2008 Report and Accounts 2008 Report Autogrill Group Autogrill Group www.autogrill.com 2008 Report and Accounts Autogrill Group Annual Report and Accounts 2008 “Cultural diversity? Wealth to make the most of” “Environmental sustainability? A commitment to future generations, a competitive advantage for the business” “Professional advancement? An individual challenge, value for the community” “Focus on the consumer? An attitude that is a natural part of everyday operations” Highlights_Profile_Strategy_The concession business_Autogrill’s market_Business segments_The brands_People_The Group development Highlights Revenue EBITDA EBIT (E million) (E million) (E million) 3,529 3,929 4,861 5,795 475 514 562 602 295 325 339 332 2005 2006 2007 2008 2005 2006 2007 2008 2005 2006 2007 2008 Group net profit Net financial indebtedness Capex (E million) (E million) (E million) 130 153 158 123 928 781 1,162 2,168 195 214 278 337 2005 2006 2007 2008 2005 2006 2007 2008 2005 2006 2007 2008 011 The Autogrill Group The Autogrill Group Profile Autogrill is the world’s leading provider of food & beverage and retail services for travellers. Present in 43 countries with over 70,000 employees, it manages more than 5,500 points of sale in over 1,200 locations. Autogrill serves people on the move and operates primarily under concession agreements, which allow the Group to plan medium to long-term operations. Food & beverage, travel retail & duty-free, and flight are the Group’s three business sectors. Food & beverage is its historical business and is well developed mainly in North America and Europe. Travel retail has become highly strategic with the recent acquisitions of Aldeasa, Alpha Group and World Duty Free Europe, and is concentrated mostly in Europe, with a significant presence in the Middle East, the Americas and Asia. The flight business serves airlines and operates from the U.K., Central Europe, Australia and the Middle East. Airports and motorways are the Group’s principal business channels, followed by railway stations and a selective presence in shopping centres, trade fairs, museums, and high streets. With its portfolio of more than 350 international and local brands, managed directly or under license, and the complementary nature of its food & beverage and retail offerings, Autogrill positions itself as a global service provider to customers and landlords. In-flight has developed out of its own complimentary range of services to airlines as well as other airport users. Autogrill, listed on the Milan Stock Exchange, is controlled indirectly by Edizione S.r.l. (the Benetton family’s investment arm) which holds 59.3% of the share capital. 012 The Autogrill Group Highlights_Profile_Strategy_The concession business_Autogrill’s market_Business segments_The brands_People_The Group development Strategy Autogrill is a company on the move. Growing non-stop over the years through acquisitions and successful bids for contracts, it has taken the lead in the concession business - first in food & beverage and later in travel retail & duty-free - and is now a global service provider for travellers. Leadership consolidation, also thanks to the integration and reorganisation process launched after the most recent acquisitions, is the foundation of the Group strategy today. The concentration of travel retail operations in Europe generates major synergies that will strengthen the Group’s competitive position with the creation of a single retail company. Renewal and expansion of the contract portfolio, leading to new, more diversified offerings, will also strengthen Autogrill’s hold in the food & beverage sector. The Group’s next step is to develop by renewing and extending major contracts, pursuing new commercial agreements and joint ventures, and monitoring new markets to take advantage of growth opportunities. Specific plans by segment: Food & Beverage » consolidation in Europe and North America, in the Group’s traditional channels » growth in travel channels where the Group’s presence is still limited » assessment of development opportunities in specific regions Travel Retail & Duty-Free » business concentration into a single company » greater competitiveness in key markets In-Flight » consolidation in the main markets 013 The Autogrill Group The Autogrill Group The concession business The Group has food & beverage and travel retail operations mostly in airports, motorways, and railway stations under concession contracts. In this kind of arrangement the concession grantor allows the operator to provide commercial services in a given space and for a set amount of time, in exchange for a rent, and in many cases for construction or renovation work as well. The process for awarding a concession varies depending on circumstances. Most are awarded through competitive bidding, but in some cases they are negotiated directly. The terms of the contract - duration of the concession, the rent and required investments - vary according to the business channel and type of business. Motorway locations usually require more investment than airports, because the concession covers the entire building rather than single points of sale. Thus, for a motorway concession, the rents are generally lower and the average length of the concession is longer - from 10 to 25 years, with peaks of more than 30 - compared with 5-10 years for an airport contract. In the same channel, contract duration can also vary by type of business. Food & beverage requires investment in equipment, so concessions are generally longer with lower rents. The rent may be fixed or variable (indexed to revenue or profitability), or a combination of both. The criteria for evaluating bids can differ according to the sales channel, type of business and country. The main criteria are usually: » the quality of the business proposition » the brand portfolio » the design and layout of the venues » the operator’s expertise and track record » the financial commitments assumed in terms of investments and rents. The flight sector has a different business model, based on contracts arranged directly with the airline. 014 The Autogrill Group Highlights_Profile_Strategy_The concession business_Autogrill’s market_Business segments_The brands_People_The Group development Autogrill’s market The traveller services market depends on traffic trends, which in turn are influenced by GDP. This means that the Group’s core market, though linked to the performance of the economy in the short to medium term, is in the long term more closely aligned to lifestyle changes and the development of transport systems and infrastructure. The more developed countries, where traffic growth reflects rising household income and the spread of new and cheaper means of transport (e.g. mass car ownership and low-cost airlines), have recently been joined by newly industrialised countries with their inherent transnational spirit and a young population influenced by Western lifestyles. With the costant ebb and flow of demand, the flexibility to operate across the travel industry helps the Group adapt to different geographical locations and cultures and to adjust its products and services to the evolving needs and aspirations of its consumers and partners. Airports In 2008 world traffic exceeded 4.4 billion passengers, broadly in line with the previous year (-0.2%), bringing the average annual increase to more than 4.5% since 19971. This is a fast- growing industry, despite the slowdown in 2001-2002 following 9/11 and in 2007-2008 due to the global financial crisis. Passengers total growth - Figures by geographical region 1997-20081 (billion passengers) 2.7 2.9 3.1 3.2 3.2 3.2 3.4 3.7 4.0 4.2 4.5 4.5 5 4 3 CAGR 1997-2008 4.7% 2 Africa 9.9% Middle East 4.9% Latin America 1 and Carribean 10.7% Asia Pacific 8.6% Europe 5.4% 0 North America 1.3% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 The sector is highly concentrated, with the three main geographical regions accounting for over 88% of world airport traffic: North America (33%), with an average annual growth rate since 1997 of 1.3%; Europe (which accounts for more than 32% of world traffic), with average annual growth of 5.4% from 1997 to 2008 and Asia (with a share of over 23%), which shows the fastest growth of all with a rate topping 8%. 1 Source: A.C.I. Global Traffic Forecast 2006-2025 2 Forecasts now available through 2027 predict an average annual growth rate of 3% to 5% (Executive Summary Edition until 2009-2010, when the number of passengers per year is forecast to exceed 5 billion. After 2007) and A.C.I. Worldwide a slowdown in 2009 due to the international financial crisis, the pace should pick up again in Airport Traffic Statistics, 2008 2 Source: A.C.I. Global Traffic 2010. In the following 17 years average annual traffic growth is expected to settle at around Forecast 2008-2027 (2008 4%, as the markets of many countries mature, reaching 11 billion passengers a year by 2027. Edition) 015 The Autogrill Group The Autogrill Group Projection of world passenger traffic (billion passengers) 4.0 4.2 4.5 4.5 5.1 5.4 5.6 5.9 7.3 11.0 12 10 8 6 4 2 0 2005 2006 2007 2008 2009 2010 2011 2012 2017 2027 Motorways Particularly in Europe, the car remains the most used means of transport, given the region’s small size compared with other continents and its extensive road network along with the absence or inadequacy of alternative transport channels. Over the last decade the highest rates of growth have been seen in Spain and Belgium (over 4% and 5% respectively), against an average of 1% to 3% for France, Germany and Italy. In the US and Japan, where the motorway networks are comparable to Europe’s in terms of infrastructure but not extension or use, traffic grew, but not as fast as in Europe. In 2008, motorway traffic was hit in the first six months by soaring fuel costs, which mainly affected the leisure component and in the second half by the financial crisis and its impact on commercial traffic.