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“The companies that we were able to acquire are among the best in our industry“ |
Julián Díaz Chief Executive Officer Dufry Group |
INTERNATIONAL. The travel retail industry stands transformed today, especially in South America, after Dufry signed and concluded a US$957 million investment spree for four separate acquisitions in key emerging markets.
These include Argentinean travel retail powerhouse InterBaires for US$285 million.
Besides InterBaires, the leading airport retailer in Argentina, the deals included airport retail operations in Uruguay, Ecuador, Armenia (all businesses related to tycoon Eduardo Eurnekian) and Martinique, plus wholesale platform IOSC.
The flurry of acquisitions represents the latest extraordinary chapter in Dufry’s phenomenal rise under CEO Julián Díaz since early 2004. And it gives the company a dominant presence in South America where it already owns the region’s biggest retailer, Brasif, which it acquired together with buying arm Eurotrade for US$500 million in 2006.
Díaz commented: “The companies that we were able to acquire are among the best in our industry: they are long-term contracts for attractive locations in fast-growing emerging markets.
“They are also a 100% airport duty free business, which is perfect for implementing the Dufry business model to achieve synergies and to develop the business further.”
The new businesses add 21 shops in ten airports with a total retail space of around 13,500sq m to Dufry’s portfolio. In the twelve months ending May, 2011, pro forma combined turnover was US$395 million (CHF386 million ([*1])) and EBITDA was US$96.5 million (CHF94.3m (*1)).
The acquired businesses all have long-term concession contracts and more than 90% of sales are generated based on contracts with durations of more than ten years – always a key consideration of Dufry’s acquisition strategy
Commenting on the deal, Guillaume Rascoussier of analyst Oddo Securities noted: “We feel that these deals although expensive are strategically justified, at least the ones in South America. These deals are partially defensive consolidating its South American leaderships and reducing competition there whereas Dufry might lose significant market shares in 2014/15 when its Brazilian concessions mature. It gives back some dynamism for the group which will allow it not to focus only on the renewals to come.
He continued: “The price paid is quite high before synergies, testament to some competition in the acquisition process.”
All transactions have been fully debt financed and Dufry structured an additional credit facility of US$1 billion (CHF 800m (*2). The four acquisitions made by Dufry all focus on the fast-growing emerging markets and comprise attractive retail operations, the company said.
InterBaires operates duty free shops in the five main Argentinean airports, including Ezeiza and Aeroparque airports in Buenos Aires, as well as the airports in Bariloche, Cordoba and Mendoza. It operates a retail space of 8,000sq m and in 2010 generated a turnover of approximately US$250 million (CHF 260 million ([*3]).
[InterBaires is one of South America’s biggest and best travel retailers]
The other operations are [Duty Free Uruguay] located in Uruguay at the airports in Montevideo and Punta del Este airport; Duty Free Ecuador at Guayaquil Airport; and in Armenia at Yerevan Airport. The total retail space in these operations is more than 5,500sq m and turnover is approximately US$85 million (CHF 88 million (*3)).
Dufry also acquired two shops at the international airport in Martinique with a total space of 250sq m and selling the full range of duty free products.
STRONG RECENT PERFORMANCE AND LONG-TERM CONCESSIONS
The operations performed very well in the past years, Dufry said, experiencing double-digit growth to reach pro forma combined turnover of US$395 million (CHF 386 million (*1) for the twelve months ending May, 2011. The businesses are also very attractive in terms of profitability, it noted. The pro forma combined EBITDA was US$96.5 million (CHF 94.3 million (*1) for the same period.
All operations have long-term concession contracts and the majority of sales are based on contracts with a remaining term of more than ten years. The concession contract with the main Argentinean airports operator has a remaining duration of more than 15 years.
CONSOLIDATION OF INDUSTRY LEADERSHIP
In 2010, on a pro forma basis and based on the 2010 average USD/CHF exchange rate, Dufry including the four acquired businesses generated a turnover of CHF3.0 billion, and an EBITDA of approximately CHF430 million.
The expanded Group is present in 45 countries, operates 1,160 shops with a total retail space of 168,000sq m, and has a workforce of about 13,500 employees.
Dufry said: “The transactions strengthen Dufry’s leadership in the travel retail industry globally and specifically in the fast-growing emerging markets. They also mark the next step in Dufry’s development by adding some excellent long-term contracts to the concession portfolio.”
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InterBaires was profiled in The Moodie Report’s Latin American Print Edition |
NEW FINANCIAL CAPACITY AND STRONG CASH GENERATION
As mentioned, Dufry acquired 100% of the operating businesses in each of the transactions and paid a total purchase price of US$957 million.
The transactions have been fully financed with debt and Dufry entered an additional committed five-year syndicated bank facility, which has been structured to sit alongside the existing financing.
The existing banking arrangements remain in place and their structure will remain unchanged, Dufry said. The new facility has been underwritten by a bank syndicate comprised of BBVA, BNP Paribas, Credit Agricole, ING, Raiffeisen Bank International, Royal Bank of Scotland, Santander, Unicredit and WestLB.
Through this financing, Dufry almost doubled its available credit lines by US$1,000 million (CHF 800 million (*2) to a total of CHF1,800 million. Thanks to the committed long-term financing combined with the high cash generation of the group, all the transactions could be fully debt financed.
STRONG SYNERGIES
Dufry said it will integrate the businesses in the next 12 months and expects to generate cumulative synergies of approximately US$25 million over the next two years. Specifically, it intends to merge the acquired wholesale company with its logistics platforms in the Americas. “Overall, the transactions are expected to be Basic EPS accretive from 2012 onwards and Core EPS accretive already in 2011,” it noted.
The businesses will be integrated into the existing Dufry organisation and the new operations in Argentina, Ecuador and Uruguay will be managed together with Dufry’s existing South American operations. The Armenian operation will be managed through Region Eurasia. The operations in Martinique will be managed from Region Europe.
“ONE OF THE MOST ADVANCED SUPPLY CHAIN ORGANISATIONS IN THE TRAVEL RETAIL INDUSTRY”
Dufry will integrate the new businesses in the next 12 months and said it expects to extract synergies through increased top-line growth, improved gross margin through the consolidation of purchasing volumes, assortment review and expansion, review of the pricing policy as well as through improving processes in the back office functions.
Additionally, the merger of the newly acquired wholesale company with the existing logistics platforms in the Americas is expected to further leverage the improvements in the supply chain that were planned as part of the company’s ‘Dufry plus One’ and ‘One Dufry’ initiatives and potentially generate additional synergies. Once completed, Dufry believes the new logistics platform will be one of the most advanced supply chain organisations in the travel retail industry.
Diaz said: “Dufry has led the consolidation process in the travel retail industry being an important part of our strategy to further enhance our business model and we have consistently emphasised that we intend to focus on emerging markets and on good long-term concession contracts.
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“We expect to generate substantial synergies of US$25 million over the next two years“ |
Julián Díaz Chief Executive Officer Dufry Group |
“The acquired companies match these criteria perfectly.
“We will start to integrate the new businesses right away and we expect to generate substantial synergies of US$25 million over the next two years.
“We were looking to consolidate our logistics platforms as part of our “˜Dufry plus One’ and “˜One Dufry’ initiatives and the acquisition of the wholesale company [IOSC -Ed] gives a whole new dimension to this project. We will need to analyse this part in more detail but we are sure that we will be able to substantially strengthen and increase the scope of the existing logistics project through the newly acquired business.
“We have been able to put together an excellent long-term financing package and our focus during the next twelve months will be to generate cash and to deleverage. The strong cash generation of our Group as well as the newly acquired businesses combined with the substantial synergy potential should allow us to reduce our leverage very quickly.
“Overall, the transactions will allow us to accelerate the next development phase of our Group and they strengthen our overall profile and development potential. The acquisitions are also in line with our guiding principle to create value for our shareholders and the EPS accretion expected from 2012 onwards reflects this.
“We are delighted about the successful closing of all four transactions and we would like to welcome the new employees to Dufry.”
*1 Based on average FX rate LTM May, 2011 USD/CHF: 0.9777
*2 Based on FX rate as per 28 July, 2011, USD/CHF: 0.80
*3 Based on average FX rate FY 2010 USD/CHF: 1.0427
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