Amadeus IT Group, S.A.

Good afternoon, ladies and gentlemen, and welcome to our first quarter results presentation. Thank you very much again for joining us today.

As always, I’m here with Ana that will due through the details of our financial performance, and I will focus on our most relevant developments. Before we get started with our quarter one performance overview, I would like to make a few remarks on the current market context.

As you know, the COVID-19 pandemic has advanced through the quarter and progressively impacted more regions. In January, the industry had a good start.

However, after the closing of Wuhan, we saw a decline in APAC bookings that gradually extended to other geographies as new cases were declared outside of China. By mid-February, the underlying GDS industry was trading daily minus 10%, minus 15% rates.

And our Amadeus Organic PBs were performing better, and there is always a delay between booking and flying. Amadeus organic PBs were trading at minus 7%, minus 10% debt rates on a daily basis relative to prior year.

In the last part of February, we saw a further duration to reach an underlying GDS industry decline in the minus 30%, minus 40%. In March, the deterioration continued further and the underlying GDS industry towards the end of March was trading daily at minus 80% year-on-year.

During April, the underlying GDS industry has been decreasing close to minus 90% daily but not deteriorating further than that. As many of you know, the latest IATA release is air traffic forecast for 2020 now points to minus 48% for the full year.

This is the last estimation of April 14, and this is assuming a recovery that starts in the third quarter of the year. So the impact of COVID-19 on our business has been very severe, and we expect this to continue into the second quarter of the year.

We have acted decisively as the pandemic was progressing to protect our liquidity position. By the end of February, we have started with cost saving programs, impacting most of the discretionary captions which has translated into reduced cash-out in March.

Additionally, during the second half of March, we further adopted a series of measures in response to the growing severity of the COVID-19 impact. We implemented an efficiency plan to reduce our fixed cost and CapEx by €300 million on an annual basis, with additional measures over those already adopted at the end of February.

We cancel our complementary dividend payment and the share buyback program in relation with employee performance plans and enhanced our liquidity by executing a €1 billion bridge loan facility and by raising an additional €1.5 billion of capital and convertible bonds in early April. Let’s now review our performance for the first quarter.

In the first three months of the year, our travel agency bookings declined by 44.6% on our PVs, 12%. This decline in volumes drove a contraction in revenue, EBITDA and adjusted profit of 27%, 41% and 57%, respectively, with revenues impacted more immediately than cost and CapEx, which have been acted upon later within the quarter.

Although we can see some benefits already of the action implemented in the cash outflow in March. By segments.

In Distribution, our travel and car bookings in the quarter followed the industry contraction and declined by 47%, driving our reduction in Distribution revenue by 45% in the first three months of the year. We enhanced our competitive position by 0.3 in the quarter.

However, market changes in this type of environment are really not meaningful. In IT solutions, our revenue declined by 0.3 in the first three months of 2020.

This evolution resulted from negative revenue growth in Amadeus IT Solution and positive performance delivered by our new businesses. In Airline IT, our passenger order declined by 12% or 11% excluding customer airlines ceasing operations.

In the first three months of 2020, our investment in R&D grew 3% relative to last year. R&D growth decelerated in March, and it will likely continue to decelerate over the next quarters because, as part of our cost reduction program, we have canceled more of the contracts we have with third parties with who provide us with temporary workforce.

And we have established voluntary and paid leave for our employees. Accordingly, we have reassigned resources from longer-term projects to services that provide revenues in the short term.

And to our most strategic efforts, we have a strong balance sheet, which allows us to continue with part of our investments. However, given the severity of the COVID-19 impact, we are being very selective on prioritizing projects.

In the first quarter of 2020, our free cash flow generation amounted to €290 million, an increase of 3% relative to the same period of the year – of 2019, sorry, with leverage closing at 1.4 times last 12 months EBITDA or 1.04 times pro forma for our capital raising transactions in early April. A bit more the details, as we always do.

If we move to Slide 5, we renew or signed distribution agreements with 23 carriers during the quarter, including on European airline, and we continued to grow our airline customer base of merchandising solutions for the travel agency channel. Travel agency booking industry contracted 46% in the quarter.

Volumes in all regions declined at a strong double-digit rate, highly impacted by the pandemic. Asia Pac and Europe, the most affected regions, were the worst performers, followed by North America, Middle East and Africa and LATAM.

The industry was also impacted by a high volume of booking cancellations with an increased cancellation ratio due to the situation, most notably towards the end of the quarter. Following a more conservative criteria, we have raised our cancellation provision to reflect the percentage of cancellations in March versus the prior criteria of occurring for the average of the last 12 months, which has impacted negatively our revenues in this segment.

Amadeus travel agency bookings declined by 48% due to the situation that I mentioned impacting the industry. And Amadeus bookings reported negative growth in all regions driven by this overall industry contraction.

Our net bookings decreased 15.4% caused by the overall negative impact on the pandemic on the global travel industry. However, hotel and car rental bookings reported growth in the quarter supported by customer wins.

If we move to IT Solutions. Regarding Airline IT, during the first quarter, Mauritania Airlines, Air Tahiti, Azerbaijan and STARLUX Airlines completed their migration to the Altea platform.

While JSX was implemented to New Skies. Korean airline Air Premia; a new Nigerian carrier, Green Africa Airways, contracted Navitaire’s New Skies passenger service, while an African carrier signed for Amadeus Revenue Accounting, Revenue Integrity, Flex Pricer and Customer Experience Management.

In the quarter, passengers border declined 12% driven by negative organic growth of 15.7%. The positive impact of customer implementations, including Philippines, Bangkok, and Canada Air, Air Europa and FlyOne in 2019; and Azerbaijan Airlines, Mauritania Airlines STARLUX Airlines, Air Tahiti and JSX in 2020; and a negative impact from airline customers ceasing or suspending operations, including in 2019, Germania and bmi Regional voice in February, Avianca Brasil in May; Avianca Argentina in June; Thomas Cook UK, Aigle Azur, Adria Airways and XL Airways France, all of them in September; and Flybe, the latest one in March of this year.

Excluding airline customers, ceasing, suspending operations, our passenger border declined 11% in the first quarter. Regarding Airport IT, Belgrade Airport, part of the VINCI Group, signed for Altea DCS for ground handlers.

Others such as Lyon Airport, Pristina Airport and Pulkovo Airport became new Amadeus IT customers. Our upselling effort in this segment also continue with a number of airports, such as Daytona Beach International in Florida, Baku and Almaty contracting for incremental IT technology.

If we move to hospitality space. During the quarter, we signed a multiyear agreement with 11 properties of the British Radisson Edwardian Hotels for Amadeus Sales and Event Management.

A German lodging company, Maritim Hotelgesellschaft, contracted iHotelier for its 44 properties. Sonder contracted business intelligent Demand360, which will be implemented on its more than 40 properties.

Additionally, Extra Holidays, subsidiary of Wyndham Destination, chose iHotelier, Guest Management Solution and Demand360 for 114 properties. In terms of our performance, hospitality revenue increased over the first three months of 2020, delivering double-digit growth until February.

Mass performance, however, was impacted by COVID-19. But despite this impact, several hospitality revenue lines still grew double digit in the quarter.

Approximately 50% of hospitality revenue is non-transactional, with a particularly strong performance of transactional revenue, including GDsS and CRS, up to February, supported by customer wins. We can also say that non-transactional revenues at business intelligence grew strongly in the quarter.

So as you see from my presentation that we have tried to really keep some normality, the business continues strong despite the current environment. And now I will turn to Ana for the details of our financial performance.

Thank you, Luis. Hello, everyone.

I think that Slide 9 on revenue growth, we can skip as Luis has already described and explained our evolution in the first quarter of 2020. So if we move to Page number 10.

In the first quarter of 2020, our EBITDA contracted by 41.3% up to €350 million driven by the 27% decline we saw in revenues and the negative operating leverage. Let me give you some additional color on our operating cost.

Cost of revenue declined by 42.3% in the quarter mainly as a result of the decline in bookings volumes partially offset by an increase in variable costs from our hospitality business, which have had a positive performance in the period, as Luis has just explained. Supported by our cost-saving plan, our combined operating expenses cost line, including personal and other expenses, decreased by 1.2%.

However, due to, first, an increase in the bad debt provision associated in the COVID-19 crisis; and secondly, a lower capitalization ratio, consequence of the reassignment of resources to services, which is a non-capital R&D activity, and also the reduction of some long-term programs while we maintain all of our operational needs; and lastly, the negative ForEx FX in the quarter, our total net fixed cost increased by 3.1% on a reported basis. Below the EBITDA line, depreciation and amortization increased by 12.3% mostly driven by a 12.9% increase in the ordinary D&A resulting from previous capitalized R&D costs which has started to be amortized during the period.

Our net financial expense decreased by €16.7 million to €4 million mainly driven by the exchange gains amounting to €8.5 million in the period compared to losses of €8.3 million in the first quarter of 2019. Interest expense declined by 8.9% as a consequence of a reduction in the average gross debt funding.

In the first quarter of 2020, our income tax expense amounted to €34 million, 68.4% lower than in the previous year. The income tax rate for the quarter was 22%, broadly in line with the 2019 full year income tax rate and lower than the 26.5% that we had in the first quarter of 2019.

This decrease was mostly driven by the recent changes in the tax regulation especially in France, resulting in an increase in tax deductions associated with our R&D. The combination of a decline in operating results and lower financial and tax expense resulted in a 57.5% decrease in our adjusted profit in the first quarter of 2020.

The adjusted EPS was €0.33, 57.5% lower than in the previous year. In the first quarter of 2020, our investment in R&D increased by 3% up to €254 million.

R&D investment growth accelerated versus the previous period, particularly in March, driven by all of the measures that we have largely explained. As a percentage of revenue, R&D investments represents 24.8% higher than the previous year due to the combined effect of our contained R&D investment and our revenue decline reported in this first quarter.

So our CapEx decreased 24.9% to €152 million, which represents 14.8% of revenues. The decrease in CapEx resulted from lower capitalizations from software development driven by the decline in the capitalization ratio due to project mix explained, including, amongst others, a higher weight of the R&D investment devoted to airline bespoke services which, as has explained, has no capitalization ratio; a reduction in the amount of signing bonuses paid; and thirdly, a decline in CapEx in property, plant and equipment relative to what we did last year.

In the first quarter of 2020, we generated free cash flow of €290 million, 3% higher than in the previous year supported by the positive cash effect from working capital and coupled with lower CapEx and tax paid. If I have enacted upon our cost quickly, the impact in the P&L will be seen later in the year, but it has started to generate cash savings during the last month of the first quarter of 2020 and should drive increasing cash savings in the coming months.

The cash flow impact from changing working capital improved by €180 million versus 2019 mainly resulting for a higher net inflow from collections and payments from previous periods, coupled with a reduction in revenues and expenses in the first quarter of 2020 versus the same period of last year; secondly, payments amounting to €34.3 million advanced from January 2020 to December 2019. If you remember, we explained this at year-end.

Due to the scheduled changes in our accounting and payment systems during 2020 that was to happen in several countries, which was meant to interrupt the payment flow for the period, and therefore, we anticipate that those payments the last month of 2019; lower advanced payments related to customer renegotiations; and lastly, a positive impact from non-cash P&L items such as increase in the bad debt and booking cancellation provisions. Our net debt amounted to €2.8 billion at the end of March with a leverage raising to 1.5 times our EBITDA or 1.24 times pro forma for our capital raising transactions that happened in the early 2020.

As of today, our €1 billion revolving credit facility executed in April 2018 and our €1 billion bridge to loan facility executed in March 2020, remain undrawn. With this, we have finished the presentation for our first quarter 2020 results, and we are ready to take any questions you may have.

I’ve got two, please. I wonder if, first of all, you could maybe talk a little bit about what you’re seeing in the Asian markets where lockdowns have begun to ease, and maybe there’s some very, very gradual return from normality.

Maybe first of all, in terms of actual bookings and volumes, but maybe more importantly than that, in terms of the behavior of the customers and what they’re doing around discussions with future products for you, around pricing negotiations. And that kind of leads me into my second question, which is linked to that.

Obviously, one of the risks to doing big tech changes in your industry is the risk of disruption to the business. So for a lot of these customers today, actually, this is potentially an opportunity to make changes.

Are you seeing any interest from maybe more so on the hotel and airport side to make those types of changes? Could that accelerate things?

Obviously, it’s probably going to be harder on the airline side of things, but any thoughts around that would be really useful. Thank you.

Okay. Let me try to talk a little bit about what we see today.

I mean it’s very, very, very difficult to really extract conclusions, okay? You read everyday news.

I mean it is true that there could be some signs of positiveness, but I will not try to really tell you that the situation is over at all. I mean it’s true that the reality the airlines, despite the current situation, are keen of debating business opportunities, business recovery, how we can work together.

And this is why I decided to really give you an update. And as we speak, we have debates with many customers.

So the activity is there, talking and thinking about the future, as I said, despite the current situation. I mean we know that in some Asian markets, domestic traffic is more available.

I am talking here about Korea. I’m talking about China.

Despite the fact we don’t benefit so much, but in China, there are different reports that talk about a 40% availability in the domestic traffic, so things have started to really be more available. Every day, just read news about the airlines, opening slowly in some countries.

But again, it depends so much about the measures that the governments have taken and how things are coming back. So we – I mean, in our volumes, okay, I could argue about a couple of days where we have seen a slightly better volumes, but I really believe it’s too early to really have a trend and share with you that, okay, the situation is – we see an improvement.

Too early. The volumes are still very negative.

And again, we need to see how things evolve. I mean I am – just to elaborate a bit more on that, I’m completely convinced myself, but this is my personal opinion, okay, that travel will come back, and we will all come back to our normal lives, and travel is part of that.

So I’m not expecting a drastic change in the sense that people will not come back to travel. But when and how, it’s very difficult if you read all kind of reports, and we try to follow that and talking to our customers.

It is clear that domestic traffic is supposed to be the first one to open. There will be some small regional traffic.

And then, of course, the global one, that is expected to take a bit more time. We also see that – again, and this is very, very, very early and difficult to strike conclusions, but from the bottom, there may be some improvement in the hotel area.

So we see a small improvement in the sense of hotel bookings mainly in the U.S. But again, I mean, it changes so quickly that it is difficult to really believe that the recovery is there.

What we see is not further deterioration, which is a good point. We saw the deterioration up to April and then more or less plateauing in very negative figures, very negative, but not going further.

And what we see is some days where volumes could improve. But again, too early to really say that this is the recovery.

We expect a quite drastic – not drastic but, second quarter, as you see from IATA, they were expecting an 82% in the second quarter and then progressive recovery. So the second quarter should stay low, but how the speed of recovery will evolve, again, difficult to really say at this stage.

In terms of continuing with our projects, if I understood properly, well, all the situation in our case could be an opportunity because some of the companies are really thinking about the way they handle, how they can variabilize their costs, if they need to do internally. So, we see opportunities to really get into different areas of the business, both with airlines and with the rest of the travel industry.

So we are debating, again, opportunities for our future to really prepare the company when the rebound will come, that I’m convinced it will come. Again, what I’m not convinced is when and how.

And in the case of Air Canada, I mean, we migrated to these years. And again, I think you mentioned – I don’t know if I am covering your question about the second part, I didn’t get exactly, Adam, what you referred to.

So it was really just that normally, big changes in tech are quite difficult when companies are running at 100%. So in an environment where they’re not busy, it could be an opportunity for them to think about more significant changes.

Okay. I got it.

Yes, yes, yes. I mean, look, as I mentioned to you, I mean, we went ahead with the migration of Air Canada.

We keep working with many of these customers, and our service business has not been so much impacted as the transaction business, which proves that the airlines are keen to really keep going. And again, a little bit surprisingly, I could say, we receive RFPs from airports as we speak to really talk about opportunities.

And you are right, some of them believe that this is the right time to really take some decisions and do some changes due to the low traffic. So the answer is yes.

But again, unfortunately, the only issue is that based on our transaction model, we don’t see that now, but I believe we will see that, the impact of all this, in the future. So it’s quite active, as I said, despite the situation, discussions with all kinds of customers that we are having as we speak.

And you are right. I mean in the case of Airport, I will say it’s very active, the discussions we have with airports about changing their technology.

Thank you very much, appreciated.

Thank you, good afternoon. Three questions, please.

First, what major technology projects do you continue to fund so that you can emerge stronger on the other side of this crisis? Second, could you comment on the financial viability of your major airline customers in EMEA?

And then third, do you expect the current crisis to accelerate the shift to OTA bookings versus travel management companies? Thank you.

Okay. Let me try to start and please, and Ana, you can jump in.

If we talk about big projects, and again, we are protecting some of our investments that we do. I mean, of course, we have commitments with our customers, so even if we have, in some cases, could be delayed, but the majority of the cases, I mean – and I gave you the example of this year with Air Canada, I mean, the customer decided to go ahead and we went ahead with this project.

So there are still migrations. We continue to develop our functionalities in the area of hotel because we have customer commitments.

We keep moving and evolving our core technology with the objective to really move to the cloud at one point. In the area of merchandising and NDC, again, we continue talking to customers.

So I will say the activity in terms of customer commitments and delivery of projects is still there. Of course, in some cases, we have decided to really reduce part of the investment or, in some cases, the customers have requested us some slowness in terms of the delivery of the projects.

But the core of our priorities are protected and are there. Again, in some areas where we feel, okay, it’s not really impacting our business, so we could delay, we are delaying.

That’s for sure, we are being much more strict about our priorities. But in terms of the customer commitments, we have the main investment in our core technology, we are still keeping that.

Ana?

And in terms of survival of airlines in EMEA, I would say that we’ve seen a reduced number of airline fees in operations in 2020. So far, we’ve seen – we saw more in 2019 than what we have seen in 2020.

It’s, I think, quite obvious that they are facing extreme difficulties in these days, but the major groups has managed either by issuing equity, by doing refinancing, by getting state aids and by using also all of the mechanisms that many countries have put in place in order to deal financially with COVID-19. They have reduced their cash-out, securing that they have a liquidity position that allows them to survive while they also negotiate with the government, whether it’s going to be nationalized or aid or bailout or the different – in different regions, you have different ways of having them.

So of course, it’s difficult times for our customers, but I think that the largest group have managed to be in a situation where they can continue operations, waiting to see how the evolution of the travel sector will be in the future. But so far, we had a Flybe that cease operations and a couple of other airlines which are either going for Chapter 11 or trying to restructure their function.

And basically, most of them are talking with their governments and with their countries to see how they can continue in business in the longer run.

And when we talk about OTA, I mean it’s not that the OTAs have taken the business travel, the DMCs, I mean they deal with completely different segments. What is true is that if we see many of the last crisis, I mean laser travel recovers first and before business, so this could be expected, but the volumes in the airline agencies could come before we see the business travel coming back, but I believe at one point, both of them will recover.

Thank you very much.

Thank you. I want to follow up on the initial question around passenger volumes.

So when you raised capital last month, you were talking about stress cases of minus 80% of volumes throughout the rest of the year. I think a lot of investors are trying to figure out what 2020 want may look like.

So can you share a little bit how you may be thinking about a potential recovery in 2021 in terms of volumes? Or is there some kind of internal case you’re planning against potentially?

I think it’d be interesting to dive into that subject.

I mean it is extremely difficult. As you can imagine, we develop different scenarios.

What we wanted to make sure is that even if a very negative scenario that we don’t believe will be there, we have the liquidity to really go through this cycle, and this is – this has been our objective. That’s why we have focused a lot on the cash of the company, both from a outflow, okay, the money we are investing, and we are continuously being very selective about that as far as trying to really get the financing and the security that will allow us to go through this cycle.

In terms of volume, as I mentioned to you, we are developing different scenarios. Again, the minus 80% was on a stress case that hopefully will not be here, but we don’t know.

That’s the reality, and we want to be prepared for the worst scenario. So mainly, what we are doing is just develop different scenarios moving forward and trying to adapt depending on how things will evolve.

Again, that’s everything we can do. Of course, we may have different opinions by different people.

We try to really do our best based on our internal knowledge, based on all kind of reports that are available in the industry and try to see how things will evolve. I mentioned before, we expect domestic to really recover faster.

And then intra-regional and then more the global volumes, and based on that and based on the volumes, we develop, again, different scenarios as we speak. That’s the only thing.

As I mentioned to you, my own belief is that this will recover and, at one point, fast, but probably this will not be before we have a health solution unless we find a different way of traveling and moving. And how people may react to that is extremely personal.

But as I said, I really believe that that’s more my personal view, and by sharing and talking to people that the reality and coming back to our lives will come at one point. But again, probably we are today living in the worst point in the cycle because this is where mainly most of the countries are in a situation where traveling is not happening.

So we are mainly taking sources. As I mentioned to you, the most relevant source that will – or is being used is the estimation of IATA because this has the aggregation of many airlines around the world about how they see the evolution.

These changes because they have reviewed that three or four times. So this may evolve.

But again, we use that source. We also use different sources.

And based on that, we are doing our projection. To be more concrete about 2021 today is difficult.

But maybe if you want from the financial perspective, Julian, what we’ve done is prepared the company that even under the stress case scenario, that was to continue beyond 2020 and as Luis has explained, we have enough liquidity. And we have also the flexibility within the company to even further ramp down our cost.

So that is not just the cash situation but also the viability of the company if the situation lasts for longer. So we’ve kept all of the potential flexibility within our hands to further reduce our cost if required, and we have cash and liquidity available even if in a very stressed scenario goes beyond 2020 and last for the entire 2021.

So in that sense, what we’ve done is prepare for the worst and then making sure that we can adapt the necessary resources, moving – as I think Luis has explained, we’ve shifted resources from longer-term projects to the ones that are producing more revenues, the services for airlines, adjusting in conversations with our customers, so trying to be agile and flexible to adapt to whatever the recovery shape looks like and whenever it starts while, at the same time, securing that we have liquidity to navigate through a stress case scenario for quite a long period of time, which I think from the management perspective is the best that we can do because it’s impossible for us to know when the recovery is going to happen and what kind of shape it’s going to take. So we are prepared to navigate that and to adapt to the circumstances as they come.

Okay, thank you. And then just one quick follow-up, too.

I think you talked earlier about the non-transactional revenue in the hospitality business and how that’s obviously benefiting today. I mean is there a view that you would consider offering a non-transactional model as well in the Airline IT business potentially, with either existing products and new products, is that even on the table?

Or is that not something you would consider doing?

I mean, of course, yes, the answer is yes, we consider our business models. I mean this business model has been one in my view of the logic and the success, of course, not in this scenario in the sense that, okay, as volume increases, you pay more; and when volume decreases, you pay less.

So it’s a variable cost, and it has worked pretty well. Of course, we were not thinking out this scenario.

And with this happens, you may think, okay, about alternative models moving forward for part of our products. I believe overall, our current model is the right one because that, again, has a logic.

In the hospitality industry, we have some of the revenues that are not coming from that and in this situation is helping us. So I will say, yes, we look into all the alternatives.

I couldn’t say we are going to change now. But of course, we may look.

I mean, in some cases, we have volume commitments with different levels, so it’s a way also to protect and to make sure that in very low volumes, you have some security on the revenue front. But the logic of having unit transaction is still there.

So we may find a kind of combination moving forward, but we are not going to change now the business model.

Okay, thank you.

Thank you for taking the questions. I’ve also got two.

Just, Ana, first of all, on the working capital, obviously, strong performance in Q1. Could you repeat – I think you gave some forward-looking comments about how that will evolve in the coming quarters.

If you could repeat that or perhaps just comment on where working capital is expected to trend from here, that will be useful. And I guess related to that, are you considering using that essentially given your relatively better capitalized position, are you considering using that to the benefit of your customers in any way?

And then the second question was a follow-up on the corporate travel agency market. I guess at least from the outside, it looks a more labor intensive, less IT light business model they have relative, obviously, to the OTAs.

These periods sometimes precipitate some acceleration in some of those trends perhaps away from that model. I just wondered about your opinion as to how that TMC market may or may not evolve as and when we do get back to more normal in terms of corporate bookings.

Okay. So on the working capital, in the first quarter, we generated – it improved by €180 million versus the previous year.

And this was – you have a net, so we were still having collections and payments from previous periods where that was positive, while we had a reduction in the revenues and expenses in the first quarter of 2020, which, of course, was negative. We did an advance payment in December 2019 of the payments that were due on January 2020.

That was €34 million because we are changing – we migrated to the new version of SAP all of our financing in many countries, and we expected that, that was going to produce difficulties on the payments. So we advanced those on December.

We, of course – it worsened the working capital in 2019, but it improved the working capital in 2020. Then we have lower advanced payments because of customers' renegotiations due to the COVID-19 situation, as you can imagine.

We don’t have many renegotiations with signing bonuses, et cetera, so there is lower than that. We have on the positive side.

We have the fact that we have a lower EBITDA due to the provisions that we are accounting for. So we’ve been quite conservative on the bad debt and on the cancellation provisions that reduces our EBITDA, but it’s no cash-out.

So that improves the working capital. So that is what I have explained on the 2020 first quarter.

Now we will expect in the second quarter of 2020 that the situation of the working capital deteriorates clearly versus the working capital of the second quarter in 2019. So we had in the second quarter of 2019 a reduction of around €150 million versus the previous year.

And the main reasons for the worsening that we are expecting is that we will have an increased deterioration on delays on the collection due to the COVID situation. We also expect a negative impact from the payments from previous periods because we pay our distribution fees and part of our incentives later than compare when we collect the bookings.

So the first month of 2020 have been positive in terms of collections of bookings, and therefore, we still need to pay the incentives coming from those bookings that will happen in the second quarter. At the same time, on the positive side, we will have a reduction in the expenses as all of the measures that we put in place for cost reductions started in March.

As we said, the situation deteriorating, so they will have more full impact on the second quarter of 2020 versus the same period of 2019, but we still have some payments related to previous periods that will take place. So for example, the bonus for employees in – of 2019, which was positive, will be paid in the second quarter of 2020.

So there is a mix of positives and negatives as we try to preserve our cash as much as possible. But you should expect a worsening of the working capital versus 2019 in the second quarter and then as the cost measure imply, and then there’s more alignment between the payments and receivables and collections from the deteriorated situation that the COVID-19 has created are more stabilized through the third and fourth quarter.

Yes. Just to complement, I mean you mentioned with customers, of course, these are individual discussions with customers.

I mean, in some cases, yes, you can get some agreements with the customers of delaying some collections in exchange or as part of the overall discussion of the situation of the customer and the overall business, okay? So that’s, again, individual discussions based on the situation of the customer, the agreements that we have and the potential agreements we may have for the loan and the medium and long term with them.

With regards to the TMCs, I mean, again, look at the automation has been happening as we speak during many years. As you know, we invest in solutions for corporations and in working with the TMCs to provide better tools in managing the corporate travel.

There has also been a consolidation during the last years many of small TMCs have been acquired by bigger group, so we could expect that this consolidation will continue, that the automation and the need to provide better solutions to the corporates will continue, but again the business travel will be here and we’ll recover at one point. And the TMCs are well positioned to really be the one serving their customers.

And we will continue working with them with the corporates to provide the right tools and right solutions.

Okay, thank you.

Thank you very much. Can you give us an idea of hotel IT growth in the quarter?

And just maybe a little bit overlapping, but you mentioned – hello?

We can’t hear you. It’s a lot of – yes.

Okay. Could you repeat again, if you don’t mind, Stacy?

We’ll try again. Apologies for the bad line.

Can you give us an idea of hotel IT growth? You mentioned also some license-based revenues in your business which were less impacted by COVID-19.

Can you describe what that was? Is it stable going forward?

And how much – another question sort of services revenue as a percentage of the whole, is that mostly stable? And maybe a follow-up.

Okay. So on the percentage of non-transactional revenues on the total of the group, if you take 2019, that was more or less around 20%.

So that includes things like digital advertising. It includes some of the real, it include part of the hospitality, includes part of airports.

And of course, the bespoke and the services of airline IT. So those are the main captions that produce revenues which are non-transaction driven.

And that in 2019 was more or less 20% of the total. And then on hotel IT growth?

Look, again, the growth was very strong at the beginning of the year. This business, as we have reported last year and this year, we were very pleased.

Surprisingly, I mean, we didn’t see any impact of the beginning, even when we saw already the volumes in Asia have been impacted. But hotels has been impacted like that you have been impacted at the end.

So we have finally seen that they also the bookings and the business in hotel was been impacted. It is true that part of our business model with hotels is not based on transactions.

So it’s more resilience however of course the fact that is not based on transaction doesn’t mean that at the end, you need renegotiate with some of the customers that I mean that’s why and I mention we have increased other provision, because the collection of these revenues are difficult, industries impacted. So it protects you partially in the sense that based on our contracts, it’s not so much link to the unit revenue.

However especially with small properties and with some of our customers, we need to really deal a specific negotiation that’s all. That’s why okay, from our revenue point of view gives our resilience for our practical point of view we need to deal with a specific financial situation of our customers in platform two.

But again yes, if we took all the proforma, it was pretty strong. And okay, hopefully it will comeback at one point because we continue singing customers having good tax sale having good prospects, and of course what we need is that our customers not able to really, as target in customers and therefore continuing with project that we have done.

Quick follow-up, if I may how – think about EBITDA margins, do you think margins can act [Technical Difficulty]

I’m going try to answer to what I think you asked because the sound is really terrible, Stacy. So on EBITDA margins, during 2020, as a COVID situation evolves, it’s difficult to predict how it is going to pan out.

Of course, in the first quarter, we have negative operational leverage, and so will most likely will happen in the second quarter of the year as well. And then it will depend on how the recovery may evolve in the third and fourth quarter, we will see how the cost-cutting measures that we are putting in place with evolution of the revenues, plus the bad debt that Luis has explained, the cancellation provisions, et cetera, all of those metrics operate.

In the longer and midterm of course we would need to adapt to whatever the shape of the recovery would be, so we do believe that the recovery of the travel as a whole will take some time, which there are some reports that are pointing to that. Will adapt our cost structure to try to be able to maintain our operational leverage as it used to be.

But today, I think that it’s too early to commit on any kind of margin evolution because it will depend on which products are coming faster, the volumes, which industry, which markets, and that is very difficult to forecast right now.

Thank you.

Thank you, good afternoon. A couple from me as well.

So Luis, to you, I think, John’s question and your response there to stacy as well alluded to sort of the strategic potential here. I mean presumably airlines are asking for lower pricing, they might consider sole sourcing for GDS if they get a lower price.

Travel agents will want higher incentive fees. Are you sort of mindful that you could pick up quite a lot of market share if you can give something back to the customers on pricing, on payment terms?

And is that explicitly a strategy you’re looking at today? Or is it that the crisis means that really until there’s some volumes coming back, there’s no point in discussing the mights and maybes of changing the sort of incentive structures and market share patterns?

I mean, look, our objective to increase share with the customer is there. We also need to be, of course, quite prudent and careful about how to deal with the current situation.

Okay? So I mean I cannot give you a definitive answer.

It is our objective, as we said, is first, protect the company; get the capabilities and the liquidity, and this is what we are doing; be careful with the way we spend the money, of course, because it’s our responsibility to really adapt to the current situation. But of course, there are good opportunities with specific customers that are there.

Yes, we have constructive discussions. As I mentioned at the beginning of the call and during this conversation, we have many ongoing discussions with many of our customers.

So of course, our objective is to keep the future and, after this crisis, being stronger than we were before, knowing the difficulty that is going through this cycle. So without being definitive, yes, of course, our objective is to get incremental share at one point from both airlines and travel agencies.

And it could be, in some cases, what you mentioned, the fact that, okay, we can give them some specific conditions here or there or the fact that they may question some of the things that we’re doing if they can work with us, and we can support them. So there are different kind of customers, and we talk to them about the opportunities of working together, thinking about the medium term, believing that in the medium term, this will be there, and we’ll have opportunities of working together.

And again, it’s not exactly the same. Some customers are much more thinking about the long term.

Some other customers are struggling and trying to really think much more short term, that there is a mix. And again, we are trying to combine the short term needs of us, the short-term needs of our customers, we’re thinking about how to be stronger when the recovery comes.

So opportunities are there. The answer is yes, in many fronts.

But there are also risks because we need to see, okay, not to do the wrong things with customers that, in some cases, may struggle in the medium term, okay? But definitely, I mean, I am personally having a lot of conversations.

And the teams, of course, are getting fully involved in how together in the industry and how the recovery will come and how we can be working with them in supporting their needs as soon as the recovery comes. Again, just to finish this long explanation.

It’s, not the same. The airline industry, the hotel industry, how we can support the recovery when it comes, it’s not the same, okay, because they may need – they have different needs in terms of technology.

Their priorities may evolve, and they want to focus in some specific areas as we speak. So all this is also giving us the input of how we can support our customers now and for the medium term.

Okay, thank you. Ana, I think in terms of the €300 million in savings, you said it was CapEx and OpEx.

Can you give us a bit more color between the split? And I think at the beginning, you said some staff were on short-term working and furlough.

Maybe the number of staff and how important that is within the €300 million will be helpful.

Okay. So we have not given you the disclosure of the savings between CapEx and OpEx because it also varies depending on how we reassign resources from projects to services, et cetera, et cetera.

So there will be variations of what is CapEx and OpEx. So basically, the areas where we have taken action, I think we’ve tried to explain that is on, of course, all of what is more discretionary kind of expenses.

We have taken actions also on things that impact our employees, like salary frees, postponements of bonus payments, et cetera. We have put in place a program of voluntarily unpaid leave.

So we have not going to furloughs in any country. That’s why we are also saying that we do have capacity to further cut our cost if required by the situation if the recovery takes longer to happen.

So there is several measures, of course, on the CapEx front. All of that is signing bonuses, investments needed because also the level of transaction has reduced on our data center, any kind of refurbishment or buildings or property, plant and equipment, all of that has been canceled.

So the CapEx on that – on those areas will also be reduced. The part that varies between OpEx and CapEx is on the capitalized R&D.

And there, basically, we are, as we speak with our customers, reassigning resources from one project to other projects. Some have a higher ratio of capitalization, some have a lower ratio, and that’s why it’s more difficult for me to tell you.

So we can tell you the gross amount. That’s the €300 million.

And then the split between what will be CapEx and Opex, we will see as the reassignment of resources takes place over the year.

Okay. That’s helpful, thank you.

Good afternoon, everybody. Just for me, there’s a follow-up questions on – the first one, on while you just were mentioning the €300 million your savings, just to be clear, nothing of that has flowed in the first quarter results, okay?

Because I’ve seen – I mean CapEx is down €50 million. So I know to what extent we should assume some of those €300 million savings are already in the first quarter.

And the second one, you said, we have ability to further cut costs if the situation of the recovery delays. What is the base case?

I mean we have to assume that those €300 million will be achieved in a base case where GDAs basically is falling by 50% year-on-year. Is that the base case?

And the second one, again on the relation with the airlines. I mean we should assume that average booking fee should be revised now for some airlines.

Is what you were referring when managing your relations with your clients? I mean I guess some of them are struggling.

And I don’t know if, actually, they’ve already put on the table reviewing the average booking fee for going forward.

Yes. Okay.

Let me see if I can try to reply to all of the questions. Okay.

On the savings, clearly, in the first quarter, there is part that has entered. That’s why I was explaining that if you take our expenses,prior to capitalization and prior to ForEx, they were declining at 1.3%.

So that’s part of the consequence of having these plans put in place. But of course, the plans have started as the quarter was progressing.

And therefore, they don’t have yet full impact on the first quarter. So it will be taking more impact on the second and third quarter as we progress on the implementation.

So for example, we have reduced the number of third-party providers of contractors, some of them have clauses of pre notice, warnings, et cetera, so you cannot cancel all of them in one go. We are still in the first quarter having the impact of the increase in personnel and number of employees and salary review of 2019 as we have freezed the salary that will start having an impact from starting on the second quarter.

The savings will gradually ramp up throughout the year 2020 as the measures can be put in place. In terms of additional measures, whenever we take them, we will promptly communicate them.

Of course, part of those measures would theoretically impact our employees, so we need to talk on that. And we will communicate on those in due course.

So for the time being, we believe that with the program that we have in place, we can cope with the actual situation. And as we see the situation evolving, we will come back to you, and we will, of course, inform you on the situation.

And now taking into account the pricing, not so much pressure on pricing because you need to bear in mind that the costs are variable. So the moment that volumes were declining or bill to our customers were declining as well.

So that’s reducing the pricing right now to March. And then if the recovery is gradual, with volumes, but not only with volumes but also, as Luis was explaining, probably domestic recovering faster than international, that’s also already implied in our pricing strategy because, if you remember, our local booking fee is lower compared to our global booking fee.

So that part – that pricing strategy is already embedded in the actual kind of contracts that we have on the distribution part. And then the volumes will also be impacting on the part of airline IT.

So I think that it’s more the strategy of having a variable cost versus a fixed cost. That probably give us more opportunities and threats in the sense that there are not so many costs that disappear on our P&L when things go down and our structure precisely being transaction driven is already given back.

So that is how we are supporting our customers most, by reducing the total overall amount because there is no transactions related to that.

Okay. Thanks so much, Ana.

Well, thank you very much again for your attention. It is a difficult situation for everyone, but I’m convinced we will go through it.

And I would like to thank you for your support and confidence in Amadeus. Thank you.