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Edited Transcript of LMN.S earnings conference call or presentation 19-Mar-20 9:00am GMT

Full Year 2019 Lastminute.com NV Earnings Call

AMSTERDAM Mar 26, 2020 (Thomson StreetEvents) -- Edited Transcript of Lastminute.com NV earnings conference call or presentation Thursday, March 19, 2020 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Marco Corradino

lastminute.com N.V. - Co-Founder, CEO, Executive Director & Group COO

* Niccolò Bossi

lastminute.com N.V. - Head of IR & of Corporate Affairs

* Sergio Signoretti

lastminute.com N.V. - CFO

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Conference Call Participants

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* Baptiste de Leudeville

Kepler Cheuvreux, Research Division - Equity Analyst

* Hubert Jeaneau

UBS Investment Bank, Research Division - Director and Research Analyst

* Jean-Marc Mueller

JMS Invest - Co-Founder

* Roberto Travella;Tra Partners

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the full year results 2019 conference call. I am Myra, the Chorus Call operator. The conference must not be recorded for publication or broadcast.

At this time, it's my pleasure to hand over to the management team of LM Group. Please go ahead.

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Niccolò Bossi, lastminute.com N.V. - Head of IR & of Corporate Affairs [2]

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Hi, everyone, and thanks for being here with us for our annual conference call. Today, the situation is pretty unusual, I would say, since we are strictly following the rules imposed by the governments such as Italy and Switzerland, in particular, that are imposing a stay-at-home policy. We are, all of us, remotely connected from different locations. So Marco, our CEO, is from Milan; Sergio, our CFO, is from Rome; while I'm from my house in the mountains. We will try to be effective in running the call anyway, and we apologize for whatever there would be some possible delay in the response to your questions, but we'll try to do this very, very effectively.

We will go through the presentation that we have published this morning in the Investor Relations section of our corporate website. We'll have then a very short update on the full year 2019 results. We will give you some numbers on the first 2 months of the years. And then we will comment about the coronavirus outbreak and the actions that we are putting in place to counterbalance the negative impact deriving from such extraordinary event. Then we will dedicate appropriate time to Q&A.

So now let me leave the stage to Marco from Milan that will introduce our full year 2019 key facts. So please, Marco, go ahead.

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Marco Corradino, lastminute.com N.V. - Co-Founder, CEO, Executive Director & Group COO [3]

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So welcome, everyone. Niccolò, unfortunately, today, I'm in Chiasso, not in Milan. So my house in Chiasso, but doesn't change a lot. It's Sunday here as well as in Milan.

So let's start with 2019. I'm referring to Page 5 of the document that you received. It's about 2019. For us, 2019 has been an exceptional year with extraordinary results that demonstrate how the work done in this year has been, let's say, correct. Strengthened by this evidence, I think that the current situation is only temporary that we will return to this type of performance quite soon. Unfortunately, in the line, in the past weeks, we have seen a significant drop in our performance, but we will discuss later.

So coming back to 2019, our top line revenue growth more or less more than 20% versus last year, mainly driven by the OTA that have done an exceptional year in Flights and in Dynamic Packages. We continue efficiencies in our operation and effectively control our cost base, driving profitability and EBITDA margin. We registered a record business EBITDA at EUR 71-plus million with EUR 23 million net income and EUR 110 million cash at year-end.

Now Sergio Signoretti, our CFO, will give you more details about 2019 numbers, and then we come back to the actual situation. So please, Sergio, go on.

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Sergio Signoretti, lastminute.com N.V. - CFO [4]

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Thank you. Thank you, Marco. Good morning, all. So I'm going to Page 6 of the presentation. I will be brief in the comment on the 2019 figures, which you know already, have been published already in press release 1 month ago, did not change. So actually, revenues, as Marco was saying, plus 20% versus 2018 at EUR 338 million, driven from the OTA, which is the pink box, driven again from the tremendous growth of the Flight and Dynamic Packages business.

In terms of META business, the META business has suffered a bit in terms of competition from Google Flights. And in terms of decrease of the organic traffic, this has driven down the -- 13% revenues. But as you see on the right, the -- in terms of EBITDA, it has been substantially steady. And we have registered also tremendous growth for the Media business. Media business has grown 22%, up to EUR 24 million revenues, of which 70% is given back to OTA.

As a result of the continuous efficiencies that Marco was anticipating in our variable and fixed cost structure, we have been able to keep our overall cost base stable versus 2018 and therefore -- substantially stable. And therefore, we are not only growing in terms of revenues, but growing in terms of profitability.

So for the second year in a row, we have registered plus 64% versus the previous year, so at EUR 72 million -- EUR 71 million versus EUR 43 million.

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Marco Corradino, lastminute.com N.V. - Co-Founder, CEO, Executive Director & Group COO [5]

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It's Slide 7, Sergio. Yes, Slide 7.

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Sergio Signoretti, lastminute.com N.V. - CFO [6]

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Slide 6, should be. So on -- I'm commenting the right part of the Slide 6. So where you see clearly that the OTA is driving the performance with EUR 60 million EBITDA generated out of the EUR 71 million. So for the second year in a row, we are at plus 60% versus the year before. We have tripled the EBITDA in 2 years.

If you go to Slide 7, Slide 7 show you the bridge between the business EBITDA, the IFRS EBITDA and the net result. I would comment here just a couple of things. So in the venture initiatives, the minus EUR 2 million refer to the negative EBITDA of Destination Italia, which has anyway improved from the previous years, which was at minus EUR 2.8 million. And I would give just a comment on the extraordinary items, which have been approximately EUR 2.3 million higher versus 2018. And this is due to some costs that we have incurred in order to put forward some corporate development activities related to the potential expansion in the market that we can comment afterwards.

Having said that, the IFRS EBITDA has doubled versus 2018 at EUR 55 million versus EUR 27 million. And the net income has tripled at EUR 24 million versus EUR 8 million registered in 2018.

Then let me go to the cash position as of the year-end, which is represented at Page 8. So we have generated in 2019 EUR 49 million free cash flow from operation, which is driven from the EBITDA. Here, the EBITDA -- the reported EBITDA is indicated net of the IFRS 16 effect and out of growth of the working capital. So net of the EUR 60 million investments, CapEx, we are talking about approximately EUR 50 million of free cash flow from operations. And therefore, the cash position as of the end of 2019 was EUR 110 million versus EUR 73 million registered as of the beginning of 2019 -- as of the end of 2018.

Net of the financial liabilities, which are EUR 49 million and which includes approximately EUR 13 million of the IFRS 16 effect, the net financial position is EUR 65 million, which is more than double versus what we were having as of the end of 2018. So strong year, record year in terms of revenues, profitability and cash generation.

Now this record growth has continued, if we go on, and I'm now starting the current trading section of the presentation. So I am at Page 10. So this record growth has continued up to the last week, I would say, of February this year. This is the picture representing the preliminary and audited, of course, year-to-date 2020 figures as of the end of February, where we are growing versus 2019 19% in terms of revenues. As you see, the OTA is still -- was still growing at plus 24%, EUR 51 million versus EUR 41 million. And as well, the Media revenues were increasing. META was suffering basically as of 2019 for the decrease of the organic traffic. But in terms of EBITDA, as you see on the right, we are as of the end of February at plus 16% versus February 2019. So at EUR 12.5 million versus approximately EUR 11 million, again, driven from the OTA results.

This means that, if you go to Page 11, in terms of net income, we -- as of the end of February, we are approximately at EUR 6 million, taking into account all the elements that need to be considered in the cascade that we are showing. So EUR 6 million versus EUR 3.4 million. So prior to having the impact in the last week of February of the coronavirus that now Marco will comment, we were at 74% plus, the February of the best year ever in the lastminute history.

So I think we can now go to what is happening and what is the impact of coronavirus. Marco, if you want to go ahead?

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Marco Corradino, lastminute.com N.V. - Co-Founder, CEO, Executive Director & Group COO [7]

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Yes. First, I want to do a brief introduction just to remember to everyone -- everybody knows, but it's important that everything is happening very fast. So you see our performance so far. And this situation started in January. And then after a couple of months, or 2 months now, Italy entered in quarantine. So in the last 3 months, we have seen one of the most serious history in -- let's say, in our -- in the modern time and is happening very, very fast. So this is why we need to consider all the facts with attention. And the facts, what I want to start with is what happened in China. Now in China, the situation is going back to normal. This is a study from a Chinese university. Basically, it is explaining that the duration of the crisis in Chinese -- in China has been for, 3, 4 -- let's say, for 3, 4 months. So we can expect that what is happening in Europe, if all the different measures took by the government all around Europe and now all around the world, also in U.S., will contain the situation in this time frame.

So what happened to our business? So basically, in the last 3 weeks, we saw a significant drop in our performance, as you can see. This week 1 is the beginning of the year, week 11 is the week -- the second week of March. This is obviously unaudited data. But as you see, week 7 and week 8, also our growth was not so strong. Like in the beginning, there was an anticipation of what is happening. So the real stuff happened in -- let's say, in the last 3 weeks.

So based on this performance and based on the Chinese crisis management style, we think that this could be the curve of our, let's say, booking on our performance going on. We think that -- this is by booking date, not booking departure. So it means that basically, we expect that people will start again to book holidays and vacation in May, June to arrive to a normal level in July and August.

While we are optimistic about the bounce in July and August because we think that at the end, we will be the digital -- as a pure digital player, we will be in a better position than a traditional retailer because the majority of the people will move all the bookings through online bookings because basically they are at home. And so they will become -- like every crisis, the penetration of, let's say, Internet and digital experience will increase. And also due to the fact that our structure, that our organization is most flexible, and then we will be better than the other to react to the different needs that we have for our customer. I remember to everyone that we source automatically the destination in the world because we access to all the possible bed banks in the world, and we don't need to have a contract in place in order to offer vacation to our customer, but the system is completely automatized. So this is our view.

What we have done in any case to counter-effect the impact? So on the top line, based on our structure, all the variable costs that represent the main portion of our cost structure automatically adopt to the condition of the business. Basically, all our activities on top line in terms of cost are on performance marketing, META and basically Google Adwords plus some social. So we adapt and we are scouting opportunity on the market. For example, last week, Flight bounced back. We had a very good week because there was a lot of people that was looking for flight to go back home. So rescue flight or really last-minute flight. So we had a very strong week, but we don't expect that, that will be the case also for this week. But in any case, our performance marketing operation that is managed by algorithm automatically adapted to volume changes.

Let's say, on the fixed part, so OpEx, CapEx and HR cost. Now what we have done? All our offices working fully remote since 3 weeks. We don't have -- we didn't have and we still don't have a lot of problem working remotely because we embraced remote work in the last few years. So far -- also last year, 2 weeks a day, people fully remote -- work fully remote from home. So for us, it has not been a big change. We put on all the events, business, travel, meeting, training and conference. All recruitment is on hold. Salary increase has been deferred. The management bonus payment of 2019 that should be paid in 2020 has been postponed. And all the marketing nonperformance investment not committed has been stopped.

On the other side, what we are doing? We are doing other review action for further saving on OpEx and CapEx, and we are optimistic we could do something more. And then we put in place a corporate social safety net, benefiting of the different action that various government are preparing all around Europe, particularly Switzerland, where we have our headquarter and we have the majority of our population. I would say, half of our workforce is in Switzerland. The Swiss government put in place a strong system, very flexible, very fast and time reduction and in place starting March 23 -- 23, let's say, of March. And that basically cover up to 80% of the cost of the HR in a very flexible way.

France office, we are in negotiation. And again, in France, they will cover up to 80% as well. And we think we could start in April. And we are under negotiation in Spain, Germany and Italy, where they have system -- similar systems. So on this front, I think we are quite optimistic that we could reduce our cost. Another mechanism that help a lot is the voucher refund mechanism. So instead of giving back cash to customer, in some countries, Italy and France, we can offer vouchers, and we expect a decision by the European Union to put in place this mechanism all around Europe. This could be a great relief for all the travel industry, including the airline and not just for us.

So at the end of February, our cash position is EUR 113 million. So we think we are more than sufficient cash to sustain our business in such circumstance. So we are quite optimistic. Also, we are working to prepare for, let's say, bad period. But I think we have all the possibility in term of competencies, in term of structure, in term of finances to survive this situation.

What we are focusing in terms of strategy? So far, we are readdressing our priorities. This is -- for us, it's a good opportunity. Because we try to transform this problem in, let's say, a big opportunity because for the first time in the last 3 years, we have time to dedicate ourself not to optimize our revenue for tomorrow, but to rethink the way that we are doing our business. Particularly, we are doing strong investment in terms of development on customer experience because we are facing extraordinary event. We are managing every day 3x the normal customer request that we have. So we are trying to automatize any possible activities. This will be of great benefit in the farther year because we will -- we could scale our business, we will become more efficient, and that is a big opportunity. But also, we are also working on our system do some activities on our platform, particularly on platforming and [C hosting]. Moving -- trying to move all our operation fully on the cloud. And that again was something very difficult to do when the business grows 20%, 30% a year. Because every time that you have to move your platform, you could expect some downturn that we don't want. But now we have the opportunity to test, and we have the opportunity to move and to be faster. And that again will be of great benefit when the business will rebound because we can scale faster.

On the other side, we are rock-solid in term of financing. We have a business model that is very diversified. I remember to everyone that we are not only a transactional business, but Media and META business are basically media business. We sell leads or advertising. We are fully digital, 100% agile, and we can benefit from the tailwind from off-line to online. I foresee a big shift from, let's say, off-line to online. I remember to everyone that 50% of the European market for travel and leisure is still off-line. But I think, in the next 2 years, like any crisis, there will be a big shift, at least because we can assume that not all the traditional operator in the travel industry will be there at the end of the crisis because they will need much more time to adapt to the new situation.

Due to the fact that we are inventory-free, so basically, we don't have allotment, we don't have inventory, we don't need to have a contract to sell a destination, but we can automatically scout in where the customer wants. So if the people, at the end, don't decide to go to Spain, but they want to go, I don't know, in South America, we can immediately adjust our system without taking a lot of time to move our contractor because we are totally online. So this is why we think we are optimistic about the future, and we expect to become stronger, to become one of the core players at the end of this crisis.

So that's all, so -- for our presentation, I think. And we are ready for any questions you may have.

I don't know, Niccolò, how we want to proceed.

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Questions and Answers

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Operator [1]

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The first question is from Jean-Marc Mueller from JMS Invest.

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Jean-Marc Mueller, JMS Invest - Co-Founder [2]

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I have 2 questions. And the one is that you were talking about kind of scenario analysis that you did in the press release. Can you give us a little bit of an idea or maybe like the range of potential outcomes that those scenario analysis has given you because I think it will be helpful to have a little bit of an idea where EBITDA might end up in a worst-case? Or what you consider worst-case scenario and best-case scenario?

And my second question is, you haven't touched on the potential M&A. All the rumors about (inaudible) potentially being a bidder for part of the business. I mean there were already articles about this material adverse change clauses triggered. I mean that would imply that a deal basically was already in the books. Can you just elaborate a little bit on that situation where we stand there? What a deal structure might have been or might still be, et cetera? So just a little highlight there, please.

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Marco Corradino, lastminute.com N.V. - Co-Founder, CEO, Executive Director & Group COO [3]

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Well, about the scenario, I gave -- we gave an idea of what we think will happen, but I think it's quite not professional in this moment where the situation is so, let's say, changing every day to give a scenario and to give a guidance in terms of EBITDA and net income. It's too early. We can't do that.

Now on the second part, obviously, we have done a lot of work last year. But at the moment, we are focusing on business. So basically, we spend 24 hours of our time focusing on business. So every discussion about M&A, finance and whatever, everything that is not related to the core business, now it's not a priority for all the management of the corp.

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Operator [4]

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The next question is from Hubert Jeaneau from UBS.

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Hubert Jeaneau, UBS Investment Bank, Research Division - Director and Research Analyst [5]

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Just had one on working capital. Can you guide us a little bit throughout the year how that kind of changes and if there's a particular moment where there might be, I guess, maybe further stress around that?

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Marco Corradino, lastminute.com N.V. - Co-Founder, CEO, Executive Director & Group COO [6]

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Yes, I think Sergio could answer to this question.

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Sergio Signoretti, lastminute.com N.V. - CFO [7]

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So of course, there will be an absorption of working capital in the -- due to the reduction of the business, but we are fully funded as we explained during the presentation. So with EUR 113 million cash and with sufficient credit lines, we are absolutely in the position of facing the absorption. So we will manage it without, I would say, particular issues.

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Operator [8]

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The next question is from Roberto Travella from Tra Partners.

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Roberto Travella;Tra Partners, [9]

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Actually, my question has been already addressed. Maybe a further deepening, can you elaborate or did you elaborate a worst-case scenario? Should the pandemic last for many more months than expected, are you planning something very abrupt to manage the company?

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Marco Corradino, lastminute.com N.V. - Co-Founder, CEO, Executive Director & Group COO [10]

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But as I explained, for us, managing the worst-case scenario is -- I think it's not very useful because at the end, as I told you on the top line, we adjust on the, let's say -- on the, let's say, the core of the company, we are managing -- we're already managing and exploited all the incentive that the various government are putting in place for, let's say, HR cost. I remember to everyone, if you look the major 5 European countries, a part of U.K., now they put in place measures in order to help the company up to 80% of the salary for the next 12 months. So I think in that situation, I think we are in -- we are safe. We don't think at the moment that we need to be so drastical. We want to have people that work and to use this kind of opportunity, but we are prepared to that.

The other cost is, let's say, under control. So the only issue could be -- the only -- unfortunately, the only cost that we can't quickly remove is the office. But obviously, we are working on renegotiating onto these kind of parts. So I think we have all the financial strength to survive also in a dramatic scenario that we aren't thinking that will happen, but we are quite, let's say, confident.

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Sergio Signoretti, lastminute.com N.V. - CFO [11]

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Marco, if I can add, if you hear me?

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Marco Corradino, lastminute.com N.V. - Co-Founder, CEO, Executive Director & Group COO [12]

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Yes.

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Sergio Signoretti, lastminute.com N.V. - CFO [13]

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If I can, if you hear me, just bear in mind that just considering the cost of our organization in Switzerland, we are talking about approximately EUR 30 million per year, of which 80% can be paid back by the state in a crisis situation. So I think this gives you an idea of the -- also of the measures that we are putting in place and of the flexibility that we have in order to recover in such a situation.

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Marco Corradino, lastminute.com N.V. - Co-Founder, CEO, Executive Director & Group COO [14]

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Maybe we can give also the number that so far we have budgeted for next year in terms of savings.

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Sergio Signoretti, lastminute.com N.V. - CFO [15]

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Yes, absolutely. I mean we have already identified and put in place EUR 15 million program cost reduction from 2020.

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Marco Corradino, lastminute.com N.V. - Co-Founder, CEO, Executive Director & Group COO [16]

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1-5.

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Sergio Signoretti, lastminute.com N.V. - CFO [17]

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So that's already in place, 1-5, EUR 15 million, okay? And this is, of course, the baseline, which is consistent with the scenario that you've seen, that can be increased further whether the situation worsen.

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Operator [18]

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The next question is from Vanessa (inaudible).

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Unidentified Analyst, [19]

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Just an organizational question at the beginning. Because maybe I'm too stupid, but I can't find the presentation.

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Marco Corradino, lastminute.com N.V. - Co-Founder, CEO, Executive Director & Group COO [20]

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Okay. I'm sorry. I don't know, Niccolò, what we can do?

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Unidentified Analyst, [21]

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On the page -- on the side where the press releases are, there are only the press releases and not the presentation.

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Marco Corradino, lastminute.com N.V. - Co-Founder, CEO, Executive Director & Group COO [22]

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We -- I'm really sorry.

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Sergio Signoretti, lastminute.com N.V. - CFO [23]

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Niccolò, can you.

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Marco Corradino, lastminute.com N.V. - Co-Founder, CEO, Executive Director & Group COO [24]

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We will supply the presentation, Vanessa, for sure. We will do it. I'm sorry you have to listen to this conversation record just to follow...

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Unidentified Analyst, [25]

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No. That's okay. Yes. And just to be sure, though, at the moment, everybody at Chiasso is working remotely. So nobody is...

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Marco Corradino, lastminute.com N.V. - Co-Founder, CEO, Executive Director & Group COO [26]

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Absolutely,

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Unidentified Analyst, [27]

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So nobody is traveling across the borders.

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Marco Corradino, lastminute.com N.V. - Co-Founder, CEO, Executive Director & Group COO [28]

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No. I'm traveling across the border, but I can because for urgent measures, so Board and whatever. So I'm traveling across the border. But all the companies, not only in Europe, but all the company, including India now is fully remote. Obviously, we started fully remote in Chiasso 3 weeks ago and then in Milan, obviously. Then we expanded to Spain and France. Then last week, we expanded to U.K. 10 days before than the government took this decision. And 2 days ago, also in India, they decided to work in remote. So -- but for us, it's not a big news because we have remote working in the company since 2 years. So we have 2 days of remote working for everyone, that is allowed. So all the system has been prepared to that.

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Operator [29]

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The next question is from Baptiste de Leudeville from Kepler Cheuvreux.

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Baptiste de Leudeville, Kepler Cheuvreux, Research Division - Equity Analyst [30]

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I have 2 questions, please. The first line -- the first question is about the amount of the credit line that you have on top of the cash position. And

the second question is about the further debt repayment. What is the amount of the next -- and when is the next repayment -- significant debt repayments you have?

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Marco Corradino, lastminute.com N.V. - Co-Founder, CEO, Executive Director & Group COO [31]

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Maybe, Sergio.

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Sergio Signoretti, lastminute.com N.V. - CFO [32]

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Yes, I can understand. We -- I can answer on that. We have a couple of million payments in -- foreseen in June for the medium- to long-term financing that we have in place, which is overall EUR 25 million included into the financial liabilities. Then we have sufficient credit lines. I will not comment about the numbers. We have sufficient credit lines in order to fund the business on top of the EUR 113 million cash that we have. So they are going to be sufficient even in the worst-case scenario to find the business on top of the actions of cost reduction that we have in place.

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Operator [33]

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There are no further questions.

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Marco Corradino, lastminute.com N.V. - Co-Founder, CEO, Executive Director & Group COO [34]

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Very good. So I think I want to thank you everyone, and we will inform you as the situation will evolve. I hope next time will be for, let's say, more positive news, like the one about 2019 results. For the one that didn't receive the presentation, we will try to arrange. So I think now we could close.

Thank you, everyone.

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Sergio Signoretti, lastminute.com N.V. - CFO [35]

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Thank you very much.