During last week’s Q3 results conference call, Dag Rasmussen, Chairman and CEO of Lagardère Travel Retail, discussed the impact of terror attacks on the company’s business in France and revealed that Lagardère Capital expects to generate around $3bn over the course of its 10-year Abu Dhabi Midfield Terminal Building (MTB) contract. 

 

It was actually towards the end of the Q&A session that Rasmussen answered a question about ‘the size of the win’ at Abu Dhabi International Airport (AUH) at the end of last year and whether this business would be fully consolidated.

 

The French-Emirati joint venture company, Lagardère Capital, won core duty free and travel retail concessions at AUH’s Midfield Terminal Building (MTB) in December last year. The contract runs from December 2017 for 10 years.

 

“For Abu Dhabi, we don’t disclose the details obviously of the tender because the sales you project are part of what you tender on…but to have a growth idea it’s around $3bn on the duration of the 10-year contract.

 

CONSOLIDATED UNDER THE EQUITY METHOD

“It will not be fully consolidated because it’s a 50:50 JV. It will be consolidated under the equity method, which means that the raise up that you will see will be limited. I think there are some management fees, but it’s limited.”

 

 

Earlier on during the Q&A session, Rasmussen was asked about underlying growth for Lagardère Travel Retail in Q3 and how much of the ‘good performance’ was propelled by expansion of retail space. At this point he made it clear to journalists and analysts that increasing retail square metres – which they have been able to do in various countries as well as winning new contracts – doesn’t necessarily translate to higher sales.

 

“The performance [in Q3] I would say was fairly good [considering current] geopolitical uncertainty issues we have…when you increase the space or decrease the space there is no proportionality in sales, because you still have the same number of passengers. So [performance is more affected by] the quality of the stores you make.

 

 

“Obviously we invest a lot in improving the stores. If you look for instance at Nice Terminal 1 which we modernised, we increased the space, but it was not that gigantic. It’s more the way we redesigned the store and how the customers and the travellers penetrated the store.

 

NICE STORE DELIVERS

“If we take this as an example, despite the terror attack we had in Nice, we still have 20% increase in that store thanks to what we’ve done.”

 

However, as Rasmussen conceded, overall in France LTR saw a slight drop in activity (-0.9%), which LTR attributed to the decline in the duty free and fashion segment following terrorist attacks in Paris (2015) and Nice (2016).

 

“It’s more about investing in the stores, investing in training and globally the upscaling of the infrastructure of airports, train stations. [Many locations] have modernised and they understand that non-aeronautical revenue is critical, so they invest or they help us invest to have greater stores.

 

“If we look at Warsaw, we had to open in a new terminal with the same number of passengers…sales didn’t grow that much because the commercial offer was already good.”

Rasmussen also discussed the potential positive impact of airlines becoming increasingly aggressive in price with regards to France. “Regarding the positive tailwinds for 2017, yes it’s true that some airlines have decreased prices, which is good because you get more traffic.

 

QUALITY…NOT QUANTITY

“However, sometimes you see that for the Chinese customers they decreased in quality, because after the terror attacks the prices were discounted and so you don’t see the same quality of traffic. So it’s not necessarily favourable to us to have growth…we prefer the quality of the passengers rather than the quantity of passengers.”

 

Later on, Rasmussen answered a question about the disposal of the division’s distribution businesses. “So for distribution we got the clearance from the competition office in Belgium yesterday (9 November), so the plan is to close the disposal of Belgium by the end of November.

 

“So there’s no reason today why this shouldn’t happen. The likelihood is that is should happen by the end of November.”

 

 

FATE OF DISTRIBUTION

As reported on 10 November, the Belgian Competition Authority conditionally approved the acquisition of AMP and LS Distribution Benelux by bpost (Belgian Post Group), one of the largest employers in the country.

 

LS Distribution Benelux is a division of Lagardère Travel Retail, one of a series of distribution businesses that LTR is actively divesting to make it a pure-play duty free and travel retailer.

 

In the third quarter of this year, LTR’s distribution business was down 4.2%, impacted notably by discontinued export sales in Hungary.

 

“The only remaining significant part is Hungary where the process is still ongoing in a tough environment, as you know, so we cannot predict a closing date and we don’t expect it to be in 2016,” added Rasmussen.