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Dufry continues consolidation in the travel retail industry and acquires operations in five Emerging Markets

5 mins read

Today, Dufry signed and concluded several acquisitions in Emerging Markets. The businesses were acquired by Dufry in four separate transactions and are comprised of Interbaires, the leading airport retailer in Argentina, airport retail operations in Uruguay, Ecuador, Armenia and Martinique, as well as a wholesale platform.

The new businesses add 21 shops in ten airports with a total retail space of around 13’500 square meters to Dufry’s portfolio. In the twelve months ending May, 2011, pro forma combined turnover was USD 395 million (CHF 386m(1)) and EBITDA was USD 96.5 million (CHF 94.3m(1)). The acquired businesses all have long-term concession contracts and more than 90% of sales are generated based on contracts with durations of more than 10 years.

Dufry paid a combined purchase price for all four transactions of USD 957 million (CHF 766m(2)), of which USD 285 million (CHF 228m(2)) was paid as consideration for Interbaires. All transactions have been fully debt financed and Dufry structured an additional credit facility of USD 1 billion (CHF 800m(2)).

Exciting new businesses: High growth and strong concessions

The four acquisitions made by Dufry all focus on the fast-growing Emerging Markets and comprise attractive retail operations. In the first transaction, Dufry acquired Interbaires, the leading travel retailer in Argentina. The company operates duty free shops in the five main Argentinean airports including the Ezeiza and Aeroparque airports in Buenos Aires, as well as the airports in Bariloche, Cordoba and Mendoza. It operates a retail space of 8’000 square meters and in 2010 generated a turnover of approximately USD 250 million (CHF 260m(3

The operations of the second transaction are located in Uruguay at the airports in Montevideo and Punta del Este airport, in Ecuador at the Guayaquil airport and in Armenia at the Yerevan airport. The total retail space in these operations is more than 5’500 square meters and turnover is approximately USD 85 million (CHF 88m(3)). )).

Dufry also acquired two shops at the international airport in Martinique with a total space of 250 square meters and selling the full range of duty free products.

1 Based on average FX rate LTM May, 2011 USD/CHF: 0.9777
2 Based on FX rate as per 28 July, 2011, USD/CHF: 0.80
3 Based on average FX rate FY 2010 USD/CHF: 1.0427

The operations performed very well in the past years and experiencing double-digit growth to reach pro forma combined turnover of USD 395 million (CHF 386m(1)) for the twelve months ending May, 2011. The businesses are also very attractive in terms of profitability: the pro forma combined EBITDA was USD 96.5 million (CHF 94.3m(1)) for the same period.

All operations have long term concession contracts and the majority of sales are based on contracts with a remaining term of more than 10 years. The concession contract with the main Argentinean airports operator has a remaining duration of more than 15 years.

Consolidation of the travel Retail leadership

In 2010, on a pro forma basis and based on the 2010 average USD/CHF exchange rate, Dufry including the four acquired businesses generated a turnover of CHF 3.0 billion, and an EBITDA of approximately CHF 430 million. The expanded Group is present in 45 countries, operates 1’160 shops with a total retail space of 168’000 square meters and has a workforce of approximately 13’500 employees.

The transactions strengthen Dufry’s leadership in the travel retail industry globally and specifically in the fast growing Emerging Markets. They also mark the next step in Dufry’s development by adding some excellent long-term contracts to the concession portfolio.

New Financial capacity and strong cash generation

Dufry acquired 100% of the operating businesses in each of the transactions and paid a total purchase price of USD 957 million. The transactions have been fully financed with debt and Dufry entered an additional committed 5-year syndicated bank facility, which has been structured to sit alongside the existing financing. The existing banking arrangements remain in place and their structure will remain unchanged. The new facility has been underwritten by a bank syndicate comprised of BBVA, BNP Paribas, Credit Agricole, ING, Raiffeisen Bank International, Royal Bank of Scotland, Santander, Unicredit, and WestLB.

Through this financing, Dufry almost doubled its available credit lines by USD 1’000 million (CHF 800m(2)) to a total of CHF 1’800 million. Thanks to the committed long-term financing combined with the high cash generation of the Group, all the transactions could be fully debt financed.

Strong synergies and EPS accretive

Dufry will integrate the businesses in the next twelve months and expects to generate cumulative synergies of approximately USD 25 million over the next two years. Specifically, Dufry intends to merge the acquired wholesale company with its logistics platforms in the Americas. Overall, the transactions are expected to be Basic EPS accretive from 2012 onwards and Core EPS accretive already in 2011.

The businesses will be integrated into the existing Dufry organization and the new operations in Argentina, Ecuador and Uruguay will be managed together with Dufry’s existing South American operations. The Armenian operation will be managed through Region Eurasia. The operations in Martinique will be managed from Region Europe. Dufry will integrate the new businesses in the next twelve months and expects to extract synergies through increased top-line growth, improved gross margin through the consolidation of purchasing volumes, assortment review and expansion, review of the pricing policy as well as through improving processes in the back office functions.

Additionally, the merger of the newly acquired wholesale company with the existing logistics platforms in the Americas is expected to further leverage the improvements in the supply chain that were planned as part of the “Dufry plus One” and “One Dufry” initiatives and potentially generate additional synergies. Once completed, Dufry believes the new logistics platform will be one of the most advanced supply chain organizations in the travel retail industry.

Julian Diaz, CEO of Dufry, commented: “The companies that we were able to acquire are among the best in our industry: they are long-term contracts for attractive locations in fast growing Emerging Markets. They are also a 100% airport duty free business, which is perfect for implementing Dufry business model to achieve synergies and to develop the business further.

Dufry has led the consolidation process in the travel retail industry being an important part of our strategy to further enhance our business model and we have consistently emphasized that we intend to focus on Emerging Markets and on good long-term concession contracts. The acquired companies match these criteria perfectly.

We will start to integrate the new businesses right away and we expect to generate substantial synergies of USD 25 million over the next two years. We were looking to consolidate our logistics platforms as part of our ‘Dufry plus One’ and ‘One Dufry’ initiatives and the acquisition of the wholesale company gives a whole new dimension to this project. We will need to analyse this part in more detail but we are sure that we will be able to substantially strengthen and increase the scope of the existing logistics project through the newly acquired business.

We have been able to put together an excellent long-term financing package and our focus during the next twelve months will be to generate cash and to deleverage. The strong cash generation of our Group as well as the newly acquired businesses combined with the substantial synergy potential should allow us to reduce our leverage very quickly.

Overall, the transactions will allow us to accelerate the next development phase of our Group and they strengthen our overall profile and development potential. The acquisitions are also in line with our guiding principle to create value for our shareholders and the EPS accretion expected from 2012 onwards reflects this.

To conclude, we are delighted about the successful closing of all four transactions and we would like to welcome the new employees to Dufry. “

Quelle: DUFRY

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