‘The beginning of the recovery in our industry’ – Dufry protects profitability, generates cash and lowers debt – 11/11/09
Published: 11/11/09
Source: ©The Moodie Report
By Martin Moodie
SWITZERLAND. Dufry announced today that in the first nine months of 2009 its turnover (helped by the acquisition of Hudson Group) grew by +19.5% year-on-year to CHF1,760 million (US$1,745 million).
The negative organic sales growth of -16.3% in the first half of the year improved to -15.7% for the first nine months. This effect was more than compensated, Dufry said, by new concessions and the consolidation of Hudson, which contributed 34.3%, as well as a positive foreign exchange effect of 0.9%.
EBITDA (before other operational result) rose by +8.96% to CHF220.1 million (US$218.3 million) from CHF202.2 million in the same period of 2008.
EBITDA margin for the nine months was 12.5% (down from 13.7%). Importantly, net debt was further reduced to CHF643 million (US$637.7 million) at 30 September, 2009.
 |
Source: Dufry
|
FIRST SIGNS OF IMPROVEMENT
The group said that in the third quarter of 2009 the lower number of international passengers as well as some specific [negative] effects continued to persist, “although first signs of improvement have been evident since the last weeks of September”.
In Region Europe, more specifically in Italy, the impact of Alitalia’s flight re-allocation in 2008 “started to wash out” and Italy’s performance has become aligned with the general market development.
The performance of Regions Africa, Eurasia and North America (including Hudson Group) was in line with previous quarters. All these regions started to see improvement in September.
The situation in Region Central America & Caribbean remained “subdued” due to reduced discretionary spending in watches & jewellery as well as the effects of the H1N1 flu virus Mexico.
The virus also had an impact in the Region South America during July and August, as a number of trips from Brazil to Argentina and Chile were cancelled due to concerns about catching the illness in these countries.
Gross profit margin (as a percentage of turnover) continued to increase to 55.8% in the first nine months of 2009, 1.6 percentage points higher than the 54.2% in the corresponding period of 2008.
This was a consequence of improvements implemented in previous periods and the synergies realised in Hudson Group, Dufry said.
 |
"In September and October our organic performance has started to improve and also the traffic forecasts have turned positive, even for the near future. Assuming that this trend continues, this would signal the beginning of the recovery in our industry" |
Julián Díaz
Chief Executive Officer
Dufry Group |
Noting its near +9% rise in EBITDA, Dufry said: “Despite the impact that the economic crisis and drop of passengers had on turnover, Dufry’s Efficiency Plan was critical to protect the group’s profitability and EBITDA margin, which was 12.5% in the first nine months of 2009 compared to 13.7% in the same period last year.”
As part of its Efficiency Plan the company also implemented a number of measures targeted at maximising cash generation. As mentioned, it reduced its net debt to CHF643 million at 30 September, leading to an improvement of the debt covenant ratios to 2.6x for Net Debt/Adjusted EBITDA and to 6.7x for Adjusted EBITDA/Net Interest Expense respectively.
Dufry Group CEO Julián Díaz commented: “Despite the economic crisis, we have demonstrated in the past 12 months that we can navigate successfully through challenging times based on our strategy for 2009 to focus on cash generation and reduction of net debt.
“We have been able to protect our profitability and have been very cash generative, which has allowed reducing our net debt by CHF300 million (US$297.5 million) since the acquisition of Hudson Group one year ago. The whole team has made a big effort to reduce the costs and to boost the cash generation and I would like to thank them for their strong performance.
“In September and October our organic performance has started to improve and also the traffic forecasts have turned positive, even for the near future. Assuming that this trend continues, this would signal the beginning of the recovery in our industry.”
“As mentioned earlier, we continue with our strategy to capture growth opportunities, be it organic or external, based on our financial flexibility.
“In this context, the transactions that we concluded recently as well as the additional retail space that we have added during 2009 through new concessions and expansions, illustrate that there are attractive opportunities for Dufry in the market.”
COMMENT: Cash generation through efficiencies, paying down debt, and maintaining profitability through crisis – those have been the key themes for Dufry during a profoundly difficult first nine months.
The global nature of the financial crisis (and the double whammy impact of H1N1 in key markets such as South America) has meant that, for the first time, the group has not been protected by the geographic diversity of its business. Put simply, everywhere has been hit.
Diaz and his management team swung into action early as soon as the gravity of the crisis began to emerge in 2008. Its Efficiency Plan has been particularly effective in reducing costs, while the use of strong cash generation to drive down debt has been impressive – and, importantly, welcomed by an investment community that had worried about Dufry’s debt covenants during the height of the crisis (see Oddo Securities reaction below).
Diaz’s comments echo many of those made by Autogrill CEO Gianmario Tondato Da Ruos
yesterday. Announcing the Italian group’s results, Tondato said: “In a year as difficult as this, we have strengthened our equity structure by cutting debt. This will be our priority in 2010 as well."
One of the hallmarks of great companies is how they handle crisis and emerge from it. Dufry, like Autogrill, is emerging stronger. Its complex (and controversial) acquisition of Hudson Group is taking shape nicely as Diaz’s plan to roll out the specialist retailer’s concept worldwide begins to fall into place. Its cash position is strong and it is well-placed to seize the acquisition opportunities that are likely to emerge in a bruised sector that remains relatively unconsolidated.
ANALYST’S REACTION - Guillaume Rascoussier, Financial Analyst, Hotels & Catering, Oddo
The Q3 results are actually a bit above our expectations and show some significant decrease in net debt which is quite a relief considering the tough comparison basis. We stick to our Buy recommendation on the stock.
Organic growth still quite negative but September/October look much better: Dufry has published Q3 sales of CHF1,760 million (we were expecting CHF1,819 million). The organic growth reached around -14.5% in Q3 vs -16.3% in H1 which shows a slight improvement even if it remains below our expectations (we were hoping for a -13.5% organic growth over Q3).
We had underestimated the impact of the Swine Flu pandemic in South America. The press release mentions some improvement in North America/Africa/Eurasia in September & October (regions which account for around 60% of the group’s EBITDA (proportionally consolidated). It also seems that the underperformance vs traffic trends in Italy is coming to an end thanks to the first positive impact of Alitalia’s flight reallocations (Europe accounts for around 5% of the group’s EBITDA). Dufry’s CEO has mentioned traffic forecasts are more bullish and turned positive for the near future.
EBITDA above expectations: Gross margins continued to improve to 55.8% in the first nine months vs 54.2% in 2008, i.e. a 160bp improvement ahead of H1 (+120bp). We expect more information regarding the impact of Hudson integration on this figure.
EBITDA went up to CHF220 million vs CHF202 million in the first nine months of 2008. We were expecting CHF216 million and the consensus was CHF218 million. This year-on-year growth remains artificial, boosted by the integration of Hudson.
But the slide in EBITDA margins has remained limited in Q3 to -20bp at 13.7% (vs 13.9% in Q3 08) whereas the drop was much more severe in H1 (from 13% in H1 08 to 11.8% in H1 09 i.e. -120bp). This trend remains hard to interpret since we have little information on the detailed margins. But this remains good news overall for the stock
Debt under control: Dufry further reduced its net debt to CHF 643 million at the end of September vs CHF723 million at the end of June, CHF824 million at the end of December 2008 and CHF943 million at the end of October 08 after having acquired Hudson.
In one year the group has been able to reduce its net debt by CHF300 million (32% of the initial debt following Hudson acquisition).
This remains quite a tremendous performance and shows how much the cash generation remains under control. The ratio Net debt/EBITDA stands at 2.6x at the end of September, significantly below the covenant limit (3x at the end of December) and shows a significant improvement vs the 2.9x achieved at the end of June and the level of 3.1x at the end of March 2009.
This gives back to the group some more room for manoeuvre even if it remains limited; the risk of a capital increase or debt renegotiation is significantly reduced and that’s good news for the stock.
MORE STORIES ON DUFRY
The Moodie Reportfolio: Japan Airport Terminal Co and Dufry shares are top performers in October – 06/11/09
Dufry acquires Latinoamericana Duty Free interests in Mexico; strikes deal to operate at Italian railway stations – 22/10/09
The Moodie Reportfolio: Dufry stars in September – 07/10/09
Upbeat Dufry says ‘strong project pipeline’ will grow sales; 40,157sq m of space under negotiation – 02/09/09
Print
Email