Dufry has bagged a wealthy Chinese shopper. The pandemic floored the Swiss group’s duty-free business but hasn’t prevented it from signing a joint venture with Alibaba and persuading the e-commerce giant to pump up to 250 million Swiss francs ($273 million) into the company. That’s a bargain for CEO Julián González, as long as the duty-free business survives.
It has been an eventful few month for the Basel-based company known for its odorous airport perfumery franchises. González reported a one billion Swiss francs net loss for the first half of the year after lockdowns and travel restrictions caused a 62 per cent year-on-year decline in sales. Seemingly unfazed, he then announced plans to take full control of Hudson, its US travel arm, funded by a 500 million Swiss franc rights issue. On Monday González upped the figure to 700 million Swiss francs, with Alibaba agreeing to buy up to 9.9 per cent of the enlarged share capital.
Investors are happy
Dufry shares jumped 17 per cent to almost 33 Swiss francs on Monday morning, above the 28.50 Swiss francs at which private equity firm Advent International and Alibaba have agreed to buy. Dufry appears to be giving up relatively little. Asia accounts for around 15 per cent of its revenue but only a fraction of that is in mainland China. By contrast, globe-trotting Chinese shoppers bring in up to a tenth of its global sales.
The joint venture, which Alibaba will control, will focus on building duty-paid stores in Chinese airports and train stations. Alibaba will steer a portion of its 800 million domestic customers to the shops, while Dufry will contribute travel retail expertise and greater access to the Western luxury brands which have long been wary of the $780 billion web giant. If China opens up the domestic duty-free market, currently dominated by state-backed CITS Group, Dufry should be better placed to move quickly.
Yet the short term remains perilous. New lockdowns mean expectations that EBITDA will recover to around two billion Swiss francs next year look optimistic, while net debt is approaching double that figure, according to Refinitiv data. Meanwhile, IATA reckons global traveller numbers won’t recover to last year’s levels for another three years. González has got a good bargain. Alibaba must hope it doesn’t end in buyer’s remorse.