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Ladies and gentlemen, welcome to the Dufry's conference call. I am Shai, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Julián Diaz, CEO of Dufry. Please go ahead, sir.
Thank you for the introduction, operator. Good morning, and thank you for participating in this conference call today and for giving us the opportunity to discuss the current situation and the several initiatives we have disclosed this morning, which are designed to provide you with a strong capital structure and liquidity position to sustain even a prolonged period of business interruptions and continue operations until travel patterns shall return to normalized levels. Presenting the initiatives here today are myself, Julián Diaz, CEO; and Yves Gerster, CFO. I will first make a short presentation, and then we could go through the Q&A session. In order to put into perspective the initiatives presented today, allow me first to give you an overview of the current trading environment and some preliminary information on the expected performance for the first quarter 2020. It's interesting because every month was characterized by completely different developments and a changing business performance. In January, we started with a very accelerated organic growth during the first 3 weeks. And then we saw an impact starting in Asia and then expanded to other destinations, especially international airports with Chinese and Asian passengers, where finally we reached plus 0.8% increase in sales in January 2020 compared with 2019. In February, we saw a deterioration of the business. We reached minus 7% in February periodic and minus 2.3% in February year-to-date. And in March, we saw an increasing number of restrictions being implemented. Thus, drastically reducing the passenger flow at airports. This resulted in a periodic performance of minus 56.6% drop compared with previous year and year-to-date minus 22%. This deterioration that finally, obviously, was impacting the company on a weekly basis expanded to April, where we have seen around 90% during the first week of the drop compared with previous year. As we already explained it in the full year 2019 results presentation back at the end of January, we have immediately defined an action plan and implemented operational initiatives to drive sales, secure cash and generate cash flow. The ideas were very important: first of all, protect the liquidity; and secondly, reduce the company size, especially in fixed costs for allowing the company to continue as long as possible. In the meantime, we have further expand in these initiatives and confirm all of them when -- we have also adapted the operating structure of the company to reflect the current situation of the business environment and leverage as much as possible the flexible cost structure of the company even further, what we have done in previous -- similar that we have done in previous crisis. The main initiatives taken at that time were obviously implemented in other locations, sales acceleration programs in order to increase the volume of sales, promotions, et cetera. We also negotiated agreement with the vendors and suppliers in order to maintain the gross profit margin level at the time that we were accelerating promotions and especially good deals for the customers. We started with our landlord discussions to negotiate concession fees. In general, we have received positive feedbacks and support. We have started renegotiation of around 25 contracts that are, at this stage of the process, probably going to be in the future impacted by this volatility in terms of sales. The majority part of the contracts contain a variable part, meaning a percentage on sales related with a variable number of KPIs. But that is also around 25% of the contracts that contains minimum annual guarantees. We believe that in the airports that are close to the alarm or specific -- special situations, where the retail -- specialty retail is closed down in the country, the minimum guarantee should not be paid. The reality is that when the shops will be open, we will continue with the renegotiation with all these airports. Finally, obviously, find a solution for each of the cases. But most of the rents today are viable. On the cost side, we have immediately implemented across the group a personnel expense efficiency program. Different initiatives from hiring -- freeze hiring of the temporary staff, implementation of voluntary salary reduction scheme in all the back-office functions, participation in government schemes to support the personnel expenses and termination of contracts with reduced period of severance. Moreover, obviously, we have also reduced the operating expenses to the minimum. We -- what we are doing now is to monitor every single payment at group level worldwide with a dedicated team in order to identify savings, plans division-by-division and company-by-company, and, if it's required, renegotiation with the vendor and/or service provider.Last but not least, we have also implemented several measures to reduce cash outflows to the minimum, which are well controlled entirely and controlled globally. The dedicated team that we have created in the headquarters control the cash today in the 65 countries that we are operating. These initiatives also include actions in CapEx, net working capital, et cetera, with an extra cash savings of around CHF 160 million. Most of this is also CapEx.This adaptation of cost structure allows us both to reduce cash outflows and reduce costs during the disruption period. At the same time, I think it's important to mention that we have maintained a level of activity in the company that will allow us to reinitiate the operations as soon as gradually the airports are going to be in operation again.With today's announcement, we have now also succeed in reaching agreements to implement a strong set of initiative to strengthen capital, to fix capital structure and our liquidity position that will allow us to continue operations until the situation normalizes. Let me mention some of these -- of the achievements. First, we have received commitments by a group of or relationship banks based on a term sheet of approximately CHF 425 million, 12-month facility with 2 6-month extension. This facility allows us to convert existing uncommitted facilities into committed facilities. Moreover, with this committed facility, we will have enough liquidity to continue operations until the next cash generation circle even if considering a scenario of reducing the sales by 70%. Just for clarifying, the worst-case scenario that we are planning for the year 2020, and we can comment on that later on, is minus 70%. Assuming that the minus 70% is happening, that considers the recovery of the business -- the full year recovery of the business based in 2019 in 2022 with this facility that we have now committed. And during the last years, we have an uncommitted CHF 425 million. We plan that the company could go through to the next cash generation circle. That is always, as you all know, because we are -- you are familiar with the company, around April, May 2021.The second one is obviously our bank consortium consisting of 25 international banks, has also approved our request to waive the current financial covenants until the end of June 2021 and to establish an increased threshold of net debt adjusted operating cash flow of 5 instead 4.5 for the covenant testing in September and December 2021. The third group of initiatives, we plan to undertake a private placement to institutional investors by means of an accelerated book-building procedure to up 5 million shares from our existing authorized capital and up to 500,000 treasury shares. It is planned that this share placement will allow and will support, obviously, by the members of the Board of Directors and Management with a meaningful amount participating in this ABB. Fourth, we will issue a senior and secured guaranteed convertible bond with an aggregate principal of -- amount of CHF 300 million. The new convertible bond will also be placed by means of an accelerated book-building procedure with institutional investors. Here, it is important to mention that the company has received very strong indications of interest to participate from investors for both the share placement and the convertible bond issuance. I will look now at the proposal to be made to the upcoming Ordinary General Meeting on May 18, 2020. The Board of Directors reconsidered this initial proposal and decided to cancel the 2020 dividend payment, thus, avoiding a sorting cash outflow of close to CHF 200 million. Furthermore, the Board of Directors proposed to the upcoming Ordinary General Meeting to create conditional share capital sufficient to enable the physical settlement of the bonds upon conversion. Please note that all the details on this in both placement of shares issuance of convertible bonds and the creation of conditional share capital will be communicated in due course. I think that the equity measures present today as well as the new credit facility, the cancellation of the dividend and the other operational cost-cutting measures that are implemented now will significantly strengthen Dufry's capital base and liquidity position. The initiatives are designed to help us to weather the coronavirus 19 pandemic and curing economic downturn even, under severe scenario, while also providing us obviously with enough flexibility to react to business opportunities arising in the context of the current situation. And most importantly, our current setup allows us to react fast and adapt to the business requirement as needed, also in view of the travel recovery phase. This is all from the company, and now I suggest we move to the Q&A session.
[Operator Instructions] The first question comes from the line of Jon Cox from Dufry (sic) [ Kepler Cheuvreux ].
Just to clarify a couple of points, if you would. You're working on the assumption of a 70% decline in revenue this year and for business to return to 2019 levels in 2022. Did I understand you right? That was the first question. The ABB, I'm guessing this will happen in the next couple of days. So I wonder if you can just give us some indication when that might happen. And then just on the timing, I know you need the AGM to get the conditional capital, but any idea when the convert will happen? So there's just some -- sort of a technical question, if you would. Am I right in assuming at the moment, your cash burn, you did say April and May will be higher, is probably above CHF 200 million, and you're assuming with 90% decline, you will be down to CHF 200 million cash burn in April and May? And then am I right in saying that after that, depending on some sort of slight improvement, your cash burn will be about CHF 100 million per month? And then just the last question, if I can. I think there was some discussion about the Board and management taking a salary cut this year. I didn't see anything in the statement. I just wondered if you could confirm whether that is actually going to go ahead.
Thank you, Jon, for the questions. Let me explain. We have 3 scenarios. I can comment on the worst-case scenario we have planned is minus 70%. In minus 70% drop in sales compared with 2019, we are projecting the revenue in 2019 will be recovered in 2022. This is the basic idea. We have other scenarios, minus 50%, when we believe that the traffic -- or the sales fully recover mid-late 2021. And we have another scenario that is minus 40% where we think that the full recovery will happen early 2021. We can comment only because obviously the circumstances. In the worst-case scenario, we are planning with the information available that is obviously the only thing we can say. In this scenario, the recovery is planned in 2022 if we compare sales with 2019. This is the first thing.Regarding the cash burn. The cash burn in April is obviously higher than the standard because we had sales during the first quarter, and we have expenses during the first quarter that we have to comply with. And we paid -- it's around CHF 200 million -- CHF 200 million something. It's correct. Regarding the future and the cash burn situation in this company, with the size of company we have today, is around CHF 70 million, CHF 72 million per month, not CHF 100 million. Regarding the ABB, I cannot say anything specific. We'll be in -- obviously will be announced -- the ABB will be announced in due time.Regarding the AGM, I believe that with the initiatives -- the set of initiatives that we have talked today here, imagine what we have said, if we have reorganized the company and reduced the size of the company tremendously. We have renegotiated with the banks the noncommitted -- committed facilities in order to continue to the next cash circle. And we have also -- or we are asking, obviously, the market, shareholders to facilitate 2 different instruments. One is accelerated book building for the -- or existing authorized capital, 5 million shares, plus 500,000 treasury shares. But also, this convertible bond that obviously today is considered, it's going to consider that, but it's also a possibility that in the future could we consider linked to equity. And this second part is not for -- let's say, for extending the life of the company with the scenario we have today. This second part is for creating the future of this company in a crisis, a scenario where we believe more opportunities in terms of renegotiation of contracts, extensions of contracts and also new contracts where we are already obviously exploring opportunities in countries or locations where we are not operating. This is regarding the AGM. I think the AGM will appreciate that, but, obviously, it's a shareholder decision. Regarding the Board manage -- the Board and Management cut, yes, we have agreed because it's a -- we have -- first of all, we offer the management teams in all the headquarters, including divisions headquarters, to cut the salary during the next months by 30%. Depending on the evolution, we will confirm it. We will then confirm it. Minimum, the next 3 months, will be minus 30%. And then the measure or the initiative will be extended depending on the situation of the company. And this is a voluntary, obviously, decision, and most of them are participating. In second part, the Board of Directors also decide the same thing. They are cutting now 30% the fees of the Board member with the intention that, if the situation remains, will be extended also. I think I have answered everything, Jon.
Yes. And just to clarify, so you need the AGM before the ABB? Or the ABB can go ahead without an AGM? I guess that's the question. Second question, the CHF 160 million savings you've announced, that excludes any savings you get from landlords, I understand. So you won't be paying rent since -- because, obviously, CHF 160 million would be far bigger if that included the rents that you maybe will not pay. And then, Julián, can I -- if you don't mind me asking, are you -- you will take part in this salary cut as well then, I guess.
Yourself?
Thank you, but I can answer for myself. So I go first. This is Yves. I participate as well. And Julián?
Yes. I will answer the other questions. Do you want to answer about the ABB?
Yes. So look, in respect to the ABB and the convertible, we will go ahead with those transactions pre-AGM, obviously. So that's the way it has been announced.
Okay. Then from my side, it's obviously confirmed because this initiative is very important for us. I also participate in the salary cut, number one. The second question was regarding the expenses. Jon, the situation today doesn't have any relationship with the situation on March '19 where we identify fixed cost with a cost structure that was at that time different than today. Today, we have reduced tremendously the number of -- sorry, the amount of expenses in this area. Why? Number one, because in personnel expenses, we have used significantly resources from the support resources by the different countries in order to reduce the salary monthly payment to more than 50%. Imagine that in the past, we used to say 80% of the fix -- 80% of the personnel expenses are fixed and 20% is variable. Today, we have reduced this cost below 50%, what we used to have. In terms of cost structure, operational costs, we used to say 50-50, 50 variable, 50 fixed. Today, we have reduced the operational cost by more than 50% in monthly basis. And this is the mood that we are, is we are now in a sense of urgency mood. Then when the situation of the company normalize, probably we will come back to the same parameters. But today, the CHF 150 million doesn't make any impact because we are talking about what is the minimum requirement in order to maintain the longest life of this company without any extra support like, obviously, we are discussing today.
I'm going to, sorry, just kind of have another bite of the cherry. There's obviously still a chance that you could still have to raise capital even after this ABB and the convertible a couple of years down the road. If, for example, you're 5x net debt to adjusted operating cash flow, for example. Is that a fair assessment if you are around that 5x net debt to adjusted operating cash flow in 2020 and to 2021 or so?
Yes. With the -- obviously, the scenarios we have today, this is not the case. I don't know what will happen in the future, but it's not planned to write any of the capital in order to support the company through the crisis we are going.
The next question comes from the line of Jaafar Mestari, Exane BNP Paribas.
I hope everyone is well in the current situation to begin with. And first question for me, please, on what the balance sheet looks like under your scenario. So 70% revenue impacts this year and then slow recovery into '22. Assuming we don't have the timing, but assuming the convertible bonds then converts, what do you think your balance sheet will look like at the end of '21 in terms of net debt to operating cash flow and in terms of equity versus debt ratio? Second question, you mentioned solid investor interest. Are you planning to find -- secure new anchor investors like you've been able to do in some of the equity raises in the past? Or is this strong interest mostly coming from existing investors? In particular, do you have any color on what the members of the travel retail investments consortium will be doing?And lastly, on cash burn, I'm just trying to reconcile. You say you have total liquidity, cash and credit facilities of CHF 680 million as of end March. If I'm correct, this was almost CHF 1.2 billion as of end December, CHF 500 million in cash and then close to CHF 700 million in credit facility. So I'm just trying to reconcile that with the cash burn numbers that you've talked about. It looks like possibly you've been using a lot more in the last 3 months.
Okay. Thank you very much for your questions. In respect to the first one, the balance sheet, look, it's obviously difficult to say. I mean in the minus 70% scenario or depending on what kind of scenario you take, you may end up with a slightly different shape of the balance sheet. So again, to repeat what Julián mentioned before, we have taken all the required actions to drive sales and to reduce costs to the extent possible. And to your second question on equity versus debt or the where the leverage would end up by year-end, look, also there, it's obviously very difficult to forecast a number in that sense. What we have stated in the release today is that we have achieved from the banks consent to waive the covenants. So we should be fine from that perspective. But to give you a forecast or a guidance in that respect at this stage, unfortunately, is not possible and probably would also not be fair. In respect to the second question, the potential investors, look, it's too early to say, and we cannot comment on that. What we can say is what we have already mentioned. There is strong interest from potential investors, but we cannot be more vocal on that at this stage. And then in respect to the cash burn, your third question, and in respect to the cash we have on the balance sheet by the end of March, there we cannot comment at this stage on the precise evolution of the cash and the cash burn for Q1. But what I can tell you in that respect is the following. Q1, as you know, typically shows a negative cash flow. That's related to the seasonality of the business, and that especially affects net working capital. So what we typically do is, in the first months of the year, which we buy for high season. Now obviously we have reduced that materially this year once we saw that the crisis has a certain impact on Dufry and the issue became more severe. But nevertheless, you have a certain swing in the net working capital there. And in combination with the drop of sales, which Julián mentioned before in March, that has a stronger impact than in a normal year. However, that's expected to fade or wash out over time. And then last but not least, but there was a relatively small effect we had last year as we have communicated before, a onetime effect in related to taxes. There was a tax income in Q2 -- Q1 2019, which we didn't have this year.
And just to clarify, even if you're not able to give the details, am I looking at comparable numbers when you say currently, at the end of March, total available liquidity is CHF 680 million. Is that cash plus undrawn committed credit lines? Is that comparable to the CHF 500 million and the CHF 700 million of December?
Yes, that's correct.
Next question comes from the line of Jörn Iffert, UBS.
And the first one would be, please, on the minimum annual guarantees. Again, Julián, as you stated, I think 25% of your concessions are exposed to minimum annual guarantees. So we are speaking about a fixed cost lock here of around CHF 500 million, CHF 600 million. And currently, you are in negotiations to lower this. Do I understand this correctly? And the second question is to sum everything up on cost saving potential you have for the next 12 to 24 months, is it fair to assume that you need revenues in excess of CHF 7.5 billion by '21 to meet your new covenants of 5x?
Okay. Regarding the market strategy or the contracts that are subject to market, our strategy is to pay the variable during the time there is no visibility about how the business will recover. That's the strategy, and this is what we have planned and offer to the different landlords and, obviously, airport authorities. Regarding the cost savings, I think during -- with minus 70% sales, we are in line in the worst-case scenario that will happen probably during the second quarter of 2000 -- sorry. In the probably third quarter of 2021, we are in line with the 5x that Yves mentioned before. Even in this case, we are in line with the covenant agreed with the banks. In terms of the cost savings, the cost-savings initiatives are starting now in terms of the new, let's say, recovery plan. And just for being specific, we are planning to reduce personnel expenses and operational expenses by more than 35% during the time the shops will be reopened.
Okay. Sorry for my ignorance. Maybe I was not really getting it for '21. Can you give us the hard revenue numbers? What would need in '21 to be in line with your new covenants of 5x? Is it above CHF 7 billion, I assume?
No. We cannot obviously provide this information at this stage. It's very early, but let's see how the situation evolves. It's very uncertain still, Jörn. It's very difficult for us to say specific numbers. We are planning models based in 2019. It's the maximum I can say so far.
The next question comes from the line of Daria Fomina from GS.
My first question, on the cash burn, if I got that correctly, it's going to be CHF 70 million to CHF 80 million per month. Can you give us a bit more color on the building blocks of that? So within that CHF 70 million to CHF 80 million key items on how you get to that. My second question is actually just a follow-up to what you just said that you plan to reduce your operating expenses by 35% when the shops are open. Can you confirm I got that right? And also, what are those 35% of costs that you didn't think through before and now it's so easy to cut going forward? And my last question is actually on the recovery on a more positive tone. In the countries where we see a bit of recovery now, we see that domestic traffic is picking up first. Can you talk us through your exposure on duty-paid versus duty-free in Europe and the U.S., and also the economics of that revenue, your gross margin and profitability and how that will kick in if we see the domestic traffic recovery first?
Thank you, Daria. The first, I am not going to provide any split of the cash burn. It's a calculation that we have prepared, and it's a target that we have already achieved. I didn't say 7 -- CHF 80 million. I say CHF 70 million. But it could be also different in the future. Operating expenses is correct. We are going to -- we are going -- we have already started to identify initiatives for cutting these costs at this level. What is the type of cost? We have consultants. We have advertising. We have many things that are relating with growth. And I think at this stage of the process, especially for the year 2020 and '21, what we are going to work is in a protected mode cost base, meaning that we are going to stop any cost that is not related with the survival of the company of maintaining the level of minus 70% sales. And the costs are already identified. Regarding the recovery, sorry, I couldn't -- the recovery is happening -- sorry, duty-free and duty-paid. Duty-free, I think, is around 66% of the sales and duty-paid around 34% of sales. We are expecting that the markets will reinitiate from the local traveling, then to the international regional traveling, and then to intercontinental traveling. During the first, obviously, weeks of May and during the -- and during -- we are going to see -- I hope this is what I have seen in different media and also talking with interested parties, the reinitiation of local flights, domestic flights and also international regional flights. The most important business in the U.S., as you know, 75% of the business in the U.S. is duty-paid. And this is convenient. It's mainly hats on. Still, it probably is the area where we have more shops open. I think we have around 17% of the total shops open. Most of these shops are in the U.S. Still, obviously, the company is prepared as soon as the traffic reinitiates for continuing the growth. Is it going to be the same everywhere in the world? I would say, in the European Union, we have an advantage. As you know, within the European Union, the merchandise is now duty-free. It's duty-paid, too, in obviously special regime. But the reality is that we are also ready as soon as the traffic inter-European is starting to reinitiate operations.In Africa and in Asia, the traffic is pure duty-free. I don't -- we have very few shops in duty-paid. I briefly explained it. But in South America, it's also duty-free. Most of the traffic is duty-free. As gradually the operations are starting in Europe and in North America, the situation will -- in my view, will accelerate faster because we are talking about domestic travelers, domestic -- international, domestic in Europe and pure domestic in the U.S.
I'm sorry, I'm just going to follow up. Perhaps I wasn't very clear. In an environment where, let's say, in Europe, we see a pickup in domestic traffic under the cross country -- within the European regions, you will have to start paying a lot more miles, and the airports will be opening up, but you will only be getting duty-paid revenues, which is a smaller fraction. Can you talk us through the potential cash burn and the risk around that environment? Or you still think that, that will actually be a net-net positive?
Your assumption is not the assumption we have. Your assumption is that we have to pay the market -- and/or essentially that we don't need to pay the market. And I think this is the basic assumption. When the shops do not have the passengers at the level that is required, this is a negotiation process. And the negotiation process is already ongoing and is already basically having, let's say, grounds for an agreement like in previous crisis happened always. I have not seen one disagreement in my life regarding 1 crisis with the landlords. And I am talking about many crises in the past, SARS, September 11 or Iraq war. Why? Because everybody wants to create a sustainable business. And here is not to pay the market in 3 months. Here is how to create a sustainable business for the future. And I think I am convinced that the negotiation process that is already open will continue, and I think we will reach a positive conclusion.
Next question comes from the line of Iva Horcicova, Napier Park Global Capital.
Julián and Yves, I've just a few questions to the new credit facilities of CHF 425 million. One, will you rank pari passu with the existing debt? Or are you providing any security to the banks? Two, you are basically saying you're replacing the uncommitted lines. But I think in the annual report, I see that the uncommitted lines were CHF 490 million. So are you sort of getting just CHF 425 million and the remaining CHF 65 million remains uncommitted or get canceled? Or what happens with them? And could you share economics on the new lines?
Thank you, Iva, for the questions. So look, the new facility will rank pari passu, and it's not secured. So it's basically the same setup. We have already the existing syndicated facility. You're right, in the annual report, there were CHF 490 million. But the CHF 425 million, we have announced now is just the biggest part of the uncommitted we replaced. And there's still some room for further amounts. And there's also the possibility that part of the uncommitted ones will remain there. Yes, that basically answers the questions.
And you can't share the economics or the margin of what you will be paying?
No, we don't share the economics in that respect. But they are similar to the ones on the existing facility, so they are basically almost mirrored.
The next question comes from the line of Petru Brediceanu, Segantii Capital Management.
Yes. I think all my questions have been answered already.
Next question comes from the line of David Holmes, Bank of America Merrill Lynch.
Just 2 questions from me. Last time you spoke to us, you were fairly confident in your ability to defend gross margin during 2020. Is that still the case? And then secondly, can you just spend a little bit more time talking about the working capital dynamics and how we should think about that and the shape of that throughout this year?
Okay. Regarding the gross profit margin, I think the plan that we have is, obviously, the same that we announced is to protect the gross profit margin with agreement with the suppliers like we have done over the past 17 years. What is clear is, during a certain period of time, we need to be very aggressive in all the commercial terms with, obviously, especially pricing in the market or pricing related with volumes compared with price, meaning selling more quantity than paying less. And I got the impression, and, obviously, this is not updated totally because this is something that happened when we announced this in March '19, that still we have the same level of support by the suppliers. This is my opinion, and the intention is to maintain the gross profit margin. Regarding the working capital. During the period of time that we are with this uncertainty, the idea is, obviously, the inventory is like it is and the trade payables are like they are. We are trying to balance the inventory -- the net working capital investment. As you may remember, we are between 5% and 6% of the sales in the past to reaching around CHF 480 million, CHF 490 million investment in net working capital. During the period of time that we are in crisis for getting the percentages because we don't have sales will be -- the net working capital will be very similar, CHF 480 million, CHF 500 million. As soon as the shops reinitiate, depends on, obviously, the different negotiations with the different suppliers. But I think the trend for the future will be exactly the same, maintain 5%, 6%, obviously, with the level of sales adapted to that. The most important thing is the amount, between CHF 480 million, CHF 500 million investment in net working capital during the next month.
The next question comes from the line of Rebecca McClellan, Santander.
Julián and Yves, just a couple of questions. Firstly, under your 2022 revenue recovery scenario, what are you assuming for spend per passenger? Is that going to be the same level as 2019? Or are you assuming that that sort of comes -- takes a longer time to recover? And then my second question is just in terms -- going back to working capital. What's the flexibility you have depending on the type of passenger flows that recover? Because domestic or regional travelers obviously have different inventory demands than the internationals?.
The assumption that having the sales per passenger is correct. We have put a flat spend per passenger. Even in the case then -- and this is normally happening. When the number of passengers drop, the spend per passenger normally is up, okay? But in this case, what we have assumed is the same spend per passenger in 2019. The second, working capital. It's true that, obviously, we have different businesses. From duty-paid to duty-free, the investment in duty-free net working capital is higher than in the duty-paid. Meaning if, for whatever reason, and this is one of the alternatives we are considering, the domestic traffic is accelerating more than the international traffic. This business has less working capital investment. It's a business where we have obviously a significant room for working capital, but depending how this is going to evolve. I am talking about the consolidated basis. To talk about if it's duty-free or duty-paid today, there is not enough visibility. But it could be in your favor if the domestic traffic is -- in terms of net working capital, the domestic traffic is the first start reinitiated.
Okay. And just another couple of small questions, please. In the U.S., I think they announced a temporary closure of 700 stores today, right, in Hudson. How much does that represent of the total store park?
Okay. In the U.S., I don't remember. So I think we have 1,000 -- let me check it, 1,000 shops, 1,043 shops in the U.S. And the total number of shops is 2,493.
Okay. And finally, just in terms of the government schemes, what -- could you give us an idea of the potential or the magnitude of the potential that you could be getting out of government support if -- as and when these are negotiated?
It's difficult to say because we have many -- we have more than 2/3 of the employees today that are in a -- they are in processes supported by governments and/or by, obviously, institutions. Meaning that -- I cannot tell you because there are many different legislations. We have employees like that in Spain, in U.K., in Greece, in Italy, in the U.S. It's very difficult. I don't know the amount. But in any case, these amounts are paid directly by the governments to the employees, not through us.
Next question comes from the line of Alexander Kretzler, Barclays.
Just a quick question actually on the support from the state. I was just wondering if you're actually also considering some other state aid like loans or anything else.
Yes. We have investigated more than 150 different possibilities in the 65 countries we are operating today. There is, I would say, a possible total amount. I am not telling you that we are going to apply for that. But the total amount of possible extra compensations due to the circumstances in company-by-company base, not in global company, is around CHF 180 million, including loans and including grants.
Okay. CHF 180 million that -- how should I look at this? Is this for the whole group or...
No, this is company by comp -- this is total consolidated, but it's company-by-company. It's not at group level. This type of aid is not at group level. They are negotiated and filed company-by-company.
Understood. Yes. And then just one question. I appreciate you already talked quite extensively about it. But on the cash burn, you mentioned the CHF 70 million per month. I assume that's from April or onwards because April was kind of like in the ballpark of CHF 200 million. So I was wondering, is this assuming also your worst-case scenario? Or what kind of scenario did you apply to get to that number?
Yes, it's the worst-case scenario, not sales. But this will happen [indiscernible]
Okay. And that's basically from May onwards until the end of next year?
Yes. No, no, what we are assuming here is, if there are no sales, because I understood the question -- on this regard, I understood the question is, what is the cash burn scenario with no sales? The cash burn scenario with no sales is what I said, okay? Then there is different scenarios that I mentioned, and I comment on the minus 70%. And explained that with the minus 70%, the cash burn scenario, including the facilities by the banks, the noncommitted becoming committed could lead us to the net cash circle. And the net car circle, as we all know, because this is a seasonal cash-generation company, will happen in April or May 2021. That's more or less what I said.
The next question comes from the line of Gian Marco Werro, MainFirst.
Julián and Yves, 3 questions from my side. The first one is in relation to the interest coverage threshold. If I'm informed correctly there, you also have, in relation to your financial liabilities, a minimum of 3x adjusted operating cash flow over interest expenses. So I could not find any details about this interest coverage threshold in the press release. So probably you can also give some more information there about how you could postpone or extend this key financial measure. Then the second one is on net working capital also. So can you also give us some more details about how you proceed to liquidate your inventories through which channels? Also, for example, are you also able to use some retail channels, some classic retail channels to liquidate your inventories? And then also just in relation to CapEx, which you also -- part of this year, you shift to 2021 now. Can we also expect, I mean, that this could be reasonable that you even cut the dividend payment for the next year by shifting this CapEx spendings?
So I start. Thank you, Gian Marco, for the question. I start with the interest cover. That's also covered by the amendment. We agree with the banks. So it's also part of it. But obviously there, the situation is much more relaxed. So probably would not need an amendment in that sense, but it's part of it.
Okay. From the inventories point of view, there are 3 aspects here. One is we have already in some airports, obviously, operations, especially in Canada and the U.S. There is also in Greece. And there are still duty-free shops open, and we are selling merchandise -- sorry, in Asia, too. We have also Internet sales in some of the locations. Internet sales in locations where we can sell in duty-free that, sadly, is not everywhere. And we have also agreed with suppliers, especially food and confectionery suppliers, that this merchandise that could become obsolete due to the -- obviously, the expiration date was returned to the suppliers. Those are the areas where we are working.
Then in relation to CapEx and the potential cutoffs to dividend next year?
Regarding the dividend, I think, with the...
CapEx.
Ah, CapEx. So regarding the CapEx, the CapEx today is 0. In the cash burn scenario with 0 sales, we have put on hold all the CapEx. This is regarding this period of time. Then when the 70% scenario, if this 70% will continue, this year, including January and February and beginning of March that we already invested CHF 35 million is for the rest of the year, we are planning around CHF 53 million, extra CHF 53 million that are related with contracts -- new contracts or opening of shops that we had the commitment and we want to maintain the commitment. But this is the case from May to year-end. It's beginning of the period, January, February, beginning of March is CHF 35 million. For the rest of the period, included in the minus 70% scenario, is CHF 53 million extra. Total CHF 88 million for 2020.
Okay. But I mean, just, usually, you spend CHF 250 million. And of course, if you say now only CHF 88 million this year, I mean, you have to catch up something in 2021. Could that risk your dividend?
In 20 -- regarding the dividend, I think Yves already commented on that, no?
No, I did not yet.
Okay, comment on that.
So look, in respect to the dividend, it's obviously too early to say or to comment on that. In respect of the amendment we have received or achieving with the banks there, there is a restriction in there. So it depends a little bit on where we are ending up in 2021. But the covenants are, if we still are required or depending on the covenant holiday, but that's something to be obviously then at that moment in time proposed by the Board and agreed by the general assembly.
Next question comes from the line of Rolf Arpagaus, AWP.
I got 2 of them. First, I'd like to get back to the scenarios you have. You said, one is '22 was going to be on level of '19. Do I get it right that this year, base scenarios, you give the highest probability? And the second question would be, I'm just reading through the study from Kearney that just came in. And they say from '22 on, we think it's going to be minus 10% to minus 20% is going to be the new normal in traveling business and private. And back to precrisis level, we're going to get 24% or 25%. Can you maybe comment on that?
Well, I think that futurology is not my strength. I cannot teach you anything today. It's very uncertain. I think the scenario, where the recovery of the traffic is 2002 -- 2022, I think, is quite -- in my view, is pretty pessimistic. If you have seen in the past what happened -- and I am not talking about that this is similar situation. But in the past, during the first 3, 6 months, the situation normalized. Now we are planning in 2022. I think it's enough room for accepting that probably this is a scenario. But I cannot question all the scenarios because I don't know the rationale behind, and I cannot assume that this is going to be the case or not. In other scenario, I think 2022 is very, let's say, I wouldn't say pessimistic, very realistic in the sense that it's likely to happen based in our own experience. You can even -- and do research in the Internet. I did it the other day. There is a tour operator in the U.K. commenting that they have contacted 100% of the people that cancel holidays for 2020 summer period. And 50% of these people were willing, if they can travel, to go back and confirm again the traveling during the next 30 days. This is -- the people want to travel. Well, then we can guess or we can measure, but I cannot say anything else. I think I am also in line with the idea that in 2022, the traffic will be recovered. The first part of the question was regards -- sorry, I am really lost.
The scenario that '19 -- '22 is going to be a level of '19. Is that your -- can I call that your base scenario? You give the highest probability in models or...
No. We are flexible in terms of scenarios. And I think we are expecting, especially during the next 3 months, May, April -- sorry, May, June and July what the evolution of the reopening of the market is. I am still thinking that the minus 50% scenario is also likely. Why? Because this is considering mid- to late 2021 recovery in terms of comparables with 2019. I think the minus 50% is also IATA scenario. If you -- I don't know if they have updated, but the last -- what I heard, the last scenario I heard by IATA is the airline companies, they were talking about minus 50% drop in traffic during 2020. Maybe it's different, but I don't know. I think what we want is to create a set of opportunities in terms of businesses that will be adapted in 2 ways: one, having a flexible company, cost structure in order to adapt to the reality gradually; and the second is to protect as much as possible the cash of the company until we are more certain about what the future is going to look like. And the future is 12 months. No, we're not talking about years. I think this is -- the horizon we are working now is 12 months.
The next question comes from the line of William de Wulf, Strategic Value Partners.
I just had one question, one clarification. Your CHF 70 million cash burn that you mentioned, this is assuming 70% revenue drop or 0 revenues?
I comment on that, and I will repeat, it is 0 revenue.
The next question comes from the line of Alex Hugh from Kuvari Partners.
I just wanted you just to go back to the point you made on the capital structure. And I understand the kind of lack of visibility. And we don't really know what the numbers will look like at the end of 2021, but in the scenario where you are close to 5x on your covenant, why would that be? And you've got roughly CHF 3 billion of debt, let's just say it's about that, and we did CHF 1 billion or so of EBITDA under the old accounting. Why would that be the right capital structure for the business? Can you just kind of talk through your views on that? And there was an argument we could make, I mean, out of this downturn that lots of companies, including Dufry, would probably want to run structurally with lower debt just to kind of deal with some of these things that you might see one day in the future again. Can you just comment on that?
Well, yes, absolutely. So look, it's one way to look at it. I mean you can obviously come up and say the leverage, whatever it will be, if it will be materially below 5x or below 5x by the end of 2021, you can say that's the right capital structure going forward or not, but something we can debate. But from today's perspective, it's probably too early to comment on that. And look, again, based on what we have discussed before, we don't know on how long the crisis will last, how the recovery shape will be and how the situation will be in 2021. It's simply too early to comment on that. But depending on the outcome, you can go rather in one direction or the other in respect to the capital structure.
Just so I understand, as a management team, when you do think about the business coming back and the recovery scenario, and let's say, you've got that picture of traffic kind of recovered by the end of 2021, would you be happy for the business still to run with, I don't know, let's just say it's 3 to 4x net debt to EBITDA? Would you be happy with the business in that shape? Or do you think, structurally, debt should be lower over the next 10 years than it is now? I just want to understand how you're thinking on that.
No, no, we are thinking very clearly. We prefer, as you know, to reduce the leverage at this stage of the process due to the risks attached to, obviously, the situation and uncertainty. It's clear. And I think it's important to mention, because nobody's mentioned it, that last year, we got a record in equity free cash flow of CHF 380 million. And I think this company generates, in normal circumstances, a significant amount of cash for reducing the leverage very quickly, as we have done in the past. And the question is very straight. The answer is very straight. We prefer to have lower leverage.
The next question comes from the line of Dennis Hilkens, King Street Capital.
Sorry, just 2 questions. If you can comment on your liquidity split by cash and available credit facilities as of end of March. And two, if it's possible to give a split, and sorry if this has been asked before, about what's first quarter actual operating cash burn versus working capital.
So to the first one, the available credit line net -- the available committed credit line net by the end of March was, give or take, CHF 400 million, CHF 425 million. And the rest was cash on the balance sheet. Then in respect to the second part. So look, the biggest part of the swing in respect to the Q1, let's say, cash burn, if you want to call it that way, was coming from the change in net working capital due to the reasons I've mentioned before.
Next question comes from the line of Edouard Aubin, Morgan Stanley.
Yes. So just two questions for me. The first one -- sorry, just to come back on the cash burn. I think Julián, again, you said you clarified that it's CHF 70 million in a 0 revenue scenario. But I guess the paradox is that the cash burn could potentially increase when airports actually reopen and in a scenario where you have very low traffic. So I guess my question is that in a worst-case scenario, what could be the maximum cash burn? So that's question number one. And then the question number two, more specifically on AENA in Spain. Am I right to understand that as things stand, AENA would implement the MAG when the airports in Spain reopen or not?
Regarding the cash burn situation, I think I tried to explain it, Edouard, is -- the cash burn, CHF 70 million is not sales. Then if we go through the different scenarios, it's different scenarios of cash burn. In the scenario minus 70%, with the new facility confirmed, we can go through the next 12 months until the next generation of cash period. I cannot comment on anything else because it is what it is. It's what we plan, okay? Regarding AENA, I don't comment on anything that is regarding other companies. But I don't know. We have the intention to renegotiate and see what, obviously, the arguments are. And I think the arguments are very strong. But AENA decision is not my -- obviously, I cannot comment on AENA's decision today. It's impossible.
The next question comes from the line of Alessandro Esposito.
I would like to ask, could you please confirm whether all the debt, including the new convertible is all pari passu? I mean, the bond, the term loan facility, the RCF and the convertible?
Yes, this is correct.
We have a follow-up question from Jon Cox.
Yes. Sorry to come back again. Just -- sorry, a point of clarification. You talked about the CHF 70 million in frank cash burn. This is if you have 0 sales or sales are down 70, 7-0, percent?
Zero sales, Jon.
Zero sales? Okay. And then just wondering if you have a range of, say, you were down 50%, just incidentally, to give us a rough idea.
No, I cannot give this specific because it's obviously -- still is very volatile. But as I said, Jon, the 70% scenario is covered with the new facilities. To say more than that is very risky in terms of being interpreted in a different way. I prefer to say that because it's what we have in the model.
The next question comes from the line of Andrew Pentol, Trbusiness.
Just we've heard a lot on the call about like the dialogue and communication with landlords over minimum annual guarantees, et cetera, but can you to talk us for a little bit about how the communication has gone with the suppliers? I mean you just touched on it earlier, the negotiations with suppliers, to ensure that they're positioned to come out on the other side. And also, obviously, one of the previous people touched on the fact that Hudson has closed 700 stores today. Can you explain a little bit about the timing behind this decision given the U.S. has been suffering like severely from COVID-19 for quite some time, and that Trump announced the suspension of all Schengen are flights way back in March. So I just wanted to just get your thoughts on the timing of those closures.
Okay. Regarding the suppliers, we have obviously contacted the most important suppliers, explained the situation and asked them, obviously, to collaborate in terms of understanding what is going to happen. I think the most important decision within this part of the net working capital and the relationship with the suppliers is that we have agreed to wait until the situation is more certain in order to plan specific initiatives that will beat collaboration in any case. We are not here to say what to do. We are here with the suppliers, as always, to collaborate and share the future in terms of solving the problem. But so far, what we are doing is waiting until the situation is clarified. And I hope -- and obviously, I don't know. Confidence is not the word, but I believe that during May, the situation will be clear enough in order to prepare a good plan for each of the different vendors in the company. Regarding Hudson, the plan, there are 2 things here. Still, there are shops open because there are still terminals open and still there are sales. We are obviously welcoming passengers. And this is, in my view, a positive sign because as soon as the domestic traffic reinitiates, we have 380 -- I think 383 shops that will be in operation automatically. And then we are prepared for reopening whatever number of shops is needed. We have the employees in the furlough program. We have the merchandise. We have -- everything is ready. I think if the traffic in the U.S. reinitiates during -- 1 week, we will be ready to continue operations in most of the shops.
We have a follow-up question from David Holmes.
Just a quick one. I appreciate you've got the convertibles to issue, but excluding that, can you give us a sense of where your expectations are on interest costs for 2020? Because I appreciate it was a few additional line items in there last year.
Look, in respect to interest expenses, what you can assume is that they will slightly increase in line with a slight increase of net debt. So again, depending on the scenario, but especially if you look at the minus 70% scenario, which Julián mentioned. And then on top of that, as you know, our margin grid is related to the rating agencies. So there, probably you could also assume a slight increase. On the other hand, as LIBOR rates, especially in U.S. dollars, are lower, that leads to a certain benefit. So net-net, you can assume a slight increase on the interest expenses for this year. The bonds are -- obviously have a fixed coupon. So there is no impact.
We have a follow-up question from Alexander Kretzler, Barclays.
Just a quick question actually on the facilities you raised. You said in the 70% scenario, the facilities would be sufficient to cover your cash burn to get to the mid-cycle or catchment cycle in April. I was just wondering, is this the CHF 425 million bank loan plus the convertible bond? Or were you just referring to the CHF 425 million?
We are referring only to do CHF 425 million of additional facility. That's sufficient to bring us to the next cash cycle. And then what we do now on the equity side and equity-linked product comes on top.
We have a follow-up question from Rebecca McClellan.
It's a quick one for me. Could you give us a split of 2019 passengers, intercontinental, interregional and domestic?
We can provide you that, but I don't have the information here in any case. Sorry, Rebecca. I don't know.
That was the last question.
Okay. Thank you very much to all the participants. And obviously, let's keep continuing with the communication. We are also willing to welcome any questions or direct contact also. Thank you very much.
Thank you very much. Bye.
Bye.
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