15 May 2020 07:00
15 May 2020
AGM Trading update
In advance of its Annual General Meeting today, Signature Aviation plc ("the Group"), a market-leading provider of global aviation support services, is pleased to announce a trading update for the period 1 January 2020 to 30 April 2020, unless otherwise stated.
· Flying activity has improved in the first thirteen days of May to show a 66% decline YoY (April down 77% YoY)
· Decisive management action taken to reduce costs
· During the month of April the Group was cash flow positive by $6 million
· At the end of April the Group had total facility headroom and cash of $425 million
We are continuing to respond to the COVID-19 situation and in these unprecedented times the health and safety of our employees and customers, and the communities in which we operate, remains our utmost priority.
Mark Johnstone, Signature Aviation CEO commented "I am extremely proud of how our Signature teams are continuing to deal with the COVID-19 pandemic, supporting their local communities and adapting every day as we have taken the necessary and appropriate action to manage our costs to best match current flying and tenant activity. Encouragingly, we have seen some early signs of an improvement in flight activity in the US in May. Our business continues to have attractive fundamentals and medium-term prospects, and our ability to both manage cost in a timely manner and deliver robust cash generation has contributed to the Group being cash flow positive in the month of April. A robust outcome given the extraordinary impact of market conditions on our income."
Business & General Aviation (B&GA) Market update
For the three months to 31 March 2020 we continued to deliver improving outperformance versus the US B&GA market. US B&GA flight movements as reported by the FAA were down 8.9% and like-for-like revenue decline in our Signature business (FBO and TECHNICAir) was 7.5% (on a leap year adjusted basis). Our outperformance against the US market, as measured by the FAA flight movements, is therefore an encouraging 140 basis points.
As previously noted, flying activity across our US network through to the third week of March was in line with our expectations and we saw limited impact on our fuel volumes from COVID-19. From late March through April, however, we have seen a material decline in flight activity across our US network. In April flight activity on average has been down by around 77%, as customers observe temporary stay at home orders. However, so far in the first thirteen days of May we have seen improvements in flying activity, and we are currently down around 66% in flying activity compared to the same period in May last year.
Revenue for the continuing Group (Signature FBO, EPIC and TECHNICAir) was down 72% in April, resulting in a decline of 28% in the first four months of the year. On a like-for-like basis (constant currency, adjusting for lower fuel prices and acquisitions and disposals) revenue was down 69% in April and down 24% in the first four months of the year. Whilst flight activity has seen a material decline impacting our fuel and certain non-fuel revenues relating to flight movements directly, a large proportion of our non-fuel revenues, predominately related to real estate, are much less affected by COVID-19.
Liquidity and balance sheet position
Actions we have taken to flex our labour costs, negotiating rent relief with the airports we operate at and other management actions, including significant curtailment of capital expenditure, have delivered robust cash generation during the month of April of $6 million. At the end of April our RCF facility was drawn by $49 million, leaving $351 million of undrawn facilities plus cash held of $74 million. This represents total headroom of $425 million.
Our $400 million unsecured Revolving Credit Facility (RCF) matures in March 2025; it has a net debt to underlying EBITDA covenant set at 4.25x (on a pre-IFRS16 covenant basis) which is tested bi-annually at 30 June and 31 December. The interest cover covenant on our RCF is based on underlying EBITDA and is a minimum of 3.0x (on a pre-IFRS16 covenant basis) and is also tested twice per year at 30 June and 31 December. These financial covenants are only related to our RCF facility and they are not related to our unsecured US Bonds. The Group's debt facilities have a current weighted average maturity of 6.5 years, with no maturities before March 2025.
Operational efficiency and process improvement
We have implemented a series of actions to best align our cost base with the reduction in flight activity across our FBO network. Our 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 which we are able to pass through.
The work undertaken last year in planning for our Labour & Equipment Efficiency Project (LEEP) has proven invaluable in executing flexible working patterns for each of our FBOs in response to COVID-19. Management has taken 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 have reduced our direct labour by over 50% compared to pre-COVID-19 levels. We have also made further cost reductions in our global indirect overheads.
In recognition of the circumstances affecting many of our employees and the communities in which we operate, for the second quarter our Board and Senior Leadership Team have taken 20% fee and salary reductions, and the savings therefrom have been used to establish an Employee Hardship Fund, with a dollar for dollar match by the Company. This follows the previously announced suspension of all bonus and variable pay plans for 2020 throughout the Group.
As previously reported, we have initiated a material reduction in capital expenditure in the year and expect to achieve a saving of 50% to our previously guided capital spend whilst still delivering on certain growth capital projects.
We remain focused on our medium-term growth initiatives, despite the current near-term focus on best navigating the COVID-19 situation. Construction of the new terminal facilities continues at our sole source Atlanta FBO which we expect to open later this year. As you would expect we are planning for recovery in the B&GA market and the furloughing of staff will allow us to call-back employees, as flight activity starts to pick up.
ERO
Our ERO business continues to operate as expected and has not seen any adverse impact of COVID-19 on revenues so far this year. In the year to date revenues grew 2.1% compared to the prior year. On a like-for like basis (adjusting for constant currency) revenue was up 2.5%. We continue to win new business and in April signed a contract with the Light Helicopter Turbine Engine Company (LHTEC), a joint venture between Rolls Royce and Honeywell, to support the CTS800 engine powering AgustaWestland Leonardo helicopters UK MOD's fleet of AW159 Wildcat and the upgraded MK9T Lynx. The contract is anticipated to generate sales of around $160 million over its ten-year term.
The ERO disposal process is ongoing and we will update the market in due course.
Outlook
All guidance remains suspended. We will continue to monitor the COVID-19 situation closely and will provide further updates and guidance when we are in a position to do so. Furthermore, the Board will review the decision on suspension of dividend payments later in the year as trading conditions become clearer.
Notes:
The Group will now publish its interim results for the half year ended 30 June 2020 on 8 September 2020 and not 4 August 2020 as previously communicated. The change is being implemented to reflect the practical implications arising from the ongoing mobility restrictions and social distancing requirements in both preparing the results and completing the audit review.
Enquiries:
Signature Aviation plc
David Crook, Group Finance Director
Kate Moy, Head of Investor Relations and Communications
(020) 7514 3999
Tulchan Communications
David Allchurch/ Suniti Chauhan
(020) 7353 4200
Information on Signature Aviation plc
Signature Aviation plc is a market leading, global aviation support and aftermarket services provider, primarily focused
on servicing the Business and General Aviation (B&GA) market. We support our customers through our principal
business Signature and Global Engine Services/Engine Repair and Overhaul (ERO).
Signature, including Signature FBO, TECHNICAirTM and EPIC Fuels, provides premium, full-service flight and home
base support including refuelling, ground handling and MRO services through the world's largest fixed base operation
(FBO) network for B&GA users with around 200 locations covering key destinations in North America, Europe, South
America, Caribbean, Africa and Asia. EPIC Fuels is a provider of aviation fuels, supplies and services operating at
more than 200 locations.
On 1 March 2018, the Company announced that it was conducting a strategic review of the ERO business and, at the
end of May 2018, management committed to a plan to sell substantially all of the business and the relevant assets
and liabilities were classified as held for sale. The sale process is ongoing.
On 22 November 2019, the Company changed its name from BBA Aviation plc to Signature Aviation plc.