the purchases that we have done due to the -- possible at that time, high season -- we have quite a significant level of inventory. Moving to Page # -- Slide, better explain in #6. Turnover in half year amount CHF 1.6 billion, is CHF 2.6 billion less than previous year, 2019. The closures, as I mentioned, started in March 2020, and have been implemented in most of the locations where we are operating in April and May. Now with the travel restrictions being lifted, what I have commented on is, obviously, in my view, light at the end of the tunnel, is we have recovered from minus 94.1% of sales compared with previous year in May to July, minus 82.3%. During this early phase of reopening, we are experiencing a higher spend per passenger compared with 2019. This is another, in my view, relevant information. It's what we have seen due to the passenger profile is that the passengers buying something in our shops are increasing per head tremendously compared with the previous year. These indications are encouraging, but it would be too early to extract any conclusions. In our view, here, what we need to consider is that the persistence of the passengers recurrence is key for confirming these trends. If we move to Slide #7, turnover and organic growth by region. Is -- in this slide, represented, obviously, the total sales per division and also the performance in organic growth compared with previous year. The organic growth by region, comparing our segments, the best-performing has been Central and South America with organic growth coming at the 55 -- minus 55.6%. Why? Because this division was impacted the latest in terms of the process because obviously the crisis started in middle of February, beginning of February in Asia and then gradually moving to the West. And the last one impacted was division #4. The division was, at that time, operating international flights with total normality. Europe & Africa saw the highest decrease with total sales CHF 558.9 million in the first 6 months and organic growth minus 66.1%. Performance was negative across most locations due to the restrictions enforced from March onwards. From middle of June 2020 from June 15, travel restrictions were lifted or eased and intra-European travel, especially in Southern and Central Europe as well in the U.K., started to resume. Organic growth in our North America operation was minus 57.9%. The second less impacted in the period. We had a slowdown in both segments, but especially in duty-free, which is exposed to international flight schedules. The relatively stronger performance compared with other segments is based on the prevalence of domestic travel, which accounts for around 85% of the U.S. flight movements, but we are also considering here that North America got impacted later than Europe and Asia and the domestic started to resume already. Organic growth reached 50% in China and South Korea. This is division #2, being impacted especially during Q1 2020 by resuming domestic and bilateral travel in Q2. Other parts of Asia Pacific and especially Middle East region were impacted mainly in the second quarter and are still continuing to be impacted with a low level of open shops. If we move to Slide #8, net sales by region and sector as a consequence of what we just discussed. Europe was impacted and the restriction started early compared with North and Central and South America. Therefore, the split by region is slightly shifted compared to previous year. Europe & Africa amount for 36% of turnover, down from 44% in the full year 2019, North America with 25% and Central and South America with 21%. Dufry distribution centers experienced an increase in share from 1% last year to 3% this year. This is one of the reasons that we are going to comment on later because this impact, obviously, the margin -- gross profit margin mix. The wholesale business represented this year 3% and last year 1%. If we move now to Slide #9, net sales and performance by category. If you look at net sales per category, the product mix only shifted slightly. For example, the biggest category in regard the share percentage of net sales, perfumes and cosmetics, was slightly up by 200 basis points compared to full year 2019. However, the decline year-on-year in net sales was slightly stronger compared to food and confectionary or electronics as most of our shops were closed during Q2. It is too early to make out that trend regard the product categories. But in the past, what we have seen is obviously more resilient performance in, especially, tobacco, perfumes and cosmetics, food and confectionary and more impacted categories, basically talking about the luxury products. If we move to Slide #10, net sales by channel. The split by channel provides an idea about, obviously, that the most important impact happened in the airport and retail channel, were down and reaching around 63.6% in net sales compared with half year 2019. All the other channels were very close to 50%, 51% in most of the cases. If we move to Slide 11, as for continuing with, obviously, the same rationale that we have used in the past for announcing how the company is evolving in terms of square meters of commercial space. We have respect -- in this respect, opened 2,850 square meters of commercial space and renovated 6,350. Most of them, probably all of them, were opened or renovated before the crisis, the stronger part of the crisis started. The total number of square meters that we are operating today is 470,000. We have also under negotiation, and this is also relevant to mention, around 32,000 square meters of commercial space that will be negotiated and/or, let's say, allocated to the portfolio during the next months. If we move to Slide #12, what we are going to see from now on is the financials, and I would like to hand over to Yves for continuing with the presentation.

Thank you, Julián, and welcome, everybody, here in Zurich, and those who have joined on the phone. On Slide 13, the P&L, as we typically show it. Our half year statement 2020 clearly reflects the various cost reductions measures already mentioned by Julián earlier on, with an adjusted operating profit of minus CHF 464.6 million for the 6 months of 2020. Let me guide you through the different lines of the P&L. Gross profit reached CHF 920.5 million with a margin of 58%. The gross profit margin was mainly affected by the turnover mix from the retail and wholesale business. In fact, our retail-related gross profit margin was only 60 basis points lower as compared to the full year 2019. We achieved to maintain a resilient margin despite the sales decline. We expect a normalization of the business recovery, i.e., once the business recovers, the margin should go back to the initial number. Looking at the next line, lease expenses amounted to minus CHF 75.7 million in half year 2020 compared to minus CHF 633.8 million in the same period last year. These expenses, reflecting the variable component of concessions, naturally decreased due to the lower sales level. In addition, we successfully negotiated reliefs on the minimum annual guarantees, the MAG, with airport authorities and landlords amounting to CHF 161.8 million. We expect to recognize additional MAG relief of CHF 137 million for the period of March to June 2020, retrospectively. These additional MAG reliefs are not yet reflected in the financials for the half year 2020. Personnel expenses decreased by more than 30%, general expenses by 40% compared to the same period last year. We implemented an efficiency program, which included reducing costs on our levels, making use of government support schemes, voluntary salary reductions and also supported by Global Executive Committee and the Board, including ourselves. Increase in depreciation and amortization is mainly related to the recognition of impairments on intangible assets due to the COVID-19 pandemic. Impairments were CHF 131.5 million on goodwill, CHF 198.7 million on other intangible assets and CHF 10.4 million related to right-of-use and property, plant and equipment. Financial results, including lease interest and foreign exchange differences, amounted to minus CHF 72.3 million. Interest paid increased due to the refinancing of the senior notes in November 2019. These effects were partially offset by changes in margins for amendments and new facilities as well as one-off expenses related to the different financing initiatives taken during the last month. Income tax reduced -- or income tax reached CHF 40.4 million, and the income was mainly driven by the loss situation of some of our operations. Minorities were at CHF 101.4 million for the half year due to negative net profit achieved. Considering CHF 2.6 billion less turnover for the period and adjusted operating profit of CHF 464 million, proves the flexibility of our cost structure and our fast adaptability to the new environment. Moving to Slide 14 with the cash flow overview. Cash flow metrics were also impacted by the lower level of sales. Cash flow before working capital change was CHF 180.5 million. Adjusted operating cash flow reached minus CHF 103.5 million in the first 6 months. As a reminder, adjusted operating cash flow is a very good proxy to the former EBITDA. However, it is typically slightly below the former EBITDA. Keeping that in mind, one could argue that we have almost reached breakeven on the former EBITDA. I have briefly mentioned the MAG reliefs already, which have been accrued on the respective period in the P&L. In the cash flow statement, reliefs are excluded in the operating cash flow and shown as part of the lease payments. Our overall concession fees paid, which consist of the variable components shown as lease expenses and fixed components declared as lease payments, were nearly 60% lower compared to last year. Now please bear with me on the lower graph to guide you through the main impact on the equity free cash flow 2020 compared to the financial -- or the half year 2019. We already addressed the adjusted operating cash flow. In addition, change in working capital had a negative impact, which reached minus CHF 473.9 million in half year 2020 compared to minus CHF 17 million in 2019. Our trade payables decreased in the second quarter as we stopped purchasing new merchandise. The decrease was also related to the 2019 comparative base when we had an increase of CHF 97 million in trade payables. Additionally, other accounts payable, especially accrued concession fees payable, decreased as well. Income tax paid was slightly higher as payments in the half year were related to 2019. For CapEx, we have reduced it by more than 50%. Net interest paid was lower as the refinancing of our senior notes in November 2019 had a positive impact. Payments to noncontrolling entities decreased based on the decrease in net profit in the first half of the year. Other financing items contained the one-off net expenses related to the different financing measures we have taken in Q2 2020. Summarizing, we report an equity free cash flow of minus CHF 749.1 million for the first half of 2020. Moving on to Slide #15. This slide provides some additional details on our core net working capital and CapEx movements. Core net working capital, consisting of inventories, trade receivables and trade payables, stood at CHF 581 million at June 30, 2020. Not surprisingly, core net working capital, as a percentage of sales, increased due to the low sales level. Main driver was the decrease in trade payables. CapEx, as a percentage of our sales, also increased slightly at the beginning of the year, we were still investing in refurbishments. We spent CHF 60 million in CapEx in the first half of 2020, mostly related to refurbishment. For the second half, we expect a lower spend compared to the first half of the year for both net working capital and CapEx to sales ratios, we expect the normalization in line with the recovery. Slide 16 gives you an overview on the expense reductions and cash savings in the first half year 2020. We have included a bridge, displaying changes in the first half of 2020 versus the first half of 2019 at P&L and also cash flow levels. While we had a loss of turnover of CHF 2.6 billion, change in equity free cash flow was CHF 889.5 million in the first half year 2020 compared to the first half of 2019. Just for the avoidance of misunderstanding, this considers all cost items, not only fixed costs. Concession fees, personnel expenses and general expenses were reduced by more than CHF 1 billion compared to last year. In percentage, concession fees by 57.7%, personnel expenses by 31.6% and general expenses by 39.9%. At cash flow level, CapEx declined by CHF 65 million to less than half of previous year's level, which were partially reversed due to the net working capital swing with a negative impact of CHF 557.1 million in the semester. Our potential to reduce expenses as well as the high flexibility on our cost structure supports us in the current crisis, as you can see on that slide. We expect sustainable savings from 2021 onwards, further strengthening our cash flow preservation and generation. On the next slide, an overview on the -- again, on the financing actions we have taken earlier this year. In April, we announced a comprehensive set of initiatives to also strengthen our capital structure and liquidity position, thus, allowing us to sustain a prolonged period of operational disruptions and reinforce our competitive positioning in the longer-term. The different measures are outlined in the overview slide and includes: the new 12-month committed credit facility in the equivalent of CHF 390 million; the CHF 140 million COVID-related backed loans; the successful placement of new shares, generating gross proceeds of CHF 151 million; the placement of the convertible bond of CHF 350 million; and the agreement with the banks to waive the covenants until and including June next year, i.e., the first testing will be in September 2021, where the leverage covenant will be tested against the 5x threshold. In addition, the Board of Directors recommended to shareholders to cancel the 2020 dividend of around CHF 200 million to reduce short-term cash outflows in this unprecedented situation. On the next slide, an overview of our debt evolution and maturity profile. Net debt, as of June 30, 2020, amounted to around CHF 3.7 billion. There are 2 developments I would like to point out. First, compared to June 30, 2019, the increase was only CHF 368 million taking into consideration the seasonality of our business and the strong cash generation, which normally only starts in the second quarter and extends into Q3. Secondly, the change in the net debt in Q1 was an increase of around CHF 435 million. In Q2, net debt increased by only CHF 120 million, positively, obviously, impacted by the financing initiatives executed in April, but also by a strong reduction in cash usage. The right chart reflects the debt maturity profile, including the newly received term loan of EUR 367 million, maturing in 2021. Again, this facility has the possibility or the option to extend it twice by 6 months. However, we have the possibility to expand the loan. And the chart also includes various COVID-19-related government-backed loans with a total amount of CHF 160 million maturing in 2025 and another CHF 27 million maturing in 2022. And as of June 30, 2020, we had around CHF 703 million of undrawn bank facilities and close to CHF 740 million in cash on the balance sheet. With our cost reduction measures and cash preserving reopening program, we do not anticipate any liquidity problems during the crisis. We will proactively and early address on the refinancing of '22 maturing debt, and will inform the market accordingly about any actions taken there. On the next slide, I would like to provide an overview on the liquidity position as of June 30, 2020. The slide refers to pro forma liquidity as we have included 2 COVID-19-related government loans, which we have received approval only in July. These amounts to around additional CHF 30 million. The waterfall shows you the liquidity as of December 2019, which stood at CHF 1.259 billion. Cash consumption, during the first quarter, as I've mentioned before, was CHF 435 million. For the second quarter, we were able to reduce cash consumption significantly, also thanks to the cost reductions achieved already in the quarter. Also in Q2, we received the inflow from the already mentioned financing measures detailed here. Including these financing measures, change in net debt amount to CHF 122 million. In total, this resulted in an increased pro forma liquidity position of around CHF 1.583 billion as compared to year-end 2019. With this positive note, I hand back over to Julián.

Thank you, Yves. Let's continue with the outlook. I think for the outlook, I would like to start with some comments regarding, first, what happened during the last 2.5 months. On the left side, it's very important that we, at that time, secured the liquidity position and also, we introduced initiatives for protecting the company with the cost structure we had at that time. The #1, regarding the liquidity, secure -- is already confirmed by the performance in the second quarter. Cash flow was obviously, as Yves presented. And also, the liquidity available by June 30, CHF 1.6 billion. The cost control and the cash management system implemented also explained how we have reduced the personnel expenses during the last 2.5 months, is around CHF 200 million, already reflected in the P&L. And the Global Executive Committee and Board of Directors also contributing with a reduction of base salaries with a total amount of 30%. Supported programs by governments also contributed with a significant part of it. Agreements with landlords waived so far, reflected in the P&L, CHF 167 million, with CHF 137 million that will be accrued during the next months as soon as they are documented. Finally, the introduction of initiatives for improving the working capital and CapEx that we are going to comment during the last part of the presentation, but are -- also will be reflected in the slides. The second part is the change of the organization. We have introduced a new Group Executive Committee that will be in place starting in September 1 with a lower number of participants. We have integrated the headquarters and the divisions, simplifying the management level, and all the former divisions are now operated directly from the headquarters. And we have created an opening plan that has been already commented on. But the reality is that by August 31, this company will have 70% of their capacity of sales available. Finally, just to confirm, the -- obviously, the long-term strategy, and to clearly explain that we have the intention to continue to be a global company that will generate synergies in global travel retail basis. We will continue focusing on cash generation. Dufry will -- and as a consequence of the diversification we have today, we'll be a stronger company. And the geographical footprint that we will focus in the future will be the development of the company in Asia. And regarding the continued digitalization, what we have today is a project that is more than a project, it's a reality that has the opportunity to engage with the customers before they travel. And this has been also one of the main drivers during the last 3 months of engaging with the customers. If we move to Page 22, just a clarification of the reorganization from the regional composition. What we are going to operate is different clusters that will be allocated in the territorial clusters, too. In North America, we'll continue with Canada and U.S.A. as a cluster. Central and South America, we will have 4 clusters. Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Peru, Uruguay, Caribbean, et cetera. And the same in Europe and in Asia Pacific. There are today 9 clusters, including the U.S. This is the way that we are going to report from now on. Then Slide #23, obviously we are starting in the reopening phase, I think it could be interesting to comment on what is in the market today available about the future. The different industry associations for a transport, civil aviation authorities, airports and other institutions are assuming dropping passengers between 50% and 60% in 2020 compared with 2019. Only IATA, International Air Transport Association, gives an outlook for 2021. Their overview shows the limited visibility of all parties involved. More independent data provides us a forecast. Assuming a sub decline in 2020, however, a fast recovery and subsequent years with passenger volumes back to 2019 in 2022. And InterVistas, another independent [indiscernible] provides different scenarios for 2020, ranging from minus 44 to minus 73 passengers drop as expected recovery in 2022, beginning 2023. The last 2 assumptions are closely in line with Dufry assumptions to see in the recovery of the plans that we are going to comment on in a minute. And we are expecting the recovery during the last part of 2022 and beginning in 2023. The start of the reopening have assets obviously to bottom-up shop-by-shop and location-by-location. And we are going to gradually open all the shops as far as we confirm 3 things: number of passengers; minimum required rent that we pay adapted to the reality; and also the personnel expenses in each of the locations. If we move to the Page 24, what we have here is repeating something that we have already commented during other results is how the different scenarios are performing in the different lines of the P&L and the cash flow. The scenario is considering minus 40%, minus 50% and minus 70% of turnover compared with 2019. Three such scenarios include the following cost reduction and saving levels updated since Q1 trading report. And a decline of our business by 40%, 70%, the concession fee-related expenses would amount between 33% and 39%. We are talking here about concession fees considered pre-IFRS 16. Personnel expenses to be reduced by 20% to 35% compared with the previous year, including restructuring related costs. This year, we have accrued so far CHF 62 million as restructuring-related costs. Other expenses to be reduced by to 30% to 43% compared to the previous year. And we are assuming a CapEx spend of around CHF 100 million in all the 3 scenarios, but could further reduce -- could be further reduced depending on the needs of the company. During the reopening in the second half of 2020 and depending on the recovery trajectory, we expect an average only cash flow of around plus CHF 60 million in minus 40% scenario, and around plus CHF 10 million in a minus 55% scenario and cash consumption of around minus CHF 60 million in a minus 70% scenario. We will reach cash flow breakeven in second half -- during the second half of 2020 at around minus 60% of turnover compared with 2019. That means our net debt position from June 30, 2020 will be the same on December 31, 2020, or better, if we could achieve 40% of years -- last year's sales, 2019, during the second half during this time in 2020. Again, this shows you the adaptability of our fixed cost base and the strong cash generation capability of Dufry. Just a few comments regarding the sales evolution during the last weeks. Since the mid of June, travel restrictions have been increasingly lifted. And domestic and international travel started to resume, especially in Asia, Europe and the U.S. We started to reopen our retail operations gradually based on single locations productivity scenarios and in close collaboration with all the airport authorities and landlords. The charts provide you a weekly sales evolution started in last week before borders in Europe have been started to open June 15. 7 weeks later, we are still on low level with minus 79% year-on-year. However, the gradual uptake is visible as July 21, where we are reporting minus 82.3% organic growth at this time compared with down minus 91.1% in June and minus 20 -- by 94% in May. In terms of the different areas performing, North America was only minus 66% sales compared to July 2019, the best-performing region due to the highest exposure to domestic travelers. Europe & Africa was minus 84%. Asia Pacific and Middle East, minus 87.6%. If we move to Slide 26, this is showing the number of shops opened so far. By the end of July, more than 1,000 of our 2,400 shops were opened with a capacity of sales of around 60%. We are expecting that by August 31, the total number of shops reopened will be around 1,250 with a 70% sales capacity. If we move to a slide that I consider interesting from the point of view of understanding the passenger behavior and the passengers motivation so far. The first slide is a very simple one, showing the 3 most important drivers that all customers declare pre-pandemic that drive, at that time, their intentions to buy. First one, price and promotions; the second one, assortment; and the third one, behavior of the staff and attention of the staff. This is bi-annually research that we do with 25,000 customers in the 4 -- in the 50 most important locations globally. And the second one is in Slide # 28 that is basing our -- in our consumers, and is a small sample compared with the other one, but with up 2.9% margin error, and was down during June 2020 at the time of the pandemia. 58% of the customers -- Dufry's customers interviewed in June, have scheduled a flight in the second half of 2020, and 77% of this confirm that they have the intention to fly. 30% of these customers, and 10% for both -- 10% of the customers, confirm that they are even willing to buy more products than before. In addition, I would like to comment on one thing that I mentioned at the beginning is, so far, the expenditure per passenger in Dufry shops is 20% above last year. Finally, the conclusion, and I don't want to repeat many things that we have already commented on. The situation has been very really difficult, but we have been able to manage and to adapt the cost structure of the company to the reality with an impact in the P&L first half of around CHF 470 million as savings. And that we have reached CHF 1.6 billion liquidity by June 30. Then we have also aligned the organization to the situation, and we have adapted the organization to the situation, creating different cash burn scenarios depending on the drop of sales, minus 40% with plus 60% cash flow, monthly cash flow, minus 55% with plus CHF 10 million monthly cash flow and minus 70% scenario with minus CHF 60 million sales -- minus CHF 60 million cash burn per month. The reorganization initiatives create, in my view, a stronger company and more efficient company for the future. The gradual recovery of the passengers is also very relevant, still far away from 2019, but jumping from one month to the other. Still the visibility is very low. And the information that we have collected from the passengers that have been customers in the past confirms that 80% of all past customers will behave exactly the same or without any significant change than in the past. That's all from my side. Thank you for participating in the call. And I think the interesting thing now is the Q&A. All the Q&A are obviously welcome.

So just two questions from my side. First one would be on the implied cash run for the second half year. So it looks like the market is a bit disappointed about the implied second half cash pre-working capital. But in my view, it seems like you have been building quite a bit of MAG relief that has -- or basically, you are building a very cautious view on the MAG there for the second half year. So is that correct? Is there some margin of safety built into that number that could allow you to actually outperform the figures you have provided to the market? And the second one would be on the government-backed loans. Any room there to access additional line of credits?

So let me start with the second one first. On the government-backed loans, yes, there are 2 or 3 additional ones we are currently looking at. They are in -- 1 is in Africa, 1 is in the Mediterranean area and 1 is in the U.K. And they amount to, more or less, CHF 50 million, CHF 60 million equivalent.

In total or in each?

In total.

Alright, total -- in total.

No. No. In total, give or take. Maybe a little bit more. And then in respect to the cash flow, so you look -- yes, there is a certain level of prudency in respect to concessions. So you have taken into account some relief of minimum annual guarantee, but obviously not the full potential in that sense.

The first question from the phone comes from David Holmes from Bank of America.

So just on the cash burn numbers. Would you walk us through what the monthly cash burn evolution looked like in Q2? And also, if you could comment on what the cash flow burn numbers looking like it's going to be in July? That would be helpful. And then, just on your monthly cash flow guidance that you provided today for the second half, could you clarify exactly what you're assuming with respect to working capital movements within that guidance? I'll leave at that for a moment.

Sure. David, thank you very much for the questions. So on the cash consumption, what we have seen in Q2 is, as we have announced previously for April, around CHF 200 million of cash consumption. As we have mentioned before, that was mainly related to invoices, which relate to the first quarter or even 2019. In May, the cash consumption has drastically reduced to around CHF 50 million we originally guided for, give or take, CHF 100 million, so that was already below that. In June, it was around CHF 25 million. And in July, I have just received information this morning, it is slightly below CHF 20 million. And then for the second question you have asked, we assume a slightly positive change in the core net working capital for the second half of the year. So the cash consumption guidance we have given assume a slightly positive change there.

Okay. So just to follow-up on those two things. I guess, number one, in July, the slightly below CHF 20 million of cash burn. When you line up that organic growth of minus 82% within your monthly framework of guidance, obviously, that minus CHF 20 million is much better than the cash flow number implied by that. So would be interested to hear why that's the case? And then secondly, then just to confirm, on the working capital, your guidance isn't assuming a full reversal of the -- CHF 473 million working capital, it's just a reversal of the core working capital, which I think was an outflow of about CHF 130 million in the first half. Is that correct?

So to the first one, I'm not -- sorry, I'm not sure if I understood both questions, but let me try to answer the first one because I believe I understood it. So there, yes, indeed, the cash consumption is lower than what we give now as a guidance. But having said that, look, that's why we give the guidance for the second half like we do. We say it's an average monthly cash burn. There might be certain swings between the months, and therefore you cannot take a single month and isolate that and take it as a kind of a proxy for the overall evolution. So July was relatively low. It was as low as expected, but you cannot take that as a proxy for a minus 80% drop in sales, obviously. I'm not sure if this answers the question, if not...

That's perfect, yes, on that question. I guess the second question I'll maybe simplify it. Are you assuming a reversal of just the core working capital in the second half?

So as I've mentioned before, only reflects the core net working capital, yes, exactly.

The next question comes from Jörn Iffert from UBS.

The first one, would you please just follow-up on the cash scenarios you are providing? And I try to make the math here a little bit, and I come to a bit different outcome, I'm sure I'm wrong. And just wanted to ask you, I mean, in the concession fees and personnel expenses, the ratios you are providing, is there quite a lot of noncash expense included here? And the second question would be, please, on the gross profit and the negotiation with suppliers. Is this done now for the new terms until year end or do you have visibility already into '21? Or you have to renegotiate again with your suppliers? And the same also with the landlords regarding the MAG release. Is this now for the next 6 months and then you have to sit together, again, for '21? Just to get a better feeling, what could be the cash flow prospects running into '21 of different revenue scenarios?

Thank you, Jörn, for the question. So let me quickly start with the cash scenarios. So look, they're more than happy to have a separate call and look at the assumptions in that respect. I think what we have done is -- where you need to be super careful is the different view between P&L and cash flow. So especially when it comes to concession fees, but also when it comes to personnel expenses, you need to make sure that when you calculate the cash consumption that you consider also the seasonality you have in our business, especially in relation to concession fees. Then for the gross profit there. Do you want to comment on it?

Yes. Regarding the gross profit, I think what is happening now is we have agreed with the suppliers, especially during the last part of 2020. And as far, obviously, the situation remains as challenging like today, a formula that we combine gross profit margin and net working capital at the same time. And I think this is, for us, very supportive. And this allows us to adapt the business to the reality in each of the times. Regarding the concession fees, there are, as you know, there are more than 1,000 different contracts. And if the question is regarding, have you already agreed some of these release of March for 2021? The answer is yes.

Okay. So you assume also on the MAG release that this is really structurally going also into '21, so you really operate in on a lower cost base year also for '21. It doesn't matter really what the revenue scenario would be?

It's obviously difficult to say with all the detail, but the answer is, this is in [indiscernible].

The next question comes from Edouard Aubin from Morgan Stanley.

So just one question for me. So to start on trading and then on cash flow. So on trading, as you said, if my memory is correct, I think you are down 84 -- sorry, the exit rate for July was 79%, I'm sorry. So it looks like things are improving around 200 basis points sequentially per week. So when -- I know you guys have visibility, obviously, on flight plan in the coming weeks. So should we more or less expect a decline of around, what, 75% on average for the month of August? And to what extent extend the lockdown in Spain, which is a big country for you, might or might not be an issue? So that's the first question on trading. And then just sorry to come back on cash flow. Regarding personnel expense, you mentioned in the release that you had CHF 34 million of governance support in H1. I was just curious, is that the money received by Dufry and just the money received by Dufry? And what is the -- to what extent government has supported directly employees in some countries where these guys are paid by the government and not by you. So just a sense of the magnitude of that? And what I'm trying to get at, obviously, that is there a risk that some of these guys would come back to your payroll in September, October, November when these schemes end? And so just one last one on negotiation with landlords. Again, you've made -- since you've made good progress waiving some of the MAG closes. But do you have better fortune kind of closes or earned out close for 2021 and '22 with the airports, which could cap your upside next year in terms of cash flow potentially?

Regarding the -- I think I understood the question, but if not, repeat t, please. Regarding Spain, I think the situation has been slightly changed in what sense, we had ex growth to Spain of passengers and now is slowing down, but not negative. But most of these passengers that were scheduled to Spain now are deviated to other countries. And we have seen a significant impact, positive impact, in Turkey and Greece mainly. The 21% of sales of the last week that I have presented until July 26 is improving significantly now, but still, there are very few days. I cannot say that this is going to be maintained. But today, during the first 3 days of August, we have reached around 40% of the sales of last year. Regarding the concession fees, and I think I mentioned that before, we have obviously many different contracts, more than 1,000 contracts. Only part of these contracts are subject to minimum annual guarantees. And some of these minimum annual guarantees are also subject to minimum per passenger. When you have a minimum per passenger, the situation is adapted automatically. We have also contracts that have been renegotiated in terms of the total amount paid or will be paid during 2020. And there are also contracts that are in the process to be documented properly that will consider also the evolution of the passengers in 2021. How much is it? I cannot comment now because it's not something that has been totally documented and properly documented, but we have a significant number of contracts that have been renegotiated, not only 2020, also for 2021.

Yes,. And regarding personnel expenses, sorry?

On regard of personnel expenses, what we have projected for this year in full year savings, that will be very close to CHF 450 million, CHF 460 million. This is a combination of initiatives that are starting with dismissals, temporarily work is on hold and also support government programs during 2020.

Okay. Sorry, but sir, my question is a bit more specific. Can we have a rough idea of what percentage of your employees -- I'm not asking for any precise number but just a rough idea of a number of your employees, which are paid directly by the state, just so we have a sense?

It is very difficult because, as you know, this is depending on the legislation in each of the jurisdictions. And there are consultancy projects or programs that should be, first of all, complete with the authorities in each of the countries. We cannot comment on things that obviously have not been totally closed down with the different legislations and jurisdictions. But the number that I gave you -- or I am giving you, the CHF 450 million, is a very realistic target, especially thinking that so far, we have reflected in the P&L, CHF 200 million.

The next question comes from Mestari Jaafar from Exane BNP Paribas.

Three for me, please. Firstly, just in terms of gross margins, you're talking about a clean retail gross margin that's only down 60 bps. So I'm curious what sort of mix impact are big enough to take your reported gross margin down over 200 bps? My understanding is that the wholesale business, for example, was now becoming very small for the group. So what is diluting your margins that much beyond clean retail? And second question, on new concessions, minus 4.3% in Q2 net. I appreciate a lot of terminal openings are just not happening at the moment. But equally, are you seeing any terminal closures? How do you end up having 4% net exits? And lastly, more qualitatively, it looks like you've gathered quite a bit of intelligence from customers through your survey this summer. So since you've gathered this intel, what main changes have you been doing to your commercial strategy, to your mix, assortments, promotions, et cetera, to stick to what they want even closer?

Regarding the gross profit margin, the 60 basis points in retail is basically promotions and obviously savings in terms of projecting savings to the customers. It is specifically that because still the mix has not changed dramatically as you have seen. It's very similar in all the categories to the one that is compared 1 year ago. Regarding the closings...

Sorry, I think this is very clear what's happening in retail. My question was, how do you get to 200 bps lower gross margin outside of retail?

200 -- Yes, yes. Sorry, I didn't understand the question. The difference between the 60 basis points and the 220 is the mix of wholesale sales last year and this year, as obviously, it's obvious, retail sales dropped significantly when retail sales maintained the level of previous year. In terms of participation in the total mix of sales last year, retail was -- sorry, wholesale was 1% and this year, it's 3%. But specifically, it's a mix issue. Do you need any other explanation regarding the gross profit margin?

Well, yes. If it's so small, I just wondering how 1% becoming 3% is diluting the group's gross margin by close to 200 bps?

It's impacting in this way, okay? Regarding the closings, it's something that is not related with anything of this event, the pandemia. It's something that we already planned. And some of the operations and that include here were and -- most of them were already decided before the pandemic, before the beginning of this year. Then is customers' behavior. Yes. If the question is, are you using the information that has been collected through this last research for preparing commercial plans? The answer is yes. We have been during the last 30 days analyzing the information. The different operations are preparing plans based on the information collected and will be probably in place during the next 30 days. But there are a lot of things that we have learned. Mainly, obviously, due to the type of product that the people will buy and the significant development that other categories may have in food and beverage, and including spirits and drinks.

And could you give us an example or 2 of what you're going to be tweaking? For example, one thing that seems to jump out is that dining is not a big priority for customers. So are you going to be offering takeaway food, for example, or any other tweaks like that to capitalize on those trends?

Yes. For example, when the customers started to get in the shop, what we have done now is to prepare layouts in the floors to address the people and to go to the places where this product that I comment on are prepared. And you can see this in Madrid. You can see the Madrid airport, you can see it in Barcelona airport and you can see this in London, Heathrow. It's addressing the traffic flow within the shop to the products that we believe that will be more successful.

The next question comes from Jon Cox from Kepler Cheuvreux.

A couple of questions from me. Maybe just to back into that question about the savings in a different way. Just based on what you know today, how much should we expect on a sort of continuous basis, the personnel lines and that other line should be down next year, say, compared to 2019. And that's the first question. Just on the rents. It looks like everybody is moving away from the MAG, and everybody is happy to do that. But from what I heard from AENA and others, they are hoping to make up and be part of the upside. I'm just wondering sort of structurally, if we do get back to where we were in terms of revenues in the next couple of years, would actually your concession fees be higher because these guys are saying, "Okay, we'll get rid of the MAG, but we want maybe more rent as a proportion of revenue." That was the second question. And then just a question on the -- you seem to be exiting some contracts. And you can see that in your financial statements, you seem to be saying disposal of leases. And just in terms of the sort of book value of these leases, it looks about 15%. Can you just say -- does that mean that the like-for-like component or the net new concession line, that's going to be down now about 15% because you've removed capacity overall. And then the last question is just, Julián, you were saying that sales now in the last couple of days are running at 40% of last year. But from what I see on the slide, you're saying that as of the end of the month, stores -- only 40% of the stores are open, representing about 60% of sales. So you're saying that those stores that are open are basically only running down to about 25%, 30% year-on-year currently in those first few days of August?

Regarding the personnel expenses for 2021, I cannot answer the questions exactly because, obviously, it depends on the different programs that we are involved, but a significant part of the CHF 450 million will be recurrent. And this is depending at this stage of the process of government support programs to that, obviously should be confirmed. Regarding the range and the MAGs. What you expect from me, Jon? I am telling you what I know, and you are telling about AENA, and AENA has recognized officially, and the minister in Spain has recognized officially that during the pandemia time, there is not minimum guarantee. And during the rest of the time, depending on the number of passengers, they will adopt the rent. I don't know what to say. This is what they say. I don't have any comments regarding that. What I know is what we are doing, and I cannot disclose what we are doing because it's obvious, this is a private information. In general claims, what I can confirm is that in most of the cases, the airports and landlords are very willing to support the companies. And the question is what the alternative is, is do you think that if they insist to get the minimum guarantees, they will get the minimum guarantees because this is the only way to go? I think it's very likely. And I can tell you that from the practical point of view that in most of the cases, the minimum annual guarantees or rent because we are talking also about variable rents will be adapted to the reality of the business during the next 2 years where the situation we all expect will normalize. My feeling is optimistic on this regard. I think what we have seen so far is reflected in the P&L., CHF 151 million, plus CHF 177 million already agreed in the process to be documented. And there is a significant amount that I cannot comment because it's not finally agreed. And this will be announced, obviously, as soon as we have the documentation ready. Regarding -- sorry, the last question was about? Jon, can you please -- Jon, repeat the last question. I don't remember.

Yes. Sorry. You were saying that in the first couple of days of August, sales are running at 40% of last year's level, so that means down 60% roughly. But you're saying as well that only -- your stores are open representing about 60% of sales capacity. So you're basically saying those shops that are open are actually only running down by 30-odd-percent currently to get to that running at 40% for the group as a whole compared to last year?

Yes. It's a way of explaining, yes, 60% capacity is what we have today. But the 40%, again, is just a sample that I have seen. The reality comparing with the past has to be based obviously in the number of shops open too. You are right.

Okay. So you're just referring to those shops that are open, this 40% of sales of last year?

With -- in August, the last -- the first 3 days of August compared with the last week of July, there is not a significant number of new shops open. Comparing the last week of July with the first week of August, first days of August, this is the change. It multiple by 2.

Okay. So basically, those stores that are open are starting to see average spend per ticket doubling or whatever it may be?

Yes, the spend per passenger has to be confirmed because, obviously, I don't know in the first week of August. But the reality is that the spend per passenger is significantly increasing compared with 2019.

Okay. Good to know. All right. And then the other question was really on this, you seem to be exiting some contracts. This is in your financial statements. And the book value of the exit seems to be about 15%. Should we assume that you've now reduced sales capacity compared to 2019 by 15%? Is that how I should read some of those -- some of the small print in the financial statement?

Well, this is a calculation, but I don't know exactly the number now. This is a calculation assuming that the square meters that are closed down are having the same percentage of sales than the other ones. And I don't think so. It will be a lot lower because, finally, shops are closed down because they are not performing as we expect.

Yes. But we should assume that, that sort of net new concession line goes from -- I think it was down 3% or 4% in the...

3%.

Yes. And then that will go down to, say, minus 10% in the second half of the year, something like that?

Well, I can -- I don't know. I don't know the calculation because it depends on the evolution of sales of the other concessions. But if the question is, the 3% that is net of closes and openings in the disclosure. It's going to impact 10% of the total sales during the year, the answer is -- I am sure that is not because obviously, the shops that we have closed down are not shops with this productivity.

The next question comes from Gian Marco Werro from MainFirst.

So I have 3 questions. The first one would be in relation to your visibility on your May cash outflow. So we already talked about the cash outflow that you guided to be around CHF 100 million in May. So what has now changed so drastically that you had only CHF 50 million in May and also saw significantly lower outflow in June. Can you give us a bit more granularity there, please? And then another question is just in relation to the MAG discussions and negotiations. I know you cannot give some precise details there. And so far, you mentioned that the majority of the related contracts or the land losses, happy to discuss those contracts. But can you be a bit more precise, please, about this majority? Is it really around 70% or only 50% of those landlords who are really willing to discuss with you? It would be helpful. And then just another question on your FX gains and losses. So there, I just saw that in the P&L, you had an FX gain of CHF 43 million. But in the cash flow statement, it was cash outflow. So can you elaborate on that as well? It was CHF 43 million for your notice.

Perfect. So if I start quickly with the first one. In May, the cash consumption of CHF 50 million versus the initially indicated CHF 100 million. The reason for the lower amount, it's actually on the half of what we have indicated initially is the measures we have taken, the various number of measures, speed on the personnel expenses, concession fees, et cetera, which we've announced earlier, which already started to kick in April, but then specifically also in May, June and July, and that led to the lower cash consumption in that regard. Then to the third question, the FX gains on the P&L and also the cash flow statement. I would need to double check once more, but I believe it's actually a positive effect on both, the P&L and the cash flow statement. The reason for the positive effect there is basically an exposure, which we have hedged over long plain vanilla call options, which, as you know, can only reach a positive amount or a positive revaluation and that resulted in that gain. But if I'm not mistaken, otherwise, we can take it off on again offline. I believe it's a positive effect on both P&L and cash flow.

Okay. So it is negatively reported?

It's a negative amount, but I think it's defined as a gain, if it's a negative amount. But I can double check that out.

Regarding the minimum annual guarantees, to be specific, it is very difficult because, obviously, there are one-on-one negotiations and they are confidential. But in general terms, I would say that compared with the objective we had, we have reached, or close to reach conclusions, positive conclusions with around 70% of the total MAGs that we tried to negotiate.

So 70% of the MAG or 70% of all the landlords, so that's...?

That's 70% of the MAGs.

Where you see some willingness to negotiate?

No, that we are negotiating and very close to terminate the agreement.

Gian Marco, I just quickly checked on the cash flow statement. So losses are reflected as a positive amount and gains are reflected as a negative amount in respect to foreign exchange differences. So it's indeed, a gain.

The last question comes from Veronica [ Noi ] from Thomson Reuters.

So I have one question. In case of new travel restrictions, what is your backup plan?

Backup plan for travel restrictions, okay. [Indiscernible]

Well, what is the backup plan of something that we don't know, it's a bit complex to answer. But let's say one thing, we have created a flexible company for adapting to the reality of the business today. The cost structure that I have been explaining during the last 30 minutes is exactly the backup plan because with this flexible cost structure, we can face whatever, let's say, worst-case scenario may happen. And there are very good worst-case scenarios that we have seen, especially in March. The situation regarding the openings or closings of market is impacting the business. The answer is yes. But so far, what we have seen is more domestic traffic in the U.S. and domestic traffic in the European Union. As far as the domestic traffic and in one place and the international domestic traffic in the second one in Europe, it's like today, but we have seen is gradually increases. Good news that I have to comment on is I heard that from yesterday, Russians are starting to fly to their countries and Brazilians, too. The consequence of that is that the direction of the reopening of the market is so far going in this direction more than in the closings.

So would -- or should that mean that there would be a new focus on domestic traffic in the future?

Well, if there are -- during certain time, there are domestic passengers like today, we are not going to focus on domestic passengers. We are going to attend domestic passengers because we are ready to attend domestic passengers. Historically, our company has been around 60% duty-free and 40% duty-paid. For this reason, we have been, for many years, developing duty paid concepts. One of them is Hudson convenience store. But there are other ones. And this idea was to really attend domestic passengers in most of the destinations where we are already operating and when we are already -- we're welcoming this type of passengers.

Next question comes from Mahal Aman from PGIM.

I had a couple of questions. One was just a point of clarification on Slide 24, where you provide the sensitivity analysis, mainly for the concession fees as a percentage of turnover. Could you just clarify what that would look like on a post-IFRS 16 basis, if we were to take one of the leases and the interest cost? Would they be pretty similar? And then the second question was around, you commented on looking at potentially actively trying to refinance the 2022 maturities. Kind of -- on what sort of timeline would you start thinking about addressing those maturities?

Let me quickly start with the refinancing. So there, what we typically would do, and we will also do it in this case, is to refinance ideally 18 months ahead of maturity, which basically would bring you to a window between now and mid of 2021.

Regarding the first question is a sensitivity analysis based in a drop of sales that shows the possible percentage on turnover of concession fees pre-IFRS 16. Why? Because in most of the cases, we have heard that with IFRS 16, especially in the way that is accrued, the MAG reliefs and the amortization of right-of-use, it's very difficult to follow-up. For the reason, we have put these 3 percentages. 33% on turnover with minus 40%, 36% on turnover with minus 55% and 39% on turnover with minus 70%. It's just a reference for showing how the evolution of the percentage on turnover is going to be based in the drop in volume of sales. But this is just a reference point for understanding the situation. In IFRS 16, it's very difficult to explain because it impacts different lines of the P&L, including lease expenses, minimum non-guarantee reliefs, depreciation of right-of-use and interest of right -- of financial expenses due to right-of-use. This is really complex to explain and very difficult.

Sure. And just a follow-up on the refinancing. I guess, your bonds are trading in, depending on the bond or 7% to 9% yield. How do you think about sort of how long you're prepared to wait versus the relatively high cost of refinancing in the current market in the current conditions?

It's something we will need to review once we start the process for the refinancing. We are obviously looking into different products and different alternatives, but it's too early to comment on the final conclusion there. I mean, you can play with a lot of variables there with the instrument, the duration, et cetera. So -- but it's too early to comment on that.

The next is a follow-up question from Jon Cox from Kepler Cheuvreux.

Just to follow-up on this -- the disposals in this right-of-use asset movement. This is note 12 on the financial statements. You obviously have an addition in there as well, which is the new contract in Spain. Do the disposals include part of that old Spain contracts? Again, I'm just coming back to how much should we think about this net new concession line? Because at the moment, it's CHF 700 million of CHF 5 billion-odd is quite a big number.

Yes, absolutely. So basically, what you have is you have the new one, which is an add-on to the number of right-of-use assets and the old one because we have signed and renewed it ahead of maturity basically has to be deducted from that. So you're absolutely right.

So do you know how much it is, roughly? Is it like half of that disposals amount or...

I would need to double check that. I would assume it's probably -- well, yes, probably or maybe even more, but I would need to check that.

Next is a follow-up question from Gian Marco Werro from MainFirst.

If I may, just in relation to the spending per passenger you mentioned, so far, you see that there is currently an increase of 20% year-over-year. So how can you explain that by yourselves? Do you have a different profile of customers at the moment? And then just a question in relation to your impairment. So what I saw is that most of your impairments were goodwill, mostly those CHF 330 million (sic) [CHF 130 million], mostly linked to Central and Southern America, but how about also potential impairments then of your activated concession rights on your balance sheet? Can you also elaborate about that and why you haven't done the impairment testing yet on that concession rights by yet? And then just a last question is also in relation to other, let's say, sales channel. So one of your competitors is also doing live TV shows to dispose some of the inventories in Asia quite successfully. So would this also be something you are thinking about?

Okay. I will start with the impairment and the concessions. So look, basically, we have done both. So we have tested goodwill and we have also tested the concession rights. We have impaired also on both sides. So we have impaired goodwill as well as in some areas the concession rights. They are predominantly in Central and South America and also North America and both is goodwill and also in respect to the concession side. Well, that's not exactly correct, concession rates, you also have to a certain extent in Europe. But we have done both, tested both and impaired on both sides.

Regarding the spend per passenger, the main reason is the different passenger profile compared with obviously 1 year ago. And the inventories, the answer is yes, we are doing that, but the quality of inventory we have is really good, and we don't need to read off inventories because we need inventory for selling in the shops. What you identify as wholesale, there is a significant part of wholesale that is rate of inventories that are obsolete or are in the -- obviously, the process to termination in terms of validity. But the most important part of the inventory is very good, and it has a very good quality and will be sold through the shops that we hope we will reopen very soon.

The last question comes from Jörn Iffert from UBS.

It's again related to the cash flow scenarios, please. I mean, let's assume that you are at minus 40% for the second half. On sales, this would be an active free cash flow generation than maybe CHF 300 million or CHF 350 million in between this. So much, much better versus normally like it was in 2019. And the question is, I mean, how sustainable really this cost base is? How the certain cash generation is? Does it also mean that for '21, if you are 40% below 2019 sales level that we should expect a similar cash flow generation? And if not, where really is the bridge here?

No. Look, you cannot assume for 2021, a similar one, if you're 40% down. What we have given as the guidance, the 3 scenarios apply for the second half of 2020. And as I've mentioned before, you need to be very careful when looking at cash flows because there is a certain seasonality in there or certain cash flows I probably earlier or later during the year. So you need to be super careful with that. If we're looking at 2021, the guidance may be a different one.

There are no more questions from the audience here. Okay. Let's finish. Thank you very much for participating in the call as always, and we remain alert if there is obviously interest in contacting us again. Thank you very much.

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