Lagardère Travel Retail revenue fell -55% to €947 million/$1.1 billion in the first half of 2020 compared to the same period last year.

Revenue fell -52.5% on a consolidated basis and -54.5% (like-for-like). The difference between consolidated and like-for-like data is attributable to a €38m/$45m positive scope effect, mainly resulting from the acquisition of International Duty Free (IDF) in Belgium and a €2m positive foreign exchange impact. This was driven by the appreciation of the US dollar.

The closure of virtually all airport networks worldwide as a result of the coronavirus (Covid-19), particularly during the hardest-hit period from mid-March to mid-June, led to a slump in revenue. This hit a low in April, dropping -91% on 2019, as announced on 30 April 2020.

Business has picked up slightly since, acknowledged Lagardère Group in announcing its H1 results yesterday (30 July 2020), reaching around -82% lower than the same period in 2019. Activity is expected to be 65% lower year-on-year in July.

After a first-quarter like-for-like drop of -18% (up +1.3% over January and February and down -53.9% in March), the second quarter saw an -86% year-on-year fall (with decreases of -90.6% in April, -86.8% in May and -81.9% in June).

RAPID NETWORK SHUTDOWN

In France, business dropped -59.8% due to the air strikes, which continued into the first month of 2020 and the impact of the Covid-19 pandemic. Government lockdown measures led to the rapid shutdown of virtually the entire network, recalled Lagardère.

The EMEA region (excluding France) retreated -53%, affected by travel restrictions and border closures introduced in March. These were enforced in every country across the region to halt the spread of Covid-19.

Revenue was also down in North America, contracting -53.2% due to the Covid-19 pandemic in North America and lockdown measures in many states.

Asia-Pacific, the epicentre of the pandemic, was first to be hit by the pandemic in the first half, with revenue dropping -52%. The decline, however, was limited by greater resilience from mainland China, where revenue fell -0.7% year-on-year in Q2.

This minimal revenue drop in China was thanks to new openings in 2019, upbeat online and social media sales and a gradual resumption of domestic travel, notably in Wuhan, where Lagardère Travel Retail has a strong presence at Tianhe International Airport.

Lagardère Group said: “Lagardère Travel Retail took a severe hit due to its significant exposure to the airline industry.

“The division was quick to take action to ensure the health and safety of its employees, customers and partners, while at the same time organising the temporary closure of its network in close cooperation with airports and systematically reducing costs.

“Thanks to Lagardère Travel Retail’s international presence, combined with its deep local anchoring, the business was able to restart operations on a ‘bespoke’ basis as from the second quarter, in step with the re-opening of railway stations and airports.

“Short-term uncertainties as to when air travel will resume do not call into question the division’s strong business model or leadership, which have been enhanced by the commitment shown by its teams.”

Overall Group revenue in H1 2020, totalled €2,088m, down -37.2% on a consolidated basis and -37.8% like-for-like. Following a Q1 drop of -13%, all businesses were hit harder by the pandemic in the three months to 30 June 2020.

The difference between the consolidated and like-for-like data is essentially attributable to a €10m positive foreign exchange effect, resulting mainly from the appreciation of the US dollar. The €7m negative scope effect relates to disposals of media assets, offset by the favourable impact of Lagardère Travel Retail’s acquisition of IDF.

Recurring EBIT for Lagardère Travel Retail, which has introduced a new packaged Pick & Go food offer, came in at a negative €209m, down -€25m year-on-year. This represented a flow-through rate of 24% based on consolidated figures. In H1 last year, recurring EBIT for Lagardère Travel Retail was a positive €46m.

Changes in working capital represented an outflow of €269m in the first half of 2020 and are directly related to temporary business closures at Lagardère Travel Retail (negative €201m impact).

The company said: “Systematic measures taken to protect earnings helped curb the negative impact of the revenue decline on operating profit to -24%.

“This was versus a projection of between -20% and -25% for the whole year, as communicated at the end of April.”

EARNINGS PROTECTION

The main measures focused on overheads, which were reduced by around €220m. Overheads were decreased through the renegotiation of financial terms (cancellation of fixed rental payments, lower rate of variable payments and deferred maturities), reduction in the number of points of sale opened and adjusted opening times in agreement with concession grantors.

Payroll costs at all levels were also reduced and furlough schemes were introduced if financed by local government.

Redundancies or pay cuts were implemented where no such financing was available. There was a significant reduction, or downward revision of virtually all non-essential costs (which were not needed for the company to operate). These included business travel costs, consulting fees, maintenance and cleaning expense and royalties paid.

Air France has also informed its Dutyfly solutions subsidiary that it would be stopping on board sales, prompting Lagardère to recognise the costs of closing this business.

Regarding the Group’s financial position, net debt increased to €2,048m at 30 June 2020 from €1,610m at 30 June 2019.

“The Group’s liquidity position remains solid, with €1,471m in available liquidity. As announced on 30 April 2020, Lagardère was granted a covenant waiver for full-year 2020 on its €1,250m credit facility, thereby guaranteeing its liquidity.”

Main Group events since 30 April 2020 include the Group’s 2020 Annual Ordinary and Extraordinary general meeting, sale of Lagardère studios to Mediawan and Lagardère Travel Retail taking an ‘an active role’ with the European Travel Retail Confederation in pushing for the introduction of arrivals duty free in Europe.

“This regulatory change would provide employment opportunities and generate additional revenue for airports and local producers in the countries concerned,” the Group said.

In the meantime, Lagardère Travel Retail is continuing to experience a ‘gradual and modest’, upturn in business. Revenue in July is expected to drop around -65% year-on-year, but the vast majority of Lagardère’s key airport and railway operations are now open.

Lagardère said: “The [Lagardère Travel Retail — Ed] division is pressing ahead with its agile strategy of re-opening points of sale in line with the resumption of traffic and operational and contractual constraints, while aiming to maintain the points of sale that are open at operational breakeven.

“On this basis, the gradual, modest upswing is expected to continue through the second half of the year, albeit with the persistent risk of localised lockdowns and continued uncertainty over the US platforms.

“The division is continuing to implement extensive corrective measures with major impacts on rents and payroll costs in particular. These initiatives, combined with the launch of its global transformation plan, will enable Lagardère Travel Retail to maintain the assumption of an adverse impact on full-year 2020 recurring operating profit of fully consolidated companies (recurring EBIT) in the region of 20% to 25% of the decrease in its revenue.”