The Advent of a new era? - The Moodie Report

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Frédéric Gauchet Frédéric Gauchet’s job at Weitnauer was always to put himself out of a job. When he assumed the reins as CEO of the Swiss travel retailer and distributor in 2001, the company was in dire shape, and its shareholders becoming more restless by the day. In 2001, Weitnauer generated an EBIT of CHF 11 million and negative net earnings. In 2002, he recalls, “We had to reduce the debt of the company very strongly because without this debt improvement we would have lost the confidence and support of our banks. So it was a very tense year as regards the financing of the company.” A difficult period from the summer of 2002 ensued. “We had to find a new bank to support the company and that was not possible before the beginning of 2003,” Gauchet recalls. “And that made my life very difficult because we could not show immediately the results of our new strategy. As you know, it takes time to reduce debt; it takes time to prove that you have reduced the debt; it takes time to prove that you have divested the business of its negative drivers; and it also takes time to show that you will have a great future.” The Moodie Report PLUS Gauchet says ‘Mission accomplished’ amid personal sadness For the past two years, Frédéric Gauchet has been a man with a mission – a mission to restore shareholder value to one of the duty free channel’s oldest companies, Weitnauer (now Dufry). In unexpectedly short time, and against a difficult trading climate, he achieved just that, culminating in last month’s sale to the Sintres group headed by Advent International. As a result, Gauchet has moved on to a new set of challenges. Fresh from a post-sale vacation, a re-charged Gauchet spoke frankly about his experience at Dufry and his future aspirations. An extended version of this interview is published in the print edition of The Moodie Report, out next week. Time was not an asset in great supply. But when the 2003 first half-year results were published, things had changed for the better. Against a depressing background of war in Iraq and the worsening SARS crisis in Asia, Gauchet delivered positive earnings for the period. “It was only then that the banks were convinced we had the right management for the company,” he recalls. Fast forward a year and Weitnauer not only has a new name (Dufry) but new ownership. The acquisition in February by the Sintres consortium (headed by Advent International) completes the transformation of the company. And it leaves it well placed for the future, Gauchet believes. “Weitnauer was [in 2001] in a very stretched financial situation,” he says. “The beauty of having Advent International and [co-shareholder] Áreas involved in the ownership of the company is that the company is now on the safe side financially speaking. That’s very important.” The highlight of his tenure as CEO was “the pleasure of the construction of a very good and dedicated team”, he says. 8 “When you look back on what you achieve in a role, it is not about the business itself, it’s not about the products, it’s always about the human beings. “What I miss the most is my team. We had really difficult times together but nobody tried to escape. We were all in the same boat and in the end we succeeded together. I miss all of them… we were very different people, from different nationalities, that was our strength.” With duty free under a cloud partly due to external geo-political pressures but also to structural pressures with taxes and duties falling all around the world, how does Gauchet, perhaps the most analytical mind of any leading duty free retailer in the business, assess the industry’s prospects? “The best comparison you can make is with the share market. You cannot invest in this business for the short term, because you will have ups and downs according to unexpected events, which will happen from time to time. But if you take a long-term approach to the business, it’s a business that will deliver steady growth over the next 20 years.”
But Gauchet says one should avoid sweeping generalisations about the ‘industry’. “It is not homogenous,” he points out, “you have some airports which are very customer-oriented and others which are not. And they do not all have the same business model. When you look at the travel retail industry and you look at the ratios of concession fee to turnover, you will see very different approaches. “It ranges from Madrid, which is only collecting 6%, to Paris which is collecting 28.3% [based on Ivo Favotto’s Airport Retail Study] – so definitely the view of what the contribution of the business should be is not the same. It’s interesting to note that with the same proportion of international passengers and with a yield limited to 21.8%, London Heathrow sells three times more per passenger than Charles de Gaulle (CDG) and it collects more than twice CDG’s revenue per passenger.” Gauchet has taken a close interest in the ongoing ‘Trinity’ debate of the past 12 months. He is an articulate critic of the weaknesses of the Minimum Annual Guarantee (MAG) concession model and led Weitnauer/Dufry away from any excessive rental commitments. And he is a strong fan of the stakeholder-based, risk/reward sharing model championed by BAA group retail director Brian Collie. “I feel very close to Brian’s position. I feel we need to have a partnership. There is not one single form of partnership, there are many. But it must be a genuine partnership, meaning that we have to take into consideration the interests of all the parties. If it’s not a fair deal it isn’t going to work as well as a balanced partnership.” Gauchet inherited a company that was going through great pain and great change. And it certainly wasn’t viewed as being in great shape. By the time he left, it was. Common industry percep- “When I accepted my job, the priority was to revitalise the company and turn it around and clarify its strategy… It was not a piece of cake.” The Moodie Report PLUS tion is that Dufry is now a revitalised entity, one that is more transparent – and most of all, is performing strongly financially. How proud is the former CEO of that turnaround? “It’s not really for me to answer that,” replies Gauchet. “It’s up to my shareholders. They wanted me to give value back to their shares and frankly speaking, when we started the venture two years ago we did not expect to be able to do it in two years. The time frame was closer to five years than to two. So just on this criteria, we can be pleased at the performance of my team.” So was his mission all along to position the group for sale? “When I accepted my job, the priority was to revitalise the company and turn it around and clarify its strategy,” he replies. “It was not a piece of cake. As you know, the company had been involved in the distribution business for almost a century and to change a culture and a strategy required a lot of energy. “Because we implemented this change of strategy very quickly – if you remember, at the end of 2002 we divested the distribution business and we were clearly focusing on travel retail – that helped us a lot. That’s the reason, I believe, that we were able to engineer the change so quickly.” I ask Gauchet about his future. Is he lost to the travel retail industry or having had a taste for its opportunities, will he re-enter at some point? “That is a touchy question Martin!” he laughs. “My first priority – and you can trust me that I’m working on that very hard – is to stay in the airport industry. I use the term airport industry because I don’t want to limit the scope to travel retail. And I don’t want to act in any way that the buyer of Dufry would see it as a hostile move against them. But yes, I’m actively trying to stay in the airport industry.” ■ 9 Possible duty free acquisitions for Advent International and partners Given its Latin focus – the group, through inter-related partners such as Áreas, now effectively controls most of Mexico’s airport duty free – other regional players will come under the microscope. So will some of the big international companies. Candidates include: Brasif: Brazil’s leading duty free retailer. A powerful family company which was rumoured to be close to being sold in the late 1990s to DFS Group. The company has recently overhauled its retail operations under the respected leadership of Gustavo Fagundes and remains highly committed to the business. Brazilian businessman Jonas Barcelos is the primary shareholder. If – and it is a big if – the company was ever to be sold, a key question mark for any buyer would concern whether the highly-influential Barcelos would remain involved. InterBaires: The resurgent Argentinean duty free retailer with close links to Eduardo Eurnekian, the Argentinean businessman and majority owner of airport authority Aeropuertos Argentina 2000 (AA2000). Advent has previously showed interest in acquiring InterBaires, through former owner Exxel. Notably, Eurnekian has just finalised the sale of Food Port, which runs AA2000's food & beverage business. Who to? To Áreas – 15% shareholder in new Dufry majority owner Sintres. DFS Group: Still officially ‘non-core’ to luxury goods giant LVMH and impressively back to profit after a horrible 2002 and early 2003. Radical cost-cutting and renegotiation of high concession fees has helped. So has a high Yen to US Dollar ratio, lifting Japanese sales in key DFS locations such as Honolulu. LVMH chairman Bernard Arnault has always said he will only sell when the time and price are right. If results continue to improve, the timing is more favourable. The price? All it takes is an acquisitive player with investment clout and real interest in the travel retail sector. The Nuance Group: Sold by troubled carrier Swissair Group in 2002, The Nuance Group is the world’s largest airport retailer. Revenues of CHF1,683 million in 2003 almost matched the previous year’s despite chronic conditions in early to mid-2003. Nuance is jointly owned by the Italian shareholders GECOS/Gruppo PAM and Stefanel. Much internal discussion has centered on an IPO, but a sale or break-up is still a strong possibility.
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