Eugenio Andrades named as World Duty Free Group Chief Executive

SPAIN. World Duty Free Group has announced that Chief Commercial Officer Eugenio Andrades has succeeded José Maria Palencia as its CEO. The move comes amid a major strategic review that will result in a business plan to take the group forward to 2017 (see below).

In a statement the retailer explained that Palencia had today left his position on the board of directors following Andrades’ appointment after a “structured process” of recruitment, including internal and external candidates.

Meanwhile the retailer has reported revenue of €1.77 billion in the first nine months of the year, up by +15.8% on the same period in 2013. Excluding the US retail division, revenue grew by +9.2% to €1.67 billion. EBITDA was down by -1.2% to €191.7 million.

The group also reported a -19.9% decrease in net profit, to €72.9 million citing higher depreciation and amortization, financial expenses and taxes.

Andrades takes the CEO role following a selection process that considered both internal and external candidates

New plan for 2015-2017
The company also said it has launched a strategic review for the period 2015-2017, with support from Boston Consulting Group and Bain & Company. This will be reviewed by the Board of Directors and presented to the financial community and institutional investors by the end of January 2015.

The plan’s development will be supported by due diligence (business, legal, tax and financial) that is being carried out by audit firm KPMG with the objective of delivering “a complete and comprehensive information base for the assumptions of the business plan”, noted WDFG.

The main areas of focus of the new plan will include:

*Integration of European platforms to optimise processes and release synergies. In particular, it will provide for the integration and simplification of corporate organisations and central functions in Spain and the UK, renovation and integration of IT platforms (retail, finance and supply chain) and the redesign of logistics systems.

Importantly, London is expected to be the centre of the group’s operations in the future. This is mainly because the UK accounts for around 44% and 60% of revenue and EBITDA respectively, as of 30 September 2014. WDFG also noted that and the UK has shown “excellent operating performance” and has a weighted average maturity of over 11 years in its contract portfolio.

*Improving the profitability of the Spanish operation. This includes the introduction of best practices aimed at improving business performance and optimisation of business processes and costs. More specifically, actions on the commercial front relate to refocusing the offer, improving the attractiveness of points of sale, revision of some product categories and of commercial spaces and the introduction of incentive schemes to sales forces. It will also include the optimisation of processes and costs through different opening hours or streamlining the logistics platform.

*Increasing profitability and business expansion of the US business by targeting selected opportunities, notably in duty free and duty paid areas, by revising current formats and reviewing the regional organisation (structure, roles, processes and systems) to support the development of the US activities.

Contract developments
As previously reported, the company has agreed an extension of its London Heathrow duty free concession to 2026. The retailer operates 38 stores at the airport, including 25 core category and 13 specialty retail sites, totalling over 13,000sq m. World Duty Free Group recorded sales of €455.6 million at the airport in 2013 – 46.7% of the group’s total revenue in the UK and nearly 22% of the total global sales of World Duty Free Group for that year.

The early renewal entails higher concession fees estimated at about €7.5 million in 2014. That amount will be charged in full in Q4 as the contract was signed on 2 October 2014.

In other contract news, the company completed the acquisition of Finnair’s Travel Retail operations at Helsinki Airport on 1 October. This comprised two stores and, following the acquisition, World Duty Free Group is the only duty free operator at Helsinki Airport.

In the Kuwait International Airport tender, WDFG confirmed that it had made the highest bid for the new duty free concession, as reported. Contract signature is still pending and is expected to take place in the coming months, it noted.

WDFG also said it had won the tender to operate Package A of a new concessions programme at Los Angeles International Airport (LAX) Terminal 6. With a total selling area of 240sq m, World Duty Free Group will open six stores (devoted to the convenience category and to beauty and specialty retail) under a ten-year contract.

Revenue by region
In the UK revenues reached €776.3 million, up by +7.5% year-on-year. At constant exchange rates growth was +2.4%. At London Heathrow Airport the retailer recorded sales of €340.7 million, down -2.1% at constant exchange rates. Traffic increased by+1.5%, while spend at constant exchange declined by -3.6%.

The company said that the decline in spend by non-EU passengers was focused on countries where local currency has weakened against a very strong British Pound – including Russia, Japan, Norway, South Africa). Chinese traffic grew although the nationality’s average spend shrank, while Eurozone passengers were also affected by the stronger Pound.

Outside Heathrow UK sales reached €435.6 million, growing by +6.2% at constant exchange rates. The growth was achieved as a result of passenger volume increases and spend gains, with the stronger Pound not impacting those airports to the same level. London Gatwick Airport sales grew by +4.7% €144.8 million sales. Passenger volumes improved by +7.6%, but average spend declined by -2.7%.

WDFG’s recent investments in the UK include its impressive new store at The Queen’s Terminal, which opened in June, and its ‘next generation’ outlet at London Stansted (below)

Manchester Airport sales improved by +6.0%, reaching at €77.3 million thanks to a +5.6% increase in traffic. London Stansted Airport noted sales of €47.1 million, up by +21.2%; passenger volumes grew by +9.5% while average spend increased by +10.7%.

For the rest of Europe sales reached €556.0 million, up +15.6% versus 2013. The Wholesale and Palaces & Museums businesses generated sales of €38.2 million, up by +19.4% on the same period last year. Airport sales in the rest of Europe were €517.8 million, up +15.3%.

The group’s new Helsinki Vantaa airport business generated sales of €16.8 million; excluding Helsinki’s contribution, sales in the rest of Europe increased by +11.5%. At Düsseldorf Airport, where development disruption ended in the third quarter, sales grew by €3.9 million.

In Spain airport sales of €455.4 million represented growth of +12.1% on the same period last year. Passenger volumes increased by +4.6%, with spend per passenger contributing +7.1%. The growth was achieved despite Madrid sales dropping by -6.5%, affected by the loss of non-core categories and poor spend by domestic passengers. Traffic gains of +4.2% at Madrid were offset by a -10.2% decrease in spend per passenger.

Spanish airport sales excluding Madrid were +18.2% higher, at €362.1 million, driven by a +4.8% gain in passenger volumes. Canary Islands led the growth, up by +61.1% to €29.6 million. Passenger growth of +8.9% boosted a +47.8% increase in spend, along with development gains as the new Tenerife Sur main store improved sales by €16.0 million.

Spanish mainland sales (excluding Madrid) improved by +10.2%, supported by passenger growth of +4.6%, while refurbishments improved spend by +5.4%. Spend improved by +12.0% at Palma de Mallorca Airport, and by +8.4% at Malaga.

Americas revenue amounted to €314.0 million, up +58.4% on constant exchange rates. The acquisition of the US retail business in September 2013 contributed sales of €101.6 million. Americas sales growth at constant exchange excluding US Retail came to +8.4%.

World Duty Free Group grew total sales across its Spanish airport portfolio, but revenue at Adolfo Suárez Madrid-Barajas airport remains under pressure

North America airports drove the growth, with Vancouver sales up by +21.8% on constant exchange rates. The group cited high-spending Chinese and greater American spend alongside its completed store development, with improved luxury and beauty offers.

Latin American airport sales improved by +3.0% on constant exchange rates. Jamaica improved by +116% as a local competitor closed and business moved to WDFG, improving liquor sales. Peru sales grew by +8.2% on constant exchange supported by a stronger third quarter. Sales in Chile were down by -4.8%.

Asia and Middle East revenues amounted to €126.9 million, up by +9.8% on constant exchange. The growth has been driven by Jordan, with sales of €61.4 million representing a +17.6% increase. Kuwait sales are up by +5.0% while sales in Sri Lanka are marginally down.

EBITDA of €191.7 million was down by -1.2% on the same period last year. EBITDA margin slipped from 10.8% to 12.7%, impacted by higher rents in new contracts, higher headquarter costs related to the group’s listing on the stock exchange and to the lower margins of the US retail business.

Net profit fell sharply, dropping -19.9% to €72.9 million. Profit attributable to the owners of the parent amounted to €68.9 million, down from €89.3 million in the first nine months of 2013.

The group noted that the first 45 weeks of 2014 (ending 9 November) had delivered growth of +17.7% (+15.3% at constant exchange rates) in airport sales compared to the same period last year. Excluding the contribution of the US retail operations acquired in September 2013, revenue grew by +10.4% (+8.2% at constant exchange rates), with all the regions recording positive growth.

World Duty Free Group concluded that its underlying guidance for the full year provided on 1 August remains substantially unchanged. However it pointed to a number of extraordinary costs arising from the reorganisation and from its contract extension at Heathrow. The retailer also noted the possibility that provisions in its new industrial plan might affect net profit.

Eugenio Andrades: Background
Eugenio Andrades joined Aldeasa (now WDFG) in 1996, and has since become one of the most respected senior executives at the group.

He began his Aldeasa career as Director of Strategy and Development, a position he held until 2001 when he moved to Jordan as CEO of Aldeasa´s fledgling operation there. A year later he returned to Spain as Director of Strategy & Development and Investor Relations, until he was named Commercial Director and Operations Coordinator in 2007. The next year he was closely involved in the integration of Aldeasa, Alpha and World Duty Free.

Before joining Aldeasa, Andrades was consultant at the McKinsey group and held engineering positions at Carboex, and Endesa subsidiary. A Spanish citizen (born in 1968), he has a degree in Mining Engineering from the Politécnica University of Madrid, and a Masters in Economic and Strategy from the Colorado School of Mines, (Colorado, USA).

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