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Dufry hit by currencies as organic growth falls -5.3%

Travel retailer Dufry Group saw turnover increase 46.3% in a “transformational” 2015, but organic growth slumped -5.3% due to currency volatility.

Dufry CEO Julian Diaz described 2015 as a "transformational year" for his company
Dufry CEO Julian Diaz described 2015 as a “transformational year” for his company

The company achieved a “solid operational and functional performance” with turnover up 46.3% to CHF 6,139.3 million (US$6, 210.9 million).

EDITDA reached CHF 723.8 million (US$732.2 million), with an EBITDA margin of 11.8%.

According to the company, organic growth for the year was “significantly impacted” by volatility in emerging market currencies, with consumer purchasing power in Brazil and Russia most notably affected. Excluding these two regions, organic growth ran at 4.0%.

Dufry’s “primary focus” in 2015 was the integration of Nuance, completed by year-end as planned, and the acquisition of World Duty Free (WDF), consolidated from 2015 onwards. Following the two acquisitions, Dufry now holds 24% of the global airport retail market.

Nuance’s turnover reached CHF 1,337.9 million (US$1,353.1 million), while WDF operations saw turnover reach CHF 1,410.0 million (US$1,426.1 million) from August to December of 2015. On a pro-forma basis, organic growth in the period reached 9.6%.

Changes in scope – including the consolidation of the Nuance and WDF businesses – added 51.8% to turnover growth.

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Regional breakdown

Dufry’s EMEA & Asia region saw turnover reach CHF 1,010.8 million (US$1,022.3 million) down from CHF 1,194.5 million in 2015. While in local currencies turnover was flat, in constant exchange rates the decline was -8.1%.

Europe “performed positively in general”, except for locations frequented by Russian passengers. Africa was “weak” due to instability, especially in Northern Africa. Named highlights were operations in Cambodia, China, Indonesia and South Korea.

Region America I grew turnover 6% to CHF 808.4 million (US$817.5 million), with “positive” performances in Central America, the Caribbean and Mexico. South American operations “held up well considering the currency volatility”.

Americas II turnover slumped -32% in constant exchange rates, from CHF 683.3 million (US$691.2) to CHF 487.8 million (US$493.4 million). The declines directly reflect “the mass devaluation of the Brazilian real against the US dollar of 42% for the year, following a peak in the second half reaching 53%. This reduces the purchasing power of the Brazilians, who represent the most important customer group,” Dufry said in its financial statement.

The US & Canada saw turnover increase 3.6% in constant exchange rates to CHF 1,043.2 million (US$1,055,1 million), with Hudson continuing to post “sustained growth”.

“Many challenges” ahead in 2016

Julian Diaz, Dufry CEO, said: “2015 was a transformational year for Dufry mostly characterised by the full integration of Nuance and the acquisition of World Duty Free. While these acquisitions allowed us to further develop our company, they also generated the need for important structural and organisational changes.

“In addition to our dedication in building the new Dufry, we strongly focused on driving organic growth in a tough economic environment impacted by considerable FX volatilities. In this context we opened a total of 189 new shops representing 18,700 m2 of new retail space.”

Looking ahead, priorities include integrating WDF, focusing on cash generation and deleveraging, and driving organic growth, he said.

“2016 will be an important year with many challenges. The clear priority will be the integration of WDF. We want to seize the opportunity to build the strongest team of travel retail experts ever and at the same time implement the new business operating model identifying efficiencies and creating value through synergies. Since the fourth quarter of 2015, we have developed a specific action plan for the integration and we have now started its execution, which our teams expect to complete by mid 2017.

“As it has always been the case after acquisitions in the past, also this time, deleveraging is a priority for us. Apart from the integration process and the related synergies, we will be monitoring costs, net working capital and investments closely to drive cash generation. Our goal is to deleverage the company to our target leverage level of 2-3x net debt/EBITDA within the next 18-24 months.”

Dufry launched a wide range of initiatives last year to drive organic growth, Diaz continued. “The most important ones are the refurbishment plan and the brands plan, both of which have proven to generate additional sales. Furthermore, we piloted a variety of customer-oriented activities, such as the loyalty programme called ‘Dufry Red’ or the ‘VIP voucher’, which will also be further expanded. We have already signed projects securing additional 19,600 m2, of new retail space to be opened in 2016 and we will focus on capitalising on our strong project pipeline adding additional opportunities for new concessions the market continues to provide.

“From a market perspective, 2016 started again with very volatile financial markets, thus reducing visibility. Nevertheless, for this year, the drivers of additional growth will be the positive global trends for travel retail, which will continue to provide growing passenger numbers expected to increase by over 6% for the year. Last but not least, we will benefit from our highly diversified geographic footprint and the large locations network, which considerably reduces the company’s exposure to any external factor’s impact, which are typically related to single countries or regions.”

Dufry announced its corporate rebrand along with its nine-month financial results in November 2015.

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