Gama Aviation Regulatory News (GMAA)

30 September 2015

Gama Aviation plc (AIM: GMAA)

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

Interim results for the six months to 30 June 2015

Gama Aviation, one of the world's largest business aviation service providers, is pleased to announce its first interim results for the six months to 30 June 2015, following the completion of the reverse takeover of Hangar8 plc on 5 January 2015.

In order to aid understanding of the underlying growth of the business, the financial highlights below show the results of the Group against both Gama's actual comparatives for the six month period to 30 June 2014 together with an unaudited pro-forma comparative, calculated as if Gama's reverse takeover of Hangar 8 had been in place throughout the six month period to 30 June 2014.

Financial highlights:

1 - Calculated using the Hangar 8 figures for the six months ended 30 June 2014 and the Gama figures for the six months ended 30 June 2014, as set out in the Admission document dated 8 December 2014.

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

3 - Underlying EBITDA is arrived at by taking operating profit before depreciation, amortisation, and exceptional items as disclosed in the Statement of Comprehensive Income.

4 - Underlying profit before tax is arrived at before exceptional items.

5 - Earnings used in the underlying EPS calculation are the profit attributable to ordinary shareholders adjusted for exceptional items and amortisation.

Operational highlights:

· Integration completed on schedule

· Synergies flowing through into second half of 2015 in line with management expectations

· Executed on Asia joint venture and growth in line with management expectations

· Strong organic revenue and margin growth in the US, particularly in ground operations

· Strong, scalable, client experience centric and safety first operational delivery platform in place

· Focus on continued growth complemented by strategic acquisition opportunities

Marwan Khalek, Chief Executive Officer commented:

"I am delighted with the performance of the business during the six month period to 30 June 2015, a period in which we have achieved and in some cases exceeded, the targets we set at the time of the reverse takeover of Hangar8 plc.

The Group's ability to deliver a strong first half performance, whilst also executing the required integration and re-organisation of the business following the merger, highlights the capabilities of the senior management team.

During the six month period we have acquired and completed the integration of Hangar 8, with anticipated synergies flowing through into the second half of the financial year as planned; increased the scale of our business delivering strong organic growth in line with our expectations; increased the breadth of our business with a new strategic joint venture in Asia with Hutchinson Whampoa; developed plans to further increase the depth and scale of our business through further acquisitions whilst at the same time the core business lines across our global business have delivered the strong growth in profitability that we targeted ourselves to achieve.

With the integration now successfully concluded, the management is now fully focussed on our strategy of organic growth and strategic acquisitions. We continue to trade with a high percentage of contracted revenue and our outlook remains very positive. As we expand the geographical breadth, depth and scale of our business, we will stay true to our vision of maintaining a sustainable business for our shareholders."

Sir Ralph Robins, Chairman, commented:

"We are very pleased that the first half results have been delivered in line with management's expectations and having handled the challenges that integrations often present, we now enter the second half of the year with full confidence in our ability to grow the business both organically and acquisitively. 

We continue to look at the quality of our service offering whilst maintaining a strong safety culture within the business to ensure that our reputation and ability to leverage off our established expertise continue to deliver the financial results into the future."

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

Gama Aviation plc +44 (0) 1252 553000

Marwan Khalek, Chief Executive Officer

Kevin Godley, Finance Director

Citigate Dewe Rogerson +44 (0) 20 7638 9571

Phil Anderson, Director +44 (0) 20 7282 1031

Chris Jarvis, Associate Director +44 (0) 20 7282 1088

Cantor Fitzgerald Europe +44 (0) 20 7894 7000

Marc Milmo (Corporate Finance)

Catherine Leftley (Corporate Finance)

David Banks (Corporate Broking)

Business Review

Completed Integration Update

The integration of Gama Aviation and Hangar 8 was completed as anticipated by 30 June 2015. During the period under review, the management team has worked on successfully concluding the integration of the two operations. This has resulted in one-off restructuring costs of approximately $2 million with the benefit of the synergies from the integration starting to be realised in the second half of this financial year. Management remains confident that these will be achieved in line with expectations. The Board is particularly pleased that management and staff at all levels fully embraced the integration process and adopted best practice from the original pre-merged groups to the benefit of our customer service offering going forwards. Crucially, the business retained the key management personnel within each of the two combined businesses to ensure a seamless transition for the customers.

Regional Review

US

The US has experienced significant organic growth in the first six months of the year underpinned by long term quality contracts within the Air and Ground operations and aided by a strong US economy. The US Air division has managed to grow at an exceptional rate whilst at the same time maintaining the service delivery the US customers have come to expect from the brand.

The Ground business and its line maintenance offering continues to grow with Texas and Dallas now fully operational and Chicago due to open soon. The US ground maintenance now provides East to West and North to South coverage, with almost thirty mobile maintenance vehicles. The mobile capability has proved particularly popular at recent major sporting events.

Europe

The EU Ground division has also experienced a strong first half year recording healthy EBITDA growth. The ability to enhance our service offering as a result of the reverse takeover through utilising the Oxford maintenance base owned by Hangar 8 to attract larger third party aircraft to the Gama Aviation service offering, has been particularly successful.

The EU Air division has, however, experienced a more challenging six months. The EU charter market remains flat and two important former contracts in this region have not been as lucrative as they have been historically. Whilst not delivering to their full potential under their current construct, management is in the process of renegotiating and transitioning these contracts to a more solid commercial footing going forward.

Notwithstanding the difficulties within EU Air, the EU division as a whole nevertheless reported a solid set of results and with the integration now complete and the renegotiating and transitioning of the underperforming contracts underway, the EU Air division's future outlook remains positive.

Asia

The Air division within the Asia region has only been trading for two of the six months of the half year but with three aircraft already under management and a promising pipeline, this region is well placed to scale and deliver the anticipated organic growth and platform for expansion into the wider Asia region in conjunction with our JV partners Hutchison Whampoa (China) Limited.

Middle East

The MENA Air division has recently gained a seventh aircraft and now has sufficient scale for the region to break even and progress onto delivering a positive EBITDA in future periods. Part of the long term growth for the group has been about identifying markets with a demand profile that make it attractive to Gama Aviation to enter and the MENA region fits that strategy. MENA Air is now progressing from its scaling phase towards maturity. There is still work to be done but management expects this division to be positively contributing shortly.  

The MENA Ground business is still in its start-up phase but with a recently upgraded FBO facility in Sharjah (UAE) and funding agreed for hangar development to support a more concerted maintenance presence, this division is expected to deliver positive organic growth into 2016 and onwards. Local management has been successful in renegotiating some local contracts and as a result the division is expected to be generating a positive EBITDA by the final quarter of 2015.

The Fleet

The aircraft fleet, which stood at 139 as at 30 June 2015, comprises aircraft types from all the major manufacturers with a bias toward larger, more capable aircraft. The scale of the global fleet size has a positive influence on contract value and ancillary service volumes such as fuel, training and insurance; allowing for increased leverage during negotiations with suppliers. Management is seeing our ability to reduce the cost base of our current and potential customers as a key differentiator when it comes to management aircraft tenders particularly as fuel and insurance represents a significant portion of owners' annual running costs.

We continue to review the managed aircraft contracts across the globe for contract quality within the group exiting those contracts that no longer represent the appropriate level of commercial value, replacing them with customers where we can deliver the margin as a result of enhanced service offerings. As a result the number of aircraft within the group has not grown significantly within the first six months of the year but we have been able to extract a higher level of Gross Profit from that customer base.

Financial Review

Total consolidated revenue for the period was $191m (2014: $130m) an increase of 47% and an increase of 22% on a pro-forma basis, yielding a gross profit of $30.3m (2014: $15.1m), an increase of 100% and an increase of 24% (2014: $24.3m) on a pro-forma basis. Underlying EBITDA generated was up 269% to $8.2m (2014: $2.2m) and up 74% (2014: $4.7m) on a pro-forma basis.

The revenue and gross profit figures set out above include those revenues and gross profits within the business that are, in accordance with accounting convention, removed for statutory purposes as they relate to an associate and a joint venture. We have chosen to set out the full, consolidated revenues and gross profits of the Group as the board believes that this sets out the true performance of the global Gama Aviation business. The majority of the revenues and gross profits generated in our US Air division are in respect of an associate and all the revenues and gross profits generated within our Hong Kong Air division are in respect of a joint venture. As a result, following recognised IFRS accounting practice, the statutory income statement of these divisions are netted into one line in the Company's consolidated income statement: share of the results of associates.

The underlying EBITDA is the same on a consolidated or statutory basis. For a breakdown of the performance by segment on both a consolidated and statutory basis please refer to note 5, segmental analysis.

The statutory primary financial statements shows revenues up 29% to $115m (2014: $89m) and level (2014 $116m) on a pro-forma basis. These revenues yield a gross profit up 79% to $25.5m (2014: $14.3) and up 9% (2014: $23.5m) on a pro-forma basis with the gross margin up 6% to 22% (2014: 16%) and up 2% (2014: 20%) on a pro-forma basis.

Underlying EBITDA is stated before exceptional costs of $5.5m, details of which are included in note 3, discontinued operations of $0.5m, which are the operating losses incurred on the group's owned aircraft that are deployed on ad-hoc charter only and also before depreciation and amortisation of approximately $1.99m (2014: $701k on a pro forma basis).

Overhead costs of $24.8m (2014: $19.6m on a pro-forma basis) have increased by $5.2m primarily as a result of the exceptional costs incurred in the six months of $5.5m. Please see note 3 for an explanation of exceptional items.

As part of the integration process, management has performed a further review of the recoverability of certain debts at 31 December 2014 and, based on a review of the payment history of certain contracts it has been determined appropriate to increase the provision for doubtful debts by a further $2.3m.

Cash increased to $12m, up $6.3m (2014: $5.7m) and down $2.2m (2014: $14.2m) on a pro forma basis.

Adjusted EPS is up 400% to $12.5c (2014: $2.5c).

Board Director

With the integration of Hangar 8 now complete and with the enlarged group on solid foundations, Dustin Dryden, the former Chief Executive of Hangar 8 has expressed his desire to the Board to resign his position to pursue his own personal non-competing business interests. Mr. Dryden is therefore leaving the board of the Company with immediate effect and the Board would like to thank Dustin for his significant contribution both in developing Hangar 8 and assisting with its integration into Gama.

Related Party transactions

The Company has entered into certain arm's length commercial contracts with customers who have other potential business interests with a separate non-competing business interest of Dustin Dryden. The performance of these contracts has been well below the Board's expectation and accordingly, as part of its review of the operations of the Group during the integration process, the Board has been considering whether to withdraw from these contracts whilst they are renegotiated. Following conversations with Dustin Dryden, who has a detailed understanding of the underlying customers in question, the Board has taken the decision to try and renegotiate the arrangements with the existing contracts still in place during these negotiations. In order to preserve the integrity of the Company's actions, Dustin Dryden has entered into an agreement with the Company pursuant to which he has agreed to underwrite their performance and any outstanding debts that may arise from these customers whilst the Company transitions them into a more commercially viable basis. Pursuant to this agreement, Dustin Dryden will underwrite up to $2m of potential performance and debt associated with these contracts should the quantum's due from these contracts not be paid by 30 November 2015. As part of the agreements, Dustin Dryden has agreed to provide security to the Company against his beneficial interest of 2,159,886 ordinary shares in the Company.

This agreement between the Company and Dustin Dryden is considered to be a related party transaction for the purposes of AIM Rule 13, and accordingly the Board having consulted with Cantor Fitzgerald Europe, the Company's nominated adviser, considers the terms of the transaction to be fair and reasonable insofar as the Company's shareholders are concerned.

In addition, pursuant to the terms of the agreement entered into in the first quarter of 2012 relating to the acquisition of Ronaldson Airmotive Limited by a group company of Gama Aviation, the minority shareholders who currently own 6% of Gama Aviation (Engineering) Limited, have exercised their put option for that group company to purchase their remaining shareholding on the third anniversary of the acquisition. Such exercise of the put option triggered an independent valuation of the Gama Aviation (Engineering) Limited business.

That independent valuation attributed a value of £742,500 for the 6% minority shareholding on the business and therefore Gama Aviation will pay the selling shareholders £742,500 in cash to the minority shareholders. As a result, the relevant group company of Gama Aviation will own 100% of the shares in Gama Aviation (Engineering) Limited, which sits within the EU ground division.

One of the minority shareholders selling their interests remains a director of Ronaldson Airmotive Limited, a subsidiary of the Company and is therefore considered a related party pursuant to the AIM Rules. Therefore the acquisition of the outstanding shares in Gama Aviation (Engineering) Limited is considered to be a related party transaction for the purposes of AIM Rule 13, and accordingly the Board having consulted with Cantor Fitzgerald Europe, the Company's nominated adviser, considers the terms of this transaction to be fair and reasonable insofar as the Company's shareholders are concerned.

Dividend Policy

The group retains its desire to maintain a progressive dividend policy and is currently in discussions with its advisers with a view to a possible capital reduction exercise so as to enable the Group to be in a position to consider paying a dividend at the end of this current financial year.

Outlook - building on a strong platform

The Group enters the second half of 2015 in a strong position and the Board remains confident about the outcome for the full financial year.

The business is experiencing strong growth in many of its global divisions underpinned by its high quality revenue streams. Trading in the US region has continued its positive momentum since the period end and the Board is pleased with the trends being seen in the Group as a whole. With the integration now completed, synergies anticipated to be realised through the second half of the year and the business now being positioned to leverage off our increased scale, breadth and depth of service offering, Gama Aviation has a strong platform from which to deliver on-going organic growth whilst also looking to pursue its strategy of adding value enhancing acquisitions to the Group. The Board therefore looks to the future with confidence.

CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME

\* The comparative figures for the six months ended 30 June 2014 set out above are for Gama Aviation Holdings (Jersey) Limited prior to the reverse takeover of Hangar8 plc that was concluded on 5 January 2015.CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASHFLOWS

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY (unaudited)

The accompanying notes are an integral part of this interim financial information.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM STATEMENTS

1. Basis of preparation

Gama Aviation plc, formerly Hangar8 plc, (the "Company") is a company domiciled in England. The basis of preparation of this financial information is consistent with the basis that will be adopted for the full year accounts which will be prepared in accordance with IFRS as adopted by the European Union.

While the financial figures included in this half-yearly report have been computed in accordance with IFRS applicable to interim periods, this half-yearly report does not contain sufficient information to constitute an interim financial report as that term is defined in IAS 34.

This interim financial information has neither been audited nor reviewed pursuant to guidance issued by the Auditing Practices Board and the financial information contained in this report does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The 30 June 2014 figures have been extracted from the unaudited financial statements for that period from the admission document.

2. Accounting policies

The condensed consolidated interim financial information has been prepared using accounting policies consistent with those set out in the historical financial document within the admission document except as set out below. These accounting policies have been applied consistently to all periods presented in this Financial Information.

Critical accounting estimates & judgements and principal risks & uncertainties

There have been no changes to any of the Group's critical accounting estimates and judgements of its principal financial risks with the exception of the accounting estimates and judgements on the fair value of intangibles under IFRS 3.

Going concern

The Directors are of the opinion that as at 30 June 2015, the Group and Company's liquidity and capital resources are adequate to deliver the current strategic objectives and business plan and that both the Group and the Company remain a going concern.

3. Exceptional Items

Operating profit is stated after exceptional items and discontinued activities.

Exceptional items relate to the transaction costs incurred in the current period that are in respect of the commercial transaction with Hangar8 plc, $3.5m and the subsequent integration and business re-organisation costs, $2m.

Exceptional items in the prior period relate to owned aircraft plane impairment of $0.22m, litigation related costs of $1.04m that were settled in late March 2014 and a loan settlement discount credit of $1.87m received for early settlement of loan finance on owned aircraft.

The Discontinued activities relate to the losses generated by the owned aircraft within the group that are held for sale as part of the group strategy to exit the business model of owned aircraft that are deployed solely for the purposes of ad-hoc charter.

4. Taxation

The tax charge for the half year is calculated on the basis of the estimated full year effective tax rate and therefore an estimated corporation tax charge for the period of £Nil (2014: $16,000). 

5. Segmental Analysis

6. Earnings per share ("EPS")

The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the period.

7. Acquisition

On 5 January 2015, Hangar 8 acquired, by way of a reverse takeover the entire issued share capital of Gama Aviation Holdings (Jersey) Limited, a privately owned global business aviation services group that focuses on air and ground operations. Hangar8 Plc became Gama Aviation Plc on that date.

As a result of the acquisition, the Enlarged Group is considered to be one of the five largest operators globally giving the Group the strong platform for expansion. It also expects to reduce costs through economies of scale and synergies. Goodwill of $36,721,000 and identifiable intangible assets of $11,805,000 arose on acquisition. The following table summarises the consideration paid for the Hangar 8 Group, the provisional fair value of the assets acquired and the liabilities assumed at the acquisition date.

Acquisition related costs of $3.5m have been charged to the administrative costs in the consolidated income statement.

The fair value of the 9,527,103 ordinary shares issued as part of the consideration paid for the Hangar8 Plc Group was based on the published price on 4 January 2015.

The provisional fair value of trade and other receivables is $41,273,000 and includes trade receivable with a fair value of $19,946,000. The gross contractual amount for the trade receivables due is $26,076,000, of which $6,130,000 has been provided for as there is uncertainty regarding its collectability.

The fair value of the acquired identifiable assets of $11,805,000 (including Licenses, Brands, Customer relationships and Workforce) is provisional pending receipt of the final valuations for those assets.

8. Copies of the interim statement

Further copies will be available from the Company's registered office at the Business Aviation Centre, Farnborough Airport, Hampshire, GU14 6XA, and from the Company's website: www.gamaaviation.com