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[Audio Gap] Dag Rasmussen, CEO of Lagardère Travel Retail division; and Luc Mansion, CFO of Lagardère Travel Retail division. This morning, you will be presented the Q1 2020 revenue, and the conference will end up with a Q&A session. Please, Arnaud, the floor is yours.
Thank you, Emmanuel, and welcome to all of you. So as Emmanuel said, we're here to present Lagardère's revenue for the first quarter of 2020 and we will not take any questions outside Q1 issues and, obviously, what we see business-wise for the rest of the year. Before we start, let me just hope that everyone and their family are safe and well. And please take care of yourself wherever you are in this crazy planet.So we finished last year, 2019, as you saw, with a very strong performance. And we were very well positioned to continue our growth and value creation for this current year, which we proved over the January and most of February period. Unfortunately, like every company and every individual, we faced unprecedented challenges that we have to deal with.Starting in end January 2020, the Travel Retail activity was first impacted in Asia Pacific. Then later in February and March, the pandemic hit Europe and North America and then became a global issue in the second half of March with the lockdown measures implemented by most of the governments across the world or at least where we do have some business. The first quarter, anyway, was one of resilience for the group in this highly challenging environment. You can see in the press release that revenue was down by 12.5% on a like-for-like basis for the whole group. Lagardère Publishing was down only by 3% like-for-like, while Travel Retail was more hit on the revenue and was down 18% like-for-like. And we are unfortunately heading into the second quarter and third and four and for the whole year with a substantial reduced visibility. And therefore, we decided, I think, like most of the companies, and it's something that we've discussed with some analysts already, we decided to suspend our guidance and work with you to give you some updates, maybe on a month-by-month basis on how we're doing and what is our flow-through ratio and so on so that you can monitor exactly where we are.But despite this uncertainty, I would like to end my introduction with 3 positive messages and really positive messages. The first one is that we've been taking strong actions from the very beginning of this crisis in order to reduce the impact of lost revenues on our recurring EBIT and, obviously, also on our free cash flow. As you know, also, I have proposed the supervisory board to withdraw the dividend proposal for 2019, even though it was absolutely a great and a record year for most of our divisions. But we have to think about preserving the cash, obviously. The executive committee members, including myself, have also collectively decided to cut our remuneration by 20%.The second message is that our liquidity is strong. I guess we're going to have some questions, and Gerard will get back to this since it is absolutely key for us. As of March 2020, this March, we have a liquidity close to EUR 2 billion, including an undrawn revolving credit facility of EUR 1.25 billion. Our banks, thank you and congratulations, Gerard, have agreed to waive the financial covenants for June and December of this year. And I can say, I assure you with confidence that our liquidity is adequate for the year, even in pessimistic scenarios in terms of how our activities are recovering step by step. You can imagine that we have different scenarios. We have 3 of them; an optimistic case, a medium case and a worst case. Even for that worst case, we are still optimistic on our liquidity.The third and last message is that our business model focused on 2 divisions and the strategy remain relevant and remain robust for the world after this crisis. Lagardère Publishing and Lagardère Travel Retail are fantastic franchises in their respective markets with a very solid leadership position. I am convinced that we do also, I repeat that all the time but I want to do it and face it that again and again that we do have, probably among the best franchises, the best management team in each division, and I would like also, if I may take a little time, would like to express to them my gratitude and my respect for what they have achieved so far and especially what they are achieving in this current period, which is an awful one, I would say.Lagardère Publishing is proving once more its strong resilience. And as far as Lagardère Travel Retail is concerned, we have experienced other crisis that have hit air traffic before. We remember 9/11. We remember SARS. We remember the global financial crisis. And we continue -- I continue to believe strongly that Travel Retail has a huge growth potential in the years to come. So overall, we remain fully committed to manage our activities through this crisis as best as we can. And we haven't forgotten what we, at some point, wanted to give you during an Investor Day that we've canceled for obvious reasons. We haven't forget about this. We are still working on this, both on the divisions and the corporate, to obviously get our margin better, cut some costs. But you can imagine that the focus now is the current crisis and how we will grow and position ourselves once this, both health and financial crisis, will be over. We expect that to be long, I mean both of them. It will take time to recover the position that we had back in 2019. But it's -- again, it's difficult to say. So I'm not going to spend more time on this.Before we go to the Q&A session, I will now leave the floor to Gerard and to go through the first Q1 revenue presentation. Gerard?
Yes. Yes, thank you. Let's move directly to Slide 3. Group revenues totaled EUR 1.360 billion in the quarter, represented, as Arnaud said, a decrease of 12.5% like-for-like. In this wider context of the health crisis, we had a double-digit decrease for Lagardère Travel Retail and much slower reduction for Lagardère Publishing due to the strong performance of its U.S. business.On Slide 4, we detail the impact of scope and currency effects on the first 3 months review. The net scope effect is positive, plus EUR 14 million, mainly due to the acquisition by Lagardère Travel Retail of International Duty Free in Belgium, partially offset by the impact of the disposal of TV channels and digital assets last year as part of the group strategy refocusing. The currency effect is positive, mainly due to the appreciation of U.S. dollar and pound sterling against euro.Let's move to the next slide. So Slide 5. I give you here a breakdown of the first 3 months review by geographic area. The slight increase in the U.S. is linked to the strong performance of publishing in the region and the increases in Western Europe due to the integration of International Duty Free.Now let's move to the analysis division by division. So I am on Slide 6 now. So for Publishing, revenue came at EUR 457 million with, as Arnaud said, limited decrease of 3.3% like-for-like. This good resistance of Publishing in the context of the COVID is driven by the plus 7% increase in business in the U.S. led by the success of The Witcher series and also the sharp price in downloadable audiobooks.Revenue in the U.K. contracted by around 5% due to a lighter literary release schedule although partly countered by the success of The Witcher series as well in the U.K. Revenue declined by 9% in France due to the consignment measures introduced by the French government in March, which has impacted all trade segments and distribution activities. Finally, Partworks fell 6% in the quarter, hit by a combination of fewer launches, strong performance in the comparative first quarter of last year and the impact of the health crisis in March.Let's move to Slide 7. Lagardère Travel Retail, Q1 came in at EUR 800 million. So down 18% like-for-like. All geographies were impacted by the COVID crisis and the lockdown measures implemented by governments across the world. France was at minus 20% in the first quarter. The European and Middle East region and North America at minus 15%. And Asia Pacific, the epicenter of the pandemic, was the hardest hit geographic area with revenues down 28%.Next slide, Page 8. Other activities, revenues fell 6% like-for-like in the first quarter. After a good start from both Press and Radio advertising in the first 2 months, Q1 revenue finally was down 6% over the quarter due to the impact of the health crisis on advertising markets and also due to the enforced closure of performance venues at our Live Entertainment business. Next slide, the non-retained scope, which is rather low now because it includes only Lagardère Studios for which revenues were almost flat on a like-for-like basis in the first quarter.Now let's go to Slide 10. So over the first quarter, obviously, we experienced a gradual deterioration of our business as the COVID pandemic took hold and as the governments introduced restrictions across the globe. The Travel Retail business was the first to feel the impact and was the hardest hit with revenues falling a little bit more than 50% in March.Lagardère Publishing was primarily affected as from the second half of March when its point of sales closed in Europe and North America. Revenue for the group for the other activities also contracted 19% in March due to the impact of the health crisis, as I mentioned previously. So April is the first month in which the impacts of the measures -- all measures taken by the government to halt the spread of the COVID will be felt across all of our businesses and over the entire month. Compared to last year, so we expect April 2020 revenue to be down in the region or around, let's say, 45% for Lagardère Publishing and 90% for Travel Retail and 40% for other activity.So in this context, obviously, we are fully focused on implementing many corrective actions in all activities to reduce the impact of lost revenues on our recurring EBIT and our free cash flow. And as Arnaud said, also, we have withdrawn our dividend proposal for this year. So in view of the uncertainty about the duration and the scale of the epidemic and the government lockdowns and closures, we, obviously, are currently unable to assess the impact of the crisis in terms of decrease in revenue or operating profits. However, we have given you an indication on the expecting flow-through or drop-through from sales to rise up recurring EBIT, which could be in the region of 20, 25 -- 20% to 25% for Travel Retail and 35% to 40% for Lagardère Publishing. Let's go now to the last page, Page 11. This is about liquidity. You hear me well because I have an echo?
Yes, yes. We hear you well.
Okay. Good. So liquidity, as Arnaud said in the introduction, our liquidity is strong. At the end of March, we have liquidity of close to EUR 2 billion, including an undrawn revolving credit facility of EUR 1.250 billion. So yes, our banks have agreed to waive the financial covenants for June of this year and December of this year. So the next measurement will be in June 2021. So I can say again, like Arnaud said, that we are very confident that our liquidity is adequate for 2020 even if pessimistic scenario that we have modeled to test the liquidity cushion. So I am convinced that our liquidity position and also all the corrective measures that are implemented will enable us to withstand the crisis and to be well positioned to benefit from the recovery.So this concludes my presentation, and I guess we can start the Q&A session.
Thank you, Gerard. So let's go for the Q&A session, please.
[Operator Instructions] We have 1 first question from Mr. Julien Roch from Barclays.
Four questions. I'll ask one by one if that's okay with you. So thank you very much for all the great help you're giving us on trying to model by giving April drop-through. But to be absolutely perfect, we have the drop-through of other activities and the drop-through of Lagardère Studios because I would think you're unlikely to sell this, so we need both?
Okay, I'll take one by one, Julien. Okay. Sorry. Gerard, go ahead. Gerard, did you listen to the question?
Yes. We gave the drop-through of Travel Retail and Publishing because they are the most significant activities. For the other activities, it's a mix of different activities; Radio, Press, and Live Entertainment. So it's somehow difficult to assess a compound drop-through. What I can tell you is that it's -- these businesses are mostly, I would say, fixed cost business. So the variable, I would say, automatic variable expenses are quite low. But of course, we are working on -- also on implementing measures to improve and to make -- and to implement savings in order to improve the drop-through, but it will be higher than Publishing.
And then we had, Julien -- sorry, and by the way, Julien, we had a -- I mean it's a calendar issue more than anything else, but we had a good first quarter for Lagardère Studios by the way. Yes, you said Lagardère Studios, Gerard?
For Lagardère Studios, we have not published it. So I have no precise figure to give you.
Okay. What you're saying is that it would be higher than Publishing, right? And Publishing is around 35, 40.
It should be for -- it should be -- let's say, it should be higher for other activities. It should be higher than Publishing. For Lagardère Studios, it should be more or less the same than Publishing.
Okay. Very good. Now a question for Travel Retail. Could you give us, hopefully, week by week, the evolution of Travel Retail revenues in China from like the bottom in February, so we can see what a recovering country looks like?
Dag?
Yes, hello. So I won't give it week by week, but what I can say is we're fighting against this strongly in China and others. The restart varies from region to region. In Yunnan region, for instance, Kunming, we have had a record week because it's a region which has been less hit by the COVID-19, where there is less density. So people have to travel by air, there's no rail. Shanghai and Beijing are slower to take on. On the luxury part, we stand now at basically minus EUR 30 million compared to our expectations, minus EUR 20 million, minus EUR 30 million. But half of the sales are driven by CRM sales, which is video streaming, TikTok, WeChat, Instagram and so on. Sales where we discuss directly with our consumers. So it's not in-store sales.In-store sales, for the time being, only represent half of the remaining sales in luxury, which means that in-store would be maybe 40% of what we would have expected. So it's a very strange takeover. What we see is traffic, obviously, is a bit slow to come back. But even where traffic comes back, people are less likely to shop for the start. So they're kind of want to run to their gates directly.What we also see strangely enough, and that is only something we see in airports, not downtown, is that people don't want too much sanitary measures. I mean we were kind of overprotected, cleaning. Obviously, we have masks and so on for our starts. But we feel that consumers don't want to have that pressure of safety measures. So we're already having a bit lighter safety measures. So that's for the luxury part, which is the main part of our activity in China.The food service branch is worse. We're like probably minus 80% still. And in that, we see that the food part is worse and the drinks part, with coffee, soft drinks or whatever, is behaving better. So that, I think, is a global picture, except if Luc wants to add something on that, but that's the picture in China right now.What we hear is that the border with Hong Kong might reopen soon. However, since there are still quarantine measures where you have to stay in a hotel for 2 weeks, we don't expect that reopening of the border is something which will impact traffic significantly for the time being.
Okay. Very good. Question for books. You highlighted audiobooks in your release and it's starting to be meaningful in terms of revenue. So can you give us the revenue impact in terms of pricing, i.e., is an audiobook more expensive than paper or more expensive than e-books, which is cheaper than paper. And then the margin impact versus papers and e-books.
Arnaud?
Yes. Can you hear me?
Yes, yes. Go ahead.
What we are currently seeing in the prices is mainly an increase in e-books. We went through 3 to 4 years of decrease of the e-book market in the U.S. and the U.K. in the last period. And because of lack of stores to acquire books, it looks like consumers have decided to go back to e-books. So we're currently seeing about 25% increase in e-books in English-speaking territories. The pricing of e-books is much lower than the pricing of print books. It's in cover price. It's half.The margin, we do not communicate on the margin of the books. Ratio is better in dollars or pounds. It depends on whether it attributes to a hardback or [ paperback ] edition. We are seeing also the growth in Europe, in France. It's even larger, in some weeks, we are up 100%, but it's on a small basis. So it has a positive effect on margin, but it does not offset, by far, the drop in sales.As far as audiobooks is concerned, it is -- it was up in January and February. It's less growing than we would have anticipated because it looks like people consume audiobooks in the public transportation only and less so when they have to be at home. So the switch between -- from print to audiobooks is not occurring as we speak in the U.S. and in the U.K. The price points is much lower than 40 and the margin is healthy. That's what I can say.
Okay. And the last question, for you Arnaud, I know you said you would only answer questions on Q1, but unfortunately, numbers are becoming half of the Lagardère story. So I apologize for such a personal question. But if Amber's resolution do not pass next week, many press articles are saying that you have agreed to relinquish to command it against some monetary [indiscernible] so historically, you said you'd never relinquish to command it. So apologies once again for such a question, but any color you could give us on the future of the [indiscernible].
Yes. It's nice try anyway. And it's normal that you asked the question. We have a general assembly on the form on May 5, very soon. And I don't know strategies with [ X ]. So I remain very confident with the general assembly coming in although I don't know exactly where the votes are, obviously. And I prefer not to answer that question. If I have any comment to do on that respect, I would have to do it broadly to everybody. As you know, it's a recommendation of IMF. And I will stick to that. I'm sorry, Julien.
Fair enough. I was really expecting a different question, but I [indiscernible].
Next question is from Mr. Sami Kassab from Exane BNP Paribas.
It's Sami Kassab. I have 1 question. It's on the fixed concession fees that you have [indiscernible]. Can you comment on any sort of discussions you may have had in negotiating those fixed payments down and [Technical Difficulty] 20% to 25% includes any renegotiation from the EUR 400 million fixed payments you had with the MAGs and other concession contract terms?
Good to hear you, Sami. I know you've not been feeling well lately. So it's great to hear you. Dag, please?
Yes. So -- so if all the other participants could be put on mute, it will be easier. So Sami, so I heard you've been ill and welcome back. Regarding the fixed concession fees, as you see, I mean when we speak about flow-through of 20%, 25%. It's much more ambitious than the average market. It includes lots and lots of ambitions of action plans, and this includes the fact that all rents are supposed to be variable this year. This is something all the teams are working on. They started from day 1. There is discussions with each and every landlord. The idea is that minimum guarantees are there to protect landlords against bad operators. It's not supposed to be a life insurance for whatever happens. So our position is that minimum guarantees cannot apply in the case -- in a case like this one. So we're convincing airports. We're discussing with them on a very regular basis. We have a fairly good success rate, I must say. Most landlords are reasonable. So we're fairly optimistic we will be close to that objective. So in our flow-through ambition, there is no fixed rent this year. Moreover, in some cases, you know that the difficult part in this business would be the restart because I mean shutting down was relatively easy. We had a very short period. So we really had to do it in a hurry, and I would like to take the opportunity to thank the teams for doing an exceptional work. And now we're working very hard on the restart with build coordination squad and a plan-ahead team to help us do that. It's teams which are working extremely well. And -- I mean the rebound will be progressive, the traffic will come up progressively. Then the spend per pax will be progressive as well. But we will have stores. So we will have to optimize opening hours. We will have to optimize the stores, which are open and so on. So we also are negotiating reduced percentage rents for that period for some platforms. So that's basically the hypothesis we have within the flow-through we discussed.
Next question is from Mr. Adrien de Saint Hilaire of Bank of America.
I hope you can hear me well and I hope you are all doing well. So first of all, my question is related to the guidance, which has been provided by your competitor. Q3, I think they were talking about a variable range of about between minus 40% to minus 70% on their revenues for 2020. Can you give us your feeling about these numbers for your own business?Secondly, also a question on what one of your competitors has said in publishing. Gallimard talking about a decline of 20% to 25% for their business in 2020. Does that seem like a reasonable assessment for your business? And I cannot resist also to ask you a question which is not related to business. Have you had any discussion with Vivendi on possible collaboration, partnership or synergies?
Adrien, on Travel Retail, I will leave the floor to Dag or to maybe to Gerard. But let me just make a comment. I think it's a little bit, how would I say, bizarre and strange to make guidances like this or forecast like this in sales for the year. I mean it looks really strange to me. It's impossible to see exactly what the future will be at the end of the year. This is the reason why we prefer to deal through flow-through and things like this and focus on the cost and so on. 40% to 70%, I mean we could say from 0% to 100% or so. I mean it does -- to me, it doesn't mean anything. But maybe, Dag, you have a different say and a different answer to that.
So I won't contradict my boss. So what we have done is a stress test because what's critical for us is cash. We want to be sure we don't put the company at risk. So we've made a stress test with extreme high purposes, which has been commented by Gerard. And we see that at group level, there's no cash issue. Now 70%, 40%, what we say is we give you all the figures we have because that's hard facts. Then this crisis is unique. We have 4 level of unknowns, which have to be compounded to try to find what's going to happen. You have unknown of the sanitary unknown. How much time will this disease last? How far will it go? Would there be rebounds in this? So there's a huge unknown on this. Only this make any forecast impossible. Then you have the medical response to that. And you can see from country to country, it's very different. I mean do we confine everybody? Do we confine only the people at risk or the people who are ill? And you can see across the planet, there's a huge variety in the medical response. And obviously, in international travel, it's point to point. So you have to have something similar from both points to have traffic bouncing back. Then you have the macroeconomic response, which is what states will do to support the industry. I mean if there's no state support, most airlines would go bankrupt. So -- and you see that there's questions this airline, which is a subsidiary of the other airline, should it be the state where it operates or the state where the airline comes from? So -- and to what extent would there be interventions? On staff unpaid leave or furloughing or whatever. So there's a huge uncertainty there. And then there is the microeconomic reactions, which is, one, due to purchasing power. I mean we will have more unemployment. We will have fall in purchasing power. We might have fears of traveling. We might also have something very different, people wanting to live it. So 3 suppliers now last week. What I said is scenarios can go from a gloomy postwar scenario to a new 21st century roaring '20s. So the scope of possibles is huge. But -- so we let you work on the hard facts. We said that we have strict ambitions on the flow-through because that's what we can act on. And then the possibilities are huge, once again as to how far and when this will rebound. I'm sorry, the question is not precise, but -- the answer is not precise, but the level of the compounding of unknowns is really huge.
Okay.
Maybe I can add something. Of course, we can't give you -- and I think what Arnaud said and Dag said was eloquent enough. So we can't give you our expectations for the full year on the revenue. Timing and shape of recovery is for everyone to guess, but we don't have a crystal ball here. As Arnaud said, we gave you an indication of the flow-through or the drop-through, which is all these actions that we are putting in place. And that's what -- where we are focusing on rather than trying to guess what the revenues could be. The second thing on which we are focusing is the liquidity. It has been said as well. And we -- with our current liquidity close to EUR 2 billion, we think that it's adequate even in a pessimistic scenario on the business side and also with the assumption of no new financing or refinancing at all for the full year. I can also add confidently that even in such pessimistic scenario, our liquidity position would still offer headroom at year-end. It means that looking into 2021, we will have the cash resources to operate the business efficiently even if the recovery is slow.
Okay. Let's move to the next question. Adrien, you mentioned Gallimard and their forecast. Arnaud, can you answer the question?
Yes, sure. I have great respect for my friend, Antoine Gallimard. It's a superb publishing business in France. It's not a listed company though. So I'm not sure how accurate their forecasts are. So I would not comment on that. The only thing I can say is that the recipe within Hachette is around the concept of a very diverse and balanced portfolio. As you know, we do 20% of our business in Education. We do about 15% in Partworks. We do not anticipate any decline in -- any substantial decline in Education this year because all the indications we received from the governments about the back-to-school period in September are solid. The Partworks business selling to newsstands and direct-to-consumer is better protected than the trade businesses. And the trade businesses resist better in the U.S. and the U.K. than they resist in France. So that's why I don't feel like the 20%, 25% drop mentioned by Gallimard applies to Hachette. But this being said, everything that has been said by Dag applies to the book business, the length of the crisis, the sanitary responses, the impact on spending, all these are question marks for us too.
Okay, Arnaud. Thank you. As far as the last question Adrien is concerned, I would answer only on the business part. There are obviously no discussions on any kind of synergies between Vivendi and us since their investment is, as they say, a pure financial investment. Adrien, I think we covered most of the subjects, right?
Absolutely.
Next question is from Mr. Patrick Wellington from Morgan Stanley.
I've got a few questions. Kicking off in Travel Retail and very helpful guidance about drop down. I wonder if you can give us a sense of what the typical split of fixed and variable costs is within Travel Retail so we can sort of guestimate how you're arriving at the number you're reaching to the drop down?
Dag?
That's my first question. I've got a couple of others, but if you want to answer that?
Yes, yes, yes. One by one, Patrick. It's better like this. Dag, just go ahead.
Well, when we have such a crisis, even the costs which are supposed to be fixed cannot be fixed anymore. So we've worked on all lines of the P&L. As I said, we try to optimize sales even though it's relatively marginal here. But apart from that, we look at all lines of the P&L. And even G&As which are supposed to be fixed, we managed to decrease by approximately 30%, I mean cutting everything which can be cut. So there's no concept of fixed versus variable cost this year, as I answered before on MAGs, which are fixed cost. We cannot accept that it's fixed cost. So the teams have very clear objectives and ambitions to variabilize that. So when you see there's a flow-through of 20 to 25, it means that there's huge efforts made to variabilize costs which are considered as fixed usually.
Your normal split would be 50-50?
Luc, do you have an idea on normal fixed costs?
Yes, it will be in the range of 50-50. I would say 60 -- sorry, 60 variable, 40 fixed.
Okay. And just on the ground at the moment, what happens in somewhere like Wuhan? You've opened 70 or 80 stores in Wuhan, but do you have any flow through them? What's -- are you bearing the full cost of those stores? How does it work, touchy-feely on the ground at the moment?
Yes. Well Wuhan, we opened 88 stores. We -- there has -- half of the airport basically has 2 terminals. So it's a master concession where we have fashion, we have food. And by the way, we -- during all the month of April, we've offered free food for all people working in the health sector. Wuhan is starting slower because -- I mean it was the epicenter of the virus. So I'm not sure I have the detail by platform, but we're probably around minus 80%. Yes, even worse than that, minus -- north of minus 90%. So we have costs. Usually, the airport's boarding charge on the MAG. So this part is available. [ Stock ] is less expensive than in other countries. But yes, I mean, that's exactly the point I mentioned on the restart, which will be expensive because you have relatively full costs and you don't have the full revenue. So we try to work with opening hours. We try to work with opening less stores, which has not been the case in Wuhan, at least in the first stage. But then we monitor closely that every day or week, depending on the cases. We have a set of tools to monitor daily or weekly EBITDA by store to take the decision or to propose to open or close stores. So we are not the only decision-maker as we are renting from the landlords. In some cases, they want us to open when it doesn't make sense. But other times, we have to close when we could economically be open. So it's a discussion and negotiation with the landlords each time.
And just sticking with this, you gave those very interesting 4 tests of what needs to or what's affecting Travel Retail. How long do you think it will take you to get back to normal, if you like 2019 revenue level is that achievable in '21, '22? What's your feel for how rapidly the situation may come back?
Well, for the reasons of the compound for impacts, we do not have that visibility yet. So we're working on various scenarios there as well. But while I wouldn't imagine '21 would be a normal year yet, that would be, according to me, far too optimistic.
Okay. And I've got 2 final questions. One of them leans slightly to the -- of Q1. Dag, do you feel that you've been deprived of the M&A and acquisitions that you wanted to make over the last few years and similarly for Publishing? And Gerard, do you think that the covenant test in the middle of 2021 when you'll obviously still be picking up sort of 6 months of very disturbed trading in 2020? Do you think that 3.5x covenant looks safe for June '21? Presumably you could get another covenant waiver if you needed it.
Gerard, you can answer to both questions.
What was the first one, sorry?
My first one actually was to the divisional management to ask whether they felt they had been deprived of the level of M&A in their businesses that they felt they need or are they happy with the amount of M&A they have been allowed to undertake in the last few years?
Well, you're right. Gerard -- we'll give the floor to [indiscernible] go ahead, sorry.
That's a strange question. I'm not aware of any deal in Publishing that we've not been participating and supported by Lagardère. So that's a strange question. There's been nothing in Publishing that we missed in the last years.
So regarding Travel Retail, let me say, the answer is similar. There have been some things we proposed, which have been refused, but not for financial reasons, for strategic reasons, which have been well explained to us and which we accept, obviously. But I guess the underlying point is the financial resources of the group. I must say that there's no acquisition we have come with, which have been refused for financial reasons. So no. I mean we've been very, very satisfied with the level of support of the group as to our growth. And I mean if you see the track record during the last years, I think we could hardly complain.
Yes. It's the [indiscernible] deprive that's the latest trend. If it relates to strategic or financial reasons. I mean, usually, we agree almost 100%. Now it's true that during this time of the year, we are very focused and we take care of the free cash flow. So we are more focused on cutting costs than developing the company. But again, if there are any opportunities that we feel are good for the future of Lagardère, we would do them. And if we don't have the cash to do them, we'll find the partners that will do that with us. And there are a lot of different partners if you have a lot of money in investment funds, in private equity and so on. So that wouldn't be an issue. But for the moment, as you could see, most of the M&A is down. It's really down. So we have no regrets at all during this time. Gerard, the second part of Patrick's question?
Yes. Patrick, the -- for 2021, we will -- we can, first of all -- we'll have to wait a little bit to have a better visibility. We can obviously adjust the financial ratio with the banks in the second semester when we have a little bit more visibility on 2021. And one thing which I can tell you is I am very confident that we will have very constructive discussions and agreement with the banks because that's what we have always had in the past. And as you can see, in the -- with the waiving of the covenant this year, also because our banks are -- we are syndicating our credit facility with banks who are long-term partners to the group.
We have last question from Mr. Charles-Louis Scotti from Kepler Cheuvreux.
I've got 3 questions. The first one on Travel Retail. Can you give us an idea of the sales split between airports? I mean between international hubs and domestic airports, because I guess international hubs will be impacted for longer?
Dag? Dag, could you hear me? I think Dag is lost.Gerard, can you help our friend Charles?
No, I don't have this figure in mind. So...
No. Yes, I am back.
Yes, yes. Okay, Dag. Go ahead.
I'm back. So for the time being, I mean, at 90%, basically, everything is closed. What we expect is that domestic traffic will resume first, then regional traffic, which has different meanings among countries, obviously, I mean Schengen area or things like that. Then medium haul, I mean -- and then long haul and intercontinental, which for the time being is almost dead. So it will be from close to international, progressively.
Okay. And can you remind us what are the biggest airports in terms of revenue contribution at the group level? And also, I'm just curious to hear your thoughts on the decision of the Economy Minister in France, stating that Air France will have to reduce short domestic flight. Obviously, it can have an impact on local airports, but also a catch-up effect on railway, which would be positive in France, but what if such measures were taken outside France?
Dag?
So for the main airports, it would be Paris, Rome, Brussels, Prague, Warsaw, Atlanta. In China there's really many, and there is levels of maturity. In the Pacific, it will be Auckland, Hong Kong, Singapore. Did I miss any, Luc?
Yes, some large airports in the U.S. like Charlotte.
And Shenzhen in China. So that would be the main ones. In regard with short-haul flights, yes, that's obviously a risk. Then there's 2 ways to mitigate this risk. One, I mean, 2 reasons why it can be very sterilized for us. One, it's not the most contributive flight because when you take [indiscernible] from Paris to Marseille, you tend to arrive last minute and you don't spend a lot in the stores. So short-haul is not the most contributive to us. And then we have -- we are also in railways, and that's mostly the TGV lines, which, in turn, are the most contributive to us in railway. So the fact that we are on various channels and various business lines is something which makes this less -- which it will hurt us less, I would imagine. So -- and it's also the reason for that strategy. I mean we have had these ecological impacts in mind for a while, and we try to mitigate with something balanced as a portfolio.Does it answer your question?
Yes. Very clear. I've got just 1 last question. Your remarks on the drop-through were very, very useful. But how should we see -- how should we look at the working capital impact this year and also the CapEx budget?
Gerard?
Yes. In working capital, first of all, I would say that, as you know, in Publishing, we have a seasonal working capital need in H1 traditionally. In H1 last year, the working capital variance was minus EUR 100 million. Then we have a seasonal recovery in H2. So I expect a similar pattern in -- for this year. Nevertheless, we may have a scenario in which many book releases are postponed to Q4, in which case we would have sales in Q4, which are cashed in, in Q1 2021, which would deteriorate our working capital at the end of the year due to this cutoff effect.In Travel Retail, working capital is expected to worsen by -- it's only an indication really, but by an amount with above EUR 200 million in H1 as we are paying until May for supplies that were ordered before the crisis and have not been sold because of the crisis. So -- but we expect that as the business recovers in H2, this working capital impact will be gradually reversed. Overall, it's difficult to anticipate the position of working capital at year-end because it will very much depend on the timing and the shape of the recovery, both in Travel Retail and Publishing.For the CapEx, I won't give a figure for CapEx for this year. This depends a lot on also what happens in terms of recovery. Our priority today is on preserving cash, and our ability to get CapEx is significant. But the extent to which it will be cut will depend on the speed of traffic, the sales recovery and also on our ability to convince landlords to postpone some of the committed projects we have with them. Therefore, CapEx reduction is very much dependent upon recovery scenarios. CapEx spending will be proactively adjusted depending on the duration of the crisis, I would say, in order to adequately arbitrate between cash preservation and growth.
Sorry, is there really another question?
Yes, Mr. Thomas Singlehurst from Citi.
I'll ask them one at a time. The first one was on Publishing. I mean, obviously, a sharp impact was the sort of physical channels -- sort of retail channels are closed. But do you think there will be any pent-up demand, so some of that sort of shortfall in the second quarter might sort of be caught up in the back half of the year if things return to normal? Or is that just lost revenue for this for now? That was the first question.
Arnaud?
Yes, one by one.
Arnaud?
Yes. As you pointed correctly, where we are most hurt currently in all countries is with traditional bookstores because they've been almost all closed, that's SLACK, Waterstones, Barnes & Noble, et cetera, around the world. I don't expect any catch-up in the second half of the year. I mean they will be back to kind of normal trading, but I don't think they will be able to sell much more books than in a normal second half of the year. I'm sure you know that the calendarization of our business is very much loaded towards the end of the year because of Christmas and back-to-school, and I don't think they will be really able to rebound in the second half to the point that will offset the loss of sales in Q2.
Okay. The second question, I was talking to my colleague who covers Aéroports de Paris just the other day, and she was mentioning that in her conversations with them, she got the impression that they're looking at rolling up some of their sort of Travel Retail agreements across the various sort of holdings they have. I mean, obviously, they've got direct and indirect exposure to various markets. I'm just -- I mean within all of this, just trying to gauge whether there is an opportunity for you to secure sort of bigger, more substantial arrangements at favorable terms during this downturn such that when recovery comes you recover against an expanded footprint?
Dag?
Yes. So clearly -- I mean we have been working with airports and with the industry for telling them that the present model is not ideal. I mean we can work with it. We grow with it. But still, we don't think it's optimal. So we have designed various other concepts which we have presented to some airports, and these models are very valid today. It's models, which allow us to go through crisis without having to renegotiate with airports and so on. So we're trying to push this, and we're obviously trying to push for new terms, longer terms and so on. So yes, we -- I mean it's one of the aspects of the constant discussions the teams have with the various airports to either prolong, to soften, to review the model per se. That's something which we think would be beneficial to the industry and which we have been working on for a while. And I also work with them -- I mean with airports and with the industry to do that. So yes, there could be opportunities for improved conditions post crisis.
Other questions?
We have no other questions, sir.
Okay. Thank you so much to all of you. Please take care of yourself. And we'll be more than happy to see you and talk to you soon. Take care, and bye-bye. Thank you to all of you guys.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.