gategroup Holding Reports Earnings for First Quarter of 2016
OREANDA-NEWS. gategroup Holding AG reported strong performance for the first quarter of 2016, with Gateway 2020 advancing according to plan. The continued positive development in all areas of the business – operationally, commercially and financially – is reflected in ongoing efficiency improvements and double digit increases both at revenue and EBITDA levels.
Acceleration of Strategy: Delivering growth and efficiencies
gategroup’s continued momentum is evident. The Group achieved important milestones aligned with its Gateway 2020 strategy, including the following highlights:
Focus on the Core – More than CHF 170 million revenue per annum in renewals, including key customer Hong Kong Airlines
The total value of gategroup’s contract renewals reached in the first quarter 2016 amounts to more than CHF 170 million on an annual basis. Building on previously announced strategic contract renewals with United Airlines and American Airlines, gategroup further reinforced its focus on business renewal and expansion with several market-specific wins. In May 2016, the Group reached a five-year extension of catering services with internationally-acclaimed full-service carrier Hong Kong Airlines at the airline’s main hub in Hong Kong. This emphasizes gategroup’s focus on serving as primary caterer at a main hub for its catering customers and best leveraging the Group’s expertise and capital to strengthen profitability.
Commercial Innovation – IFS integration plan well in progress – Synergies confirmed
gategroup brought together Inflight Service Group (IFS) with the Group’s existing retail platform to create the basis for the best retail portfolio in the industry. The IFS transaction was completed in February 2016, and the integration plan is now well under way. Targeted annual run-rate cost synergies of about CHF 6 million between gategroup and IFS are based on Cost of Goods Sold efficiencies and integration of support functions and will be realized in the next 18 months during the post-acquisition integration phase.
Standardization and Efficiency – Efficiency and cost containment programs on track
By the end of first quarter 2016, gategroup had achieved about 75% of its overhead reduction target of about 300 managerial positions. This reduction effort is expected to be completed as planned by the end of 2016 and will deliver run-rate savings of about CHF 20 million per annum.
Additionally, gategroup is progressing on savings targets under its Zero Based Budgeting plan. As previously announced, a total of CHF 50-60 million in annual savings across a range of categories are expected by year-end 2017.
Geographic Expansion – Presence established in Cambodia through acquisition
In March, gategroup acquired 75% of Cambodia Air Catering Services (“CACS”) in the Kingdom of Cambodia, one of the fastest growing aviation markets in Asia. The business has a strong network of customers including Dragonair, China Airlines, Bangkok Airways and the Kingdom’s flag carrier Cambodia Angkor Air. CACS is the only Cambodian caterer with facilities in Phnom Penh and Siem Reap, the country’s main destination for tourism, and has capacity for expansion to meet future demand.
Financial Flexibility – RCF increased
In March 2016, gategroup increased its existing EUR 240 million Revolving Credit Facility (“RCF”) to EUR 350 million at favorable terms, taking advantage of positive market sentiment and supported by the on-plan performance of the operating business. The enlarged RCF with a remaining tenure of over 4 years will mature in 2020.
Strong year-over-year growth in first quarter: Increase of 11.9% in revenue and 118.3% in EBITDA at constant currency
The Group achieved accelerated growth in the first quarter of 2016, with total reported revenues increasing by 11.0% to CHF 743.3 million (up by 11.9% to CHF 749.5 million at constant currency) compared to the same period in 2015.
Reported EBITDA was at CHF 22.0 million for the first quarter 2016 (3.0% EBITDA margin), up 101.8% from CHF 10.9 million (1.6% EBITDA margin) for the same period in 2015. At constant currency, EBITDA for the quarter was CHF 23.8 million, representing a 118.3% increase year over year. This translates to an EBITDA margin of 3.2%, or an increase of 1.6 percentage points over the same period last year.
The Group saw organic volume growth of 5.1%, supported by a net win/loss ratio of 0.8% and acquisitions of 6.0%, offset by negative currency movements against the Swiss Franc of (0.9)%.
gategroup reported a CHF 6.5 million loss attributable to shareholders for the first three months of 2016, compared to a CHF 38.0 million loss for the same period in 2015. The significant improvement of the net results was mainly due to improved EBITDA and lower finance costs together with a modest positive foreign exchange effect.
Cash flow statement and balance sheet
The Group’s cash flow used in operations was CHF 4.8 million for the first quarter of 2016 compared to a CHF 27.3 million absorption for the same period in 2015. This significant improvement was largely due to higher EBITDA and improved working capital. Free cash flow improved by 56.0% quarter over quarter as a result of lower interest expense due to 2015 refinancing measures. Historically, the Group's revenue experiences some seasonality with the strongest revenue performance in the second and third quarters. Traditionally, cash flow generation has been weakest in the first quarter.
gategroup’s balance sheet as at March 31, 2016, shows total shareholders’ equity and non-controlling interests of CHF 190.4 million, compared to CHF 233.3 million as at December 31, 2015.
Net debt was CHF 417.9 million, with a net debt to EBITDA ratio of 2.52x, which increased compared to year-end (1.69x) due to IFS financing in February.
For the first quarter of 2016, EMEA reported total revenue of CHF 368.1 million or CHF 366.8 million at constant currency, up 18.6% over total revenue of CHF 310.3 million for the same period in 2015 (up 18.2% at constant currency). The region reported EBITDA of CHF 13.7 million (3.7% EBITDA margin), compared to CHF 6.7 million for 2015 (2.2% EBITDA margin). The increased results are largely due to strong organic growth, several cost initiatives and the year-over-year positive financial impact of the IFS integration to the business.
The North America region reported increased total revenue for the quarter of CHF 248.4 million, or CHF 239.8 million at constant currency. Compared to total revenue for the first quarter of 2015 of CHF 232.6 million, this is an increase of 6.8% (3.1% at constant currency). EBITDA increased by CHF 4.6 million compared to the same quarter in 2015. The increased results are largely due to strong organic growth with high incremental margins despite previously announced loss of business (e.g., United Airlines in Chicago), 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 52.6 million for the first three months of 2016, a 4.4% decrease over total revenue of CHF 55.0 million for the same period in 2015. At constant currency, the region had a 24.2% jump in revenue to CHF 68.3 million. The region achieved the same EBITDA as in Q1 2015 of CHF 5.0 million (9.5% EBITDA margin compared to 9.1% EBITDA margin in Q1 2015). EBITDA continued to be heavily impacted by adverse currency movement 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 strong cost management. At constant currency, EBITDA was up 42.0% year over year at CHF 7.1 million (10.4% of EBITDA margin).
The Asia Pacific segment had total revenue for the quarter of CHF 77.0 million, up 3.2% from CHF 74.6 million for the same period prior year. At constant currency, the region had revenue of CHF 77.2 million, an increase of 3.5%. EBITDA was at CHF 3.3 million (4.3% EBITDA margin), down 13.2% from EBITDA of CHF 3.8 million (5.1% EBITDA margin) for the same period in the prior year. The regional team continues to address challenges in India to further improve operational and financial performance, with the rest of the region’s operations performing strongly.
Delivering on Gateway 2020
Xavier Rossinyol, gategroup Chief Executive Officer, said: “gategroup continues to enhance every area of the business with the main focus on our customer. We have deepened customer relationships through significant contract renewals this quarter that in total exceed CHF 170 million per year, including the five year renewal with Hong Kong Airlines, and have further expanded our presence in emerging markets by extending our footprint into Cambodia. We have introduced new and innovative products and strengthened our service offering.
The results validate our progress. We have generated 11.9% growth in revenue with a 5.1% increase in organic revenue in the first three months of the year and a 118.3% EBITDA improvement at constant currency. Our business is operating more efficiently and delivering savings while stepping up our consumer-centric focus. We are delivering as planned and in line with our targeted EBITDA margin expansion of 25-50 basis points per annum over the next five years.
We keep on delivering on our 5-year strategy, focusing on customer innovation, delivering growth and efficiencies, enhancing profitability and cash flow.”