ANNUAL REPORT 2019 DUFRY GROUP – A LEADING GLOBAL TRAVEL RETAILER DUFRY AG (SIX: DUFN) IS A LEADING GLOBAL TRAVEL RETAILER OPERATING OVER 2,400 DUTY-FREE AND DUTY-PAID SHOPS IN AIRPORTS, CRUISE LINES, SEAPORTS, RAILWAY STATIONS AND DOWNTOWN TOURIST AREAS. DUFRY EMPLOYS OVER 31,000 (FTE) PEOPLE. THE COMPANY, HEADQUARTERED IN BASEL, SWITZERLAND, OPERATES IN 65 COUNTRIES ON ALL SIX CONTINENTS. ANNUAL REPORT 2019 CONTENT MANAGEMENT REPORT Dufry at a Glance 4 – 5 1 Highlights 2019 6 – 7 Message from the Chairman of the Board of Directors 8 – 11 Statement from the Chief Executive Officer 12 – 16 Organizational Structure 17 Board of Directors 18 – 19 Global Executive Committee 20 – 21 Dufry Investment Case 22 – 23 Dufry Strategy 24 – 77 Dufry Divisions 48 – 65 SUSTAINABILITY REPORT Sustainability 78 – 101 2 Community Engagement 102 – 108 FINANCIAL REPORT Report from the Chief Financial Officer 110 – 114 3 Financial Statements 115 – 228 Consolidated Financial Statements 116 – 214 Financial Statements Dufry AG 215 – 227 GOVERNANCE REPORT Corporate Governance 229 – 251 4 Remuneration Report 252 – 269 Information for Investors and Media 272 – 273 Address Details of Headquarters 273 Read the full focus story on page 30 – 37 3 1 Management Report DUFRY ANNUAL REPORT 2019 DUFRY AT A GLANCE TURNOVER IN MILLIONS OF CHF 9,000 8,400 7,800 7,200 6,600 6,000 5,400 4,800 4,200 3,600 3,000 2,400 1,800 1,200 600 0 2015 2016 2017 2018 2019 GROSS PROFIT EQUITY FREE CASH FLOW IN MILLIONS OF CHF MARGIN IN MILLIONS OF CHF 5,200 69 % 400 4,800 68 % 3 % BORDER, DOWNTOWN 4,400 67 % AND HOTEL SHOPS 4 % CRUISE LINERS 4,000 66 % 300 AND SEAPORTS 3,600 65 % 3,200 64 % 2,800 63 % 2,400 62 % 200 2,000 61 % 1,600 60 % 1,200 59 % 100 800 58 % 400 57 % 0 56 % 0 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 4 NET SALES BY PRODUCT CATEGORY 2019 5 % OTHER 32 % PERFUMES 2 % LITERATURE AND PUBLICATIONS AND COSMETICS 2 % ELECTRONICS 11 % TOBACCO GOODS 13 % LUXURY GOODS NET SALES BY DIVISION 2019 1 % DISTRIBUTION CENTERS 18 % CENTRAL AND SOUTH AMERICA 44 % EUROPE AND AFRICA 18 % FOOD, 17 % WINE CONFECTIONERY AND SPIRITS AND CATERING 22 % NORTH AMERICA 15 % ASIA PACIFIC AND MIDDLE EAST NET SALES BY CHANNEL 2019 NET SALES BY MARKET SECTOR 2019 5 % RAILWAY STATIONS AND OTHER 3 % BORDER, DOWNTOWN AND HOTEL SHOPS 39 % DUTY-PAID 4 % CRUISE LINERS AND SEAPORTS 88 % AIRPORT 61 % DUTY-FREE 5 1 Management Report DUFRY ANNUAL REPORT 2019 HIGHLIGHTS ORGANIC 2019 GROWTH ACCELERATION Driven by like-for-like growth and contribution from new concessions, organic growth sequentially improved during 2019 and stood in line with the mid-term average organic growth target. STRENGTHENING AND EXTENDING THE CONCESSION PORTFOLIO million customers included in Dufry extended its concession contract our CRM system. with AENA to operate duty-free shops up to 5 years in all Spanish airports and 5The roll-out of our loyalty signed several new contracts across program has accelerated the globe, such as in Mexico, Brazil and and RED by Dufry is Finland. becoming an important part of our digital strategy focused on driving sales. CHF 383.3 MILLION EQUITY FREE CASH FLOW In 2019, Dufry generated an Equity Free Cash Flow of CHF 383.3 million in line with our annual target of CHF 350 – 400 million, growing with top line. 6 STRATEGIC ACQUISITIONS Dufry executed three important acquisitions, increasing its footprint in both duty-free and duty-paid, and adding new F & B concessions in North America. EXPANDING ALTERNATIVE CHANNELS REFINING Dufry opened its first border GOVERNANCE duty-free shop in Brazil and further expanded the cruise AND EVOLVING channel. ESG REPORTING Dufry has further refined DEBT REDUCED its corporate governance structure and evolved its ESG AND FINANCING reporting in accordance with the Global Reporting Initiative FURTHER (GRI) CORE option. OPTIMIZED As per December, 2019 net debt reached CHF 3,102 million, the lowest level since 2015. New EUR 750 million Senior Notes were issued at lower rates, thus refinancing the existing Senior Notes as well as reducing bank debt and financing costs. Present in 65 countries 65In line with its geographic diversification strategy, Dufry has further expanded its footprint. 7 1 Management Report DUFRY ANNUAL REPORT 2019 MESSAGE FROM THE CHAIRMAN OF THE BOARD OF DIRECTORS DEAR SHARE- HOLDERS In the financial year 2019, Dufry once again delivered re- the majority stake in OHM Concession Group LLC. silient results with respect to organic growth and equity These three acquisitions perfectly showcase our growth free cash flow generation thereby meeting our expecta- strategy for the future, which besides organic growth tions. We have also successfully executed three impor- also focusses on small and mid-sized acquisitions pav- tant acquisitions – one in Russia and two in the United ing the way into new growth avenues. States – which further increase our footprint in duty-free and duty-paid, and contribute to strengthen our capabil- In the context of growth and the resilience of our busi- ities to access new avenues of growth within the impor- ness, I want to highlight – amongst several other con- tant food & beverage market in North America. At the tract extensions and new wins – the important renewal corporate governance level, we have continued to evolve of the AENA concession contract covering all Spanish the structure of the Board of Directors by welcoming a airports, the extension of the Toronto Pearson con- new member to the Board, introducing the new Lead In- cession for another eight years, as well as the new dependent Director function, and fostering efforts in our contract won at Mexico City International Airport to Environment, Social and Governance (ESG) engagement. operate three additional duty-free shops. From a performance perspective, turnover increased by 1.9 % to CHF 8,848.6 million, resulting in a new all- Dividend of CHF 4.00 time high. Our diversification strategy focusing on op- erating in different geographic regions and accessing per share proposed various travel retail channels has once more proven effective, generating positive organic growth of 3.0 % to AGM in 2020. despite adverse trading conditions in some key markets. Adjusted net profit reached CHF 349.3 mil- In 2019, we have continued returning cash to sharehold- lion, resulting in an Adjusted EPS of CHF 7.00. Equity ers by paying a CHF 4.00 dividend per share (previous free cash flow reached CHF 383.3 million, confirming year: CHF 3.75 per share); equal to a yield of 4.3 %. Fol- Dufry’s resilient cash flow generation capability and lowing approval by the 2019 Annual General Meeting, meeting its average mid-term expectation¹. we also cancelled the 3.3 million shares bought during the share buyback program executed in 2018. For the While in 2018 Dufry focused on improving its opera- financial year 2019, the Board of Directors’ proposal tional efficiency by implementing the Business Oper- to the annual shareholders’ meeting 2020 will be a div- ating Model and on building our digital initiatives to idend of CHF 4.00 per share corresponding to a yield drive operational excellence, in 2019 we resumed the of 4.2 %. This dividend level will allow us to maintain our focus on growth in strategic areas. In Russia, we ex- flexibility to further reduce debt or allocate capital panded our presence in Moscow by acquiring a partic- into M&A. ipation in RegStaer Vnukovo. In North America, we acquired 34 Brookstone shops in the U.S. as well as Our market capitalization at December 31, 2019, amounted to CHF 4.9 billion. Daily trading volumes on ¹ For a glossary of financial terms and key performance indicators all platforms reached CHF 66.5 million, confirming please see page 270 of this Annual Report. the good liquidity of our shares. The SIX Swiss Ex- 8 1 Management Report DUFRY ANNUAL REPORT 2019 change remains our most important trading platform, where the average daily volume of Dufry shares reached CHF 27.3 million in 2019. In this context it has to be mentioned that the SIX Swiss Exchange lost its EU stock market equivalence on 30 June 2019. As a consequence, since July 2019, Dufry’s trad- ing volumes were mainly concentrated at the SIX 61 % and BATS Chi-X OTC 39 % platforms. As is our tradition, we have maintained a continuous dialogue with our shareholders and the financial community in 870 meetings, conference calls and emails in 2019. Our long-term shareholders, Travel Retail Invest- ments, Qatar Investment Authority, Richemont, GIC Asset Management, Franklin Mutual Advi- sors LLC as well as Blackrock and JP Morgan Chase & Co continued to support Dufry with participations above 3 %. Together, these major shareholders represent approximately 41 % of our share capital. Strong support by long-term and new shareholders. In 2019, we welcomed Mr. Luis Maroto Camino to our Board of Directors team. He was elected by our shareholders at the 2019 AGM and will contribute with his wealth of experience within the travel and tourism industry. We have also continued to develop the struc- ture and the functions of the Board of Directors by unanimously resolving to es- 9 1 Management Report DUFRY ANNUAL REPORT 2019 2 470,000Dufry operates close to m 470,000 m2 of retail space. tablish the new position of Lead Independent Director. Fostering a strong corporate culture is one of our This decision formally recognizes the key importance primary concerns. In recent years we have thoroughly and strategic role of the independent members of the deployed our ONEDUFRY initiative to engage and align Board of Directors, who constitute the majority of the all Dufry employees, while at the same time offering Board and hold all the seats in all Board Committees.