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

Ladies and gentlemen, welcome to the Full Year Results 2020 Conference Call. I am Sandra, 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 Niccolò Bossi, Head of Investor Relations. Please go ahead, sir.

Thank you, and good morning, and welcome, everyone, and thanks for joining our full year 2020 investor and analyst conference call. Today, we will guide you through the numbers of this difficult year that all the market has experienced. I'm here today with Fabio Cannavale; lm CEO; Andrea Bertoli, Deputy CEO of lm Group; and Sergio Signoretti, our CFO. We will conclude the presentation with a Q&A session, which will be open to all people connected. Before starting, as a general statement, I remind you to take a look at the disclaimer on Page 2 on the importance of being cautious in the evaluation of forward-looking statements included in the document that has been uploaded in our corporate website. Now I give the stage to Fabio that will introduce his presentation. So please, Fabio, go ahead.

Good morning to everybody. 2020 has been a very interesting and challenging year for the company. We manage the company in the best way as possible. As one of the -- as you see at Page 3, we focus on our core activities. So the group of OTA, META and media business while we sold the majority of Italia -- Destination Italia, Gartour in order to deconsolidate its activity. And we still keep the minority shareholding in Ubi and InstaGO, and we keep continue [indiscernible] lastminute. But our focus has been want -- not to distract any equity and any cash from these activities. Then if you go to Page 5, we can see how we manage these crisis. So the start of 2020 was very good. We did, in the first 2 months, the record booking and of more than 0.5 million booking. And we were on track to do another growing year versus the 29% that was already very good. Then COVID came, as everyone know, more than 1 year ago, and we have to manage around 700,000 cancellation, and we refund more than EUR 300 million to our customers. So all the company was focused from, let's say, a booking machine to cancellation machine, and we had -- and we have to thank also all our team to do an amazing job on that. And on that, of course, we have to be flexible in our strategy. And we have been -- seen a rise of the booking in the last year in the summer when the COVID seem to be, at least, the first wave was passed. And we demonstrate in these months that we were very quick in recovery, very quick to get [booked]. Then what we did, we also do a cash protection plan. So we try to save cost, of course, and to get also from the banks in our financial structure. And so the strong reduction plan was the -- in the office in the fixed cost and we also benefit from the subsidy from the government in all our country where we are present. Then in the last part of the year, we also managed -- we had Marco Corradino communicated for personal reason, want to leave the head of the operating part of the group. And Andrea Bertoli, that was formally the manager of the OTA, so the most -- the largest part for our group, will lead the operating activity, and it was nominated Equity CEO. The organization now is very well structured, and the team is very motivated to go forward and to have a quick recovery in the moment that the COVID will release and the government in Europe will leave the people -- give the possibility to travel. The volume of this year, they are going, let's say, in line with the going up and down of the government transition. So February and January was very weak. The beginning of March was quite good because in Germany, they opened the traveling to the Balearic Island and then south. And then now, there is a little bit more cautious. What we see that there is a big divide today between the U.S., where the vaccination is much forward; and Europe, where we are a little bit late. And so we think that as soon as in a couple of 2, 3 months, we don't know exactly when we will fill the gap to U.S., and we will have the same vaccination situation, probably the market will start to give. I give the word to Sergio to give you the more highlight about our numbers.

Thank you very much, Fabio. Good morning, all. I'll take the -- from Page 6 onwards. So if you see -- I mean, Page 6 represents really the roller coaster of 2020. In terms of bookings, in terms of gross travel value, in terms of revenues, so we started very well. We started January and February, which we were plus at 16% above the year before in terms of volumes. Remember, it was the record year in 2019. Then COVID came. In 4, 5 weeks, we went almost standstill, and this is represented in the Q2 figures because at the end, we've stayed standstill up to mid-May. Then we recovered, we recovered quite steeply, which is something that we expect also for this year when the recovery will come back. And we picked the recovery in Q3 and then the second pandemic wave came on, spread out through Europe. And the result at the end is that in terms of gross travel value, we ended at EUR 1.1 billion, approximately versus the EUR 2.9 billion of the year before. So we are speaking about 60 -- minus 60 -- 63% in terms of gross level value and minus 62% in terms of revenue. So EUR 129 million versus EUR 338 million. As you know, Page 7, our cost structure is flexible. It's flexible and can be adapted to such a disaster, which affected the industry. So 70% of our cost is variable, 30% is fixed. Here, you can see the comparison between years of the two clusters of cost base. So the variable portion, which is the pink one has been, let me say, decreasing proportionally to the trend of gross travel value, but we will see that we've been even more efficient in that in a minute. And as Fabio was saying, we have launched a massive cost reduction program in order to reduce our fixed cost base. So at the end of the year, we are talking about a minus 55% year-on-year in terms of fixed cost base. Entering a bit more in detail, Page 8, on the various actions that we have done. So on Page 8, you see the representation of the variable costs, which have been adopted to the circumstances. So the biggest chunk is represented by the performance marketing costs, which is represented up in the upper part of the slide, EUR 48 million versus EUR 123 million the year before, so minus EUR 60 million, in line with the trend of bookings, gross travel value and revenues in terms of decreasing trend. But if you isolate the first quarter, which was affected by the very good performance in January and February where we were overperforming 2019, the drop has been, as you see on the left, a minus 79%, considering the period from April to December year-on-year. Same thing, similar thing for the other variable cost. The other variable cost includes customer care. Customer care has been flexibilized a lot in the past years, in terms of mix of utilizing outsourcers. So it can be, of course, optimized based on the volumes, based on the utilization more or less of the various outsources versus the in-sourced part. The other piece of the other variable cost is the acquiring, the processing and risk management fees. So of course, this has been reduced at minus 57% in the -- year-on-year and minus 75%, if you isolate again the effect of January and February. You see the representation of the various figures per quarter in the right part of the slide. Then on top, as I was saying before, Page 9, we have implemented that huge cost reduction program. This is something that, if you remember, we already commented 1 year ago when we were meeting approximately in this time of the year, and COVID was there since a couple of weeks. Now it's 13 months that we are dealing with that. So we were targeting EUR 30 million cost reduction program on our fixed cost base. We have done EUR 36 million so plus 20% versus what we are targeting. Of course, what we have done here is accessing to all the measures granted by the various governments in the various core markets where we operate due to the furlough scheme or working hour reduction schemes for more than EUR 20 million in order to relieve our P&L. Then of course, we have intervened on the organization. We have frozen the hirings. We have cut across the board, and we will enter into that the various operating expenses from IT, facilities costs, overhead, travel and the end for approximately EUR 10 million. And of course, we have stopped all our advertising and marketing nonperformance investments for an amount of EUR 4 million. If we enter a bit more in detail on that, and I'm on Page 10. Page 10 represents basically the biggest chunk of where the EUR 36 million of cost reduction program comes from. So starting from the pink box, that is the HR piece, the HR cost, which has been reduced EUR 25 million, EUR 26 million, actually, year-on-year. Out of this EUR 25 million, the EUR 20 million is the impact, as I was saying, of the government subsidies. The rest is actions on the organizations and also elimination of the variable compensation of the entire company for the year 2020. The blue part represents what we have done on the IT machine from EUR 15 million to EUR 11 million. So EUR 4 million savings. Here, we have renegotiated contracts across the board. We have optimized our cost structure. We have moved to cloud the [ fiber farm ]. We have visualized basically a number of services, achieving a minus 26% cost in 2020 versus 2019. And then the lighter blue, the turquoise, which is the overhead part. So overhead is actually the SG&A, so includes consultancies, but more importantly, includes the facilities costs. So here, what we've done is actually leverage on the smart working force from the pandemic in order to adopt what we call a hybrid model work that we are implementing. We have reduced drastically the number of square meters that we have, and we have shut down a few offices in some markets. We have reduced our presence in Madrid, in terms of building. We have shut down Berlin, shut down Barcelona, shut down Milan. We have optimized our cost structure in terms of debt. And this is generating a saving approximately of EUR 5 million on top, of course, of elimination of consultancy, so a minus 35% year-on-year. This is part of the actions that we have done. More importantly, maybe even more importantly, Page 11 is the running rate of the fixed cost base. Because, of course, these have been actions implemented in 2020 that will spread over the annualized effect in 2021 and forward. So we -- so this is intervention that everything else being equal, will generate an increase in our EBITDA margin going forward when we get back to the same level of business and revenues pre-COVID. So if you look at the comparison between Q1 and Q4 2020, we are talking about a minus 19% of cost base on our overall fixed cost base. So including HR, because the HR fee here is gross of the government subsidies. So it doesn't include the subsidies that we received for the various furlough scheme. And this is the baseline on which, of course, 2021 will be calculated. And we show that in Page 12. So in 2021, the gray part. We expect -- and the range is due to the level of business recovery. So it's a fork that -- actually, we have because, of course, we can be even more aggressive in the cost cutting exercise, depending on the size and the velocity, the magnitude of the business recovery. So we will get in 2021 to be approximately 20% less than what we were pre-COVID. In terms of fixed cost structure without, again, considering any mechanism of the furlough scheme and working our reduction. We are talking about something which is in the region of EUR 10 million, EUR 10 million to EUR 15 million less -- sorry, EUR 10 million less of what was in 2020. So we get -- we could get to EUR 52 million. So this is, I think, relevant in terms of messages. And in the following slide, Page 13, you find the detail for what is the running cost. So the combination of the overhead and IT costs, which we aim to be in the range of EUR 16 million to EUR 18 million in 2021, which again is minus -- over minus 40%, versus what was the pre-COVID situation and even less, as you see that, what we achieved in 2020. So this is, of course, generated by the annualized effect, as I was saying before, of all the actions, but even by further actions that we are putting in place in order to optimize and be more and more efficient in order to compensate there and leave our P&L. Going to Page 14. Page 14 represents the roller coaster of 2020 in terms of quarterly EBITDA. So we started very well in Q1. Out of the EUR 9 million, EUR 12 million was the combination of January and February, so plus 13% versus 2019. Then of course, COVID came. We lost EUR 3 million in March. We lost then, in Q2, approximately EUR 5 million. Considering the impact of April at standstill, considering the impact of mid-May at standstill, and then luckily, we had the recovery from mid-May onwards. In Q3, when the recovery came back, a partial recovery, of course, we reached the EUR 3 million business EBITDA. And then the second pandemic wave came, and we had a EUR 5 million impact, negative EBITDA in the fourth quarter. As a result, we had a business EBITDA slightly above breakeven, EUR 2 million, of course, versus the EUR 71 million that you will remember was the record of -- all-time record of 2019. If you go forward, Page 15 shows the impact of what is not included into the business EBITDA. But of course, it's included in our full year bottom line results, which is the cancellation impact. So the cancellations in terms of magnitude that's been an enormous phenomenon in the industry. So we are talking about just for us, approximately 800,000 cancellations, so 765,000 over the year, of which the biggest chunk is related to Flight. So to the Flight business, remember here, we are agent. So I mean, we act on behalf of the airline. So 550,000 cancellations come from here; 130,000 come from the [indiscernible] package business where we are organized and are principals. So if you look at the right, in terms of trend, the cancellation phenomenon, of course, have picked from March to May, but then has remained substantially high up to, I would say, October. Now in terms, of course, of trend, it's decreasing. And also in terms of, I would say, total magnitude of the cancellation. So the phenomenon is still there but it's getting back to a percentage level, which is, I would say, more -- less critical than before. The impact of all the cancellations effect is huge. So it's more than EUR 30 million, EUR 31 million, which have been recorded, accounted in our profit and loss, and which is represented, going to Page 16 in the extraordinary item box. So it's half of the loss that we have in 2020. So we ended 2020 with approximately -- with EUR 62 million net loss, out of which EUR 31 million is the impact of cancellation. The arrows -- I mean, just commenting a couple of the more boxes in the usual cascade. As you see, corporate costs have been reduced significantly versus the year before. So in the bottom line of the chart, you see the comparison versus 2019. The EBITDA, we already commented. So corporate costs have been reduced 35% due to the various cost reduction actions. The impact of Destination Italia is the biggest chunk of the venture initiative loss that we had in 2020. As Fabio was saying before, it's now entirely deconsolidated. We sold the majority. So it's not anymore going to be reflected in terms of heat on our P&L. One comment on the bad debt. We have accounted for a provision of approximately EUR 8.5 million, which is related to mostly the dynamic packages business where we refund the customer, regardless of the fact that the supplier have refunded us. So here, there are a number of airlines, as you know, that are in difficulty. And so we are -- we have accounted for a bad debt provision regarding to that. And the effect, just in terms of give you the last comment of the sale of the majority of Destination Italia in terms of write-off of the related assets, has been accounted for, of course, and it impacts the P&L for approximately EUR 3 million. So at the end, we are talking about the minus EUR 62 million. The minus EUR 62 million is going to be entirely covered, utilizing the return on earnings and the net worth reserves that the company has accumulated over the past years. So there is no issue at all in terms of net worth coverage. Of course, going to Page 17, 2020 is not any year about profitability, as you saw. It has been a year about resilience. It has been a year about securing the company, securing the cash, putting in place all the cost and the cash protection actions in order to protect ourselves. We've done a massive effort. So a cash protection program for EUR 260 million. We have access to all the unused credit lines that we were already having for EUR 42 million. We have negotiated new financings and access government-backed financings, which were accessible in the various market for EUR 50 million. We have launched probably among the first in the market in Europe, at least, a massive voucher campaign in order to dilute the refunds effort and the refunds process to our clients for an amount of EUR 135 million vouchers. Out of these, EUR 50 million has been already utilized. And of course, this is a massive relief because customers will use this voucher when the business recovery comes back. And then in the -- let me say, more critical period, which was when COVID came and took into place. So from March to May, we have also renegotiated our payment terms to vendors for approximately EUR 30 million. As a result, if you go to Page 18, our cash end of the year and end of period have been EUR 138 million. So extremely, I would say in terms of relief, increased versus the level of the end of year 2019. Here is the usual representation in terms of cash flow. So we have a negative -- of course, so we have the impact of the negative IFRS EBITDA cancellations included for EUR 51 million. We have a positive net working capital, which includes the liabilities towards clients for the vouchers issued for EUR 30 million. And of course, we need to take into account that at the end of year, we had EUR 92 million loans from banks due to all the actions put in place in order to secure the company. So the end-of-year net financial position is EUR 33.5 million. With that, that represents the overall figures, and I will hand it over to Andrea in order to describe what we expect next.

Thank you. Thank you, Sergio. I think Sergio gave you a very good picture of the year we went through, has been really, really tough, and the company had to focus really on cash protection and cost reduction. But we really believe that now, it's a time to look forward and leave all this behind. We put here a famous centers from Barry Diller. Barry Diller is the majority owner of Expedia and Executive Chairman. Not everybody knows, but he acquired the Expedia after the September 11 disaster in New York. So -- and when he commented that, that decision was that if there is life, there is travel. So we all believe that the pandemic will have a huge impact on the society, and I said the huge impact on the economy throughout the world. But we are really convinced that as soon as the condition will allow people to travel, they will go back to travel. In Europe, as Fabio already anticipated, we are facing some challenges with the vaccination rollout, as you probably know. But what we can say is that there are still uncertainty about the timing, when finally, Europe will be able to manage the vaccination program in an efficient way. But all the signals we are receiving from market that in countries where vaccination is ahead, are very, very positive and give us the comfort that the market will come back and will come back very, very strong. Here is the general consensus about total travel market recovery. As you know, most of the analysts believe that they will take a few years to recover. Most of the analysts believe that it will take until 2023 for the full recovery. But this -- you have to keep in mind that our analysis on the total travel market, that includes business travel, which is highly impacted and will probably be structurally impacted, and it includes the offline travel market. Now lastminute.com group is, as you know, is an online travel agency. So we don't operate off-line. And it's mainly focused on leisure travel. We don't have business travel activities. So out of this total market, we operate just in 2 segments, the online and leisure. And if we look at the leisure travel, we see that whenever there was any indication from government that travel will be allowed again, there is a very, very strong Latin demand. These are a few headlines coming from the U.K. price when Boris Johnson went on TV and gave a clear time line about reopening. All the players in the industry, from airlines to tour operator, saw a huge surge in reservation. So based on this element, what we believe is that the travel industry and the travel market will recover. And the recovery will be driven by leisure travel, not the business travel and very important that for the future of our group and the future result of our group, the online share growth will accelerate. The pandemic has had a huge impact on digitalization of the old society, especially in Southern Europe, where online share was still below what we see in U.S. or what we've seen in Northern Europe. But the pandemic have forced all the population to get used to shop online, to get used to attend school remotely. Even the public administration had to provide service online because it was not possible during lockdown to go to the different offices and so on. So we really believe that in this context, so thanks to the acceleration of the online share, and leisure travel being the first segment to recover, we believe that for online travel agency like lastminute.com, the level of 2019 will be reached in 2022. So -- sooner than the rest of the market. In this context, we also believe that we are very, very well-positioned to win the recovery. We have a very solid and distinctive technological platform. As you probably are aware, we developed, in the last 5 years, a leading-edge technology for dynamic packaging. This will be very, very important to address the package business, where traditional tour operator that are very asset-heavy and that are very rigid in their supply, will have a very difficult time in riding the recovery phases. We have a solid [indiscernible] structure. As Sergio illustrated before, we ended the year with EUR 130 million. This is very important because when a recovery will come, we will have all the financial resources to push marketing and take the lead in the recovery phase. Thanks to the working our reduction schemes and furlough schemes that we could leverage across all the major market in Europe. We have been also able to secure and keep our teams. Most of the -- we did some efficiency, of course, as everybody, but we are confident that the team that is still working with us will be really an asset for the future going forward. Then two points that sometimes are a liability. The fact that we are so diversified across different business model and the fact that we are diversified across geographical countries in Europe. In this moment of time, I think it's a great advantage for the group. As you know, not every market will recover at the same speed. It will depend on the vaccination rollout. It will depend on the epidemic data in each country, but we are present in all the 5 major European market with a very strong position and very strong portfolio of digital brands. So this will give us the opportunity to capture the recovery as soon as any of the European country will start traveling again. Last is about the diversified business model. As you know, we operate a group of 3 different business unit. We have an OTA, we have a META search business and we have a Media business. And so you saw in the slides from Sergio, the media business has been the most impacted one in the year because every company in the sector cut all the market investment. But we are convinced that having this diversified business model will give us the opportunity, again, to ride the recovery in a very efficient way, being able to capture opportunity that will come, firstly, on the metasearch business than on the OTA business and then finally, on the Media business. So I think we have a very strong platform for growth, and we see the market recovery coming and coming for this summer. This is all. So I will leave the word to Niccolò so that we can manage the question-and-answer session.

Please, thanks. We have time for Q&A. We go more to the operator in order to collect the questions, and then we will go through that.

[Operator Instructions] The first question comes from Gianmarco Bonacina from Equita.

Yes. I understand that it is impossible to provide guidance at this time, but maybe it would be helpful to discuss if it's reasonable on the base that in 2021, revenues would be 40% lower than in 2019. So assuming a level of EUR 200 million in revenues in this scenario, assuming the evolution of the cost base that you indicated for fixed cost and assuming that variable costs will be moving in line with revenues, that the group can achieve business EBITDA in the region of EUR 20 million, EUR 25 million and basically around breakeven for net profit. The second question is on the net cash position. Again, if it's reasonable to assume that in 2021, this figure will remain more or less stable, assuming that the company will have to face cash outflow for the vouchers. At the same time, inflows for the new business? Or maybe if you expect a different trend so an increase or a decrease for your net cash position this year? The last point, you mentioned that you expect the OTA market to recover 2019 volume in 2022. I was wondering if you expect also for the overall group, so including media and META, not just OTA, that in 2022, you will be able to recover 2019 sales figure? And also, more importantly, your margins so your EBITDA and net profit .

Yes. Thank you, Gianmarco. Pleased to hear back from you. I'll try to answer to this question. So of course, today, it's not too easy to make projections about -- nobody knows actually. To be real uncertainty is about, as we said before, the margin, it would extent to the speed of the recovery. So there is no uncertainty at all about the fact that the market will recover. On this, we can be certain. The uncertainty is how fast it will recover. Assuming -- because it will depend, it will depend on the velocity of the vaccination campaigns, more than anything else. So we see that in the U.K., there are already a significant increase in the number of searches. There is an increase in the number of bookings from June onwards because U.K. is the first country, first core market where we operate, has already set a sort of road map in terms of exit from the lockdown. So it's a bit our barometer in terms of looking at what is going to happen next. So if we consider what -- basically, most of the analysts say, no, in terms of the various vaccination plans in terms of each year. In Unity, of course, the assumptions that you were making can be reasonable. So assuming -- can be reasonable in terms of overall figures. So of course, the assumption of the minus 40% will be influenced on the vaccination of our campaign in the 5 major markets where we operate. But with that assumption, I think what you were mentioning, is reasonable. The second question in terms of net cash position. No, net cash position will decrease this year because the vouchers or utilization will follow the recovery, will substantially compensate the new cash generated by the recovery of the business. So it will go substantially at breakeven. But on top of that, we need to take into account that they're going to repay some of the financings, and we are going to finish the long tail of the refunds from the cancellation. So it's going to slightly decrease versus what we were -- we had at the end of 2020. Then yes, we absolutely aim to get back to 20 -- to the pre-COVID EBITDA in 2022. I mean, we've done also a number of cost-cutting actions that we described, I think, quite deeply before, which should help us in terms of having a higher EBITDA margin and higher efficiency even with a lower level of overall business in order to achieve -- to go back to where we were pre-COVID. I don't know, Andrea, if you want to add anything on this?

No. I think it was very clear. The big question is not the recovery. It's when will it be? In May, in June, April, we -- it's really impossible to see when will it start, but we saw last year that the trajectory, when it starts, it's very steep. And I think for 2021 will be another difficult year for the first half of the year, for sure. But regarding 2022, as Sergio said, I believe that also, top line will be in line with 2019 data. But even with the lower top line in 2022 EBITDA leverage will be in line as we are improving EBITDA margin, thanks to the various cost-cutting program that we run that will spill over benefit in 2021, but also in 2022.

Is there any other question?

The next question comes from [ Pacini Alessandro ] from Banca [indiscernible].

Yes. I'd like very much to know what do you think about M&A business at the moment. So you have a very nice cash position, even if it's going to decrease slightly, as you said in '21. But I think that you have a competitive advantages to the others, to your peers. So I'd like to know if you think to make some acquisition? Or if you think that you can become, as in the past, a possible acquired company?

I can give my view and then I ask Fabio to elaborate. Yes, I believe that as in any crisis, there will be consolidation in the industry. And I think we have a very good base to be an active player in the consolidation game. As of today, it's difficult to give a clear perspective because everybody is today, very focused in managing the last part of the crisis, and getting ready to ride the recovery at best. But I'm sure that there will be opportunities, and that we have a balance sheet that can allow us to be active in this situation. But Fabio, please.

Yes. I think we have still, as you said, a strong position with a neutral -- a positive net financial position. We have been approaching this last year from many potential financial sponsor. As we know that there is opportunity in the market to do something. And so we are continuously talking with everyone at a different level. So there is a target that, of course, with this consolidation of the decrease, there are opportunities. Currently, we are really evaluating a couple of things about that, the people that people companies that some have liquidity problems. And on the other hand, there is a lot of potential financial partner that are ready to support us. So we are working on that. This is my main activity, together with our team of corporate development that report the [ opportunity ]. What I can say more is also that, as you probably know, also our financial position in the moment with recovery. So if we do a simulation that we go back to EUR 3 billion gross travel value in whatever it is this year or next year. And next year, the following year, we will produce a lot of cash because this company is a cash machine. And also, we have negative working capital. So in the moment, we create gross volume, we create a lot of cash. So we have potentially, so far, in our own resource to do some acquisition. So yes, we are very active on that. We believe that there will be a consolidation, the same that we said in the last years, in our sector. We want to be an active player in this consolidation in the travel sector. Our aim is to build one of the leading digital travel company in Europe with a European heart and a European management.

[Operator Instructions] Gentlemen, there are no more questions.

Okay. So if there are no more questions, I will conclude here the call. Thank you very much for everyone. I think it's been very clear calling which we have highlighted all our key strengths for the future, after having described what we have built during 2020 to post the basis for this quarter. So thank you very much, everyone. Thanks, Andrea, Fabio and Sergio for the support. And let's meet in -- for the first quarter release at the end of May in order to understand what is the current rate in the first quarter. Thank you very much.

Thank you. Bye.

Thank you all.

Bye-bye.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.