GATEGROUP HOLDING AG gategroup delivers solid results in 2014: Improved cash flow generation and net profit nearly doubled
- Total revenue of CHF 3,009.2 million on a par with prior financial year - up 3.1% at constant exchange rates
- EBITDA margin 5.6% for the full year 2014, stable compared to prior year
- Cash generated from operations up 14.7%, another substantial increase, from CHF 103.9 million to CHF 119.2 million
- Lower net finance costs; tax rate decreases by 3.6 percentage points
- Profit for the year nearly doubled to CHF 40.8 million (CHF 21.0 million in the prior year) with a corresponding 110% increase in basic earnings per share
- Dividend of CHF 0.45 per share proposed (50% increase from prior year)
- Renewal of the Board of Directors: three industry leaders proposed to upcoming Annual General Meeting of Shareholders
ZURICH, March 12, 2015 - gategroup delivered solid financial performance for 2014 with improved cash flow generation, building on a range of measures deployed in recent years and new initiatives undertaken during the year.
On a reported basis, total revenue of CHF 3,009.2 million remained on a par with total revenue of CHF 3,002.2 million in 2013 and was in line with the Group's stated financial objectives. The underlying organic volume growth (+5.0%) and modest rate/mix growth (+0.4%) was offset by net disposals and contract terminations (-2.3%) and adverse currency movements against the Swiss Franc (-2.9%). At constant currencies, total revenue in 2014 was CHF 3,096.1 million compared with the prior year of CHF 3,002.2 million.
Reported EBITDA was at CHF 168.6 million in 2014, up from CHF 168.1 million in the prior year, with a stable margin of 5.6%. Airline Solutions benefited from strong profitability uplift in Europe and ongoing contribution from Emerging Markets, offset by a weaker result in North America. Product and Supply Chain Solutions also maintained momentum, with stronger performances in particular at deSter and Pourshins.
gategroup reported an increase in operating profit, up from CHF 98.6 million in 2013 to CHF 102.8 million in 2014. This was principally due to a combination of lower depreciation and amortization together with a one-time gain from the disposal of the Shanghai business, where gategroup retains a 29% participation.
Net profit for the year nearly doubled, from CHF 21.0 million to CHF 40.8 million. This is mainly due to lower net finance costs. The group achieved a lower tax rate of 33.0% versus 36.6% in prior year.
Cash generated from operations was up in 2014, to CHF 119.2 million versus CHF 103.9 million in the previous year on improved working capital performance and lower restructuring cash costs.
Net debt improved by CHF 17.9 million, leading to an improved leveraged ratio, with net debt to EBITDA of 1.4 times.
Equity attributable to shareholders of the Company increased from CHF 285.2 million in 2013 to CHF 287.7 million in 2014 on the back of increased profit attributable to shareholders for the year of CHF 38.9 million (CHF 18.4 million in 2013).
"For gategroup, 2014 marked a year of key milestones as performance stabilized and positive momentum was evident in the business. The year was underpinned by a range of measures enacted in prior periods and advanced in the course of 2014 to drive down costs, boost service excellence and strengthen relationships with our customers and business partners," said Andrew Gibson, CEO of gategroup.
Segments
The Airline Solutions segment reported total revenue of CHF 2,561.4 million, broadly level with the CHF 2,593.2 million in the previous year. At constant exchange rates, turnover amounted to CHF 2,645.8 million, or +2.0%. While the business benefited from strong organic growth, reported revenues were lower as expected, due to certain divestments, termination of unprofitable contracts, and currency movements against the Swiss Franc. The underlying performance was bolstered by the flow-through of restructuring benefits in the Airline Solutions European business and further improvements in the performance of operations in the Emerging Markets; however, these gains were offset by a weaker performance in North America. While the Airline Solutions business is naturally hedged against currency movements in the markets where it operates, the translation to the Swiss Franc lowered the reported results. The 2014 EBITDA for Airline Solutions was CHF 156.8 million (6.1% of revenue), flat with prior year EBITDA of CHF 157.9 million (6.1% of revenue).
The Product and Supply Chain Solutions ("PSCS") segment increased its total revenue from CHF 599.6 million to CHF 651.3 million year over year. At constant exchange rates, turnover increased to CHF 652.2 million, or 8.8% over the previous year. Year over year growth was seen across all PSCS brands, driven by a combination of new business wins and reinvestment by the larger traditional carriers in equipment along with enhanced food offerings. The business segment reported an EBITDA of CHF 40.2 million (6.2% of revenue) for 2014, compared with CHF 39.1 million (6.5% of revenue) in 2013.
Commercial achievements
gategroup renewed important contracts with several of its key customers in 2014. One highlight included an agreement with Delta Air Lines on a five-year extension of all catering and provisioning services that was due to expire in 2013, as well as an expansion into three international locations, with additional business for combined cabin cleaning and commissary services at certain U.S. locations. The total revenue of the combined award is approximately CHF 125 million per year. Another highlight was an extension with Virgin Australia to 2019 of an ongoing contract set to expire in 2017, for all domestic and short-haul international flights. The total value of the contract for the four years to 2019 is approximately CHF 300 million.
Focused business segments
Over the course of 2014 and into 2015, the Board of Directors and gategroup management took action to realign the organization and further focus the Group's approach to doing business.
The Airline Solutions business segment was realigned under a single global management team. Herman Anbeek, who formerly oversaw the Airline Solutions Emerging Markets business, was appointed as President of the global Airline Solutions business. In realigning the business, gategroup is driving a more unified global approach and stronger coordination across the markets it serves.
Gate Retail Onboard ("GRO") and eGate Solutions ("eGate") were integrated with the PSCS business segment in January 2015, with the expanded division renamed as Network and Product Solutions division ("NPS"). The realignment, which was enacted specifically to enhance customer collaboration and innovation, will result in restatement of gategroup's segmental reporting beginning with 2015's first quarter results. The GRO and eGate results were previously reported within Airline Solutions.
With the two primary business segments being firmly established and led by experienced global leadership teams, the Corporate Center has been streamlined in the latter part of the year to further focus on overall business performance, strategic development and governance. In support of this, gategroup strengthened its Corporate Development team. Led by Jann Fisch, who formerly managed the Europe and Africa Airline Solutions business, the team is advancing gategroup's presence in lounge and hotel services, and will further expand the business into new markets.
Efficiency-focused initiatives
Operationally, core cost containment and efficiency-focused initiatives continue to be a strong focal point for the Group, delivering sustainable savings. Target areas include labor productivity, indirect labor rightsizing, back office streamlining, procurement initiatives and portfolio optimization measures. Between 2011 and 2014, the Group eliminated approximately CHF 165 million in costs, representing 1.0-1.5% of total cost per year. The benefit of these efforts is evident in the lower total material and personnel cost ratio achieved in 2013 and 2014. Going forward, core initiatives focused on operational excellence and procurement will continue, in addition to new initiatives launched in 2014, and are targeted to deliver an additional CHF 30 million savings by the end of 2015.
Annual General Meeting 2015
The Annual General Meeting of Shareholders (AGM) 2015 for gategroup Holding AG, scheduled for April 16, 2015, in Zurich, Switzerland, will include the following proposals:
- To pay a dividend of CHF 0.45 (2014: CHF 0.30) per registered dividend paying share, funded by a withdrawal from the reserve from capital contributions. If approved, the dividend will be paid, free of Swiss withholding tax, on April 21, 2015.
- Re-election of Remo Brunschwiler, Ilona De March, Andreas Schmid and Anthonie Stal as members of the Board of Directors and nomination of three new candidates for election to the Board of Directors: Paolo Amato, David Barger and Julie Southern.
- Paolo Amato has served as the CFO of Renova Management AG since February 2015. From 2009 to 2014 he was with Alitalia, first as EVP & Chief Financial Officer, and from March 2013 as Deputy General Manager Corporate. In this capacity he oversaw the realization of the new strategic partnership with Etihad, co-chaired the partnership with Air France-KLM, managed the Transatlantic joint venture between Delta (50%) and AirFrance, KLM and Alitalia (50%), assured the business integration of AirOne and managed continuous cost cutting initiatives. Previously, in 2003, Paolo was appointed CFO of Ariston Thermo Group and in 2008 General Director of Merloni Finanziaria, the Group's Holding company. From 2000 to 2003 he was Founding Partner and co-CEO in the venture capital firm eNutrix S.p.A. In 1994 he joined McKinsey & Company in Buenos Aires and then relocated to Rome and Zurich as Senior Engagement Manager. Paolo Amato began his international career in the New York offices of Finmeccanica S.p.A. in 1989. From 2012 to January 2015, Paolo Amato was chairman of AirOne S.p.A., from 2013 to December 2014 independent Director of Indesit Company S.p.A., and from 2012 to 2013 Director of Advanced Capital S.G.R. S.p.A.. He graduated with a degree in Mechanical Engineering from the University of Rome (1989) and obtained a Master in Business Administration at Harvard Business School (1994). Paolo Amato, born in1964, is an Italian citizen.
- David Barger was part of the founding leadership team of JetBlue Airways in 1998 and served as the airline's first President and Chief Operating Officer. He held the Chief Executive Officer position from May 2007 until February 2015 and he was also a member of the Board of Directors. From 1992 to 1998, David Barger served in various management positions with Continental Airlines, including Vice President, Newark hub. Prior to that he held various director-level positions at Continental Airlines from 1988 to 1992. From 1982 to 1988, he served in various positions with New York Air, including Director of Stations. David Barger is a non-executive Director of AIM Altitude Aviation. He was a Director at IATA International Air Transport Association as well as Airlines for America until 2015 and is president emeritus of The Wings Club. He has also served on the Board of Governors of the Flight Safety Foundation from 2003 to 2015. He attended the University of Michigan from 1976 to 1981 with studies in Economics and Political Science. David Barger, born in 1958, is a United States citizen.
- Julie Southern was the Chief Commercial Officer of Virgin Atlantic Limited until 2013. As CCO, she played a key role in leading the airline's commercial activities during a time of growth and expansion and negotiated the equity investment in the business by Delta Air Lines together with the transatlantic joint-venture between the two companies. Prior to this, Julie Southern was the airline's Chief Financial Officer from 2000 to 2010, providing financial leadership in a period affected by crises such as 9/11, the Iraq War, SARS and the global recession. Before joining Virgin Atlantic she held various senior financial roles such as Group Finance Director of Porsche Cars Great Britain and Finance & Operations director at HJ Chapman & Co. Julie Southern began her career at Mars Confectionery before qualifying as an accountant at Price Waterhouse. She is a non-executive Director and member of the Audit Committee of NXP Semiconductors; a non-executive Director of Rentokil Initial, where she chairs the Audit Committee; and a non-executive Director of DFS Furniture plc, where she also chairs the Audit Committee. Julie Southern is a chartered accountant and holds a Bachelor in Economics from Cambridge University. Julie Southern, born in 1959, is a British citizen.
- Neil Brown and Brian Larcombe, members of the Board of Directors of gategroup Holding AG since 2008, have announced that they will not stand for re-election at this year's AGM. The Board of Directors appreciates their long-standing commitment to the Group and their excellent support to the Board of Directors and management of gategroup.
- Re-election of Andreas Schmid as Chairman of the Board of Directors.
- Re-election of Anthonie Stal as member of the Nomination and Compensation Committee (NCC) and nomination of two new candidates for the NCC: Ilona De March and Julie Southern.
- Approval of maximum aggregate amount of compensation for the Board of Directors for the term of office starting at the AGM 2015 and ending after completion of the AGM 2016.
- Approval of maximum aggregate amount of compensation for the Executive Management Board for the fiscal year 2016.
- The Board further proposes that the 2014 Compensation Report be presented for a non-binding consultative vote.
Outlook for 2015
The Group will benefit from on-going strong organic growth of 3-4% across its global portfolio. Over the last two years gategroup has streamlined its structure and will benefit going forward from a lower cost base, which in combination with targeted Group-wide initiatives and ongoing new business development will bolster the financial performance through 2015. The business of the Group is largely naturally hedged in the local currencies of its international operations and for reporting purposes is translated into Swiss Francs.
Additional information is provided in the Investors and Analysts presentation. This is available on the gategroup website, together with the Annual Report 2014 and further Company information, at the following link: http://www.gategroup.com/investors/financial-reports-and-presentations
Overview of financial key figures for 2014 and 2013
in CHF m | FY 2014 | FY 2013 | Change |
Total Revenue | 3,009.2 | 3,002.2 | 0.2% |
(Segment) EBITDA | 168.6 | 168.1 | 0.3% |
EBITDA margin | 5.6% | 5.6% | 0.0 pp |
Operating profit | 102.8 | 98.6 | 4.3% |
Operating profit margin | 3.4% | 3.3% | 0.1 pp |
Profit for the year | 40.8 | 21.0 | 94.3% |
Cash generated from operations | 119.2 | 103.9 | 14.7% |
Net debt | 243.1 | 261.0 | (6.9)% |
Cash | 304.1 | 296.9 | 2.4% |
gategroup 2014 full year results presentation
The 2014 full year results conference is scheduled for Thursday, March 12, 2015, 10:00 am in Zurich.
The conference can be followed live via webcast (click here) or via audio conference.
Dial-in numbers are as follows:
Europe: +41 (0)58 310 50 00
UK: +44 (0)203 059 58 62
USA: +1 (1)631 570 5613
For your convenience and additional Q&A's, an analyst call will also be held at 2:00pm CET. For participation in this Q&A, please dial:
Switzerland (toll): +41 44 583 18 01
Switzerland (toll free): 0800 005 207
UK (toll): +44 203 0092 453
UK (toll free): 0800 376 2961
USA (toll-free): +1 855 4027 767
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