Dufry is reaping the benefits of its major acquisitions as the integration of last year’s WDF Group continues amid implementation of a new business operating model.
The company today reported that its nine month turnover for the period ended Sept. 30, 2016 increased by 39.4% to CHF 5,877.2 million (US$6.031 billion), while its organic growth pushed into positive territory in the third quarter, starting from a performance of -2.9% in the second quarter of the year.
EBITDA was CHF 685.4 million, 34.9% higher compared to the first nine months of 2015, and free cash flow generation grew by 64.1% to CHF 535.7 million.
Dufry says that changes in scope, which include the acquisition of World Duty Free, added 42.0% to the turnover growth, while the translational FX impact stood at +0.6%.
Net new concessions contributed 0.6 percentage points to the organic growth, including WDF, and 0.8% on a reported basis. Cash generation continued strong and free cash flow before interest reached CHF 535.7 million, 64.1% higher than in the previous year, due to significant improvements in net working capital management.
Dufry reports that most of its divisions have had either a stable or improved performance.
In Europe, Spain continued its strong performance driven by increasing passenger numbers. Performance in the United Kingdom was positively affected by the weakening of the British Pound, but markets like Turkey continue to be impacted by fewer Russian tourists.
Brazil had a distinct performance improvement as the Brazilian Real recovered over the quarter and even appreciated against the US dollar as of August, says the company.
Dufry opened over 27,000 sqm of gross new commercial space as of September, expanding its operations in Cambodia
(1,500 sqm), Macau (600 sqm) and Lima (2,000 sqm), among others. In Brazil, operations in Rio de Janeiro have been completely re-vamped and the commercial space more than doubled to 11,800 sqm, including the addition of 5 new shops. In addition, Dufry has signed an additional 26,800 sqm of retail space which are expected to be opened throughout the remainder of 2016 and 2017.
Diaz: Organic growth back to positive, first synergies from WDF, strong deleveraging
Julian Diaz, CEO of Dufry Group, commented: “The focus for 2016 has been to drive organic growth, to generate cash to deleverage, and to integrate the WDF business. Now at the end of the third quarter, we have delivered on all the points.
“During the third quarter, our initiatives have begun to show positive results. We saw a distinct improvement in the business which finally brought organic growth of 1.3% back to positive territory. As to the growth drivers, major contributions came from Spain, with its ongoing good performance, and the UK showing a increasing sales since the devaluation of the GBP. Last but not least, we had a clear improvement in the performance of Brazil: The year-on-year strengthening of the Brazilian Real versus the US Dollar has given back the purchase power the Brazilians were lacking in the past three years.
Diaz went on to add: “In terms of generating cash and deleveraging, we continued to have a strong financial performance with a substantial growth in free cash flow generation and a further reduction of our debt levels. Since the beginning of the year, our net debt reduced by almost CHF 400 million.
“The integration of World Duty Free continues on track. On the cost side, we already completed most initiatives and we have implemented yearly efficiencies of CHF 59 million, which is at the upper end of the estimated range of CHF 50-60 million. With respect to the gross margin synergies we are currently finalizing the implementation and synergies will build up along 2017. We confirm the total of CHF 105 million synergies, which will sequentially be reflected in the financials over the coming quarter and in 2017.
Results reflect Dufry’s strengths
“This set of results represents in many ways the strengths of Dufry’s business model, from the turning point to a positive organic growth, to the substantial deleverage achieved in the quarter and the well-advanced implementation of synergies of the World Duty Free integration. Should current conditions and trends remain unchanged, we would expect a further improvement in the next quarters.”
The WDF integration and the related implementation of the new business operating model are proceeding well, with all key work-streams running in line or ahead of the original schedule.
Results by region
Even though turnover grew to CHF 1,116.9 million (US$1.146 billion)) in the first nine months of 2016 versus CHF 1,013.4 million (US$1.040 billion) one year earlier, underlying growth in the region was -6.7% in the nine months, with the third quarter contributing +2.1%. In Central America and the Caribbean, most operations confirmed their positive performance, including Mexico and the majority of the Caribbean. In South America, Brazil continued to improve by turning positive in Q3 and recording double-digit growth in September. Peru and Chile also performed well in the third quarter. While Argentina reported a slight improvement, it remained overall in negative territory.
Turnover reached CHF 1,245.2 million (US$1.278 billion) in the first nine months of 2016 up from CHF 968.0 million (US$993.3 million) in the previous year. Underlying growth reached +3.8% in the nine months, rising to +4.7% in the Q3. Duty-paid formats such as Hudson continued with a strong performance. On the duty free side, Dufy reports that the stronger US dollar positively impacted its operations in Canada but had the opposite effect in the United States.
Southern Europe and Africa
Turnover reached CHF 1,319.3 million in the first nine months of 2016, from CHF 894.5 million one year before. Overall, the underlying growth in the division was -3.6% in the nine months.
UK, Central and Eastern Europe
Turnover grew to CHF 1,576.6 million in the year to September, versus CHF 867.9 million in in 2015, with underlying growth of +0.8%. Business in the UK accelerated in the third quarter, positively impacted by the weakening of the British Pound. Other operations in Europe continued with a positive performance, such as Finland and Switzerland. Operations in Russia and other Eastern European locations remained in negative territory, however with improving trends.
Asia, Middle East and Australia
Turnover amounted to CHF 569.4 million in the first nine months of 2016, from CHF 439.6 million in the same period in 2015. Underlying growth in the division was flat. Performance in the Middle East and India was good. South Korea continued to see double-digit sales growth, mitigating some Asian locations where a lower spend from Chinese consumers was seen.