SIG.L Regulatory News (SIG)

Signature Aviation plc

2020 Interim Financial Report

Unaudited results for the half year ended

30 June 2020

For further information please contact:

David Crook, Group Finance Director (020) 7514 3999

Kate Moy, Investor Relations

SIGNATURE AVIATION PLC

David Allchurch / Sunni Chauhan (020) 7353 4200

TULCHAN COMMUNICATIONS

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

INTERIM FINANCIAL REPORT FOR THE PERIOD ENDED 30 JUNE 2020

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

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

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

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

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

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

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

Highlights

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

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

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

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

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

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

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

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

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

· Signature (Signature FBO & TechnicAir):

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

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

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

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

· Discontinued operations:

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

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

o The disposal process is ongoing

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

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

INTERIM RESULTS 2020

Overview

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Cash flows on exceptional and other items were an outflow of $26.4 million (H1 2019 restated: $1.8 million outflow) and are largely a result of settlement of legal matters relating to a previously disposed business and costs associated with the disposal process of the ERO business.

The total Group made $1.5 million of pension scheme payments (H1 2019: $2.3 million). Previously agreed deficit contributions of £2.7 million per annum through to March 2030 in respect of the UK defined benefit pension plan continue to be paid on a quarterly basis.

Acquisition and disposal cash flows: during the period the Group received a rebate with respect to the prior year purchase of IAM Jet Centre of $0.5 million following the finalisation of the working capital true up. On 2 March we sold our 24.5% stake in our joint venture with GAMA Aviation for $20 million of which $12.5 million was received on completion and the balance of $7.5 million in the form of a promissory note will be received over 8 equal instalment payments plus compounding interest over the four years post completion.

Net debt on a reported basis decreased to $2,218.5 million (FY 2019: $2,250.7 million). CARES Act funding of $79.8 million was awarded in June which comprises $61.2 million of US payroll support in the form of a grant and a $18.6 million promissory note which we expect to prepay later this year. Of the $79.8 million awarded, $59.8m was received in the first half, spilt $50.0 million grant and $9.8 million loan. During June we utilised $4.9 million of the grant in support of our Signature US payroll as we brought back all our furloughed staff in the US therefore net debt at 30 June 2020 includes the net benefit of $45.1 million of CARES Act funding. Our banking covenants are tested on the accounting standards in force prior to IFRS 16, consequently they are not impacted by the adoption of IFRS 16. Net debt to underlying EBITDA on a covenant basis increased to 3.1x (FY 2019: 2.2x). Interest cover on a covenant basis decreased to 5.8x for the 12 months to June 2020 (FY 2019: 6.9x).

Total Group Return on Invested Capital (ROIC) reduced by 250 bps to 7.4% (FY 2019: 9.9%) as a result of the impact from COVID-19 on flight activity.

Business Review - Continuing Operations

Continuing operations ("Signature FBO", "TECHNICAirTM" and "EPIC") provide specialist on-airport services including refuelling, ground handling, hangarage, card services and line maintenance to the business & general aviation (B&GA) market.

1 Including Signature FBO and TECHNICAir

2 Based on FY2019

For the six months ended June 2020 revenue in Signature decreased 29.3% on an organic, constant currency basis. On a reported basis revenue was down 34.7% to $594.7 million (H1 2019: $910.2 million) as a result of lower fuel prices of $77.9 million, foreign exchange movements of $2.4 million and divestments of $7.9 million. These impacts were partially offset by the acquisition of IAM Jet Centre generating revenue of $11.4 million. This was delivered against a backdrop of US B&GA movements (source: FAA) which were down 29.6% for the six months to 30 June 2020, representing outperformance of 30 basis points in the first half.

In the first quarter of 2020 our organic revenue performance against the US B&GA market, as measured by FAA flight movements was encouraging, and ahead of that reported in the second half of 2019. US B&GA flight movements were down 8.9% in the first quarter of 2020, and the like-for-like revenue decline in our Signature business was down 7.5% for the same period, representing market out performance of 140 basis points.

However, in the second quarter our business was heavily impacted by the COVID-19 pandemic. Signature experienced a 54.3% like-for-like revenue decline in the second quarter, against FAA US B&GA movement data which showed a 49.4% reduction. Our performance gap to the market data is explained by our regional mix of business; our network is heavily weighted to the North East (NE) region, serving major metropolitan areas and international movements. The NE has not only seen a delayed recovery versus the rest of the US, due to stay-at-home orders remaining for longer, but is also more exposed to business-related flying, which is lagging leisure travel in this phase of the recovery. The recovery mix, with the charter segment driving this through both leisure usage and new entrants/users to B&GA, and the materially lower international traffic has also resulted in a weighting to smaller and mid-sized planes versus the larger jets flying on longer legs, including transatlantic with a resultant reduction in average fuel uplifts which in turn has also limited our ability to outperform the overall US B&GA market during the second quarter.

While flight activity has seen a material decline affecting our fuel and certain non-fuel revenues directly related to flight movements, approximately half of our non-fuel revenues, predominantly related to real estate, have been much less affected by COVID-19. Around half of our non-fuel revenue is directly related to flying such as handling charges, ground handling, de-icing and ancillary revenue such as car hire and hotel bookings, and these activities have fallen at a rate consistent with the reductions seen in flight activity. TECHNICAirTM experienced a reduction in in-line maintenance workloads reflecting the reduced flight activity.

Underlying operating profit in our Signature business was down 55.2% to $79.4 million (H1 2019: $177.4 million) due to the impact of COVID-19 on flying activity as stay-at-home orders were implemented. The pressure on operating profit performance was partly mitigated by management action on direct operating costs and indirect overheads.

Signature's largest cost, fuel, naturally flexes with the volumes in the market and we held less than a week's inventory across the network going into the COVID-19 impact period. Furthermore, as has always been the case, we set our retail fuel prices weekly and are therefore largely protected from the current volatility in fuel costs.

Our next largest cost is our direct labour. We took immediate action to furlough staff in our European business, the majority under the UK Government scheme, but there was a delay to furloughing in the US while we awaited the decision under our CARES Act application for payroll support. However, we were able to reduce direct labour hours in our US business in April while preserving our labour pool to ensure compliance with all safety operating procedures and the operating standards at each of the airports from which we operate. At the beginning of May, when the US CARES Act decision was not forthcoming, we furloughed some of our US employees without Government support. Overall action taken through hours reductions and our furloughing reduced our direct labour hours by over 50% compared to pre-COVID-19 levels; though this action in the US, which is 90% of our Signature business, lagged the flight activity reductions we had experienced from late March.

In mid-June we were notified that our CARES Act application had been approved and we were awarded $79.8 million ($61.2 million in the form of a grant) in support of our US payroll. This has enabled us to bring all furloughed US staff back into our business as the market recovery continues. By 30 June 2020 we had received $59.8 million of our funding; $9.8 million of which was reported as debt. Of the $50.0 million of grant funding received during the first half, $4.9 million has been utilised to meet our Signature US payroll costs and the remainder of $45.1 million was classified as deferred income at the period end, to fund future Signature US payroll costs. The balance of the CARES Act funding was received by the end of July and we expect to repay the entire $18.6 million promissory note by the end of the year.

We have also taken action across our less variable/fixed cost base, including rent reductions and deferrals at some of the airports where we operate. Overall, the drop through impact to operating profit was c.40% for a near 30% decline in organic revenue. This is reflective of our previous guidance on our cost structures with approximately 75% variable and 25% fixed. Looking forward, we expect to improve the overall drop through outcome during the second half as we now have our labour costs flexed through the provision of CARES Act funding and we do not expect to see a return to the levels of decline in flight activity that we saw in April of 77%. That decline was beyond the maximum level of direct labour flex for our FBO operations whilst maintaining continuity of service to our customers and meeting all necessary safety standards. The extent to which we see continued recovery in our North East region and in business and international flight activity more generally will be additive to margin recovery across the second half.

As our business activity recovers post COVID-19, we remain confident in Signature's ability to deliver significant longer-term value creation across our market leading network, supported by the continued implementation of our strategic growth initiatives presented at the Capital Markets Day in November 2018.

Underlying operating margin in Signature was 13.3% (H1 2019 on a constant fuel price basis: 21.4%) and reflects the material reduction in flight activity as a direct result of COVID-19.

EPIC contributed revenues of $108.0 million (H1 2019: $230.2 million) and an underlying operating loss of $3.2 million (H1 2019: $2.9 million profit). Revenue was impacted by a reduction in fuel prices of $50.0 million. Organic revenue declined by $72.9 million as a result of lower flight activity directly related to COVID-19. The overall operating loss of $3.2 million reflects the reduction in flight activity at Epic's customers and losses incurred on fuel inventory held at the point at which stay at home orders came into force which resulted in fuel prices falling significantly in response to excess supply.

Continuing Operations overall revenue, which includes Signature and EPIC, decreased by 38.4% to $702.7 million (H1 2019: $1,140.4 million). Organic revenue decreased by 31.3%.

Operating profit on a statutory basis of $32.3 million decreased by 77.4% (H1 2019: $142.7 million) due to the material reduction in flight activity as a result of COVID-19.

Operating cash flow for Continuing Operations, decreased to $119.9 million (H1 2019: $234.9 million), principally due to the material reduction in flight activity as a result of COVID-19.

Return on invested capital was 6.9% (FY 2019: 9.6%).

Our FBO network

There are 197 locations in Signature's market-leading owned global network, including 19 Signature Select® franchise locations. EPIC services 169 privately owned, EPIC branded independent FBOs and a further 123 unbranded locations. Our existing Signature Select® branded locations are complementary to EPIC's FBO locations and are now managed as part of the EPIC network. This creates an unrivalled branded network of over 360 FBO locations, with network relevance of over 70%, with around a third of our owned locations being sole source. The quality and network relevance of our real estate asset base provides us with an unrivalled platform across which we will leverage our strategic initiatives.

We continue to believe the US B&GA market is a long-term structural growth market, highly correlated with US GDP growth. The FAA continues to forecast long term growth in US business jet flight hours of an average 3.1% per annum through to 2028.

Signature strategic initiatives

In 2019 we refreshed our strategic pillars to ensure they were appropriate for our focused Signature business and management focus on these pillars has remained during the COVID-19 crisis.

Growth

In line with our strategic growth target to grow customer value through expanding our network and offerings we are pleased to have completed our acquisition of TAG Aviation FBO SA. It comprises two FBOs in Switzerland; the strategically important location in Geneva, a Signature target for some time, and Sion which serves the nearby mountain leisure demand.

Geneva is the second largest trafficked General Aviation (GA) FBO in EMEA, with strong connectivity to other locations in our European network such as Paris, Luton and Nice. TAG is the largest GA operator at Geneva and is well located on the field. The transaction closed on 31 July 2020.

In the period we have also acquired the remaining 40% minority stake in our Italian business from SEA Prime, which includes FBOs at Milan Linate, Milan Malpensa and Rome Ciampino as well as trip support arrangements at a further six Italian locations.

However, we remain financially rational with regards to our FBO network and during the period have also taken the decision to close our T3 FBO at Paris Le Bourget and focus the operations from a single location at T1.

In addition to selectively grow our network locations we will add new services across our already invested real estate network. Signature now has full end-to-end management of our fuel card programme, associated transaction processing and data capture previously managed by EPIC. Over time, we have committed to deliver $4-8 million of underlying operating profit from deeper penetration of the branded fuel card within the Signature network. During the COVID disruption we have taken a more cautious approach to increasing this card penetration.

With regard to new services that will contribute over the next few years, we commenced a US roll-out of the ELITE ClassTM service (for commercial passenger interconnect) but continued progress will be dependent on a recovery in commercial flying. The existing VIP suite service offered at the IAM Jet Centre locations in Barbados (BGI) and Grenada (GND) has enhanced our offering. We believe this is further evidence of Signature redefining the market reach for B&GA infrastructure.

We continue to evaluate initiatives to further enhance and fortify Signature's unique real estate network as we lead the development of the FBO industry.

Operational efficiency and process improvement

The work undertaken last year in establishing labour efficiency benchmarking across the US network, as part of our Labour Efficiency and Equipment Productivity (LEEP) initiative has proved invaluable in executing flexible working patterns in response to COVID-19. We use information from our SIGnet 2.0 FBO management system to enable field teams to efficiently forecast, plan and manage labour demand.

For our fleet of Ground Service Equipment (GSE) we are focused on providing the right level of GSE at each location, while reducing the total cost of ownership per operating hour. We are working with our supply chain to deploy low emission, efficient and/or electric models. We have made good progress in this area in the six months to June. We have reduced the overall levels and total costs of equipment deployed across our network and in particular have retired legacy, less efficient GSE units with typically higher emission levels.

Employee experience

Our strategic aim is for Signature Aviation to be a company where everyone wants to work and thrive. During the COVID-19 crisis we have ensured the cadence of our regular communication has increased and additionally we have introduced multi-channel communications where our staff in the FBOs hear first-hand about all initiatives from the Senior Leadership Team.

We are keen to build on the results of our second annual employee engagement survey undertaken at the end of 2019, which showed good improvements across all metrics. Local engagement action plans have advanced during the COVID-19 period.

We have recently welcomed our first graduates from our re-launched global Manager in Training (MiT) programme which provides visibility on career progression to our employees in the field and a number have already been promoted to General Manager roles. Following the success of the MiT we have launched a similar programme targeted for employees who wish to become General Managers (GMiT) over the next 1-2 years.

Diversity and inclusion training is being rolled out across the Group, and a steering committee will promote this at a local level focusing on recruitment, training and mentoring.

As previously noted, in the early stages of mitigating the impact of COVID-19, management took the necessary steps to best match our labour costs to flying and tenant activity, and in the US, which represents around 90% of our business, the hours reductions and furloughs reduced our direct labour hours by over 50% compared to pre-COVID-19 levels.

In April we made an application under the CARES Act for US payroll support. In June we were notified that our application had been approved, and this enabled us to bring all furloughed US staff back into our business as the market recovery continues. The CARES Act funding support will be used solely to fund the payroll for US Signature employees.

In recognition of the circumstances affecting many of our employees and the communities in which we operate, for the second quarter our Board and Signature Leadership Team took a 20% fee and salary reduction, and these savings were used to establish an Employee Hardship Fund, with a dollar match by the Company. The Employee Hardship Fund is already actively distributing financial support to employees in need and to date we have distributed over $156,000 to employees.

Customer experience

This initiative is to ensure that we deliver a personalised experience right, the first time and every time. To do this we are focused on better understanding our customer needs and then meeting them. Utilising new customer survey data, from a survey programme launched in late 2019, will ensure we focus on areas which will achieve the best results.

As we entered the recovery phase in flight activity, and as part of our commitment to maintaining the highest safety, health and wellness standards in the FBO industry, we have launched SignatureAssure, which sets the standard for an industry-leading approach to training, technology, and operating procedures. It is our way of showing that we stand by our commitment to ensure the health and safety of our team members, our visiting flight crews, and those travelling across our FBO network.

Environmental and Social

The health and safety of our team members, customers, and the communities in which we operate, remains our highest priority. At the beginning of the COVID-19 crisis and despite the uncertainty, we made the conscious decision to remain open throughout our network to serve our local communities. We furloughed many of our staff both in Europe and other countries where we operate, where Governments supported the payroll through unemployment insurance. In the US, for a brief period of time while we waited for clarity on Government assistance, we furloughed 25% of our team and reduced hours for others, however we have since received payroll support and have brought back all of our team in the US.

We remain committed to working in ways that limit the impact of our business on the environment and to proactively manage environmental resources. Environmental considerations are embedded into our investment decisions to deliver more environmentally friendly FBO terminals and hangars, which includes powering our facilities with solar and using sustainable and environmentally supportive building materials. For our customers, we are rolling out Sustainable Aviation Fuel (SAF), and charging points for electric cars allowing them to have a more sustainable footprint as they too change their behaviours. We are also rolling out low emission refuelers and utilising electric ground support equipment.  

We are focused on reducing our Scope 1&2 emissions through solar and ground support equipment transition initiatives already in progress. Clearly, emissions from aviation fuel used by customers (classified as Scope 3 emissions) constitute the vast majority of all emissions. While we have no direct control over these emissions, we can support improved Scope 3 emissions through initiatives such as the wider availability of SAF in the Signature FBO network.

Scope 1 & 2 emission reduction targets

We have established a clear baseline environmental footprint and we are committing to the Paris Agreement Goal which requires our global emissions to be Net Zero by 2050. Reaching Net Zero in the aviation industry will require significant investment in new technologies, much of which does not presently exist today, as well as policy alignment, with carbon offsets closing any gap.

Our milestones over the next 30 years will reduce our Scope 1 & 2 emissions by 29% by 2025 and will target a 50% reduction by 2030, from our 2018 baseline, across a range of initiatives including:

Real estate - we have five FBO buildings in the network which are either LEED (Leadership in Energy and Environmental Design) certified or LEED Silver certified along with ten hangars and a further three LEED FBO projects, including our new Atlanta (ATL) terminal building, in progress. On three further projects at Teterboro (TEB), Newark (EWR) and Bedford (BED) we are working to deliver LEED equivalent sustainability standards with all airport authorities and the US Green Building Council. Furthermore, we are continuing to replace our old and inefficient hangar heating systems and hangar lighting which will contribute to reducing our Scope 2 emissions.

With a focus on reducing our Scope 2 emissions we had solar panels in seven locations in 2019 and we are adding a further five locations in 2020.There are an additional 20+ locations under review for suitability.

Operations and ground support - we have many electric items in our ground support equipment (GSE) fleet, as well as hybrid electric crew cars available at 11 locations. Alternative technology models of heavier items such as fuel trucks are not yet commercially available, so our renewal programme is focused on vehicles with low emission, efficient diesel engines. As a large purchaser of GSE, we have a significant opportunity to influence our supply chain and drive new product development as well as support new models coming to the market.

Central costs

Underlying central costs were reduced in the six months to June 2020 (excluding support costs of discontinued operations) to $7.4 million (H1 2019 restated: $14.8 million). This reduction reflects management action taken to reduce our cost base including suspension of variable pay plans for FY 2020, travel and overheads.

Support costs

Support costs incurred relating to the discontinued ERO business were $5.7 million (H1 2019 restated: $5.4 million). The costs associated with supporting the ERO business will be addressed post completion of the ERO disposal or upon completion of the associated Transitional Support Agreement (TSA) period, as appropriate. Ontic support costs are currently being paid for by CVC, as part of the TSA, and we will work to eliminate these costs when the TSA period concludes.

Business Review - Discontinued Operations

In the six months to June 2020 ERO's organic revenue decreased by 1.4% to $260.4 million (H1 2019: $265.4 million). ERO's underlying operating profit was $21.0 million (H1 2019: $24.9 million). Operating performance during the first half was impacted by reductions in engine volumes and an unfavourable mix of engine types and associated workscopes compared to the prior year. ERO's underlying operating profit includes the benefit from the suspension of depreciation and amortisation of $11.1 million for the six months to 30 June 2020 (H1 2019: $12.8 million), this being the required accounting treatment while the business is held for sale. The fair value less cost to sell of ERO is now $209.2 million, an increase of $31.6 million from 31 December 2019. The increase primarily represents increased working capital in the business during the first half of 2020 and more specifically increased receivables which we expect to collect during the second half prior to disposal.

The ERO disposal process is ongoing and we expect to update the market in due course.

Pensions

The Group's net defined benefit pension and other post-retirement benefits liabilities increased to $46.9 million in the first half, up from $38.0 million at 31 December 2019 and $32.7 million at 30 June 2019. The increase in the net deficit of $8.9 million since 31 December 2019 is primarily due to a lower discount rate, net of deficit contributions.

We have agreed to make an annual deficit payment in respect of the UK defined benefit pension plan of £2.7 million in quarterly instalments for the period to 31 March 2030.

Liquidity and balance sheet position

Signature Aviation entered this period of uncertainty caused by the pandemic in a strong financial position. We have proactively taken decisive steps to preserve liquidity, including significant operating cost rationalisation, reducing planned capital expenditure and suspending the Group dividend.

The Group's committed debt facilities consist of two tranches of US senior notes; $650 million 4.000% senior notes due March 2028 and $500 million 5.375% notes (issued in April 2018) and due in May 2026, all notes are unsecured. In addition, the Group has a $400 million RCF facility on which our relationship banks agreed a one-year extension on the second anniversary of the facility, to March 2025.

At the end of June 2020 our RCF facility was drawn by $79 million, leaving $321 million of undrawn facilities. With cash of $199.9 million, this represents total headroom of over $520 million.

In July, the Group took the precautionary measure of agreeing a covenant waiver for the testing periods ending 31 December 2020 and 30 June 2021 with our group of relationship banks for our $400 million unsecured RCF facility expiring March 2025. A covenant waiver was not required for the period ending 30 June 2020 and the Group was in compliance with its banking covenants as at 30 June 2020. As part of the agreement to waive our banking covenants we have agreed a minimum liquidity threshold (incorporating cash and cash equivalents and the undrawn headroom under the RCF facility) at $150 million which will apply at the testing periods ending 31 December 2020 and 30 June 2021 and for two additional testing periods ending 31 March 2021 and 30 September 2021, should the RCF facility be drawn at these additional dates. These financial covenants are only related to our RCF facility, our unsecured US bonds do not contain any financial covenants.

Dividend

In the light of the continued uncertainty around the COVID-19 pandemic and to preserve our balance sheet strength and liquidity, the Board has taken the prudent decision to continue the suspension of dividend payments. We will not therefore declare an interim dividend for the six months ended 30 June 2020 (H1 2019: 4.20¢). The Board is conscious of the importance of dividend payments as part of our investment case particularly given the cash generative nature of the Signature business and will look to restore its progressive dividend policy at the earliest opportunity.

Outlook

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

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

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

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

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

Going concern

The Directors have carried out a review of the Group's trading outlook and borrowing facilities, with due regard to the risks and uncertainties to which the Group is exposed, the uncertain economic climate, including Brexit (the impact of which is not expected to be significant) and the impact that this could have on trading performance. Based on this review, the Directors believe that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the financial statements have been prepared on a going concern basis.

The Directors' assessment of going concern was carried out against a base case forecast for the continuing recovery in B&GA flight activity during the balance of 2020 and through to 2021. A downside scenario was also assessed compared to the base case which reflected a return to the significant reductions in B&GA flight activity that could arise from a further requirement for lockdown measures across the US and EMEA. In both the base case and the downside case the Group demonstrated significant headroom above the new minimum liquidity covenant of $150 million. In addition, a reverse stress test scenario reflecting a return to significant and prolonged reductions in flight activity for the foreseeable future was also assessed and the Group continued to demonstrate headroom against the new minimum liquidity covenant of $150 million.

Directors' responsibilities

The Directors confirm that to the best of their knowledge:

a) the condensed consolidated set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting";

b) the interim financial report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and,

c) the interim financial report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

Signed on behalf of the Board,

Mark Johnstone David Crook

Group Chief Executive Officer Group Finance Director

7 September 2020 7 September 2020

This interim financial report contains forward-looking statements including, without limitation, statements relating to: future demand and markets of the Group's products and services; research and development relating to new products and services; liquidity and capital; and implementation of restructuring plans and efficiencies. These forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will or may occur in the future. Accordingly, actual results may differ materially from those set out in the forward-looking statements as a result of a variety of factors including, without limitation: changes in interest and exchange rates, in tax rates or tax legislation, commodity prices and other economic conditions; negotiations with customers relating to renewal of contracts and future volumes and prices; events affecting international security, including global health issues and terrorism; changes in regulatory environment; the introduction or variation of tariffs or duties; and the outcome of litigation. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. This interim financial report has been drawn up and presented in accordance with and in reliance on applicable English company law and the liabilities of the directors in connection with this report shall be subject to the limitations and restrictions provided by such law.

This report is available in electronic format from the Company's website www.signatureaviation.com

 Unaudited condensed consolidated income statement

1 Underlying results and adjusted earnings per share are stated before exceptional and other items.

2 Exceptional and other items are disclosed in note 3. All Alternative performance measures are reconciled to IFRS measures and are explained in note 21, the Alternative Performance Measures section. For comparability and where applicable, this also includes a reconciliation to a pre IFRS 16 basis.

3 The Group disposed of Ontic on 31 October 2019 and presented Ontic discontinued operations in the 2019 financial statements, and accordingly the comparative period to 30 June 2019 has been restated as required by IFRS, see note 18. In addition, ERO discontinued operations is presented in the current year and in the comparative period, see note 18. 

Unaudited condensed consolidated statement of comprehensive income

Unaudited condensed consolidated balance sheet

Unaudited condensed consolidated cash flow statement

1 Purchase of intangible assets includes $nil million (30 June 2019: $1.0 million; 31 December 2019: $1.1 million) paid in relation to Ontic licences and $nil million (30 June 2019: $nil million; 31 December 2019: $5.3 million) paid in relation to the ERO discontinued operations not accounted for as acquisitions under IFRS 3.

2(Purchase)/sale of shares includes the share purchases for the share buy-back scheme, shares purchased for the Employee Benefit Trust and shares purchased for employees to settle their tax liabilities as part of the share schemes.

Unaudited condensed consolidated statement of changes in equity

Notes to the condensed consolidated half yearly financial statements

1. Basis of preparation

The unaudited condensed consolidated financial statements of Signature Aviation plc (the "Group"), for the six months ended 30 June 2020 have been prepared in accordance with the Disclosure and Transparency Rules of the UK's Financial Conduct Authority and International Accounting Standard IAS 34: Interim Financial Reporting (IAS 34) which permits the presentation of the financial information on a condensed basis. These condensed consolidated half yearly financial statements do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006, and therefore should be read in conjunction with the Group's Annual Report for the year ended 31 December 2019.

The Group's annual financial statements for the year ended 31 December 2019 have been reported upon by the Group's auditor and delivered to the Registrar of Companies. The report of the auditor was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and did not contain statements under section 498(2) or 498(3) of the Companies Act 2006.

These condensed consolidated half yearly financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) endorsed for use in the European Union and the Companies Act 2006 and comply with Article 4 of the EU IAS Regulation. Certain new EU-endorsed standards and amendments to existing standards and interpretations were effective for annual periods beginning on or after 1 January 2020 and have not had a material impact on the Group. In the annual financial statements for the year ended 31 December 2019 the Group early adopted 'Interest Rate Benchmark Reform - Amendments to IFRS 9, IAS 39 and IFRS 7' which allows the Group to continue hedge accounting during the period of uncertainty arising from interest rate benchmark reforms.

Going concern

The directors are satisfied that, at the time of approving the condensed consolidated financial statements, it is appropriate to continue to adopt the going concern basis of accounting. Further information is given on page 12 of the interim statement.

Alternative Performance Measures (APMs)

In the reporting of financial information, the directors have adopted various Alternative Performance Measures (APMs). The Group's results are principally discussed on an 'adjusted' and/or 'underlying' basis. Results on an adjusted basis are presented before exceptional and other items. This is consistent with the way that financial performance is measured by management and reported to the Board and the Signature Leadership Team and assists in providing a meaningful analysis of the trading results of the Group. APMs should be considered in addition to, and are not intended to be a substitute for, or superior to, IFRS measures.

Alternative Performance Measures are reconciled to IFRS measures and explained in note 21, the Alternative Performance Measures section. APMs are presented on a pre and post IFRS 16 basis with a reconciliation to the equivalent statutory measure.

Restatement

The Group disposed of Ontic on 31 October 2019 and presented Ontic discontinued operations in the 2019 financial statements, and accordingly the comparative period to 30 June 2019 has been restated as required by IFRS, see note 18.

Impairment of goodwill, intangible assets, property, plant and equipment, and right of use assets

At each balance sheet date, the Group reviews the carrying value of its goodwill, intangible and tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Goodwill is tested for impairment annually and whenever there is an indication that the asset may be impaired.

The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money. The risks specific to the asset are reflected as an adjustment to the future estimated cash flows.

If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying

amount of the asset or cash-generating unit is reduced to its recoverable amount. An impairment loss is recognised

immediately in the Income Statement.

Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to

the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognised as income immediately. Impairment losses recognised in respect of goodwill are not reversed in subsequent periods.

Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, the directors are required to make judgements (other than those involving estimations) that have a significant impact on the amounts recognised and to make estimates and assumptions

1. Basis of preparation - continued

about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Management has concluded that for half year ended 30 June 2020 there are no critical accounting judgements. A key source of estimation uncertainty is referred to within Income Tax (note 4), where a contingent liability has been identified in relation to the European Commission's ongoing State Aid investigation into the UK's Controlled Foreign Company regime.

Assets and associated liabilities classified as held for sale

Assets classified as held for sale are measured at the lower of carrying amount or fair value less costs to sell. Assets are classified as held for sale if their net carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year of the date of classification.

When the Group is committed to a sale plan involving loss of control of a subsidiary, all the assets and liabilities of that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the Group will retain a non-controlling interest in its former subsidiary after the sale.

2. Segmental analysis

IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Group Chief Executive to allocate resources to the segments and to assess their performance.

The Group provides information to the Chief Executive on the basis of components that are substantially similar within the segments in the following aspects:

• the nature of the long-term financial performance;

• the nature of the products and services;

• the nature of the production processes;

• the type of class of customer for the products and services; and

• the nature of the regulatory environment.

Based on the above, the operating segment of the Group identified in accordance with IFRS 8 is Continuing operations, which comprises Signature FBO, TechnicAir and EPIC Fuels. The Discontinued operations segment results show the effect of the ERO business which is held for sale at year end and the Ontic business which was sold on 31 October 2019.

The businesses within the Continuing operations segment provide refuelling, ground handling, line maintenance and other services to the Business and General Aviation (B&GA) and commercial aviation markets.

Sales between segments are immaterial.

All Alternative Performance Measures are reconciled to IFRS measures and explained in note 21, the Alternative Performance Measures section.