SSP Group interim profits soar 50% but analysts warn of challenges ahead

21st May 2015 10:33

Despite a 50% rise in half-year profits and a maiden interim dividend, shares in food outlet operator SSP Group were binned by investors on Thursday morning, as earnings were likely to be heavily second-half weighted.SSP, which runs restaurants, shops and cafes in train stations and airports for the likes of Burger King, Starbucks and Marks & Spencer's Simply Food, saw group revenue fall 0.8% to £859.2m due to currency movements, although like-for-like sales (LFLs) increased 3.0%.Operating profits of £25.2m were up 27.9% at actual exchange rates or 35.2% in constant currencies, with profit before tax raised 50.5% at actual exchange rates to £16.4m, ahead of forecasts.Profits were driven higher by a 60 basis-point increase in operating margins, reflecting an ongoing programme to improve our operating efficiencies.Chief executive Kate Swann, the ex WH Smith boss who floated SSP in July last year, said she was encouraged by the significant contract wins secured so far this year and that the second half of the financial year has started in line with our expectations.Net contract losses reduced revenue by 0.4%, principally due to the previously announced loss of an on-board rail contract in 2014.Swann said she continued to expect a stronger net contract gains performance in the second half of the year and expects positive full year net contract gains as the anniversary of the rail loss is passed and as the company sees the benefits of a number of new openings, including at Stansted, Nice and Toronto airports."Our confidence in the future is supported by our increasing investment in the business and by the further strengthening of the portfolio of brands and concepts we offer to our clients."The second half of the financial year has started in line with our expectations, and whilst a degree of uncertainty always exists around passenger numbers in the short-term, we continue to be well positioned to benefit from the underlying positive trends in our markets."Analysts were positive, with Canaccord hailing the "excellent" interims, well ahead of last year and marginally ahead its forecasts, although noting that earnings are "very second-half weighted" - 80% - and the outlook is tougher versus prior year comparisons.Numis noted that LFL sales were driven by the UK, North America, the Middle East and Asia Pacific, whereas parts of continental Europe remained challenging, particularly France and Germany, which was affected by strike action.It forecasts 0.4% net contract growth for the full year."We expect the company to use its improved balance sheet to step up expansion, and to target the 40% of sites with only one-to-two units, thereby driving up cost efficiency."