A GLOBAL AMBITION ANNuAL REPORT 2006 - Dufry

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ChIEF FINaNCIaL oFFICER MaNaGEMENT DISCuSSIoN aND aNaLySIS oF RESuLTS Dufry Annual Report 2006 — Chief Financial Officer Dear all, Fiscal year 2006 was another period of strong growth and outstanding financial results for Dufry Group. Apart from organic growth, we started a series of new activities and made an important acquisition in Brazil in March 2006, which has been included in the consolidated results for nine months. Dufry also did some major capital market transactions. The following comments outline the main elements of our performance in 2006: Turnover. In 2006, turnover increased by 51% to CHF 1,436.3 million from CHF 949.8 million in 2005. Of this increase, 8% is based on organic growth, 10% on new concessions and 33% is due to acquisitions. Net sales amounted to CHF 1,403.8 million and accounted for 97.7% of turnover in 2006 compared to 98.2% in 2005. The balance was generated through advertising income from suppliers. We grew organically, with new concessions and with acquisitions in all our three strategic areas (Mediterranean basin, Latin America and Caribbean, and Asia) across our five Regions. Europe increased its net sales by 13.1% to CHF 370.5 million in 2006 from CHF 327.5 million in 2005. Italy, our main market in this region grew by 14.7% due to solid organic growth and the full year impact of our Rome operations. During 2006, we also started operations in Spain, where we opened shops in Tenerife, Mallorca and Bilbao; other changes in the concession portfolio of this region include the closing of shops in Paris and Marseille as well as the sale of our operations in Israel. Net sales in Region Africa rose by 14.4% to CHF 146.4 million from CHF 127.9 million in 2005. We experienced very dynamic growth in Morocco, with the full year consolidation of operations started during 2005 and additional shops opened during 2006, mainly in Marrakech airport. In 2006, we also started our activity in Algier airport with two duty free shops and signed a new contract to operate in Sharm–El Sheik airport, Egypt. Region Eurasia generated net sales of CHF 187.2 million, 24.9% growth compared to CHF 149.9 million in 2005. This increase was mainly due to the performance of our business in Moscow, new shops in Singapore and in Sharjah (United Arab Emirates), where we opened two new shops and the refurbishment of our main shops in 2005 also boosted sales. In addition, we also started activities in Belgrade, and we signed new contracts to start operating in Hong Kong during 2007 and to operate more than 3,300 m 2 in Moscow Sheremetyevo airport. Region North America & Caribbean increased net sales by 17.0% to CHF 328.0 million from CHF 280.4 million in 2005, excluding the cruise line operations and Bolivia, which were transferred to region South America. Apart from this, North America & Caribbean had other important changes in scope and also
Dufry Annual Report 2006 — Chief Financial Officer experienced one-off effects. Our operation in Dominican Republic, which we started in late 2005, increased its contribution due to the full year effect and opening of new shops in 2006. Net sales also increased due to the start up of the operations in Turks & Caicos and the full year consolidation of the Young Caribbean Group, which we acquired in the last quarter of 2005. On the other side, the increase was partially absorbed by the reduction of the activity in some Caribbean areas, mainly the Mexican Riviera, due to the devastating effects of Hurricane Wilma in late 2005, which continued to impact on most of 2006. Region South America, which includes the newly acquired Brazilian operations, the Bolivian and cruise line operations that were transferred from region North America & Caribbean to region South America in 2006, achieved net sales of CHF 371.6 million in 2006 compared to CHF 47.1 million in 2005. Gross Profit. Gross profit jumped 57.6% to CHF 744.4 million in 2006 from CHF 472.2 million in 2005. The gross margin increased by 2.1 percentage points to 51.8% in 2006 from 49.7% in 2005. In the last three years the gross margin has increased from 46.4% in 2003 to the current 51.8%. These improvements are the result of the strategic focus on the most profitable product categories, like perfumes & cosmetics and luxury products, strengthened presence in emerging markets, and improved supplier partnerships, thanks to increased presence in airports worldwide. Selling Expenses. Selling expenses, net amounted to CHF 286.0 million or 19.9% of turnover compared to CHF 171.7 million or 18.1% in 2005. The increase of the selling expenses as a percentage of turnover is mainly due to higher concession fees of new shop locations. Personnel Expenses. In 2006, Personnel expenses were CHF 179.5 million compared to CHF 123.2 million in 2005. This increase reflects the higher number of employees within our Group, as a result of our expansion through acquisitions and new concessions. As of December 31, 2006, the number of employees was at 6,526 compared to 4,419 at year end of 2005. Personnel expenses as a percentage of turnover decreased to 12.5% for 2006 compared to 13.0% for 2005. General expenses. General expenses, net amounted to CHF 118.4 million in 2006, compared to CHF 77.2 million in 2005, mainly due to the new activities; expressed as percentage of turnover, the ratio slightly increased from 8.1% in 2005 to 8.2% in 2006. EbITDa. In 2006, EBITDA (before other operational income / expenses) increased by 60.2% to CHF 160.5 million, compared to CHF 100.1 million in 2005. The EBITDA-margin improved by 0.7 percentage points to 11.2% in 2006 from 10.5% in 2005. The improvement in the margin is mainly attributable to the increase in Gross Profit, combined with a slight reduction on the weight of personnel expenses. These improvements more than compensate the increase in selling expenses.
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