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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 : 3156G
BBA Aviation PLC
01 March 2018
BBA Aviation plc
2017 Final Results
Results for the year ended
31 December 2017
For further information please contact:
David Crook, Group Finance Director (020) 7514 3999
Kate Moy, Head of Investor Relations & Communications
BBA AVIATION PLC
David Allchurch (020) 7353 4200
TULCHAN COMMUNICATIONS
A video with BBA Aviation management is now available on www.bbaaviation.com and www.cantos.com
A live audio webcast of the analyst presentation will be available from 08:15 today on www.bbaaviation.com and www.cantos.com
FINAL RESULTS FOR THE YEARED 31 DECEMBER 2017
Hot Features
Premium
Underlying results(1) Statutory results
2017 2016 Change 2017 2016 Change(2)
Continuing
Group
Revenue 2,370.6 2,149.1 10% 2,370.6 2,149.1 10%
EBITDA 447.9 384.5 16% 418.7 346.6 21%
Operating
profit 360.6 302.6 19% 237.6 166.1 43%
Profit / (loss)
before tax 298.5 238.7 25% 175.5 (82.2) -
Profit / (loss)
after tax 246.3 199.2 24% 141.8 (19.3) -
Basic earnings
per share 24.0c 19.4c 24% 13.8c (1.9)c -
Total Group
Return on
invested capital 11.0% 10.1% 90 bps
Free cash
flow - - 220.6 224.1 (2)%
Net debt (1,167.1) (1,335.3) (168.2)
Net debt to
adjusted underlying
EBITDA 2.6x 3.2x (0.6)x
Dividend per
share 13.40c 12.75c 5%
1. Refer to alternative performance measures for the note outlining all adjusted and continuing measures
2. % change based on continuing operations for operating performance
Highlights
-- Strong overall Group performance, underlying continuing operating profit up 19% to $360.6 million
-- Statutory profit before tax for 2017 was $175.5 million compared to a loss of $82.2 million in 2016
-- Adjusted continuing underlying basic EPS up 24% to 24.0 cents. Unadjusted continuing basic EPS of 13.8 cents against a loss of 1.9 cents in 2016
-- Final dividend up 5.2% reflecting continued confidence in the Group's future growth prospects.
-- Business performance:
o Flight Support (83% of Group underlying OP)
-- Signature organic revenue growth of 3.8% was in line with the US B&GA market growth of 3.7%
-- In the second half, Signature organic revenue growth moved ahead of the market at 4.4% against the US B&GA market which grew at 4.1%
-- Organic underlying operating profit growth of 11.3%, significantly ahead of the growth in the underlying B&GA markets
o Aftermarket Services (17% of Group underlying OP)
-- Organic underlying operating profit growth of 32.2%
-- Ontic - delivered an excellent operating performance with strong contributions from new licences and organic growth from legacy US military licences
-- ERO - much improved operating margin performance despite organic revenue decline
-- We are currently conducting a strategic review of our ERO business
-- Exceptional and other items of $127.0 million is largely non-cash and associated with the amortisation of acquired intangibles $93.8 million and restructuring costs of $28.0 million primarily on assets at our ERO facility in Abu Dhabi, which is scheduled to close over the next few months, and the final phase of our ERO footprint rationalisation.
-- Free cash flow from continuing operations was $254.0 million. On a statutory basis, free cash flow was $220.6 million (2016: $224.1 million) and as a result the Group de-levered to 2.6x net debt to underlying EBITDA on a covenant basis.
-- New target leverage range of 2.5x to 3.0x net debt to underlying EBITDA on a covenant basis will maintain an efficient balance sheet and reflects the strong and robust cash generative characteristics of the business whilst also providing the flexibility required to meet the investment opportunities of the business to fund organic and inorganic growth.
Wayne Edmunds, BBA Aviation Interim Chief Executive Officer, commented:
"2017 was another successful year for BBA Aviation. It was a year when we continued to lay the foundations for further growth and value creation across our Signature network of 198 FBOs. Over the year we have successfully negotiated revised commercial terms for over 50% of our revenue and these started to positively impact in our second half and contributed to our market outperformance during that period.
The US B&GA market has grown strongly during the year. We have invested in the network through lease extensions, adding hangar space, growing our line maintenance offering through Signature TECHNICAir(TM) and expanding our Signature Elite(R) and Signature Select(R) offerings, all of which extend and enhance our opportunity for continued market outperformance. We see potential, as we look forward, to expand our offering of non-fuel services and further leverage our market leading network.
I am pleased with the much-improved financial performance from our Aftermarket Services business. We have made further investments in Ontic's IP protected licence portfolio and the licences acquired from GE Aviation at the end of 2016 have made a strong initial contribution. Ontic continues to see significant growth opportunities and has a strong pipeline of opportunities to add to the licence portfolio and a good order book. The second half also saw a much-improved operating performance from ERO supported by the benefits from the footprint rationalisation program.
We have undertaken a comprehensive review of our capital structure and increased our targeted leverage range, maintaining a capital efficient balance sheet based on the strong and robust cash flow fundamentals of the Group.
Furthermore, I am delighted that Mark Johnstone, who has extensive experience across the Group will take up his appointment as Chief Executive Officer at the beginning of April.
In summary, the Group is focused on higher value-added, better IP protected, high ROIC and strongly cash generative businesses with encouraging prospects and the Board remains confident of good growth in 2018 with a good pipeline of further investment opportunities."
FINAL RESULTS 2017
Overview
BBA Aviation has delivered another year of strong growth. Our underlying operating profit outperformed strong B&GA markets in 2017.
During the year we made significant progress on transitioning our customers onto new commercial agreements to begin capturing the value from the unique Signature network, post the integration of Landmark Aviation. Ontic's focus as a high quality, cash generative market leading provider of legacy support services was further enhanced with the addition of new licence agreements during the year. Furthermore, the acquisition of GE Aviation's portfolio of legacy avionics products in December 2016 made an encouraging initial contribution.
Flight Support delivered excellent underlying operating profit growth, continuing to outperform its markets, with good drop through to profit. In Aftermarket Services, Ontic, our Legacy Support business, delivered ahead of our expectations. We saw a good contribution from licences added in 2016 and organic growth from military parts programmes, including the B52. ERO delivered a much-improved operating performance through market share gains on certain engine platforms, underpinned by ongoing cost reduction and the results of the footprint rationalisation. This was achieved despite markets that remained challenging with no recovery in legacy mid-cabin fixed wing flying and continued pressure on pricing and workscopes.
Continuing Group revenue increased by 10% to $2,370.6 million (2016: $2,149.1 million), including $92.7 million contribution from acquisitions. Flight Support revenue increased 13.8%, reflecting the contribution from acquisitions of $53.0 million, being one additional month of Landmark Aviation and the additional three months of contribution from the new FBOs in Italy, together with the impact of higher fuel prices, partially offset by foreign exchange movements, that increased Flight Support revenue by $88.1 million. Aftermarket Services revenue was up 3.1% driven by Ontic offsetting the decline from continuing challenging markets in ERO.
Continuing underlying Group operating profit was up 19% to $360.6 million (2016: $302.6 million). There was an excellent performance in Flight Support which increased operating profit as adjusted for FX and disposals by $43.8 million and includes a $11.6 million contribution from acquisitions. Aftermarket Services, now 17% of continuing Group underlying operating profit, was up $24.6 million as adjusted for FX due to Ontic's strong performance and included a $11.5 million contribution from acquisitions and a much-improved financial performance at ERO.
Statutory Group operating profit was up 43% to $237.6 million (2016: $166.1 million) due to improved trading performance and lower exceptional and other items, as set out below.
Continuing Group underlying operating profit margin increased to 15.2% (2016: 14.1%) reflecting underlying margin growth in both Flight Support and Aftermarket Services. On a constant fuel, disposals adjusted basis the underlying operating margin increased 200 basis points to 15.2%.
Underlying net interest decreased by $1.8 million to $62.1 million (2016: $63.9 million). Net debt decreased to $1,167.1 million (2016: $1,335.3 million). On a covenant basis, the net debt to underlying EBITDA ratio decreased to 2.6x (2016: 3.1x), and on a reported basis to 2.6x (2016: 3.2x). Interest cover on a covenant basis increased to 8.4x (2016: 7.2x), due to the decreased interest on the lower drawn debt.
Underlying continuing profit before tax increased to $298.5 million (2016: $238.7 million).
The Group's underlying effective tax rate for continuing operations is 17.5% (2016: 16.5%). Underlying profit after tax increased by 24% and continuing underlying adjusted earnings per share (EPS) increased by 24% to 24.0 cents (underlying adjusted 2016: 19.4 cents). Cash EPS, the measure of EPS adjusted to use a current as opposed to total tax charge, increased 29% to 28.6 cents (2016: 22.1 cents).
Total Group ROIC increased 90bps to 11.0%, up from 10.1% in 2016.
Exceptional and other items after tax, for continuing and discontinued operations, totalled $127.0 million (2016: $316.0 million). Significant items include restructuring expenses of $28.0 million (2016: $9.9 million), comprising of $15.7 million as a result of restructuring ERO's Abu Dhabi facility and $12.3 million associated with ERO's footprint rationalisation programme and actions taken to address the costs previously associated with supporting ASIG; $93.8 million of non-cash amortisation of acquired intangible assets (2016: $98.6 million), and $22.5 million loss after tax on disposal of discontinued operations (2016: $97.5 million). The impact of the enactment of the Tax Cuts and Jobs Act in the US has also been presented as exceptional and other item tax charge as set out below.
Continuing statutory profit before tax was $175.5 million versus an $82.2 million loss for the prior year.
Free cash flow was $220.6 million (2016: $224.1 million), the decrease mainly due to a working capital outflow of $46.3 million compared to an inflow of $36.1 million in the prior year and increased tax payments, largely offset by increased earnings, lower capital expenditure and lower interest payments.
Gross capital expenditure amounted to $80.3 million (2016: $102.4 million). Principal capital expenditure items include the investment in our FBOs at Boeing Field, Palm Beach and Nashville, our new engine overhaul and testing facility at Dallas Fort Worth and our Ontic facility in Cheltenham to support the ongoing transition of GE Aviation avionics licenses.
Working capital outflows in the year of $46.3 million (2016: $36.1 inflow), represented $25.7 million outflow relating to discontinued operations and approximately $20 million outflow representing the expected reversal of outperformance from 2016.
Cash flows on exceptional and other items during the year were $12.7 million (2016: $63.5 million) which primarily relate to restructuring costs.
The Group's tax payments during the year were $41.8 million (2016: $15.8 million) which included tax payments of $8.4 million in relation to the disposal of ASIG. Net interest payments were $57.2 million (2016: $61.8 million) and dividend payments amounted to $130.7 million (2016: $124.3 million).
The consideration paid relating to acquisitions during the year, including deferred consideration, was $75.7 million, net of cash acquired. This related substantially to the acquisition of Ontic's licences. In December 2016, Ontic completed the acquisition of a portfolio of legacy avionics products from GE Aviation for $60.7 million. The cash payment for this acquisition was made in January 2017.
Business Review - Continuing Operations
Flight Support (83% of underlying operating profit)
Our Flight Support division provides specialist on-airport services including refuelling, ground handling and hangarage to the business & general aviation (B&GA) market through Signature Flight Support, line maintenance services through Signature TECHNICAir(TM) and aircraft management and charter operations through its affiliate Gama Aviation Signature Aircraft Management.
$m 2017 2016 Change Revenue 1,643.0 1,443.2 13.8% Organic revenue growth 3.8% 3.9% (10)bps Underlying operating profit 329.4 294.0 12.0% Underlying operating margin 20.0% 20.4% (40)bps Underlying operating 20.0% 18.6% 140bps margin (adjusted for fuel and disposals) 247.1 177.3 39.4% Operating profit Operating cash flow 313.4 276.8 13.2% Divisional return on invested capital 12.2% 11.2% 100bps
Revenue in Flight Support increased by 13.8% to $1,643.0 million (2016: $1,443.2 million), reflecting a net positive impact of higher fuel prices and foreign exchange movements and $53.0 million contribution from 2016 acquisitions being an additional one month contribution from Landmark Aviation and an additional three months contribution from the acquisition of four FBOs in Italy. Flight Support's organic revenue growth of 3.8% for the full year reflected good growth in the US B&GA market generally with movements up 3.7% and European B&GA movements up 7.3% during the year.
Underlying operating profit in Flight Support increased by 12.0% to $329.4 million (2016: $294.0 million), driven by continued strong underlying operational performance in Signature Flight Support and an $11.6 million contribution from acquisitions. Underlying operating profit includes our Signature TECHNICAir(TM) and our aircraft management and charter business which is accounted for as a joint venture. On an organic basis, adjusting for acquisitions ($11.6 million), FX ($0.6 million) and disposals ($7.8 million), underlying operating profit increased by 11.3%.
Underlying operating margins were slightly lower due to the increase in fuel prices and disposal of FBOs in 2016 which were equity accounted. Underlying operating margins adjusted for constant fuel prices and disposals increased by 140 basis points to 20.0%.
Statutory operating profit of $247.1 million increased by 39.4% (2016: $177.3 million). This is a result of strong organic growth plus the impact of acquisitions, net of disposals and a reduction in exceptional and other items, primarily lower amortisation of acquired intangible assets and the non-repeat of acquisition integration costs from 2016. Operating cash flow for the division was $313.4 million (2016: $276.8 million) due principally to strong organic operating profit growth and reduced capital expenditure. Return on invested capital increased to 12.2% (2016: 11.2%) reflecting the strong improvement in underlying operating profit during the year.
Signature Flight Support's locations delivered another strong performance in a good growth environment, as we started to capture the benefits of our strong and customer-relevant network.
Against a background of a US B&GA market that grew 3.1% in the first half, Signature performed broadly in line with the market despite a short term negative impact on fuel volumes while negotiations with Signature's customers were undertaken and the loss of the Santa Ana FBO in April 2017. In the second half, Signature outperformed its principal US B&GA market with 4.4% organic revenue growth against the market which grew at 4.1% reflecting both the positive customer response to the enlarged network proposition and the good progress with our commercial renegotiations.
The hurricanes in August and September: Harvey, Irma and Maria caused minimal impact overall across the Signature network and we were able to re-establish services quickly and provide support for the rescue and relief efforts. Damage to our FBO network was limited although there were some excess payments made on our insurance policies by Signature. The further impact of hurricane insurance claims is covered under central costs below.
Signature is well positioned to focus on optimising its unique and high quality global network of FBOs and line maintenance locations, through the provision of a broader range of B&GA services to our extensive customer base and enhancing network performance to accelerate value creation. The unique Signature network has the unmatched ability to satisfy the needs of our customers at many more locations that they want to fly to, supporting anticipated continued outperformance in 2018 and beyond.
In 2017 Signature expanded its affiliate FBO programme, Signature Select(R) . It signed an extended licence agreement with Fly Across at Toluca International Airport in Mexico, just a 30-minute drive from Santa Fe, the country's financial and business district. This location increases the Signature Select(R) network to 19 locations globally and we continue to look for further opportunities to expand this proposition.
Signature has continued to invest in its current network, with the successful opening of its newly constructed FBO, with premium hangar space to satisfy the growing tenant demand, at Boeing Field, Seattle which completed in June 2017. It also secured a new strategic lease at Washington Dulles International Airport.
BBA Aviation has also recently taken a minority investment in Victor, a leading on-demand private jet charter company. Through this minority investment which concurrently acquired RocketRoute, a global flight planning and trip support business, we are committed to being at the forefront of advances in data and technology enabled customer service. As the demographic using and chartering private jets continues to change, our ability to utilise technology will ensure we bring the best possible service to our many discerning customers.
There are now 198 locations in Signature's global network.
Aftermarket Services (17% of underlying operating profit of continuing operations)
Our Aftermarket Services division is focused on the support of maturing aerospace platforms through Ontic, our legacy support business and the repair and overhaul of engines through our ERO businesses.
$m 2017 2016 Change Revenue 727.6 705.9 3.1% Organic revenue growth (1.7)% (10)% - Underlying operating profit 65.3 42.0 55.5% Underlying operating margin 9.0% 5.9% 310bps Operating profit 33.6 22.2 51.4% Operating cash flow 66.0 34.0 94.1% Divisional ROIC 11.3% 6.9% 440bps
In Aftermarket Services, revenue grew by 3.1% to $727.6 million (2016: $705.9 million). Underlying operating profit of $65.3 million (2016: $42.0 million) was driven by Ontic which now represents c.85% of the division's profits, supported by a much-improved performance in ERO. Underlying operating margins grew strongly during the year to 9.0% (2016: 5.9%).
On an organic basis, adjusting for FX ($1.3 million) and acquisitions ($11.5 million) the Aftermarket Services underlying operating profit was up 32.2% driven primarily by a recovery in ERO through cost-reduction actions and supported by organic growth in Ontic on military licences.
Operating profit of $33.6 million has increased (2016: $22.2 million) as a result of improved organic operating performance in Ontic and ERO and the contribution from acquisitions in Ontic.
Operating cash flow for the division was $66.0 million (2016: $34.0 million) which reflected the improved operating performance, lower capital expenditure and the receipt of proceeds from the sale of the Forest Park facility in Dallas. Return on invested capital increased to 11.3% (2016: 6.9%) reflecting the improved operating performance.
Ontic
Ontic, our legacy support business, continues to perform well, with revenue up 26.9% to $208.8 million (2016: $164.5 million). On an organic basis, revenue was up 4.5%.
The 2017 performance includes a significant contribution from the portfolio of legacy avionics products acquired from GE Aviation in December 2016. This business has been substantially transitioned into Ontic's existing UK facility in Cheltenham over the course of 2017. The cash payment of $60.7 million for this acquisition was made in January 2017. Furthermore, it was a strong year for cyclical military demand - B52 actuation and C130 Radar units shipped in significant quantities during 2017 which we do not expect to repeat in 2018. We expect the non-repeat element of the cyclical military orders to counter growth from new licences acquired at the end of 2017.
Ontic has further extended its licensed product portfolio during the year with the addition of important new licences; Ontic has recently signed a second product licence with Ultra Electronics for the OE manufacturing and aftermarket support for various military cockpit controls, switches and indicators. We also have a new licence agreement with UTC Aerospace Systems for its wound motor product lines, part of the electric power systems business segment. This adds significant military content to our portfolio.
In December 2017, we acquired Curtiss-Wright's product line for the Ethernet Switch Unit, which grows not only our military platform content but also our product portfolio with Curtiss-Wright. Furthermore, Ontic has received certification by the US Department of Transportation Federal Aviation Administration for its Singapore facility which serves as both a repair station and storefront for a variety of OEM-licenced and acquired products, including fuel measurement systems on the Boeing B737 Classic and B777, Fokker 50,70 and 100 as well as the Airbus A300, A318, A319 and A320. In 2018, we have also signed a first product licence with Racal Acoustics, part of Esterline Corporation, for various military and civil avionics products including cockpit communication control systems. The products will transition to our Cheltenham facility during 2018.
These acquisitions support Ontic's strategy to deliver continued profitable growth in mature avionics and electronics products with high intellectual property content. Ontic continues to assess a strong pipeline of opportunities in relation to new products and licence adoptions.
ERO
Engine Repair & Overhaul's revenue decreased by 4.2% to $518.8 million (2016: $541.4 million). Conditions in ERO's market remain challenging and, while organic revenue was down for the year, we have improved our market share on the majority of programmes. ERO's operating performance in the first half was stable against the second half of 2016 but much improved on the first half of 2016. Operating performance in the second half delivered significant improvement in line with expectations resulting from market share gains (PT6, TFE, PW300 and Tay) and cost efficiencies from the footprint rationalisation programme.
Volumes in legacy mid-cabin and rotorcraft engine overhauls remained depressed throughout the year, with reduced workscopes and competitive market pricing. In the first half of the year ERO saw improvements in demand for overhauls in certain Pratt & Whitney and Tay markets, as well as market share gains for certain Pratt & Whitney engines. However, while our market share has improved on the majority of programmes, we continue to see lower engine inputs, primarily on JT15D, PW500 and PW100. Time between engine overhauls continues to extend and the increase of power by the hour contracts either through the OEMs or third parties increases the competitive tension.
ERO's footprint rationalisation programme is nearly complete and it will undergo its final facility consolidation in 2018. The new overhaul facility at Dallas Fort Worth Centre (DFW) is successfully delivering the overhaul operations formerly undertaken at the Neosho and Forest Park facilities. The sale of the Forest Park site for $17.4m completed at the end of 2017. Looking forward the combination of an efficient, lower cost, flexible engine overhaul and test facility in DFW and a renewed focus on customer service will drive further improvement in financial performance and allow us to execute our strategy for value creation from our ERO business.
We have recently made the decision to close our engine overhaul operations in Abu Dhabi given insufficient market demand to support our facility on current engine authorisations. We expect the facility to complete its final engine overhaul in April.
As part of BBA Aviation's focus on driving long term sustainable value for our shareholders, we are currently conducting a strategic review of our ERO business although there is no certainty that this will result in a transaction being agreed.
Central Costs
Central costs were $0.7 million higher at $34.1 million (2016: $33.4 million). The central cost base represents two elements, the unallocated corporate costs for the Group and the costs previously associated with supporting the ASIG business, which was sold in January 2017. We supported Menzies (the acquirer of ASIG) for a period of six months through to July 2017 and since July we have been able to address the cost base that had supported the transitionary service agreement with Menzies. The work to address the cost base that previously supported ASIG is substantially complete with approximately $5 million of such costs included in the central costs for 2017 (2016: $18.6 million). These costs will not impact the group from 2018 onwards.
The balance of central costs represents the unallocated central costs to support the continuing Group which reflects the additional share based payment expenses as anticipated, plus the one-time costs associated with the transition of CEO and losses incurred by our captive insurance company for the damage to US and Caribbean facilities during the recent hurricanes.
Other Financial Information and Leverage
At 31 December 2017 the Group had net debt of $1,167.1 million (2016 net debt: $1,335.3 million), the decrease being due to the strong operating performance of the business and the net proceeds from the disposal of ASIG while continuing to invest in the existing businesses and new Ontic licenses.
Net cash flow from operating activities of $339.0 million is lower than the prior year (2016: $374.9 million) primarily as a result of the outflow in working capital compared to the inflow in the prior year and the disposal of ASIG in January 2017. Free cash flow decreased by $3.5 million to $220.6 million (2016: $224.1 million) as a result of the working capital movements as previously noted and increased tax payments largely offset by increased earnings, decreased capital expenditure and interest payments. Capital expenditure amounted to $80.3 million (2016: $102.4 million). Principal items included the investment in our FBOs at Boeing Field, Palm Beach and Nashville, our new engine overhaul and testing facility at Dallas Fort Worth and our Ontic facility in Cheltenham to support the ongoing transition of GE Aviation avionics licences.
Other significant cash flow items include the proceeds from disposal of ASIG $170.5 million, net of fees, the acquisition of subsidiaries, net of cash acquired $75.7 million (2016: $2,098.2 million) and dividend payments of $130.7 million (2016: $124.3 million). The Group's net debt to underlying EBITDA ratio at 31 December 2017 was 2.6x on a reported basis (2016 3.2x reported basis) and 2.6x on a covenant basis (2016: 3.1x on a covenant basis), well within our target range. Interest cover on a covenant basis increased to 8.4x (2016: 7.2x), due to the decreased interest on the lower drawn debt.
Strategy and capital allocation policy
Post the $2.1bn acquisition of Landmark Aviation and the disposal of ASIG the Group is increasingly focused on the B&GA markets; and we communicated at our preliminary results announcement in March 2017 that we would undertake a review of capital structure during the year. The review is now complete and we believe an increase in our target leverage range is appropriate based on the strong and robust cash flow fundamentals of the Group.
However, the Group remains disciplined in its approach to the allocation of capital with the overriding objective being to enhance shareholder value. Our investment priorities remain focused on achieving organic underlying operating profit growth above that in the B&GA market and continued development of our IP protected legacy licence portfolio. Within Signature we see investment opportunities through investments in technology, hangar construction to address market shortages in certain areas of the US, expansion of our Signature TechnicAir(TM) offering, build out of our Signature ELITE(R) offering at major international airports and investing in bolt-on acquisitions that build upon our leadership in the B&GA market. Within Ontic we see a strong pipeline of opportunities as OEMs seek to manage their legacy IP and believe there may be the potential for acquisitions within Ontic's core markets that provide portfolios of licences in addition to the acquisition of individual licences from OEMs.
Our capital allocation policy will firstly focus on the many organic investment opportunities we see across both Flight Support and Aftermarket Services. This will be supplemented by bolt-on acquisition opportunities in Flight Support, extension of our IP protected licence portfolio in Ontic through individual licence opportunities provided by the OEMs and the potential acquisition of complementary licence portfolios. To the extent that BBA Aviation's investment pipeline results in leverage falling below the target range we will return funds to shareholders at a level that maintains leverage at the lower end of the target range, thereby maintaining the flexibility to execute our strategy to continue to maximise shareholder value.
Our balance sheet remains strong and the Group will now manage net debt in the range of 2.5x to 3.0x underlying adjusted EBITDA which we believe gives flexibility and headroom for the investment requirements of the Group and the cyclicality within the B&GA market. The Group has performed within this target range during 2017 following the disposal of ASIG with net debt to underlying adjusted EBITDA at 31 December 2017 being 2.6x, in line with expectations. The new target range provides up to 1.0x headroom against the group's net debt to adjusted underlying EBITDA banking covenant.
The Board continues to have a progressive dividend policy which aims to align the core dividend with sustainable long-term earnings growth.
The group will now proceed to refinance its revolving credit facility and facility B of its acquisition debt, both of which mature in 2019. In 2018 the group has $120 million of series A US private placement debt maturing. This debt will be repaid and the group will leave the remaining $380 million of US private placement debt (maturities ranging from 2021 to 2026) in place.
Taxation
The Group's underlying effective tax rate for 2017 was 17.5%. This is lower than the expected 19% given the impacts of UK legislation on interest deductions and further concentration of US taxable profits were partially offset by prior year adjustments on US taxes with respect to Landmark.
The impact of the enactment of the Tax Cuts and Jobs Act in the US is broadly neutral for the Group's underlying effective tax rate in 2018. As a result of US tax reform legislation, the Group has incurred a one-time, exceptional tax charge in 2017 of $20.5 million, primarily related to the non-cash revision of US deferred tax assets and liabilities. The group has revalued US deferred tax liabilities at 31 December 2017, primarily relating to amortisation of intangibles to reflect the reduction in headline US tax rates and written off US deferred tax assets primarily relating to deferred interest as a result of the tax reform restrictions on interest deductibility which is now capped at 30% of US EBITDA. In addition, the exceptional tax charge includes a $3.0 million one-time repatriation tax charge on the unremitted earnings of overseas subsidiaries controlled by a US entity. This one-time tax charge is payable over eight years and has minimal impact on the group's cash tax rate.
The group's cash tax payments for 2017 amounted to $41.8 million (2016: $15.8 million). The increase in cash tax payments resulted from the increased taxable profits of the group and certain one-time payments including settlement of tax payable ($8.4 million) on the taxable gain arising from the disposal of ASIG's US operations.
For the year ending 31 December 2018, we estimate the group's effective tax rate to be approximately 20%. The Group's cash tax rate is expected to remain substantially lower than the underlying effective tax rate by c.10% which reflects the benefit of 100% capital deductions available for the next five years as part of US tax reform.
Pensions
The Group paid net $8.4 million of pension payments during the period, of which $4.0 million represented pension deficit payments reflecting the agreed payments to the schemes.
The actuarial valuation of the UK plan at 31 March 2015 indicated a funding deficit of GBP45 million ($66 million) at 31 March 2015 exchange rates. The Group paid GBP4.3 million of pension payments in to the UK plan, of which GBP3.0 million represented pension deficit payments, reflecting the agreed payments to the scheme under an agreement to make additional contributions of GBP0.3 million per annum over the next three years bringing the annual deficit contribution to GBP3.0 million, and GBP2.7 million thereafter until 2034 in accordance with the asset-backed funding arrangement established in 2014.
As at 31 December 2017, the accounting net deficit across the UK and US plans was $71.7 million (2016: $82.8 million). The reduction in the net deficit of $11.1m since 31 December 2016 reflects the favourable impact of better than expected returns on plan assets and employer contributions, more than offsetting unfavourable impacts from foreign exchange movements, net interest costs and administration expenses. In 2017 the largest of the US plans undertook an exercise during the year whereby lump sum transfer payments were paid out to a number of members in order to discharge the associated liabilities. This resulted in a deficit reduction for that particular plan of $2.1 million.
Dividend
At the time of the interim results, the Board declared an increased interim dividend of 3.81 cents (H1 2016: 3.63 cents). The Board is now proposing a final dividend of 9.59 cents per share (2016: 9.12 cents) up 5.2% on an underlying basis reflecting the Board's progressive dividend policy and its continued confidence in the Group's future growth prospects.
A dividend reinvestment plan is in operation. Those shareholders who have not elected to participate in this plan, and who would like to participate, please register via the share portal www.signalshares.com.
Board Changes
As previously announced Mark Johnstone, currently President and Chief Operating Officer of the Group's Engine Repair & Overhaul business will join the Board as Group Chief Executive on 1 April 2018. He will be based in the US. Mark joined BBA Aviation in March 2008 as Corporate Development Director and has held a number of roles within the Group including Chief Financial Officer Signature Flight Support and Managing Director of the EMEA Flight Support business (at that time incorporating both Signature and ASIG).
After 1 April 2018 Wayne Edmunds will remain on the Board. He will be a non-executive Director and will not be a member of any main Board Committees.
Furthermore, we have recently appointed two new non-executive directors. Amee Chande and Emma Gilthorpe both joined the Board on 1 January 2018. Amee brings significant international experience living and working in North America and Asia and currently works for Alibaba as Managing Director of Global Strategy and Operations. Emma has extensive aviation experience from her various roles at Heathrow Airport Holdings (formerly BAA) and is currently Executive Director for Expansion. We also announced that Peter Ratcliffe will step down from the Board at our AGM on 11 May 2018.
Outlook
2017 was another successful year for BBA Aviation. We have delivered improved financial performance across the Group, started to capture the value from the enlarged network and ensured we have an appropriate capital structure to give us the flexibility to continue to invest in the many organic and inorganic growth opportunities available to us and enhance shareholder value.
The recent investment in our Signature network, through lease enhancements, adding hangar space and the development of our Signature TECHNICAir (TM) brand are all focused on delivering continued market outperformance in terms of our earnings growth. We will continue to look to expand our FBO network through both acquisition and our Signature Select (TM) franchise model to ensure we remain the market leader with unmatched customer and network relevance, protected by our long-term lease portfolio. Where possible, we will use technology to analyse our customer's flying patterns and predict needs and trends and offer our customer base accessibility to the charter market through digital platforms. We saw B&GA market growth moderate during December and this has continued into the first two months of the new financial year.
Our growing portfolio of IP protected licences and authorisations within Ontic, offers significant opportunities and the business has a strong pipeline and a good order book. Furthermore, we anticipate ERO should deliver further improved financial performance from its rationalised footprint even at current levels of market activity.
In summary, the Board remains confident of good growth in 2018.
Capital Markets Day
BBA Aviation intends to hold a Capital Markets Day in Q4 2018. Further information will be released in due course.
Going Concern
The Directors have carried out a review of the Group's trading outlook and borrowing facilities, with due regard to the risks and uncertainties to which the Group is exposed, the uncertain economic climate and the impact that this could have on trading performance. Based on this review, the Directors believe that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the financial statements have been prepared on a going concern basis.
Directors' Responsibilities
The responsibility statement below has been prepared in connection with the Company's full Annual Report for the year ending 31 December 2017. Certain parts of the Annual Report are not included within this announcement.
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with Disclosure and Transparency Rules of the UK Financial Conduct Authority and principles of International Financial Reporting Standards (IFRS) as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole; and
-- the management report, which is incorporated into the Directors' Report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.
Signed on behalf of the Board
Wayne Edmunds David Crook
Interim Group Chief Executive Group Finance Director
28 February 2018 28 February 2018
This final results announcement contains forward-looking statements including, without limitation, statements relating to: future demand and markets of the Group's products and services; research and development relating to new products and services; liquidity and capital; and implementation of restructuring plans and efficiencies. These forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will or may occur in the future. Accordingly, actual results may differ materially from those set out in the forward-looking statements as a result of a variety of factors including, without limitation: changes in interest and exchange rates, commodity prices and other economic conditions; negotiations with customers relating to renewal of contracts and future volumes and prices; events affecting international security, including global health issues and terrorism; changes in regulatory environment; and the outcome of litigation. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
This report is available in electronic format from the Company's website www.bbaaviation.com
Consolidated Income Statement
2017 2016
======================== ====== ========================================= =========================================
Exceptional Exceptional
and and
other other
Underlying(1) items Total Underlying(1) items Total
For the year ended
31 December Notes $m $m $m $m $m $m
======================== ====== ============== ============ =========== ============== ============ ===========
Continuing operations
Revenue 1 2,370.6 - 2,370.6 2,149.1 - 2,149.1
Cost of sales (1,813.1) - (1,813.1) (1,654.7) - (1,654.7)
------------------------ ------ -------------- ------------ ----------- -------------- ------------ -----------
Gross profit 557.5 - 557.5 494.4 - 494.4
Distribution costs (36.1) - (36.1) (37.6) - (37.6)
Administrative
expenses (171.8) (93.8) (265.6) (172.3) (98.6) (270.9)
Other operating
income 8.9 - 8.9 5.7 - 5.7
Share of profit
of associates and
joint ventures 3.4 - 3.4 13.4 - 13.4
Other operating
expenses (1.3) (1.2) (2.5) (1.0) (28.0) (29.0)
Restructuring costs 2 - (28.0) (28.0) - (9.9) (9.9)
------------------------ ------ -------------- ------------ ----------- -------------- ------------ -----------
Operating profit/(loss) 1, 2 360.6 (123.0) 237.6 302.6 (136.5) 166.1
Impairment of assets 6 - - - - (184.4) (184.4)
Investment income 3.2 - 3.2 3.7 - 3.7
Finance costs (65.3) - (65.3) (67.6) - (67.6)
------------------------ ------ -------------- ------------ ----------- -------------- ------------ -----------
Profit/(loss) before
tax 298.5 (123.0) 175.5 238.7 (320.9) (82.2)
Tax (charge)/credit 3 (52.2) 18.5 (33.7) (39.5) 102.4 62.9
------------------------ ------ -------------- ------------ ----------- -------------- ------------ -----------
Profit/(loss) from
continuing operations 246.3 (104.5) 141.8 199.2 (218.5) (19.3)
Discontinued operation
(Loss)/profit from
discontinued
operation,
net of tax 10 - (22.5) (22.5) 17.9 (97.5) (79.6)
Profit/(loss) for
the period 246.3 (127.0) 119.3 217.1 (316.0) (98.9)
------------------------ ------ -------------- ------------ ----------- -------------- ------------ -----------
Attributable to:
Equity holders
of BBA Aviation
plc 246.4 (127.0) 119.4 217.1 (316.0) (98.9)
Non-controlling
interest (0.1) - (0.1) - - -
------------------------ ------ -------------- ------------ ----------- -------------- ------------ -----------
246.3 (127.0) 119.3 217.1 (316.0) (98.9)
------------------------ ------ -------------- ------------ ----------- -------------- ------------ -----------
Earnings/(loss)
per share Adjusted Unadjusted Adjusted Unadjusted
======================== ====== ============== ============ =========== ============== ============ ===========
Total Group
11.6
Basic 5 24.0c c 21.1c (9.6)c
23.7 11.5
Diluted 5 c c 20.9c (9.6)c
Continuing operations
24.0 13.8
Basic 5 c c 19.4c (1.9)c
23.7 13.7
Diluted 5 c c 19.2c (1.9)c
Discontinued operations
(2.2)
Basic 10 - c 1.7c (7.7)c
(2.2)
Diluted 10 - c 1.7c (7.7)c
------------------------ ------ -------------- ------------ ----------- -------------- ------------ -----------
1 Underlying profit is before exceptional and other items. Exceptional and other items are defined in note 2
All alternative performance measures are reconciled to IFRS measures and explained in the alternative performance measures section.
The Group has presented a discontinued operation in the current year and prior year, see note 10.
Consolidated Statement of Comprehensive Income
2017 2016
For the year ended 31 December Notes $m $m
======================================= ====== ====== =======
Profit/(loss) for the period 119.3 (98.9)
Other comprehensive income/(loss)
Items that will not be reclassified
subsequently to profit or loss
Actuarial gains/(losses) on defined
benefit pension schemes 11.2 (52.3)
Tax (charge)/credit relating
to components of other comprehensive
income/(loss) that will not be
reclassified subsequently to
profit or loss 3 (1.1) 9.8
--------------------------------------- ------ ------ -------
10.1 (42.5)
--------------------------------------- ------ ------ -------
Items that may be reclassified
subsequently to profit or loss
Exchange difference on translation
of foreign operations (6.8) 1.0
Recycling of translational exchange
differences accumulated in equity 10 6.4 -
Fair value movements in available
for sale investments (4.4) (2.0)
Fair value movements in foreign
exchange cash flow hedges 10.1 1.3
Transfer to profit or loss from
other comprehensive income on
foreign exchange cash flow hedges (2.2) (4.5)
Fair value movement in interest
rate cash flow hedges 1.7 (5.4)
Transfer to profit or loss from
other comprehensive income on
interest rate cash flow hedges 4.0 7.3
Tax relating to components of
other comprehensive income that
may be subsequently reclassified
to profit or loss 3 (4.3) 2.8
--------------------------------------- ------ ------ -------
4.5 0.5
Other comprehensive income/(loss)
for the year 14.6 (42.0)
Total comprehensive income for
the year 133.9 (140.9)
--------------------------------------- ------ ------ -------
Attributable to:
Equity holders of BBA Aviation
plc 134.0 (141.1)
Non-controlling interests (0.1) 0.2
--------------------------------------- ------ ------ -------
133.9 (140.9)
--------------------------------------- ------ ------ -------
Consolidated Balance Sheet
2017 2016
As at 31 December Notes $m $m
============================================== ====== ========= =========
Non-current assets
Goodwill 6 1,126.6 1,113.9
Other intangible assets 6 1,311.3 1,378.3
Property, plant and equipment 845.5 875.6
Interests in associates and joint ventures 41.4 40.1
Trade and other receivables 20.1 19.2
Deferred tax asset 0.1 0.4
---------------------------------------------- ------ --------- ---------
3,345.0 3,427.5
---------------------------------------------- ------ --------- ---------
Current assets
Inventories 249.9 235.8
Trade and other receivables 321.4 296.8
Cash and cash equivalents 153.5 182.5
Tax recoverable 0.7 1.4
Assets held for sale 10 - 267.7
---------------------------------------------- ------ --------- ---------
725.5 984.2
---------------------------------------------- ------ --------- ---------
Total assets 1 4,070.5 4,411.7
---------------------------------------------- ------ --------- ---------
Current liabilities
Trade and other payables (502.1) (543.2)
Tax liabilities (31.9) (36.8)
Obligations under finance leases (0.2) (0.2)
Borrowings 7 (124.2) (1.0)
Provisions (32.2) (27.6)
Liabilities held for sale 10 - (89.3)
---------------------------------------------- ------ --------- ---------
(690.6) (698.1)
---------------------------------------------- ------ --------- ---------
Net current assets 34.9 286.1
---------------------------------------------- ------ --------- ---------
Non-current liabilities
Borrowings 7 (1,198.6) (1,546.7)
Trade and other payables due after one year (0.9) (4.0)
Pensions and other post-retirement benefits (71.7) (82.8)
Deferred tax liabilities (137.8) (120.5)
Obligations under finance leases (1.1) (1.5)
Provisions (36.6) (39.5)
---------------------------------------------- ------ --------- ---------
(1,446.7) (1,795.0)
---------------------------------------------- ------ --------- ---------
Total liabilities 1 (2,137.3) (2,493.1)
---------------------------------------------- ------ --------- ---------
Net assets 1,933.2 1,918.6
---------------------------------------------- ------ --------- ---------
Equity
Share capital 509.0 508.7
Share premium account 1.594.5 1,594.5
Other reserve (5.4) (1.0)
Treasury reserve (92.8) (91.0)
Capital reserve 50.4 45.1
Hedging and translation reserves (73.9) (87.1)
Retained earnings (50.1) (52.2)
---------------------------------------------- ------ --------- ---------
Equity attributable to equity holders of BBA
Aviation plc 1,931.7 1,917.0
---------------------------------------------- ------ --------- ---------
Non-controlling interest 1.5 1.6
---------------------------------------------- ------ --------- ---------
Total equity 1,933.2 1,918.6
---------------------------------------------- ------ --------- ---------
These financial statements were approved by the Board of Directors on 28 February 2018 and signed on its behalf by:
Wayne Edmunds David Crook Interim Group Chief Executive Group Finance Director
Consolidated Cash Flow Statement
2017 2016
For the year ended 31 December Notes $m $m
======================================== ====== ========= =========
Operating activities
Net cash flow from operating
activities 8 339.0 374.9
Investing activities
Interest received 3.3 2.7
Dividends received from associates 2.4 2.4
Purchase of property, plant
and equipment (73.4) (101.6)
Purchase of intangible assets (11.9) (11.4)
Proceeds from disposal of property,
plant and equipment 16.8 11.1
Acquisition of subsidiaries
net of cash/(debt) acquired 9 (75.7) (2,098.2)
Investment in joint venture (0.3) -
Proceeds from disposal of subsidiaries
and associates, net of costs 170.5 186.6
---------------------------------------- ------ --------- ---------
Net cash inflow/(outflow) from
investing activities 31.7 (2,008.4)
---------------------------------------- ------ --------- ---------
Financing activities
Interest paid (60.5) (64.5)
Interest element of finance
leases paid (0.1) (0.1)
Dividends paid 4 (130.7) (124.3)
Gains from realised foreign
exchange contracts (15.0) 42.7
Proceeds from issue of ordinary
shares net of issue costs 0.3 0.3
Sale/(purchase) of own shares 0.3 (1.3)
(Decrease)/increase in loans (222.6) 1,035.3
(Decrease)/increase in finance leases (0.4) 1.7 Increase/(decrease) in overdrafts 3.0 (11.0) ---------------------------------------- ------ --------- --------- Net cash (outflow)/inflow from financing activities (425.7) 878.8 ---------------------------------------- ------ --------- --------- (Decrease)/increase in cash and cash equivalents (55.0) (754.7) Cash and cash equivalents at beginning of year 205.3 966.4 Exchange adjustments 3.2 (6.4) ---------------------------------------- ------ --------- --------- Cash and cash equivalents at end of year 153.5 205.3 ---------------------------------------- ------ --------- --------- Comprised of: Cash and cash equivalents at end of the year 153.5 182.5 Cash included in Assets held for sale at end of the year 10 - 22.8 Net debt at beginning of year (1,335.3) 456.5 Decrease in cash and cash equivalents (55.0) (754.7) Decrease/ (increase) in loans 222.6 (1,035.3) Decrease/ (increase) in finance leases 0.4 (1.7) (Increase)/decrease in overdrafts (3.0) 11.0 Exchange adjustments 3.2 (11.1) ---------------------------------------- ------ --------- --------- Net debt at end of year (1,167.1) (1,335.3) ---------------------------------------- ------ --------- ---------
Purchase of intangible assets includes $5.0 million (2016: $10.6 million) paid in relation to Ontic licences not accounted for as acquisitions under IFRS 3.
Sale/(purchase) of shares includes the share purchases for the share buy-back scheme, shares purchased for the Employee Benefit Trust and shares purchased for employees to settle their tax liabilities as part of the share schemes.
Within the Group's definition of net debt, the US private placement is included at its face value of $500 million (2016: $500 million), reflecting the fact that the liabilities will be in place until maturity. This is $3.5 million (2016: $8.8 million) lower than its carrying value.
All alternative performance measures are reconciled to IFRS measures and explained in the alternative performance measures section.
Consolidated Statement of Changes in Equity
Share Share Retained Other Non-controlling Total
capital premium earnings reserves Total interests equity
Notes $m $m $m $m $m $m $m
=========================== ====== ========= ========= ========== ========== ======= ================ ========
Balance at 1
January 2016 508.5 1,594.4 208.2 (137.9) 2,173.2 (4.8) 2,168.4
Loss for the
year - - (98.9) - (98.9) - (98.9)
Other comprehensive
loss for the
year - - (39.7) (2.1) (41.8) (0.2) (42.0)
--------------------------- ------ --------- --------- ---------- ---------- ------- ---------------- --------
Total comprehensive
loss for the
year - - (138.6) (2.1) (140.7) (0.2) (140.9)
Dividends - - (124.3) - (124.3) - (124.3)
Issue of share
capital 0.2 0.1 - 0.3 - 0.3
Movement on
treasury reserve - - - (1.3) (1.3) - (1.3)
Credit to equity
for equity-settled
share-based
payments - - - 9.1 9.1 - 9.1
Changes in non-controlling
interest - - - - - 6.6 6.6
Tax on share-based
payment transactions 3 - - 0.7 - 0.7 - 0.7
Transfer to
retained earnings - - 1.8 (1.8) - - -
--------------------------- ------ --------- --------- ---------- ---------- ------- ---------------- --------
Balance at 31
December 2016 508.7 1,594.5 (52.2) (134.0) 1,917.0 1.6 1,918.6
Profit for the
year - - 119.4 - 119.4 (0.1) 119.3
Other comprehensive
income for the
year - - 5.8 8.8 14.6 - 14.6
--------------------------- ------ --------- --------- ---------- ---------- ------- ---------------- --------
Total comprehensive
income/(loss)
for the year - - 125.2 8.8 134.0 (0.1) 133.9
Dividends - - (130.7) - (130.7) - (130.7)
Issue of share
capital 0.3 - - - 0.3 - 0.3
Movement on
treasury reserve - - - 0.3 0.3 - 0.3
Credit to equity
for equity-settled
share-based
payments - - - 10.0 10.0 - 10.0
Tax on share-based
payment transactions 3 - - 0.8 - 0.8 - 0.8
Transfer to
retained earnings - - 6.8 (6.8) - - -
--------------------------- ------ --------- --------- ---------- ---------- ------- ---------------- --------
Balance at 31
December 2017 509.0 1,594.5 (50.1) (121.7) 1,931.7 1.5 1,933.2
--------------------------- ------ --------- --------- ---------- ---------- ------- ---------------- --------
Accounting Policies of the Group
Basis of preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use in the European Union (EU) and therefore comply with Article 4 of the EU International Accounting Standards (IAS) Regulation and the Companies Act 2006 applicable to companies reporting under IFRS.
The financial information for the year ended 31 December 2017 contained in this preliminary announcement was approved by a duly appointed and authorised committee of the Board of Directors on 28 February 2018. The announcement does not constitute statutory accounts of the Company within the meaning of section 435 of the Companies Act 2006, but is derived from those accounts.
Statutory accounts for the year ended 31 December 2016 have been delivered to the Registrar of Companies. Statutory accounts for the year ended 31 December 2017 will be delivered to the Registrar of Companies following the Company's Annual General meeting.
The Group's annual financial statements for the year ended 31 December 2017 have been reported upon by the Group's auditor. The report of the auditor was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006.
Except as described below, these consolidated financial statements have been prepared in accordance with the accounting policies, presentation and methods of calculation as set out in the Group's consolidated financial statements for the year ended 31 December 2017.
New financial reporting requirements
A number of EU-endorsed amendments to existing standards and interpretations are effective for annual periods beginning on or after 1 January 2018 and have been applied in preparing the Consolidated Financial Statements of the Group. There is no impact on the Group Consolidated Financial Statements from applying these standards.
Financial reporting standards applicable for future financial periods
A number of EU-endorsed standards and amendments to existing standards and interpretations, are effective for future annual periods and have not been applied in preparing the Consolidated Financial Statements of the Group.
The most significant changes to the IFRS framework in these forthcoming standards and amendments to standards are IFRS 9: Financial Instruments (IFRS 9), IFRS 15: Revenue from contracts with customers (IFRS 15) and IFRS 16: Leases (IFRS 16).
IFRS 9
The Group will apply IFRS 9 from 1 January 2018. IFRS 9 addresses the classification, measurement and recognition of financials assets and financials liabilities, impairment and hedge accounting.
Classification and measurement: The number of categories of financial assets under IFRS 9 has been reduced compared to IAS 39. The classification is based on the business model within which the asset is held and the contractual cash flow characteristics of the assets.
For financial assets that are debt instruments the classification categories are amortised cost; fair value through other comprehensive income (FVTOCI) and fair value through profit or loss (FVTPL). Equity investments that fall within the scope of the standard are usually measured at FVTPL unless an irrevocable election is made to recognise them within other comprehensive income. On transition the Group has elected to recognise future changes in the fair value of the equity investment in Fly Victor Limited and Lider Taxi Aereo S.A Air Brasil which are classified as financial instruments within other comprehensive income.
Impairment: The impairment model under IFRS 9 reflects expected credit losses, as opposed to only incurred credit losses under IAS 39.
Hedge accounting: On initial application of the standard, an entity may choose, as its accounting policy, to continue to apply the hedge accounting requirements of IAS 39 instead of the hedge accounting requirements of IFRS 9. The Group will adopt the hedge accounting requirements of IFRS 9 from 1 January 2018.
The full impact of adopting IFRS 9 on the Consolidated Financial Statements of the Group will depend on the financial instruments that the Group has during 2018 as well as on economic conditions and judgements made as at the year end. The Group has performed a preliminary assessment of the potential impact of adopting IFRS 9 based on the financial instruments and hedging relationships as at the date of initial application of IFRS 9 (1 January 2018). Management's expectations are that the impact of IFRS 9 on the Group will not be material.
IFRS 15
IFRS 15 addresses the recognition of revenue from customer contracts and impacts on the amounts and timing of the recognition of such revenue. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 Revenue. The Group will adopt IFRS 15 for the year ending 31 December 2018.
The standard introduces a five-step approach to revenue recognition - identifying the contract; identifying the performance obligations in the contract; determining the transaction price; allocating that transaction price to the performance obligations and finally recognising the revenue as those performance obligations are satisfied.
The Group recognises revenue from the following major income streams:
Flight Support:
-- Fuelling & fuel farm management
-- Property management
-- Ground handling
-- Technical services
Aftermarket Services:
-- Repair & overhaul
-- Engine & part sales
An impact assessment has been performed on the likely impact of IFRS 15:
Within the Aftermarket Services division the methodology presently adopted for revenue recognition under the current standard, IAS 18 Revenue, will not materially change under IFRS 15.
Within the Flight Support division it is also not expected that IFRS 15 will have a material impact due to the nature of the services provided - the cycle from order through to delivery of these services is generally short.
The full impact of adopting IFRS 15 on the Consolidated Financial Statements of the Group will depend on the Group's activities during 2018. The Group has performed a preliminary assessment of the potential impact of adopting IFRS 15 based on the Group's historic trading as at the date of initial application of IFRS 15 (1 January 2018). Management's expectations are that the impact of IFRS 15 on the Group will not be material.
IFRS 16
IFRS 16 replaces existing leasing guidance, including IAS 17 'Leases' and IFRIC 4 'Determining whether an arrangement contains a lease'. The standard is effective for annual periods beginning on or after 1 January 2019.
The standard requires lessees to account for most contracts under an on-balance sheet model, with the distinction between operating and finance leases being removed.
The standard provides certain exemptions from recognising leases on the balance sheet, including where the asset is of low value or the lease term is 12 months or less. In addition, the standard makes changes to the definition of a lease to focus on, amongst other things, which party has the right to direct the use of the asset.
Under the new standard, the Group will be required to recognise right of use lease assets and lease liabilities on the balance sheet. The right of use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any re-measurement of the lease liability. Liabilities are measured based on the present value of future lease payments over the lease term. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others.
The recognition of the depreciation of right of use lease assets and interest on lease liabilities over the lease term will have no overall impact on profit before tax over the life of the lease, however the result in any individual year will be impacted and the change in presentation of costs will likely be material to the Group's key metrics. Under IAS 17, the charge is booked in full to operating profit. Metrics which will therefore be affected will include operating profit & operating margin, interest & interest cover, EBITDA, ROIC and operating cash flow.
Furthermore, the principal amount of cash paid and interest in the cash flow statement will be presented separately as a financing activity. Operating lease payments under IAS 17 would have been presented as operating cash flows. There will be no overall net cash flow impact.
The Group has commenced work to understand the impact of the new standard and the project will complete during 2018. Work will include detailed review of contracts to establish lease classification, assessment of transition options, the quantification of financial impacts, design of future processes and the related systems changes, the assessment of the related impacts on the Group's regulatory and commercial reporting requirements and the impact on the Group's long-term incentive schemes. It is therefore not practicable to provide a reasonable estimate of the financial effect until the directors complete their review.
Information on the undiscounted amount of the Group's operating lease commitments under IAS 17 'Leases', the current leasing standard, is disclosed in the Group's annual financial statements.
Notes to the Consolidated Financial Statements
1. Segmental information
IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Group Chief Executive to allocate resources to the segments and to assess their performance.
The Group provides information to the Chief Executive on the basis of components that are substantially similar within the segments in the following aspects:
- the nature of the long-term financial performance; - the nature of the products and services; - the nature of the production processes; - the type of class of customer for the products and services; and - the nature of the regulatory environment.
Based on the above, the operating segments of the Group identified in accordance with IFRS 8 are Flight Support, which comprises Signature Flight Support and ASIG (until 31 January 2017), and Aftermarket Services, which comprises Engine Repair & Overhaul (ERO) and Ontic.
The businesses within the Flight Support segment provide refuelling, ground handling, line maintenance and other services to the Business & General Aviation (B&GA) and commercial aviation markets. The businesses within the Aftermarket Services segment maintain and support engines and aerospace components, sub-systems and systems.
Sales between segments are immaterial.
All alternative performance measures are reconciled to IFRS measures and explained in the alternative performance measures section.
Flight Aftermarket Unallocated
Support(1) Services Total Corporate(2) Total
Business segments $m $m $m $m $m
===================================== =========== =========== ======= ============= =========
2017
External revenue
External revenue from continuing
and discontinued operations 1,681.4 727.6 2,409.0 - 2,409.0
Less external revenue from
discontinued operations, note
10 (38.4) - (38.4) - (38.4)
------------------------------------- ----------- ----------- ------- ------------- ---------
External revenue from continuing
operations 1,643.0 727.6 2,370.6 2,370.6
Underlying operating profit
Underlying operating profit
from continuing and discontinued
operations 329.2 65.3 394.5 (34.1) 360.4
Add underlying operating loss
from discontinued operations 0.2 - 0.2 - 0.2
Adjusted for intergroup charges
for discontinued operations(3) - - - - -
------------------------------------- ----------- ----------- ------- ------------- ---------
Underlying operating profit/(loss)
from continuing operations 329.4 65.3 394.7 (34.1) 360.6
Underlying operating margin
from continuing operations 20.0% 9.0% 16.6% 15.2%
Exceptional and other items
Exceptional and other items
from continuing and discontinued
operations (82.3) (31.7) (114.0) (9.0) (123.0)
Less exceptional and other
items from discontinued operations - - - - -
------------------------------------- ----------- ----------- ------- ------------- --------- Exceptional and other items from continuing operations (82.3) (31.7) (114.0) (9.0) (123.0) Operating profit/(loss) from continuing operations 247.1 33.6 280.7 (43.1) 237.6 Net finance costs (62.1) ------------------------------------- ----------- ----------- ------- ------------- --------- Profit before tax from continuing operations 175.5 Other information ===================================== =========== =========== ======= ============= ========= Capital additions** 60.0 25.3 85.3 - 85.3 Depreciation and amortisation 151.9 29.0 180.9 0.4 181.3 ------------------------------------- ----------- ----------- ------- ------------- --------- ** Capital additions represent cash expenditures in the year. Capital additions include additions to Property, Plant & Equipment, and intangible assets including Ontic licences not accounted for as acquisitions under IFRS 3. Balance sheet ------------------------------------- ----------- ----------- ------- ------------- --------- Total assets 3,196.3 763.8 3,960.1 110.4 4,070.5 Total liabilities (304.8) (176.8) (481.6) (1,655.7) (2,137.3) ------------------------------------- ----------- ----------- ------- ------------- --------- Net assets/(liabilities) 2,891.5 587.0 3,478.5 (1,545.3) 1,933.2 ------------------------------------- ----------- ----------- ------- ------------- ---------
Notes to the Consolidated Financial Statements - continued
1. Segmental information - continued
Flight Aftermarket Unallocated
Support(1) Services Total Corporate(2) Total
Business segments $m $m $m $m $m
===================================== =========== =========== ======= ============= =========
2016
External revenue
External revenue from continuing
and discontinued operations 1,860.0 705.9 2,565.9 - 2,565.9
Less external revenue from
discontinued operations, note
10 (416.8) - (416.8) - (416.8)
------------------------------------- ----------- ----------- ------- ------------- ---------
External revenue from continuing
operations 1,443.2 705.9 2,149.1 - 2,149.1
Underlying operating profit
Underlying operating profit
from continuing and discontinued
operations 303.9 42.0 345.9 (15.8) 330.1
Less underlying operating profit
from discontinued operations (9.9) - (9.9) 1.0 (8.9)
Adjusted for intergroup charges
for discontinued operations(3) - - - (18.6) (18.6)
------------------------------------- ----------- ----------- ------- ------------- ---------
Underlying operating profit/(loss)
from continuing operations 294.0 42.0 336.0 (33.4) 302.6
Underlying operating margin
from continuing operations 20.4% 5.9% 15.6% 14.1%
Exceptional and other items
Exceptional and other items
from continuing and discontinued
operations (117.4) (19.8) (137.2) - (137.2)
Less exceptional and other
items from discontinued operations 0.7 - 0.7 - 0.7
------------------------------------- ----------- ----------- ------- ------------- ---------
Exceptional and other items
from continuing operations (116.7) (19.8) (136.5) - (136.5)
Operating profit/(loss) from
continuing operations 177.3 22.2 199.5 (33.4) 166.1
Impairment of tangible and
intangible fixed assets (184.4)
Net finance costs (63.9)
------------------------------------- ----------- ----------- ------- ------------- ---------
Loss before tax from continuing
operations (82.2)
------------------------------------- ----------- ----------- ------- ------------- ---------
Other information
Capital additions** 74.2 38.7 112.9 0.1 113.0
Depreciation and amortisation 158.7 24.8 183.5 0.4 183.9
------------------------------------- ----------- ----------- ------- ------------- ---------
** Capital additions represent cash expenditures in
the year. Capital additions include additions to Property,
Plant & Equipment, and intangible assets including Ontic
licences not accounted for as acquisitions under IFRS
3.
Balance sheet
------------------------------------- ----------- ----------- ------- ------------- ---------
Total assets 3,515.7 747.5 4,263.2 148.5 4,411.7
Total liabilities (397.6) (233.2) (630.8) (1,862.3) (2,493.1)
------------------------------------- ----------- ----------- ------- ------------- ---------
Net assets/(liabilities) 3,118.1 514.3 3,632.4 (1,713.8) 1,918.6
------------------------------------- ----------- ----------- ------- ------------- ---------
1 Operating profit/(loss) from continuing operations includes $3.4 million profit (2016: $13.4 million profit) of associates and joint ventures.
2 Unallocated corporate balances include debt, tax, provisions, insurance captives and trading balances from central activities.
3 Costs previously allocated to ASIG.
Notes to the Consolidated Financial Statements - continued
1. Segmental information - continued
Capital Non-current
Revenue Revenue
by destination by origin additions(1) assets(2)
Geographical segments $m $m $m $m
======================================== =============== ========== ============== ===========
2017
United Kingdom 76.7 277.6 7.1 298.0
Mainland Europe 221.7 57.5 0.3 71.9
North America 2,017.7 2,051.1 75.9 2,955.2
Rest of World 92.9 22.8 2.0 5.9
---------------------------------------- --------------- ---------- -------------- -----------
Total from continuing and discontinued
operations 2,409.0 2,409.0 85.3 3,331.0
---------------------------------------- --------------- ---------- -------------- -----------
Less discontinued operations (38.4) (38.4) - -
---------------------------------------- --------------- ---------- -------------- -----------
Total from continuing operations 2,370.6 2,370.6 85.3 3,331.0
---------------------------------------- --------------- ---------- -------------- -----------
2016
United Kingdom 128.0 320.8 14.7 226.7
Mainland Europe 200.9 54.5 0.2 46.1
North America 2,098.5 2,148.0 92.1 3,117.2
Rest of World 138.5 42.6 6.0 23.5
---------------------------------------- --------------- ---------- -------------- -----------
Total from continuing and discontinued
operations 2,565.9 2,565.9 113.0 3,413.5
---------------------------------------- --------------- ---------- -------------- -----------
Less discontinued operations (416.8) (416.8) (10.3) -
---------------------------------------- --------------- ---------- -------------- -----------
Total from continuing operations 2,149.1 2,149.1 102.7 3,413.5
---------------------------------------- --------------- ---------- -------------- -----------
1 Capital additions represent cash expenditures in the year.
2 The disclosure of non-current assets by geographical segment has been amended to exclude deferred tax of $0.1 million (2016: $0.4 million) and financial instrument balances of $13.9 million (2016: $13.6 million) in all periods, as required under IFRS 8.
An analysis of the Group's revenue for the year is as follows:
Revenue from
sale of Revenue from
goods services
====================== ================ ================
2017 2016 2017 2016
$m $m $m $m
====================== ======= ======= ======= =======
Flight Support 1,126.8 1,027.2 554.6 832.8
Aftermarket Services 236.2 189.2 491.4 516.7
---------------------- ------- ------- ------- -------
1,363.0 1,216.4 1,046.0 1,349.5
---------------------- ------- ------- ------- -------
A portion of the Group's revenue from the sale of goods denominated in foreign currencies is cash flow hedged. Revenue from the sale of goods of $1,363.0 million (2016: $1,216.4 million) includes a gain of $0.8 million (2016: gain of $1.2 million) in respect of the recycling of the effective amount of foreign currency derivatives used to hedge foreign currency revenue.
Notes to the Consolidated Financial Statements - continued
2. Profit for the year
Profit for the year has been arrived at after charging/(crediting):
Exceptional and other items
Underlying profit is shown before exceptional and other items on the face of the income statement. Exceptional and other items are items which are material and non-recurring in nature and also include costs relating to acquisitions, disposals and restructuring. Other items include amortisation of acquired intangibles accounted for under IFRS 3. The directors consider that this gives a useful indication of underlying performance and better visibility of Key Performance Indicators.
All alternative performance measures are reconciled to IFRS measures and explained in the alternative performance measures section.
Administrative Restructuring Administrative
Restructuring
expenses costs Total expenses costs
Other Other
operating operating
expenses expenses Total
2017 2017 2017 2017 2016 2016 2016 2016
Note $m $m $m $m $m $m $m $m
----------------- ---- -------------- ---------- ------------- ------- -------------- ---------- -------------- -------
Restructuring
expenses
ERO footprint
rationalisation - - 5.6 5.6 - - 9.9 9.9
H+S Middle East
impairment
loss 6 - - 15.7 15.7 - - - -
Central costs
rationalisation - - 6.7 6.7 - - - -
----------------- ---- -------------- ---------- ------------- ------- -------------- ---------- -------------- -------
Acquisition
related
Amortisation of
intangible
assets arising
on
acquisition and
valued
in accordance
with
IFRS 3 93.8 - - 93.8 98.6 - - 98.6
Landmark
integration
costs - - - - - 24.9 - 24.9
Transaction
costs(1) - 0.1 - 0.1 - 1.5 - 1.5
Other - 1.1 - 1.1 - 1.6 - 1.6
----------------- ---- -------------- ---------- ------------- ------- -------------- ---------- -------------- -------
Operating loss
on
continuing
operations 93.8 1.2 28.0 123.0 98.6 28.0 9.9 136.5
----------------- ---- -------------- ---------- ------------- ------- -------------- ---------- -------------- -------
Impairment loss - - - - - - - 184.4
----------------- ---- -------------- ---------- ------------- ------- -------------- ---------- -------------- -------
Loss before tax
on
continuing
operations - - - 123.0 - - - 320.9
----------------- ---- -------------- ---------- ------------- ------- -------------- ---------- -------------- -------
Net impact of
United
States tax
reform - - - 20.5 - - - -
----------------- ---- -------------- ---------- ------------- ------- -------------- ---------- -------------- -------
Tax on other
exceptional
items - - - (39.0) - - - (102.4)
----------------- ---- -------------- ---------- ------------- ------- -------------- ---------- -------------- -------
Tax impact of
exceptional
and other items - - - (18.5) - - - (102.4)
----------------- ---- -------------- ---------- ------------- ------- -------------- ---------- -------------- -------
Loss for the
year
on continuing
operations - - - 104.5 - - - 218.5
Loss from
discontinued
operation, net
of
tax 10 - - - 22.5 - - - 97.5
----------------- ---- -------------- ---------- ------------- ------- -------------- ---------- -------------- -------
Total
exceptional
and other items - - - 127.0 - - - 316.0
----------------- ---- -------------- ---------- ------------- ------- -------------- ---------- -------------- -------
1 All transaction costs presented as exceptional and other items in 2017 relate to the acquisition by Ontic of GE's Aviation portfolio, see note 9.
Net cash flow from exceptional items was an outflow of $12.7 million (2016: outflow of $63.5 million). Net cash flow from other items was $nil (2016: $nil).
Notes to the Consolidated Financial Statements - continued
3. Income tax
2017 2016
Recognised in the Income Statement $m $m
======================================= ===== ======
Current tax expense 24.8 16.0
Adjustments in respect of prior years
- current tax (6.2) (1.6)
--------------------------------------- ----- ------
Current tax 18.6 14.4
Deferred tax 16.5 (78.7)
Adjustments in respect of prior years
- deferred tax (1.4) 1.4
--------------------------------------- ----- ------
Deferred tax 15.1 (77.3)
--------------------------------------- ----- ------
Income tax expense/(credit) for the
year from continuing operations 33.7 (62.9)
--------------------------------------- ----- ------
UK income tax is calculated at 19.25% (2016: 20.0%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.
On 22 December 2017, the United States enacted tax reform that implements substantial changes to the federal tax system by reducing the headline federal tax rate from 35% to 21% and limiting interest deductions to a maximum of 30% of US EBITDA. The reduction in the headline rate of tax has resulted in a revaluation of US deferred tax balances amounting to a credit of $59.3 million. Additionally, the group has re-measured a deferred tax asset relating to financing costs from prior years amounting to a charge of $54.5 million together with a current year charge of $22.3 million. Finally, the tax reform introduced a tax on repatriation of profits of overseas subsidiaries resulting in a charge of $3 million.
The net impact of this tax reform ($20.5m charge) has been reflected in the continuing exceptional and other items tax result so as to reflect the underlying effective tax rate on a consistent basis to prior periods.
The total charge for the year can be reconciled to the accounting profit as follows:
2017 2016
$m $m
============================================= ====== ======
Profit / (loss) before tax on continuing
operations 175.5 (82.2)
Tax at the rates prevailing in the relevant
tax jurisdictions 26.4% (2016: 25.3%) 46.3 (20.8)
Tax effect of offshore financing net
of UK CFC charge (37.0) (34.1)
Tax effect of expenses that are not
deductible in determining taxable profit 6.4 16.6
Tax effect of US tax reform 20.5 -
Items on which deferred tax has not
been recognised 0.8 1.3
Tax rate changes (excluding US tax reform) (0.5) 0.2
Difference in tax rates on overseas
earnings 4.8 (25.9)
Adjustments in respect of prior years (7.6) (0.2)
--------------------------------------------- ------ ------
Tax expense/(credit) for the year 33.7 (62.9)
--------------------------------------------- ------ ------
The applicable tax rate of 26.4% (2016: 25.3%) represents a blend of the tax rates of the jurisdictions in which taxable profits have arisen.
The change from the prior year is due to a change in the proportion of profits that have arisen in each jurisdiction and the benefits associated with certain financing structures implemented.
Tax credited/(expensed) to other comprehensive income and equity is as follows:
2017 2016
Recognised in other comprehensive income $m $m
=============================================== ===== =====
Tax on items that will not be reclassified
subsequently to profit or loss
Current tax credit on pension deficit
payments 0.5 0.5
Deferred tax (credit)/charge on actuarial
gains/(losses) (1.6) 9.3
----------------------------------------------- ----- -----
(1.1) 9.8
----------------------------------------------- ----- -----
Tax on items that may be reclassified
subsequently to profit or loss
Current tax credit on foreign exchange
movements (1.6) 0.7
Deferred tax charge on derivative instruments (2.7) 2.1
----------------------------------------------- ----- -----
(4.3) 2.8
----------------------------------------------- ----- -----
Total tax (charge)/credit within other
comprehensive income (5.4) 12.6
----------------------------------------------- ----- -----
Recognised in equity
Current tax credit on share-based payments
movements 0.8 0.1
Deferred tax credit/(charge) on share-based
payments movements - 0.6
----------------------------------------------- ----- -----
Total tax credit/(charge) within equity 0.8 0.7
----------------------------------------------- ----- -----
Total tax (charge)/credit within other
comprehensive income and equity (4.6) 13.3
----------------------------------------------- ----- -----
4. Dividends
On 19 May 2017, the 2016 final dividend of 9.12c per share (total dividend $91.5 million) was paid to shareholders (2016: the 2015 final dividend of 8.68c per share (total dividend $87.2 million) was paid on 20 May 2016).
On 3 November 2017, the 2017 interim dividend of 3.81c per share (total dividend $39.2 million) was paid to shareholders (2016: the 2016 interim dividend of 3.63c per share (total dividend $37.1 million) was paid on 4 November 2016).
In respect of the current year, the directors propose that a final dividend of 9.59c per share will be paid to shareholders on 25 May 2018. The proposed dividend is payable to all shareholders on the register of members on 13 April 2018. The total estimated dividend to be paid is $98.6 million. This dividend is subject to approval by shareholders at the AGM and, in accordance with IAS 10: Events after the Reporting Period, has not been included as a liability in these financial statements.
Notes to the Consolidated Financial Statements - continued
5. Earnings per share
All alternative performance measures are reconciled to IFRS measures and explained in the alternative performance measures section.
The calculation of the basic and diluted earnings per share is based on the following data:
Continuing Total
====================================================== ================ ================
2017 2016 2017 2016
$m $m $m $m
====================================================== ======= ======= ======= =======
Basic and diluted
Earnings:
Profit/(loss) for the year 141.8 (19.3) 119.3 (98.9)
Non-controlling interests 0.1 (0.4) 0.1 -
------------------------------------------------------ ------- ------- ------- -------
Basic earnings attributable to ordinary shareholders 141.9 (19.7) 119.4 (98.9)
Exceptional items (net of tax) 104.5 218.5 127.0 316.0
------------------------------------------------------ ------- ------- ------- -------
Adjusted earnings for adjusted earnings per share 246.4 198.8 246.4 217.1
------------------------------------------------------ ------- ------- ------- -------
Underlying deferred tax 47.7 27.7 47.7 35.6
------------------------------------------------------ ------- ------- ------- -------
Adjusted earnings for tax adjusted earnings per
share 294.1 226.5 294.1 252.7
------------------------------------------------------ ------- ------- ------- -------
Number of shares
Weighted average number of 29(16) /(21) p ordinary
shares:
------------------------------------------------------ ------- ------- ------- -------
For basic earnings per share 1,028.2 1,026.6 1,028.2 1,026.6
------------------------------------------------------ ------- ------- ------- -------
Dilutive potential ordinary shares from share
options 10.6 9.9 10.6 9.9
------------------------------------------------------ ------- ------- ------- -------
For diluted earnings per share 1,038.8 1,036.5 1,038.8 1,036.5
------------------------------------------------------ ------- ------- ------- -------
For diluted losses per share 1,028.2 1,026.6 1,028.2 1,026.6
------------------------------------------------------ ------- ------- ------- -------
Earnings per share
Basic:
Adjusted 24.0c 19.4c 24.0c 21.1c
Cash 28.6c 22.1c 28.6c 24.6c
Unadjusted 13.8c (1.9)c 11.6c (9.6)c
Diluted:
Adjusted 23.7c 19.2c 23.7c 20.9c
Cash 28.3c 21.9c 28.3c 24.4c
Unadjusted 13.7c (1.9)c 11.5c (9.6)c
Cash earnings per share is presented calculated on earnings before exceptional and other items (note 2) and using current tax charge, not the total tax charge for the period, thereby excluding the deferred tax charge.
Adjusted earnings per share is presented calculated on earnings before exceptional and other items (note 2). Both adjustments have been made because the directors consider that this gives a useful indication of underlying performance.
For discontinued earnings per share, refer to note 10.
Notes to the Consolidated Financial Statements - continued
6. Intangible assets
Licences Licences
and Computer and Computer
Goodwill contracts software Total Goodwill contracts software Total
2017 2017 2017 2017 2016 2016 2016 2016
$m $m $m $m $m $m $m $m
======================== ========= ============ =========== ======= ========= ============ =========== =======
Cost
Beginning of year 1,252.7 1,586.1 42.8 2,881.6 889.6 360.9 47.7 1,298.2
Exchange adjustments 9.2 17.7 0.3 27.2 (10.0) (16.3) (0.6) (26.9)
Acquisitions 0.9 24.3 - 25.2 557.7 1,251.7 - 1,809.4
Acquisitions in prior
years - - - - - 0.7 - 0.7
Additions - 0.3 6.6 6.9 - 0.2 0.6 0.8
Impairment charges - (11.0) - (11.0) (114.0) (0.2) - (114.2)
Transfer to assets
held for sale - - - - (70.6) (16.3) (1.5) (88.4) Disposals - (0.1) (3.1) (3.2) - - (0.3) (0.3) Transfers (to)/from other asset categories 4.0 (3.5) 6.6 7.1 - 5.4 (3.1) 2.3 ------------------------ --------- ------------ ----------- ------- --------- ------------ ----------- ------- End of year 1,266.8 1,613.8 53.2 2,933.8 1,252.7 1,586.1 42.8 2,881.6 ------------------------ --------- ------------ ----------- ------- --------- ------------ ----------- ------- Amortisation Beginning of year (138.8) (223.1) (27.5) (389.4) - (115.0) (27.4) (142.4) Exchange adjustments (1.4) (3.4) (0.3) (5.1) - 5.2 0.6 5.8 Amortisation charge for the year - (104.5) (5.4) (109.9) - (112.0) (2.2) (114.2) Impairment charges - 5.3 - 5.3 (138.8) (12.8) - (151.6) Transfer to assets held for sale - - - - - 10.6 1.1 11.7 Disposals - - 3.1 3.1 - - 0.3 0.3 Transfers to other asset categories - 3.1 (3.0) 0.1 - 0.9 0.1 1.0 ------------------------ --------- ------------ ----------- ------- --------- ------------ ----------- ------- End of year (140.2) (322.6) (33.1) (495.9) (138.8) (223.1) (27.5) (389.4) ------------------------ --------- ------------ ----------- ------- --------- ------------ ----------- ------- Carrying amount End of year 1,126.6 1,291.2 20.1 2,437.9 1,113.9 1,363.0 15.3 2,492.2 ------------------------ --------- ------------ ----------- ------- --------- ------------ ----------- ------- Beginning of year 1,113.9 1,363.0 15.3 2,492.2 889.6 245.9 20.3 1,155.8 ------------------------ --------- ------------ ----------- ------- --------- ------------ ----------- -------
Included within the amortisation charge for intangible assets of $109.9 million (2016: $114.2 million) is amortisation of $93.8million (2016: $99.4 million) in relation to the amortisation of intangible assets acquired and valued in accordance with IFRS 3 and disclosed within exceptional and other items.
Included within the acquisitions of $25.2 million (2016: $1,809.4 million) is $5.0 million (2016: $2.5 million) of Ontic licence acquisitions which are not accounted for as a business combination under IFRS 3 and hence not presented under note 9.
Licences and contracts are amortised over the period to which they relate, which is on average 16 years (2016: 16 years) but with a wider range, with some up to 60 years in duration. Computer software is amortised over its estimated useful life, which is on average five years (2016: five years).
Transfers to assets held for sale relates to the ASIG business as disclosed in note 10.
Impairment losses recognised in the year
During 2017 the Group's H+S Middle East business (part of the H+S CGU) continued to underperform. As a result of this underperformance management carried out an impairment review to assess the recoverability of the remaining assets of the business following the CGU impairment in 2016. The review led to an impairment loss of $15.7 million that has been recognised within exceptional and other items in 2017. The $15.7 million impairment was recognised against $5.7 million of Intangible assets and $10.0 million of Property, Plant & Equipment. H+S Middle East is contained within the Group's Aftermarket Services operating segment.
Notes to the Consolidated Financial Statements - continued
6. Intangible assets - continued
Goodwill
Goodwill acquired in a business combination is allocated, at acquisition, to the cash-generating units (CGUs) that are expected to benefit from the business combination. The carrying amount of goodwill has been allocated as follows and reflects certain aggregated CGUs:
2017 2016
$m $m
================================================= ======= =======
Flight Support:
Signature Flight Support 1,058.3 1,048.7
ASIG (discontinued operations) - 70.6
Aftermarket Services:
Engine Repair & Overhaul - -
Ontic 68.3 65.2
------------------------------------------------- ------- -------
Total goodwill from continuing and discontinued
operations 1,126.6 1,184.5
------------------------------------------------- ------- -------
Total goodwill from continuing operations 1,126.6 1,113.9
------------------------------------------------- ------- -------
Total goodwill from discontinued operations - 70.6
------------------------------------------------- ------- -------
The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.
The Group has determined the recoverable amount of each CGU from value-in-use calculations. The value-in-use calculations are based on cash flow forecasts derived from the most recent budgets and detailed financial projections for the next four years, as approved by management, with a terminal growth rate after four years. The resultant cash flows are discounted using a pre-tax discount rate appropriate for the relevant CGU.
Key assumptions
The key assumptions for the value-in-use calculations are as follows.
Sales volumes, selling prices and cost increases over the four years covered by management's detailed plans
Sales volumes are based on industry forecasts and management estimates for the businesses in which each CGU operates, including forecasts for Business & General Aviation (B&GA) flying hours, aircraft engine cycles and military spending. Selling prices and cost increases are based on past experience and management expectations of future changes in the market. The extent to which these assumptions affect each principal CGU with a significant level of goodwill are described below.
Signature Flight Support and Engine Repair & Overhaul (ERO) both operate in the B&GA market. Signature Flight Support is the world's largest and market-leading Fixed Base Operation (FBO) network for business aviation providing full services support for B&GA travel, focused on passenger handling and customer amenities such as refuelling, hangar and office rentals, and other technical services. ERO is a leading independent engine repair service provider to the B&GA market with strong relationships with all major engine OEMs.
Ontic operates in the military and commercial sectors and is the leading provider of high-quality, cost-effective solutions in the continuing support of maturing aerospace platforms to the major aerospace OEMs and airframe operators.
In B&GA, growth is measured principally in relation to B&GA flying hours. Over the longer term, the key drivers for B&GA remain intact - continued growth in GDP and total wealth, the increasing value of people's time, corporate confidence and corporate activity levels all point to improving sentiment. The unusual nature of the 2007-2009 crisis and the halting return to growth have meant that, although corporate profits have recovered and confidence has improved, flight activity has lagged. However, steady growth in US GDP and the current upward trend in US business confidence supports a continued increase in B&GA movements in the USA with the FAA currently forecasting an average growth in B&GA Jet and Turboprop flying hours of 2.5% per annum to 2037.
The political environment in the USA could also be positive in the short and medium-term, with commentators speculating that the new US tax policy could be marginally beneficial to jet purchases.
Trends in military aviation are likely to improve as the global defence market recovers after years of pressure due to budget retrenchment. The perceived and continuing threat environment and regional tensions are expected to be the biggest driver of spending.
US defence spending represents approximately 34% of global spending and this grew in 2017 driven by the new administration's focus on strengthening the nation's military. The USA accounts for 26% of the global military aviation fleet (c13,800 aircraft). Budget growth and a higher tempo of military operations are expected to positively impact flight activity and thus maintenance spend as more missions are executed.
Life extension programmes continue to be important as the US military aircraft ages. Military legacy aircraft life extensions of between seven and ten years on platforms such as the C-130, ACV-8B, F-15 and AH-64 and delays on new aircraft, such as the F-35 and A400M are key drivers for our Ontic business. The current US Air Force fleet is more than 25 years old on average, with some platforms significantly older. Average age is expected to continue to rise despite the large defence budget increases.
Growth rates used for the periods beyond those covered by management's detailed plans
Growth rates are derived from management's estimates, which take into account the long-term nature of the industry in which each CGU operates, external industry forecasts of long-term growth in the aerospace and defence sectors, the maturity of the platforms supplied by the CGU and the technological content of the CGU's products. For the purpose of impairment testing, a conservative approach has been used and where the derived rate is higher than the long-term GDP growth rates for the countries in which the CGU operates, the latter has been used. As a result, an estimated growth rate of 2.0% (2016: 2.0%) has been used for the Flight Support and Ontic CGUs, which reflects forecast long-term US GDP growth. ERO has an estimated long-term growth rate of 1% as set out in more detail in the following section on ERO impairment.
Notes to the Consolidated Financial Statements - continued
6. Intangible assets - continued
Discount rates applied to future cash flows
The Group's pre-tax weighted average cost of capital (WACC) has been used as the foundation for determining the discount rates to be applied. The WACC has then been adjusted to reflect risks specific to the CGU not already reflected in the future cash flows for that CGU. The discount rate used was 7.5% (2016: 7.3%) for the CGUs within Flight Support and 9.9% to 10.0% (2016: 9.4% to 9.6%) for the CGUs within Aftermarket Services.
Sensitivity analysis
Both the ERO CGUs, Dallas Airmotive (DAI) and H&S Aviation (H+S), recognised impairments in 2016, see below.
In relation to ASIG CGUs, the operations were held for sale at 31 December 2016 and subsequently have been sold. The business' assets were impaired in 2016 based on the fair market value established in that disposal process, see note 10.
In relation to Signature Flight Support and Ontic, management has concluded that for these CGUs no reasonably foreseeable change in the key assumptions used in the impairment model would result in a significant impairment charge being recorded in the financial statements.
ERO impairment
In 2016 both the ERO CGUs recognised impairment. Management had previously reported that a reasonably possible change in the key assumptions used in the impairment model could result in an impairment charge for Dallas Airmotive ("DAI").
The ERO trading conditions remained challenging during 2016, with no recovery in legacy mid-cabin fixed wing and rotorcraft flying visible for the engine platforms on which ERO operates. This, coupled with continued pressure on pricing and workscopes, led to another disappointing ERO result. Engine trading was much reduced and that, together with further margin pressure arising from OEM actions, and reduced demand for lease engines, was only partially offset by the limited cost savings delivered through the footprint restructuring programme and additional cost reduction actions. As a result of this performance and with no visible recovery in legacy mid-cabin fixed wing and rotorcraft flying, an impairment review was carried out at 30 June 2016 for both the DAI and H+S CGUs within the ERO business.
The key assumptions for the value-in-use calculations were consistent with the 2016 year end goodwill impairment test, with the exception of discount rates which were adjusted to reflect risks specific to each CGU but had not already been reflected in the future cash flows for that CGU. Full detail of the assumptions used in the ERO impairment test are set out in the 2016 Annual Report and Accounts.
Notes to the Consolidated Financial Statements - continued
7. Borrowings
2017 2016
$m $m
=============================================== ======= =======
Bank overdrafts 4.0 1.0
Bank loans 813.3 1,036.2
Loan notes 502.2 507.3
Other loans 3.3 3.2
----------------------------------------------- ------- -------
1,322.8 1,547.7
----------------------------------------------- ------- -------
The borrowings are repayable as follows:
On demand or within one year 124.2 1.0
In the second year 369.3 121.8
In the third to fifth years inclusive 619.6 1,214.4
After five years 209.7 210.5
----------------------------------------------- ------- -------
1,322.8 1,547.7
Less: Amount due for settlement within
12 months (shown within current liabilities) (124.2) (1.0)
----------------------------------------------- ------- -------
Amount due for settlement after 12 months 1,198.6 1,546.7
----------------------------------------------- ------- -------
Current year bank loans and loan notes are stated after their respective transaction costs and related amortisation.
Notes to the Consolidated Financial Statements - continued
7. Borrowings - continued
2017
---------------------------- -------------------------------------------------------------------------------------
Fair
Facility Amortisation value
amount Headroom Principal costs adjustment Drawn Facility Maturity
Type $m $m $m $m $m $m date date
---------------------------- -------- -------- --------- ------------ ----------- ------- -------- --------
Multicurrency revolving Apr Apr
bank credit facility 650.0 535.0 115.0 (1.2) - 113.8 2014 2019
Acquisition facility
bank term loan - Facility Sep Feb
B 253.4 - 253.4 (1.0) - 252.4 2015 2019
Acquisition facility
Bank term loan - Facility Sep Sep
C 450.0 - 450.0 (2.9) - 447.1 2015 2020
---------------------------- -------- -------- --------- ------------ ----------- ------- -------- --------
Total bank loans 1,353.4 535.0 818.4 (5.1) - 813.3
$300m US private placement
senior notes - Series May May
A 120.0 - 120.0 (0.3) 0.5 120.2 2011 2018
$300m US private placement
senior notes - Series May May
B 120.0 - 120.0 (0.3) 2.3 122.0 2011 2021
$300m US private placement
senior notes - Series May May
C 60.0 - 60.0 (0.2) (0.3) 59.5 2011 2023
$200m US private placement
senior notes - Series Dec Dec
A 50.0 - 50.0 (0.1) 0.7 50.6 2014 2021
$200m US private placement
senior notes - Series Dec Dec
B 100.0 - 100.0 (0.3) 0.1 99.8 2014 2024
$200m US private placement
senior notes - Series Dec Dec
C 50.0 - 50.0 (0.1) 0.2 50.1 2014 2026
---------------------------- -------- -------- --------- ------------ ----------- ------- -------- --------
Total loan notes 500.0 - 500.0 (1.3) 3.5 502.2
---------------------------- -------- -------- --------- ------------ ----------- ------- -------- --------
Total bank and loan
notes 1,853.4 535.0 1,318.4 (6.4) 3.5 1,315.5
---------------------------- -------- -------- --------- ------------ ----------- ------- -------- --------
Bank overdraft - UK
cash pool 4.0
Other loans 3.3
---------------------------- -------- -------- --------- ------------ ----------- ------- -------- --------
1,322.8
---------------------------- -------- -------- --------- ------------ ----------- ------- -------- --------
During the year, the Group prepaid $110 million of the acquisition bank term debt Facility B which related to part of the net proceeds from the disposal of ASIG in accordance with the loan documentation.
Notes to the Consolidated Financial Statements - continued
7. Borrowings - continued
2016
====================== =====================================================================================
Fair
Facility Amortisation value
amount Headroom Principal costs adjustment Drawn Facility Maturity
Type $m $m $m $m $m $m date date
====================== ======== ======== ========= ============ =========== ======= ======== ========
Multicurrency
revolving bank Apr Apr
credit facility 650.0 420.0 230.0 (1.8) - 228.2 2014 2019
Acquisition facility
bank term loan Sep Feb
- Facility B(1) 363.4 - 363.4 (1.8) - 361.6 2015 2019
Acquisition facility
Bank term loan Sep Sep
- Facility C(1) 450.0 - 450.0 (3.6) - 446.4 2015 2020
---------------------- -------- -------- --------- ------------ ----------- ------- -------- --------
Total bank loans 1,463.4 420.0 1,043.4 (7.2) - 1,036.2
$300m US private
placement senior
notes - Series May May
A 120.0 - 120.0 (0.3) 2.1 121.8 2011 2018
$300m US private
placement senior
notes - Series May May
B 120.0 - 120.0 (0.3) 4.1 123.8 2011 2021
$300m US private
placement senior
notes - Series May May
C 60.0 - 60.0 (0.2) 0.2 60.0 2011 2023
$200m US private
placement senior
notes - Series Dec Dec
A 50.0 - 50.0 (0.2) 1.7 51.5 2014 2021
$200m US private
placement senior
notes - Series Dec Dec
B 100.0 - 100.0 (0.3) 0.4 100.1 2014 2024
$200m US private
placement senior
notes - Series Dec Dec
C 50.0 - 50.0 (0.2) 0.3 50.1 2014 2026
---------------------- -------- -------- --------- ------------ ----------- ------- -------- --------
Total loan notes 500.0 - 500.0 (1.5) 8.8 507.3
---------------------- -------- -------- --------- ------------ ----------- ------- -------- --------
Total bank and
loan notes 1,963.4 420.0 1,543.4 (8.7) 8.8 1,543.5
---------------------- -------- -------- --------- ------------ ----------- ------- -------- --------
Bank overdraft
- UK cash pool 1.0
Other loans 3.2
---------------------- -------- -------- --------- ------------ ----------- ------- -------- --------
1,547.7
---------------------- -------- -------- --------- ------------ ----------- ------- -------- --------
1 Initial drawings under the Landmark Aviation acquisition debt facilities were for $1,000 million drawn under three facilities - Facility A, Facility B and Facility C. Facility A was a short-term bridge to disposal facility which was fully repaid on 30 June 2016 from the proceeds of $187 million from the disposal of the FBO bases as part of the requirements of the U.S. Department of Justice under the terms of the regulatory approval following the acquisition of Landmark Aviation. The balance of the proceeds of $37 million were used to prepay part of Facility B under the requirements of the loan documentation.
As at 31 December 2017, the Group had $500 million of US private placement senior loan notes outstanding with $400 million accounted for at fair value through profit and loss as the fair value interest rate risk has been hedged from fixed to floating rates. The remainder is accounted for at amortised cost.
Under IFRS hedge accounting rules the fair value movement on the loan notes is booked to interest and is offset by the fair value movement on the underlying interest rate swaps.
The Group includes the fair value gain on the interest rate swaps in relation to the loan notes within net debt so that the net effect is to show the $500 million US private placement at face value and to reflect the fact that the liabilities will be in place until maturity.
All other borrowings are held at amortised cost.
Notes to the Consolidated Financial Statements - continued
7. Borrowings - continued
The carrying amounts of the Group's borrowings are denominated in the following currencies:
US
Sterling dollar Euro Total
$m $m $m $m
================== ========= ======== ===== =======
31 December 2017
Bank overdrafts 2.9 0.4 0.7 4.0
Bank loans - 813.3 - 813.3
Loan notes - 502.2 - 502.2
Other loans 0.3 3.0 - 3.3
------------------- --------- -------- ----- -------
3.2 1,318.9 0.7 1,322.8
------------------ --------- -------- ----- -------
31 December 2016
Bank overdrafts 0.2 - 0.8 1.0
Bank loans - 1,036.2 - 1,036.2
Loan notes - 507.3 - 507.3
Other loans 0.2 3.0 - 3.2
------------------- --------- -------- ----- -------
0.4 1,546.5 0.8 1,547.7
------------------ --------- -------- ----- -------
The average floating interest rates on borrowings are as follows:
2017 2016
=========== ===== =====
Sterling 1.3% 1.4%
US dollar 3.1% 2.5%
Euros 0.0% 0.0%
----------- ----- -----
The Group's borrowings are funded through a combination of fixed and floating rate debt. The floating rate debt exposes the Group to cash flow interest rate risk whilst the fixed rate US dollar private placement loan notes exposes the Group to changes in the fair value of fixed rate debt due to changes in interest rates. Interest rate risk is managed by the combination of fixed rate debt and interest rate swaps in accordance with pre-agreed policies and authority limits. As at 31 December 2017, 55% (2016: 65%) of the Group's borrowings are fixed at a weighted average interest rate of 3.5% (2016: 3.3%) for a weighted average period of three years (2016: three years).
Bank overdrafts are repayable on demand. All bank loans and loan notes are unsecured.
Notes to the Consolidated Financial Statements - continued
8. Cash flow from operating activities
All alternative performance measures are reconciled to IFRS measures and explained in the alternative performance measures section.
2017 2016
$m $m
============================================================ ====== =======
Operating profit 237.6 166.1
Operating profit from discontinued operations (0.2) 26.8
Share of profit from associates and joint ventures (3.4) (13.4)
------------------------------------------------------------ ------ -------
Profit from operations 234.0 179.5
Depreciation of property, plant and equipment 71.4 69.7
Amortisation of intangible assets 109.9 114.2
Profit on sale of property, plant and equipment (2.2) (4.3)
Share-based payment expense 9.9 6.1
Decrease in provisions (7.3) (7.8)
Pension scheme payments (5.1) (6.6)
Non-cash impairment 15.7 -
Other non-cash items 1.3 2.5
Unrealised foreign exchange movements (0.5) 1.3
------------------------------------------------------------ ------ -------
Operating cash inflows before movements in working capital 427.1 354.6
(Increase)/decrease in working capital (46.3) 36.1
------------------------------------------------------------ ------ -------
Cash generated by operations 380.8 390.7
Net income taxes paid (41.8) (15.8)
------------------------------------------------------------ ------ -------
Net cash inflow from operating activities 339.0 374.9
------------------------------------------------------------ ------ ------- Dividends received from associates 2.4 2.4 Purchase of property, plant and equipment (73.4) (101.6) Purchase of intangible assets* (6.9) (0.8) Proceeds from disposal of property, plant and equipment 16.8 11.1 Interest received 3.3 2.7 Interest paid (60.5) (64.5) Interest element of finance leases paid (0.1) (0.1) ------------------------------------------------------------ ------ ------- Free cash flow 220.6 224.1 ------------------------------------------------------------ ------ -------
* Purchase of intangible assets excludes $5.0 million (2016: $10.6 million) paid in relation to Ontic licences, not accounted for as acquisitions under IFRS 3since the directors believe these payments are more akin to expenditure in relation to acquisitions, and are therefore outside the Group's definition of free cash flow. These amounts are included within purchase of intangible assets on the face of the Cash Flow Statement.
Notes to the Consolidated Financial Statements - continued
9. Acquisition of businesses
During the period the Group made the following acquisitions:
On 30 November 2017, the Group's Ontic business acquired intellectual property for designed motor components for aerospace use from Hamiltonian Sunstrand Corporation ("HSC"), a UTC Aerospace Systems company ("UTAS") for a total consideration of $2.3 million.
On 29 November 2017, the Group's Ontic business acquired an Ethernet Switch Unlit (ESU) product line for use in military ground combat vehicles from Curtiss-Wright Defense Solutions (CW) for a total consideration of $5.0 million.
On 31 October 2017, the Group's Ontic business acquired from Ultra Electronics Plc ("Ultra") the intellectual property to support a variety of parts that are fitted onto the Hawk platform for a total consideration of GBP3.8 million or $4.9 million.
On 29 March 2017, the Group's Ontic business acquired the manufacturing rights and processes from Pratt & Whitney Canada for selected JT15D engine component parts for a total consideration of $1.9 million, of which is $0.7 million is deferred.
As disclosed in the 2016 Annual Report and Accounts, Ontic completed the acquisition of the GE Aviation portfolio and the Q400 parts series. The purchase price accounting has been finalised with the measurement period adjustments tabulated over the page. In the year, an increase in goodwill of $0.9 million has been recognised as a result of completing final fair value exercise for Ontic's GE Aviation portfolio acquisition.
Notes to the Consolidated Financial Statements - continued
9. Acquisition of businesses - continued
The fair value of the net assets acquired, measurement period adjustments and goodwill arising on these acquisitions are set out below:
Total
Aftermarket
Services 2017
$m $m
====================================== === =========== ======
Intangible assets 17.9 17.9
Inventories (0.3) (0.3)
Receivables (0.5) (0.5)
Payables 0.6 0.6
Provisions (3.1) (3.1)
Taxation (1.4) (1.4)
Net assets 13.2 13.2
Non-controlling interests - -
Goodwill 0.9 0.9
------------------------------------------- ----------- ------
Total consideration
(including deferred consideration) 14.1 14.1
------------------------------------------- ----------- ------
Satisfied by:
Cash 13.4 13.4
Deferred consideration 0.7 0.7
Net cash consideration 14.1 14.1
------------------------------------------- ----------- ------
Net cash flow arising on acquisition
Cash consideration 13.4 13.4
------------------------------------------- ----------- ------
13.4 13.4
------------------------------------------ ----------- ------
All acquisition costs incurred in the year are in relation to the acquisition of Ontic's GE Aviation portfolio. These costs were recognised as part of transaction costs under exceptional and other items. Refer to note 2 for further details.
In 2017, $0.8 million of deferred consideration was paid in relation to prior year acquisitions in Signature, $60.7 million was paid in relation to the Ontic GE Aviation portfolio and $0.8 million was paid in relation to prior year acquisitions in Ontic. In the prior year, $0.8 million of deferred consideration was paid in relation to prior year acquisitions in Ontic.
The goodwill arising on these acquisitions is attributable to anticipated future operating synergies. $0.9 million of the goodwill is expected to be deductible for income tax purposes.
In the period since acquisition, the operations acquired have contributed $0.6 million and $0.3 million to revenue and operating profit respectively. If the acquisitions had occurred on the first day of the financial year, it is estimated that the total revenue and operating profit from these acquisitions would have been $5.6 million and $1.2 million respectively.
Notes to the Consolidated Financial Statements - continued
10. Disposals and assets and associated liabilities classified as held for sale
ASIG divestiture
It was announced in March 2016 that, following significant inbound interest, management was assessing value maximising options for the Group's investment in the ASIG business, part of the Flight Support segment. At the beginning of April 2016, management committed to a plan to sell substantially all of the ASIG business and as such at that point the relevant assets and liabilities were classified as held for sale. At that time, as a major line of the Group's business, the ASIG operations were also classified as a discontinued operation.
On 16 September 2016, the Group announced that it had reached agreement with John Menzies plc on the terms of the sale of the ASIG business. The transaction completed on 31 January 2017.
The fair values of the assets held for sale are categorised within Level 2 of the fair value hierarchy on the basis that their fair value has been calculated using inputs that are observable in active markets which are related to the individual asset or liability.
Results of discontinued operations
2017 2016
========================= ====== ==================================== =====================================
Exceptional Exceptional
and and
other other
Underlying(1) items Total Underlying(1) items Total
Notes $m $m $m $m $m $m
========================= ====== ============== ============ ====== ============== ============ =======
Revenue 1 38.4 - 38.4 416.8 - 416.8
Cost of sales (35.9) - (35.9) (373.9) - (373.9)
------------------------- ------ -------------- ------------ ------ -------------- ------------ -------
Gross profit 2.5 - 2.5 42.9 - 42.9
Distribution costs - - - (2.0) - (2.0)
Administrative
expenses (2.7) - (2.7) (31.9) (0.7) (32.6)
Other operating
income - - - 1.1 - 1.1
Share of profits
of associates and
joint ventures - - - - - -
Other operating
expenses - - - (1.2) - (1.2)
------------------------- ------ -------------- ------------ ------ -------------- ------------ -------
Operating (loss)/profit
incl. group charges (0.2) - (0.2) 8.9 (0.7) 8.2
Elimination of
internal group
charges - - - 18.6 - 18.6
------------------------- ------ -------------- ------------ ------ -------------- ------------ -------
Operating (loss)/profit 1 (0.2) - (0.2) 27.5 (0.7) 26.8
Impairment and
other charges on
classification
as held for sale(2) - (6.6) (6.6) - (109.1) (109.1)
Investment income - - - 0.3 - 0.3
Finance costs - - - (0.4) - (0.4) ------------------------- ------ -------------- ------------ ------ -------------- ------------ ------- (Loss)/profit before tax (0.2) (6.6) (6.8) 27.4 (109.8) (82.4) Tax (charge)/credit 0.2 (15.9) (15.7) (9.5) 12.3 2.8 ------------------------- ------ -------------- ------------ ------ -------------- ------------ ------- (Loss)/profit for the period - (22.5) (22.5) 17.9 (97.5) (79.6) ------------------------- ------ -------------- ------------ ------ -------------- ------------ ------- Attributable to: Equity holders of BBA Aviation plc - (22.5) (22.5) 18.3 (97.5) (79.2) Non-controlling interests - - - (0.4) - (0.4) ------------------------- ------ -------------- ------------ ------ -------------- ------------ ------- Profit/(loss) for the period - (22.5) (22.5) 17.9 (97.5) (79.6) ------------------------- ------ -------------- ------------ ------ -------------- ------------ ------- Earnings per share Note Adjusted(1) Unadjusted Adjusted(1) Unadjusted ==================== ===== ============ =========== ============ =========== Basic 5 - (2.2)c 1.7c (7.7)c Diluted 5 - (2.2)c 1.7c (7.7)c -------------------- ----- ------------ ----------- ------------ -----------
1 Underlying profit and adjusted earnings per share is stated before exceptional and other items.
2 The impairment of $6.6 million reported in exceptional and other items includes the recycling of translational differences accumulated in equity, additional disposal costs and the gain/(loss) on disposal. In the prior year the impairment of $109.1 million reported in exceptional and other items includes $114.0 million impairment of net assets held for sale to fair value less costs to sell, $1.0 million impairment of ASIG Singapore assets, $6.3 million impairment of non-controlling interest reserve, $7.3 million of deal costs incurred in 2016, and a $19.5 million gain on the right off of deferred tax assets and liabilities relating to the disposal group.
All alternative performance measures are reconciled to IFRS measures and explained in the alternative performance measures section.
Notes to the Consolidated Financial Statements - continued
10. Disposals and assets and associated liabilities classified as held for sale - continued
Cash flows from/(used in) discontinued operation
2017 2016
$m $m
===================================================== ==== ====== ======
Net cash inflow from operating activities (33.4) 18.8
Net cash outflow from investing activities - (10.0)
Net cash inflow/(outflow) from financing activities - (1.7)
----------------------------------------------------------- ------ ------
Net cash flows for the year(1) (33.4) 7.1
----------------------------------------------------------- ------ ------
1 Net cash flows for the year comprise the ($0.2 million) operating loss, ($25.7 million) working capital movement, $0.9 million non-cash items and ($8.4 million) tax payment in relation to the discontinued operation.
Effect of the disposal group on financial position of the Group
2017 2016
Notes $m $m
============================================ ====== ===== ======
Assets held for sale
Non-current assets
Goodwill 6 - 70.6
Other intangible assets 6 - 6.1
Property, plant and equipment - 63.4
-------------------------------------------- ------ ----- ------
- 140.1
-------------------------------------------- ------ ----- ------
Current assets
Inventories - 4.0
Trade receivables - 72.9
Other receivables - 27.9
Cash and cash equivalents - 22.8
-------------------------------------------- ------ ----- ------
- 127.6
-------------------------------------------- ------ ----- ------
Total assets held for sale - 267.7
-------------------------------------------- ------ ----- ------
Liabilities held for sale
Current liabilities
Trade payables - (38.0)
Tax liabilities - (0.2)
Other payables - (33.6)
Borrowings - -
Provisions - (0.6)
-------------------------------------------- ------ ----- ------
- (72.4)
-------------------------------------------- ------ ----- ------
Non-current liabilities
Borrowings - -
Other payables - (16.9)
Provisions - -
-------------------------------------------- ------ ----- ------
- (16.9)
-------------------------------------------- ------ ----- ------
Total liabilities held for sale before tax - (89.3)
-------------------------------------------- ------ ----- ------
Net assets held for sale - 178.4
-------------------------------------------- ------ ----- ------
Notes to the Consolidated Financial Statements - continued
10. Disposals and assets and associated liabilities classified as held for sale - continued
2016 FBO disposals
Under the terms of the regulatory approval in connection with the acquisition of Landmark Aviation, the Company was required to sell six legacy Landmark Aviation FBOs at: Westchester County Airport, New York; Washington Dulles International Airport, Virginia; Scottsdale Airport, Arizona; Ted Stevens Anchorage International Airport, Alaska; Jacqueline Cochran Regional Airport, California; and part of the Landmark facilities at Fresno Yosemite International Airport. As a result, the six FBOs referred to above were classified as a disposal group and held for sale from the date of acquisition. Though the operations are wholly-owned by the Group, as a result of the restrictions placed upon our influence by the requirements of the U.S. Department of Justice, the results of the operations were accounted for as an associate undertaking.
In March 2016, the Group announced the sale of six FBOs, as agreed with the U.S. Department of Justice under the terms of the regulatory approval for the acquisition of Landmark Aviation, for an aggregate consideration of $190 million to affiliates of KSL Capital Partners LLC (the transaction). The transaction closed on 30 June 2016.
Net cash proceeds totalled $184.7 million after adjusting for the impact of working capital. There was no gain or loss recognised on the transaction. In the period of the Group's ownership in 2016 the disposal group contributed $nil of revenues and $7.9 million of underlying operating profit which is included in the share of profits of associates and joint ventures in the Consolidated Income Statement.
Alternative Performance Measures
Introduction
We assess the performance of the Group using a variety of alternative performance measures. We principally discuss the Group's results on an 'adjusted' and/or 'underlying' basis. Results on an adjusted basis are presented before exceptional and other items.
Alternative performance measures have been defined and reconciled to the nearest GAAP measure below, along with the rationale behind using the measures.
The alternative performance measures we use are: organic revenue growth, underlying operating profit and margin, EBITDA and underlying EBITDA, underlying profit before tax, underlying deferred tax, adjusted basic and diluted earnings per ordinary share, return on invested capital, operating cash flow, free cash flow, cash conversion, and net debt. A reconciliation from these adjusted performance measures to the nearest measure prepared in accordance with IFRS is presented below. The alternative performance measures we use may not be directly comparable with similarly titled measures used by other companies.
Where applicable, divisional measures are calculated in accordance with Group measures.
Exceptional and other items
The Group's income statement and segmental analysis separately identify trading results before exceptional and other items. The directors believe that presentation of the Group's results in this way is relevant to an understanding of the Group's financial performance, as exceptional and other items are identified by virtue of their size, nature or incidence. This presentation is consistent with the way that financial performance is measured by management and reported to the Board and the Executive Committee and assists in providing a meaningful analysis of the trading results of the Group. In determining whether an event or transaction is treated as an exceptional and other item, management considers quantitative as well as qualitative factors such as the frequency or predictability of occurrence.
Examples of charges or credits meeting the above definition and which have been presented as exceptional items in the current and/or prior years include costs relating to significant acquisitions/disposals of significant businesses and investments, significant business restructuring programmes, asset impairment charges and impact of the US Tax Cuts and Job Act 2017. In the event that other items meet the criteria, which are applied consistently from year to year, they are treated as exceptional and other items. Other items include amortisation of intangible assets arising on acquisition and valued in accordance with IFRS 3. These charges are presented separately to improve comparability of the Group's underlying profitability with peer companies.
Exceptional and other items are disclosed and reconciled to the nearest GAAP measure in note 2 to the Consolidated Financial Statements.
Organic revenue growth
Organic revenue growth is a measure which seeks to reflect the performance of the Group that will contribute to long-term sustainable growth. As such, organic revenue growth excludes the impact of acquisitions or disposals, fuel price movements and foreign exchange movements. We focus on the trends in organic revenue growth.
A reconciliation from the growth in reported revenue, the most directly comparable IFRS measures, to the organic revenue growth is set out below.
2017 2016
Organic revenue growth $m $m
========================================= === === === ======= =======
Reported revenue prior year (continuing
and discontinued) 2,565.9 2,129.8
Rebase for foreign exchange movements (8.4) (41.3)
Rebase for fuel price movements 90.7 (59.2)
Rebase for disposals (416.8) -
------------------------------------------------------------ ------- -------
Rebased comparative revenue 2,231.4 2,029.3
Reported revenue (continuing and
discontinued) 2,409.0 2,565.9
Rebase for disposals (note 10) (38.4) -
Less acquisitions (92.7) (567.6)
------------------------------------------------------------ ------- -------
Organic revenue 2,277.9 1,998.3
Organic revenue growth 2.1% (1.5%)
------------------------------------------------------------ ------- -------
Underlying operating profit and margin
Underlying operating profit and margin are measures which seek to reflect the underlying performance of the Group that will contribute to long-term sustainable profitable growth. As such, they exclude the impact of exceptional and other items. We focus on the trends in underlying operating profit and margins.
A reconciliation from operating profit, the most directly comparable IFRS measure, to the underlying operating profit and margin, is set out below.
2017 2017 2017 2016 2016 2016
Total Continuing Discontinued Total Continuing Discontinued
$m $m $m $m $m $m
==================================== ======= =========== ============= ======= =========== =============
Revenue 2,409.0 2,370.6 38.4 2,565.9 2,149.1 416.8
Operating profit/(loss) 237.4 237.6 (0.2) 192.9 166.1 26.8
Exceptional and other items 123.0 123.0 - 137.2 136.5 0.7
------------------------------------ ------- ----------- ------------- ------- ----------- -------------
Underlying operating profit/(loss) 360.4 360.6 (0.2) 330.1 302.6 27.5
------------------------------------ ------- ----------- ------------- ------- ----------- -------------
2017 2017 2017 2016 2016 2016
Total Continuing Discontinued Total Continuing Discontinued
$m $m $m $m $m $m
============================= ====== =========== ============= ====== =========== =============
Operating margin 9.9% 10.0% (0.5%) 7.5% 7.7% 6.4%
Exceptional and other items 5.1% 5.2% - 5.4% 6.4% 0.2%
----------------------------- ------ ----------- ------------- ------ ----------- -------------
Underlying operating margin 15.0% 15.2% (0.5%) 12.9% 14.1% 6.6%
----------------------------- ------ ----------- ------------- ------ ----------- -------------
EBITDA and underlying EBITDA
In addition to measuring the financial performance of the Group and lines of business based on underlying operating profit, we also measure performance based on EBITDA and underlying EBITDA. EBITDA is defined as the Group profit or loss before depreciation, amortisation, net finance expense and taxation. Underlying EBITDA is defined as EBITDA before exceptional and other items. EBITDA is a common measure used by investors and analysts to evaluate the operating financial performance of companies.
We consider EBITDA and underlying EBITDA to be useful measures of our operating performance because they approximate the underlying operating cash flow by eliminating depreciation and amortisation. EBITDA and underlying EBITDA are not direct measures of our liquidity, which is shown by our cash flow statement, and need to be considered in the context of our financial commitments.
A reconciliation from Group operating profit, the most directly comparable IFRS measure, to reported and underlying Group EBITDA, is set out below.
2017 2017 2017 2016 2016 2016
Total Continuing Discontinued Total Continuing Discontinued
$m $m $m $m $m $m
==================================== ====== =========== ============= ====== =========== =============
Operating profit/(loss) 237.4 237.6 (0.2) 192.9 166.1 26.8
Reported depreciation
and amortisation 181.3 181.1 0.2 183.9 180.5 3.4
------------------------------------ ------ ----------- ------------- ------ ----------- -------------
EBITDA 418.7 418.7 - 376.8 346.6 30.2
Reported depreciation
and amortisation 181.3 181.1 0.2 183.9 180.5 3.4
Amortisation presented
within exceptional and
other items (93.8) (93.8) - (99.3) (98.6) (0.7)
------------------------------------ ------ ----------- ------------- ------ ----------- -------------
Depreciation and amortisation
included in underlying
results 87.5 87.3 0.2 84.6 81.9 2.7
Underlying operating profit/(loss) 360.4 360.6 (0.2) 330.1 302.6 27.5
Depreciation and amortisation
included in underlying
results 87.5 87.3 0.2 84.6 81.9 2.7
------------------------------------ ------ ----------- ------------- ------ ----------- -------------
Underlying EBITDA 447.9 447.9 - 414.7 384.5 30.2
------------------------------------ ------ ----------- ------------- ------ ----------- -------------
Alternative Performance Measures - continued
Underlying profit before tax
Underlying profit before tax is a measure which seeks to reflect the underlying performance of the Group that will contribute to long-term sustainable profitable growth. As such, underlying profit before tax excludes the impact of exceptional and other items. We focus on the trends in underlying profit before tax.
A reconciliation from profit before tax, the most directly comparable IFRS measure, to the underlying profit before tax, is set out below.
2017 2017 2017 2016 2016 2016
Total Continuing Discontinued Total Continuing Discontinued
$m $m $m $m $m $m
================================= ====== =========== ============= ======= =========== =============
Profit/(loss) before tax 168.7 175.5 (6.8) (164.6) (82.2) (82.4)
Exceptional and other items 129.6 123.0 6.6 430.7 320.9 109.8
--------------------------------- ------ ----------- ------------- ------- ----------- -------------
Underlying profit/(loss) before
tax 298.3 298.5 (0.2) 266.1 238.7 27.4
--------------------------------- ------ ----------- ------------- ------- ----------- -------------
Underlying deferred tax
Cash adjusted basic and diluted earnings per ordinary share set out in note 5 to the Consolidated Financial Statements are calculated by removing exceptional and other items and underlying deferred tax to better reflect the underlying basic and diluted earnings per share.
A reconciliation from deferred tax, the most directly comparable IFRS measure, to the underlying deferred tax, is set out below:
2017 2017 2017 2016 2016 2016
Total Continuing Discontinued Total Continuing Discontinued
$m $m $m $m $m $m
========================== ====== =========== ============= ======= =========== =============
Deferred tax (12.3) (15.1) 2.8 81.6 77.3 4.3
Exceptional deferred tax (35.4) (32.6) (2.8) (117.2) (105.0) (12.2)
-------------------------- ------ ----------- ------------- ------- ----------- -------------
Underlying deferred tax (47.7) (47.7) - (35.6) (27.7) (7.9)
-------------------------- ------ ----------- ------------- ------- ----------- -------------
Cash basic and diluted earnings per ordinary share
As set out in note 5 to the Consolidated Financial Statements, the adjusted basic and diluted earnings per ordinary share are calculated using the adjusted basic and diluted earnings.
A reconciliation from the basic and diluted earnings per ordinary share, the most directly comparable IFRS measure, to the cash basic and diluted earnings per ordinary share, is set out below.
2017 2017 2017 2016 2016 2016
Total Continuing Discontinued Total Continuing Discontinued
c c c c c c
================================== ====== =========== ============= ====== =========== =============
Basic earnings per share 11.6 13.8 (2.2) (9.6) (1.9) (7.7)
Adjustments for adjusted measure 17.0 14.8 2.2 34.2 24.0 10.2
---------------------------------- ------ ----------- ------------- ------ ----------- -------------
Cash basic earnings per share 28.6 28.6 - 24.6 22.1 2.5
---------------------------------- ------ ----------- ------------- ------ ----------- -------------
Diluted earnings per share 11.5 13.7 (2.2) (9.6) (1.9) (7.7)
Adjustments for adjusted measure 16.8 14.6 2.2 34.0 23.8 10.2
---------------------------------- ------ ----------- ------------- ------ ----------- -------------
Cash diluted earnings per share 28.3 28.3 - 24.4 21.9 2.5
---------------------------------- ------ ----------- ------------- ------ ----------- -------------
Return on invested capital (ROIC)
Measuring ROIC ensures the Group is focused on efficient use of assets, with the target of operating returns generated across the cycle exceeding the cost of holding the assets.
ROIC is calculated by dividing underlying operating profit for ROIC by net assets for ROIC, both of which are at the same exchange rate which is the average of the last 13 months' spot rate. The net assets for ROIC are calculated by averaging the net assets over the last 13 months.
A reconciliation from underlying operating profit to underlying operating profit for ROIC is set out below. In addition, a reconciliation from net assets, the most directly comparable IFRS measure, to invested capital for ROIC, is set out below.
2017 2017 2017 2016 2016 2016
Total Continuing Discontinued Total Continuing Discontinued
$m $m $m $m $m $m
====================================== ========= =========== ============= ========= =========== ==============
Underlying operating profit 360.4 360.6 (0.2) 330.1 302.6 27.5
Adjustments for FX 0.1 0.1 - (0.1) (0.1) -
-------------------------------------- --------- ----------- ------------- --------- ----------- --------------
Underlying operating profit for
ROIC 360.5 360.7 (0.2) 330.0 302.5 27.5
-------------------------------------- --------- ----------- ------------- --------- ----------- --------------
Net assets 1,933.2 1,933.2 - 1,918.6 1,740.2 178.4
Add back impairment made to disposal
group - - - - (109.1) 109.1
Adjustments for FX and averaging (10.9) (10.9) - 42.9 42.9 -
-------------------------------------- --------- ----------- ------------- --------- ----------- --------------
Net assets for ROIC 1,922.3 1,922.3 - 1,961.5 1,674.0 287.5
Reported borrowings & finance leases (1,324.1) (1,324.1) - (1,549.4) (1,549.4) -
Reported cash and cash equivalents 153.5 153.5 - 205.3 182.5 22.8
Adjustments for FX and averaging (175.9) (175.9) - 22.3 22.3 -
-------------------------------------- --------- ----------- ------------- --------- ----------- --------------
Less net debt for ROIC (1,346.5) (1,346.5) - (1,321.8) (1,344.6) 22.8
-------------------------------------- --------- ----------- ------------- --------- ----------- --------------
Invested capital for ROIC 3,268.8 3,268.8 - 3,283.3 3,018.6 264.7
-------------------------------------- --------- ----------- ------------- --------- ----------- --------------
ROIC 11.0% 11.0% - 10.1% 10.0% 10.4%
-------------------------------------- --------- ----------- ------------- --------- ----------- --------------
Alternative Performance Measures - continued
Operating cash flow
Operating cash flow is one of the Group's Key Performance Indicators by which our financial performance is measured. Operating cash flow is defined as the aggregate of cash generated by operations, purchase of property, plant and equipment, purchase of intangible assets less Ontic licences not accounted for under IFRS 3, and proceeds from disposal of property, plant and equipment.
Operating cash flow is primarily an overall operational performance measure. However, we also believe it is an important indicator of our liquidity.
Operating cash flow reflects the cash we generate from operations after net capital expenditure which is a significant ongoing cash outflow associated with investing in our infrastructure. In addition, operating cash flow excludes cash flows that are determined at a corporate level independently of ongoing trading operations such as dividends, share buy-backs, acquisitions and disposals, financing costs, tax payments, dividends from associates and the repayment and raising of debt. Operating cash flow is not a measure of the funds that are available for distribution to shareholders.
2017 2016
Total Total
$m $m
========================================= ======= =======
Reported cash generated by operations
(note 8) 380.8 390.7
Less reported purchase of property,
plant and equipment (note 8) (73.4) (101.6)
Less reported purchase of intangible
assets (note 8) (11.9) (11.4)
Add Ontic licences not accounted for
under IFRS 3 (note 8) 5.0 10.6
Add reported proceeds from disposal
of property, plant and equipment (note
8) 16.8 11.1
----------------------------------------- ------- -------
Operating cash flow 317.3 299.4 ----------------------------------------- ------- -------
Cash conversion
Cash conversion is a key part of the Group strategy for disciplined capital management with absolute cash generation and strong cash conversion. Cash conversion is defined as operating cash flow as a percentage of continuing and discontinued operating profit. Operating cash flow has been reconciled above to the most directly comparable IFRS measure, being cash generated from operations.
2017 2016
Total Total
% %
================= ======= =======
Cash conversion 134% 155%
----------------- ------- -------
Free cash flow
Free cash flow represents the cash that a company is able to generate after spending the money required to maintain or expand its asset base. Free cash flow is set out in note 8 to the Consolidated Financial Statements and reconciled to net cash inflow from operating activities, the most directly comparable IFRS measure.
Net debt
Net debt consists of borrowings (both current and non-current), less cash and cash equivalents and the fair value adjustment on the US Private Placement loan.
Net debt is a measure of the Group's net indebtedness that provides an indicator of the overall balance sheet strength. It is also a single measure that can be used to assess both the Group's cash position and its indebtedness. The use of the term 'net debt' does not necessarily mean that the cash included in the net debt calculation is available to settle the liabilities included in this measure.
Net debt is considered to be an alternative performance measure as it is not defined in IFRS. The most directly comparable IFRS measure is the aggregate of borrowings (current and non-current), and cash and cash equivalents. A reconciliation from these to net debt is given below.
2017 2017 2017 2016 2016 2016
Total Continuing Discontinued Total Continuing Discontinued
$m $m $m $m $m $m
===================================== ========= =========== ============= ========= =========== =============
Reported borrowings (note 7) (1,322.8) (1,322.8) - (1,547.7) (1,547.7) -
Reported finance leases (1.3) (1.3) - (1.7) (1.7) -
Reported cash and cash equivalents 153.5 153.5 - 205.3 182.5 22.8
Fair value adjustment on USPP (note
7) 3.5 3.5 - 8.8 8.8 -
------------------------------------- --------- ----------- ------------- --------- ----------- -------------
Net debt (1,167.1) (1,167.1) - (1,335.3) (1,358.1) 22.8
------------------------------------- --------- ----------- ------------- --------- ----------- -------------
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EAEAPAFFPEAF
(END) Dow Jones Newswires
March 01, 2018 02:01 ET (07:01 GMT)
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