As expected, Dufry confirmed this morning that it is to acquire 51% of the Hellenic Duty Free Shops’ travel retail operation for €200.5m ($257.8m).

 

Dufry also has the option to acquire the remaining 49% of HDFS in four years time. In a statement, Dufry said: “Dufry has signed an agreement to acquire 51% of the travel retail business of Folli Follie Group. The business is the leading travel retailer in Greece with 111 shops, more than 18,000 square metres of retail space and an attractive concession portfolio with long duration.

 

“In 2011, the business generated turnover of €291m ($374m), of which more than 80% came from international customers. EBITDA in 2011 was €84m ($108m), with an EBITDA margin of 29.0%. The acquisition is consistent with Dufry’s growth strategy focused on emerging markets and tourist destinations and will strengthen its position in the Mediterranean region, the world’s biggest tourist destination.”

 

Dufry says that the Folli Follie Group is effectively ring fencing its travel retail business into a new entity, which it says will have a new local non-recourse bank facility of €335m ($431m).

 

The Basle-based travel retailer will take a 51% shareholding in the business for €200.5m ($258m), effectively financing the acquisition and the shareholder structuring of €28m ($36m) by raising equity from the issuing of existing shares.

 

SIGNIFICANT SYNERGIES EXPECTED

Dufry says it expects to generate ‘significant synergies’ of around €10m ($12.8m) within 18 months of closing the deal, from increased spend per passenger, gross margin improvements and a reorganisation of back-office functions.

 

Describing its new acquisition, Dufry said: “Folli Follie Group’s travel retail business is the leading travel retailer in Greece, operating 111 duty free and duty paid shops with more than 18,000 square metres of retail space in 46 locations throughout the country in airports, seaports and border shops. The business holds an attractive concession portfolio to operate duty free shops in the whole of Greece until 2048.

 

“In 2011, the business generated a turnover of €290.9m (Swf.358.8m/$380.9m) and EBITDA of €84.3m (Swf.103.9m/$110.3m), showing an increase of 15.2% and 50.0%, respectively, versus 2010.

 

“In the first six months of 2012, turnover achieved approximately €116m (Swf.139.3/$147.9m and EBITDA reached around €35.2m (Swf.42.8m/$45.4m) with respective margin at 30.3%, compared to turnover of €114.8m ($121.9m) and of EBITDA €33.4m ($42.9m) in the first six months of 2011.

 

[Above: Hellenic Duty Free shops store at Athens Airport]

 

“As a popular tourist destination in the Mediterranean, the tourism industry in Greece has proven to be highly resilient during a difficult period for the local economy. Overall, the business generates more than 80% of its turnover with international customers.

 

“In 2011, the number of international tourists in the country increased by 9% and Greece received more than 16 million tourists, among which Germans and British were the most important visitors. The prospects for the future are also positive with the number of international tourist arrivals expected to grow by 4.5% per year.”

 

STRENGTHENED EUROPEAN OPERATION

Dufry says it will now operate the new business as part of its Region EMEA & Asia division and with the aforementioned synergies expected to be integrated within 18 months, the retailer says it expects the transaction to be mid-single digit EPS accretive on a cash basis already in 2013.

 

The world’s second-largest travel retailer [$2.8bn in 2011-Ed] adds that it has refinanced its existing revolving credit facility Swf.415m ($440m), which is due to expire in 2013, and has structured a new committed five-year facility of Swf.650m ($690m) with a syndicate of banks.

 

The company says that this facility will be used for general corporate purposes and be subject to the same covenants as existing group credit facilities. For the refinancing of the remaining term loans expiring in 2013 of approximately Swf.502m ($533m), Dufry is considering accessing the debt capital markets.

 

It added: “In this context, Dufry is seeking corporate credit ratings from rating agencies. Such ratings will be confirmed shortly and are expected to be in the BB area.”

 

[Above: Folli Follie fashion and accessories store]

 

Commenting on what is a considerable strengthening of Dufry’s European DF&TR business, Dufry CEO Julian Diaz said: “I am very pleased about the transaction as I believe it represents another big step forward in our strategy to consolidate the fragmented travel retail industry, with focus on tourist destinations and emerging markets, and thus creating substantial value for our shareholders.

 

“The Mediterranean region, and in particular Greece, is one of the most popular tourist destinations in the world, with currently more than 80% of sales generated with international customers.

 

“The business is a compelling fit for Dufry’s existing operations in the region. The combination of an attractive and long-term concession portfolio, prime tourist destination and diversified sales channels on the one hand and the potential synergies on the other make the business a very attractive one.

 

PROFITABLE BUSINESS

“Greece is expected to remain an attractive tourist destination, irrespective of the current economic situation of the country, as the business has demonstrated over the past two years. The strong 2011 performance of the business with an EBITDA of €84m ($108m) is reflective of this. With more than 80% of sales generated with international customers, this is de facto an international business located in Greece.

 

“We are also very pleased to retain Folli Follie Group as our business partner going forward. The combination of Folli Follie’s local expertise and Dufry’s global reach will generate significant results for both companies, their clients, landlords, suppliers and other stakeholders.

 

“I would also like to welcome the management team and the 1,910 employees joining Dufry in this transaction. As a global group, Dufry will offer attractive perspectives and development opportunities to the new team.”