UK. Alpha Airports Group has announced a +3.8% rise in revenues to £278.9 million for the first half of 2006/07 (to 31 July). Adjusted profit before tax rose by +33.9% to £8.3 million.
It incurred exceptional costs of £4.1m in the first six months, mainly related to the events earlier this year that led to the group’s share suspension and subsequent investigation (£2.7m), as well as redundancies (£1.1m) that took place as part of a restructuring of Airport Services early in the period.
Commenting on the results, Chairman & Chief Executive Peter Williams said: “Against a difficult trading backdrop and the distraction of internal events, these are encouraging results. We operate in highly competitive markets and to succeed we must focus on improving our performance through a combination of innovation and building scale.
“The second half of the year remains a challenge but we are confident that the full year results will, subject to the current security concerns, be in line with our expectations.”
Operating Review
Airline Services
Total sales increased by +3.1% to £151.4m (2005/06; £146.9m) during the period.
Operating profit for the six months, before exceptional items of £0.5m, increased by +63.9% to £5.9m (2005/06: £3.6m).
While UK sales were marginally down, a reduction in overall catering revenue was offset by strong growth from inflight retail.
Start up costs incurred in the prior year associated with the American Airlines contract at Heathrow and Gatwick did not recur and the benefits of a cost reduction plan, together with a new contract in Edinburgh for Delta Airlines, benefited the bottom line in UK catering.
Alpha said: “With the continued growth in the low cost carrier market we continued to see more demand for our inflight retail, bonded store and logistics services which made an improved contribution to profits.
“We are pleased to announce that, since the period end, we have entered into a new contract with British Airways to provide all of their catering bond services at Gatwick.
“Overall, in the UK there was a marked improvement in profitability but stiff competition means that these operations will continue to operate on low margins.
“Internationally, we saw improvements in Australia, with increased revenues as a result of the Malaysian Airlines contract, and the operation returning to profit after a number of difficult years. In Jordan our excellent business continued to perform well, despite the political issues in the region, and converted increased revenue into profit. Our recent acquisition in Romania doubled both profits and revenue in that country. In the last few months we have retained contracts in Amsterdam for Cathay Pacific and Japan Airlines.”
Airport Services
Total sales increased by +4.6% to £127.5m (2005/06: £121.9m) during the period. Operating profit for the six months, before exceptional items of £0.8m, increased by +8.3% to £3.9m (2005/06: £3.6m).
In the UK, revenue was slightly ahead, including improved contributions from refitted World News stores at Heathrow Terminal 3 and Aberdeen. Although passenger numbers were up +4.7%, the number of transactions was down. The average transaction value also, coincidentally, increased by +4.7%. As a consequence UK profits remained static when compared with the first half of the previous financial year.
International revenue increased by +4.3% with the main growth coming from the retail outlets that were opened last year in Italy at Rome Fiumicino and Ciampino. During the period Alpha opened a new World News Cafe at Henri Coanda Airport, Bucharest and it completed the refurbishment of tax and duty free stores at Orlando International Airport in the US.
Overseas retail profits increased by +8.0% over the same period in the last financial year. The Sri Lanka business, which opened a new bar in the Departures area at Colombo airport, continued to be the main profit contributor overseas.
Strategic Review
Peter Williams made this statement on the group’s strategic review: “Following my appointment in May, I initiated a review of the Group’s strategy. Whilst, as for any group, this is an ongoing process, a number of key issues have already become apparent.
“There is no doubt that Alpha has world-class examples of tax and duty free stores and capabilities in the provision of catering on aircraft. What is essential, though, is that we concentrate on ensuring that we maximise returns on those markets where we have scale or can achieve scale either with existing facilities or through acquisition.
“In the more developed markets in which we operate, there is intense competition for new contracts in both airline and airport services. For example, in places such as the UK, returns are not as good as those, for instance, in emerging economies. However, as an international business with international customers, it is imperative that we have a well established domestic business which then qualifies us for the new business opportunities that exist in emerging markets.
“Consequently, we will continue to operate only in those countries where we have scale or believe we can achieve scale. In all markets, we will review each contract and each retail outlet to ensure that we have the correct focus and return on capital employed.
“Another key issue for our longer-term strategy is innovation. Alpha, has since its inception been a pioneer in inflight catering and duty and tax free retailing in the UK/Europe and we must continue to exploit this strength.
“More recently Alpha has pioneered the buy-on-board and the Blue Sky Services menu concept which has been very successful with airlines such as MyTravel. In both our markets there is a danger that the only comparison is one of price. Whilst cost is obviously an important issue for our customers, it is important that Alpha continues to provide innovation in its offer to differentiate itself from its competitors.”
Outlook
Alpha estimates that the initial impact of the UK security issues in August impacted that month’s operating profit by approximately £0.3m. During September, there has been a gradual return to normality but airport retailing continues to be affected by lower passenger spending.
Alpha said: “Our overseas operations, particularly in Jordan and Sri Lanka, have their own security issues. However, Alpha has a reputation for its innovation and flexibility which will stand it in good stead in a rapidly changing environment.
“Our domestic markets remain very competitive. Some consolidation in the UK is a possibility and Alpha will look to take advantage of any suitable opportunities that might arise. There are also a number of potential international opportunities which would enable us to leverage Alpha’s management skills and industry knowledge.”
