Alpha Airports Group - Strategic&Operational Review

RNS No 1076w
ALPHA AIRPORTS GROUP PLC
17th February 1998
                                       
                           ALPHA Airports Group Plc
                                       
              Strategic and Operational Review and Trading Update


                                  Highlights

*    Strategic review identifies the need for ALPHA to focus on the
     opportunities for two major divisions instead of three

*    Retail division to be offered for sale with proceeds applied to reducing
     Group borrowings and funding development of retained businesses

*    ALPHA will become a focused airline services group

*    Catering and Ground Handling, serving airline customers, to be retained
     and grown

*    Operational review to result in annual cost savings of at least #2.5m

*    Operational review identifies the need for provisions for closure or
     write down of assets totalling #14m to be made in 1997/98 financial year
     - of this #7.6m relates to the write down of fixed assets

*    Overall trading in the second half of the 1997-98 financial year in line
     with expectations

Commenting on today's announcement, Kevin Abbott, Chief Executive of ALPHA
Airports Group Plc, said:

"ALPHA has three major divisions all with excellent long term growth
potential.   However, ALPHA cannot marshall adequate resources to develop all
three.  Hence, we propose to sell our Retail Division.  ALPHA will then become
a focused Airline Services Group.  We will invest in these businesses to take
advantage of underlying customer led growth in our existing UK and US
operations, and in Europe to take advantage of deregulation and increased out
sourcing."

Enquiries

ALPHA Airports Group plc                     Tel:  [phone]

Kevin Abbott, Chief Executive
Stuart Siddall, Finance Director

Gavin Anderson & Company                     Tel:  [phone]

Marc Popiolek
Laura Hickman

ALPHA Airports Group Plc

Following Kevin Abbott's appointment in October 1997 as
Chief Executive of ALPHA Airports Group Plc ("ALPHA"),
the strategy and operating performance of the Group has
been reviewed.

Strategic Review

The strategic review examined the framework for the
potential development of  ALPHA's three divisions -
Catering, Ground Handling and Retail - and the Group's
capacity to pursue development opportunities
effectively.

For all three divisions, the opportunities are
attractive over the longer term, particularly in view
of the trend towards deregulation in Europe and
increased out sourcing.  However, the ALPHA Board has
decided to invite offers for the Retail division
because of the:

*    opportunities to focus on common airline
     customers, and common geographical opportunities
     in Europe in both our Catering and Ground Handling
     businesses and the need to provide financial
     resources to enable these businesses to seize
     opportunities for growth;

*    ongoing consolidation and globalisation of duty
     free retailers and their suppliers in the $20
     billion world market for duty and tax free
     retailing; and

*    uncertainty associated with the possible abolition
     of duty free allowances in 1999 for intra EU
     travel.

ALPHA Retail comprises more than 80 duty free and tax
paid retailing outlets in 23 airport terminals in the
UK, including Heathrow and Gatwick,  and 21 overseas
outlets in the USA, Sri Lanka and Barbados.  In the
financial year ended January 1997 the Retail division
reported operating profits* of #13.9m (1995/96 #9.8m)
on turnover* of #316m (1995/96 #272m).

The disposal of ALPHA Retail will be conducted by
Schroders and will require shareholders' approval.

Proceeds from the planned sale will be used to reduce
Group borrowings and to fund the development of the
retained businesses.  At the end of July 1997 net debt
stood at #73.4m.

ALPHA will become a focused airline services group and
will continue to invest to build on the strengths of
its retained businesses.  In Catering, facilities,
capacities and processes are being upgraded to provide
improved customer service, productivity and
profitability.  Ground Handling continues to invest and
grow its US value-added services beyond its core ramp
handling activities, and will seek international growth
in Europe.

Trading Update

On 23 April 1998 ALPHA will report preliminary results
for the twelve months ended 31 January 1998.  
Overall trading in the second half of the 1997-98 
financial year has been in line with expectations.

Operating Review

The operating review, conducted with divisional and
local management, has sought opportunities to enhance
operating performance.  Several measures have been
identified, including the consolidation of divisional
and corporate offices into one office, increased
investment in the catering operations, creation of a 
'best practice' team to improve the efficiency of the
catering operations, and closure or write-down of
certain unprofitable assets.

These measures signal ALPHA's determination to strive
for the highest efficiency and least cost in its
operations.  They will result in total provisions of
not more than #14m in the 1997-98 financial year, of
which #7.6m will involve the write-down of fixed
assets.  These measures are expected to lead to savings
of at least #2.5m per annum.

Catering

The Catering operations are focused on Europe and
Australasia.  In 1997/98 the UK Catering operations
have successfully grown revenue with enhanced market
share by winning new contracts with existing and new
clients.  To support this growth, and to extend it,
ALPHA Catering plans significant development of its UK
kitchens.  We are reviewing plans to invest #9m at
London Heathrow where we will either redevelop an
existing kitchen and/or build a new kitchen; we are
also investing #1.1m on a second specialist charter
kitchen at Birmingham and #0.8m on expansion at
Edinburgh.

The operational review has identified significant
variation in productivity and profitability by kitchen.
We have established a best practice team to determine
and implement best in class performance by kitchen over
the coming 18 months.  Paul Ashworth,  Managing
Director of ALPHA Catering Services has appointed Ron
Webster as European Operations Director to lead this
programme.  Ron joins ALPHA after a successful career
in the beverage manufacturing and service industries
with Allied Domecq and Bass.  He will be supported by
external consultants, and an internal team including
Peter Smith, joint Managing Director of our catering
business in Australia, where we enjoy excellent
productivity.  The investment in this project team will
be at least #1m and will be expensed over the first six
months in 1998/99.

As a result of a change in the airport levy system at
Heathrow our oldest and least efficient kitchen is
facing losses of #2 million per annum.  We will close
this kitchen by October 1998 and we are offering our
customers the opportunity to transfer to our other two
Heathrow kitchens.  We expect to make a provision of 
#7.7m in 1997-98 including the write-off of fixed
assets with a book value of #3.2m.

In France the Orly kitchen has, as previously reported,
suffered a loss of business as clients have transferred
to Charles de Gaulle airport.  No improvement is
expected in the short term at Orly and we believe that
there has been a permanent diminution in the value of
the assets of #4m and a charge for this accelerated
depreciation will be made against the 1997-98 results.

Ground Handling

The Ground Handling division, DynAir, continues to
focus on growth opportunities in the USA and Europe.
In Europe, the first joint venture at Cagliari airport
in Sardinia started in October and has operated
successfully.  DynAir will continue to invest in
suitable ground handling and fuelling projects over the
coming years as European Union de-regulation creates
opportunities.

ALPHA On Board Sales and Services (AOBSS)

During the year AOBSS has been establishing the
necessary management infrastructure and information
systems to enable it to become an innovative leader in
inflight retailing.  These efforts have been successful
with the recent award of the inflight duty free retail
concession for Canadian Airlines' international flights
operating from its hubs in Vancouver and Toronto.  This
three year contract should generate sales of at least
#15m over its life and establishes AOBSS's credentials
in this important market.

In 1996 AOBSS established a pre-order service with
Malaysian Airlines.  The downturn in the Asian market
has undermined the commercial viability of this service
and agreement has been reached such that Malaysian
Airlines will take over the operations in Spring of
1998.  AOBSS will continue to provide consultancy
support to Malaysian Airlines.  Provision for the #0.2m
cost of withdrawal will be made in the 1997-98
accounts.

Retail

ALPHA Retail, comprising duty free and duty paid
operations, has been developing internationally over
the past two years, with the Asian operations in Sri
Lanka continuing to meet expectations.  ALPHA Retail's
UK regional duty free business continues to perform
well and will report an increased contribution in 1997-98.

In 1997 ALPHA and King Power formed a 30/70% joint
venture to bid for shops at the new Hong Kong
International Airport (HKIA), due to open in July this
year.  The joint venture secured twelve small land-side
and air-side shops.  In the last seven months there has
been a significant fall in passengers visiting Hong
Kong.  ALPHA and King Power believe that this situation
may persist for some time.  We are proceeding to re-
negotiate with the HKIA regarding current passenger
flow and its impact upon the concessions held by the
joint venture company, King Power ALPHA.  The final
outcome of these negotiations is unclear.  In the event
that we are unable to reach a satisfactory agreement it
may be necessary to withdraw.  In these circumstances
the cost of the withdrawal should not exceed #1.2m. An
appropriate provision will be made in the 1997-98
accounts.

ALPHA Retail's new duty free concession opened in
Orlando, Florida in August 1997.  ALPHA Retail has
secured a substantial increase in spend per passenger.
However, the level of international departing
passengers has been disappointing as airline code-
sharing agreements have required many departing
passengers to exit the USA from Miami instead of
Orlando.  We expect that passenger numbers will
increase over the next 9 months as more European
flights come into this important holiday destination.
Our duty free concession in Sanford (Florida), the
alternative airport for Orlando, continues to trade
well.

The Americas are a key area of focus for ALPHA Retail
as there are significant opportunities to develop
travel retailing.  ALPHA has, in February 1998,
acquired a 51% interest in Goddard's duty free and duty
paid operations in Barbados from Goddards Enterprises
Ltd.  The cash consideration is US $2.0m (#1.2m) which
equals the net asset value of the business acquired.
This business, with sales of US $11.0m (#6.7m), will
link into the existing ALPHA Retail presence in
Florida.  The existing Goddards shops will be refitted
and refocused and further investment opportunities
sought with ALPHA Retail's joint venture partner,
Goddards, both in Barbados and throughout the Caribbean
and Central America.


* Note:

The trading results for the Retail division exclude the results of ALPHA On
Board Services, the Bonded stores operations and our shops in Jersey which
will not be offered for sale.  In addition operating profits exclude corporate
overheads previously allocated to the Retail division.


END



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