INTERNATIONAL. Dufry posted what it called a “strong organic performance across the group” in the first nine months of 2017. Turnover climbed +6.7% (including +7.9% year-on-year organic growth) to CHF6,270.5 million. The organic growth figure was the highest since 2011. EBITDA grew by +8.5% to CHF743.6 million – a margin of 11.9%.
Gross profit margin expanded by 100 basis points, driven by the synergies from the World Duty Free Group integration, to 59.4% in the period. Free cash flow generation in the third quarter was very strong at CHF337.1 million, the retailer stated.
Most markets performed well, Dufry said. The summer season was strong, in particular the company’s Mediterranean operations, led by Turkey. Organic growth continued at high levels in the third quarter with a +7.6% year-on-year increase, the company note.
The good performance was also reflected in the bottom line with cash EPS growing by +27.7% to CHF 5.81.
Cash generation was strong in the third quarter of 2017 with free cash flow reaching CHF 337.1 million – the highest quarterly result ever. The third quarter typically provides for the highest cash generation in the year.
Dufry said it continued to deleverage and reduce its net debt, which as per September 2017, stood at CHF 3,475.7 million. The total reduction of net debt in the year to September amounts to CHF274.7 million.
Dufry CEO Julián Díaz 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 annualisation 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 behavior of our customers with an increasing propensity to use digital technology. Moreover, customers are more and more attracted by unique and individualised experiences. These are only a few reasons for why Dufry has engaged in and is deploying its digital strategy to attract more customers into the shops and increase sales per passenger.
“We strongly believe in the digitalisation of the business as it makes travel retail become a prospect channel for the future” – Julián Díaz
NEW GENERATION STORES
“As one of the key elements of our digital strategy we have opened the first two ‘New Generation’ stores in Melbourne and Madrid [the official opening of the Melbourne store takes place next week. The Moodie Davitt Report will be on location to cover it -Ed]. They provide a unique experience, include the digitalisation 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 program, which among other benefits allows us to send individualised offers to the customer, when he is at the airport. We strongly believe in the digitalisation of the business as it makes travel retail become a prospect channel for the future.”
Díaz said that the company has opened over 20,500sq m of new space and refurbished over 23,000sq m in the year to September.
“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,” he said.
He highlighted the opening of 18 convenience shops in China and a duty free casino shop in Macau. The company has also opened several stores for domestic and international passengers in Rio de Janeiro. In the USA, it has opened several shops in hotels in Las Vegas, such as the Hard Rock Casino, and others at Tulsa Airport.
“The positive market conditions seen so far in the year persist in the beginning of the fourth quarter” – Julián Díaz
“Last but not least, we have launched our new Dufry Cruise Services center 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.
“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 standardising 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.”
NORTH AMERICAN IPO STILL ON THE CARDS
“Dufry’s Board of Directors continues to assess the possibility of an initial public offering of our North American business,” Díaz said. “The IPO would create significant flexibility to capitalise on trends specific to the North American travel retail market, such as on the trends in food & 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.”
REGIONAL RESULTS
Southern Europe and Africa
Turnover reached CHF1,433.9 million in the first nine months of 2017, from CHF1,319.3 million a year earlier. Organic growth accelerated to +7.7% in the first nine months 2017, driven by a strong third quarter with an organic increase of +10.1%. Most operations performed well. In Southern Europe, Turkey grew strongly, driven by the comeback of Russian tourists. France, Greece, Malta and Spain also posted positive figures. Africa posted strong growth with most operations rising high-double digits in the year to September.
UK, Central and Eastern Europe
Supported by an organic growth of +8.4%, turnover grew to CHF1,604.8 million in the year to September, from CHF1,576.6 million in the respective period in 2016. In the third quarter the UK performed very well, achieving a growth for the quarter of +5.9%. This was despite the higher comparison base due to the annualisation of the positive impact seen by the devaluation of the British Pound Sterling in June 2016. Other highlights in the division were the operations in Russia and Eastern Europe, as well as Finland.
Asia, Middle East and Australia
Turnover reached CHF574.0 million in the first nine months of 2017 from CHF569.4 million in the same period last year. Organic growth in the division was 0.5% in the first nine months 2017, with organic growth accelerating in the third quarter to +4.4%. Most operations in the division did well and contributed to the improvement, Dufry said.
In the Middle East, Sharjah, Kuwait and Jordan were positive. In Asia, South Korea grew by double digits, despite a reduction of Chinese travellers to the country. Both Hong Kong and Macau saw 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 Airport is now fully operational again with improved performance benefiting from the shop floor improvements, Dufry said.
Latin America
Turnover grew by +13.0% to CHF 1,262.0 million. Organic growth reached +12.7% in the same period, with the third quarter standing at +13.2%. In South America, Brazil, Uruguay, Chile, Peru and Dominican Republic all performed “very well”, Dufry said. Dufry Cruise Services also posted strong growth as the fledgling division began operations on a number of new ships.
North America
Turnover grew to CHF1,327.3 million from CHF 1,245.2 million in the same period last year. Organic growth was 6.0%, supported by the “resilient” duty paid business and a good performance by duty free operations.
