FJET.L Regulatory News (FJET)

fastjet Plc

("fastjet" or the "Company")

(AIM: FJET)

Final results for the year to 31 December 2017

29 June 2018

fastjet, the low-fare African airline, announces its audited final results for the year ended 31 December 2017.

The table below shows the financial performance of the fastjet Group's continuing activities.

*Cash balance at 18 June 2018 US$3.3m

Strategic highlights

· Strategic and operational partnership agreed with Solenta Aviation Holdings Ltd;

· Purchase of fastjet brand from easyGroup, enabling future brand licence agreements and greater operational flexibility;

· Market entry into Mozambique via a brand license agreement with Solenta Aviation Mozambique; and subsequent MoU signed with LAM - Mozambique Airlines, S.A;

· Brand license agreement with Federal Airlines, giving fastjet access to an AOC for South Africa, to commence in-country services by early 2019;

· Board re-shaped and strengthened during the first-half of 2017;

· Fundraising of US$28.8m in January 2017 and US$44m in September 2017, reflecting ongoing shareholder confidence in fastjet's strategy; and

· fastjet named Leading Low-Cost Airline in Africa at the 2017 World Travel Awards and Best Low-Cost Airline, Africa, at the 2017 Skytrax awards.

Financial and Operational highlights

· Successful implementation of Stabilisation Plan comprising:

o Network rationalisation and right-sizing of capacity to better suit fastjet's markets;

o Fleet transition to smaller E190 and E145 aircraft together with the planned introduction of three 70-seater ATR72 turbo-prop aircraft during September2018;

o Cost savings realised from supplier renegotiations and organisational changes following the relocation of fastjet's Head Office to Johannesburg; and

o Additional revenue generating initiatives including introduction of a new Central Reservation System and improved travel agent distribution capability.

· The positive impact of the Stabilisation Plan helped fastjet to deliver:

o Operating loss down 61% to US$25.3m (2016: US$65.6m), after one-off costs of US$6.9m associated with an unexpected engine event and a US$2.5m bad debt write off;

o Revenue per seat up 30% to US$60.9 (2016: US$46.9)

o Load factor up 17 percentage points to 71% (2016: 54%); and

o Costs reduced by 48% to US$70.7m (2016: US$136.2m).

Nico Bezuidenhout, fastjet Chief Executive Officer, commented:

"In 2017, the successful implementation of our Stabilisation Plan saw us realign our network, withdraw from loss making routes, reconfigure our fleet, migrate the Group's headquarters to Africa, and significantly reduce our cost base. These actions have resulted in a substantially reduced loss for 2017.

"The purchase of the fastjet brand from easyGroup in the second half of 2017 was an important milestone for the Company which has allowed us to explore new avenues for growth and given us greater operational flexibility, particularly in terms of the type of aircraft we operate. As part of our targeted network expansion strategy, the first fastjet branded flight in Mozambique took off last November and over the next 18 months we have a programme of further measured expansion of services in Mozambique and, subject to appropriate fleet expansion, new services in South Africa.

"We are proud that fastjet has managed to restructure its operations in a relatively short space of time and simultaneously continued to provide our passengers with a truly excellent service.

"Although the Group is operating on a more stable footing the Board has been reviewing further funding options. Over recent days we have made very good progress in discussing a further equity investment with our major shareholders, and the Board can confirm that it has received non-binding indications of interest from existing and potential new investors to invest, in aggregate, not less than US$10m, further details of which are expected to be announced today. Understandably this process has caused delays in finalising and publishing these results.

"I am confident that healthy GDP growth, improved trading and expected passenger growth across our markets will all play a significant role in fastjet's development during 2018. This, together with the planned introduction of our new ATRs, expected further network growth in Mozambique and the ongoing impact of the Stabilisation Plan, should enable fastjet to be cashflow positive during the second half of 2018 and will drive our continued progress as Africa's leading low-cost airline."

fastjet's report and accounts for the year ended 31 December 2017 ("2017 Report and Accounts"), notice of a General Meeting ("GM") and the form of proxy are expected to be posted to shareholders on 30 June 2018.

A copy of the 2017 Report and Accounts will be available to view and download shortly from the Company's website: www.fastjet.com 

For more information, contact:

NOTES TO EDITORS

About Fastjet Plc

fastjet is a multi-award winning low-cost African airline for everyone. It began flight operations in Tanzania in November 2012, flying passengers from Dar es Salaam to just two domestic destinations - Kilimanjaro and Mwanza. Today, fastjet's route network includes Tanzanian domestic routes from its Dar es Salaam base to Kilimanjaro, Mbeya, and Mwanza, and international routes from Tanzania to Lusaka in Zambia and Harare in Zimbabwe. fastjet also began flight operations from its Zimbabwe base in October 2015, and now flies domestically from Harare to Victoria Falls, internationally between Harare and Dar Es Salaam and from both Harare and Victoria Falls to Johannesburg in South Africa. fastjet launched its brand in Mozambique in November 2017 through a brand license agreement with Solenta Aviation Mozambique and offers a 4-city network of services within the country. The airline has flown over 3 million passengers with an impressive aggregate 90% on-time performance aggregate during the first quarter of 2018, establishing itself as a punctual, reliable, and affordable African carrier.

This announcement contains inside information for the purposes of the Market Abuse Regulation.

fastjet Plc is quoted on the London Stock Exchange's Alternative Investment Market ("AIM").

For more information see www.fastjet.com.

Preliminary Statement

During the past year, the fastjet team managed to stabilise the business and significantly reduce losses, whilst simultaneously injecting a degree of agility that enabled the business to move into a new market, Mozambique, through a brand licence agreement, and to sign a similar agreement with South African carrier Federal Airlines.

However, current short-term challenges persist especially as we manage our cash resources until proposed new routes open for business later in this 2018 financial year. Circumstances in the weeks leading up to our approval of these financial statements have led to us having to approach our principal shareholders and I am delighted to say that that they have provided non-binding indications of interest to participate in a further fundraise of not less than US$10 million which will provide us with the required funding to at least the end of 2018. Risks, of course, remain as the Board seeks to continue the turnaround of the fortunes of fastjet and place it on a sustainable financial footing. The fundraise and its importance in underpinning operations in the short term naturally meant we had to delay the approval and publication of our accounts and on behalf of the Board, I thank all our shareholders for their patience and continuing support. These financial statements will now be laid before a general meeting of shareholders to be held on 27 July 2018.

Returning to my commentary on the year covered by these financial statements, in the first half of the year, fastjet was engaged in the continued implementation of its Stabilisation Plan, the common thread for all our commercial and operational movements. The Plan was designed to positively transform the Group and pursue our vision of becoming a truly pan-African airline. We are very pleased with the progress that we have made. In less than a calendar year we have successfully migrated the Group's headquarters onto African soil and implemented key initiatives such as a network realignment programme, withdrawing from loss-making routes, a complete reconfiguration of fastjet's fleet and a significant reduction in the underlying cost base. In addition to the cost-saving initiatives, we have simultaneously focused on the continued improvement of the overall efficiency of our ongoing operations, including greater interaction between the Commercial, Operational and Finance functions of the business, who all now reside in Africa.

Notwithstanding our efforts in implementing the Stabilisation Plan, we have continued to focus on the provision of excellent service to our passengers. We were extremely proud to be recognised at the 2017 World Travel Awards as the Leading Low-Cost Airline in Africa as well as the Best Low-Cost Airline, Africa, at the 2017 Skytrax awards.

The purchase of the fastjet brand from easyGroup in the second half of 2017 was an important milestone in our development and has already offered us the opportunity to explore various new avenues for growth as well as allowed us greater flexibility in our operations, particularly in terms of the type of aircraft that we operate.

During the year we increased the frequency of services between Harare and Johannesburg to four times daily, reinstated a limited schedule on the Johannesburg to Victoria Falls route and launched fastjet in Mozambique through a brand licence agreement with Solenta Aviation Mozambique. We currently offer a four-city network of services within Mozambique.

We have worked hard to make sure that fastjet operates the appropriate gauge fleet in each of our markets. fastjet now operates two Embraer E190 aircraft in Tanzania, two Embraer E145 aircraft between South Africa and Zimbabwe and an Embraer E145 in Mozambique. The introduction of three ATR72 aircraft, announced in the second half of 2017, will be deployed in key markets during the second half of 2018. We hold two Air Operator Certificates (AOCs) - in Tanzania and Zimbabwe - with the Federal Airlines and Solenta Aviation Mozambique Brand Licence Agreements enabling the fastjet brand to now have access to both the South Africa and Mozambique markets.

Whilst 2017 presented some operational challenges for the Group, it has been encouraging to see the rightsizing of fastjet's fleet beginning to yield positive results.

Fundraising

In January 2017 fastjet embarked on a fundraising exercise, which raised gross proceeds of US$28.8m. At the same time the Company also entered a strategic partnership with Solenta Aviation Holdings Limited ("Solenta"), a South Africa based operator of one of the largest African aircraft fleets. Under this agreement, Solenta provides and operates aircraft on a reduced cash cost, "wet/dry-lease" basis for fastjet and supplies other aviation services. It is an exciting and positive strategic partnership for fastjet as this agreement allows us to leverage Solenta's existing African business whilst simultaneously providing the platform to grow and scale fastjet flexibly and cost effectively.

In September 2017, fastjet announced a further funding exercise, raising gross proceeds of US$44m to support its growth initiatives, allowing it to enter the Mozambique market and to purchase an option right on the three ATR72 aircraft noted above.

The Board is grateful to all shareholders who participated in these fundraising exercises for their continued support.

Financial Performance

The Group recorded a significantly reduced loss for the year of US$24.5m (2016: US$67.7m pre-discontinued operations), which included the costs of an unexpected engine event with our last A319 towards the end of the year (US$6.9m) and a significant bad debt write off of $2.5m. The results for the year reflect the positive effect of the Stabilisation Plan, which commenced in August 2016. The reduction in capacity, suspension of loss making routes, relocation of the head office to Johannesburg and the various other cost saving initiatives contributed to this material improvement in bottom line performance, which is fully explained under the Stabilisation Plan section below.

As a result of the operating loss for the year, the cash costs associated with the aircraft return conditions and onerous lease contracts, which had been previously provided for, and an unexpected engine event with the last A319 aircraft prior to its return, the Group incurred a 2017 operating cash outflow of US$34.8m (2016: US$52.3m). Supported by the two capital raises the year end cash balance was US$20.1m (2016: US$3.6m). At 18 June 2018, the Group's cash balance was US$3.3m reflecting the purchase of equity in the three ATR72 aircraft (Further supported by a Solenta Loan), further operating cash outflows and a creditor reduction. Following the loan swap agreement announced on 5 June 2018, cash balances of US$1.75m held in Zimbabwe are currently restricted due to lack of foreign exchange liquidity in the country. In order to mitigate this, we announced in June 2018 that fastjet entered into a loan swap agreement of US$5m in Zimbabwe in order to make available US$2m of the restricted cash held within Zimbabwe. Although the Group is operating on a more stable footing the Board determined that additional equity should be sought to provide additional working capital. As referred to in the Chief Executive's Statement above, the Board can confirm that it has received non-binding indications of interest from existing and potential new investors to invest, in aggregate, not less than US$10m. 

Despite the progress made in implementing the Stabilisation Plan, the Directors believe that the current economic and trading outlook in fastjet's key markets of Tanzania, Zimbabwe and Mozambique remain challenging. In 2018, the Group is expecting to deploy its newly acquired ATRs, possibly into the Tanzanian market, as well as on the additional Bulawayo-Zimbabwean route. These initiatives inevitably have operational and financial risks and challenges, which the Board is confident it can manage. Having considered these challenges and risks carefully, the Directors have continued to adopt the Going Concern basis in preparing these Financial Statements.

Further details of the key assumptions and risks that the Directors have considered in concluding that the continued adoption of the Going Concern basis is appropriate in preparing these Financial Statements are set out in the going concern sections within the Financial Review below and in Note 1 of the notes to the Financial Statements.

Strategic Developments

Stabilisation Plan

fastjet's Stabilisation Plan was designed to strengthen the commercial and financial aspects of the business. We are pleased with its success, specifically regarding the rightsizing of fastjet's fleet and the associated cost reduction, together with the successful initiatives continued to sustain revenue growth during 2017. The Stabilisation Plan featured several key elements:

The rationalisation of fastjet's route network, which commenced in August 2016, was completed in early 2017. The objective was to more closely match capacity with demand. Frequencies on underperforming routes were reduced and aircraft were withdrawn from routes generating inadequate revenues, especially those that failed to cover direct operating costs.

The number, size and type of aircraft operated by fastjet was fundamentally reviewed in 2016 and a decision was made to replace fastjet's Airbus A319 aircraft with a more demand-aligned fleet. At the start of 2017 the Group's fleet consisted of three Airbus A319 aircraft and one Embraer E190. By mid-October 2017 the last 145-seat A319 was removed from service and later returned to the lessor. We introduced two 50-seat Embraer E145 in Zimbabwe from April 2017, and one in Mozambique from November 2017. All three planes were part of the Solenta Strategic Partnership agreement.

By January 2018, after an extensive certification process, fastjet had introduced into service two 104-seat Embraer E190 aircraft.

The next step in this re-fleeting exercise, announced in September 2017, will see fastjet introduce into service three 70-seater ATR72 turbo-prop aircraft in September 2018. These planes will enable fastjet to gain access to runways and markets previously inaccessible due to the Group's former jet-only operations. These aircraft will also complement our existing Embraer type aircraft, which have 50 and 100-seat capacities.

Although unexpected cash costs totalling US$6.9m were incurred in November and December 2017 due to an unexpected engine event with the last A319, the overall re-fleeting programme resulted in significant improvements to load factors and revenue per seat. fastjet's average load factor during 2017 was 71% compared with a system-wide load factor of 54% in 2016, an improvement of 17 percentage points.

Brand Licence Agreements

The purchase of the fastjet brand from easyGroup has enabled fastjet to develop and implement two brand licence agreements in rapid succession:

· fastjet Mozambique

Under the brand licence agreement with Solenta Aviation Mozambique, the first fastjet branded flight in Mozambique took place on 3 November 2017. Although still in its early stages, this market entry has so far been highly successful with flights between the major urban centres of Maputo, Nampula, Beira and Tete achieving average load factors of 66%.

In addition, on 21 March 2018, fastjet and LAM - Mozambique Airlines, S.A. ("LAM") announced that they had entered into a Memorandum of Understanding ("MoU") to explore long-term commercial cooperation. The MoU outlines several areas of cooperation between the airlines which are expected to significantly enhance commercial aviation in Mozambique. The MoU sets out code-share and interline agreements between the two carriers, optimised network synergies to accommodate these, and details of cooperation on commercial systems, cargo, engineering and maintenance. The benefits from this agreement are expected to begin to flow through in late 2018 and more fully during 2019.

· Federal Airlines

A brand licence agreement with Federal Airlines, the South Africa based bespoke lodge shuttle service operator, was implemented in late 2017 and saw fastjet gain access to a South African Airline Operating Certificate ("AOC") with a view to commencing fastjet branded services in South Africa no later than early 2019, subject to obtaining suitable additional fleet and the associated finance. Subsequent to the year-end fastjet has commenced the process of exercising its option to acquire Federal Airlines, subject to;

(a) All necessary approvals from the relevant governing authorities or regulators are obtained, including change of control approval in respect of the South African domestic and international air services licenses held by Federal Airlines Proprietary Limited; and

(b) Change of control approval in respect of the Federal Airlines Proprietary Limited property lease at O.R .Tambo Airport; and

(c) To the extent required or applicable, the Takeover Regulation Panel of South Africa provides an exemption in terms of section 119(6) of the Companies Act with respect to the Transaction or if such exemptions is not provided by the Takeover Regulation Panel, a compliance certificate in terms of section 115(1) of the Companies Act is provided by Takeover Regulation Panel for the implementation of the Transaction. The exemption must be unconditional, or if conditional, then such terms which are accepted by fastjet and Federal Airlines Proprietary Limited, acting reasonable; and

(d) Change of control approval from the Standard Bank of South Africa Limited pursuant to the aircraft loan agreement between Federal Airlines Proprietary Limited and the bank.

During 2017 the Group increasingly benefited from the cost saving initiatives of the Stabilisation Plan. These cost savings have continued into 2018. Since the successful relocation of our headquarters from Gatwick to South Africa, re-fleeting to smaller gauge aircraft, the favourable renegotiation of supplier contracts and the elimination of unnecessary duplication of resources, fastjet has become more streamlined and cost efficient, and now has a more appropriate and coordinated organisational structure.

Revenue Generating Initiatives

Throughout 2017 a major element of the Stabilisation Plan fastjet has been pursuing numerous revenue generating initiatives. These include:

· The successful implementation of a new Central Reservation System;

· Improved travel agent distribution and inventory availability on the two largest global distribution platforms;

· An improved revenue management focus coupled with better capacity discipline;

· A more effective marketing and communication strategy, including the commercial leverage of social media, public relations and more audience and market relevant marketing communication;

· The introduction of a Customer Experience business unit to better manage all physical brand touch points and develop direct customer relationships;

· The development and launch of a multi-platform responsive website with faster loading times and which is more easily accessible on mobile, desktop and intermediate devices;

· The implementation of a distressed inventory strategy whereby certain flights with low load factors are promoted effectively and successfully through gratis and low-cost distribution channels, such as social media and text messaging.

The initiatives outlined above had the following impacts:

- Full year 2017 revenue per available seat rose by over 30%, whilst cost per passenger fell by 21% and headcount was down by 27%. The first half losses fell year on year by 50%;

- A significantly reduced full year loss of US$24.5m (2016 loss US$67.7m pre-discontinued operations); and

- fastjet won three global awards as best LCC in Africa 2017/2018.

Board of Directors

In April 2017 Rashid Wally was appointed Non-Executive Chairman whilst in March 2017 Peter Hyde joined the board as a Non-Executive Director and Chairman of the Audit Committee. With effect from 15 May 2017 Michael Muller was appointed as an Executive Director and Chief Financial Officer.

Solenta is, under the terms of the strategic partnership agreement, entitled to appoint two Non-Executive Directors. In addition, the Facility granted by Solenta to fastjet in April 2018 entitles it to appoint a further Director. To date Solenta have not nominated any Directors but are expected to at least partially exercise this right during 2018.

Corporate Governance

We believe that good governance is integral to delivering growth in shareholder value. In line with best practice and regulations.

Outlook for 2018

In many respects 2017 was a watershed year for fastjet. The Stabilisation Plan was completed with a plethora of projects running simultaneously and implemented by a small team of exceptionally dedicated staff across five countries. I expect that 2018 will not only deliver the fruits of these labours but will see further foundations laid for future successes. 

While we remain prudent, fastjet has managed to restructure its operations in a relatively short space of time. We note that the markets in which fastjet operates are forecast to continue to see strong growth potential. The African Development Bank recently forecast that Mozambique, our newest market, is set to become Africa's largest economy by 2028 as natural gas exploration reaches its peak, while as recently as April 2018 the International Monetary Fund forecast current year Tanzanian GDP growth of 6%. Zimbabwe is expected to see GDP growth of 2.5% while South Africa, an economy several times the size of fastjet's other markets combined, is expected to deliver GDP growth of 1.5% in 2018.

The unexpected A319 engine event in the fourth quarter of 2017, delays in the introduction of our new fleet of Embraer E190 aircraft and occasional disruptions to our operations were all growing pains for the 'new' fastjet. However, I am confident that the combination of healthy overall GDP growth, strong trading and expected passenger growth in our established markets will all play a significant, positive role in moving fastjet forward during 2018. This, together with our new ATRs, which are expected to be introduced into service during September 2018, and expected further network growth in Mozambique, will help us to continue to realise our long-term ambition to become Africa's leading low-cost airline.

In the medium to long term the Yamoussoukro Decision and committed implementation of open skies by several African countries also bodes well, as access to growing markets becomes less impeded by challenging regulatory constraints and restrictions.

Nico Bezuidenhout

Chief Executive Officer

29 June 2018

Principal risks and uncertainties

The Group is subject to various risks, including those that derive from the nature of the aviation industry and from operating in Africa. Risk assessment and evaluation is an essential part of the Group's planning and an important aspect of the Group's internal control system.

As more fully described in the Going Concern statement in the Financial Review below, there are a number of material uncertainties that may cast significant doubt upon the Group's and the parent Company's ability to continue as a going concern.

The risk management and internal control systems encompass the Company's policies, culture, organisational behaviour, processes and systems. The Group has a risk management framework and process that identifies and monitors its principal risks and regularly identifies mitigating actions to those risks. 

The following list sets out the Group's principal risks and uncertainties, many of which are inherent in the operation of an airline in any jurisdiction and provides details as to how these are managed by fastjet. This list is not intended to be exhaustive:

§ Safety: A major safety incident could adversely affect fastjet's operational, financial performance and reputation. fastjet's quality and safety management systems provide the key risk mitigation together with additional assurance from the licence post holders in Tanzania, Zimbabwe and Mozambique, and oversight from the Plc Board's Safety Committee;

§ Strategic: The continued operation of existing routes, the commencement of operations in new markets and the selection of fleet type can have a material impact on the Group's financial performance and future prospects. The management team, through the Stabilisation Plan, has fundamentally addressed the Group's services and fleet and introduced more rigorous criteria against which new services will be evaluated;

§ Commercial: Network and fleet planning and the need for effective competitor and market analysis are important to ensure effective on-going revenue growth. The Group has an experienced management and Commercial team, which utilises in-house marketing tools and, where appropriate, external market analysis. In addition, the Group enters into and maintains contracts with related parties which underpin the Group's operations. Group management and the commercial team regularly monitor the Group's compliance and that of the counterparties with respect to these contracts;

§ Operational: Maintenance of a safe, reliable and low cost airline is essential. The Group has in place the necessary systems and internal controls to ensure sufficient crew levels to operate the schedule and effective contract management around key supplier relationships, such as aircraft lessors, maintenance providers and ground handlers;

§ Finance: The Group needs to ensure that it has the financial resources to continue operations and deliver its strategic objectives. The Group has appropriate budgeting, forecasting and cash management systems in place. Post the transfer of the Finance function to Johannesburg, it is in the process of further enhancing and strengthening its reporting and internal control environment;

§ Regulatory: The retention of regulatory approvals and licences is essential for services and operations to continue uninterrupted. The Group has the management and systems in place to ensure compliance with aviation regulations in its licenced markets - Tanzania, Zimbabwe and Mozambique - and markets it operates to, such as South Africa and Zambia;

§ Litigation: During 2016 fastjet was notified that fastjet Aviation Limited had been served with an order for a creditor instructed liquidator to be appointed over fastjet Aviation Limited. The Group has loan notes outstanding to fastjet Aviation Limited and these loan notes are currently being repaid in line with the repayment schedule. To date, no indication has been made by the liquidator of any proposed action seeking to set aside the loan notes as a preference or undervalue. Legal advice obtained by the Company suggests that there is no further recourse to fastjet Plc, that any claim is unlikely and, even if there was a claim, that it is unlikely to succeed;

§ Political uncertainty: This is continuously monitored by the Board and actions taken if and when required;

§ Introduction of new aircraft types: This is a cumbersome process and as heavily dependent on the respective in country authorities. All steps are taken to try and ensure that the authorities are part of the process from the onset, and that any complications are dealt with swiftly. Fastjet has experienced delays with the introduction of the ATR aircraft, due mainly to authority delays, but have since been granted approval; and

§ Oil price: The Group does not currently hedge but ensures that its fare prices are reflective of necessary changes.

After the successful relocation of the head office from Gatwick to Johannesburg, the senior management team is now much closer to the Group's operations, our customers and the relevant regulators. This helps ensure that, in addition to providing more efficient management, risks can be better monitored, and more effectively controlled.

The Board ensures, and intends to further enhance, its assessment of the risks and associated mitigating actions, in relation to the approved business model and strategy.

Financial Review

fastjet Group

The Group recorded an operating loss for the 2017 year of US25.3m (2016: US$65.6m pre-discontinued operations). In 2016 the Group reported a profit from discontinued activities of US$18.0m which related to the disposal of the legacy fastjet Aviation Limited (BVI) ("FAL") and the removal of the net liabilities of the Fly 540 cash generating unit ("CGU") from the fastjet Group as it is no longer consolidated (see note 3).

Group revenue decreased by 33% to US$46.2m (2016: US$68.5m) reflecting a fall of 31% in passenger numbers. The fall in passenger numbers resulted from the planned decrease in capacity of 49% following the implementation of the Stabilisation Plan, and the reduction in the number of aircraft operated, and their size. Encouragingly, revenue per seat increased to US$60.9, a year on year increase of 30% (2016: US$46.9). Revenue per available seat kilometre, a key measure of achieved revenue, rose by 33% during 2017.

Total costs decreased by 46% to US$70.7m (2016: US$136.2m). The decrease in costs largely represents the decrease in fleet and capacity in early 2017 in line with the Stabilisation Plan. 2017 saw the completion of the return of the remaining A319 aircraft, and re-fleeting to smaller gauged E190 aircraft in Tanzania and E145 aircraft in Zimbabwe. In line with this change in aircraft came a reduction in activity related costs of 42%. Aircraft lease costs increased by 16% due mainly to the change from dry leasing of the A319 aircraft to wet leasing. Fuel accounted for 19% of total costs, while maintenance, reserves and engineering of the aircraft accounted for 8% of costs. Cost per available seat kilometre excluding fuel, fell by 3% during 2017, which is a great achievement after the reduction in capacity in line with the Stabilisation Plan.

The loss after tax for the year for the continuing businesses was reduced to US$24.5m (2016: US$67.7m loss pre-discontinued operations).

The 2016 Results have been restated to take into account a prior year adjustment, namely: US$1.7m for maintenance obligations not accounted for. The details of this adjustment are further explained in note 1.

During 2017 management conducted an extensive review of its current and prior year trade receivables. The results of this exercise showed an overstatement of US$2.5m, which in management's view is not recoverable.

fastjet Tanzania

During 2017 fastjet Tanzania's revenues decreased 47% from US$60m to US$32m, primarily reflecting a planned capacity decrease of 55% contained within the Stabilisation Plan. This capacity reduction enabled a corresponding increase in load factors, which rose 17.8 percentage points. Active revenue management led to a 10% decrease in yields, in order to improve passenger numbers. The business reported a significantly reduced loss of US$19.7m for the year (2016: US$46.7m loss) largely due to fleet changes, route rationalisation, cost efficiencies and revenue maximisation.

The Tanzanian shilling: US dollar exchange rate was relatively stable during 2017 and depreciated by only one per cent compared with a 25% depreciation experienced in 2016.

fastjet Zimbabwe

During 2017 fastjet Zimbabwe's revenues increased 42% to US$12.9m from US$9.4m in 2016, mainly resulting from an increase in load factors to 68% (2016: 52%) and a 23% yield increase. This was partially offset by a capacity decrease of 19%. Aircraft utilisation increased to an average of 8.2 block hours per day (2016: 6.5 block hours per day) mainly due to the introduction of more frequent services. The business reported a significantly reduced operating loss of US$5.5m (2016: US$14.5m loss) largely due to fleet changes, route rationalisation, cost efficiencies and revenue maximisation.

fastjet Mozambique

fastjet entered the Mozambique market in November 2017. During the year it offered services on three routes. 2017 revenue was US$1.2m, with load factors averaging 66%. This was particularly pleasing given that this was the first time that the fastjet brand had operated within Mozambique. The business was break even for the year.

Key performance indicators

The Directors consider the following to be the key performance indicators ("KPIs") when measuring fastjet's underlying operational performance. The KPIs reflect standard airline industry metrics which provide measures of efficiency and business performance. They provide a mechanism for the Group to track performance at both a Group level and industry level. They are indicative of how the business is achieving its strategy and objectives from an operational, cost and revenue perspective. These measures relate to the combined operating performance of fastjet Tanzania, Zimbabwe and Mozambique.

Funding

On 5 January 2017 the Company announced a placing of 143,449,794 shares at 16.3 pence per share raising £23.4m (US$28.8m) before expenses from institutional investors and other new shareholders. The proceeds were used for the implementation of the Stabilisation Plan and specifically the changes to the aircraft fleet and completion of the relocation of the head office.

On 29 September 2017, the Company announced a further placing of 165,063,053 shares at 20 pence per share raising gross proceeds of US$44m before expenses to support its growth initiatives.

Going Concern

The Group has in recent years operated at a loss and incurred a further operating cash outflow during 2017. However, the completion of the Stabilisation Plan which commenced in August 2016, referred to in the Strategic Report enabled the Group to reduce costs and report a lower 2017 post tax loss of US$24.5m, representing a 64% reduction on the prior year pre-discontinued operations. A full year of the cost reduction benefits of the plan will be recognised in 2018. The cost base of the Group is now at an appropriate level to be able to cater for the expected increase in trading operations as noted below.

The 2018/2019 detailed cash flow forecasts prepared by the Directors for the period ended 31 December 2019 include the commencement of operation of the three owned ATR72 aircraft following completion of the entry into service checks. With the introduction into service of the additional aircraft several new routes will be launched through September 2018. As the aircraft are already owned the introduction of the new routes will only increase costs by the necessary incremental costs of running the routes, for example fuel costs and ground handling. As a result, following the successful implementation of the routes the group expects to be cash positive. As at 18 June 2018, the Group had cash balances of US$3.3m. The Board can also confirm that it has received non-binding indications of interest from existing and potential investors to invest, in aggregate, not less than US$10m in exchange for the issue of ordinary shares and this is expected to take place immediately following approval of these financial statements. The cash is expected to be received 5 working days after the announcement of the equity raise which the Directors believe will provide the appropriate working capital for the Group until the introduction of the new routes in September 2018. Whilst the Directors consider that there are material risks associated with the 2018 / 2019 forecasts, they believe that these forecasts are achievable.

The key assumptions applied by the Directors in the preparation of the detailed cash flow forecasts, which form the basis of this forecast, are:

Revenue

· Load factors reach 74% by Q4 2018 due to the following factors:

o Entry into service of the 3 ATRs in September 2018;

o Better connectivity from both frequency and new routes (part of the Stabilisation Plan);

o Right gauge aircraft to better suit individual markets and routes (part of the Stabilisation Plan);

o Active revenue management, including the introduction of several new initiatives; and

o Focused, country-centric marketing by the commercial teams.

· Based on the above, the year on year increase in passenger numbers is expected to be 50%, mainly as a result of:

o 2018 will have an average of 6.3 aircraft compared with an average of 3.5 aircraft in 2017;

o 2018 capacity offered will represent a 44% capacity increase on 2017;

o Increased commercial activity and focus

· Across all routes average fare increase for 2018/2019 of 18% arising from:

o Increased frequency allowing for better connectivity;

o A reduction in aircraft gauge thereby offering a better schedule;

o Improved revenue management, both centrally in the new South African head office and in local countries.

Operating Costs

· Cost savings embedded in the organisation during 2017 will continue to offer a benefit on an ongoing basis. These include:

o The appointment of a new fuel supplier, with associated better rates, enabling unit cost savings of circa 3%;

o The appointment of a new ground handler at Johannesburg airport, with additional savings negotiated at all other airports;

o The renegotiation of maintenance and wheels, tyres and brakes contracts in Tanzania;

o The full year effect of the relocation of fastjet's head office from Gatwick to Johannesburg, with ongoing head office cost savings of around 30%; and

o A continued focus on cost containment and the tightening of appropriate expenditure approvals procedures.

· Higher costs arising from capacity increases applying to activity related costs such as:

o Fuel

o Maintenance

o Landings and Parking

o Overflight charges

o Passenger handling charges

Other operational and cost assumptions within the cash flow forecast include:

· Bulawayo route to commence flying by latest November 2018;

· ATR carrying costs until entry into service, assumed to be during the third quarter of 2018;

· Entry into service costs for the ATRs (pilots, training, regulatory, stock pool);

· Anticipated first year start-up losses in Mozambique;

· Exchange rates. Fastjet's cashflows are most exposed to movements in the Tanzanian shilling and the US dollar. In its forecasting Fastjet has assumed that the key exchange rates remain as at current levels; and

· fastjet Aviation Limited (formerly Lonrho Aviation (BVI) Limited) has been issued with an order for a creditor appointed liquidator to be appointed under the Insolvency Act 2003 (British Virgin Islands). The Directors do not believe that there is recourse to fastjet Plc for any of the liabilities of fastjet Aviation Limited.

The Directors have considered a number of risks in preparing these forecasts including inter alia:

· Not achieving forecast passenger numbers and load factors;

· An increase in aviation fuel prices, which are currently not hedged;

· Adverse currency exchange rate movements;

· Ability to successfully remit cash from Zimbabwe;

· Ability to obtain short term financing facilities;

· Entry into service delay in respect of new aircraft and new routes

· Completion of the imminent equity raise

The Directors believe, on the basis of current financial projections, funds available and expected to be made available and based on the Group meeting its forecast, including the introduction into service of the three aircraft and the successful implementation of the new routes, the Group will have sufficient resources to meet its operational needs over the relevant period, being until December 2019. Accordingly, in preparing these Financial Statements, the Directors continue to adopt the going concern basis. However, the headroom over available cash resources is minimal and the projections are very sensitive to any assumptions not being met. The Group is also dependent upon the uptake of the imminent equity raising and receipt of cash from the equity issue securing not less than $10m.

The matters described above represent material uncertainties that may cast significant doubt upon the Group's and the parent Company's ability to continue as a going concern and, therefore, to continue realising its assets and discharging its liabilities in the normal course of business. The Financial Statements do not include any adjustments that would result if the basis of preparation proved inappropriate.

Non-trading financial performance

Post balance sheet events

ATR Letter of Intent and Memorandum of Understanding (MoU)

On 29 September 2017 the Company entered into a Letter of Intent ("LOI") with ABRIC Leasing Limited, a member of the ACIA Aero Capital Group of Companies ("ACIA"), to provide fastjet with access to three ATR72 by way of a 10-year lease, together with an option to purchase these three aircraft. The exercise of the option to purchase is subject to approval by Export Development Canada ("EDC") as ultimate owner of the ATR72s. The three aircraft are valued at approximately US$42m in aggregate, with outstanding debt at the end of 2017 of approximately US$30m, repayable in quarterly instalments over the next nine years. Under the terms of the LOI, fastjet has, post year end, paid ACIA an option deposit of approximately US$11m ("ATR Purchase Option Deposit"), for the purpose of acquiring the economic rights to the three aircraft (as explained in the circular to shareholders dated 2 October 2017).

Post year end, EDC has indicated its approval in principle for the proposed transaction, subject to due diligence and legal documentation, and accordingly fastjet has agreed to exercise its option to purchase the ATR72s and for this purpose to enter into a Memorandum of Understanding ("MoU") with ACIA and its associated companies to implement the proposed transaction. 

In accordance with the MoU:

· fastjet provides notice of its exercise of the option to purchase the aircraft, by means of a novation of the existing head-lease held by ACIA, subject to final EDC approval;

· In the event that EDC fails to provide the requisite approval, ACIA and fastjet will seek to put in place an appropriate sub-lease arrangement instead, providing substantially the same economic benefits to fastjet; and

· Following service of formal notice, the parties will have 90 days in which to complete the novation or sub-lease arrangements and, in the event that neither occurs, fastjet shall, subject to certain conditions, have a right of refund of the ATR Purchase Option Deposit.

Shareholder loan facility agreement ("the Facility")

On 4 April 2018 the Company entered into a US$12m loan facility agreement with Solenta Aviation Holdings Limited (SAHL, a related party) to fund the exercise of the Company's option over the three ATRs with the balance to be used for general working capital purposes. The salient terms of the Facility are as follows:

· The Facility is for a loan of up to US$12m to be provided by SAHL to fastjet; 

· An interest Rate of (i) the higher of US$ 30-day LIBOR plus 6.45% pa or 8% pa until 30 June 2019, and (ii) from 1 July 2019, the higher of US$ 30-day LIBOR plus 8.45% pa or 10% pa;

· Repayment of the loan by either (at fastjet's election) bullet repayment in full on 30 June 2019 or eight quarterly instalments of 12.5% of the loan, commencing 29 March 2019 and concluding 28 December 2020;

· Drawdown of the Facility was available until 30 April 2018, or such later date as the parties may agree and subject first to satisfying certain conditions precedent including execution and delivery of security for the loan. Fastjet has now fully drawn down this loan facility;

· The required security for the loan comprises security over certain key material assets of the fastjet Group including the fastjet trademarks, the majority interest in the shares held by the Group in fastjet Zimbabwe Limited, the shares to be acquired by the Group in Federal Airlines (Pty) Limited ("FedAir") (if and when acquired), and the economic rights of the Group to be acquired in the three ATRs;

· The security includes an SAHL right to nominate directors to the boards of FedAir and fastjet Zimbabwe Limited together with an additional director to the board of fastjet Plc (such nominated individuals in each case to constitute a minority of directors of the respective boards of the companies);

· fastjet has utilised the Facility, principally for the purpose of the payment of the ATR Purchase Option Deposit of approximately US$11m. fastjet's rights of refund of the ATR Purchase Option Deposit prescribed under the MOU may be offset against capital payments under the Facility;

· SAHL was entitled to a fee of US$240,000 on the date of drawdown of the Facility; and

· The Facility agreement includes standard representations, warranties and events of default, including restrictions on future borrowing and security (subject to exceptions).

Loan swap arrangement

The Company has entered into unsecured loan agreements with third parties, Annunaki Investments (Private) Limited ("Annunaki") and SSCG Africa Holdings ("SSCG"), in order to make available a portion of the Group's restricted cash held within Zimbabwe. The loans are on commercial terms, for a period of six months and allow fastjet to lend US$5m cash from fastjet Zimbabwe to Annunaki at 4% in return for a US$2m loan to fastjet from SSCG at 6% for general working capital purposes across the Group. The intention is that each of the loans are repaid at the end of the six months unless the term is extended by mutual agreement by all of the parties.

Fuel cost

During the 2017 financial year fastjet has purchased its fuel at prevailing market prices, and adjusted ticket prices accordingly where required. The Board will keep its fuel price hedging strategy under review.

Michael Muller

Chief Financial Officer

29 June 2018

Consolidated income statement

Consolidated statement of comprehensive income

Consolidated balance sheet

These financial statements were approved and authorised for issue by the Directors on 29 June 2018 and are signed on their behalf by:

Rashid Wally

Chairman

Consolidated cash flow statement

Cash balances as at 31 December 2017 include US$5,618,000 (2016 US$1,331,000) that is held in Zimbabwe and at present, can only be used within that territory.

Consolidated statement of changes in equity

Notes to the Group financial statements

1. Significant accounting policies

fastjet Plc is the Group's ultimate parent company. It is incorporated in England and Wales. The Company's shares are quoted on the AIM market of the London Stock Exchange.

Basis of preparation

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2017 or 2016. Statutory accounts for 2016 have been delivered to the registrar of companies, and those for 2017 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified in 2017 and qualified in 2016 in respect of the profit from discontinued operations of US$17.9m (ii) in 2017 and 2016 included a reference to an emphasis of matter in which the auditor drew attention, without qualifying their report, to the material uncertainties in respect of the Company and Group being a Going concern and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

These financial statements are prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value: financial instruments classified as fair value through the profit or loss or as available for sale and liabilities for cash settled share based payments. Non-current assets and disposal groups held for sale are stated at the lower of previous carrying amount and fair value less costs to sell.

They are prepared in accordance with applicable International Financial Reporting Standards (IFRS) as adopted by the EU.

The significant accounting policies are set out below and have, unless otherwise stated, been applied consistently, in all material respects, throughout all periods presented in these financial statements.

Going concern

The Group has in recent years operated at a loss and incurred a further operating cash outflow during 2017. However, the completion of the Stabilization Plan which commenced in August 2016, referred to in the Strategic Report enabled the Group to reduce costs and report lower 2017 post tax loss of US$24.5m, representing a 64% reduction on the prior year pre-discontinued operations. A full year of the cost reduction benefits of the plan will be recognised in 2018. The cost base of the group is now at an appropriate level to be able to cater for the expected increase in trading operations as noted below.

The 2018/2019 detailed cash flow forecasts prepared by the Directors for the period ended 31 December 2019 include the commencement of operation of the three owned ATR72 aircraft following completion of the entry into service checks. With the introduction into service of the additional aircraft several new routes will be launched through September 2018. As the aircraft are already owned the introduction of the new routes will only increase costs by the necessary incremental costs of running the routes, for example fuel costs and ground handling. As a result following the successful implementation of the routes the group expects to be cash positive As at 18 June 2018, the Group had cash balances of US$3.3m. The board can also confirm that it has received non-binding indications of interest from existing and potential investors to invest, in aggregate, not less than US$10m in exchange for the issue of ordinary shares and this is expected to take place immediately following approval of these financial statements. The cash is expected to be received 5 working days after the announcement of the equity raise which the Directors believe will provide the appropriate working capital for the Group until the introduction of the new routes in September 2018. Whilst the Directors consider that there are material risks associated with the 2018 / 2019 forecasts, they believe that these forecasts are achievable.

The key assumptions applied by the Directors in the preparation of the detailed cash flow forecasts, which form the basis of this forecast, are:

Revenue

· Load factors reach 74% by Q4 2018 due to the following factors:

o Entry into service of the 3 ATR's in September 2018;

o Better connectivity from both frequency and new routes (part of the Stabilisation Plan);

o Right gauge aircraft to better suit individual markets and routes (part of the Stabilisation Plan);

o Active revenue management, including the introduction of several new initiatives;

o Focused, country centric marketing by the commercial teams.

· Based on the above, the year on year increase in passenger numbers is expected to be 50%, mainly as a result of:

o 2018 will have an average of 6.3 aircraft compared with an average of 3.5 aircraft in 2017

o 2018 capacity offered will represent a 44% capacity increase on 2017

o Increased commercial activity and focus

· Across all routes average fare increase for 2018/2019 of 18% arising from:

o Increased frequency allowing for better connectivity

o A reduction in aircraft gauge thereby offering a better schedule.

o Improved revenue management, both centrally in the new South African head office and in local countries.

Operating Costs

· Cost savings embedded in the organisation during 2017 will continue to offer a benefit on an ongoing basis. These include:

o The appointment of a new fuel supplier, with associated better rates, enabling unit cost savings of circa 3%;

o The appointment of a new ground handler at Johannesburg airport, with additional savings negotiated at all other airports;

o The renegotiation of maintenance and wheels, tyres and brakes contracts in Tanzania;

o The full year effect of the relocation of fastjet's head office from Gatwick to Johannesburg, with ongoing head office cost savings of around 30%;

o A continued focus on cost containment and the tightening of appropriate expenditure approvals procedures.

· Higher costs arising from capacity increases applying to activity related costs such as:

o Fuel

o Maintenance

o Landings and Parking

o Overflight charges

o Passenger handling charges

Other operational and cost assumptions within the cash flow forecast include:

· Bulawayo route to commence flying by latest November 2018

· ATR carrying costs until entry into service, assumed to be during the third quarter of 2018

· Entry into service costs for the ATR's (pilots, training, regulatory, stock pool)

· Anticipated first year start-up losses in Mozambique

· Exchange rates. Fastjet's cashflows are most exposed to movements in the Tanzanian shilling and the US dollar. In its forecasting Fastjet has assumed that the key exchange rates remain as at current levels.

· fastjet Aviation Limited (formerly Lonrho Aviation (BVI) Limited) has been issued with an order for a creditor appointed liquidator to be appointed under the Insolvency Act 2003 (British Virgin Islands). The Directors do not believe that there is recourse to fastjet Plc for any of the liabilities of fastjet Aviation Limited.

The Directors have considered a number of risks in preparing these forecasts including inter alia:

· Not achieving forecast passenger numbers and load factors;

· An increase in aviation fuel prices, which are currently not hedged;

· Adverse currency exchange rate movements;

· Ability to successfully remit cash from Zimbabwe;

· Ability to obtain short term financing facilities;

· Entry into service delay in respect of new aircraft and new routes

· Completion of the imminent equity raise

The Directors believe, on the basis of current financial projections, funds available and expected to be made available and based on the Group meeting its forecast, including the introduction into service of the three aircraft and the successful implementation of the new routes, the Group will have sufficient resources to meet its operational needs over the relevant period, being until December 2019. Accordingly, in preparing these Financial Statements, the Directors continue to adopt the going concern basis. However, the headroom over available cash resources is minimal and the projections are very sensitive to any assumptions not being met. The Group is also dependent upon the uptake of the imminent equity raising and receipt of cash from the equity issue securing not less than $10m.

The matters described above represent material uncertainties that may cast significant doubt upon the Group's and the parent Company's ability to continue as a going concern and, therefore, to continue realising its assets and discharging its liabilities in the normal course of business. The Financial Statements do not include any adjustments that would result if the basis of preparation proved inappropriate.

Prior year adjustment

Prior year accruals

In the 2017 financial year, management became aware of additional contractual maintenance costs of US$ 1.7m that had not been incurred but not invoiced or accrued for in 2016. Accordingly, a restatement of 2016 financial results and balance sheet, as summarised below, has been made.

Impact on consolidated income statement

Impact on loss per share (basic and diluted)

Impact on consolidated balance sheet