Strong Swiss Franc masks good Dufry result

By Doug Newhouse |

The Dufry Group has reported first quarter reported sales turnover of Swf.571.6m ($648.9m) in 2011, which would have registered a 9.6% increase with constant exchange rates, but actually translated into minus 11.8% as a result of the Swiss Franc strengthening considerably during the period. However, Dufry’s management remains upbeat, reporting that general business trends remain positive in a business climate where it expects passenger traffic growth to continue at around 4% this year.

Dufry points to a strong operational performance in the first quarter, although it was impacted by a number of extraordinary external events in the various regions which were out of its control.

The company said: “Despite a number of external factors impacting our business in some of the regions, such as snow storms in the United States, political turmoil in North Africa and the bankruptcy of Mexicana airline in Mexico, we were able to deliver a strong operational performance thanks to the diversified portfolio of operations.

“In the first quarter 2011, Dufry continued to outpace passenger growth and posted an organic (like-for-like) growth of 7.4%. Without the external events mentioned, organic growth would have been double-digit at 10.9%. This compares to ACI (Airport Council International) estimates of global passenger numbers increasing by 4% for the period, whereby international passenger numbers grew 4.6% and domestic passenger growth was 3.5%.

“In terms of space expansion, Dufry added net new retail space of 3,000 square metres. The most important expansion projects were added in Mexico, Guadeloupe and the United States and further strengthened our leading position in the Americas. Overall, Dufry opened 29 new shops to date, and expects to open additional shops with a total space of 9,600sq m until year end 2011.

“Dufry also further improved its gross margin by 1.0 percentage point to 57.6% and EBITDA margin improved to 11.7% from 11.1% in the same period of last year. The operational improvements for sales growth and margin enhancement have been mainly a result of the two initiatives ‘Dufry plus One’ and ‘One Dufry’, focusing on our execution capabilities on the operational side, as well as for back office and support functions. 

“Both initiatives, which were launched in 2010 and will be completed in 2013, have progressed according to plan and have contributed to the increase in profitability. “General business trends remain positive and latest forecasts expect passenger growth for the full year 2011 to remain at around 4%. As in the past quarters, we are determined to capture these ongoing positive trends to further grow our business profitably through organic and external growth.”

Dufry reports that turnover of Region Europe saw a growth of 9.5% on constant exchange rates compared to the same period in 2010. Translated into Swiss Francs, turnover reached Swf.71.1m ($80.7m) compared with Swf.72.7m ($82.5m) one year ago.

Dufry said: “The outstanding performance in the first three months of 2011 was mainly due to higher sales in the Italian operations, as well as the expansion of our operations in Pointe-à-Pitre (France).”

Meanwhile, Region Africa’s turnover registered a decrease of 9.5% on constant exchange rates to Swf.28.3m ($32.1m). This compared with Swf.35.5m ($40.3m) for the same period in 2010. 

Needless to say, the Tunisian and Egyptian operations were substantially negatively impacted by the political turmoil that arose in the region at the beginning of the year.

On the other hand, Dufry’s shops in Morocco witnessed double-digit growth, which helped to mitigate the impact. The company further reports that operations in Egypt have shown some improvement since mid-March, while the recovery in Tunisia has so far been more limited.

In Region Eurasia, turnover changed by 3.3% on constant foreign exchange rates. In Swiss Franc terms, turnover reached Swf.44.3m ($50.2m) in the first quarter of 2011 compared to Swf.51.1m ($58m) in the same period last year. 

Dufry’s Russian operations at Domodedovo and Sheremetyevo airports were affected by the situation in North Africa, as most flights to Egypt and Tunisia were cancelled during most of the first quarter. 

Also, the repositioning in Singapore implemented in the 4th quarter of 2010, led to a sales reduction. On the other hand, the company’s operations in Shanghai continued to contribute to growth.

Turnover of Region Central America & Caribbean saw a decrease of 1.3% in constant foreign exchange rates. Translated into Swiss Francs, turnover for the period reached Swf.93m ($105.5m) compared with Swf.106m ($120.3m) in the first quarter of 2010. 

The main impact on the performance continued to be the bankruptcy of Mexicana, one of the two incumbent airlines in the country, which grounded its fleet in September 2010. The positive performance came from the Caribbean islands, which showed positive growth across the region, thus mitigating the lower performance of Mexico.

By contrast, Region South America achieved turnover growth in constant foreign exchange rates of 29.2%. In absolute terms, turnover increased to Swf.168.8m ($191.6m) in the first quarter of 2011 from Swf.146.4m ($166.1m) in the same period last year. 

Passenger numbers continued to grow at a high rate and Dufry was able to grow considerably faster, utilising a range of promotions and sales incentives, such as a new scheme introduced in May 2010, allowing customers to spread the payment for their goods over seven installments.

Turnover of Region North America, measured in constant foreign exchange rates grew by 7.1%. Measured in Swiss Francs, it amounted to Swf.161.9m ($183.7m) for the first quarter in 2011 compared to Swf.169.6m ($192.5m) in the first quarter of 2010. 

Dufry said: “This performance is even more remarkable given the disruptions in air traffic and the subsequent cancellation of more than 20,000 flights, due to snow storms in the USA in January this year. Overall, passenger numbers continued to be positive, and growth was further supported by an active development of the concession portfolio, as well as productivity improvements.”

Gross margin improved by one percentage point to 57.6% in the first quarter of 2011 from 56.6% in the same period one year ago. In absolute terms, gross profit reached Swf.329.5m ($374m) for the first quarter of 2011 compared to Swf.331m ($375.7m) for the same period in 2010. 

Dufry says that the projects started as part of the ‘Dufry plus One’ initiative, such as brand and promotion plans, contributed to the development of the gross margin in the period.

Selling expenses as a percentage of turnover stood unchanged at 22.2% compared to the same period last year. In absolute terms, they decreased by 1.7% to Swf.126.7m ($143.8m) in the first quarter versus Swf.128.9m ($146.3m) one-year before.

EBITDA for the first quarter of 2011 increased by 17.1% to Swf.75.9m ($86.1m) on constant foreign exchange rates. When translated into Swiss Francs, EBITDA grew by 2.9% to Swf.66.7m ($75.7m) compared to Swf.64.8m ($73.5m) for the respective period in 2010. EBITDA margin improved by 0.6 percentage points to 11.7% compared to 11.1% for the relevant period in 2010.

EBIT in the first quarter of 2011 increased by 8.8% to Swf.34.5m ($39.1m) compared to Swf.31.7m ($35.9m) in the respective period of 2010.

Net debt was Swf.635.4m ($721.2m), compared to Swf.637.9m ($724.1m) at year-end 2010. The reduction of Swf.2.5m ($2.8m) compares to an increase of Swf.3.5m ($3.9m) in the same period last year. Dufry said: “Typically, the first quarter is the lowest quarter in terms of profitability and cash generation. The main covenant, Net Debt/adjusted EBITDA, remained also flat at 2.1x.”

Commenting on the results, Ceo Julian Diaz said: “Dufry delivered once more a strong set of results, and organic growth continued to be very healthy. Profitability was further improved, even if we faced several external factors impacting our business recently: Disruptions due to snow storms in the USA, political turmoil in North Africa, and the bankruptcy of Mexicana in Mexico, to name a few. 

“Once again, our strategy of diversifying our concession portfolio and our business geographically has proven to be the right strategy.

“The other topic impacting our financials, although only from an accounting perspective, was the translation effect of converting our numbers into Swiss Franc. We would like to emphasize once more that our business is to a very large extent naturally hedged protecting our profitability from currency swings. 

“The main impact is therefore only translational when converting to Swiss Francs. If the currency markets remain unchanged where they are today, the translational foreign exchange effect will remain significant in our accounts throughout 2011.

“The fundamentals of the industry remain solid with the expectations for the global passenger growth in the medium and long term within the 4-5% range. We are ready to capitalize on this trend and to add productivity gains. At the same time, we are also keen to drive expansion in existing and new locations.

Furthermore, we will continue with the mid-term initiatives ‘Dufry Plus One’ and ‘One Dufry’ focusing on top-line growth, productivity improvements and efficiency improvements in the coming years. Significant improvements have already come from procurement, marketing, risk and cash management as well as tax initiatives.”



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