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.