OREANDA-NEWS. gategroup Holding AG delivered solid performance for the third quarter of 2015, with improved operating results and an EBITDA margin increase. The results reflect seasonality, with the third quarter historically being the Group’s strongest in terms of revenue and EBITDA generation, yet equally underscores gategroup’s advancement to date of its Gateway 2020 strategy. The Group is demonstrating real operational and commercial progress as well as achievement of a stronger financial foundation, which the team is driving as ‘one gategroup’.

Financial results

gategroup had total reported revenue for the third quarter of 2015 of CHF 818.6 million or CHF 857.0 million at constant currency representing a 3.4% increase year over year. The Group saw organic volume growth at 6.1%, offset by a net win/loss ratio (-2.3%) and disposals (-0.4%) as well as currency movements against the Swiss Franc (-4.6%). EBITDA was CHF 68.6 million for the third quarter, or CHF 73.5 million at constant currency, compared to CHF 68.0 million for the same period in 2014. At constant currency, this resulted in an EBITDA margin of 8.6%, or an improvement of about 40 basis points year over year.

gategroup reported a CHF 32.0 million profit attributable to shareholders for this quarter, compared to CHF 36.6 million profit for the same period in 2014.

For the first nine months of the year, gategroup reported revenue of CHF 2,233.7 million. At constant currency, the Group achieved revenue of CHF 2,312.1 million (CHF 2,252.6 million Q3 YTD 2014), driven by organic growth. EBITDA was CHF 133.9 million at constant currency (and excluding previously announced adjustments) for the first three quarters of 2015, a 4.1% increase over EBITDA of CHF 128.6 million for the same period in 2014. EBITDA increased in relative performance year over year largely due to operational improvement and momentum built in the third quarter 2015. EBITDA adjustments are unchanged and are as previously announced in the half-year results for 2015.

gategroup reported a CHF 56.3 million loss attributable to shareholders for the first nine months of the year, compared to CHF 29.3 million profit for the same period in 2014. Foreign exchange losses (majority unrealized) of CHF 25.1 million as of September 30, 2015, in combination with previously announced restructuring charges and adjustments, were the primary factors driving this difference, masking additional contribution through revenue gains and cost savings. As previously reported, the majority of foreign exchange losses (CHF 18.0 million) occurred in the first quarter 2015. The Group substantially reduced its foreign exchange exposure in the second quarter of the year by significantly reducing open intercompany balances held in foreign currencies.

Cash flow statement and balance sheet

The Group generated CHF 66.8 million from operations during the first nine months of 2015, compared to CHF 71.4 million during the same period in 2014. In the third quarter cash flow from operations improved by CHF 47.5 million, from CHF 19.3 million reported at the end of June 2015.

gategroup also reported improved free cash flow of CHF 32.1 million, which was a result of better working capital and lower CAPEX.

Net financial debt as at September 30, 2015, was CHF 245.3 million, compared to net debt of CHF 283.7 million as at September 30, 2014.

Segment reporting

For the first three quarters of 2015, EMEA (Europe, Middle East, Africa and the Commonwealth of Independent States) reported total revenue of CHF 1,082.8 million, compared to total revenue of CHF 1,157.7 million for the same period in 2014. The reduction is largely due to optimization of gategroup’s contract portfolio in 2014 and foreign exchange effects. EBITDA for the segment is CHF 60.3 million (5.6% of revenue), compared to CHF 75.2 million (6.5% of revenue) for the first nine months of 2014. Excluding adjustments of CHF 7.2 million, EMEA reported EBITDA of CHF 67.5 million (6.2% of revenue).

The North America region reported total revenue of CHF 776.4 million for the period under review, compared to total revenue of CHF 705.7 million in 2014. EBITDA is CHF 13.5 million (1.7% of revenue), compared to CHF 28.2 million (4.0% of revenue) for the same period in 2014. Excluding adjustments of CHF 15.4 million, EBITDA was at CHF 28.9 million (3.7% of revenue).

The Latin America region reported total revenue of CHF 163.6 million for the first nine months of 2015, compared to total revenue of CHF 155.1 million for 2014. This increase is mainly due to organic growth across the region. EBITDA is CHF 15.3 million (9.4% of revenue), compared to CHF 16.4 million (10.6% of revenue) for the first nine months of 2014. Excluding adjustments of CHF 2.1 million, EBITDA was at CHF 17.4 million (10.6% of revenue).

The Asia Pacific segment had total revenue of CHF 219.8 million for the first three quarters of 2015, compared to total revenue of CHF 242.4 million for the same period in the prior year. The decrease in revenue reflects the deconsolidation of Shanghai operations in 2014 as well as foreign exchange impacts. EBITDA for the first nine months of the year was CHF 9.3 million (4.2% of revenue), an improvement over EBITDA of CHF 8.8 million (3.6% of revenue) for the comparative period in 2014. Excluding adjustments of CHF 2.3 million, EBITDA was at CHF 11.7 million (5.3% of revenue).

Growth and Renewal

As announced, gategroup is broadening its partnership with long-time customer SAS Scandinavian Airlines by covering end-to-end responsibility for the airline’s entire inflight supply chain. This expansion of service is part of a seven-year contract agreed by gategroup and SAS, combining a renewal of existing catering and provisioning business originally due to expire in April 2016 with new partnership terms.

Additionally, gategroup established its presence at Astana International Airport in Kazakhstan through a partnership with the Airport Management Group, the operator of all state-owned airports in Kazakhstan. This cooperation provides gategroup with an immediate foothold in an attractive and growing market and offers airlines operating at Astana access to gategroup’s comprehensive range of services.

Separately, the GVK Lounge, managed by gategroup and Travel Food Services (TFS) in partnership with Chhatrapati Shivaji International Airport in Mumbai, was voted by travel and tourism professionals worldwide as Asia's Leading Airport Lounge for the year 2015 from World Travel Awards™.

Efficiency Plan on target

The Group continues its work to identify cost reduction initiatives, with activities under way to simplify operations and to integrate the organization as ‘one gategroup.’

Support functions are being consolidated across brands and as part of gategroup’s new regional structure. gategroup has introduced a simplified structure for the global Finance team to enhance performance and provide increased transparency as well as greater controls. The Commercial team has also been reorganized, with a clearer focus on gategroup’s customers and the needs of the end passenger. Consolidation within Human Resources, Legal and other Group functions are under review, with additional changes forthcoming. Our Procurement function is also being reinforced with a stronger and more focused team.

Through these and related efforts, gategroup has already achieved almost half of its previously announced overhead reduction target, which is ultimately expected to affect some 300 managerial positions by the end of 2016 as previously announced.

Additionally, Zero Based Budgeting is fully integrated in the business. Across the Group, entities are identifying savings opportunities toward sustainable cost containment and incorporating efficiency improvements into operating budgets for 2016.

Further, gategroup is implementing standardization across its global facilities for better alignment with customers’ needs and to further capture synergies across similar operating units.

Corporate refinancing

Additionally, gategroup Holding AG recently took the final step in refinancing its remaining EUR 250 million 6.75% coupon bearing High Yield Bond and signed a new five-year EUR 250 million unsecured Term Loan B (“Loan”), fully underwritten by ING. At the company’s current leverage level the annual interest cost of the new Loan is at below 3%, allowing savings of more than CHF 10 million per annum. As previously stated, in conjunction with the bond repayment, an early repayment fee will be expensed in November 2015, with total one-off costs of about CHF 17 million, which are being compensated by total interest cost savings in excess of CHF 50 million over the term of the instrument. The new financing structure of gategroup now consists of a EUR 240 million Revolving Credit Facility and the new EUR 250 Loan, with total annual interest cost of about CHF 10 million at current utilization levels versus previous costs of about CHF 26 million.

Conclusion

“gategroup is well on its new journey, with a 6.1% increase in organic revenue this quarter and an 8.1% EBITDA improvement at constant currency. We have introduced new efficiency initiatives and a simplified organization. We have bolstered our customer focus, represented in the renewal of our SAS contract, and expanded our presence in Emerging Markets by entering Kazakhstan. Furthermore, the refinancing is another key step in a healthier cost structure and support for growth. These improvements, whether in the form of strengthened customer relationships or new financial partnerships, are a credit to people at gategroup working together as one team – one gategroup. Our people will continue to make the difference in every pillar of our strategy, with a focus on efficiencies, Emerging Markets and Retail on Board as our priorities,” said Xavier Rossinyol, gategroup Chief Executive Officer.

Overview of Key Figures (in CHFm)

January - September

Q3 YTD 2015

Q3 YTD 2015

Adjusted (Adj)

Q3 YTD 2015 Adj @ 2014 FX

Q3 YTD 2014

Change (2015 over 2014)

Change (Adj 2015 over 2014)

Change (Adj 2015 at constant FX over 2014)

Total Revenue

2,233.7

2,233.7

2,312.1

2,252.6

-0.8%

-0.8%

2.6%

(Segment) EBITDA

98.4

125.4

133.9

128.6

-23.5%

-2.5%

4.1%

EBITDA margin

4.4%

5.6%

5.8%

5.7%

-1.3pp

-0.1pp

0.1pp

Operating profit

14.2

75.8

81.5

76.3

-62.1

-0.5

5.2

Loss/profit for the period

-56.3

5.3

  

29.3

-85.6

-24.0

  

Cash generated from operations

66.8

    

71.4

      

Net financial debt

245.3

    

283.7

      

Cash and cash equivalents

115.6

    

144.3