GATEGROUP HOLDING AG gategroup accelerates on all levels of its strategy: grows 13.1%, boosts profitability and cash flow, and drives innovation and acquisitions
- Revenue at constant currency up 13.1% year over year to CHF 1,600.1 million for first half 2016, with organic volume growth at 6.7%.
- Significant acceleration in first half 2016 EBITDA, from CHF 29.8 million last year to CHF 77.9 million at constant currency.
- Net profit attributable to shareholders reported of CHF 18.3 million. Free cash flow improved by CHF 30.4 million year over year.
- Growing innovation in retail and numerous material contract renewals and expansions.
- Global presence increased through acquisitions.
ZURICH, September 1, 2016 - gategroup Holding AG has made considerable progress in delivering on its Gateway 2020 strategy and has achieved significant financial performance improvements ahead of expectations. In the first half of 2016, the Group reported significant increases in revenue and margins year over year, with continued cash flow generation improvements.
Acceleration of Strategy: Delivering both growth and efficiencies
gategroup has seen an extraordinary turnaround:
Focus on the Core - More than CHF 280 million revenue per annum in renewals
The total value of gategroup's contract renewals in the first half of 2016 amounts to more than CHF 280 million on an annual basis.
In addition to the previously announced extension with United Airlines, gategroup has extended a number of other agreements. Wizz Air has extended its contract by seven years beyond the original expiration date at the end of 2016 and gategroup continues as the preferred partner to manage the airline's complete end-to-end retail program. The total value of the business is expected to be CHF 40 million in annual revenue.
Adding to previously announced strategic contract renewals, gategroup won and expanded a number of agreements. gategroup secured additional business with rapidly expanding Middle Eastern carriers, including new startups for Qatar Airways in Boston and Atlanta. gategroup also took on the airline catering and provisioning business for Emirates at Tokyo Narita and at Clark International Airport in Manila.
Commercial Innovation - New products launched and IFS integration well on track
gategroup energized its offering by introducing a number of innovative products and services. The Group launched a diversified range of onboard trolleys allowing airline customers to feature well-known food and beverages inflight while its distinctive new onboard concept Absolutely ONE provides a restaurant-like dining style. Accelerating development in retail technology includes the recently introduced 'InSeat Ordering' solution, which gives passengers access to a flight's entire menu of available sales items via their smart device.
The integration of Inflight Service Group (IFS) continues to progress, with functional areas as well as procurement and other protocols being unified under the combined leadership of the Retail on Board team. Through integration of support functions and Cost of Goods Sold efficiencies, the team will achieve the long-term cost synergies initially estimated.
Standardization and Efficiency - Efficiency and cost containment programs on track
gategroup continues to drive standardization and efficiency improvement, freeing up resources to further push commercial innovation and other important projects. The Group also is restructuring underperforming operations. The contribution of the efficiency programs is evident in the reported financials.
Geographic Expansion - Increased global presence through acquisitions - Cambodia, Mexico, Bolivia and Italy
In March 2016, gategroup acquired 75% of Cambodia Air Catering Services ("CACS") in the Kingdom of Cambodia, one of the fastest growing aviation markets in Asia. Gate Gourmet today manages operations in Phnom Penh and Siem Reap, with air traffic expected to increase in both cities over the next few years. The latest addition to the operation is a new daily flight launched by ANA between Narita and Phnom Penh, the capital of Cambodia, starting September 1, 2016. The Cambodia team remains focused on reinvestment in facilities and equipment as business continues to expand.
gategroup is now also the majority shareholder of Campamentos de Obra Moviles S.L. ("COMO"), having acquired 60% of the business in May 2016. COMO is dedicated to remote catering across the globe with solid growth potential, including a strong pipeline of business in Saudi Arabia and Latin America.
Further, having increased its share to 51%, gategroup also now fully consolidates Gate Gourmet & MAASA Mexico ("GG Mexico"). This represents the next step in a successful partnership spanning several years. GG Mexico operates facilities in three major airports Cancun, Mexico City and Monterrey and offers services at other satellite locations to meet customer needs.
In August 2016, gategroup acquired a controlling interest in the airline catering business of Service Group S.R.L. The company now operates as Gate Gourmet Catering Bolivia S.A. at airports in Cochabamba, La Paz and Santa Cruz de la Sierra.
Additionally, gategroup has established its presence in Italy with central production in Malpensa and an assembly center in Rome.
Financial Flexibility - Credit facilities extended at unchanged interest rates below 3%
The successful implementation of gategroup's financing strategy continues to provide the basis for significant savings as well as additional cash flow to upgrade facilities and retain and expand business. Following the increase in March 2016 of its Revolving Credit Facility ("RCF") under favorable terms, gategroup's financing structure consists of a EUR 350 million Revolving Credit Facility and a EUR 250 million term loan.
In July gategroup has agreed with its lenders that the Change of Control provision triggering a mandatory prepayment of all credit facilities upon a change of control of gategroup will be waived. As part of this agreement specific ring-fencing language was agreed to protect the lenders from asset or cash leakages; to prevent over-leveraging and to secure the existing debt financing at unchanged favorable terms and conditions.
Financial Results
Solid growth in 2nd quarter: Increase of 14.1% in revenue and 186.2% in EBITDA at constant currency
The Group achieved accelerated growth in the second quarter of 2016, with revenues increasing by 14.1% to CHF 850.6 million at constant currency, compared to the same period in 2015. EBITDA grew to CHF 54.1 million or by 186.2% at constant currency over EBITDA of CHF 18.9 million in the second quarter of 2015. This translates to an EBITDA margin of 6.4%, an increase of 3.8 percentage points compared to the same quarter last year. Even after 2015 adjustments, EBITDA at constant currency increased by 48.6% compared to the same period last year.
Strong year-over-year growth in first half: Increase of 13.1% in revenue and 161.4% in EBITDA at constant currency
The Group continued to drive growth, with total reported revenues for the first half of 2016 increasing by 12.8% to CHF 1,596.6 million (up by 13.1% to CHF 1,600.1 million at constant currency) compared to CHF 1,415.1 million for the same period in 2015.
Reported EBITDA was at CHF 76.2 million for the first half 2016 (4.8% EBITDA margin), up 155.7% from CHF 29.8 million (2.1% EBITDA margin) for the same period in 2015. At constant currency, EBITDA for the first half of the year was CHF 77.9 million, representing a 161.4% increase year over year. This translates to an EBITDA margin of 4.9% at constant currency, or an increase of 2.8 percentage points over the same period last year.
The Group saw organic volume growth of 6.7% supported by acquisitions of 7.3%, marginally offset by a net win/loss ratio of (0.9)% and negative currency movements against the Swiss Franc of (0.3)%.
gategroup reported a net profit of CHF 18.3 million attributable to shareholders for the first half of 2016, compared to a CHF 88.3 million loss for the same period in 2015. The improvement of the net result was mainly due to improved EBITDA, lower finance costs and the absence of the 2015 restructuring costs and adjustments.
Cash flow statement and balance sheet: Operating cash flow doubled year over year
The Group generated CHF 40.8 million cash flow from operations for the first half of 2016 compared to CHF 19.3 million for the same period in 2015. Free cash flow improved by CHF 30.4 million. This is the result of higher EBITDA and improved working capital, as well as lower interest expense due to the various refinancing measures.
gategroup's balance sheet as at June 30, 2016, shows total shareholders' equity and non-controlling interests of CHF 210.9 million, compared to CHF 208.7 million as at June 30, 2015.
Net debt was CHF 398.0 million, with a net debt to LTM EBITDA of 2.0x, which as previously reported increased compared to year-end (1.7x) due to IFS acquisition financing in February, still well below the financial covenants of 3.0x.
Segments
For the first half of 2016, EMEA reported total revenue of CHF 818.4 million or CHF 811.3 million at constant currency, up 21.8% over total revenue of CHF 671.8 million for the same period in 2015 (up 20.8% at constant currency). The region reported EBITDA of CHF 50.0 million (6.1% EBITDA margin), compared to CHF 20.5 million (3.1% EBITDA margin) in the first half of 2015. The results reflect the year-over-year positive financial impact of the IFS integration to the business, several cost initiatives, and strong organic growth, including the launch of warehousing and distribution business with SAS.
The North America region reported total revenue of CHF 522.9 million for the period under review, or CHF 507.1 million at constant currency. Compared to total revenue for the first half of 2015 of CHF 494.0 million, this is an increase of 5.9% (2.7% at constant currency). EBITDA increased to 8.7 million (1.7% EBITDA margin) compared to a CHF 3.2 million loss for the same period in 2015. The improved results are largely due to strong organic growth with high incremental margins, several cost and restructuring measures as well as absence of the 2015 adjustments that were largely due to the ratified U.S. labor agreement.
The Latin America region reported total revenue of CHF 109.7 million for the first half of 2016, a 2.0% increase over total revenue of CHF 107.6 million for the same period in 2015. At constant currency, the region had a 27.8% jump in revenue to CHF 137.5 million. The region also saw an increase in EBITDA, reporting CHF 10.6 million (9.7% EBITDA margin) compared to 8.3 million (7.7% EBITDA margin) in the first half of 2015. EBITDA continued to be impacted by adverse currency movements against the Swiss Franc in some of the major countries in the region. This adverse impact was mostly mitigated by new business won, organic volume growth and cost management. At constant currency, EBITDA was up 94.0% year over year at CHF 16.1 million (11.7% EBITDA margin).
The Asia Pacific segment had total revenue for the period under review of CHF 151.5 million, up 2.9% from CHF 147.3 million for the first half of 2015. At constant currency, the region had revenue of CHF 150.0 million, an increase of 1.8%. Reported EBITDA was at CHF 6.9 million (4.6% EBITDA margin), up 64.3% from EBITDA of CHF 4.2 million (2.9% EBITDA margin) for the same period in the prior year. At constant currency, EBITDA was up 47.6% year over year at CHF 6.2 million (4.1% EBITDA margin). The regional team continues to address challenges in India to further improve operational and financial performance, with the rest of the Asia Pacific's operations performing strongly.
HNA Acquisition Update
In April 2016, Chinese conglomerate HNA Group announced an all cash offer to acquire gategroup that found unanimous support among gategroup's Board of Directors.
In May, a subsidiary of HNA Group published the offer prospectus on the public tender offer for all publicly held shares of gategroup Holding AG. Up to the expiration of the offer in July, 95.32% of all listed gategroup shares had been tendered into the offer.
At an extraordinary general meeting on July 29, shareholders elected a new Board of Directors of gategroup: Adam Tan as Chairman, Di Xin, Frank Nang, Stewart Gordon Smith and Xavier Rossinyol (all new) and Frederick W. Reid who was already a member of the Board of Directors. The newly elected Board of Directors is to assume office when the offer is settled, which is currently expected at the end of the third quarter/beginning of the fourth quarter 2016.
After the settlement of the offer, HNA will request a squeeze-out or squeeze-out merger and intends to submit an application to the SIX Swiss Exchange for the de-listing of gategroup shares.
Delivering on Gateway 2020: Two wings - Innovation and growth, profitability and cash flow
Xavier Rossinyol, gategroup Chief Executive Officer, said:
"These results show we are delivering as expected with noteworthy outcomes: We have generated 13.1% growth in revenue at constant currency with an impressive 6.7% increase in organic revenue in the first half of the year, and a 161.4% EBITDA improvement at constant currency. Taking into consideration 2015 adjustments, the EBITDA margin improved from 4.9% to 6.4% from the second quarter 2015 to the second quarter 2016. Therefore, this is the 4th consecutive quarter that we have improved on all metrics since announcing our new strategy last year.
With continued investment in innovation, culinary, retail and technology, we have further differentiated our service. Our people are designing and delivering more innovative products and service concepts, establishing new business partnerships, and growing our dynamic retail offering. It is clear we take pride in creating value for our customers. Thanks to the trust of our customers, gategroup has become the clear innovation leader in the industry. As a result, we have strengthened relationships with some of the leading airlines in the world, including Wizz Air, which has one of the most successful Retail on Board programs in the industry.
And now we have fully consolidated our joint venture in Mexico and expanded our global presence by extending our footprint into Cambodia, Bolivia and Italy. These important moves enhance our ability to more broadly serve existing and new customers.
Our plan is on track. As we consider our anticipated future with gategroup as an autonomous company within HNA's portfolio, we look forward to accelerating on our delivery.
With our two wings, growth and innovation on one side, and efficiencies and cash flow on the other, gategroup will fly further and higher than ever before."
Additional information is provided in the Investors and Analysts presentation. This is available on the gategroup website, together with further Company information, at the following link: http://www.gategroup.com/investors/financial-reports-and-presentations
Overview of financial key figures January - June
in CHF m | H1 2016 | H1 2016 @CC | H1 2015 | Change (H1 2016 vs. H1 2015) | Change (H1 2016 @CC vs. H1 2015) |
Revenue | 1,596.6 | 1,600.1 | 1,415.1 | 12.8% | 13.1% |
EBITDA EBITDA margin | 76.2 4.8% | 77.9 4.9% | 29.8 2.1% | 155.7% 2.7pp | 161.4% 2.8pp |
Operating profit/(loss) Operating profit margin | 40.1 2.5% | 42.0 2.6% | (37.0) (2.6)% | 208.4% 5.1pp | 213.6% 5.2pp |
Net profit/(loss) attributable to shareholders of the Company | 18.3 | (88.3) | |||
Cash generated in operations | 40.8 | 19.3 | 21.5 | ||
Net debt | 398.0 | 248.1 | 60.4% |
Invitation to analysts and investors
gategroup CEO Xavier Rossinyol and CFO Christoph Schmitz invite analysts and investors to participate in a telephone conference call regarding the half-year results for 2016.
The presentation can be accessed via webcast and dial-in teleconference at 14:00 CET on Thursday, September 1, 2016.
Below are the dial-in numbers and link to access the live event.
Switzerland toll: +41 58 310 50 00
UK toll: +44 203 059 58 62
US toll: +1 631 570 5613
Follow this link to access the webcast:
http://78449.choruscall.com/dataconf/productusers/gategroup/mediaframe/16520/indexr.html
For further inquiries, please contact us by email at invest@gategroup.com
Contact
Dagmara Robinson
Investor Relations and Corporate Communications
invest@gategroup.com
+41 44 533 70 32
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