Dufry, the leading DF&TR operator generated sales turnover growth of 60.0% to CHF1,630.2m ($1,708.07m) in the first quarter of 2016, with gross profit margin up 110 points to 58.6% from 57.5% and EBITDA plus-59.2% to CHF146.5m ($153.5m).

 

The retailer maintained its previous year’s margin level of 9%, while cash flow from operating activities and free cash flow generation were both said to be strong, registering CHF118.9m and CHF78.8m.

 

Dufry also reported today that the World Duty Free integration is ‘proceeding according to plan’, as it continues to be a main focus this year, alongside other priorities which include ‘the acceleration of organic growth, cash generation and deleveraging’.

 

In a statement this morning, Dufry said: “The first quarter 2016 was characterised by an ongoing improvement of organic growth performance driven by several factors, such as a strong performance in Southern Europe, a stabilisation of emerging market currencies, as well as the continued acceleration of commercial and marketing activities by the company.

 

 

“Dufry also started the execution of the World Duty Free integration according to plan, which is expected to be completed by mid-2017. Following the announcement of the organisational structure at group and divisional level, further action plans to integrate single functions and processes were launched.”

 

As mentioned, turnover grew 60% to CHF1,630.2m ($1.7bn) in the first quarter of 2016 from CHF1,018.9m ($1bn) one year earlier, while Dufry pointed out that ‘changes in scope’ added 63% and organic growth improved by 1.3 percentage points to -5.2% from the fourth quarter 2015.

 

In reported terms and as an indication, the retailer said that ‘like-for-like growth’ reached -6.2% and the contribution from net new concessions was 1.0% with a foreign exchange translation impact of 2.2%.

 

SALES BY REGION

In terms of performance by region, sales turnover in Southern Europe and Africa reached CHF286.9m in the first quarter of 2016, from CHF125.3m in the same period last year. Dufry said: “The underlying growth in the division reached 6.6%, mainly as a result of the strong double-digit growth seen in Spain. Other countries in Southern Europe also performed well, as it was the case of France, Italy, Malta and Portugal.

 

“Although the first quarter represents the lowest quarter in terms of seasonality, operations exposed to Russian consumers, showed opposite developments – while Turkey continued to see weak performance due to the absence of Russian consumers, trends in Greece were maintained, confirming the high booking rates announced for the current year.”

 

 

Meanwhile, sales turnover in Dufry’s biggest region of Central and Eastern Europe grew to CHF427.6m in the first quarter, compared with CHF150.3m in the previous year. Underlying growth in the division reached 3.4%.

 

RUSSIAN MARKET STILL VERY DIFFICULT

Dufry added: “Most of the operations performed well, supported by a solid growth in the number of passengers across Europe, with the exception of Eastern European operations. In Russia, operations continue to face a difficult environment, but we started to see signs of small improvements.”

 

Turning to Asia, Middle East and Australia, sales turnover grew to CHF187.2m in the first quarter of 2016, against CHF137m in Q1 2015, with nominal underlying growth in the division of 0.1%. Dufry added: “Operations in the Middle East and India did well, with Jordan and Sri Lanka being the best performers.

 

“In Southern Asia, Cambodia and Indonesia also showed a good performance and in Northern Asia, South Korea continues to perform extraordinarily well and helped mitigating the lower trading seen in China.”

 

 

Meanwhile, Latin America saw turnover reach CHF351.8m in Q1 2016 from CHF327.1m in Q1 last year. Dufry said that operations in Central America and Caribbean were positive, benefiting from an overall increase in passenger numbers – particularly Americans – thanks to the strong US Dollar.

 

SOUTH AMERICA STILL A PROBLEM…

However, the South America region continues to drag due to the devaluation of local currencies, resulting in underlying growth in the division of -13.1%. Not surprisingly, a devaluation of 66% year-on-year in Q1 2016 of the Argentinean Peso impacted sales in Argentina, while Brazil started to see a gradual improvement thanks to a recent ‘stabilisation of the Brazilian Real’ in recent months.

 

Last, but not least, North American turnover reached CHF367.3m compared with CHF 267.1m in the first quarter of 2015. Dufry said: “Underlying growth reached 4.9%, as a result of strong performance of Hudson and other duty-paid concepts. On the duty-free side, the stronger US dollar positively impacted our operations in Canada, while the opposite effect was seen in the United States.”

 

In overall terms for the period, Dufry said that the gross profit margin rose by 110 basis points to 58.6% in Q1 2016 from 57.5% in the previous year, while the measure based on ‘constant scope’ improved by 50 basis points, thanks to synergies achieved from the Nuance integration.

 

 

EBITDA margin came in at 9.0% in Q1, with Dufry adding that this was positively influenced by the higher gross margin plus personnel and general expenses. However, the consolidation of WDF obviously generated an increase in concession fees. At the same time, EBIT reached CHF-39.5m in the year to March compared to CHF 4.6m in the same period in 2015.

 

Meanwhile, net earnings to equity holders stood at CHF-85.6m in Q1, compared to CHF-9.0m one year earlier, while financial results reached CHF50.4m – in line with Q4 2015 when excluding one-offs in the previous period.

 

DEFERRED TAXES HELP INCOME TAX

Income tax was ‘positive by CHF9.9m’, impacted mainly by deferred taxes. Dufry added that the constant quarterly charges of amortisation and interest expenses as well as the linearisation, accentuate the seasonality of the business in the net earnings.

 

The company said: “Cash earnings, which add back the acquisition-related amortization, reached CHF-2.7m from CHF39m in the same period in 2015, mainly because of the linearisation charge.

 

“At the same time, net cash flow from operating activities reached CHF119m before acquisition-related cash outflows in the first quarter of 2016, from CHF43.8m one year earlier. In the first quarter of 2016, CAPEX was CHF44.4m compared to CHF26.8m in 2015.

 

 

 

“Excluding cash outflows related to the World Duty Free transaction, free cash flow increased to CHF78.8m, as compared to CHF19m in 2015. As the first quarter typically is cash neutral or slightly cash negative due to the pronounced seasonality of the business, this shows as very positive cash generation trend.”

 

Finally, Dufry reported that net debt amounted to CHF3,871m at the end of March 2016, which is CHF87m lower than in Q4 2015 (CHF3,958m).

 

POSITIVE START TO 2016

Commenting on the performance, Dufry CEO Julián Díaz said: “We had a good start in 2016, with the continuation of the improving organic growth trends we started to see in Q4 2015. Europe had another strong quarter and countries impacted by Brazilians and Russians continued to recover.

 

“Overall, we saw improvements as we were expecting when comparing to previous quarters. This confirms our view that organic growth will see a gradual improvement along the year and will end up positive for the whole year.

 

“The wide range of initiatives to accelerate organic growth which Dufry launched in the second half of 2015 such as the refurbishment plan, the brands plan – as well as the customer retention and promotional activities – confirm their success by showing good results and will thus be continued.

 

HUGE EXPANSION THIS YEAR…

“In the first quarter we have opened 4,500 square metres of retail space and have another 22,000 square metres already signed for opening in the current business year, equal to over 5% of our current retail space.

 

“One of the priorities for 2016 is the integration of World Duty Free. Most of the planning phase is already completed and we are already executing on the several action plans. The initial synergy targets remain unchanged at Euro 100 million.

 

“We believe that there will be volatility in some markets, but provided that currency levels remain relatively stable, we expect overall improving performance. As for developed markets, Southern Europe – particularly Spain, Greece and Italy – report record numbers of bookings and we expect to have a very strong performance in those markets along 2016.”