Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Avolta AG (DUFRY, Financial) reported strong first-half results, marking six consecutive quarters of meeting or exceeding expectations.
- EBITDA grew by nearly 16%, with an expansion of the EBITDA margin by 40 basis points, reaching 9% for the first half of the year.
- Equity free cash flow increased by more than 30% compared to the same period in 2023.
- The company successfully renewed and signed several new contracts, while exiting less profitable concessions, maintaining a neutral combined number of wins and losses.
- Avolta AG (DUFRY) continues to transform its physical stores and digital engagement, exploring new ways to utilize data for improved customer experiences.
Negative Points
- Chinese consumer spending has decreased, negatively impacting regions reliant on Chinese passengers.
- The company faces challenging comparables for the summer season, as last year's July was the highest ever.
- Personnel expenses were slightly higher as a percentage of turnover due to hiring lags and acquisition effects.
- The company is still in the early stages of using data to optimize operations, indicating that significant benefits may not be realized in the short term.
- Despite strong performance, the company remains cautious about providing higher expectations, citing potential market uncertainties.
Q & A Highlights
Q: Given the organic growth of 7% in H1, do you foresee any pressure on delivering the upper end of the guidance expectation, especially considering the challenges in Hong Kong, Macau, and Argentina?
A: The organic growth in H1 is strong despite missing higher spenders in Europe and the challenging comparables in Argentina. The trends seen in June have continued into July, and while there are specific issues like the Chinese consumption decline, the overall network remains resilient. We believe the second half will continue on the same trend, and the voluntary exits will decrease over the next 12-18 months, leading to more obvious net wins.
Q: Can you provide insights into the spending behavior of US consumers and any signs of potential weakness?
A: The US market is performing well, with a like-for-like growth of 6.8%, despite some airports being affected by the lack of aircraft. We have not observed a weakening in consumer spending, and the overall trend in consumption remains strong.
Q: Could you elaborate on the lower CapEx as a percentage of sales and the outlook for personnel costs in H2?
A: CapEx is expected to catch up in the second half of the year, and while we may not reach the 4% medium-term target this year, the guidance remains valid. Personnel expenses were elevated in the first half due to some one-off effects, but we expect a normalization in the second half with no significant one-offs.
Q: Is food and beverage growing more strongly than the classical retail business?
A: Growth varies by region and customer profile. For example, F&B is stronger in North America, while duty-free is growing more in Asia. Overall, both F&B and retail are growing across all regions, with differences depending on the market and customer profile.
Q: How do you view the impact of new x-ray machineries at airports on water and soft drink sales?
A: The initial feedback indicates no negative impact. In fact, the new x-ray machines may have a slightly positive impact as they reduce passenger stress, leading to more relaxed and potentially higher spending behavior post-security.
Q: What is the rationale behind the recent share buyback, and how do you view capital allocation going forward?
A: The share buyback was partly for the long-term incentive plan and general corporate purposes. We believe in maintaining a certain level of leverage and are focused on disciplined growth and cash flow generation. The current capital allocation policy includes deleveraging, paying regular dividends, and potential strategic growth.
Q: Can you provide more details on the gross profit margin improvement and the mix effects?
A: The gross profit margin improved by 110 basis points due to strong customer demand and various initiatives under our travel experience revolution strategy, including new product ranges, flexible stores, and digital initiatives.
Q: What is the outlook for concession fees and the returns on new contracts compared to pre-COVID levels?
A: Concession fees have decreased due to more rational behavior from both airports and operators, as well as our active portfolio management. We see less pressure on concession fees compared to pre-COVID levels, which helps maintain and increase margins over time.
Q: How do you view the potential for listing in a different market, such as the US?
A: While we are currently focused on stability and delivering strong performance, the Board continuously monitors the best ways to generate shareholder value. Any potential changes in listing location would be considered in due time.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
