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RNS
BBA Aviation PLC   -  BBA   

Final Results

Released 07:00 05-Mar-2019

RNS Number : 8107R
BBA Aviation PLC
05 March 2019
 

 

 

 

 

 

 

 

BBA Aviation plc

 

2018 Final Results

 

Results for the year ended

31 December 2018

  

 

For further information please contact:

David Crook, Group Finance Director                                                                                    (020) 7514 3999

Kate Moy, Investor Relations

BBA AVIATION PLC

 

David Allchurch                                                                                                                      (020) 7353 4200

TULCHAN COMMUNICATIONS

 

 

A video with Mark Johnstone, Group Chief Executive, and David Crook, Group Finance Director, is now available on www.bbaaviation.com

 

A live audio webcast of the analyst presentation will be available from 08:30 today on www.bbaaviation.com
 

FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Underlying results1

Statutory results

 

2018

2017 Restated2

 

2018

2017 Restated2

 

 

Total

(including

discontinued operations)

Continuing

Total

(including

discontinued operations)

Continuing

% Change3

Total

(including discontinued operations)

Continuing

Total

(including discontinued operations)

Continuing

% Change3

Revenue

2,880.9

2,347.3

2,409.0

1,857.3

20%

2,880.9

2,347.3

2,409.0

1,857.3

20%

EBITDA

456.4

417.7

447.9

416.2

2%

431.5

393.9

418.7

392.5

3%

Operating profit

375.2

340.2

360.4

336.5

4%

261.5

227.6

237.4

219.1

10%

Profit before tax

308.0

273.9

298.3

275.0

3%

174.3

147.2

168.7

157.6

3%

Profit after tax

240.5

216.3

246.3

223.7

(2)%

137.9

118.7

119.3

118.5

16%

Basic adjusted earnings per share4

23.3¢

21.0¢

24.0¢

21.8¢

(3)%

13.4¢

11.5¢

11.6¢

11.5¢

16%

Underlying and Statutory

Return on

invested capital

11.4%

-

11.0%

-

40 bps

 

 

 

 

 

Free cash flow

224.8

   258.6

220.6

221.3

2%

 

 

 

 

 

 

Net debt

(1,332.2)

-

(1,167.1)

-

-

 

 

 

 

 

 

Dividend per share

14.07¢

-

13.40¢

-

5%

 

 

 

 

 

 

                                                     

 

1. Underlying results represent alternative performance measures (APM), see APM section outlining all such measures

2. Restated following the presentation of ERO (excluding the Middle East) as a discontinued operation

3. % change based on total (including discontinued operations)

4. Statutory measure is basic earnings per share

 

 

Highlights

 

·      Total underlying operating profit up 4.1% to $375.2 million (2017: $360.4 million); Signature FBO network outperforming growth in the US B&GA market

·      Statutory operating profit increased by 10.2% to £261.5 million (2017: $237.4 million)

 

 

·      Continuing operations: 

Signature (85% of continuing Group underlying operating profit) 

§  Organic revenue up 2.7% (Signature FBO up 3.0%) with network agreements contributing to outperformance

§  US B&GA market growth of 0.9%

§  Underlying operating profit of $320.6 million (2017: $329.4 million), after absorbing IT spend of $14 million

§  EPIC acquisition delivering $2.9 million for six months as expected, with network benefits to come in 2019 and beyond

 

Ontic (15% of continuing Group underlying operating profit) 

§  Underlying operating profit growth of 7.4% to $59.3 million (2017: $55.2 million), driven by licence acquisitions

§  Strong Ontic acquisitions during the year with a $6.0 million contribution to operating profit

§  Firstmark acquisition integrating well and proceeding to plan

 

·    Discontinued operations: 

Engine Repair and Overhaul (ERO) excluding the Middle East delivered strong underlying operating profit performance of $35.0 million, an improvement of $10.9 million

 

·      Statutory profit before tax was up 3.3% to $174.3 million (2017: $168.7 million)

 

·      Continuing Group free cash flow up 16.9% to $258.6 million (2017: $221.3 million) highlighting inherently strong free cash generation. Total Group free cashflow up 1.9% to $224.8m (2017: $220.6 million)

 

·      Leverage at 2.8x net debt/underlying EBITDA on a covenant basis, within our target range of 2.5-3.0x, reflecting our growth investments in EPIC, Firstmark, St Thomas and Ontic licences

 

·      Total Group ROIC increased by 40 basis points to 11.4% (2017: 11.0%)

 

·      Underlying Total Group adjusted basic EPS decreased by 2.9% to 23.3¢ (2017: 24.0¢). Total Group basic EPS increased by 15.5% to 13.4¢ (2017: 11.6¢)

 

·       Final dividend increased by 5% to 10.07¢ reflecting continued confidence in the Group's future growth prospects and cash generation.

 

 

Mark Johnstone, BBA Aviation Group Chief Executive, commented:

 

"We are pleased with our strategic achievements in 2018, including the complementary acquisitions of EPIC and Firstmark Corp, which are important platforms for growth and were funded well within the parameters of our re-defined target leverage range. The integration of both acquisitions is progressing well with benefits to come in 2019 and beyond. 

 

Against the backdrop of a US B&GA market that grew 0.9% during 2018, Signature FBO delivered continued market outperformance of 210 basis points and we made progress in strengthening our unique global network of FBOs and building on a range of commercial initiatives that will enhance the customer experience and help deliver our medium-term target of 250 basis points of market outperformance.

 

We continue to execute against our strategic growth initiatives as outlined at our recent capital markets day which reflects our continued expectation for long-term structural growth in B&GA flying activity. We are investing in both people and technology to drive growth; continuing to lead change within the FBO industry while also expanding our offering of non-fuel services; improving yield management; and further leveraging our market-leading network and service quality.

 

Ontic's performance was ahead of expectations. Ontic has high returns and a growing portfolio of IP-protected licences and continues to have a strong pipeline of licence opportunities to help deliver our stated EBITDA target of $100 million by the end of 2021.

 

In summary, the continuing Group is focused on high ROIC and strongly cash generative market-leading businesses which offer further scope for investment opportunities in both the B&GA market and the legacy aftermarket, coupled with the prospect of returns to shareholders as we maintain our target leverage range. The Board is confident of continued outperformance against the US B&GA market in 2019 led by our strategic growth initiatives."
 

FINAL RESULTS 2018

 

Overview

 

BBA Aviation performed well, with Signature outperforming the US B&GA market and further licence investments delivering strong growth in our Ontic business. We made good progress with the implementation of our strategy. We continued to invest in our FBO network through the acquisition of EPIC and the St Thomas Jet Center, and through lease extensions, notably at Atlanta and Nashville. In Ontic we added the Firstmark business and six new licences.

 

Continuing Group revenue increased by 26.4% to $2,347.3 million (2017: $1,857.3 million) including a $292.5 million contribution from the acquisition of EPIC and a $12.3 million contribution from Ontic licence acquisitions and Firstmark.

·      Signature revenue increased 29.5%, reflecting organic growth in the Signature FBO business of 3.0%, the six-month contribution from EPIC, the positive impact of higher fuel prices ($138.2 million) and foreign exchange movements ($6.0 million).

·      Ontic revenue increased by 3.4% with the contribution from the 2018 licence acquisitions and Firstmark more than offsetting a reduction in prior year military orders which were non-recurring, as expected.

 

Continuing Group underlying operating profit was $340.2 million (2017: $336.5 million).

·      There was a robust underlying operating performance in Signature of $320.6 million (2017: $329.4 million), impacted by previously announced IT spend of $14 million

·      Underlying continuing operating profit at Ontic of $59.3 million (2017: $55.2 million) includes a $6.0 million contribution from acquisitions

·      Total central costs of $39 million reduced by $6.7 million (2017: $45.7 million).

 

Continuing statutory operating profit was up 3.9% to $227.6 million (2017: $219.1 million).

 

We completed the strategic review of our Engine Repair and Overhaul (ERO) business in the first half and reclassified the business as held for sale and reported it as a discontinued operation in late May 2018. We anticipate making a further announcement on the ERO disposal process in due course. 

 

Net interest for the continuing operations increased by $4.8 million to $66.3 million (2017: $61.5 million) and includes a one-time gain of $4.6 million from hedging contracts closed out as part of the refinancing announced in April 2018.

 

Net debt increased to $1,332.2 million (2017: $1,167.1 million). Net debt to underlying EBITDA increased to 2.8x on a covenant basis (2017: 2.6x) and 2.9x on a reported basis (2017: 2.6x). Interest cover on a covenant basis decreased to 7.9x (2017: 8.4x).

 

Continuing underlying profit before tax was broadly flat at $273.9 million (2017: $275.0 million). Statutory profit before tax for the continuing Group was $147.2 million (2017: $157.6 million). The decrease arose principally from the higher level of exceptional and other items charged.

 

The Group's underlying tax rate for continuing operations was 21.0% (2017: 18.7%). The increase in rate of 2.3% primarily reflects the non-repeat of prior year adjustments in 2017 and the impact of US tax reform in late 2017. Cash taxes paid reduced significantly to $27.1 million (2017: $41.8 million) largely as a result of non-repeat tax payments made in 2017 relating to taxable gains on the disposal of ASIG. In addition, 2018 cash taxes benefited from the introduction of 100% capital allowances as part of US tax reform and timing of payments for the 2018/19 tax year.

 

Adjusted earnings per share for continuing operations was down 3.7% to 21.0¢ (2017: 21.8¢). Statutory earnings per share for continuing operations was flat at 11.5¢.

 

Exceptional and other items after tax, for continuing and discontinued operations, totalled $102.6 million (2017: $127.0 million) of which $5.0 million (2017: $21.8 million) related to discontinued operations. Key components of this for continuing operations are the non-cash amortisation of acquired intangibles accounted for under IFRS3 ($88.8 million), impairment primarily relating to Sloulin Field FBO ($14.1 million), restructuring expenses ($8.9 million), and a one-off past service pension cost in relation to Guaranteed Minimum Pensions (GMP) equalisation within our UK plan ($11.1 million). Exceptional and other items on discontinued operations of $5.0 million, net of tax, relate to the conclusion of the restructuring of our ERO Dallas footprint and costs relating to the strategic review and disposal process of the ERO business.

 

Free cash flow for the continuing Group improved to $258.6 million (2017: $221.3 million), primarily as a result of the working capital inflow. Total Group free cash flow was $224.8 million (2017: $220.6 million). There was a $26.2 million outflow of working capital in 2018 (2017: $46.3 million outflow). The outflow in 2018 was largely due to the decreased availability of parts from OEMs in the discontinued ERO business, which impacted timing of completion on engine overhaul events.

 

Gross capital expenditure amounted to $93.1 million (2017: $85.3 million). Principal capital expenditure items include investment in Signature's FBO developments at Nashville, Las Vegas and the construction of a sports charter terminal at our Miami FBO which will support our Signature ELITE ClassTM growth initiative.

 

Cash flows on exceptional and other items were an outflow of $19.5 million (2017: $12.7 million outflow) and are largely a result of restructuring expenses and costs associated with the disposal process for our ERO discontinued operations.

 

The Group made $5.9 million of pension scheme payments (2017: $5.1 million).

 

Net interest payments were $58.2 million (2017: $57.2 million) and dividend payments amounted to $140.7 million (2017: $130.7 million).

 

Total spend on acquisitions and licences completed during the year was $226.8 million (2017: $81.0 million), which included the acquisition of EPIC and Firstmark, Ontic licence acquisitions from Honeywell and Esterline, along with the acquisition of a minority stake in the St Thomas Jet Center.

 

Total Group Return on Invested Capital (ROIC) increased by 40 bps to 11.4% (2017: 11.0%).

 

 

 

Business Review - Continuing Operations

 

Signature (85% of continuing operations' underlying operating profit)

 

Signature ("Signature FBO", "TechnicAir" and "EPIC") provides specialist on-airport services including refuelling, ground handling and line maintenance to the business & general aviation (B&GA) market.

 

2018

$m

Signature FBO

TECHNICAir

EPIC

Total

Revenue

1,761.0

74.1

292.5

2,127.6

Organic revenue growth

3.0%

(3.4)%

-

2.7%

Underlying operating profit

315.7

3.7

1.2

320.6

Constant fuel operating margin

17.9%

4.9%

0.4%

15.1%

Statutory operating profit

 

 

 

244.6

Operating cash flow

 

 

 

350.0

Divisional return on invested capital

 

 

 

11.8%

 

2017

 

 

 

 

$m

Signature FBO

TECHNICAir

EPIC

Total

Revenue

1,566.6

76.4

-

1,643.0

Organic revenue growth

4.2%

(2.8)%

-

3.8%

Underlying operating profit

321.9

7.5

-

329.4

Constant fuel operating margin

18.9%

9.9%

-

18.5%

Statutory operating profit

 

 

 

247.1

Operating cash flow

 

 

 

313.4

Divisional return on invested capital

 

 

 

12.2%

 

 

Yr on yr change

 

 

 

 

$m

Signature FBO

TECHNICAir

EPIC

Total

Revenue

12.4%

(3.0)%

-

29.5%

Organic revenue growth

Underlying operating profit

(1.2)%

(1.9)%

(0.6)%

(50.7)%

-

-

(1.1)%

(2.7)%

Constant fuel operating margin

(100)bps

(500)bps

-

(340) bps

Statutory operating profit

 

 

 

(1.0)%

Operating cash flow

 

 

 

11.7%

Divisional return on invested capital

 

 

 

(40) bps

 

 

 

 

 

           

 

 

Signature FBO revenue increased 12.4% to $1,761.0 million (2017: $1,566.6 million). This was an increase of 3.0% on an organic basis, after adjusting for higher fuel prices of $138.2 million and foreign exchange movements of $5.7 million, which was delivered against a backdrop of US B&GA movements (source: FAA) which were up 0.9% for the year to December 2018, representing outperformance of 210 basis points. We continue to believe the US B&GA market is a long-term structural growth market, correlated with GDP growth but that we are currently in a period of short-term disconnect. Uncertainty around the US trade tariffs and a slowdown in China are believed to have contributed to a decline in business confidence in the second half, and a reduction in discretionary flying, which has been particularly notable in our charter customer segment. European B&GA movements were up 0.5% in 2018.

 

Signature FBO underlying operating profit was down 1.9% to $315.7 million (2017: $321.9 million) which was impacted by previously announced investments in commercial technology to enhance customer service and support revenue optimisation initiatives. We remain confident in Signature's ability to continue to deliver significant value creation across our enlarged network, supported by the commercial growth investments made during 2018 and the initial implementation of the strategic growth initiatives presented at the recent capital markets day.

 

The underlying operating margin in Signature FBO was 17.9% (2017 on a constant fuel price basis: 18.9%) and reflects the impact of commercial technology investment noted above.

 

TECHNICAir experienced a challenging year in 2018 with organic revenue decline of 3.4% to $74.1 million (2017: $76.4 million). Underlying operating profit reduced by some 50.7% to $3.7 million (2017: $7.5 million) due to the availability of skilled technicians and lower repair activity on key contracted maintenance account.

 

EPIC joined the Group on 1 July 2018 and contributed revenues of $292.5 million and underlying operating profit of $2.9 million for the six months of ownership. The underlying operating profit was offset by $1.7 million of EPIC related transaction and integration costs. The integration of EPIC is progressing in line with expectations.

 

Signature's overall revenue, which includes our Signature FBO business, our line maintenance business TECHNICAir and EPIC, increased by 29.5% to $2,127.6 million (2017: $1,643.0 million). The EPIC acquisition contribution was $292.5 million for the six months of ownership and the positive impact of higher fuel prices and foreign exchange movements, together increased revenue by $144.2 million. Signature's organic revenue, which excludes the impact of higher fuel prices, foreign exchange and acquisitions increased by 2.7%.

 

Statutory operating profit of $244.6 million decreased by 1.0% (2017: $247.1 million).

 

Operating cash flow for Signature improved to $350.0 million (2017: $313.4 million), principally due to improved working capital performance. Return on invested capital decreased marginally to 11.8% (2017: 12.2%).

 

 

Signature Strategic growth initiatives

 

We continue to invest in our Signature FBO network, including investments in new technology to enhance our fuel and non-fuel revenue management capabilities. As previously announced, we have been investing in enhanced EPoS and revenue optimisation tools. The Group is confident that the outperformance of the Signature FBO network against the US B&GA market demonstrates the ability of our unrivalled network to deliver value.

 

In the first half of 2018, Signature secured a significant lease term extension with a new 20-year lease (with a possible further five-year extension) at its sole source FBO at Hartsfield Jackson Atlanta International Airport. Here, at what is the world's busiest hub airport, we are investing in a new FBO facility and will launch our Signature ELITE Class™ service which provides private transfers to/from commercial flights via Signature's FBO facilities.

 

In the first half of 2018 we also opened a 3,500 square foot Sports Charter terminal at our FBO at Miami International Airport. The new facility will support a higher volume of home and visiting professional and collegiate sports teams travelling to and from the Miami area.

 

 

EPIC acquisition

 

EPIC was acquired on 1 July 2018 and provides fuel and fuel related services at 202 EPIC branded, privately owned independent FBO locations, and 121 unbranded locations. EPIC's FBO locations complement our existing Signature Select® branded locations, establishing a non-owned, franchise network to operate alongside our market-leading owned FBO network.

 

EPIC is our existing Signature fuel card partner and the acquisition allows Signature to have full end-to-end management of the Signature EPIC fuel card programme, associated transaction processing and data capture, as a platform for an enhanced service offering across our entire network. We also acquired EPIC's proprietary QTPod technology for self-fuelling AvGas services. QTPod is expanding its footprint in the aviation industry with a new proprietary and cloud based self-serve fuelling terminal.

 

We acquired EPIC for a purchase price of $88.1m, which represents an expected year one EBITDA multiple of 11.7x, and the business is expected to achieve our ROIC target threshold of 12% by year three.

 

 

St Thomas Jet Center

 

In October we reached an agreement to acquire St Thomas Jet Center located at Cyril E. King - Charlotte Amalie Airport in St Thomas, United States Virgin Islands. This acquisition further expands our presence in the Caribbean and will occur in two phases: 49% was acquired on signing and we expect to acquire the remaining 51% of the business within 14 months of that date. The St. Thomas Jet Center comprises an executive terminal, an aircraft maintenance and storage hangar and a newly constructed fuel farm.

 

 

Our FBO network

 

There are 196 locations in Signature's global network, including 18 Signature Select® franchise locations, including Gary International Airport in Chicago which we added during the year. Following the acquisition of EPIC we added 202 privately owned, EPIC branded independent FBOs and a further 121 unbranded locations. This creates a total network of over 400 FBO locations, significantly extending Signature's network relevance and the range of services it can offer.

 

During the year we have also invested in a new Executive and Sports Charter terminal and hangar space at Nashville Airport. The $15 million investment commitment in a new 8,000 square foot terminal and 25,000 square foot hangar secured a new 30-year lease with the Metropolitan Nashville Airport Authority.

 

We have also completed the renovation of our Las Vegas FBO at McCarren International Airport. The complete interior renovation of the 8,000 square foot facility includes modern pod-configuration customer service counters, customer lounge area and bar, crew lounge, quiet rooms, conference rooms and a business centre and management offices.

 

As we look forward, we will focus on delivering more value through leveraging Signature's unique network of FBOs through a combination of organic growth, core revenue source optimisation, non-fuel revenue growth and new services and improved asset utilisation. We will continue to focus on delivering improved yield management of both fuel and non-fuel revenues from our real estate footprint through first-class customer experience, customer segmentation and technology.

 

We will also further develop our existing non-fuel services, through the increased penetration of our Signature/EPIC card services programme, as presented at our recent Capital Markets Day. Over time, we will also leverage the increased opportunity in advertising throughout our real estate, which builds on our unique customer group that controls significant wealth.

 

With regard to new services being introduced over the next few years, we will be focusing on ELITE ClassTM (our commercial passenger interconnect service) as further evidence of Signature redefining the market reach for B&GA infrastructure. Through this range of growth opportunities, we are now targeting market outperformance of some 250 basis points above US B&GA movement growth over the medium term.

 

We continue to evaluate a number of investment opportunities that we believe will further enhance and fortify Signature's unique real estate network as we continue to lead the development of the B&GA market.

 

 

Ontic (15% of continuing operations' underlying operating profit)

 

Ontic, the Group's legacy support business is focused on the support of maturing aerospace platforms.

 

$m

2018

2017

% Change

Revenue

216.0

208.8

 3.4 %

Underlying operating profit

59.3

55.2

7.4 %

Underlying operating margin

27.5%

26.4%

110 bps

Statutory operating profit

43.5

43.7

(0.5) %

Operating cash flow

51.4

54.0

(4.8)%

Divisional ROIC

15.6%

16.8%

 (120) bps

 

Note: Our former Aftermarket Services business ERO (Middle East) is included in the Ontic segment as presented in note 1. While the business ceased operations, it is not included as part of the ERO disposal process and therefore not reported in discontinued operations. In 2018 the ERO (Middle East) business contributed revenue of $3.7 million and an underlying operating loss of $0.7 million and a statutory operating loss of $5.5 million (2017: Revenue $5.5 million, underlying operating loss of $2.4 million and a statutory operating loss of $17.0 million). The business ceased operations in April 2018. The figures in the table above relate to the Ontic business only.

 

Ontic revenue increased by 3.4% to $216.0 million (2017: $208.8 million). On an organic basis, which adjusts for FX of $2.7 million and the contribution from Ontic licence acquisitions and Firstmark of $12.3 million, revenue declined by 3.7% given the previously highlighted strong prior year comparative due to non-recurring cyclical military orders.

 

Underlying operating profit of $59.3 million increased by 7.4% (2017: $55.2 million) driven by the contribution from Ontic licence acquisitions and an initial one-month contribution from Firstmark, which together added $6.0 million. On an organic basis, excluding FX of $0.9 million and acquisitions of $6.0 million, Ontic's underlying operating profit decreased 5.0%. Underlying operating margins improved to 27.5% (2017: 26.4%).

 

Statutory operating profit of $43.5 million decreased by $0.2 million (2017: $43.7 million).

 

There was an operating cash inflow for the division of $51.4 million (2017: $54.0 million inflow) driven by working capital performance. Return on invested capital was 15.6 % (2017: 16.8%).

 

 

Ontic Strategic growth initiatives

 

New licence acquisitions

 

Early in 2018 Ontic signed a first product licence with Racal Acoustics, part of Esterline Corporation, for various military and civil avionics products including cockpit communication control systems. We also signed a new licensing agreement with Honeywell for cockpit LCD displays on multiple commercial, military fixed-wing and rotorcraft platforms. We were pleased to sign a first product licence with Engine Control Services (part of United Technologies Aerospace Systems) for the manufacturing and aftermarket support of military fuel control products. Our fourth licence acquired in 2018 was with Ultra Electronics.

 

In December 2018 Ontic signed a new licence agreement with a major OEM for legacy support on engine pressure transmitters, fuel flow transmitters and fluid monitoring chip detectors fitted to a range of commercial/military rotorcraft and fixed wing platforms. Under the terms of the agreement Ontic, out of its Chatsworth facility in California, will be responsible for all ongoing new build production and repairs and spares support for the global customers of this large installed base. This further enhances our relationship with this OEM and highlights our capability to strategically assist OEM partners with on-going support of their non-core products.

 

Our total cash spend on licence acquisitions was $27.5 million (2017: $79.9 million) and, in addition, deferred consideration of $10 million was paid in January 2019 for the December licence acquisition from the major OEM.

 

Firstmark Corp acquisition

 

In September 2018, we announced the acquisition of Firstmark Corp, an aerospace focused aftermarket service provider, for a consideration of $97.4 million. Firstmark is a leading provider of highly engineered, proprietary components and subsystems for the aerospace and defence industries. The company employs over 70 people and has locations at Creedmoor, North Carolina and Plainview, New York and expands Ontic's US footprint to the East Coast. It is highly complementary to Ontic's existing sites in Chatsworth (California), Cheltenham (UK), and Singapore.

 

Firstmark enhances Ontic's exposure to the commercial and military aerospace markets, providing access to a range of growth opportunities across various established strategic platforms, with a significant installed base, high utilisation rates and extended in-service lives. The $97.4 million consideration represents an expected year one EBITDA multiple of 11.1x before acquisition related expenses. Firstmark is expected to contribute revenue of around $27.0 million in 2019, its first full year of ownership. The acquisition completed at the end of November 2018, resulting in a one-month contribution.

 

Ontic continues to assess a strong pipeline of opportunities in relation to new products and licence adoptions and possible M&A.  As highlighted at our recent Capital Markets Day, through effective execution of the licence and M&A opportunities available we expect Ontic EBITDA to reach $100 million by the end of 2021. We continue to screen these investment opportunities at our 12% pre-tax ROIC threshold.

 

 

Central costs

 

Total central costs, which includes support costs relating to the discontinued ERO business, have decreased in 2018 by $6.7 million to $39.0 million (2017: $45.7 million). Underlying central costs in 2018 (excluding support costs of discontinued operations) were $28.3 million (2017: $34.1 million). This reduction of $5.8 million primarily reflects the comparative period in 2017 being impacted by additional one-time costs incurred in our captive insurance company for the damage to our US and Caribbean facilities in the 2017 hurricanes, the remaining ASIG support costs, now removed from the business.

 

In addition, total central costs now also include $10.7 million of costs to support ERO (2017: $11.6 million) which are not classified within discontinued operations. These costs will be addressed post completion of the ERO disposal and any associated Transitional Support Agreement period.

 

 

Business Review - Discontinued Operations

 

At the end of May 2018 management committed to a plan to sell substantially all our ERO 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 ERO operations were also classified as a discontinued operation.  The Middle East ERO business has now ceased trading and is therefore not held for sale. The financial performance of the Middle East ERO business is reported alongside Ontic within the Ontic segment as presented in note 1.

 

In 2018 ERO's revenue increased by 4.0% to $533.6 million (2017: $513.3 million). In stable markets, ERO's underlying operating profit was up 45.2% to $35.0 million (2017: $24.1 million). ERO's profit improvement includes the $5.2 million benefit from the suspension of depreciation and amortisation for the seven months from June 2018, the required accounting treatment while the business is held for sale.

 

During the year ERO benefited from favourable TFE, Tay and Spey volumes and a strong performance at our state-of-the-art overhaul and testing facility at Dallas Airmotive.

 

Also reported in discontinued operations for the year ended 31 December 2017 are revenues of $38.4 million and an underlying operating loss of $0.2 million for ASIG, sold to John Menzies plc on 31 January 2017, which generated proceeds of $180.4 million, net of costs.

 

 

Other Financial Information and Refinancing

 

Net debt increased by $165.1 million to $1,332.2 million (2017: $1,167.1 million). At 31 December 2018 the Group had total borrowings of $1,438.1 million (2017: $1,322.8 million), obligations under finance leases of $4.3 million (2017: $1.3 million) and cash and cash equivalents of $109.3 million for continuing operations (2017: $153.5 million).

 

Net debt to underlying EBITDA increased to 2.8x on a covenant basis (FY 2017: 2.6x) and 2.9x on a reported basis (FY 2017: 2.6x). Interest cover on a covenant basis decreased to 7.9x (FY 2017: 8.4x).

 

Net cashflow from operating activities was $29.3 million higher at $368.3 million (2017: $339.0 million). This was driven by a reduced outflow of working capital of $26.2 million (2017: $46.3 million outflow).  The continuing Group's strong working capital performance was offset by the discontinued ERO business where the availability of parts from OEMs impacted timing of completion on engine overhaul events. Gross capital expenditure amounted to $93.1 million (2017: $85.3 million), including investments on our FBOs in Nashville, San Jose, Las Vegas and Miami.

 

Income taxes paid were down $14.7 million to $27.1 million (2017: $41.8 million) due largely to non-repeat of tax paid in the prior year on ASIG disposal and 100% capital allowances for qualifying capital expenditure introduced under US tax reform from 2018 which will continue to be available for four more years. Net interest payments were up $1.0 million to $58.2 million (2017: $57.2 million).

 

Free cash flow was $4.2 million higher at $224.8 million (2017: $220.6 million). Free cash flow is shown after absorbing a free cash outflow on discontinued operations of $33.8 million (2017: $0.7 million outflow) as a result of the availability of parts from OEMs impacting engine completions and therefore working capital. On a continuing group basis free cash flow was $258.6 million (2017: $221.3 million).
 

As previously announced, the Group has refinanced its $650 million unsecured multicurrency revolving credit facility (RCF) which was due to mature in April 2019, with a new facility which will expire in March 2023. The new RCF has been agreed predominantly with the Group's existing lenders with an overall weighted average interest cost in line with the previous facility. In April 2018 we also issued our inaugural $500 million senior unsecured notes due 2026 at 5.375%. The proceeds from the issuance of $500 million senior unsecured notes were used to repay the $253 million Facility B of our acquisition financing and $120 million of US private placement notes which matured in May 2018. This gives the Group a diversified debt structure with an extended maturity profile to align better with the long-term nature of the assets being financed and to support future growth.

 

Pensions

 

The Group's net defined benefit pension and other post-retirement benefits liabilities reduced to $28.2 million during 2018 from $71.7 million at 31 December 2017 and $44.5 million at 30 June 2018. The reduction in the net deficit of $43.5 million since 31 December 2017 is due to the favourable movements in discount rate assumptions and experience emerging from updating for the membership data used for the 2018 scheme funding valuation which is ongoing.

 

Dividend

 

The Board is declaring an increased final dividend of 10.07¢ (2017: 9.59¢) up 5% reflecting the Board's progressive dividend policy and its continued confidence in the Group's future growth prospects. This gives a total dividend for 2018 of 14.07¢ (2017: 13.40¢).

 

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.  The deadline for elections is 5:30pm on 30 April 2019.

 

IFRS 16

 

We will adopt the new accounting standard IFRS 16 (Leases) with effect from 1 January 2019. The adoption of IFRS 16 has no impact on the economic prospects, strategy or cash generative nature of the business which continues to support our progressive dividend policy. IFRS16 does significantly impact several key financial metrics with regard to reported performance, financial position, financing costs and associated financial leverage.

 

We have chosen to adopt the modified retrospective approach available within the standard and therefore we will not restate the comparative disclosures for the impact of IFRS 16. The approach we will take to ensure consistency and comparability is to report an Adjusted Performance Measure (non-GAAP metric) from 2019 onwards to convert and reconcile IFRS 16 back to the historical accounting treatment of leases. This historical accounting treatment of leases is the basis on which we will be tested under our banking covenants and is consistent with the 2.8x net debt to EBITDA we are reporting today. 

 

The indicative impact on key financial measures at the point of adopting the standard are set out in the table below:

Metric

 

Increase/decrease

No impact

Free cashflow

FY 2019

-

-

Revenue

FY 2019

-

-

Metric

 

Increase/decrease

Impact

Operating profit

FY 2019

Increase

c12%

EBITDA

FY 2019

Increase

c30%

Interest

FY 2019

Increase

c100%

Profit before tax

FY 2019

Decrease

c10%

Adjusted EPS

FY 2019

Decrease

c10%

Total assets

1 Jan 2019

Increase

c25%

Total liabilities

1 Jan 2019

Increase

c50%

Operating cashflow

FY 2019

Increase

c35%

Net debt

1 Jan 2019

Increase

c85%

 

 

Board Changes

 

As previously announced, Mark Johnstone was appointed as Group Chief Executive with effect from 1 April 2018. Wayne Edmunds stepped down from his role as Interim Group Chief Executive on 31 March 2018 and remains on the Board as a non-executive director. On 1 January 2018 Amee Chande and Emma Gilthorpe both joined the Board as non-executive Directors.

 

In January 2019 we welcomed two new non-executive Directors, Vicky Jarman and Stephen King, to the Board. Vicky started her career with KPMG where she qualified as a Chartered Accountant.  Shortly after qualification Ms Jarman moved to Lazard & Co working in the Corporate Finance team before becoming Chief Operating Officer for the London and Middle East operations until 2009.  Ms Jarman is currently a non-executive director at Knight Frank, the global commercial and residential real estate advisor, and previously held non-executive appointments at De La Rue, Equiniti Group and Hays.

 

Stephen qualified as a Chartered Accountant with Coopers & Lybrand and has held a number of finance roles in blue chip organisations including Lucas Industries plc, Seeboard plc, De La Rue plc and Caledonia Investments plc, where he was Group Finance Director for nine years.  Mr King is currently a non-executive director of Bristow Inc. Chemring Group plc and TT Electronics where he is the Senior Independent Director and also chairs the Audit Committee.
 

Ms Jarman and Mr King will sit on the Audit and Risk, Remuneration and Nomination Committees.

 

Susan Kilsby, Chairman of the Remuneration Committee, has decided that having served on the Board for seven years she will not stand for re-election at the AGM in May and will retire from the Board at this time. Peter Ventress will be taking over from Susan as Chairman of the Remuneration Committee and as our Senior Independent Director. Stephen King will replace Peter as the Chairman of the Audit and Risk Committee.

 

Outlook

 

Overall, we are pleased with the progress we have made in 2018, against a US B&GA market which has shown less growth than we anticipated. In Signature we have invested in the EPIC business which has extended and fortified our network, added St Thomas Jet Center, which enhances our presence in the Caribbean, and our investments in commercial technology will underpin the future growth and longer-term market outperformance of our business.  In Ontic, the integration of Firstmark Corp is progressing well and we continue to evaluate a good pipeline of licence opportunities.

 

Our 2019 performance will reflect a full year's contribution from the EPIC and Firstmark acquisitions and we expect to see initial benefits from our investments in commercial technologies. In the first few months of 2019 we have seen little change in the underlying US B&GA market conditions, which have continued the trend seen in the fourth quarter of 2018. We remain focused on delivering continued US B&GA market outperformance in 2019 and beyond and set out some of our new areas of focus at the recent Capital Markets Day, where we raised our medium-term B&GA market outperformance target to 250 basis points. We will also grow Ontic through continued product licensing and potential bolt-on acquisitions taking us towards our stated EBITDA target of $100m by the end of 2021. The continuing Group is focused on high ROIC and strongly cash generative businesses which will enable us to grow and deliver shareholder value.

 

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, including Brexit (the impact of which is not expected to be significant) 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 Group's full Annual Report for the year ending 31 December 2018. 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 Group 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 Group 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,

 

 

 

 

Mark Johnstone                                                                                         David Crook

Group Chief Executive Officer                                                                     Group Finance Director

 

4 March 2019                                                                                               4 March 2019

 

 

 

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

 

 

2018

Restated 20172

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

2,347.3

-

2,347.3

1,857.3

 -

1,857.3

Cost of sales

 

(1,825.3)

-

(1,825.3)

(1,369.5)

 -

(1,369.5)

Gross profit

 

522.0

-

522.0

487.8

 -

487.8

 

 

 

 

 

 

 

 

Distribution costs

 

(13.7)

-

(13.7)

(12.1)

 -

(12.1)

Administrative expenses

 

(170.6)

(88.8)

(259.4)

(149.6)

(93.8)

(243.4)

Other operating income

 

1.3

-

1.3

8.3

 -

8.3

Share of profit of associates and joint ventures

 

4.0

-

4.0

3.4

 -

3.4

Other operating expenses

 

(2.8)

(14.9)

(17.7)

(1.3)

(1.2)

(2.5)

Restructuring costs

2

-

(8.9)

(8.9)

 -

(22.4)

(22.4)

Operating profit/(loss)

1, 2

340.2

(112.6)

227.6

336.5

(117.4)

219.1

Impairment of assets

6

-

(14.1)

(14.1)

 -

-

-

Investment income

 

0.7

-

0.7

3.2

 -

3.2

Finance costs

 

(67.0)

-

(67.0)

(64.7)

 -

(64.7)

Profit/(loss) before tax

 

273.9

(126.7)

147.2

275.0

(117.4)

157.6

 

 

 

 

 

 

 

 

Tax (charge)/credit

3

(57.6)

29.1

(28.5)

(51.3)

12.2

(39.1)

Profit/(loss) from continuing operations

 

216.3

(97.6)

118.7

223.7

(105.2)

118.5

Discontinued operations

 

 

 

 

 

 

 

Profit/(loss) from ERO discontinued operations, net of tax

10

24.2

(5.0)

19.2

22.6

0.7

23.3

(Loss)/profit from ASIG discontinued operations, net of tax

 

-

-

-

-

(22.5)

(22.5)

Profit/(loss) for the year

 

240.5

(102.6)

137.9

246.3

(127.0)

119.3

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

Equity holders of BBA Aviation plc

 

240.2

(102.6)

137.6

246.4

(127.0)

119.4

Non-controlling interest

 

0.3

-

0.3

(0.1)

 -

(0.1)

 

 

240.5

(102.6)

137.9

246.3

(127.0)

119.3

 

 

 

 

 

 

 

 

Earnings per share

 

Adjusted

 

Unadjusted

Adjusted

 

Unadjusted

Total Group

 

 

 

 

 

 

 

Basic

5

23.3¢

 

13.4¢

24.0¢

 

11.6¢

Diluted

5

23.1¢

 

13.2¢

23.7¢

 

11.5¢

Continuing operations

 

 

 

 

 

 

 

Basic

5

21.0¢

 

11.5¢

21.8¢

 

11.5¢

Diluted

5

20.8¢

 

11.4¢

21.5¢

 

11.4¢

Discontinued operations

 

 

 

 

 

 

 

Basic

10

2.3¢

 

1.9¢

2.2¢

 

0.1¢

Diluted

10

2.3¢

 

1.8¢

2.2¢

 

0.1¢

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.

2       The Group has presented ERO discontinued operations in the current year, and accordingly the prior period has been restated as required by IFRS, see note 11. In addition, in the comparative period, the Group presented ASIG discontinued operations.
 

Consolidated Statement of Comprehensive Income

For the year ended 31 December

Notes

2018

$m

2017

$m

Profit for the year

 

137.9

119.3

 

 

 

 

Other comprehensive income

 

 

 

Items that will not be reclassified subsequently to profit or loss

 

 

 

Actuarial gains on defined benefit pension schemes

 

51.2

11.2

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

3

(9.0)

(1.1)

 

 

42.2

10.1

 

 

 

 

Items that may be reclassified subsequently to profit or loss

 

 

 

Exchange difference on translation of foreign operations

 

(27.5)

(6.8)

Recycling of translational exchange differences accumulated in equity upon disposal of subsidiary

10

-

6.4

Fair value movements in assets classified as financial instruments through other comprehensive income

 

(1.8)

(4.4)

Fair value movements in foreign exchange cash flow hedges

 

(2.9)

10.1

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

 

(1.0)

(2.2)

Fair value movement in interest rate cash flow hedges

 

5.9

1.7

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

 

(6.3)

4.0

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

3

1.7

 (4.3)

 

 

(31.9)

4.5

 

 

 

 

Other comprehensive income for the year

 

10.3

14.6

 

 

 

 

Total comprehensive income for the year

 

148.2

133.9

 

 

 

 

Attributable to:

 

 

 

Equity holders of BBA Aviation plc

 

147.9

134.0

Non-controlling interests

 

0.3

(0.1)

 

 

148.2

133.9

 

 

 

Consolidated Balance Sheet

As at 31 December

Notes

2018

$m

2017
$m

 

Non-current assets

 

 

 

 

Goodwill

6

1,191.1

1,126.6

 

Other intangible assets

6

1,329.4

1,311.3

 

Property, plant and equipment

 

779.9

845.5

 

Interests in associates and joint ventures

 

53.5

41.4

 

Trade and other receivables

 

18.8

20.1

 

Deferred tax asset

 

-

0.1

 

 

 

3,372.7

3,345.0

 

Current assets

 

 

 

 

Inventories

 

120.3

249.9

 

Trade and other receivables

 

260.2

321.4

 

Cash and cash equivalents

 

109.3

153.5

 

Tax recoverable

 

1.1

0.7

 

Assets held for sale

10

407.6

 -

 

 

 

898.5

725.5

 

Total assets

 

4,271.2

4,070.5

 

Current liabilities

 

 

 

 

Trade and other payables

 

(439.2)

(502.1)

 

Tax liabilities

 

(39.8)

(31.9)

 

Obligations under finance leases

 

(1.1)

(0.2)

 

Borrowings

7

(1.5)

(124.2)

 

Provisions

 

(23.0)

(32.2)

 

Liabilities held for sale

10

(146.8)

-

 

 

 

(651.4)

(690.6)

 

Net current assets

 

247.1

34.9

 

Non-current liabilities

 

 

 

 

Borrowings

7

(1,436.6)

(1,198.6)

 

Trade and other payables due after one year

 

(7.6)

(0.9)

 

Pensions and other post-retirement benefits

 

(28.2)

(71.7)

 

Deferred tax liabilities

 

(162.8)

(137.8)

 

Obligations under finance leases

 

(3.2)

(1.1)

 

Provisions

 

(37.2)

(36.6)

 

 

 

(1,675.6)

(1,446.7)

 

Total liabilities

 

(2,327.0)

(2,137.3)

 

Net assets

 

1,944.2

1,933.2

 

Equity

 

 

 

 

Share capital

 

509.3

509.0

 

Share premium account

 

1,594.5

1,594.5

 

Other reserve

 

(7.2)

(5.4)

 

Treasury reserve

 

(95.3)

(92.8)

 

Capital reserve

 

56.2

50.4

 

Hedging and translation reserves

 

(105.7)

(73.9)

 

Retained earnings

 

(9.9)

(50.1)

 

Equity attributable to equity holders of BBA Aviation plc

 

1,941.9

1,931.7

 

Non-controlling interest

 

2.3

1.5

 

Total equity

 

1,944.2

1,933.2

 

These financial statements were approved by the Board of Directors on 4 March 2019 and signed on its behalf by:       Mark Johnstone                                        David Crook

                                                                                                                                                                                                                               Group Chief Executive                              Group Finance Director

 

Cash flow for the Group

 

For the year ended 31 December

Notes

2018

$m

2017

$m

Operating activities

 

 

 

Net cash flow from operating activities

8

368.3

339.0

Investing activities

 

 

 

Interest received

 

12.7

3.3

Dividends received from joint ventures and associates

 

2.0

2.4

Purchase of property, plant and equipment

 

(85.3)

(73.4)

Purchase of intangible assets1

 

(7.8)

(11.9)

Proceeds from disposal of property, plant and equipment

 

4.7

16.8

Acquisition of subsidiaries net of cash acquired

9

(210.6)

(75.7)

Investment in assets classified as financial instruments measured through other comprehensive income (FVTOCI)

 

(5.0)

-

Investment in joint venture and associates

 

(10.0)

(0.3)

Proceeds from disposal of subsidiaries and associates, net of cash/(debt) disposed

 

-

170.5

Net cash inflow/(outflow) from investing activities

 

(299.3)

31.7

Financing activities

 

 

 

Interest paid

 

(70.9)

Interest element of finance leases paid

 

(0.1)

(0.1)

Dividends paid

4

(140.7)

(130.7)

Inflow/(outflow) from realised foreign exchange contracts

 

4.5

(15.0)

Proceeds from issue of ordinary shares net of issue costs

 

0.3

0.3

(Purchase)/sale of own shares2

 

(5.5)

0.3

Increase/(decrease) in loans

 

117.1

(222.6)

Decrease in finance leases

 

(0.4)

(0.4)

(Decrease)/increase in overdrafts

 

(2.3)

3.0

Net cash outflow from financing activities

 

(98.0)

(425.7)

Decrease in cash and cash equivalents

 

(29.0)

(55.0)

Cash and cash equivalents at beginning of year

 

153.5

205.3

Exchange adjustments on cash and cash equivalents

 

(13.2)

3.2

Cash and cash equivalents at end of year

 

111.3

153.5

Comprised of:

 

 

 

 Cash and cash equivalents at end of the year

 

109.3

153.5

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

10

2.0

-

1   Purchase of intangible assets includes $1.2 million (2017: $5.0 million) paid in relation to Ontic licences not accounted for as acquisitions under IFRS 3.

2      Purchase/(sale) 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.

 

 

Consolidated Statement of Changes in Equity

 

Notes

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 2017

 

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

Profit for the year

 

-

-

137.6

-

137.6

0.3

137.9

Other comprehensive income for the year

 

-

-

43.9

(33.6)

10.3

-

10.3

Total comprehensive income/(loss) for the year

 

-

-

181.5

(33.6)

147.9

0.3

148.2

Dividends

 

-

-

(140.7)

-

(140.7)

(0.3)

(141.0)

Issue of share capital

 

0.3

-

-

-

0.3

-

0.3

Movement on treasury reserve

 

-

-

-

(5.5)

(5.5)

-

(5.5)

Credit to equity for equity-settled share-based payments

 

-

-

-

8.2

8.2

-

8.2

Tax on share-based payment transactions

3

-

-

0.5

-

0.5

-

0.5

Change in non-controlling interests

 

-

-

(0.5)

-

(0.5)

0.8

0.3

Transfer to retained earnings

 

-

-

(0.6)

0.6

-

-

-

Balance at 31 December 2018

 

509.3

1,594.5

(9.9)

(152.0)

1,941.9

2.3

1,944.2

 

 

 

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 2018 contained in this preliminary announcement was approved by a duly appointed and authorised committee of the Board of Directors on 4 March 2019. 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 2017 have been delivered to the Registrar of Companies. Statutory accounts for the year ended 31 December 2018 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 2018 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 2018.

 

New financial reporting requirements

A number of EU-endorsed amendments to existing standards and interpretations were 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.

The Group adopted from 1 January 2018 two significant changes to the IFRS framework being IFRS 9: Financial Instruments (IFRS 9) and IFRS 15: Revenue from Contracts with Customers (IFRS 15).

IFRS 9

IFRS 9 addresses the classification, measurement and recognition of financial assets and financial 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 the transition the Group elected to recognise future changes in the fair value of the equity investment in Fly Victor Limited and Lider Taxi Aero 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 adopted the hedge accounting requirements of IFRS 9 from 1 January 2018.

The Group performed an assessment of the impact of adopting IFRS 9 based on the financial instruments and hedging relationships upon transition to IFRS 9 and management concluded that the impact of IFRS 9 on the Group was not material.

On transition to IFRS 9 the Group has adopted the modified retrospective approach, and therefore has not restated the prior year comparative within this year's financial statements.

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.

The standard introduced 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.

On transition to IFRS 15 the Group has adopted the modified retrospective approach, and therefore has not restated the prior year comparative within this year's financial statements. On transition to IFRS 15 an impact assessment was performed:

·      Within the Signature business, IFRS 15 did not 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.

·      Within the Ontic and ERO businesses, the methodology adopted for revenue recognition under IFRS 15 was not materially different from the previous standard, IAS 18 Revenue.

Financial reporting standards applicable for future financial periods

A number of EU-endorsed standards and amendments to existing standards and interpretations, which are described below, are effective for annual periods beginning on or after 1 January 2019 and have not been applied in preparing the Consolidated Financial Statements of the Group.

The most significant change to the IFRS framework in these forthcoming standards and amendments to standards is IFRS 16: Leases.

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.

·      Recognise depreciation of the right of use lease assets and interest on lease liabilities over the lease term which 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 be material to the Group's key metrics. Under IAS 17, the charge is booked in full to operating profit. Metrics impacted include operating profit, interest, EBITDA, net debt and operating cashflow.

·      Present the principal amount of cash paid and interest in the cash flow statement 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. 

 

Accounting Policies of the Group - continued

During 2018 the Group completed work to understand the impact of the new standard.  Key components of this process have included:

A detailed review of contracts to establish lease classification

The Group has concluded all leasing contracts in its current portfolio meet the definition of a lease under IFRS 16.

Assessment of transition options

The Group has elected to transition to the new standard adopting the modified-retrospective approach and consequently the comparatives will not be restated.  The modified retrospective approach is a forward-looking computation looking at the impact on any one lease over the remaining term from 1 January 2019.  Subject to specific day one adjustments the new Right of Use asset matches the lease liability.

Discount rate assessment

For new leases taken out post transition, the standard requires future lease payments to be discounted using the interest rate implicit in the lease.  Where this rate cannot be readily determined the standard provides a practical expedient to use Incremental Borrowing Rate ('IBR').

For the current lease portfolio the standard requires that, where the modified retrospective transition option is taken, the IBR is used for all leases in place at 1 January 2019.

The Group has concluded that it is not possible to determine the rate implicit in its portfolio of leases and so will adopt the IBR. The Standard specifies a discount rate needs to be calculated on a lease by lease basis. However, as a practical expedient, the standard allows an entity to apply an IBR to a portfolio of leases with similar characteristics.

The Group will be adopting this expedient, pooling contracts by both geographical region and lease duration. The weighted average discount rate at 1 January 2019 is 6.7%.

Subleasing assessment

The Group has a number of contracts in place to rent space or assets to third parties, predominantly across its FBO portfolio.

IFRS 16 requires an assessment of these contracts to determine firstly whether they constitute leases under the new standard, and secondly, where they do, to assess whether these should be accounted for as finance leases.

Where finance subleases exist the Right of Use asset is derecognised and instead a receivable recognised from the lessee (also referred to as "net investment in the sublease"). The lease liability pertaining to the master lease remains unaffected.

A review has been undertaken on the Group's portfolio of contracts at year end by reviewing both the term of the master lease against any subcontract and the present value of the master lease liability against the present value of the subcontract rental income stream.

At 31 December 2018 there are four contracts which constitute finance subleases.  The Group will be accounting for these in accordance with IFRS 16, however in any one year the impact on the Group's results will not be material.

Overall impact

On 1 January 2019 an additional lease liability of $1.2 billion will be recognised on the balance sheet together with a corresponding Right of Use asset. Any rent accruals or prepayments on the balance sheet at 31 December 2018 are reclassified on 1 January 2019 and adjusted against the Right of Use asset.  The asset is also adjusted for the impact of subleases. The overall impact of these adjustments is not material and as such it will broadly correspond to the lease liability on transition.

Information on the undiscounted amount of the Group's operating lease commitments under IAS 17 'Leases', the current leasing standard, is disclosed in note 15. IFRS 16 will neither have any economic impact on the Group nor any impact on the way the business is run.

Metrics which are unaffected by IFRS 16 include the following:

Financial Statement Area

Impact

Revenue

No impact

Free cash flow

No impact

Reported cash and cash equivalents

No impact

Dividends per share

No impact

Banking covenants on the Group's existing loan facilities

No impact

 

The estimated impact on the Group's key metrics is as follows:

Financial Statement Area

Impact

20181

$m

Total assets (1 Jan 2019)

Increase c25%

4,271.2

Total liabilities (1 Jan 2019)

Increase c50%

(2,327.0)

Net debt (1 Jan 2019)

Increase c85%

(1,332.2)

Operating profit (FY 2019)

Increase c10%

227.6

Finance costs (FY 2019)

Increase c100%

67.0

Profit before tax (FY 2019)

Decrease c10%

147.2

EBITDA (FY 2019)

Increase c30%

431.5

Operating cash flow (FY 2019)

Increase c35%

368.3

EPS (FY 2019)

Decrease c10%

13.4¢

ROIC (FY 2019)

Decrease c20%

11.4%

1 2018 metrics are provided for illustrative purposes

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 Signature (formerly known as Flight Support), which comprises Signature Flight Support, EPIC Fuels and ASIG (until 31 January 2017), and Ontic (formerly known as Aftermarket Services). The Ontic segment results show the effect of the ERO discontinued operations being removed.

The businesses within the Signature segment provide refuelling, ground handling, line maintenance and other services to the Business & General Aviation (B&GA) and commercial aviation markets. The Ontic segment maintains and supports 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

Signature1

$m

Ontic5

$m

Total

$m

Unallocated

Corporate2

$m

Total

$m

2018

 

 

 

 

 

External revenue

 

 

 

 

 

External revenue from continuing and discontinued operations

2,127.6

753.3

2,880.9

-

2,880.9

Less external revenue from ERO discontinued operations, note 10

-

(533.6)

(533.6)

-

(533.6)

External revenue from continuing operations

2,127.6

219.7

2,347.3

-

2,347.3

Underlying operating profit

 

 

 

 

 

Underlying operating profit from continuing and discontinued operations

320.6

82.9

403.5

(28.3)

375.2

Add underlying operating loss from ERO discontinued operations

-

(35.0)

(35.0)

-

(35.0)

Adjusted for intergroup charges for ERO discontinued operations3

-

10.7

10.7

(10.7)

-

Underlying operating profit/(loss) from continuing operations

320.6

58.6

379.2

(39.0)

340.2

Underlying operating margin from continuing operations

15.1%

26.7%

16.2%

-

14.5%

Exceptional and other items

 

 

 

 

 

Exceptional and other items from continuing and discontinued operations

(76.0)

(21.7)

(97.7)

(16.0)

(113.7)

Less exceptional and other items from ERO discontinued operations

-

1.1

1.1

-

1.1

Exceptional and other items from continuing operations

(76.0)

(20.6)

(96.6)

(16.0)

(112.6)

 

 

 

 

 

 

Operating profit/ (loss) from continuing operations

244.6

38.0

282.6

(55.0)

227.6

Impairment of fixed assets

 

 

 

 

(14.1)

Net finance costs

 

 

 

 

(66.3)

Profit before tax from continuing operations

 

 

 

 

147.2

Other information

 

 

 

 

 

Capital additions4

66.1

22.5

88.6

4.5

93.1

Less capital additions from ERO discontinued operations

-

(18.2)

(18.2)

-

(18.2)

Capital additions from continuing operations

66.1

4.3

70.4

4.5

74.9

Depreciation and amortisation

143.0

26.6

169.6

0.4

170.0

Less depreciation and amortisation from ERO discontinued operations

-

(3.7)

(3.7)

-

(3.7)

Depreciation and amortisation from continuing operations

143.0

22.9

165.9

0.4

166.3

 

 

1. Segmental information - continued

 

Business segments

Signature1

$m

Ontic5

$m

Total

$m

Unallocated

Corporate2

$m

Total

$m

2018

Balance sheet

 

 

 

 

 

Total assets

3,198.8

984.2

4,183.0

88.2

4,271.2

Total liabilities

(354.5)

(221.8)

(576.3)

(1,750.7)

(2,327.0)

Net assets/(liabilities)

2,844.3

762.4

3,606.7

(1,662.5)

1,944.2

Less net assets/(liabilities) from ERO discontinued operations

-

(260.8)

(260.8)

-

(260.8)

Net assets/(liabilities) from continuing operations

2,844.3

501.6

3,345.9

(1,662.5)

1,683.4

 

 

Business segments

Signature1

$m

Ontic5

$m

Total

$m

Unallocated

Corporate2

$m

Total

$m

2017 restated

 

 

 

 

 

External revenue

 

 

 

 

 

External revenue from continuing and discontinued operations

1,681.4

727.6

2,409.0

-

2,409.0

Less external revenue from ERO discontinued operations, note 10

-

(513.3)

(513.3)

-

(513.3)

Less external revenue from ASIG discontinued operations, note 10

(38.4)

-

(38.4)

-

(38.4)

External revenue from continuing operations

1,643.0

214.3

1,857.3

-

1,857.3

 

 

 

 

 

 

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 ERO discontinued operations

-

(24.1)

(24.1)

-

(24.1)

Adjusted for intergroup charges for ERO discontinued operations3

-

11.6

11.6

(11.6)

-

Less underlying operating loss from ASIG discontinued operations3

0.2

-

0.2

-

0.2

Underlying operating profit/(loss) from continuing operations

329.4

52.8

382.2

(45.7)

336.5

Underlying operating margin from continuing operations

20.0%

24.6%

20.6%

-

18.1%

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 ERO discontinued operations

-

5.6

5.6

 -

5.6

Exceptional and other items from continuing operations

(82.3)

(26.1)

(108.4)

(9.0)

(117.4)

Operating profit/ (loss) from continuing operations

247.1

26.7

273.8

(54.7)

219.1

Net finance costs

 

 

 

 

(61.5)

Profit before tax from continuing operations

 

 

 

 

157.6

Other information

 

 

 

 

 

Capital additions4

60.0

25.3

85.3

-

85.3

Depreciation and amortisation

151.9

29.0

180.9

0.4

181.3

 

 

 

 

 

 

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

1   Operating profit/(loss) from continuing operations includes $4.0 million profit (2017: $3.4 million profit) relating to profits of associates and joint ventures.

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

3   Costs previously allocated to ERO which has now been classified as discontinued operations.

4   Capital additions represent cash expenditures in the year. Capital additions include additions to property, plant and equipment, and intangible assets including Ontic licences not accounted for as acquisitions under IFRS 3.

5   The Ontic results include the former ERO (Middle East) business which is not part of the ERO discontinued operations. This contributed revenue of $3.7 million, an underlying operating loss of $0.7 million and a statutory loss of $5.5 million (2017: revenue of $5.5 million, underlying operating loss of $2.4 million and statutory loss of $17.0 million).
 

1. Segmental information - continued

Geographical segments

Revenue by destination
$m

Revenue by origin
$m

Capital

 additions1

$m

Non-current

assets2

$m

2018

 

 

 

 

United Kingdom

62.7

288.6

3.8

269.7

Mainland Europe

237.8

64.7

0.5

60.8

North America

2,465.4

2,500.8

88.4

3,027.9

Rest of World

115.0

26.8

0.4

1.8

Total from continuing and discontinued operations

2,880.9

2,880.9

93.1

3,360.2

Less ERO discontinued operations

(533.6)

(533.6)

(18.2)

-

Total from continuing operations

2,347.3

2,347.3

74.9

3,360.2

 

 

 

 

 

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 ERO discontinued operations

(513.3)

(513.3)

(13.5)

-

Less ASIG discontinued operations

(38.4)

(38.4)

-

-

Total from continuing operations

1,857.3

1,857.3

71.8

3,331.0

1   Capital additions represent cash expenditures in the year. Capital additions include additions to property, plant and equipment, and intangible assets including Ontic licences not accounted for as acquisitions under IFRS 3.

2   The disclosure of non-current assets by geographical segment has been amended to exclude deferred tax of $nil (2017: $0.1 million) and financial instrument balances of $12.5 million (2017: $13.9 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

 

2018
$m

2017
$m

2018
$m

2017
$m

Signature

1,591.5

1,126.8

536.1

554.6

Ontic

233.8

236.2

519.5

491.4

Total from continuing and discontinued operations

1,825.3

1,363.0

1,055.6

1,046.0

Less ERO discontinued operations

(31.0)

(30.2)

(502.6)

(483.1)

Less ASIG discontinued operations

-

(5.9)

-

(32.5)

Total from continuing operations

1,794.3

1,326.9

553.0

530.4

 

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 $1,825.3 million (2017: $1,363.0 million) includes a gain of $1.0 million (2017: gain of $2.2 million) in respect of the recycling of the effective amount of foreign currency derivatives used to hedge foreign currency revenue.

 

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 items are items which are material or non-recurring in nature, and include costs relating to acquisitions which are material to the associated business segment, costs related to strategic disposals (including those previously completed) and significant restructuring programmes some of which span multiple years. This 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.

Other items includes 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. Exclusion of amortisation of acquired intangibles accounted for under IFRS 3 from the Group's underlying results assists with the comparability of the Group's underlying profitability with peer companies.

All Alternative Performance Measures are reconciled to IFRS measures and explained in the Alternative Performance Measures section.

Exceptional and other items on discontinued operations are presented in note 10. Exceptional and other items on continuing operations are as follows:

 

 

Note

Administrative
expenses
2018
$m

Other operating expenses 2018
$m

Restructuring
costs

2018
$m

 Total
2018
$m

Administrative
expenses
2017

Restated
$m

Other operating expenses 2017

Restated
$m

 

Restructuring costs
2017

Restated
$m

 Total 2017

Restated
$m

Restructuring expenses

 

 

 

 

 

 

 

 

 

ERO Middle East impairment loss

6

-

-

4.9

4.9

-

-

15.7

15.7

Central costs rationalisation

 

-

-

4.0

4.0

 -

 -

6.7

6.7

Other

 

 

 

 

 

 

 

 

 

Pension GMP equalisation

6

-

11.1

-

11.1

-

-

-

-

Other exceptional items

 

-

2.4

-

2.4

 -

1.1

 -

1.1

Acquisition related

 

 

 

 

 

 

 

 

 

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

 

88.8

-

-

88.8

93.8

 -

 -

93.8

Transaction costs1

 

-

1.4

-

1.4

 -

0.1

 -

0.1

Operating loss on continuing operations

 

88.8

14.9

8.9

112.6

93.8

1.2

22.4

117.4

Impairment loss

 

 

 

 

14.1

 

 

 

 -

Loss before tax on continuing operations

 

 

 

 

126.7

 

 

 

117.4

Tax on exceptional and other items

 

 

 

 

(29.1)

 

 

 

(32.7)

Net impact of United States tax reform

 

 

 

 

-

 

 

 

20.5

Tax impact of exceptional and other items

 

 

 

 

(29.1)

 

 

 

(12.2)

Loss for the year on continuing operations

 

 

 

 

97.6

 

 

 

105.2

Loss/(profit) from ERO discontinued operations, net of tax

10

 

 

 

5.0

 

 

 

(0.7)

Loss from ASIG discontinued operations, net of tax

 

 

 

 

-

 

 

 

22.5

Total exceptional and other items

 

 

 

 

102.6

 

 

 

127.0

1   All transaction costs presented as exceptional and other items in the year relate to Ontic's acquisition of Firstmark, see note 9.

 

Net cash flow from exceptional items was an outflow of $19.5 million (2017: outflow of $12.7 million). Net cash flow from other items was $nil (2017: $nil).

 

 

3. Income tax

 

Recognised in the Income Statement

2018
$m

Restated

2017
$m

Current tax expense

41.5

43.3

Adjustments in respect of prior years - current tax

(4.6)

(6.2)

Current tax

36.9

37.1

Deferred tax

2.8

(5.0)

Adjustments in respect of prior years - deferred tax

(3.3)

17.3

Deferred tax

(0.5)

12.3

Income tax expense for the year from continuing operations

36.4

49.4

Less ERO discontinued operations

(7.9)

5.4

Less ASIG discontinued operations

-

(15.7)

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

28.5

39.1

 

UK income tax is calculated at 19.0% (2017: 19.25%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.

EU State Aid

The Group is monitoring developments in relation to the EU State Aid investigation including the European Commission's announcement on 26 October 2017 that it will conduct a State Aid investigation into the UK's Controlled Foreign Company (CFC) regime. In common with many other UK based multinational groups whose arrangements are in line with current UK CFC legislation, the Group may be affected by the final outcome of this investigation. We have calculated our maximum potential liability to be approximately $110 million. We do not consider that any provision is required based on our current assessment of the issue.

United States tax reform

On 22 December 2017, the United States enacted tax reform that implemented 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 resulted in a revaluation of US deferred tax balances in 2017 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 2017 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 in 2017 ($20.5m charge) was reflected in the continuing exceptional and other items tax result so as to reflect the underlying effective tax rate on a consistent basis to other periods.

 

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

 

2018
$m

Restated

2017
$m

Profit before tax on continuing operations

147.2

157.6

 

 

 

Tax at the rates prevailing in the relevant tax jurisdictions 24.3% (2017: 26.4%)

35.8

41.6

Tax effect of offshore financing net of UK CFC charge

(14.8)

(37.0)

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

12.8

6.4

Tax effect of US tax reform

_

30.4

Items on which deferred tax has not been recognised

0.4

0.8

Tax rate changes (excluding US tax reform)

(0.2)

(0.5)

Difference in tax rates on overseas earnings

2.4

6.3

Adjustments in respect of prior years

(7.9)

(8.9)

Tax expense for the year on continuing operations

28.5

39.1

 

The applicable tax rate of 24.3% (2017: 26.4%) 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.

 

 

3. Income tax - continued

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

Recognised in other comprehensive income

2018
$m

2017
$m

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

 

 

Current tax credit on pension deficit payments

-

0.5

Current tax other

0.7

-

Deferred tax charge on actuarial gains/(losses)

(9.7)

(1.6)

 

(9.0)

(1.1)

 

 

 

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

 

 

Current tax credit/(charge) on foreign exchange movements

0.8

(1.6)

Deferred tax credit/(charge) on derivative instruments

0.9

(2.7)

 

1.7

(4.3)

 

 

 

Total tax charge within other comprehensive income

(7.3)

(5.4)

 

 

 

Recognised in equity

 

 

Current tax credit on share-based payments movements

0.8

0.8

Deferred tax charge on share-based payments movements

(0.3)

-

Total tax credit within equity

0.5

0.8

 

 

 

Total tax charge within other comprehensive income and equity

(6.8)

(4.6)

 

 

 

4. Dividends

On 25 May 2018, the 2017 final dividend of 9.59¢ per share (total dividend $99.3 million) was paid to shareholders (2017: the 2016 final dividend of 9.12¢ per share (total dividend $91.5 million) was paid on 19 May 2017).

On 2 November 2018, the 2018 interim dividend of 4.00¢ per share (total dividend $41.4 million) was paid to shareholders (2017: the 2017 interim dividend of 3.81¢ per share (total dividend $39.2 million) was paid on 3 November 2017).

In respect of the current year, the directors propose that a final dividend of 10.07¢ per share will be paid to shareholders on 24 May 2019. The proposed dividend is payable to all shareholders on the register of members on 12 April 2019. The total estimated dividend to be paid is $103.7 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.

 

 

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

 

2018

$m

Restated

2017

$m

2018

$m

2017

$m

Basic and diluted

 

 

 

 

Earnings:

 

 

 

 

Profit for the year

118.7

118.5

137.9

119.3

Non-controlling interests

(0.3)

0.1

(0.3)

0.1

Basic earnings attributable to ordinary shareholders

118.4

118.6

137.6

119.4

Exceptional and other items (net of tax)

97.6

105.2

102.6

127.0

Adjusted earnings for adjusted earnings per share

216.0

223.8

240.2

246.4

Underlying deferred tax

20.7

50.9

26.1

47.7

Adjusted earnings for tax adjusted earnings per share

236.7

274.7

266.3

294.1

 

 

 

 

 

Number of shares

 

 

 

 

Weighted average number of 2916/21p ordinary shares:

 

 

 

 

For basic earnings per share

1,030.1

1,028.2

1,030.1

1,028.2

Dilutive potential ordinary shares from share options

8.9

10.6

8.9

10.6

For diluted earnings per share

1,039.0

1,038.8

1,039.0

1,038.8

For diluted losses per share

1,030.1

1,028.2

1,030.1

1,028.2

 

 

 

 

 

Earnings per share

 

 

 

 

Basic:

 

 

 

 

Adjusted

21.0¢

21.8¢

23.3¢

24.0¢

Cash

23.0¢

26.7¢

25.9¢

28.6¢

Unadjusted

11.5¢

11.5¢

13.4¢

11.6¢

 

 

 

 

 

Diluted:

 

 

 

 

Adjusted

20.8¢

21.5¢

23.1¢

23.7¢

Cash

22.8¢

26.4¢

25.6¢

28.3¢

Unadjusted

11.4¢

11.4¢

13.2¢

11.5¢

 

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.

 

 

 

6. Intangible assets

 

Goodwill

2018

$m

Licences
and
contracts
2018

$m

Computer
software
2018

$m

Total

2018

$m

Goodwill

2017

$m

Licences
and
contracts
2017

$m

Computer
software
2017

$m

Total

2017

$m

Cost

 

 

 

 

 

 

 

 

Beginning of year

1,266.8

1,613.8

53.2

2,933.8

1,252.7

1,586.1

42.8

2,881.6

Exchange adjustments

(10.7)

(10.2)

(0.1)

(21.0)

9.2

17.7

0.3

27.2

Acquisitions

73.5

147.7

0.4

221.6

0.9

24.3

 -

25.2

Additions

-

0.4

6.2

6.6

 -

0.3

6.6

6.9

Impairment charges

-

(14.9)

(8.1)

(23.0)

 -

(11.0)

 -

(11.0)

Disposals

-

-

-

-

 -

(0.1)

(3.1)

(3.2)

Transfer to assets held for sale

(138.5)

(61.6)

(6.2)

(206.3)

 -

 -

 -

 -

Transfers (to)/from other asset categories

-

0.3

2.1

2.4

4.0

(3.5)

6.6

7.1

End of year

1,191.1

1,675.5

47.5

2,914.1

1,266.8

1,613.8

53.2

2,933.8

 

 

 

 

 

 

 

 

 

Amortisation

 

 

 

 

 

 

 

 

Beginning of year

(140.2)

(322.6)

(33.1)

(495.9)

(138.8)

(223.1)

(27.5)

(389.4)

Exchange adjustments

1.7

2.6

0.2

4.5

(1.4)

(3.4)

(0.3)

(5.1)

Amortisation charge for the year

-

(97.1)

(3.9)

(101.0)

 -

(104.5)

(5.4)

(109.9)

Impairment charges

-

2.1

8.1

10.2

 -

 5.3

 -

5.3

Disposals

-

-

-

-

 -

 -

3.1

3.1

Transfer to assets held for sale

138.5

43.9

6.2

188.6

 -

 -

 -

 -

Transfers to other asset categories

-

-

-

-

 -

3.1

(3.0)

0.1

End of year

-

(371.1)

(22.5)

(393.6)

(140.2)

(322.6)

(33.1)

(495.9)

 

 

 

 

 

 

 

 

 

Carrying amount

End of year

1,191.1

1,304.4

25.0

2,520.5

1,126.6

1,291.2

20.1

2,437.9

Beginning of year

1,126.6

1,291.2

20.1

2,437.9

1,113.9

1,363.0

15.3

2,492.2

 

Included within the amortisation charge for intangible assets of $101.0 million (2017: $109.9 million) is amortisation of $88.8 million (2017: $93.8 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 $221.6 million (2017: $25.2 million) is $1.8 million (2017: $5.0 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 (2017: 16 years) but with a wider range, with some up to 50 years in duration. Computer software is amortised over its estimated useful life, which is on average five years (2017: five years).

As at 31 December 2018, transfer to assets held for sale includes $17.7 million of intangible assets related to the ERO business (see note 10).

Impairment losses recognised in the year

In 2018 it was identified that Sloulin FBO in Williston North Dakota is being relocated to a new airport field. Due to uncertainty we have recognised an impairment of $12.8 million representing the related right to operating intangible. The impairment loss is recognised within Exceptional and other items (see note 2).

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 aggregated CGUs:

 

2018
$m

2017
$m

Signature

1,083.6

1,058.3

Ontic

107.5

68.3

Total goodwill from continuing and discontinued operations

1,191.1

1,126.6

Total goodwill from continuing operations

1,191.1

1,126.6

Total goodwill from discontinued operations

-

-

 

 

 

6. Intangible assets - continued

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 five years, as approved by management, with a terminal growth rate after five 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 five 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

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

Ontic

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.

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 35% of global spending, and approximately 3.1% (c$686 bn) of the country's national GDP. The US militaries fleet also accounts for 30% of the global military aviation fleet (c15,700), a large proportion of the military installed base. Driven by the National Defence Strategy, the new administrations focus remains on strengthening and sustaining its domestic militaries through delivering consistent multi-year investment plans. To ensure capacity levels remain, the US Department of Defence are focusing a proportion of the spend directly to service life extension programs and modernisation efforts, realising that fleet readiness and the use of legacy aircraft remain an important factor in maintaining its global military strength and competitiveness.

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, AV-8B, F-15, CH-53 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.

Signature

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 long-term growth rate of 1.9% (2017: 2.0%) has been used for Signature which reflects forecast long-term US GDP growth.

Ontic

For the purpose of impairment testing in Ontic and in accordance with IAS 36 Impairment of Assets an approach required by the accounting standard has been applied which assumes no licence acquisitions or other acquisition of businesses. As a result, no long-term growth rate has been applied for Ontic.

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.

Signature

The discount rate used for the impairment review of Signature was 9.0% (2017: 7.5%).

Ontic

The discount rate used for the impairment review of Ontic was 11.5% to 11.7% (2017: 9.9% to 10.0%).

Sensitivity analysis

In relation to Signature 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.

 

 

7. Borrowings

 

2018
$m

2017
$m

Bank overdrafts

1.5

4.0

Bank loans

565.3

813.3

US private placement senior notes

376.8

502.2

US senior notes

494.2

-

Other loans

0.3

3.3

 

1,438.1

1,322.8

 

 

The borrowings are repayable as follows:

 

 

On demand or within one year

1.5

124.2

In the second year

448.2

369.3

In the third to fifth years inclusive

345.8

619.6

After five years

642.6

209.7

 

1,438.1

1,322.8

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

(1.5)

(124.2)

Amount due for settlement after 12 months

1,436.6

1,198.6

 

Current year bank loans, US private placement senior notes and US senior notes are stated after their respective transaction costs and related amortisation.

 

2018

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

528.0

122.0

(4.9)

-

117.1

Mar 2018

Mar 2023

Acquisition facility Bank term loan - Facility C

450.0

-

450.0

(1.8)

-

448.2

Sep 2015

Sep 2020

Total bank loans

1,100.0

528.0

572.0

(6.7)

-

565.3

 

 

$300m US private placement senior notes - Series B

120.0

-

120.0

(0.3)

0.2

119.9

May 2011

May 2021

$300m US private placement senior notes - Series C

60.0

-

60.0

(0.2)

(1.2)

58.6

May 2011

May 2023

$200m US private placement senior notes - Series A

50.0

-

50.0

(0.2)

0.1

49.9

Dec 2014

Dec 2021

$200m US private placement senior notes - Series B

100.0

-

100.0

(0.3)

(0.8)

98.9

Dec 2014

Dec 2024

$200m US private placement senior notes - Series C

50.0

-

50.0

(0.1)

(0.4)

49.5

Dec 2014

Dec 2026

Total US private placement senior notes

380.0

 

-

 

380.0

 

(1.1)

 

(2.1)

 

376.8

 

 

 

$500m US senior notes

500.0

-

500.0

(9.8)

4.0

494.2

Apr 2018

May 2026

Total US senior notes

500.0

-

500.0

(9.8)

4.0

494.2

 

 

Total bank and loan notes

1,980.0

528.0

1,452.0

(17.6)

1.9

1,436.3

 

 

Bank overdraft - UK cash pool

 

 

 

 

 

1.5

 

 

Other loans

 

 

 

 

 

0.3

 

 

 

 

 

 

 

 

1,438.1

 

 

 

As at 31 December 2018, included within liabilities classified as held for sale is a further $3.0 million of Other loans (see note 10).

 

 

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 US private placement senior 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 first half, the Group refinanced its $650 million multicurrency revolving credit facility (RCF) with a new facility for the same amount which will expire in March 2023. The new RCF includes the ability to extend the duration for an additional year at the first anniversary of the RCF and again at the second anniversary. These two extension options are at the lenders' option. As part of this refinancing exercise, BBA U.S. Holdings Inc. has been added as an additional borrower and guarantor under the RCF and Facility C of the acquisition bank term loan due to expire in September 2020.

As at 31 December 2018, $122 million (2017: $115 million in the name of BBA Aviation plc) was drawn under the RCF in the name of BBA U.S. Holdings Inc. and the term debt drawn under Facility C remains in the name of BBA Aviation plc. In addition, BBA U.S. Holdings Inc. has been added as an additional guarantor under the US private placement senior notes.

As at 31 December 2018, the Group had $380 million (2017: $500 million) of US private placement senior notes outstanding with $280 million (2017: $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.

As at 31 December 2018, the Group also had $500 million (2017: $nil) of US senior notes outstanding with $250 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. These notes were issued by BBA U.S. Holdings Inc.

The Group excludes the fair value movement on its loan notes from its definition of net debt (refer to the Alternative Performance Measures section), as this movement is offset by the change in fair value of the underlying interest rate swaps. The fair value gain on its US private placement senior notes at 31 December 2018 was $2.1 million (2017: $3.5 million loss). The fair value loss on its US senior notes at 31 December 2018 was $4.0 million.

All other borrowings are held at amortised cost.

 

 

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 2018

 

 

 

 

 

Bank overdrafts

 

1.5

-

-

1.5

Bank loans

 

-

565.3

-

565.3

US private placement senior notes

 

-

376.8

-

376.8

US senior notes

 

-

494.2

-

494.2

Other loans

 

0.3

-

-

0.3

 

 

1.8

1,436.3

-

1,438.1

 

 

 

 

 

 

31 December 2017

 

 

 

 

 

Bank overdrafts

 

2.9

0.4

0.7

4.0

Bank loans

 

-

813.3

-

813.3

US private placement senior notes

 

-

502.2

-

502.2

Other loans

 

0.3

3.0

-

3.3

 

 

3.2

1,318.9

0.7

1,322.8

 

The average floating interest rates on borrowings are as follows:

 

2018

2017

Sterling

1.6%

1.3%

US dollar

3.9%

3.1%

Euros

0.0%

0.0%

 

 

The Group's borrowings are funded through a combination of fixed and floating rate debt. The floating rate debt expose the Group to cash flow interest rate risk whilst the fixed rate US private placement senior notes and US senior 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 2018, 44% (2017: 55%) of the Group's borrowings are fixed at a weighted average interest rate of 4.2% (2017: 3.5%) for a weighted average period of five years (2017: three years).

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

 

 

8. Cash flow from operating activities

All Alternative Performance Measures are reconciled to IFRS measures and explained in the Alternative Performance Measures section.

 

2018

$m

2017

$m

Operating profit

227.6

219.1

Operating profit from discontinued operations

33.9

18.3

Share of profit from associates and joint ventures

(4.0)

(3.4)

Profit from operations

257.5

234.0

Depreciation of property, plant and equipment

69.0

71.4

Amortisation of intangible assets

101.0

109.9

Loss/(profit) on sale of property, plant and equipment

3.4

(2.2)

Share-based payment expense

8.2

9.9

Decrease in provisions

(12.4)

(7.3)

Pension scheme payments

(5.9)

(5.1)

Non-cash impairment

-

15.7

Other non-cash items

1.8

1.3

Unrealised foreign exchange movements

(1.0)

(0.5)

Operating cash inflows before movements in working capital

421.6

427.1

Increase in working capital

(26.2)

(46.3)

Cash generated by operations

395.4

380.8

Net income taxes paid

(27.1)

(41.8)

Net cash inflow from operating activities

368.3

339.0

 

 

 

Dividends received from associates and joint ventures

2.0

2.4

Purchase of property, plant and equipment

(85.3)

(73.4)

Purchase of intangible assets1

(6.6)

(6.9)

Proceeds from disposal of property, plant and equipment

4.7

16.8

Interest received

12.7

3.3

Interest paid

(70.9)

(60.5)

Interest element of finance leases paid

(0.1)

(0.1)

Free cash flow

224.8

220.6

 

1   Purchase of intangible assets excludes $1.2 million (2017: $5.0 million) paid in relation to Ontic licences, not accounted for as acquisitions under IFRS 3 since 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.

 

9. Acquisition of businesses

During the year the Group made the following acquisitions:

On 4 January 2018 the Group's Ontic business acquired the manufacturing rights and processes to support a variety of parts that are fitted onto the Hawk platform from Esterline Racal Acoustics for a total consideration of $4.8 million.

On 26 March 2018 the Group's Ontic business acquired an exclusive perpetual licence for LCD cockpit displays from Honeywell International Inc. ("Honeywell") for a total consideration of $25.9 million. Ontic has paid $16.5 million upfront and the remaining $9.4 million is deferred consideration.

On 1 July 2018 the Group completed an acquisition of fuel services partner EPIC Aviation LLC doing business as EPIC Fuels ("EPIC") for total consideration of $96.2 million. The initial consideration of $93.3 million paid in July 2018 comprised $88.1 million purchase price and $5.2 million initial working capital adjustments with further consideration of $2.9 million representing the final working capital adjustment paid in January 2019. EPIC is a leading fuel and fuel related services supplier providing fuel and fuel related services at 208 privately owned independent FBO locations.

On 29 October 2018 the Group's Ontic business acquired the intellectual property, assets and inventory necessary to carve out the production of various aerospace and defence products from 2Is Inc. ("2is") for a total consideration of $1.0 million.

On 26 November 2018 the Group's Ontic business acquired Firstmark Corp ("Firstmark"), a leading provider of highly engineered, proprietary components and subsystems for the aerospace and defence industries, from H-D Advanced Manufacturing Company for a total consideration of $97.4 million.

On 24 December 2018 the Group's Ontic business has acquired an exclusive licence agreement for Engine Pressure Transmitters, Fuel Flow Transmitters and Fluid Monitoring Chip Detectors from a UK based OEM for a total consideration of $10.0 million paid in January 2019.

 

 

9. Acquisition of businesses - continued

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

 

EPIC
$m

Signature
$m

Esterline Racal Acoustics licences
$m

Honeywell
$m

2is
$m

Firstmark
$m

Woodward
$m

UK based OEM
$m

Ontic
$m


Total
2018
$m

Intangible assets

24.9

24.9

6.6

26.1

1.1

77.0

0.5

10.1

121.4

146.3

Property, plant and equipment

4.1

4.1

-

-

-

0.6

-

-

0.6

4.7

Unlisted investments

0.5

0.5

-

-

-

-

-

-

-

0.5

Non-current receivables

0.6

0.6

-

-

-

-

-

-

-

0.6

Inventories

6.4

6.4

-

0.6

-

7.9

-

-

8.5

14.9

Receivables

50.9

50.9

-

-

-

2.3

-

-

2.3

53.2

Cash

6.4

6.4

-

-

-

-

-

-

-

6.4

Payables

(33.8)

(33.8)

-

-

-

(1.3)

-

-

(1.3)

(35.1)

Provisions

(2.6)

(2.6)

(0.7)

(0.8)

(0.1)

(2.2)

-

(0.1)

(3.9)

(6.5)

Obligations under finance leases

(3.4)

(3.4)

-

-

-

-

-

-

-

(3.4)

Pension

-

-

-

-

-

(1.7)

-

-

(1.7)

(1.7)

Deferred tax liabilities

(0.3)

(0.3)

(1.1)

-

-

(16.2)

-

-

(17.3)

(17.6)

Net assets

53.7

53.7

4.8

25.9

1.0

66.4

0.5

10.0

108.6

162.3

Goodwill

42.5

42.5

-

-

-

31.0

-

-

31.0

73.5

 

 

 

 

 

 

 

 

 

 

 

Total consideration

96.2

96.2

4.8

25.9

1.0

97.4

0.5

10.0

139.6

235.8

 

Satisfied by:

 

 

 

 

 

 

 

 

 

 

Cash consideration

93.3

93.3

4.8

16.5

0.8

97.4

0.5

-

120.0

213.3

Deferred consideration

2.9

2.9

-

-

0.2

-

-

10.0

10.2

13.1

Contingent consideration

-

-

-

9.4

-

-

-

-

9.4

9.4

Net cash consideration

96.2

96.2

4.8

25.9

1.0

97.4

0.5

10.0

139.6

235.8

 

 

 

 

 

 

 

 

 

 

 

Net cash flow arising on acquisition:

 

 

 

 

 

 

 

 

 

 

Cash consideration

 

 

 

 

 

 

 

 

 

213.3

Cash acquired on acquisition of businesses

 

 

 

 

 

 

 

(6.4)

Deferred and contingent consideration paid in relation to prior and current year acquisitions

 

 

 

 

 

3.7

Acquisition of businesses, net of cash acquired

 

 

 

 

 

 

210.6

 

 

 

 

 

 

 

 

 

 

 

In 2018, $3.0 million of contingent consideration was paid in relation to prior year acquisitions in Ontic and $0.7 million of deferred and contingent consideration was paid in relation to the current year acquisition of Honeywell.

In the prior year, $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.

Acquisition cost recognised under exceptional and other items relates solely to Ontic's acquisition of Firstmark, which is considered material in the context of Ontic. Refer to note 2 for further details.

 

 

9. Acquisition of businesses - continued

As significant transactions, the EPIC transaction and Firstmark transaction are presented separately below:

EPIC

On 1 July 2018 the Group completed an acquisition of fuel services partner EPIC Aviation LLC doing business as EPIC Fuels ("EPIC") for total consideration of $96.2 million. The initial consideration of $93.3 million paid in July 2018 comprised $88.1 million purchase price and $5.2 million initial working capital adjustments with further consideration of $2.9 million representing the final working capital adjustment paid in January 2019. EPIC is a leading fuel and fuel related services supplier providing fuel and fuel related services at 208 privately owned independent FBO locations.

The goodwill arising on this acquisition is attributable to the expected realisation of synergies through the addition of EPIC's 205 FBO locations which is complementary to our existing Signature Select® branded locations, establishing a virtual, non-owned, network to operate alongside our market-leading owned FBO network. This creates a total network of over 400 FBO locations, significantly extending Signature's network relevance and the range of services it can offer.

EPIC is our existing Signature fuel card partner and the acquisition allows Signature to have full end-to-end management of the existing SFS EPIC fuel card programme, associated transaction processing and data capture as a platform for an enhanced service offering across our entire network. The Group also acquired EPIC's proprietary QTPod technology for self-fuelling AvGas services. QTPod has the potential to expand its footprint in the aviation industry with a new proprietary and cloud based self-serve fuelling terminal.

In the period since acquisition, the operations acquired during 2018 have contributed $292.5 million and $1.2 million to revenue and operating profit respectively. If the acquisition had occurred on the first day of the financial year, it is estimated that the total revenue and operating profit from this acquisition would have been $582.9 million and $3.3 million respectively.

 

 

Net book value on the opening balance sheet
$m

Debt and interest repaid on acquisition
$m

Fair value adjustment
$m


EPIC
2018
$m

Intangible assets

Property, plant and equipment

Unlisted investments

Non-current receivables

Inventories

Receivables

Cash1

Payables

Provisions

Bank loans

Obligations under finance leases

Deferred tax liabilities

Net assets

 

13.9

23.2

16.6

53.7

Goodwill

 

 

 

 

42.5

Total consideration

 

 

 

 

96.2

1  Cash on acquisition includes $1.1 million of restricted funds held in an Escrow account which was subsequently released in September 2018.

 

 

 

9. Acquisition of businesses - continued

Firstmark

On 26 November 2018 the Group's Ontic business acquired Firstmark Corp ("Firstmark"), a leading provider of highly engineered, proprietary components and subsystems for the aerospace and defence industries, from H-D Advanced Manufacturing Company for a total consideration of $97.4 million.

The goodwill arising on this acquisition is attributable to the expansion of Ontic's US footprint to the East Coast, closer to key OEM partners and customers. The acquisition enhances Ontic's exposure to the commercial and military aerospace markets, providing access to a range of growth opportunities across various established strategic platforms, with a significant installed base, high utilisation rates and extended in-service lives.

In the period since acquisition, the operations acquired during 2018 have contributed $2.3 million and $0.3 million to revenue and operating profit respectively. If the acquisition had occurred on the first day of the financial year, it is estimated that the total revenue and operating profit from this acquisition would have been $24.2 million and $4.8 million respectively.

 

 

 

Net book value on the opening balance sheet
$m

Fair value adjustment
$m


Firstmark

2018
$m

Intangible assets

Property, plant and equipment

Investments in associates

Inventories

Receivables

Cash

Payables

Provisions

Pensions

Deferred tax liabilities

 

 

-

(16.2)

(16.2)

Net assets

 

 

47.8

18.6

66.4

Goodwill

 

 

 

 

31.0

Total consideration

 

 

 

 

97.4

 

 

 

 

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

ERO divestiture

It was announced in March 2018 that ERO was under strategic review. At the end of May 2018, management committed to a plan to sell substantially all of the ERO 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 ERO operations were also classified as a discontinued operation. ERO Middle East is not classified as a discontinued operation as it is being closed.

ERO was not previously classified as held for sale or as a discontinued operation. The comparative consolidated profit or loss and other comprehensive income has been restated to show the discontinued operation separately from continuing operations. Following its classification as held for sale the asset group is held at its net book value.

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 ERO discontinued operations

 

 

 

2018

2017

 

Notes

Underlying1

$m

Exceptional and other items

$m

Total

$m

Underlying1

$m

Exceptional and other items

$m

Total

$m

 

Revenue

1

533.6

-

533.6

513.3

-

513.3

Cost of sales

 

(449.8)

-

(449.8)

(443.6)

-

(443.6)

Gross profit

 

83.8

-

83.8

69.7

-

69.7

Distribution costs

 

(29.3)

-

(29.3)

(24.0)

-

(24.0)

Administrative expenses

 

(30.3)

-

(30.3)

(33.8)

-

(33.8)

Other operating income

 

0.1

-

0.1

0.6

 

0.6

Restructuring costs

 

-

(1.1)

(1.1)

-

(5.6)

(5.6)

Operating profit/(loss) incl. group charges

 

24.3

(1.1)

23.2

12.5

(5.6)

6.9

Elimination of internal group charges

 

10.7

-

10.7

11.6

-

11.6

Operating profit/(loss)

1

35.0

(1.1)

33.9

24.1

(5.6)

18.5

Transaction costs2

 

-

(5.9)

(5.9)

-

-

-

Finance costs

 

(0.9)

-

(0.9)

(0.6)

-

(0.6)

Profit/(loss) before tax

 

34.1

(7.0)

27.1

23.5

(5.6)

17.9

Tax (charge)/credit

 

(9.9)

2.0

(7.9)

(0.9)

6.3

5.4

Profit/(loss) for the year

 

24.2

(5.0)

19.2

22.6

0.7

23.3

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

Equity holders of BBA Aviation plc

 

24.2

(5.0)

19.2

22.6

0.7

23.3

Non-controlling interests

 

-

-

-

-

-

-

Profit/(loss) for the year

 

24.2

(5.0)

19.2

22.6

0.7

23.3

 

 

Earnings per share

Note

Adjusted1

 

Unadjusted

Adjusted1

 

Unadjusted

Basic

5

2.3¢

 

1.9¢

2.2¢

 

2.3¢

Diluted

5

2.3¢

 

1.8¢

2.2¢

 

2.3¢

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

2     Transaction costs of $5.9 million represents costs to sell incurred to date.

 

 

 

 

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

Cash flows from/(used in) ERO discontinued operations

 

 

 

2018
$m

2017
$m

 

 

 

 

Net cash (outflow)/inflow from operating activities

 

(7.2)

31.4

Net cash (outflow)/inflow from investing activities

 

(16.1)

1.1

Net cash inflow/(outflow) from financing activities

 

23.6

(33.6)

Net cash inflow/(outflow) for the year1

 

0.3

(1.1)

1  Net cash flows in the year comprise $33.9 million (2017: $18.5 million) operating profit, $5.9 million (2017: $nil) transaction costs, $44.2 million (2017: $5.8 million inflow) outflow working capital movement, $0.6 million (2017: $0.2 million) non-cash items and $ 0.2 million (2017: $0.2 million) tax received in relation to the discontinued operations.

 

Effect of the disposal group on financial position of the Group

 

Notes

2018
$m

Comparative

20172
$m

Assets held for sale

 

 

 

Non-current assets

 

 

 

Other intangible assets

6

17.7

19.0

Property, plant and equipment

 

80.8

63.5

 

 

98.5

82.5

Current assets

 

 

 

Inventories

 

168.2

140.7

Trade receivables

 

133.1

96.4

Other receivables

 

5.8

13.2

Cash and cash equivalents

 

2.0

1.7

 

 

309.1

252.0

Total assets held for sale

 

407.6

 

 

 

 

 

Liabilities held for sale

 

 

 

Current liabilities

 

 

 

Trade payables

 

(92.2)

(92.7)

Other payables

 

(49.8)

(28.5)

Borrowings

 

(3.0)

-

Provisions

 

(0.9)

(1.1)

 

 

(145.9)

(122.3)

 

 

 

 

Non-current liabilities

 

 

 

Borrowings

 

-

(3.0)

Other payables

 

-

(0.4)

Provisions

 

(0.9)

(0.9)

 

 

(0.9)

(4.3)

Total liabilities held for sale before tax

 

(146.8)

 

Net assets held for sale1

 

260.8

 

1  The net assets of the ERO business held for sale as at 31 December 2018 exclude deferred tax liabilities of $15.3 million and tax liabilities of $0.2 million which remain within the Group tax position.

2  The disclosure of the financial position for 2017 is presented for comparative purposes only.

 

 

 

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

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 Signature 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 ASIG discontinued operations

 

 

 

2018

2017

 

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

Cost of sales

 

-

-

-

(35.9)

 -

(35.9)

Gross profit

 

-

-

-

2.5

 -

2.5

Administrative expenses

 

-

-

-

(2.7)

 -

(2.7)

Operating loss

 

-

-

-

(0.2)

 -

(0.2)

Impairment and other charges on classification as held for sale2

 

-

-

-

 -

(6.6)

(6.6)

Loss before tax

 

-

-

-

(0.2)

(6.6)

(6.8)

Tax credit/(charge)

 

-

-

-

 0.2

(15.9)

(15.7)

Loss for the year

 

-

-

-

-

(22.5)

(22.5)

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

Equity holders of BBA Aviation plc

 

-

-

-

-

(22.5)

(22.5)

Non-controlling interests

 

-

-

-

 -

 -

 -

Loss for the year

 

-

-

-

-

(22.5)

(22.5)

 

 

Earnings per share

Note

Adjusted1

 

Unadjusted

Adjusted1

 

Unadjusted

Basic

5

-

 

-

-

 

(2.2)¢

Diluted

5

-

 

-

-

 

(2.2)¢

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.

 

 

Cash flows used in ASIG discontinued operations

 

 

2018
$m

2017
$m

 

 

 

 

Net cash inflow/(outflow) from operating activities

 

 -

(33.4)

Net cash inflow/(outflow) from investing activities

 

 -

 -

Net cash inflow/(outflow) from financing activities

 

 -

 -

Net cash inflow/(outflow) for the year1

 

 -

(33.4)

1  Net cash flows in the prior year comprise ($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 operations.

 

 

 

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 acquisitions which are material to the associated business segment, costs related to strategic disposals (including those previously completed), significant restructuring programmes some of which span multiple years 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

 

 

 

 

2018

$m

Restated

2017

$m

Revenue prior year (continuing operations)

 

 

 

 

1,857.3

1,611.4

Revenue prior year (ERO discontinuing operations)

 

 

 

 

513.3

537.7

Revenue prior year (ASIG discontinuing operations)

 

 

 

 

38.4

416.8

Reported revenue prior year (continuing and discontinued operations)

 

 

 

 

2,409.0

2,565.9

Rebase for foreign exchange movements1

 

 

 

 

10.9

(5.3)

Rebase for fuel price movements2

 

 

 

 

138.2

90.7

Rebase for disposals and discontinued operations

 

 

 

 

(551.7)

(954.5)

Rebased comparative revenue

 

 

 

 

2,006.4

1,696.8

 

 

 

 

 

 

 

Reported revenue current year (continuing and discontinued operations)

 

 

 

 

2,880.9

2,409.0

Less: contributions from discontinued operations/disposals (note 10)

 

 

 

 

(533.6)

(551.7)

Less: contributions from acquisitions (note 9)

 

 

 

 

(304.8)

(92.7)

Organic revenue

 

 

 

 

2,042.5

1,764.6

 

 

 

 

 

 

 

Organic revenue growth from continuing operations

 

 

 

 

1.8%

4.0%

1  Impact from foreign exchange is calculated based on the prior year revenue translated at the current year exchange rates.

Impact from fuel price fluctuations is calculated based on the prior year revenue recognised at the current year fuel prices.

 

 

 

 

 

Alternative Performance Measures - continued

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.

 

 

2018

Total

$m

2018 Continuing

$m

2018 Discontinued

$m

2017

Total

$m

Restated 2017 Continuing

$m

Restated 2017 Discontinued

$m

Operating profit

261.5

227.6

33.9

237.4

219.1

18.3

Add: Exceptional and other items

 

 

 

 

 

 

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

88.8

88.8

-

93.8

93.8

-

Acquisition related transaction costs

1.4

1.4

-

0.1

0.1

-

Restructuring costs

10.0

8.9

1.1

28.0

22.4

5.6

Other exceptional items

13.5

13.5

-

1.1

1.1

-

Exceptional and other items

113.7

112.6

1.1

123.0

117.4

5.6

Underlying operating profit

375.2

340.2

35.0

360.4

336.5

23.9

Underlying operating margin

13.0%

14.5%

6.6%

15.0%

18.1%

4.3%

 

 

 

2018

Total

$m

2018 Continuing

$m

2018 Discontinued

$m

2017

Total

$m

Restated 2017 Continuing

$m

Restated 2017 Discontinued

$m

Operating margin

9.1%

9.7%

6.4%

9.9%

11.8%

3.3%

Exceptional and other items

3.9%

4.8%

0.2%

5.1%

6.3%

 1.0%

Underlying operating margin

13.0%

14.5%

6.6%

15.0%

18.1%

4.3%

 

 

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 profit to EBITDA and underlying EBITDA, is set out below.

 

 

2018

Total

$m

2018  Continuing

$m

2018 Discontinued

$m

2017

Total

$m

Restated 2017 Continuing

$m

Restated 2017 Discontinued

$m

Profit for the year

137.9

118.7

19.2

119.3

118.5

0.8

Add: Finance costs

67.9

67.0

0.9

65.3

64.7

0.6

Less: investment income

(0.7)

(0.7)

-

(3.2)

(3.2)

-

Add: Tax charge

36.4

28.5

7.9

49.4

39.1

10.3

Add: Depreciation and amortisation

170.0

166.3

3.7

181.3

173.4

7.9

Add: Impairment and other charges

20.0

14.1

5.9

6.6

-

6.6

EBITDA

431.5

393.9

37.6

418.7

392.5

26.2

Acquisition related transaction costs

1.4

1.4

-

0.1

0.1

-

Restructuring costs

10.0

8.9

1.1

28.0

22.4

5.6

Other exceptional items

13.5

13.5

-

1.1

1.1

-

Underlying EBITDA

456.4

417.7

38.7

447.9

416.2

31.7

 

 

 

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.

 

 

2018

Total

$m

2018

Continuing

$m

2018 Discontinued

$m

2017

Total

$m

Restated 2017 Continuing

$m

Restated 2017 Discontinued

$m

Profit/(loss) before tax

174.3

147.2

27.1

168.7

157.6

11.1

Exceptional and other items

133.7

126.7

7.0

129.6

117.4

12.2

Underlying profit/(loss) before tax

308.0

273.9

34.1

298.3

275.0

23.3

 

Underlying deferred tax

Cash adjusted basic and diluted earnings per ordinary share set out in note 5 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:

 

2018

Total

$m

2018

 Continuing

$m

2018 Discontinued

$m

2017

Total

$m

Restated 2017 Continuing

$m

Restated 2017 Discontinued

$m

Total deferred tax (credit)/charge

(0.5)

(6.7)

6.2

12.3

23.4

(11.1)

Adjust for exceptional deferred tax credit/(charge)

26.6

27.4

(0.8)

35.4

27.5

7.9

Underlying deferred tax charge/(credit)

26.1

20.7

5.4

47.7

50.9

(3.2)

 

Cash basic and diluted earnings per ordinary share

As set out in note 5, 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.

 

2018

Total

¢

2018 Continuing

¢

2018 Discontinued

¢

2017

Total

¢

Restated 2017 Continuing

¢

Restated 2017 Discontinued

¢

Basic earnings per share

13.4

11.5

1.9

11.6

11.5

0.1

Adjustments for adjusted measure

12.5

11.5

1.0

17.0

15.2

1.8

Cash basic earnings per share

25.9

23.0

2.9

28.6

26.7

1.9

Diluted earnings per share

13.2

11.4

1.8

11.5

11.4

0.1

Adjustments for adjusted measure

12.4

11.4

1.0

16.8

15.0

1.8

Cash diluted earnings per share

25.6

22.8

2.8

28.3

26.4

1.9

 

 

 

Alternative Performance Measures - continued

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 the last twelve months underlying operating profit for ROIC by invested capital for ROIC, both of which are at the same exchange rate which is the average of the last 13 months' spot rate. The invested capital for ROIC is calculated by adding net assets for ROIC and net debt for ROIC, both of which are calculated by averaging their respective balance 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.

 

2018

Total

$m

2018

Continuing

$m

2018 Discontinued1

$m

2017

Total

$m

Restated 2017 Continuing

$m

 Restated 2017 Discontinued1

$m

Underlying operating profit

375.2

340.2

35.0

360.6

336.5

24.1

Adjustments for FX

-

-

-

0.1

0.1

 -

Underlying operating profit for ROIC

375.2

340.2

35.0

360.7

336.6

24.1

 

 

 

 

 

 

 

Net assets

1,944.2

1,683.4

260.8

1,933.2

1,725.3

207.9

Add back impairment made to disposal group

-

-

-

-

-

-

Adjustments for FX and averaging

(0.1)

0.9

(1.0)

(10.9)

(64.2)

53.3

Net assets for ROIC

1,944.1

1,684.3

259.8

1,922.3

1,661.1

261.2

 

 

 

 

 

 

 

Borrowings

(1,441.1)

(1,438.1)

(3.0)

(1,322.8)

(1,319.8)

(3.0)

Obligations under finance leases

(4.3)

(4.3)

-

(1.3)

(1.3)

-

Cash and cash equivalents

111.3

109.3

2.0

153.5

151.8

1.7

Adjustments for FX and averaging

(3.0)

(2.7)

(0.3)

(175.9)

(192.5)

16.6

Less net debt for ROIC

(1,337.1)

(1,335.8)

(1.3)

(1,346.5)

(1,361.8)

15.3

Invested capital for ROIC

3,281.2

3,020.1

261.1

3,268.8

3,022.9

245.9

ROIC

11.4%

11.3%

13.4%

11.0%

11.1%

9.8%

1 ROIC from discontinued operations has been calculated excluding $10.7 million (2017: $11.6 million) of support costs borne by the continuing Group. For the purposes of the ROIC calculation only, the 2017 balance sheet has been presented to show ERO Discontinued Operations separately.

 

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.

 

 

 

 

Alternative Performance Measures - continued

Operating cash flow continued

A reconciliation from Group net cash flow from operating activities, the most directly comparable IFRS measure, to adjusted operating cash flow, is set out below.

 

2018

Total

$m

2017
Total

$m

Net cash flow from operating activities (note 8)

368.3

339.0

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

(85.3)

(73.4)

Less reported purchase of intangible assets (note 8)

(7.8)

(11.9)

Add income tax paid (note 8)

27.1

41.8

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

1.2

 5.0

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

4.7

16.8

Operating cash flow

308.2

317.3

 

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.

 

2018

Total

%

2017
Total

%

Cash conversion

118%

134%

 

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 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, the fair value adjustment on the US private placement senior notes and the fair value adjustment on the US senior notes.

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.

 

 

 

2018

Total

$m

2018 Continuing

$m

2018 Discontinued

$m

2017

Total

$m

Reported borrowings (note 7)

 

 

(1,441.1)

(1,438.1)

(3.0)

(1,322.8)

Amortisation costs (note 7)

 

 

(17.6)

(17.6)

-

(6.4)

Fair value adjustment on US private placement senior notes (note 7)

 

 

(2.1)

(2.1)

-

3.5

Fair value adjustment on US senior notes (note 7)

 

 

4.0

4.0

-

-

Total principal of borrowings

 

 

(1,456.8)

(1,453.8)

(3.0)

(1,325.7)

Reported cash and cash equivalents

 

 

111.3

109.3

2.0

153.5

Total net principal of borrowings

 

 

(1,345.5)

(1,344.5)

(1.0)

(1,172.2)

Amortisation costs

 

 

17.6

17.6

-

6.4

Obligations under finance leases

 

 

(4.3)

(4.3)

-

(1.3)

Net debt

 

 

(1,332.2)

(1,331.2)

(1.0)

(1,167.1)

 


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