Air Partner has now released its full year results for the year ending 2014.
Overall revenues were up by £14.8M, driven by a £17.9M increase in commercial jet and a £9.5M hike in private jet broking sales, somewhat mitigated by a £4.2M fall in freight brokering revenue and other service revenue that more than halved during the year. Cost of sales also increased, to give a gross profit some £2.7M higher than in 2013. Admin expenses increased to the tune of just under £3M, which seems partly to relate to £1M of estimates of invoices for air charter revenues, these were not retained this year which affected the admin costs by this amount (admin costs were also positively affected last year year by the release of £443K worth of provisions). This meant the operating profit was £246K less than last year. Finance costs increased somewhat, partially due to the previously mentioned release of provisions in the previous year of £89K to make the annual profit £1.9M, £346K lower than in 2013.
Overall when compared to the end of 2012 (due to the change in reporting dates), assets were down by £7.5M. This fall was driven by a £5.6M reduction in trade receivables and a £4.5M decline prepayments and accrued income only partially mitigated by a £2.7M increase in cash levels, although it should be noted that £8.8M of the £18.4M are customer deposits on the jet card. Liabilities also decreased during the period, driven by a £2.6M fall in trade payables and a £2.5M reduction in accruals. This all meant that net tangible assets were down to the tune of £1.8M to £11.2M, which is a little disappointing.
Before the movement in working capital, cash profits were up £1.2M to £4.1M. A decrease in both receivables and payables, however, meant that cash generated from operations was down £1.4M to £5.6M. A much lower tax rate took it a bit closer to last year’s total, £400K less at £4.9M. The main capital expenditure was computer software at just under £600K which was paid for by the £815K bought in by the sale of the aircraft. The cash was then spent on dividends and the purchase of their own shares (both about £2M) and the cash flow of £1.6M is fairly comfortable, albeit some £1.1M less than in 2013.
Commercial Jet Broking increased its underlying pre-tax profit by 38% to £2.3M with growth driven by excellent performances in the UK, US and France which was achieved despite the slowdown of some government work. Tour Operating in Europe achieved good results, contributing 35% of the division’s revenues. Through its Aberdeen and Houston offices, the group also gained good traction in the oil and gas industry, increasing these revenues by 54%. Some of the projects undertook during the year were evacuations, rescuing stranded cruise ship passengers and flying the world cup to different countries before the tournament started in Brazil. The Conference and Incentive market remained slow, however, and the sector remained very competitive with low margins.
Underlying pre-tax profit in the Private Broking Sector increased by 36% to £1.5M with significant growth occurring in the UK and the US, driven by investment in high calibre staff. The group has seen strong interest from high net worth individual leisure traffic which has encouraged JetCard to continue to perform well with sales up 29%. The traction gained in continental Europe was not as good as expected, however, and market conditions remained challenging but are expected to improve in the coming year as Eurozone economies start to recover.
At £200K, underlying pre-tax profit in the Freight Broking business was flat when compared to last year despite the 26% fall in revenue due in part to the end of a large government contract. In the last half of the year, however, there has been an increase in the level of new business. There were two significant programmes completed during the year – delivering humanitarian aid to the Philippines; and flying equipment to the Winter Olympic Games in Sochi. Investment has been made in industry specialists based in Cologne and Istanbul and progress is being made building new business around the Air Partner Time Critical offering.
During the year the board undertook a thorough review of its investment in IT which resulted in a significant impairment of previous IT investment and this, along with some restructuring costs led to a one-off charge of £1.4M which included a £774K impairment of the IT system and £646K of restructuring costs. The group has historically underinvested in technology and as part of the review, there will be an uptick in investment and the associated costs which will include Microsoft’s CRM software that will be implemented across the group.
There were a number of changes to the board announced during the year with Tony Mack retiring at the AGM. Grahame Chilton was appointed non-executive director and has good broking experience and CFO Gavin Charles left in April. He was replaced on an interim basis by Neil Morris, previously Group Financial Controller and the search for a permanent replacement is on going.
Overall then, this was a mixed set of results. Progress seems to be being made in the jet broking sectors with the others struggling a bit more. The underlying profits are actually up on last year and there is a good cash balance with a healthy cash flow, albeit slightly worse than last year due to the movements in working capital, but the decline in net assets is a little disappointing. It is also a time of upheaval with some new board members being appointed. A final dividend of 14p per share was announced and going forward, management hope to be able to grow the dividend by 10% per year. This gives an annual yield of 6% which is pretty decent. At the current share price the P/E ratio stands at 17.8 but this reduces to a better value 11.4 on an underlying basis. I think the underlying investment here is pretty decent but I am planning on waiting on the sidelines for a better idea of how the freight market will pan out next year, along with seeing how the new IT systems will bed in.
On the 5th June it was announced that Neil Morris had been appointed the Chief Financial Officer after doing the job on an interim basis since March, despite the group employing an executive search firm to assist with finding a new candidate.
On the 5th June the group also issued an AGM statement. Trading in the year to date was slow as is the case usually during that time of year with a gradual improvement in orders as the group enters the traditionally more busy summer period. The Commercial Jet division continued its transition away from military work with new programmes started for tour operators and energy clients but the division has seen fewer one-off contracts for tender in recent months. Trading in the Private Jets division remained strong with both the UK and US performing well. The Freight division continued to show improvements in trading from a low base. The group continued to have a strong cash position, with net cash standing at £18M. There is nothing in this statement that encourages me to take the plunge. Indeed there seems to be a veiled profit warning with regards the Commercial Jet division.
On the 28th July the group released a trading statement. Since the AGM statement, trading has been weaker than expected due to a poor performance at the Commercial Jet division which has seen a continued absence of ad hoc projects. Trading in the other divisions has been as expected with the Private Jet business delivering strong performance in the UK and the US, and the Freight division continued to make progress. Net cash stood at a healthy £19M, although £11M of this are JetCard deposits. The board now believe that the first half of the year will show a pre-tax profit of £1.1M with the second half of the year likely to be in line with prior years. Despite this, the board have announced a 10% increase in the interim dividend which gives a stonking dividend yield of 6.2%. The clues for this profit warning were actually in the AGM statement and I will continue to sit on the sidelines until there is a better idea of Commercial Jet profitability.
On the 20th August the group announced the appointment of Peter Saunders as non-exec director. He has previously worked as CEO of the Body Shop and replaces Chuck Pollard who decided after five year to step down from the board.