Air Partner has now released their interim results for the year ending 2020.
Revenues declined when compared to the first half of last year due as a £624K growth in consulting and training revenue was more than offset by a £4.6M decline in group charter revenue, a £263K decrease in private jets revenue and a £134K fall in freight revenue. Cost of sales also declined to give a gross profit £176K lower. Admin costs were down £949K but there was a £315K income from the release of deferred consideration, and no accounting review costs or abortive acquisition costs which were £748K and £472K respectively last year, which meant the operating profit increased by £382K. Finance expenses were up £226K but tax charges fell by £107K which meant that the profit for the period was £2.2M, a growth of £285K year on year.
When compared to the end point of last year, total assets increased by £18.5M driven by a £9M recognition of right of use assets, a £6.6M increase in receivables and a £2.4M growth in cash. Total liabilities also increased during the period due to a £6.8M increase in deferred income, a £9.3M growth in lease liabilities and a £3.1M growth in other liabilities. The end result was a net tangible asset level of £650K, a growth of £601K over the past six months.
Before movements in working capital, cash profits increased by £3.4M to £6.9M. There was a cash inflow from working capital and even after tax payments were up £287K and interest payments increased by £226K the net cash from operations came in at £8.8M, a growth of £4.5M year on year. The group spent £300K on fixed assets, £121K on intangibles and £430K on acquisitions to give a free cash flow of £8M. I am starting to think that finance lease payments should probably appear above the free cash flow line so I guess the free cash flow is more like £5.3M, still above last year. Of this, £2M was spent on dividends to give a cash flow of £3.3M and a cash level of £28.4M at the period-end.
The operating environment has continued to be challenging across the aviation industry with headwinds including Brexit, trade wars between the US and China and sector volatility, but group results have been slightly stronger than previous expectations despite pressure on the French tour operations business due to shortages of supply and a significant flying programme for a UK customer being delayed.
The group charter operating profit was £2M, a decline of £899K year on year. The division had a mixed performance, partly due to the fact that there have been no one-off major events comparable to last year’s World Cup. Despite this, the European offices, particularly Austria and Germany, have performed well, primarily driven by work in the government and automotive sectors. In addition, the port and Meetings, Incentive, Conferences and Exhibitions business this year has been strong and they foresee further opportunities there in the second half of the year.
This strong performance was not enough to offset a drop in tour operations activity in France, a reduction in flying by a key customer in the UK, as well as small decreases in activity in the US and Italy. While the remarketing business performed below expectations in the first half, it has signed several new aircraft mandates, creating a pipeline of around $5M, which are forecast to convert in the next year.
The operating profit in the Private Jets division was £1.7M, a growth of £340K compared to the first half of last year. This was driven by a strong performance in the US. It was a difficult period for the UK and Europe, which saw a decline in profit driven by Brexit uncertainty and some key customers flying less. The Jetcard performance in the US has been strong but the number of cards in the UK and Europe remained flat. They did launch a fixed Trans-Atlantic rate for Jetcard in July, however, with a good pipeline of prospects showing interest.
The operating profit in the freight division was £429K, a fall of £83K compared to the first half of 2019. Trade tensions have caused challenges in the freight sector and air cargo volumes remain weak across the industry, although they are cautiously optimistic about the full year. Their aircraft on ground product continues to be popular and they have added a further six large airlines to their customer base. In addition their on-board courier service, suitable for smaller shipments, has grown year on year.
The operating profit in the consulting and training division was £284K, a decrease of £168K year on year although there was a strong performance from the aviation, energy and ground handling sectors. The board expect a number of current contracts will continue throughout 2020 and beyond, including the supply of surveying services to the Isle of Man registry which has recently added parked commercial jet aircraft to the certificate. Moreover several large customers, across both civil and military sectors, have confirmed their intention to continue projects with their consultancy service into 2021. They launched their first pop up training academy in Europe in September and another one is planned in the Middle East for the early part of next year.
Clockwork Research has now been fully integrated. Over the period they have undertaken safety cases for a major European airline, a UK transport provider and an international energy provider to manage their fatigue risk. In Aviation Managed Services, Wildlife Hazard Management won contracts to provide fully managed services at three airfields, in addition to retaining its existing contracts. Meanwhile there is a robust plan in place within ATC to improve some of the underperforming legacy contracts.
Air Evacuation continues to perform well and they recently entered into a partnership with Northcott Global Solutions. Under the terms of this, the group will become their preferred emergency air charter supplier, while they will be able to leverage Northcott’s capabilities in medical provision, ground and maritime security, armed protection and traveller tracking and intelligence thereby offering customers a broader suite of emergency evacuation services.
Gross profit increased in Germany and the US but declined elsewhere.
During the period the group have opened an office in Singapore, which continues to develop its relationships across freight and remarketing, and an office in Houston. In addition, plans are well advanced to open a new office in Dubai by the end of the year.
During the period there were a few one-off items. There was £187K of amortisation of acquired intangibles and a £315K income relating to the release of deferred consideration. An exceptional provision of £283K was made in respect of indirect tax charges for a prior-year tax assessment in France. They are in the early stage in their discussions with the French tax administration and this represents management’s best estimate of the reassessment liability after taking legal advice.
Going forward the board expect the group to deliver profits in the second half of the year in line with the first half and to meet market expectations.
After a 3% increase in the interim dividend the shares are yielding 5.9% which increases to 6% on the full year forecast. At the current share price the shares are trading on a PE ratio of 14.3 but this rises to 16.5 on the full year forecast. At the period-end the group had a net cash position of £4.3M compared to £6.7M at the same point of last year.
Overall this has been a rather mixed period for the group. Profits increased but this was due to the lack of accounting review costs and underlying profit did fall. Net assets increased but remained small but the operating cash flow did increase with enough free cash being generated. The only division that did well was Private Jets, driven by a good performance in the US. The Group Charter division suffered from lower tour operations in France and a large customer in the UK suffering delays; while the freight division struggled in the face of the China/US trade war. The forward PE of 16.5 doesn’t look particularly cheap to me but the dividend of 6% is an incentive, which looks to be covered suitably by the cash flow. Tricky one, this.