Global Blue – travel corridors reopen but business still far from normal

Few businesses were as badly hit by Covid than Global Blue. In normal times, the tax-free shopping specialist helps travellers get VAT refunds quickly and securely. But during the Covid lockdowns, customers stayed at home and revenue dropped an eye-popping 89% in its 2020/21 financial year. 

Global Blue furloughed staff, cut costs and took extra investment including an additional €211m in July this year from Certares Opportunities Fund, which now has a stake of 13%. Silverlake remains the dominant shareholder in the NYSE listed company.

Announcing its Q1 (April – June) 2022/23 results, management predicts business finally returning to normal over the next few quarters as the last restricted travel corridors open up.

Sales in store – the value of retail transactions to which Global Blue applies one of its services – bounced back strongly from €0.9bn in Q1 21/22 to €3.7bn in Q1 22/23 although sales remain well below the €5.7bn recorded in the same quarter of 2019. Tax Free Shopping volume was up €1.8bn to €2.8bn, Advanced Payment Solutions (AVPS) which is mainly dynamic currency conversion (DCC) grew £0.6bn to €1.1bn.

Total revenue bounced back by €39.4m to €56.1m in Q1 2022/23 but remains well below the €100.5m generated in 2019. The improved revenue performance has been at the expense of some margin erosion. Overall take rate fell from 1.9% to 1.5% with margins lower in Tax-Free but holding steady in AVPS. 

Complementary Retail Tech (CRTS) is a new division that includes two UK based acquisitions,  ZigZag Global, an e-commerce returns platform, and a majority stake in Yocuda, an e-receipts platform. Revenue from the two businesses was up from €2.8m to €4.0m on the back of higher eCommerce retail sales and a greater volume of returns. 

Global Blue kept tight control of total operating expense, down 8% from €62.7m to €62.6m.

Adjusted EBITDA, the company’s preferred measure of profitability, swung from a loss of €10.7m to a profit of €6.8m. This positive result remains below the €39.5m recorded in the 2019. The turnaround was strongest in the Tax-Free Shopping division with adjusted EBITDA growing €19.7m to €20.5m.

Overall operating losses were sharply reduced from €51.5m to €14.7m. In 2019, the business was at break-even. 

Global Blue says that it has enough resources to meet its needs for next 12 months but the business is cash hungry. It pays refunds to consumers before it receives that VAT from the merchants, typically in 30 days. The more volume it processes, the more working capital it needs. Despite the Certares investment, Global Blue warned that it will need additional cash to fund growth, “meet debt service requirements and interest payments under our indebtedness, fund general corporate uses… and expand our business through acquisition.

Management updated on the state of global travel. 61% of travel corridors (by 2019 revenue) are now open, 8% restricted in some way and 31% (China and Russia) effectively still closed. 

Chinese residents are still subject to onerous quarantine when returning home. This presents a major barrier to outbound travel. China accounted for 40% of tax-free spending in Europe before the pandemic but Global Blue is convinced the customers will soon return citing “strong pent-up demand.” More than 80% of Chinese who were travelling to Europe pre-Covid say they will be back within a year of borders reopening although there is no certainty when they might start flying to Europe. “We believe a recovery of Chinese travel to Europe may take a few more months and that it may be a slow recovery, spanning across a few quarters.” 

Russians would, no doubt, like to travel as before but have less money and fewer places that welcome their visits. Global Blue has sold its take in its Russian JV but retains an option to buy it back should the macro position improve. One final headwind is that the UK, a major inbound destination which accounted for 14% of Global Blue’s revenue pre-Covid, has bizarrely abolished tax-free shopping completely as part of the Government’s plans to “level up” the UK.

China and Russia aside, the strong recovery seen in Global Blue’s Q1 numbers has kept going into July and August.

High spending Americans (strong dollar) and Gulf (strong oil price) are visiting Europe again and making up for lost shopping time. Management says Tax-Free Shopping volume is now running at 71% of 2019 levels, up from 58% in Q1. Sales are particularly strong in continental Europe with like for likes almost back at 2019 levels. Indeed, Portugal, France and Switzerland are running well ahead of 2019. 


Euronet rebounds but warns on continued travel disruptions

Euronet’s merchant payments and ATM business continues its strong rebound from the pandemic but management warned that the ongoing disruption to European travel would be a restraint on growth into H2. 

Euronet is headquartered in Kansas but does most of its business outside the US. Overall revenue was up 18% in Q2 to $843m. The epay and Money Transfer divisions must be giving cause for concern with sales down 7% and up just 3% respectively but it’s the EFT Processing division which interests us at Business of Payments. 

EFT Processing revenue rose 119% from $113.5m to $249.0m. 80% of this is made in Europe. 

All metrics have moved strongly in the right direction. More transactions and more high margin transactions have been flowing through Euronet’s processing centres. Total transactions (POS + ATM) were up 59% at 1.573m while revenue per transaction grew 45% to $0.16. This reflects “the higher proportion of high value and high margin DCC transactions due to reduction of travel restrictions.”

Heading into the second half of the year, management called out several headwinds including strengthening USD, rising interest rates, inflation and staffing/operational issues in the travel industry. Michael Brown, CEO was particularly harsh on Heathrow. 

“Let’s not forget, travellers from the U.K. are by far the largest producer of high-value international transactions on our ATMs because every card has a cross currency component. So, the limiting of passengers to and from the British airports has had a more significant impact on our forecast.”

Euronet manages a total of 51,062 ATMs, some directly and some on behalf of 3rd party operators including banks. ATM’s were particularly badly hit by the pandemic but, despite early forecasts of the death of cash, have bounced back strongly in the recovery. Total number of ATMs grew 10% boosted by deals in India, Spain (with the Post Office to provide access to cash in rural locations) and a new independent network in Iceland. Revenue per ATM grew from $934 to $1696. 

Future deployments have been hit by operational problems. “We have been challenged with supply chain issues related to our ATM deployments. These issues range from manufacturers not delivering the machines on time to third-party resource issues installing them.”

In addition to the ATM’s, Euronet manages 570,000 POS terminals, mainly as an outsourced provider to banks. However, it took direct control of its estate in Greece during Q2 through the acquisition of the merchant services division of Piraeus Bank. This gives Euronet an estimated 40% share of the Greek POS merchant acquiring market and 20% of eCommerce. According to Euronet, new business is healthy – 5,000 merchants were signed in Q2 including some marquee names such as Ikea and TGI Fridays – and the transition to Euronet’s platform “has gone smoothly.” 

EFT Processing is highly geared. Revenue more than doubled but operating expenses rose just 40% which helped operating income swing into $54.8m profit from a loss of $25.3m in the same quarter of 2021. Investors will be hoping this rebound has further to go. Even at the new profit level, operating income margin in this division is just 7% and return on assets 4.1%.