Gama Aviation Regulatory News (GMAA)

Gama Aviation plc (AIM: GMAA)

("Gama Aviation", "the Company" or "the Group")

Final results for the year ended 31 December 2016

Gama Aviation Plc, one of the world's largest business aviation service providers is pleased to announce the results for the year ended 31 December 2016.

Financial Highlights

· Record Total Group revenues of $432.4m, up 12.6% (2015: $383.9m)

· Underlying profit before tax of $13.7m, up 3.8% (2015: $13.2m)

· Net debt of $19.4m (2015: $9.0m) reflecting acquisitions and Aberdeen hangar development

· Cash generation from operations improved to an inflow of $2.2m compared to an outflow of $14.1m in 2015

· Dividend per share up 4% to 2.6p per share (2015: 2.5p)

· 2017 trading in line with management expectations

Financial Summary

Operational Highlights

· Aircraft under management up 12.2% to 165 (2015: 147)

· US Air revenue up 30% driven by contract wins

· Transformative deal signed on 1 January 2017 with BBA Aviation Plc in the US Air division

· Europe Air revenue down 5% due to exiting underperforming contracts

· Europe Air restructuring successfully completed

· US Ground revenue up 15% driven by 3 new line maintenance bases

· Europe Ground revenue down 20% due to lower levels of discretionary spend

· Europe Ground delivered 20% operating margin despite challenging market

· Acquisitions fully integrated into the Air and Ground divisions in Europe

· Recent multi-year contract wins in the Air and Ground divisions in Europe

· Strong progress establishing Middle East and Asia platforms

· Simplified corporate structure and strengthened management team

Marwan Khalek, Chief Executive of Gama Aviation said:

"2016 has been an exceptionally busy year. We have delivered a robust financial performance, reflecting strong markets in the US and more challenging conditions in Europe.

Our merger with BBA Aviation Plc in US Air has created a powerful market leader with strong growth potential. It also offers significant cross-selling opportunities into our US Ground division. We feel very confident about the prospects for our US business as we leverage our customer relationships across our national network.

We have successfully restructured our Europe Air business, which is now well positioned for sustainable growth. In Europe Ground we expect a return to modest growth in 2017, encouraged by some early signs of a pick-up in discretionary spend.

We have strengthened our operational management team and, together with the progress made in 2016, we are confident of delivering sustainable growth in 2017 and beyond."

-ENDS-

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

A presentation for sell-side analysts is being held today at 09:30am at the offices of Camarco, 107 Cheapside, London EC 2V 6DN.

For further information please visit www.gamaaviation.com or contact:

Gama Aviation - Notes to Editors

Gama Aviation Plc (AIM:GMAA) is a global business aviation services group that specialises in providing support for individuals, corporations and government agencies; allowing them to deliver on the promises they make.

The Group's services are split into two divisions: Air and Ground. Air services include aircraft management, special mission support and charter. Ground services cover aircraft maintenance services, aircraft modification design and installation, and Fixed Base Operations (FBO).

More details can be found at: http://www.gamaaviation.com/

Chief Executive Report

2016 Performance

I am pleased to report on a busy year of strong progress. We delivered a robust financial performance reflecting strong markets in the US and more challenging conditions in Europe.

Cash generation has also improved significantly through 2016 to deliver an inflow of $2.2m compared to an outflow of $14.1m in 2015. Our Air and Ground divisions have, as expected, faced different opportunities and challenges regionally. By taking advantage of the opportunities and decisively addressing the challenges, we have delivered a credible performance.

The US remains our most buoyant region delivering the majority of the Group's revenue growth as well as improved EBITDA margins across both the Air and Ground divisions.

In Europe Air, the remedial actions taken early in the year to exit underperforming contracts and right size the cost base were successfully completed and delivered an improved performance through the second half of the year. Whilst the decline in revenues within Europe Ground, caused by lower levels of discretionary spend on aircraft improvement projects, was disappointing, the division continues to deliver healthy margins and remains the most profitable division within the Group.

The "bolt on" acquisitions during the year of Aviation Beauport in Jersey and of FlyerTech have been integrated and are delivering on their strategic objectives.

Margin improvements in the Middle East region during 2016 saw both the Air and Ground divisions deliver their maiden EBITDA profit. We also saw good progress within our Asia start-up based in Hong Kong.

Growth strategy

Our growth strategy remains a simple one. By increasing the depth of our capability and expertise, we bring more products and service offerings to market across more locations, which together serve to increase the scale of our operations and presence. We leverage this to deliver benefits to our customers, enhancing our value proposition and maximising our cross selling opportunities. The combination of our scale presence and the benefits we provide to our customers enables us to deliver sustainable and profitable organic growth, which we supplement by strategic acquisitions that are value accretive. Strategically we are now positioned as a market leader and consolidator in the highly fragmented business aviation services sector.

2016 has seen us continue to deliver on this strategy with 10.3% organic Total Group revenue growth. We made two "bolt-on" acquisitions that added to the depth of our capability and breadth of our service offering and geographical coverage in Europe Air and Ground. At the start of 2017 we announced two further strategic developments. The merger of our US aircraft management and charter business with that of BBA Aviation Plc creates a market leading platform in the US that is transformational for our US business. The collaboration with CASL in Hong Kong is a significant first step in developing our ground business in the region. These transactions represent significant progress towards our stated objective of doubling the scale of our business.

Leadership team

We have made a number of appointments over the last year across all regions and divisions in a variety of roles including finance, operations, engineering and sales to strengthen our team and support our growth. In particular, Neil Medley joined in September as Chief Operating Officer to drive operational excellence worldwide. Neil brings a wealth of experience having previously fulfilled a similar role within a division of BAe Systems. We are also in the process of recruiting an additional non-executive director.

Outlook

2017 has started well and our expectations for the year remain unchanged.

The US market remains very buoyant and with our enlarged US Air platform, as well as the contracted growth from Wheels Up, we expect the division to continue to grow strongly. Similarly, the roll out of new maintenance bases, coupled with the significant cross selling opportunities that arise from the enlarged fleet within US Air, give us confidence that the US Ground division should also continue to grow strongly.

In Europe, we expect to see a return to modest growth in Air and Ground. We are encouraged by the recent contract wins across both divisions and some early signs of a pick-up in discretionary spend in Europe Ground.

We expect the progress within our Asia and Middle East divisions to continue as these operations develop.

Overall, the Group is well positioned to deliver growth and performance in 2017 in line with our expectations.

Marwan Khalek

Chief Executive Officer

Operational Performance Review

Basis of presentation of financials

The analysis of Gama Aviation's operational performance by division and geography, is shown on a Total Division basis (for revenue, gross profit, underlying EBITDA and underlying total operating profit) reflecting 100% of the performance of associates and joint ventures. The analysis also includes inter-segment revenues, which represent the revenues that arise between divisions, in order to present the underlying performance of each division.

Gama Aviation receives a fee in return for allowing its associates and joint ventures the use of the Gama Aviation brand. Such branding fees are excluded from the results on a Total Division basis but are recognised within Gama Aviation's Group reported performance.

Under IFRS, the trading results of associates are not consolidated and are instead shown as a single line in the profit and loss account under 'share of results from equity accounted investments'.

Air division

Our Air division specialises in the provision of complex, high touch, time critical, solutions for individuals, corporations and government agencies.

Aircraft management: A high touch, outsource solution for individual aircraft or commercial fleet owners looking to receive impeccable service, financial transparency and an unrelenting approach to safety. Services are comprised of flight training, cost management, flight planning and scheduling, crew management, maintenance oversight and regulatory compliance. Services are contract based with costs such as fuel, insurance, crew and maintenance being recharged to the client.

Special mission: A turnkey, outsource solution for Government agencies looking to cost effectively manage aviation operations for a variety of complex, time critical services such as air ambulance provision and infrastructure monitoring. Our services include cost management, flight planning and scheduling, crew management, maintenance oversight and regulatory compliance. Services are provided on a contract basis.

Aircraft charter and contract charter: A time critical, high touch solution aimed at individuals and corporations wishing to maximise the productive time of their aircraft and/or executives. Services include long term charter contracts, provision of charter within the managed fleet and sub-charter on audited operators. Services are provided on a commission or contract basis.

The Air division had a good year overall with strong revenue growth in the US offsetting a decline in Europe. Total Division revenue was up 16.8% to $387.5m (2015: $331.8m). The conversion to EBITDA improved in every region with a total EBITDA margin of 2.2% (2015: 1.2%) which delivered an increase in EBITDA of 123.6% to $8.5m (2015: $3.8m).

US Air (Associate)

The US Air division have continued to perform strongly in 2016, delivering both significant top line revenue growth, up 30.2% to $234.7m (2015: $179.5m) and margin improvement at gross profit, EBITDA and total operating profit level.

The strength of this performance reflects a high contract win rate in our core management business adding a number of significant contracts. In addition, the growth in aircraft which we operate under our Wheels Up contract continued to progress well. US Air had 116 aircraft under management as at December 2016, up from 93 in December 2015, an increase of 24.7%.

Tender activity within our core management business remains high. Subject to the successful outcome of these tenders, together with the contracted growth under the Wheels Up contract, which will add a further 12 aircraft a year for the next two years, the division's growth prospects are strong.

US Air Total Group underlying EBITDA was $6.4m (2015: $3.0), an increase of 113.3%, with the underlying EBITDA margin of 2.7% (2015: 1.7%). The US Air underlying EBITDA margins are expected to increase towards our target of 5.0% as the benefits of scale and operational gearing continue.

The reported underlying total operating profit (which includes the contribution of the associate) of the US Air Business for Gama Aviation is derived as follows:

On 3 January 2017, we announced the merger of our US Air division with that of BBA Aviation Plc creating the US's largest aircraft management business. The merger took place on 1 January 2017 and we will provide a detailed operational review of its performance with the half year numbers later in the year.

Europe Air

Europe is the only region in the Group that is affected by any material foreign exchange movements, primarily between GBP and USD. The 2015 performance has been restated at the same average rate for USD to GBP as the reported 2016 financials. The average rate for 2016 was USD1.36 to GBP1.00. The commentary below is based on constant currency performance unless otherwise stated.

Europe Air delivered a credible performance in 2016 despite the challenging market conditions. Revenue and gross profit were down 5.1% and 21.6% on a constant currency basis as the business exited underperforming contracts. These contracts on a fully-costed basis were loss-making at EBITDA level and presented an unattractive credit profile.

The EBITDA performance showed significant improvement in the year, up 37.9% to $2.6m (2015: $1.9m) due to exiting the underperforming contracts and the right-sizing of the cost base during the year.

The division also incurred trading foreign exchange losses of approximately $1m, as a result of currency volatility, which is included in EBITDA. Adjusting for this, the underlying business delivered an EBITDA of approximately $3.6m, an increase of 90.5%.

We are now confident that the division is well positioned to deliver modest growth and improve EBITDA margins towards our 5.0% target.

Middle East Air

Both gross profit and EBITDA margins have slightly improved despite the decline in top line revenue, which was largely pass through in nature. The division signed up three new aircraft in the final quarter of 2016 and, together with a healthy pipeline, we are optimistic about the division's prospects.

Asia Air

Asia continues to develop albeit from a low base. The division is still in a start-up phase but has a promising pipeline of managed aircraft contracts. We are expecting this division to steadily build towards making a positive contribution to the Group over the medium term.

The reported underlying total operating profit (which includes the profit contribution of the joint venture) of the Asia Air division for Gama Aviation is derived as follows:

Ground division

Our Ground division provides solutions to maximise the availability of aircraft and uphold their airworthiness on behalf of individuals, corporations and Government agencies.

Base maintenance: 'Base' refers to the planned maintenance required by the aircraft manufacturer or component supplier. This work is complex, highly regulated and location specific, requiring investment in tooling and training. Our centres of excellence cover a range of aircraft including business jets, helicopters, turbo-prop and piston engine aircraft. Services are provided on a fee or contract basis.

Line maintenance: Our line solutions assist owners with irregular maintenance activities, component failure or simple wear and tear. Depending on the fault, this may be sufficient to ground the aircraft. For private clients, this can be an inconvenience whilst for military or air ambulance clients, the aircraft's re-entry into service is time critical. In all cases it needs to be dealt with efficiently so the aircraft can complete its commitments. Services are provided on a fee or contract basis.

Design and modifications: Our design and modifications team provides solutions to civilian and military aircraft owners to increase the operating life of an aircraft. Typical services include: avionics updates, role or mission changes and cockpit upgrades. Services are provided on a fee or contract basis.

Fixed base operations (FBO): Our FBO's provide infrastructure at airports that are underserved with business / special mission facilities. The business has three dedicated FBOs: Glasgow, Jersey and Sharjah, catering for parking, hangarage, line maintenance and other related ground handling tasks such as the fuelling of aircraft. Services are provided on a fee basis.

The Ground division has delivered solid gross profit, EBITDA and operating profit margins despite some challenging market conditions. Significant progress made in the Ground division in both the US and the Middle East helped offset a significant decline in Europe, following a very strong year in 2015 and a reduction in discretionary spend in 2016.

US Ground

US Ground delivered a good performance with revenue up 16.8% to $24.1m (2015: $20.7m). As expected, the opening of new bases during the year marginally impacted gross profit margins but the benefits of operational leverage delivered improved EBITDA margin of 11.5% (2015: 10.8%).

US Ground has a network of nine regional bases which act as hubs from which 30 mobile units can provide extended coverage. US Ground is now able to service its customers' line maintenance requirements on a national basis.

The US Air merger with the aircraft management and charter business of BBA Aviation Plc has brought a material increase in the number of aircraft into the US Air division which can be cross sold US Ground services.

Europe Ground

Europe is the only region in the group that is affected by any material foreign exchange movements, primarily between GBP and USD. The commentary below is based on constant currency performance unless otherwise stated.

There was a material decline in performance in 2016 after a very strong year in 2015. Europe Ground revenue decreased by 20.0% whilst gross profit decreased by 18.3% on a constant currency basis. The decline in revenue and associated gross profit was the result of lower levels of discretionary spend on modifications, improvements and refurbishment works. However, the division delivered robust gross profit and EBITDA margins of 46.0% and 21.9% respectively, despite this decline in revenues and remains the Group's most profitable division.

2017 has started well with the award of a new multi-year government contract and, together with some early signs of a pick-up in discretionary spend, we are now expecting Europe Ground to return to modest growth.

Middle East Ground

Middle East Ground has performed well in 2016. Revenue was up 4.1% to $5.2m (2015: $5.0m), gross profit up 42.8% to $1.7m (2015: $1.2m), and the gross profit margin up 8.9 basis points to 32.8% (2015: 23.9%).

Importantly, the division made a small first time EBITDA profit. Although the division is still in its infancy, new parking and hangarage contracts are coming on stream, and with movements through the FBO increasing, we are confident in the long-term prospects for this division.

Financial Review

Total Group performance

During the year the Total Group performance, which included 100% of the results of the associate and joint venture, delivered revenues of $432.4m. This excludes the divisional inter-segment revenue which is removed on a Total Group consolidated basis.

The Operational Performance Review illustrates the divisions and regions on an unconsolidated basis and therefore includes the divisional inter-segment revenue treating each division as a stand-alone business for comparative purposes in order to assess the underlying performance of each division.

The table below reconciles the Total Divisional performance to the Total Group performance.

The table below reconciles the Total Group performance to the reported results.

Basis of presentation of financials

In order to aid understanding of Gama Aviation's underlying business performance, all financial commentary below is provided on a constant currency basis unless otherwise stated. The 2015 performance has been restated to the same average rate for USD to GBP as the reported 2016 financials. The average rate for 2016 was USD1.36 to GBP1.00.

Revenue

The business delivered record Total Group revenues in 2016, up 12.6% to $432.4m (2015: $383.9m). The bolt on acquisitions of Aviation Beauport and Flyertech contributed revenues of $8.9m following completion.

Reported revenue is down 6% on a constant currency basis to $203.0m (2015: $216.0m) predominantly as a result of Europe Air and Ground where trading has been muted and certain underperforming contracts have been exited.

Gross profit and EBITDA

Total Group gross profit is up 1.8% to $52.4m (2015: $51.5m), although the margin has slipped from 13.4% to 12.1% in 2016, a trend that has continued from the half year results. This is primarily as a result of the change of business mix with a greater proportion of the growth coming from the US Air business which attracts a lower gross profit margin of 6%.

Total Group underlying EBITDA is up 10.4% to $17.2m (2015: $15.6m) with the significant improvement in our Air and Ground divisions in the US helping to compensate for the decrease in performance in Europe Ground.

Reported gross profit is down 6.8% to $44.2m (2015: $47.4m). Pleasingly, our Air and Ground divisions in the regions outside Europe showed an upturn in gross profit. The decrease has come in Europe Air and Ground with the decrease in discretionary spend in Europe Ground and the exit of underperforming contracts in Europe Air.

Reported underlying EBITDA has dropped 7.5% to $17.3m (2015: $18.7m). Included within our Europe Air is $1m of trading foreign exchange losses borne in the year as a result of the volatile currency movements in the year, particularly the strengthening of USD to GBP. The reported EBITDA would be similar to the prior year if this were added back as part of the underlying performance.

Exceptional costs

Underlying EBITDA is stated before exceptional costs of $2.5m, details of which are included within note 4. Of the total $2.5m exceptional costs, $1.4m are transaction costs with the remainder being the one-off costs associated with the subsequent integration and re-organisation of these transactions.

Discontinued operations

The operating losses incurred on the Group's owned aircraft that are deployed on ad-hoc charter are also separated from the underlying EBITDA as this is a legacy element of the business model that the Group has classified as discontinued. The discontinued operations loss for the year was $2.1m, of which $1.8m were impairments to their residual values. During the course of the year, an owned aircraft that was not of the right specifications and therefore operationally inefficient, was classified as held for sale. After the year end, Gama Aviation sold one of the three remaining aircraft that was held for sale for $0.75m. The book value of the two remaining assets held for sale is $6.5m.

Total operating profit

Reported underlying total operating profit, which includes the operating profit attributable to Gama Aviation of the 100% owned group companies together with the results attributable to Gama Aviation from its associate and joint venture is in line with 2015 at $15.1m (2015: $15.3m).

Profit before tax and earnings per share

The reported profit before tax of $19.3m (2015: $6.9m) and earnings per share of (EPS) of 42.9p (2015: 21.3p) both benefitted significantly from a material foreign exchange credit in the year which is explained in more detail in the foreign exchange section below. This credit is excluded from our profit before tax and EPS numbers below to give a better understanding of the underlying performance of the Group.

Underlying profit before tax is up 3.8% at $13.7m (2015: $13.2m).

Underlying EPS is down 18.9% to 30.1 cents (2015: 37.1 cents). However, the EPS in 2015 benefitted from a tax credit of $2.5m against a tax charge of $0.6m in 2016. On a like-for-like basis, the underlying business produced an EPS of 31.5 cents in 2016 compared to 31.2 cents in 2015.

Taxation

There is a total tax charge for the year of $0.6m made up of a tax charge of $1.6m offset by a deferred tax credit of $1.0m. In 2015, there was a tax credit of $2.5m as a result of deferred tax movements in the US business.

Foreign exchange

Within our global services business, we operate and manage geographically mobile assets. As a result, Gama Aviation is exposed to a number of currencies. With the exception of Europe, the rest of the regions trade in USD which is the same as our Group reporting currency, leaving little or no foreign exchange exposure.

The material currency exposure for Gama Aviation is within our Europe operations in GBP to USD. Gama Aviation experiences both realised and unrealised trading gains and losses on these exchange rate movements. These impact our operating performance, and finance income and costs.

As the GBP weakens against the USD, the UK businesses suffer both trading and translational losses at EBITDA level. However, the intercompany loan structure within the Group works in the opposite direction and Gama Aviation experiences foreign exchange gains within finance income as the GBP weakens against the USD.

Given the volatility of the GBP to USD exchange rates over the year, Gama Aviation experienced sizeable losses of over $1m within its underlying EBITDA and material gains within its finance income of $9.7m.

Gama Aviation has not adjusted for the operating losses experienced in the year due to the foreign exchange impact despite the unusual volatility in the rates over the year but it has adjusted out the material foreign exchange credit within profit before tax and EPS.

The use of the constant currency reporting helps to illustrate the underlying performance of the business in the absence of these foreign exchange movements.

An independent foreign exchange review has been carried out which identified a number of small but effective improvements that can be made and these are being put in place. The review concluded that Gama Aviation is managing its foreign exchange exposure in an appropriate way given the size and nature of the business.

Cash

Cash increased by $2.7m to $11.2m (2015: $8.5m).

Operating cash inflow before movements in working capital increased 33.6% to $16.3m (2015: $12.2m) and the working capital movement improved by 46.3% to an outflow of $14.1m (2015: $26.3m outflow).

Cash generated by operations was $2.2m for the year compared with an outflow of $14.1m in 2015. The Group is focused on improving its working capital management and we expect the business to generate significantly higher cash conversion in the future.

Net debt at the year-end was $19.4m, up from $9.0m in 2015 as the Group drew on debt facilities to fund the acquisitions and related costs in the year.

Net debt to underlying EBITDA was 1.1x (2015: 0.4x).

Dividend

The Directors are recommending a dividend of 2.6p per share, an increase of 4.0% (2015: 2.5p per share).

Kevin Godley

Chief Financial Officer 

Segmental analysis

(USD thousands)

Total Group1 and Constant Currency2

Total Group1

1 - Including 100% of the results of Gama Aviation's Associate in the US and Joint Venture in Hong Kong.

2 - Calculated at a constant foreign exchange rate of $1.36 to £1.

3 - Underlying EBITDA is arrived at by taking operating profit before depreciation, amortisation and exceptional items.

4 - Underlying total operating profit is arrived at by taking operating profit before amortisation and exceptional items and including the share of results of equity accounted investments.

5 - 'Elims' represents the elimination of inter-segment revenue.

Segmental analysis (continued)

(USD thousands)

Reported and Constant Currency2

Reported

1 - Including 100% of the results of Gama Aviation's Associate in the US and Joint Venture in Hong Kong.

2 - Calculated at a constant foreign exchange rate of $1.36 to £1.

3 - Underlying EBITDA is arrived at by taking operating profit before depreciation, amortisation and exceptional items.

4 - Underlying total operating profit is arrived at by taking operating profit before amortisation and exceptional items and including the share of results of equity accounted investments.

5 - 'Elims' represents the elimination of inter-segment revenue.

Consolidated income statement for the year ended 31 December 2016

Consolidated statement of comprehensive income as at 31 December 2016