Regulatory Story
Go to market news section View chart   Print
RNS
BBA Aviation PLC  -  BBA   

Final Results

Released 07:00 01-Mar-2018

RNS Number : 3156G
BBA Aviation PLC
01 March 2018
 

 

 

 

 

 

 

 

 

BBA Aviation plc

 

2017 Final Results

 

Results for the year ended

31 December 2017

 

 

 

 

 

 

 

 

 

 

 

For further information please contact:

 

David Crook, Group Finance Director                                                                             (020) 7514 3999

Kate Moy, Head of Investor Relations & Communications                                                                        

BBA AVIATION PLC

 

David Allchurch                                                                                                                    (020) 7353 4200

TULCHAN COMMUNICATIONS

 

 

A video with BBA Aviation management is now available on www.bbaaviation.com  and www.cantos.com

 

A live audio webcast of the analyst presentation will be available from 08:15 today on www.bbaaviation.com and www.cantos.com 



 

FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2017

 

 


Underlying results1



Statutory results



2017


2016

Change


2017


2016

Change2

Continuing Group










Revenue

2,370.6


2,149.1

10%


2,370.6


2,149.1

10%

EBITDA

447.9


384.5

16%


418.7


346.6

21%

Operating profit

360.6


302.6

19%


237.6


166.1

43%

Profit / (loss) before tax

298.5


238.7

25%


175.5


(82.2)

-

Profit / (loss) after tax

246.3


199.2

24%


141.8


(19.3)

-

Basic earnings per share

24.0¢


19.4¢

24%


13.8¢


(1.9)¢

-

Total Group










Return on invested capital

11.0%


10.1%

90 bps






Free cash flow

-


-



220.6


224.1

(2)%

Net debt

(1,167.1)


(1,335.3)

 (168.2)






Net debt to adjusted underlying EBITDA

2.6x

 

 


3.2x

 

 

(0.6)x

 

 






Dividend per share






13.40¢


12.75¢

5%

 

 

1. Refer to alternative performance measures for the note outlining all adjusted and continuing measures

2. % change based on continuing operations for operating performance

 

Highlights

 

·      Strong overall Group performance, underlying continuing operating profit up 19% to $360.6 million

                                                                                                                                    

·      Statutory profit before tax for 2017 was $175.5 million compared to a loss of $82.2 million in 2016

 

·      Adjusted continuing underlying basic EPS up 24% to 24.0 cents. Unadjusted continuing basic EPS of 13.8 cents against a loss of 1.9 cents in 2016

 

·      Final dividend up 5.2% reflecting continued confidence in the Group's future growth prospects.

 

·      Business performance: 

 

 

Flight Support (83% of Group underlying OP) 

§  Signature organic revenue growth of 3.8% was in line with the US B&GA market growth of 3.7%

§  In the second half, Signature organic revenue growth moved ahead of the market at 4.4% against the US B&GA market which grew at 4.1%

§  Organic underlying operating profit growth of 11.3%, significantly ahead of the growth in the underlying B&GA markets

 

 

Aftermarket Services (17% of Group underlying OP) 

§  Organic underlying operating profit growth of 32.2%

§  Ontic - delivered an excellent operating performance with strong contributions from new licences and organic growth from legacy US military licences

§  ERO - much improved operating margin performance despite organic revenue decline

§  We are currently conducting a strategic review of our ERO business

 

 

·      Exceptional and other items of $127.0 million is largely non-cash and associated with the amortisation of acquired intangibles $93.8 million and restructuring costs of $28.0 million primarily on assets at our ERO facility in Abu Dhabi, which is scheduled to close over the next few months, and the final phase of our ERO footprint rationalisation.

 

·      Free cash flow from continuing operations was $254.0 million. On a statutory basis, free cash flow was $220.6 million (2016: $224.1 million) and as a result the Group de-levered to 2.6x net debt to underlying EBITDA on a covenant basis.

 

·      New target leverage range of 2.5x to 3.0x net debt to underlying EBITDA on a covenant basis will maintain an efficient balance sheet and reflects the strong and robust cash generative characteristics of the business whilst also providing the flexibility required to meet the investment opportunities of the business to fund organic and inorganic growth.  

 

 



 

Wayne Edmunds, BBA Aviation Interim Chief Executive Officer, commented:

 

"2017 was another successful year for BBA Aviation. It was a year when we continued to lay the foundations for further growth and value creation across our Signature network of 198 FBOs. Over the year we have successfully negotiated revised commercial terms for over 50% of our revenue and these started to positively impact in our second half and contributed to our market outperformance during that period.

 

The US B&GA market has grown strongly during the year. We have invested in the network through lease extensions, adding hangar space, growing our line maintenance offering through Signature TECHNICAir™ and expanding our Signature Elite® and Signature Select® offerings, all of which extend and enhance our opportunity for continued market outperformance. We see potential, as we look forward, to expand our offering of non-fuel services and further leverage our market leading network.

 

I am pleased with the much-improved financial performance from our Aftermarket Services business. We have made further investments in Ontic's IP protected licence portfolio and the licences acquired from GE Aviation at the end of 2016 have made a strong initial contribution. Ontic continues to see significant growth opportunities and has a strong pipeline of opportunities to add to the licence portfolio and a good order book. The second half also saw a much-improved operating performance from ERO supported by the benefits from the footprint rationalisation program.

 

We have undertaken a comprehensive review of our capital structure and increased our targeted leverage range, maintaining a capital efficient balance sheet based on the strong and robust cash flow fundamentals of the Group.

 

Furthermore, I am delighted that Mark Johnstone, who has extensive experience across the Group will take up his appointment as Chief Executive Officer at the beginning of April.

 

In summary, the Group is focused on higher value-added, better IP protected, high ROIC and strongly cash generative businesses with encouraging prospects and the Board remains confident of good growth in 2018 with a good pipeline of further investment opportunities."

 

 

 

 

 

 



 

FINAL RESULTS 2017

 

Overview

 

BBA Aviation has delivered another year of strong growth. Our underlying operating profit outperformed strong B&GA markets in 2017.

 

During the year we made significant progress on transitioning our customers onto new commercial agreements to begin capturing the value from the unique Signature network, post the integration of Landmark Aviation. Ontic's focus as a high quality, cash generative market leading provider of legacy support services was further enhanced with the addition of new licence agreements during the year. Furthermore, the acquisition of GE Aviation's portfolio of legacy avionics products in December 2016 made an encouraging initial contribution.

 

Flight Support delivered excellent underlying operating profit growth, continuing to outperform its markets, with good drop through to profit. In Aftermarket Services, Ontic, our Legacy Support business, delivered ahead of our expectations. We saw a good contribution from licences added in 2016 and organic growth from military parts programmes, including the B52. ERO delivered a much-improved operating performance through market share gains on certain engine platforms, underpinned by ongoing cost reduction and the results of the footprint rationalisation. This was achieved despite markets that remained challenging with no recovery in legacy mid-cabin fixed wing flying and continued pressure on pricing and workscopes.

 

Continuing Group revenue increased by 10% to $2,370.6 million (2016: $2,149.1 million), including $92.7 million contribution from acquisitions. Flight Support revenue increased 13.8%, reflecting the contribution from acquisitions of $53.0 million, being one additional month of Landmark Aviation and the additional three months of contribution from the new FBOs in Italy, together with the impact of higher fuel prices, partially offset by foreign exchange movements, that increased Flight Support revenue by $88.1 million. Aftermarket Services revenue was up 3.1% driven by Ontic offsetting the decline from continuing challenging markets in ERO.

 

Continuing underlying Group operating profit was up 19% to $360.6 million (2016: $302.6 million). There was an excellent performance in Flight Support which increased operating profit as adjusted for FX and disposals by $43.8 million and includes a $11.6 million contribution from acquisitions. Aftermarket Services, now 17% of continuing Group underlying operating profit, was up $24.6 million as adjusted for FX due to Ontic's strong performance and included a $11.5 million contribution from acquisitions and a much-improved financial performance at ERO.

 

Statutory Group operating profit was up 43% to $237.6 million (2016: $166.1 million) due to improved trading performance and lower exceptional and other items, as set out below.

 

Continuing Group underlying operating profit margin increased to 15.2% (2016: 14.1%) reflecting underlying margin growth in both Flight Support and Aftermarket Services. On a constant fuel, disposals adjusted basis the underlying operating margin increased 200 basis points to 15.2%.

 

Underlying net interest decreased by $1.8 million to $62.1 million (2016: $63.9 million). Net debt decreased to $1,167.1 million (2016: $1,335.3 million). On a covenant basis, the net debt to underlying EBITDA ratio decreased to 2.6x (2016: 3.1x), and on a reported basis to 2.6x (2016: 3.2x). Interest cover on a covenant basis increased to 8.4x (2016: 7.2x), due to the decreased interest on the lower drawn debt.

 

Underlying continuing profit before tax increased to $298.5 million (2016: $238.7 million).

 

The Group's underlying effective tax rate for continuing operations is 17.5% (2016: 16.5%). Underlying profit after tax increased by 24% and continuing underlying adjusted earnings per share (EPS) increased by 24% to 24.0 cents (underlying adjusted 2016: 19.4 cents). Cash EPS, the measure of EPS adjusted to use a current as opposed to total tax charge, increased 29% to 28.6 cents (2016: 22.1 cents).

 

Total Group ROIC increased 90bps to 11.0%, up from 10.1% in 2016.

 

Exceptional and other items after tax, for continuing and discontinued operations, totalled $127.0 million (2016: $316.0 million). Significant items include restructuring expenses of $28.0 million (2016: $9.9 million), comprising of $15.7 million as a result of  restructuring ERO's Abu Dhabi facility and $12.3 million associated with ERO's footprint rationalisation programme and actions taken to address the costs previously associated with supporting ASIG; $93.8 million of non-cash amortisation of acquired intangible assets (2016: $98.6 million), and $22.5 million loss after tax on disposal of discontinued operations (2016: $97.5 million). The impact of the enactment of the Tax Cuts and Jobs Act in the US has also been presented as exceptional and other item tax charge as set out below.

 

Continuing statutory profit before tax was $175.5 million versus an $82.2 million loss for the prior year.  

 

Free cash flow was $220.6 million (2016: $224.1 million), the decrease mainly due to a working capital outflow of $46.3 million compared to an inflow of $36.1 million in the prior year and increased tax payments, largely offset by increased earnings, lower capital expenditure and lower interest payments.

 

Gross capital expenditure amounted to $80.3 million (2016: $102.4 million). Principal capital expenditure items include the    investment in our FBOs at Boeing Field, Palm Beach and Nashville, our new engine overhaul and testing facility at Dallas Fort Worth and our Ontic facility in Cheltenham to support the ongoing transition of GE Aviation avionics licenses. 

 

Working capital outflows in the year of $46.3 million (2016: $36.1 inflow), represented $25.7 million outflow relating to discontinued operations and approximately $20 million outflow representing the expected reversal of outperformance from 2016.

 

Cash flows on exceptional and other items during the year were $12.7 million (2016: $63.5 million) which primarily relate to restructuring costs.

 

The Group's tax payments during the year were $41.8 million (2016: $15.8 million) which included tax payments of $8.4 million in relation to the disposal of ASIG. Net interest payments were $57.2 million (2016: $61.8 million) and dividend payments amounted to $130.7 million (2016: $124.3 million).

 

The consideration paid relating to acquisitions during the year, including deferred consideration, was $75.7 million, net of cash acquired. This related substantially to the acquisition of Ontic's licences. In December 2016, Ontic completed the acquisition of a portfolio of legacy avionics products from GE Aviation for $60.7 million. The cash payment for this acquisition was made in January 2017.

 

 

 

Business Review - Continuing Operations 

 

Flight Support (83% of underlying operating profit) 

 

Our Flight Support division provides specialist on-airport services including refuelling, ground handling and hangarage to the business & general aviation (B&GA) market through Signature Flight Support, line maintenance services through Signature TECHNICAir and aircraft management and charter operations through its affiliate Gama Aviation Signature Aircraft Management.

 

 

$m

2017

2016

Change

Revenue

1,643.0

1,443.2

13.8%

Organic revenue growth

3.8%

3.9%

(10)bps

Underlying operating profit

329.4

294.0

12.0%

Underlying operating margin

20.0%

20.4%

(40)bps

Underlying operating margin (adjusted for fuel and disposals)

Operating profit

20.0%

 

247.1

18.6%

 

177.3

140bps

 

39.4%

Operating cash flow

313.4

276.8

13.2%

Divisional return on invested capital

12.2%

11.2%

100bps

 

 

Revenue in Flight Support increased by 13.8% to $1,643.0 million (2016: $1,443.2 million), reflecting a net positive impact of higher fuel prices and foreign exchange movements and $53.0 million contribution from 2016 acquisitions being an additional one month contribution from Landmark Aviation and an additional three months contribution from the acquisition of four FBOs in Italy. Flight Support's organic revenue growth of 3.8% for the full year reflected good growth in the US B&GA market generally with movements up 3.7% and European B&GA movements up 7.3% during the year. 

 

Underlying operating profit in Flight Support increased by 12.0% to $329.4 million (2016: $294.0 million), driven by continued strong underlying operational performance in Signature Flight Support and an $11.6 million contribution from acquisitions. Underlying operating profit includes our Signature TECHNICAir and our aircraft management and charter business which is accounted for as a joint venture. On an organic basis, adjusting for acquisitions ($11.6 million), FX ($0.6 million) and disposals ($7.8 million), underlying operating profit increased by 11.3%.

 

Underlying operating margins were slightly lower due to the increase in fuel prices and disposal of FBOs in 2016 which were equity accounted. Underlying operating margins adjusted for constant fuel prices and disposals increased by 140 basis points to 20.0%.

 

Statutory operating profit of $247.1 million increased by 39.4% (2016: $177.3 million). This is a result of strong organic growth plus the impact of acquisitions, net of disposals and a reduction in exceptional and other items, primarily lower amortisation of acquired intangible assets and the non-repeat of acquisition integration costs from 2016. Operating cash flow for the division was $313.4 million (2016: $276.8 million) due principally to strong organic operating profit growth and reduced capital expenditure. Return on invested capital increased to 12.2% (2016: 11.2%) reflecting the strong improvement in underlying operating profit during the year.

 

Signature Flight Support's locations delivered another strong performance in a good growth environment, as we started to capture the benefits of our strong and customer-relevant network.

 

Against a background of a US B&GA market that grew 3.1% in the first half, Signature performed broadly in line with the market despite a short term negative impact on fuel volumes while negotiations with Signature's customers were undertaken and the loss of the Santa Ana FBO in April 2017. In the second half, Signature outperformed its principal US B&GA market with 4.4% organic revenue growth against the market which grew at 4.1% reflecting both the positive customer response to the enlarged network proposition and the good progress with our commercial renegotiations.

 

The hurricanes in August and September: Harvey, Irma and Maria caused minimal impact overall across the Signature network and we were able to re-establish services quickly and provide support for the rescue and relief efforts. Damage to our FBO network was limited although there were some excess payments made on our insurance policies by Signature. The further impact of hurricane insurance claims is covered under central costs below.

 

Signature is well positioned to focus on optimising its unique and high quality global network of FBOs and line maintenance locations, through the provision of a broader range of B&GA services to our extensive customer base and enhancing network performance to accelerate value creation. The unique Signature network has the unmatched ability to satisfy the needs of our customers at many more locations that they want to fly to, supporting anticipated continued outperformance in 2018 and beyond.

 

In 2017 Signature expanded its affiliate FBO programme, Signature Select®. It signed an extended licence agreement with Fly Across at Toluca International Airport in Mexico, just a 30-minute drive from Santa Fe, the country's financial and business district.  This location increases the Signature Select® network to 19 locations globally and we continue to look for further opportunities to expand this proposition.

 

Signature has continued to invest in its current network, with the successful opening of its newly constructed FBO, with premium hangar space to satisfy the growing tenant demand, at Boeing Field, Seattle which completed in June 2017. It also secured a new strategic lease at Washington Dulles International Airport.

 

BBA Aviation has also recently taken a minority investment in Victor, a leading on-demand private jet charter company. Through this minority investment which concurrently acquired RocketRoute, a global flight planning and trip support business, we are committed to being at the forefront of advances in data and technology enabled customer service. As the demographic using and chartering private jets continues to change, our ability to utilise technology will ensure we bring the best possible service to our many discerning customers.

 

There are now 198 locations in Signature's global network.

 

 

 

Aftermarket Services (17% of underlying operating profit of continuing operations)

 

Our Aftermarket Services division is focused on the support of maturing aerospace platforms through Ontic, our legacy support business and the repair and overhaul of engines through our ERO businesses.

 

$m

2017

2016

Change

Revenue

727.6

705.9

3.1%

Organic revenue growth

(1.7)%

(10)%

-

Underlying operating profit

65.3

42.0

55.5%

Underlying operating margin

9.0%

5.9%

310bps

Operating profit

33.6

22.2

51.4%

Operating cash flow

66.0

 34.0

94.1%

Divisional ROIC

11.3%

6.9%

440bps

 

In Aftermarket Services, revenue grew by 3.1% to $727.6 million (2016: $705.9 million). Underlying operating profit of $65.3 million (2016: $42.0 million) was driven by Ontic which now represents c.85% of the division's profits, supported by a much-improved performance in ERO. Underlying operating margins grew strongly during the year to 9.0% (2016: 5.9%).

 

On an organic basis, adjusting for FX ($1.3 million) and acquisitions ($11.5 million) the Aftermarket Services underlying operating profit was up 32.2% driven primarily by a recovery in ERO through cost-reduction actions and supported by organic growth in Ontic on military licences.

 

Operating profit of $33.6 million has increased (2016: $22.2 million) as a result of improved organic operating performance in Ontic and ERO and the contribution from acquisitions in Ontic.

 

Operating cash flow for the division was $66.0 million (2016: $34.0 million) which reflected the improved operating performance, lower capital expenditure and the receipt of proceeds from the sale of the Forest Park facility in Dallas. Return on invested capital increased to 11.3% (2016: 6.9%) reflecting the improved operating performance.

 

 

Ontic

 

Ontic, our legacy support business, continues to perform well, with revenue up 26.9% to $208.8 million (2016: $164.5 million). On an organic basis, revenue was up 4.5%.

 

The 2017 performance includes a significant contribution from the portfolio of legacy avionics products acquired from GE Aviation in December 2016. This business has been substantially transitioned into Ontic's existing UK facility in Cheltenham over the course of 2017. The cash payment of $60.7 million for this acquisition was made in January 2017. Furthermore, it was a strong year for cyclical military demand - B52 actuation and C130 Radar units shipped in significant quantities during 2017 which we do not expect to repeat in 2018. We expect the non-repeat element of the cyclical military orders to counter growth from new licences acquired at the end of 2017.

 

Ontic has further extended its licensed product portfolio during the year with the addition of important new licences; Ontic has recently signed a second product licence with Ultra Electronics for the OE manufacturing and aftermarket support for various military cockpit controls, switches and indicators. We also have a new licence agreement with UTC Aerospace Systems for its wound motor product lines, part of the electric power systems business segment. This adds significant military content to our portfolio.

 

In December 2017, we acquired Curtiss-Wright's product line for the Ethernet Switch Unit, which grows not only our military platform content but also our product portfolio with Curtiss-Wright. Furthermore, Ontic has received certification by the US Department of Transportation Federal Aviation Administration for its Singapore facility which serves as both a repair station and storefront for a variety of OEM-licenced and acquired products, including fuel measurement systems on the Boeing B737 Classic and B777, Fokker 50,70 and 100 as well as the Airbus A300, A318, A319 and A320. In 2018, we have also signed a first product licence with Racal Acoustics, part of Esterline Corporation, for various military and civil avionics products including cockpit communication control systems. The products will transition to our Cheltenham facility during 2018.

 

These acquisitions support Ontic's strategy to deliver continued profitable growth in mature avionics and electronics products with high intellectual property content. Ontic continues to assess a strong pipeline of opportunities in relation to new products and licence adoptions.  

 

ERO

 

Engine Repair & Overhaul's revenue decreased by 4.2% to $518.8 million (2016: $541.4 million). Conditions in ERO's market remain challenging and, while organic revenue was down for the year, we have improved our market share on the majority of programmes. ERO's operating performance in the first half was stable against the second half of 2016 but much improved on the first half of 2016.  Operating performance in the second half delivered significant improvement in line with expectations resulting from market share gains (PT6, TFE, PW300 and Tay) and cost efficiencies from the footprint rationalisation programme.

 

Volumes in legacy mid-cabin and rotorcraft engine overhauls remained depressed throughout the year, with reduced workscopes and competitive market pricing. In the first half of the year ERO saw improvements in demand for overhauls in certain Pratt & Whitney and Tay markets, as well as market share gains for certain Pratt & Whitney engines. However, while our market share has improved on the majority of programmes, we continue to see lower engine inputs, primarily on JT15D, PW500 and PW100. Time between engine overhauls continues to extend and the increase of power by the hour contracts either through the OEMs or third parties increases the competitive tension.

 

ERO's footprint rationalisation programme is nearly complete and it will undergo its final facility consolidation in 2018. The new overhaul facility at Dallas Fort Worth Centre (DFW) is successfully delivering the overhaul operations formerly undertaken at the Neosho and Forest Park facilities. The sale of the Forest Park site for $17.4m completed at the end of 2017. Looking forward the combination of an efficient, lower cost, flexible engine overhaul and test facility in DFW and a renewed focus on customer service will drive further improvement in financial performance and allow us to execute our strategy for value creation from our ERO business.

                                                                                                                                                                                                                   

We have recently made the decision to close our engine overhaul operations in Abu Dhabi given insufficient market demand to support our facility on current engine authorisations. We expect the facility to complete its final engine overhaul in April.

 

As part of BBA Aviation's focus on driving long term sustainable value for our shareholders, we are currently conducting a strategic review of our ERO business although there is no certainty that this will result in a transaction being agreed.

 

 

Central Costs 

 

Central costs were $0.7 million higher at $34.1 million (2016: $33.4 million). The central cost base represents two elements, the unallocated corporate costs for the Group and the costs previously associated with supporting the ASIG business, which was sold in January 2017. We supported Menzies (the acquirer of ASIG) for a period of six months through to July 2017 and since July we have been able to address the cost base that had supported the transitionary service agreement with Menzies. The work to address the cost base that previously supported ASIG is substantially complete with approximately $5 million of such costs included in the central costs for 2017 (2016: $18.6 million). These costs will not impact the group from 2018 onwards.

 

The balance of central costs represents the unallocated central costs to support the continuing Group which reflects the additional share based payment expenses as anticipated, plus the one-time costs associated with the transition of CEO and losses incurred by our captive insurance company for the damage to US and Caribbean facilities during the recent hurricanes.

 

 

Other Financial Information and Leverage

 

At 31 December 2017 the Group had net debt of $1,167.1 million (2016 net debt: $1,335.3 million), the decrease being due to the strong operating performance of the business and the net proceeds from the disposal of ASIG while continuing to invest in the existing businesses and new Ontic licenses.

 

Net cash flow from operating activities of $339.0 million is lower than the prior year (2016: $374.9 million) primarily as a result of the outflow in working capital compared to the inflow in the prior year and the disposal of ASIG in January 2017. Free cash flow decreased by $3.5 million to $220.6 million (2016: $224.1 million) as a result of the working capital movements as previously noted and increased tax payments largely offset by increased earnings, decreased capital expenditure and interest payments. Capital expenditure amounted to $80.3 million (2016: $102.4 million). Principal items included the investment in our FBOs at Boeing Field, Palm Beach and Nashville, our new engine overhaul and testing facility at Dallas Fort Worth and our Ontic facility in Cheltenham to support the ongoing transition of GE Aviation avionics licences. 

 

Other significant cash flow items include the proceeds from disposal of ASIG $170.5 million, net of fees, the acquisition of subsidiaries, net of cash acquired $75.7 million (2016: $2,098.2 million) and dividend payments of $130.7 million (2016: $124.3 million). The Group's net debt to underlying EBITDA ratio at 31 December 2017 was 2.6x on a reported basis (2016 3.2x reported basis) and 2.6x on a covenant basis (2016: 3.1x on a covenant basis), well within our target range. Interest cover on a covenant basis increased to 8.4x (2016: 7.2x), due to the decreased interest on the lower drawn debt.

 

Strategy and capital allocation policy

 

Post the $2.1bn acquisition of Landmark Aviation and the disposal of ASIG the Group is increasingly focused on the B&GA markets; and we communicated at our preliminary results announcement in March 2017 that we would undertake a review of capital structure during the year. The review is now complete and we believe an increase in our target leverage range is appropriate based on the strong and robust cash flow fundamentals of the Group.

 

However, the Group remains disciplined in its approach to the allocation of capital with the overriding objective being to enhance shareholder value. Our investment priorities remain focused on achieving organic underlying operating profit growth above that in the B&GA market and continued development of our IP protected legacy licence portfolio. Within Signature we see investment opportunities through investments in technology, hangar construction to address market shortages in certain areas of the US, expansion of our Signature TechnicAir™ offering, build out of our Signature ELITE® offering at major international airports and investing in bolt-on acquisitions that build upon our leadership in the B&GA market. Within Ontic we see a strong pipeline of opportunities as OEMs seek to manage their legacy IP and believe there may be the potential for acquisitions within Ontic's core markets that provide portfolios of licences in addition to the acquisition of individual licences from OEMs.

 

Our capital allocation policy will firstly focus on the many organic investment opportunities we see across both Flight Support and Aftermarket Services. This will be supplemented by bolt-on acquisition opportunities in Flight Support, extension of our IP protected licence portfolio in Ontic through individual licence opportunities provided by the OEMs and the potential acquisition of complementary licence portfolios. To the extent that BBA Aviation's investment pipeline results in leverage falling below the target range we will return funds to shareholders at a level that maintains leverage at the lower end of the target range, thereby maintaining the flexibility to execute our strategy to continue to maximise shareholder value.

 

Our balance sheet remains strong and the Group will now manage net debt in the range of 2.5x to 3.0x underlying adjusted EBITDA which we believe gives flexibility and headroom for the investment requirements of the Group and the cyclicality within the B&GA market. The Group has performed within this target range during 2017 following the disposal of ASIG with net debt to underlying adjusted EBITDA at 31 December 2017 being 2.6x, in line with expectations. The new target range provides up to 1.0x headroom against the group's net debt to adjusted underlying EBITDA banking covenant.

 

The Board continues to have a progressive dividend policy which aims to align the core dividend with sustainable long-term earnings growth.

 

The group will now proceed to refinance its revolving credit facility and facility B of its acquisition debt, both of which mature in 2019. In 2018 the group has $120 million of series A US private placement debt maturing. This debt will be repaid and the group will leave the remaining $380 million of US private placement debt (maturities ranging from 2021 to 2026) in place.

 

Taxation

 

The Group's underlying effective tax rate for 2017 was 17.5%. This is lower than the expected 19% given the impacts of UK legislation on interest deductions and further concentration of US taxable profits were partially offset by prior year adjustments on US taxes with respect to Landmark.

 

The impact of the enactment of the Tax Cuts and Jobs Act in the US is broadly neutral for the Group's underlying effective tax rate in 2018. As a result of US tax reform legislation, the Group has incurred a one-time, exceptional tax charge in 2017 of $20.5 million, primarily related to the non-cash revision of US deferred tax assets and liabilities. The group has revalued US deferred tax liabilities at 31 December 2017, primarily relating to amortisation of intangibles to reflect the reduction in headline US tax rates and written off US deferred tax assets primarily relating to deferred interest as a result of the tax reform restrictions on interest deductibility which is now capped at 30% of US EBITDA. In addition, the exceptional tax charge includes a $3.0 million one-time repatriation tax charge on the unremitted earnings of overseas subsidiaries controlled by a US entity. This one-time tax charge is payable over eight years and has minimal impact on the group's cash tax rate.

 

The group's cash tax payments for 2017 amounted to $41.8 million (2016: $15.8 million). The increase in cash tax payments resulted from the increased taxable profits of the group and certain one-time payments including settlement of tax payable ($8.4 million) on the taxable gain arising from the disposal of ASIG's US operations.

 

For the year ending 31 December 2018, we estimate the group's effective tax rate to be approximately 20%. The Group's cash tax rate is expected to remain substantially lower than the underlying effective tax rate by c.10% which reflects the benefit of 100% capital deductions available for the next five years as part of US tax reform.

 

Pensions

 

The Group paid net $8.4 million of pension payments during the period, of which $4.0 million represented pension deficit payments reflecting the agreed payments to the schemes.

 

The actuarial valuation of the UK plan at 31 March 2015 indicated a funding deficit of £45 million ($66 million) at 31 March 2015 exchange rates. The Group paid £4.3 million of pension payments in to the UK plan, of which £3.0 million represented pension deficit payments, reflecting the agreed payments to the scheme under an agreement to make additional contributions of £0.3 million per annum over the next three years bringing the annual deficit contribution to £3.0 million, and £2.7 million thereafter until 2034 in accordance with the asset-backed funding arrangement established in 2014.

 

As at 31 December 2017, the accounting net deficit across the UK and US plans was $71.7 million (2016: $82.8 million). The reduction in the net deficit of $11.1m since 31 December 2016 reflects the favourable impact of better than expected returns on plan assets and employer contributions, more than offsetting unfavourable impacts from foreign exchange movements, net interest costs and administration expenses. In 2017 the largest of the US plans undertook an exercise during the year whereby lump sum transfer payments were paid out to a number of members in order to discharge the associated liabilities. This resulted in a deficit reduction for that particular plan of $2.1 million.

 

Dividend

 

At the time of the interim results, the Board declared an increased interim dividend of 3.81 cents (H1 2016: 3.63 cents).  The Board is now proposing a final dividend of 9.59 cents per share (2016: 9.12 cents) up 5.2% on an underlying basis reflecting the Board's progressive dividend policy and its continued confidence in the Group's future growth prospects.

 

A dividend reinvestment plan is in operation. Those shareholders who have not elected to participate in this plan, and who would like to participate, please register via the share portal www.signalshares.com.

 

 

 

 

 

Board Changes 

 

As previously announced Mark Johnstone, currently President and Chief Operating Officer of the Group's Engine Repair & Overhaul business will join the Board as Group Chief Executive on 1 April 2018. He will be based in the US. Mark joined BBA Aviation in March 2008 as Corporate Development Director and has held a number of roles within the Group including Chief Financial Officer Signature Flight Support and Managing Director of the EMEA Flight Support business (at that time incorporating both Signature and ASIG).

 

After 1 April 2018 Wayne Edmunds will remain on the Board. He will be a non-executive Director and will not be a member of any main Board Committees.

 

Furthermore, we have recently appointed two new non-executive directors. Amee Chande and Emma Gilthorpe both joined the Board on 1 January 2018. Amee brings significant international experience living and working in North America and Asia and currently works for Alibaba as Managing Director of Global Strategy and Operations. Emma has extensive aviation experience from her various roles at Heathrow Airport Holdings (formerly BAA) and is currently Executive Director for Expansion. We also announced that Peter Ratcliffe will step down from the Board at our AGM on 11 May 2018.

 

 

Outlook

 

2017 was another successful year for BBA Aviation. We have delivered improved financial performance across the Group, started to capture the value from the enlarged network and ensured we have an appropriate capital structure to give us the flexibility to continue to invest in the many organic and inorganic growth opportunities available to us and enhance shareholder value.

 

The recent investment in our Signature network, through lease enhancements, adding hangar space and the development of our Signature TECHNICAir brand are all focused on delivering continued market outperformance in terms of our earnings growth. We will continue to look to expand our FBO network through both acquisition and our Signature Select franchise model to ensure we remain the market leader with unmatched customer and network relevance, protected by our long-term lease portfolio. Where possible, we will use technology to analyse our customer's flying patterns and predict needs and trends and offer our customer base accessibility to the charter market through digital platforms. We saw B&GA market growth moderate during December and this has continued into the first two months of the new financial year.

 

Our growing portfolio of IP protected licences and authorisations within Ontic, offers significant opportunities and the business has a strong pipeline and a good order book. Furthermore, we anticipate ERO should deliver further improved financial performance from its rationalised footprint even at current levels of market activity. 

 

In summary, the Board remains confident of good growth in 2018.

 

 

Capital Markets Day

 

BBA Aviation intends to hold a Capital Markets Day in Q4 2018. Further information will be released in due course.

 

 

Going Concern

 

The Directors have carried out a review of the Group's trading outlook and borrowing facilities, with due regard to the risks and uncertainties to which the Group is exposed, the uncertain economic climate and the impact that this could have on trading performance. Based on this review, the Directors believe that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the financial statements have been prepared on a going concern basis.

   

 

Directors' Responsibilities

 

The responsibility statement below has been prepared in connection with the Company's full Annual Report for the year ending 31 December 2017. Certain parts of the Annual Report are not included within this announcement.

 

We confirm that to the best of our knowledge:

 

·      the financial statements, prepared in accordance with Disclosure and Transparency Rules of the UK Financial Conduct Authority and principles of International Financial Reporting Standards (IFRS) as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole; and

 

·      the management report, which is incorporated into the Directors' Report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.

 

 

 

Signed on behalf of the Board

 

 

 

Wayne Edmunds                                                                                                                David Crook        

Interim Group Chief Executive                                                                                          Group Finance Director

 

28 February 2018                                                                                                                28 February 2018

 

 

 

This final results announcement contains forward-looking statements including, without limitation, statements relating to: future demand and markets of the Group's products and services; research and development relating to new products and services; liquidity and capital; and implementation of restructuring plans and efficiencies. These forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will or may occur in the future. Accordingly, actual results may differ materially from those set out in the forward-looking statements as a result of a variety of factors including, without limitation: changes in interest and exchange rates, commodity prices and other economic conditions; negotiations with customers relating to renewal of contracts and future volumes and prices; events affecting international security, including global health issues and terrorism; changes in regulatory environment; and the outcome of litigation. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

 

This report is available in electronic format from the Company's website www.bbaaviation.com

 

 



 

Consolidated Income Statement

 

 

2017

2016

For the year ended 31 December

Notes

Underlying1

$m

Exceptional and other
items

$m

Total

$m

Underlying1

$m

Exceptional and other
items

$m

Total

$m

Continuing operations

 

Revenue

1

2,370.6

 -

2,370.6

2,149.1

-

2,149.1

Cost of sales


(1,813.1)

 -

(1,813.1)

(1,654.7)

-

(1,654.7)

Gross profit


557.5

 -

557.5

494.4

-

494.4









Distribution costs


(36.1)

 -

(36.1)

(37.6)

-

(37.6)

Administrative expenses


(171.8)

(93.8)

(265.6)

(172.3)

(98.6)

(270.9)

Other operating income


8.9

 -

8.9

5.7

-

5.7

Share of profit of associates and joint ventures


3.4

 -

3.4

13.4

-

13.4

Other operating expenses


(1.3)

(1.2)

(2.5)

(1.0)

(28.0)

(29.0)

Restructuring costs

2

 -

(28.0)

(28.0)

-

(9.9)

(9.9)

Operating profit/(loss)

1, 2

360.6

(123.0)

237.6

302.6

(136.5)

166.1









Impairment of assets

6

 -

-

-

-

(184.4)

(184.4)

Investment income


3.2

 -

3.2

3.7

-

3.7

Finance costs


(65.3)

 -

(65.3)

(67.6)

-

(67.6)

Profit/(loss) before tax


298.5

(123.0)

175.5

238.7

(320.9)

(82.2)









Tax (charge)/credit

3

(52.2)

18.5

(33.7)

(39.5)

102.4

62.9

Profit/(loss) from continuing operations


246.3

(104.5)

141.8

199.2

(218.5)

(19.3)









Discontinued operation








(Loss)/profit from discontinued operation, net of tax

10

-

(22.5)

(22.5)

17.9

(97.5)

 (79.6)


 







Profit/(loss) for the period

 

246.3

(127.0)

119.3

217.1

(316.0)

(98.9)


 







Attributable to:

 







Equity holders of BBA Aviation plc

 

246.4

(127.0)

119.4

217.1

(316.0)

(98.9)

Non-controlling interest

 

(0.1)

 -

(0.1)

-

-

-


 

246.3

(127.0)

119.3

217.1

(316.0)

(98.9)


 







Earnings/(loss) per share

 

 Adjusted


Unadjusted

 Adjusted


Unadjusted

Total Group

 

 

 

 

 

 

 

Basic

5

24.0¢


11.6 ¢

21.1¢


(9.6)¢

Diluted

5

23.7 ¢


11.5 ¢

20.9¢


(9.6)¢

Continuing operations








Basic

5

24.0 ¢


13.8 ¢

19.4¢


(1.9)¢

Diluted

5

23.7 ¢


13.7 ¢

19.2¢


(1.9)¢

Discontinued operations








Basic

10

-


(2.2) ¢

1.7¢


(7.7)¢

Diluted

10

-


(2.2) ¢

1.7¢


(7.7)¢

1        Underlying profit is before exceptional and other items. Exceptional and other items are defined in note 2

 

All alternative performance measures are reconciled to IFRS measures and explained in the alternative performance measures section.

 

The Group has presented a discontinued operation in the current year and prior year, see note 10.



 

Consolidated Statement of Comprehensive Income

For the year ended 31 December

Notes

2017

$m

2016

$m

Profit/(loss) for the period


119.3

(98.9)

 




Other comprehensive income/(loss)




Items that will not be reclassified subsequently to profit or loss




Actuarial gains/(losses) on defined benefit pension schemes


11.2

(52.3)

Tax (charge)/credit relating to components of other comprehensive income/(loss) that will not be reclassified subsequently to profit or loss

3

(1.1)

9.8

 


10.1

(42.5)

 




Items that may be reclassified subsequently to profit or loss




Exchange difference on translation of foreign operations


(6.8)

1.0

Recycling of translational exchange differences accumulated in equity

10

6.4

 -

Fair value movements in available for sale investments


(4.4)

(2.0)

Fair value movements in foreign exchange cash flow hedges


10.1

1.3

Transfer to profit or loss from other comprehensive income on foreign exchange cash flow hedges


(2.2)

(4.5)

Fair value movement in interest rate cash flow hedges


1.7

(5.4)

Transfer to profit or loss from other comprehensive income on interest rate cash flow hedges


4.0

7.3

Tax relating to components of other comprehensive income that may be subsequently reclassified to profit or loss

3

 (4.3)

2.8

 


4.5

0.5

 

 

 

 

Other comprehensive income/(loss) for the year


14.6

(42.0)

 




Total comprehensive income for the year


133.9

(140.9)

 

 

 

 

Attributable to:




Equity holders of BBA Aviation plc


134.0

(141.1)

Non-controlling interests


(0.1)

0.2

 


133.9

(140.9)

 



 

Consolidated Balance Sheet

As at 31 December

Notes

2017

$m

2016
$m

Non-current assets




Goodwill

6

1,126.6

1,113.9

Other intangible assets

6

1,311.3

1,378.3

Property, plant and equipment


845.5

875.6

Interests in associates and joint ventures


41.4

40.1

Trade and other receivables


20.1

19.2

Deferred tax asset


 0.1

0.4

 


3,345.0

3,427.5

Current assets




Inventories


249.9

235.8

Trade and other receivables


321.4

296.8

Cash and cash equivalents


153.5

182.5

Tax recoverable


0.7

1.4

Assets held for sale

10

 -

267.7

 


725.5

984.2

Total assets

1

4,070.5

4,411.7

Current liabilities




Trade and other payables


(502.1)

(543.2)

Tax liabilities


(31.9)

(36.8)

Obligations under finance leases


(0.2)

(0.2)

Borrowings

7

(124.2)

(1.0)

Provisions


(32.2)

(27.6)

Liabilities held for sale

10

 -

(89.3)

 


(690.6)

(698.1)

Net current assets


34.9

286.1

Non-current liabilities




Borrowings

7

(1,198.6)

(1,546.7)

Trade and other payables due after one year


(0.9)

(4.0)

Pensions and other post-retirement benefits


(71.7)

(82.8)

Deferred tax liabilities


(137.8)

(120.5)

Obligations under finance leases


(1.1)

(1.5)

Provisions


(36.6)

(39.5)

 


(1,446.7)

(1,795.0)

Total liabilities

1

(2,137.3)

(2,493.1)

Net assets


1,933.2

1,918.6

Equity




Share capital


509.0

508.7

Share premium account


1.594.5

1,594.5

Other reserve


(5.4)

(1.0)

Treasury reserve


(92.8)

(91.0)

Capital reserve


50.4

45.1

Hedging and translation reserves


(73.9)

(87.1)

Retained earnings


(50.1)

(52.2)

Equity attributable to equity holders of BBA Aviation plc


1,931.7

1,917.0

Non-controlling interest


1.5

1.6

Total equity


1,933.2

1,918.6

These financial statements were approved by the Board of Directors on 28 February 2018 and signed on its behalf by:

 

Wayne Edmunds                                     David Crook

Interim Group Chief Executive                 Group Finance Director

 

Consolidated Cash Flow Statement

 

For the year ended 31 December

Notes

2017

$m

2016

$m

Operating activities




Net cash flow from operating activities

8

339.0

374.9

 


 

 

Investing activities




Interest received


3.3

2.7

Dividends received from associates


2.4

2.4

Purchase of property, plant and equipment


(73.4)

(101.6)

Purchase of intangible assets


(11.9)

(11.4)

Proceeds from disposal of property, plant and equipment


16.8

11.1

Acquisition of subsidiaries net of cash/(debt) acquired

9

(75.7)

(2,098.2)

Investment in joint venture


(0.3)

 -

Proceeds from disposal of subsidiaries and associates, net of costs


170.5

186.6

Net cash inflow/(outflow) from investing activities


31.7

(2,008.4)

 


 

 

Financing activities




Interest paid


(60.5)

(64.5)

Interest element of finance leases paid


(0.1)

(0.1)

Dividends paid

4

(130.7)

(124.3)

Gains from realised foreign exchange contracts


(15.0)

42.7

Proceeds from issue of ordinary shares net of issue costs


0.3

0.3

Sale/(purchase) of own shares††


0.3

(1.3)

(Decrease)/increase in loans


(222.6)

1,035.3

(Decrease)/increase in finance leases


(0.4)

1.7

Increase/(decrease) in overdrafts


3.0

(11.0)

Net cash (outflow)/inflow from financing activities


(425.7)

878.8

 

 

 

 

(Decrease)/increase in cash and cash equivalents


(55.0)

(754.7)

Cash and cash equivalents at beginning of year


205.3

966.4

Exchange adjustments


3.2

(6.4)

Cash and cash equivalents at end of year


153.5

205.3

Comprised of:




 Cash and cash equivalents at end of the year


153.5

182.5

 Cash included in Assets held for sale at end of the year

10

 -

22.8

 

 

 

 

Net debt at beginning of year


(1,335.3)

456.5

Decrease in cash and cash equivalents


(55.0)

(754.7)

Decrease/ (increase) in loans


222.6

(1,035.3)

Decrease/ (increase) in finance leases


0.4

(1.7)

(Increase)/decrease in overdrafts


(3.0)

11.0

Exchange adjustments


3.2

(11.1)

Net debt at end of year†††


(1,167.1)

(1,335.3)

 

†       Purchase of intangible assets includes $5.0 million (2016: $10.6 million) paid in relation to Ontic licences not accounted for as acquisitions under IFRS 3.

††     Sale/(purchase) of shares includes the share purchases for the share buy-back scheme, shares purchased for the Employee Benefit Trust and shares purchased for employees to settle their tax liabilities as part of the share schemes.

†††   Within the Group's definition of net debt, the US private placement is included at its face value of $500 million (2016: $500 million), reflecting the fact that the liabilities will be in place until maturity. This is $3.5 million (2016: $8.8 million) lower than its carrying value.

 

All alternative performance measures are reconciled to IFRS measures and explained in the alternative performance measures section.



 

Consolidated Statement of Changes in Equity

 

Share capital

$m

Share premium

$m

Retained earnings

$m

Other reserves

$m

Total

$m

Non-controlling interests

$m

Total

equity

$m

Balance at 1 January 2016


508.5

1,594.4

208.2

(137.9)

2,173.2

(4.8)

2,168.4

Loss for the year


-

-

(98.9)

-

(98.9)

-

(98.9)

Other comprehensive loss for the year


-

-

(39.7)

(2.1)

(41.8)

(0.2)

(42.0)

Total comprehensive loss for the year


-

-

(138.6)

(2.1)

(140.7)

(0.2)

(140.9)

Dividends


-

-

(124.3)

-

(124.3)

-

(124.3)

Issue of share capital


0.2

0.1


-

0.3

-

0.3

Movement on treasury reserve


-

-

-

(1.3)

(1.3)

-

(1.3)

Credit to equity for equity-settled share-based payments


-

-

-

9.1

9.1

-

9.1

Changes in non-controlling interest


-

-

-

-

-

6.6

6.6

Tax on share-based payment transactions

3

-

-

0.7

-

0.7

-

0.7

Transfer to retained earnings


-

-

1.8

(1.8)

-

-

-

Balance at 31 December 2016


508.7

1,594.5

(52.2)

(134.0)

1,917.0

1.6

1,918.6

Profit for the year


 -

 -

119.4

 -

119.4

(0.1)

119.3

Other comprehensive income for the year


 -

 -

5.8

8.8

14.6

 -

14.6

Total comprehensive income/(loss) for the year


 -

 -

125.2

8.8

134.0

(0.1)

133.9

Dividends


 -

 -

(130.7)

 -

(130.7)

 -

(130.7)

Issue of share capital


0.3

 -

 -

 -

0.3

 -

0.3

Movement on treasury reserve


 -

 -

 -

0.3

0.3

 -

0.3

Credit to equity for equity-settled share-based payments


 -

 -

 -

10.0

10.0

 -

10.0

Tax on share-based payment transactions

3

 -

 -

 0.8

 -

0.8

 -

0.8

Transfer to retained earnings


 -

 -

6.8

(6.8)

 -

 -

 -

Balance at 31 December 2017


509.0

1,594.5

(50.1)

(121.7)

1,931.7

1.5

1,933.2

 


Accounting Policies of the Group

 

Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use in the European Union (EU) and therefore comply with Article 4 of the EU International Accounting Standards (IAS) Regulation and the Companies Act 2006 applicable to companies reporting under IFRS.

The financial information for the year ended 31 December 2017 contained in this preliminary announcement was approved by a duly appointed and authorised committee of the Board of Directors on 28 February 2018. The announcement does not constitute statutory accounts of the Company within the meaning of section 435 of the Companies Act 2006, but is derived from those accounts.

Statutory accounts for the year ended 31 December 2016 have been delivered to the Registrar of Companies. Statutory accounts for the year ended 31 December 2017 will be delivered to the Registrar of Companies following the Company's Annual General meeting.

The Group's annual financial statements for the year ended 31 December 2017 have been reported upon by the Group's auditor. The report of the auditor was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006.

Except as described below, these consolidated financial statements have been prepared in accordance with the accounting policies, presentation and methods of calculation as set out in the Group's consolidated financial statements for the year ended 31 December 2017.

New financial reporting requirements

A number of EU-endorsed amendments to existing standards and interpretations are effective for annual periods beginning on or after 1 January 2018 and have been applied in preparing the Consolidated Financial Statements of the Group. There is no impact on the Group Consolidated Financial Statements from applying these standards.

Financial reporting standards applicable for future financial periods

A number of EU-endorsed standards and amendments to existing standards and interpretations, are effective for future annual periods and have not been applied in preparing the Consolidated Financial Statements of the Group.

The most significant changes to the IFRS framework in these forthcoming standards and amendments to standards are IFRS 9: Financial Instruments (IFRS 9), IFRS 15: Revenue from contracts with customers (IFRS 15) and IFRS 16: Leases (IFRS 16).

IFRS 9

The Group will apply IFRS 9 from 1 January 2018. IFRS 9 addresses the classification, measurement and recognition of financials assets and financials liabilities, impairment and hedge accounting.

Classification and measurement: The number of categories of financial assets under IFRS 9 has been reduced compared to IAS 39. The classification is based on the business model within which the asset is held and the contractual cash flow characteristics of the assets.

For financial assets that are debt instruments the classification categories are amortised cost; fair value through other comprehensive income (FVTOCI) and fair value through profit or loss (FVTPL). Equity investments that fall within the scope of the standard are usually measured at FVTPL unless an irrevocable election is made to recognise them within other comprehensive income. On transition the Group has elected to recognise future changes in the fair value of the equity investment in Fly Victor Limited and Lider Taxi Aereo S.A Air Brasil which are classified as financial instruments within other comprehensive income.

Impairment: The impairment model under IFRS 9 reflects expected credit losses, as opposed to only incurred credit losses under IAS 39.

Hedge accounting: On initial application of the standard, an entity may choose, as its accounting policy, to continue to apply the hedge accounting requirements of IAS 39 instead of the hedge accounting requirements of IFRS 9. The Group will adopt the hedge accounting requirements of IFRS 9 from 1 January 2018.

The full impact of adopting IFRS 9 on the Consolidated Financial Statements of the Group will depend on the financial instruments that the Group has during 2018 as well as on economic conditions and judgements made as at the year end. The Group has performed a preliminary assessment of the potential impact of adopting IFRS 9 based on the financial instruments and hedging relationships as at the date of initial application of IFRS 9 (1 January 2018). Management's expectations are that the impact of IFRS 9 on the Group will not be material.

IFRS 15

IFRS 15 addresses the recognition of revenue from customer contracts and impacts on the amounts and timing of the recognition of such revenue. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 Revenue. The Group will adopt IFRS 15 for the year ending 31 December 2018.

The standard introduces a five-step approach to revenue recognition - identifying the contract; identifying the performance obligations in the contract; determining the transaction price; allocating that transaction price to the performance obligations and finally recognising the revenue as those performance obligations are satisfied.

The Group recognises revenue from the following major income streams:

Flight Support:

• Fuelling & fuel farm management

• Property management

• Ground handling

• Technical services

Aftermarket Services:

• Repair & overhaul

• Engine & part sales

An impact assessment has been performed on the likely impact of IFRS 15:

Within the Aftermarket Services division the methodology presently adopted for revenue recognition under the current standard, IAS 18 Revenue, will not materially change under IFRS 15.

Within the Flight Support division it is also not expected that IFRS 15 will have a material impact due to the nature of the services provided - the cycle from order through to delivery of these services is generally short.

The full impact of adopting IFRS 15 on the Consolidated Financial Statements of the Group will depend on the Group's activities during 2018. The Group has performed a preliminary assessment of the potential impact of adopting IFRS 15 based on the Group's historic trading as at the date of initial application of IFRS 15 (1 January 2018). Management's expectations are that the impact of IFRS 15 on the Group will not be material.

IFRS 16

IFRS 16 replaces existing leasing guidance, including IAS 17 'Leases' and IFRIC 4 'Determining whether an arrangement contains a lease'. The standard is effective for annual periods beginning on or after 1 January 2019.

The standard requires lessees to account for most contracts under an on-balance sheet model, with the distinction between operating and finance leases being removed.

The standard provides certain exemptions from recognising leases on the balance sheet, including where the asset is of low value or the lease term is 12 months or less. In addition, the standard makes changes to the definition of a lease to focus on, amongst other things, which party has the right to direct the use of the asset.

Under the new standard, the Group will be required to recognise right of use lease assets and lease liabilities on the balance sheet. The right of use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any re-measurement of the lease liability. Liabilities are measured based on the present value of future lease payments over the lease term. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others.

The recognition of the depreciation of right of use lease assets and interest on lease liabilities over the lease term will have no overall impact on profit before tax over the life of the lease, however the result in any individual year will be impacted and the change in presentation of costs will likely be material to the Group's key metrics. Under IAS 17, the charge is booked in full to operating profit. Metrics which will therefore be affected will include operating profit & operating margin, interest & interest cover, EBITDA, ROIC and operating cash flow.

Furthermore, the principal amount of cash paid and interest in the cash flow statement will be presented separately as a financing activity. Operating lease payments under IAS 17 would have been presented as operating cash flows. There will be no overall net cash flow impact. 

The Group has commenced work to understand the impact of the new standard and the project will complete during 2018. Work will include detailed review of contracts to establish lease classification, assessment of transition options, the quantification of financial impacts, design of future processes and the related systems changes, the assessment of the related impacts on the Group's regulatory and commercial reporting requirements and the impact on the Group's long-term incentive schemes. It is therefore not practicable to provide a reasonable estimate of the financial effect until the directors complete their review.

Information on the undiscounted amount of the Group's operating lease commitments under IAS 17 'Leases', the current leasing standard, is disclosed in the Group's annual financial statements.


Notes to the Consolidated Financial Statements

 

1. Segmental information
IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Group Chief Executive to allocate resources to the segments and to assess their performance.

The Group provides information to the Chief Executive on the basis of components that are substantially similar within the segments in the following aspects:

-   the nature of the long-term financial performance;

-   the nature of the products and services;

-   the nature of the production processes;

-   the type of class of customer for the products and services; and

-   the nature of the regulatory environment.

Based on the above, the operating segments of the Group identified in accordance with IFRS 8 are Flight Support, which comprises Signature Flight Support and ASIG (until 31 January 2017), and Aftermarket Services, which comprises Engine Repair & Overhaul (ERO) and Ontic.

The businesses within the Flight Support segment provide refuelling, ground handling, line maintenance and other services to the Business & General Aviation (B&GA) and commercial aviation markets. The businesses within the Aftermarket Services segment maintain and support engines and aerospace components, sub-systems and systems.

Sales between segments are immaterial.

All alternative performance measures are reconciled to IFRS measures and explained in the alternative performance measures section.

 

Business segments

Flight

Support1

$m

Aftermarket

Services

$m

Total

$m

Unallocated

Corporate2

$m

Total

$m

2017






External revenue






External revenue from continuing and discontinued operations

1,681.4

727.6

2,409.0

 -

2,409.0

Less external revenue from discontinued operations, note 10

(38.4)

 -

(38.4)

 -

(38.4)

External revenue from continuing operations

1,643.0

727.6

2,370.6


2,370.6

 

 

 

 

 

 

Underlying operating profit






Underlying operating profit from continuing and discontinued operations

329.2

65.3

394.5

(34.1)

360.4

Add underlying operating loss from discontinued operations

0.2

-

0.2

-

0.2

Adjusted for intergroup charges for discontinued operations3

-

-

-

-

 -

Underlying operating profit/(loss) from continuing operations

329.4

65.3

394.7

(34.1)

360.6

Underlying operating margin from continuing operations

20.0%

9.0%

16.6%


15.2%

 






Exceptional and other items






Exceptional and other items from continuing and discontinued operations

(82.3)

(31.7)

(114.0)

(9.0)

(123.0)

Less exceptional and other items from discontinued operations

-

-

-

-

-

Exceptional and other items from continuing operations

(82.3)

(31.7)

(114.0)

(9.0)

(123.0)

 






Operating profit/(loss) from continuing operations

247.1

33.6

280.7

(43.1)

237.6

 






Net finance costs





(62.1)

Profit before tax from continuing operations





175.5

Other information






Capital additions**

60.0

25.3

85.3

-

85.3

Depreciation and amortisation

151.9

29.0

180.9

0.4

181.3

** Capital additions represent cash expenditures in the year. Capital additions include additions to Property, Plant & Equipment, and intangible assets including Ontic licences not accounted for as acquisitions under IFRS 3.

 






Balance sheet






Total assets

3,196.3

763.8

3,960.1

110.4

4,070.5

Total liabilities

(304.8)

(176.8)

(481.6)

(1,655.7)

(2,137.3)

Net assets/(liabilities)

2,891.5

587.0

3,478.5

(1,545.3)

1,933.2

 

Notes to the Consolidated Financial Statements - continued

 

1. Segmental information - continued

Business segments

Flight

Support1

$m

Aftermarket

Services

$m

Total

$m

Unallocated

Corporate2

$m

Total

$m

2016






External revenue






External revenue from continuing and discontinued operations

1,860.0

705.9

2,565.9

-

2,565.9

Less external revenue from discontinued operations, note 10

(416.8)

-

(416.8)

-

(416.8)

External revenue from continuing operations

1,443.2

705.9

2,149.1

-

2,149.1

 






Underlying operating profit






Underlying operating profit from continuing and discontinued operations

303.9

42.0

345.9

(15.8)

330.1

Less underlying operating profit from discontinued operations

(9.9)

-

(9.9)

1.0

(8.9)

Adjusted for intergroup charges for discontinued operations3

-

-

-

(18.6)

(18.6)

Underlying operating profit/(loss) from continuing operations

294.0

42.0

336.0

(33.4)

302.6

Underlying operating margin from continuing operations

20.4%

5.9%

15.6%


14.1%

 






Exceptional and other items






Exceptional and other items from continuing and discontinued operations

(117.4)

(19.8)

(137.2)

-

(137.2)

Less exceptional and other items from discontinued operations

0.7

-

0.7

-

0.7

Exceptional and other items from continuing operations

(116.7)

(19.8)

(136.5)

-

(136.5)

 






Operating profit/(loss) from continuing operations

177.3

22.2

199.5

(33.4)

166.1

 






Impairment of tangible and intangible fixed assets





(184.4)

Net finance costs





(63.9)

Loss before tax from continuing operations





(82.2)

Other information






Capital additions**

74.2

38.7

112.9

0.1

113.0

Depreciation and amortisation

158.7

24.8

183.5

0.4

183.9

** Capital additions represent cash expenditures in the year. Capital additions include additions to Property, Plant & Equipment, and intangible assets including Ontic licences not accounted for as acquisitions under IFRS 3.

Balance sheet






Total assets

3,515.7

747.5

4,263.2

148.5

4,411.7

Total liabilities

(397.6)

(233.2)

(630.8)

(1,862.3)

(2,493.1)

Net assets/(liabilities)

3,118.1

514.3

3,632.4

(1,713.8)

1,918.6

 

1        Operating profit/(loss) from continuing operations includes $3.4 million profit (2016: $13.4 million profit) of associates and joint ventures.

2        Unallocated corporate balances include debt, tax, provisions, insurance captives and trading balances from central activities.

3        Costs previously allocated to ASIG.

 

 

 

 

 

 

 

Notes to the Consolidated Financial Statements - continued

 

1. Segmental information - continued

Geographical segments

Revenue by destination
$m

Revenue by origin
$m

Capital

 additions1

$m

Non-current

assets2

$m

2017





United Kingdom

76.7

277.6

7.1

298.0

Mainland Europe

221.7

57.5

0.3

71.9

North America

2,017.7

2,051.1

75.9

2,955.2

Rest of World

92.9

22.8

2.0

5.9

Total from continuing and discontinued operations

2,409.0

2,409.0

85.3

3,331.0

Less discontinued operations

(38.4)

(38.4)

-

-

Total from continuing operations

2,370.6

2,370.6

85.3

3,331.0

 





2016





United Kingdom

128.0

320.8

14.7

226.7

Mainland Europe

200.9

54.5

0.2

46.1

North America

2,098.5

2,148.0

92.1

3,117.2

Rest of World

138.5

42.6

6.0

23.5

Total from continuing and discontinued operations

2,565.9

2,565.9

113.0

3,413.5

Less discontinued operations

(416.8)

(416.8)

(10.3)

-

Total from continuing operations

2,149.1

2,149.1

102.7

3,413.5

 

1        Capital additions represent cash expenditures in the year.

2        The disclosure of non-current assets by geographical segment has been amended to exclude deferred tax of $0.1 million (2016: $0.4 million) and financial instrument balances of $13.9 million (2016: $13.6 million) in all periods, as required under IFRS 8.

 

An analysis of the Group's revenue for the year is as follows:

 

 

Revenue from
sale of goods

Revenue from
services

 

2017
$m

2016
$m

2017
$m

2016
$m

Flight Support

1,126.8

1,027.2

554.6

832.8

Aftermarket Services

236.2

189.2

491.4

516.7

 

1,363.0

1,216.4

1,046.0

1,349.5

 

A portion of the Group's revenue from the sale of goods denominated in foreign currencies is cash flow hedged. Revenue from the sale of goods of $1,363.0 million (2016: $1,216.4 million) includes a gain of $0.8 million (2016: gain of $1.2 million) in respect of the recycling of the effective amount of foreign currency derivatives used to hedge foreign currency revenue.



 

Notes to the Consolidated Financial Statements - continued

 

2. Profit for the year

Profit for the year has been arrived at after charging/(crediting):

Exceptional and other items

Underlying profit is shown before exceptional and other items on the face of the income statement. Exceptional and other items are items which are material and non-recurring in nature and also include costs relating to acquisitions, disposals and restructuring. Other items include amortisation of acquired intangibles accounted for under IFRS 3. The directors consider that this gives a useful indication of underlying performance and better visibility of Key Performance Indicators.

All alternative performance measures are reconciled to IFRS measures and explained in the alternative performance measures section.

 

Note

Administrative
expenses
2017
$m

 Other operating expenses 2017
$m

Restructuring
costs

2017
$m

 Total
2017
$m

Administrative
expenses
2016
$m

 Other operating expenses 2016
$m

 

Restructuring costs
2016
$m

 Total 2016
$m

Restructuring expenses










ERO footprint rationalisation


 -

 -

5.6

5.6

-

-

9.9

9.9

H+S Middle East impairment loss

6

-

-

15.7

15.7

-

-

-

-

Central costs rationalisation


 -

 -

6.7

6.7

-

-

-

-

Acquisition related










Amortisation of intangible assets arising on acquisition and valued in accordance with IFRS 3


93.8

 -

 -

93.8

98.6

-

-

98.6

Landmark integration costs


 -

 -

 -

 -

-

24.9

-

24.9

Transaction costs1


 -

0.1

 -

0.1

-

1.5

-

1.5

Other


 -

1.1

 -

1.1

-

1.6

-

1.6

Operating loss on continuing operations


93.8

1.2

28.0

123.0

98.6

28.0

9.9

136.5

Impairment loss


-

-

-

 -

-

-

-

184.4

Loss before tax on continuing operations


-

-

-

123.0

-

-

-

320.9

Net impact of United States tax reform


-

-

-

20.5

-

-

-

-

Tax on other exceptional items


-

-

-

(39.0)

-

-

-

(102.4)

Tax impact of exceptional and other items


-

-

-

(18.5)

-

-

-

(102.4)

Loss for the year on continuing operations


-

-

-

104.5

-

-

-

218.5

Loss from discontinued operation, net of tax

10

-

-

-

22.5

-

-

-

97.5

Total exceptional and other items


-

-

-

127.0

-

-

-

316.0

 

1        All transaction costs presented as exceptional and other items in 2017 relate to the acquisition by Ontic of GE's Aviation portfolio, see note 9.

 

Net cash flow from exceptional items was an outflow of $12.7 million (2016: outflow of $63.5 million). Net cash flow from other items was $nil (2016: $nil).

 

 

 

Notes to the Consolidated Financial Statements - continued

 

3. Income tax

Recognised in the Income Statement

2017
$m

2016
$m

Current tax expense

24.8

16.0

Adjustments in respect of prior years - current tax

(6.2)

(1.6)

Current tax

18.6

14.4

Deferred tax

16.5

(78.7)

Adjustments in respect of prior years - deferred tax

(1.4)

1.4

Deferred tax

15.1

(77.3)

Income tax expense/(credit) for the year from continuing operations

33.7

(62.9)

 

UK income tax is calculated at 19.25% (2016: 20.0%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.

On 22 December 2017, the United States enacted tax reform that implements substantial changes to the federal tax system by reducing the headline federal tax rate from 35% to 21% and limiting interest deductions to a maximum of 30% of US EBITDA. The reduction in the headline rate of tax has resulted in a revaluation of US deferred tax balances amounting to a credit of $59.3 million. Additionally, the group has re-measured a deferred tax asset relating to financing costs from prior years amounting to a charge of $54.5 million together with a current year charge of $22.3 million. Finally, the tax reform introduced a tax on repatriation of profits of overseas subsidiaries resulting in a charge of $3 million.

 

The net impact of this tax reform ($20.5m charge) has been reflected in the continuing exceptional and other items tax result so as to reflect the underlying effective tax rate on a consistent basis to prior periods.

The total charge for the year can be reconciled to the accounting profit as follows:

 

2017
$m

2016
$m

Profit / (loss) before tax on continuing operations

175.5

(82.2)

 



Tax at the rates prevailing in the relevant tax jurisdictions 26.4% (2016: 25.3%)

46.3

(20.8)

Tax effect of offshore financing net of UK CFC charge

(37.0)

(34.1)

Tax effect of expenses that are not deductible in determining taxable profit

6.4

16.6

Tax effect of US tax reform

20.5

-

Items on which deferred tax has not been recognised

0.8

1.3

Tax rate changes (excluding US tax reform)

(0.5)

0.2

Difference in tax rates on overseas earnings

4.8

(25.9)

Adjustments in respect of prior years

(7.6)

(0.2)

Tax expense/(credit) for the year

33.7

(62.9)

 

The applicable tax rate of 26.4% (2016: 25.3%) represents a blend of the tax rates of the jurisdictions in which taxable profits have arisen.
The change from the prior year is due to a change in the proportion of profits that have arisen in each jurisdiction and the benefits associated with certain financing structures implemented.

Tax credited/(expensed) to other comprehensive income and equity is as follows:

Recognised in other comprehensive income

2017
$m

2016
$m

Tax on items that will not be reclassified subsequently to profit or loss



Current tax credit on pension deficit payments

0.5

0.5

Deferred tax (credit)/charge on actuarial gains/(losses)

(1.6)

9.3

 

(1.1)

9.8

 



Tax on items that may be reclassified subsequently to profit or loss



Current tax credit on foreign exchange movements

(1.6)

0.7

Deferred tax charge on derivative instruments

(2.7)

2.1

 

(4.3)

2.8

 



Total tax (charge)/credit within other comprehensive income

(5.4)

12.6

 



Recognised in equity



Current tax credit on share-based payments movements

0.8

0.1

Deferred tax credit/(charge) on share-based payments movements

-

0.6

Total tax credit/(charge) within equity

0.8

0.7

 



Total tax (charge)/credit within other comprehensive income and equity

(4.6)

13.3

 

4. Dividends

On 19 May 2017, the 2016 final dividend of 9.12¢ per share (total dividend $91.5 million) was paid to shareholders (2016: the 2015 final dividend of 8.68¢ per share (total dividend $87.2 million) was paid on 20 May 2016).

On 3 November 2017, the 2017 interim dividend of 3.81¢ per share (total dividend $39.2 million) was paid to shareholders (2016: the 2016 interim dividend of 3.63¢ per share (total dividend $37.1 million) was paid on 4 November 2016).

In respect of the current year, the directors propose that a final dividend of 9.59¢ per share will be paid to shareholders on 25 May 2018. The proposed dividend is payable to all shareholders on the register of members on 13 April 2018. The total estimated dividend to be paid is $98.6 million. This dividend is subject to approval by shareholders at the AGM and, in accordance with IAS 10: Events after the Reporting Period, has not been included as a liability in these financial statements.



 

Notes to the Consolidated Financial Statements - continued

 

5. Earnings per share

All alternative performance measures are reconciled to IFRS measures and explained in the alternative performance measures section.

The calculation of the basic and diluted earnings per share is based on the following data:

 

Continuing

Total

 

2017

$m

2016

$m

2017

$m

2016

$m

Basic and diluted





Earnings:





Profit/(loss) for the year

141.8

(19.3)

119.3

(98.9)

Non-controlling interests

0.1

(0.4)

0.1

-

Basic earnings attributable to ordinary shareholders

141.9

(19.7)

119.4

(98.9)

Exceptional items (net of tax)

104.5

218.5

127.0

316.0

Adjusted earnings for adjusted earnings per share

246.4

198.8

246.4

217.1

Underlying deferred tax

47.7

27.7

47.7

35.6

Adjusted earnings for tax adjusted earnings per share

294.1

226.5

294.1

252.7

 





Number of shares





Weighted average number of 2916/21p ordinary shares:





For basic earnings per share

1,028.2

1,026.6

1,028.2

1,026.6

Dilutive potential ordinary shares from share options

10.6

9.9

10.6

9.9

For diluted earnings per share

1,038.8

1,036.5

1,038.8

1,036.5

For diluted losses per share

1,028.2

1,026.6

1,028.2

1,026.6

 





Earnings per share





Basic:





Adjusted

24.0¢

19.4¢

24.0¢

21.1¢

Cash

28.6¢

22.1¢

28.6¢

24.6¢

Unadjusted

13.8¢

(1.9)¢

11.6¢

(9.6)¢

 





Diluted:





Adjusted

23.7¢

19.2¢

23.7¢

20.9¢

Cash

28.3¢

21.9¢

28.3¢

24.4¢

Unadjusted

13.7¢

(1.9)¢

11.5¢

(9.6)¢

 

Cash earnings per share is presented calculated on earnings before exceptional and other items (note 2) and using current tax charge, not the total tax charge for the period, thereby excluding the deferred tax charge.

Adjusted earnings per share is presented calculated on earnings before exceptional and other items (note 2). Both adjustments have been made because the directors consider that this gives a useful indication of underlying performance.

For discontinued earnings per share, refer to note 10.



 

Notes to the Consolidated Financial Statements - continued

 

6. Intangible assets


Goodwill

2017

$m

Licences
and
contracts
2017

$m

Computer
software
2017

$m

Total

2017

$m

Goodwill

2016

$m

Licences
and
contracts
2016

$m

Computer
software
2016

$m

Total

2016

$m

Cost









Beginning of year

1,252.7

1,586.1

42.8

2,881.6

889.6

360.9

47.7

1,298.2

Exchange adjustments

9.2

17.7

0.3

27.2

(10.0)

(16.3)

(0.6)

(26.9)

Acquisitions

0.9

24.3

 -

25.2

557.7

1,251.7

-

1,809.4

Acquisitions in prior years

 -

 -

 -

 -

-

0.7

-

0.7

Additions

 -

0.3

6.6

6.9

-

0.2

0.6

0.8

Impairment charges

 -

(11.0)

 -

(11.0)

(114.0)

(0.2)

-

(114.2)

Transfer to assets held for sale

 -

 -

 -

 -

(70.6)

(16.3)

(1.5)

(88.4)

Disposals

 -

(0.1)

(3.1)

(3.2)

-

-

(0.3)

(0.3)

Transfers (to)/from other asset categories

4.0

(3.5)

6.6

7.1

-

5.4

(3.1)

2.3

End of year

1,266.8

1,613.8

53.2

2,933.8

1,252.7

1,586.1

42.8

2,881.6

 

 

 

 

 

 

 

 

 

Amortisation









Beginning of year

(138.8)

(223.1)

(27.5)

(389.4)

-

(115.0)

(27.4)

(142.4)

Exchange adjustments

(1.4)

(3.4)

(0.3)

(5.1)

-

5.2

0.6

5.8

Amortisation charge for the year

 -

(104.5)

(5.4)

(109.9)

-

(112.0)

(2.2)

(114.2)

Impairment charges

 -

 5.3

 -

5.3

(138.8)

(12.8)

-

(151.6)

Transfer to assets held for sale

 -

 -

 -

 -

-

10.6

1.1

11.7

Disposals

 -

 -

3.1

3.1

-

-

0.3

0.3

Transfers to other asset categories

 -

3.1

(3.0)

0.1

-

0.9

0.1

1.0

End of year

(140.2)

(322.6)

(33.1)

(495.9)

(138.8)

(223.1)

(27.5)

(389.4)

 









Carrying amount

End of year

1,126.6

1,291.2

20.1

2,437.9

1,113.9

1,363.0

15.3

2,492.2

Beginning of year

1,113.9

1,363.0

15.3

2,492.2

889.6

245.9

20.3

1,155.8

 

Included within the amortisation charge for intangible assets of $109.9 million (2016: $114.2 million) is amortisation of $93.8million (2016: $99.4 million) in relation to the amortisation of intangible assets acquired and valued in accordance with IFRS 3 and disclosed within exceptional and other items.

Included within the acquisitions of $25.2 million (2016: $1,809.4 million) is $5.0 million (2016: $2.5 million) of Ontic licence acquisitions which are not accounted for as a business combination under IFRS 3 and hence not presented under note 9.

Licences and contracts are amortised over the period to which they relate, which is on average 16 years (2016: 16 years) but with a wider range, with some up to 60 years in duration. Computer software is amortised over its estimated useful life, which is on average five years (2016: five years).

Transfers to assets held for sale relates to the ASIG business as disclosed in note 10.

Impairment losses recognised in the year

During 2017 the Group's H+S Middle East business (part of the H+S CGU) continued to underperform. As a result of this underperformance management carried out an impairment review to assess the recoverability of the remaining assets of the business following the CGU impairment in 2016. The review led to an impairment loss of $15.7 million that has been recognised within exceptional and other items in 2017. The $15.7 million impairment was recognised against $5.7 million of Intangible assets and $10.0 million of Property, Plant & Equipment. H+S Middle East is contained within the Group's Aftermarket Services operating segment.

 

 

Notes to the Consolidated Financial Statements - continued

 

6. Intangible assets - continued

Goodwill

Goodwill acquired in a business combination is allocated, at acquisition, to the cash-generating units (CGUs) that are expected to benefit from the business combination. The carrying amount of goodwill has been allocated as follows and reflects certain aggregated CGUs:


2017
$m

2016
$m

Flight Support:



Signature Flight Support

1,058.3

1,048.7

ASIG (discontinued operations)

 -

70.6

Aftermarket Services:



Engine Repair & Overhaul

 -

-

Ontic

68.3

65.2

Total goodwill from continuing and discontinued operations

1,126.6

1,184.5

Total goodwill from continuing operations

1,126.6

1,113.9

Total goodwill from discontinued operations

 -

70.6

 

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.

The Group has determined the recoverable amount of each CGU from value-in-use calculations. The value-in-use calculations are based on cash flow forecasts derived from the most recent budgets and detailed financial projections for the next four years, as approved by management, with a terminal growth rate after four years. The resultant cash flows are discounted using a pre-tax discount rate appropriate for the relevant CGU.

Key assumptions

The key assumptions for the value-in-use calculations are as follows.

Sales volumes, selling prices and cost increases over the four years covered by management's detailed plans

Sales volumes are based on industry forecasts and management estimates for the businesses in which each CGU operates, including forecasts for Business & General Aviation (B&GA) flying hours, aircraft engine cycles and military spending. Selling prices and cost increases are based on past experience and management expectations of future changes in the market. The extent to which these assumptions affect each principal CGU with a significant level of goodwill are described below.

Signature Flight Support and Engine Repair & Overhaul (ERO) both operate in the B&GA market. Signature Flight Support is the world's largest and market-leading Fixed Base Operation (FBO) network for business aviation providing full services support for B&GA travel, focused on passenger handling and customer amenities such as refuelling, hangar and office rentals, and other technical services. ERO is a leading independent engine repair service provider to the B&GA market with strong relationships with all major engine OEMs.

Ontic operates in the military and commercial sectors and is the leading provider of high-quality, cost-effective solutions in the continuing support of maturing aerospace platforms to the major aerospace OEMs and airframe operators.

In B&GA, growth is measured principally in relation to B&GA flying hours. Over the longer term, the key drivers for B&GA remain intact - continued growth in GDP and total wealth, the increasing value of people's time, corporate confidence and corporate activity levels all point to improving sentiment. The unusual nature of the 2007-2009 crisis and the halting return to growth have meant that, although corporate profits have recovered and confidence has improved, flight activity has lagged. However, steady growth in US GDP and the current upward trend in US business confidence supports a continued increase in B&GA movements in the USA with the FAA currently forecasting an average growth in B&GA Jet and Turboprop flying hours of 2.5% per annum to 2037.

 

The political environment in the USA could also be positive in the short and medium-term, with commentators speculating that the new US tax policy could be marginally beneficial to jet purchases.

 

Trends in military aviation are likely to improve as the global defence market recovers after years of pressure due to budget retrenchment. The perceived and continuing threat environment and regional tensions are expected to be the biggest driver of spending.

 

US defence spending represents approximately 34% of global spending and this grew in 2017 driven by the new administration's focus on strengthening the nation's military. The USA accounts for 26% of the global military aviation fleet (c13,800 aircraft). Budget growth and a higher tempo of military operations are expected to positively impact flight activity and thus maintenance spend as more missions are executed.

 

Life extension programmes continue to be important as the US military aircraft ages. Military legacy aircraft life extensions of between seven and ten years on platforms such as the C-130, ACV-8B, F-15 and AH-64 and delays on new aircraft, such as the F-35 and A400M are key drivers for our Ontic business. The current US Air Force fleet is more than 25 years old on average, with some platforms significantly older. Average age is expected to continue to rise despite the large defence budget increases.

 

Growth rates used for the periods beyond those covered by management's detailed plans

Growth rates are derived from management's estimates, which take into account the long-term nature of the industry in which each CGU operates, external industry forecasts of long-term growth in the aerospace and defence sectors, the maturity of the platforms supplied by the CGU and the technological content of the CGU's products. For the purpose of impairment testing, a conservative approach has been used and where the derived rate is higher than the long-term GDP growth rates for the countries in which the CGU operates, the latter has been used. As a result, an estimated growth rate of 2.0% (2016: 2.0%) has been used for the Flight Support and Ontic CGUs, which reflects forecast long-term US GDP growth. ERO has an estimated long-term growth rate of 1% as set out in more detail in the following section on ERO impairment.



 

Notes to the Consolidated Financial Statements - continued

 

6. Intangible assets - continued

Discount rates applied to future cash flows

The Group's pre-tax weighted average cost of capital (WACC) has been used as the foundation for determining the discount rates to be applied. The WACC has then been adjusted to reflect risks specific to the CGU not already reflected in the future cash flows for that CGU. The discount rate used was 7.5% (2016: 7.3%) for the CGUs within Flight Support and 9.9% to 10.0% (2016: 9.4% to 9.6%) for the CGUs within Aftermarket Services.

Sensitivity analysis

Both the ERO CGUs, Dallas Airmotive (DAI) and H&S Aviation (H+S), recognised impairments in 2016, see below.

In relation to ASIG CGUs, the operations were held for sale at 31 December 2016 and subsequently have been sold. The business' assets were impaired in 2016 based on the fair market value established in that disposal process, see note 10.

In relation to Signature Flight Support and Ontic, management has concluded that for these CGUs no reasonably foreseeable change in the key assumptions used in the impairment model would result in a significant impairment charge being recorded in the financial statements.

ERO impairment

In 2016 both the ERO CGUs recognised impairment. Management had previously reported that a reasonably possible change in the key assumptions used in the impairment model could result in an impairment charge for Dallas Airmotive ("DAI").

 

The ERO trading conditions remained challenging during 2016, with no recovery in legacy mid-cabin fixed wing and rotorcraft flying visible for the engine platforms on which ERO operates. This, coupled with continued pressure on pricing and workscopes, led to another disappointing ERO result. Engine trading was much reduced and that, together with further margin pressure arising from OEM actions, and reduced demand for lease engines, was only partially offset by the limited cost savings delivered through the footprint restructuring programme and additional cost reduction actions. As a result of this performance and with no visible recovery in legacy mid-cabin fixed wing and rotorcraft flying, an impairment review was carried out at 30 June 2016 for both the DAI and H+S CGUs within the ERO business.

 

The key assumptions for the value-in-use calculations were consistent with the 2016 year end goodwill impairment test, with the exception of discount rates which were adjusted to reflect risks specific to each CGU but had not already been reflected in the future cash flows for that CGU. Full detail of the assumptions used in the ERO impairment test are set out in the 2016 Annual Report and Accounts. 

 



 

Notes to the Consolidated Financial Statements - continued

 

7. Borrowings

 

2017
$m

2016
$m

Bank overdrafts

4.0

1.0

Bank loans

813.3

1,036.2

Loan notes

502.2

507.3

Other loans

3.3

3.2

 

1,322.8

1,547.7

The borrowings are repayable as follows:



On demand or within one year

124.2

1.0

In the second year

369.3

121.8

In the third to fifth years inclusive

619.6

1,214.4

After five years

209.7

210.5

 

1,322.8

1,547.7

Less: Amount due for settlement within 12 months (shown within current liabilities)

(124.2)

(1.0)

Amount due for settlement after 12 months

1,198.6

1,546.7

 

Current year bank loans and loan notes are stated after their respective transaction costs and related amortisation.



 

Notes to the Consolidated Financial Statements - continued

 

7. Borrowings - continued


2017

Type

Facility amount
$m

Headroom
$m

Principal
$m

Amortisation costs
$m

Fair value adjustment
$m

Drawn
$m

Facility

date

Maturity
date

Multicurrency revolving bank credit facility

650.0

535.0

115.0

(1.2)

 -

113.8

Apr 2014

Apr 2019

Acquisition facility bank term loan - Facility B

253.4

 -

253.4

(1.0)

 -

252.4

Sep 2015

Feb 2019

Acquisition facility Bank term loan - Facility C

450.0

 -

450.0

(2.9)

 -

447.1

Sep 2015

Sep 2020

Total bank loans

1,353.4

535.0

818.4

(5.1)

 -

813.3



$300m US private placement senior notes - Series A

120.0

 -

120.0

(0.3)

0.5

120.2

May 2011

May 2018

$300m US private placement senior notes - Series B

120.0

 -

120.0

(0.3)

2.3

122.0

May 2011

May 2021

$300m US private placement senior notes - Series C

60.0

 -

60.0

(0.2)

(0.3)

59.5

May 2011

May 2023

$200m US private placement senior notes - Series A

50.0

 -

50.0

(0.1)

0.7

50.6

Dec 2014

Dec 2021

$200m US private placement senior notes - Series B

100.0

 -

100.0

(0.3)

0.1

99.8

Dec 2014

Dec 2024

$200m US private placement senior notes - Series C

50.0

 -

50.0

(0.1)

0.2

50.1

Dec 2014

Dec 2026

Total loan notes

500.0

 -

500.0

(1.3)

3.5

502.2



Total bank and loan notes

1,853.4

535.0

1,318.4

(6.4)

3.5

1,315.5



Bank overdraft - UK cash pool






4.0



Other loans






3.3



 






1,322.8



 

During the year, the Group prepaid $110 million of the acquisition bank term debt Facility B which related to part of the net proceeds from the disposal of ASIG in accordance with the loan documentation.



 

Notes to the Consolidated Financial Statements - continued

 

7. Borrowings - continued

 

2016

Type

Facility amount
$m

Headroom
$m

Principal
$m

Amortisation costs
$m

Fair value adjustment
$m

Drawn
$m

Facility

date

Maturity
date

Multicurrency revolving bank credit facility

650.0

420.0

230.0

(1.8)

 -

228.2

Apr 2014

Apr 2019

Acquisition facility bank term loan - Facility B1

363.4

 -

363.4

(1.8)

 -

361.6

Sep 2015

Feb 2019

Acquisition facility Bank term loan - Facility C1

450.0

 -

450.0

(3.6)

 -

446.4

Sep 2015

Sep 2020

Total bank loans

1,463.4

420.0

1,043.4

(7.2)

 -

1,036.2



$300m US private placement senior notes - Series A

120.0

 -

120.0

(0.3)

2.1

121.8

May 2011

May 2018

$300m US private placement senior notes - Series B

120.0

 -

120.0

(0.3)

4.1

123.8

May 2011

May 2021

$300m US private placement senior notes - Series C

60.0

 -

60.0

(0.2)

0.2

60.0

May 2011

May 2023

$200m US private placement senior notes - Series A

50.0

 -

50.0

(0.2)

1.7

51.5

Dec 2014

Dec 2021

$200m US private placement senior notes - Series B

100.0

 -

100.0

(0.3)

0.4

100.1

Dec 2014

Dec 2024

$200m US private placement senior notes - Series C

50.0

 -

50.0

(0.2)

0.3

50.1

Dec 2014

Dec 2026

Total loan notes

500.0

 -

500.0

(1.5)

8.8

507.3



Total bank and loan notes

1,963.4

420.0

1,543.4

(8.7)

8.8

1,543.5



Bank overdraft - UK cash pool






1.0



Other loans






3.2



 






1,547.7



 

1       Initial drawings under the Landmark Aviation acquisition debt facilities were for $1,000 million drawn under three facilities - Facility A, Facility B and Facility C. Facility A was a short-term bridge to disposal facility which was fully repaid on 30 June 2016 from the proceeds of $187 million from the disposal of the FBO bases as part of the requirements of the U.S. Department of Justice under the terms of the regulatory approval following the acquisition of Landmark Aviation. The balance of the proceeds of $37 million were used to prepay part of Facility B under the requirements of the loan documentation.

 

As at 31 December 2017, the Group had $500 million of US private placement senior loan notes outstanding with $400 million accounted for at fair value through profit and loss as the fair value interest rate risk has been hedged from fixed to floating rates. The remainder is accounted for at amortised cost.

Under IFRS hedge accounting rules the fair value movement on the loan notes is booked to interest and is offset by the fair value movement on the underlying interest rate swaps.

The Group includes the fair value gain on the interest rate swaps in relation to the loan notes within net debt so that the net effect is to show the $500 million US private placement at face value and to reflect the fact that the liabilities will be in place until maturity.

All other borrowings are held at amortised cost.



 

Notes to the Consolidated Financial Statements - continued

 

7. Borrowings - continued

The carrying amounts of the Group's borrowings are denominated in the following currencies:



Sterling
$m

US dollar
$m

Euro
$m

Total
$m

31 December 2017






Bank overdrafts


2.9

0.4

0.7

4.0

Bank loans


 -

813.3

 -

813.3

Loan notes


 -

502.2

 -

502.2

Other loans


0.3

3.0

 -

3.3

 


3.2

1,318.9

0.7

1,322.8

 






31 December 2016






Bank overdrafts


0.2

-

0.8

1.0

Bank loans


-

1,036.2

-

1,036.2

Loan notes


-

507.3

-

507.3

Other loans


0.2

3.0

-

3.2

 


0.4

1,546.5

0.8

1,547.7

 

The average floating interest rates on borrowings are as follows:

 

2017

2016

Sterling

1.3%

1.4%

US dollar

3.1%

2.5%

Euros

0.0%

0.0%

 

The Group's borrowings are funded through a combination of fixed and floating rate debt. The floating rate debt exposes the Group to cash flow interest rate risk whilst the fixed rate US dollar private placement loan notes exposes the Group to changes in the fair value of fixed rate debt due to changes in interest rates. Interest rate risk is managed by the combination of fixed rate debt and interest rate swaps in accordance with pre-agreed policies and authority limits. As at 31 December 2017, 55% (2016: 65%) of the Group's borrowings are fixed at a weighted average interest rate of 3.5% (2016: 3.3%) for a weighted average period of three years (2016: three years).

Bank overdrafts are repayable on demand. All bank loans and loan notes are unsecured.



 

Notes to the Consolidated Financial Statements - continued

 

8. Cash flow from operating activities

All alternative performance measures are reconciled to IFRS measures and explained in the alternative performance measures section.

 

2017

$m

2016

$m

Operating profit

237.6

166.1

Operating profit from discontinued operations

(0.2)

26.8

Share of profit from associates and joint ventures

(3.4)

(13.4)

Profit from operations

234.0

179.5

Depreciation of property, plant and equipment

71.4

69.7

Amortisation of intangible assets

109.9

114.2

Profit on sale of property, plant and equipment

(2.2)

(4.3)

Share-based payment expense

9.9

6.1

Decrease in provisions

(7.3)

(7.8)

Pension scheme payments

(5.1)

(6.6)

Non-cash impairment

15.7

-

Other non-cash items

1.3

2.5

Unrealised foreign exchange movements

(0.5)

1.3

Operating cash inflows before movements in working capital

427.1

354.6

(Increase)/decrease in working capital

(46.3)

36.1

Cash generated by operations

380.8

390.7

Net income taxes paid

(41.8)

(15.8)

Net cash inflow from operating activities

339.0

374.9

 



Dividends received from associates

2.4

2.4

Purchase of property, plant and equipment

(73.4)

(101.6)

Purchase of intangible assets*

(6.9)

(0.8)

Proceeds from disposal of property, plant and equipment

16.8

11.1

Interest received

3.3

2.7

Interest paid

(60.5)

(64.5)

Interest element of finance leases paid

(0.1)

(0.1)

Free cash flow

220.6

224.1

 

*        Purchase of intangible assets excludes $5.0 million (2016: $10.6 million) paid in relation to Ontic licences, not accounted for as acquisitions under IFRS 3since the directors believe these payments are more akin to expenditure in relation to acquisitions, and are therefore outside the Group's definition of free cash flow. These amounts are included within purchase of intangible assets on the face of the Cash Flow Statement.

 



 

Notes to the Consolidated Financial Statements - continued

 

9. Acquisition of businesses

During the period the Group made the following acquisitions:

On 30 November 2017, the Group's Ontic business acquired intellectual property for designed motor components for aerospace use from Hamiltonian Sunstrand Corporation ("HSC"), a UTC Aerospace Systems company ("UTAS") for a total consideration of $2.3 million.

On 29 November 2017, the Group's Ontic business acquired an Ethernet Switch Unlit (ESU) product line for use in military ground combat vehicles from Curtiss-Wright Defense Solutions (CW) for a total consideration of $5.0 million.

On 31 October 2017, the Group's Ontic business acquired from Ultra Electronics Plc ("Ultra") the intellectual property to support a variety of parts that are fitted onto the Hawk platform for a total consideration of £3.8 million or $4.9 million.

On 29 March 2017, the Group's Ontic business acquired the manufacturing rights and processes from Pratt & Whitney Canada for selected JT15D engine component parts for a total consideration of $1.9 million, of which is $0.7 million is deferred.

As disclosed in the 2016 Annual Report and Accounts, Ontic completed the acquisition of the GE Aviation portfolio and the Q400 parts series. The purchase price accounting has been finalised with the measurement period adjustments tabulated over the page. In the year, an increase in goodwill of $0.9 million has been recognised as a result of completing final fair value exercise for Ontic's GE Aviation portfolio acquisition.



 

Notes to the Consolidated Financial Statements - continued

 

9. Acquisition of businesses - continued

The fair value of the net assets acquired, measurement period adjustments and goodwill arising on these acquisitions are set out below:

 

 

Aftermarket Services
$m


Total
2017
$m

Intangible assets


17.9

17.9

Inventories


(0.3)

(0.3)

Receivables


(0.5)

(0.5)

Payables


0.6

0.6

Provisions


(3.1)

(3.1)

Taxation


(1.4)

(1.4)

 




Net assets


13.2

13.2

Non-controlling interests


 -

 -

Goodwill


0.9

0.9

 




Total consideration
(including deferred consideration)


14.1

14.1

 

Satisfied by:




Cash


13.4

13.4

Deferred consideration


0.7

0.7

Net cash consideration


14.1

14.1

Net cash flow arising on acquisition




Cash consideration


13.4

13.4

 


13.4

13.4

 

All acquisition costs incurred in the year are in relation to the acquisition of Ontic's GE Aviation portfolio. These costs were recognised as part of transaction costs under exceptional and other items. Refer to note 2 for further details.

In 2017, $0.8 million of deferred consideration was paid in relation to prior year acquisitions in Signature, $60.7 million was paid in relation to the Ontic GE Aviation portfolio and $0.8 million was paid in relation to prior year acquisitions in Ontic. In the prior year, $0.8 million of deferred consideration was paid in relation to prior year acquisitions in Ontic.

The goodwill arising on these acquisitions is attributable to anticipated future operating synergies. $0.9 million of the goodwill is expected to be deductible for income tax purposes.

In the period since acquisition, the operations acquired have contributed $0.6 million and $0.3 million to revenue and operating profit respectively. If the acquisitions had occurred on the first day of the financial year, it is estimated that the total revenue and operating profit from these acquisitions would have been $5.6 million and $1.2 million respectively.



 

Notes to the Consolidated Financial Statements - continued

 

10. Disposals and assets and associated liabilities classified as held for sale

 

ASIG divestiture

It was announced in March 2016 that, following significant inbound interest, management was assessing value maximising options for the Group's investment in the ASIG business, part of the Flight Support segment. At the beginning of April 2016, management committed to a plan to sell substantially all of the ASIG business and as such at that point the relevant assets and liabilities were classified as held for sale. At that time, as a major line of the Group's business, the ASIG operations were also classified as a discontinued operation.

On 16 September 2016, the Group announced that it had reached agreement with John Menzies plc on the terms of the sale of the ASIG business. The transaction completed on 31 January 2017.

The fair values of the assets held for sale are categorised within Level 2 of the fair value hierarchy on the basis that their fair value has been calculated using inputs that are observable in active markets which are related to the individual asset or liability.

 

Results of discontinued operations

 

 

2017

2016

 

Notes

Underlying1

$m

Exceptional and other items

$m

Total

$m

Underlying1

$m

Exceptional and other items

$m

Total

$m

 

Revenue

1

38.4

 -

38.4

416.8

-

416.8

Cost of sales


(35.9)

 -

(35.9)

(373.9)

-

(373.9)

Gross profit


2.5

 -

2.5

42.9

-

42.9

Distribution costs


 -

 -

 -

(2.0)

-

(2.0)

Administrative expenses


(2.7)

 -

(2.7)

(31.9)

(0.7)

(32.6)

Other operating income


 -

 -

 -

1.1

-

1.1

Share of profits of associates and joint ventures


 -

 -

 -

-

-

-

Other operating expenses


 -

 -

 -

(1.2)

-

(1.2)

Operating (loss)/profit incl. group charges


(0.2)

 -

(0.2)

8.9

(0.7)

8.2

Elimination of internal group charges


 -

 -

 -

18.6

-

18.6

Operating (loss)/profit

1

(0.2)

 -

(0.2)

27.5

(0.7)

26.8

Impairment and other charges on classification
as held for sale2


 -

(6.6)

(6.6)

-

(109.1)

(109.1)

Investment income


 -

 -

 -

0.3

-

0.3

Finance costs


 -

 -

 -

(0.4)

-

(0.4)

(Loss)/profit before tax


(0.2)

(6.6)

(6.8)

27.4

(109.8)

(82.4)

Tax (charge)/credit


 0.2

(15.9)

(15.7)

(9.5)

12.3

2.8

(Loss)/profit for the period


-

(22.5)

(22.5)

17.9

(97.5)

(79.6)

 

 

 

 

 

 

 

 

Attributable to:








Equity holders of BBA Aviation plc


-

(22.5)

(22.5)

18.3

(97.5)

(79.2)

Non-controlling interests


 -

 -

 -

(0.4)

-

(0.4)

Profit/(loss) for the period


-

(22.5)

(22.5)

17.9

(97.5)

(79.6)

 

Earnings per share

Note

Adjusted1


Unadjusted

Adjusted1


Unadjusted

Basic

5

-


(2.2)¢

1.7¢


(7.7)¢

Diluted

5

-


(2.2)¢

1.7¢


(7.7)¢

 

1        Underlying profit and adjusted earnings per share is stated before exceptional and other items.

2        The impairment of $6.6 million reported in exceptional and other items includes the recycling of translational differences accumulated in equity, additional disposal costs and the gain/(loss) on disposal. In the prior year the impairment of $109.1 million reported in exceptional and other items includes $114.0 million impairment of net assets held for sale to fair value less costs to sell, $1.0 million impairment of ASIG Singapore assets, $6.3 million impairment of non-controlling interest reserve, $7.3 million of deal costs incurred in 2016, and a $19.5 million gain on the right off of deferred tax assets and liabilities relating to the disposal group.

 

All alternative performance measures are reconciled to IFRS measures and explained in the alternative performance measures section.

 

 



 

Notes to the Consolidated Financial Statements - continued

 

10. Disposals and assets and associated liabilities classified as held for sale - continued

 

Cash flows from/(used in) discontinued operation

 

 

2017
$m

2016
$m

 




Net cash inflow from operating activities


(33.4)

18.8

Net cash outflow from investing activities


 -

(10.0)

Net cash inflow/(outflow) from financing activities


 -

(1.7)

Net cash flows for the year1


(33.4)

7.1

 

1        Net cash flows for the year comprise the ($0.2 million) operating loss, ($25.7 million) working capital movement, $0.9 million non-cash items and ($8.4 million) tax payment in relation to the discontinued operation.

 

Effect of the disposal group on financial position of the Group

 

Notes

2017
$m

2016
$m

Assets held for sale




Non-current assets




Goodwill

6

 -

70.6

Other intangible assets

6

 -

6.1

Property, plant and equipment


 -

63.4

 


 -

140.1

Current assets




Inventories


 -

4.0

Trade receivables


 -

72.9

Other receivables


 -

27.9

Cash and cash equivalents


 -

22.8

 


 -

127.6

Total assets held for sale


 -

267.7

 

 

 

 

Liabilities held for sale




Current liabilities




Trade payables


 -

(38.0)

Tax liabilities


 -

(0.2)

Other payables


 -

(33.6)

Borrowings


 -

-

Provisions


 -

(0.6)

 


 -

(72.4)

 




Non-current liabilities




Borrowings


 -

-

Other payables


 -

(16.9)

Provisions


 -

-

 


 -

(16.9)

Total liabilities held for sale before tax


 -

(89.3)

Net assets held for sale


 -

178.4



 

Notes to the Consolidated Financial Statements - continued

 

10. Disposals and assets and associated liabilities classified as held for sale - continued

2016 FBO disposals

Under the terms of the regulatory approval in connection with the acquisition of Landmark Aviation, the Company was required to sell six legacy Landmark Aviation FBOs at: Westchester County Airport, New York; Washington Dulles International Airport, Virginia; Scottsdale Airport, Arizona; Ted Stevens Anchorage International Airport, Alaska; Jacqueline Cochran Regional Airport, California; and part of the Landmark facilities at Fresno Yosemite International Airport. As a result, the six FBOs referred to above were classified as a disposal group and held for sale from the date of acquisition. Though the operations are wholly-owned by the Group, as a result of the restrictions placed upon our influence by the requirements of the U.S. Department of Justice, the results of the operations were accounted for as an associate undertaking.

In March 2016, the Group announced the sale of six FBOs, as agreed with the U.S. Department of Justice under the terms of the regulatory approval for the acquisition of Landmark Aviation, for an aggregate consideration of $190 million to affiliates of KSL Capital Partners LLC (the transaction). The transaction closed on 30 June 2016.

Net cash proceeds totalled $184.7 million after adjusting for the impact of working capital. There was no gain or loss recognised on the transaction. In the period of the Group's ownership in 2016 the disposal group contributed $nil of revenues and $7.9 million of underlying operating profit which is included in the share of profits of associates and joint ventures in the Consolidated Income Statement.



 

Alternative Performance Measures

 

Introduction

We assess the performance of the Group using a variety of alternative performance measures. We principally discuss the Group's results on an 'adjusted' and/or 'underlying' basis. Results on an adjusted basis are presented before exceptional and other items.

Alternative performance measures have been defined and reconciled to the nearest GAAP measure below, along with the rationale behind using the measures.

The alternative performance measures we use are: organic revenue growth, underlying operating profit and margin, EBITDA and underlying EBITDA, underlying profit before tax, underlying deferred tax, adjusted basic and diluted earnings per ordinary share, return on invested capital, operating cash flow, free cash flow, cash conversion, and net debt. A reconciliation from these adjusted performance measures to the nearest measure prepared in accordance with IFRS is presented below. The alternative performance measures we use may not be directly comparable with similarly titled measures used by other companies.

Where applicable, divisional measures are calculated in accordance with Group measures.

Exceptional and other items

The Group's income statement and segmental analysis separately identify trading results before exceptional and other items. The directors believe that presentation of the Group's results in this way is relevant to an understanding of the Group's financial performance, as exceptional and other items are identified by virtue of their size, nature or incidence. This presentation is consistent with the way that financial performance is measured by management and reported to the Board and the Executive Committee and assists in providing a meaningful analysis of the trading results of the Group. In determining whether an event or transaction is treated as an exceptional and other item, management considers quantitative as well as qualitative factors such as the frequency or predictability of occurrence.

Examples of charges or credits meeting the above definition and which have been presented as exceptional items in the current and/or prior years include costs relating to significant acquisitions/disposals of significant businesses and investments, significant business restructuring programmes, asset impairment charges and impact of the US Tax Cuts and Job Act 2017. In the event that other items meet the criteria, which are applied consistently from year to year, they are treated as exceptional and other items. Other items include amortisation of intangible assets arising on acquisition and valued in accordance with IFRS 3. These charges are presented separately to improve comparability of the Group's underlying profitability with peer companies.

Exceptional and other items are disclosed and reconciled to the nearest GAAP measure in note 2 to the Consolidated Financial Statements.

Organic revenue growth

Organic revenue growth is a measure which seeks to reflect the performance of the Group that will contribute to long-term sustainable growth. As such, organic revenue growth excludes the impact of acquisitions or disposals, fuel price movements and foreign exchange movements. We focus on the trends in organic revenue growth.

A reconciliation from the growth in reported revenue, the most directly comparable IFRS measures, to the organic revenue growth is set out below.

Organic revenue growth





2017

$m

2016

$m

Reported revenue prior year (continuing and discontinued)





2,565.9

2,129.8

Rebase for foreign exchange movements





(8.4)

(41.3)

Rebase for fuel price movements





90.7

(59.2)

Rebase for disposals





(416.8)

-

Rebased comparative revenue





2,231.4

2,029.3

 







Reported revenue (continuing and discontinued)





2,409.0

2,565.9

Rebase for disposals (note 10)





(38.4)

 -

Less acquisitions





(92.7)

(567.6)

Organic revenue





2,277.9

1,998.3

 







Organic revenue growth





2.1%

(1.5%)



 

Underlying operating profit and margin

Underlying operating profit and margin are measures which seek to reflect the underlying performance of the Group that will contribute to long-term sustainable profitable growth. As such, they exclude the impact of exceptional and other items. We focus on the trends in underlying operating profit and margins.

A reconciliation from operating profit, the most directly comparable IFRS measure, to the underlying operating profit and margin, is set out below.


2017

Total

$m

2017 Continuing

$m

2017 Discontinued

$m

2016

Total

$m

2016 Continuing

$m

2016 Discontinued

$m

Revenue

2,409.0

2,370.6

38.4

2,565.9

2,149.1

416.8

 







Operating profit/(loss)

237.4

237.6

(0.2)

192.9

166.1

26.8

Exceptional and other items

123.0

123.0

 -

137.2

136.5

0.7

Underlying operating profit/(loss)

360.4

360.6

(0.2)

330.1

302.6

27.5

 


2017

Total

$m

2017 Continuing

$m

2017 Discontinued

$m

2016

Total

$m

2016 Continuing

$m

2016 Discontinued

$m

Operating margin

9.9%

10.0%

(0.5%)

7.5%

7.7%

6.4%

Exceptional and other items

5.1%

5.2%

 -

5.4%

6.4%

0.2%

Underlying operating margin

15.0%

15.2%

(0.5%)

12.9%

14.1%

6.6%

 

EBITDA and underlying EBITDA

In addition to measuring the financial performance of the Group and lines of business based on underlying operating profit, we also measure performance based on EBITDA and underlying EBITDA. EBITDA is defined as the Group profit or loss before depreciation, amortisation, net finance expense and taxation. Underlying EBITDA is defined as EBITDA before exceptional and other items. EBITDA is a common measure used by investors and analysts to evaluate the operating financial performance of companies.

We consider EBITDA and underlying EBITDA to be useful measures of our operating performance because they approximate the underlying operating cash flow by eliminating depreciation and amortisation. EBITDA and underlying EBITDA are not direct measures of our liquidity, which is shown by our cash flow statement, and need to be considered in the context of our financial commitments.

A reconciliation from Group operating profit, the most directly comparable IFRS measure, to reported and underlying Group EBITDA, is set out below.

 

2017

Total

$m

2017 Continuing

$m

2017 Discontinued

$m

2016

Total

$m

2016 Continuing

$m

2016 Discontinued

$m

Operating profit/(loss)

237.4

237.6

(0.2)

192.9

166.1

26.8

Reported depreciation and amortisation

181.3

181.1

0.2

183.9

180.5

3.4

EBITDA

418.7

418.7

 -

376.8

346.6

30.2

 







Reported depreciation and amortisation

181.3

181.1

0.2

183.9

180.5

3.4

Amortisation presented within exceptional and other items

(93.8)

(93.8)

 -

(99.3)

(98.6)

(0.7)

Depreciation and amortisation included in underlying results

87.5

87.3

0.2

84.6

81.9

2.7

 







Underlying operating profit/(loss)

360.4

360.6

(0.2)

330.1

302.6

27.5

Depreciation and amortisation included in underlying results

87.5

87.3

0.2

84.6

81.9

2.7

Underlying EBITDA

447.9

447.9

 -

414.7

384.5

30.2



 

Alternative Performance Measures - continued

 

Underlying profit before tax

Underlying profit before tax is a measure which seeks to reflect the underlying performance of the Group that will contribute to long-term sustainable profitable growth. As such, underlying profit before tax excludes the impact of exceptional and other items. We focus on the trends in underlying profit before tax.

A reconciliation from profit before tax, the most directly comparable IFRS measure, to the underlying profit before tax, is set out below.

 

2017

Total

$m

2017 Continuing

$m

2017 Discontinued

$m

2016

Total

$m

2016 Continuing

$m

2016 Discontinued

$m

Profit/(loss) before tax

168.7

175.5

(6.8)

(164.6)

(82.2)

(82.4)

Exceptional and other items

129.6

123.0

6.6

430.7

320.9

109.8

Underlying profit/(loss) before tax

298.3

298.5

(0.2)

266.1

238.7

27.4

 

Underlying deferred tax

Cash adjusted basic and diluted earnings per ordinary share set out in note 5 to the Consolidated Financial Statements are calculated by removing exceptional and other items and underlying deferred tax to better reflect the underlying basic and diluted earnings per share.

A reconciliation from deferred tax, the most directly comparable IFRS measure, to the underlying deferred tax, is set out below:

 

2017

Total

$m

2017 Continuing

$m

2017 Discontinued

$m

2016

Total

$m

2016 Continuing

$m

2016 Discontinued

$m

Deferred tax

(12.3)

(15.1)

2.8

81.6

77.3

4.3

Exceptional deferred tax

(35.4)

(32.6)

(2.8)

(117.2)

(105.0)

(12.2)

Underlying deferred tax

(47.7)

(47.7)

-

(35.6)

(27.7)

(7.9)

 

Cash basic and diluted earnings per ordinary share

As set out in note 5 to the Consolidated Financial Statements, the adjusted basic and diluted earnings per ordinary share are calculated using the adjusted basic and diluted earnings.

A reconciliation from the basic and diluted earnings per ordinary share, the most directly comparable IFRS measure, to the cash basic and diluted earnings per ordinary share, is set out below.

 

2017

Total

¢

2017 Continuing

¢

2017 Discontinued

¢

2016

Total

¢

2016 Continuing

¢

2016 Discontinued

¢

Basic earnings per share

11.6

13.8

(2.2)

(9.6)

(1.9)

(7.7)

Adjustments for adjusted measure

17.0

14.8

2.2

34.2

24.0

10.2

Cash basic earnings per share

28.6

28.6

-

24.6

22.1

2.5

Diluted earnings per share

11.5

13.7

(2.2)

(9.6)

(1.9)

(7.7)

Adjustments for adjusted measure

16.8

14.6

2.2

34.0

23.8

10.2

Cash diluted earnings per share

28.3

28.3

-

24.4

21.9

2.5



 

Return on invested capital (ROIC)

Measuring ROIC ensures the Group is focused on efficient use of assets, with the target of operating returns generated across the cycle exceeding the cost of holding the assets.

ROIC is calculated by dividing underlying operating profit for ROIC by net assets for ROIC, both of which are at the same exchange rate which is the average of the last 13 months' spot rate. The net assets for ROIC are calculated by averaging the net assets over the last 13 months.

A reconciliation from underlying operating profit to underlying operating profit for ROIC is set out below. In addition, a reconciliation from net assets, the most directly comparable IFRS measure, to invested capital for ROIC, is set out below.

 

2017

Total

$m

2017 Continuing

$m

2017 Discontinued

$m

2016

Total

$m

2016 Continuing

$m

 2016 Discontinued

$m

Underlying operating profit

360.4

360.6

(0.2)

330.1

302.6

27.5

Adjustments for FX

0.1

0.1

 -

(0.1)

(0.1)

-

Underlying operating profit for ROIC

360.5

360.7

(0.2)

330.0

302.5

27.5

 







Net assets

1,933.2

1,933.2

 -

1,918.6

1,740.2

178.4

Add back impairment made to disposal group

 -

 -

 -

-

(109.1)

109.1

Adjustments for FX and averaging

(10.9)

(10.9)

 -

42.9

42.9

-

Net assets for ROIC

1,922.3

1,922.3

 -

1,961.5

1,674.0

287.5

 







Reported borrowings & finance leases

(1,324.1)

(1,324.1)

 -

(1,549.4)

(1,549.4)

-

Reported cash and cash equivalents

153.5

153.5

 -

205.3

182.5

22.8

Adjustments for FX and averaging

(175.9)

(175.9)

 -

22.3

22.3

-

Less net debt for ROIC

(1,346.5)

(1,346.5)

 -

(1,321.8)

(1,344.6)

22.8

Invested capital for ROIC

3,268.8

3,268.8

 -

3,283.3

3,018.6

264.7

ROIC

11.0%

11.0%

 -

10.1%

10.0%

10.4%



 

Alternative Performance Measures - continued

 

Operating cash flow

Operating cash flow is one of the Group's Key Performance Indicators by which our financial performance is measured. Operating cash flow is defined as the aggregate of cash generated by operations, purchase of property, plant and equipment, purchase of intangible assets less Ontic licences not accounted for under IFRS 3, and proceeds from disposal of property, plant and equipment.

Operating cash flow is primarily an overall operational performance measure. However, we also believe it is an important indicator of our liquidity.

Operating cash flow reflects the cash we generate from operations after net capital expenditure which is a significant ongoing cash outflow associated with investing in our infrastructure. In addition, operating cash flow excludes cash flows that are determined at a corporate level independently of ongoing trading operations such as dividends, share buy-backs, acquisitions and disposals, financing costs, tax payments, dividends from associates and the repayment and raising of debt. Operating cash flow is not a measure of the funds that are available for distribution to shareholders.

 

2017

Total

$m

2016
Total

$m

Reported cash generated by operations (note 8)

380.8

390.7

Less reported purchase of property, plant and equipment (note 8)

(73.4)

(101.6)

Less reported purchase of intangible assets (note 8)

(11.9)

(11.4)

Add Ontic licences not accounted for under IFRS 3 (note 8)

 5.0

10.6

Add reported proceeds from disposal of property, plant and equipment (note 8)

16.8

11.1

Operating cash flow

317.3

299.4

 

Cash conversion

Cash conversion is a key part of the Group strategy for disciplined capital management with absolute cash generation and strong cash conversion. Cash conversion is defined as operating cash flow as a percentage of continuing and discontinued operating profit. Operating cash flow has been reconciled above to the most directly comparable IFRS measure, being cash generated from operations.

 

2017

Total

%

2016
Total

%

Cash conversion

134%

155%

 

Free cash flow

Free cash flow represents the cash that a company is able to generate after spending the money required to maintain or expand its asset base. Free cash flow is set out in note 8 to the Consolidated Financial Statements and reconciled to net cash inflow from operating activities, the most directly comparable IFRS measure.

Net debt

Net debt consists of borrowings (both current and non-current), less cash and cash equivalents and the fair value adjustment on the US Private Placement loan.

Net debt is a measure of the Group's net indebtedness that provides an indicator of the overall balance sheet strength. It is also a single measure that can be used to assess both the Group's cash position and its indebtedness. The use of the term 'net debt' does not necessarily mean that the cash included in the net debt calculation is available to settle the liabilities included in this measure.

Net debt is considered to be an alternative performance measure as it is not defined in IFRS. The most directly comparable IFRS measure is the aggregate of borrowings (current and non-current), and cash and cash equivalents. A reconciliation from these to net debt is given below.


2017

Total

$m

2017 Continuing

$m

2017 Discontinued

$m

2016

Total

$m

2016 Continuing

$m

2016 Discontinued

$m

Reported borrowings (note 7)

(1,322.8)

(1,322.8)

 -

(1,547.7)

(1,547.7)

-

Reported finance leases

(1.3)

(1.3)

 -

(1.7)

(1.7)

-

Reported cash and cash equivalents

153.5

153.5

 -

205.3

182.5

22.8

Fair value adjustment on USPP (note 7)

3.5

3.5

 -

8.8

8.8

-

Net debt

(1,167.1)

(1,167.1)

 -

(1,335.3)

(1,358.1)

22.8

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
FR EAEAPAFFPEAF
Close


London Stock Exchange plc is not responsible for and does not check content on this Website. Website users are responsible for checking content. Any news item (including any prospectus) which is addressed solely to the persons and countries specified therein should not be relied upon other than by such persons and/or outside the specified countries. Terms and conditions, including restrictions on use and distribution apply.

 


Final Results - RNS