In what Dufry calls a “transformational year” the travel retailer generated record revenue of CHF 4,196.6m ($4,265m), a +17.5% increase, but net earnings fell by -42.5% to CHF 84.8m ($86.2m); the slippage has been a trend since 2012 (see graph below).

In 2014 – the year when Dufry completed the acquisition of Nuance and executed important expansion and operational efficiency projects – the company saw other financial parameters hold up well. Gross profit grew by +17.0% to CHF 2,463.1m while Ebitda increased by +12.6% to CHF 575.6m in 2014 – the highest ever.

Dufry’s turnover growth of +17.5% would have been even higher (at +18.9%) were it not for the strengthening of the Swiss Franc last year. The spike seen this January by the currency will likely have a more significant impact on the company’s first quarter result.

 

SALES BY REGION & NUANCE’S CONTRIBUTION

Turnover by region showed that the most important one, EMEA & Asia, rose by +3.2% at constant exchange rates (+1.7% reported) to reach CHF 1,194.5m ($1,214m) but there were mixed fortunes in the region.

In Western Europe performance was positive in France and Switzerland, with steady passenger growth and productivity improvements, and also in Eastern European markets such as Czech Republic and Serbia. However the devaluing Russian rouble hit several Dufry operations, most notably in Moscow and, to a lesser extent, the performance in Greece.

Africa continued to be challenging throughout 2014 and all Northern African locations were affected by political instability in the region and the closing of operations in Egypt in the second quarter, and in Tunisia as of October. In Asia, existing operations performed well, says Dufry, while openings in China, Indonesia, Kazakhstan, South Korea and Sri Lanka positively contributed to the results.

Region America I’s turnover fell slightly to CHF 763.0m ($775.4m) from 2013’s CHF 768.5m. Markets that did well included Mexico and the Caribbean in Central America and, Argentina [despite the ongoing devaluation of the Argentinean peso], Uruguay and Ecuador.

Turnover in Region America II was also slightly down in 2014 at CHF 683.3m ($694.4m) from CHF 692.2m in 2013. However Dufry says, overall performance measured in local currencies was positive throughout the year and stood at +8% by December. After a short recovery, the Brazilian Real further weakened towards the end of the year [-12% in the fourth quarter] impacting reported sales.

Dufry’s second biggest region, the United States & Canada, saw turnover grow by +11.7% at constant rates to reach CHF 963.1m ($978.8m) helped by the opening of over 10,000sq m of additional retail space in H2 2013 and throughout 2014.

Nuance operations generated a consolidated turnover of CHF 536.6m ($545.4m) from September to December 2014. Its key locations were in Canada, Hong Kong, Macau, Sweden, Switzerland and Turkey.

DEBT RISES

In 2014, capital expenditure was higher than in the previous years due to the number of new openings and refurbishments; in particular openings in Brazil and the US. This has pushed up net debt significantly to CHF 2,354.3m from CHF 1,753.4m in 2013.

In connection with the Nuance acquisition, Dufry executed several transactions to finance the acquisition and to adjust its capital structure. On the debt side, Dufry successfully placed a new €500m (CHF 608m) bond in July which carries a 4.5% coupon and has an 8-year maturity. The bond was issued in euro to match the higher euro exposure of Nuance sales and therefore foster Dufry’s natural hedge.

NUANCE’S COMPLEMENTARITY & INTEGRATION

Nuance’s geographic footprint is complementary says Dufry, and further diversifies its global concession portfolio. In the Mediterranean – the largest and most important tourist destination in the world – Nuance’s operations in Turkey, Malta and Portugal, complementing Dufry’s existing network in the region.

Nuance also gives Dufry some further concessions in Asia, notably mainland China, Hong Kong, India and Macau. In North America, Dufry says that Nuance’s mostly duty-free formats are in locations “that fit well” into its s existing retail network and increase market penetration in the US and Canada.

Following the closing of the transaction in September 2014, Dufry says the operational integration of Nuance “is proceeding well” and according to plan. The process is expected to be completed by the end of 2015 and to generate CHF 70m of synergies annually.

Improvements will be seen in the gross margin through increased purchasing power and the integration of Nuance’s purchasing into Dufry’s supply chain and logistics platform.

‘SCANNING FOR NEW ACQUISITIONS’

On 2014, Julián Díaz, CEO of Dufry Group, comments: “Our operational performance was strong and we managed to preserve profitability at high levels. Thanks to the focused execution of our ambitious expansion plans, we opened a record number of 167 shops representing over 25,000sq m of new retail space. The new shops will be a major driver for organic growth for the years to come. And most importantly, 2014 will be remembered for the acquisition of The Nuance Group, which reinforced our leadership of the travel retail industry. We also achieved operational improvements by completing the set-up of the central procurement organisation and the reduction in complexity in the logistics platform.”

For 2015, Díaz is guarded. Despite noting that passenger numbers, the key driver for the business, are expected to grow by more than +6% according to aviation research group Air4casts, he says: “2015 is proving to be a volatile year in the currency markets. Thanks to the natural hedging of our business, we do not expect any important impact in our operational performance.”

Dufry reports in Swiss Francs so the the appreciation of the currency will result in a translation effect. “Nevertheless, the company will monitor the situation closely and is prepared to adjust its business accordingly, if needed,” he adds. Despite that cautious message he concludes: “We will also keep scanning the market for new acquisition opportunities.”