SWITZERLAND. Dufry, the world’s largest travel retailer, this morning announced a wide-ranging set of initiatives to strengthen its capital structure and liquidity position, in response to the impact on travel and sales of the COVID-19 crisis.
The plan comes on top of the cost saving and cash flow management measures already announced on 12 March. Dufry said that the initiatives are designed to help it sustain a prolonged period of significant disruptions and reinforce its competitive positioning in the longer term.
The measures announced today include:
- An additional credit facility from some of Dufry’s core banks for approximately CHF 425.0 million (US$438 million)
- Consent received from Dufry’s bank consortium to waive existing financial covenants until the end of June 2021 and a higher leverage covenant for the September and December 2021 testing periods
- Planned private placement of up to 5.5 million shares with strong indications of interest to participate from investors
- A planned issuance of a CHF300 million (US$309) senior, unsecured guaranteed convertible bond with strong indications of interest to participate from investors
- The cancellation of the 2020 dividend payment
Dufry CEO Julián Díaz (pictured) said: “These equity measures, in addition to the new credit facility, the cancellation of the dividend and the other operational cost cutting measures being implemented, will significantly strengthen Dufry’s capital base and liquidity position.
“The initiatives are designed to help Dufry to weather the COVID-19 pandemic and current economic downturn even under a severe scenario, while also providing the company with enough flexibility to react to business opportunities arising in the context of the current situation. The company’s set-up allows us to react fast and adapt to business requirements as needed, also in view of the travel recovery phase.”
As announced on 12 March, Dufry has set up a special committee at the Global Executive Committee level which implemented an action plan to secure cash flow generation, drive sales, save costs and safeguard liquidity. That plan includes, among others, the following measures:
- Reduce personnel costs at all levels and, where possible, make use of government support schemes
- Implement voluntary salary reduction schemes
- Negotiate agreements with landlords to reduce or abate Minimum Annual Guarantees
- Minimise all operating expenses and other cost items to minimum levels monitored at Group level
Dufry said that it has adapted its operating structure to the new situation, allowing the company to leverage its “highly flexible” cost structure even further.
Additionally, several government support schemes, especially related to personnel expenses, will provide further cost savings.
Several measures to reduce cash outflows to a minimum have been implemented and are under tight control by a dedicated team at group level, Dufry noted. These include initiatives at Capex and Net Working Capital level that target total cash savings of around CHF160.0 million (US$165 million) in the full-year 2020.
In light of the above, Dufry’s Board of Directors proposes to the upcoming Ordinary General Meeting on 18 May a set of resolutions, including:
- No 2020 dividend payment
- The creation of conditional capital underlying the convertible bond
Trading update on Q1 2020 performance
The business performance in the first quarter 2020 was characterised by different developments in each of the three months, Dufry said.
In January, organic growth increased to +0.8%; in February a first sales slowdown started in Asia with organic growth decreasing to -2.3% year-to-date. However, in March the increasing travel restrictions and airport closures resulted in a negative sales performance for the month of -55.9%.
First-quarter turnover reached CHF 1,438.7 million (US$1,482 million, resulting in an expected organic sales growth performance of around -22.0%. In the first two weeks of April, Dufry has seen sales reduced by around -90% year-on-year.
“Due to the downturn in global travel that has occurred as a result of COVID-19 and the challenges in forecasting the duration of the impact of the pandemic on Dufry’s business, the consequences for our financial performance for the full year are uncertain at this stage,” the company said.
Dufry therefore withdraws its guidance for the 2020 business year previously disclosed on 12 March. The company will issue its interim trading update for the first quarter as planned on 12 May.
Cash flow management and cost saving measures
The implemented cost savings and cash flow management measures have allowed Dufry to considerably reduce its cash burn rate and to continue operations for a prolonged duration until the business environment normalises. That applies even in a scenario of sales reducing by -70% to -80%, with shops being closed due to travel restrictions and with travel activities remaining at a minimum in the locations where Dufry operates its shops.
During the months of April and May cash outflows will be higher than in the following months due to the payment of previously incurred costs.
As mentioned, the indicated cost saving initiatives do not include the additional personnel costs savings coming from various government support schemes which Dufry is making use of in Switzerland, Greece, Spain, Italy, the UK, and Germany, and elsewhere. As the impact of these savings strongly depends on the duration of the travel restrictions and the degree of the business recovery in the specific locations, it is not possible to provide an estimate at this stage on their total benefit, Dufry said.
In addition to these measures, Dufry is implementing a comprehensive set of financing initiatives to strengthen the company’s liquidity position and capital base, beyond the Cash and Cash Equivalent and net available committed facilities of CHF685.9 million (US$706.32 million) as of 31 March in order to help it withstand even a prolonged period of significant disruptions and reinforce Dufry’s competitive positioning in the longer term.
Commitments for an additional approximate CHF425 million facility
As noted, Dufry has secured commitments from certain of its relationship banks based on a term sheet for an approximate CHF425 million 12-month facility with two six-month extensions. This allows the company to convert current uncommitted into committed facilities. Dufry is working with banks to finalise the full documentation.
Consent received to waive covenants
Dufry’s bank consortium – consisting of 25 international banks – has also approved the company’s 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 5.00x instead of 4.50x for the covenant testing in September and December 2021.
The agreement with the banks also includes the addition of a minimum liquidity covenant at CHF300 million (US$309 million), restrictions on dividends, share buybacks and acquisitions during the period of the covenant waiver as well as a number of technical amendments.
Placement of shares and issuance of convertible bonds
The company plans to undertake a private placement to institutional investors by means of an accelerated book-building procedure of up to 5 million shares from its existing authorised share capital and up to 500,000 treasury shares. Members of the Board of Directors and Management plan to participate in the share placement with a meaningful amount, Dufry pointed out.
In addition, Dufry plans to issue a senior, unsecured guaranteed convertible bond with an aggregate principal amount of CHF300 million (US$309 million). The new convertible bond will also be placed by means of an accelerated book-building procedure with institutional investors.
The company said that it has received strong indications of interest to participate from investors for both the share placement and the convertible bond issuance. Further details on the envisaged placement of shares and issuance of convertible bonds will be communicated in due course.
Fostering the resilience of the business
The cost cutting and cash flow management measures, as well as the new financing initiatives described, are designed to provide Dufry with a strong capital structure and liquidity position to sustain a prolonged period of significant disruptions. This would apply even in a scenario of sales reducing by 70%-80%, allowing the company to continue operations until travel patterns and sales generation return to normalised levels.
Ordinary General Meeting 2020
Further to the actions outlined above, the Board of Directors has resolved to propose the following measures:
- Cancellation of the originally proposed dividend payment for 2020, thus reducing short-term cash outflows.
- Creation of conditional share capital sufficient to enable the physical settlement of the bonds upon conversion.
The Ordinary General Meeting of Dufry AG will be held on Monday, 18 May at 14.00 CEST. The meeting will be held without the presence of shareholders based on Article 6a of the Ordinance 2 issued by the Swiss Federal Council on measures to prevent coronavirus (COVID-19) in the version of March 16, 2020. The shareholders of Dufry AG may exercise their rights at the Ordinary General Meeting exclusively through the Independent Voting Rights Representative. This measure makes it possible to hold the Ordinary General Meeting despite the current COVID-19 pandemic.
Juan Carlos Torres, Chairman of Dufry’s Board of Directors, said: “Let me first express my regret for having to hold this year’s Ordinary General Meeting without the physical presence of our shareholders and for not being able to present them in person the positive results achieved in the 2019 business year as well as the initiatives implemented and newly proposed to the AGM to strengthen the company’s financial structure.
“The Board of Directors is firmly convinced that these initiatives are in the best interest of the shareholders and will help Dufry to overcome this challenging situation caused by the impact and the uncertainties of the COVID-19 pandemic. Here, I would like to thank our long-term shareholders for their continued support and commitment to purchase additional shares and participating in the issuance of the convertible bond.”
*For our related story on Dufry company Hudson and its response to COVID-19, click here.
