Signature Aviation plc

2020 Interim Financial Report

Unaudited results for the half year ended

30 June 2020

For further information please contact: David Crook, Group Finance Director Kate Moy, Investor Relations SIGNATURE AVIATION PLC

David Allchurch / Sunni Chauhan TULCHAN COMMUNICATIONS

(020) 7514 3999

(020) 7353 4200

A recording of the webcast analyst presentation will be available from c.10:00 today onwww.signatureaviation.com

INTERIM FINANCIAL REPORT FOR THE PERIOD ENDED 30 JUNE 2020

Mark Johnstone, Signature Aviation Group Chief Executive, commented on the interim results:

"I am extremely proud of how our Signature teams have dealt with the COVID-19 pandemic, supporting our customers, our local communities and adapting every day as we have taken the necessary and appropriate action to manage our costs to best match flying and tenant activity. Throughout this period the health and safety of our employees and customers has been our utmost priority.

I am encouraged by the extent of the flight operations recovery we have seen. August flight activity was down 19% year on year across our network, a marked improvement to the low point of 77% down in April. We will closely monitor trading in the important US business traffic season, post Labor Day.

Building on our effective cost management and with our flexible cost base now aligned with anticipated flight activity, we expect improved performance in the second half compared to the first half.

Our business has sound fundamentals and we continue to see attractive medium-term growth prospects. Therefore, we have continued to invest in growing our network despite COVID-19. We have recently acquired two FBOs in Switzerland, including the strategically important Geneva location. In the US, we were pleased to open our newly constructed Atlanta FBO in July.

We will continue to lead our industry working towards our sustainable future. Today, we are committing to reducing our carbon footprint with a 29% reduction in our controllable Scope 1 & 2 emissions targeted by 2025 and 50% by 2030.

The Board remains confident in the resilience of our market leading FBO business model, the quality of our network, the strength of our liquidity and therefore our ability to continue to invest in and grow our business. We will continue to drive further medium-term progress through our Signature strategic growth initiatives with a focus on further enhancing and leveraging our unique real estate network to grow non-fuel revenues and operational efficiency."

Highlights

  • Business and General Aviation (B&GA) markets recovering strongly following the impact of lockdown measures which started in April and May due to COVID-19. August flight activity has recovered to be 19% down YoY, an improvement against July, which showed an average 25% reduction YoY

  • Continuing Group organic revenue down 31.3%, reflecting the impact of COVID-19 on B&GA flight activity

  • Continuing Group underlying EBITDA down 39.7% to $143.3 million (H1 2019: $237.7 million)

  • Continuing Group underlying operating profit $63.1 million (H1 2019: $158.2 million)

  • Continuing Group statutory operating profit $15.6 million (H1 2019: $109.1 million)

  • The Total Group maintained its strong liquidity with undrawn committed facilities of $321 million and cash & cash equivalents of $199.9 million giving total liquidity headroom of over $520 million at the end of June

  • Leverage increased to 3.1x net debt/underlying EBITDA on a covenant basis, leaving over 1x headroom to the 30 June 2020 leverage covenant

  • A precautionary RCF covenant waiver has been agreed with our relationship banks for the December 2020 and June 2021 testing periods and replaced with a $150 million minimum liquidity requirement

  • Total Group net debt was reduced by $32.2 million during the first half following decisive actions by management on operating costs and capital expenditure and receipt of US CARES Act funds, the latter reduced net debt by $45.1 million

  • Signature (Signature FBO & TechnicAir):

    • o Signature organic revenue down 29.3% due to the impact of COVID-19

    • o US B&GA market flight movements declined 29.6% in the six months to 30 June 2020

    • o US B&GA market outperformance of 30 basis points for the first half despite the COVID-19 impact which saw both the North East region, where Signature has material presence, and international traffic severely impacted during Q2

    • o Signature underlying operating profit down 55.2% to $79.4 million (H1 2019: $177.4 million)

  • Discontinued operations:

    • o ERO organic revenue declined 1.4% as the business was largely unaffected by COVID-19

    • o ERO delivered a robust underlying operating profit of $21.0 million (H1 2019: $24.9 million)

    • o The disposal process is ongoing

  • Underlying Total Group adjusted basic EPS of 1.9¢. Total Group basic unadjusted loss per share of (2.3)¢

  • We recognise the importance of a dividend to our shareholders. However, given the COVID-19 related macroeconomic uncertainty, the Board has taken the prudent decision to preserve cash and will not be declaring an interim dividend for 2020. The Board will keep future dividends under review and will restart payments when it is appropriate to do so.

Underlying results1

H1 2020

H1 2020

H1 2019

H1 2019

$m

Total Group2

Continuing

Total Group2

Continuing (Restated)3

Change5

Revenue

963.1

702.7

1,528.1

1,140.4

(38.4)%

EBITDA

164.3

143.3

300.7

237.7

(39.7)%

Operating profit

84.1

63.1

216.7

158.2

(60.1)%

Profit/(loss) before tax

17.4

(1.3)

140.7

85.4

(101.5)%

Basic adjusted EPS

1.9 ¢

0.2 ¢

10.6¢

6.5¢

(96.9)%

Statutory results

H1 2020

H1 2020

H1 2019

H1 2019

$m

Total Group2

Continuing

Total Group2

Continuing (Restated)3

Change5

Revenue

963.1

702.7

1,528.1

1,140.4

(38.4)%

EBITDA

153.4

132.4

287.9

225.8

(41.4)%

Operating Profit

36.6

15.6

156.0

109.1

(85.7)%

(Loss)/profit before tax

(29.3)

(51.7)

47.3

36.3

(242.4)%

Basic unadjusted (loss)/EPS

(2.3)¢

(4.5)¢

3.0¢

2.9¢

(255.2)%

ROIC, Cash Flow and Net Debt1

H1 2020

H1 2020

H1 2019

H1 2019

$m

Total Group2

Continuing

Total Group2

Continuing (Restated)3

Change5

Return on invested capital 6

7.4%

6.1%

9.9%

8.6%

(250) bps

Free cash flow

(24.9)

1.0

129.2

82.0

(98.8)%

Net debt 6

(2,218.5)

(2,250.7)

(1.4)%

Net debt (Bank covenant basis) 6

(1,017.4)

(1,005.7)

1.2%

Net debt to underlying EBITDA4,6

3.1x

2.2x

0.9x

  • 1 Defined and reconciled to reported financials under Alternative Performance Measures (APMs). See pages 44 to 52.

  • 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 continuing Group, except for net debt and net debt to underlying EBITDA which are on a total group basis.

6 Return on invested capital, net debt and net debt to underlying EBITDA are shown for the full year ended 31 December 2019.

INTERIM RESULTS 2020

Overview

Overall Signature Aviation performed in line with our expectations in the first quarter of 2020 but saw significant declines in flight activity in Q2, as stay-at-home restrictions were imposed in response to COVID-19. Swift management action on costs to best align labour levels to flying and tenant activity were taken which mitigated some of the volume impact. Signature's largest cost, fuel, naturally flexes with flight activity.

The ERO disposal process has slowed during the COVID-19 pandemic due to the impact on capital markets but the process is ongoing, and we will update the market in due course. Fair value less cost to sell for the ERO business stands at $209.2 million as at 30 June 2020.

Continuing Group revenue decreased by 38.4% to $702.7 million (H1 2019 restated: $1,140.4 million) due to the impact of COVID-19 on flight activity.

  • The organic revenue of Signature declined 29.3% in the first half of 2020 after adjusting for the contribution from IAM Jet Centre, acquired in August 2019 ($11.4 million), the impact of lower fuel prices ($77.9 million), foreign exchange movements ($2.4 million) and FBO divestments in 2019 ($7.9 million). EPIC saw organic revenue decline during the first half of 2020 of 40.3%.

  • To further illustrate the dramatic impact of COVID on flying, in the period 1 January through 17 March FAA departures were up 0.1% year-over-year. In the period 18th March through 31st March FAA departures fell by 60.9%, and in Q2 FAA departures were down 49.4% over the same period in 2019.

Continuing Group underlying operating profit was $63.1 million (H1 2019 restated: $158.2 million).

  • Underlying operating profit performance in Signature was $79.4 million (H1 2019: $177.4 million). Performance was impacted by COVID-19 and decisive management action was taken on both our variable costs and elements of our fixed cost base. We took a conscious decision to remain open throughout our network, but while we navigated the CARES Act process, we were constrained from taking the required action on our labour costs. EPIC reported an underlying operating loss of $3.2 million (H1 2019: $2.9 million profit) as a result of reduced flight activity due to stay-at-home measures imposed in response to COVID-19 and inventory losses due to the subsequent material reduction in global fuel prices due to excess supply.

  • Underlying central and support costs were down at $13.1 million (H1 2019: $22.1 million) reflecting management action on costs.

Continuing Group operating profit on a statutory basis decreased 85.7% to $15.6 million (H1 2019 restated: $109.1 million) due primarily to the impact of COVID-19 on flight activity.

Continuing Group net interest, including the impact of IFRS 16, was $64.4 million (H1 2019 restated: $72.8 million). The decrease in underlying net interest of $8.4 million reflecting lower net debt and lower interest rates.

Continuing Group underlying loss before tax was $(1.3) million (H1 2019 restated: $85.4 million profit). This reflects the impact of COVID-19 on underlying operations net of the reduction in finance costs of $8.4 million during the first half of 2020.

Continuing Group loss before tax on a statutory basis was $(51.7) million (H1 2019 restated: $36.3 million profit).

Continuing Group underlying tax was a credit of $2.8 million (H1 2019 restated: $18.1 million charge). The tax credit reflects the small underlying loss and tax legislation changes in both the US and UK resulting from the impact of COVID-19. Cash taxes improved to a net outflow of $1.5 million (H1 2019: $23.0 million outflow) due to the impact of COVID-19 on profits.

Continuing Group basic adjusted earnings per share was 0.2¢ (2019 restated: 6.5¢). Continuing Group basic unadjusted loss per share (4.5)¢, (2019 restated: 2.9¢ earnings per share).

Exceptional and other items after tax, for continuing and discontinued operations, totalled costs of $34.7 million (H1 2019: $78.5 million) of which $3.7 million income (H1 2019 restated: $41.5 million loss) related to discontinued operations. Key components for continuing operations are the non-cash amortisation of acquired intangibles accounted for under IFRS 3 ($36.6 million), restructuring expenses ($8.2 million), and impairments ($4.8 million) incurred predominantly as a result of our decision to close the Paris-Le Bourget T3 FBO (whilst continuing to operate from T1). Exceptional and other items on discontinued operations, net of tax, of $3.7 million income include a further $5.2 million gain on disposal of Ontic net of $1.5 million of costs related to the disposal of ERO.

Total Group free cash flow was an outflow of $24.9 million (H1 2019 restated: $129.2 million inflow). This reduction resulted primarily from the reduction in flight activity due to COVID-19 and an exceptional cash outflow of $24.7 million paid in January for indemnification and associated legal fees with respect to previously disposed businesses. During the second quarter of 2020, when the business was severely impacted by the COVID-19 disruption, the Group remained net cash flow positive through decisive management actions on operating costs and capital expenditure. Free cash flow for the Continuing Group, pre exceptional cash flows was a $27.2million inflow (H1 2019 restated: $83.5 million inflow).

Total Group gross capital expenditure amounted to $37.4 million (H1 2019 restated: $41.1 million). Principal capital expenditure items include investment in Signature's FBO developments at Atlanta, FBO renovation at Washington Reagan, remodelling of our FBO at Washington Dulles and a hangar purchase at Baton Rouge. In the light of the COVID-19 uncertainty we initiated a material reduction in our previously guided capital expenditure for the full year, while still delivering on certain growth capital projects. Our expectation for capital expenditure for the full year is c.60% of original guidance.

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Signature Aviation plc published this content on 08 September 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 08 September 2020 06:09:07 UTC