Signature Aviation plc (LON:SIG) has today provided final results for the year ended 31st Dec 2019.
Highlights
- Signature FBO network outperformed the US B&GA market by 90 basis points
- Sale of Ontic to CVC for $1,365 million and $833.6 million of capital returned to shareholders
- Total Group underlying operating profit $441.1 million, Continuing Group underlying operating profit $320.8 million
- Total Group operating profit on a statutory basis up 19.6% at $312.7 million (2018: $261.5 million) due primarily to the adoption of IFRS 16 on 1 January 2019
- Signature:
o Signature FBO organic revenue up 1.1%, with new commercial initiatives contributing to our outperformance of the US B&GA market
o US B&GA market growth of 0.2% in the twelve months to 31 December 2019
o Improved market outperformance of 100 basis points in H2 2019
o Signature underlying operating profit $361.0 million
- Discontinued operations:
o ERO delivered underlying operating profit of $52.8 million through robust trading, and with the benefit of continued suspension of depreciation and amortisation
o ERO impairment of $124.7m to reflect fair value less cost to sell. Disposal process making good progress
o Ontic contributed underlying operating profit of $67.5 million for the ten months of ownership
- Total Group free cash flow of $187.2 million continues to highlight inherently strong free cash flow generation
- Leverage reduced to 2.2x net debt/underlying EBITDA on a covenant basis (including the EBITDA of Ontic for 10 months but excluding a tax payment relating to the Ontic disposal), target range of 2.5-3.0x on a covenant basis to be maintained
- Underlying Total Group adjusted basic EPS of 25.6¢. Total Group basic unadjusted EPS of 65.2¢
- Final dividend increased by 5% to 10.57¢ per share (FY dividend also up 5% to 14.77¢) reflecting continued confidence in the Group’s future growth prospects and inherently strong free cash generation
Mark Johnstone, Signature Aviation Group Chief Executive, commented:
“2019 has been a transformational year as we continued to invest in our core Signature business and fully recognised the strategic value of our Ontic business. Signature Aviation had a solid year, with a good Signature FBO performance in a flat US B&GA market. We are encouraged that progress on our new commercial initiatives improved our market outperformance to 100 basis points in the second half.
Looking forward, Signature is focused on continuing to improve its level of outperformance against the US B&GA market. With our singular focus on the cash generative FBO business, we reiterate our progressive dividend policy and will look to further enhance returns to shareholders as we maintain our target leverage range, while continuing to invest to grow the business.
The Board is confident of delivering further progress and market outperformance in 2020 through our Signature strategic growth initiatives.”
Underlying results1
| 2019 | 2019 | 2018 | 2018 | ||
| $m | Total Group2 | Continuing | Total Group2 | Continuing (Restated)3 | Change5 |
| Revenue | 3,017.4 | 2,260.5 | 2,880.9 | 2,131.3 | 4.7% |
| EBITDA | 607.6 | 482.0 | |||
| IFRS 16 impact | 147.0 | 133.3 | |||
| EBITDA (Pre IFRS 16) | 460.6 | 348.7 | 456.4 | 346.2 | 0.9% |
| Operating profit | 441.1 | 320.8 | |||
| IFRS 16 impact | 57.3 | 44.4 | |||
| Operating profit (Pre IFRS 16) | 383.8 | 276.4 | 375.2 | 277.3 | 2.3% |
| Profit before tax | 292.0 | 177.2 | |||
| IFRS16 impact | (17.3) | (25.8) | |||
| Profit before tax (Pre IFRS 16) | 309.3 | 203.0 | 308.0 | 211.6 | 0.4% |
| Basic adjusted EPS | 25.6 ¢ | 16.3 ¢ | |||
| IFRS 16 impact | (1.3)¢ | (1.9)¢ | |||
| Basic adjusted EPS (Pre IFRS 16) | 26.9 ¢ | 18.2 ¢ | 23.3¢ | 16.3¢ | 15.5% |
Statutory results
| 2019 | 2019 | 2018 | 2018 | ||
| $m | Total Group2 | Continuing | Total Group2 | Continuing (Restated)3 | Change5 |
| Revenue | 3,017.4 | 2,260.5 | 2,880.9 | 2,131.3 | 4.7% |
| EBITDA | 565.5 | 439.9 | |||
| IFRS 16 impact | 147.0 | 133.3 | |||
| EBITDA (Pre IFRS 16) | 418.5 | 306.6 | 431.5 | 323.8 | (3.0)% |
| Operating Profit | 312.7 | 204.9 | |||
| IFRS 16 impact | 57.3 | 44.4 | |||
| Operating Profit (Pre IFRS 16) | 255.4 | 160.5 | 261.5 | 180.4 | (2.3)% |
| Profit before tax | 722.2 | 23.4 | |||
| IFRS 16 impact | (17.3) | (25.8) | |||
| Profit before tax (Pre IFRS 16) | 739.5 | 49.2 | 174.3 | 100.6 | 324% |
| Basic unadjusted EPS | 65.2¢ | 4.0¢ | |||
| IFRS 16 impact | (3.0)¢ | (1.9)¢ | |||
| Basic unadjusted EPS (Pre IFRS 16) | 68.2¢ | 5.9¢ | 13.4¢ | 8.0¢ | 409% |
| Dividend per share | 14.77¢ | – | 14.07¢ | – | 5% |
ROIC, Cash Flow and Net Debt1
| 2019 | 2019 | 2018 | 2018 | ||||
| $m | Total Group2 | Continuing | Total Group2 | Continuing (Restated)3 | Change5 | ||
| Return on invested capital | 9.9% | 8.6% | |||||
| IFRS 16 impact | (190)bps | (190)bps | |||||
| Return on invested capital (Pre IFRS 16) | 11.8% | 10.5% | 11.4% | 10.5% | 40bps | ||
| Free cash flow | 187.2 | 129.1 | |||||
| IFRS 16 impact | – | – | |||||
| Free cash flow (Pre IFRS 16) | 187.2 | 129.1 | 224.8 | 205.2 | (16.7)% | ||
| Net debt | (2,250.7) | ||||||
| IFRS 16 impact | (1,242.4) | ||||||
| Net debt (Pre IFRS 16) | (1,008.3) | (1,332.2) | – | (24.3)% | |||
| Net debt to underlying EBITDA4 | 2.2x | 2.8x | – | (0.6)x | |||
| 1 Defined and reconciled to reported financials under Alternative Performance Measures (APMs). These are presented on a pre IFRS 16 basis. 2 From continuing and discontinued operations. 3 Restated following the presentation of Ontic as a discontinued operation. 4 Net debt to underlying EBITDA calculated on a covenant basis. 5 Change represents the year over year difference for the total Group. |
NOTE ON IFRS 16:
As previously noted, we have adopted the modified retrospective approach available within the new accounting standard and therefore we have not restated our comparative disclosures for the impact of IFRS 16, which came into effect from 1 January 2019. Our statutory results have been split out to show the IFRS 16 impact to aid comparison year on year.
We reiterate that the adoption of IFRS 16 has no impact on the economic prospects, strategy, cash generative nature of our business or on our progressive dividend policy or our stated capital allocation policy.
At adoption on 1 January 2019, IFRS 16 has significantly impacted several key financial metrics with regard to reported performance, financial position, financing costs and associated financial leverage.
The approach we have taken to ensure consistency and comparability is to report APMs (non-GAAP metrics) that convert and reconcile IFRS 16 reported financials back to the historical accounting treatment of leases. This historical accounting treatment of leases is the basis on which we are and will continue to be tested under our banking covenants.
FINAL RESULTS 2019
Overview
Overall Signature Aviation performed in line with our expectations, with Signature FBO growing ahead of a flat US B&GA market. We have made further progress with the implementation of our strategy and continue to deliver against the business case for the EPIC acquisition. The ERO disposal process has made further progress in the second half and we will update the market in due course. We booked an impairment on our ERO business of $124.7 million in the year. Fair value less cost to sell for the ERO business now stands at $177.6 million.
Continuing Group revenue increased by 6.1% to $2,260.5 million (2018 restated: $2,131.3 million) including an additional six-month contribution from EPIC and a first-time contribution from IAM Jet Centre of $235.5 million in total.
· Signature FBO organic revenue grew 1.1% during 2019 after adjusting for the first-time contribution from IAM Jet Centre ($5.3 million), the impact of lower fuel prices ($45.1 million), foreign exchange movements ($9.1 million), FBO divestments ($1.4m) and the impact of adopting IFRS 16 ($4.5 million). TECHNICAirTM and EPIC saw organic revenue declines during 2019 of 3.1% and 10.8%, respectively.
Continuing Group underlying operating profit was $320.8 million (2018 restated: $277.3 million).
· Underlying operating profit performance in Signature was $361.0 million (2018: $320.6 million) which includes $43.6 million relating to the adoption of IFRS 16. Performance on a comparable pre IFRS 16 basis was marginally weaker at $317.4 million (2018: $320.6 million) due to lower first half performance, which recovered to be marginally up in the second half.
· Underlying central costs were down at $25.9 million, on a comparable pre IFRS 16 basis $26.7 million (2018: $28.3 million).
Continuing Group operating profit on a statutory basis increased 13.6% to $204.9 million (2018 restated: $180.4 million) primarily due to the adoption of IFRS 16 ($44.4 million), partially offset by $36.5 million of indemnification provisions and associated legal fees in respect of previously disposed businesses.
Continuing Group underlying net interest, including the impact of IFRS 16, was $143.6 million (2018: $65.7 million). The increase of $77.9 million resulted primarily from the adoption of IFRS 16, with the introduction of additional net interest on lease liabilities of $70.2 million. The increase in underlying net interest on a pre IFRS 16 basis was as expected.
Continuing Group underlying profit before tax was $177.2 million (2018 restated: $211.6 million). The decrease primarily resulted from the adoption of IFRS 16 ($25.8 million).
Profit before tax on a statutory basis for the Continuing Group was $23.4 million (2018 restated: $100.6 million). The decrease arose from the adoption of IFRS 16 ($25.8 million), indemnification provisions and associated legal fees in respect of previously disposed businesses ($36.5 million), net settlement of USPP make-whole to facilitate the Ontic disposal ($25.4 million) and the impairment of our charter joint venture investment ($12.5 million).
The Continuing Group underlying tax rate was 6.8% (2018 restated: 20.6%). The decrease in the underlying tax rate primarily reflects the tax deductibility of deferred interest charges following the refinancing of the Group, previously written off in 2017 upon the implementation of US tax reform. Cash taxes increased in line with expectations to $41.7 million (2018: $27.1 million). This increase largely represents timing of payments between 2018 and 2019.
Continuing Group basic adjusted earnings per share was 16.3¢, on a pre IFRS 16 basis 18.2¢ (2018 restated: 16.3¢). Continuing Group basic unadjusted earnings per share decreased to 4.0¢, on a pre IFRS 16 basis 5.9¢ (2018 restated: 8.0¢) principally as a result of the adoption of IFRS 16.
Exceptional and other items after tax, for continuing and discontinued operations, totalled $400.0 million of income (2018: $102.6 million loss) of which $524.1 million of income (2018 restated: $17.7 million loss) related to discontinued operations. Key components of this for continuing operations are the non-cash amortisation of acquired intangibles accounted for under IFRS 3 ($73.8 million), restructuring expenses ($5.6 million) as part of a multi-year restructuring programme, indemnification provisions and associated legal fees in respect of previously disposed businesses ($36.5 million) and impairment of $12.5 million relating to the Continuing Group’s investment in the charter management joint venture. Exceptional and other items on discontinued operations, net of tax, include a $724.0 million gain on the disposal of Ontic, partially offset by the $124.7 million impairment of ERO.
Total Group free cash flow reduced to $187.2 million (2018: $224.8 million). This reduction resulted primarily from the execution of the direct fuel supply agreement which resulted in an as anticipated one-off $69.2 million outflow, due to revision of payment terms, partially offset by a turnaround in working capital within our ERO business following the significant working capital outflows in 2018. Free cash flow for the Continuing Group, excluding the direct fuel supply agreement impact and exceptional cash flows was broadly flat at $212.0 million (2018 restated: $216.7 million).
Total Group gross capital expenditure amounted to $80.6 million (2018: $93.1 million). Principal capital expenditure items include investment in Signature’s FBO developments at Teterboro (TEB), and Palm Beach (PBI). The lower than expected capital expenditure resulted primarily from revised timing of projects due to ongoing discussions with the associated airports and local authorities.
Cash flows on exceptional and other items were an outflow of $16.4 million (2018: $19.5 million outflow) and are largely a result of restructuring expenses, settlement of legal matters and costs associated with the disposal process of the ERO business.
The total Group made $8.0 million of pension scheme payments (2018: $5.9 million). An additional pension payment of £30 million was made during 2019 as agreed with the Trustees of our UK defined benefit plan to facilitate the disposal of Ontic. This payment is recognised as a cost to dispose of Ontic. During 2019 the Group completed and signed off the 2018 actuarial review of its UK defined benefit pension scheme. Deficit contributions of £2.7 million per annum through to March 2030 have been agreed.
Net interest payments increased to $141.5 million (2018: $58.3 million) following the recognition of interest on lease liabilities under IFRS 16 and the non-repeat of swap gains in the prior period.
Dividend payments amounted to $980.9 million (2018: $140.7 million) reflecting a core dividend of $147.3 million, increased by 5% compared to 2018, and a special dividend of $833.6 million in respect of the net proceeds from the Ontic sale.
Acquisition spend during the year was $65.3 million, net of cash acquired (2018: $210.6 million). Total spend on acquisitions included the acquisition of IAM Jet Centre ($33.5 million), deferred consideration on an Ontic licence acquired in December 2018 ($11.5 million), the acquisition of new licences by Ontic during 2019 ($17.4 million) and the final working capital settlements in respect of EPIC and Firstmark ($3.3 million), all net of $0.4 million cash acquired.
Net debt on a reported basis increased to $2,250.7 million (2018: $1,332.2 million) following the adoption of IFRS 16 which results in the recognition of an additional $1,242.4 million in lease liabilities within the definition of net debt. Our banking covenants are tested on the accounting standards in force prior to IFRS 16, consequently they are not impacted by the adoption of IFRS 16. Net debt to underlying EBITDA on a covenant basis decreased to 2.2x (FY 2018: 2.8x). Interest cover on a covenant basis decreased to 6.9x for the 12 months to 31 December 2019 (FY 2018: 7.9x).
Total Group Return on Invested Capital (ROIC) was 9.9%. On a comparable pre IFRS 16 basis it improved to 11.8% (FY 2018: 11.4%).
