Moodie Davitt snapshot: Dufry full-year 2017 results key take-outs – Sales up +7% to CHF8,377.4 million – +7.4% organic growth – Record levels of turnover and EBITDA – Strong free cash flow generation – Better than expected WDF synergies – Beauty products now nearly a third of the business – CSR programme stepped up – Balanced geographical spread (except Asia which remains light) – Strong focus on deleveraging Source: The Moodie Davitt Report |
INTERNATIONAL. Dufry, the world’s leading travel retailer by turnover, today posted a +7% rise in sales for 2017 (organic +7.4%) to CHF8,377.4 million (US$8,867.9 million). EBITDA crossed the CHF1 billion mark for the first time (CHF1,007.1 million/US$1.07 billion).
The company generated a free cash flow of CHF467 million (US$494 million) in 2017. Cash earnings per share increased by +14% to CHF6.84 (US$7.24).
Dufry described its +7.4% organic growth as “very healthy”. Changes in scope contributed -0.3% to the turnover increase, while the FX translation effect was marginal at -0.1%.
Dufry Group CEO Julián Díaz commented: “In 2017, Dufry achieved a strong performance and we have delivered good results in all our divisions. We have made good progress in the three defined key areas: accelerating organic growth, increasing cash generation and reducing our debt.
“Organic growth for the full year 2017 reached +7.4%, which is exceeding our original expectations. EBITDA crossed for the first time the CHF1 billion mark and our cash flow generation increased by +18%, excluding one-offs. We also achieved our goal to fully reflect the CHF125 million (US$132.3 million) of WDF [World Duty Free Group -Ed] synergies, +20% higher than originally announced; and, last but not least, our cash EPS increased by +14% to CHF 6.84.
“From an operational perspective, we started with the implementation of the new Business Operating Model (BOM) by launching the BOM process in 19 countries, of which ten have already passed internal certification reaching the expected efficiencies.
“We also focused on the ongoing expansion of our retail space adding another 30,000sq m gross sales area in existing and new locations across the globe, while at the same time extending existing contracts. Moreover, we continued to execute on our shop refurbishment plan with the renovation of 32,000sq m.
“Last but not least, we made good progress on our digital agenda by opening the first new generation stores in Madrid, Melbourne, Cancún and Zürich as well as rolling out our digital customer loyalty programme RED by Dufry.
“For 2018, our priorities are to complete the BOM process and generate the respective efficiencies, further drive the implementation of our digital strategy, and to accelerate the strategic initiatives to expand outside the airport channels. All these activities will contribute to continue driving organic growth and spend per passenger, which remains a cornerstone in our operational focus. The same applies to cash generation and further deleveraging of our balance sheet.”
Dufry Chairman Juan Carlos Torres Carretero said: “The business year 2017 was characterised by consolidation and the delivery of very good results. Having finalized the integration of our most recent acquisitions, in 2017 we succeeded in fully reflecting the World Duty Free synergies in our financials, and returned to sustainable organic growth. These achievements positively impacted our overall performance, which saw us reaching very good results and record levels of turnover and EBITDA as well as a considerable increase in Cash EPS.
Commenting on the recent IPO in North America of subsidiary Hudson Ltd, Torres said: “This strategic initiative allows us to best capture the opportunities of the North American travel concessions market and complementary retail environments. By positioning Hudson Ltd as a publicly listed company we can provide the entity with the necessary flexibility to adapt to the unique North American market requirements.
“From a Group perspective, we will continue to retain the majority participation and to fully consolidate the company. The proceeds of the IPO will allow us to accelerate our deleveraging plans and take – including the deleveraging achieved through our free cash flows in 2017 – our main covenant net debt /adjusted EBITDA to below 3.00x as compared to 3.69x at the end of December 2016.”
Cash boon for shareholders
Díaz added: “As mentioned on earlier occasions, Dufry’s Board of Directors has put a high priority on returning cash to shareholders and as such, intends to submit a proposal to the upcoming general meeting. The positive market conditions seen throughout 2017 have continued in the first months of 2018 in all divisions with similar organic growth performance as in previous quarters, thus providing a good base for the start into the new reporting year.
“We will continue to execute on our main initiatives and we will remain focused at operational level in order to further improve our performance going forward.”
Retail footprint grows
In terms of business development, 2017 was a successful year for Dufry, Díaz said. “The expansion of the gross retail space in 2017 amounted to 30,000sq m, with North and Latin America accounting for the largest part, followed by Asia, Middle East and Australia and then Southern Europe and Africa. Moreover, Dufry has already 15,500sq m of signed space to be opened in 2018 and 2019.
“The synergies from the World Duty Free acquisition were fully reflected for the first time in the 2017 results, amounting to CHF125 million (US$132.3 million). This is an important achievement, as the total synergies considerably exceeded the original estimates of CHF105 million. In 2017, Dufry saw a strong free cash flow generation of CHF571.0 million (US$604.3 million), excluding one-offs, a +18% increase versus the CHF483.8 million (US$512 million) record level reported in 2016.
“Accounting for the one-off items related to the signing of certain contracts in the beginning of the year, reported free cash flow came in at CHF467.0 million (US$494.3 million). Net debt was reduced to CHF3,686.9 million (US$3,902 million) on December 31, 2017, while the covenant calculated as net debt EBITDA of 3.59x secures a comfortable headroom towards the threshold of 4.00x.”
Regional round-up
Southern Europe and Africa turnover reached CHF1,857.8 million (US$1,966 million) in 2017, from CHF 1,702.3 million a year before. Organic growth in the division was +6.8%.
In Southern Europe, Turkey grew strongly, driven by the return of Russian tourists, while France, Greece, Italy, Malta and Spain also posted positive growth. Africa saw an even stronger performance with most operations growing high double digits in the year, also benefiting from the opening of new locations, expansions and refurbished shops, Dufry noted.
UK, Central and Eastern Europe, turnover grew to CHF2,147.4 million (US$2272.7 million) in the year, versus CHF 2,088.9 million in 2016, with organic growth reaching +6.3%. The UK continued with a good performance, despite the higher comparison base in the second half of 2017 due to the annualisation of the positive impact seen by the Brexit-related devaluation of the British Pound in June. Other highlights in the division were the operations in Russia and Eastern Europe, as well as Finland.
Asia, Middle East and Australia turnover climbed to CHF809.1 million (US$856.3 million) in 2017, from CHF770.7 million in 2016. Organic growth was 5.4%. Most operations in the division contributed to the improvement. In the Middle East, Sharjah, Kuwait and Jordan were positive. In Asia, South Korea saw sales growing, despite a reduction of Chinese travellers to the country due to the THAAD row with China. Both Hong Kong and Macau had comebacks and grew by double digits in the second semester. Other operations including Cambodia and Bali also performed well, while Melbourne recovered in the second semester, after the implementation of the New Generation Store and the comprehensive refurbishment undergone in the first half.
[Click on the YouTube icon to view Martin Moodie’s short film of Dufry’s New Generation store at Melbourne Airport]
Latin America turnover rose sharply to CHF1,694.0 million (US$ 1792.9 million) in 2017 versus CHF 1,531.1 million one year earlier. Organic growth was 10.8%. South American countries, notably Brazil, Uruguay, Chile and Peru performed well. The same applied to the Caribbean operations with Dominican Republic the stand-out performer.
Dufry Cruise Services also posted “strong growth” driven by the start of operations on a number of new ships, the company said.
North America turnover reached CHF1,771.5 million (US$1874.9 million) in 2017 from CHF 1,660.9 million in the previous year. Organic growth reached +6.5%, supported by what Dufry described as the “resilient” duty paid business on one hand and a good performance of the duty free operations on the other.
Stepping up the CSR commitment
Dufry also advanced its wide-ranging Corporate Social Responsibility programme in 2017. The company noted: “Dufry has been a sponsor of charitable organisations and partnerships across the world for many years. Our commitments are based on our strong belief that we can make a difference to the lives of people concerned.”
The main focus of its programmes is on supporting disadvantaged children, young people and their families. The company also supports charities that help victims of natural disasters, as well as promoting cultural and sports events.
In July 2017, Dufry pledged to continue to promote the United Nation’s #YouNeedToKnow sustainable development awareness campaign at over 80 airports in five continents.
The campaign aimed to raise public understanding of 17 UN Sustainable Development Goals (SDGs). The Dufry project aimed to inform 2 billion people by the end of the year about the importance of the 17 goals (see below) and how each individual can contribute towards a more sustainable and fairer world, by making small changes in our day-to-day lives.
Building on campaigns carried out at Geneva Airport in December 2016 and at London Heathrow and Zürich airports in early 2017, Dufry supported the UN by activating the #YouNeedToKnow campaign in 31 additional airports last year. Prominent space and visibility were given to the campaign for an average period of 1.5 months between July and October.
“Either by showing the campaign in the multiple video screens and tills in the stores, or through interacting with passengers and engaging them to share the #YouNeedToKnow hashtag in their social media, Dufry reached over 52 million passengers during these activations, generated additional media coverage and gave a push to the UN campaign in the different social media platforms,” the company said.
Dufry also continued supporting disadvantaged children around the world and assisting communities in markets where it operates. The retailer is now in its eighth year of supporting the funding of SOS Children’s village initiatives in Brazil, Russia and Mexico.
Moreover, in 2017 Dufry endorsed community projects in many other parts of the world such as Haiti, Jamaica, Burma, UK, USA and Africa.
“This year, I would also like to highlight an internal support initiative where employees of the Dufry Group around the world have made a collection to support our colleagues affected by hurricanes and earthquakes in the Caribbean Islands, Mexico and the United States. The company has contributed by matching the collected amounts,” said Dufry Chairman Juan Carlos Torres Carretero.
Dufry has been sponsoring the Student Sponsorship Programme launched by the Hand in Hand for Haiti Foundation since 2015. Its 2017 donation again supported 25 students at the school complex in Saint Marc, north of Port-au-Prince.
Other initiatives in 2017 included support of the Amelia Project Foundation – a free transport charity for children with cancer and their families in Myanmar; Alzheimer’s Research UK; and the “One” water project in Africa, among several others.
