Gama Aviation Regulatory News (GMAA)

Gama Aviation Plc (AIM: GMAA)

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

Interim results for six months to 30 June 2017

Gama Aviation Plc, one of the world's largest business aviation service providers is pleased to announce the results for the six months to 30 June 2017.

Financial Highlights

· Total Group revenue up 45% to $291m (2016: $201m)

· Underlying total operating profit up 31% to $7.7m (2016: $5.9m).

· Underlying profit before tax of $7.0m, up 40% (2016: $5.0m)

· Underlying EPS up 25% to 12.2 cents (2016: 9.7 cents).

· Net debt decreased to $14.3m, down $5.1m from December 2016 (June 2016: $13.3m)

· Cash conversion from operations improved to an inflow of $5.7m compared to an outflow of $1.1m in 2016

· 2017 trading in line with management expectations

Financial Summary

Operational Highlights

· US Air revenue up 74% driven by the BBA aircraft management business merger, Wheels Up growth and further contract wins

· US Air BBA business merger proceeding as planned and on course for full integration by year end

· Europe Air operational efficiency initiatives completed in 2016 have produced strong improvements in gross profit and EBITDA margins

· US Ground revenue up 19% driven by full period impact of new bases opened in 2016 and new contract wins

· Europe Ground showed modest revenue growth and improved profitability

· Middle East Air and Ground showed encouraging growth

Marwan Khalek, Chief Executive of Gama Aviation said:

"The first half of 2017 has seen the Group maintain the positive momentum generated through last year to deliver a good performance in line with our expectations. In all divisions and all regions we achieved strong revenue growth and encouraging improved margin performance.

The integration of the BBA aircraft management business into the US Air division is progressing well and benefiting from a buoyant US market. The 2016 acquisitions of Aviation Beauport and FlyerTech, in Europe Ground and Europe Air respectively, are performing above expectations. Gama Aviation is well positioned to continue to benefit from the opportunities that this highly fragmented market presents.

Based on our performance to date and contract visibility, the Board is confident that the Group will meet its full year expectations."

-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 09:00am at the offices of Camarco, 107 Cheapside, London EC 2V 6DN.

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

Gama Aviation Plc +44 (0) 1252 553029

Marwan Khalek, Chief Executive Officer

Kevin Godley, Chief Financial Officer

Camarco +44 (0) 20 3757 4992

Ginny Pulbrook

Geoffrey Pelham-Lane

Jefferies International +44 (0) 207 029 8000

Simon Hardy

Will Soutar

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

H1 2017 Performance

The first half of 2017 has seen the Group maintain the positive momentum generated through last year to deliver a good performance in line with our expectations. Strong revenue growth and encouraging margin performance was achieved in both divisions and in all regions. Active working capital management continued during the period resulting in a cash inflow of $5.7m compared to an outflow in the first half of 2016 of $1.1m.

The Air division had a strong six months. Total Divisional revenue was up 43% to $253m (2016: $177m), driven largely by the US. With the benefits of increasing scale, the total operating profit of $7.3m (2016: $2.5m) continued to improve, with the total operating profit margin of 2.9% (2016: 1.4%) moving towards our stated target of 5%.

The Ground division also had a good first half. Total Divisional revenue was up 10% to $38m (2016: $35m), driven largely by the US. The total operating profit of $5.2m (2016: $3.9m) continued to improve due to cost control and business mix. The total operating profit margin increased to 13.6% (2016: 11.4%) moving towards our stated target of 15% to 20%.

Our developing businesses in the Middle East and Asia have both made further steady progress. Movements at our Sharjah FBO are at an all-time high and this provides a strong foundation for our planned development in the region. In Asia, our joint venture with Hutchinson, in collaboration with Chinese Aircraft Services Limited (CASL), has now received the necessary regulatory approvals to offer line and base maintenance services at Hong Kong airport.

Business Development and Growth Strategy

The integration of the BBA aircraft management business into the US Air division is progressing well and benefiting from a buoyant US market. The 2016 acquisitions of Aviation Beauport and FlyerTech, in Europe Ground and Europe Air respectively, are performing above expectations. Gama Aviation is well positioned to continue to benefit from the opportunities that this highly fragmented market presents.

Outlook

Based on our performance to date and contract visibility, the Board is confident that the Group will meet its full year 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'.

Europe is the only region in the Group that is affected by any material foreign exchange movements, primarily between GBP and USD. The 2016 performance has been restated at the same average rate for USD to GBP as the 2017 financials. The average rate for H1 of 2017 was USD1.26 to GBP1.00. The commentary below is based on constant currency performance unless otherwise stated.

Air division

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

Aircraft management: The provision of aircraft management services to high net worth individuals and corporates. This includes the procurement on the customers' behalf of services such as insurance, fuel, flight training, flight planning and scheduling, crew management and maintenance oversight and regulatory compliance. In return, the customer pays Gama Aviation a management fee.

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 strong six months. Total Divisional revenue was up 43% to $253m (2016: $177m), driven largely by the US. With the benefits of increasing scale, the total operating profit of $7.3m (2016: $2.5m) continued to improve, with the total operating profit margin of 2.9% (2016: 1.4%) moving towards our stated target of 5%.

US Air (Associate)

US Air, now including the merged BBA business, has continued to perform strongly in the first half of 2017, delivering significant revenue growth, up 74% to $191m (2016: $110m) and margin improvement.

US Air total operating profit was $6.0m (2016: $2.4m), with the total operating profit margin of 3.1% (2016: 2.2%). The US Air total operating profit margins are expected to increase towards our target of 5% as the benefits of scale and operational gearing continue. The strength of this performance reflects the addition of the BBA aircraft management business, as well as a high contract win rate in our core management business and the continued growth of our Wheels Up contract.

The integration of the BBA business is progressing as planned. The combination is delivering the envisaged benefits: adding complementary West Coast coverage to the existing East Coast business, diversifying the client base, providing the ability to cross sell maintenance services into Gama Aviation's wholly owned US ground business and delivering cost synergies.

The business was rebranded as Gama Aviation Signature on 1 January 2017. It is the largest aircraft management business in the US and has significant growth prospects.

Europe Air

Whilst revenue declined, as expected, reflecting the Group's decision to exit certain underperforming contracts in 2016, Europe Air delivered a significantly improved total operating profit performance following its restructuring in 2016. Total operating profit increased to $1.5m (2016: $0.6m) at a materially improved total operating profit margin of 3.5% (2016: 1.2%), moving closer to our target of 5%.

Middle East Air

Our Middle Eastern Air business performed well. Revenue was up over 30% on the same period in the prior year and with a significant improvement in operating profit. The division's prospects are strong with a healthy pipeline of contract tenders.

Asia Air

Asia Air has made good progress establishing its brand alongside our joint venture partner, Hutchison Whampoa, and is well positioned for the future.

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 had a good first half overall with growth in revenues, EBITDA and operating profits. Revenues and EBITDA were up across all regions and whilst there are still fluctuations in the gross profit margin in the fast growing US division as expected, the overall EBITDA and operating profit are up by 25% and 32% respectively.

US Ground

US Ground delivered strong revenue growth in the first half, up 19% to $14.2m (2016: $11.9m). As expected, there have been variations in the gross profit percentage as the business scales up. This has been driven by the addition of new bases and changes in revenue mix but this gross profit percentage should normalise at around 20% as the business matures. The total operating profit of $0.8m (2016: $0.8m), whilst flat, reflects the investment in the new bases.

The division has good growth prospects after some healthy contract wins in the first half.

Europe Ground

The European Ground division had a positive first half of 2017. Growth in revenue was modest reflecting the return of discretionary spending albeit at low levels. Gross profit was maintained at a healthy margin of 43.3% (2016: 42.9%). Principally, as a result of the restructuring programme in 2016, total operating profit was up 30% to $4.2m (2016: $3.2m).

The division now has a solid platform to deliver modest growth.

Middle East Ground

Middle East Ground successfully built on the platform it established in 2016. Revenue and gross profit were up 25% to $3.0m (2016: $2.4m) and up 26% to $1.0m (2016: $0.8m) respectively.

The division continues to see increased numbers of movements through the FBO and this provides a strong foundation for our planned development in the region.

Financial Review

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 2016 performance has been restated to the same average rate for USD to GBP as the reported 2017 financials. The average rate for H1 of 2017 was USD1.26 to GBP1.00.

Total Group performance

During the period the Total Group performance, which included 100% of the results of the associate and joint venture, delivered revenues of $290.8m. 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 Group performance to the reported results.

Revenue

For the first half of the year, the business delivered revenue of $101.6m (2016: $92.8m), up 9.5% on a constant currency basis driven primarily by the one-off procurement of aircraft for one of our government contracts. The total revenue on this was $10.5m, classified as aircraft sales and was derived within the Europe Ground business.

The Landmark merger together with the organic growth in the US Air business, continues to drive record Total Group revenues, which are up 45% to $290.8m (2016: $201.0m).

Gross profit

Reported gross profit is up 6% to $21.3m (2016: $20.1m) with a stable gross profit percentage of 21.0% (2016: 21.6%).

EBITDA

Underlying EBITDA is up 14% to $8.0m (2016: $7.0m). The contribution to the Group EBITDA from the European Air and Ground divisions has increased by 39% to $6.1 (2016: $4.4m). This has offset the lower branding fee derived from the US Air business of $2.0m (2016: $2.7m). The branding fee is now fixed from 1 January 2017 at $4m in 2017 and $3.75m from 2018 onwards. The remainder of the profits attributable to Gama Aviation from the US Air business are derived in total operating profit, which includes Gama Aviation's share within the line of the associate.

Exceptional items

Exceptional items amounted to $0.6m (2016: $1.3m), details of which are included within note 4. Of the total $0.6m exceptional costs, $0.2m are transaction costs (2016: $0.5m) with the remainder being the one-off costs associated with the subsequent integration and re-organisation of these transactions.

Share based payment expense

On 10 August 2016, the Group announced that a total of 1,500,000 share options were granted at £1.55 to a number of employees. On 6 January 2017, 1,390,000 share options were formally awarded and accordingly there is a share based payment charge in the period of $0.1m (2016: $nil). Please see note 9 for more detail.

Associates and Joint ventures

To illustrate the Total Operating Profit contribution that is derived by the Gama Aviation Group's associates and joint ventures, the following tables below reconcile the divisional performance of both US and Asia Air to the reported Total Operating Profit.

US Air

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

Losses of associate

Within the $1.9m share of results of the US Air associate is a $1.5m provision release. During the past few years, the US Air associate has been loss- making and the Group has been provisioning amounts in anticipation of additional resourcing requirements. Previously, these losses have been included in the Group's underlying earnings and have therefore been included in the Group's underlying EPS. With the strength of the Associate's performance, its profit-making position and positive net assets position, together with a re-organised branding fee structure, the provisions are no longer required and have been released. The provision release has not been included in the Group's underlying results in this period.  

Asia Air

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:

Total operating profit

The 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 up 31% to $7.7m (2016: $5.9m).

Share of associate's exceptional items

The Group also had a further share of exceptional items from our associate of $0.2m (2016: $nil).

Losses of associate and joint venture

Over previous and current financial periods, Gama Aviation has been provisioning amounts in anticipation of additional resourcing requirements for both the associate and joint venture. The losses made in the associate and joint venture have been included in the Group's underlying earnings and have therefore been included in the Group's underlying total operating profit. With the strength of the US Air associate's performance in 2017, its profit-making position and positive net assets position, together with a re-organised branding fee structure, the provisions are no longer required and have been released. The provision release has not been included in the Group's underlying earnings in this period.

Provisions continue to be made for the losses of the joint venture and amounted to $170k (2016: $239k) in the period. Similarly, these losses have been excluded from the underlying earnings of the Group and are therefore not included in the underlying Group total operating profit.

Profit on disposal of interest in associate

At 31 December 2016, the Group held a 49% interest in Gama Aviation LLC and accounted for this investment as an associate. On 1 January 2017, Gama Aviation LLC merged its aircraft management and charter operations with Landmark Aviation LLC, a wholly owned subsidiary of BBA Aviation Plc. As a consequence, the Group transferred a 24.5% interest to BBA Aviation Plc in return for 24.5% of the net assets of Landmark Aviation LLC. This transaction has resulted in the recognition of a profit on disposal of interest in associate of $2.2m. The Group has retained the remaining 24.5% and continues to account for the investment as an associate.

Profit before tax

Underlying profit before tax is up 40% to $7.0m (2016: $5.0m).

Unrealised FX movements within finance costs

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 between GBP and 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.

2016 was an especially volatile year between GBP and USD exchange rates and as a result we reported some material gains within finance income. This was due to the loan structure within the business and how the proceeds of equity and debt were deployed into subsidiary companies whereby translation differences arose where functional currencies differed from the Gama Aviation reporting currency of USD.

We reported during 2016, that Gama Aviation was looking to reduce this complexity by simplifying both the loan structure of the group and to carry out a review of the functional currencies of the subsidiaries in the group and we are pleased with the progress made.

The unrealised FX movement in the period was a loss of $0.2m (2016: gain of $4.7m).

Earnings per share (EPS)

Underlying EPS is up 25% to 12.2 cents (2016: 9.7 cents).

Taxation

There is a total tax charge for the period of $1.5m (2016: $1.0m) and an effective tax rate of 20%.

Cash

Cash increased by $4.0m from $11.2m at December 2016 to $15.2m. This has been aided by all the divisions within the various regions being EBITDA positive.

There has been a significant focus within the Group to improve its working capital management with a working capital movement in the first half that is neutral compared to a $6m outflow in the prior period. As a result, cash generated from operations was $5.7m for the period compared with an outflow of $1.1m in 2016. With the continued focus on working capital management within the Group, a stabilised European fleet and the exiting of the underperforming contracts in 2016 resulting in less debt impairments, the business is starting to generate the expected cash conversion.

Net debt at the half year was $14.3m, down $5.1m from December 2016. This improvement has come as a result of an improved period end cash balance as well as the disposal of two of the aircraft that the Group held as held for sale. The proceeds received allowed the Group to pay off the remaining asset backed debt.

Net debt to underlying EBITDA was 0.98x (2016: 0.80x).

Dividend

As usual and in accordance with the group's dividend policy, the Directors do not propose an interim dividend to be paid for the six months to 30 June 2017. The Group will continue to maintain its progressive annual dividend policy.

The final dividend of 2.6p per share for the year ended 31 December 2016 was approved at the Annual General Meeting on 25 May 2017 and was paid on 18 July 2017.

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 period was $1.0m (2016: $0.1m). During the period, the Group sold two of the three remaining owned aircraft. The book value of the one remaining asset held for sale is $1.5m.

Kevin Godley

Chief Financial Officer 

Segmental analysis

(USD thousands)

Total Group1 and Constant Currency2

Total Group1

1 - Includes 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 $1.26 to £1, being the rate that represented the average for the 2017 financial period.

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

4 - Underlying total operating profit is arrived at by taking operating profit before amortisation, exceptional items, share based payment expense.

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

Segmental analysis (continued)

(USD thousands)

Reported and Constant Currency2

Reported

1 - Includes 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 $1.26 to £1, being the rate that represented the average for the 2017 financial period.

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

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

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

Gama Aviation plc

Unaudited Condensed Consolidated Interim Financial Statements

Six months ended 30 June 2017

Consolidated income statement (unaudited)

Consolidated statement of comprehensive income (unaudited)

Consolidated statement of changes in equity (unaudited)

For the six months to 30 June 2017