Elior: Financial Results: a Solid Performance in First-Half 2014-2015

Regulatory News:

Elior (Paris:ELIOR) (Euronext Paris – ISIN: FR 0011950732), one of the world's leading operators in the contracted food and support services industry, today released its results for the first half of FY 2014-2015, corresponding to the six months ended March 31, 2015.

Commenting on these results, Philippe Salle – Elior's new Chairman and Chief Executive Officer – stated: "The Group's first-half performance was in line with our forecasts with organic growth at 2.8% and EBITDA margin slightly down year-on-year. For the second quarter we saw sustained business development despite our more selective approach to contracts (particularly in Italy), with solid organic growth of 2.2% and a slight year-on-year increase in EBITDA margin. In the first six months of 2014-2015 we continued to seize numerous growth opportunities in our various markets while keeping tight control over costs. We expect our business momentum to be strong in the second half of 2014-2015, thanks to the favorable impacts of the cost efficiency plans put in place in late 2014 and the ramp-up of new concessions during the high season. We are confident that we will be able to meet our full-year targets and our bottom line will be boosted by the positive effects of the accretive refinancing operations we have carried out since the beginning of the fiscal year.”

¹ Including the impact of IFRIC 21
² Defined as EBITDA + change in WCR – net capex

Change in Accounting Method Affecting the Group's Reported Results

Elior’s consolidated financial statements for the first half of 2014-2015 have been affected by the application of IFRIC 21, "Levies” – issued in connection with International Financial Reporting Standards (IFRS) – which concerns the recognition of taxes other than on income and is applicable by the Group on a retrospective basis from the fiscal year beginning October 1, 2014. In accordance with IFRIC 21, levies are now recognized when the obligation to pay the levy (the "obligating event”) is triggered, whereas previously their recognition was deferred throughout the fiscal year. The impact on the first-half 2014-2015 income statement represented negative amounts of €4.4 million pre-tax and €3.1 million post-tax (positive amounts of €2.9 million and €2.0 million respectively for the first quarter of the fiscal year). The income statement for the first six months of 2013-2014 has been restated for the same pre-tax and post-tax amounts. This change in accounting method affects the Group’s interim financial statements but the full year impact of applying IFRIC 21 for full-year 2014-2015 should be virtually nil.

Revenue

Consolidated revenue totaled €2,822.7 million in the first half of 2014-2015. The 5.6% increase on the first six months of 2013-2014 reflects robust organic growth of 2.8% over the period. The October 2014 acquisition of Lexington in the United Kingdom added 0.8% to revenue growth, net of the effect of the disposal of non-strategic concession catering operations in Argentina and Morocco in December 2013. Changes in exchange rates had a 1.9% net positive impact, mainly due to the strengthening of the U.S. dollar and sterling against the euro. The portion of revenue generated by international operations in the first six months of 2014-2015 was 49.1% versus 46.7% in first-half 2013-2014.

Contract Catering & Support Services revenue was up €113.2 million, or 5.7%, on the first-half 2013-2014 figure, coming in at €2,103.5 million and representing 75% of total consolidated revenue.

Organic growth was 2.3% over the period, driven by a particularly strong performance in international markets.

Changes in the scope of consolidation pushed up Contract Catering & Support Services revenue by 1.2%, fueled by the acquisition of Lexington which had a €24.8 million positive impact.

Lastly, changes in exchange rates had a positive 2.0% effect.

In France, revenue reached €1,124.1 million, with overall organic growth amounting to 0.7%. The pace of growth accelerated in the second quarter to 1.1% following on from 0.4% in the first quarter.

• In the Business & Industry market, average revenue per meal increased but attendance levels were lower year-on-year.
• Revenue generated in the Education market was up year on year, notably thanks to the contribution of the secondary school catering contract entered into with the Conseil Général des Hauts-de-Seine as well as increased attendance and a higher average customer spend.
• In the Healthcare market, revenue was up on the first half of 2013-2014, led by both the performance of existing sites and the opening of new sites.

In international markets, revenue rose 11.6% year on year to €979.4 million. Organic growth was 4.3%, propelled by the United States, the United Kingdom and Spain, while Italy posted a slight revenue contraction. The acquisition of Lexington in the United Kingdom and positive currency effects generated additional revenue growth of 2.8% and 4.6% respectively.

• Organic growth was sustained in the Business & Industry market, with strong revenue performance in Spain, the United States and Italy. Growth slowed in Italy during the second quarter, however, due to a less favorable basis of comparison with the previous fiscal year as a result of the Itinere contract start-up in November 2013. In the United Kingdom, the acquisition of Lexington contributed €24.8 million to revenue.
• In the Education market, the slowdown in business in Italy was partially offset by revenue increases in other countries, particularly Spain and the United Kingdom.
• The Healthcare market reported strong growth for the period, driven by robust performances in the United States, the United Kingdom and Spain.

Concession Catering & Travel Retail revenue advanced by 5.5% year on year to €719.2 million, representing 25% of total consolidated revenue, in a period that is traditionally this business line’s low season.

Organic growth was 4.1% overall, with a slight slowdown in the second quarter. Changes in scope of consolidation – corresponding to the sale in December 2013 of the Group's concession catering subsidiaries in Argentina and Morocco – trimmed 0.6% off revenue, while changes in exchange rates, notably for the U.S. dollar, had a positive 2.0% impact.

Revenue generated in France, Germany, Belgium and Italy rose 4.9% year on year to €432.5 million, with the increase entirely due to organic growth as there were no changes in scope of consolidation during the period.

• The Motorways market enjoyed strong growth in Italy, propelled by the opening of new motorway service areas, whereas revenue in France remained stable.
• Revenue growth in the Airports market was fueled by a sharp upturn in Italy due in particular to good activity level at Rome and Milan Linate airports and the start-up of new contracts at Alghero, Genoa, Lamezia, Pisa and Turin airports. In France, revenue for the period was negatively impacted as from January 2015 by the loss of the contract for Terminal 1 at Nice Airport.
• The City Sites & Leisure market also reported an overall year-on-year revenue increase, thanks to good attendance levels at leisure resorts in France and Germany in both the first and second quarters. Revenue generated in railway stations, however, was adversely affected by the terrorist attacks that took place in France in early January 2015 as well as by the renovation works currently under way at Gare du Nord in Paris.

In Spain, Portugal and the Americas, growth of 6.5% over the period pushed revenue up to €286.6 million. Organic growth came to 3.0%.

• The Motorways market felt the positive effects of the ramp-up of service areas in the United States despite the difficult weather conditions in the second quarter, and a revenue increase in the second quarter in Spain and Portugal.
• Revenue in the Airports market was driven by the opening of new points of sale in the United States (notably in Los Angeles and Chicago), as well as growth delivered by Spanish airports, particularly Madrid-Barajas where all of the new concepts have now been launched and revenue rose at a faster pace than air traffic volumes during the period.

Business development

Business development was solid overall in the first six months of 2014-2015. However, the client retention rate for the Contract Catering & Support Services business line was negatively affected by a difficult operating environment in Italy, where budgetary pressure exerted by certain public authority clients at the time of contract renewals compelled the Group to adopt a more selective business development approach. A number of major contracts were signed in the second quarter of the fiscal year, notably with Fondation Caisses d'Epargne, the Stade de France and In City in France, as well as with hospitals in Seville in Spain, private retirement homes and Royal Air Force bases in the United Kingdom, and detention centers in the United States. Also during the second quarter, the Group won several bids for contract renewals for motorway service areas in the Concession Catering & Travel Retail business line in France.

EBITDA

Consolidated EBITDA climbed by €8.4 million to €204.4 million in first-half 2014-2015 and represented 7.2% of revenue versus 7.3% for the first six months of 2013-2014.

EBITDA for the Contract Catering & Support Services business line advanced to €179.7 million from €173.9 million, representing an 8.5% EBITDA margin, slightly down compared to the first-half 2013-2014.

• In France, EBITDA totaled €105.5 million and represented 9.4% of revenue, on a par with the first half of 2013-2014. The strong performance delivered in the Business & Industry market offset slight contractions in the Education and Healthcare markets.
• In international operations, Contract Catering & Support Services EBITDA was €5.0 million higher than in the comparable prior-year period, coming in at €74.2 million as it was boosted during the period by revenue growth in the United States and United Kingdom. As a percentage of revenue, however, it was down on the first half of 2013-2014, representing 7.6% versus 7.9%.

Concession Catering & Travel Retail EBITDA rose to €28.7 million (4.0% of revenue) from €26.3 million (3.9% of revenue) in the first six months of 2013-2014.

• In France, Germany, Belgium and Italy, the EBITDA figure was €18.7 million (versus €15.9 million for the prior-year period), and represented 4.3% of revenue, up by 40 basis points on first-half 2013-2014. The strong performance turned in by the business line’s Italian operations and the City Sites & Leisure market in France more than offset the slight contraction in profitability experienced in the French Airports market during the period. EBITDA margin in the Motorways market in France was stable year on year.
• In Spain, Portugal and the Americas, EBITDA was stable compared with the first half of 2013-2014, coming in at €10.0 million, despite the revenue growth reported for the period.

When analyzing EBITDA margin for the Concession Catering & Travel Retail business line it is important to note that it is significantly affected by seasonal fluctuations, as business volumes are much lower in the first two quarters of the year than in the last two quarters.

Attributable Profit for the Period

Attributable profit for the period was up sharply, amounting to €40.2 million versus €20.8 million in the first six months of 2013-2014. This drove an increase in earnings per share to €0.24 from €0.19.

Non-recurring items represented a net expense of €16.7 million and primarily included non-recurring costs relating to the Group's senior debt refinancing carried out in December 2014. This refinancing significantly reduced finance costs as from December 10, 2014.

At €42.2 million, net financial expense was considerably lower than in the first half of 2013-2014, reflecting (i) the early repayment of a portion of the Group's debt following the IPO in June 2014, (ii) the debt refinancing carried out in December 2014, and (iii) improved financial conditions for the Group's securitization programs obtained in the second quarter of 2014-2015.

Income tax rose to €30.1 million from €22.5 million, reflecting the higher level of taxable profit in the first half of 2014-2015 compared with the equivalent period of 2013-2014.

Operating Cash flow and Net Debt

Operating cash flow¹ (before interest and tax) represented a net €7.5 million outflow in first-half 2014-2015. This €21.1 million negative swing compared with the €13.6 million net cash inflow recorded for the first half of 2013-2014 reflects an unfavorable basis of comparison, as operating cash flow was boosted by €17 million in that period due to one-off receivables sales in Spain following the Spanish government’s decision to reduce its payment terms.

Net debt amounted to €1,586 million at March 31, 2015, down €687 million (30.2%) on the March 31, 2014 figure. This resulted in a leverage ratio² of 3.47x EBITDA compared with 5.25x one year earlier.

¹ Defined as EBITDA + change in WCR – net capex
² Calculated in accordance with the definition in the SFA: Consolidated net debt/EBITDA pro forma for acquisitions and divestments carried out in the past twelve months

Outlook

In view of its first-half 2014-2015 performance, the Group is standing by its guidance for the full fiscal year, namely:

• Revenue growth of over 4% (with at least 2% organic growth). This objective does not take into account future acquisitions during the fiscal year.
• A stable EBITDA margin. The performance improvement plan implemented during FY 2013-2014 will help the Group meet this objective.
• An increase in operating cash flow¹ (before interest and tax).
• A sharp rise in earnings per share, thanks to a significant decrease in finance costs due to the reduction in the Group's debt following the capital increase carried out in June 2014 and the senior debt refinancing that took place in December 2014. This in turn will lead to a strong increase in the dividend per share.

Events after the Reporting Date

• On March 10, 2015, Philippe Salle was elected as a director of Elior and then appointed as Chairman of the Board of Directors. On April 29, 2015, the Board of Directors appointed him as the Group's Chief Executive Officer and he now therefore holds the position of Chairman and Chief Executive Officer.
• On April 30, 2015, Elior announced that it had signed an agreement with Corporación Empresarial Emesa ("Emesa”) to acquire the 38.45% minority interest held by Emesa in Elior's Spanish subsidiary, Áreas. The agreement provides for Elior’s stake in Áreas to be increased to 100% and for Emesa to become a significant shareholder of Elior.
• On 22nd of May 2015 Elior successfully signed a new USD 200,000,000 Senior Term Loan and Revolving Facilities and a new USD 100,000,000 Private Bond (the "Facilities”). They will refinance the outstanding facilities issued by THS the contract catering subsidiary of Elior operating in the US. Half of the total amount correspond to existing debt and half of it will be used to finance upcoming acquisitions. Syndication of the Facilities was launched on 28th April 2015 and achieved a substantial oversubscription given the strong appetite from the selected banks invited to the syndication.
• Between May 4 and 28, 2015, Elior bought back 715,816 of its own shares under the share buyback program launched by the Board of Directors using the authorization granted at the March 10, 2015 Annual Shareholders' Meeting. These shares will finance part of Elior’s acquisition of the minority interest in Áreas.
• On May 7, 2015, entities controlled by Charterhouse Capital Partners LLP and by Chequers Partenaires (Charterhouse and Chequers) sold a portion of their Elior shares through a private placement. This operation led to a change in Elior's ownership structure, which is now as follows:

- Charterhouse and Chequers: 31.25% ownership interest

- BIM: 21.6%

- Free float: 47.15%

¹ Defined as EBITDA + change in WCR – net capex

A conference call will take place on Friday May 29 at 8.30 a.m. (CET).
Join the conference call by dialing:

France : +33 1 76 77 22 24
United Kingdom : +44 20 3427 1907
United States : +1 646 254 3367

In case of discrepancy between the French and the English version of this press release, the French version shall prevail

APPENDIX 1: REVENUE BY BUSINESS LINE AND GEOGRAPHIC REGION

APPENDIX 2: REVENUE BY GEOGRAPHIC REGION

APPENDIX 3: REVENUE BY CLIENT MARKET

APPENDIX 4: EBITDA¹ BY BUSINESS LINE AND GEOGRAPHIC REGION

¹ Including the impact of IFRIC 21

APPENDIX 5: EBIT¹ BY BUSINESS LINE AND GEOGRAPHIC REGION

¹ Including the impact of IFRIC 21

APPENDIX 6: CONSOLIDATED FINANCIAL STATEMENTS

¹ Including the impact of IFRIC 21

APPENDIX 7: EXCHANGE RATES AND CURRENCY EFFECTS IN FIRST-HALF 2014-2015

APPENDIX 8: 2013-2014 QUARTERLY RESULTS RESTATED TO REFLECT THE IMPACT OF IFRIC 21

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