Gategroup delivers stable revenue and increases operational and financial flexibility

OREANDA-NEWS. Gategroup reported total revenue of CHF 669.9 million for the first quarter of 2015. Solid underlying like for like volume growth of 5.1% was offset by portfolio effects (-2.7%) and currency movements against the Swiss Franc (-1.9%). At constant currencies, total revenue grew by 2.5% to CHF 682.7 million.

EBITDA was CHF 10.9 million in the period under review, a decrease of CHF 7.1 million compared to CHF 18.0 million in the previous year. This was driven by a CHF 8.0 million provision within the Airline Solutions division related to the labor agreement currently under mediated negotiations in the U.S. and a CHF 1.5 million charge associated with addressing shareholding activism. Excluding these two matters adjusted EBITDA for the period was at CHF 20.4 million, an increase of 13.3% compared to prior year.

gategroup reported a CHF 37.6 million loss in the first three months of the year, compared to a CHF 16.7 million loss for the same period in 2014. Unrealized FX losses of CHF -18.0 million in combination with the aforementioned adjustments were the primary factors driving this difference, masking additional contribution through revenue gains and cost savings. The FX losses were mainly caused by the Swiss National Bank removing the currency ceiling against the Euro, resulting in a significant strengthening of the Swiss Franc against most major currencies in which the Group operates. This effect is principally a translation (accounting) effect with no influence on the cash generation of the Group.

The Group’s cash flow used in operations was CHF 27.3 million for the period compared to a CHF 10.1 million absorption for the same period in 2014. This was largely due to lower EBITDA and a build-up of working capital. Historically, the Group’s revenue experiences some seasonality with the strongest revenue performance in the second and third quarters. Cash flow generation in the first quarter has traditionally been the weakest.

Net debt of CHF 255.1 million as of March 31, 2015 was significantly lower than the CHF 300.4 million as of March 31, 2014.

Segment reporting

In January 2015, the Group realigned its business to report the Gate Retail Onboard and eGate Solutions brands with its Product and Supply Chain Solutions business, with the expanded segment being renamed Network and Product Solutions (“NPS”). Information below is reported consistently, readjusting 2014 accordingly.

In the first quarter of 2015, the Airline Solutions business reported total revenue of CHF 528.1 million, compared to segment revenue of CHF 524.2 million for the same period in 2014. Excluding adjustment for the CHF 8.0 million U.S. labor provision, the adjusted EBITDA was CHF 22.1 million (4.2% of revenue), compared to CHF 20.7 million (3.9% of revenue) for the first quarter of 2014. Reported EBITDA however is CHF 14.1 million (2.7% of revenue), a decrease of 31.9% compared to the same period previous year.

The NPS business reported revenues of CHF 182.3 million for the first quarter of 2015, compared to CHF 187.4 million for the comparative period. NPS reported EBITDA of CHF 8.5 million (4.7% of revenue) compared to CHF 4.1 million (2.2% of revenue) in the previous year. This substantial improvement was largely due to termination of retail services for Norwegian’s short-haul flights in April 2014.

Executive Appointments

The Board of Directors of gategroup Holding AG appointed Xavier Rossinyol as Chief Executive Officer, effective April 1, 2015, succeeding Andrew Gibson who stepped down from the role on March 31, 2015. The Board also appointed Christoph Schmitz as Chief Financial Officer, effective January 19, 2015, succeeding Thomas Bucher who stepped down from the role as of December 31, 2014.

Credit facility refinanced

In an important step to increase operational and financial flexibility while maintaining multiple sources of funds at optimal cost, gategroup in March 2015 refinanced its existing credit facility on more favorable terms. The Group signed a new five-year EUR 240 million unsecured multicurrency revolving credit facility (“RCF”), replacing its EUR 100 million RCF due to mature in June 2016. Subsequently, on April 30, 2015, excess cash was used to redeem EUR 100 million of its 6.75% coupon bearing EUR 350 million High Yield Bond. In conjunction with this repayment of EUR 100 million, an early repayment fee of CHF 5.3 million was paid and previously capitalized transaction costs of CHF 2.3 million were written off, both being expensed in April 2015. These one-off costs are being compensated by annual interest cost savings of close to CHF 7 million, resulting in total savings of close to CHF 30 million over the term of the instrument.

The successful refinancing reinforces gategroup’s capital structure and substantially increases the Group’s financial flexibility to fund future growth.

Customer contracts and business development

The Group entered into multiple contract extensions with Delta Air Lines. These benefitted Gate Gourmet and Pourshins at U.S. and international locations, as well as the security services business at all U.S. locations served by Gate Gourmet. In total the renewals with Delta represent an average annual revenue of approximately CHF 200 million through 2018. On the other side, gategroup lost with effect from January 2016 the Chicago business with United Airlines to another provider. Due to this contract loss an annual revenue impact of CHF 60 million is expected.

In Canada gategroup renewed its agreement with Air Canada for domestic locations. The award includes a three-year extension of all catering and provisioning services provided by Gate Gourmet as well as the end-to-end solutions for distribution and product innovation provided by the NPS brands Pourshins and Supplair. The renewal represents total revenue of more than CHF 100 million per year.

In the spring, gategroup through eGate Solutions launched an end-to-end, fully automated pre-order and pre-selection product (POPS™), which enables airlines to deliver a modern onboard shopping experience to passengers. The product’s e-commerce portal is optimized for all mobile devices and, on the back end, integrates with an airline’s existing flight system, minimizing the need for re-entry of information that validates passenger identity and orders. The POPS™ solution supports a full retail approach to onboard services while also simplifying the complexities of the entire process.

Financial reporting 2015

gategroup is adjusting the timing of its second quarter results and will provide the next financial update and half-year reporting on September 3, 2015. This is a change from August 20, 2015, the previously announced date for reporting for second quarter results. Third quarter results will be reported as previously scheduled on November 12, 2015.

Overview of key financial figures for Q1 2015 and 2014