Half Yearly Report

2014 Interim Financial Report

Results for the half year ended

30 June 2014

For further information please contact:

Mike Powell, Group Finance Director (020) 7514 3999

Jemma Spalton, Head of Communications & Investor Relations

BBA AVIATION PLC

David Allchurch / Christian Cowley (020) 7353 4200

TULCHAN COMMUNICATIONS

A video interview with management 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 2014

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

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

(3) Underlying operating profit return on average invested capital including goodwill and intangibles amortised or written off to reserves

(4) Return on invested capital for full year 2013

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

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

Key Highlights

Major market continues to recover

· US business & general aviation movements up 4%

· European business & general aviation movements down 1%

· Commercial aircraft movements down 2% in North America and 1% in Europe

Businesses delivering

· Market outperformance and positive progress in Flight Support offsetting weaker Aftermarket volumes

· Flight Support (65% of Group EBIT): organic revenue up 8%, underlying operating profit up 14% - strong delivery in Signature and underlying operational progress in ASIG, despite ongoing challenges

· Aftermarket Services (35% of Group EBIT): after adjusting for APPH revenue down 4% and operating profit down 11% - weaker but now improving Engine Repair & Overhaul markets partly offset by stronger than anticipated Legacy performance

· Cash generation supporting on-going investment in key growth projects with short-term impact on return on invested capital

Further strategic progress

· Significant Flight Support network expansion: including the acquisition in August of the Scottsdale AirCenter FBO for$55.8 million

· Further Aftermarket Services portfolio growth: additional major ERO rotorcraft authorisations awarded and Legacy Support licences signed

· Over $150 million of growth investment committed year to date with strong pipeline

· Successful integration of acquisitions and progress on development projects

Simon Pryce, BBA Aviation Chief Executive Officer, commented:

"BBA Aviation delivered as anticipated in the first half of 2014. Flight Support benefited from the continued recovery in US business and general aviation flying and from the success of a number of commercial initiatives. The recovery in flying hours has yet to impact engine repair activity where inputs were lower than anticipated. Margin performance was satisfactory, although in Flight Support was constrained by some cost increases mainly due to growth and investment, which take time to pass on to customers and these will continue to be a minor headwind into the second half.

We are making progress on our major growth projects and the Engine Repair & Overhaul footprint reduction is on track. We continue to invest in network expansion, new authorisations and licences and to integrate them effectively, with the particularly significant addition of the Scottsdale FBO to Signature's portfolio and a strong pipeline of further investment opportunities.

As we enter the second half, we continue to see recovery in our major US business and general aviation market. We also saw a strengthening of the Aftermarket order book at the end of the first half. This, together with second half contributions from acquisitions and our Engine Repair & Overhaul footprint optimisation programme, means that we are confident that BBA Aviation remains well positioned for another year of progress."

BBA Aviation plc - Interim Financial Report, 5 August 2014

INTERIM FINANCIAL REPORT 2014

Overview

BBA Aviation had a good first half in 2014, with market outperformance and further progress in Flight Support offsetting softer volumes in Aftermarket Services. The Group continues to make good strategic progress with significant network expansion in Flight Support and new authorisations and licenses in Aftermarket Services.

Group revenue increased by 3% to $1,148.1 million (2013: $1,114.4 million). The disposal of APPH reduced revenue by $37.3 million, and lower fuel prices reduced reported revenue by a further $3.5 million. These were offset by a $31.4 million revenue contribution from acquisitions and a $16.1 million increase from foreign exchange movements. On an organic basis Group revenue increased by 2% (excluding the impact of foreign exchange, fuel prices, acquisitions and disposals).

Underlying operating profit was $93.1 million (2013: $94.0 million) including a $4.8 million contribution from acquisitions, which was partially offset by the $3.1 million impact of the APPH disposal. On an organic basis operating profit was $91.4 million, $2.6 million lower year on year with positive progress in Flight Support partly offsetting weaker Aftermarket Services volumes.

Group underlying operating margin reduced to 8.1% on a fuel price adjusted basis (2013 constant fuel price: 8.5%). Margin development in Flight Support was partly constrained by $7 million of expansion driven cost increases, although these costs will be passed on to customers over time. Aftermarket margins were well managed despite the volume decline.

Net interest expense declined by $1.7 million to $13.9 million (2013: $15.6 million) mainly due to a reduction in the blended average interest rate as a result of new interest rate swaps coming into effect during the period at lower rates. Interest cover increased to 9.1x (2013: 8.0x), and underlying profit before tax increased by 1.0% to $79.2 million (2013: $78.4 million).

The underlying tax rate increased to 16.5% (2013: 15.2%) reflecting the increased proportion of the Group's pre-tax profits arising in high marginal tax jurisdictions. With the increase in underlying profit before tax, and the reduced average number of shares due to the on-going buy-back programme, adjusted earnings per share were up 1% to 14.0¢ (2013: 13.9¢).

Statutory profit before tax increased by 46% to $92.0 million (2013: $63.2 million) including a net exceptional gain of $12.8 million (2013: loss of $15.2 million).

The profit on disposal of APPH of $27.8 million was partly offset by $2.5 million of M&A related costs(2013: $5.3 million) and $8.1 million of restructuring expenses primarily related to the previously announced Engine Repair & Overhaul footprint rationalisation (2013: $4.9 million). Non-cash amortisation of acquired intangibles totalled $4.4 million (2013: $4.6 million). Unadjusted earnings per share increased by 64% to 18.7¢ (2013: 11.4¢).

The Group's continued ability to generate strong cash flows supported the capital expenditure associated with key expansion projects at Luton, San Jose and other FBO development projects and Engine Repair & Overhaul's Pratt & Whitney rotorcraft authorisations.

On a reported basis free cash flow reduced by $76.6 million to a $33.7 million outflow (2013: inflow of $42.9 million) due to the anticipated reversal of the working capital outperformance at the end of 2013, increased working capital in Engine Repair & Overhaul associated with strong inputs at the end of the first half, a$17 million tax payment associated with the $42 million agreed settlement with HMRC and expansion related capital expenditure. Gross capital expenditure amounted to $65.7 million (2013: $36.8 million) with principal items including the investment in Signature's FBO development projects and Engine Repair & Overhaul's investment associated with the recent Pratt & Whitney authorisations. As previously indicated, total capital expenditure for the year is expected to be around 2.0x depreciation and amortisation, supporting significant future non-market related growth in both divisions.

Other cash flow items include the $52.5 million dividend payment, $48.8 million related to share repurchases and the net APPH disposal proceeds of $122.7 million. Total spend on acquisitions and licences completed during the period amounted to $65.1 million (2013: $5.3 million). At the end of the period net debt increased to $564.3 million (2013 year end: $478.5 million) with a net movement of $85.8 million. Net debt to EBITDA was 2.1x (2013 year-end: 1.8x; H1 2013: 1.7x).

Return on invested capital reduced by 20 basis points to 9.8% (2013 full year: 10.0%), reflecting the investments made during the year which are expected to generate superior returns over the longer term.

Business Review

Flight Support

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 and to the commercial aviation market through ASIG.

† Operating margins at constant fuel prices

Revenue in Flight Support increased by 12% to $775.5 million (2013: $689.8 million). Acquisitions contributed $29.7 million of increased revenue, despite the delayed completion of the FBO acquisitions at Westchester County Airport and Detroit. The net impact of lower fuel prices and foreign exchange movements was a positive $4.2 million. Revenue increased by 8% on an organic basis.

Underlying operating profit in Flight Support increased by 14% to $66.6 million (2013: $58.6 million) despite cost increases mainly associated with recent lease extensions, major investment projects which are not yet generating revenue and ASIG's start-up costs at London Heathrow Terminal 2. Operating margins were marginally improved at 8.6% (2013: 8.5%) after adjusting for fuel prices.

Operating cash flow for the division was $21.4 million reflecting the $10.8 million investment in the large FBO development projects and ASIG's investment in their new operations at London Heathrow's Terminal 2. Return on invested capital was slightly up at 10.0% (2013: 9.7%)

Signature Flight Support (Signature) delivered a strong first half performance with revenue up by 13% to $548.5 million (2013: $484.7 million). Adjusting for lower fuel prices, organic revenue increased by 9%, representing a material outperformance relative to its markets with US B&GA movements up 4% and European B&GA movements down by 1% during the period.

Signature's overall performance during the period was impacted by increased lease costs associated with its recent lease renewals, which will be gradually phased into customer pricing, and major investment projects which are not yet generating revenue. These major investment projects include ongoing construction projects at Luton where the new hangar became operational during the first half, and at Mineta San Jose International Airport where construction work is underway with completion anticipated by the end of the year and the FBO opening in early 2015.

Signature continued its network expansion having completed or signed agreements to add seven new FBOs to its market leading network and four Signature SelectTM locations this year. There are now a total of 121 FBOs in the network globally, with 74 of these in North America.

In addition to the previously announced acquisitions of FBOs at Westchester County Airport, Detroit and Biggin Hill it is announced today that Signature has acquired the Scottsdale AirCenter FBO at Scottsdale Airport in Arizona, for a cash consideration of $55.8 million on a cash and debt free basis. Scottsdale Airport in Arizona serves the Greater Phoenix Metro Area and is the 16th largest business aviation airport in the US. It is a dedicated general aviation airport and the Scottsdale AirCenter is one of only two FBOs on this land constrained field, with a long-term lease extending to 2041.The acquisition is expected to be immediately earnings enhancing and is expected to exceed its cost of capital within three years. Signature has also recently signed an agreement to acquire the assets of FBO 2000 for a cash consideration of $5.6 million adding three FBOs in Antigua, St. Kitts and Nevis, to its network in the Caribbean.

During the first half, Signature continued the expansion of its Signature SelectTM network having signed agreements with four new locations in Vancouver, Camarillo, Atwater and the Turks and Caicos Islands. The addition of these new locations continues the expansion of the Signature network through this affiliate FBO programme. 

In addition to this continued extension and development of the network, Signature Flight Support signed a new, multi-year agreement with NetJets to supply fuel and other services to its fleet in North America on mutually acceptable terms. This replaces the previous contract and became effective on 1st May.

ASIG's revenue increased by 11% to $227.0 million (2013: $205.1 million) despite continued challenging market conditions with commercial aircraft movements down 2% in North America and 1% in Europe. Adjusting for the impact of acquisitions and disposals ASIG's organic revenue grew by 5%.

ASIG's overall performance in the first half was impacted by the start-up costs relating to the successful launch of operations at London Heathrow's new Terminal 2 and labour and health cost inflation in North America which, because of the nature of ASIG's contracts and continued pricing pressure, will take time to pass on. ASIG continues to drive improvement in underlying operational and cost performance and service delivery which are supporting continued new business wins and will begin to feed through in the second half.

Following the completion of the Skytanking acquisition in April, the integration of the new US locations is progressing well. The acquisition is performing as expected and further consolidates ASIG's position as a leading provider of commercial fuel handling services in the US.

ASIG has recently signed an agreement to commence ground handling operations at Singapore Changi International Airport, beginning in the fourth quarter of this year. This agreement builds on BBA Aviation's existing presence at Singapore Changi International Airport where Signature Flight Support already operates and continues the extension of the Flight Support network throughout the Asia Pacific region.

Aftermarket Services

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 our Legacy Support business.

In Aftermarket Services, revenue decreased by 12% to $372.6m (2013: $424.6m). This was impacted by the APPH disposal that reduced revenue by $37.3 million, lower than anticipated ERO volumes and fewer whole engine sales. These were partly offset by a stronger than anticipated performance in Legacy Support. On an organic basis revenue declined by 6%.

Underlying operating profit of $37.5 million decreased by 17% (2013: $45.1 million), including the $3.1 million impact of the APPH disposal. On an organic basis, operating profit was down $5.9 million or 14% with operating margins at 10.1% (2013: 10.6%).

Operating cash outflow of $10.4 million for the division reflects ERO's significant investment in the recently awarded Pratt & Witney rotorcraft authorisations and increased working capital in ERO associated with strengthening inputs at the end of the first half. Return on invested capital decreased by 60 basis points to 10.6% (2013: 11.2%) reflecting the growth investment and operating profit decline.

In Engine Repair and Overhaul (ERO), revenue was $286.4 million (2013: $308.5 million), representing an 8% organic revenue reduction. The increase in B&GA flying hours in the second half of 2013 was not uniform across all platforms and small and mid-cabin flying, which represent the majority of the engine fleet, continues to lag large cabin flying and consequently the majority of ERO's markets were broadly flat. In addition, ERO's primary exposure to large cabin flying is the Tay engine, the overhauls of which have, as anticipated, remained subdued due to its specific overhaul cycle.

During the period ERO was awarded several strategically important authorisations for rotorcraft engine maintenance, repair and overhaul. In February, Rolls-Royce appointed ERO as authorised maintenance, repair and overhaul centres for the RR300 engine, in both Europe and North America, with the first engines under this authorisation successfully serviced in May of this year. In April, ERO was awarded a North American designated overhaul facility appointment for the Pratt & Whitney Canada PW200 and PW210 engines and the Middle East appointment for the same engines, as well as the PT6C and PT6T.

In light of the growing rotorcraft fleets situated in the Middle East, ERO will be establishing an overhaul and repair facility in the region to focus its support of these new Pratt & Whitney Canada authorisations. This new facility is expected to be operational by the end of 2014 with full capabilities by the end of the first quarter of 2015. Coupled with ERO's existing rotorcraft engine authorisations, these significant appointments allow ERO to support over 20,000 helicopters currently in service while positioning the company as a global market leader in the rapidly growing rotorcraft market. In total, ERO will be investing $43 million to support these new authorisations and has incurred $25 million of this investment to date.

As we previously announced, ERO has begun a significant footprint rationalisation process that will enhance the company's customer offering. As part of the process, ERO has completed a new repair and overhaul facility at Love Field in Dallas, Texas and has relocated some of its other engine programmes to its existing Heritage Park facility in Dallas. The new facilities will allow ERO to offer faster turnaround times and an improved cost structure, enhancing pricing flexibility and providing dedicated customer support. The total cash cost of the project is expected to be $16 million, with annualised savings of $10 million beginning to accrue in the second half of this year. Additionally, ERO will begin building a new state-of-the art engine repair and overhaul facility at Dallas-Fort Worth International Airport in August. The facility will expand its test capabilities for larger thrust engines, a rapidly expanding piece of the B&GA market, as well as establish a rotorcraft centre of excellence to support the company's rotorcraft engine authorisations.

The impact of ERO's footprint transition led to some short term disruption on certain programmes but this impact reversed towards the end of the second quarter when we saw a material increase in overhaul events. The strengthening of the order book coupled with ERO's growing market share following the reorganisation of its sales and customer support personnel gives us confidence in a stronger second half performance.

Revenue in Legacy Support increased by 3% to $81.6 million (2013: $79.6 million), representing an organic revenue increase of 3% despite a strong prior year comparator following the completion of two substantial contracts in 2013.

Legacy Support signed two new licenses in the first half; one with Rolls-Royce to produce and support Dart engine components and one with Kidde Graviner to produce fire suppression and detection equipment. In addition to these two new licenses, Legacy is transitioning an additional six product lines from licenses signed in 2013. These product lines were licensed to Legacy from Curtiss-Wright, UTC Aerospace Systems, and Safran and include a wide range of electronic, avionics and electro-mechanical products for several military, commercial and business aviation aircraft platforms. The successful transition of these new product lines is supporting a 4% increase in backlog year over year.

In June, Legacy's Singapore facility attained CAAS SAR145 approval for its maintenance, repair and overhaul facility which, together with its existing approvals, ensures it is able to provide localised customer support for the large fleets located throughout the Asia Pacific region. The facility specialises in fuel measurement and gauging system product repairs and is co-located with ERO's regional turbine centre. The combined capabilities and market offerings of Legacy and ERO position the company for future growth in the region.

Unallocated central costs were slightly higher at $11.0 million (2013: $9.7 million), reflecting investment in ongoing operational improvement projects and associated infrastructure and systems, as well as higher share-based payments.

Net debt increased to $564.3 million (2013 year-end: $478.5 million) with a net movement of $83.8 million and an unfavourable foreign exchange movement of $2.0 million. The net cash outflow included the $52.5 million dividend payment and $48.8 million of share repurchases.

As previously announced, during the first half the Group refinanced its bank facilities, signing a new 5-year $650 million multi-currency revolving credit facility and reducing the remaining tranche B of the 2011 facility to $200 million with 2 years left to maturity, giving total facilities of $850 million. At the end of the period $468 million of the total $1,150 million of borrowing commitments remained undrawn and net debt to EBITDA was 2.1x (2013 year-end: 1.8x; 2013: 1.7x). Interest cover based on EBITDA increased to 9.1x (2013: 8.0x).

Pensions

As announced at the year-end, following the disposal of APPH, agreement was reached with the Trustee of the UK defined benefit plan to apportion the Section 75 debt and at the same time to agree to an asset backed funding scheme to replace the schedule of deficit contributions. This scheme, which was finalised in late March, gives rise to payments to the plan over 20 years with payments suspended when the deficit level of the UK scheme reaches a certain threshold to avoid overfunding.

Consequently the Group has made £2.4 million of payments (approximately $4.0 million) to the UK plan in the first half (2013: $3.7 million), total payments in second half will be £1.3 million (approximately $2.2 million), total payments in 2015 will be £6.9 million (approximately $11.5 million) and thereafter will fall to £2.7 million (approximately $4.5 million) per annum for a further 18 years.

The combined accounting deficit for the UK and US pension schemes has increased since the year-end to $47.6 million (2013 year-end: $34.0 million: 2013: $55.6 million), principally as a result of increased liabilities due to the fall in the bond yield. In addition, the IFRIC 14 adjustment has increased to $49.2 million (2013 year-end: $23.6 million: 2013: $5.8 million), due solely to putting in place the asset-backed funding structure. The total reported pension obligation on the balance sheet for accounting purposes has therefore increased to $96.8 million (2013 year-end: $57.6 million: 2013: $61.4 million).

The 2012 triennial valuation of the UK defined benefit pension scheme was completed during the period, resulting in a funding deficit of £30.4 million ($48.6 million). The Company will continue to pay scheme expenses on an as incurred basis. The next triennial valuation is due to be undertaken in 2015.

Dividend

The Board is declaring an increased interim dividend of 4.62¢ (2013: 4.40¢) up 5% reflecting the Board's progressive dividend policy.

Outlook

As we enter the second half, we continue to see recovery in our major US business and general aviation market. We also saw a strengthening of the Aftermarket order book at the end of the first half. This, together with second half contributions from acquisitions and our Engine Repair & Overhaul footprint optimisation programme, means that we are confident that BBA Aviation remains well positioned for another year of progress.

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).

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,

Simon Pryce Mike Powell

Group Chief Executive Group Finance Director

4 August 2014 4 August 2014

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 is before exceptional items. Exceptional items are items which are material or are non-recurring in nature, costs relating to acquisitions, the gain/(loss) on disposal of businesses and related costs, and the amortisation of acquired intangible assets, together with related tax items (see note 3).

Unaudited condensed consolidated statement of comprehensive income

Unaudited condensed consolidated balance sheet

Unaudited condensed consolidated cash flow statement

1 Purchase of intangible assets includes $10.3 million (30 June 2013: $2.1 million: 31 December 2013: $11.8 million) paid in relation to Ontic licences.

2 Cash and cash equivalents includes $nil (30 June 2013: $nil; 31 December 2013: $2.9 million) within assets classified as held for sale (see note 11).

3 Net debt includes $nil (30 June 2013: $nil; 31 December 2013: $2.9 million) of cash and cash equivalents and $nil (30 June 2013: $nil; 31 December 2013: $2.5 million) of borrowings included within net assets classified as held for sale (see note 11). Within the Group's definition of net debt the US private placement is included at its face value of $300 million reflecting the fact that the liabilities will be in place until maturity. This is $11.1 million (30 June 2013: $10.4 million; 31 December 2013: $6.1 million lower than its carrying value.

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, for the six months ended 30 June 2014 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 2013.

The Group's annual financial statements for the year ended 31 December 2013 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 2013, 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 interim financial statements, it is appropriate to continue to adopt the going concern basis of accounting. Further information is given on page 7 of the interim statement.

New reporting requirements

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 2014 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.

IFRS 10: Consolidated Financial Statements (IFRS 10), IFRS 11: Joint Arrangements (IFRS 11), IFRS 12: Disclosure of Interests in Other Entities (IFRS 12) and amendments to IAS 27: Consolidated and Separate Financial Statements (IAS 27) and IAS 28: Investments in Associates (IAS 28) are effective for financial reporting periods beginning on or after 1 January 2014. The amendments to IAS 27 and IAS 28 have been made to align them with IFRS 10, IFRS 11 and IFRS 12.

IFRS 10 defines the principle of control which is the basis for determining which entities are consolidated in the Group's financial statements. The standard also sets out the accounting requirements for the preparation of consolidated financial statements. The Group has reviewed the relationship of its subsidiary entities with their respective parent company. No changes to the accounting for those entities within the consolidation are required.

IFRS 11 requires parties to a joint arrangement to focus on their rights and obligations rather than its legal form in determining whether the arrangement is a joint operation or a joint venture. A joint operator accounts for its share of assets, liabilities and corresponding revenues and expenses arising from the arrangement, whereas a joint venturer accounts for an investment in an arrangement using the equity method.

IFRS 12 sets out the disclosure requirements for all forms of interests in other entities, including joint arrangements and associates. The additional disclosures aim to enable users to evaluate the nature of, and risks associated with, the Group's interest in associates and joint arrangements, and the effects of those entities on the Group's financial position, financial performance and cash flows. IFRS 12 relates to disclosures only and has no impact on the reported results or balance sheet of the Group.

Financial reporting standards applicable for future financial periods

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 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.

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 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 primary reportable segments of the Group have been deemed to be Flight Support, which comprises Signature Flight Support and ASIG, and Aftermarket Services, which comprises Engine Repair and Overhaul, and Legacy Support.

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

2 Capital additions represent cash expenditures during the period.

2 Capital additions represent cash expenditures during the period.

2 Segmental analysis - continued

2 Capital additions represent cash expenditures during the period.

An analysis of the Group's revenues for the period is as follows:

3 Exceptional items

In the six months ended 30 June 2014, exceptional items amount to a credit of $22.7 million (30 June 2013: charge of $12.4 million; 31 December 2013: charge of $7.6 million) of which a charge of $15.0 million (30 June 2013: $15.2 million charge; 31 December 2013: $30.7 million charge) is included within operating profit. In addition, for the six months ended 30 June 2014 a net gain of $27.8 million on disposal of APPH is included in profit before tax but after operating profit, and for the year ended 31 December 2013 a credit $5.4 million is included within investment income.

Exceptional items included within operating profit comprise restructuring expenses of $8.1 million (30 June 2013: $4.9 million; 31 December 2013: $6.1 million); amortisation of intangible assets arising on acquisition and valued in accordance with IFRS 3 of $4.4 million (30 June 2013: $4.6 million; 31 December 2013: $9.0 million) included within administrative expenses; $2.5 million (30 June 2013: $5.3 million; 31 December 2013: $8.7 million) of transaction costs and $nil (30 June 2013: $0.4 million; 31 December 2013: $6.9 million) of environmental costs in relation to previously disposed of businesses included within other operating expenses.

The net gain on disposal of APPH in the six months to 30 June 2014 relates to the disposal of the APPH business and closure of related businesses and is discussed in more detail in note 11.

3 Exceptional items (continued)

The $5.4 million credit within investment income for the year ended 31 December 2013 comprises the gain on disposal of the Group's investment in Lider Signature SA which was sold in the second half of 2013.

Restructuring expenses for the period of $8.1 million comprises $4.6 million in respect of the rationalisation of the Aftermarket Services footprint (see page 6), and $3.5 million in respect of management reorganisation. Restructuring expenses of $4.9 million incurred during the six months ended 30 June 2013 and $6.1 million incurred during the year ended 31 December 2013 principally related to the reorganisation of management into two operating divisions.

In the six months ended 30 June 2014, an exceptional tax credit of $9.9 million (30 June 2013: $2.8 million; 31 December 2013: $17.7 million) was recognised in the income statement. This credit relates to the tax impact on the exceptional items explained above of $9.9 million (30 June 2013: $2.8 million; 31 December 2013: $6.5 million) and for the year ended 31 December 2013 a $11.2 million release of tax provisions following progress made in relation to open tax years.

Underlying profit is shown before exceptional items on the face of the income statement because the directors consider that this gives a useful indication of underlying performance and better visibility of key performance indicators. Underlying profit is also reported internally.

4 Income tax

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

Corporation tax for the interim period is charged at an effective rate of 16.5% (30 June 2013: 15.2%; 31 December 2013: 14.5%) on underlying profit before tax, representing the best estimate of the weighted average annual corporation tax expected for the full financial year. The total income tax expense for the six months ended 30 June 2014 includes a tax credit of $9.9 million (30 June 2013: $2.8 million; 31 December 2013: $17.7 million) relating to exceptional items (see note 3).

Tax credited to other comprehensive income and equity is as follows:

5 Earnings per share

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

Adjusted earnings per share is shown calculated as earnings before exceptional items because the directors consider that this gives a useful indication of underlying performance.

6 Equity dividends on ordinary shares

The 2014 interim dividend of 4.62 cents per share (2013: 4.40 cents per share; $21.2 million in total) was approved by the Board of Directors on 4 August 2014 and will be paid on 31 October 2014 to ordinary shareholders registered on 19 September 2014. Shareholders will receive their dividends in sterling unless they complete and submit to the Company's registrars by 5.30pm on 6 October 2014 an election form stating their wish to receive their dividends in US dollars. The sterling dividend will be converted at a prevailing exchange rate on 7 October 2014 and this exchange rate will be announced on 8 October 2014.

7 Cash and cash equivalents and borrowings

The carrying value of cash and cash equivalents of $154.9 million (30 June 2013: $126.0 million; 31 December 2013: $162.1 million) approximates to their fair value.

The Group's fixed rate debt (including borrowings and finance lease obligations) adjusted for interest rate hedging had a carrying value at 30 June 2014 of $271.0 million (30 June 2013: $252.0 million; 31 December 2013: $271.0 million). The fair value of these borrowings (adjusted for interest rate hedging) at 30 June 2014 was $274.3 million (June 2013: $256.3 million; 31 December 2013: $272.8 million).

The carrying value at 30 June 2014 of the Group's floating interest rate borrowings adjusted for interest rate hedging was $459.3 million (30 June 2013: $334.5 million; 31 December 2013: $378.6 million). As at 31 December 2013, $2.5 million of bank overdrafts were included within liabilities associated with assets classified as held for sale. The carrying value of these items approximates to their fair value.

During the six months to 30 June 2014, the Group refinanced its bank facilities signing a new five year $650 million multicurrency revolving credit facility and reducing to $200 million the remaining tranche B of the 2011 facility which will mature in April 2016, giving total bank facilities of $850 million. As at 30 June 2014, the Group had available $467.7 million (30 June 2013: $500.0 million; 31 December 2013: $432.0 million) of undrawn facilities.

In addition, the Group has issued $300 million of US private placement ("USPP") senior notes dated 18 May 2011 with maturities of seven, ten and twelve years. Within the Group's definition of net debt the USPP is included at its face value of $300 million. This is $11.1 million lower than its carrying value (30 June 2013: $10.4 million; 31 December 2013: $6.1 million).

8 Financial instruments

Categories of financial instruments

The carrying values of the financial instruments of the Group are analysed below:

a The foreign exchange contracts disclosed as fair value through profit or loss are not designated in a formal hedging relationship and are used to hedge foreign currency flows through the BBA Aviation plc company bank accounts to ensure that the Group is not exposed to foreign exchange risk through the management of its international cash management structure.

b Derivative instruments held in fair value hedges are designated in formal hedging relationships and are used to hedge the change in fair value of fixed rate US dollar borrowings.

c Recoveries from third parties in respect of environmental and other liabilities totalling $4.4m (30 June 2013: $6.5m; 31 December 2013: $4.4m) are included within trade and receivables.

d The carrying value of trade and other receivables, and other payables approximates their fair value.

8 Financial instruments (continued)

Derivative financial instruments

The fair values and notional amounts of derivative financial instruments are shown below. The fair value on initial recognition is the transaction price unless part of the consideration given or received is for something other than the instrument itself. The fair value of derivative financial instruments is subsequently calculated using discounted cash flow techniques or other appropriate pricing models. All valuation techniques take into account assumptions based upon available market data at the balance sheet date. The notional amounts are based on the contractual gross amounts at the balance sheet date.

The fair values of the available for sale investments and derivative financial instruments are categorised within Level 2 of the fair value hierarchy on the basis that their fair value has been calculated using inputs that are observable in active markets which are related to the individual asset or liability. The Group does not have any derivative financial instruments which would be categorised as either Level 1 or 3 of the fair value hierarchy.

Adjustments relating to the credit risk of BBA Aviation plc and its counterparties, as defined within IFRS 13, are immaterial in the current period and prior periods.

9 Cash flow from operating activities