BBA Aviation plc (LON:BBA), today announced results for the year ended 31 December 2018.
Highlights
· Total underlying operating profit up 4.1% to $375.2 million (2017: $360.4 million); Signature FBO network outperforming growth in the US B&GA market
· Statutory operating profit increased by 10.2% to £261.5 million (2017: $237.4 million)
· Continuing operations:
o Signature (85% of continuing Group underlying operating profit)
§ Organic revenue up 2.7% (Signature FBO up 3.0%) with network agreements contributing to outperformance
§ US B&GA market growth of 0.9%
§ Underlying operating profit of $320.6 million (2017: $329.4 million), after absorbing IT spend of $14 million
§ EPIC acquisition delivering $2.9 million for six months as expected, with network benefits to come in 2019 and beyond
o Ontic (15% of continuing Group underlying operating profit)
§ Underlying operating profit growth of 7.4% to $59.3 million (2017: $55.2 million), driven by licence acquisitions
§ Strong Ontic acquisitions during the year with a $6.0 million contribution to operating profit
§ Firstmark acquisition integrating well and proceeding to plan
· Discontinued operations:
o Engine Repair and Overhaul (ERO) excluding the Middle East delivered strong underlying operating profit performance of $35.0 million, an improvement of $10.9 million
· Statutory profit before tax was up 3.3% to $174.3 million (2017: $168.7 million)
· Continuing Group free cash flow up 16.9% to $258.6 million (2017: $221.3 million) highlighting inherently strong free cash generation. Total Group free cashflow up 1.9% to $224.8m (2017: $220.6 million)
· Leverage at 2.8x net debt/underlying EBITDA on a covenant basis, within our target range of 2.5-3.0x, reflecting our growth investments in EPIC, Firstmark, St Thomas and Ontic licences
· Total Group ROIC increased by 40 basis points to 11.4% (2017: 11.0%)
· Underlying Total Group adjusted basic EPS decreased by 2.9% to 23.3¢ (2017: 24.0¢). Total Group basic EPS increased by 15.5% to 13.4¢ (2017: 11.6¢)
· Final dividend increased by 5% to 10.07¢ reflecting continued confidence in the Group’s future growth prospects and cash generation.
Mark Johnstone, BBA Aviation Group Chief Executive, commented:
“We are pleased with our strategic achievements in 2018, including the complementary acquisitions of EPIC and Firstmark Corp, which are important platforms for growth and were funded well within the parameters of our re-defined target leverage range. The integration of both acquisitions is progressing well with benefits to come in 2019 and beyond.
Against the backdrop of a US B&GA market that grew 0.9% during 2018, Signature FBO delivered continued market outperformance of 210 basis points and we made progress in strengthening our unique global network of FBOs and building on a range of commercial initiatives that will enhance the customer experience and help deliver our medium-term target of 250 basis points of market outperformance.
We continue to execute against our strategic growth initiatives as outlined at our recent capital markets day which reflects our continued expectation for long-term structural growth in B&GA flying activity. We are investing in both people and technology to drive growth; continuing to lead change within the FBO industry while also expanding our offering of non-fuel services; improving yield management; and further leveraging our market-leading network and service quality.
Ontic’s performance was ahead of expectations. Ontic has high returns and a growing portfolio of IP-protected licences and continues to have a strong pipeline of licence opportunities to help deliver our stated EBITDA target of $100 million by the end of 2021.
In summary, the continuing Group is focused on high ROIC and strongly cash generative market-leading businesses which offer further scope for investment opportunities in both the B&GA market and the legacy aftermarket, coupled with the prospect of returns to shareholders as we maintain our target leverage range. The Board is confident of continued outperformance against the US B&GA market in 2019 led by our strategic growth initiatives.”
FINAL RESULTS 2018
Overview
BBA Aviation performed well, with Signature outperforming the US B&GA market and further licence investments delivering strong growth in our Ontic business. We made good progress with the implementation of our strategy. We continued to invest in our FBO network through the acquisition of EPIC and the St Thomas Jet Center, and through lease extensions, notably at Atlanta and Nashville. In Ontic we added the Firstmark business and six new licences.
Continuing Group revenue increased by 26.4% to $2,347.3 million (2017: $1,857.3 million) including a $292.5 million contribution from the acquisition of EPIC and a $12.3 million contribution from Ontic licence acquisitions and Firstmark.
· Signature revenue increased 29.5%, reflecting organic growth in the Signature FBO business of 3.0%, the six-month contribution from EPIC, the positive impact of higher fuel prices ($138.2 million) and foreign exchange movements ($6.0 million).
· Ontic revenue increased by 3.4% with the contribution from the 2018 licence acquisitions and Firstmark more than offsetting a reduction in prior year military orders which were non-recurring, as expected.
Continuing Group underlying operating profit was $340.2 million (2017: $336.5 million).
· There was a robust underlying operating performance in Signature of $320.6 million (2017: $329.4 million), impacted by previously announced IT spend of $14 million
· Underlying continuing operating profit at Ontic of $59.3 million (2017: $55.2 million) includes a $6.0 million contribution from acquisitions
· Total central costs of $39 million reduced by $6.7 million (2017: $45.7 million).
Continuing statutory operating profit was up 3.9% to $227.6 million (2017: $219.1 million).
We completed the strategic review of our Engine Repair and Overhaul (ERO) business in the first half and reclassified the business as held for sale and reported it as a discontinued operation in late May 2018. We anticipate making a further announcement on the ERO disposal process in due course.
Net interest for the continuing operations increased by $4.8 million to $66.3 million (2017: $61.5 million) and includes a one-time gain of $4.6 million from hedging contracts closed out as part of the refinancing announced in April 2018.
Net debt increased to $1,332.2 million (2017: $1,167.1 million). Net debt to underlying EBITDA increased to 2.8x on a covenant basis (2017: 2.6x) and 2.9x on a reported basis (2017: 2.6x). Interest cover on a covenant basis decreased to 7.9x (2017: 8.4x).
Continuing underlying profit before tax was broadly flat at $273.9 million (2017: $275.0 million). Statutory profit before tax for the continuing Group was $147.2 million (2017: $157.6 million). The decrease arose principally from the higher level of exceptional and other items charged.
The Group’s underlying tax rate for continuing operations was 21.0% (2017: 18.7%). The increase in rate of 2.3% primarily reflects the non-repeat of prior year adjustments in 2017 and the impact of US tax reform in late 2017. Cash taxes paid reduced significantly to $27.1 million (2017: $41.8 million) largely as a result of non-repeat tax payments made in 2017 relating to taxable gains on the disposal of ASIG. In addition, 2018 cash taxes benefited from the introduction of 100% capital allowances as part of US tax reform and timing of payments for the 2018/19 tax year.
Adjusted earnings per share for continuing operations was down 3.7% to 21.0¢ (2017: 21.8¢). Statutory earnings per share for continuing operations was flat at 11.5¢.
Exceptional and other items after tax, for continuing and discontinued operations, totalled $102.6 million (2017: $127.0 million) of which $5.0 million (2017: $21.8 million) related to discontinued operations. Key components of this for continuing operations are the non-cash amortisation of acquired intangibles accounted for under IFRS3 ($88.8 million), impairment primarily relating to Sloulin Field FBO ($14.1 million), restructuring expenses ($8.9 million), and a one-off past service pension cost in relation to Guaranteed Minimum Pensions (GMP) equalisation within our UK plan ($11.1 million). Exceptional and other items on discontinued operations of $5.0 million, net of tax, relate to the conclusion of the restructuring of our ERO Dallas footprint and costs relating to the strategic review and disposal process of the ERO business.
Free cash flow for the continuing Group improved to $258.6 million (2017: $221.3 million), primarily as a result of the working capital inflow. Total Group free cash flow was $224.8 million (2017: $220.6 million). There was a $26.2 million outflow of working capital in 2018 (2017: $46.3 million outflow). The outflow in 2018 was largely due to the decreased availability of parts from OEMs in the discontinued ERO business, which impacted timing of completion on engine overhaul events.
Gross capital expenditure amounted to $93.1 million (2017: $85.3 million). Principal capital expenditure items include investment in Signature’s FBO developments at Nashville, Las Vegas and the construction of a sports charter terminal at our Miami FBO which will support our Signature ELITE ClassTM growth initiative.
Cash flows on exceptional and other items were an outflow of $19.5 million (2017: $12.7 million outflow) and are largely a result of restructuring expenses and costs associated with the disposal process for our ERO discontinued operations.
The Group made $5.9 million of pension scheme payments (2017: $5.1 million).
Net interest payments were $58.2 million (2017: $57.2 million) and dividend payments amounted to $140.7 million (2017: $130.7 million).
Total spend on acquisitions and licences completed during the year was $226.8 million (2017: $81.0 million), which included the acquisition of EPIC and Firstmark, Ontic licence acquisitions from Honeywell and Esterline, along with the acquisition of a minority stake in the St Thomas Jet Center.
Total Group Return on Invested Capital (ROIC) increased by 40 bps to 11.4% (2017: 11.0%).
