BBA Aviation plc (LON: BBA), a market-leading provider of global aviation support services, has announced a trading update for the period 1st January to 31st October 2019, unless otherwise stated.the period 1st January to 31st October 2019, unless otherwise stated.
Mark Johnstone, BBA Aviation CEO commented,
“The US B&GA market has grown in line with our expectations in the third quarter and our Signature outperformance has been consistent with the first half. Business confidence and flying hours continue to be impacted by global economic uncertainty. In line with our strategic growth plans we have continued to invest to strengthen our market leading network and recently added five sole source Caribbean locations.
I am pleased that we have completed the disposal of Ontic and have commenced the process to return $835 million to shareholders. This will enable enhanced focus on the Company’s market leading Signature business, which the Board believes to be a significant source of future shareholder value creation. This focused aviation services business will be renamed Signature Aviation plc on 25 November.”
Group performance
Overall, for the Group, we expect 2019 FY underlying performance to be in line with current expectations, which are based on the Signature and Ontic businesses, albeit Ontic will only be included for the ten months to 31 October.
Total revenue for Signature and Ontic increased by 10.1% year-on-year for the ten months to 31 October, this represents year on year growth of 8.3% in Signature, reflecting the EPIC acquisition which became part of the Group from 1 July 2018, and year on year revenue growth of 31.8% in Ontic.
Signature performance
FAA market data for Q3 2019 showed marginal growth in US B&GA movements of 0.5% and the month on month volatility, noted in the first half, has continued. Signature FBO has continued to outperform the US B&GA market during this period by 50 basis points, with Q3 organic revenue growth of 1.0%. This reflects continued steady market outperformance broadly consistent with the first half, as we anticipated. Overall, in the year to September 2019, the US B&GA market has seen movements growth of 0.4%. No US B&GA market movement data is yet available for the month of October, however Signature’s FBO organic revenue growth was 1.0% for the four months ended 31 October 2019.
We reiterate our expectations for the second half US B&GA market being broadly consistent with the first half, with growth of around 0.3% and Signature continuing to outperform the US B&GA market at broadly the same level as the first half.
We continue to invest for future growth in support of the execution of our strategic growth plan and have recently completed the acquisition of the IAM Jet Centre, which comprises five sole source locations in the Caribbean. In October we sold our San Juan FBO in Puerto Rico and closed our Sloulin Field FBO following closure of the airport, as previously announced.
Following the disposal of Ontic, Signature will represent our only continuing business segment for reporting purposes going forward.
Discontinued operations
The Ontic business will be treated as a discontinued operation in the financial statements for the year to 31 December 2019. Ontic contributed revenues of around $218m for the ten months to 31 October 2019 and the business continued to perform well, ahead of the disposal completion.
Our ERO business has performed in line with our expectations in the period to 31 October 2019 and the disposal process is ongoing. A further announcement will be made in due course.
Ontic disposal and shareholder return
On 1 November we announced that we had completed on the disposal of Ontic to CVC Fund Vll and have commenced the process to return net proceeds of $835m, towards the upper end of our guidance range, to shareholders via a special dividend. The Board has approved a return to shareholders of 80.71 cents per existing ordinary share, equivalent to approximately 21% of the ordinary share price at close of business on 31 October 2019. The special dividend will be paid on 13 December 2019 to shareholders who are on the register at the close of business on 22 November 2019 and will be paid in sterling unless shareholders elect to receive it in US dollars by 6pm on 22 November 2019. In order to maintain the comparability of the Group’s share price and per-share metrics before and after the special dividend, the Group plans to undertake a share consolidation, subject to shareholder approval. The share consolidation proposes to replace every 5 existing ordinary shares with 4 new ordinary shares.
Signature’s free cash generative characteristics underpins its ability to sustain its progressive dividend policy with the potential for ongoing returns of capital, surplus to the investment requirements of the Signature business, while maintaining a strong balance sheet within the target leverage range on a covenant basis. The progressive dividend policy is based on a dividend per share basis and the directors intend to continue following this policy once the proposed share consolidation has been completed, with the dividend per share for the new ordinary shares being progressive relative to the dividend per share for the existing ordinary shares. The Board expects the next payment under this policy to be the final dividend in respect of the 2019 financial year. The policy applies to the annual ordinary dividend and excludes the special dividend of 80.71 cents per share.
Refinancing
In late October we were pleased to issue $650 million senior unsecured notes due 2028 at 4.00%. The Group has used the proceeds from the offering to prepay existing debt under the 2019 Term Loan Facility and together with some of the Ontic proceeds has prepaid the Facility C Term Loan, which was due to be repaid in September 2020.
Signature Aviation plc
As previously announced, the Board has elected to change the Company’s name to “Signature Aviation plc” which will better align it with the Company’s most significant brand in its core market. In addition, it will create a stronger and clearer connection of the brand to shareholders and other stakeholders.
It is intended that the change of name will come into effect on or around 25 November 2019. The intended effective date of the change of name has been chosen to align as closely as possible with the start of trading of the new ordinary shares, post the share consolidation.
BBA Aviation plc will publish its preliminary results for the year ending 31 December 2019 on 3 March 2020.
