SSP Group PLC deliver H1 revenue of £1.5bn, up 19%

SSP Group plc (LON:SSPG), a leading operator of food and beverage outlets in travel locations worldwide, has announced its financial results for the half year ended 31 March 2024.  

Financial Highlights: (Underlying pre- IFRS16^1,3)

·    First half revenue of £1.5bn, up 19% on a constant currency basis, with double-digit growth across all regions

·    H1 revenue growth comprises: like-for-like sales growth of 12%, including a very strong performance in APAC and EEME reflecting strengthening passenger numbers; net gains of 4% from the mobilisation of our new contract pipeline; and a contribution of 3% from acquisitions in North America

·    EBITDA of £106m, up from £91m last year, leaving us on track to deliver Group “Planning Assumptions”, as set out in December 2023

·    Strong contributions to profitability delivered by the North America and APAC & EEME regions, reflecting the faster growth in these markets and strong profit conversion

·    Good underlying EBITDA growth in the UK, benefitting from a further recovery in passenger numbers and despite some ongoing impact from industrial action in the rail sector

·    Profitability in Continental Europe held back by a heightened level of renewals, particularly in the Nordics countries, and greater levels of industrial action that impacted the rail sector in France and Germany

·    Underlying pre-IFRS 16 loss per share of 1.0p compared with 0.8p per share in the prior year

·    Reported loss per share of 1.3p per share, in line with the prior year

·    Re-instatement of the Interim dividend at 1.2p per share, reflecting sustained confidence in future prospects

·    Free cash usage of £240m after investment of £144m in capital projects (compared with £94m in the prior year), acquisitions of £59m and a working capital usage of £66m, reflecting the normal seasonal profile as well as the unwind of the remaining payment deferrals from the Covid-19 period

·    Net Debt of £619m, at the end of March 2024, and leverage (Net Debt: EBITDA) of 2.1x. Under IFRS 16, Net Debt increased from £1,421m at 30 September 2023 to £1,633m at 31 March 2024

Strategic Highlights:

·    Successfully pivoting to higher growth markets with 39% of our sales over the last 12 months now from North America and APAC & EEME (compared with 35% in the previous 12 months); we are now present in 51 North American airports (37 airports in October 2022) and on track to create a business with annualised sales of over $1 billion 

·    Significant new contracts won in H1 including 7 units at Cincinnati airport, 3 at Milan railway station and 9 units at Noida (Delhi) airport; in the last six months, we have won c.150 new units across all regions and mobilised c.200 units from our secured pipeline

·    This current momentum in new business wins, together with our secured pipeline underpins our expectation of the delivery of organic net gains (excluding acquisitions) of c.5% for FY24 and FY25 and c.3%-5% in the medium-term

·    In total, c.80 new units acquired since the start of the year. This includes 62 new units from the acquisition of Airport Retail Enterprises Pty Ltd (“ARE”) in May 2024, which increases the size of our business in Australia from 40 to 102.

·    In North America, we have completed the acquisitions of ECG in Canada and Mack II, gaining us entry to Atlanta, the busiest airport in North America. In addition, we have completed on the transfer of Denver, the final airport of the Midfield acquisition

·    We have secured entry into two new high growth markets: New Zealand and Indonesia, as announced today. In Indonesia we have agreed to create a new joint venture with PT Taurus Gemilang, subject to obtaining the necessary consents, which will initially operate  13 units, principally in Bali, and will give us a presence in this very large and growing market; combined consideration of c.£90m relating to ARE and Indonesia. We also commenced operations in Saudi Arabia during the first half following tender wins at Riyadh and Jeddah

·    Enhanced business capabilities with new brands and concepts, digital, sustainability and people driving an improved proposition; Global customer rating⁷ up from 4.2 to 4.4 out of a maximum score of 5.0

Recent Trading

Since the half year-end, we have traded in line with expectations, with total revenue during the first six weeks of the second half (from 1 April to 12 May) up 14% year-on-year on a constant currency basis, with revenue in North America up 28%, Continental Europe up 5%, UK up 9% and APAC & EEME up 25%.

FY2024 expectations

While we face into macroeconomic and political uncertainty, we believe that demand for travel will remain resilient and the industry is well set for both short-term and long-term structural growth. Progress in the first half of the year has been encouraging, with strong revenue growth and good profit conversion in most of our markets. 

As we approach the peak summer season, we are well-positioned to deliver the planning assumptions for FY24, as outlined at our Preliminary Results on 5 December 2023. We continue to plan for like-for-like sales growth for the full year of between 6% and 10% and for net contract gains in the region of 5% (excluding acquisitions). Including the acquisition of ARE in Australia, which completed in May 2024, we now expect a contribution of c.3% from acquisitions in the year. We continue to plan for underlying EBITDA to be within the range of £345-£375m and underlying operating profit within the range of £210-£235m, all stated on a pre-IFRS 16 basis and at constant currency based on average rates for FY23. The currency impact on these metrics, if current spot rates were to continue through FY24, would be a negative currency impact on revenue, underlying EBITDA (on a pre IFRS-16 basis) and operating profit of approximately -2.0%, -3.5% and -4.6%.

We continue to plan for capital expenditure to be in the region of £280m in the current year, comprising: capital to fund our renewals and maintenance programme of c.£140m, representing approximately 4% of expected revenues for 2024 (in line with the historical average); expansionary capital for new contracts of c.£80m, expected to deliver net contract gains in the region of 5%; and c.£60m reflecting the deferral of renewal and maintenance capital expenditure from the Covid-19 period.

We are planning for capital expenditure in the region of £260m in FY25, consistent with c.5% of net gains, which is well underpinned by our existing pipeline of secured contracts. In FY26, we are planning for net gains of between 3% and 5%, based on the pipeline and our recent track record of new business wins, and are therefore planning for capital expenditure to be in the range of £220-£250m.

Our investment appraisal process, models and benchmarks have been unchanged over many years and we seek a minimum hurdle rate of a post-tax IRR greater than 20%. We complete post investment reviews to validate expected returns. These indicate a long track record of delivering returns ahead of our target hurdle rate.

Medium-term outlook

Our compounding shareholder growth and returns model, aligned to our medium-term financial framework, is set to deliver:

·    Sales growth ahead of pre-Covid levels, including net gains of between 3% and 5% p.a., resulting from our pivot to higher growth markets (principally the North America and APAC & EEME regions) which offer higher levels of structural demand and infrastructure growth, and where we have strong businesses with relatively low market shares and significant momentum.

·    Sustainable operating margin enhancement benefitting from operating leverage (driven by revenue growth), greater use of technology and automation and our wide-ranging efficiency programme, all of which will enable us to mitigate the impact of rising rent levels and inflationary cost increases.

·    Sustainable medium-term earnings growth driven by strong operating profit growth, with non-controlling interests to increase broadly in line with profit growth in countries with joint venture partnerships.

·    Capital investment underpinned by high returns on capital projects, generally a 3-4 year discounted cashflow payback and post-tax IRR greater than 20%, in line with historical performance. We expect contract renewal and maintenance capex (needed to retain the base estate of the business) to be on average c. 4% of Group sales and expansionary capex (i.e. investment in new contracts) to vary with the level of contract wins and the timing of mobilisation of new contracts.

·    Balance sheet deleveraging, the pace of which will be determined by the scale of new business investment and value creating infill M&A where we target a post-tax IRR greater than 15%.

·    Payment of the ordinary dividend with a target payout ratio of c.30-40% and surplus cash returned to shareholders in line with our capital allocation framework.

Commenting on the results, Patrick Coveney, CEO of SSP Group, said:

 “The first half has been a period of continued momentum, and we’ve made good strategic and financial progress. At constant currency, the Group delivered double-digit sales growth in all our geographies around the world – with an exceptionally strong like-for-like sales performance in APAC and EEME. Our momentum is being supported by tailwinds from the high structural growth of the markets in which we operate, our proven ability to win and retain high-returning contracts and by our value creating acquisitions.

“Supporting our top-line growth is disciplined cost management, and we are pleased to have delivered year-on-year EBITDA growth of 24% and to be announcing an interim dividend.

“Trading momentum has continued into the second half, and we are confident in delivering on our expectations for the full year. In particular, we are well set to capitalise on what we anticipate will be a Summer of strong demand in all our markets – including Continental Europe, where the Olympics and the European Championships will help boost footfall in airports and stations. We will also start to realise the benefit of our latest value-creating acquisition in Australia and new market entries in New Zealand and Indonesia.

“As a business we are making good progress on our strategic priorities, thanks to the hard work and commitment of all our colleagues and the support of our clients and brand partners around the world. With our continued momentum and foundations in place for further expansion, we remain confident in our ability to deliver sustainable, compounding growth and returns for all our stakeholders in the years to come.”  

¹ Stated on an underlying basis, which excludes non-underlying items as further explained in the section on Alternative Performance Measures (APMs) on pages 18-21. 

² Underlying EBITDA (on a pre-IFRS 16 basis) is the underlying pre-IFRS 16 operating profit excluding depreciation and amortisation.

³ We have decided to maintain the reporting of our profit and other key financial measures like net debt and leverage on a pre-IFRS 16 basis. Pre-IFRS 16 profit numbers exclude the impact of IFRS 16 by removing the depreciation on right-of-use (ROU) assets and interest arising on unwinding of discount on lease liabilities, offset by the impact of adding back in charges for fixed rent. This is further explained in the section on Alternative Performance Measures (APMs) on pages 18-21.

⁴  A reconciliation of Underlying operating profit/(loss) to Free cashflow is shown on page 16.

⁵  Net debt reported under IFRS 16 includes lease liabilities whereas on a pre-IFRS 16 basis lease liabilities are excluded. Refer to ‘Net debt’ section of the ‘Financial review’ for a reconciliation of net debt.

⁶ Constant currency for FY24 is based on average FY23 exchange rates weighted over the financial year by 2023 results. Constant currency for FY24 is based on FY23 exchange rates.

⁷ As measured through our customer listening tool, Reputation.

A presentation for SSP Group investors and analysts will be held at 9.00am (UK time) today, with access by invitation only. Attendees are also able to join via a live webcast with details accessible at:

SSP – Food Travel Expert (foodtravelexperts.com)