‘Destination 2027’ (continued)

Under the second pillar of its strategy, Dufry will continue the journey to diversify its geographical presence, tapping into fast-growing markets and hedging against regional economic cycles and shocks.

Building on a strong portfolio of international airport locations and global brands, Dufry will continue to expand its footprint, with strong focus on the highly attractive and resilient US market. It will deploy a dedicated strategy for Asia Pacific, where it will build a team focused on a set of strategic markets in the region and on the fast-growing cohort of the Chinese traveller.

Dufry underscored the importance of the Chinese traveller at home and abroad. It said that having “a presence in key APAC destinations is critical to capture Chinese travellers’ spending”. It noted the role of Hainan in driving spend and Dufry’s own partnership with Alibaba (including an equity stake by the latter in Dufry) since November 2020.

In Europe and the rest of the world, Dufry will accelerate its business development process and set clear priorities and targets. Joint ventures and M&A activity will also play a role.

The combination of travel experience revolution and geographical expansion will drive passenger acquisition, spend per passenger and net new concessions, which is expected to translate into annual turnover growth of +5% to +7% in 2025-2027, Dufry said.

The years 2023-2024 are considered a transition period, for which Dufry expects annual turnover growth of +7% to +10%. Both annual growth rates refer to an unaffected environment and to the pro-forma combined company, pending regulatory and other approvals.

Operational Improvement

The third pillar of the strategy is to foster a Culture of Operational Improvement to fuel profitability, accelerate cash-flow generation, and reinvest in growth.

Dufry will continue to strive for superior profitability with a logic of zero-based budgeting, focused on disproportionally allocating resources to activities that make the most impact for the customer, while leveraging technology to simplify work and operations.

In addition to budgeting discipline, Dufry said that it will “systematically and actively” manage its portfolio of concessions, with stronger focus on the evaluation of full profitability and cash flow contribution.

This “active portfolio management” aims to increase profitability and focus efforts on “the right targets”, said Dufry.

It cited plans to make a full profitability evaluation for each concession contract and if the timing is right, “renegotiation or exit from any concession that does not match our concession-specific objectives”.

For the years 2025-2027, Dufry expects gross 30 to 40 bps annual core EBITDA margin improvements for the combined entity, partially reinvested, with expected cost synergies from the Autogrill combination of approx. CHF85 million p.a. on core EBITDA level to come on top.

CORE EBITDA margin improvements in the years 2023-2024 should amount to net 75 to 100 bps annually for the pro-forma combined group, pending regulatory and other approvals. The company further expects a sustainable strong cash flow generation, targeting an Equity Free Cash Flow conversion on CORE EBITDA for the combination of Dufry and Autogrill of above +20% in 2023-2024, and above +30% in the medium term 2025-2027.

The role of ESG

Connecting the other three pillars is ESG. Here, Dufry’s plan is structured around four key areas. One is the customer (product sustainability and service/safety). Another is employee experience (with a focus on retention and on diversity & inclusion). A third is to be a trusted partner (CSR, legal, shareholder engagement). The fourth is to protect the environment (emissions and consumption, sustainable logistics and supply chain).

Key targets include achieving climate neutrality by 2025, reducing emissions and compensating for “non-avoidable emissions” under Scope 1 and 2. Under Scope 3, Dufry aims to reduce the carbon footprint of purchased goods with brand partners and reduce the carbon footprint of upstream logistics with logistic partners.

Addressing some of the challenge to its five-year plan, Dufry cited external factors such as geopolitical, COVID-19/health, economic environment and consumer sentiment, and how that could affect business. It also reflected on the importance and impact of the evolving passenger mix in the years ahead.

Of current concern, it added, are factors such as airport disruptions and passenger caps; a difficult labour market; supply chain constraints and disruptions, plus pressure on transportation and logistics costs, and a continued lack of Chinese passengers globally.

Looking ahead, senior management also said that the P&L of the combined Dufry-Autogrill group would look different to standalone entities, but that overall profitability would be comparable.

F&B, it highlighted, features higher gross profit margin and lower concession fees, but higher personnel and OPEX charges. Travel retail carries more moderate Gross Profit Margin, lower PEX and OPEX, but higher concession fees. Convenience concepts sit in between duty free/duty paid and F&B.

On cash flow, it added, travel retail requires more investments in trade net working capital compared to F&B but F&B carries a lower level of investment given more limited inventory levels.

Duty free and duty paid and convenience carry similar contract durations on average. F&B generally features longer-term contracts, offsetting initial investments in setup and fit-out, with a relatively low maintenance Capex, said Dufry.

Overall, the diversification strategy for the group would ensure a resilient Dufry well into the future, said senior management.

CEO Xavier Rossinyol said: “The new company strategy has been crafted based on a deep understanding of our stakeholders’ needs, customer insights and the current market trends evolution.

“Our new strategy Destination 2027 will be delivered by further empowering our already excellent teams and reinforcing them when needed. As a team, we are in a position to generate sustainable long-term value for all our stakeholders, including employees, landlords, brand partners, and, finally, our shareholders. This is supported by the transformative business combination with Autogrill as an inherent part of our vision to deliver a holistic travel experience and to make travellers happier.”

Note: The short-term outlook 2023-2024 and mid-term outlook 2024-2027 are based on current visibility and exchange rates, with external factors impacting performance and outlook.

*More on the Dufry strategy will follow in our October Magazine edition, including an extensive interview with Xavier Rossinyol. The Dufry leader will also appear in a filmed interview with Martin Moodie at The Trinity Forum 2022 in Singapore (1-2 November).

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The Moodie Davitt eZine Issue 314 | 13 September 2022

The Moodie Davitt eZine is published 14 times per year by The Moodie Davitt Report (Moodie International Ltd). © All material is copyright and cannot be reproduced without the permission of the Publisher. To find out more visit www.moodiedavittreport.com and to subscribe, please e-mail kristyn@moodiedavittreport.com

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