Employee Satisfaction Supports Customer-Centric Business Model and Drives Operational Performance

The articles in this issue of Dufry World show very impressively how overall employee satisfaction and engagement positively influence the customer-centricity of our business model and drive operational performance. Reading the respective stories, you will see how the equation of satisfied employees leading to satisfied customers and ultimately to improved sales, works perfectly. It has allowed us to accelerate continuously performance over the last quarters and to achieve some important growth steps for the future.

Positive feedback from our employees
25,213 colleagues – which represents 73% of our total workforce – have participated in this year’s Employee Engagement Survey, which as such is already an excellent result. But more importantly, is the feedback that we have received, as this allows us to assess the level of satisfaction within our company. 75% of those surveyed said they were satisfied to be working at Dufry. This clearly positions us above the travel retail industry average of 63%, and 78% of our colleagues would also recommend Dufry as an employer. I am really pleased with these results as we have been working intensively over the past three years with several initiatives such as ONEDUFRY and Women@Dufry to foster engagement and contribute to a modern working environment. Read the fully story in this edition of Dufry World.

Delivering the one global, more customer-centric Business Model
If you are interested to learn where our company is heading for, I recommend that you read “Quo Vadis Dufry”. The story is an excellent overview of where we have come from, what we have achieved, what the current challenges are to our internal development, and how we need to change to reach a better customer-centric business model during the acceleration phase from 2019 to 2022. We have already covered some of the stages of the acceleration plan in the last edition of Dufry World. This time we want to focus on providing a fuller picture to give a better understanding of where Dufry is today, where we want to get to and the outline of our plan for the coming years.

Acceleration of organic growth and cash flow generation
Organic growth has continued to accelerate in the third quarter of 2019, reaching 4.1% and benefitting from solid contributions from new concessions and like-for-like growth. With the continuous improvements seen quarter by quarter, organic growth for the nine months further improved to 2.9%, which shows that we are on the right track to achieve our targets. Excluding South America’s organic growth for the nine months amounted to 5.4%, indicating that most of our operations delivered a good performance.

In the first nine months of 2019, Dufry’s turnover reached CHF 6,682.0 million, while our Gross Profit margin expanded by 40 base points to 60.3% over the period. This improved performance underlines and strengthens once more our cash flow generation capability, with adjusted operating cash flow coming in at CHF 805.3 million and Equity Free Cash Flow amounting to CHF 406.6 million. We have consequently confirmed to the financial community and our shareholders our medium-term goals, with an average Equity Free Cash Flow target of CHF 350–400 million and the medium-term organic growth target of 3% to 4%.

Successful renewal of Spanish concession
The agreement with AENA for the successful extension of our contract in Spain can be considered the business highlight of the third quarter. I am very pleased with the renewal of this long-term partnership for up to five years, as we have managed to improve some of the operating conditions and the minimum guarantee (MAG) containing a lower annual increase than before, now amounting to 1.56%. In recent months, Spain has improved its performance, driven by our successful commercial initiatives, and as, with the rolling out to further locations of the best practices already tested across five pilot airports, we will be able to further increase the profitability of the operation.

Further growth steps and positive market developments
In October, we have been able to announce to the market two important acquisitions done through our Hudson subsidiary in the US, in line with our strategy of focusing on small and mid-size acquisitions.

The Brookstone acquisition, which includes 34 stores and the exclusive right to expand further the brand in US airport retail and to sell selected Brookstone products in our Hudson stores, further strengthens our duty-paid business in the United States with a well-known local brand and provides new opportunities to grow this resilient channel.

The second one, the acquisition of OHM Concession Group LLC adds new food & beverage concession capabilities, but most importantly also brings additional food & beverage skills and know-how to our group. This will allow us to expand our footprint across North America and to penetrate further the attractive airport food and beverage market. The acquisition will add approximately 60 additional food & beverage units to the existing 50 currently operated by Hudson. OHM Concession Group LLC generated sales of USD 62 million in FY 2018.

Moreover, good news also came from the Brazilian government, who have approved the increase of the duty-free allowance at arrivals, which will double to USD 1,000, effective as of January 2020. This is a considerable improvement, as we will be able to extend and increase our product assortment in the country, offering higher-priced products in the USD 500–1,000 range, and also increase the potential spend per transaction up to USD 1,000.