Annual Report and Accounts 2019
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Company Number: 04138218 NATS Holdings Limited Annual Report and Accounts 2019 nats.aero Contents Strategic report Governance report Financial statements 03 Our business 33 Directors of NATS Holdings 76 Consolidated income statement 04 Highlights 38 NATS governance framework 77 Consolidated statement of comprehensive income 07 Chairman’s statement 43 Reports from Board Committees 78 Consolidated balance sheet 09 Chief Executive’s review 66 Report of the directors 79 Consolidated statement 11 Financial review 68 Independent auditor’s report to the of changes in equity members of NATS Holdings Limited 15 Going concern and 80 Consolidated cash flow statement viability statements 81 Notes forming part of the 16 Key performance indicators consolidated accounts 17 Safety, regulatory environment and 155 Company balance sheet outlook for air traffic volumes 156 Company statement of changes 20 Our business model in equity 22 Principal risks and uncertainties 157 Notes forming part of 24 Service line performance the company accounts 27 People and responsible business 159 Abbreviations and definitions statement 160 Explanatory notes 2 / 161 NATS | Annual Report and Accounts 2019 Our business Who we are Our purpose > Advancing aviation, keeping the skies safe. NATS provides Air Traffic Control (ATC) services to aircraft flying in airspace over the UK and the eastern part of the North Atlantic, and at 13 UK airports. It also provides other ATC and related services to Our objectives customers in the UK and overseas. Further information is provided > Deliver a safe, efficient and reliable service every day. in the description of our business model. > Deliver SESAR¹ and transform the business for the future. > Win and retain commercial business. Our values > We are safe in everything we do. > We rise to the challenge. > We work together. 1 A number of explanatory notes are provided on page 160 of this report. Abbreviations used in this report are provided on page 159. 3 / 161 NATS | Annual Report and Accounts 2019 Highlights Financial highlights Financial year ended 31 March (£m unless otherwise specified) 2019 2018 Change % Revenue 885.7 913.1 -3.0 Profit before tax 98.2 132.8 -26.1 Capital expenditure 156.5 185.6 -15.7 Net debta 73.9 71.5 +3.4 Gearingb (%) 25.7% 27.5% -6.5 Dividends 59.0 57.0 +3.5 a Excludes derivative financial instruments b Ratio of the net debt (as defined by NERL’s licence) to regulatory assets of the economically regulated business (NERL) Deliver a safe, efficient and reliable service Deliver SESAR and transform the business every day for the future > We handled 2.54 million flights (2018: 2.52 million), 1.2% more than > We completed the deployment of electronic flight strips into our last year, and maintained our safety record with no risk-bearing Terminal Control (TC) operation3. Airprox2 attributable to NATS (2018: nil). > We are continuing the implementation of our complex technology > En route delay per flight for the 2018 calendar year was 12.5 seconds and transformation programme plan to deploy new ATC equipment (2017 calendar year: 6.2 seconds). and software in RP3. Alongside modernising airspace, this is necessary for managing the expected growth in air traffic volumes > We enabled additional annual fuel savings for airline customers in RP3 and beyond. equivalent to 113,700 tonnes of CO2 emission reductions (2018: 273,600t restated - see page 16). 94% of our own energy > We presented a study for the modernisation of airspace in the south consumption is provided by renewable energy. east to the Secretary of State for Transport which included the technical feasibility of meeting the future capacity requirements of > We responded to the Civil Aviation Authority’s (CAA) draft Reference airports in the south east, including a third runway at Heathrow. We Period 3 (RP3: 2020-2024) National Performance Plan proposals. have been tasked to create the Airspace Change Organising Group We cannot accept these without important changes and we have (ACOG) to lead airspace modernisation in RP3. put forward alternative proposals to meet the strategic aims of stakeholders while maintaining the integrity of our plan. The CAA will now consider the views of all stakeholders before publishing its Win and retain commercial business decision in the late summer. > Our UK Airports business won a new 10 year contract at Cardiff and > In March 2019, we commenced operational trials with space-based St Athan airports. The infrastructure for London City’s digital tower ADS-B data in our Oceanic operation. This is the first time an oceanic ATC service is being tested with live video feeds from the airport now region has had the ability to receive real-time position reports for being received into Swanwick. every aircraft. As well as enhancing safety, it improves capacity and > Our International operation is providing Air Traffic Controllers (ATCOs) fuel efficiency for customers. to the Airport Authority of Hong Kong and developing a prototype digital tower for Singapore’s Changi Airport. > We invested £51.0m to acquire a strategic minority interest in Aireon4, which provides satellite-based air traffic surveillance systems with global coverage capable of tracking and monitoring aircraft in real-time. 4 / 161 NATS | Annual Report and Accounts 2019 Annual Report and Accounts 2019 Strategic report 5 / 161162 NATS | Annual Report and Accounts 2019 Contents 6 / 161 NATS | Annual Report and Accounts 2019 Chairman’s statement Safety and operational performance Reference Period 3 (2020-2024) It has been another year of good progress. Our ATCOs safely handled Last summer we consulted customers on our plan to deliver a safe, high record numbers of aircraft whilst meeting our regulatory safety and flight quality and resilient service 24/7 with higher traffic and at lower prices delay standards. We also came very close to meeting our extremely than in RP2. Alongside this we will play a key role in the modernisation ambitious internal safety metrics, set at the beginning of the current of UK airspace and we will upgrade our Air Traffic Management (ATM) Reference Period (RP2: 2015-2019), when the forecast growth in service. These will be enabled by the completion of the largest and number of flights being handled was significantly lower than has been most complex technology upgrade that we or any of our European accommodated. During the year, as a key milestone in our Deploying counterparts have previously undertaken. These aims were shared Single European Sky ATM Research (DSESAR) programme, across our industry and were strongly supported during our consultation we completed a significant technical upgrade in our TC operation with with customers. The CAA has now published its draft proposals for the the deployment of an IT-based electronic flight strip process. The UK’s National Performance Plan (NPP) for RP3. Whilst we agree with the impact on flight delays was minimised through a comprehensive and CAA in several important areas such as safety, the priority for airspace complex transition plan created and managed in partnership with our modernisation and the need for satellite-based ADS-B surveillance, airline customers. we have significant concerns with some key aspects of their other proposals. These would set service performance targets beyond our The average NATS en route delay per flight for the 2018 calendar year reach (when the European Union (EU) is setting lesser targets), and was 12.5 seconds, including 4.8 seconds of delay specifically associated would provide insufficient funding for all the resources we need to with the above transition (2017 calendar year: 6.2 seconds per flight). deliver the day to day service together with our technology and airspace This performance was five times better than the average delays modernisation programmes. If these concerns are not addressed, we experienced elsewhere across Europe. would be compelled to focus on provision of the current service and safety, resulting in a delay in the technology and airspace modernisation We also commenced the introduction of space-based Automatic programmes. Such a delay would create additional longer term costs for Dependent Surveillance - Broadcast (ADS-B) surveillance data into our our customers that far outweigh the additional resources we have sought Oceanic operation. This is the first time anywhere in the world that an for these important programmes. We also have concerns with the CAA’s oceanic region has had the ability to receive automatic real-time position proposal for cost of capital, which would lead to materially lower returns reports for every aircraft. When fully operational this innovative new for shareholders incompatible with the risks imposed. In our response service will enhance safety, and provide much needed additional capacity to the CAA we have provided constructive input on how to achieve the on the world’s busiest oceanic routes. Airlines and their customers will strategic objectives the aviation industry requires while continuing to also benefit from more efficient flight profiles, reducing fuel burn and deliver excellent service performance which is amongst the most cost carbon emissions. efficient in Europe. Financial performance and dividends Airspace modernisation The group’s profit before tax at just over £98m (2018: £133m) was The Government’s Aviation Green Paper sets out an ambitious plan for £35m less than the prior year mainly reflecting real price reductions the future of UK aviation. Published alongside this was our technical to our customers, and an investment in additional staff to meet the feasibility study into airspace modernisation in the South of England growth in air traffic volumes and to progress our technology change recognising the importance of airspace change and our role in delivering and airspace programmes. The results are explained in more detail it. We have been commissioned by the Department for Transport in the Financial Review. (DfT) and the CAA to create and maintain a strategic masterplan of airspace change out to 2040 and to create the ACOG to lead this change programme.