Market reacts as Dufry moves for Italy’s Autogrill

By Luke Barras-hill |

Once the transaction completes, Edizione will become Dufry’s largest shareholder with a stake of between 20-25%.

Dufry Group’s shares on the SIX Swiss Exchange enjoyed momentum today after the announcement it would combine with Autogrill to create a new global travel entity. 

The global travel retail giant’s share price jumped 6.3% in early trading on the previous day’s close, peaking at CHF 34.51/$35.22 shortly after midday and fluctuated thereafter to finish at CHF 32.4/$32.6.

After opening at €6.29 (-8%), Autogrill’s shares on Italy’s Borsa Italiana clawed back ground during the day to soften the fall on the previous day’s close to €6.4 (-6.4%).

On a pro forma combined basis, Dufry revealed that the transaction puts net sales at CHF 13.57 billion and CHF 6.54 billion in 2021 (both based on 2019 figures).

The significant development, as reported, creates what is being widely reported as a new $6 billion player in the travel sector.

In a market note shared with TRBusiness, Baader Helvea Equity Research welcomed the agreement as supportive of Dufry’s new long-term strategy, suggesting it would strengthen Dufry’s P&L to the tune of +50% in sales and EBIT (based on pre-pandemic figures).

Diversification ‘name of the game’

“In our view, the deal could make sense but of course, it is finally all about execution,” read the note. “Other companies are active in the business sector of travel retail. Travel retail is an ‘economy of scale-game’, where size matters. We see a certain overlap of activities, which could be a good match. Furthermore, Dufry could expand into new business areas as motorway ‘shops’.

“Dufry significantly strengthens its presence in the highly attractive and resilient US market, while adding opportunities in other key geographies including APAC, Latin America, the Middle East and Africa. This means that Dufry will diversify its product and distribution channel portfolio.”

Click to enlarge. Source: Dufry.

Volker Bosse, Co-Head Equity Research, Retail and Consumer at Baaderbank AG, told TRBusiness: “Diversification is the name of the game – more regions, more channels. We’ve seen what can happen if [businesses] stick to airports and they are locked down due to Covid reasons. It should be that the new group is more robust. This is comparable with Dufry’s most important acquisition of World Duty Free.”

As previously noted, Edizione – via a wholly owned subsidiary – will transfer its 50.3% stake in food and beverage travel juggernaut Autogrill to Dufry.

Thereafter, Dufry will launch a mandatory tender offer for the remaining Autogrill shares (for details of the transaction, click here).

Dufry says shareholders will benefit from equity free cash flow per share accretion in the first year post-closing based on cost synergies, with an annual run-rate of approximately CHF 85m.

Chief Financial Officer Yves Gerster declared the transaction as EFCF accretive, with approximately 60-65% of the CHF 85m in cost synergies classed as ECFC relevant with the deal ‘making sense’ on an accretion/dilution level.

As it emerged earlier, Dufry will issue mandatory convertible notes to Edizione convertible into an aggregate of 30,663,329 newly issued Dufry shares, at an implied exchange ratio of 0.158 new Dufry shares for each Autogrill share.

Dufry says the deal ‘redefines the boundaries of the industry’ and focuses on ‘enriching the passenger journey based on experience and innovation’. Click to enlarge. Source: Dufry.

Commenting on the earnings per share dilution, Bosse said: “Dufry has 90 million shares outstanding at the moment; another 30 million could go to the Benetton family plus potentially 30 million to the freestanding shareholders of Autogrill, so 60 million on top of the 90 million means two thirds earnings dilution. It’s all about execution; there will be a lot of work to do to make it a positive transaction for Dufry shareholders given the high dilution that comes with the merger.”

In diversifying, Dufry will look to penetrate markets such as motorway F&B, which on a pro-forma basis accounted for 9% of the combined entity’s sales profile in 2019.

“Despite Dufry indicating they would keep Autogrill’s European motorway business for now, we don’t quite see the strategic fit there,” Conroy Gaynor, CFA Travel, Leisure and Retail Analyst at Bloomberg Intelligence told this publication.

“I do think there are opportunities for cost synergies and revenue optimisation mainly in North American and some European airports.

“Dufry was the leader in retail travel concessions pre-pandemic and was looking to expand in food service. Autogrill was the leader in catering yet looking to expand in convenience retail. So combined, you have experienced management teams leveraging across products and geographies.”

Click to enlarge. Source: Dufry.

Asia Pacific has been earmarked as yielding growth potential for Dufry across international markets.

“There may also be longer term growth opportunities in Asia, the Middle East and Latin America,” continued Gaynor. “I do believe both companies were eyeing growth particularity in Asian airports, as they are generally underrepresented there.
“The demographics and emerging middle class are favourable for parts of the region which is why we see structural growth in travel, as was the case pre-pandemic.
“China however is a difficult market for foreign companies, and even more so now with international travel burdened by ‘zero Covid’ rules and the state actually keen to have more spending domestically.
“Dufry is now using a joint venture with Alibaba and other local partnerships to gain duty free exposure, having already had duty paid operations in China. Autogrill had some small catering operations there but to be honest I think was more focused on India.”

Exploiting hybrid concession formats

The two-stage transaction is currently in phase one, which covers Edizione’s transfer of its share capital in Autogrill to Dufry.

Once that completes, stage two will commence with the mandatory share offer whereafter Dufry will look to take full control of Autogrill.

During an investors call today, Xavier Rossinyol, CEO at Dufry, said: “I’m very happy to present today the combination of Dufry and Autogrill. Two global leaders in travel retail and global food and beverage and today we start a journey. We are not just putting together two great companies, we are creating something new that is more than the sum of the parts.”

One market forecast is the deal will add +50% in sales and EBIT to Dufry’s P&L (based on pre-pandemic figures). Click to enlarge. Source: Dufry.

The recently appointed CEO of Dufry spoke about redefining the boundaries of the industry, with a convergence between segments and an ‘absolute and uncompromising focus’ on consumers, brands and landlords as the company expands into F&B and ramps up its digitalisation efforts.

A new strategy based around various strategic pillars is tipped to achieve this aim, with a concentration on US market and international cross-channel expansion (as already mentioned), utilising a highly skilled management team to foster and strengthen its concession portfolio, and improving contractual relationships with its partners, while maximising shareholder value.

During the call, he confirmed the Group is pursuing a new strategy for Asia Pacific, China and Chinese passengers as the market recovers.

More detail on this is expected to be presented in September during an address to the markets.

“We want to have a dedicated strategy recognising that the recovery may have a different speed with the ROW, recognising that the Chinese may be travelling and spending money in a different way,” he said.

The new strategy is at a ‘very advanced stage’, confirms Rossinyol, ‘basing the business on its current strengths but without fear of changing’.

“Dufry has already changed massively over the years. We started in duty free core categories. We moved to travel value, when the EU abolished [intra-EU] duty free. We reimagined our stores, went into convenience stores, produced branded and specialised stores, so Dufry and the industry has already adapted to the consumer trends of the past.

“Change will continue happening. Passengers are evolving – 50% of pax are Generation Y and Z and want experience. Chinese consumer patterns are also changing. Airports also want different things. The good news is technology is evolving very fast and supporting some of those changes. The brands are also adapting to the new trends in the market. Premium is the new word, 40% are in premium – it is the fastest growing super category.”

Gianmario Tondato Da Ruos will stay with the Group as Executive Chairman of the North America business. Source: Autogrill.

Meanwhile, concession portfolio management will be more active, with a greater focus on profitability and cash flow.

The efficacy of mixed or hybrid concessions fusing travel retail/duty free and F&B platforms was discussed at length.

Dufry estimates that an expansion into the travel F&B realm alone opens up an ‘addressable market’ valued at $28 billion (based on 2019 figures). Combined with airport travel retail and convenience, the market potential equates to $115 billion (based on 2019 figures).

“We don’t see duty free, travel convenience and essentials and F&B as three separate segments of business anymore,” said Rossinyol. “We see those as one integrated offering. The consumer is the same and the real estate is the same, airports mostly. We are different pieces of business competing for the same dwell time.”

He spoke about strengthening brand partnerships, a strong digital proposition and dynamic sales teams helping to leverage efficiencies and competitiveness while optimising space and flow to optimise conversion.

This will be important, with F&B levels at an elevated 30% versus 15-20% in travel retail, according to Rossinyol, with dwell time more than double in F&B versus its retail counterpart.

“That’s why we think that combined, these two offerings will give us additional opportunities through cross-selling, mixed store formats and increased digital engagement,” he explained.

Dufry has already trialled such synergies with success, said Rossinyol.

He confirmed that Dufry’s airport operator partners are issuing tenders inviting twinned retail and food concepts and some awarding based on combined proposals.

Asked about the average increase in spend per passenger levels where hybrid concession setups are present at airports, Rossinyol stated this would depend on geography and the airport’s profile but mentioned ‘double-digit improvements’ could be achieved under the right conditions.

Another analyst within the investment community asked about the percentage of airports that are actively tendering blended F&B and retail concessions.

“Today, the mixed formats are limited, especially in Europe, but increasingly important in the US market,” responded Rossinytol. “Approximately 25-30% of the US [airport] market are in the hands of developers, which provide airports with a full, one-stop solution.

“We believe offering the three formats (duty free, travel retail convenience, F&B) will give us a competitive advantage. I am not claiming that every single airport in the world will be open to this new hybrid offering. There are airports that might not want to do it now. But we don’t need the whole market to move in that direction. I see more potential in the US in certain parts of developing countries, less in Europe because of the way they are structured. Let’s see where the market goes.”

Second quarter update

While acknowledging the challenges in a transaction of this scale, Rossinyol believes these are addressable with the right focus to spark a ‘commercial revolution’ moving towards the realms of a travel experience company.

“The supply chain is different, but we have two very different supply chains: duty free and convenience and we have been very successful in managing them,”he commented.

Expected to be the eventual largest shareholder in Dufry, Edizione is displaying ‘a big commitment’ to Dufry in the integration process, noted Rossinyol.,

Dufry’s remaining shareholders are Richemont Group (>5%), Alibaba (7.7%), Qatar Investment Authority (8%), Advent (10.1%) and other shareholders (69.1%).

The new management will combine the expertise and leadership of the two companies.

Click to enlarge. Source: Dufry.

The close of transaction will not happen before Jan 2023.

Twinning with the statement and comments on the integration, Dufry took the opportunity to update on its second quarter 2022 performance.

All regions contributed ‘positively’ during the period, with net sales around -17% versus 2019 and half-year sales around -25% against 2019.

The half-year 2022 performance stood at around +145% in net sales versus the same period in 2021 at constant currency.

Regions already at or even ahead of 2019 include the US due, to the strong domestic market and demand for intra-regional and transatlantic travel, Central America and the Caribbean as well as the Mediterranean and South European regions.

Equity free cash flow in the region of CHF 15m is expected during the first half 2022, which is in line with the performance in the same period 2019.

“I’m personally very pleased with the performance over the past month – looking into the performance in more detail, group net sales have steadily climbed back towards 2019 levels this year and sit at around 85% of 2019 levels,” pointed out Yves Gerster, Chief Financial Officer, Dufry.

An Extraordinary General Meeting is scheduled to take place on 31 August to be chaired by Juan Carlos Torres.

The Board of Directors is due to propose to the EGM the creation of additional conditional capital and authorised share capital to issue the required shares to Edizione and the free float shareholders of Autogrill and to conduct a rights offering.

Assuming shareholder approval at Dufry’s EGM, the Board of Directors will comprise Dufry’s current Board members as well as two representatives of Edizione.

Alessandro Benetton (Chairman of Edizione) and Enrico Laghi will also be proposed as Honorary Chairman and Vice Chairman, respectively, for Edizione on the Board of Directors.

Edizione has indicated its intention to nominate Paolo Roverato (Chairman of Autogrill) as additional Vice Chairman for election at the Dufry 2023 Annual General Meeting.

The Group is set to publish its half-year results on 9 August.


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