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Flybe Group Plc (FLYB)

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Wednesday 10 June, 2015

Flybe Group Plc

Results for year ended 31 March 2015

RNS Number : 7020P
Flybe Group PLC
10 June 2015
 

Flybe Group PLC

10th June 2015

 

 Flybe Group plc

("Flybe" or "the Group")

 

Continuing Our Transformation

Flybe today announces its results for the year ended 31st March 2015. This year represented the first full financial year of Flybe's three year transformation plan and the focus has been on resolving legacy issues and laying foundations for profitable growth, with significant progress on both fronts.  Flybe is now returning to revenue and capacity growth as it enters the next chapter of its transformation.

 

Financial highlights:

·     3.3% increase in Passenger Revenue per Seat to £51.35 (2013/14: £49.70)

·     5.7percentage points increase in Load Factor to 75.2% (2013/14: 69.5%), an annual all-time high

·     7.7m Passengers, held in line with previous year as a result of improved Load Factor

·     7.5% reduction in Group Revenue to £574.1m (2013/14: £620.5m), as a result of reduction in charter flying and a planned reduction in capacity of 7.6%

·     £27m incremental gross cost savings delivered in the year, on top of the £47m reduction achieved in 2013/14.  Cumulative gross savings over two years to £74m, £3m ahead of the commitment made in November 2013

·     Reported loss before tax of £(35.6)m, including £(12.0)m loss on discontinued operations of Finland JV.

·     Illustrative profit of £16.6m excluding £(10.2)m USD aircraft loan revaluations, £(26.0)m surplus aircraft costs, £(12.0)m discontinued operations and £(4.0)m EU261 provision (2013/14: £1.7m)1

·     Strong Balance sheet with Total Cash as at 31st March 2015 of £195.9m (31st March 2014: £218.4m).  Total Cash per Share was 90.4p

 

Operational highlights

Resolution of nearly all of the Company's legacy issues:

·     Completed its cost restructuring and improved aircraft utilisation by 13% through improved schedule planning and design and more effective crewing and rostering

·     Exited the loss-making joint venture with Finnair

·     Exited, without any penalties, the USD892m obligation to buy 24 additional E175 jets from Embraer with a simultaneous agreement to secure young, attractively priced turbo-prop Q400s

·     Signed landmark deal with Bombardier to upgrade the reliability of Flybe's 45 Q400 aircraft

·     Found solutions for seven of the 14 surplus E195 jets. Further work ongoing to divest the remaining seven E195 jets.

 

Significant progress in laying foundations for future profitable growth:

·     Drove unit revenue growth in core UK business through investment in yield and improved commercial execution

·     Launched two new bases (Bournemouth & Aberdeen) and 26 new routes

·     Signed new codeshare agreements with Cathay Pacific and Finnair and commercial partnerships agreed with Avios, STA Travel and booking.com

·     Signed a six year agreement with SAS, Scandinavia's largest carrier, for a new regional White Label programme at Stockholm initially with four turboprop aircraft to start in the autumn of 2015

·     Signed an eight and a half year contract with Airbus for air frame related maintenance, repair and overhaul of the Royal Air Force's new fleet of 22 A400M Atlas airlifters at Brize Norton

 

Q1 2015/16 UK Trading @ 31st May 2015 (versus prior year)

·     13% increase in capacity

·     65% of capacity already sold, 2ppts behind prior year in part due to year-on-year Easter shift

·     Stable yields

·     1.7% decrease in passenger revenue per seat

 

Summer trading is on track withthe additional capacity selling through as planned.

 

Saad Hammad, Chief Executive, said: "We have just completed the first full financial year of our three year transformation plan. Despite a more challenging environment than anticipated, significant progress has been made. There is much more to do, but I am keen to put on record my thanks to all our pilots, cabin crew, engineers and everyone in the field and at HQ in Exeter for their commitment and effort.  Flybe is back on track to recovery and profitable growth."

Note:

1      Reported PBT for 2013/14 was £8.1m. This was after charging £(1.7)m surplus capacity costs, £(10.7)m restructuring costs and crediting £10.5m from the sale of Gatwick slots and £8.3m from USD revaluation of aircraft loans. Illustrative profit for 2013/14 was therefore £1.7m.  Reported PBT for 2014/15 is £(35.6)m.  Excluding £(10.2)m USD revaluation of aircraft loans, £(26.0)m surplus E195 costs,£(4.0)m EU261  catch up provision, and £(12.0)m Finland discontinued operations, Illustrative profit for 2014/15 is therefore £16.6m

 

The annual report of accounts is published today and available on the website at:

http://www.flybe.com/corporate/investors/reports_and_accounts.htm

 

Enquiries:

Flybe

Philip de Klerk, Chief Financial Officer

 

 

Tel: +44 (0)20 7379 5151

 

Maitland

Neil Bennett

Andy Donald

Tel: +44 (0)20 7379 5151

 

 

Financial Review

During the first full financial year of our three year transformation plan, we have taken significant actions to reduce the cost base and to refocus the commercial operations of the business. These have entailed the departure of over 65 employees, a reconfiguration of the routes we serve and the sale of our joint venture in Finland. As a result, there are a number of one-off and technical items that mask the underlying profit performance.

Flybe made a reported loss before tax of £(35.6)m (2013/14: £8.1m profit). However, this loss before tax is affected by non-cash revaluations on our USD loans that are intended to be hedges against the value of each aircraft, whose value is denominated in dollars. If these movements are excluded, we made an adjusted loss of £(25.4)m (2013/14: loss of £(0.1)m).

Total revenue reduced by 7.5% to £574.1m from £620.5m, as the UK business has optimised its network through the planned reduction of overall capacity by 7.6% to 10.3m seats whilst maintaining passenger numbers at 2013/14 levels (7.7m) through yield investment and improved marketing.

The MRO business, Flybe Aviation Services, generated a profit before tax of £2.3m (2013/14: profit before tax of £2.2m).

Flybe Finland generated a loss from the joint venture of £(2.2)m from April 2014 to September 2014 (2013/14: £0.8m) and interest income of £0.2m. Flybe Finland did not deliver on its expectations of generating profits in 2014/15 due to poor performance in its scheduled flying operations and therefore Flybe sold its interest in Flybe Finland for one Euro. £10.0m was provided for the impairment of the interest in Flybe Finland.  The loss in the first half of £(2.0)m and the impairment of £(10.0)m combined is a £(12.0)m loss for the year.

During 2014/15 Flybe has continued to reduce costs and we have removed £27m of costs from the business during 2014/15 in addition to the £47m achieved in 2013/14.  This totals £74m gross savings, £3m above the original £71m identified as part of the commitments outlined in last year's turnaround plan.

Flybe continues to have a robust balance sheet with free cash of £177.9m at the end of March 2015 (2013/14: £177.9m), with restricted cash of £18.0m (2013/14: £40.5m) and net cash of £76.7m (2013/14: £116.9m).

EBITDAR reduced 29.9% to £69.4m from 2013/14's £98.7m. Set out below is a reconciliation from operating loss to the EBITDAR figures.  All EBITDAR metrics are non-GAAP measures1.

EBITDAR is a common airline profit measure which is used for making comparisons between airlines.

 

2015

 

2014

Change

 

£m

£m

%

Operating (Loss)/profit

(13.0)

1.3

(1100)%

Discontinued Operations (Loss)/profit

(12.0)

(0.5)

(2300)%

Depreciation and amortisation2

13.8

14.3

(3.3)%

Aircraft rental charges

80.6

83.6

(3.6)%

EBITDAR - unadjusted

69.4

98.7

(29.9)%

 

 

The table below sets out a reconciliation from (loss)/profit before tax to adjusted (loss)/profit before tax which adjusts the result for USD loan revaluations. 

 

 

2015

 

2014

Change

 

£m

£m

%

Profit/(loss) before tax - unadjusted

(35.6)

8.1

(327.2)%

USD loan revaluation

10.2

(8.3)

(222.9)%

Adjusted Profit/(loss) before tax and USD loan revaluations

(25.4)

(0.2)

11600%

 

The adjusted profit/(loss) before tax figures given above are non-GAAP measures1.

1.     Non-GAAP measures exclude amounts that are included in the most directly comparable measure calculated and presented in accordance with IFRS, or are calculated using financial measures that are not calculated in accordance with IFRS. The reconciliations above describe how the non-GAAP measure is determined from the most directly comparable measure calculated and presented in accordance with IFRS.  The non-GAAP measures are not regarded as a substitute for, or to be superior to, the equivalent measures calculated and presented in accordance with IFRS or those calculated using financial measures that are calculated in accordance with IFRS. The non-GAAP measures described may not be directly comparable with similarly-titled measures used by other companies.

2.     Excludes depreciation on maintenance assets set up in accordance with IFRS requirements.

 

Illustrative Profit/(Loss) before tax

Flybe made a loss before tax of £(35.6)m (2013/14: £8.1m profit). However, this loss before tax is affected by non-cash revaluations on our USD loans that are intended to be hedges against the value of each aircraft, whose value is denominated in dollars. If these movements are excluded, we made an adjusted loss of £(25.4)m (2013/14: loss of £(0.1)m). Cost of surplus aircraft were £(26.0)m this year against £(1.7)m the previous year and this year included significant costs of the Finland discontinued operations of £(12.0)m and £(4.0)m provision for EU261 claims on delayed and cancelled flights prior to 1st April 2014. Conversely, 2013/14 had one-off restructuring costs of £(10.7)m, offset by one-off £10.5m profit from the sale of our Gatwick slots. For illustrative purposes, therefore the UK profit net of these factors would have been £16.6m (2013/14 £1.7m).

The business continues to focus on exiting surplus aircraft costs and will continue to monitor as they are relevant into 2015/16.

 

2013

2014

2015

 

£m

£m

£m

 

 

 

 

Illustrative Profit/(Loss) Before Tax

               (33.5)

                   1.7

                 16.6

EU261 catch up provision

 

 

                 (4.0)

Discontinued operations

 

                   0.1

               (12.0)

Restructuring costs

                     -  

               (10.7)

                     -  

Sale of Gatwick slots

                     -  

                 10.5

                     -  

Surplus aircraft costs

                 (2.9)

                 (1.7)

               (26.0)

Adjusted PBT

               (36.4)

                 (0.2)

               (25.4)

Foreign Exchange Translation of loans

                 (4.7)

                   8.3

               (10.2)

Reported PBT

               (41.1)

                   8.1

               (35.6)

 

Fleet

Flybe UK

One of the key legacy issues tackled by Flybe during 2014/15 was to resolve the contractual commitment to acquire 24 additional Embraer E175 aircraft. This has been done without any penalties.  In addition, as part of this resolution, Flybe has committed to receiving four E175s in 2018 and an additional 24 used republic Q400 aircraft between 2015 and 2019.

Five Q400 aircraft were contracted to return to lessors in 2014/15, but these aircraft were purchased from the lessors in order to provide capacity for the expansion at London City that commenced in October 2014.

The following table shows the current number of aircraft that are contracted for delivery to the Group.

 

ATRs

E175s

 

Bombardier Q400s

Flybe UK

 

 

 

 

2015/16

4

-

 

10

2016/17

-

-

 

9

2017/18

-

3

 

5

2018/19

-

1

 

-

Total

4

4

 

24

 

 

Fleet under management

The profile of Flybe's fleet under management at 31st March 2015 is summarised below:

 

 

 

Number of aircraft

 

 

               Number of
                        seats

           At 31st March
                         2014

     Net movements
                  in period

           At 31st March

2015

UK Airline

 

 

 

 

Embraer E195 regional jet

118

14

(4)

10

Embraer E175 regional jet

88

11

0

11

Bombardier Q400 turboprop

78

45

0

45

 

 

70

(4)

66

Flybe Finland

 

 

 

 

ATR 42 turboprop

48

2

(2)

-

ATR 72 turboprop

68-72

12

(12)

-

Embraer E170 regional jet

76

2

(2)

-

Embraer E190 regional jet

100

12

(12)

-

 

 

28

(28)

0

Total

 

98

(32)

66

Held on operating lease

 

89

(37)

52

Owned and debt financed

 

9

5

14

Total

 

98

(32)

66

Total seats in fleet

 

8,410

 

5,658

Average seats per aircraft

 

    85.8

 

   86.0

Average age of fleet (years)

 

5.93

 

7.0

 

As at 31st March 2015 Flybe had 66 aircraft under management.  Flybe Finland is no longer part of the Flybe Group.

The Group will continue to match capacity to demand, particularly in its core UK market. Flybe has found solutions for seven of the surplus E195s during 2014/15, with four returned to lessors, one has been returned in May 2015, and two to be operated as part of the new Cardiff base. This leaves seven further aircraft to be resolved.  Flybe is pursuing multiple options in order to find appropriate solutions.

 

Business results

Flybe's results analysed by segment are summarised below.  These results are before tax, other than share of joint venture results.

 

2015

 

2014

 

£m

£m

Business revenues:

 

 

Flybe UK

550.7

599.6

FAS

40.8

35.4

Inter-segment sales

(17.4)

(14.5)

Group revenue

               574.1

               620.5

 

 

 

Business adjusted (loss)/profit before tax:

 

 

Flybe UK1

(24.1)

1.2

FAS2

2.3

2.2

Group costs

(3.6)

(3.6)

Group adjusted loss before tax and USD loan revaluations3

(25.4)

(0.2)

Revaluation gain/(loss) on USD aircraft loans

(10.2)

8.3

Group (loss)/profit before tax

(35.6)

8.1

 

 

 

1        Flybe UK adjusted loss before tax, restructuring is the segment loss of £(24.1)m (2013/14: £1.2m profit) after deducting group costs of £3.6m (2013/14: £3.6m), net restructuring of £0.0m (2013/14: £0.2m) and revaluation losses on USD aircraft loans of £(10.2)m (2013/14: gains of £8.3m).

2        FAS profit before tax is the segment profit of £2.3m (2013/14:  £2.2m).

3        Adjusted (loss)/profit before tax and USD loan revaluations defined as (loss)/profit before tax and revaluation losses on USD aircraft loans of £(10.2)m (2013/14: gain of £8.3m). 

 

Flybe UK

Revenue

 

2015

 

2014

 

£m

£ per seat

 

£m

£ per seat

Passenger revenue

528.6

51.35

 

553.9

49.70

Contract flying

11.6

 

 

16.2

 

Other revenue

10.5

 

 

29.5

 

Total revenue

550.7

 

 

599.6

 

 

As discussed in the Business review above, Flybe UK discontinued under-performing routes and drove load factors by yield investment and improved commercial execution.  The 7.6% reduction in seat capacity was offset by a 5.7 percentage point increase in load factor. This resulted in annual passenger numbers being maintained at 7.7m. However, with constant passenger numbers the reduction in passenger yield did result in a 4.6% reduction in passenger revenue to £528.6m.

The benefit of this rationalisation, however, is shown in the improved performance per seat. Revenue per seat rose by 3.3% (to £51.35).

Contract flying was carried out for Helvetic and Aurigny for a few months during 2013/14 in addition to a long term Brussels Airlines contract that continues in 2014/15, albeit on a smaller scale.

Other revenue in Flybe UK totalled £10.5m, representing a 64.4% decrease on the £29.5m generated in 2013/14, as we reduced unprofitable charter operations, which had been used in the previous year to deploy surplus capacity.

 

Operating costs

Operating costs (on a Flybe UK basis, including restructuring and surplus capacity costs)

 

2015

£m

2014

£m

Fuel and aircraft operations

283.3

315.8

Aircraft ownership and maintenance

148.6

153.9

Staff and other net operating expenses

133.8

130.1

Operating costs

565.7

599.8

 

Operating costs, including restructuring and surplus capacity costs decreased by 5.7% from £599.8m to £565.7m largely due to the reduction in fuel price and capacity. Fuel and aircraft operations costs decreased by 10.2%, or £32.5m. There was a 3.4%, or £5.3m, saving in aircraft ownership and maintenance costs due to a lower average fleet in the year (66 aircraft versus 70 in 2013/14).

 

Operating costs (on a Flybe UK basis, excluding restructuring and surplus capacity costs)

 

 

2015

2014

 

 

£m

£ per seat

£m

£ per seat

Fuel and aircraft operations

283.3

27.50

315.8

28.45

Aircraft ownership and maintenance

122.6

11.90

152.2

13.71

Staff and other net operating expenses

133.8

13.00

129.9

11.70

Operating costs

539.7

52.40

597.9

53.86

           

 

Fuel

The spot price of fuel has dropped by nearly 50% in 2014/15. However, Flybe has a hedging policy to protect itself from short term fluctuations in spot prices, and so, in line with most other airlines, our net fuel costs decreased by only 12.1% to £105.5m (£120.0m in 2013/14).  Aviation fuel prices remain liable to large and unpredictable movements due to a variety of external factors, including changes in supply and demand for oil and oil-related products and volatility in the futures markets.

During the year to 31st March 2015, Flybe UK used some 160,702 tonnes of jet fuel, a reduction on 2013/14 of 8% from 175,200 tonnes.  The average market price during the year was USD807 per tonne (2013/14: USD974), with the Group paying a blended rate (net of hedges) of USD949 per tonne (2013/14: USD982).  Including 'into plane' costs, Flybe's fuel costs in 2014/15 of £105.5m (2013/14: £120.0m) represent an all-in cost of USD1,041 per tonne for 2014/15 (2013/14: USD1,062).  Using constant currency, our fuel costs per seat decreased by 3.9% from £10.63 to £10.24.

Flybe UK operates a policy of managing fuel price volatility by entering into derivative contracts representing a portion (between 60% and 90%) of its aviation fuel requirements a minimum of 12 months forward from the current date.  The intention of this programme is to provide a significant element of certainty over its fuel costs for any forthcoming IATA season.  As at March 2015, 70% of the year's fuel requirement to March 2016 is hedged at an average price of USD919 per tonne.  Further details are given in note 36 to the Consolidated Financial Statements.  Taking into account our hedged position, each USD50 increase/decrease in the price of jet fuel reduces/improves group profits in 2015/16 by £1.7m.

Efficiencies have been derived from our fleet replacement programme, operational improvements and careful management of routes and frequencies.  Overall, 15.6kg of fuel was consumed for each seat flown (2013/14: 15.7kg per seat).  This remains a significant improvement on the 19.1kg per seat consumed in 2007/08 due to our investment in a modern, fuel-efficient, two-type aircraft fleet best suited to regional flying.

Net finance costs

Net finance costs worsened by £(10.2)m due to a non-cash, non-underlying movement on the retranslation of US Dollar denominated debt used to fund the acquisition of aircraft, particularly the newer E175 regional jets, compared to a gain of £8.3m in 2013/14.  The movement in this US Dollar liability cannot be naturally offset against the value of the aircraft as the latter is recorded in pounds Sterling in order to comply with the requirements of International Financial Reporting Standards.  This income statement charge has therefore been removed in arriving at adjusted loss before tax.

Foreign exchange

The Group foreign currency hedging policy has an objective to reduce the volatility of costs.  Flybe manages its foreign exchange positions based on its net foreign currency exposure, being foreign currency expenditure less associated revenue. Flybe UK currently has a relatively small net exposure to the Euro, but has significant US Dollar costs in relation to fuel, maintenance, aircraft operating leases and loan repayments.  The Group generates no significant US Dollar revenue and actively manages its US Dollar position through a foreign exchange forward purchase programme similar to that outlined for fuel.  As at 31st March 2015, 69% of our anticipated US Dollar requirements for the year to 31st March 2016 were hedged at an average exchange rate of USD1.5764. All existing derivative financial instruments are forward swap arrangements.

Taking into account our hedged position, each USD0.05 reduction/improvement in the US Dollar exchange rate has the effect of reducing/increasing Flybe UK's profits in 2015/16 by approximately £2.6m.

Carbon emissions

The Group is required to purchase carbon allowances for all flights departing from and arriving into the EU in order to offset its carbon footprint in each calendar year.  Flybe manages its exposure by purchasing carbon emissions allowances through a forward purchase programme to top up the free allowances awarded to it under the scheme. The table below sets out Flybe UK's emissions and carbon allowances for each of the periods under review:

Calendar year

2015

2014

 

Budget

Actual

Anticipated carbon allowances required, tonnes

544,390

448,909

Free allowance allocation, tonnes

222,778

222,778

Proportion hedged at beginning of period

100%

99%

Effective carbon rate

€5.40

€5.04

 

 

Flybe Finland

Flybe has divested its interest in Flybe Finland, however the summary results are as follows:

 

 

2015

£m

 

2014

£m

 

 

 

 

 

60% share of Flybe Finland joint venture loss

 

(2.2)

 

(0.5)

Other net costs including interest

 

0.2

 

(0.3)

Impairment of discontinued Operation

 

(10.0)

 

-

Business result - Flybe Finland

 

(12.0)*

 

(0.8)

'* Flybe's share of the joint venture loss was £(2.2)m between April 2014 to September 2014, interest income was £0.2m, and the Flybe investment was impaired by £(10.0)m, for a total of £(12.0)m.

 

With ongoing profitability issues in Flybe Finland, and the slower than expected turnaround, Flybe has divested its interest in the joint venture to Finnair for one Euro resulting in the impairment of the Group's investment of £10m.

 

FAS

In November 2014 we created FAS, a stand-alone maintenance, repair and overhaul (MRO) business which includes the MRO business that was part of Flybe Ltd. The combined results for MRO and FAS during 2014/15 were as follows:

 

2015

2014

Change

 

£m

£m

%

Revenue

40.8

35.4

15.4%

Operating costs

(38.5)

(33.2)

(16.00)%

Profit before tax

2.3

2.2

4.5%

 

Revenue increased by 15.4% in 2014/15 to £40.8m (2013/14: £35.4m), of which £23.2m was for third party customers (2013/14: £20.9m).  This increase was driven by the 17.3% increase in manhours from 455,100 manhours in 2013/14 to 533,800 hours in 2014/15. This, in turn, resulted in higher fixed costs and available capacity in the MRO business.  The increase in revenue generating capacity led to a 16% increase in operating costs from £33.2m to £38.5m, and an improved profit performance.

 

Group costs

Group costs of £3.6m were held flat to 2013/14 and include Group Board salary costs and group related legal and professional fees.  The reduction in Board costs in the year has been offset by higher advisor, legal and professional fees. No bonuses were paid or accrued for in the year.

 

Profit/(loss) before and after tax

The Group's reported loss before tax was £(35.6)m (2013/14: £8.1m profit).

The Group's adjusted loss before tax and USD aircraft loans revaluation was £(25.4)m (2013/14: £(0.2)m).

Losses after tax were £(35.7)m (2013/14 £8.0m profit). The current year tax charge was £0.1m (2013/14: £0.1m).

 

EPS and dividends

Basic earnings per share for the year were (16.5)p, compared to earnings per share of 9.6p in 2013/14. 

No dividends were paid or proposed in either the current or prior financial year.

 

Cash flow

 

2015

2014

Change

 

£m

£m

£m

Net cash inflow from operating activities before restructuring

30.1

7.3

22.8

Cash flows from restructuring activities

-

(12.8)

12.8

Net cash inflow/(outflow) from operating activities after restructuring

30.1

(5.5)

35.6

 

 

 

 

Net proceeds from issuing new equity

-

150.1

(150.1)

Net capital (expenditure)/income after disposal proceeds

(36.6)

21.7

(58.3)

Net proceeds/(repayment) from loans

7.0

(10.7)

17.7

 

 

 

 

Net interest paid

(0.5)

(1.0)

0.5

Net increase in cash and cash equivalents

-

154.6

154.6

Cash and cash equivalents at beginning of year

177.9

23.3

154.6

Cash and cash equivalents at end of year

177.9

177.9

-

Restricted cash

18.0

40.5

(22.5)

Total cash

195.9

218.4

(22.5)

 

The group generated £7.6m from operating activities (2013/14 used £5.5m after restructuring costs). Largely due to the strengthened balance sheet arising from the equity issue, the group succeeded in reducing restricted cash (i.e. cash held as security for others, such as merchant acquirers) to £18.0m, from £40.5m in the prior year.  Of this, £(36.6)m was spent on capital expenditure, largely for the purchase of 5 end of lease Q400's for £31.7m, in line with our stated aim to own a higher proportion of our fleet. 

Financing activities of £6.5m included net borrowings of £7.0m and £0.5m of net interest payments, (2013/14 repaid £10.7m loans, and increased cash and equivalents by £154.6m as a result of the £150.1m net equity issuance). As a result, total cash (excluding debt) available was £195.9m at the year-end (2013/14: £218.4m).  This reinforces the strength of the balance sheet.

 

Balance sheet

 

2015

2014

Change

 

£m

£m

£m

 

 

 

 

Aircraft

166.4

147.0

19.4

Other property, plant and equipment

22.7

23.6

(0.9)

Interest in joint ventures

-

12.4

(12.4)

Net funds

76.7

116.9

(40.2)

Derivative financial instruments

(7.2)

(7.6)

0.4

Other working capital - net

(119.9)

(105.4)

(10.2)

Deferred taxation

8.5

4.5

4.0

Other non-current assets and liabilities

(7.2)

2.7

(14.2)

Net assets/(liabilities)

140.0

194.1

(54.1)

 

The £166.4m of net book value of aircraft represents owned aircraft, engines and aircraft modifications.

On 31st March 2015, Flybe sold its interest in our joint venture in Finland for one euro.

Net funds, representing cash offset by debt, at 31st March 2015 of £76.7m (2014: £116.9m) benefited from the capital inflows.  Net funds at 31st March 2015 includes restricted cash of £18.0m (£40.5m at 31st March 2014) which represents, predominantly, cash held with the Group's bankers to facilitate card acquiring services and guarantee arrangements with suppliers, and cash deposits held in favour of aircraft owners to secure operating lease arrangements. Since the year-end, a net £22.5m of restricted cash has been released by the Group's bankers.

The mark-to-market valuation of derivative financial instruments decreased from a liability of £7.6m at 31st March 2014 to a liability of £7.2m at 31st March 2015, as foreign exchange rates and fuel prices moved against Flybe's portfolio of contracts.  Net negative other working capital increased from £(105.4)m to £(119.9)m, largely due to increased current deferred income, the creation of the EU261 flight delay provision, being offset by a reduction in the restructuring provision.

The balance sheet also includes the impact of the defined benefit pension scheme deficit of £21.0m which is included in "Other non-current assets and liabilities" above. This scheme, which is closed to future benefit accrual, had been in deficit by £2.5m at March 2014. The year on year increase of £18.5m in the deficit is primarily due to the change in the discount rates. A recovery plan of £0.5m contribution per annum from Flybe was agreed as part of the last actuarial review in 2013.

Covenants

The Group has certain financial performance covenants in relation to some of its aircraft financing agreements.  These specify performance, depending on the contractual terms, against a series of tests, which are performed either quarterly, half-yearly or annually.  Flybe has met all the terms of the covenants tested since the inception of the arrangements to 31st March 2015 (see note 24 to the Consolidated Financial Statements).

Country and currency risk

Flybe's UK and European businesses operate in a global marketplace. Most of Flybe's customers are based in Europe, although the MRO business also has customers in Africa, the Middle East and the central Asian republics.  Most of Flybe's revenues are derived from UK-based customers (about 85% of group revenue).  Aircraft are bought and sold in US dollars as are other key costs such as fuel and aviation insurance.  Airport and en route charges are payable in a mix of Sterling and euros and the further development of European operations will mean greater exposure to Euro revenues and costs.  This is further considered in the Risks and Uncertainties section and note 36 'Financial instruments' of the annual report.

Going concern

Flybe's business activities, together with the factors likely to affect its future development, performance and position, are set out in the Chairman's and Chief Executive Officer's statements. The financial position of the Group, its cash flows and liquidity position, and events since the balance sheet date are described in the financial performance section of that statement and in the Financial Review of the annual report. In addition, note 36 in the annual report covers Flybe's financial risk management objectives, details of its financial instruments and hedging activities and its exposures to credit risk and liquidity risk.

Flybe had free cash balances of £177.9m at 31st March 2015, and has met all of its operating lease commitments and debt repayments as they have fallen due during the year.

Flybe faces trading risks presented by current economic conditions in the aviation sector, particularly in relation to passenger volumes and yields and the associated profitability of individual routes.

The Group is exposed to fluctuations in fuel prices and foreign exchange rates.  The Group's policy is to hedge between 60% and 90% of estimated exposures 12 months in advance.  As of 5th June 2015, we had purchased 81% of our anticipated fuel requirements and 64% of our anticipated US Dollar requirements for the following 12 months.

The Directors have prepared a detailed trading budget and cash flow forecast for a period which covers at least 12 months after the date of approval of these Financial Statements.  Having considered the forecasts and making other enquiries, the Directors have a reasonable expectation that Flybe has adequate resources to continue in operational existence for the foreseeable future.  Thus they continue to adopt the going concern basis of accounting in preparing the Annual Financial Statements.

 

Consolidated Income Statement

 

 

 

     

 

 

2015

Total

£m

 

2014

Before restructuring costs

£m

 

2014 Restructuring costs

(note 7)

£m

                                 

 

 

2014

Total

£m

GROUP REVENUE

 

574.1

620.5

-

620.5

 

 

 

 

 

 

Consisting of:

 

 

 

 

 

Passenger revenue

 

528.6

553.9

-

553.9

Contract flying revenue

 

11.6

16.2

-

16.2

Revenue from other activities

 

33.9

50.4

-

50.4

GROUP REVENUE

 

574.1

620.5

-

620.5

 

 

 

 

 

 

Staff costs

 

(90.4)

(98.0)

(9.6)

(107.6)

Fuel

 

(105.5)

(120.0)

-

(120.0)

Net airport and en route charges

 

(108.7)

(122.1)

-

(122.1)

Ground operations

 

(69.1)

(73.7)

-

(73.7)

Maintenance

 

(37.2)

(41.9)

-

(41.9)

Depreciation and amortisation

 

(13.8)

(14.3)

-

(14.3)

Aircraft rental charges

 

(80.6)

(83.6)

-

(83.6)

Marketing and distribution costs

 

(27.4)

(23.3)

-

(23.3)

Other operating gains/(losses)

 

0.8

0.9

10.5

11.4

Other operating expenses

 

(54.9)

(43.0)

(1.1)

(44.1)

Operating (loss)/profit

 

(12.7)

1.5

(0.2)

1.3

 

 

 

 

 

 

Investment income

 

0.8

0.7

-

0.7

Finance costs

 

(1.5)

(1.7)

-

(1.7)

Other gains/(losses)

 

(10.2)

8.3

-

8.3

(LOSS)/PROFIT BEFORE TAX

 

(23.6)

8.8

(0.2)

8.6

 

 

 

 

 

 

Tax charge

 

(0.1)

(0.1)

-

(0.1)

(LOSS)/PROFIT AFTER TAX of continuing operations

 

(23.7)

8.7

(0.2)

8.5

 

 

 

 

 

 

Loss on discontinued operations

 

(12.0)

(0.5)

-

(0.5)

 

(LOSS)/PROFIT

 

(35.7)

8.2

(0.2)

8.0

 

 

 

 

 

 

Earnings/(loss) per share:

 

 

 

 

 

Basic and diluted

 

(16.5)

 

 

9.6

 

 

 

Consolidated statement of comprehensive income

Year ended 31st March 2015

 

 

                         2015

                            £m

                         2014

                            £m

(Loss)/profit for the financial year

(35.7)

8.0

 

 

 

Items that will not be reclassified to profit or loss:

 

 

Re-measurement of net defined benefit obligation

(18.4)

(2.2)

Deferred tax arising on net defined benefit obligation

4.1

0.5

 

(14.3)

(1.7)

 

 

 

Items that may be reclassified subsequently to profit or loss:

 

 

Losses arising during the year on cash flow hedges

(23.4)

(15.7)

Reclassification of gains/(losses) on cash flow hedges included in the income statement

15.5

3.2

Deferred tax arising on cash flow hedges

(0.2)

2.1

Foreign exchange translation differences

3.8

(0.6)

 

(4.3)

(11.0)

 

 

 

Other comprehensive loss for the year

(18.6)

(12.7)

Total comprehensive loss for the year

(54.3)

(4.7)

 

 

Consolidated statement of changes in equity

Year ended 31st March 2015

 

 

    Share

   capital

          £m

    Share

premium

          £m

Hedging

reserve

             £m

     Other

reserves

          £m

   Capital

redemp-

         tion

reserve

          £m

Retained earnings/ (deficit)

          £m

      Total

    equity

          £m

Balance at 1st April 2013

0.7

60.6

3.6

6.7

22.5

(46.0)

48.1

Loss for the year

-

-

-

-

-

8.0

8.0

Other comprehensive income for the year

-

-

(11.0)

-

-

(1.7)

(12.7)

Equity‑settled share‑based payment transactions

-

-

-

-

-

0.6

0.6

Share capital issued

1.5

154.2

-

-

-

-

155.7

Share issue expenses

-

(5.6)

-

-

-

-

(5.6)

Balance at 31st March 2014

2.2

209.2

(7.4)

6.7

22.5

(39.1)

194.1

Loss for the year

-

-

-

-

-

(35.7)

(35.7)

Other comprehensive loss for the year

-

-

(4.3)

-

-

(14.3)

(18.6)

Equity‑settled share‑based payment transactions

-

-

-

-

-

0.1

0.1

Share capital issued

-

-

-

-

-

-

-

Share issue expenses

-

0.1-

-

-

-

-

0.1

Balance at 31st March 2015

2.2

209.3

(11.7)

6.7

22.5

(89.0)

140.0

 

 

Consolidated balance sheet

Year ended 31st March 2015

 

NON-CURRENT ASSETS

 

 

Intangible assets

8.8

5.2

Property, plant and equipment

189.1

170.6

Interests in joint ventures

-

12.4

Other non-current assets

38.0

42.3

Restricted cash

7.1

6.6

Deferred tax asset

8.8

6.1

Derivative financial instruments

0.2

-

 

252.0

243.2

 

 

 

CURRENT ASSETS

 

 

Inventories

7.1

6.8

Trade and other receivables

98.3

85.8

Cash and cash equivalents

177.9

177.9

Restricted cash

10.9

33.9

Derivative financial instruments

14.1

0.4

 

 

 

 

308.3

304.8

TOTAL ASSETS

560.3

548.0

 

 

 

CURRENT LIABILITIES

 

 

Trade and other payables

(96.3)

(82.0)

Deferred income

(77.1)

(70.7)

Borrowings

(13.0)

(10.4)

Provisions

(51.9)

(45.3)

Derivative financial instruments

(18.9)

(8.0)

 

(257.2)

(216.4)

 

 

 

NON-CURRENT LIABILITIES

 

 

Borrowings

(106.2)

(91.1)

Deferred tax liabilities

(0.3)

(1.6)

Provisions

(24.3)

(31.9)

Deferred income

(8.3)

(9.5)

Employee benefits

(21.0)

(2.5)

Derivative financial instruments

(2.6)

-

Liability for share-based payments

(0.4)

(0.9)

 

(163.1)

(137.5)

TOTAL LIABILITIES

(420.3)

(353.9)

 

 

 

NET ASSETS

140.0

194.1

 

 

 

EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY

 

 

Share capital

2.2

2.2

Share premium account

209.3

209.2

Hedging reserve

(11.7)

(7.4)

Other reserves

6.7

6.7

Capital redemption reserve

22.5

22.5

Retained deficit

(89.0)

(39.1)

TOTAL EQUITY

140.0

194.1

 

 

Consolidated cash flow statement

Year ended 31st March 2015

 

 

                         2015

                            £m

                         2014

                            £m

Cash flows from operating activities

 

 

(Loss)/profit for the year

(35.7)

8.0

Loss from discontinued operations

2.2

0.5

Interest received on joint venture loan

(0.2)

 

Impairment of joint venture

10.0

-

Loss from continued operations

(23.7)

8.5

Adjustments for:

 

 

Restructuring costs

-

10.7

Unrealised (gains)/losses on derivative contracts

(2.5)

(1.3)

Depreciation, amortisation and impairment

14.6

14.3

Investment income

(0.8)

(0.7)

Finance costs

1.5

1.7

Other net (gains)/losses

10.2

(8.3)

(Profit)/loss on sale of property, plant and equipment

-

(0.2)

Profit on sale of assets held for sale

-

(0.4)

Profit on sale of intangible assets

-

(10.5)

Share-based payment expenses

(0.5)

1.5

Taxation

-0.1

0.1

 

(1.1)

15.4

 

 

 

Cash paid in respect of restructuring costs

-

(12.8)

Cash paid for defined benefit pension funding

(0.5)

-

Increase in restricted cash

22.5

(9.1)

(Increase)/decrease in trade and other receivables

(10.9)

(8.2)

Increase in inventories

(0.2)

-

(Decrease)/increase in trade and other payables

21.3

(9.8)

 

 

 

Increase/(decrease) in provisions and employee benefits

(1.0)

19.0

 

31.2

(20.9)

Tax paid

-

-

 

 

 

Net cash flows from operating activities

30.1

(5.5)

 

 

 

Cash flows from investing activities

 

 

Proceeds from sale of property, plant and equipment

-

1.3

Proceeds from sale of intangible assets

-

17.5

Proceed from sale of assets held for sale

-

12.3

Decrease/(increase) in pre-delivery deposits

-

11.8

Interest received

1.0

0.7

Acquisition of property, plant and equipment

(32.3)

(19.9)

Capitalised computer software expenditure

(4.3)

(1.3)

 

 

 

Net cash flows from investing activities

(35.6)

22.4

 

 

 

Cash flows from financing activities

 

 

Proceeds from new loans

25.4

14.7

Net proceeds on issue of shares

-

150.1

Interest paid

(1.5)

(1.7)

Repayment of borrowings

(18.4)

(25.4)

 

 

 

Net cash flows from financing activities

5.5

137.7

 

 

 

Net increase/(decrease) in cash and cash equivalents

-

154.6

 

 

 

Cash and cash equivalents at beginning of year

177.9

23.3

 

 

 

Cash and cash equivalents at end of year

177.9

177.9

 

 

1.   General information

 

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 March 2015 or 2014, but is derived from those accounts.  Statutory accounts for 2014 have been delivered to the Registrar of Companies and those for 2015 will be delivered following the company's annual general meeting.  The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2016.

 

2.   Discontinued operations

On 11th November 2014, the group entered into a sale agreement to dispose of its share in the joint venture, Flybe Finland. The disposal was completed on 31st March 2015, on which date control of the Group's share of Flybe Finland passed to the acquirer.

 

The loss for the year from discontinued operations was as follows:

 

 

2015
£

2014
£

 

 

 

Post tax loss of discontinued operation (see below)

(2.2)

(0.8)

Investment  in joint venture impairment charge

(10.0)

-

Interest received on joint venture associated loan

0.2

-

 

 

 

 

 

 

 

(12.0)

(0.8)

 

 

 

 

No gain or loss arose on the disposal of the Group's share of Flybe Finland, being the difference between the proceeds of disposal and the carrying amount of the Group's investment in the joint venture.  The investment had been written down to €1 as at 30th September 2014, and an impairment of £10m recorded.

 

The results of the discontinued operations, which have been included in the consolidated income statement, were as follows:

 

 

2015

£

2014
£

 

 

 

Revenue

117.2

247.9

Expenses

(119.9)

(248.9)

 

 

 

Loss before tax

(2.7)

(1.0)

 

 

 

Attributable tax credit

0.5

0.2

 

 

 

Net loss attributable to discontinued operations (attributable to owners of the Company)

(2.2)

(0.8)

 

3.   BUSINESS AND GEOGRAPHICAL SEGMENTS

 

During the financial year, the Group's divisions have been removed and the business has been refocused into One Flybe.  Under IFRS 8, Flybe reports two business segments in order to comply with accounting standards. 

The chief operating decision maker responsible for resource allocation and assessing performance of operating segments has been identified as the Operating Board.  Operating segments are reported in a manner which is consistent with internal reporting provided to the chief operating decision maker:

 

Flybe UK

 

This business segment comprises the Group's main scheduled UK domestic and UK-Europe passenger operations and revenue ancillary to the provision of those services.

Flybe Aviation Services (FAS)

 

This segment aims to provide aviation services to customers, largely in Western Europe. The FAS supports Flybe's UK activities as well as serving third-party customers.

Flybe Finland

 

No longer a division as discontinued and sold.

 

Segment revenues and results

Transfer prices between business segments are set on an arm's length basis.

 

 

 

2015

£m

 

2014

£m

Segment revenues:

 

 

 

 

Flybe UK

 

 

550.7

599.6

FAS

 

 

40.8

35.4

Inter-segment sales

 

 

(17.4)

(14.5)

Group revenue (excluding investment income)

 

 

574.1

620.5

 

 

 

 

 

 

 

2015

 

2014

 

 

 

Total

£m

Before restruc-turing costs

£m

Net restruc-turing costs
(note 7)

£m

       Total

£m

Segment results:

 

 

 

 

Flybe UK (including net finance costs of £0.7m in 2015 and £1.4m in 2014)

 

(25.9)

6.9

(0.2)

 

6.7

FAS

2.3

2.2

-

2.2

Total segment profit/(loss) before tax

(23.6)

9.1

(0.2)

8.9

 

The Flybe UK segment includes group costs of £3.6m (2013/14: £3.6m) and revaluation losses on USD aircraft loans of £ (10.2) m (2013/14: £8.3m gains).

For the purposes of monitoring segment performance and allocation of resources between segments, the Operating Board monitors the tangible, intangible and financial assets attributable to each segment.  All assets are allocated to reportable segments with the exception of revalued open fuel and foreign exchange derivatives, and tax assets and liabilities.  Assets used jointly by reportable segments are allocated on the basis of the revenue earned by individual reportable segments.

 

 

 

 

2013

2014

 

 

 

 

 

 

 

 

£m

£m

 

 

 

 

 

Segment assets:

 

 

 

 

Flybe UK

 

 

517.0

508.6

 

 

 

 

 

FAs

 

 

20.2

19.5

Unallocated assets

 

 

23.1

6.5

Consolidated total assets

 

 

560.3

534.6

 

 

 

 

 

Segment liabilities:

 

 

 

 

Flybe UK

 

 

(387.7)

(329.6)

 

 

 

 

 

FAS

 

 

(4.5)

(7.9)

Unallocated liabilities

 

 

(28.1)

(15.5)

Consolidated total liabilities

 

 

(420.3)

(353.0)

 

 

 

 

2013

2014

 

 

 

 

 

 

 

 

£m

£m

Discontinued Operations

 

Share of Flybe Finland assets

 

 

-

13.4

 

Share of Flybe Finland liabilities

 

 

-

(0.9)

 

The unallocated assets and liabilities refer to financial instruments, deferred tax and share based payments.

 

Other segment information

 

 

 

2015

2014

 

 

 

 

 

 

 

 

£m

£m

 

 

 

 

 

Depreciation and amortisation:

 

 

 

 

Flybe UK

 

 

14.4

14.3

FAS

 

 

0.2

-

 

 

 

14.6  

14.3  

 

 

 

 

 

Investment income:

 

 

 

 

Flybe UK

 

 

0.2  

0.3  

 

 

 

0.2  

0.3  

 

 

 

 

 

Additions to non‑current assets:

 

 

 

 

Flybe UK

 

 

96.5  

21.2  

FAS

 

 

8.5  

-  

 

 

 

105.0  

21.2  

 

Geographical information

The Group's revenue from external customers by geographical location is detailed below:

 

 

2015

2014

 

£m

£m

Revenue under management from external customers:

 

 

United Kingdom

484.5

537.0

Europe excluding United Kingdom

76.6

70.2

Rest of world

13.0

13.3

Group revenue

574.1

620.5

 

No non‑current assets were based outside of the United Kingdom for any of the periods presented other than joint venture assets. The Flybe interest in Flybe Finland was sold for one Euro as at 31st March 2015, hence at the period end, no assets/liabilities associated with the Finland joint venture appear in the balance sheet.

Information about major customers

None of the Group's customers exceeded 10% of its Group revenue.

 

4.   OPERATING PROFIT

 

 

2015

2014

 

£m

£m

This has been arrived at after charging/(crediting):

 

 

Depreciation of property, plant and equipment

12.19

13.5

Amortisation of intangible assets

0.8

0.8

(Profit)/loss on the disposal of property, plant and equipment

-

(0.2)

Profit on sale of intangibles

-

(10.5)

Profit on sale of assets held for sale at prior year end

-

(0.4)

Cost of inventories recognised as an expense

14.9

11.7

Reversal of write-downs of inventories recognised in the year

-

(0.7)

Write-down of inventories as a result of restructuring

-

-

Operating leases:

 

 

Land and buildings

2.6

2.7

Plant and machinery

1.9

1.9

Aircraft

80.6

83.6

Foreign exchange (gains)/losses

(1.2)

(0.2)

 

5.  TAX ON (LOSS)/profit on ordinary activities

 

 

2015

2014

 

£m

£m

Deferred tax

 

 

Origination of temporary differences

0.1

3.7

Reversal of tax losses recognised

-

(3.6)

Total tax charge for the year

0.1

0.1

 

The Group did not incur or pay any current tax in this or the prior year.

 

The difference between the total tax shown above and the amount calculated by applying the standard rate of United Kingdom corporation tax to the profit/(loss) before tax is as follows:

 

 

2015

 

2014

 

£m

£m

(Loss)/profit on ordinary activities before tax

(35.6)

8.1

 

 

 

Tax on profit/ (loss) on ordinary activities before tax at 21% (2014: 23%)

(7.1)

1.7

 

 

 

Factors affecting tax charge for the year

 

 

Items outside the scope of UK taxation

0.1

0.1

Effect of change in corporation tax rate

(0.1)

(0.3)

Effect of tax losses

2.4

3.5

(Capital allowances in excess of depreciation)/depreciation in excess of capital allowances

4.8

(4.9)

Total tax charge for the year

0.1

0.1

 

The further phased reduction in corporation tax rate, as enacted in July 2013, reducing the corporation tax rate to 20% from 1 April 2015, has been reflected by the Group. The Directors are not aware of any other factors that will materially affect the future tax charge.

 

6.   (LOSS)/EARNINGS PER SHARE

 

The calculation of the basic, diluted, adjusted basic and adjusted diluted earnings per share is based on the following data:

 

 

2015

 

2014

 

£m

£m

(Loss)/Earnings

 

 

(Loss)/Earnings for the purposes of unadjusted earnings per share, being net profit/(loss) attributable to owners of the Group

(35.7)

8.0

 

 

 

 

 

 

 

2015

2014

Weighted average number of ordinary shares for the purposes of basic and diluted earnings per share

216,655,910

82,906,411

 

 

 

(Loss)/Earnings per ordinary share - basic and diluted

(16.5)p

9.6p

 

 

 

 

LOSS PER SHARE - DISCONTINUED OPERATIONS

 

The calculation of the basic, diluted, adjusted basic and adjusted diluted earnings per share is based on the following data:

 

 

2015

 

£m

Loss - discontinued operations

 

Loss or the purposes of unadjusted earnings per share, being net profit/(loss) attributable to owners of the Group

(12.0)

 

 

 

 

 

2015

Weighted average number of ordinary shares for the purposes of basic and diluted earnings per share

216,655,910

 

 

Loss per ordinary share - basic and diluted

(5.5)p

 

 

Diluted earnings per share is the same as basic earnings per share in the year ended 31st March 2015 because the Group recorded a loss and as such none of the shares that could, potentially, be issued are dilutive.

Diluted earnings per share is the same as basic earnings per share in the year ended 31st March  2014 because none of the shares that could, potentially, be issued are dilutive. 

The weighted average number of shares reflects the impact of the issue of 1,185 ordinary shares on 1st September 2014 and the issue of 790 ordinary shares on 16 September 2014 (141,501,920 ordinary shares on 12th March 2014).

 


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