The Dufry Group has reported its nine-month sales grew strongly by +7.9% to $6,298.8m (CHF6,270.5m) in the company’s first nine-month period, with ‘high organic growth and cash generation’ over the period.

 

The world’s leading DF&TR operator reported that its gross profit margin rose by 100 basis points to 59.4%, while EBITDA grew 8.5% to CHF743.6m ($746.7m) with its nine-month free cash flow generation said to be ‘very strong’ at CHF337.1m ($338.5m).

 

BEST PERFORMANCE SINCE 2011…

In a statement today, the retailer said: “Turnover growth continued strong and amounted to 6.7% in the first nine months of 2017. Organic growth remained at high levels and reached 7.9% in the year to September, which is the best performance since 2011.

“Most markets performed well and the summer season was strong – in particular our Mediterranean operations, above all in Turkey. Organic growth continued at high levels in the third quarter with 7.6%.

 

“Gross margin expanded by 100 basis points driven by the synergies from the World Duty Free integration, completed in 2016. EBITDA grew by 8.5% and reached CHF 743.6m in the first nine months of 2017, which represents a margin of 11.9%. “

 

The retailer said cash flow reached a new quarterly record of CHF337.1m, although Dufry added that third quarter usually delivers the highest cash generation due to its seasonalist during the year. Dufry also reduced its debt level by CHF274.7m with the total standing at CHF3,475.7m in September 2017.

 

The retailer also continued to expand strongly with its current Shop Development Plan, having expanded its retail space up until September by more than 20,500sq m across 135 shops through new openings and expansions.

 

 

HUGE AMOUNT OF NEW SPACE COMING ON LINE

Dufry also pointed to the refurbishment of more than 23,000sq m of space across some 60 shops, while it also signed new contracts, which will add more than 18,000sq m of new space to the portfolio within the remainder of 2017 and in 2018.

 

As reported, the retailer also placed €800m ($931.4m) in Senior Notes, with maturity in 2024 and a coupon of 2.5%. This is being used to repay €500m ($582.1m) worth of Senior Notes which expire in 2022 early. These had a coupon of 4.5%.

 

As noted previously, Dufry says this loan is being used to reduce bank debt. Interestingly, Dufry adds that it is also ‘currently working towards refinancing its bank facilities in the near future’.

 

Turning to the performances by region, Dufry said turnover in Southern Europe and Africa amounted to CHF1,433.9m ($1,439.8m) in the first nine months compared with CHF1,319.3m in the same period last year. The company pointed to an organic growth acceleration of 7.7% in the first nine months thanks to a strong third quarter yielding organic growth of 10.1%.

 

Dufry said: “Most operations of the division performed well. In Southern Europe, Turkey grew strongly, driven by the comeback of Russian tourists in the country. France, Greece, Malta and Spain also posted positive growth. Africa posted strong growth with most operations growing high double digits in the year to September.”

 

 

VERY STRONG EUROPEAN GROWTH

The UK, Central and Eastern Europe was also a story of growth as turnover rose by 8.4% to CHF1,604.8m ($1,611.4m) over the 9m period with the third quarter performance in the UK notable for its 5.9% growth in the quarter – also helped by the weak pound sterling. Other highlights were also noted in Russia, Eastern Europe and Finland, said Dufry.

 

Turnover in Asia, the Middle East and Australia rose marginally to CHF574.0m in the first nine months of 2017 from CHF569.4m in the comparative period last year, while business in the Middle East, Sharjah, Kuwait and Jordan were positive. In Asia, South Korea grew double digits, despite a reduction of Chinese travellers to the country.

 

Dufry added: “Both Hong Kong and Macau had a comeback and grew double digits in the third quarter. Other operations, including Cambodia, Bali and Singapore also saw sales growth. After the recent shop refurbishment, Melbourne is now fully operational again with improved performance benefiting from the improvements done on the shop floor.”

 

Moving on to Latin America, Dufry reported that its turnover grew 13% to CHF1,262.0m in the first nine months of 2017 with organic growth of 12.7% in the same period – while the third quarter reached 13.2%. Significantly, Dufry added that in South America, Brazil, Uruguay, Chile, Peru and the Dominican Republic all performed very well, while Dufry Cruise services ‘also posted strong growth’ thanks to start up operations on new ships.

 

Last, but not least, Dufy pointed to a turnover increase in North America to CHF1,327.3m ($1,332.7m) in the first nine months from CHF1,245.2m ($1,250.3m) in the same period during 2016. The company said: “Organic growth reached 6.0%, supported by the resilient duty-paid business and a good performance of the duty free operations.”

 

 

DIAZ SAYS HE IS ‘VERY OPTIMISTIC….’

The retailer’s gross profit margin also improved by more than 100 basis points to 59.4% in the first nine months of 2017 thanks to realised synergies obtained from the World Duty Free integration – an exercise completed at the end of 2016.

 

Commenting on the results, Julian Diaz, CEO of Dufry Group, said: “The performance in the third quarter of 2017 makes me very optimistic. Even with a higher comparison base, the company kept the strong results. Despite the annualization of the positive Brexit impact, a very good summer season in Europe, together with strong performance in Latin America and growth acceleration in Asia contributed to the robust organic growth.

 

“Travel retail is constantly evolving and we currently see considerable changes in customer profiles and in shopping behaviour of our customers with an increasing propensity to use digital technology. Moreover, customers are more and more attracted by unique and individualized experiences.

 

“These are only a few reasons on why Dufry has engaged in and is deploying its digital strategy to attract more customers into the shops and increase sales per passenger.

 

NEW EXPERIENCES

“As one of the key elements of our digital strategy we have opened the first two New Generation Stores in Melbourne and Madrid. They provide a unique experience, include the digitalization of the employees in order to better serve the customer and allow us to adapt messaging, offers and promotions to the different traveller profiles present at the airport.

 

“In the same context we have also continued to expand or Reserve & Collect locations; where customer can order online before travelling and collect at the airport.

 

“Last but not least, we have further expanded our RED by Dufry customer loyalty programme, which among other benefits allows us to send individualized offers to the customer, when he is at the airport. We strongly believe in the digitalization of the business as it makes travel retail become a prospect channel for the future.”

 

20,500SQ M OF NEW SPACE OPENED

Diaz added that Dufry has also opened more than 20,500sq m of new space and refurbished more than 23,000sq m in the year to September, while also signing new contracts, as he explained.

 

 

“Among others we have refurbished the Intra-Schengen operations at the Athens International Airport in Greece, as well as refurbished and expanded our business in Morocco. With respect to the openings, I would like to highlight the opening of 18 convenience shops in China and a duty free casino shop in Macau.

 

“We have opened several stores for domestic and international passengers in Rio de Janeiro and in the US, where we started operations of several shops in hotels in Las Vegas, such as the Hard Rock Casino and several stores at Tulsa Airport.

 

“Last, but not least, we have launched our new Dufry Cruise Services centre based in Miami and entered the Asian cruise market with nine shops spanning over 1,950sq m on the JOY, a vessel of the Norwegian Cruise Line serving the Asian market.

 

“With respect to the future, we have already signed contracts to open further 18,000sq m of new commercial space in the last quarter of 2017 and 2018 and we are also currently working with a pipeline of additional opportunities which amount to around 38,000sq m.”

 

NEW OPERATING MODEL

Returning to the company’s financial results, Diaz said: “Profitability remained strong, with gross profit margin being the most important contributor. We are also working for future gains in efficiencies through our new Business Operating Model.

 

“The implementation of the programme is going well and we expect it to be completed by the end of 2018. The new operating model, which aims at standardizing processes and procedures in our Group, is expected to generate efficiencies in the magnitude of 50 basis points at EBITDA margin level once it is fully implemented.

 

“Dufry’s Board of Directors continues to assess the possibility of an initial public offering of our North American business. The IPO would create significant flexibility to capitalize on trends specific to the North American travel retail market, such as on the trends in food and beverage or master operators. A final decision on the IPO has yet not been made.

 

“The positive market conditions seen so far in the year persist in the beginning of the fourth quarter. On the other hand, the next quarters will reflect an increasingly higher-comparison base. We remain committed to our strategy of profitable growth and the results seen thus far in 2017 are evidence that we are heading in the right direction.”