gategroup reports strong increase in profitability in 2010
17.03.11 07:03
 
Robust performance reflects solid business fundamentals – Significantly strengthened balance sheet – Confirmed positive outlook despite challenging industry environment
 
gategroup reports increase in profitability despite an uneven global economic recovery and unusual events such as the impact of the Icelandic volcano
 
Profit for the year of CHF 50.7 million, up 35.6%
 
Operating profit of CHF 114.3 million, up 34.9% reported; up 42.4% in constant currencies
 
EBITDA of CHF 216.7 million, up 14.9% reported; up 19.7% in constant currencies
 
EBITDA margin of 8.0%, up 1.0 percentage point reported and in constant currencies
 
Revenue of CHF 2,700 million, up 3.4% in constant currencies, down a slight 0.5% reported mainly due to currency fluctuations
 
Cash flow from operating activities of CHF 124.4 million, down 4.0% reported
 
Basic earnings per share of CHF 2.43 versus CHF 1.89 in 2009, an increase of 28.6%
 
Net debt of CHF 144.4 million, down CHF 298.1 million versus 2009, a decrease of 67.4%
 
Successful capital increase generated net proceeds of CHF 240.8 million
 
Key acquisitions in Canada and India; strategic facility investments position Company for future
 
gategroup, the leading independent global provider of onboard products and services, reported strong increases in profitability measures for 2010, a turning point for most of the airline industry, gategroup’s main customer base, as the worldwide economic recession began to ease its grip.
 
Airlines in Asia, the U.S. and Latin America performed significantly better compared to 2009 as passenger traffic increased and the industry remained cautious about adding capacity. The industry in Europe lagged, however, as the sovereign debt crisis in the Eurozone proved to be an economic drag.
 
Other external events, such as the impact of Icelandic volcano, labor unrest within the industry and disruptive weather at the beginning and end of the year also took their toll on European carriers. For gategroup, the ash cloud that caused European air space closures for nearly a week, resulted in an operational impact estimated at CHF 21.0 million in revenue and CHF 8.0 million in EBITDA.
 

Resilient business model
 
“In the context of the global economy and airline industry climate, we are pleased with our results. The gategroup business model continued to prove its resilience in 2010 and we gained forward momentum with our acquisitions in Canada and India late in the year,” said Chief Executive Officer Guy Dubois.
 
The CHF 50.7 million reported profit for the year was up 35.6% over last year’s CHF 37.4 million. The earnings came on revenue of CHF 2,700.0 million, which was down slightly on a reported basis. Adjusting for foreign exchange differences, however, revenue was CHF 2,804.1 million, an increase of 3.4%.
 
Operating profit, meanwhile, was CHF 114.3 million, a 42.4% gain when adjusted for currency fluctuations. Earnings before interest, taxes, depreciation and amortization (EBITDA) was CHF 216.7 million, up 19.7% in constant currencies, resulting in an EBITDA margin of 8.0% on both a reported and constant currencies basis.
 

Delivering on expectations
 
“The year 2010 was particularly eventful for gategroup and reflected the Company’s strong underlying business. Despite the challenges, gategroup continues to deliver on expectations,” Dubois said, noting that since listing on the SIX Swiss Exchange in May 2009 through December 31, 2010, gategroup’s share price increased about 240%, or about CHF 1.0 billion in shareholder value, which includes the results of the offering in the last quarter.
 

Notable developments in 2010 included:
 
A successful capital increase, approved by shareholders at the Extraordinary General Meeting in October, that resulted in net proceeds of CHF 240.8 million. The increase was accomplished with no price dilution and had the added benefit of expanding gategroup’s shareholder base and increasing liquidity in stock trading. The transaction strengthened the equity position of the balance sheet and provided funds to accelerate growth initiatives.
 
Execution of two acquisitions that significantly expand gategroup’s global footprint and position the Company for growth in attractive markets. In Canada, the acquisition of Cara Airline Solutions was made at an attractive price and establishes gategroup in a mature market where it had no previous presence. In India, the core Gate Gourmet brand acquired a majority interest in Skygourmet, the country’s leading airline caterer with a presence in seven major cities. With airline traffic growing in India recently at a double-digit rate, the acquisition offers high potential for revenue growth.
 
Continued generation of cross-selling opportunities among gategroup’s 11 brands, which offer a comprehensive offering of products and services. Examples included Virgin Atlantic Airlines, which chose Gate Gourmet, Pourshins and Supplair to serve all 10 of its US gateways. Pourshins and Supplair continued to develop and expand business with United Airlines, and Pourshins and Harmony did the same with Emirates. Another increasingly important driver of revenue has been gategroup’s offering of onboard retailing services for airlines seeking to increase ancillary revenue.
 
Investments to foster long-term growth. In Tokyo, Gate Gourmet opened a new unit at close-in Haneda Airport, which was timed to coincide with the start-up of international flights when a new runway opened in the fall. Hawaiian Airlines, Singapore Airlines and Thai Airways became customers there in 2010 and Delta Air Lines followed in early 2011. (Neither the Haneda nor Narita units were seriously affected by the March 11, 2011, earthquake, and both are operational.) At London Heathrow, Gate Gourmet opened an asset-light flight assembly center that provides increased operating flexibility. Gate Gourmet also moved into a new flight kitchen in Guayaquil, Ecuador. The deSter brand installed new machinery capable of using recycled plastic to create food contact items, welcomed by customers seeking “green” solutions.
 
Agreements with union-represented workers in a number of locations. These included some 6,600 US-based employees at Gate Gourmet, Gate Safe and Gate Serve and 2,000 employees at Gate Gourmet and Gate Aviation in the UK.
 

Isolated fraud event uncovered
 
gategroup self-disclosed on February 23, 2011, that it had uncovered a fraud event amounting to 138 million Danish Kroner, which converted at the year-end 2010 exchange rate results in approximately CHF 22 million, or approximately CHF 27 million based on historical exchange rates applicable at the time the fraud occurred. The majority of the fraud occurred before 2010. In 2010, the cash impact was about CHF 10 million. An investigation by external forensic accounting experts determined that the fraud was an isolated case of misuse of position and authority by an employee of subsidiary Gate Gourmet Northern Europe ApS, a legal entity without operational oversight of other business in Scandinavia. The Board of Directors is about to review the report and conclusions delivered by the external experts.
 
The fraud was committed through embezzlement and forgery and was discovered through an internal review. Losses arising from the fraud case, which affected the financial years of 2010 and 2009, were CHF 5.4 million and CHF 18.7 million, respectively.
 
The matter is a subject of ongoing investigation by public prosecutors’ economic crime units in Denmark and Switzerland. The underlying business of gategroup was not affected and the Company does not believe it will influence the value of gategroup over the longer term.
 

Net and gross debt decreases
 
The capital increase, together with strong cash flow generated in 2010 contributed to the significant decrease in the net debt to CHF 144.4 million, down 67.4% Also, due to the strengthening of the Swiss Franc, the gross debt position, largely in US Dollars and Euros, decreased by CHF 88.5 million compared to 2009.
 
As a reflection of gategroup’s solid economic performance, Standard & Poor’s upgraded its rating to BB- and stable outlook in the beginning of 2011.
 

A look ahead
 
Although the airline industry recovery appears to be on track, the macro-economic picture is still in a state of transition and challenges remain. “Looking ahead in 2011, we remain cautiously optimistic. We expect the US economy to continue moderate growth; for Europe to exit the recession; and for robust growth to continue in the Asia-Pacific region,” Dubois said.
 
All other things being equal, and barring any unforeseen developments or events, he said gategroup targets revenue in 2011 of approximately CHF 3.0 billion, with the caveat that continued strengthening of the Swiss Franc will impact reported numbers. EBITDA margin in 2011 is targeted to be between 8.0%-8.5%.
 

About gategroup:

gategroup is the leading independent global provider of onboard services to companies that serve people on the move. gategroup comprises 11 member companies, which are deSter, eGate Solutions, Elan, Gate Aviation, Gate Gourmet, Gate Safe, Harmony, Performa, potmstudios, Pourshins and Supplair.
 
The Group’s world-class capabilities are focused in catering and hospitality; provisioning and logistics; and onboard solutions. Our customers include top airlines and railroads around the world that rely on our expertise and solutions tailored to their guests, service offerings and geographic regions.
 
Shares of Zurich-based gategroup are traded on the SIX Swiss Exchange under the symbol GATE. Please visit www.gategroup.com.
 
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