October 31 2017  |  Retailers

Dufry’s Q1-Q3 results show strong organic growth and cash generation

By Wendy Morley

Strong organic growth performance of +7.9% helped Dufry achieve turnover of US$6,270.5 million during the first nine months of 2017, showing a turnover growth of 6.7%. During the same period, gross profit margin expanded by 100 basis points to 59.4%, EBITDA further grew by 8.5%, reaching US$743.6 million. Synergies with the WDF integration, completed in 2016, have helped drive gross profit margin in 2017.

Q3 results

During Q3, organic growth stayed on course with the year as a whole, at 7.6%. Free cash flow generation was at the highest quarterly result ever, totaling US$337.1 million.

This strong cash flow has helped Dufry to deleverage and reduce its net debt. The total reduction of the company’s net debt in the year to September amounts to US$274.7 million, leaving US$3,475.7 million remaining.

Shop Development Plan continues

With a continued strategy of accelerating organic growth, in the first nine months of 2017 Dufry expanded its retail space by over 20,500 square meters across 135 shops. This was achieved via both new openings and expansions. The retailer also refurbished over 23,000 square meters across 60 shops. During the remainder of 2017 and the coming calendar year, Dufry will add over an additional 18,000 square meters to its portfolio.

Senior notes

Earlier in October, Dufry successfully placed EUR 800 million Senior Notes, with maturity in 2024 and a coupon of 2.5%. Proceeds will be used to early repay the EUR 500 million Senior Notes expiring in 2022, which had a coupon of 4.5%, as well as to reduce bank debt. Dufry is also currently working towards refinancing its bank facilities in the near future.

Regional results

Southern Europe and Africa

Most operations in Southern Europe and Africa performed well. Turkey had an exceptional year to date, with the return of Russian tourists. France, Greece, Malta and Spain also posted positive growth. Africa showed exceptionally strong growth, with most retailers growing in high double digits. Organic growth in this region averaged 7.7% in the first nine months, with an acceleration to 10.1% in Q3.

UK, Central and Eastern Europe

The UK performed well in Q3, achieving a growth of 5.9% despite the higher comparison base due to the devaluation of the pound in 2016. Russia, Eastern Europe and Finland also showed positive growth.

Asia, Middle East and Australia

This region showed moderate organic growth in the first 9 months overall, at 0.5%. However this growth accelerated in Q3 to 4.4%. In the Middle East, Sharjah, Kuwait and Jordan were positive. In Asia, South Korea grew double digits, despite a reduction of Chinese travelers to the country. Both Hong Kong and Macau had a comeback and grew double digits in the third quarter. Other operations including Cambodia, Bali and Singapore also saw sales growth. After the recent shop refurbishment, Melbourne is now fully operational again with improved performance benefiting from the improvements done on the shop floor.

Latin America

Organic growth in LATAM amounted to 12.7% in the first nine months of 2017, with Q3 reaching 13.2%. In South America, Brazil, Uruguay, Chile, Peru and Dominican Republic all performed very well. Dufry Cruise services also posted strong growth as service began to a number of ships

North America

Organic growth reached 6.0% in the first nine months, supported by the resilient duty-paid business and a good performance of the duty-free operations.

Julian Diaz, CEO of Dufry Group, commented: “The performance in the third quarter of 2017 makes me very optimistic. Even with a higher comparison base, the company kept the strong results. Despite the annualization of the positive Brexit impact, a very good summer season in Europe, together with strong performance in Latin America and growth acceleration in Asia contributed to the robust organic growth.

Travel retail is constantly evolving and we currently see considerable changes in customer profiles and in shopping behavior of our customers with an increasing propensity to use digital technology. Moreover, customers are more and more attracted by unique and individualized experiences. These are only a few reasons on why Dufry has engaged in and is deploying its digital strategy to attract more customers into the shops and increase sales per passenger.

“As one of the key elements of our digital strategy we have opened the first two New Generation Stores in Melbourne and Madrid. They provide a unique experience, include the digitalization of the employees in order to better serve the customer, and allow us to adapt messaging, offers and promotions to the different traveler profiles present at the airport. In the same context we have also continued to expand or Reserve & Collect locations; where customer can order online before traveling and collect at the airport. Last but not least, we have further expanded our RED by Dufry customer loyalty program, which among other benefits allows us to send individualized offers to the customer, when he is at the airport. We strongly believe in the digitalization of the business as it makes travel retail become a prospect channel for the future.

“With respect to new openings and refurbishments, we have opened over 20,500 m² of new space and refurbished over 23,000 m² in the year to September.

“Among others we have refurbished the Intra-Schengen operations at the Athens International airport in Greece as well as refurbished and expanded our business in Morocco. With respect to the openings; I would like to highlight the opening of 18 convenience shops in China and a duty-free casino shop in Macau. We have opened several stores for domestic and international passengers in Rio de Janeiro and in the US, where we started operations of several shops in hotels in Las Vegas, such as the Hard Rock Casino, and several stores at Tulsa airport. Last but not least, we have launched our new Dufry Cruise Services center based in Miami and entered the Asian cruise market with nine shops spanning over 1,950 m² on the JOY, a vessel of the Norwegian Cruise Line serving the Asian market.

“With respect to the future, we have already signed contracts to open further 18,000 m² of new commercial space in the last quarter of 2017 and 2018 and we are also currently working with a pipeline of additional opportunities which amount to around 38,000 m².

“Profitability remained strong, with gross profit margin being the most important contributor. We are also working for future gains in efficiencies through our new Business Operating Model. The implementation of the program is going well and we expect it to be completed by the end of 2018. The new operating model, which aims at standardizing processes and procedures in our Group, is expected to generate efficiencies in the magnitude of 50 basis points at EBITDA margin level once it is fully implemented.

“Dufry’s Board of Directors continues to assess the possibility of an initial public offering of our North American business. The IPO would create significant flexibility to capitalize on trends specific to the North American travel retail market, such as on the trends in food and beverage or master operators. A final decision on the IPO has yet not been made.

“The positive market conditions seen so far in the year persist in the beginning of the fourth quarter. On the other hand the next quarters will reflect an increasingly higher comparison base. We remain committed to our strategy of profitable growth and the results seen thus far in 2017 are evidence that we are heading in the right direction.”

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