2016 Interim Financial Report

BBA Aviation plc

2016 Interim Financial Report

Results for the half year ended

30 June 2016

For further information please contact:

Mike Powell, Group Finance Director (020) 7514 3999

Martha Walsh, Interim Head of Communications & Investor Relations

BBA AVIATION PLC

David Allchurch / Doug Campbell (020) 7353 4200

TULCHAN COMMUNICATIONS

A video with Simon Pryce, Group Chief Executive, is now available on www.bbaaviation.com and www.cantos.com

A live audio webcast of the analyst presentation will be available from 09:00 today on www.bbaaviation.com and www.cantos.com

INTERIM FINANCIAL REPORT FOR PERIOD ENDED 30 JUNE 2016

(1) Before exceptional and other items (as defined in the financial statements)

(2) Continuing operations comprises Signature Flight Support and Aftermarket Services

(3) ASIG is reclassified as discontinued operations and reported gross of BBA Aviation support costs previously included within ASIG

(4) Underlying EBITDA is calculated as underlying operating profit before depreciation and amortisation charged through underlying operating profit

(5) Adjusted earnings pre exceptional and other items attributable to the Group, reflecting current tax charge as opposed to total tax charge, divided by the weighted average number of shares in issue adjusted for the period to 5 February 2016 to match the capital structure with the earnings generated by it

(6) Underlying operating profit return on average invested capital; invested capital calculated as average net assets plus average net debt

(7) Return on invested capital for full year 2015

(8) Cash generated by operations, plus dividends from associates, less tax, net interest and net capital expenditure

(9) Net debt for full year 2015

(10) Net debt represents borrowings and obligations under finance leases repayable in less than one year and borrowings and obligations under finance leases repayable in more than one year for continuing operations, adjusted to reflect the US private placement debt at its face value of $500 million ($28.3 million lower than its carrying value, H1 2015 $11.6 million) less cash and cash equivalents for continuing and discontinued operations.

These definitions as outlined above are consistently applied throughout this results announcement

Highlights

· Strong overall results, underlying operating profit (continuing and discontinued) up 56% to $149.6 million

· Acquisition of Landmark Aviation delivering as anticipated

· Integration proceeding well and synergy delivery ahead of plan

· $190m of U.S. Department of Justice required FBO disposals completed

· Continuing operations:

o Flight Support (93% of Group)

§ Excellent underlying operating profit growth of 84% in enlarged Signature despite broadly flat markets

§ Continued market outperformance, existing Signature organic revenue growth of 3.6% and underlying operating profit growth of 10.8%*

§ Increased confidence in delivering run rate synergies of at least $35 million

o Aftermarket Services (7% of Group)

§ Ontic, our Legacy Support business, delivered ahead of plan and with a strong order book

§ Weak H1 performance in ERO as trading conditions remained challenging, continued progress on footprint reduction programme

· Statutory operating profit from continuing operations down 8% to $62.1 million

· Discontinued operations:

o ASIG reclassified as held for sale; good underlying improvement

· Exceptional and other items of $347.3 million

o Continuing challenges in ERO leading to non-cash accounting impairment of $185.3 million

o $128.9 million ASIG write-down resulting from reclassification as held for sale

o $44.7 million amortisation of acquired Landmark Aviation intangibles, in line with expectations

· Strong net cash flow from operating activities of $160 million and Group de-levered to 3.2x net debt/EBITDA on a covenant basis, versus covenant of 4x

· Adjusted underlying EPS up 6.4%

· Interim dividend up 5% reflecting continued confidence in the Group's future growth prospects

*Adjusted for H1 2015 one-off $5.2 million benefit of the reclassification of our investment in the Hong Kong Business Aviation Centre as an associate

Simon Pryce, BBA Aviation Chief Executive Officer, commented:

"The Group overall delivered a strong set of results in H1 despite broadly flat markets. We are pleased with the acquisition of Landmark Aviation and the integration is ahead of plan. The enlarged Signature (which now represents over 90% of the Group's continuing business) delivered an excellent half of outperformance with good margin drop through. In Aftermarket Services, our Legacy Support business Ontic performed ahead of expectations but ERO continued to experience difficult trading conditions, although with an improving trend in the second quarter as we continue to execute our footprint reduction programme. As anticipated, we saw strong cash generation and Group leverage on a covenant basis is already down to 3.2x.

As a result of on-going discussions we have reclassified ASIG, which made good operational progress in the period, as a discontinued operation and now consider a sale of this business to be highly probable, albeit there is no certainty that an acceptable transaction will result. We anticipate making a further announcement on ASIG before the end of the year.

With the actions that deliver the majority of the cost synergies complete as we enter H2, we are highly confident of delivering at least $35 million of annualised cost savings from the Landmark Aviation acquisition. We also continue to see further opportunity for continued outperformance from the enlarged Signature through the delivery of its customer recognised, industry-leading services and the application of its operational excellence across a much larger global network of high quality locations. Ontic has a very strong pipeline and a good order book and while the delayed recovery in legacy mid-cabin fixed wing and rotorcraft flying will continue to impact ERO, our footprint reduction programme remains on track and will lead to improved financial performance.

We remain confident in the full year outlook and anticipate good further progress in 2016, which coupled with continued, albeit modest growth in our major markets, will give us strong momentum into 2017 and beyond."

INTERIM FINANCIAL REPORT 2016

Overview

BBA Aviation had a successful first half in 2016, with good progress on the Group's strategic initiatives and results ahead of expectations. The acquisition of Landmark Aviation was successfully completed in February, and is delivering well with integration and level of cost synergies ahead of plan and actions that deliver the majority of the cost savings already complete. The U.S. Department of Justice required six FBO disposals which have been completed for $190 million.

In Continuing Operations, Signature delivered excellent operating profit growth, continuing to outperform its markets, which were broadly flat, with good drop through to profit; and Landmark Aviation delivered in line with our expectations. Ontic, our Legacy Support business, delivered ahead of plan and enters H2 with a particularly strong order book and pipeline. However, in Engine Repair & Overhaul (ERO) trading conditions remained challenging, with no recovery in legacy mid-cabin fixed wing and rotorcraft flying visible and continued pressure on pricing and workscopes, which led to another disappointing ERO result. As a result of this performance and with no visible recovery in said markets, an impairment loss of $185.3m has been incurred.

ASIG delivered good underlying operational improvement in the half. As a result of on-going discussions we now consider a sale of the ASIG business to be highly probable and it has therefore been reclassified as a discontinued operation and its assets disclosed as held for sale. We anticipate making a further announcement on ASIG before the end of the year.

Continuing Group revenue increased by 15.7% to $1,020.6 million (H1 2015: $882.3 million). Continuing Flight Support revenue increased 40.0%, reflecting a good Signature result and the contribution of acquisitions, principally Landmark Aviation, of $241.2 million, offset by the impact of lower fuel prices and foreign exchange movements that reduced Flight Support revenue by $56.3 million. Aftermarket Services revenue was down 14.2%.

Continuing underlying Group operating profit was $135.6 million (H1 2015: $84.2 million). There was an excellent performance in Flight Support with a $62.1 million contribution from acquisitions, of which $8.7 million related to cost synergies. Aftermarket Services, now only 7% of continuing Group underlying operating profit, was down 56.0%; Ontic is on track with the majority of the decline due to another disappointing performance from ERO.

Continuing Group underlying operating profit margin increased to 13.3% (H1 2015 constant fuel price: 10.1%) with positive margin development and a greater contribution from Signature offset by a lower margin in Aftermarket Services due to challenges in ERO.

Net interest increased by $13.8 million to $30.1 million (H1 2015: $16.3 million) mostly due to the acquisition facilities drawn down on completion of the Landmark Aviation acquisition. Net debt increased to $1,437 million (FY 2015: net cash position of $456.5 million). On a covenant basis, the net debt to EBITDA ratio increased to 3.2x (FY 2015 historically adjusted for the results of the capital raise: 2.3x), and on a reported basis to 4.3x (FY 2015 historically adjusted 2.3x). Interest cover decreased to 7.4x for the 12 months to 30 June 2016 (FY 2015: 8.5x), due to the increased interest bill on the drawn debt.

Underlying profit before tax increased to $105.5 million (H1 2015: $67.9 million).

The Group's underlying tax rate is 16.0% (H1 2015: 17.2%), with the continuing operations' tax rate 16.6% as expected. Underlying profit before tax increased by 55% and the adjusted average number of shares increased by 299 million via the October 2015 capital raising; resulting in adjusted earnings per share up 6.4% to 11.6¢ (adjusted H1 2015: 10.9¢).

Exceptional and other items after tax, for continuing and discontinued operations, totalled $347.3 million. Key items of this are an impairment charge of $185.3 million in relation to ERO's assets due to its continuing challenging trading environment and no visible recovery in legacy mid-cabin fixed wing and rotorcraft flying; and in classifying ASIG as a discontinued operation, it is considered appropriate to write down the assets now held for sale which resulted in an impairment charge of $128.9m. Further items which were all anticipated include: restructuring expenses of $6.2 million (H1 2015: $2.7 million), associated with ERO's ongoing footprint rationalisation programme; $16.1 million of integration costs related to the acquisition of Landmark Aviation; and $51.9 million amortisation of acquired intangible assets (H1 2015: $5.6 million), an increase resulting primarily from the acquisition of Landmark Aviation. This is accounted for as an other item within exceptional and other items.

Continuing statutory profit before tax was $(153.3) million versus $51.3 million for the prior year. The statutory loss before tax arises due to the exceptional and other items charges during H1 2016 as outlined above.

Continuing unadjusted earnings per share decreased to (12.6)¢ against the 2015 comparator. Continuing adjusted earnings per share (EPS) increased 6.4% to 10.2¢.

Free cash flow for the first half was an inflow of $91.7 million (H1 2015: $11.8 million inflow), the increase due to Landmark Aviation's cash generation.

Gross capital expenditure amounted to $49.6 million (H1 2015: $44.3 million), of which $1.3 million related to Landmark Aviation integration. Principal items include the investment in Signature's FBO development projects at San Jose (now complete) and London Luton, the completion of Landmark development projects at Grand Rapids and Cleveland Lakefront and the new ERO facility associated with its footprint rationalisation programme.

Working capital improved by $9.3 million. Despite some inventory increases in Ontic, due to order book build for the second half, the main inflow is due to us applying our working capital disciplines and processes across the enlarged group. This is a one off and unlikely to recur in the second half.

The Group paid net $2.6 million of pension payments during the period, of which $2.1 million represented pension deficit payments reflecting the agreed payments to the scheme.

The Group's tax and interest payments in the first half were $36.5 million (H1 2015: $22.0 million), and the dividend payment was $87.2 million (H1 2015: $53.9 million).

Total spend on acquisitions and licences completed during the period amounted to $2,088.2 million (H1 2015: $21.1 million), which included $2,086.9 million for Landmark Aviation, adjusted for working capital and minority interests; a controlling shareholding in Prime Aviation Services, which operates FBOs at four locations in Italy; and deferred consideration for Ontic's acquisition of licenses for selected JT15D engine component parts from Pratt & Whitney Canada. The Group recorded net cash proceeds from the disposal of six FBOs of $186.5 million after adjusting for the impact of working capital.

Following a review of the impact of the Landmark Aviation acquisition on the Group's long term incentive plans, in consultation with shareholders, the basis for calculating the key performance measures of EPS and return on invested capital (ROIC) has changed to simplify them and focus them more on cash generation.

ROIC is now calculated as adjusted operating profit, as defined in the Group's financial statements; divided by statutory invested capital, calculated as net assets plus net debt, on a look back 13 month average.

Underlying earnings per share (EPS) is now calculated as adjusted earnings pre exceptional and other items attributable to BBA Aviation (using a current tax charge rather than total accounting tax charge), divided by the weighted average shares in issue.

Business Review - Continuing Operations

Flight Support (93% of continuing operations' underlying operating profit)

Our Flight Support division provides specialist on-airport services including refuelling and ground handling to the business & general aviation (B&GA) market through Signature Flight Support (Signature).

Flight Support's continuing operations comprise Signature (existing Signature) and the acquired Landmark Aviation operations (Landmark Aviation).

^ Continuing Signature operations excluding the impact of foreign currency and fuel price fluctuations, any contribution from acquisitions and disposals, and continuing ASIG operations

† Underlying operating profit at constant fuel prices as a percentage of revenue

*Return on invested capital for full year 2015

**Operating cash flow represents net cash inflow from operating activities less purchase of property, plant and equipment, purchase of intangible assets (excluding Ontic licenses), plus proceeds from disposal of property, plant and equipment and add back taxes paid

Revenue in Flight Support increased by 40% to $680.5 million (H1 2015: $485.9 million), reflecting the $241.2 million contribution from acquisitions, primarily Landmark Aviation, and the net impact of lower fuel prices and foreign exchange movements that reduced revenue by $56.3 million. Signature delivered organic growth despite weak de-icing and against a background of broadly flat markets with US B&GA movements up 0.2% and European B&GA movements down 0.8% during the period.

Underlying operating profit in Flight Support increased by 84% to $141.6 million (H1 2015: $76.8 million), driven by $62.1 million contribution from acquisitions, which included cost synergies of $8.7 million and supported by strong underlying operational delivery in existing Signature. On an organic basis, adjusting for acquisitions ($62.1 million), FX ($0.4 million), and fuel prices ($nil), operating profit increased by 4.0%. The comparator period benefited from the reclassification of our investment in the Hong Kong Business Aviation Centre as an associate rather than a financial investment, which realised an accounting profit of $5.2 million, adjusting for which, organic operating profit grew 10.8%.

Operating margins improved to 20.8% (H1 2015: 17.7%) after adjusting for fuel prices, driven by the increased scale of Flight Support's FBO business. Underlying operating margin of 20.8% includes the benefit of profit from disposed FBOs and charter business accounted for as associate undertaking (detailed below) (H1 2015: 15.8%).

Statutory operating profit of $77.4 million has increased by 14.8% (H1 2015: $67.4 million). This is a result of organic growth plus the impact of acquisitions in the period, partially offset by increased other item costs associated with the integration of Landmark Aviation and amortisation of intangible assets.

Operating cash flow for the division was $146.5 million (H1 2015: $42.5 million) due principally to increased EBITDA following the acquisition of Landmark Aviation. Return on invested capital decreased to 12.3% (FY 2015: 15.4%).

Existing Signature, i.e. excluding locations acquired through Landmark Aviation, delivered a very strong performance despite weaker than anticipated markets, reflecting the continued benefits of a strong and relevant network. Landmark's locations also performed well. Organic revenue, excluding the contribution from acquisitions, increased 3.6% to $437.0 million. In the first half of 2016, Signature once again outperformed its key markets, with continued demand from existing and new customers for its independently acknowledged market leading services and facilities across its unique, growing and global network.

The acquisition of Landmark Aviation completed on 5 February and the business has subsequently met our expectations and performed as anticipated. Integration is proceeding well, with all sites having completed Signature re-branding and training. The roll-out of Signature's system to former Landmark Aviation locations has commenced with 30 sites now online and the remainder due for completion before year end. Once the roll-out is complete, Signature will be able to provide the enhanced network benefits more effectively to a broader spectrum of customers supporting continued outperformance in 2017 and beyond.

With integration ahead of plan, cost synergies of $8.7m delivered in H1, and actions complete that deliver the vast majority of the integration cost benefits, we are increasingly confident of delivering at least $35 million of run rate synergies from the beginning of 2017. Of the anticipated integration spend in 2016 of circa $44 million, comprising $25 million of one-off expenses and $19 million of capital expenditure, $16.1 million and $1.3 million respectively has been incurred.

The purchase price accounting exercise for the acquisition is provisionally complete with the effect that Landmark Aviation's intangible assets have been valued at $1,162.8 million, and amortisation charges of $44.7 million in respect of those intangibles has been taken as a other charge in H1 as part of our exceptional and other items. The intangible assets represent the Right To Operate (RTO) leases at the acquired FBOs.

Six FBOs were required to be sold as a result of the Landmark Aviation acquisition and this transaction completed on 30 June 2016; the proceeds of which have been used for debt repayment. EBITDA contribution of $7.9 million from these FBOs is included in Flight Support up to the transaction completion date. Landmark Aviation's aircraft management and charter business (AMC), is currently held in trust as we implement actions to resolve the restrictions on foreign ownership and has therefore been accounted for as an associate undertaking.

In April, four FBOs were acquired in Italy through the formation of a joint venture with SEA Prime S.p.A., adding locations in Milan Linate and Malpensa airports, Rome Ciampino airport and Venice Marco Polo airport. During the period, Signature further expanded its network and relevance through its affiliate FBO programme, Signature SelectTM, with the addition of one new location at Lanseria International Airport in Johannesburg, South Africa, taking the Signature SelectTM network up to 16 locations globally. Following the period end, Signature took over the FBO lease at Stewart International Airport, NY from Airborne Aviation, bringing the total number of North American locations to 136 and the total number globally to 200.

Signature's ongoing development project at London Luton Airport is progressing well and is on track to complete in November 2016. Signature's new FBO at Mineta San Jose International Airport held its grand opening in February and traffic is ahead of expectations. A significant extension to existing facilities at Biggin Hill airport, outside London, was announced in June and the new FBO and hangar facilities at Cleveland Lakefront airport opened in July.

Aftermarket Services (7% of continuing operations' underlying operating profit)

Our Aftermarket Services division is focused on the repair and overhaul of engines through our Engine Repair and Overhaul (ERO) businesses and the support of maturing aerospace platforms through Ontic, our Legacy Support business.

* Return on invested capital for full year 2015

**Operating cash flow represents net cash inflow from operating activities less purchase of property, plant and equipment, purchase of intangible assets (excluding Ontic licenses), plus proceeds from disposal of property, plant and equipment and add back taxes paid

In Aftermarket Services, revenue decreased by 14% to $340.1 million (H1 2015: $396.4 million, a comparator that includes $29.4 million of engine trading). On an organic basis, adjusting for FX, revenue also decreased by 14%.

Underlying operating profit of $11.1 million decreased by 56% (H1 2015: $25.2 million).

The decline in both revenue and operating profit was mostly due to a poor performance from ERO. On an organic basis, operating profit was down 63% to $11.1 million with operating margins of 3.3% (H1 2015: 6.4%), against a comparator which saw a material contribution from engine trading.

Statutory operating profit of $1.8 million has decreased by 91% (H1 2015: $20.8 million). This is a result of the poor operating performance as outlined above and an increase in the ERO footprint rationalisation costs which are presented as part exceptional and other items. 

Operating cash flow for the division was $(6.8) million reflecting lower operating profit in ERO and the capital expenditure associated with the investment in new ERO facilities and the footprint restructuring. Return on invested capital decreased to 6.5% (FY 2015: 8.4%) reflecting investment in the new ERO facilities and operating profit decline.

Engine Repair and Overhaul's revenue of $269.9 million (H1 2015: $321.9 million) represented a 15% organic revenue decrease. Volumes in legacy mid-cabin engines and rotorcraft remained depressed through most of the first half, with reduced workscopes and competitive pricing. Engine trading was much reduced and this, together with further margin pressure arising from OEM actions, and reduced demand for lease engines, was only partially offset by the limited cost savings so far delivered through the footprint restructuring programme and additional cost reduction actions taken in H1. Whilst the small thrust engine repair and overhaul market remains competitive and volatile, we did see much improved performance the last two months of the period, particularly as Tay engine volumes increased. While the financial performance of our engine repair business remains unsatisfactory, with the increasing benefits of the footprint reduction programme and additional cost reduction actions contributing more fully into H2, even at current volumes, we anticipate a modest improvement in ERO in H2 albeit not recovering to the previously expected performance levels.

ERO's footprint rationalisation programme, which began in 2014, remains on track. The new overhaul and test cell facilities are complete and two of the six test cells have been successfully calibrated. Main production testing has now commenced on the PW200 Series, RR M250-C47B & C-20B, RR300 and TFE731-3 & -5. The transfer of production and final closure of Neosho and Forest Park has commenced and will be complete by the end of H2 with lessons learned from 2015's transition of engine overhaul lines and site closures being applied through more effective project oversight and risk assessment and mitigation throughout. Further operational improvement has led to enhanced performance metrics, even faster turn times and significant increases in customer satisfaction ratings. These fast turnaround times, the improved cost structure and greater operational stability that will be in place by 2017 once the footprint reduction is complete should further improve flexibility, customer service and financial performance and a more stable base from which to develop a long term strategy for value creation for our ERO business.

In May, ERO and Signature jointly launched Jetstream rewards to incentivise Signature customers to schedule maintenance events at ERO facilities in exchange for fuel credits; the first time that the Group has externally promoted cross-selling between divisions. Further actions are being taken to improve ERO's performance including the development of a proprietary forecasting system and commercial steps towards broader parts procurement to compete with grey market suppliers.

However, with no recovery in legacy mid cabin and oil and gas rotorcraft flying in the foreseeable future as well as a more challenging outlook, the Board has determined that for certain ERO assets the balance sheet carrying value exceeds its likely recoverable amount and an impairment charge has therefore been recognised of $185.3 million.

In Ontic, revenue decreased by 5.9% to $70.2 million (H1 2015: $74.5 million), and on an organic basis by 10.0%, due to the timing of deliveries and new licence adoptions and was slightly ahead of our expectations. The order book at the end of H1 is somewhat higher than anticipated.

During the period, Ontic expanded its license portfolio from Pratt & Whitney Canada Corp for certain additional engine components, significantly increasing the level of JT15D content for which it is responsible. Ontic continues to pursue value added acquisitions, authorisations and licenses with a particularly strong pipeline of opportunity.

Central Costs

Core central costs were $1.2 million lower at $7.8 million, due to FX, cost control and lower share based payments. Due to the reclassification of ASIG as a discontinued business, those central back-office transaction processing and shared service centre costs previously allocated to ASIG of $9.3 million (H1 2015: $8.8 million) are now included in continuing operations. Such costs will be eliminated in whole or in part if we complete an acceptable transaction on ASIG.

Business Review - Discontinued Operations

The Company's view is that a disposal of ASIG is highly probable in the next 12 months, and therefore ASIG has been reclassified as a discontinued operation and its assets held for sale during H1. The appropriate accounting treatment requires us to report ASIG's performance as a single discontinued profit after tax number in the income statement and the balance sheet is collapsed onto two lines only, showing assets held for sale and liabilities held for sale. Prior years are restated with operations shown gross of central support costs.

On an underlying basis however, ASIG continued to deliver good operational improvement in H1, with profit increased by 23% to $14.0 million (H1 2015: $11.4 million) as a result of the continuing and significant operational improvements - new business wins, successful new contract and new location start-up's, cost savings, and the benefit of the Panama acquisition - offset by adverse de-icing activity in an unusually warm Q1 in North America. The profit improvement also benefited from a suspension of depreciation of $2.5 million during Q2, the required accounting treatment whilst the asset is held for sale.

In classifying ASIG as a discontinued operation and held for sale, the Board has determined that it is appropriate to take a view on ASIG's fair value, less costs to sell on disposal and in doing so has taken an exceptional write down of $128.9 million through the accounts in H1. Discussions on ASIG are progressing and we anticipate making a further announcement before the end of the year. 

Other Financial Information

Net debt increased to $1,437.0 million (FY 2015: $456.5 million cash positive due to the rights issue to fund the acquisition of Landmark Aviation; adjusting for the impact of the rights issue and costs associated with the acquisition of Landmark Aviation, adjusted net debt at FY 2015 was $640.2 million). At H1 2016 the group had total borrowings of $1,653 million (FY 2015 $523.4 million), obligations under finance leases of $2.0 million (FY 2015 $nil) and cash and cash equivalents of $164.8 million for continuing operations (FY 2015 $950.7 million) and cash and cash equivalents for discontinued operations of $24.9 million (FY2015 $15.7 million).

The net cash outflow for H1 2016 included the drawdown of $1,000 million under the acquisition financing agreement to fund, in conjunction with the rights issue proceeds received in 2015, the acquisition of Landmark Aviation for $2,086.9 million. On 30 June 2016 $186.6 million of the debt drawn under the acquisition financing agreement was repaid as a result of the disposal of six FBOs, made in accordance with the U.S. Department of Justice requirements. During H1 2016 the company also made a dividend payment of $87.2 million.

Net debt to EBITDA was 3.2x on a covenant basis and 4.3x on a reported basis (historic adjusted FY 2015: 2.3x). The covenant calculation is based on a 12 month underlying EBITDA contribution from Landmark Aviation, commencing 5 February 2016, meaning that reported ratios will converge towards covenant ratios at the year end. Interest cover was 7.4x for the 12 months to 30 June 2016 (FY 2015: 8.5x).

It is too early to know the precise effect of the UK's EU referendum result and ensuing negotiations, besides increased political uncertainty. As a company operating principally in US dollars, we are not materially impacted by significant FX movements, but we continue to monitor the situation closely.

Pensions

Agreement was reached on 31 May 2016 to close the UK defined benefit pension scheme to future accrual, principally affecting ERO employees. This resulted in a curtailment loss of $1.5 million which is included in exceptional and other items as part of our ERO footprint rationalisation costs.

The actuarial valuation of the UK plan as at 31 March 2015 indicated a funding deficit of £45 million ($66 million). The Group paid net $2.6 million of pension payments, of which $2.1 million represented pension deficit payments, reflecting the agreed payments to the scheme under an agreement to make additional contributions of £0.3 million (~$0.4 million) per annum over the next five years bringing the annual deficit contribution to £3.0 million, and £2.7 million thereafter until 2034.

As at 30 June 2016, the accounting net deficit across the UK and US plans was $49.4 million (FY 2015: $40.1 million).

Dividend

The Board is declaring an increased interim dividend of 3.63¢ (H1 2015 adjusted: 3.47¢, H1 2015 historical: 4.85¢) up 5% on an underlying basis reflecting the Board's progressive dividend policy and its continued confidence in the Group's future growth prospects.

Outlook

We remain confident in the full year outlook and anticipate good further progress in 2016, which coupled with continued, albeit modest growth in our major markets, will give us strong momentum into 2017 and beyond. With the actions that deliver the majority of the cost synergies complete as we enter H2, we are highly confident of delivering at least $35 million of annualised cost savings from the Landmark Aviation acquisition. We also continue to see further opportunity for continued outperformance from the enlarged Signature through the delivery of its customer recognised, industry-leading services and the application of its operational excellence across a much larger global network of high quality locations. Ontic has a very strong pipeline and a good order book and whilst the delayed recovery in legacy mid-cabin fixed wing and rotorcraft flying will continue to impact ERO, our footprint reduction programme is on track, which will lead to improved financial performance.

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 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.

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,

Simon Pryce Mike Powell

Group Chief Executive Group Finance Director

1 August 2016 1 August 2016

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, 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; 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.bbaaviation.com

Unaudited condensed consolidated income statement

1 Underlying profit and adjusted earnings per share is stated before exceptional and other items. Exceptional and other items are defined in note 3.

Unaudited condensed consolidated statement of comprehensive (loss) / income

Unaudited condensed consolidated balance sheet

Unaudited condensed consolidated cash flow statement

1 Purchase of intangible assets includes $6.8 million (30 June 2015: $10.0 million; 31 December 2015: $13.5 million) paid in relation to Ontic licences.

2 Within the Group's definition of net debt the US private placement is included at its face value of $500 million (30 June 2015: $500 million; 31 December 2015: $500 million) reflecting the fact that the liabilities will be in place until maturity. This is $28.3 million (30 June 2015: $11.6 million; 31 December 2015: $13.5 million) lower than its carrying value.

3 Purchase of own shares includes shares purchased for the Employee Benefit Trust and shares purchased from employees to settle their tax liabilities as part of the share scheme.

4 Bank overdrafts which are repayable on demand are not included within cash and cash equivalents for the purposes of the cash flow statement.

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 BBA Aviation plc (the "Group"), for the six months ended 30 June 2016 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 2015. 

The Group's annual financial statements for the year ended 31 December 2015 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.

Except as described below, these condensed consolidated half yearly financial statements have been prepared in accordance with the accounting policies, presentation and methods of calculation as set out in the Group's consolidated financial statements for the year ended 31 December 2015, which were 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.

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 10 of the interim statement.

New financial reporting requirements

A number of EU-endorsed amendments to existing standards and interpretations are effective for annual periods beginning on or after 1 January 2016 and have been applied in preparing the Consolidated Financial Statements of the Group. There is no impact on the Group Consolidated Financial Statements from applying these standards.

Financial reporting standards applicable for future financial periods

A number of EU-endorsed standards and amendments to existing standards and interpretations, which are described below, are effective for annual periods beginning on or after 1 January 2016 and have not been applied in preparing the Consolidated Financial Statements of the Group.

In addition to the above, IFRS 9: Financial Instruments (IFRS 9) and IFRS 15: Revenue from contracts with customers (IFRS 15) have been issued but not yet been endorsed by the EU. Therefore, the date from which they become effective is not yet known. IFRS 9 addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 15 addresses recognition of revenue from customer contracts and impacts on the amounts and timing of the recognition of such revenue. The Group is yet to assess the impact of IFRS 9 and IFRS 15 on the Consolidated Financial Statements.

The IASB released IFRS 16: Leases on 13 January 2016. The expected date for adoption into EU-IFRS has not yet been set. Management have not yet formally assessed the impact of the final standard on the Group's financial statements. However, we note that the Group has substantial operating lease commitments as disclosed in note 14 of the Group's annual consolidated financial statements.

Joint ventures and associates

In the first half of 2015 we reclassified our investment in Hong Kong Business Aviation Centre from a financial instrument to an associate to more appropriately reflect its scale and our level of influence. The reclassification of the investment resulted in the recognition of $5.2m of operating profit during 2015 relating to prior periods.

RestatementsPrior period results have been restated for the impact of the presentation of the ASIG businesses as a discontinued operation. Further explanation of this change is presented in note 13.

Prior period interim results have also been restated for the impact of the rights issue on earnings per share.

Presentational reclassifications

There has been a re-classification of $10.7 million between cost of sales and administrative expenses in the prior interim period to improve consistency of treatment within cost of sales.

There was a re-classification between current payables and current or non-current provisions in both prior interim to improve consistency of treatment of provisions. The re-classification for the 30 June 2015 moved $31.4 million of current trade and other payables to provisions split $13.1 million and $18.3 million between current and non-current respectively.  

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 Chief Operating Decision Maker (for the Group, this is the Chief Executive) to allocate resources to the segments and to assess their performance.

Based on the above, the reportable segments of the Group are Flight Support and Aftermarket Services.

The businesses within the Flight Support segment provide re-fuelling, ground handling and other services to the business, general and commercial aviation markets. The businesses within the Aftermarket Services segment maintain and support engines and aerospace components, sub-systems and systems. Sales between segments are immaterial.

There has been no change to the Group's reportable segments since the last annual report.

2. Segmental analysis - continued

1 Flight Support's segment result includes $11.0 million (30 June 2015: $7.0 million; 31 December 2015: $9.6 million) relating to profits of associates and joint ventures. As described in note 1 in the prior period we reclassified our investment in Hong Kong Business Aviation Centre from a financial instrument to an associate. The reclassification of the investment resulted in the recognition of $5.2 million of operating profit in 2015 which related to prior periods. In the prior period Flight Support's segment result also included $4.3 million in respect of the bargain purchase gain in relation to the acquisition of ASIG Panama. That gain was recorded in the second half of 2015.

2 In the prior period ERO entered into a sale and lease back transaction with respect to a portion of its rental engine fleet. The transactions led to the recognition of revenue totalling $29.4 million to 30 June 2015 and $39.7 million for the year to 31 December 2015.

3 Unallocated corporate balances include debt, tax, provisions, pensions, insurance captives and trading balances from central activities.

2 Segmental analysis - continued

2 Segmental analysis - continued