lastminute.com N.V. (LMN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Half year Results 2020 of the lm Group Conference Call. I'm Alice, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Niccolò Bossi, Head of IR. Please go ahead, sir.

Good afternoon, and welcome, everyone. Thanks for joining our first half 2020 investor analyst conference call. Today, I'm here with Sergio Signoretti, our CFO, that will guide us through the results of the first 6 months of the year and the actions taken to face the COVID-19 challenge as well as the outcomes of the management actions. We will conclude then with a Q&A session, which will be open to all people connected. So now I give the stage to Sergio and will hand over the presentation. Please, Sergio, go ahead.

Yes. Good afternoon all. I will start from the agenda. So with a couple of comments about the context that we're facing prior to entering to the first half figures. So if you go to the context page. The first chart is representing what is the trend. Taken from IATA sources of the number of worldwide flights per week, you see that there has been a dramatic drop of both [ -- of these ], as you know, the domestic and international flights starting from the beginning of March. Now in terms of Europe, the recovery, it started to appear from the month of May onwards driven from the loosening of the restrictions of the various government, but it's limited to Europe as you know. So it's very difficult to fly intercontinentally. Long-haul flights are basically very few. It's impossible to fly over to United States, to South America to South Africa or to Asia. So some recoveries there. You will see our [indiscernible] in a couple of slides afterwards, which is actually steeper by the one which is -- which the market is experiencing, and we will comment about that. And if you go on, there is an interesting chart, which is always taken from IATA sources, which is the combination of the worldwide restrictions, which are basically still there almost in any country. So there is a combination of field restrictions, which, of course, limit the capability of mobility and of traveling of the customers, of the people. Having said that, let's enter into our first half financial performance. So first -- the first chart is interesting because it is the representation of the first semester. In terms of the online travel agent bookings, you know that the OTA does approximately 85% of our revenues and margins. We started the year very well. We were at plus 15% to plus 22% in January. Actually, versus last year, you remember last year was a record year for the lastminute Group. Then a couple of days after, we inaugurated our sponsorship and our partnership with the London Eye. That was really incredible in terms of timing. A couple of days after the crisis of the COVID-19 in [ London ] came out [ raises. ] So we started to decline in terms of volumes. And in 4 weeks, 4 to 5 weeks, we basically lost the business. So you see that we have gone standstill from the last week of February to the last week of March, we're standing minus 97%. We were safe, but it was impossible to fly over. It was impossible for the various government restrictions and then we have like [ lockdown ]. This situation lasted from, I would say, the last week of March up to the second week of May. Then we started to recover, started to recover quite significantly. So in the -- from the second half of May to the end of June, we have had rate of 30% week-on-week increase on average driven by the Flight business. Actually, as you see, this curve is steeper than the market curve. We know that we have gained market share in this period with respect to our competitors in [ BackBid ] also trying to be more aggressive on the pricing side in order to gain market share and to boost the recovery. And we have actually reached a minus 43% in the last week of June in terms of recovery. This is reflected -- the overall curve is reflected into the revenue picture, which is indicated in the following chart, which, of course, takes into account the 1.5 months done with 0 volumes. So we closed the first semester with minus 50% revenues versus last year, EUR 83 million versus EUR 166 million. You see that the OTA is the pink box, EUR 68 million, which are detailed by type of product by category on the right side of the slide. So slightly more than 50% is flight business, EUR 22 million is the dynamic package, EUR 11 million is the other businesses like the hotel-only and the tour operator reselling business. You see that the minus 50% is the lm Group overall. There are -- and it's basically corresponding to both the OTA and the META trend. The Media business unit is suffering slightly more because, of course, it's very difficult to find advertisers in this moment available to invest on our properties in order to promote their services, given the fact that the traffic, of course, has declined. So this is the representation in terms of revenues, and the representation in terms of EBITDA is in the following chart. So still, we are business EBITDA positive, EUR 4.5 million. But of course, we are 7x less than the record over the first half of 2019 where we were EUR 35 million. So minus 87%, which is also split by business unit. And that's the representation in terms of figures at lm Group. Now if we go to see the overall perspective at group level, at net result level, we go to the following page. You see that we closed first half with EUR 23 million of net loss. We have taken into account entirely the effect in terms of P&L of the cancellations of the flight and of the travel packages that we have received between March and the end of June. So that is accounted for entirely in the P&L in terms of offset of our market commission in terms of offset of any type of ancillary and value-added service revenue correlated to the booking that was impossible to fulfill, in terms of any type incentives granted from the distributors from the airlines attached to the single booking. And that accounts for EUR 12 million out of the 12.7 million, which is indicated as extraordinary items. So out of the EUR 12.7 million, EUR 12 million is the impact of the covenant in cancellations. Therefore, the reported EBITDA gets negative in terms of EUR 13 million, and that influenced strongly the picture, which has a swing of more than EUR 30 million versus what was the result as of the first half 2019. First half 2019 was EUR 12 million in terms of net earnings, and now we turned to EUR 23 million net loss. A couple of comments on the ventures. In the ventures figures, EUR 2.4 million, we have a couple of million euro of loss from Destination Italia. Destination Italia was actually targeted to reach breakeven this year prior to COVID, of course, is suffering as well due to the overall situation. And therefore, we are expecting the EBITDA breakeven be shifted to 2021 -- second half, I would say, of 2021. That's the overall perspective in terms of profit and loss. And now we get to the cash, then we will focus on the various actions that we have done in order to secure our cash during the crisis. Cash at the end of June is EUR 133 million. You see that we have had a negative working capital absorption in the first semester of EUR 11 million. That actually doesn't give you the full perspective of what has been the cash absorption of the peak period of the crisis. In those 2 months, we had a swing of working capital, which amounts to EUR 75 million to EUR 80 million. We'll get to that in a couple of slides, which then is compensated by January and February, which were very positive. The company was growing at a 20% rate, as we commented before. And by the month of June, which has been very positive as well in terms of cash generation, following the recovery that I was showing you with the volume curve. We have got approximately EUR 58 million financing in order to build the safety net, in order to protect the cash of the company in the first semester. That leads to financial liabilities, which are 105, EUR 105 million. They include approximately EUR 10 million of IFRS 16 effect. So the overall financings are in the region of EUR 90 million, EUR 95 million, which is money that we owe to the bank, of course, to the various banks, given the fact that we've taken the decision, of course, to draw the various credit lines available in order to protect the business. Therefore, the net financial position is 30 -- is positive, is EUR 33 million as of the end of June versus EUR 65 million as of the end of 2019. I will move on to the COVID-19 main actions that we've taken. Actually, as you can imagine, the challenge that we are faced during the COVID-19 crisis has been taking the -- try to take the right decisions in order to protect the company in a situation where the velocity of the propagation and the magnitude of the crisis was spreading out so dramatically and so fast. So the amazing thing was the velocity, as you saw before. So lose the business basically in 4 to 5 weeks was not easy to manage and was not easy to face. Of course, our first objective was to secure the company through securing cash in order to ensure that the company was having all the needed financial resources in order to face the crisis. That was our main challenge. We have done, therefore, a massive cash protection program that we're going to illustrate to you in a minute. And also, we have limited the impact on the -- of course, there's been a massive impact in terms of loss of profitability, as you saw. But we have limited this significantly, as you will see in a minute, through a cost protection program that we implemented in a couple of weeks. So we are telling about actions that we have decided very fast, and we have implemented very fast in March in order to face all this situation. If you go to the following page, which focuses on the cash protection program, the overall actions put in place in order to secure the company are in the region of EUR 220 million. So we have drawn our available credit lines, all the available credit lines for more than EUR 40 million. We have negotiated new financing. We have accessed also to government-backed financings in some of the countries where we operate in Switzerland, but we are going to access as well -- we are accessing in Italy and Spain as well for an overall EUR 50 million. We have launched a massive communication campaign to our customer base impacted by the COVID-19 cancellations in order to ask them how they wanted to be refunded. And we have launched a massive voucher campaign. lastminute voucher, which accounts for approximately EUR 100 million, more than half is already out on the market. So it has been already delivered to our customers. We are progressing in order to fulfill all the distribution of these vouchers in the coming weeks. And we have also negotiated with some key vendors an extension of the payment terms up to EUR 30 million. So the overall action put in place are in the region of EUR 220 million. And the -- let me say, the drawings of the credit lines that we have negotiated or utilized because they were already existing are represented in the following chart, which shows what has been by month the impact of the working capital effect of the crisis, which is indicated in gray, in particular, for the month of March and the month of April. So you see that there's been a massive huge impact of EUR 75 million absorption in terms of working capital. Remember, we collect the money from our customers 1 or 2 days after the booking date. We pay our supplier 2 weeks for the airlines or even 50 days after the booking if we are talking of a hotel because we pay the hotel at check-in date. So in a normal situation, we have a structural advance of cash in -- when the business turns, if the business turns we -- as it was in March, we were not cashing in anything anymore, and we were paying the bookings of the, let me say, a period where the bookings were 20% higher versus 20 -- versus [ the whole year ]. So that is the effect that we needed to face. So the pink bars of March and April corresponds to drawings of the credit lines that we've done. And a very important message, if you see, is indicated on the right-hand side related to June, but also related to May. So we have started to generate back cash from May when in the second half, the business started to recover. And in June, we have reached approximately EUR 25 million of cash generation, which is improving further our cash situation, which is actually further improved in July. So July is also confirming the trend that cash is increasing even more. Now let me, of course, comment on the net financial position that was already indicated before, actually. So -- but EUR 33 million at the end of June. That was EUR 7.5 million the end of May. So this is exactly corresponding to the further cash generation that we had in the month of June. And I, therefore, will get to the cost protection program that we have put in place. So that has been always identified and implemented in the month of March when the crisis spread. So the overall impact in terms of actions amounts to EUR 30 million this year in 2019. You will see that the biggest part is still to come because consider that in the first semester are reflected basically the actions of the second quarter, as this decision has been taken during the month of March. We have frozen all the advertising costs. We have cut across the board where possible, of course, IT expenses. We have implemented strongly the smart working mode, which means also rethinking on our way to use the offices, use the office space. We have already started to reduce our facilities rentals in order to adopt a more co-working approach, let me say, rather than ensure the presence of a physical desk to our employees all the time. We have, of course, suspended all the business travels, all the training and event costs, frozen the hirings. And the biggest, I would say, intervention has been accessing to all the working hour reduction programs granted by the states where we operate, mostly in Switzerland. In Switzerland, the state gives back up to 80% of the reduced working hours a couple of weeks after the end of the month. This is a program that has a 12-month extension. We have accessed this program at the end of March. It's going to be continuing up to the end of March 2021 at least. Of course, this is granted the company, which experienced a significant drop in the volumes of the business like, of course, we did. So all the working hour reduction and the access to local government schemes accounts for approximately EUR 19 million. So it's 2/3 of the overall cost protection program put in place. If you go to the following slide, this represents what has been the overall fixed cost base at the end of the first semester versus last year. So EUR 29.5 million versus EUR 37 million, which is minus 20%. Again, across-the-board, the work in our reduction impact and the incentives from government impact are indicated in the magenta box. So it's approximately EUR 6 million. Again, this is related to the second quarter only. So it's not related to the entire semester. And this is quite clearly represented in the following slide, which says that at the end, comparing month of month, March 2020 versus March 2018, we have actually achieved a minus 22% of costs, out of which the light pink represents all the running costs -- all the operating expenses, let me say, that they're running. The other part represents the HR component. But if you focus on the second quarter, which is the most interesting part, so the right-hand side of the pie, you see that the comparison versus last year leads to a minus 40% or minus 39%, approximately. And this thing is even bigger in terms of, let me say, cost recovery on, of course, on the variable cost side considered that we have suspended all our marketing performance campaign in April up to mid-May. We have started investing again in mid-May, and the results are linked to the steeper recovery volume curve that you have seen. We have also impacted significantly on our outsourcers of our customer service activities. So we have stopped the -- some activities in some of the outsourcers in order to, of course, adapt our capacity to the reduced volumes that we were having. And so that is reflected into the EUR 5 million versus the EUR 48 million recorded in the first half of 2019. Having said that, what are the main takeaways of -- and what we believe is the situation going forward. At the end, we believe that the performance that we are having since when the recovery started is better than our competitors. There are evidence that we see also on market shares versus the others, we are recovering better and faster. We have a high operating leverage at the end in order to manage this crisis scenario, which maintains some elements of uncertainty. It's very, very difficult to predict what is going to happen in the fourth quarter. Especially, you see that, for example, now since 1 week, all the -- I mean all the U.K. travel corridor to Spain, which is the primary destination in Europe for Britain, and it's #1 destination in Europe anyway, now is significantly impacted by the U.K. government decision to impose the quarantine for regions coming back and even to reduce the flights available for that corridor. So very difficult to predict what is going to happen. But we believe that with this action that we put in place, we are equipped in order to pass it better than the other. We have, at the end, a good cash position, EUR 130 million, over EUR 130 million at the end of the semester, even improved in July. Of course, with that, we will maintain this debt up to when is necessary in order to achieve the stabilization of the situation. We are not -- we are multi product. We have a diversified business proposition. We don't ever -- remember we don't have inventory. So we are asset-light. We don't own charter airlines. We don't own accommodation properties. We build dynamic packages real-time for our customers, and that is a demonstration of our -- of the asset-light structure of our balance sheet. And our shareholders have granted a further potential safety net, which today is absolutely an option. We are not going to utilize it given the situation, which is the share capital, which has been -- share capital increase, which has been approved by the shareholders' meeting this morning, and which maybe Niccolò can give a bit of flavor in this conversation. So this is actually the picture that we wanted to represent you, and we are open for any questions you may have.

Okay. Thank you.

[Operator Instructions] Your first question comes from the line of Gianmarco Bonacina with Equita.

A few questions, please. Just to give a little bit more visibility on the current trend. If you can give us, if possible, the sales and the EBITDA figure for the month of June because maybe we can use it for the modeling of the run rate for the second half. Then in terms of the net cash position, you mentioned July is also improving versus the end of June. Assuming that the business -- so there is no second lockdown and the business continues with the current run rate of minus 40 to minus 50 year-over-year in the second half, do you expect the net cash will be higher than the EUR 33 million reported at the end of June by the end of the year? And also, if you can clarify what will be, in the future, the impact of the vouchers when they will be used by the customer both in terms of accounting and cash flow, if any? And the last one, more strategic in terms of the M&A. Clearly with the COVID, the prices for travel assets has clearly decreased. So if you are thinking, given that the cash situation of the company is now strong, stronger than before, you are thinking more actively in terms of consolidating the market. And if you have -- you are building a pipeline for medium to larger deals, which maybe you can execute over the next 12 months.

Okay. Let's start from, I would say, the current trend. So you were asking about how the situation is going. So basically, I will give you a flavor of July as well. So in July, we are in the region of minus 40% versus last year, okay? So remember, July is our peak month. So the volumes in July have further increased in terms of bookings, but still, there is a long way to go in order to recover what was the 2019 figure. We are EBITDA positive. We are business EBITDA positive. We were breakeven in July in the month of -- sorry, in the month of June. We are positive in July. And we will be positive going forward based on the assumptions that we are doing. We expect a stabilization of the volumes going forward in the sense if there are no further major pandemic waves. So this is the assumptions that we are following. Of course, if there are major pandemic waves, this will be a further issue. But again, we believe that we are equipped. In terms of cash, in terms of level of cash, we are going to be between EUR 130 million and EUR 150 million from now on, so including the end of year. If the -- provided that [ volumes ] will stabilize, okay, so still assuming that there is not going to be a major second pandemic wave. And this would correspond to a net financial position, which can be easily calculated that at the level of indebtedness that we have at the end of June. In terms of vouchers, vouchers are -- I was talking about a EUR 100 million program. 60% of that has been already delivered. 2% of the bookings, which are done every day, are paid through vouchers. So there is a very, let me say, limited part which still -- which now is utilized. So out of 100 bookings, which we do every day, 2 only are paid through vouchers. We are expecting in our cash position that this percentage will increase, though. And this is -- so we are assuming a conservative approach based on that. The vouchers are valid up to 18 months, in line with what is prescripted by the various regulations in the various markets where we operate. Maybe, Niccolò, you want to comment on the M&A?

Yes, of course. So yes, the situation is truly fluid now. You know that we are saying that probably we are performing better than the average of the market, but we are saying that we are still minus 50% compared to last year. So our positive situation is something that is still something more like a crisis in any case. And I think that this is the situation for everyone out there. So now, of course, some opportunities can arise and due to the fact that we have secured the business and we have secured our cash position. And at the end of the year, if this will be the case according to the scenario that Sergio was talking about before, having this amount of cash available, of course, we can think to capture some opportunities that will arise. But today, on the table, there's nothing truly concrete. I think that all the companies today in the sector are very focused more on securing their business. And trying to do their best in order to preserve the value of their assets more than discussing with counterparts. But we -- as always, we are very attentive, and we are very proactive. As always, we act more as a consolidator, than a consolidatee across the market. So having this good financial position and a business model that demonstrated to work very well even in this uncertain scenario, we are well positioned to play an active role when the situation will be clearer than today. There are all the conditions to do. But today, there is nothing on the table that can be disclosed or can be considered concrete, let me say.

[Operator Instructions] We have a question coming from the line of Baptiste de Leudeville with Kepler Cheuvreux,.

Niccolò and Sergio, do you hear me?

Yes.

Yes, we can hear you.

A few questions. First question, when will you be -- when will you feel more comfortable in marketing the Dynamic Packages? You said that you are rather conservative on marketing these -- those products because you're principally [ agit ], and you want to avoid the new risk of big waves of cancellations if the sanitary conditions go worse. So yes, can you tell us about that?

Yes. I mean actually, we are started to push on the dynamic package again. But it really depends on the overall conditions of the virus. So when we say that we are a bit cautious related to the dynamic packages, it's more related to the prior departure date. So here, the risk is not really related to [ our estimate ], but it's more related to what can happen in the last quarter. So that is where we are taking a more cautious approach. Because we really don't know what is the situation apart from the recession. I'm just talking about the spread of the virus that could arise in September or October when the autumn will go back. So Dynamic Packages are actually equally weighted between city breaks and sun and beach. So the people who wanted to buy sun and beach already did more or less. So -- I mean in July, Dynamic Packages has increased significantly. Now of course, there is a question mark related to the U.K. because again, Spain is a major tourist destination for the U.K. travelers. So -- since when the government has put this restriction, we have seen a slowdown in the last week related to the U.K. to Spain dynamic package corridor, not only the flight, but also the U.K. What we are doing is being more cautious in the sale of the first quarter -- of the last quarter, sorry, related to the dynamic package, which means decide what to sell and what still hold in order to sell. So this is the thing that we are carefully evaluating in order to avoid to have a similar problem to the one that we have faced in the month of March and April. So it will -- so the answer at the end is that we are going to carefully monitor what is the situation and tailor the decision of what to sell based on the overall conditions. But we are pushing. I mean we are pushing anyway. So the Dynamic Packages versus what was the situation of the beginning of March -- of May and second half of May have increased significantly.

The second question is about the government supporting measures. Do you see benefit from any government supporting measures to date?

Absolutely.

Or is it over? Yes.

No, no, no. Absolutely. EUR 19 million is what, 19, 1-9 is what is going to be accounted for in the P&L this year, out of which I would say, EUR 6 million to EUR 7 million is what has been accounted for in the first half, which is related to the second quarter only. So the remaining part, which will be the second half. And the biggest chunk of that is related to Switzerland. Where I would say also the mechanism is the one that works better in general in terms of process and in terms also of length of the program because it can -- it will expire in the first window by the first Q 2021, but it can be extended up to September 2021. It depends on the conditions of the market and the performance of the group. But it's something that is really conveying a very -- oxygen to the P&L of the group, considering that half of the cost base related to human resources reside in Switzerland.