Dufry accelerates growth organically and through acquisitions
16.11.11 07:04

Dufry continues to deliver profitable growth with 13.8% turnover increase on constant FX rates in the first nine months of 2011 and 20.3% in the third quarter. Organic growth accelerated to 9.2% in the third quarter and reached 8.4% for the nine months to September. EBITDA grew by 23.7% on constant FX rates in the nine months. EBITDA margin reached 14.0%.
 
Acceleration in organic growth
 
Dufry continued to present a strong performance in the first nine months of 2011 outperforming international passenger numbers with organic (like-for-like) growth of 8.4%. In the third quarter, Dufry grew organically by 9.2%.
 
On top of organic growth, Dufry continued to expand its presence by opening approximately 6,700 square meters of net new retail space, which contributed for 2.0% of the turnover growth (openings +5.0%; closings -3.0%) in the first nine months of 2011. In the third quarter, Dufry increased its space by 1,750 square meters.
 
 
Acquisition of businesses: Integration is on track
 
On August 4, 2011, Dufry acquired several operations in Emerging Markets. The acquired businesses comprise of the leading airport retailer in Argentina, airport retail operations in Uruguay, Ecuador, Armenia and Martinique, as well as a wholesale platform. These operations have been consolidated since August and contributed 3.4% to the Group’s growth in the first nine months of the year and 9.7% in the third quarter. The businesses themselves continued to grow dynamically compared to their previous year performance.
 
The first phase to integrate the new businesses has already been completed including the takeover of key functions as well as finalizing a detailed analysis and action plan through a dedicated integration team. The second phase of the integration will focus on the implementation of the integration plan in each key area. In procurement, we will include the new businesses in the Groups’ global negotiations, in logistics the Dufry supply chain model will be implemented and in Finance, the new operations will be integrated in the Group’s cash pool and tax structure. Overall, we are well on track to generate synergies of USD 25 million within 24 months.
 
 
New Business: Dufry enters in India with Hudson News Café at New Delhi Metro stations
 
On November 10, 2011, Dufry and InterGlobe, a leading company in aviation and travel related services in India, announced their foray into the travel retail segment in India by signing an agreement to establish and operate retail outlets under the Hudson News brand across various transportation nodes like airports, metro and train stations. Under this agreement, Dufry and InterGlobe will bring to India the Hudson News Café, a unique and a refreshing format set to change the travel retail space. It is planned to open 48 Hudson News Café outlets in high passenger frequency locations across all six existing lines of Delhi Metro. The concept will include a comprehensive selection of reading materials, and a wide range of snacks, bottled beverages, personal care and other travel convenience items. A joint InterGlobe Retail and Dufry team will work with DMRC (Delhi Metro Rail Station) to develop around 2,000 square meters of retail space throughout the DMRC network over the next six months.
 
 
Review of Financials
 
Turnover on constant FX rates increased by 13.8% in the first nine months of the year. Organic growth grew by 8.4% and new projects (net) contributed 2.0%. The effect from acquisitions were 3.4% while the translation effect from exchange rates reached -18.2%, driven by the depreciation of the Euro and the US Dollar of 12% and 18% respectively until end of September. In absolute terms, turnover on constant FX rates reached CHF 2,237.7 million for the first nine months 2011, and reported turnover for the same period stood at CHF 1,879.0 million.
 
Region Europe’s turnover grew by 7.1% at constant FX rates. In Swiss Francs terms, turnover decreased by 4.4% to CHF 230.3 million. All major operations contributed to the growth, including France, Italy, Spain and Switzerland.
 
In Region Africa, turnover was minus 16.4% when measured in constant FX rates and reported turnover decreased by 27.7% to CHF 100.7 million in the first nine months of 2011, due to the political turmoil that started at the beginning of this year in several countries in the region. In the third quarter, performance in Egypt and Ivory Coast moved back to growth whereas the recovery in Tunisia has been limited.
 
Turnover of Region Eurasia grew by 6.4% at constant FX rates. When measured in Swiss Francs decreased by 11.0% amounting to CHF 154.6 million in the first nine months of 2011. In the third quarter, our operations in Russia and Sharjah grew double digit backed by a strong passenger growth and thanks to substantially improved productivity.
 
Turnover of Region Central America & Caribbean increased by 5.6% on constant FX rates. In Swiss Francs terms, it decreased by 13.1% and stood at CHF 262.0 million in the first nine months of 2011. Sales in Mexico returned to positive territory in the third quarter following a redistribution of slots done by the airport authority at the Mexico City Airport. Additionally, the performance of the Caribbean operations continues to be positive.
 
Region South America increased its turnover by 36.6% at constant FX rates. Translated to Swiss Francs, turnover increased by 14.4% to CHF 594.9 million in the first nine months of 2011. Dufry has continued to take advantage of the good economic development in the region which has driven the increase in international passenger numbers. On top of that we have been able to increase the productivity in the region by implementing successful marketing initiatives and promotions.
 
Regarding Dufry´s recently acquired operations in Argentina, Uruguay and Ecuador, the operations achieved a turnover of CHF 64.4 million since their consolidation in August 2011.
 
In Region North America, turnover increased by 9.4% at constant FX rates. Turnover in Swiss Francs decreased by 10.2% and amounted to CHF 519.1 million for the first nine months of 2011. The development in the region continued to be positive and growth accelerated in the third quarter based on an ongoing moderate increase in passenger numbers, productivity improvements and expansion of the concession portfolio.
 
Gross margin reached 58.0% in the first nine months of the year from 57.2% one year earlier, resulting in a improvement of 0.8 percentage point. In absolute terms, gross profit reached CHF 1,090.3 million in the first nine months of 2011 compared to CHF 1,124.5 million in the same period in 2010. The projects included in the “Dufry plus One” initiative, such as brand and promotion plans, as well as the ongoing support of our key suppliers, have continued to contribute to the gross margin improvement along the quarters.
 
Selling expenses as percentage of the turnover decreased to 22.1% from 22.4% in the first nine months of 2010. In absolute terms, expenses decreased by 6.0% to CHF 414.7 million in the first nine months of 2011 versus CHF 441.1 million one year before.
 
Personnel expenses diminished 2.4% in the first nine months of 2011 and reached CHF 292.2 million compared to CHF 299.4 million registered in the same period of 2010. As percentage of turnover, personnel expenses achieved 15.6% for the year to September versus 15.2% in the respective period of 2010. The slight increase is partially due to effects like the political turmoil in Africa as well as the devaluation of the US dollar and the Euro as employees are paid in local currencies.
 
As percentage of turnover, general expenses remained practically stable at 6.8% in the first nine months of 2011 compared to 6.6% in the same period one year before. In Swiss Franc terms, general expenses decreased to CHF 127.0 million from CHF 130.6 million.
 
EBITDA margin[1] improved 0.7 percentage points to 13.6% in the first nine months of 2011 compared to 12.9% in the same period of 2010. EBITDA margin in the third quarter 2011 increased to 15.5% from 14.2% one year earlier thanks to the contribution of the newly acquired businesses and the cost improvements. EBITDA growth based on constant FX rate was 23.7%. When translated into Swiss Franc, reported EBITDA stood at CHF 256.4 million from CHF 253.4 million in the respective period of 2010.
 
Other operational results reached CHF 21.2 million in the year to September. The majority of the expenses (CHF 11.3 million) are due to costs related to the acquisitions done in August.
 
EBIT in the first nine months of 2011 remained practically stable as percentage of the turnover at 7.8%. Expressed in Swiss Francs, EBIT amounted to CHF 146.1 million compared to CHF 149.5 million in the respective period of 2010, and included an increased amortization as well as non-recurring other operational results mentioned above, both related to the acquisitions done in August. EBIT before acquisition effects was CHF 149.6 million with EBIT margin reaching 8.3%.
 
Net financial expenses reached CHF 34.2 million in the first nine months of 2011 versus CHF 22.3 million one year earlier. The increase is mainly related to the additional interest expenses of CHF 8.9 million from the new credit facility structured to finance the acquisitions made in August.
 
Income taxes for the first nine months of 2011 amounted to CHF 16.2 million compared to CHF 19.3 million for the corresponding period of 2010. The tax rate measured as percentage of EBT was 14.5%. Due to the seasonality of Dufry’s business, the tax rate does vary substantially along the year.
 
Net earnings to equity holders reached CHF 79.1 million in the first nine months of 2011 compared to CHF 83.5 in the same period of last year.
 
Dufry’s intangible assets increased by CHF 945 million as part of the consolidation of the above mentioned acquired businesses, and reached CHF 2’080 million as per September 30, 2011. It is worth mentioning that this is only an initial estimate and subject to final confirmation from the auditors.
 
 
Strong cash flows and attractive long-term financing
 
Dufry’s ability to generate cash continued throughout the period where net cash flow from operating activities reached CHF 230.4 million. Excluding investments in net working capital, operating cash flow before net working capital changes was CHF 276.2 million compared to CHF 259.2 million in the same period of last year. Main drivers for the improvement are the substantial cash generation of the newly acquired businesses as well as the increased profitability of the existing business. Capex for the first nine months of the year reached CHF 62.3 million, from CHF 66.2 million registered in the same period in 2010.
 
Net debt was CHF 1,399.9 million at the end of September 2011, compared to CHF 637.9 million at the December 31, 2010. Net debt before acquisition effects was reduced to CHF 526 million, with a free cash flow before financing for the nine months of CHF 160 million. The main covenant, Net Debt/adjusted EBITDA was 3.67x as per September 30, 2011.
 
In August, Dufry structured an additional committed 5-year syndicated bank facility of USD 1 billion to finance its last acquisitions. Syndication was successfully completed on September 13, 2011, with 16 banks participating. Despite a lean process, the syndication was over-subscribed and the lending banks got scaled back. The new credit line facility has been structured to sit alongside with the previously existing financing.
 
 
Profitable growth and cash generation on all fronts
 
Julian Diaz, CEO of Dufry Group, commented the results: “I am convinced that these results confirm the rationale and credibility of Dufry’s strategy defined back in 2004 of being a pure travel retail player with focus on emerging markets and tourist destinations. Following this orientation, we were able to present a continuous organic growth in the nine months of 2011 and to improve our profitability based on the initiatives we started in 2010. Going forward, we will manage the Group based on the same fundamentals and our aim is to continue delivering superior growth rates based on our three pillars: organic growth, new concessions and expansions, and acquisitions.
 
The acquisitions that we communicated in August, 2011, will have a significant impact on Dufry’s profile going forward. They further strengthen our position as the leading travel retailer and increase our presence in Emerging markets. We have already started the integration of the new businesses and are creating synergies which will be a main priority during the next 12 to 24 months.
 
In this respect, our mid-term initiatives “Dufry Plus One” and “One Dufry” become even more important as we will include the new businesses directly into these projects, focusing on top-line growth, productivity and efficiency improvements. The integration of the new businesses will significantly enhance the gains that we have already generated in procurement, marketing, risk and cash management as well as tax optimization initiatives. The new businesses will also increase the overall value of these projects.
 
In addition, we are thrilled to announce our entry in the Indian market. India is one of the fastest growing economies in the world, with tremendous potential in the travel retail segment. Together with InterGlobe, we are looking to redefining convenience travel retailing in India, starting with New Delhi as we deliver a truly unique shopping environment at the metro stations with the Hudson News Café concept. InterGlobe and DMRC are both strong partners and we are convinced that this will prove to be a strong team for the further development of travel retail in India.
 
As far as FX is concerned, the translation effects in our financials will be substantially lower going forward compared to the last quarters if the USD/CHF exchange rate remains at similar levels than today.
 
So far, our business has been robust in terms of passenger growth and customer spend. Additionally, experts continue to forecast a 4-5% passenger growth for the next year indicating a positive development also for 2012.
 
Nevertheless, as mentioned before, our focus in the coming quarters will be on cash generation and reducing leverage that we incurred as part of the recent acquisitions. Furthermore, we will also continue to closely monitor the situation in order to be prepared and act quickly on any possible development in the global economic situation.”
 
 
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