TIDMBBA
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 YEARED 31 DECEMBER 2018
Underlying results(1) Statutory results
2018 2017 Restated(2) 2018 2017 Restated(2)
Total Continuing Total Continuing % Change(3) Total Continuing Total Continuing % Change(3)
(including (including (including (including
discontinued discontinued discontinued discontinued
operations) operations) operations) operations)
---------- ------------ ---------- ------------ ---------- ------------- ------------- ---------- ------------ ---------- -----------
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
share(4) 23.3c 21.0c 24.0c 21.8c (3)% 13.4c 11.5c 11.6c 11.5c 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 14.07c - 13.40c - 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 GBP261.5 million (2017: $237.4 million)
-- Continuing operations:
o 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
o 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:
o 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 23.3c (2017: 24.0c). Total Group basic EPS increased by 15.5% to
13.4c (2017: 11.6c)
-- Final dividend increased by 5% to 10.07c 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 21.0c (2017: 21.8c). Statutory earnings per share for
continuing operations was flat at 11.5c.
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 Class(TM) 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 Signature TECHNICAir EPIC Total
FBO
$m
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 TECHNICAir EPIC Total
FBO
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 TECHNICAir EPIC Total
FBO
Revenue 12.4% (3.0)% - 29.5%
Organic revenue growth (1.2)% (0.6)% - (1.1)%
Underlying operating (1.9)% (50.7)% - (2.7)%
profit
Constant fuel operating (100)bps (500)bps - (340) bps
margin
Statutory operating
profit (1.0)%
Operating cash flow 11.7%
Divisional return on (40) bps
invested capital
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(TM) 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(R) 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(R) 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 Class(TM) (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 10.07c
(2017: 9.59c) 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 14.07c (2017:
13.40c).
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 2017(2)
================================ ====== ========================================= =========================================
Exceptional
and other
Exceptional
and other
Underlying(1) items Total Underlying(1) items Total
For the year ended 31 December Notes $m $m $m $m $m $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 23.3c 13.4c 24.0c 11.6c
Diluted 5 23.1c 13.2c 23.7c 11.5c
Continuing operations
Basic 5 21.0c 11.5c 21.8c 11.5c
Diluted 5 20.8c 11.4c 21.5c 11.4c
Discontinued operations
Basic 10 2.3c 1.9c 2.2c 0.1c
Diluted 10 2.3c 1.8c 2.2c 0.1c
-------------------------------- ------ -------------- ------------ ----------- -------------- ------------ -----------
(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
2018 2017
For the year ended 31 December Notes $m $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
2018 2017
As at 31 December Notes $m $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
2018 2017
For the year ended 31 December Notes $m $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 assets(1) (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) (60.5)
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 shares(2) (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
Share Share Retained Other Non-controlling Total
capital premium earnings reserves Total interests equity
Notes $m $m $m $m $m $m $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:
2018(1)
Financial Statement
Area Impact $m
==================== ========== =========
Total assets (1 Increase
Jan 2019) c25% 4,271.2
Total liabilities Increase
(1 Jan 2019) c50% (2,327.0)
Net debt (1 Jan Increase
2019) c85% (1,332.2)
Operating profit Increase
(FY 2019) c10% 227.6
Finance costs (FY Increase
2019) c100% 67.0
Profit before tax Decrease
(FY 2019) c10% 147.2
Increase
EBITDA (FY 2019) c30% 431.5
Operating cash flow Increase
(FY 2019) c35% 368.3
Decrease
EPS (FY 2019) c10% 13.4c
Decrease
ROIC (FY 2019) 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.
Unallocated
Signature(1) Ontic(5) Total Corporate(2) Total
Business segments $m $m $m $m $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 operations(3) - 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 additions(4) 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
----------------------------------------------- ------------ -------- ------- ------------- -------
Unallocated
1. Segmental information - continued Signature(1) Ontic(5) Total Corporate(2) Total
Business segments $m $m $m $m $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
------------------------------------------ ------------ -------- ------- ------------- ---------
Unallocated
Signature(1) Ontic(5) Total Corporate(2) Total
Business segments $m $m $m $m $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 operations(3) - 11.6 11.6 (11.6) -
Less underlying operating loss from
ASIG discontinued operations(3) 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 additions(4) 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
Capital Non-current
Revenue Revenue
by destination by origin additions(1) assets(2)
Geographical segments $m $m $m $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 Revenue from
sale of goods services
=================================================== ================= ================
2018 2017 2018 2017
$m $m $m $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:
Administrative
Restructuring
Administrative Restructuring expenses costs
Other
operating
expenses Total
expenses costs Total 2017 2017 2017 2017
Other
operating
expenses
2018 2018 2018 2018 Restated Restated Restated Restated
Note $m $m $m $m $m $m $m $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
costs(1) - 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 Restated
2018 2017
Recognised in the Income Statement $m $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:
Restated
2018 2017
$m $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:
2018 2017
Recognised in other comprehensive income $m $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 9.59c per share
(total dividend $99.3 million) was paid to shareholders (2017: the
2016 final dividend of 9.12c per share (total dividend $91.5
million) was paid on 19 May 2017).
On 2 November 2018, the 2018 interim dividend of 4.00c per share
(total dividend $41.4 million) was paid to shareholders (2017: the
2017 interim dividend of 3.81c 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 10.07c 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
====================================================== ================== ================
Restated
2018 2017 2018 2017
$m $m $m $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 29(16) /(21) p 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 21.0c 21.8c 23.3c 24.0c
Cash 23.0c 26.7c 25.9c 28.6c
Unadjusted 11.5c 11.5c 13.4c 11.6c
Diluted:
Adjusted 20.8c 21.5c 23.1c 23.7c
Cash 22.8c 26.4c 25.6c 28.3c
Unadjusted 11.4c 11.4c 13.2c 11.5c
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
Licences Licences
and Computer and Computer
Goodwill contracts software Total Goodwill contracts software Total
2018 2018 2018 2018 2017 2017 2017 2017
$m $m $m $m $m $m $m $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 2017
$m $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.
2018 2017
7. Borrowings $m $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
========================= =====================================================================================
Facility Amortisation Fair value
amount Headroom Principal costs adjustment Drawn Facility Maturity
Type $m $m $m $m $m $m date 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
------------------------- -------------------------------------------------------------------------------------
Facility Amortisation Fair value
amount Headroom Principal costs adjustment Drawn Facility Maturity
Type $m $m $m $m $m $m date 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 US dollar Euro Total
$m $m $m $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 2017
$m $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 assets(1) (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:
Total
EPIC Signature Esterline Racal Acoustics licences Honeywell 2is Firstmark Woodward UK based OEM Ontic 2018
$m $m $m $m $m $m $m $m $m $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(R) 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.
EPIC
Net book value on the opening balance sheet Debt and interest repaid on acquisition Fair value adjustment 2018
$m $m $m $m
=============== ==== ============================================ ======================================== ====================== =======
Intangible assets 2.9 - 22.0 24.9
Property, plant and
equipment 4.2 - (0.1) 4.1
Unlisted investments 0.5 - - 0.5
Non-current
receivables 0.8 - (0.2) 0.6
Inventories 6.5 - (0.1) 6.4
Receivables 52.1 - (1.2) 50.9
Cash(1) 6.4 - - 6.4
Payables (32.9) - (0.9) (33.8)
Provisions - - (2.6) (2.6)
Bank loans (23.2) 23.2 - -
Obligations under
finance leases (3.4) - - (3.4)
Deferred tax
liabilities - - (0.3) (0.3)
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.
Firstmark
Net book value on the opening balance sheet Fair value adjustment 2018
$m $m $m
======================= ==== ==== ============================================ ====================== ===========
Intangible assets 37.9 39.1 77.0
Property, plant and equipment 0.8 (0.2) 0.6
Investments in associates 0.1 (0.1) -
Inventories 8.9 (1.0) 7.9
Receivables 3.3 (1.0) 2.3
Cash - - -
Payables (1.4) 0.1 (1.3)
Provisions - (2.2) (2.2)
Pensions (1.8) 0.1 (1.7)
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
================================ ====== ===================================== =====================================
Exceptional Exceptional
and other and other
Underlying(1) items Total Underlying(1) items Total
Notes $m $m $m $m $m $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 costs(2) - (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 Adjusted(1) Unadjusted Adjusted(1) Unadjusted
==================== ===== ============ =========== ============ ===========
Basic 5 2.3c 1.9c 2.2c 2.3c
Diluted 5 2.3c 1.8c 2.2c 2.3c
-------------------- ----- ------------ ----------- ------------ -----------
(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 2017
$m $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 year(1) 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
Comparative
2018 2017(2)
Notes $m $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 sale(1) 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
================================ ====== ==================================== ====================================
Exceptional Exceptional
and other and other
Underlying(1) items Total Underlying(1) items Total
Notes $m $m $m $m $m $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 sale(2) - - - - (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 Adjusted(1) Unadjusted Adjusted1 Unadjusted
==================== ===== ============ =========== ========== ===========
Basic 5 - - - (2.2)c
Diluted 5 - - - (2.2)c
-------------------- ----- ------------ ----------- ---------- -----------
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 2017
$m $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 year(1) - (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.
Restated
2018 2017
Organic revenue growth $m $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 movements(1) 10.9 (5.3)
Rebase for fuel price movements(2) 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.
(2) 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 2017 Restated Restated
Total 2018 Continuing 2018 Discontinued Total 2017 Continuing 2017 Discontinued
$m $m $m $m $m $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 2017 Restated Restated
Total 2018 Continuing 2018 Discontinued Total 2017 Continuing 2017 Discontinued
$m $m $m $m $m $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 2017 Restated Restated
Total 2018 Continuing 2018 Discontinued Total 2017 Continuing 2017 Discontinued
$m $m $m $m $m $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 2018 2017 Restated Restated
Total Continuing 2018 Discontinued Total 2017 Continuing 2017 Discontinued
$m $m $m $m $m $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 2018 2017 Restated Restated
Total Continuing 2018 Discontinued Total 2017 Continuing 2017 Discontinued
$m $m $m $m $m $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 2017 Restated Restated
Total 2018 Continuing 2018 Discontinued Total 2017 Continuing 2017 Discontinued
c c c c c c
============================ ====== =============== ================= ====== ================ ==================
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 2018 2017
Restated Restated
Total Continuing 2018 Discontinued(1) Total 2017 Continuing 2017 Discontinued(1)
$m $m $m $m $m $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 2017
Total Total
$m $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 2017
Total 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 2017
Total 2018 Continuing 2018 Discontinued Total
$m $m $m $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)
--------------------------------------- --------- --------------- ----------------- ---------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR EAEDLEDANEAF
(END) Dow Jones Newswires
March 05, 2019 02:01 ET (07:01 GMT)
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