Final Results

BBA Aviation plc

2017 Final Results

Results for the year ended

31 December 2017

For further information please contact:

David Crook, Group Finance Director (020) 7514 3999

Kate Moy, Head of Investor Relations & Communications

BBA AVIATION PLC

David Allchurch (020) 7353 4200

TULCHAN COMMUNICATIONS

A video with BBA Aviation management is now available on www.bbaaviation.com and www.cantos.com

A live audio webcast of the analyst presentation will be available from 08:15 today on www.bbaaviation.com and www.cantos.com 

FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2017

1. Refer to alternative performance measures for the note outlining all adjusted and continuing measures

2. % change based on continuing operations for operating performance

Highlights

· Strong overall Group performance, underlying continuing operating profit up 19% to $360.6 million

· Statutory profit before tax for 2017 was $175.5 million compared to a loss of $82.2 million in 2016

· Adjusted continuing underlying basic EPS up 24% to 24.0 cents. Unadjusted continuing basic EPS of 13.8 cents against a loss of 1.9 cents in 2016

· Final dividend up 5.2% reflecting continued confidence in the Group's future growth prospects.

· Business performance:

o Flight Support (83% of Group underlying OP)

§ Signature organic revenue growth of 3.8% was in line with the US B&GA market growth of 3.7%

§ In the second half, Signature organic revenue growth moved ahead of the market at 4.4% against the US B&GA market which grew at 4.1%

§ Organic underlying operating profit growth of 11.3%, significantly ahead of the growth in the underlying B&GA markets

o Aftermarket Services (17% of Group underlying OP)

§ Organic underlying operating profit growth of 32.2%

§ Ontic - delivered an excellent operating performance with strong contributions from new licences and organic growth from legacy US military licences

§ ERO - much improved operating margin performance despite organic revenue decline

§ We are currently conducting a strategic review of our ERO business

· Exceptional and other items of $127.0 million is largely non-cash and associated with the amortisation of acquired intangibles $93.8 million and restructuring costs of $28.0 million primarily on assets at our ERO facility in Abu Dhabi, which is scheduled to close over the next few months, and the final phase of our ERO footprint rationalisation.

· Free cash flow from continuing operations was $254.0 million. On a statutory basis, free cash flow was $220.6 million (2016: $224.1 million) and as a result the Group de-levered to 2.6x net debt to underlying EBITDA on a covenant basis.

· New target leverage range of 2.5x to 3.0x net debt to underlying EBITDA on a covenant basis will maintain an efficient balance sheet and reflects the strong and robust cash generative characteristics of the business whilst also providing the flexibility required to meet the investment opportunities of the business to fund organic and inorganic growth.

Wayne Edmunds, BBA Aviation Interim Chief Executive Officer, commented:

"2017 was another successful year for BBA Aviation. It was a year when we continued to lay the foundations for further growth and value creation across our Signature network of 198 FBOs. Over the year we have successfully negotiated revised commercial terms for over 50% of our revenue and these started to positively impact in our second half and contributed to our market outperformance during that period.

The US B&GA market has grown strongly during the year. We have invested in the network through lease extensions, adding hangar space, growing our line maintenance offering through Signature TECHNICAir™ and expanding our Signature Elite® and Signature Select® offerings, all of which extend and enhance our opportunity for continued market outperformance. We see potential, as we look forward, to expand our offering of non-fuel services and further leverage our market leading network.

I am pleased with the much-improved financial performance from our Aftermarket Services business. We have made further investments in Ontic's IP protected licence portfolio and the licences acquired from GE Aviation at the end of 2016 have made a strong initial contribution. Ontic continues to see significant growth opportunities and has a strong pipeline of opportunities to add to the licence portfolio and a good order book. The second half also saw a much-improved operating performance from ERO supported by the benefits from the footprint rationalisation program.

We have undertaken a comprehensive review of our capital structure and increased our targeted leverage range, maintaining a capital efficient balance sheet based on the strong and robust cash flow fundamentals of the Group.

Furthermore, I am delighted that Mark Johnstone, who has extensive experience across the Group will take up his appointment as Chief Executive Officer at the beginning of April.

In summary, the Group is focused on higher value-added, better IP protected, high ROIC and strongly cash generative businesses with encouraging prospects and the Board remains confident of good growth in 2018 with a good pipeline of further investment opportunities."

FINAL RESULTS 2017

Overview

BBA Aviation has delivered another year of strong growth. Our underlying operating profit outperformed strong B&GA markets in 2017.

During the year we made significant progress on transitioning our customers onto new commercial agreements to begin capturing the value from the unique Signature network, post the integration of Landmark Aviation. Ontic's focus as a high quality, cash generative market leading provider of legacy support services was further enhanced with the addition of new licence agreements during the year. Furthermore, the acquisition of GE Aviation's portfolio of legacy avionics products in December 2016 made an encouraging initial contribution.

Flight Support delivered excellent underlying operating profit growth, continuing to outperform its markets, with good drop through to profit. In Aftermarket Services, Ontic, our Legacy Support business, delivered ahead of our expectations. We saw a good contribution from licences added in 2016 and organic growth from military parts programmes, including the B52. ERO delivered a much-improved operating performance through market share gains on certain engine platforms, underpinned by ongoing cost reduction and the results of the footprint rationalisation. This was achieved despite markets that remained challenging with no recovery in legacy mid-cabin fixed wing flying and continued pressure on pricing and workscopes.

Continuing Group revenue increased by 10% to $2,370.6 million (2016: $2,149.1 million), including $92.7 million contribution from acquisitions. Flight Support revenue increased 13.8%, reflecting the contribution from acquisitions of $53.0 million, being one additional month of Landmark Aviation and the additional three months of contribution from the new FBOs in Italy, together with the impact of higher fuel prices, partially offset by foreign exchange movements, that increased Flight Support revenue by $88.1 million. Aftermarket Services revenue was up 3.1% driven by Ontic offsetting the decline from continuing challenging markets in ERO.

Continuing underlying Group operating profit was up 19% to $360.6 million (2016: $302.6 million). There was an excellent performance in Flight Support which increased operating profit as adjusted for FX and disposals by $43.8 million and includes a $11.6 million contribution from acquisitions. Aftermarket Services, now 17% of continuing Group underlying operating profit, was up $24.6 million as adjusted for FX due to Ontic's strong performance and included a $11.5 million contribution from acquisitions and a much-improved financial performance at ERO.

Statutory Group operating profit was up 43% to $237.6 million (2016: $166.1 million) due to improved trading performance and lower exceptional and other items, as set out below.

Continuing Group underlying operating profit margin increased to 15.2% (2016: 14.1%) reflecting underlying margin growth in both Flight Support and Aftermarket Services. On a constant fuel, disposals adjusted basis the underlying operating margin increased 200 basis points to 15.2%.

Underlying net interest decreased by $1.8 million to $62.1 million (2016: $63.9 million). Net debt decreased to $1,167.1 million (2016: $1,335.3 million). On a covenant basis, the net debt to underlying EBITDA ratio decreased to 2.6x (2016: 3.1x), and on a reported basis to 2.6x (2016: 3.2x). Interest cover on a covenant basis increased to 8.4x (2016: 7.2x), due to the decreased interest on the lower drawn debt.

Underlying continuing profit before tax increased to $298.5 million (2016: $238.7 million).

The Group's underlying effective tax rate for continuing operations is 17.5% (2016: 16.5%). Underlying profit after tax increased by 24% and continuing underlying adjusted earnings per share (EPS) increased by 24% to 24.0 cents (underlying adjusted 2016: 19.4 cents). Cash EPS, the measure of EPS adjusted to use a current as opposed to total tax charge, increased 29% to 28.6 cents (2016: 22.1 cents).

Total Group ROIC increased 90bps to 11.0%, up from 10.1% in 2016.

Exceptional and other items after tax, for continuing and discontinued operations, totalled $127.0 million (2016: $316.0 million). Significant items include restructuring expenses of $28.0 million (2016: $9.9 million), comprising of $15.7 million as a result of restructuring ERO's Abu Dhabi facility and $12.3 million associated with ERO's footprint rationalisation programme and actions taken to address the costs previously associated with supporting ASIG; $93.8 million of non-cash amortisation of acquired intangible assets (2016: $98.6 million), and $22.5 million loss after tax on disposal of discontinued operations (2016: $97.5 million). The impact of the enactment of the Tax Cuts and Jobs Act in the US has also been presented as exceptional and other item tax charge as set out below.

Continuing statutory profit before tax was $175.5 million versus an $82.2 million loss for the prior year.

Free cash flow was $220.6 million (2016: $224.1 million), the decrease mainly due to a working capital outflow of $46.3 million compared to an inflow of $36.1 million in the prior year and increased tax payments, largely offset by increased earnings, lower capital expenditure and lower interest payments.

Gross capital expenditure amounted to $80.3 million (2016: $102.4 million). Principal capital expenditure items include the investment in our FBOs at Boeing Field, Palm Beach and Nashville, our new engine overhaul and testing facility at Dallas Fort Worth and our Ontic facility in Cheltenham to support the ongoing transition of GE Aviation avionics licenses.

Working capital outflows in the year of $46.3 million (2016: $36.1 inflow), represented $25.7 million outflow relating to discontinued operations and approximately $20 million outflow representing the expected reversal of outperformance from 2016.

Cash flows on exceptional and other items during the year were $12.7 million (2016: $63.5 million) which primarily relate to restructuring costs.

The Group's tax payments during the year were $41.8 million (2016: $15.8 million) which included tax payments of $8.4 million in relation to the disposal of ASIG. Net interest payments were $57.2 million (2016: $61.8 million) and dividend payments amounted to $130.7 million (2016: $124.3 million).

The consideration paid relating to acquisitions during the year, including deferred consideration, was $75.7 million, net of cash acquired. This related substantially to the acquisition of Ontic's licences. In December 2016, Ontic completed the acquisition of a portfolio of legacy avionics products from GE Aviation for $60.7 million. The cash payment for this acquisition was made in January 2017.

Business Review - Continuing Operations 

Flight Support (83% of underlying operating profit) 

Our Flight Support division provides specialist on-airport services including refuelling, ground handling and hangarage to the business & general aviation (B&GA) market through Signature Flight Support, line maintenance services through Signature TECHNICAir™ and aircraft management and charter operations through its affiliate Gama Aviation Signature Aircraft Management.

Revenue in Flight Support increased by 13.8% to $1,643.0 million (2016: $1,443.2 million), reflecting a net positive impact of higher fuel prices and foreign exchange movements and $53.0 million contribution from 2016 acquisitions being an additional one month contribution from Landmark Aviation and an additional three months contribution from the acquisition of four FBOs in Italy. Flight Support's organic revenue growth of 3.8% for the full year reflected good growth in the US B&GA market generally with movements up 3.7% and European B&GA movements up 7.3% during the year.

Underlying operating profit in Flight Support increased by 12.0% to $329.4 million (2016: $294.0 million), driven by continued strong underlying operational performance in Signature Flight Support and an $11.6 million contribution from acquisitions. Underlying operating profit includes our Signature TECHNICAir™ and our aircraft management and charter business which is accounted for as a joint venture. On an organic basis, adjusting for acquisitions ($11.6 million), FX ($0.6 million) and disposals ($7.8 million), underlying operating profit increased by 11.3%.

Underlying operating margins were slightly lower due to the increase in fuel prices and disposal of FBOs in 2016 which were equity accounted. Underlying operating margins adjusted for constant fuel prices and disposals increased by 140 basis points to 20.0%.

Statutory operating profit of $247.1 million increased by 39.4% (2016: $177.3 million). This is a result of strong organic growth plus the impact of acquisitions, net of disposals and a reduction in exceptional and other items, primarily lower amortisation of acquired intangible assets and the non-repeat of acquisition integration costs from 2016. Operating cash flow for the division was $313.4 million (2016: $276.8 million) due principally to strong organic operating profit growth and reduced capital expenditure. Return on invested capital increased to 12.2% (2016: 11.2%) reflecting the strong improvement in underlying operating profit during the year.

Signature Flight Support's locations delivered another strong performance in a good growth environment, as we started to capture the benefits of our strong and customer-relevant network.

Against a background of a US B&GA market that grew 3.1% in the first half, Signature performed broadly in line with the market despite a short term negative impact on fuel volumes while negotiations with Signature's customers were undertaken and the loss of the Santa Ana FBO in April 2017. In the second half, Signature outperformed its principal US B&GA market with 4.4% organic revenue growth against the market which grew at 4.1% reflecting both the positive customer response to the enlarged network proposition and the good progress with our commercial renegotiations.

The hurricanes in August and September: Harvey, Irma and Maria caused minimal impact overall across the Signature network and we were able to re-establish services quickly and provide support for the rescue and relief efforts. Damage to our FBO network was limited although there were some excess payments made on our insurance policies by Signature. The further impact of hurricane insurance claims is covered under central costs below.

Signature is well positioned to focus on optimising its unique and high quality global network of FBOs and line maintenance locations, through the provision of a broader range of B&GA services to our extensive customer base and enhancing network performance to accelerate value creation. The unique Signature network has the unmatched ability to satisfy the needs of our customers at many more locations that they want to fly to, supporting anticipated continued outperformance in 2018 and beyond.

In 2017 Signature expanded its affiliate FBO programme, Signature Select®. It signed an extended licence agreement with Fly Across at Toluca International Airport in Mexico, just a 30-minute drive from Santa Fe, the country's financial and business district. This location increases the Signature Select® network to 19 locations globally and we continue to look for further opportunities to expand this proposition.

Signature has continued to invest in its current network, with the successful opening of its newly constructed FBO, with premium hangar space to satisfy the growing tenant demand, at Boeing Field, Seattle which completed in June 2017. It also secured a new strategic lease at Washington Dulles International Airport.

BBA Aviation has also recently taken a minority investment in Victor, a leading on-demand private jet charter company. Through this minority investment which concurrently acquired RocketRoute, a global flight planning and trip support business, we are committed to being at the forefront of advances in data and technology enabled customer service. As the demographic using and chartering private jets continues to change, our ability to utilise technology will ensure we bring the best possible service to our many discerning customers.

There are now 198 locations in Signature's global network.

Aftermarket Services (17% of underlying operating profit of continuing operations)

Our Aftermarket Services division is focused on the support of maturing aerospace platforms through Ontic, our legacy support business and the repair and overhaul of engines through our ERO businesses.

In Aftermarket Services, revenue grew by 3.1% to $727.6 million (2016: $705.9 million). Underlying operating profit of $65.3 million (2016: $42.0 million) was driven by Ontic which now represents c.85% of the division's profits, supported by a much-improved performance in ERO. Underlying operating margins grew strongly during the year to 9.0% (2016: 5.9%).

On an organic basis, adjusting for FX ($1.3 million) and acquisitions ($11.5 million) the Aftermarket Services underlying operating profit was up 32.2% driven primarily by a recovery in ERO through cost-reduction actions and supported by organic growth in Ontic on military licences.

Operating profit of $33.6 million has increased (2016: $22.2 million) as a result of improved organic operating performance in Ontic and ERO and the contribution from acquisitions in Ontic.

Operating cash flow for the division was $66.0 million (2016: $34.0 million) which reflected the improved operating performance, lower capital expenditure and the receipt of proceeds from the sale of the Forest Park facility in Dallas. Return on invested capital increased to 11.3% (2016: 6.9%) reflecting the improved operating performance.

Ontic

Ontic, our legacy support business, continues to perform well, with revenue up 26.9% to $208.8 million (2016: $164.5 million). On an organic basis, revenue was up 4.5%.

The 2017 performance includes a significant contribution from the portfolio of legacy avionics products acquired from GE Aviation in December 2016. This business has been substantially transitioned into Ontic's existing UK facility in Cheltenham over the course of 2017. The cash payment of $60.7 million for this acquisition was made in January 2017. Furthermore, it was a strong year for cyclical military demand - B52 actuation and C130 Radar units shipped in significant quantities during 2017 which we do not expect to repeat in 2018. We expect the non-repeat element of the cyclical military orders to counter growth from new licences acquired at the end of 2017.

Ontic has further extended its licensed product portfolio during the year with the addition of important new licences; Ontic has recently signed a second product licence with Ultra Electronics for the OE manufacturing and aftermarket support for various military cockpit controls, switches and indicators. We also have a new licence agreement with UTC Aerospace Systems for its wound motor product lines, part of the electric power systems business segment. This adds significant military content to our portfolio.

In December 2017, we acquired Curtiss-Wright's product line for the Ethernet Switch Unit, which grows not only our military platform content but also our product portfolio with Curtiss-Wright. Furthermore, Ontic has received certification by the US Department of Transportation Federal Aviation Administration for its Singapore facility which serves as both a repair station and storefront for a variety of OEM-licenced and acquired products, including fuel measurement systems on the Boeing B737 Classic and B777, Fokker 50,70 and 100 as well as the Airbus A300, A318, A319 and A320. In 2018, we have also signed a first product licence with Racal Acoustics, part of Esterline Corporation, for various military and civil avionics products including cockpit communication control systems. The products will transition to our Cheltenham facility during 2018.

These acquisitions support Ontic's strategy to deliver continued profitable growth in mature avionics and electronics products with high intellectual property content. Ontic continues to assess a strong pipeline of opportunities in relation to new products and licence adoptions.  

ERO

Engine Repair & Overhaul's revenue decreased by 4.2% to $518.8 million (2016: $541.4 million). Conditions in ERO's market remain challenging and, while organic revenue was down for the year, we have improved our market share on the majority of programmes. ERO's operating performance in the first half was stable against the second half of 2016 but much improved on the first half of 2016. Operating performance in the second half delivered significant improvement in line with expectations resulting from market share gains (PT6, TFE, PW300 and Tay) and cost efficiencies from the footprint rationalisation programme.

Volumes in legacy mid-cabin and rotorcraft engine overhauls remained depressed throughout the year, with reduced workscopes and competitive market pricing. In the first half of the year ERO saw improvements in demand for overhauls in certain Pratt & Whitney and Tay markets, as well as market share gains for certain Pratt & Whitney engines. However, while our market share has improved on the majority of programmes, we continue to see lower engine inputs, primarily on JT15D, PW500 and PW100. Time between engine overhauls continues to extend and the increase of power by the hour contracts either through the OEMs or third parties increases the competitive tension.

ERO's footprint rationalisation programme is nearly complete and it will undergo its final facility consolidation in 2018. The new overhaul facility at Dallas Fort Worth Centre (DFW) is successfully delivering the overhaul operations formerly undertaken at the Neosho and Forest Park facilities. The sale of the Forest Park site for $17.4m completed at the end of 2017. Looking forward the combination of an efficient, lower cost, flexible engine overhaul and test facility in DFW and a renewed focus on customer service will drive further improvement in financial performance and allow us to execute our strategy for value creation from our ERO business.

We have recently made the decision to close our engine overhaul operations in Abu Dhabi given insufficient market demand to support our facility on current engine authorisations. We expect the facility to complete its final engine overhaul in April.

As part of BBA Aviation's focus on driving long term sustainable value for our shareholders, we are currently conducting a strategic review of our ERO business although there is no certainty that this will result in a transaction being agreed.

Central Costs 

Central costs were $0.7 million higher at $34.1 million (2016: $33.4 million). The central cost base represents two elements, the unallocated corporate costs for the Group and the costs previously associated with supporting the ASIG business, which was sold in January 2017. We supported Menzies (the acquirer of ASIG) for a period of six months through to July 2017 and since July we have been able to address the cost base that had supported the transitionary service agreement with Menzies. The work to address the cost base that previously supported ASIG is substantially complete with approximately $5 million of such costs included in the central costs for 2017 (2016: $18.6 million). These costs will not impact the group from 2018 onwards.

The balance of central costs represents the unallocated central costs to support the continuing Group which reflects the additional share based payment expenses as anticipated, plus the one-time costs associated with the transition of CEO and losses incurred by our captive insurance company for the damage to US and Caribbean facilities during the recent hurricanes.

Other Financial Information and Leverage

At 31 December 2017 the Group had net debt of $1,167.1 million (2016 net debt: $1,335.3 million), the decrease being due to the strong operating performance of the business and the net proceeds from the disposal of ASIG while continuing to invest in the existing businesses and new Ontic licenses.

Net cash flow from operating activities of $339.0 million is lower than the prior year (2016: $374.9 million) primarily as a result of the outflow in working capital compared to the inflow in the prior year and the disposal of ASIG in January 2017. Free cash flow decreased by $3.5 million to $220.6 million (2016: $224.1 million) as a result of the working capital movements as previously noted and increased tax payments largely offset by increased earnings, decreased capital expenditure and interest payments. Capital expenditure amounted to $80.3 million (2016: $102.4 million). Principal items included the investment in our FBOs at Boeing Field, Palm Beach and Nashville, our new engine overhaul and testing facility at Dallas Fort Worth and our Ontic facility in Cheltenham to support the ongoing transition of GE Aviation avionics licences.

Other significant cash flow items include the proceeds from disposal of ASIG $170.5 million, net of fees, the acquisition of subsidiaries, net of cash acquired $75.7 million (2016: $2,098.2 million) and dividend payments of $130.7 million (2016: $124.3 million). The Group's net debt to underlying EBITDA ratio at 31 December 2017 was 2.6x on a reported basis (2016 3.2x reported basis) and 2.6x on a covenant basis (2016: 3.1x on a covenant basis), well within our target range. Interest cover on a covenant basis increased to 8.4x (2016: 7.2x), due to the decreased interest on the lower drawn debt.

Strategy and capital allocation policy

Post the $2.1bn acquisition of Landmark Aviation and the disposal of ASIG the Group is increasingly focused on the B&GA markets; and we communicated at our preliminary results announcement in March 2017 that we would undertake a review of capital structure during the year. The review is now complete and we believe an increase in our target leverage range is appropriate based on the strong and robust cash flow fundamentals of the Group.

However, the Group remains disciplined in its approach to the allocation of capital with the overriding objective being to enhance shareholder value. Our investment priorities remain focused on achieving organic underlying operating profit growth above that in the B&GA market and continued development of our IP protected legacy licence portfolio. Within Signature we see investment opportunities through investments in technology, hangar construction to address market shortages in certain areas of the US, expansion of our Signature TechnicAir™ offering, build out of our Signature ELITE® offering at major international airports and investing in bolt-on acquisitions that build upon our leadership in the B&GA market. Within Ontic we see a strong pipeline of opportunities as OEMs seek to manage their legacy IP and believe there may be the potential for acquisitions within Ontic's core markets that provide portfolios of licences in addition to the acquisition of individual licences from OEMs.

Our capital allocation policy will firstly focus on the many organic investment opportunities we see across both Flight Support and Aftermarket Services. This will be supplemented by bolt-on acquisition opportunities in Flight Support, extension of our IP protected licence portfolio in Ontic through individual licence opportunities provided by the OEMs and the potential acquisition of complementary licence portfolios. To the extent that BBA Aviation's investment pipeline results in leverage falling below the target range we will return funds to shareholders at a level that maintains leverage at the lower end of the target range, thereby maintaining the flexibility to execute our strategy to continue to maximise shareholder value.

Our balance sheet remains strong and the Group will now manage net debt in the range of 2.5x to 3.0x underlying adjusted EBITDA which we believe gives flexibility and headroom for the investment requirements of the Group and the cyclicality within the B&GA market. The Group has performed within this target range during 2017 following the disposal of ASIG with net debt to underlying adjusted EBITDA at 31 December 2017 being 2.6x, in line with expectations. The new target range provides up to 1.0x headroom against the group's net debt to adjusted underlying EBITDA banking covenant.

The Board continues to have a progressive dividend policy which aims to align the core dividend with sustainable long-term earnings growth.

The group will now proceed to refinance its revolving credit facility and facility B of its acquisition debt, both of which mature in 2019. In 2018 the group has $120 million of series A US private placement debt maturing. This debt will be repaid and the group will leave the remaining $380 million of US private placement debt (maturities ranging from 2021 to 2026) in place.

Taxation

The Group's underlying effective tax rate for 2017 was 17.5%. This is lower than the expected 19% given the impacts of UK legislation on interest deductions and further concentration of US taxable profits were partially offset by prior year adjustments on US taxes with respect to Landmark.

The impact of the enactment of the Tax Cuts and Jobs Act in the US is broadly neutral for the Group's underlying effective tax rate in 2018. As a result of US tax reform legislation, the Group has incurred a one-time, exceptional tax charge in 2017 of $20.5 million, primarily related to the non-cash revision of US deferred tax assets and liabilities. The group has revalued US deferred tax liabilities at 31 December 2017, primarily relating to amortisation of intangibles to reflect the reduction in headline US tax rates and written off US deferred tax assets primarily relating to deferred interest as a result of the tax reform restrictions on interest deductibility which is now capped at 30% of US EBITDA. In addition, the exceptional tax charge includes a $3.0 million one-time repatriation tax charge on the unremitted earnings of overseas subsidiaries controlled by a US entity. This one-time tax charge is payable over eight years and has minimal impact on the group's cash tax rate.

The group's cash tax payments for 2017 amounted to $41.8 million (2016: $15.8 million). The increase in cash tax payments resulted from the increased taxable profits of the group and certain one-time payments including settlement of tax payable ($8.4 million) on the taxable gain arising from the disposal of ASIG's US operations.

For the year ending 31 December 2018, we estimate the group's effective tax rate to be approximately 20%. The Group's cash tax rate is expected to remain substantially lower than the underlying effective tax rate by c.10% which reflects the benefit of 100% capital deductions available for the next five years as part of US tax reform.

Pensions

The Group paid net $8.4 million of pension payments during the period, of which $4.0 million represented pension deficit payments reflecting the agreed payments to the schemes.

The actuarial valuation of the UK plan at 31 March 2015 indicated a funding deficit of £45 million ($66 million) at 31 March 2015 exchange rates. The Group paid £4.3 million of pension payments in to the UK plan, of which £3.0 million represented pension deficit payments, reflecting the agreed payments to the scheme under an agreement to make additional contributions of £0.3 million per annum over the next three years bringing the annual deficit contribution to £3.0 million, and £2.7 million thereafter until 2034 in accordance with the asset-backed funding arrangement established in 2014.

As at 31 December 2017, the accounting net deficit across the UK and US plans was $71.7 million (2016: $82.8 million). The reduction in the net deficit of $11.1m since 31 December 2016 reflects the favourable impact of better than expected returns on plan assets and employer contributions, more than offsetting unfavourable impacts from foreign exchange movements, net interest costs and administration expenses. In 2017 the largest of the US plans undertook an exercise during the year whereby lump sum transfer payments were paid out to a number of members in order to discharge the associated liabilities. This resulted in a deficit reduction for that particular plan of $2.1 million.

Dividend

At the time of the interim results, the Board declared an increased interim dividend of 3.81 cents (H1 2016: 3.63 cents). The Board is now proposing a final dividend of 9.59 cents per share (2016: 9.12 cents) up 5.2% on an underlying basis reflecting the Board's progressive dividend policy and its continued confidence in the Group's future growth prospects.

A dividend reinvestment plan is in operation. Those shareholders who have not elected to participate in this plan, and who would like to participate, please register via the share portal www.signalshares.com.

Board Changes 

As previously announced Mark Johnstone, currently President and Chief Operating Officer of the Group's Engine Repair & Overhaul business will join the Board as Group Chief Executive on 1 April 2018. He will be based in the US. Mark joined BBA Aviation in March 2008 as Corporate Development Director and has held a number of roles within the Group including Chief Financial Officer Signature Flight Support and Managing Director of the EMEA Flight Support business (at that time incorporating both Signature and ASIG).

After 1 April 2018 Wayne Edmunds will remain on the Board. He will be a non-executive Director and will not be a member of any main Board Committees.

Furthermore, we have recently appointed two new non-executive directors. Amee Chande and Emma Gilthorpe both joined the Board on 1 January 2018. Amee brings significant international experience living and working in North America and Asia and currently works for Alibaba as Managing Director of Global Strategy and Operations. Emma has extensive aviation experience from her various roles at Heathrow Airport Holdings (formerly BAA) and is currently Executive Director for Expansion. We also announced that Peter Ratcliffe will step down from the Board at our AGM on 11 May 2018.

Outlook

2017 was another successful year for BBA Aviation. We have delivered improved financial performance across the Group, started to capture the value from the enlarged network and ensured we have an appropriate capital structure to give us the flexibility to continue to invest in the many organic and inorganic growth opportunities available to us and enhance shareholder value.

The recent investment in our Signature network, through lease enhancements, adding hangar space and the development of our Signature TECHNICAir ™ brand are all focused on delivering continued market outperformance in terms of our earnings growth. We will continue to look to expand our FBO network through both acquisition and our Signature Select ™ franchise model to ensure we remain the market leader with unmatched customer and network relevance, protected by our long-term lease portfolio. Where possible, we will use technology to analyse our customer's flying patterns and predict needs and trends and offer our customer base accessibility to the charter market through digital platforms. We saw B&GA market growth moderate during December and this has continued into the first two months of the new financial year.

Our growing portfolio of IP protected licences and authorisations within Ontic, offers significant opportunities and the business has a strong pipeline and a good order book. Furthermore, we anticipate ERO should deliver further improved financial performance from its rationalised footprint even at current levels of market activity.

In summary, the Board remains confident of good growth in 2018.

Capital Markets Day

BBA Aviation intends to hold a Capital Markets Day in Q4 2018. Further information will be released in due course.

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 responsibility statement below has been prepared in connection with the Company's full Annual Report for the year ending 31 December 2017. Certain parts of the Annual Report are not included within this announcement.

We confirm that to the best of our knowledge:

· the financial statements, prepared in accordance with Disclosure and Transparency Rules of the UK Financial Conduct Authority and principles of International Financial Reporting Standards (IFRS) as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole; and

· the management report, which is incorporated into the Directors' Report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.

Signed on behalf of the Board

Wayne Edmunds David Crook

Interim Group Chief Executive Group Finance Director

28 February 2018 28 February 2018

This final results announcement 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 report is available in electronic format from the Company's website www.bbaaviation.com

Consolidated Income Statement

1 Underlying profit is before exceptional and other items. Exceptional and other items are defined in note 2

All alternative performance measures are reconciled to IFRS measures and explained in the alternative performance measures section.

The Group has presented a discontinued operation in the current year and prior year, see note 10.

Consolidated Statement of Comprehensive Income

Consolidated Balance Sheet

These financial statements were approved by the Board of Directors on 28 February 2018 and signed on its behalf by:

Wayne Edmunds David Crook

Interim Group Chief Executive Group Finance Director

Consolidated Cash Flow Statement

† Purchase of intangible assets includes $5.0 million (2016: $10.6 million) paid in relation to Ontic licences not accounted for as acquisitions under IFRS 3.

†† Sale/(purchase) of shares includes the share purchases for the share buy-back scheme, shares purchased for the Employee Benefit Trust and shares purchased for employees to settle their tax liabilities as part of the share schemes.

††† Within the Group's definition of net debt, the US private placement is included at its face value of $500 million (2016: $500 million), reflecting the fact that the liabilities will be in place until maturity. This is $3.5 million (2016: $8.8 million) lower than its carrying value.

All alternative performance measures are reconciled to IFRS measures and explained in the alternative performance measures section.

Consolidated Statement of Changes in Equity

Accounting Policies of the Group

Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use in the European Union (EU) and therefore comply with Article 4 of the EU International Accounting Standards (IAS) Regulation and the Companies Act 2006 applicable to companies reporting under IFRS.

The financial information for the year ended 31 December 2017 contained in this preliminary announcement was approved by a duly appointed and authorised committee of the Board of Directors on 28 February 2018. The announcement does not constitute statutory accounts of the Company within the meaning of section 435 of the Companies Act 2006, but is derived from those accounts.

Statutory accounts for the year ended 31 December 2016 have been delivered to the Registrar of Companies. Statutory accounts for the year ended 31 December 2017 will be delivered to the Registrar of Companies following the Company's Annual General meeting.

The Group's annual financial statements for the year ended 31 December 2017 have been reported upon by the Group's auditor. 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 a statement under section 498(2) or 498(3) of the Companies Act 2006.

Except as described below, these consolidated 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 2017.

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 2018 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, are effective for future annual periods and have not been applied in preparing the Consolidated Financial Statements of the Group.

The most significant changes to the IFRS framework in these forthcoming standards and amendments to standards are IFRS 9: Financial Instruments (IFRS 9), IFRS 15: Revenue from contracts with customers (IFRS 15) and IFRS 16: Leases (IFRS 16).

IFRS 9

The Group will apply IFRS 9 from 1 January 2018. IFRS 9 addresses the classification, measurement and recognition of financials assets and financials liabilities, impairment and hedge accounting.

Classification and measurement: The number of categories of financial assets under IFRS 9 has been reduced compared to IAS 39. The classification is based on the business model within which the asset is held and the contractual cash flow characteristics of the assets.

For financial assets that are debt instruments the classification categories are amortised cost; fair value through other comprehensive income (FVTOCI) and fair value through profit or loss (FVTPL). Equity investments that fall within the scope of the standard are usually measured at FVTPL unless an irrevocable election is made to recognise them within other comprehensive income. On transition the Group has elected to recognise future changes in the fair value of the equity investment in Fly Victor Limited and Lider Taxi Aereo S.A Air Brasil which are classified as financial instruments within other comprehensive income.

Impairment: The impairment model under IFRS 9 reflects expected credit losses, as opposed to only incurred credit losses under IAS 39.

Hedge accounting: On initial application of the standard, an entity may choose, as its accounting policy, to continue to apply the hedge accounting requirements of IAS 39 instead of the hedge accounting requirements of IFRS 9. The Group will adopt the hedge accounting requirements of IFRS 9 from 1 January 2018.

The full impact of adopting IFRS 9 on the Consolidated Financial Statements of the Group will depend on the financial instruments that the Group has during 2018 as well as on economic conditions and judgements made as at the year end. The Group has performed a preliminary assessment of the potential impact of adopting IFRS 9 based on the financial instruments and hedging relationships as at the date of initial application of IFRS 9 (1 January 2018). Management's expectations are that the impact of IFRS 9 on the Group will not be material.

IFRS 15

IFRS 15 addresses the recognition of revenue from customer contracts and impacts on the amounts and timing of the recognition of such revenue. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 Revenue. The Group will adopt IFRS 15 for the year ending 31 December 2018.

The standard introduces a five-step approach to revenue recognition - identifying the contract; identifying the performance obligations in the contract; determining the transaction price; allocating that transaction price to the performance obligations and finally recognising the revenue as those performance obligations are satisfied.

The Group recognises revenue from the following major income streams:

Flight Support:

• Fuelling & fuel farm management

• Property management

• Ground handling

• Technical services

Aftermarket Services:

• Repair & overhaul

• Engine & part sales

An impact assessment has been performed on the likely impact of IFRS 15:

Within the Aftermarket Services division the methodology presently adopted for revenue recognition under the current standard, IAS 18 Revenue, will not materially change under IFRS 15.

Within the Flight Support division it is also not expected that IFRS 15 will have a material impact due to the nature of the services provided - the cycle from order through to delivery of these services is generally short.

The full impact of adopting IFRS 15 on the Consolidated Financial Statements of the Group will depend on the Group's activities during 2018. The Group has performed a preliminary assessment of the potential impact of adopting IFRS 15 based on the Group's historic trading as at the date of initial application of IFRS 15 (1 January 2018). Management's expectations are that the impact of IFRS 15 on the Group will not be material.

IFRS 16

IFRS 16 replaces existing leasing guidance, including IAS 17 'Leases' and IFRIC 4 'Determining whether an arrangement contains a lease'. The standard is effective for annual periods beginning on or after 1 January 2019.

The standard requires lessees to account for most contracts under an on-balance sheet model, with the distinction between operating and finance leases being removed.

The standard provides certain exemptions from recognising leases on the balance sheet, including where the asset is of low value or the lease term is 12 months or less. In addition, the standard makes changes to the definition of a lease to focus on, amongst other things, which party has the right to direct the use of the asset.

Under the new standard, the Group will be required to recognise right of use lease assets and lease liabilities on the balance sheet. The right of use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any re-measurement of the lease liability. Liabilities are measured based on the present value of future lease payments over the lease term. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others.

The recognition of the depreciation of right of use lease assets and interest on lease liabilities over the lease term will have no overall impact on profit before tax over the life of the lease, however the result in any individual year will be impacted and the change in presentation of costs will likely be material to the Group's key metrics. Under IAS 17, the charge is booked in full to operating profit. Metrics which will therefore be affected will include operating profit & operating margin, interest & interest cover, EBITDA, ROIC and operating cash flow.

Furthermore, the principal amount of cash paid and interest in the cash flow statement will be presented separately as a financing activity. Operating lease payments under IAS 17 would have been presented as operating cash flows. There will be no overall net cash flow impact. 

The Group has commenced work to understand the impact of the new standard and the project will complete during 2018. Work will include detailed review of contracts to establish lease classification, assessment of transition options, the quantification of financial impacts, design of future processes and the related systems changes, the assessment of the related impacts on the Group's regulatory and commercial reporting requirements and the impact on the Group's long-term incentive schemes. It is therefore not practicable to provide a reasonable estimate of the financial effect until the directors complete their review.

Information on the undiscounted amount of the Group's operating lease commitments under IAS 17 'Leases', the current leasing standard, is disclosed in the Group's annual financial statements.

Notes to the Consolidated Financial Statements

1. Segmental informationIFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Group Chief Executive to allocate resources to the segments and to assess their performance.

The Group provides information to the Chief Executive on the basis of components that are substantially similar within the segments in the following aspects:

- the nature of the long-term financial performance;

- the nature of the products and services;

- the nature of the production processes;

- the type of class of customer for the products and services; and

- the nature of the regulatory environment.

Based on the above, the operating segments of the Group identified in accordance with IFRS 8 are Flight Support, which comprises Signature Flight Support and ASIG (until 31 January 2017), and Aftermarket Services, which comprises Engine Repair & Overhaul (ERO) and Ontic.

The businesses within the Flight Support segment provide refuelling, ground handling, line maintenance and other services to the Business & General Aviation (B&GA) 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.

All alternative performance measures are reconciled to IFRS measures and explained in the alternative performance measures section.

Notes to the Consolidated Financial Statements - continued

1. Segmental information - continued

1 Operating profit/(loss) from continuing operations includes $3.4 million profit (2016: $13.4 million profit) of associates and joint ventures.

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

3 Costs previously allocated to ASIG.

Notes to the Consolidated Financial Statements - continued

1. Segmental information - continued

1 Capital additions represent cash expenditures in the year.

2 The disclosure of non-current assets by geographical segment has been amended to exclude deferred tax of $0.1 million (2016: $0.4 million) and financial instrument balances of $13.9 million (2016: $13.6 million) in all periods, as required under IFRS 8.

An analysis of the Group's revenue for the year is as follows:

A portion of the Group's revenue from the sale of goods denominated in foreign currencies is cash flow hedged. Revenue from the sale of goods of $1,363.0 million (2016: $1,216.4 million) includes a gain of $0.8 million (2016: gain of $1.2 million) in respect of the recycling of the effective amount of foreign currency derivatives used to hedge foreign currency revenue.

Notes to the Consolidated Financial Statements - continued

2. Profit for the year

Profit for the year has been arrived at after charging/(crediting):

Exceptional and other items

Underlying profit is shown before exceptional and other items on the face of the income statement. Exceptional and other items are items which are material and non-recurring in nature and also include costs relating to acquisitions, disposals and restructuring. Other items include amortisation of acquired intangibles accounted for under IFRS 3. The directors consider that this gives a useful indication of underlying performance and better visibility of Key Performance Indicators.

All alternative performance measures are reconciled to IFRS measures and explained in the alternative performance measures section.

1 All transaction costs presented as exceptional and other items in 2017 relate to the acquisition by Ontic of GE's Aviation portfolio, see note 9.

Net cash flow from exceptional items was an outflow of $12.7 million (2016: outflow of $63.5 million). Net cash flow from other items was $nil (2016: $nil).

Notes to the Consolidated Financial Statements - continued

3. Income tax

UK income tax is calculated at 19.25% (2016: 20.0%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.

On 22 December 2017, the United States enacted tax reform that implements substantial changes to the federal tax system by reducing the headline federal tax rate from 35% to 21% and limiting interest deductions to a maximum of 30% of US EBITDA. The reduction in the headline rate of tax has resulted in a revaluation of US deferred tax balances amounting to a credit of $59.3 million. Additionally, the group has re-measured a deferred tax asset relating to financing costs from prior years amounting to a charge of $54.5 million together with a current year charge of $22.3 million. Finally, the tax reform introduced a tax on repatriation of profits of overseas subsidiaries resulting in a charge of $3 million.

The net impact of this tax reform ($20.5m charge) has been reflected in the continuing exceptional and other items tax result so as to reflect the underlying effective tax rate on a consistent basis to prior periods.

The total charge for the year can be reconciled to the accounting profit as follows:

The applicable tax rate of 26.4% (2016: 25.3%) represents a blend of the tax rates of the jurisdictions in which taxable profits have arisen.The change from the prior year is due to a change in the proportion of profits that have arisen in each jurisdiction and the benefits associated with certain financing structures implemented.

Tax credited/(expensed) to other comprehensive income and equity is as follows:

4. Dividends

On 19 May 2017, the 2016 final dividend of 9.12¢ per share (total dividend $91.5 million) was paid to shareholders (2016: the 2015 final dividend of 8.68¢ per share (total dividend $87.2 million) was paid on 20 May 2016).

On 3 November 2017, the 2017 interim dividend of 3.81¢ per share (total dividend $39.2 million) was paid to shareholders (2016: the 2016 interim dividend of 3.63¢ per share (total dividend $37.1 million) was paid on 4 November 2016).

In respect of the current year, the directors propose that a final dividend of 9.59¢ per share will be paid to shareholders on 25 May 2018. The proposed dividend is payable to all shareholders on the register of members on 13 April 2018. The total estimated dividend to be paid is $98.6 million. This dividend is subject to approval by shareholders at the AGM and, in accordance with IAS 10: Events after the Reporting Period, has not been included as a liability in these financial statements.

Notes to the Consolidated Financial Statements - continued

5. Earnings per share

All alternative performance measures are reconciled to IFRS measures and explained in the alternative performance measures section.

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

Cash earnings per share is presented calculated on earnings before exceptional and other items (note 2) and using current tax charge, not the total tax charge for the period, thereby excluding the deferred tax charge.

Adjusted earnings per share is presented calculated on earnings before exceptional and other items (note 2). Both adjustments have been made because the directors consider that this gives a useful indication of underlying performance.

For discontinued earnings per share, refer to note 10.

Notes to the Consolidated Financial Statements - continued

6. Intangible assets