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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Bba Aviation Plc | LSE:BBA | London | Ordinary Share | GB00B1FP8915 | ORD 29 16/21P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 314.80 | 314.00 | 314.40 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMBBA
RNS Number : 9218F
BBA Aviation PLC
02 August 2016
BBA Aviation plc
2016 Interim Financial Report
Results for the half year ended
30 June 2016
For further information please contact:
Mike Powell, Group Finance Director (020) 7514 3999
Martha Walsh, Interim Head of Communications & Investor Relations
BBA AVIATION PLC
David Allchurch / Doug Campbell (020) 7353 4200
TULCHAN COMMUNICATIONS
A video with Simon Pryce, Group Chief Executive, is now available on www.bbaaviation.com and www.cantos.com
A live audio webcast of the analyst presentation will be available from 09:00 today on www.bbaaviation.com and www.cantos.com
INTERIM FINANCIAL REPORT FOR PERIODED 30 JUNE 2016
Hot Features
Premium
GROUP Underlying results(1)
H1 2016 H1 2015 Restated % Change
Continuing(2) Discontinued(3) Total Continuing(2) Discontinued(3) Total
Revenue 1,020.6 208.8 1,229.4 882.3 214.1 1,096.4 12%
EBITDA(4) 178.6 16.7 195.3 113.1 17.1 130.2 50%
Operating
profit 135.6 14.0 149.6 84.2 11.4 95.6 56%
Profit before
tax 105.5 13.9 119.4 67.9 11.3 79.2 51%
Profit after
tax 88.0 12.3 100.3 56.7 8.9 65.6 53%
Basic adjusted
earnings per
share(5) 10.2c 1.4c 11.6c 9.3c 1.6c 10.9c 6%
Return on
invested capital(6) 9.9% 11.4%(7) (150bps)
Free cash
flow(8) 91.7 11.8 677%
Net debt(10) (1,437.0) 456.5(9) n/a
Dividend per
share 3.63c 3.47c 5%
GROUP Statutory results
H1 2016 H1 2015 Restated % Change
Continuing(2) Discontinued(3) Total Continuing(2) Discontinued(3) Total
Revenue 1,020.6 208.8 1,229.4 882.3 214.1 1,096.4 12%
EBITDA 156.3 16.7 173.0 101.2 17.1 118.3 46%
Operating
profit 62.1 13.3 75.4 67.6 10.5 78.1 (3%)
(Loss)/Profit
before tax (153.3) (115.7) (269.0) 51.3 10.4 61.7 (536%)
(Loss)/Profit
after tax (129.7) (117.3) (247.0) 43.0 8.2 51.2 (582%)
Basic earnings
per share (12.7c) (11.4c) (24.1c) 6.6c 1.2c 7.8c (409%)
Return on
invested capital(6) 9.9% 11.4%(7) (150bps)
Free cash
flow(8) 91.7 11.8 677%
Net debt(10) (1,437.0) 456.5(9) n/a
Dividend per
share 3.63c 3.47c 5%
(1) Before exceptional and other items (as defined in the financial statements)
(2) Continuing operations comprises Signature Flight Support and Aftermarket Services
(3) ASIG is reclassified as discontinued operations and reported gross of BBA Aviation support costs previously included within ASIG
(4) Underlying EBITDA is calculated as underlying operating profit before depreciation and amortisation charged through underlying operating profit
(5) Adjusted earnings pre exceptional and other items attributable to the Group, reflecting current tax charge as opposed to total tax charge, divided by the weighted average number of shares in issue adjusted for the period to 5 February 2016 to match the capital structure with the earnings generated by it
(6) Underlying operating profit return on average invested capital; invested capital calculated as average net assets plus average net debt
(7) Return on invested capital for full year 2015
(8) Cash generated by operations, plus dividends from associates, less tax, net interest and net capital expenditure
(9) Net debt for full year 2015
(10) Net debt represents borrowings and obligations under finance leases repayable in less than one year and borrowings and obligations under finance leases repayable in more than one year for continuing operations, adjusted to reflect the US private placement debt at its face value of $500 million ($28.3 million lower than its carrying value, H1 2015 $11.6 million) less cash and cash equivalents for continuing and discontinued operations.
These definitions as outlined above are consistently applied throughout this results announcement
Highlights
-- Strong overall results, underlying operating profit (continuing and discontinued) up 56% to $149.6 million
-- Acquisition of Landmark Aviation delivering as anticipated -- Integration proceeding well and synergy delivery ahead of plan -- $190m of U.S. Department of Justice required FBO disposals completed -- Continuing operations:
o Flight Support (93% of Group)
-- Excellent underlying operating profit growth of 84% in enlarged Signature despite broadly flat markets
-- Continued market outperformance, existing Signature organic revenue growth of 3.6% and underlying operating profit growth of 10.8%*
-- Increased confidence in delivering run rate synergies of at least $35 million
o Aftermarket Services (7% of Group)
-- Ontic, our Legacy Support business, delivered ahead of plan and with a strong order book
-- Weak H1 performance in ERO as trading conditions remained challenging, continued progress on footprint reduction programme
-- Statutory operating profit from continuing operations down 8% to $62.1 million -- Discontinued operations:
o ASIG reclassified as held for sale; good underlying improvement
-- Exceptional and other items of $347.3 million
o Continuing challenges in ERO leading to non-cash accounting impairment of $185.3 million
o $128.9 million ASIG write-down resulting from reclassification as held for sale
o $44.7 million amortisation of acquired Landmark Aviation intangibles, in line with expectations
-- Strong net cash flow from operating activities of $160 million and Group de-levered to 3.2x net debt/EBITDA on a covenant basis, versus covenant of 4x
-- Adjusted underlying EPS up 6.4%
-- Interim dividend up 5% reflecting continued confidence in the Group's future growth prospects
*Adjusted for H1 2015 one-off $5.2 million benefit of the reclassification of our investment in the Hong Kong Business Aviation Centre as an associate
Simon Pryce, BBA Aviation Chief Executive Officer, commented:
"The Group overall delivered a strong set of results in H1 despite broadly flat markets. We are pleased with the acquisition of Landmark Aviation and the integration is ahead of plan. The enlarged Signature (which now represents over 90% of the Group's continuing business) delivered an excellent half of outperformance with good margin drop through. In Aftermarket Services, our Legacy Support business Ontic performed ahead of expectations but ERO continued to experience difficult trading conditions, although with an improving trend in the second quarter as we continue to execute our footprint reduction programme. As anticipated, we saw strong cash generation and Group leverage on a covenant basis is already down to 3.2x.
As a result of on-going discussions we have reclassified ASIG, which made good operational progress in the period, as a discontinued operation and now consider a sale of this business to be highly probable, albeit there is no certainty that an acceptable transaction will result. We anticipate making a further announcement on ASIG before the end of the year.
With the actions that deliver the majority of the cost synergies complete as we enter H2, we are highly confident of delivering at least $35 million of annualised cost savings from the Landmark Aviation acquisition. We also continue to see further opportunity for continued outperformance from the enlarged Signature through the delivery of its customer recognised, industry-leading services and the application of its operational excellence across a much larger global network of high quality locations. Ontic has a very strong pipeline and a good order book and while the delayed recovery in legacy mid-cabin fixed wing and rotorcraft flying will continue to impact ERO, our footprint reduction programme remains on track and will lead to improved financial performance.
We remain confident in the full year outlook and anticipate good further progress in 2016, which coupled with continued, albeit modest growth in our major markets, will give us strong momentum into 2017 and beyond."
INTERIM FINANCIAL REPORT 2016
Overview
BBA Aviation had a successful first half in 2016, with good progress on the Group's strategic initiatives and results ahead of expectations. The acquisition of Landmark Aviation was successfully completed in February, and is delivering well with integration and level of cost synergies ahead of plan and actions that deliver the majority of the cost savings already complete. The U.S. Department of Justice required six FBO disposals which have been completed for $190 million.
In Continuing Operations, Signature delivered excellent operating profit growth, continuing to outperform its markets, which were broadly flat, with good drop through to profit; and Landmark Aviation delivered in line with our expectations. Ontic, our Legacy Support business, delivered ahead of plan and enters H2 with a particularly strong order book and pipeline. However, in Engine Repair & Overhaul (ERO) trading conditions remained challenging, with no recovery in legacy mid-cabin fixed wing and rotorcraft flying visible and continued pressure on pricing and workscopes, which led to another disappointing ERO result. As a result of this performance and with no visible recovery in said markets, an impairment loss of $185.3m has been incurred.
ASIG delivered good underlying operational improvement in the half. As a result of on-going discussions we now consider a sale of the ASIG business to be highly probable and it has therefore been reclassified as a discontinued operation and its assets disclosed as held for sale. We anticipate making a further announcement on ASIG before the end of the year.
Continuing Group revenue increased by 15.7% to $1,020.6 million (H1 2015: $882.3 million). Continuing Flight Support revenue increased 40.0%, reflecting a good Signature result and the contribution of acquisitions, principally Landmark Aviation, of $241.2 million, offset by the impact of lower fuel prices and foreign exchange movements that reduced Flight Support revenue by $56.3 million. Aftermarket Services revenue was down 14.2%.
Continuing underlying Group operating profit was $135.6 million (H1 2015: $84.2 million). There was an excellent performance in Flight Support with a $62.1 million contribution from acquisitions, of which $8.7 million related to cost synergies. Aftermarket Services, now only 7% of continuing Group underlying operating profit, was down 56.0%; Ontic is on track with the majority of the decline due to another disappointing performance from ERO.
Continuing Group underlying operating profit margin increased to 13.3% (H1 2015 constant fuel price: 10.1%) with positive margin development and a greater contribution from Signature offset by a lower margin in Aftermarket Services due to challenges in ERO.
Net interest increased by $13.8 million to $30.1 million (H1 2015: $16.3 million) mostly due to the acquisition facilities drawn down on completion of the Landmark Aviation acquisition. Net debt increased to $1,437 million (FY 2015: net cash position of $456.5 million). On a covenant basis, the net debt to EBITDA ratio increased to 3.2x (FY 2015 historically adjusted for the results of the capital raise: 2.3x), and on a reported basis to 4.3x (FY 2015 historically adjusted 2.3x). Interest cover decreased to 7.4x for the 12 months to 30 June 2016 (FY 2015: 8.5x), due to the increased interest bill on the drawn debt.
Underlying profit before tax increased to $105.5 million (H1 2015: $67.9 million).
The Group's underlying tax rate is 16.0% (H1 2015: 17.2%), with the continuing operations' tax rate 16.6% as expected. Underlying profit before tax increased by 55% and the adjusted average number of shares increased by 299 million via the October 2015 capital raising; resulting in adjusted earnings per share up 6.4% to 11.6c (adjusted H1 2015: 10.9c).
Exceptional and other items after tax, for continuing and discontinued operations, totalled $347.3 million. Key items of this are an impairment charge of $185.3 million in relation to ERO's assets due to its continuing challenging trading environment and no visible recovery in legacy mid-cabin fixed wing and rotorcraft flying; and in classifying ASIG as a discontinued operation, it is considered appropriate to write down the assets now held for sale which resulted in an impairment charge of $128.9m. Further items which were all anticipated include: restructuring expenses of $6.2 million (H1 2015: $2.7 million), associated with ERO's ongoing footprint rationalisation programme; $16.1 million of integration costs related to the acquisition of Landmark Aviation; and $51.9 million amortisation of acquired intangible assets (H1 2015: $5.6 million), an increase resulting primarily from the acquisition of Landmark Aviation. This is accounted for as an other item within exceptional and other items.
Continuing statutory profit before tax was $(153.3) million versus $51.3 million for the prior year. The statutory loss before tax arises due to the exceptional and other items charges during H1 2016 as outlined above.
Continuing unadjusted earnings per share decreased to (12.6)c against the 2015 comparator. Continuing adjusted earnings per share (EPS) increased 6.4% to 10.2c.
Free cash flow for the first half was an inflow of $91.7 million (H1 2015: $11.8 million inflow), the increase due to Landmark Aviation's cash generation.
Gross capital expenditure amounted to $49.6 million (H1 2015: $44.3 million), of which $1.3 million related to Landmark Aviation integration. Principal items include the investment in Signature's FBO development projects at San Jose (now complete) and London Luton, the completion of Landmark development projects at Grand Rapids and Cleveland Lakefront and the new ERO facility associated with its footprint rationalisation programme.
Working capital improved by $9.3 million. Despite some inventory increases in Ontic, due to order book build for the second half, the main inflow is due to us applying our working capital disciplines and processes across the enlarged group. This is a one off and unlikely to recur in the second half.
The Group paid net $2.6 million of pension payments during the period, of which $2.1 million represented pension deficit payments reflecting the agreed payments to the scheme.
The Group's tax and interest payments in the first half were $36.5 million (H1 2015: $22.0 million), and the dividend payment was $87.2 million (H1 2015: $53.9 million).
Total spend on acquisitions and licences completed during the period amounted to $2,088.2 million (H1 2015: $21.1 million), which included $2,086.9 million for Landmark Aviation, adjusted for working capital and minority interests; a controlling shareholding in Prime Aviation Services, which operates FBOs at four locations in Italy; and deferred consideration for Ontic's acquisition of licenses for selected JT15D engine component parts from Pratt & Whitney Canada. The Group recorded net cash proceeds from the disposal of six FBOs of $186.5 million after adjusting for the impact of working capital.
Following a review of the impact of the Landmark Aviation acquisition on the Group's long term incentive plans, in consultation with shareholders, the basis for calculating the key performance measures of EPS and return on invested capital (ROIC) has changed to simplify them and focus them more on cash generation.
ROIC is now calculated as adjusted operating profit, as defined in the Group's financial statements; divided by statutory invested capital, calculated as net assets plus net debt, on a look back 13 month average.
Underlying earnings per share (EPS) is now calculated as adjusted earnings pre exceptional and other items attributable to BBA Aviation (using a current tax charge rather than total accounting tax charge), divided by the weighted average shares in issue.
$c / share Continuing Discontinued Total
H1 H1 2015 H1 H1 2015 H1 H1 2015
2016 2015 2016 2015 2016 2015
Underlying
adjusted EPS 10.2 9.3 20.3 1.4 1.6 3.3 11.6 10.9 23.6
Business Review - Continuing Operations
Flight Support (93% of continuing operations' underlying operating profit)
Our Flight Support division provides specialist on-airport services including refuelling and ground handling to the business & general aviation (B&GA) market through Signature Flight Support (Signature).
Flight Support's continuing operations comprise Signature (existing Signature) and the acquired Landmark Aviation operations (Landmark Aviation).
$m H1 2016 H1 2015 Change
restated
Revenue 680.5 485.9 40%
Organic revenue 3.6%^ -
growth
Underlying operating
profit 141.6 76.8 84%
Underlying operating
margins 20.8% 17.7% 310bps
Statutory operating
profit 77.4 67.4 15%
Operating cash flow** 146.5 42.5 245%
Divisional return 12.3% 15.4%* (310bps)
on invested capital
^ Continuing Signature operations excluding the impact of foreign currency and fuel price fluctuations, any contribution from acquisitions and disposals, and continuing ASIG operations
Underlying operating profit at constant fuel prices as a percentage of revenue
*Return on invested capital for full year 2015
**Operating cash flow represents net cash inflow from operating activities less purchase of property, plant and equipment, purchase of intangible assets (excluding Ontic licenses), plus proceeds from disposal of property, plant and equipment and add back taxes paid
Revenue in Flight Support increased by 40% to $680.5 million (H1 2015: $485.9 million), reflecting the $241.2 million contribution from acquisitions, primarily Landmark Aviation, and the net impact of lower fuel prices and foreign exchange movements that reduced revenue by $56.3 million. Signature delivered organic growth despite weak de-icing and against a background of broadly flat markets with US B&GA movements up 0.2% and European B&GA movements down 0.8% during the period.
Underlying operating profit in Flight Support increased by 84% to $141.6 million (H1 2015: $76.8 million), driven by $62.1 million contribution from acquisitions, which included cost synergies of $8.7 million and supported by strong underlying operational delivery in existing Signature. On an organic basis, adjusting for acquisitions ($62.1 million), FX ($0.4 million), and fuel prices ($nil), operating profit increased by 4.0%. The comparator period benefited from the reclassification of our investment in the Hong Kong Business Aviation Centre as an associate rather than a financial investment, which realised an accounting profit of $5.2 million, adjusting for which, organic operating profit grew 10.8%.
Operating margins improved to 20.8% (H1 2015: 17.7%) after adjusting for fuel prices, driven by the increased scale of Flight Support's FBO business. Underlying operating margin of 20.8% includes the benefit of profit from disposed FBOs and charter business accounted for as associate undertaking (detailed below) (H1 2015: 15.8%).
Statutory operating profit of $77.4 million has increased by 14.8% (H1 2015: $67.4 million). This is a result of organic growth plus the impact of acquisitions in the period, partially offset by increased other item costs associated with the integration of Landmark Aviation and amortisation of intangible assets.
Operating cash flow for the division was $146.5 million (H1 2015: $42.5 million) due principally to increased EBITDA following the acquisition of Landmark Aviation. Return on invested capital decreased to 12.3% (FY 2015: 15.4%).
Existing Signature, i.e. excluding locations acquired through Landmark Aviation, delivered a very strong performance despite weaker than anticipated markets, reflecting the continued benefits of a strong and relevant network. Landmark's locations also performed well. Organic revenue, excluding the contribution from acquisitions, increased 3.6% to $437.0 million. In the first half of 2016, Signature once again outperformed its key markets, with continued demand from existing and new customers for its independently acknowledged market leading services and facilities across its unique, growing and global network.
The acquisition of Landmark Aviation completed on 5 February and the business has subsequently met our expectations and performed as anticipated. Integration is proceeding well, with all sites having completed Signature re-branding and training. The roll-out of Signature's system to former Landmark Aviation locations has commenced with 30 sites now online and the remainder due for completion before year end. Once the roll-out is complete, Signature will be able to provide the enhanced network benefits more effectively to a broader spectrum of customers supporting continued outperformance in 2017 and beyond.
With integration ahead of plan, cost synergies of $8.7m delivered in H1, and actions complete that deliver the vast majority of the integration cost benefits, we are increasingly confident of delivering at least $35 million of run rate synergies from the beginning of 2017. Of the anticipated integration spend in 2016 of circa $44 million, comprising $25 million of one-off expenses and $19 million of capital expenditure, $16.1 million and $1.3 million respectively has been incurred.
The purchase price accounting exercise for the acquisition is provisionally complete with the effect that Landmark Aviation's intangible assets have been valued at $1,162.8 million, and amortisation charges of $44.7 million in respect of those intangibles has been taken as a other charge in H1 as part of our exceptional and other items. The intangible assets represent the Right To Operate (RTO) leases at the acquired FBOs.
Six FBOs were required to be sold as a result of the Landmark Aviation acquisition and this transaction completed on 30 June 2016; the proceeds of which have been used for debt repayment. EBITDA contribution of $7.9 million from these FBOs is included in Flight Support up to the transaction completion date. Landmark Aviation's aircraft management and charter business (AMC), is currently held in trust as we implement actions to resolve the restrictions on foreign ownership and has therefore been accounted for as an associate undertaking.
In April, four FBOs were acquired in Italy through the formation of a joint venture with SEA Prime S.p.A., adding locations in Milan Linate and Malpensa airports, Rome Ciampino airport and Venice Marco Polo airport. During the period, Signature further expanded its network and relevance through its affiliate FBO programme, Signature Select(TM) , with the addition of one new location at Lanseria International Airport in Johannesburg, South Africa, taking the Signature Select(TM) network up to 16 locations globally. Following the period end, Signature took over the FBO lease at Stewart International Airport, NY from Airborne Aviation, bringing the total number of North American locations to 136 and the total number globally to 200.
Signature's ongoing development project at London Luton Airport is progressing well and is on track to complete in November 2016. Signature's new FBO at Mineta San Jose International Airport held its grand opening in February and traffic is ahead of expectations. A significant extension to existing facilities at Biggin Hill airport, outside London, was announced in June and the new FBO and hangar facilities at Cleveland Lakefront airport opened in July.
Aftermarket Services (7% of continuing operations' underlying operating profit)
Our Aftermarket Services division is focused on the repair and overhaul of engines through our Engine Repair and Overhaul (ERO) businesses and the support of maturing aerospace platforms through Ontic, our Legacy Support business.
$m H1 2016 H1 2015 Change Revenue 340.1 396.4 (14%) Organic revenue (14%) - growth Underlying operating profit 11.1 25.2 (56%) Underlying operating margins 3.3% 6.4% (310bps) Statutory operating profit 1.8 20.8 (91%) Operating cash flow** (6.8) 2.7 (352%) Divisional return 6.5% 10.8%* (430bps) on invested capital
* Return on invested capital for full year 2015
**Operating cash flow represents net cash inflow from operating activities less purchase of property, plant and equipment, purchase of intangible assets (excluding Ontic licenses), plus proceeds from disposal of property, plant and equipment and add back taxes paid
In Aftermarket Services, revenue decreased by 14% to $340.1 million (H1 2015: $396.4 million, a comparator that includes $29.4 million of engine trading). On an organic basis, adjusting for FX, revenue also decreased by 14%.
Underlying operating profit of $11.1 million decreased by 56% (H1 2015: $25.2 million).
The decline in both revenue and operating profit was mostly due to a poor performance from ERO. On an organic basis, operating profit was down 63% to $11.1 million with operating margins of 3.3% (H1 2015: 6.4%), against a comparator which saw a material contribution from engine trading.
Statutory operating profit of $1.8 million has decreased by 91% (H1 2015: $20.8 million). This is a result of the poor operating performance as outlined above and an increase in the ERO footprint rationalisation costs which are presented as part exceptional and other items.
Operating cash flow for the division was $(6.8) million reflecting lower operating profit in ERO and the capital expenditure associated with the investment in new ERO facilities and the footprint restructuring. Return on invested capital decreased to 6.5% (FY 2015: 8.4%) reflecting investment in the new ERO facilities and operating profit decline.
Engine Repair and Overhaul's revenue of $269.9 million (H1 2015: $321.9 million) represented a 15% organic revenue decrease. Volumes in legacy mid-cabin engines and rotorcraft remained depressed through most of the first half, with reduced workscopes and competitive pricing. Engine trading was much reduced and this, together with further margin pressure arising from OEM actions, and reduced demand for lease engines, was only partially offset by the limited cost savings so far delivered through the footprint restructuring programme and additional cost reduction actions taken in H1. Whilst the small thrust engine repair and overhaul market remains competitive and volatile, we did see much improved performance the last two months of the period, particularly as Tay engine volumes increased. While the financial performance of our engine repair business remains unsatisfactory, with the increasing benefits of the footprint reduction programme and additional cost reduction actions contributing more fully into H2, even at current volumes, we anticipate a modest improvement in ERO in H2 albeit not recovering to the previously expected performance levels.
ERO's footprint rationalisation programme, which began in 2014, remains on track. The new overhaul and test cell facilities are complete and two of the six test cells have been successfully calibrated. Main production testing has now commenced on the PW200 Series, RR M250-C47B & C-20B, RR300 and TFE731-3 & -5. The transfer of production and final closure of Neosho and Forest Park has commenced and will be complete by the end of H2 with lessons learned from 2015's transition of engine overhaul lines and site closures being applied through more effective project oversight and risk assessment and mitigation throughout. Further operational improvement has led to enhanced performance metrics, even faster turn times and significant increases in customer satisfaction ratings. These fast turnaround times, the improved cost structure and greater operational stability that will be in place by 2017 once the footprint reduction is complete should further improve flexibility, customer service and financial performance and a more stable base from which to develop a long term strategy for value creation for our ERO business.
In May, ERO and Signature jointly launched Jetstream rewards to incentivise Signature customers to schedule maintenance events at ERO facilities in exchange for fuel credits; the first time that the Group has externally promoted cross-selling between divisions. Further actions are being taken to improve ERO's performance including the development of a proprietary forecasting system and commercial steps towards broader parts procurement to compete with grey market suppliers.
However, with no recovery in legacy mid cabin and oil and gas rotorcraft flying in the foreseeable future as well as a more challenging outlook, the Board has determined that for certain ERO assets the balance sheet carrying value exceeds its likely recoverable amount and an impairment charge has therefore been recognised of $185.3 million.
In Ontic, revenue decreased by 5.9% to $70.2 million (H1 2015: $74.5 million), and on an organic basis by 10.0%, due to the timing of deliveries and new licence adoptions and was slightly ahead of our expectations. The order book at the end of H1 is somewhat higher than anticipated.
During the period, Ontic expanded its license portfolio from Pratt & Whitney Canada Corp for certain additional engine components, significantly increasing the level of JT15D content for which it is responsible. Ontic continues to pursue value added acquisitions, authorisations and licenses with a particularly strong pipeline of opportunity.
Central Costs
Core central costs were $1.2 million lower at $7.8 million, due to FX, cost control and lower share based payments. Due to the reclassification of ASIG as a discontinued business, those central back-office transaction processing and shared service centre costs previously allocated to ASIG of $9.3 million (H1 2015: $8.8 million) are now included in continuing operations. Such costs will be eliminated in whole or in part if we complete an acceptable transaction on ASIG.
Business Review - Discontinued Operations
The Company's view is that a disposal of ASIG is highly probable in the next 12 months, and therefore ASIG has been reclassified as a discontinued operation and its assets held for sale during H1. The appropriate accounting treatment requires us to report ASIG's performance as a single discontinued profit after tax number in the income statement and the balance sheet is collapsed onto two lines only, showing assets held for sale and liabilities held for sale. Prior years are restated with operations shown gross of central support costs.
On an underlying basis however, ASIG continued to deliver good operational improvement in H1, with profit increased by 23% to $14.0 million (H1 2015: $11.4 million) as a result of the continuing and significant operational improvements - new business wins, successful new contract and new location start-up's, cost savings, and the benefit of the Panama acquisition - offset by adverse de-icing activity in an unusually warm Q1 in North America. The profit improvement also benefited from a suspension of depreciation of $2.5 million during Q2, the required accounting treatment whilst the asset is held for sale.
In classifying ASIG as a discontinued operation and held for sale, the Board has determined that it is appropriate to take a view on ASIG's fair value, less costs to sell on disposal and in doing so has taken an exceptional write down of $128.9 million through the accounts in H1. Discussions on ASIG are progressing and we anticipate making a further announcement before the end of the year.
Other Financial Information
Net debt increased to $1,437.0 million (FY 2015: $456.5 million cash positive due to the rights issue to fund the acquisition of Landmark Aviation; adjusting for the impact of the rights issue and costs associated with the acquisition of Landmark Aviation, adjusted net debt at FY 2015 was $640.2 million). At H1 2016 the group had total borrowings of $1,653 million (FY 2015 $523.4 million), obligations under finance leases of $2.0 million (FY 2015 $nil) and cash and cash equivalents of $164.8 million for continuing operations (FY 2015 $950.7 million) and cash and cash equivalents for discontinued operations of $24.9 million (FY2015 $15.7 million).
The net cash outflow for H1 2016 included the drawdown of $1,000 million under the acquisition financing agreement to fund, in conjunction with the rights issue proceeds received in 2015, the acquisition of Landmark Aviation for $2,086.9 million. On 30 June 2016 $186.6 million of the debt drawn under the acquisition financing agreement was repaid as a result of the disposal of six FBOs, made in accordance with the U.S. Department of Justice requirements. During H1 2016 the company also made a dividend payment of $87.2 million.
Net debt to EBITDA was 3.2x on a covenant basis and 4.3x on a reported basis (historic adjusted FY 2015: 2.3x). The covenant calculation is based on a 12 month underlying EBITDA contribution from Landmark Aviation, commencing 5 February 2016, meaning that reported ratios will converge towards covenant ratios at the year end. Interest cover was 7.4x for the 12 months to 30 June 2016 (FY 2015: 8.5x).
It is too early to know the precise effect of the UK's EU referendum result and ensuing negotiations, besides increased political uncertainty. As a company operating principally in US dollars, we are not materially impacted by significant FX movements, but we continue to monitor the situation closely.
Pensions
Agreement was reached on 31 May 2016 to close the UK defined benefit pension scheme to future accrual, principally affecting ERO employees. This resulted in a curtailment loss of $1.5 million which is included in exceptional and other items as part of our ERO footprint rationalisation costs.
The actuarial valuation of the UK plan as at 31 March 2015 indicated a funding deficit of GBP45 million ($66 million). The Group paid net $2.6 million of pension payments, of which $2.1 million represented pension deficit payments, reflecting the agreed payments to the scheme under an agreement to make additional contributions of GBP0.3 million ($0.4 million) per annum over the next five years bringing the annual deficit contribution to GBP3.0 million, and GBP2.7 million thereafter until 2034.
As at 30 June 2016, the accounting net deficit across the UK and US plans was $49.4 million (FY 2015: $40.1 million).
Dividend
The Board is declaring an increased interim dividend of 3.63c (H1 2015 adjusted: 3.47c, H1 2015 historical: 4.85c) up 5% on an underlying basis reflecting the Board's progressive dividend policy and its continued confidence in the Group's future growth prospects.
Outlook
We remain confident in the full year outlook and anticipate good further progress in 2016, which coupled with continued, albeit modest growth in our major markets, will give us strong momentum into 2017 and beyond. With the actions that deliver the majority of the cost synergies complete as we enter H2, we are highly confident of delivering at least $35 million of annualised cost savings from the Landmark Aviation acquisition. We also continue to see further opportunity for continued outperformance from the enlarged Signature through the delivery of its customer recognised, industry-leading services and the application of its operational excellence across a much larger global network of high quality locations. Ontic has a very strong pipeline and a good order book and whilst the delayed recovery in legacy mid-cabin fixed wing and rotorcraft flying will continue to impact ERO, our footprint reduction programme is on track, which will lead to improved financial performance.
Going Concern
The Directors have carried out a review of the Group's trading outlook and borrowing facilities, with due regard to the risks and uncertainties to which the Group is exposed, the uncertain economic climate and the impact that this could have on trading performance. Based on this review, the Directors believe that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the financial statements have been prepared on a going concern basis.
Directors' Responsibilities
The Directors confirm that to the best of their knowledge:
a) the condensed consolidated set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting";
b) the interim financial report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and,
c) the interim financial report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).
Signed on behalf of the Board,
Simon Pryce Mike Powell
Group Chief Executive Group Finance Director
1 August 2016 1 August 2016
This interim financial report 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 interim financial report has been drawn up and presented in accordance with and in reliance on applicable English company law and the liabilities of the directors in connection with this report shall be subject to the limitations and restrictions provided by such law.
This report is available in electronic format from the Company's website www.bbaaviation.com
Unaudited condensed consolidated income statement
Six months Restated Restated
ended 30 June Six months ended Year ended 31
2016 30 June 2015 December 2015
----------------- ------ -------------------------------------- -------------------------------------- ----------------------------------------
Exceptional Exceptional Exceptional
and and and
other other other
Underlying(1) Items Total Underlying(1) Items Total Underlying(1) Items Total
Note $m $m $m $m $m $m $m $m $m
----------------- ------ -------------- ------------ -------- -------------- ------------ -------- -------------- ------------ ----------
Continuing
operations
Revenue 2 1,020.6 - 1,020.6 882.3 - 882.3 1,714.0 - 1,714.0
Cost of
sales (792.5) - (792.5) (705.0) - (705.0) (1,352.3) - (1,352.3)
----------------- ------ -------------- ------------ -------- -------------- ------------ -------- -------------- ------------ ----------
Gross profit 228.1 - 228.1 177.3 - 177.3 361.7 - 361.7
Distribution
costs (16.9) - (16.9) (16.8) - (16.8) (33.7) - (33.7)
Administrative
expenses 3 (88.9) (51.2) (140.1) (83.1) (4.7) (87.8) (159.6) (9.3) (168.9)
Other operating
income 2.8 - 2.8 0.2 - 0.2 3.7 - 3.7
Share of
profits
of associates
and joint
ventures 1 11.0 - 11.0 6.9 - 6.9 9.4 - 9.4
Other operating
expenses 3 (0.5) (16.1) (16.6) (0.3) (3.3) (3.6) - (44.4) (44.4)
Restructuring
costs 3 - (6.2) (6.2) - (8.6) (8.6) - (15.1) (15.1)
Operating
profit 2,
/ (loss) 3 135.6 (73.5) 62.1 84.2 (16.6) 67.6 181.5 (68.8) 112.7
Impairment
loss 14 - (185.3) (185.3) - - - - - -
Investment
income 1.7 - 1.7 1.7 - 1.7 2.9 0.4 3.3
Finance
costs (31.8) - (31.8) (18.0) - (18.0) (34.7) (3.9) (38.6)
----------------- ------ -------------- ------------ -------- -------------- ------------ -------- -------------- ------------ ----------
Profit/
(loss)
before
tax 105.5 (258.8) (153.3) 67.9 (16.6) 51.3 149.7 (72.3) 77.4
Tax (charge) 3,
/ credit 4 (17.5) 41.1 23.6 (11.2) 2.9 (8.3) (27.7) 13.1 (14.6)
================= ====== ============== ============ ======== ============== ============ ======== ============== ============ ==========
Profit
/ (loss)
from continuing
operations 88.0 (217.7) (129.7) 56.7 (13.7) 43.0 122.0 (59.2) 62.8
================= ====== ============== ============ ======== ============== ============ ======== ============== ============ ==========
Discontinued
operation
Profit
/ (loss)
from
discontinued
operation,
net of 3,
tax 13 12.3 (129.6) (117.3) 8.9 (0.7) 8.2 22.3 (2.0) 20.3
Profit
/ (loss)
for the
period 100.3 (347.3) (247.0) 65.6 (14.4) 51.2 144.3 (61.2) 83.1
================= ====== ============== ============ ======== ============== ============ ======== ============== ============ ==========
Attributable
to:
Equity
holders
of BBA
Aviation
plc 100.1 (347.3) (247.2) 65.7 (14.4) 51.3 144.4 (61.2) 83.2
Non-controlling
interests 0.2 - 0.2 (0.1) - (0.1) (0.1) - (0.1)
================= ====== ============== ============ ======== ============== ============ ======== ============== ============ ==========
Profit
/ (loss)
for the
period 100.3 (347.3) (247.0) 65.6 (14.4) 51.2 144.3 (61.2) 83.1
================= ====== ============== ============ ======== ============== ============ ======== ============== ============ ==========
Earnings Note Adjusted(1) Unadjusted Adjusted(1) Unadjusted Adjusted(1) Unadjusted
/ (loss) (Restated)
per share
(Restated) (Restated) (Restated)
Total
group
Basic 5 11.6c (24.1)c 10.9c 7.8c 23.6c 11.6c
Diluted 5 11.5c (24.0)c 10.8c 7.8c 23.5c 11.5c
Continuing
operations
Basic 5 10.2c (12.7)c 9.3c 6.6c 20.3c 8.8c
Diluted 5 10.2c (12.6)c 9.2c 6.5c 20.2c 8.8c
Discontinued
operations
Basic 13 1.4c (11.4)c 1.6c 1.2c 3.3c 2.8c
Diluted 13 1.4c (11.4)c 1.5c 1.2c 3.3c 2.8c
=========== ===== ============ =============== ============ ============ ============ ============
(1) Underlying profit and adjusted earnings per share is stated before exceptional and other items. Exceptional and other items are defined in note 3.
Unaudited condensed consolidated statement of comprehensive (loss) / income
Restated Restated
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2016 2015 2015
$m $m $m
--------------------------------------- ----------- --------------- -----------------
(Loss) / profit for the period (247.0) 51.2 83.1
Other comprehensive (loss)
/ income
Items that will not be reclassified
subsequently to profit or
loss
Actuarial (losses) / gains
on defined benefit pension
schemes (11.5) 15.4 7.6
Tax credit / (charge) relating
to components of other comprehensive
(loss) / income that will
not be reclassified subsequently
to profit or loss 2.5 (3.0) (1.7)
======================================= =========== =============== =================
(9.0) 12.4 5.9
======================================= =========== =============== =================
Items that may be reclassified
subsequently to profit or
loss
Exchange difference on translation
of foreign operations 158.6 (15.7) 20.8
(Losses) / gains on net investment
hedges (158.1) 6.5 (35.4)
Transfer of the revaluation
reserve to retained earnings
on the disposal of property - - (5.9)
Fair value movements in foreign
exchange cash flow hedges (1.5) 3.0 0.5
Transfer to profit or loss
from other comprehensive
income on foreign exchange
cash flow hedges (2.3) (0.8) (1.1)
Fair value movement in interest
rate cash flow hedges (21.4) (3.5) (2.6)
Transfer to profit or loss
from other comprehensive
income on interest rate cash
flow hedges 3.8 1.9 3.7
Tax relating to components
of other comprehensive income
that may be reclassified
subsequently to profit or
loss 5.7 - 0.1
======================================= =========== =============== =================
(15.2) (8.6) (19.9)
======================================= =========== =============== =================
Other comprehensive (loss)
/ income from continuing
operations (24.2) 3.8 (14.0)
======================================= =========== =============== =================
Total comprehensive (loss)
/ income for the period (271.2) 55.0 69.1
======================================= =========== =============== =================
Attributable to:
Equity holders of BBA Aviation
plc (271.2) 55.1 68.7
Non-controlling interests - (0.1) 0.4
======================================= =========== =============== =================
(271.2) 55.0 69.1
======================================= =========== =============== =================
Unaudited condensed consolidated balance sheet
Restated
30 June 30 June 31 December
2016 2015 2015
Note $m $m $m
----------------------------- ----- ---------- ----------- -------------
NON-CURRENT ASSETS
Goodwill 1,117.8 896.8 889.6
Other intangible
assets 1,373.8 268.8 266.2
Property, plant and
equipment 870.2 638.2 645.0
Interests in associates
and joint ventures 47.1 12.6 12.0
Trade and other receivables 36.0 20.1 22.1
Deferred tax asset 14.8 12.0 8.2
3,459.7 1,848.5 1,843.1
============================= ===== ========== =========== =============
CURRENT ASSETS
Inventories 237.0 238.4 221.3
Trade and other receivables 270.3 354.6 341.7
Cash and cash equivalents 7 164.8 131.4 966.4
Tax recoverable 0.7 8.3 2.0
Assets held for sale 13 255.6 - -
928.4 732.7 1,531.4
============================= ===== ========== =========== =============
Total assets 2 4,388.1 2,581.2 3,374.5
============================= ===== ========== =========== =============
CURRENT LIABILITIES
Trade and other payables (433.2) (427.5) (439.4)
Tax liabilities (44.1) (37.0) (39.5)
Obligations under
finance leases 7 (0.4) - -
Borrowings 7 (0.2) (13.3) (12.3)
Provisions (40.0) (24.3) (27.0)
Liabilities held
for sale 13 (85.3) - -
(603.2) (502.1) (518.2)
============================= ===== ========== =========== =============
Net current assets 325.2 230.6 1,013.2
============================= ===== ========== =========== =============
NON-CURRENT LIABILITIES
Borrowings 7 (1,652.8) (827.8) (511.1)
Other payables due
after one year (19.3) (23.5) (23.1)
Retirement benefit
obligations 12 (49.4) (36.4) (40.1)
Obligations under
finance leases 7 (1.6) - -
Deferred tax liabilities (211.7) (91.4) (83.1)
Provisions (30.8) (30.0) (30.5)
----------------------------- ----- ---------- ----------- -------------
(1,965.6) (1,009.1) (687.9)
============================= ===== ========== =========== =============
Total liabilities 2 (2,568.8) (1,511.2) (1,206.1)
============================= ===== ========== =========== =============
Net assets 1,819.3 1,070.0 2,168.4
============================= ===== ========== =========== =============
EQUITY
Share capital 15 508.6 252.6 508.5
Share premium account 1,594.4 733.1 1,594.4
Other reserves 1.0 6.9 1.0
Treasury reserve (89.9) (80.9) (90.0)
Capital reserve 40.1 38.9 38.1
Hedging and translation
reserves (109.4) (81.0) (87.0)
Retained earnings (127.1) 205.4 208.2
----------------------------- ----- ---------- ----------- -------------
Equity attributable
to equity holders
of BBA Aviation plc 1,817.7 1,075.0 2,173.2
Non-controlling interests 1.6 (5.0) (4.8)
============================= ===== ========== =========== =============
Total equity 1,819.3 1,070.0 2,168.4
============================= ===== ========== =========== =============
Unaudited condensed consolidated cash flow statement
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2016 2015 2015
Note $m $m $m
--------------------------------- ----- ----------- ----------- -------------
Operating activities
Net cash flow from operating
activities 9 160.0 67.7 188.4
Investing activities
Interest received 1.7 6.1 11.7
Dividends received from
associates 3.2 1.8 3.4
Purchase of property,
plant and equipment (48.1) (39.4) (81.8)
Purchase of intangible
assets (1) (8.3) (14.9) (22.4)
Proceeds from disposal
of property, plant and
equipment 7.6 0.7 16.7
Acquisition of businesses,
net of cash acquired 10 (2,085.2) (11.1) (19.4)
Proceeds from disposal
of subsidiaries 10 186.5 - -
Net cash outflow from
investing activities (1,942.6) (56.8) (91.8)
================================= ===== =========== =========== =============
Financing activities
Interest paid (31.1) (20.2) (41.1)
Interest element of finance (0.1) - -
leases paid
Dividends paid 6 (87.2) (53.9) (76.6)
Gains from realised foreign
exchange contracts 10.5 2.0 2.4
Proceeds from issue of
shares - - 1,117.5
Purchase of own shares
(3) (0.4) (12.7) (22.0)
Increase / (decreases)
in loans 1,125.7 50.0 (267.4)
Increases in finance leases 2.0 - -
Decrease in overdrafts (11.8) (12.3) (8.0)
================================= ===== =========== =========== =============
Net cash inflow / (outflow)
from financing activities 1,007.6 (47.1) 704.8
================================= ===== =========== =========== =============
(Decrease) / increase
in cash and cash equivalents (775.0) (36.2) 801.4
Cash and cash equivalents
at beginning of the period 966.4 166.3 166.3
Exchange adjustments (1.7) 1.3 (1.3)
================================= ===== =========== =========== =============
Total Cash and cash equivalents
at end of the period (4) 189.7 131.4 966.4
================================= ===== =========== =========== =============
Cash and cash equivalents
at end of the period 164.8 131.4 966.4
--------------------------------- ----- ----------- ----------- -------------
Cash included in Assets 24.9 - -
held for sale at end of
the period
--------------------------------- ----- ----------- ----------- -------------
Net debt at beginning
of the period 456.5 (619.2) (619.2)
(Decrease) / increase
in cash equivalents (775.0) (36.2) 801.4
(Increase) / decrease
in loans (1,125.7) (50.0) 267.4
Increase in finance leases (2.0) - -
Decrease in overdrafts 11.8 12.3 8.0
Exchange adjustments (2.6) (5.0) (1.1)
================================= ===== =========== =========== =============
Net debt at end of the
period (2) (1,437.0) (698.1) 456.5
================================= ===== =========== =========== =============
(1) Purchase of intangible assets includes $6.8 million (30 June 2015: $10.0 million; 31 December 2015: $13.5 million) paid in relation to Ontic licences.
(2) Within the Group's definition of net debt the US private placement is included at its face value of $500 million (30 June 2015: $500 million; 31 December 2015: $500 million) reflecting the fact that the liabilities will be in place until maturity. This is $28.3 million (30 June 2015: $11.6 million; 31 December 2015: $13.5 million) lower than its carrying value.
(3) Purchase of own shares includes shares purchased for the Employee Benefit Trust and shares purchased from employees to settle their tax liabilities as part of the share scheme.
(4) Bank overdrafts which are repayable on demand are not included within cash and cash equivalents for the purposes of the cash flow statement.
Unaudited condensed consolidated statement of changes in equity
Share Share Retained Other Non-controlling Total
capital premium earnings reserves interests equity
$m $m $m $m $m $m
----------------------------- --------- --------- ---------- ---------- ---------------- --------
Balance at 1 January
2016 508.5 1,594.4 208.2 (137.9) (4.8) 2,168.4
(Loss) / Profit for
the period - - (247.2) - 0.2 (247.0)
Other comprehensive
(loss) / income for
the period - - (3.3) (20.9) - (24.2)
============================= ========= ========= ========== ========== ================ ========
Total comprehensive
(loss) / income for
the period - - (250.5) (20.9) 0.2 (271.2)
============================= ========= ========= ========== ========== ================ ========
Equity dividends - - (87.2) - - (87.2)
Issue of share capital 0.1 - - - - 0.1
Movement on treasury
reserve - - - (0.4) - (0.4)
Credit to equity for
equity-settled share-based
payments - - - 3.4 - 3.4
Changes in non-controlling
interests - - - - 6.2 6.2
Transfer to retained
earnings - - 2.4 (2.4) - -
============================= ========= ========= ========== ========== ================ ========
Balance at 30 June 2016 508.6 1,594.4 (127.1) (158.2) 1.6 1,819.3
============================= ========= ========= ========== ========== ================ ========
Balance at 1 January
2015 252.3 733.1 194.4 (95.8) (5.0) 1,079.0
Profit for the period - - 51.3 - (0.1) 51.2
Other comprehensive
income / (loss) for
the period - - 12.4 (8.6) - 3.8
============================= ========= ========= ========== ========== ================ ========
Total comprehensive
income / (loss) for
the period - - 63.7 (8.6) (0.1) 55.0
============================= ========= ========= ========== ========== ================ ========
Equity dividends - - (53.9) - - (53.9)
Issue of share capital 0.3 - - - - 0.3
Movement on treasury
reserve - - - (13.0) - (13.0)
Credit to equity for
equity-settled share-based
payments - - - 3.0 - 3.0
Tax on share-based payment
transactions - - (0.5) - - (0.5)
Changes in non-controlling
interests - - - - 0.1 0.1
Transfer to retained
earnings - - 1.7 (1.7) - -
============================= ========= ========= ========== ========== ================ ========
Balance at 30 June 2015 252.6 733.1 205.4 (116.1) (5.0) 1,070.0
============================= ========= ========= ========== ========== ================ ========
Balance at 1 January
2015 252.3 733.1 194.4 (95.8) (5.0) 1,079.0
Profit for the period - - 83.2 - (0.1) 83.1
Other comprehensive
income / (loss) for
the period - - 6.0 (20.5) 0.5 (14.0)
============================= ========= ========= ========== ========== ================ ========
Total comprehensive
income / (loss) for
the period - - 89.2 (20.5) 0.4 69.1
============================= ========= ========= ========== ========== ================ ========
Equity dividends - - (76.6) - - (76.6)
Issue of share capital 256.2 861.3 - - - 1,117.5
Movement on treasury
reserve - - - (21.9) - (21.9)
Credit to equity for
equity-settled share-based
payments - - - 2.8 - 2.8
Changes in non-controlling
interests - - - - (0.2) (0.2)
Tax on share-based payment
transactions - - (1.3) - - (1.3)
Transfer to retained
earnings - - 2.5 (2.5) - - ============================= ========= ========= ========== ========== ================ ======== Balance at 31 December 2015 508.5 1,594.4 208.2 (137.9) (4.8) 2,168.4 ============================= ========= ========= ========== ========== ================ ========
Notes to the condensed consolidated half yearly financial statements
1 Basis of preparation
The unaudited condensed consolidated financial statements of BBA Aviation plc (the "Group"), for the six months ended 30 June 2016 have been prepared in accordance with the Disclosure and Transparency Rules of the UK's Financial Conduct Authority and International Accounting Standard IAS 34: Interim Financial Reporting (IAS 34) which permits the presentation of the financial information on a condensed basis. These condensed consolidated half yearly financial statements do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006, and therefore should be read in conjunction with the Group's Annual Report for the year ended 31 December 2015.
The Group's annual financial statements for the year ended 31 December 2015 have been reported upon by the Group's auditor and delivered to the Registrar of Companies. 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 statements under section 498(2) or 498(3) of the Companies Act 2006.
Except as described below, these condensed consolidated half yearly 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 2015, which were prepared in accordance with International Financial Reporting Standards (IFRS) endorsed for use in the European Union and the Companies Act 2006, and comply with Article 4 of the EU IAS Regulation.
Going concern
The directors are satisfied that, at the time of approving the condensed consolidated financial statements, it is appropriate to continue to adopt the going concern basis of accounting. Further information is given on page 10 of the interim statement.
New financial reporting requirements
A number of EU-endorsed amendments to existing standards and interpretations are effective for annual periods beginning on or after 1 January 2016 and have been applied in preparing the Consolidated Financial Statements of the Group. There is no impact on the Group Consolidated Financial Statements from applying these standards.
Financial reporting standards applicable for future financial periods
A number of EU-endorsed standards and amendments to existing standards and interpretations, which are described below, are effective for annual periods beginning on or after 1 January 2016 and have not been applied in preparing the Consolidated Financial Statements of the Group.
In addition to the above, IFRS 9: Financial Instruments (IFRS 9) and IFRS 15: Revenue from contracts with customers (IFRS 15) have been issued but not yet been endorsed by the EU. Therefore, the date from which they become effective is not yet known. IFRS 9 addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 15 addresses recognition of revenue from customer contracts and impacts on the amounts and timing of the recognition of such revenue. The Group is yet to assess the impact of IFRS 9 and IFRS 15 on the Consolidated Financial Statements.
The IASB released IFRS 16: Leases on 13 January 2016. The expected date for adoption into EU-IFRS has not yet been set. Management have not yet formally assessed the impact of the final standard on the Group's financial statements. However, we note that the Group has substantial operating lease commitments as disclosed in note 14 of the Group's annual consolidated financial statements.
Joint ventures and associates
In the first half of 2015 we reclassified our investment in Hong Kong Business Aviation Centre from a financial instrument to an associate to more appropriately reflect its scale and our level of influence. The reclassification of the investment resulted in the recognition of $5.2m of operating profit during 2015 relating to prior periods.
Restatements
Prior period results have been restated for the impact of the presentation of the ASIG businesses as a discontinued operation. Further explanation of this change is presented in note 13.
Prior period interim results have also been restated for the impact of the rights issue on earnings per share.
Presentational reclassifications
There has been a re-classification of $10.7 million between cost of sales and administrative expenses in the prior interim period to improve consistency of treatment within cost of sales.
There was a re-classification between current payables and current or non-current provisions in both prior interim to improve consistency of treatment of provisions. The re-classification for the 30 June 2015 moved $31.4 million of current trade and other payables to provisions split $13.1 million and $18.3 million between current and non-current respectively.
2 Segmental analysis
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 Chief Operating Decision Maker (for the Group, this is the Chief Executive) to allocate resources to the segments and to assess their performance.
Based on the above, the reportable segments of the Group are Flight Support and Aftermarket Services.
The businesses within the Flight Support segment provide re-fuelling, ground handling and other services to the business, general and commercial aviation markets. The businesses within the Aftermarket Services segment maintain and support engines and aerospace components, sub-systems and systems. Sales between segments are immaterial.
There has been no change to the Group's reportable segments since the last annual report.
As at, and for the six months ended Flight Aftermarket Unallocated 30 June 2016 Support(1) Services(2) Total Corporate(3) Total Business Note segments $m $m $m $m $m ---------------------- ----- ------------- ------------- -------- -------------- -------- External revenue 889.3 340.1 1,229.4 - 1,229.4 Less external revenue from discontinued operations 13 (208.8) - (208.8) - (208.8) ====================== ===== ============= ============= ======== ============== ======== External revenue from continuing operations 680.5 340.1 1,020.6 - 1,020.6 ====================== ===== ============= ============= ======== ============== ======== Underlying operating profit/(loss) continuing and discontinued operations 146.3 11.1 157.4 (7.8) 149.6 Less performance of the discontinued operations 13 (4.7) - (4.7) - (4.7) Intergroup charges for discontinued operations 13 - - - (9.3) (9.3) ====================== ===== ============= ============= ======== ============== ======== Underlying operating profit/(loss) from continuing operations 141.6 11.1 152.7 (17.1) 135.6 ====================== ===== ============= ============= ======== ============== ======== Underlying operating margin from continuing operations 20.8% 3.3% 15.0% 13.3% Exceptional and other items (64.9) (9.3) (74.2) - (74.2) Less exceptional and other items from discontinued operations 13 0.7 - 0.7 - 0.7 ====================== ===== ============= ============= ======== ============== ======== Exceptional and other items from continuing operations 3 (64.2) (9.3) (73.5) - (73.5) ====================== ===== ============= ============= ======== ============== ======== Operating profit / (loss) from continuing operations 77.4 1.8 79.2 (17.1) 62.1 ====================== ===== ============= ============= ======== ============== ======== Impairment of fixed assets (185.3) Net finance costs (30.1) ====================== ===== ============= ============= ======== ============== ======== Loss before tax from continuing operations (153.3) ====================== ===== ============= ============= ======== ============== ========
2. Segmental analysis - continued
As at, and Flight Aftermarket Total Unallocated Total for the six Support(1) Services(2) Corporate(3) months ended 30 June 2016 Business Note $m $m $m $m $m segments Other information Capital additions cash flows 38.5 17.8 56.3 0.1 56.4 Depreciation and amortisation 83.6 13.7 97.3 0.3 97.6 ================================== ============ ============= ======== ============== ========== Balance sheet Total assets 3507.7 673.0 4,180.7 207.4 4,388.1 Total liabilities (347.0) (170.5) (517.5) (2,051.3) (2,568.8) ================================== ============ ============= ======== ============== ========== Net assets/(liabilities) 3,160.7 502.5 3,663.2 (1,843.9) 1,819.3 ================================== ============ ============= ======== ============== ==========
(1) Flight Support's segment result includes $11.0 million (30 June 2015: $7.0 million; 31 December 2015: $9.6 million) relating to profits of associates and joint ventures. As described in note 1 in the prior period we reclassified our investment in Hong Kong Business Aviation Centre from a financial instrument to an associate. The reclassification of the investment resulted in the recognition of $5.2 million of operating profit in 2015 which related to prior periods. In the prior period Flight Support's segment result also included $4.3 million in respect of the bargain purchase gain in relation to the acquisition of ASIG Panama. That gain was recorded in the second half of 2015.
(2) In the prior period ERO entered into a sale and lease back transaction with respect to a portion of its rental engine fleet. The transactions led to the recognition of revenue totalling $29.4 million to 30 June 2015 and $39.7 million for the year to 31 December 2015.
(3) Unallocated corporate balances include debt, tax, provisions, pensions, insurance captives and trading balances from central activities.
2 Segmental analysis - continued As at, and for the six months ended Flight Aftermarket Unallocated 30 June 2015 Support Services Total Corporate Total Business segments Note $m $m $m $m $m ---------------------- ----- ---------- ------------ -------- ------------ ---------- External revenue 700.0 396.4 1,096.4 - 1,096.4 Less external revenue from discontinued operations 13 (214.1) - (214.1) - (214.1) ====================== ===== ========== ============ ======== ============ ========== External revenue from continuing operations 485.9 396.4 882.3 - 882.3 ====================== ===== ========== ============ ======== ============ ========== Underlying operating profit/(loss) continuing and discontinued operations 79.4 25.2 104.6 (9.0) 95.6 Less performance of the discontinued operations 13 (2.6) - (2.6) - (2.6) Intergroup charges for discontinued operations 13 - - - (8.8) (8.8) ====================== ===== ========== ============ ======== ============ ========== Underlying operating profit/(loss) from continuing operations 76.8 25.2 102.0 (17.8) 84.2 ====================== ===== ========== ============ ======== ============ ========== Underlying operating margin from continuing operations 15.8% 6.4% 11.6% 9.5% Exceptional and other items (10.3) (4.4) (14.7) (2.8) (17.5) Less exceptional and other items from discontinued operations 13 0.9 - 0.9 - 0.9 ====================== ===== ========== ============ ======== ============ ========== Exceptional and other items from continuing operations 3 (9.4) (4.4) (13.8) (2.8) (16.6) ====================== ===== ========== ============ ======== ============ ========== Operating profit / (loss) from continuing operations 67.4 20.8 88.2 (20.6) 67.6 ====================== ===== ========== ============ ======== ============ ========== Net finance costs (16.3) ====================== ===== ========== ============ ======== ============ ========== Profit before tax from continuing operations 51.3 ====================== ===== ========== ============ ======== ============ ========== Other information Capital additions cash flows 25.9 26.7 52.6 1.7 54.3 Depreciation and amortisation 29.7 10.2 39.9 0.3 40.2 ====================== ===== ========== ============ ======== ============ ========== Balance sheet Total assets 1,542.1 891.2 2,433.3 147.9 2,581.2 Total liabilities (231.4) (195.1) (426.5) (1,084.7) (1,511.2) ====================== ===== ========== ============ ======== ============ ========== Net assets / (liabilities) 1,310.7 696.1 2,006.8 (936.8) 1,070.0 ====================== ===== ========== ============ ======== ============ ========== 2 Segmental analysis - continued As at, and for the year ended 31 December Flight Aftermarket Unallocated 2015 Support Services Total Corporate Total Business segments Note $m $m $m $m $m ---------------------- ----- ---------- ------------ -------- ------------ ---------- External revenue 1,347.4 782.4 2,129.8 - 2,129.8 Less external revenue from discontinued operations 13 (415.8) - (415.8) - (415.8) ====================== ===== ========== ============ ======== ============ ========== External revenue from continuing operations 931.6 782.4 1,714.0 - 1,714.0 ====================== ===== ========== ============ ======== ============ ========== Underlying operating profit/(loss) continuing and discontinued operations 158.5 59.6 218.1 (16.1) 202.0 Less performance of the discontinued operations 13 (4.1) - (4.1) - (4.1) Intergroup charges for discontinued operations 13 - - - (16.4) (16.4) ====================== ===== ========== ============ ======== ============ ========== Underlying operating profit/(loss) from continuing operations 154.4 59.6 214.0 (32.5) 181.5 ====================== ===== ========== ============ ======== ============ ========== Underlying operating margin from continuing operations 16.6% 7.6% 12.5% 10.6% Exceptional and other items (16.7) (12.0) (28.7) (42.5) (71.2) Less exceptional and other items from discontinued operations 13 2.4 - 2.4 - 2.4 ====================== ===== ========== ============ ======== ============ ========== Exceptional and other items from continuing operations 3 (14.3) (12.0) (26.3) (42.5) (68.8) ====================== ===== ========== ============ ======== ============ ========== Operating profit / (loss) from continuing operations 140.1 47.6 187.7 (75.0) 112.7 ====================== ===== ========== ============ ======== ============ ========== Net finance costs (35.3) ====================== ===== ========== ============ ======== ============ ========== Profit before tax from continuing operations 77.4 ====================== ===== ========== ============ ======== ============ ========== Other information Capital additions cash flows 55.4 45.9 101.3 2.9 104.2 Depreciation and amortisation 60.7 20.5 81.2 1.6 82.8 ====================== ===== ========== ============ ======== ============ ========== Balance sheet Total assets 1,545.2 853.0 2,398.2 976.3 3,374.5 Total liabilities (258.2) (160.9) (419.1) (787.0) (1,206.1)
====================== ===== ========== ============ ======== ============ ==========
Net assets 1,287.0 692.1 1,979.1 189.3 2,168.4
====================== ===== ========== ============ ======== ============ ==========
2 Segmental analysis
- continued
Capital
Revenue Revenue additions Non-current
Geographical segments by destination by origin cash flows assets(1)
$m $m $m $m
------------------------- ---------------- ----------- ------------ ------------
As at, and for the
six months ended 30
June 2016
United Kingdom 63.6 155.5 8.6 166.5
Mainland Europe 96.5 24.3 0.1 50.4
North America 1,002.1 1,028.6 45.6 3,175.3
Rest of world 67.2 21.0 1.9 21.3
========================= ================ =========== ============ ============
Total 1,229.4 1,229.4 56.2 3,413.5
Less discontinued
operations (208.8) (208.8)
========================= ================ ===========
Total from continued
operations 1,020.6 1,020.6
========================= ================ ===========
As at, and for the
six months ended 30
June 2015
United Kingdom 72.3 175.0 9.7 253.5
Mainland Europe 98.3 15.9 0.1 35.4
North America 864.3 889.1 39.1 1,534.5
Rest of world 61.5 16.4 5.4 5.1
========================= ================ =========== ============ ============
Total 1,096.4 1,096.4 54.3 1,828.5
Less discontinued
operations (214.1) (214.1)
========================= ================ ===========
Total from continued
operations 882.3 882.3
========================= ================ ===========
As at, and for the
year ended 31 December
2015
United Kingdom 186.2 356.0 19.7 216.8
Mainland Europe 143.0 32.0 0.5 34.7
North America 1,665.8 1,705.7 74.9 1,533.0
Rest of world 134.8 36.1 9.1 33.3
========================= ================ =========== ============ ============
Total 2,129.8 2,129.8 104.2 1,817.8
Less discontinued
operations (415.8) (415.8)
========================= ================ ===========
Total from continued
operations 1,714.0 1,714.0
========================= ================ ===========
(1) The disclosure of non-current assets by geographical segment has been amended to exclude balances related to deferred tax and financial instruments in all periods, as required under IFRS 8.
3 Exceptional and other items
Underlying profit is shown before exceptional and other items on the face of the income statement because the directors consider that this gives a useful indication of underlying performance and better visibility of key performance indicators.
Exceptional and other items on discontinued operations are presented in note 13. Exceptional and other items on continuing operations are as follows:
Restated
Six Restated
months Year
ended ended
Six months ended 30 June 30 June 31 December
2016 2015 2015
Other
Administrative operating Restructuring
expenses expenses costs Total Total Total
$m $m $m $m $m $m
------------------- ------------------- ----------- -------------- ------- ----------- --------------
Restructuring
expenses
ERO footprint
rationalisation - - 6.2 6.2 2.7 8.3
Closure of ASIG
Singapore - - - - 5.9 6.8
Acquisition
related
Amortisation
of intangibles
assets arising
on acquisition
and valued in
accordance to
IFRS 3, see
note 10 51.2 - - 51.2 4.7 9.3
Landmark
integration
costs - 16.1 - 16.1 - -
Transaction
costs(1) - - - - 2.9 38.4
Other - - - - 0.4 6.0
=================== =================== =========== ============== ======= =========== ==============
Operating loss 51.2 16.1 6.2 73.5 16.6 68.8
Impairment loss, 185.3 - -
see note 14
Net finance
costs - - 3.5
=================== =================== =========== ============== ======= =========== ==============
Loss before
tax 258.8 16.6 72.3
Tax impact of
exceptional
and other items (41.1) (2.9) (13.1)
=================== =================== =========== ============== ======= =========== ==============
Total exceptional
and other charges
before tax 217.7 13.7 59.2
------------------- ------------------- ----------- -------------- ------- ----------- --------------
Loss from
discontinued
operation, net
of tax, see
note 13 129.6 0.7 2.0
Total exceptional
and other charges 347.3 14.4 61.2
=================== ================================================ ======= =========== ==============
(1) All transaction costs presented in exceptional and other items related to the acquisition of Landmark Aviation.
4 Income tax
Six months Restated Restated
ended 30 Six months Year ended
June 2016 ended 30 31 December
June 2015 2015
Recognised in the income
statement $m $m $m
-------------------------------- ----------- ------------ -------------
Current tax charge 10.6 6.1 12.7
Adjustments in respect
of prior periods - current
tax - (0.1) 3.4
Deferred tax (credit) /
charge (34.2) 2.4 (0.7)
Adjustments in respect
of prior periods - deferred
tax - - (0.7)
Change in rate - (0.1) (0.1)
================================ =========== ============ =============
Income tax (credit) / expense
for the period - continuing
operations (23.6) 8.3 14.6
================================ =========== ============ =============
Tax charge / (credit) relating
to discontinued operations 1.6 2.2 (2.4)
================================ =========== ============ =============
Total (22.0) 10.5 12.2
================================ =========== ============ =============
Corporation tax on continuing operations for the interim period is charged at an effective rate of 16.6% (30 June 2015: 16.5%; 31 December 2015: 18.5%) on underlying profit before tax, representing the best estimate of the weighted average annual corporation tax expected for the full financial year. The total income tax expense for the six months ended 30 June 2016 includes a tax credit of $41.1 million (30 June 2015: $2.9 million; 31 December 2015: $13.1 million) relating to exceptional and other items (see note 3).
4 Income tax - continued
Tax credited to other comprehensive income and equity is as follows:
Six months Restated Restated
ended 30 Six months Year
June 2016 ended ended
30 June 31 December
2015 2015
Recognised in other comprehensive
income and equity $m $m $m
------------------------------------ ----------- ------------ ---------------------
Recognised in other comprehensive
income
Tax on items that will not be
reclassified subsequently to
profit or loss
Current tax credit on actuarial
gains / (losses) - 1.8 2.0
Deferred tax credit / (charge)
on actuarial gains / (losses) 2.5 (4.8) (3.7)
------------------------------------ ----------- ------------ ---------------------
2.5 (3.0) (1.7)
------------------------------------ ----------- ------------ ---------------------
Tax on items that may be
reclassified subsequently
to profit or loss
Current tax credit on foreign
exchange movements and financial
instruments 5.7 - 1.2
Adjustments in respect of
prior periods - deferred
tax - - (1.1)
Total tax credit / (charge)
within other comprehensive
income 8.2 (3.0) (1.6)
Recognised in equity
Current tax credit on share-based
payments movements - 0.2 0.5
Deferred tax charge on share-based
payments movements - (0.7) (1.8)
------------------------------------ ----------- ------------ ---------------------
Total tax credit / (charge)
within equity - (0.5) (1.3)
------------------------------------ ----------- ------------ ---------------------
Total tax credit / (charge)
within other comprehensive
income and equity 8.2 (3.5) (2.9)
==================================== =========== ============ =====================
5 Earnings / (loss) per share
The calculation of the basic and diluted earnings / (loss) per share is based on the following data:
Continuing Total
Restated Restated
Six Six Restated Six Six Restated
months months Year months months Year
ended ended ended ended ended ended
30 June 30 June 31 December 30 June 30 June 31 December
2016 2015 2015 2016 2015 2015
$m $m $m $m $m $m
--------------------------- ----------- --------- ------------- --------- --------- -------------
Basic and diluted:
Earnings:
(Loss) / profit
for the period (129.7) 43.0 62.8 (247.0) 51.2 83.1
Non-controlling
interests (0.1) 0.3 0.5 (0.2) 0.1 0.1
--------------------------- ----------- --------- ------------- --------- --------- -------------
Basic (loss) /
earnings attributable
to ordinary shareholders (129.8) 43.3 63.3 (247.2) 51.3 83.2
Exceptional and
other items net
of tax 217.7 13.7 59.2 347.3 14.4 61.2
Underlying deferred
tax 9.3 3.9 10.1 10.3 5.4 9.8
=========================== =========== ========= ============= ========= ========= =============
Adjusted earnings 97.2 60.9 132.6 110.4 71.1 154.2
=========================== =========== ========= ============= ========= ========= =============
5 Earnings / (loss) per share - continued
Continuing Total
Restated Restated
Six Restated Six Six
Six months Year months months Restated
months ended ended ended ended Year
ended 30 31 30 30 ended
30 June June December June June 31 December
2016 2015 2015 2016 2015 2015
$m $m $m $m $m $m
-------------- --------- --------- ------------- --------- ------------------------- ------------
Number of
shares
Weighted
average
number of 29
16/21p
ordinary
shares:
For basic
earnings
per share 1,026.3 653.7 718.6 1,026.3 653.7 718.6
Adjustments
for
adjusted
measure (73.8) - (65.2) (73.8) - (65.2)
-------------- --------- --------- ------------- --------- ------------------------- ----------
For adjusted
basic
earnings per
share 952.5 653.7 653.4 952.5 653.7 653.4
Dilutive
potential
ordinary
shares
from share
options 4.7 6.7 2.9 4.7 6.7 2.9
============== ========= ========= ============= ========= ========================= ==========
For diluted
earnings
per share -
Adjusted 957.2 660.4 656.3 957.2 660.4 656.3
-------------- --------- --------- ------------- --------- ------------------------- ----------
For diluted
earnings
per share -
Unadjusted 1,031.0 660.4 721.5 1,031.0 660.4 721.5
-------------- --------- --------- ------------- --------- ------------------------- ----------
Earnings per
share:
Basic:
Adjusted 10.2c 9.3c 20.3c 11.6c 10.9c 23.6c
Unadjusted (12.7)c 6.6c 8.8c (24.1)c 7.8c 11.6c
Diluted:
Adjusted 10.2c 9.2c 20.2c 11.5c 10.8c 23.5c
Unadjusted (12.6)c 6.5c 8.8c (24.0)c 7.8c 11.5c
Earnings per share on discontinued operations is presented in note 13.
Adjusted earnings per share is presented calculated on earnings before exceptional and other items (note 3) and using current tax charge, not the total tax charge for the period thereby excluding the deferred tax charge. Both adjustments have been made because the directors consider that this gives a useful indication of underlying performance.
Adjusted earnings per share is presented calculated using adjusted weighted average number of shares to match the capital structure with the deployed capital generating earnings in the period. For 30 June 2016 the weighted average number of shares was adjusted to use the historic, pre rights issue capital base for the period to 5 February 2016 when the Landmark transaction completed. For 30 June 2015 the weighted average number of shares was adjusted to account for the bonus issue and present earnings per share on a comparable basis. For 31 December 2015 the weighted average number of shares was adjusted for the bonus issue in line with the interim period. It was also adjusted for the effect of the October 2015 rights issue to remove the additional capital in issue that was not deployed until the Landmark transaction completed.
6 Equity dividends on ordinary shares
Six Six
months months
ended ended
30 June 30 June
2016 2015
$m $m
----------------------------------------- --------- ---------
Declared during the period:
Final dividend for the year ended
31 December 2015: 8.68 cents per share
(2014: 11.58 cents per share) 87.2 53.9
========================================= ========= =========
Adjusting for the impact of the October 2015 rights issue the 2015 interim dividend would have been 3.47c, The 2016 interim dividend of 3.63 cents per share (2015: 4.85 cents per share; $22.8 million in total) was approved by the Board of Directors on 1 August 2016 and will be paid on 4 November 2016 to ordinary shareholders registered on 16 September 2016. Shareholders will receive their dividends in sterling unless they complete and submit to the Company's registrars by 5.30pm on 10 October 2016 an election form stating their wish to receive their dividends in US dollars. The sterling dividend will be converted at a prevailing exchange rate on 11 October 2016 and this exchange rate will be announced on 12 October 2016.
7 Cash and cash equivalents and borrowings
The carrying value of cash and cash equivalents for continuing operations of $164.8 million (30 June 2015: $131.4 million; 31 December 2015: $966.4 million) approximates to their fair value.
The Group's fixed rate debt (including borrowings and finance lease obligations) adjusted for interest rate hedging had a carrying value at 30 June 2016 of $1,025.8 million (30 June 2015: $399.9 million; 31 December 2015: $400.9 million). The fair value of these borrowings (adjusted for interest rate hedging) at 30 June 2016 was $1,065.9 million (June 2015: $419.6 million; 31 December 2015: $418.6 million).
The carrying value at 30 June 2016 of the Group's floating interest rate borrowings (including borrowings and finance lease obligations) adjusted for interest rate hedging was $629.2 million (30 June 2015: $441.2 million; 31 December 2015: $427.5 million).
During the six months to 30 June 2016, the Group utilised the Acquisition Financing Agreement ("AFA") put in place to finance the acquisition of Landmark Aviation. Total drawdown from the commitments was $1,000 million. In June 2016, following the FBO disposals, proceeds arising from the sale was used to repay and cancel Facility A and part of Facility B. Therefore as at 30 June 2016, the Group has a total term debt usage under the AFA of $813.6 million.
As at 30 June 2016, the Group had available $331.0 million (30 June 2015: $330.0 million; 31 December 2015: $650.0 million) of undrawn facilities under the $650 million multicurrency revolving credit facility which it signed in April 2014.
In addition, the Group has $500 million of US private placement ("USPP") senior notes; $300 million dated 18 May 2011 with maturities of 7, 10 and 12 years and $200 million dated 17 December 2014 with maturities of 7, 10 and 12 years. Of the $500 million, $400 million has been swapped to a floating interest rate and is accounted for at fair value through the 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. Within the Group's definition of net debt the USPP is included at its face value of $500 million. This is $28.3 million lower than its carrying value (30 June 2015: $11.6 million; 31 December 2015: $13.5 million).
8 Financial instruments
Categories of financial instruments
The carrying values of the financial instruments of the Group are analysed below:
30 June 30 June 31 December
2016 2015 2015
Carrying Carrying Carrying
value value value
$m $m $m
---------------------------------------- ---------- ---------- ------------
Financial assets
Fair value through profit or
loss - foreign exchange contracts
(a) 13.7 1.8 5.9
Derivative instruments held in
fair value hedges (b) 24.6 7.2 9.3
Derivative instruments held in
cash flow hedges 0.3 1.5 2.3
Available for sale investments 6.6 6.8 5.5
Trade and other receivables (including
cash and cash equivalents) (c,
d) 371.3 393.7 1,198.5
======================================== ========== ========== ============
416.5 411.0 1,221.5
======================================== ========== ========== ============
Financial liabilities
Fair value through profit or
loss - foreign exchange contracts
(a) (0.9) (3.6) (0.7)
Derivative instruments held in - (0.3) -
fair value hedges (b)
Derivative instruments held in
cash flow hedges (25.1) (5.6) (6.5)
Borrowings and other payables
(d) (1,938.5) (1,124.4) (788.2)
======================================== ========== ========== ============
(1,964.5) (1,133.9) (795.4)
======================================== ========== ========== ============
(a The foreign exchange contracts disclosed as fair value through profit or loss are not designated in a formal hedging relationship and are used to hedge foreign currency flows through the BBA Aviation plc company bank accounts to ensure that the Group is not exposed to foreign exchange risk through the management of its international cash management structure.)
(b Derivative instruments held in fair value hedges are designated in formal hedging relationships and are used to hedge the change in fair value of fixed rate US dollar borrowings.)
c Recoveries from third parties in respect of environmental and other liabilities totalling $4.8 million (30 June 2015: $5.3 million; 31 December 2015: $4.8m) are included within trade and receivables.
(d The carrying value of trade and other receivables, and other payables approximates their fair value.)
Derivative financial instruments
The fair values and notional amounts of derivative financial instruments are shown below. The fair value on initial recognition is the transaction price unless part of the consideration given or received is for something other than the instrument itself. The fair value of derivative financial instruments is subsequently calculated using discounted cash flow techniques or other appropriate pricing models. All valuation techniques take into account assumptions based upon available market data at the balance sheet date. The notional amounts are based on the contractual gross amounts at the balance sheet date.
The fair values of the available for sale investments and derivative financial instruments 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. The Group does not have any derivative financial instruments which would be categorised as either Level 1 or 3 of the fair value hierarchy.
8 Financial instruments - continued
30 June 30 June 30 June 30 June 31 December 31 December
2016 2016 2015 2015 2015 2015
Notional Fair Notional Fair Notional Fair
amount value amount value amount value
Derivative financial
assets $m $m $m $m $m $m
----------------------- --------- -------- --------- -------- ------------ ------------
Derivatives
not in a formal
hedging relationship
Foreign exchange
forward contracts 175.9 13.7 241.8 1.8 233.6 5.9
Fair value hedges
Interest rate
swaps 400.0 24.6 (265.0) 7.2 (400.0) 9.3
Cash flow hedges
Interest rate
swaps - - - - (630.3) 2.2
Foreign exchange
forward contracts 4.5 0.3 (43.6) 1.5 4.0 0.1
580.4 38.6 (66.8) 10.5 (792.7) 17.5
======================= ========= ======== ========= ======== ============ ============
30 June 30 June 30 June 30 June 31 December 31 December
2016 2016 2015 2015 2015 2015
Notional Fair Notional Fair Notional Fair
amount value amount value amount value
Derivative financial
liabilities $m $m $m $m $m $m
----------------------- ---------- -------- --------- -------- ------------ ------------
Derivatives
not in a formal
hedging relationship
Foreign exchange
forward contracts (9.1) (0.9) 101.6 (3.6) (25.7) (0.7)
Fair value hedges
Interest rate
swaps - - (135.0) (0.3) - -
Cash flow hedges
Interest rate
swaps (1,085.3) (19.6) (505.0) (4.8) (505.0) (4.2)
Foreign exchange
forward contracts (55.4) (5.5) (35.3) (0.8) (75.9) (2.3)
(1,149.8) (26.0) (573.7) (9.5) (606.6) (7.2)
======================= ========== ======== ========= ======== ============ ============
Adjustments relating to the credit risk of BBA Aviation plc and its counterparties, as defined within IFRS 13, are immaterial in the current period and prior periods.
9 Cash flow from operating activities
Restated Restated
Six Six Year
months months ended
ended ended 31 December
30 June 30 June 2015
2016 2015
$m $m $m
------------------------------------- --------- --------- -------------
Operating profit 62.1 67.6 112.7
Operating profit from discontinued
operations 13.3 10.5 18.1
Share of profit from associates
and joint ventures (11.0) (7.0) (9.6)
------------------------------------- --------- --------- -------------
Profit from operations 64.4 71.1 121.2
Depreciation of property, plant
and equipment 38.1 29.3 58.5
Amortisation of intangible
assets 59.5 10.9 24.3
Loss / (profit) on sale of
property, plant and equipment (2.2) 0.2 (3.7)
Share-based payment expense 3.1 3.0 2.8
(Decrease) / increase in provisions (0.1) 3.2 5.7
Pension scheme payments (2.6) (11.0) (15.3)
Other non-cash items (3.1) 3.1 21.0
Unrealised foreign exchange
movements 0.6 (0.1) 0.6
Operating cash inflows before
movements in working capital 157.7 109.7 215.1
Increase / (decrease) in working
capital 9.3 (34.1) (21.7)
------------------------------------- --------- --------- -------------
Cash generated by operations 167.0 75.6 193.4
Income taxes paid (7.0) (7.9) (5.0)
===================================== ========= ========= =============
Net cash flow from operating
activities 160.0 67.7 188.4
Dividends received from associates 3.2 1.8 3.4
Purchase of property, plant
and equipment (48.1) (39.4) (81.8)
Purchase of intangible assets
(1) (1.5) (4.9) (8.9)
Proceeds from disposal of property,
plant and equipment 7.6 0.7 16.7
Interest received 1.7 6.1 11.7
Interest paid (31.1) (20.2) (41.1)
Interest element of finance (0.1) - -
leases paid
===================================== ========= ========= =============
Free cash flow 91.7 11.8 88.4
===================================== ========= ========= =============
(1) Purchase of intangible assets excludes $6.8 million (30 June 2015: $10.0 million; 31 December 2015: $13.5 million) paid in respect of Ontic licences since the directors believe these payments are more akin to expenditure in relation to acquisitions, and are therefore outside of 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.
10 Acquisitions and disposals
During the period the Group made the following acquisitions:
On 5 February 2016 the Group completed the acquisition of Landmark Aviation for a total consideration of $2,086.9 million following the receipt of clearance under the U.S. Hart-Scott-Rodino Act as announced on 3 February 2016.
On 1 April 2016, SFS UK Limited, a subsidiary company, acquired control and 60% of the shareholding in Prime Aviation Services for a total consideration of $1.5 million, being cash consideration of $1.3 million and deferred consideration of $0.2 million. Prime Aviation Services operates FBO's at four locations in Italy.
On 30 June 2016 the Group's Ontic business acquired the manufacturing rights and processes from Pratt & Whitney Canada for selected JT15D engine component parts for a total consideration of $17.0 million, all of which is deferred. The rights and processes acquired in this acquisition constitute a business under the definition of IFRS 3.
In the year an increase in intangible assets totalling $0.7 million has been recognised in the measurement period in respect of prior year acquisitions in Aftermarket Services as a result of completing final fair value exercises.
10 Acquisitions and disposals - continued
The fair value of the net assets acquired and goodwill arising on these acquisitions are set out below:
Ontic Ontic
JT15D JT15D
parts parts
series series Total
Sea Flight Aftermarket
Prime Landmark Support 2016 2015 services 2016
$m $m $m $m $m $m $m
------------------------- ------ -------- -------- ------- ------- ------------- -----------
Intangible
assets 1.2 1,162.8 1,164.0 18.4 0.7 19.1 1,183.1
Property, plant
and equipment 0.4 326.7 327.1 - - - 327.1
Assets classified
as held for
sale - 185.5 185.5 - - - 185.5
Investments
in associates
and joint ventures - 35.0 35.0 - - - 35.0
Inventories 0.1 12.8 12.9 0.3 (0.3) - 12.9
Receivables 0.6 41.7 42.3 - - - 42.3
Payables (1.3) (61.1) (62.4) - - - (62.4)
Provisions - (12.9) (12.9) (1.7) (0.4) (2.1) (15.0)
Taxation assets
/ (liabilities) 0.3 (162.9) (162.6) - - - (162.6)
Net cash 0.5 2.5 3.0 - - - 3.0
Net assets 1.8 1,530.1 1,531.9 17.0 - 17.0 1,548.9
========================================= ====== ======== ======== ======= ======= ============= ===========
Non-controlling
interest (0.7) - (0.7) - - - (0.7)
========================================= ====== ======== ======== ======= ======= ============= ===========
Goodwill 0.4 556.8 557.2 - - - 557.2
========================================= ====== ======== ======== ======= ======= ============= ===========
Total consideration
(including
deferred consideration) 1.5 2,086.9 2,088.4 17.0 - 17.0 2,105.4
----------------------------------------- ------ -------- -------- ------- ------- ------------- -----------
Satisfied by:
========================= ====== ======== ======== ======= ======= ============= ===========
Cash 1.3 2,086.9 2,088.2 - - - 2,088.2
========================================= ====== ======== ======== ======= ======= ============= ===========
Deferred consideration 0.2 - 0.2 17.0 - 17.0 17.2
----------------------------------------- ------ -------- -------- ------- ------- ------------- -----------
For those acquisitions completed during the six months to 30 June 2016 the fair values are provisional.
As a material transaction the Landmark Aviation transaction is presented separately below. The following disclosure relates to other transactions.
Acquisition costs relating to the other transactions in 2016 were $nil million. In the prior year $1.1 million of deferred consideration was paid in relation to prior year acquisitions in Flight Support.
The goodwill arising on these acquisitions is attributable to anticipated future operating synergies. $nil of the goodwill is expected to be deductible for income tax purposes.
In the period since acquisition, the operations acquired have contributed $2.0 million and $nil million to revenue and operating profit respectively. If the acquisitions had occurred on the first day of the financial year, the total revenue and operating profit from these acquisitions is estimated to be $5.2 million and $1.2 million respectively.
The fair value of the financial assets includes receivables with a fair value and book value of $0.6 million. The best estimate at the acquisition date of the contractual cash flows not expected to be collected is $nil.
10 Acquisitions and disposals - continued
Landmark Aviation
Net book
value
on the Debt and
opening interest Landmark
balance repaid Fair value Aviation
sheet on acquisition adjustments Total
$m $m $m $m
-------------------- -------- --------------- ------------ ---------
Intangible assets 767.7 - 395.1 1,162.8
Property, plant
and equipment 325.3 - 1.4 326.7
Assets classified
as held for sale 75.6 - 109.9 185.5
Investment in
associates 13.3 - 21.7 35.0
Inventories 13.7 - (0.9) 12.8
Receivables 68.2 - (26.5) 41.7
Net cash 2.5 - - 2.5
Payables (66.8) - 5.7 (61.1)
Provisions (2.3) - (10.6) (12.9)
Taxation (69.2) - (93.7) (162.9)
Borrowings (907.5) 907.5 - -
Net assets 220.5 907.5 402.1 1,530.1
--------------------- -------- --------------- ------------ ---------
Goodwill 556.8
--------------------- -------- --------------- ------------ ---------
Total consideration
satisfied by
cash 2,086.9
--------------------- -------- --------------- ------------ ---------
All acquisition costs in relation to the Landmark Aviation acquisition were incurred and recognised as part of transaction costs under exceptional and other items in 2015. There was no deferred consideration on the transaction.
Investments in associates relate to the Group's interest in Landmark's Aircraft Management and Charter business which, though is wholly owned by the Group, due to restrictions on our ability to control it as a non-US citizen has been accounted for as an associate undertaking.
The goodwill arising on the acquisition is attributable to the anticipated profitability arising from the growth of the Signature network and anticipated future operating synergies. $98.6 million of the goodwill is expected to be deductible for income tax purposes.
In the period since acquisition, amortisation totalling $44.7 million has been recognised in relation to intangible assets identified and accounted for relating to the Landmark Acquisition. The Intangible assets relate to the right to operate at the Landmark FBO locations other than the six disposal bases (see FBO disposals below) and are being amortised based on their individual useful lives which range up to 57 years with an average life of 18 years.
In the period since acquisition, the operations of Landmark Aviation have contributed $239.2 million and $62.1 million to revenue and underlying operating profit respectively. $8.7 million of underlying operating profit recognised in the period resulted from realised synergies. If the acquisition had occurred on the first day of the financial year, the total revenue and underlying operating profit from these acquisitions is estimated to be $299.0 million and $69.8 million respectively.
The fair value of the financial assets includes receivables with a fair value and book value of $41.7million. The best estimate at the acquisition date of the contractual cash flows not expected to be collected is $nil.
10 Acquisitions and disposals - continued
FBO disposals
As previously announced on 3 February 2016, under the terms of the regulatory approval in connection with the acquisition of Landmark Aviation, the Company was required to sell six legacy Landmark Aviation FBOs at: Westchester County Airport, New York; Washington Dulles International Airport, Virginia; Scottsdale Airport, Arizona; Ted Stevens Anchorage International Airport, Alaska; Jacqueline Cochran Regional Airport, California; and part of the Landmark facilities at Fresno Yosemite International Airport. As a result the six FBOs referred to above were classified as a disposal group and held for sale from the date of acquisition. Though the operations are wholly owned by the Group, as the result of the restrictions placed upon our influence by the requirements of the U.S. Department of Justice the results of the operations have been accounted for as an associate undertaking.
In March 2016 the group announced the sale of six FBOs, as agreed with the U.S. Department of Justice under the terms of the regulatory approval for the acquisition of Landmark Aviation ("Landmark"), for an aggregate consideration of $190 million to affiliates of KSL Capital Partners, LLC ("the transaction"). The transaction closed on 30 June.
Net initial cash proceeds totalled $186.5 million after adjusting for the impact of working capital. In the period of the Group's ownership the disposal group contributed $nil million of revenues and $7.9 million of underlying operating profit which is included in the share of profits of associates and joint ventures in the condensed consolidated income statement.
11 Related party transactions
Transactions between the Group and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are detailed below.
During the period, Group companies entered into the following transactions with related parties who are not members of the Group:
Sales of goods Purchases of goods
================= =================================== ===================================
Six Six Six Six
months months Year months months Year
ended ended ended ended ended ended
30 June 30 June 31 December 30 June 30 June 31 December
2016 2015 2015 2016 2015 2015
$m $m $m $m $m $m
----------------- --------- --------- ------------- --------- --------- -------------
Associates and
joint ventures 8.5 5.6 8.5 138.9 192.2 355.5
================= ========= ========= ============= ========= ========= =============
Amounts owed by Amounts owed to
related parties related parties
================= ============================== ================================
30
30 June June 31 December 30 June 30 June 31 December
2016 2015 2015 2016 2015 2015
$m $m $m $m $m $m
----------------- -------- ------ ------------ -------- -------- ------------
Associates and
joint ventures 1.5 1.0 0.3 62.2 48.1 52.1
================= ======== ====== ============ ======== ======== ============
Purchases of goods principally relates to the purchase of aviation fuel. Purchases were made at market price, discounted to reflect the quantity of goods purchased. The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received.
In addition, at the balance sheet date, Group companies had loan receivables from an associated undertaking of $2.4 million (30 June 2015: $2.4 million; 31 December 2015: $2.6 million). The loans are unsecured and will be settled in cash, and were made on terms which reflect the relationships between the parties. As at 30 June 2016 these loans are included within assets classified as held for sale, see note 13.
The Group has various pension and other post-retirement benefit schemes for its employees. Details are set out in note 12.
12 Retirement obligations
The defined benefit obligation at 30 June 2016 for the UK Income and Protection Plan (the "IPP") under IAS 19 is estimated based on the latest actuarial valuation as at 31 March 2015, with assumptions updated to reflect market conditions as at 30 June 2016 where appropriate. The defined benefit plan assets have been updated to reflect their market value as at 30 June 2016. The Group's foreign retirement obligations relate to a number of arrangements in North America. Pension costs are calculated by independent qualified actuaries, using the projected unit method and assumptions appropriate to the arrangements in place.
BBA Aviation plc has, following consultation with members, closed its main UK pension plan (the BBA Income and Protection Plan) to future defined benefit accrual on 31 May 2016. Employees who were previously defined benefit members of the BBA Income and Protection Plan will build up benefits in the Groups defined contribution schemes going forward. As at 31 May 2016 substantially all members of the plan were employees of the ERO business.
The closure of the plan on 31 May resulted in a curtailment loss of $1.5 million which was recognised as an exceptional and other item as part of our ERO footprint rationalisation costs, see note 3.
As at 30 June 2016, the IAS 19 valuations of the UK and US schemes indicate a net deficit of $49.4 million (30 June 2015: $36.4 million; 31 December 2015: $40.1 million).
During the first half of 2016, the Group agreed a revised schedule of payments to the IPP as follows:
-- GBP0.3 million due p.a. over 5 years -- GBP2.7 million due p.a. over 19 years through an Asset-Backed Funding (ABF) arrangement
The ABF structure consists of a Scottish Limited Partnership (SLP), formed between two newly incorporated subsidiaries of the Group and the Trustee of the UK Plan, IPP. The SLP has a long -term inter-company loan receivable, due from Ontic Engineering & Manufacturing UK Limited, (Ontic), on which annual interest payments of GBP2.7 million are due over the term of the loan.
The ABF structure has been established so that the three newly created entities are consolidated into the Group's financial statements. In addition, the interest in the SLP held by the UK Plan is not treated as an asset under IAS19, and therefore is not included as part of the Group's pensions disclosures under IAS19. Instead, the payments due to the UK Plan are treated as a series of payments which the Group has committed to make.
13 Discontinued operations
As announced in March 2016 following significant inbound interest management were assessing value maximising options for the Group's investment in the ASIG business. 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. As a major line of the Group's business the ASIG operations have also been classified as a discontinued operation.
ASIG 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 it's classification as held for sale the asset group is held at fair value less cost to sell.
Results of discontinued operations
Restated Restated
Six months ended Six months ended Year ended 31
30 June 2016 30 June 2015 December 2015
------------------ ------ -------------------------------------- -------------------------------------- --------------------------------------
Exceptional Exceptional Exceptional
and and and
other other other
Underlying(1) Items Total Underlying(1) Items Total Underlying(1) Items Total
Note $m $m $m $m $m $m $m $m $m
------------------ ------ -------------- ------------ -------- -------------- ------------ -------- -------------- ------------ --------
Revenue 2 208.8 - 208.8 214.1 - 214.1 415.8 - 415.8
Cost of
sales (190.0) - (190.0) (194.6) - (194.6) (381.2) - (381.2)
------------------ ------ -------------- ------------ -------- -------------- ------------ -------- -------------- ------------ --------
Gross profit 18.8 - 18.8 19.5 - 19.5 34.6 - 34.6
Distribution
costs (0.7) - (0.7) (0.7) - (0.7) (1.3) - (1.3)
Administrative
expenses (13.5) (0.7) (14.2) (16.9) (0.9) (17.8) (35.1) (2.4) (37.5)
Other operating
income 1.2 - 1.2 0.7 - 0.7 5.7 - 5.7
Share of
profits
of associates
and joint
ventures 1 - - - 0.1 - 0.1 0.2 - 0.2
Other operating
expenses (1.1) - (1.1) (0.1) - (0.1) - - -
Operating
profit/(loss)
incl. group
charges 4.7 (0.7) 4.0 2.6 (0.9) 1.7 4.1 (2.4) 1.7
Elimination
of internal
group charges 9.3 - 9.3 8.8 - 8.8 16.4 - 16.4
Operating
profit/(loss) 2 14.0 (0.7) 13.3 11.4 (0.9) 10.5 20.5 (2.4) 18.1
Impairment
on
classification
as held
for sale - (128.9) (128.9) - - - - - -
Investment
income 0.1 - 0.1 0.1 - 0.1 0.2 - 0.2
Finance
costs (0.2) - (0.2) (0.2) - (0.2) (0.4) - (0.4)
------------------ ------ -------------- ------------ -------- -------------- ------------ -------- -------------- ------------ --------
Profit/(loss)
before
tax 13.9 (129.6) (115.7) 11.3 (0.9) 10.4 20.3 (2.4) 17.9
Tax
(charge)/credit (1.6) - (1.6) (2.4) 0.2 (2.2) 2.0 0.4 2.4
================== ====== ============== ============ ======== ============== ============ ======== ============== ============ ========
Profit/(loss)
for the
period 12.3 (129.6) (117.3) 8.9 (0.7) 8.2 22.3 (2.0) 20.3
================== ====== ============== ============ ======== ============== ============ ======== ============== ============ ========
Attributable
to:
Equity
holders
of BBA
Aviation
plc 12.4 (129.6) (117.2) 8.7 (0.7) 8.0 21.9 (2.0) 19.9
Non-controlling
interests (0.1) - (0.1) 0.2 - 0.2 0.4 - 0.4
================== ====== ============== ============ ======== ============== ============ ======== ============== ============ ========
Profit/(loss)
for the
period 12.3 (129.6) (117.3) 8.9 (0.7) 8.2 22.3 (2.0) 20.3
================== ====== ============== ============ ======== ============== ============ ======== ============== ============ ========
Earnings Note Adjusted(1) Unadjusted Adjusted(1) Unadjusted Adjusted(1) Unadjusted
per share
Basic 5 1.4c (11.4)c 1.6c 1.2c 3.3c 2.8c
Diluted 5 1.4c (11.4)c 1.5c 1.2c 3.3c 2.8c
========== ===== ============ ============ ============ =========== ============ ===========
(1) Underlying profit and adjusted earnings per share is stated before exceptional and other items.
All exceptional items relate to the amortisation of intangibles assets arising on acquisition and valued in accordance to IFRS 3.
13 Discontinued operations - continued
Cash flows from / (used in) discontinued operation
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2016 2015 2015
$m $m $m
-------------------------------- ----------- ----------- -------------
Net cash inflow from operating
activities 2.8 13.4 18.9
Net cash outflow from
investing activities (5.4) (2.4) (1.3)
Net cash outflow from
financing activities (0.2) - (0.8)
Net cash flows for the
period (2.8) 11.0 16.8
================================= =========== =========== =============
Effect of the disposal group on financial position of the group
Year ended
30 June 30 June 31 December
2016 2015 2015
$m $m $m
------------------------------------------- --------
Assets held for sale
Non-current assets
Goodwill 59.4 188.4 185.9
Other intangible
assets 5.4 6.8 6.6
Property, plant
and equipment 61.5 61.0 59.1
Investment in associated
companies - 1.0 -
126.3 257.2 251.6
Current assets
Inventories 4.0 3.5 3.6
Trade receivables 68.6 52.1 54.3
Other receivables 29.5 29.9 39.0
Tax recoverable 2.3 - -
Cash and cash equivalents 24.9 11.6 15.7
129.3 97.1 112.6
Total assets held for sale 255.6 354.3 364.2
Liabilities held
for sale
Current liabilities
Trade payables (31.1) (31.8) (36.8)
Other payables (36.0) (34.6) (32.4)
Borrowings - (1.4) (0.9)
Provisions - (0.1) -
(67.1) (67.9) (70.1)
Non-current liabilities
Borrowings - - (0.4)
Other payables (17.8) (16.8) (17.8)
Provisions (0.4) (0.1) (0.1)
(18.2) (16.9) (18.3)
Total liabilities held for sale before tax (85.3) (84.8) (88.4)
Net assets held for sale 170.3 269.5 275.8
The net assets of the discontinued operation are held at fair value less costs to sell as at 30 June 2016.
13 Discontinued operations - continued
30 June 30 June Year ended
2016 2015 31 December 2015
$m $m $m
Tax balances related to the disposal group
Current tax recoverable - - 0.9
Current tax liabilities (0.1) (7.2) -
Total Current Tax (0.1) (7.2) 0.9
Non-current deferred tax assets - 1.0 0.9
Non-current deferred tax liabilities (27.6) (27.1) (27.8)
Total Deferred Tax (27.6) (26.1) (26.9)
14 Impairment of assets in Engine Repair and Overhaul
Management previously reported that a reasonably possible change in the key assumptions used in the impairment model could result in an impairment charge for Dallas Airmotive (DAI).
The Engine Repair & Overhaul (ERO) trading conditions remained challenging during the six months to 30 June 2016, with no recovery in legacy mid-cabin fixed wing and rotorcraft flying visible for the engine platforms on which ERO operates. This coupled with continued pressure on pricing and workscopes, has led to another disappointing ERO result. Engine trading is much reduced and this, together with further margin pressure arising from OEM actions, and reduced demand for lease engines, was only partially offset by the limited cost savings so far delivered through the footprint restructuring programme and additional cost reduction actions taken in H1. As a result of this performance and with no visible recovery in legacy mid-cabin fixed wing and rotorcraft flying, an impairment review has been carried out for both the DAI and H+S CGUs within the ERO business. Following testing it was concluded that the carrying value of the DAI and H+S CGUs exceeded their recoverable values. Accordingly management has recognised an impairment loss for the DAI and H+S CGU assets of $185.3 million to bring them to their value-in use. The table below summarises the allocation of the impairment loss for each asset class within both CGUs.
Goodwill Intangible Assets Property Plant & Equipment Total
$m $m $m $m
DAI carrying value before impairment 124.2 30.5 83.0 237.7
H+S carrying value before impairment 14.4 14.2 22.7 51.3
Total carrying value before impairment 138.6 44.7 105.7 289.0
DAI impairment to recoverable amount 124.2 8.3 25.5 158.0
H+S impairment to recoverable amount 14.4 4.5 7.1 26.0
Total impairment to recoverable amount 138.6 12.8 32.6 184.0
DAI carrying value after impairment - 22.2 57.5 79.7
H+S carrying value after impairment - 9.7 15.6 25.3
Total carrying value after impairment - 31.9 73.1 105.0
Goodwill Intangible Assets Property Plant & Equipment Total
$m $m $m $m
Impairment on the balance sheet 138.6 12.8 32.6 184.0
Translational foreign exchange 0.9 0.1 0.3 1.3
Impairment in profit or loss 139.5 12.9 32.9 185.3
14 Impairment of assets in Engine Repair and Overhaul - continued
The Group has determined the recoverable amount of each CGU from value-in-use calculations and our best estimate of proceeds relating to certain asset disposals associated with our ERO footprint rationalisation. The value-in-use calculations are based on cash flow forecasts derived from the most recent budgets and financial projections for the next five years, as approved by management. Cash flows beyond the five years use a terminal growth rate. 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 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 US military spending for the engine platforms that DAI and H+S have authorisations to perform engine repair and overhaul on. 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 of the ERO CGUs are described below.
ERO operates in the B&GA market. ERO is a leading independent engine repair service provider to the B&GA market with strong relationships with all major engine OEMs. In B&GA, growth is measured principally in relation to B&GA flying hours. B&GA travel is driven by corporate confidence and wealth creation and historically has grown at two times GDP. B&GA flight activity during the six months to June 30 2016 was broadly flat with US BG&A departures up 0.2% and European BG&A movements down 0.8%. The Federal Aviation Authority has forecast B&GA Turbine and Rotorcraft flying hours to grow by circa. 2.5% over the next 20 years.
Despite this level of B&GA growth in flying hours the authorised engine platforms at DAI and H+S are no longer projected to experience this level of growth as DAI & H+S do not have engine authorisations for a number of the engine platforms that are now projected to have above average growth. Cuts to the US military budget continue to negatively impact the flight activity of some platforms and thus maintenance spend.
As a result, the significant improvement in performance included in the ERO forecast period for the purposes of the 31 December 2015 impairment review is no longer expected to be achieved. For the impairment model used at 31 December 2015, the average annual growth rate in EBITDA across 2016-2020 was 10%. For the impairment model used at 30 June 2016, the average annual growth rate for the equivalent period is now assumed to be 1.3%.
Beyond 2020, a conservative approach has been used of 1% long-term growth which reflects the declining nature of the existing platforms on which DAI and H+S are currently operating and we have assumed that new engine authorisation acquisitions, which would require significant further investment are not secured. This compares to a long-term growth rate of 2.2% used previously which broadly reflected the GDP growth rate over the long-term. The weaker outlook for the DAI and H+S engine platforms relative to the markets as a whole has resulted in the reduction of the long-term growth rate to 1%.
The Group's pre-tax weighted average cost of capital (WACC) has been used as the foundation for determining the discount rates to be applied. The WACC has then been adjusted to reflect risks specific to the CGU not already reflected in the future cash flows for that CGU. The discount rate used was 10.9% (31 December 2015: 9.5%) for the DAI CGU and 10.4% (31 December 2015: 9.2%) for the H+S CGU.
15 Share capital
Ordinary share capital as at 30 June 2016 amounted to $508.6 million (30 June 2015: $252.6 million; 31 December 2015: $508.5 million). During the period the Group issued 0.4 million (30 June 2015: 0.8 million; 31 December 2015: 0.9 million) of ordinary shares to satisfy options exercised and the vesting of share awards under the Group's various share schemes. The consideration for shares issued in respect of share options was $nil million (30 June 2015: $nil million;
31 December 2015: $0.4 million).
On 27 October 2015, the Company raised $1,117.1 million (net of expenses of $26.0 million) through a rights issue of 562,281,811 ordinary shares at 133p each on the basis of six new ordinary shares for every five existing ordinary shares. The issue price represented a discount of 47.8% to the closing share price on 23 September 2015, the announcement date of the rights issue.
The discount element inherent in the rights issue is treated as a bonus issue of 224.9 million shares. Earnings per share has been restated for all comparative periods presented, by adjusting the weighted average number of shares to include the impact of the bonus shares.
During the prior period ended 30 June 2015, the company acquired 1.1 million shares as part of the share buy-back programme.
The number of shares in issue as at 30 June 2016 was 1,044.9 million (30 June 2015: 482.2 million; 31 December 2015: 1,044.5 million).
16 Risks and uncertainties
There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results. The directors do not consider that the principal risks and uncertainties have changed since the publication of the annual report for the year ended 31 December 2015. The risks and uncertainties are summarised below:
-- General economic downturn leading to a reduction in revenues and profits as a result of reduced B&GA and commercial flying and military expenditure.
-- Catastrophic global event (terrorism, weather) with a material impact on global air travel leading to a reduction in revenues and profits as a result of reduced B&GA and commercial flying.
-- Legislative changes causing a material increase to the cost of BG&A flight relative to alternatives leading to a reduction in revenues and profits as a result of a reduction in B&GA flying hours.
-- Ability to attract and retain high quality and capable people resulting in a loss of key personnel, lack of internal successors to key management roles, and short to medium term disruption to the business.
-- Potential liabilities from defects in services and products resulting in adverse reputational impact with associated deterioration in customer relationships and a loss of earnings from liability claims.
-- Intentional or inadvertent non-compliance with legislation leading to adverse reputational impact and exposure to potential litigation or criminal proceedings.
-- Environmental exposures resulting in a loss of earnings from the cost to remediate or from potential litigation, the potential for the loss of licence to operate, or greater than expected liabilities associated with historical operations.
-- Non-compliance with banking covenants caused by increase in debt funding as a result of the Landmark Aviation acquisition and tighter regulatory environment around sanctions compliance.
-- Changes in tax regulation in both the USA and EMEA could impact our effective tax rate and our cash tax liabilities.
Independent Review Report to BBA Aviation plc
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 which comprises the consolidated income statement, the consolidated statement of comprehensive (loss) / income, the consolidated balance sheet, the consolidated cash flow statement, the consolidated statement of changes in equity, and related notes 1 to 16. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
1 August 2016
This information is provided by RNS
The company news service from the London Stock Exchange
END
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