SSP Group plc (SSPG) Earnings Call Transcript & Summary

Good morning. Today's agenda covers 3 key areas: Firstly, a brief reminder of SSP's track record, the impact that COVID has had on our business and the actions that we've taken throughout the crisis. Secondly, Jonathan will outline in detail the Rights Issue in our financial strategy. And finally, I will present our future plans and the significant growth opportunity for SSP as the market recovers. So just before getting into the detail, I'd like to start with a brief overview. Before COVID, SSP was a successful business with a strong track record of growth and commercial excellence, and one which consistently delivered good shareholder returns. The impact of COVID has been widespread, severely affecting our business for the last 12 months. Now throughout the crisis, we have taken quick and decisive action to protect our business and position us for the recovery. I have no doubt that the market will recover but as we all know the recovery has been pushed out and the timing of the recovery remains uncertain. So it is really against this backdrop and our debt maturities including the repayment to the CCFF in February 2022 have now come into sharper view. So it is our judgment that the time for action is now and today we present a holistic solution for the balance sheets. A Rights Issue of GBP 475 million, the extension of bank debt maturities to January 2024 as well as a further covenant waivers. Now we are confident that this dilution in the reasonable worst-case scenario provides resilience through the recovery phase, and it allows us to benefit from the opportunities that would then arise in a disrupted competitive landscape. And under our base case, this solution resets our balance sheets and provide significant capacity for future growth, enabling SSP to return to delivering long-term sustainable growth for all of our stakeholders. So moving to Slide 7. As you can see on this slide, SSP has had a consistently strong track record of both growth and efficiency since our IPO in 2014. We have delivered strong revenue growth and operational improvement, growing our revenues by about 9% each year since the IPO and increasing our margin by over 300 basis points. We have more than doubled our operating profit to GBP 221 million, and we also expanded and diversified into high-growth markets, with the U.S. and rest of world now accounting for 1/3 of group revenue. And we consistently delivered top quartile total shareholder returns. We also delivered solid like-for-like growth. And in recent years, we've accelerated our new business growth, delivering around 5% of net gains since 2017 and a further 6% of net gains had been won in our financial year 2020 prior to COVID. Our M&A has also delivered high returns in countries, including India. Now importantly we are a highly cash generative business. The strong cash flow has funded all of our growth, enabled us to return dividends and GBP 250 million cash while staying within our leverage guidance. As you know COVID-19 has had an unprecedented impact on the business. Like for like sales were severely impacted, down 95% in April and May last year, and continued to remain low at around 80% down. The majority of our stakes remain closed but we have been flexible in reopening in line with demand as was evidenced towards the end of last summer. And looking at the impact on restrictions on passengers demands international air passenger volumes have been most severely affected, but we are seeing early signs of a rebound in China, India and the US in the domestic air segments. Rail demands saw some recovery in the summer, but since contracted with the further lockdowns; however positively, we have seen that when restrictions, rail comes back quickly. And again, we saw that especially in France and Germany. So our focus at the outset of this crisis has been to protect our people and our business. You've seen these actions at our previous presentations. We acted quickly, decisively, created the liquidity we needed, whilst at the same time, removing significant costs, renegotiating our concession fees and minimizing our cash usage. Now you can see the operating cost reductions that we've made in response to COVID and to protect our business. They have been significant. In half 2, 2020, we reduced our operating cost by nearly GBP 600 million through savings in concession fees, labor costs and reduced overheads. We reduced our rental costs by well over GBP 200 million year-on-year in half 2, mainly through agreeing minimum annual guarantee waivers in about 2/3 of the business as well as negotiating lower concession fees in some cases. We reduced our labor costs by about 70% through careful management of the unit opening program and using Government furlough support -- furlough schemes where available as well as through redundancies in the absence of Government support. We have also been able to reduce the rest of our cost base. So despite both low and volatile sales, we have forensically controlled our cash and minimized its usage with our monthly cash burn consistently running in the range of GBP 25 million to GBP 30 million. So finally, in terms of current trading, our sales have remained low, down 80% in Q1, falling down to 83% in January-February, and down 80% in March. Now our tight cost control has enabled us to contain the impact of the low sales in quarter 1, converting at 22% on the lost sales, better than the 25% that we indicated at the prelims. A GBP 120 million cash usage in the first 4 months of the financial year, including around GBP 11 million of one-off restructuring costs, is in line with the cash burn guidance that we have previously given. And this leaves liquidity at GBP 420 million at the end of January 2021. We also continue to expect our cash burn to remain in this current range, if sales remain at the low levels that we've seen in the first 4 months of our financial year. So as you can see, whilst current trading remains weak and the recovery may be prolonged, we have relentlessly protected our business. I will now hand over to Jonathan to take you through the package of financial proposals that we are making today.

Thank you, Simon, and good morning. So the impact of COVID-19 on the travel market has been even more severe and prolonged than anyone anticipated in March last year. And indeed, as recently as in December when we announced our prelims. Even since then, we've seen a rapid change in the outlook, with the advent of further lockdowns and travel restrictions around the globe and particularly across Europe. Facing the current high level of uncertainty over the timing of the recovery of both air and rail travel, and our forthcoming debt maturities, notably, the Bank of England CCFF next February, we want to take action now to put in place a holistic solution to the balance sheet. The package of measures that we're announcing today is a fully underwritten rights issue of GBP 475 million of gross proceeds. In addition, we've agreed an 18-month extension of our bank facilities of around GBP 520 million. And we've agreed waivers or resets on all our principal covenants on both our bank debt and our U.S. private placement notes through to 2024. The rationale for the rights issue is to strengthen the balance sheet against a wide range of scenarios for the recovery of the travel market. First and foremost, we want to create the liquidity we require to cover the reasonable worst-case scenario, which I'll describe in a moment. An essential part of creating sufficient liquidity is an extension of our bank facilities as well as covenant waivers, all of which will be conditional on raising equity. Most importantly, this will give us the financial capacity to invest in the many opportunities we expect to arise as the market recovers, and we're confident that it will. The size of the rights issue has been determined by our reasonable worst-case scenario, which, of course, has been thoroughly reviewed and tested by the reporting accountants on behalf of our sponsor and the underwriters. A reasonable worst-case assumes that the current restrictions on travel remain with almost no recovery in the second half of this year, and passengers remain at around 20% of pre-COVID levels, in line with the current run rate. Beyond this, it assumes another severely disrupted autumn and winter, that is the first half of our 2022 financial year, with passenger numbers only reaching around half of pre-COVID levels by this time next year before beginning a gradual recovery thereafter. Under this scenario, we would continue to use cash over the period through to late 2022. As we stated previously, we need to see sales above 50% of pre-COVID levels before we're operating at breakeven levels of EBITDA. The rights issue will cover our liquidity requirements under this reasonable worst case, so we would expect our current cash burn of between GBP 25 million and GBP 30 million a month to continue certainly through the third quarter, leaving us with just below GBP 300 million of available liquidity by the end of June. Given our expected cash usage over the following 12 months and the forthcoming CCF (sic) [ CCFF ] maturity, we would clearly require additional funding under this scenario. So you can see from the chart, the rights issue of GBP 475 million will allow us to repay the GBP 300 million CCFF and meet our minimum liquidity test of GBP 150 million, but still leave us with around GBP 300 million of available liquidity to cover the period over which we will continue to use cash. And this would cover the reasonable worst-case and give us some additional headroom. Now looking at the balance sheet and our facilities in more detail. As I said, we've extended the GBP 370 million of senior facilities and the GBP 150 million RCF by 18 months through to January 24. And that's with an additional margin of 125 basis points, taking it to 3.5%. Regarding our U.S. private placement notes of GBP 325 million, they already have fairly long maturities of between 2025 and 2031, and there has been no further increase in the coupon as part of this transaction. The covenant tests are the same across all lenders. There is a net debt test set at GBP 800 million, and the minimum liquidity test set at GBP 150 million from next year after the CCF repayment compared with the current GBP 200 million. The leverage tests will be waived until 2023, when they're reinstated, but at higher levels, in line with the reasonable worst-case and indeed giving us some headroom against the reasonable worst case. And they only revert to the original levels of 3.25x in 2024. Now moving on and looking at the base case. Because of the unprecedented uncertainty that we face, there is a very wide divergence between our base case and the reasonable worst case. It's important to understand that this is mainly about the timing of the recovery through the rest of '21 and '22. Our central view is that the travel market will recover more rapidly and to near pre-COVID levels in the medium term, with leisure and domestic travel returning fastest, followed by short-haul air with long-haul and business air travel being the slowest to recover. We based this view on a number of external sources, including research that we have commissioned specifically to evaluate the impact of some potential structural changes to the travel sector, including the use of video meeting technology and working from home. Looking at the air sector. Leisure travel is expected to make a full recovery in the medium-term with the ongoing structural growth, a lot of which will come from the developing markets, broadly mitigating the reduction in business travel. However, in the rail sector, working from home and reduced commuter traffic could impact passenger numbers in our major markets by around 5%. Now looking at the timing of the recovery. Whilst passenger numbers only return to around 50% of pre-COVID levels by the very end of this financial year, they get back to around 80% by the second half of 2022 and return to near pre-COVID levels in the medium term. So turning to the outlook under the base case scenario. We would expect like-for-like sales to return to pre-COVID levels by around 2024, driven by the recovery of passenger numbers as well as price inflation. On top of this, the current pipeline should deliver a further 10% to 15% of net gains over this period. In the medium term, that is with like-for-like sales back at pre-COVID levels. We would anticipate EBITDA margins being back at 2019 levels. Even though underlying passenger numbers and volumes may not have fully recovered, we'd expect to retain some of the benefits of the actions that we've taken to restructure and reduce our cost base over the last 12 months. Most importantly, in this scenario, we have additional financial capacity to invest in driving growth. And I'd like to take a moment just to reiterate our financial strategy and our priorities for the use of cash, which are the same as they've always been. Firstly, for organic growth, which is where we typically get the best returns, we consistently delivered 3- to 4-year discounted paybacks on organic capital investments over many years. Secondly, we will look for infill or bolt-on acquisitions when they meet our financial hurdle criteria, only then would we look to return surplus cash to shareholders as we've done in the past. However, I should point out, we'll anticipate returning to our previous ordinary dividend policy in due course. Our medium leverage target then remains unchanged, that is returning to leverage of 1.5 to 2x net debt to EBITDA. Now under our base case scenario, we would be below this range in the medium term and, therefore, we would have the capacity for further investment of up to an additional GBP 350 million to GBP 400 million, while still operating within the target range of leverage. I'll now pass back to Simon to talk about our strategy looking forward and the scale of that market opportunity.

Thank you, Jonathan. So now I want to switch gears and talk about the future and why I think SSP can emerge this crisis a stronger and a bigger player in our sector. Firstly, we have a very clear plan and forward agenda. We will continue to minimize cash usage through the COVID period and are prepared and ready to reopen our units as demand recovers. We also have lots of previously won units to then build and open as well as brand-new business development opportunities, both of which will profitably expand our footprint, and all of our plans are supported by a very strong position in the travel market. So just by way of reminder, pre-COVID, we operated in a large and growing but also a fragmented market, where the top 4 competitors have a little over 1/3 of the sales and with a very long tail of small and single brand competitors. And as you can see, we hold a very strong position in all of our key markets. Prior to COVID, air have been growing passengers by around 7%, with rail at about 3%. And over the medium term, both channels are expected to continue to grow. So the travel sector remains a structurally attractive market. We expect to be broadly back to pre-pandemic passenger levels by 2024, and we think the early recovery will come from domestic and short-haul leisure travel as people go back to offices, travel domestically and have much-needed holidays. Importantly, as you can see from the table on the right, we are very well placed to benefit from the shape of this recovery, with 60% of our overall sales driven by domestic passenger travel, and again, around 60% of our overall sales underpinned by leisure passengers. And the majority of our air sales are driven by short-haul and regional travel. Now we have many structural and competitive advantages that will continue to support our leading market positions in the travel sector. Again, you've seen this slide before, but I'll just make a couple of points. So we have leading market positions, and we are the food travel experts. Our local insights, combined with international scale, has enabled us to develop a multi-unit and a multi-brand portfolio for all of our clients. And those client relationships are, in turn, further strengthened by our highly experienced colleagues and local management teams. We also have a proven strategy to deliver long-term sustainable growth. Now the scale of the business gives us access to a wealth of consumer insights, and we will continue to use this to deliver the right proposition, investing in product innovation and digital solutions to grow our profitable like-for-like sales. Now as you know, running an efficient operation is a core competency at SSP and is deeply embedded into our culture. We will continue to remove unproductive costs and simplify processes to drive efficiencies. And prior to COVID, we also had a strong track record of winning new business. And once the market recovers, we expect this opportunity to emerge as existing and new sites. Now importantly, throughout the crisis, we have continued to improve our business, becoming more flexible and efficient as well as strengthening our client relationships and our customer proposition. The lessons that we have learned throughout the crisis will improve our agility and our efficiency, and this will further strengthen our financial performance as the market recovers. And indeed, holding on to the benefits from our actions, including our operational flexibility, range rationalization programs and technology service improvements will be a very important part of our plans. Just to give you a couple of quick examples of the reality of these learnings, we found that by simplifying our menus, this has brought us multiple benefits. While still offering a breadth of choice, we've removed less popular and more complicated items, which means less highly skilled labor and fewer ingredients to make the dishes, which allows us to simplify our operations and make a greater profit from what we have on offer. And that sales growth is also supported by our technology service model. Our customers want to experience an easier, contactless experience. And this is a trend that has accelerated through the crisis and one we have proactively responded to. Our order at table and virtual kiosk solutions where the customer scans a QR code and orders are placed through their mobile phones is growing average transaction value and improve customer experience as well as greater operational efficiency. So as well as growing our organic sales, our focus will be to extend our current contracts on improved terms as well as mobilizing our new units that we have not yet built. Now our pipeline is substantial. And you can see on this slide that we still have over 60 new units that we had previously won prior to COVID and an additional 30 units that we have won more recently to open. These include 8 units of Cincinnati Airport, 16 units in railway stations across Germany, as well as 8 units across a number of airports in Greece, including [ Kos ] and Thessaloniki airports. Now we also intend to actively pursue new space growth opportunities across all our markets as we do expect reduced local operator competition following the market shakeout due to COVID. And I think our clients have seen firsthand the advantages of larger portfolio players. These advantages include multi-site flexibility breadth of offer and, of course, financial stability, and I believe this gives SSP a significant opportunity to extend our footprint given the fragmented nature of our markets. So just to conclude, prior to COVID, SSP was a very successful business, and it will be again. During the crisis, we have taken all the tough but necessary actions to protect the business and position ourselves for that recovery. We believe strongly that the market will recover and that the structural drivers that make it so attractive remain. However, it is the timing that remains uncertain, which is why we've had to prepare for a reasonable worst-case scenario. And the holistic solution we're proposing today, firstly, protects the business for that reasonable worst-case scenario, which, in turn, would pave the way for future growth as many competitors would exit the market in this scenario. But really importantly, in the base case, where the market recovers more quickly, the solution and the strengthening of the balance sheet will provide the investment needed for long-term growth. And in turn, we will emerge in this pandemic stronger and more agile than ever and return to delivering long-term sustainable growth for all of our stakeholders. Many thanks for listening. And with that, we'll hand over to questions.

[Operator Instructions] Your first telephone question today is from the line of Jamie Rollo, MS.

3 questions, please. First on margins. You're not saying when you expect to get back to that 8% figure, but could you talk perhaps a bit around that? Could you perhaps get there before the full sales recovery? Could you maybe quantify any permanent savings, particularly on the overhead figures you pull out on that slide? And as we -- is there a chance you might one day exceed that 8%? Secondly, on the contract figures, that 10% to 15%, just to clarify, is that sort of a pre-pandemic sales run rate? And how much of that is the sort of annualized effect of 2019 and contract actually in the bag? And how much is still to come, if you like? And what's the CapEx on that still to come? And then on the GBP 350 million-plus of excess liquidity, that's obviously quite a lot of spend on organic contract wins. So what's the sort of balance of spending versus returning any excess cash?

Okay. I'll pick up 1 and 3, and Jonathan, if you can pick up 2. So just firstly, starting with margins, Jamie. You're right, we said in the medium term, a couple of points to make, I think. The first point is, obviously, by 2024, we won't be quite back up to pre-COVID volumes. Now you're absolutely right, we'll be seeking to hold on to the efficiencies we created during the crisis. And I've spoken about those today and before. But those include flexible rents, simplified menus, operations and use of technology. But we do expect to see a return to cost inflation. I think it's widely reported that wage rates will be rising in a number of our large markets. The other point I'd make is, we also will be focused on new business. Jonathan will pick up in a minute around the question you've asked, but it's a substantial pipeline of between 10% and 15% additional sales. And remember, that new business has a drag on the margin. So overall, I think we see this as a good outcome to both take on and deal with the cost inflation as well as open that substantial amount of new business. Remember, it's in our DNA to relentlessly look at our efficiencies and our margins, and nothing has changed. We will continue to do that, but we will do that in a way that balances short-term margin with long-term compounding growth opportunities. Jonathan, do you want to just unpack the...?

Yes. So just to clarify that for you, Jamie. That 10% to 15% that we talk about in terms of net gains is all business that is secured. Within that, you're absolutely right, some of that is the role of units that we opened pre-COVID as it were, but haven't been trading for a full year or indeed, in some cases, haven't even opened at all. And that is -- so if you step back, the 10% to 15% is somewhere around GBP 300 million to GBP 400 million, of that about 1/3 is the units that are already built. And that includes a couple of small acquisitions that we made about this time last year. And then the rest is secured units, that's the 100 million -- sorry, the near 100 units that Simon talked about. And those would represent capital investment probably in the region of GBP 100 million over the next couple of years when we would expect to open them.

Good. Thank you, Jonathan. And just picking up on your last question around GBP 350 million to GBP 400 million and the capacity it gives us and sort of returning cash. Obviously, firstly, the process will be used to improve our liquidity headroom. You've heard that, reduced leverage allow us to repay the CCFF, which becomes due early next year. I do then think, though, that as the pandemic recedes, the proceeds that we have raised will give us capacity for investment and take advantage of the many opportunities that will arise. I think there's going to be a window of opportunity, Jamie, for strong companies coming out of this crisis, where due to the market shakeout that we're even beginning to see, it's early days, there will be profitable space for us to target in both existing and new locations. So obviously, you've seen close to home, the restaurant group's announcement last week, which is now public, where they announced that they won't be reopening 40 restaurants in U.K. airports. We have a strong presence in all those airports and good client relationships. I'm not saying we're going to open 40 new restaurants, but it just provides you an indication of a market shakeout very close to home. And if I was to sort of take a picture a bit further away, if we take someone like India, which is actually seeing a pretty decent recovery already due to its domestic bias in terms of its passenger profile, 3 of our biggest competitors have already exited a number of locations that we have operations. So someone like Gate Group has exited contract in Bangalore, where we have a successful business. Devyani International Limited, a large local business, has completely exited from Delhi Terminal III, again, where we have an excellent relationship with the client and operations. And a local competitor called Lite Bite Foods has exited from a number of private airports. They now can't tender until late 2023, which again might provide us with further opportunities in due course. So whilst it's still early days because, obviously, '21 is about opening what we've got, renewing the contracts profitably, and building those 90-odd units that are still to be built. I think you're going to see quite a substantial shakeout. And I want to be ready for it. I will be ready to take advantage of it and grow our business profitably. Now if after all of that is said and done, there's still some cash left then we will be back to our normal model, as Jonathan outlined in the presentation, a normal dividend policy and our normal way of operating. Jonathan, do you want to add anything to that?

Well, I'd only add that -- and you saw this on one of Simon's earlier slides; clearly, we have operated typically below that medium-term target range of 1.5 to 2x EBITDA. Because historically, we've always wanted to ensure we have the financial capacity to accelerate our growth. So if you looked back at 2017 or '18, you can see we were down there a long time. So again, I don't think we're in sort of uncharted territory here even in this base case. What we're just illustrating is that this does give us additional firepower should we need it.

Great. Thanks, Jonathan. Jamie, does that help answer those 3 questions for you?

It's really helpful. Can I come back to one on the margin one. I appreciate the examples you've given on cost savings, Simon, but could you -- I mean, I don't think you quantified the magnitude of possible permanent savings, is there some range you can give us of what you feel might be, might not come back?

No, we haven't quantified that. And at this time, it's frankly too early and unknowable. We're concentrating, as you know, on getting the units that we closed, which is the majority of them, reopen. And obviously, frankly, as we reopen units, some of those costs are going to come back, but that's what we're focusing on at the moment.

And worth reinforcing that right now today with sales where they are, our focus is, as you would anticipate, on managing our cost base and liquidity very, very tightly. It's unknowable when we are really going to start rebuilding some of those -- some of the costs of doing business.

As you know, Jamie, you know how we work, you know of what's in our DNA. Nothing has changed at all. I just want, as I said, to one of your previous questions, to be one of the stronger competitors coming out of this that we can take advantage of the opportunities that will arise.

Next question is from the line of Tim Barrett from Numis.

Two things, please. Firstly, just in terms of helping with the cash flow modeling, are you still expecting a working capital outflow this year? I think you said, GBP 80 million before, Jonathan. Understanding that dynamic of working capital would be really helpful. And then secondly, you've kind of hinted about it, but regionally, it feels like the businesses are going to go at very different speeds. If Continental Europe lags, are you going to have to do any more restructuring? Do you anticipate any more one-off cash outflows on that? And that's great.

Great. So Jonathan, why don't you pick up cash flow with capital, and I'll start with the second question?

Yes. So a good point. The real answer is, it's again somewhat unknowable and it's very determined by the pace of recovery of sales, as we said to you before. The negative working capital of around GBP 200 million-plus that we would normally benefit from, we think will recover in line with the sales in a pretty linear fashion. But clearly, it is determined by the sales. I think the other thing we pointed to in December with our results was that the very strong working capital position we achieved at the end of the year. And a position that was well ahead of any expectations we've set earlier was, to some degree, benefiting from deferrals of expenditure, particularly on rents. And we said that, that would probably unwind in due course over the next 12 months. And again, you've seen from the presentation this morning and Simon's early slides, that we've maintained that very strong grip on cash and liquidity over the first 4 months of the year. So I think if you took, for example, our reasonable worst case, and our expectations to be sort of recovery over the rest of this year. I think you'd probably conclude that the recovery in negative working capital would broadly offset the unwind of those deferrals. So I think under that scenario, it would be broadly neutral in terms of the overall cash flow. Clearly, as you look at the base case, we're back to sort of 80% of pre-COVID levels by the end of the year. Next, we're starting to generate additional cash from working capital, so that comes in. Simon?

Right. So I think your question is if Continental Europe lags, will we have to take further restructuring costs, Tim?

That's right.

And as things stand, obviously, we benefit from furlough. So one of the things that provides us a certain degree of certainty, the duration of that furlough in Continental Europe. So in most of the countries that we operate in Europe, furlough has been announced to run all the way through this calendar year. In fact, in some countries into the spring of the following year. So whilst that's in place, I wouldn't anticipate having to take any significant restructuring costs.

The next question is from the line of James Rowland Clark from Barclays.

I've got 3 questions, please. The first is just on market share opportunities. I wonder if you could perhaps put a figure on how much capacity you think is exiting the market and how that varies by division for you? And then as a second question on market share opportunity, is it more about capacity dropping out of the market? Or is it more about less competition when you're tendering for new contracts? And then secondly, when you talk about the recovery by 2024, or at least you expect sort of FY '19 like-for-like sales to recover by then, this feels a bit sort of conservative in some respects, when you think about the pent-up demand there is for travel at the moment. I guess, what stops you from thinking that you maybe could get back there a little bit earlier, particularly given there's a lot of pent-up demand for leisure travel? And then finally -- Sorry, the third question is you outlined your recovery scenario, which includes rail recovery sort of not quite getting there about 90% to 95% of previous levels because of the working-from-home risk. But there's no mention in your recovery scenario of air business travel perhaps being inhibited by adoption of virtual meetings or even less air travel because of the environmental risk around it. Could you just elaborate on why you haven't got a scenario like that in your statement?

So I think I'll try to bucket those up. I'll pick up sort of 1 and 2, which are around sort of new business, market share capacity. And Jonathan, if you could pick up sort of the recovery time line and the specific question around business travel and air. So in terms of market share opportunities, it is too early, James, to give an indication by division. I think what I'd point you to is, '21 is all about recovery. So we've only got around 800 units opened at the moment. And obviously, that means we've got 2,000 to reopen and another 90 that we've won to then build and open. If I was giving an indication of what I'd say is that, obviously, those countries that have got more domestic air bias and leisure will recover more quickly. And then like -- and they are most likely to, therefore, shake out those market share opportunities. So whether that be India as I just mentioned or Australia or even America, that's probably where it will come first. But we are definitely still in recovery phase rather than sort of complete clarity by division and where those opportunities will occur by division. In terms of sort of the type, I think it will be a mix of both. We are seeing early indications in tenders because there are still some tenders happening, particularly in the rest of world. We are seeing some early indication in tenders that there are fewer competitors tendering. And particularly that sort of tail of often slightly irrational, local or single brand competitors that were pre-COVID over excited to enter the market, we're not seeing as many of those tender, but I have to stress this is very early days. It's not like a whole long list of tenders. And equally, as I indicated a bit earlier, we have seen a number of competitors exit the market. So again -- sorry, I can't be more specific, but it is still early '21. But I think you'll probably work out from that where we're likely to see the opportunities first. And then the -- I think the market will be less competitive for a window of time. I don't think this is forever because I think the market will recover ultimately. But for a window of time, I think there's going to be opportunities for us to, in a very disciplined way, target new business. Jonathan, do you want to pick up this -- the other...?

Pick up the sort of longer-term trends. So -- and I think it's a very good point you made. I think we sense that there is a pent-up demand for leisure and travel, as you put it. And indeed, when we were talking to you in December, I think we pointed to that with a view of the very early news of vaccines, we thought that might be one of the opportunities in the summer of this current year. Clearly, one of the reasons that we're talking to today is, I think we've had to reset that to you because it's -- we can't really express the same confidence in the timing of the recovery, but I think you're absolutely right. But as I said earlier, we do expect the leisure sector to make a pretty full recovery certainly in the medium term. The -- and I think you saw on the slide that just to sort of emphasize that point, that Simon talked about earlier on, a lot of our business is underpinned by leisure traffic. And within the air sector, it's around 70% or so. So again, it's one of the factors that gives us confidence in the longer-term recovery in the air sector. And I think there is an opportunity, clearly, for that to rebound faster. The reality is we don't have a crystal ball. We don't know. We've set out 2 scenarios here. But clearly, the one thing we can be certain about is they'll both be wrong. With regard to your second point, which is, have we really factored in the sort of drop in business traffic? Well, as I said, we have a pretty comprehensive and thorough piece of research done by one of the leading consultancies, where they've gone into quite granular detail, trying to understand the impact of working from home, and in particular, what that might do to the rail sector, which we referred to in the presentation. And also, how that might affect business travel, both short-haul and long-haul. And as we said earlier, the underlying recovery and structural growth in the leisure sector within air, we think well, broadly speaking, offsets the impacts of some of the structural trends on the business travel sector. And again, as we said in the presentation, I mentioned a moment ago, that's only 25% to 30% of the passenger base upon which our air business is currently predicated. So we think the impact is going to be, as we said, broadly neutral over -- if you're looking out over a sort of 3, 4, 5-year scenario.

[Operator Instructions] The next question is from Douglas Jack from Peel Hunt.

I think most of my questions are being answered already. But just really in terms of the lower sales in 2021 and 2022, what kind of drop-through on EBITDA do you think we should be factoring in, given the changes you've done with the cost base?

Jonathan, do you want to pick up the EBITDA drop-through in '21, '22? You're talking about on the reasonable worst-case scenario?

Yes, I suppose. So yes, absolutely.

So I think I'll just refer you to our previous guidance, which is clearly around about 25% profit conversion on the loss of sales compared to pre-COVID levels. As Simon said earlier, we've actually achieved a slightly better outturn over the first quarter. But I think a note of caution as we look to the rest of the year, but I think that feels like that's still good guidance. And again, we've reiterated our position in terms of the cash burn in the near term, while sales are down at these very low levels, around about 80% down on pre-COVID levels.

This concludes our question-and-answer session. I would like to turn the conference back over to Simon Smith, for any closing remarks.

Well, you will be pleased to know that you've heard enough for me for 1 day. So on the basis that we've answered your questions, I just want to say thank you for your ongoing support, and we look forward to hopefully meeting up properly in the next few months. So have a good day, guys. Take care.

Thank you.