Diploma in Corporate Finance
Corporate Finance Strategy & Advice
Information Booklet
Date of exam Monday 1 December 2014
Part 1: 1:00 pm – 1:55 pm Information Booklet & Examination Paper Part 2: 2:00 pm – 5:00 pm Answer Book
Notes to candidates
Time allowed: 55 minutes
Part 1: Candidates will be provided with an Information Booklet and the examination question paper. Candidates have one hour in which to review the information booklet and questions. During this time, candidates may annotate the information book.
The examination has been prepared on the assumption that candidates will not have any detailed knowledge of the type of organisation to which it refers. No additional merit will be accorded to those candidates displaying such knowledge.
Part 2: The Answer Book will be distributed at 1.55 pm and the candidates should open and begin writing in the answer book when instructed.
Candidates should distinguish clearly between formal answers (including appendices) and any working papers.
© Chartered Institute for Securities & Investment 2014 © ICAEW 2014
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Please turn over when instructed
1 of 179 Table of Contents
Information Book Pages Annual Report – 31 March 2014 3 - 57 Capital IQ spreadsheets: Financials 58 - 78 Capital IQ spreadsheets: Comparable Companies 79 - 93 Capital IQ spreadsheets: Estimates 94 - 97 Firm placing and placing and open offer 98 - 176 Results of firm placing and placing and open offer 177 - 179
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Information for
Flybe Group plc
Annual Report 2013/14
3 of 179 Flybe at a glance
Key financial highlights
2013 2014 (restated) £m £m
Total revenue under management2 868.4 781.5 Less: joint venture revenue (247.9) (167.2) Group revenue 620.5 614.3
Adjusted profit/(loss) before tax, net restructuring and surplus capacity costs3 1.7 (23.6) Adjusted profit/(loss) before tax and net restructuring4 8.3 (33.1) Profit/(loss) before tax 8.1 (41.1) Profit/(loss) after tax 8.0 (42.2) 1 Includes our franchise partner, Loganair. 2 Includes our joint venture, Flybe Finland. 3 Adjusted profit/(loss) before tax, net restructuring and surplus capacity costs defined as profit/(loss) before tax, net restructuring and surplus capacity costs of £1.9m (2012/13: £12.8m) and revaluation gains on USD aircraft loans of £8.3m (2012/13: loss of £4.7m). Surplus capacity costs represent the costs incurred in the year relating to capacity that is considered by management to be surplus as a result of restructuring decisions taken in 2012/13. See pages 23 and 24 of the Financial Review for further detail. 4 Adjusted profit/(loss) before tax and restructuring defined as profit/(loss) before tax and net restructuring costs of £0.2m (2012/13: £8.0m).
Overview Financial and other information Flybe at a glance IFC Independent auditor’s report 85 Introducing our new CEO 2 Consolidated income statement 90 Consolidated statement Acknowledgments Strategic report of comprehensive income 91 Flybe would like to thank all those who participated in producing this report, Chairman’s statement 8 Consolidated statement particularly the members of staff for their contributions. Business model 12 of changes in equity 91 Chief Executive Consolidated balance sheet 92 This report is available on our website: www.flybe.com/corporate/investors/ Officer’s statement 14 Consolidated cash Business review 16 flow statement 93 This document was printed in the UK using vegetable based inks which have lower VOC (Volatile Organic Compounds) emissions, are derived from renewable sources Strategy and KPIs 19 Notes to the consolidated and are less hazardous than oil-based inks. The paper is sourced from responsible The Purple Way 20 financial statements 94 sources and is environmentally friendly, using an ECF (elemental chlorine-free) Financial review 21 Company balance sheet 133 The Directors present the Annual process and produced at a mill that is certified to the ISO14001 environmental management standard. The mill is fully FSC-certified. Risks and uncertainties 34 Company statement Report and Accounts for the year ended 31 March 2014. References Corporate responsibility 38 of changes in equity 134 to ‘Flybe’, the ‘Group’, the ‘Company’, The printer is ISO 14001 accredited and Forest Stewardship Council (‘FSC’) Company cash flow statement 134 ‘we’ or ‘our’ are to Flybe Group plc chain of custody certified. FSC ensures there is an audited chain of custody Governance Notes to the Company (registered number 1373432) and from the tree in the well-managed forest through to the finished document Chairman’s statement financial statements 135 its subsidiary companies, where in the printing factory. appropriate. The Strategic Report on corporate governance 45 Five-year summary 138 contains statements that are forward If you have finished reading this report and no longer wish to retain it, please pass Board of Directors 46 Glossary 139 looking. These statements are made it on to other interested readers or dispose of it in your recycle paper waste. Corporate governance 49 by the Directors in good faith based on the information available to them Audit Committee report 58 up to the time of approval of this Designed and produced by Instinctif Partners www.instinctif.com Directors’ report 63 report. Such statements should be Directors’ remuneration 66 treated with caution due to the inherent uncertainties and risk Statement of associated with forward Directors’ responsibilities 84 looking information.
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6601_Flybe_AR_2014_Cover2.indd 5-7 11/06/2014 15:17 Overview Strategic report Governance Financial and other information
Delivering on Delivering connectivity Flybe’s turnaround for the UK regions
11.1% growth in Revenue under management 6.9% increase in passenger numbers to £868.4m (2012/13: £781.5m) in UK scheduled airline at 7.7 million (2012/13: 7.2 million), despite 1.4% reduction £620.5m of Group revenue (excluding joint in seat capacity venture) up by 1.0% from 2012/13’s £614.3m 5.4 ppts improvement in load factors Record passenger numbers and load factors to 69.5% (2012/13: 64.1%) in UK scheduled airline 1.8% improvement in Flybe UK’s passenger 3.3% decrease in Group operating costs before revenue per seat at £49.70 compared to prior restructuring at £619.5m (2012/13: £640.9m) year’s £48.84; Flybe UK’s cost per seat (on a £8.1m of profit before tax of compared to loss constant currency basis) before restructuring of £41.1m – improved performance in every and surplus capacity was 1.6% below prior year part of Flybe’s business 55.1% sector share up from 52.4% last year Twin-engine growth strategy announced – making Flybe the leading airline brand in the branded and white label UK regional market. In the UK domestic sector, Flybe’s share was 28.3% (2012/13: 28.1%) £150.1m of net cash raised reflecting investor confidence in lybe’sF future Operating from 7 UK bases and serving 64 airports in total throughout the UK and Europe1 Major expansion announced at London City Delivering connectivity for Europe’s mainstream airlines
£247.9m of revenue in first full year of expanded Finnair joint venture operations up from £167.2m in 2012/13 Service standards and punctuality on and above target Number of ongoing discussions for new white label opportunities
Flybe Group plc Annual Report and Accounts 2013/14 1
5 of 179 Introducing our new CEO Transforming Flybe
The last few years have been difficult Q for Flybe. What made you want to take up the job?
There were three reasons. A
First, I spotted in Flybe significant potential based on a clear and compelling purpose which the business had not really capitalised on. By providing regional customers with time-saving access to the world, Flybe had the potential to play a unique and powerful role in connecting regional communities and linking regional economies not just in the UK but across Europe, both in a Flybe-branded capacity and by flying regional routes on behalf of national flag carriers.
I could see that the alternative to a 90-minute flight 2013/14 has been a year with Flybe is usually a long and painful car, ferry and/or of transformation for Flybe with rail journey that is at least three hours long. So Flybe plays a unique role in fulfilling important social and a significant restructuring of the economic needs. If Flybe didn’t exist, it would be business, extensive organisational necessary to invent it. Our smaller aircraft give us a unique ability to serve lower volume regional routes muscle-building, new process which the larger airlines cannot operate profitably with implementation, in-year delivery their bigger aircraft with more seats to fill. Our aircraft against key revenue and cost types also enable us to operate out of smaller, local airports with shorter runways. Through hub airports, objectives, a major equity fund we also connect local airports to the world. raising and the setting out of a new, The second thing that struck me is that Flybe is full of clear strategic vision. Its new CEO, good people. Professional, diligent people, passionate Saad Hammad, explains. and committed to what we do. People who, above all else, are decent and authentic, with big hearts.
The combination of a great purpose and great people was hugely attractive.
The challenge, of course, was that Flybe could only thrive if structured in the right way. We needed a competitive and sustainable cost base, an upgraded commercial capability and a rigorous, fact-based management culture. The business was in need of a significant transformation. I have extensive experience not only of the airline sector but also of business turnarounds and transformation, so I knew what needed to be done. This is the third reason.
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6 of 179 Overview Strategic report Governance Financial and other information
Flybe has emerged from its recent challenges a stronger and better organised company, well positioned for the future.
What struck you on joining? You mentioned the challenges – Q Q what were the key ones you faced on joining?
My first impressions included The main challenges were to ensure the A many positives: A survival of the business and to establish a secure platform for profitable future growth. Our cash position needed strengthening, our costs >> Flybe has an established brand with strong UK were too high and the cost reduction measures already domestic and UK regional sector shares. underway were a start but just did not go far enough. >> There was great momentum behind Phases 1 and 2 Our commercial capability was also weak and too of the restructuring programme that had already many routes were unprofitable. Our network and started, although I could see that further Immediate organisation were complex and inefficient, and we Actions were required. had surplus, underutilised aircraft with aircraft types ill-matched to the needs of our route network. Finally, >> Finnair’s CEO gave me some very positive feedback confidence was waning amongst all stakeholders. about Flybe Finland’s service and cost performance in our contract flying operation with 22 aircraft To address these issues, I asked everyone in Flybe operating on Finnair’s behalf. to concentrate on what I called the ‘5 Cs’: >> Flybe’s employees told me loudly and clearly that 1. Cash – improving our cash position to create there was a real mandate for, and expectation of, maximum financial headroom. change to how the business operates. 2. Cost – moving to a world-class cost base through >> During my personal discussions and interactions additional measures to compete profitably and offer with staff, both at headquarters in Exeter and around attractive fares to customers; and establishing an our bases, I was exceptionally impressed by their efficient organisational structure. professionalism, commitment and passion. 3. Configuration – ensuring we have the right route network, number of bases and aircraft, and aircraft I wanted to build on these strengths. Hence the types (right aircraft on the right routes); and strategy I announced in November 2013 used these improving aircraft and crew utilisation. as the cornerstones for the development of a reshaped 4. Commercialisation – strengthening our Flybe. It was clear that there was much to do, but the commercial capability to focus on customers willingness among everyone in the business to see and drive revenue growth. through real change was fundamental. The way our employees have reacted subsequently to the size and 5. Confidence – building the confidence of our pace of change, has been amazing. shareholders, our customers, our partners and our employees through active engagement and urgent Flybe has a magic ingredient and that is its people. delivery on the priorities of the business. I am immensely proud to be serving them as their CEO. I am delighted that we have been able to meet the challenges faced by the business head on through the 5 Cs programme. Flybe returned to profitability in 2013/14 and generated positive operating cash. Our shareholders supported a significant capital raise in March 2014.
Flybe Group plc Annual Report and Accounts 2013/14 3
7 of 179 Introducing our new CEO Transforming Flybe Continued
While we are not yet operating at full potential and are A significant part of our improved commercialisation still moving towards target levels of profitability, we programme involved the filling of key management have moved back into profit, reconfigured the business roles through a balance of external recruitment and to a more viable network, started to reduce unit costs internal appointments. Revenue, pricing and route to a more sustainable level and have started to management improvements were implemented and generate commercial momentum, with unit a number of marketing enhancements were rolled revenue growth in every month since August. out, all with positive revenue per seat, load factor and contribution impact. Partner and supplier negotiations, Flybe’s load factors are now at record levels. for example, with airports and aircraft manufacturers, We are of course saddened that we have had to lose also delivered significant benefits. A structured route so many diligent, committed colleagues via TUPE profitability and selection methodology was developed transfers or redundancy. I am very grateful for the and implemented. Over 100 potential new routes have positive and constructive way in which our employees, been assessed using this approach and nine new routes trades unions and employee representatives were selected for Summer 2014, which are already approached the consultation process regarding trading ahead of expectations. redundancies as well as the efforts that went into mitigating the numbers of job losses. The headcount Separately, we made progress on improving the reductions are now largely delivered, although there profitability of our Finland joint venture with Finnair. are a few people still scheduled to leave Flybe at the The Flybe Finland JV continues to be profitable in its end of the summer. white label flying operations. A programme to reduce losses in the legacy scheduled risk flying business is In total during the year, we generated £47m of cost being implemented with effect from April 2014, with savings, through headcount reductions, outsourcing two of the six loss-making lines of scheduled risk flying and procurement gains. We disbanded the Company’s being removed. divisional structure, streamlined the senior management team and moved to a simplified, integrated organisation The changes we made have enabled us to regain which we have called ‘One Flybe’. the confidence of all stakeholders. We approached the capital markets in early 2014 and were able to In terms of configuration, we refocused our UK raise £150.1m of net proceeds on 12 March 2014 in network on the seven larger bases and closed six a Firm Placing and Placing and Open Offer. The fact smaller bases in the Isle of Man, Newcastle, Aberdeen, that this was over-subscribed, and at a price that was Inverness, Jersey and Guernsey. Flybe is of course only a 7.2% discount to the share price immediately continuing to operate services to and from all of these prior to the announcement, reflects the growing airports. We also successfully rationalised our route support that the investment community has for Flybe. network for the Summer 2014 season (beginning We now have a balance sheet which allows us to April 2014), impacting 55 out of last year’s 140 summer weather significant shocks that can impact the whole routes, including the discontinuation of 30 unprofitable aviation industry and we have the financial firepower routes. Surplus aircraft capacity is being addressed to fund additional productivity enhancements and by grounding 10 aircraft at the end of March 2014 profitable future growth. and a further four by the end of the Summer 2014 season. Work is continuing to reduce the cost We also now have a balanced shareholder base of this aircraft grounding. supported by some well-known and highly respected institutions, although this has entailed the exit of Rosedale from the shareholder register. Rosedale and the Jack Walker family have been unswerving supporters of Flybe over many years and I would like to thank them for that.
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8 of 179 Overview Strategic report Governance Financial and other information
2013/14 has seen Flybe return to profitability and make a significant step towards our goal of being Europe’s best local airline.
You have talked about the internal Firstly, emissions of greenhouse gases are a critical Q challenges but what about the wider issue for our industry. Flybe is one of the first airlines back drop for aviation? to recognise the need to minimise these emissions and invested early in new aircraft that were more fuel The aviation industry is a vital part of the efficient than their predecessors. Having completed A wider economic landscape. Without it, both the fleet transition to Bombardier Q400 turboprops domestic and international trade would be the mainstay of our fleet – and Embraer E-series jets in much more difficult and the global economic picture 2009, Flybe has been ahead of the rest of the industry, would be a radically different one. where significantly older aircraft remain in place. However, the EU regulation in relation to the Emissions On a global level, air travel demand looks set to Trading Scheme was amended during the year to continue growing in line with the global economic exclude extra-EU operations. This means that airlines recovery. On the supply-side, aviation remains highly which operate wholly within the EU, such as Flybe, competitive, with the rise of the Middle Eastern are at a competitive disadvantage versus other airlines network carriers providing a real challenge to the large which do a mix of EU and extra-EU flying. An intra-EU established flag carriers in Europe. This threat to their airline with a more fuel efficient fleet is being profitability may well, over the course of time, lead discriminated against simply due to its flying footprint. them to rethink how they provide the unprofitable regional feed traffic that is important for their long- In a similar vein, Air Passenger Duty (‘APD’) in the UK, haul networks. In so doing, this may provide an is another Government activity that does not achieve opportunity for Flybe to step in either as a scheduled a rational economic outcome. APD is an inhibitor to flying substitute or, through a partnering arrangement, regional economic regeneration and hurts regional as a lower cost white label provider. operators like Flybe disproportionately, as it discriminates against domestic travel in favour of Fuel prices remain the most difficult cost to control international and long-haul travel. APD was introduced across the industry. Our immediate needs are well met primarily as a revenue-raising mechanic that reflects with an extensive hedging programme that has 72.7% the lack of Duty on aviation fuel. However, unlike of our next twelve months’ requirements provided for. such a Duty, it has never been rationally graduated. However, as we saw when fuel prices moved up in 2011 The basic domestic rate for APD has rocketed 160% to its current levels in the $100 to $115 per barrel range from £5 for a one-way flight when it was introduced for Brent, there is always the possibility for another in 1994, to £13 today, which on a domestic sector, step-change to come into effect. There is little that any such as Newquay – Gatwick of 215 miles, works out at airline can do to minimise this as it is not possible, nor an average of 6p per mile. By way of contrast, the new desirable, to hedge over a highly extended period. B and B rate for long-haul will be £71 from April 2015, We would expect fuel price rises to be passed onto which, on a 3,400-mile trip to Bermuda, works out at customers in time. 2p per mile; or 6,000 miles to Tokyo at 1.2p per mile. There is absolutely no logic to such a discriminatory There are a number of regulatory, policy and taxation tax regime. issues which act as a brake on delivering the optimal set of outcomes across the industry. I will focus on three – EU Emissions policy, UK APD and London runway capacity.
Flybe Group plc Annual Report and Accounts 2013/14 5
9 of 179 Introducing our new CEO Transforming Flybe Continued
Furthermore, the regime discriminates even further What do you see as the key points against UK domestic air travel. A round trip from Q for the year ahead? Southampton to Dublin (538 miles) incurs only one set of tax, while a round trip from Birmingham to Edinburgh (501 miles) suffers double taxation, as both sectors are Our key task in 2014/15 is the full rebirth UK departures. This results in a clear price incentive A of Flybe. This involves six key initiatives. for people to travel abroad rather than within the UK. On a flight that might cost only £30, a £13 tax levy is very significant. Given this double taxation, it would First, a full brand re-launch with single-minded focus be much more equitable – and ultimately much more on a distinctive customer proposition: time-saving and beneficial to the UK economy – to introduce an even punctual travel for regional customers delivered with lower APD charge on domestic or short sector routes. a smile. Our new customer promise is to be ‘The fastest way from A to Flybe’, faster than rail and road, and Regional aviation is a key part of the UK’s transport aiming to be on-time, every time. The brand re-launch infrastructure. Nearly half of Flybe passengers are involves the adoption of purple as our brand colour, business people. These are busy people, the majority a new look and feel to our website, advertising, of whom live in the UK’s regions. They are poorly aircraft livery and on-board presentation as well served by London’s airports and the available rail links, as a reinvigorated product and service offering. which principally go to and from London, and are neither convenient nor practical. For the worker who Among the many new products, services and lives in the South West, for example, and commutes to improvements – which include simplified ticket an oil job in Aberdeen, there is no practical alternative names – our world-first 60:60 Guarantee is our way of to flying. Similarly, Edinburgh to Birmingham is an showing customers how much we appreciate that their appalling rail journey; Belfast to Manchester is, in part, time is precious – that any delay they might experience a long, slow ferry ride. Regional air transportation is is of consequence. Flybe’s punctuality has always been not a luxury. It is an essential part of a modern thriving well above industry average but we are determined economy, especially when the regions account for 80% to do everything we can to ensure that every flight of UK GDP. Flybe will continue to lobby the UK arrives on-time. To demonstrate that commitment, Government to reform APD further to ensure regional our 60:60 Guarantee means that if a flight arrives travellers do not have to pay a discriminatory tax levy. more than 60 minutes late on stand for a reason within Flybe’s control, customers will qualify The third issue concerns the Airports Commission for a £60 voucher to put towards their next in the UK, led by Sir Howard Davies, which has been Flybe booking, if made within 60 days. charged with making recommendations in 2015 on new runway capacity in the South East of England. Flybe is On-board, we are starting to roll out a number of new concerned by the overwhelming focus of the Davies enhancements. For example, we now offer small gifts Commission on global connectivity with larger jets that as our passengers depart the aircraft and we are will mainly benefit non-UK residents and those residing pleased to be one of the first airlines in Europe to in the South East. It seems to miss the crucial need for enable customers to use their portable electronic connectivity for the tens of millions of UK residents devices in flight-safe mode from gate to gate. In June, who live in the UK’s regions. We believe that any we will roll out our new contemporary, purple-themed incremental runway capacity in or around London at a cabin crew uniform. national hub needs to have guaranteed, yet affordable, take-off and landing slots for regional aircraft, allowing The improvements we are launching are designed the UK regions to connect to this hub. to reflect an exciting new era for Flybe, one with a renewed commitment to delivering a great customer experience. We are adopting purple not just as our new brand colour, but as a signifier of a new way of doing things. In the new Flybe, purple is a way of life. Purple is all about the importance of People, Passion and Performance. It is about Positivity and Playfulness.
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60:60 Guarantee
It is about teamwork and One Flybe. It is about great financially and operationally. We will continue to customer service and delivering on our commitments. optimise this activity while we work with Finnair to It is about reaching for the stars and being the best explore the opportunities of turning Flybe Finland’s possible airline we can be. We have already launched branded scheduled flying business into profit, a structured engagement programme to induct all or exiting from it as an activity. employees and business partners in the ‘The Purple Way’. This will be followed up by the ‘Flybe Loves Finally, we plan to complete our review of non-core Service’ training programme through which we assets and implement a solution that optimises are aiming to send every employee, as well as shareholder value. representatives from our out-sourced service providers, by the end of the year. The above six developments herald a new beginning for Flybe. As we move forward, we must remain Second, 2014/15 will be about shifting out of the disciplined in everything we do. Discipline is vital to recent retrenchment to start to grow again our core secure our future. We need capital discipline to ensure, scheduled branded UK business. Following the nine as we return to growth, new aircraft deployment is new routes launched from Birmingham and Newquay, done prudently and we maximise the utilisation of we announced a major expansion at London City, and those aircraft. We need revenue discipline to ensure we are keen to do more. We continue to evaluate both our commercial activities are managed in a fact-based new route and base opportunities as well as looking to and rigorous manner with a relentless focus on the extend our range of codeshare partnerships with other customer. We need cost discipline to safeguard the airlines. Codeshares enable us to offer our regional gains of the painful restructuring we have been customers one-stop to the world through hassle-free through. Finally, we need organisational discipline transfers at our hubs onto to the long-haul routes to ensure we never lose sight of the fact that we are offered by partners. a people business and our strength is our people.
Third, we are focused on removing burdensome fleet As we move forward, we will be guided by our commitments both in the shape of grounded aircraft START values: and future aircraft obligations. As part of this, we will afety: no compromises engage with lessors on early hand back of the aircraft, S with flag carriers in Europe on both sub-leasing and Teamwork: ‘One Flybe’; collaboration as a way of life white label opportunities and with aircraft manufacturers on redeployment or re-absorption Alignment: embrace our goals and the ‘The Purple Way’ of future orders. We will also explore supplementary and act with urgency flying opportunities within our UK business. Responsibility: take accountability and ownership
Fourth, we will continue to build management Transparency: open, upfront, authentic and sharing. capability in the business. We have already secured a high quality CFO in Philip de Klerk to succeed Andrew In summary, I believe that overall we have reasonably Knuckey; a new Company Secretary (Annelie Carver), clear skies ahead of us for 2014/15 and beyond and both of whom join us later in the year; a new MD for I am looking forward to building a profitable and our Finnish joint venture (Maunu Visuri) and a Head of successful Flybe that is capable of exploiting the many White Label Business Development (Jochen Schnadt). opportunities before it. We have the employees and operational capability to become the best local airline Fifth, we will continue to optimise current white label in Europe. and franchising partnerships (Finnair, Loganair) and build new ones (such as the arrangement to bring Flybe has a bright future, a purple future. in Stobart Air to supplement Loganair as a franchise partner). In Flybe Finland, the 22 aircraft providing Viva Flybe! the white label service operated on behalf of our joint venture partner, Finnair, are performing well both
Flybe Group plc Annual Report and Accounts 2013/14 7
11 of 179 Chairman’s statement
People have a persistent and growing desire to travel, be it for business, visiting friends and family or recreation. Ground transport infrastructure is becoming saturated in the UK, with inadequate investment failing to provide sufficient capacity to meet demand. The London-centric nature of the UK transport debate dictates that transport infrastructure investment is overwhelmingly spent there, and on links to and from London; HS1, HS2, and Crossrail for example. The ‘aviation’ debate in the UK barely rises above another runway for London. Heathrow declares itself the UK’s only ‘hub’ airport, yet it has air links to only seven UK airports.
Flybe is different. Flybe serves 28 UK airports, taking over 7 million passengers around the UK and from the UK to other European destinations. We get on with the business of carrying customers from A to B as quickly, efficiently and respectfully as possible. All those “Flybe has undergone great change awkward journeys that otherwise would entail long in the last 12 months, not only in its car, rail or ferry trips, become an easy hour or so flight; Exeter to Glasgow, Edinburgh to Birmingham, management, but also in developing Guernsey to Southampton or Belfast City to its strategy and in cementing its Manchester, for example. balance sheet strength. This has Flybe operates from regional airports, where typically secured strong foundations the runway seems shorter than the terminal walkway for the successful turnaround at Gatwick, and where checking-in is so much quicker than even trying to park at Heathrow. These airports of this business.” are usually closer to where people live and work. They are more convenient and reduce car journeys Simon Laffin to the airport as well as total journey times. Non-Executive Chairman Regional aviation is a crucial part of the UK’s transport infrastructure. It is not a luxury. It is an essential part of a modern thriving economy. So it remains a source of amazement that the Government persists with the arbitrary and discriminatory application of Air Passenger Duty (‘APD’), where a typical domestic flight can be charged five times the tax per mile of a long-haul one. This is exacerbated when a return international flight suffers this charge once, but a domestic one is taxed twice. Yet in the last Budget, the Government actually reduced long-haul APD rates by £1 billion, while informing Flybe that it could not afford to reduce domestic rates.
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A momentous year for Flybe The cost reduction programmes have, sadly, resulted Under Jim French, the previous Chairman and Chief in over 1,000 job losses. Fortunately, through Executive Officer, the Board concluded that Flybe impressive teamwork with both staff and unions, the needed to reduce its cost base significantly and a number of compulsory redundancies has been small. programme of cost reductions was initiated. In August We are, however, sad to have had to lose good and 2013, Jim stood down as Chief Executive Officer and loyal people from our workforce. Flybe has no option Saad Hammad joined in that role. Saad, who came with but to remain competitive on cost. Total headcount a strong background in logistics and with easyJet, has now reduced by 29% over the financial year. The made an immediate impact. He identified that even turnaround has put a great deal of strain on many more needed to be done to reduce costs to compete employees who have put extraordinary levels of work in this market and that the business needed to upgrade and commitment into restoring Flybe to financial and its processes and capabilities as well as to develop its commercial health. On behalf of the Board, I would like strategy further. to pay tribute to each and every employee who has contributed to this; be they cabin crew, maintenance Jim stood down as Chairman at the beginning of staff, manager, pilot or administrator. November 2013, and I joined the business as Non- Executive Chairman. Later that month, Saad presented As already announced, there will be some further the Interim Results and announced his twin-engined job losses after this summer as seasonal routes are strategy of regional UK scheduled and white label discontinued and some further aircraft are grounded, flying, underpinned by further cost reductions, working as planned. However, we believe that we are now with all suppliers, and a highly disciplined approach to on the verge of emerging from this period of commercial and route profitability. retrenchment, and looking forward to future considered and careful profitable growth. The early In March this year, shareholders contributed £155.7m precursors to this have already been announced with gross of new equity to provide funds to enable greater additional routes from Birmingham, London Southend resilience to the business, strengthening its balance and London City. sheet, and also to fund growth in line with the new strategy, as outlined by Saad. This has now been Board focused into developing new routes and bases, further Saad Hammad took over as Chief Executive Officer efficiency gains and IT investment, fleet optimisation, in August 2013. We believe that Flybe has in Saad greater ownership of aircraft and expansion of white a talented and inspirational leader. I became Chairman label flying. A franchising agreement with Stobart in November last year. We have already announced Air was announced covering six routes from that Philip de Klerk will join the Board later this year London Southend. as Chief Financial Officer. Philip has a strong financial pedigree from both Unilever and SAB Miller and The following month, the strategy continued to be we very much look forward to him joining us. rolled out, with five new routes announced from Timo Anderson, former Director General of the London City airport, as well as a complete re-launch of UK Military Aviation Authority, joined the Board the Flybe brand; a new purple identity, website, aircraft as a Non-Executive Director in May 2014, and brings livery, staff uniforms and customer service initiatives. great experience of aviation, leadership and air safety. Many of these are being rolled out over the summer and the positive effect will accumulate over the coming months.
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13 of 179 Chairman’s statement Continued
Jim French, the former Chairman and Chief Executive General outlook Officer, retired from the Board in November 2013 after The general economic outlook in our most important more than two decades working for Flybe/Jersey market, the UK, has improved – with growth reported European, building it into a major regional airline. in the year to December 2013 of 1.9% – and most Mark Chown, Mike Rutter and Andrew Strong, resigned commentators expecting 2014 to see growth from the Board as Executive Directors in August 2013. in the range of 2.4% to 3.5%. While this provides an encouraging back-drop, it is important we continue Andrew Knuckey, Chief Financial Officer, will retire to ensure Flybe does not depend on positive macro- from the Board in August this year. Andrew has played economic conditions for its future success, and remains a key role in the development of Flybe over the last focused on capacity, revenue and cost discipline. nine years, in particular supporting the turnaround under Saad and this year’s successful capital raise. While our deliberate actions last year to remove unprofitable routes will continue to impact revenue and Anita Lovell stood down as a Non-Executive Director profit into 2014/15, our disciplined focus, significantly in May last year. Alan Smith has now served nearly nine reduced cost base, strengthened balance sheet and years on the Board and will retire as a Non-Executive growth strategy, along with an encouraging macro- Director in August this year. Chris Simpson stood economic backdrop, give the Board confidence of down as Company Secretary in March this year, having delivering a good result for the current year and of served in this role since before Flybe’s 2010 IPO and driving sustainable profitable growth over the before that as Finance Director. coming years.
For the time being, Andrew Knuckey has taken on the role of Company Secretary, until Annelie Carver joins as General Counsel and Company Secretary in June this year. She is currently a partner in the Corporate and Commercial team at Michelmores Solicitors.
I should like to thank all the departing Directors for their hard work and commitment over many years and Simon Laffin wish the new Directors good health for the challenges Chairman to come!
Corporate governance In view of the new standards of best practice and regulations, we have made an additional statement on this important area on page 45.
Results This year has seen a significant improvement in financial performance as a result of the efforts taken to restructure the business. Adjusted profit before tax, restructuring and surplus capacity costs for 2013/14 was £1.7m, which marks a significant improvement on the prior year’s £23.6m loss, and reported profit before tax was £8.1m (2012/13: loss before tax of £41.1m). The Group generated operating cash flow before restructuring of £7.3m, and its net assets at 31 March 2014 were £194.1m. These results are in line with market expectations.
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456MPH
108MPH 70MPH
Flybe... relaunch, rebrand, renewal
Flybe Group plc Annual Report and Accounts 2013/14 11
15 of 179 Our twin-engine business model
Our Business
Regional ‘White branded label’ airline airline
A B
Core proposition Core proposition A Affordable, time-saving air travel with regional B Turnkey capacity solutions to national and international connectivity for both business European flag carriers by providing aircraft, and leisure. crew and maintenance.
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To become Regional market focus Europe’s Our smaller aircraft can operate profitably best local on lower volume regional routes and at more airline convenient local airports, often with short runways, serving both business and leisure passengers. Competition comes primarily from road, rail and/or ferry. Flybe offers faster, cost How we deliver value effective access to the outside world, with excellent punctuality and high frequency Safe operations services to other regions and to connecting hubs, Safety is Flybe’s number one priority. e.g. Manchester, Birmingham and Amsterdam. We are committed to developing, implementing, maintaining and constantly improving strategies Disciplined management process and processes to ensure that all our aviation Flybe has established a fact-based culture activities take place under an appropriate and an analytically-grounded decision making allocation of organisational resources, aimed process. This enables the business to make at achieving the highest level of safety decisions rigorously and focus on the four performance while delivering our services. key metrics which drive value creation: > Optimise passenger revenue per seat Market leading, regional white > Ensure competitive unit costs label capability and productivity levels Flybe is already the largest regional white label > Drive efficient asset utilisation provider in Europe, and has been delivering > Optimise margin per white label aircraft white solutions to flag carriers in Europe and beyond for more than a decade.
Countries Aircraft under Passengers Routes Airports management over over over 10 98 7.7m 200 64
Flybe Group plc Annual Report and Accounts 2013/14 13
17 of 179 Chief Executive Officer’s statement
Overview A reinvigorated Flybe This year has seen a significant turnaround in financial performance as a result of the efforts taken to restructure the business. The £150.1m net raised in March 2014’s Firm Placing and Placing and Open Offer provides Flybe with strength and a firm foundation for profitable growth.
Flybe’s structure and activities As reported in our H1 2013/14 results announcement on 11 November 2013, the Group’s divisions have been removed and the business has been refocused into ‘One Flybe’. We report three business segments:
“2013/14 has seen the rebirth of Flybe.”
Saad Hammad Chief Executive Officer
ONE FLYBE
Flybe UK MRO Finland
UK UK Finnish Finnish Flybe scheduled contract Training scheduled contract Aviation airline flying Academy airline flying Services operations operations operations operations
The MRO provides service to third party customers as well as the UK and Finnish operations
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£868.4 m 7. 7m revenue under management scheduled passengers up from £781.5m in 2012/13 up from 7.2m in 2012/13
Key financial headlines further Immediate Actions announced in November 2013. Combined, these initiatives delivered cost savings 2013 of £47m in 2013/14, and this is expected to increase 2014 (restated) Change to £71m in 2014/15. £m £m % Total revenue under The Group’s balance sheet at 31 March 2014 had management 781.5 11.1 868.4 total cash, including restricted funds, of £218.4m Less: joint venture revenue (247.9) (167.2) 48.3 at 31 March 2014 (2013: £54.7m), and net funds Group revenue 620.5 614.3 1.0 of £116.9m (2013: net debt of £66.3m).
Adjusted EBITDAR before The Business Review and Financial Review sections net restructuring costs 1 63.5 55.7 98.9 set out the full detail behind the 2013/14 results. Adjusted profit/(loss) before tax, net restructuring and People surplus capacity costs 2 1.7 (23.6) n/m Our Turnaround Plan has involved considerable efforts Profit/(loss) before tax 8.1 (41.1) n/m to reduce the cost base of the business. Unfortunately, Profit/(loss) after tax 8.0 (42.2) n/m this process has resulted in the departure of over 1,100 people from the business through redundancy, Operating cash inflow/ resignation or transfer to other organisations under (outflow) before TUPE arrangements. While only nine of these restructuring costs 7.3 (1.6) n/m redundancies were compulsory, I do not underestimate Net funds/(debt) 3 116.9 (66.3) n/m the effect of these difficult decisions on those staff leaving and the friends and colleagues whom they 1 Adjusted EBITDAR before restructuring defined as operating profit/(loss) after adding back depreciation, amortisation left behind. and aircraft rental charges and net restructuring costs of £0.2m (2012/13: £8.0m). On behalf of the entire Board, I would like to thank all 2 Adjusted profit/(loss) before tax, restructuring and surplus capacity of our employees both past and present for their hard costs defined as profit/(loss) before tax, net restructuring and surplus capacity costs of £1.9m (2012/13: £12.8m) and revaluation work, support and resilience through what has proved gains/(losses) on USD aircraft loans of £8.3m (2012/13: £(4.7m)). to be a very challenging period for the business Surplus capacity costs represent the costs incurred in the year and its people. relating to capacity that is considered by management to be surplus as a result of restructuring decisions. See pages 23 and 24 of the Financial Review for further detail. Summary 3 Net funds/(debt) includes restricted cash of £40.5m at 31 March 2013/14 marks the rebirth of Flybe. Our turnaround 2014 (2013: £31.4m). plan has enabled the business to return to profitability. With our strengthened balance sheet following the Results £150.1m net fund raise, we can leverage our position as Flybe delivered a result for the year in line with Europe’s largest regional airline and start to implement market expectations. Revenue under management, our twin-engine strategy of growing our UK branded including the full year impact of increased white label business and our white label operations across Europe. flying in Flybe Finland, increased 11.1% to £868.4m (2012/13: £781.5m). Group revenue increased 1.0% With the strengthening of our balance sheet, the Group to £620.5m (2012/13: £614.3m). Adjusted EBITDAR is now stronger than it has ever been and is well placed before restructuring costs increased by 55.7% to to deliver future profitable growth and become £98.9m (2012/13: £63.5m), with an adjusted profit Europe’s best local airline. before tax, gains on revaluation of USD aircraft loans, net restructuring costs and surplus capacity costs of £1.7m (2012/13: loss of £23.6m) and a reported profit before tax of £8.1m (2012/13: loss of £41.1m). Saad Hammad This significant improvement in Flybe’s trading Chief Executive Officer performance resulted mainly from the Turnaround Plans announced in January and May 2013, and the
Flybe Group plc Annual Report and Accounts 2013/14 15
19 of 179 Business review Flybe UK
2013/14 was a year which saw Flybe Flybe continues to operate its fleet in a way that optimises the use of the aircraft in service, responding UK return to profit as a result of to market demands while at the same time managing decisive management actions across its existing fleet. As part of the strategic review announced in November 2013, it was identified that the business, and relentless focus on the fleet of 14 E195 118-seat regional jets were surplus five Cs – Cash, Cost, Configuration, to Flybe UK’s current capacity and route network Commercialisation and Confidence: requirements. Therefore, 10 of these aircraft were grounded at the end of March 2014. The four remaining Cash aircraft are currently being deployed, three on scheduled flying and one on a short-term white label During the year, in addition to cost reduction measures, operation for Aurigny. Of the total fleet of 14 aircraft, we implemented a number of cash generation five will be returned to lessors during 2014/15, three measures, including the sale of our London Gatwick are expected to continue flying through Winter 2014/15 slots to easyJet for £20.0m and the deferral and management is in discussions with a number of of 16 E175 aircraft from 2014/15 to 2017 to 2019. airlines on possible white label or sub-leasing opportunities for the remaining six. Costs Phases 1 and 2 of our Turnaround Plan were announced Commercialisation in January and May 2013, and accelerated in November In addition to significant cost reductions, actions taken 2013 with a series of Immediate Actions designed to by the new commercial team to stimulate passenger further improve financial performance and resilience. numbers and improve unit revenues have helped the In total, more than £71m per annum of costs are business return to profitability. In addition to a number expected to be taken out of the business by 2014/15 of marketing enhancements, these actions included with £47m having been achieved in 2013/14. Full details offering more attractive lead-in fares which diluted of the turnaround can be found in the Financial Review. yields by 6.1% but led to a more than compensating increase in load factors and passenger volumes despite Configuration the 1.4% reduction in seat capacity. Load factor The Immediate Actions announced in November 2014 improved by 5.4ppt to 69.5% and passenger numbers has led to significant changes in the way we operate. increased by 6.9% to 7.7m, with a resulting 1.8% By the end of March 2014, we had reduced the number improvement in passenger revenues per seat to £49.70. of UK aircraft bases from 13 to seven – Belfast, Birmingham, Edinburgh, Exeter, Glasgow, Manchester The new commercial team has also adopted a rigorous and Southampton – in order to reduce costs and route assessment model for the evaluation of new deliver improved operational efficiencies. This has routes. Since November 2013, more than 100 routes entailed a consolidation of crew and aircraft at the have been assessed using the model and, in February bigger bases in order to achieve greater utilisation 2014, nine new routes were announced, which are to of both the aircraft and the crew. date performing ahead of expectations.
Flybe also continued to take a proactive approach One of the uses of the proceeds from the equity raise to capacity management by removing, or reducing has been to refresh Flybe’s brand, which had largely frequency on, a number of loss-making routes. remained unchanged since it was created in 2002: As a result, seats flown in 2013/14 fell by 1.4% to 11.1m. However, commercial actions taken to >> Our aircraft are being repainted in purple with a light stimulate demand led to a 5.4pt improvement blue tail plane interleaved with yellow and red stripes. in load factor to 69.5%, with passenger numbers The interiors are also being updated and the service increasing by 6.9% to 7.7m. offering improved with purple mood lighting on boarding, music playing and a chocolate treat to our passengers on deplaning. The new uniforms being introduced this summer pick up on this theme and provide a new and improved look for our staff.
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55.1 % 28.3 % (2012/13: 52.4%) UK regional sector share (2012/13: 28.1%) UK domestic sector share (including our franchise partner, Loganair) (including our franchise partner, Loganair)
>> To emphasise that one of Flybe’s key advantages Sector share is its punctuality, we have introduced a ‘60:60 Flybe continues to serve multiple customer segments. Guarantee’. If a passenger experiences a delay of During 2013/14, around 40% of Flybe’s passengers more than 60 minutes for reasons within Flybe’s were travelling on business, about a third visiting control, they have 60 days to claim a £60 voucher friends and relatives (‘VFR’), and the balance travelling towards their next flight. for holiday or leisure. Flybe will continue to adjust >> In addition, we have made the website simpler its network to match customer needs during 2014/15 and easier to use and renamed our ticket types. and beyond.
To date, the feedback to all these changes has been Flybe’s brand share of the UK domestic airline sector in very positive and we look forward to seeing their 2013/14 was 28.3% (2012/13: 28.1%). Excluding London, continued impact on the business. Flybe’s regional share was 55.1%, up from 52.4% in the previous year. During the year, we have also entered into an agreement with Stobart Air to join Loganair as a Flybe Training Academy franchise partner. Operations will be based at London Flybe continues to develop and promote talent within Southend utilising two aircraft, to commence in the aviation industry through the training programmes June 2014. it provides at the Exeter Training Academy facilities. The state-of-the-art building has 26 classrooms, a Ensuring passengers arrive at their destination safely simulator hall with two full flight Level D simulators, and on time is core for any airline and 2013/14 was cabin crew simulator hulls for safety and refresher another positive year for Flybe UK. training, and an engineering apprentice workshop.
Of those airlines that operated more than 30,000 flights Qualifications offered include a flight deck Multi-Crew during 2013 from the ten Civil Aviation Authority (‘CAA’) Pilot’s Licence (under the first CAA-approved scheme reporting airports, the statistics confirmed that Flybe for a UK airline), cabin crew and customer service maintained its strong performance, delivering an 84.7% NVQs, Foundation and Bachelor degrees, and (2012: 83.2%) on-time ranking for its reported sample engineering aircraft type approvals. of 103,400 flights. The airline’s performance across our entire network was even better, with an 87.1% Partnership with Brussels Airlines (2012: 85.2%) on-time punctuality level, and was among Contract flying is not confined to Finland, with two the best delivered in Flybe’s 12 years of operations. aircraft currently operating in Brussels Airlines’ colours. Together with two aircraft that returned to Flybe at the Confidence end of March 2014, this meant that four Q400 aircraft Active engagement with our employees and their operated throughout 2013/14 under this white label Unions, as well as with business partners, suppliers, arrangement. regulators and investors has yielded a renewed confidence in Flybe. The successful £150.1m net equity fund raising completed in March 2014 is testament to the strong support amongst investors for Flybe’s new management and strategy.
Flybe Group plc Annual Report and Accounts 2013/14 17
21 of 179 Business review Flybe Finland and MRO
Flybe Finland Maintenance, Repair and Overhaul (‘MRO’) The contract with our joint venture partner, Finnair, In November 2013, the management structure of the to fly Embraer E-Series regional jets and ATR business was changed and each of the activities turbo-props on its behalf makes Flybe the largest re-organised along functional lines. Flybe’s MRO, independent provider of white label services Flybe Aviation Services, is now managed as part in Europe with, including the Brussels Airlines activity, of the ‘One Flybe’ approach as a profit centre and 4.2 million seats flown in 2013/14 (2012/13: 2.7 million). it is reported as a separate segment.
Revenues increased by 48.3% to £247.9m (2012/13: Flybe Aviation Services delivered a solid profitable £167.2m) and the joint venture generated a significantly performance in 2013/14. reduced loss before tax of £1.0m (2012/13: loss before tax of £6.5m). Flybe’s share of loss after tax in the joint The business is based in Exeter and continued to venture Flybe Finland was £0.5m (2012/13: £2.8m). provide third party maintenance coverage of the BAE146/RJ, ATR turboprop and Bombardier Q400 The year has seen the bedding-in of the contract to fly aircraft types, as well as MRO services for Flybe’s an additional 12 E190 jets, taking the number of aircraft own fleet. flying on a white label contract for Finnair to 22. This white label contract has been a success both financially Revenue for 2013/14 was £35.4m (2012/13: £40.5m) and operationally, and recorded a profit before tax of and Flybe Aviation Services delivered a profit before £6.3m in 2013/14 (2012/13: £4.6m). tax of £2.2m (2012/13: loss before tax of £5.1m).
Less successful has been the existing commercial Man hours in the MRO decreased by 13.5% flying programme in Finland, which, despite being to 455,000 hours (2012/13: 526,000 hours) following remodelled, continues to generate losses from the the streamlining of the operation as a result of six aircraft operated during the year. The scheduled restructuring activities. Of this total, some 59.1% was flying operation reported a loss of £7.3m in the year for third party customers in 2013/14 (2012/13: 59.3%), (2012/13: £11.1m). Since the year end, two aircraft with the balance being work on behalf of Flybe. have been returned to their owners on completion of the lease term. Flybe is in discussions with Overall, Flybe Aviation Services has taken positive Finnair on further initiatives to improve the financial steps to retain its position as a quality service provider performance in the scheduled flying operation. with its focus strongly placed on sustaining an efficient cost base that enables it to react competitively to the Notwithstanding the challenges on scheduled flying, needs of an ever-changing and diverse regional the continuing transformation of Flybe Finland towards aircraft sector. being a profitable, self-financed, sustainable business for the future bodes well towards meeting Flybe’s stated strategic objective of white label expansion in Europe. Saad Hammad Chief Executive Officer
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Flybe’s strategy is focused on becoming Europe’s best local airline.
Description Key measures Description Key measures Overall – maximise stakeholder confidence Regional branded airline continued Safety underpins Well-developed safety procedures are in Configuration everything place to generate continuous improvement Deliver market we do Customer satisfaction based on in performance – see page 38. leading punctuality – on-time departures punctuality Realise Drive improvements in financial within 15 minutes were at 84.4% value for performance and the share price in 2013/14 (2012/13: 82.7%). shareholders performance of the Group – share price Deliver a Bases reduced from 13 to seven in the year. low of 41p, to 139p on 6 June 2014. focused and productive 55 routes (40% of total) modified Adjusted EBITDAR before net operation with for Summer 2014 (30 culled, 25 with restructuring and surplus capacity costs1 the right aircraft frequency or gauge change). on right routes at £98.9m from £63.5m last year and Fleet under management stable adjusted profit before tax, net restructur at 98 aircraft with 10 grounded. ing and surplus capacity costs2 up from a loss of £23.6m to a profit of £1.7m. Profit Aircraft utilisation up 1.9% before tax £8.1m (2013: loss of £41.1m). to 7.3 hours per day. Maximise First benchmark survey to be run Costs employee in 2014/15. Deliver an Group operating costs excluding fuel, satisfaction efficient restructuring and surplus capacity cost base Regional branded airline costs have decreased from £513.5m Commercialisation to £497.8m. Deliver growth UK passengers were up 6.9% to Group operating costs at constant in passengers, 7.7m (2012/13: 7.2m), with load factor currency4 per seat (excluding fuel) have revenue and decreased from £46.18 to £44.85. passenger improving by 5.4 percentage points revenue (from 64.1% to 69.5%). Cash per seat UK passenger revenue increased Ensure Free cash at year end of £177.9m, minimum free equivalent to 15 weeks’ of 2013/14 to £553.9m (2013: £551.8m). cash balances UK passenger revenue per seat has equivalent operating costs (2013: 2 weeks). to 10 weeks’ grown to £49.70 from £48.84 in 2013. operating costs Capitalise on No. 1 in UK regional market (55.1% sector leading positions share, up from 52.4% in 2013).3 White label provider in Flybe’s core Expand Flybe Finland, currently operates UK regional No. 1 in UK domestic market (28.3% white label 22 white label aircraft for Finnair. and domestic sector share, up from 28.1% in 2013).3 services in markets Europe In 2013/14, Flybe also operated four white Customer First benchmark survey to be run label aircraft for Brussels Airlines. satisfaction in 2014/15. Flybe has strong relationships with other Complaints were 2.9 per thousand major carriers, and discussions continue passengers (2012/13: 2.8 per on a number of incremental white label thousand passengers). opportunities.
1 Adjusted EBITDAR before restructuring and surplus capacity As a result of the strategic review announced costs defined as operating profit/(loss) after adding back net on 11 November 2013 and the formation of a single restructuring and surplus capacity costs of £1.9m (2012/13: £12.8m), depreciation, amortisation and aircraft rental charges. Surplus organisation structure for Flybe, the management capacity costs represent the costs incurred in the year relating and purpose of both the MRO and the Training to capacity that is considered by management to be surplus Academy changed. as a result of restructuring decisions. See pages 23 and 24 of the Financial Review for further detail. The focus of these businesses is now to provide the 2 Adjusted profit/(loss) before tax, restructuring and surplus capacity achievement of a high quality service to the core airline costs defined as profit/(loss) before tax, net restructuring and business at a cost that is as low as is achievable. surplus capacity costs of £1.9m (2012/13: £12.8m) and revaluation gains/(losses) on USD aircraft loans of £8.3m (2012/13: £(4.7m)). 3 Includes passengers travelling with our franchise partner, Loganair. 4 Constant currency is calculated for the 2012/13 year by applying the effective exchange rates that prevailed for reporting the 2013/14 results of $1.55 and €1.18.
Flybe Group plc Annual Report and Accounts 2013/14 19
23 of 179 The Purple Way Our story
1 2 3 Exeter Manchester Guernsey weekend Client School away meeting holiday
Our great opportunity Time-saving air travel But it’s been very is to connect both the is at the heart painful to get ourselves UK and Europe – and be of our business… back on track… one stop to the world…
4 5 6 Start Safety London Edinburgh Teamwork Family Conference Alignment reunion Responsibility Transparency
By spreading And with all of us We’ll turn Flybe our wings but still embracing our mission into Europe’s best staying disciplined… together… local airline.
Viva Flybe!
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£1.7 m £8.1 m adjusted profit before tax, net restructuring and profit before tax (2012/13: loss before tax surplus capacity costs 1 (2012/13: loss of £23.6m) of £41.1m)
Summary 2013/14 has been a year of transformation for Flybe, with significant actions taken to reduce the cost base and to refocus the commercial operations of the business. These have entailed the departure of over 1,100 employees, a reconfiguration of the routes we serve and the closure of six bases at the end of March 2014. These actions, along with many others, have enabled a return to profit from last year’s substantial losses, on group revenue that was only slightly ahead of 2012/13. >> The Flybe UK business, which also comprises the UK-based contract flying businesses, recorded an adjusted profit before tax, restructuring and surplus capacity costs 2 of £3.9m (2012/13: loss of £17.2m), and a profit before tax 3 of £10.3m (2012/13: loss of £28.9m). We are one of the leading carriers of UK domestic passengers with a 28.3% sector share, the “2013/14 has been a year largest UK regional carrier for passengers outside of transformation for Flybe, of London with a 55.1% sector share and our passenger numbers grew by 6.9% to 7.7 million with significant actions taken (2012/13: 7.2 million). to reduce the cost base and >> The MRO business, Flybe Aviation Services, to refocus the commercial generated a profit before tax of £2.2m operations of the business.” (2012/13: adjusted profit before tax £0.7m before restructuring and surplus capacity costs of £5.8m, and a loss before tax of £5.1m). Andrew Knuckey Chief Financial Officer
1 Adjusted profit/(loss) before tax, net restructuring and surplus capacity costs defined as profit/(loss) before tax, net restructuring and surplus capacity costs of £1.9m (2012/13: £12.8m) and revaluation gains on USD aircraft loans of £8.3m (2012/13: loss of £4.7m). Surplus capacity costs represent the costs incurred in the year relating to capacity that is considered by management to be surplus as a result of restructuring decisions taken in 2012/13. 2 Flybe UK adjusted profit before tax, restructuring and surplus capacity costs is the segment result after adding back group costs of £3.6m (2012/13: £3.6m), net restructuring of £0.2m (2012/13: £4.1m) and surplus capacity costs of £1.7m (2012/13: £2.9m) and revaluation gains on USD aircraft loans of £8.3m (2012/13: losses of £4.7m). Surplus capacity costs represent the costs incurred relating to capacity that is considered by management to be surplus as a result of the restructuring decisions taken in 2012/13. 3 Flybe UK profit before tax is the segment result after adding back group costs of £3.6m (2012/13: £3.6m).
Flybe Group plc Annual Report and Accounts 2013/14 21
25 of 179 Financial review Continued
>> Flybe Finland generated a loss from the joint venture Adjusted EBITDAR before restructuring costs of £0.5m (2012/13: £2.8m) plus associated central increased to £98.9m, up 55.7% from the previous year’s management costs of £0.3m (2012/13: £0.7m). adjusted EBITDAR of £63.5m, and reported EBITDAR Flybe Finland did not deliver on its expectations increased 77.8% to £98.7m from 2012/13’s £55.5m. of generating profits in 2013/14 due to poor The Group’s adjusted profit before tax was £8.3m performance on its scheduled flying operations, but (2012/13: loss of £33.1m), and the reported profit the return of two aircraft in Spring 2014 to their lessor before tax was £8.1m (2012/13: loss before tax is expected to help reduce losses on scheduled flying of £41.1m). in 2014/15. Set out below is a reconciliation from operating loss >> In 2013/14, Flybe has continued restructuring the cost to the adjusted EBITDAR figures. All EBITDAR metrics base of its UK-based businesses and refocused the are non-GAAP measures.1 commercial and operational activities to enable it to transform its financial performance and be EBITDAR is a common airline profit measure which in a position to grow profitably. £10.7m was provided is used for making comparisons between airlines. in the 2013/14 income statement for restructuring The adjusted EBITDAR measure presented removes costs. However, £10.5m profit was recorded on the restructuring costs reported in the income statement. sale of slots at London Gatwick, resulting in a net £0.2m restructuring and surplus capacity cost being recorded in the income statement. With a further 2013 2014 (restated) Change £1.7m of surplus capacity costs being incurred in £m £m % 2013/14, total net restructuring and surplus capacity Operating profit/(loss) – costs stood at £1.9m. Other than ownership costs unadjusted 0.8 (34.6) n/m on grounded E195 aircraft, we do not expect any Depreciation and material further restructuring costs in 2014/15. amortisation 2 14.3 12.0 19.2 The benefits of these very painful measures are significant, with £47m of year-on-year cost reductions Aircraft rental charges 83.6 78.1 7.0 delivered for 2013/14 and a further £24m of cost EBITDAR – unadjusted 98.7 55.5 77.8 saving measures targeted for 2014/15. Net restructuring costs reported in the >> Group costs were in line with last year at £3.6m, income statement 0.2 8.0 n/m with a reduction in Board costs being offset Adjusted EBITDAR before by higher advisor and other fees. net restructuring costs 98.9 63.5 55.7 Following the successful firm placing and open offer The table below sets out a reconciliation from profit/ in March 2014, Flybe had net assets at 31 March 2014 (loss) before tax to adjusted profit/(loss) before tax of £194.1m, total cash of £218.4m, unrestricted cash which adjusts the result for net restructuring costs of £177.9m and net funds (i.e. total cash less (which include the profit on disposal of the take-off borrowings) of £116.9m. and landing rights at London Gatwick to easyJet reported in the income statement). Revenue under management has grown by 11.1% to £868.4m from £781.5m due to the Group’s joint venture with Finnair in the Nordic and Baltic region, Flybe 2013 2014 (restated) Change Finland. 2013/14 saw the first full year of operation £m £m % of the expanded E190 white label operations Profit/(loss) before tax – on behalf of our joint venture partner, Finnair. unadjusted 8.1 (41.1) n/m Group revenue increased by 1.0% to £620.5m, a Net restructuring costs reported in the satisfactory performance against the backdrop of major income statement 0.2 8.0 n/m restructuring activities throughout the UK business and a 1.4% reduction in seat capacity. Flybe UK has shown Adjusted profit/(loss) considerable resilience over this period, maintaining before tax and net 8.3 (33.1) n/m its UK domestic sector share at 28.3% and grown restructuring overall passenger numbers by 6.9% to 7.7 million.
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m m £98.9 2 £98.7 adjusted EBITDAR before net restructuring costs unadjusted EBITDAR (2012/13: £55.5m) (2012/13: £63.5m)
Adjusted profit/(loss) before tax and net restructuring Restructuring the business is further adjusted to remove the revaluation (gain)/ The costs incurred in restructuring Flybe’s business loss on USD aircraft loans and the surplus capacity were as follows: costs within the business. This measure demonstrates how adjusted profit/(loss) before tax and net Total restructuring might have appeared if it had been Incurred Incurred incurred since possible to remove these surplus capacity costs arising in in restructuring 2013/14 2012/13 announcement from restructuring decisions taken in 2012/13. £m £m £m Redundancies (9.6) (5.5) (15.1) 2013 Legal, professional and 2014 (restated) Change £m £m % other support costs (1.1) (1.2) (2.3) Adjusted profit/(loss) Other restructuring before tax and net costs – (1.3) (1.3) restructuring 8.3 (33.1) n/m Restructuring costs (10.7) (8.0) (18.7) Surplus capacity costs3 1.7 4.8 n/m Revaluation (gain)/loss Profit on London on USD aircraft loans (8.3) 4.7 n/m Gatwick slot sales 10.5 – 10.5 Adjusted profit/(loss) Net restructuring before tax, net costs reported in the restructuring and income statement (0.2) (8.0) (8.2) surplus capacity costs 1.7 (23.6) n/m Surplus capacity costs (1.7) (4.8) (6.5) The adjusted profit/(loss) before tax figures given above are non-GAAP measures.1 Restructuring and surplus capacity costs (1.9) (12.8) (14.7) 1 Non-GAAP measures exclude amounts that are included in the most directly comparable measure calculated and presented in Other than ownership costs on grounded E195 aircraft, accordance with IFRS, or are calculated using financial measures management does not expect to incur significant that are not calculated in accordance with IFRS. The reconciliations above describe how the non-GAAP measure is determined from further restructuring costs in 2014/15. the most directly comparable measure calculated and presented in accordance with IFRS. The non-GAAP measures are not regarded Legal, professional and other support costs have been as a substitute for, or to be superior to, the equivalent measures calculated and presented in accordance with IFRS or those incurred on negotiating the redundancies mentioned calculated using financial measures that are calculated in above as well as on providing outsourcing services to accordance with IFRS. The non-GAAP measures described may those leaving Flybe. However, the major cost in this not be directly comparable with similarly-titled measures used by other companies. area is in relation to the provision of specialist services 2 Excludes depreciation on maintenance assets set up in accordance around procurement that have helped us to negotiate with IFRS requirements. better terms in relation both to rates and payment 3 Surplus capacity costs represent the costs incurred relating periods from our supplier base. to capacity that is considered by management to be surplus as a result of the restructuring decisions taken in 2012/13. Other restructuring costs in 2012/13 related to reducing space occupied at the many airports Flybe serves, particularly as the outsourcing of services has reduced the need for Flybe itself to have local facilities.
In 2012/13, steps were taken to improve the efficiency of the UK-located businesses, leading to surplus capacity in respect of aircraft (and also crew and maintenance staff in 2012/13) being identified and incurred in both this year and the previous one. The cost savings that would have been made had we been able to remove these costs is highlighted above as
Flybe Group plc Annual Report and Accounts 2013/14 23
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surplus capacity costs. Because these costs formed aircraft returned to Flybe service in April 2014 with the a part of the operating cost base during the periods remaining pair being scheduled to complete their under review, it is not possible to identify these costs contracts by the end of October 2014. separately within the Financial Statements. Five E195 regional jets are expected to be handed back These restructuring costs set out on page 23 and the to lessors in 2014/15 – two are contracted to return in related actions are targeted to deliver the following the year, and agreement has been reached with cost savings: another lessor for the early hand back of a further three E195s (originally scheduled for return in 2015/16).
Targeted cumulative Five Q400 aircraft are contracted to return to lessors annualised in H1 2014/15. These aircraft are being purchased post- savings Generated from year end from the lessors in order to provide capacity Generated in 2013/14 2014/15 for the expansion at London City commencing in late in 2012/13 (cumulative) onwards £m £m £m October 2014. Staff cost reductions – 22 42 Business efficiency Flybe Finland and outsourcing 1 17 15 One ATR 42 was returned at the end of its operating Supplier costs 2 8 14 lease to the owner in May 2014 with a further ATR 42 due to be returned later in June 2014. Total 3 47 71 Embraer E175 order Other than for staff costs where headcount reduction In July 2010, Flybe UK announced the firm order has been the prime driver, other cost lines have of 35 Embraer 175s for delivery between 2011 and 2016. benefited from the general renegotiation of rates and Options over a further 65 E-series regional jets were payment terms across the supplier base, and from cancelled in November 2013. Flybe UK retains 40 outsourcing activities and marketing and distribution Embraer aircraft purchase rights that do not lapse until cost savings. November 2017. Of the £71m target cumulative annual savings from In May 2013, Flybe and Embraer agreed delivery 2014/15 onwards, £30m has been identified as being deferrals for 16 aircraft due for delivery in 2014 and part of Phase 1 announced in January 2013, and these 2015 to the period from 2017 to 2019, and a further six projects are complete. Phase 2, announced in May aircraft that were due for delivery in 2016 were 2013, is expected to deliver annualised savings of £15m, deferred to 2019. In November 2013 two of the four and these projects are almost complete. The further aircraft due for delivery in 2013/14 were deferred to Immediate Actions announced in November 2013 are October and November 2015. expected to deliver a further £26m of savings from 2014/15 onwards, and projects comprising some 65% The following table shows the current number of of this target have been completed. aircraft that are contracted for delivery to the Group. No aircraft are due to be delivered to Flybe Finland. Fleet Flybe UK Embraer E175 In 2013/14, Flybe UK took delivery of a further two regional jet E175 regional jets from Embraer (out of its firm order Flybe UK for 35 E175s), taking the total delivered to 11. No further 2015/16 3 aircraft are contracted for delivery until October 2015. 2016/17 5 2013/14 saw the sale of two Q400 owned aircraft 2017/18 3 for a modest book profit. 2018/19 6 2019/20 7 During the year, four Bombardier Q400 aircraft were Total 24 operated on a contract flying agreement with Brussels Airlines that commenced in March 2012. Two of these
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98 aircraft, 70 in Flybe UK and 28 in Flybe Finland
Fleet under management Business results The profile of Flybe’s fleet under management in the Flybe’s results analysed by segment are summarised 2013/14 year is summarised below: below. These results are before tax, other than share of joint venture results.
Number of aircraft At Net At 2013 Number 31 March movements 31 March 2014 (restated) of seats 2013 in period 2014 £m £m UK Airline Business revenues: Embraer E195 Flybe UK 599.6 589.4 regional jet 118 14 – 14 Flybe Finland 247.9 167.2 Embraer E175 MRO 35.4 40.5 regional jet 88 9 2 11 Inter-segment sales (14.5) (15.6) Bombardier Revenue under management 868.4 781.5 Q400 turboprop 78 47 (2) 45 Less: Revenue from 70 – 70 Flybe Finland joint venture (247.9) (167.2) Flybe Finland Group revenue 620.5 614.3 ATR 42 turboprop 48 2 – 2 ATR 72 turboprop 68-72 12 – 12 Business adjusted profit/(loss) Embraer E170 before tax: regional jet 76 2 – 2 Flybe UK1 3.9 (17.2) Embraer E190 Flybe Finland (0.8) (3.5) regional jet 100 12 – 12 MRO2 2.2 0.7 28 – 28 Group costs (3.6) (3.6) Total 98 – 98 Group adjusted profit/(loss) Held on before tax, net restructuring operating lease 88 1 89 and surplus capacity costs3 1.7 (23.6) Owned and Restructuring and surplus debt financed 10 (1) 9 capacity costs (1.9) (12.8) Total 98 – 98 Revaluation gain/(loss) Total seats in fleet 8,390 8,410 on USD aircraft loans 8.3 (4.7) Average seats Group profit/(loss) before tax 8.1 (41.1) per aircraft 85.6 85.8 1 Flybe UK adjusted profit before tax, restructuring and surplus Average age capacity costs is the segment profit of £6.7m (2012/13: segment loss of fleet (years) 5.1 5.9 of £32.5m) after adding back group costs of £3.6m (2012/13: £3.6m), net restructuring of £0.2m (2012/13: £4.1m) and surplus capacity costs of £1.7m (2012/13: £2.9m) and revaluation gains on USD As at 10 June 2014, following the return of four Q400 aircraft loans of £8.3m (2012/13: losses of £4.7m). turboprop aircraft and purchase of the same four 2 MRO adjusted profit before tax, restructuring and surplus capacity Q400 turboprop aircraft by Flybe UK and the return costs is the segment profit of £2.2m (2012/13: segment loss of £5.1m) after adding back restructuring of £nil (2012/13: £3.9m) of one leased ATR42 by Flybe Finland, the Group’s and surplus capacity costs of £nil (2012/13: £1.9m). fleet under management was 97 aircraft, consisting 3 Adjusted profit/(loss) before tax, net restructuring and surplus of 45 Q400s, 13 ATR turboprops, and 39 E-series jets capacity costs defined as profit/(loss) before tax, net restructuring and surplus capacity costs of £1.9m (2012/13: £12.8m) and of which 13 are owned and 84 leased. revaluation gains on USD aircraft loans of £8.3m (2012/13: loss of £4.7m). Surplus capacity costs represent the costs incurred in the The Group will continue to match capacity to demand, year relating to capacity that is considered by management to be particularly in its core UK market. As at 10 June 2014, surplus as a result of restructuring decisions taken in 2012/13. some 10 E195 aircraft were grounded, and Flybe is in active discussions with a number of airlines whereby these aircraft could be deployed under white label operations or sub-leased.
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Flybe UK Operating costs, excluding restructuring Revenue and surplus capacity costs
2014 2013 2014 2013 £ £m £ per seat £m £ per seat per seat at Passenger £ (restated)1 £ constant revenue 553.9 49.70 551.8 48.84 £m per seat £m per seat currency2 Contract flying 16.2 12.6 Fuel and aircraft Other revenue 29.5 25.0 operations 315.8 28.45 309.8 27.42 28.11 Total revenue 599.6 589.4 Aircraft ownership and maintenance 152.2 13.71 141.3 12.50 12.74 Flybe UK’s passenger numbers were up 6.9% Staff and other at 7.7 million versus 7.2 million in 2012/13, despite the net operating active management of seat capacity, which reduced expenses 129.9 11.70 157.0 13.89 13.91 by 1.4% to 11.1 million. Operating costs 597.9 53.86 608.1 53.81 54.76 Passenger revenue per seat was 1.8% higher at £49.70 1 Operating costs for 2012/13 have been restated to reflect the (2012/13: £48.84), comprising an increase in load factor change in segments. 2 Constant currency is calculated for the 2012/13 year by applying the of 5.4 percentage points (from 64.1% to 69.5%) and effective exchange rates that prevailed for reporting the 2013/14 a reduction in passenger yield from £76.16 to £71.55. results of $1.55 and €1.18.
The increase in passenger revenue per seat of 1.4% was offset by the 1.8% reduction in seat capacity, meaning Flybe UK – analysis of operating costs that passenger revenue increased by 0.4% from (before restructuring and surplus capacity costs) £551.8m to £553.9m.
Contract flying for Brussels Airlines generated revenues of £16.2m for the provision of four crewed Fuel 20.1% Q400 turboprops in arrangements lasting up to two Aircraft operations 32.7% years, and expiring in April (two aircraft) and October FLYBE UK’S Aircraft ownership 2014 (remaining two aircraft). Other revenue in Flybe COSTS and maintenance 25.5% UK totalled £29.5m, representing an 18.0% increase on Sta 13.8% Other operating costs the £25.0m generated in 2012/13, and arose primarily 7.9% from increases in charter and code-share revenues and sale of surplus fixed assets, with other revenue streams remaining broadly stable.
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£49.70 6.9 % Flybe UK passenger revenue per seat, Flybe UK passenger numbers increased up 1.8% from £48.84 in 2012/13 to 7.7 million (2012/13: 7.2 million)
Flybe UK – operating cost per seat, excluding restructuring and surplus capacity costs (£)
57
(0.97) 1.74 56
(0.60) 55 (0.95) (54.76) 0.25 0.13 0.33 54 (53.81) (53.86)
53 2012/13 Foreign 2012/13 Fuel Net airport, en Aircraft Sta costs Marketing and Other 2013/14 Operating cost exchange Operating cost route charges ownership and distribution operating Operating cost per seat per seat at and ground maintenance costs expenses per seat constant currency operations costs
Operating costs decreased by 1.7% from £608.1m UK’s fuel costs decreased to £120.0m in 2013/14 from to £597.9m largely as a result of a 17.3%, or £27.1m, £122.6m in 2012/13. Aviation fuel prices remain capable saving in staff and other net operating costs following of large and unpredictable movements due to a variety implementation of the Turnaround Plan and Immediate of external factors, such as changes in supply and Actions. This saving was offset by a 7.7% increase demand for oil and oil-related products and the role in aircraft ownership and maintenance costs due of speculators and funds in the futures markets. to a larger average fleet in the year (70 aircraft versus 68 in 2012/13), higher maintenance costs During the year to 31 March 2014, Flybe UK used some and unfavourable foreign exchange movements. 175,200 tonnes of jet fuel, a reduction on 2012/13 of In addition, fuel and aircraft operations costs increased 2.3% from 179,300 tonnes. The average market price by 1.9% as a result, mainly, of increases in airport and during the year was $974 per tonne (2012/13: $1,018), navigation charges. On a constant currency basis, with the Group paying a blended rate (net of hedges) underlying operating costs decreased by 3.4% from of $982 per tonne (2012/13: $1,002). Including ‘into £618.8m in 2012/13 to £597.9m. plane’ costs, Flybe’s fuel costs in 2013/14 of £120.0m (2012/13: £122.6m) represent an all-in cost of On a constant currency, operating costs per seat $1,062 per tonne for 2013/14 (2012/13: $1,101). decreased by 1.6% from £54.76 to £53.86, again Using constant currency, our fuel costs per seat driven by a significant reduction in staff and other decreased from £11.06 to £10.81. net operating costs (down 15.9% to £11.70), offset by increases in aircraft ownership and maintenance Flybe UK operates a policy of managing fuel price (up 7.6% to £13.71) and fuel and aircraft operations volatility by entering into derivative contracts (up 1.2% to £28.45). representing a portion (between 60% and 90%) of its aviation fuel requirements a minimum of 12 Fuel months forward, from the current date. The intention Flybe UK’s results are subject to significant change as of this programme is to provide a significant element a result of movements in the price of fuel which forms of certainty over its fuel costs for any forthcoming a significant variable cost for this business. Although IATA season. As at 6 June 2014, 75.2% of the year 2013/14 has seen a reduction in volatility for fuel prices, to 31 March 2015 was hedged at an average price it has been at the expense of that price stabilising at a of $960 per tonne. Further details are given in note 36 relatively high level – Brent crude has been in the $100 to the Consolidated Financial Statements. Taking into to $115 a barrel range for most of the year. Overall, the account our hedged position, each $50 increase/ price of jet fuel was slightly lower than in 2012/13, decrease in the price of jet fuel reduces/improves peaking at $1,047 per tonne on 29 August 2013. Flybe group profits in 2014/15 by £2.0m.
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Efficiencies have been derived from our fleet Restructuring and surplus capacity costs replacement programme, operational improvements The business incurred costs of restructuring and and careful management of routes and frequencies. surplus capacity as follows: Overall, 15.7kg of fuel was consumed for each seat flown (2012/13: 15.9kg per seat). This remains Total a significant improvement on the 19.1kg per seat incurred consumed in 2007/08 due to our investment since Incurred Incurred restructuring in a modern, fuel-efficient two-type aircraft fleet in 2013/14 in 2012/13 announcement best suited to regional flying. £m £m £m Redundancies 9.6 2.8 12.4 Operating costs, including restructuring Legal, professional and and surplus capacity costs other support costs 1.1 1.2 2.3 Other restructuring costs – 0.1 0.1 2014 2013 Restructuring costs 10.7 4.1 14.8 £ per seat Profit on London Gatwick at slot sales (10.5) – (10.5) £ (restated)1 £ constant £m per seat £m per seat currency2 Net restructuring costs Fuel and aircraft reported in the income operations 315.8 28.45 309.8 27.42 28.11 statement 0.2 4.1 4.3 Aircraft Surplus capacity costs 1.7 2.9 4.6 ownership and Restructuring and maintenance 153.9 13.86 142.5 12.61 12.85 surplus capacity costs 1.9 7.0 8.9 Staff and other net operating These costs are discussed in more detail on pages 23 expenses 130.1 11.71 162.8 14.41 14.42 and 24. Operating costs 599.8 54.02 615.1 54.44 55.38 1 Operating costs for 2012/13 have been restated to reflect the Net finance costs change in segments. Net finance costs improved by £13.7m due to 2 Constant currency is calculated for the 2012/13 year by applying a £13.0m non-cash, non-underlying movement on the the effective exchange rates that prevailed for reporting the 2013/14 results of $1.55 and €1.18. retranslation of US Dollar denominated debt used to fund the acquisition of aircraft, particularly the newer E175 regional jets, from a loss of £4.7m in 2012/13 to a gain of £8.3m in 2013/14. The movement in this US Dollar liability cannot be naturally offset against the value of the aircraft as the latter are recorded in pounds Sterling in order to comply with the requirements of International Financial Reporting Standards. This income statement charge has therefore been removed in arriving at adjusted profit before tax.
Foreign exchange The Group foreign currency hedging policy has an objective to reduce the volatility of costs. Flybe manages its foreign exchange positions based on its net foreign currency exposure, being foreign currency expenditure less associated revenue. Flybe UK currently has a relatively small net exposure to the
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Euro, but has significant US Dollar costs in relation to Flybe Finland fuel, maintenance, aircraft operating leases and loan Flybe Finland’s results are summarised as follows: repayments. The Group generates no significant US Dollar revenue and actively manages its US Dollar 2014 2013 position through a foreign exchange forward purchase £m £m programme similar to that outlined for fuel. As at Flybe Finland joint venture 6 June 2014, 72.2% of our anticipated US Dollar Revenue requirements for the year to 31 March 2015 were Contract flying 216.7 132.4 hedged at an average exchange rate of $1.59. Passenger revenue 30.6 All existing derivative financial instruments are 26.9 forward swap arrangements. Other revenue 4.3 4.2 247.9 167.2 Taking into account our hedged position, each $0.05 Costs reduction/improvement in the US Dollar exchange rate Fuel (62.3) (41.3) has the effect of reducing/increasing Flybe UK’s profits Other operating costs (186.6) (132.4) in 2014/15 by approximately £4.4m. (248.9) (173.7) Profit/(loss) before tax Carbon emissions White label 6.3 4.6 The Group is required to purchase carbon allowances Scheduled flying (7.3) (11.1) for all flights departing from and arriving into the EU in order to offset its carbon footprint in each calendar Total (1.0) (6.5) year. Flybe manages its exposure by purchasing carbon Tax 0.2 1.6 emissions allowances through a forward purchase Loss after tax (0.8) (4.9) programme to top up the free allowances awarded to it under the scheme. The table below sets out Flybe UK’s 60% share of Flybe Finland emissions and carbon allowances for each of the joint venture loss (0.5) (2.8) periods under review: Other net costs including interest (0.3) (0.7) Business result – Flybe Finland (0.8) (3.5) 2014 2013 Calendar year Budget Actual With revenue of £247.9m (2012/13: £167.2m) and Anticipated carbon costs of £248.9m (2012/13: £173.7m), Flybe Finland allowances required, tonnes 494,800 555,900 generated a significantly smaller loss before tax of Free allowance allocation, tonnes 259,800 259,800 £1.0m (2012/13: £6.5m loss). A tax credit of £0.2m Proportion hedged at beginning relating to deferred tax on the losses generated was of period 99% 53% also reported, resulting in a loss after tax for Flybe Effective carbon rate €5.52 €4.00 Finland of £0.8m (2012/13: loss after tax £4.9m). The small loss remains disappointing, although there has been a significant turnaround from the previous year.
Flybe Finland’s white label operation for Finnair accounted for 2.7 million passengers (2012/13: 1.6 million passengers). Contract flying will continue to dominate this business and this white label activity recorded a profit of £6.3m (2012/13: £4.6m).
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In the six aircraft scheduled flying operation, passenger in 2012/13 to 455,000 hours. This, in turn, resulted from numbers on commercial flying represented 0.3 million lower fixed costs and available capacity in the MRO passengers (2012/13: 0.4 million) with a load factor of business following phases 1 and 2 of the Turnaround 44.0% (2012/13: 41.8%), and the business reported a Plan. This cost reduction programme led to a 16.6% loss of £7.3m (2012/13: £11.1m loss). In addition to the reduction in operating costs from £39.8m to £33.2m, removal of two lines of flying from Summer 2014, and a significantly improved profit performance. further action is necessary to improve financial performance in Flybe Finland’s scheduled flying, Restructuring and surplus capacity costs and Flybe is in discussions with Finnair on a number The division incurred no costs of restructuring and of actions. surplus capacity in the year, compared with £3.9m of restructuring and £1.9m of surplus capacity costs The exposures of Flybe’s joint venture in Finland incurred in the prior year. These costs are discussed to fuel price and exchange rate volatility have been in more detail on pages 23 and 24. monitored during 2013/14, but no hedging has yet been undertaken due to the minimal nature of the Group costs underlying exposure. This is because Flybe Finland’s Group costs of £3.6m (2012/13: £3.6m) include Group leases are denominated in Euros, its main operating Board salary costs and group related legal and currency, leaving fuel prices and US Dollar exposure professional fees. The reduction in Board costs in the on fuel and maintenance costs as its primary year has been offset by higher advisor and other fees. exposures. These costs are currently smaller exposures to the business and are related to the commercial rather than contract flying operations. Management Profit/(loss) before and after tax will continue to monitor these exposures and hedge The Group’s adjusted profit before tax, revaluation them should they become significant. gain on USD aircraft loans, restructuring and surplus capacity costs was £1.7m (2012/13: loss of £23.6m). Central overhead costs, net of interest amounted to £0.3m (2013: £0.7m). Further details on the joint After net restructuring and surplus capacity costs venture’s performance are given in note 16 to the of £1.9m (2012/13: £12.8m) and non-cash gains Financial Statements. on USD aircraft loans of £8.3m (2012/13: loss of £4.7m), the Group’s reported profit before tax was £8.1m MRO (2012/13: £41.1m loss). Profit after tax was £8.0m (2012/13: loss after tax 2014 2013 Change £42.2m). The current year tax charge was £0.1m £m £m % (2012/13: £1.1m). Revenue 35.4 40.5 (12.6) Operating costs before EPS and dividends restructuring and surplus Basic earnings per share for the year were capacity costs (33.2) (39.8) 16.6 9.6p, compared with loss per share of (56.0)p Adjusted profit/(loss) in 2012/13. Adjusted loss per share (see note 13 before tax, restructuring to the Consolidated Financial Statements) was and surplus capacity costs 2.2 0.7 n/m (0.2)p, compared with adjusted loss per share of (39.1)p for 2012/13. Restructuring and surplus capacity costs – (5.8) n/m No dividends were paid or proposed in either (5.1) n/m Profit/(loss) before tax 2.2 the current or prior financial year.
MRO revenue declined by 12.6% in 2013/14 to £35.4m (2012/13: £40.5m), of which £20.9m was for third party customers (2012/13: £24.9m). This decrease was driven by the 13.5% decline in man hours from 526,000 hours
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£218.4 m £194.1 m total cash including restricted cash total assets (2012/13: £48.1m) (2012/13: £54.7m)
Cash flow Net cash inflows from operating activities before restructuring were £7.3m (2012/13: outflow of £1.6m). 2014 2013 Change However, the cash flows as a result of restructuring £m £m £m have resulted in an overall net cash outflow from Net cash inflow/(outflow) operating activities after restructuring of £5.5m from operating activities (2012/13: outflow of £3.0m). before restructuring 7.3 (1.6) 8.9 Cash flows from The most significant cash flow benefit was the restructuring activities (12.8) (1.4) (11.4) £150.1m of net cash proceeds from the issue Net cash outflow from of new equity on 12 March 2014. operating activities after restructuring (5.5) (3.0) (2.5) The largest movements in net capital income were Net proceeds from proceeds of £17.5m being received from easyJet on issuing new equity 150.1 – 150.1 sale of the slots at London Gatwick, £12.3m proceeds Net capital income/ from sale of two Q400 aircraft in May and £11.8m (expenditure) after in relation to pre-delivery deposits for new aircraft disposal proceeds 21.7 (33.0) 54.7 being returned to Flybe during the year following Net (repayment)/ negotiations with Embraer to reschedule deliveries. proceeds from new loans (10.7) 18.5 (29.2) Repayment on loans exceeded those drawn down Acquisition of joint on a new loan related to the acquisition of an Embraer venture interest – (0.3) 0.3 E175 regional jet. Net interest paid (1.0) (1.8) 0.8 Net increase/(decrease) in cash and cash equivalents 154.6 (19.6) 174.2 Cash and cash equivalents at beginning of year 23.3 42.9 (19.6) Cash and cash equivalents at end of year 177.9 23.3 154.6 Restricted cash 40.5 31.4 9.1 Total cash 218.4 54.7 163.7
Group cash flow (£m)
250 40.5 218.4 150.1 (12.4) 200 177.9
150
100
50 14.3 (5.9) (12.8) 22.4 23.3 8.0 (9.1) 0 Free cash at Profit for Depreciation Net working Restructuring Transfer to Investing Net proceeds Financing Free cash Restricted Total cash March 2013 period and capital before and restricted activities from equity activities at March 2014 cash at March 2014 amortisation restructuring surplus cash (including fund raise costs capacity costs slot sales)
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Balance sheet to facilitate card acquiring services and guarantee arrangements with suppliers, and cash deposits held 2014 2013 Change in favour of aircraft owners to secure operating lease £m £m £m arrangements. Since the year end, a net £10.6m London Gatwick of restricted cash has been released by the landing slots – 8.5 (8.5) Group’s bankers. Aircraft 147.0 140.4 6.6 Other property, plant The mark-to-market valuation of derivative financial and equipment 23.6 25.0 (1.4) instruments moved from an asset of £4.2m at 31 March Interest in joint ventures 12.4 13.2 (0.8) 2013 to a liability of £7.6m, as foreign exchange rates Net funds/(debt) 116.9 (66.3) 183.2 and fuel prices moved against Flybe’s portfolio of Derivative financial contracts. Net negative other working capital increased instruments (7.6) 4.2 (11.8) from £81.5m to £105.4m, largely due the sale of two Q400 aircraft in May 2013 which were reported as Other working capital – net (105.4) (81.5) (23.9) assets held for sale at 31 March 2013, higher current Deferred taxation 2.0 2.5 4.5 maintenance provisions and increased current Other non-current deferred income being offset by a decrease assets and liabilities 2.7 2.6 0.1 in trade and other payables. Net assets 194.1 48.1 146.0 The balance sheet also includes the impact of the All of Flybe’s landing slots were sold to easyJet for defined benefit pension scheme deficit of £2.5m. a gross cash consideration of £20.0m. The sale was At March 2013, this scheme, which is closed to future approved by shareholders on 2 August 2013 with benefit accrual, had been in surplus with no amounts £7.5m of cash deposit received on that day, £10.0m being reported in the balance sheet. in November 2013 with the balance of £2.5m received in May 2014. Shareholders’ equity increased by £146.0m to £194.1m, driven principally by issue of new shares and the profit The £147.0m of net book value of aircraft represents generated in the period. owned aircraft, engines and aircraft modifications, with one further Embraer E175 aircraft being acquired with debt finance. Covenants The Group has certain financial performance After Flybe’s share of joint venture losses of £0.5m covenants in relation to some of its aircraft financing in 2013/14 plus associated central management costs agreements. These specify performance, depending of £0.3m, the carrying value of the interest in joint on the contractual terms, against a series of tests, ventures at 31 March 2014 stood at £12.4m which are, performed either quarterly, half yearly (2013: £13.2m). or annually. Flybe has met all the terms of the covenants tested since the inception of the Net funds at 31 March 2014 of £116.9m (2013: net debt arrangements to 31 March 2014 (see note 24 of £66.3m) benefited from the £150.1m of net cash to the Consolidated Financial Statements). proceeds from the issue of new equity on 12 March 2014 and reflected the capital inflows referred to in the Country and currency risk cash flow section on page 31. Borrowings decreased by Flybe’s UK and European businesses operate in a £19.5m to £101.5m as a result of the new loan to fund global market place. Most of Flybe’s customers are an Embraer E175 delivered during the year being less based in Europe, although the MRO business also has than the loans on the two Q400 aircraft sold during customers in Africa and the central Asian republics. the year (classified as assets held for sale at 31 March Most of Flybe’s revenues are derived from UK-based 2013) and normal repayments on loan agreements. customers (about 85% of group revenue) and the Net funds at 31 March 2014 includes restricted cash joint venture operations largely from those based of £40.5m (£31.4m at 31 March 2013) which represents, in Finland and Sweden. Aircraft are bought and sold predominantly, cash held with the Group’s bankers in US Dollars as are other key costs such as fuel and
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aviation insurance. Airport and en route charges are The Directors have prepared a detailed trading budget payable in a mix of Sterling and Euros and the further and cash flow forecast for a period which covers at development of European operations will mean greater least 12 months after the date of approval of these exposure to Euro revenues and costs. This is further Financial Statements. Having considered the forecasts considered in the Risks and uncertainties section on and making other enquiries, the Directors have a pages 34 to 37 and note 36 ‘Financial instruments’. reasonable expectation that Flybe has adequate resources to continue in operational existence for the Going concern foreseeable future. Thus they continue to adopt the Flybe’s business activities, together with the factors going concern basis of accounting in preparing the likely to affect its future development, performance Annual Financial Statements. and position, are set out in the Chairman and Chief Executive Officer’s statements on pages 8 and 14. The financial position of the Group, its cash flows and liquidity position, and events since the balance sheet date are described in the financial performance section of these statements on pages 9 and 15 and in the Andrew Knuckey Financial Review on pages 21 to 33. In addition, Chief Financial Officer note 36 covers Flybe’s financial risk management objectives, details of its financial instruments and hedging activities and its exposures to credit risk and liquidity risk.
Flybe had free cash balances of £177.9m at 31 March 2014, and has met all of its operating lease commitments and debt repayments as they have fallen due during the year.
Flybe faces trading risks presented by current economic conditions in the aviation sector, particularly in relation to passenger volumes and yields and the associated profitability of individual routes.
The Group is exposed to fluctuations in fuel prices and foreign exchange rates. The Group’s policy is to hedge between 60% and 90% of estimated exposures 12 months in advance. As of 6 June 2014, Flybe had purchased 72.7% of its anticipated fuel requirements and 70.5% of its anticipated US Dollar requirements for the following twelve months.
Flybe Group plc Annual Report and Accounts 2013/14 33
37 of 179 Risks and uncertainties
Trend key Same Increase Decrease N New
This section describes the principal risks and uncertainties which may affect Flybe’s business, financial results and prospects.
Inherent risk trend (movement against Risk description Potential impact prior year) Mitigation (a) Safety and security
Failure to prevent Significant adverse Safe and secure operation is the a safety or security- effect on Flybe’s key priority for all of Flybe’s related incident reputation, financial management and staff. Flybe operates including terrorist results and operational a strong safety management system threat, or attacks performance. (see page 38) and has appropriate from either internal systems and procedures in place, or external sources or including trained staff, to respond to respond adequately effectively to any such incidents. to a safety or security- related event.
(b) Extraneous matters
Flybe is exposed to Adverse pressure on Flybe monitors route performance sustained deterioration revenue and load within its commercial teams and in general economic factors, and negative adjusts flying patterns to customer conditions, and impact on Flybe’s demand. reduction in domestic growth prospects, and regional air travel, financial condition and Flybe’s fleet planning is designed to particularly in the UK. the value of its assets, provide it with the most fuel-efficient particularly, aircraft. aircraft available under a mix of ownership and lease terms. Reduced reliance on scheduled flying activities through increased contract flying activities.
Flybe operates in a Adverse effect on Flybe has a strong position in the highly competitive market share leading markets where it operates and extends aviation market. to reduced revenue the reach of its brand through and profits. franchising, joint ventures and alliances. Processes are in place to monitor and report on route by route performance and competitor activity and to react rapidly where necessary.
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Inherent risk trend (movement against Risk description Potential impact prior year) Mitigation Regulatory changes in Adverse impact on Management engages with the airline industry may reputation, costs and Governments through direct contact have an adverse impact market share coupled and membership of industry on an airline’s costs, with decline in growth organisations. operational flexibility, opportunities. marketing strategy, business model and ability to expand.
Airlines may be Increased costs and Management monitors Governments’ adversely affected by reduced demand across proposals with regard to changes increases in Air the airline industry in planned approach to aviation Passenger Duty in the which may result in taxation and engages with UK and its equivalent in reduced profitability Governments through direct contact other countries, and by for Flybe. and membership of industry any future amendment organisations. Flybe seeks to pass with regard to Reduced demand on additional duties to its passengers regulation of emissions for aviation across through its pricing approaches. trading and other the industry. environmental laws Flybe continues to be compliant and regulations, or with the new ETS regime. negative environmental Flybe operates fuel-efficient aircraft perception of the for its flying pattern and seeks to airline industry. develop further fuel efficiencies through changes in its practices.
Flybe is exposed Adversely affect Flybe’s Most suppliers can be replaced to the failure reputation, financial by an alternate. Contract negotiation or non-performance results or operational teams are highly experienced and of commercial performance. knowledgeable of the industry with counterparties as well a strong track record of developing as requiring the services value for Flybe. of key suppliers such as airports, air traffic control systems, and fuel supply companies.
Flybe is exposed to the Reduced demand, Flybe has procedures in place to effects of extraneous market share and respond to such events, and to events, such as revenue, any of which communicate effectively with epidemics, natural may adversely affect passengers and other stakeholders. occurrences or Flybe’s financial results disasters (eg. severe or operational weather or ash performance. cloud disruption).
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39 of 179 Risks and uncertainties Continued
Trend key Same Increase Decrease N New
Inherent risk trend (movement against Risk description Potential impact prior year) Mitigation (c) Reputational risk
Flybe is exposed to an Reduced demand, Flybe has a strong culture event damaging its fleet market share and of safety management and a reputation, company revenue, any of which positive business culture supported reputation or brand. may adversely affect by a code of ethics and appropriate Flybe’s reputation, HR policies. Flybe has procedures financial results in place to respond to events with or operational the potential to cause damage performance. to its reputation or brand, and to communicate effectively with passengers and other stakeholders.
(d) IT Systems and the internet
Flybe is heavily Loss of systems or A disaster recovery plan is in place dependent on its connectivity to the and includes moving certain information technology internet, as a result operations to other sites. systems, the ongoing of internal or external development of those threat, could lead to Flybe contracts with third parties systems, and the disruption and lost for the provision of IT services and internet to operate its revenue with an adverse solutions where the service is subject business. The incidence impact on Flybe’s to disruption or could be lost entirely. of cyber-attacks has financial condition. Where Flybe uses third parties to increased worldwide supplement its own resources, and Flybe is exposed Breaches in IT security, effective processes relating to to this as a result of its or fraud, could contract review, compliance and reliance on the internet adversely affect Flybe’s management are in place to mitigate for a high proportion brand and reputation, the consequent risks that arise. of delivery of its sales. and have an adverse impact on revenue. Flybe has robust security procedures in place which are tested and reviewed Inability to implement by independent third parties. successful development could lead to Flybe’s business plans not being fulfilled.
Flybe operates an A security breach Flybe has robust security procedures e-commerce business could lead to material in place which are tested and reviewed and deals with a reputational damage. by independent third parties. significant amount of personal and business information.
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Inherent risk trend (movement against Risk description Potential impact prior year) Mitigation (e) Relationships with our people
Flybe is dependent Adversely affect Flybe’s Flybe has well-developed consultation on good industrial reputation, financial and negotiation processes with relations, across results and operational its employees and its unions, and all its regions (with performance. continues to ensure its employment a workforce that is, remuneration reflects current in significant part, market conditions and practices unionised), and is that are supported by succession exposed to shortages planning policies. of key personnel.
(f) Financial risks
Flybe is exposed to risks associated with:
(i) Fluctuations in fuel Adverse movements While hedging cannot guarantee prices and foreign in these areas can against significant long-term price exchange rates. adversely affect both changes, a well-established hedging Flybe’s profit and strategy is in place that is designed financial position. to provide certainty over a significant proportion of Flybe’s cost base in the coming 12 months – see pages 27 to 29.
(ii) Unavailability of Lack of adequate liquid Flybe’s policy seeks to maintain suitable financing. resources could result appropriate levels of free cash in business disruption (15 weeks at 31 March 2014) which and adversely affect will be available to meet costs in the Flybe’s financial results. event that our normal activities are temporarily disrupted by, for example, severe weather, volcanic ash, extended industrial dispute or fleet grounding.
(iii) Continuing There is a risk of Flybe’s policy is to invest surplus funds performance of material loss in and enter into hedging agreements counter-parties. the event of non- only with counter-parties that meet performance by certain credit rating criteria. these counter-parties.
(iv) Failure to remove Adversely affect Flybe’s Flybe is in a number of discussions grounded aircraft financial results. with other airlines and lessors about costs, or have to removing grounded aircraft costs, and take delivery of new with aircraft manufacturers to ensure aircraft surplus to aircraft deliveries, and types of requirements. aircraft, match Flybe’s requirements.
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41 of 179 Corporate responsibility
Safety Additional oversight is demonstrated through Flybe’s Flybe is committed to developing, implementing, membership of IATA and it has held the International maintaining and constantly improving strategies and Operational Safety Audit (‘IOSA’) accreditation since processes to ensure that all our aviation activities take October 2007. place under an appropriate allocation of organisational resources, aimed at achieving the highest level of Compliance monitoring (quality assurance) safety performance, while delivering our services. The establishment and maintenance of an effective compliance monitoring function ensures not only an Flybe’s Safety Policy recognises that safety is everyone’s effective and efficient operation but also a safe one. personal responsibility whether an employee, passenger, The compliance monitoring function oversees all contractor, visitor or supplier and is a primary operational activity and consists of two teams. responsibility of all managers and employees. All levels The first is dedicated to the airline, covering: of management and employees are accountable for >> the Air Operator’s Certificate delivery of the Group’s safety performance, starting with the Chief Executive Officer. In addition, managers >> Approved Training Organisation; and ensure that our Safety Policy is implemented and >> understood by all employees and contractors. EASA Part M, aircraft continuing airworthiness.
Hazards resulting from our operations and activities are The second team is dedicated to the MRO and covers: analysed and their risk assessed in order to eliminate, >> the Part 145, for an aircraft maintenance organisation mitigate or manage the safety risks to or below acceptable levels. >> Part 147, for an engineering licence type training organisation All personnel are encouraged to report any safety >> Part 21G, for a production organisation; and issue, irrespective of the cause, in the knowledge that Flybe operates in an open, fair and balanced way that >> Part 21J, for a design organisation. does not attribute blame – a ‘Just Culture’. Both the compliance monitoring managers have a direct The Flybe Safety and Security Review Committee line of report to the Accountable Manager who has (‘SSRC’), chaired by an independent Non-Executive overall responsibility for the safe operation of Flybe’s Director, meets quarterly and is charged with holding activities under civil aviation legislation in the UK. the operational executive management team to account for all safety and compliance matters, Health and safety reporting directly to the Board. The SSRC is chaired There is total commitment at Flybe to the health, by Alan Smith but, after his retirement in August 2014, safety and well-being of its customers and employees. Timo Anderson will chair this committee. The Executive Management continues to demonstrate its commitment to health and safety through proactive The Flybe Safety Management System (‘SMS’) initiatives and close liaison with staff and union coordinates all safety activity across the Flybe representatives. The number of key managers receiving operation. This allows safety data derived from National Examination Board in Occupational Safety both normal operations and safety events to be used and Health (‘NEBOSH’) accreditation has increased in the review of operational procedures and training. though Flybe does not content itself merely with Flybe encourages all employees to report any safety compliance. issue, irrespective of the cause, in the knowledge that it operates a no-blame culture, with all incidents Health and safety is incorporated into its SMS and investigated objectively and thoroughly. The SMS overseen, ultimately, by the SSRC. Policies and is reviewed on a monthly basis at the Safety Action procedures are drawn up with the full involvement Group chaired by the Head of Safety and Compliance. of unions and Flybe’s HR team to ensure not Actions from these meetings are reviewed at the only compliance but the safest achievable quarterly Strategic Review Board chaired by Flybe’s working environment. Director of Operations, John Palmer.
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2,650 Group and joint venture employees at 31 March 2014
People engagement Our people Flybe is only as good as its talented team, which As at 31 March 2014, Flybe employed 1,960 employees endeavours to deliver an excellent service to its loyal across seven regional UK bases with another 690 customers every day. During the year, the Company employed by our joint venture in Finland. Nearly 22% has undertaken an important rightsizing programme of our UK employees worked part-time or flexibly that will ensure its cost of employment remains to balance their lifestyle needs and now over 75% competitive. The Company’s goal is to have the of its employees have more than five years’ service and right people in the right jobs and for Flybe to be an average attendance rate of over 96%. Unfortunately, an attractive workplace in which a long-term and the impact of the widespread restructuring programme challenging career can be built on equality of has led to over 1,100 employees leaving the business opportunity. It is proud to be one of the very few including a significant change in the Flybe Leadership airlines that enables many of its employees to live Team of senior managers. where they work – locally, within the regions both in the UK and in the European business. Talent development Flybe’s aim is to develop and promote talent internally In 2014 Flybe is launching an employee engagement and the Training Academy delivers both the Group’s programme called ‘The Purple Way’ to align all capacity to provide high quality training for its own employees with the Company’s strategy and journey employees and those of third parties. This state-of-the- to become Europe’s Best Local Airline. The art facility has 26 classrooms, a simulator hall with engagement programme will be followed by a capacity for four aircraft simulators, cabin crew customer service training programme called simulator hulls for safety and refresher training, and an ‘Flybe Loves Service’. engineering apprentice workshop. Qualifications include a flight deck Multi-Crew Pilot’s Licence (under the first CAA-approved scheme for a UK airline), cabin crew and customer service NVQs and engineering aircraft type approvals. Flybe already has students engaged on the diploma in engineering, which after four years will provide successful students with a foundation degree level qualification, a BTEC and diploma in engineering and a Part 66 engineering licence. Flybe also continues to operate its Mentored Launch of the Purple Way. Airline Pilot Scheme that part-sponsors pilot training through the provision of an interest-free loan as well Values as maintaining its relationships with UK and European Flybe is committed to certain core principles. These are flying schools for potential pilots. expressed in its People Strategy or ‘The Way We Do Business’ that includes our ‘START’ values of: Management development To engage a dispersed workforce, line management >> S: Safety – no compromises has been empowered to lead and the majority of our people managers have completed the Flybe Leader >> T: Teamwork – ‘One Flybe’: collaboration as a way initiative in the UK. This is a bespoke 12-month modular of life development programme that can progress to an >> A: Alignment – acting with urgency and embracing Institute of Leadership and Management qualification our goals and ‘The Purple Way’ or further to a Foundation Degree in Leadership and Management. >> R: Responsibility – take accountability and ownership >> T: Transparency – open, upfront, authentic and share Flybe’s Operating Board has also introduced an annual performance management system as well as a succession planning process as part of its commitment to developing key talent.
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Benefits Employee satisfaction – managers review results with Flybe aims to provide fixed and variable pay and their teams and agree actions or areas to focus on to short- and long-term benefits (including insured improve employees’ experience of work. Year-on-year benefits) that, in the round, are affordable, competitive improvement is sought both in terms of level of in its marketplace, performance-led and flexible. participation and the actual results themselves. UK employees have been able to participate in the Group’s Share Incentive Programme (‘SIP’) under Human rights which all eligible employees were awarded 100 free Flybe operates entirely with staff employed in the EU shares shortly after Flybe’s IPO and the Group’s and consequently has not developed a separate, all approved Save As You Earn Scheme (‘SAYE’) launched encompassing human rights policy. Detailed policies in 2011. Flybe operates a Group Personal Pension Plan and procedures exist, among others, around: (or equivalent in relevant territories) and almost 95% >> Equality and diversity – see below of employees have elected to participate and benefit from employer’s contributions to their personal >> Grievances fund. Flybe has salary sacrifice schemes to include >> Disciplinary procedures pensions and buying extra days off work and child-care vouchers. >> Whistle-blowing >> Harassment and bullying Employee communication In both the UK and in its joint venture, Flybe continues >> Bribery. to focus on active two-way communications with its dispersed workforce through line management, In addition, Flybe uses its relationship with its regular Your Flybe email and intranet updates, employees to raise, air and resolve issues, whether as well as through its recognised trade union partners. this is through Open Channel or its established Additionally, in the UK, Flybe uses its consultative trade unions. body known as Open Channel. Open Channel meets quarterly, is chaired by a member of the Operating Equality and diversity Board and is attended by up to 25 elected Equality of opportunity and valuing diversity are representatives. central to the regional activities of Flybe and it aims to ensure that all employment decisions are based Flybe has an ongoing employee engagement on fairness and merit. programme ‘The Purple Way’. The purpose is to share the Group’s vision and strategy with all employees Applications for employment by an individual from any through a series of connection workshops and background, including disabled persons, are always emotionally engage them on the journey the fully considered, bearing in mind the aptitudes of the Company is on. applicant concerned. In the event of members of staff becoming disabled, every effort is made to ensure that Flybe also utilises surveys to seek feedback from staff. their employment with the Group continues and that The first of these was initiated in Spring 2014 and the appropriate training, career development and results will be available later in the year. promotion of disabled persons should, as far as possible, be identical to that of other employees. Safety Culture Diagnostic – facilitated by external consultants and aimed at improving safety awareness for all employees. The diagnostic consists of an online survey, focus groups and individual interviews and results in a structured risk-based action plan.
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The breakdown of employees by gender is as follows:
31 March 2014 31 March 2013 Male Female Male Female No. % No. % No. % No. % Board 6 100 - 0 9 90 1 10 Senior management (Flybe Leadership Team) 32 80 8 20 35 85 6 15 All other employees of the Group 1,117 58 797 42 1,562 58 1,151 42 Employees of Flybe Finland 388 56 302 44 422 61 265 39 1,543 58 1,107 42 2,028 59 1,423 41
Community and charitable activities Environment Flybe undertakes a number of community and In its first ten years of operations, Flybe has charitable activities. These are focused on supporting made it a centrepiece of its commitment to the local communities where the Company is based, environmental sustainability to operate one of the most as well as harnessing the fundraising power environmentally sensitive fleets in aviation – our goal of of employees and customers. reducing both noise and emissions remains consistent.
Flybe has sponsored a number of local community Flybe supports the view that human activity, including events and activities. These include: air travel, is contributing to global climate change. Although aviation accounts for around 2% of global >> Shirt sponsor, Exeter City FC CO2 emissions, Flybe is committed to being an industry >> Sponsorship, Exeter Chiefs Rugby Club leader in minimising its environmental impact wherever possible while continuing to provide vital air services >> Sponsorship, Newquay AFC to our passengers. >> Jersey Rugby Football Club, help with complimentary flights In this respect, Flybe’s policy continues to be to: >> Commit to a system for managing its environmental Flybe’s partnership with Cancer Research UK impact in order to comply with all applicable current celebrated its fifth anniversary, since launching the legislation and, where practical, seek to meet future partnership the airline has raised over £486,000. legislative requirements ahead of relevant deadlines >> Implement a training programme for staff to enhance environmental awareness, constantly informing and motivating colleagues, to enlist their support in improving Flybe’s performance >> Integrate the Company’s environmental objectives into business decisions, where feasible, in a cost- efficient manner >> Develop appropriate emergency response plans for major incidents in order to minimise their environmental impact >> Encourage the adoption of similar principles by its suppliers.
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45 of 179 Corporate responsibility Continued
Waste and energy management remains a key focus The airline’s Flight Efficiency Programme, introduced area for Flybe. Recycling policies are already in place in 2009 has resulted in a 13.4% reduction over the at all major premises and sustainability has become average in-flight fuel burn before the programme a key focus area for its procurement. was launched. The programme relies on finely tuned strategies to reduce fuel consumption. These include Management of buildings has incorporated, wherever lowering the aircraft’s maximum operational cruise possible, the latest environmentally-friendly techniques. speed by an average of 20 knots and optimising performance during each phase of flight (climb profile, Aircraft impact upon the environment in two key areas: approach from cruise altitude, low speed decent and locally to airports and over the course of a journey. APU use). There are also complex tankering strategies In 2007, Flybe introduced an ‘Ecolabel’ rating for its for refueling from the lowest cost vendor. aircraft which has been designed to provide customers with a range of information regarding the noise and While the programme sets the parameters, the minute- carbon emissions for each flight. The label identifies to-minute decisions made by Flybe’s flight crews are the noise rating and also the emissions made during what makes a real difference. These decisions are the normal take-off and landing cycle of a flight and based on the dynamic fuel efficiency reports, which also the carbon emissions for the total flight based evaluate each crew’s performance in flight. The Flight on a range of distances. Efficiency Programme is part of a toolbox of different items crews can use to assess costs in a dynamic Fuel usage and emissions operating environment. Each Bombardier Q400 aircraft produces 30% to 40% lower emissions on routes where it has replaced similar A further development over the last twelve months has capacity, older generation aircraft or 50-seat jets. This been that of the use of single engine taxi-ing on the Q400 fleet. equates to 6,000 to 8,000 fewer tonnes of CO2 in the air every year for each Q400. Over the course of last two years, the introduction of E175 jets is proving Similar measures have been introduced to the Embraer successful with early indications showing significant fleets this year and further CO2 savings are anticipated. improvement on fuel burn to the manufacturer’s published data. Future developments include Emissions Trading Scheme (‘ETS’) aerodynamic packages that are being developed to Since the introduction of aviation into the European generate further improvements in fuel consumption, ETS on 1 January 2012, Flybe have complied fully carbon emissions and noise profile. with the requirements of the scheme to submit an
independently verified report of its CO2 emissions
While CO2 emissions are identified as the primary and purchase equivalent carbon allowances under contributor to global warming, other pollutants are the scheme to offset its carbon footprint. also harmful to the environment and have dedicated limitations regulated by the International Civil Aviation The amount of CO2 emitted by the Company is Organisation (‘ICAO’). The Embraer E-series jets predominantly driven by its flying activities and, in Flybe’s service produce certified emissions as fuel is a significant proportion of Flybe’s operating significantly lower than the more stringent CAEP/6 expenditure, it is heavily incentivised to reduce fuel regulations set by ICAO’s Committee on Aviation usage and hence its CO2 emissions. While step changes
Environmental Protection. in lower CO2 emissions require both major advances in technologies associated with next-generation aircraft and a substantial global investment in the production and supply of biofuels, there exist a number of
opportunities for the Company to reduce its CO2
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15.7 kg Flybe UK fuel burn per seat (2007/08: 19.1 kg) emissions in the medium-term. For example, Flybe Greenhouse gas emissions data for 2013/14 pilots are trained in economic flying techniques that involve: 2013/141 2 tCO2e >> Seeking direct routings between the departure Scope 1 airport and the arrival airport Aviation fuel 738,236 >> Flying at speeds that are economical for the engine’s Other fuels 712 performance Total Scope 1 738,948 >> Planning descents into airports, with air traffic control assistance, that allow for the most fuel- Scope 2 efficient approach. Electricity – UK 2,241 Electricity – overseas 203 Flybe supports initiatives which provide for an Total Scope 2 2,444 international framework for governing aviation emissions so long as this is consistent with, and not Scope 3 supplementary to, the European ETS. It remains concerned about the imposition of specific aviation Water supply and waste disposal 18 taxes, some of which purport to be linked to Business travel air/car 492 environmental objectives. Flybe has campaigned Total Scope 3 510 for some time for the reform of UK Air Passenger Duty and for the per passenger tax to be replaced Gross and net emissions 741,902 with a per plane tax which is linked to the emissions 1 Base year not provided as 2013/14 will be the first year of data of the aircraft and their deployment. collection and will therefore become the base year. 2 tCO2e is the number of tonnes of carbon dioxide equivalent and is the universal unit of measurement to indicate the global warming Greenhouse Gas (‘GHG’) Emissions Report potential (‘GWP’) of each of the six greenhouse gases, expressed The Directors of Flybe Group plc present the in terms of the GWP of one unit of CO2. greenhouse gas emissions report for the Group for the year ended 31 March 2014. Flybe’s GHG Specific exclusions: emissions data is intended to comply with the >> Emissions from air conditioning and refrigeration reporting requirements of the Climate Change Act units in office buildings excluded due to unavailable 2008. Emissions include all data reported from its sole data. These are estimated to account for less than operating subsidiary, Flybe Limited and 60% of data 0.5% of total of Scope 1 emissions reported by our joint venture partner, Flybe Finland, using the financial control approach. >> Emissions from taxi, bus and rail business travel are excluded due to unavailable data. These are The information presented follows the 2013 UK estimated to account for less that 0.5% of total Government environmental reporting guidance. of Scope 3 emissions. The Group has also adopted the GHG Protocol Value Chain (Scope 3) Standard, but Flybe is not as yet able to report on all categories that may be relevant. The figures relate to the required elements of each scope 3 category and some of the optional elements. 2013 UK Government’s Conversion Factors for Company Reporting were used in converting activity data into carbon emissions.
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Intensity measurements Approval of Strategic Report The Group’s carbon emissions are principally made The report was approved by the Board of Directors up of emissions from flying activities. In order on 10 June 2014 and signed on its behalf by: to allow comparison between its peers, the chosen measurement is emissions per passenger kilometre flown.
For 2013/14, which will be the starting base for future comparison, the Group’s total emissions per passenger kilometre were 147.3 g/km. Andrew Knuckey Chief Financial Officer and Company Secretary Base year Flybe intends to have a fixed base year of 2013/14. This year has been chosen as this is the first year for which Flybe has reliable data and is typical in respect of its operations. The Group’s policy on base year recalculation is to recalculate the base year and the prior year emissions for relevant significant changes which meet its significance threshold of 5% of base year emissions.
Rainwater harvesting Flybe’s state-of–the-art training academy, based in Exeter, has a rainwater harvesting system for re-use within that building.
Noise The Q400 is rightfully heralded as one of the quietest passenger turboprop aircraft in the world. Inside the Q400, the revolutionary Active Noise and Vibration Suppression system significantly reduces noise and vibration, making it as quiet and comfortable as a jet. Outside, it is considerably quieter than jets with a similar number of seats (10 Decibels of Exterior Perceived Noise quieter).
Flybe’s commitment to reducing the impact to local communities is demonstrated by its latest E-series order. Working closely with the manufacturer, Embraer, Flybe developed a noise reduction kit that has been fitted to all of Flybe’s E175 aircraft in order to reduce further the effect of noise on the local environment.
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48 of 179 Overview Strategic report Governance Financial and other information Chairman’s statement on corporate governance
This year’s Annual Report also contains, for the first time, the full implementation of the new requirements on remuneration reporting. This now includes a binding shareholder vote on remuneration policy in addition to a vote to adopt the Remuneration Report (as set out on pages 66 to 83 of this report). The Board is very sensitive that its prime objective in setting out its remuneration policy is to promote the success of the Company in line with the strategy and the risk profile agreed by the Board. It must, however, do so with the approval of its shareholders, who are the prime beneficiaries of such a strategy.
The Board has reviewed its own structure and believes that a small well-balanced board, with a majority of committed, diverse, informed and energetic Non-Executive Directors continues to be an important part of our corporate governance. Building on the considerable change over the last 12 months, the “The Board has engaged widely with Board will continue to develop further along these shareholders during the year, not least lines over the next year.
during the capital raise, and we are Although not required to do so under the UK delighted to welcome so many new Corporate Governance Code, all Directors will shareholders to our register during nevertheless submit themselves for re-election the year.” at the 2014 Annual General Meeting (the ‘AGM’). The Board has engaged widely with shareholders Simon Laffin during the year, not least during the capital raise, Non-Executive Chairman and we are delighted to welcome so many new shareholders to our register during the year. Effective Dear shareholder communication with shareholders is a key strategic priority and over 50 meetings have been held with Flybe is committed to the highest standards investors during the year. All shareholders are of corporate governance, and will endeavour to encouraged to attend the AGM in July where the continue to meet these standards at all times. We Directors and executive team will be available to believe in living these standards, not just in conforming meet shareholders directly and to discuss any matters to rules and regulations by ‘ticking boxes’. Excellent of importance to them. Additional materials such corporate governance is however not an end in itself. as annual and interim reports, results and other It is a means to the end of achieving a high performing announcements are available via Flybe’s website company that delivers value to its stakeholders, at www.flybe.com/en/corporate/investors. while taking account of its responsibilities to the wider community.
The regulatory and reporting landscape for UK listed companies continued to evolve during 2013, with the introduction of the Strategic Report, new requirements to report on greenhouse gas emissions, and a new formal requirement on the Board to ensure that Simon Laffin the Annual Report presents a ‘fair, balanced and Non-Executive Chairman understandable’ assessment of the Company’s financial position and future prospects. We have planned carefully to comply as closely as possible with these new requirements, together with the enhanced disclosures required by the Audit Committee, although we recognise that best practice will evolve as companies gain experience with the new regulations and feedback is received from both investors and regulators.
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49 of 179 Board of Directors
With the exceptions as noted Independent below, all of the other Directors, Non-Executive Directors Company Secretary and Operating Simon Laffin Board identified served throughout the year. Independent Non-Executive Chairman (aged 55) – appointed 4 November 2013 Executive Directors Simon Laffin was appointed Saad Hammad to the Flybe board as Independent Chief Executive Officer (aged 51) – Non-Executive Chairman in appointed 1 August 2013 November 2013. Mr Laffin is Saad Hammad joined Flybe as Chairman of Assura Group Limited, Chief Executive Officer on 1 August Chairman of the Audit Committee 2013. He has considerable airline at Quintain Estates & Development experience having been Chief PLC and an adviser to Dentsu Inc. Commercial Officer of easyJet plc Previously he was Group Finance from 2005 to 2009. Mr Hammad and Property Director at Safeway was a Non-Executive Director of plc between 1994 and 2004 and Air Berlin plc and as of 25 April has served as a Non-Executive 2014, is a Non-Executive Director Director at Aegis Group Plc, of Pegasus, the leading Turkish Mitchells & Butlers plc and Northern low-cost carrier. He has also held Rock plc (as part of the rescue senior executive roles at a number team), an adviser to CVC Capital of leading corporations, including Partners, and Chairman of Hozelock The Gores Group, Procter Group. Mr Laffin chairs Flybe’s & Gamble, Thorn-EMI, Vision Nominations Committee Express and Tibbett & Britten. and sits on the Audit and Mr Hammad is a member of the Remuneration Committees. Nominations Committee. Charlie Scott Andrew Knuckey Deputy Chairman and Senior Chief Financial Officer and Independent Non-Executive Company Secretary (aged 53) Director (aged 65) Andrew Knuckey joined Flybe Charlie Scott was formerly in 2005, having previously had Chairman of William Hill plc from a 24 year career with KPMG LLP, 2004 until 2010. He is a chartered latterly as a partner in audit and accountant and was previously transaction services. Mr Knuckey Chief Executive Officer at Saatchi played a key role in the successful & Saatchi plc and Chairman of acquisition and integration of BA Cordiant plc. Mr Scott has held Connect, following which he was other non-executive positions, appointed as Chief Financial including with airport group Officer at Flybe in April 2007. TBI plc. Mr Scott chairs Flybe’s As Chief Financial Officer, he Audit Committee and sits helped deliver the IPO on the on the Nominations and London Stock Exchange in 2010 Remuneration Committees. and, more recently, the design and implementation of Flybe’s Turnaround Plan. He also chairs our joint venture with Finnair. Mr Knuckey will leave the Board in August 2014 after expiry of his 12 month notice period, and will be replaced by Philip de Klerk.
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Alan Smith Sir Timothy Anderson Independent Non-Executive Independent Non-Executive Director (aged 67) Director (aged 57) Alan Smith is currently Chairman Sir ‘Timo’ Anderson was appointed of Fisher Leisure Holdings Limited. to the Board as Non-Executive His career has included being Director with effect from 1 May Managing Director of Superdrug 2014. Sir Timo established the Stores plc, B&Q plc and The UK Military Aviation Authority Victoria Wine Company Limited (the body responsible for military before working for the Boddington aviation regulation and safety), Group Limited as Group Managing becoming its first Director General Director. In 1996, Mr Smith moved from 2010 to 2013. Prior to that to Evans Halshaw Holdings plc as Sir Timo was Assistant Chief of Group Chief Executive before Air Staff, Royal Air Force. He served becoming Chief Executive of in the Royal Air Force from 1979 Somerfield plc from 2000 until going on to hold senior command 2002. Mr Smith chairs Flybe’s appointments. Sir Timo has joined Safety and Security Review the Safety and Security Review Committee and sits on the Audit, Committee, and will chair that Nominations and Remuneration committee following Mr Smith’s Committees. Mr Smith will retire retirement from the Board. from the Board on 31 August 2014. He has also joined the Nomination, Remuneration David Longbottom and Audit Committees. Independent Non-Executive Director (aged 69) David Longbottom is currently Pro-chancellor and Chairman of the Board of Governors of London South Bank University. Mr Longbottom was formerly Chairman of executive search firm, Horton International (UK) Limited, the Senior Independent Director of Luminar Leisure plc and a director of DSG International plc where he held a number of senior positions within the Dixons Group plc after joining in 1987 (including Group Human Resources Director). Previously, Mr Longbottom worked with British Gas plc, Courtaulds plc and Lloyds of London. Mr Longbottom chairs Flybe’s Remuneration Committee and sits on the Nominations Committee.
Flybe Group plc Annual Report and Accounts 2013/14 47
51 of 179 Board of Directors Continued
Other Executive and Operating Board Simon Charles Non-Executive Directors The Board is supported in its day- Director of Human Resources and who served but resigned to-day running of the Group by the Health and Safety (aged 47) Simon Charles joined Flybe in during the period are: Operating Board, which comprises (in addition to Messrs Hammad and January 2007 from RHM Plc >> Anita Lovell, Non-Executive Knuckey) the following members, where he was Group Director Director – resigned 17 May 2013 together with dates appointed of Organisation and People to the Operating Board if during Development and part of the >> Peter Smith, Independent 2013/14: management team involved in the Non-Executive Director – initial public offering of shares resigned 8 July 2013 Paul Simmons in RHM plc. He has spent 25 years in >> Jim French, Chairman and Chief Commercial Officer human resources within significant Chief Executive Officer – (aged 49) – appointed companies having been European resigned as Chief Executive 28 October 2013 HR Director at Quaker Inc. and held Officer on 1 August 2013 and Paul Simmons joined Flybe in management positions with Chairman on 4 November 2013 October 2013 from easyJet where, PricewaterhouseCoopers, Pepsico Inc. and Unilever plc. Mr Charles >> Mark Chown, Director for the last five years, he led their team in the UK as Director, UK is a member of the Safety and of Corporate Strategy – Security Review Committee. resigned 4 August 2013 Market. Prior to easyJet, Mr Simmons held senior >> Mike Rutter, Managing Director commercial positions at Oberoi Matt Bennett of Flybe Outsourcing Solutions – Hotels Group (EVP – Sales & Director of Internal Audit, Risk resigned 4 August 2013 Marketing) and IHG (Global VP, and Special Projects (aged 38) – InterContinental Brand) and a appointed 10 October 2013 >> Andrew Strong, Managing variety of marketing roles at Procter Matt Bennett, a Chartered Director of Flybe UK – & Gamble, S.C. Johnson, Helene Accountant, joined Flybe resigned 4 August 2013 Curtis/Unilever and Kelloggs. in January 2012, as the Director of Internal Audit, Risk and Special Philip de Klerk will join Flybe as Projects to set up the Company’s Chief Financial Officer in August John Palmer Director of Operations (aged 52) – first Internal Audit function. 2014. Mr de Klerk will join Flybe Mr Bennett has commercial from SABMiller, where he was appointed 17 September 2013 John Palmer joined Flybe in 2006 auditing experience having led the Global Head of Financial Planning & as Director of Aviation Services and audit function for four years at the Analysis and Finance Director of the previously held senior management Rank Group PLC, and more recently Business Capabilities Programme. roles in British Airways, Virgin for six years in a joint Director of Prior to this, he was Chief Financial Atlantic and Zurich Financial Financial Control and Audit role for Officer of Ineos Olefins & Polymers Services. He was promoted Sony Computer Entertainment Europe and spent 16 years at to Director of Airline Operations (Sony PlayStation). Mr Bennett Unilever in a variety of roles. and Deputy COO in 2009 before reports to the Chief Executive becoming, in 2011, Managing Officer and the Audit Committee. Company Secretary Director, Flybe Aviation Support. Andrew Knuckey, Chief Appointed as Director of Matt Linsey Financial Officer, has taken Operations in August 2013, Acting Director of Information on the responsibilities of this role Mr Palmer is now responsible for all Technology (aged 38) – after Chris Simpson resigned aspects of the Flybe’s operations, appointed 25 October 2013 on 7 March 2014. He will hand on including Flybe Finland Oy, and Matt Linsey joined Flybe in this role to Annelie Carver who joins is a member of the Safety and December 2003 as a Systems Flybe as Company Secretary and Security Review Committee. Architect to direct the design General Counsel on 23 June 2014 activities of Flybe’s IT department. from Michelmores Solicitors, Mr Linsey brings 14 years’ where she was a partner in their experience of IT previously corporate and commercial team. contracting in various sectors including military, education and e-commerce. He was promoted to Head of IT Services in 2006 and then to Head of IT Development in 2008 before being made Acting Director of IT in October 2013 to oversee all IT delivery and operations for Flybe.
48 Flybe Group plc Annual Report and Accounts 2013/14
52 of 179 Overview Strategic report Governance Financial and other information Corporate governance
Group Board
Nomination Remuneration Safety & Security Audit Committee Committee Committee Review Committee
Charlie Scott Simon Laffin David Longbottom Alan Smith (Chair) (Chair) (Chair) (Chair)
Timo Anderson Timo Anderson Timo Anderson Timo Anderson
Simon Laffin Saad Hammad Simon Laffin Simon Charles
Alan Smith David Longbottom Charlie Scott John Palmer
Charlie Scott Alan Smith
Alan Smith
This report sets out how the Company applied the >> The Code recommends that the roles of Chairman principles of the UK Corporate Governance Code and Chief Executive Officer should be separated and issued by the Financial Reporting Council in September clearly defined. Jim French served as both Chairman 2012 (the ‘Code’) in the year to 31 March 2014. A copy and Chief Executive Officer of the Group until the of the Code can be found at www.frc.org.uk/ appointment of Saad Hammad as Chief Executive corporate/ukcgcode. The Financial Conduct Officer on 1 August 2013. Jim French stepped down Authority’s Listing Rules require the Company to as Chairman on the appointment of Simon Laffin set out how it has applied the main principles of the on 4 November 2013. Code and to explain any non-compliance. The following paragraphs explain how the Company Statement of compliance has applied the principles of good governance The Board is committed to maintaining high standards and the code of best practice set out in the Code. of corporate governance and has fully considered the provisions of the Code. The Board considers that the Company is a ‘smaller company’ for the purposes of the Code which defines this as a company which has been below the FTSE350 throughout the year immediately prior to the reporting year. Throughout the year ended 31 March 2014, and up to the date of approval of this Annual Report, the Board considers that it and the Company have complied with the best practice provisions set out in the Code as it applies to ‘smaller companies’, with the following exception in place until 4 November 2013:
Flybe Group plc Annual Report and Accounts 2013/14 49
53 of 179 Corporate governance Continued
The Board The Board is led by the Chairman, Simon Laffin, Structure and leadership who is responsible for ensuring its effectiveness At 31 March 2014 the Board comprised six in all aspects of its role. The Board’s key purpose Directors, of whom four are Non-Executive is to provide the entrepreneurial leadership and vision and two are Executive. necessary to ensure the Company’s prosperity by collectively directing the Company’s affairs while meeting the appropriate interests of its shareholders Executive Directors and stakeholders. In addition to business and Saad Hammad financial issues, the Board of Directors must deal Chief Executive Officer with challenges and issues relating to corporate Andrew Knuckey governance, corporate social responsibility and Chief Financial Officer corporate ethics. It has the ultimate responsibility for setting the Company’s overall strategy and long-term Non-Executive Directors direction and provides entrepreneurial leadership Simon Laffin within a framework of effective controls which permit Independent Non-Executive Chairman risk to be assessed and managed. The Board has Charlie Scott responsibility for approving the Financial Statements, Deputy Chairman and Senior significant acquisitions and disposals, major non- Independent Non-Executive recurring projects and major capital expenditures. Director Alan Smith Independent Non-Executive Director The Board David Longbottom considered Independent Non-Executive Director
Board composition Monthly results and membership Budgets and Committee forecasts performance Annual and half and membership year results Risk management announcements Engagement with investors
Financial Governance performance
Day-to-day Cash activities position
Cost control Gatwick slot Capex disposal Resource allocation Equity fund raising Organisation Short-term cash structure forecasts
50 Flybe Group plc Annual Report and Accounts 2013/14
54 of 179 Overview Strategic report Governance Financial and other information
The Directors’ biographies appear on pages 46 Operation of the Board and 47 illustrate the range of experience which ensures In carrying out its work, the Board focuses on key an effective Board to lead and control the Group. tasks, which include receiving reports on safety, Further details of changes to the membership of the security and health, business risks, long-term strategy, Board are given on page 48. The size of the Board the Group’s trading performance, the work of its represents an appropriate combination of executive Committees and the actions of the Operating Board and non-executive directors for the size of the business and senior management. The Board delegates specific and allows individuals to communicate openly and responsibilities, with written terms of reference, freely and to contribute through the exercise of their to its Committees details of which appear below. personal skills and experience. The Directors have The Executive Directors of the Company may attend a complementary range of financial, commercial, meetings of the Committees at the invitation of the operational and entrepreneurial experience which, respective Chairmen. in the opinion of the Board, provides it and its committees with the necessary balance of skills, The Executive Directors review and discuss with the diversity, independence and knowledge of the Board all strategic projects and all material matters Group to enable them to discharge their respective currently or prospectively affecting the Group and its duties and responsibilities effectively. performance. The Board delegates its authority for executive management to the Chief Executive Officer, The Non-Executive Directors have been appointed who leads the Operating Board, subject to monitoring on merit and for their specific areas of expertise by the Board and those items referred to above. and knowledge. Their wide-ranging experience and backgrounds ensure that they are able to challenge To enable the Board to function effectively, and to and debate matters constructively both in relation to assist the Directors to discharge their responsibilities, development of strategy and performance against a comprehensive set of papers is provided in advance objectives set by the Board. of each Board and Committee meeting. These include regular business progress reports, budgets, financial The Company has governance procedures in place to statements and shareholder information. The Company ensure that, on resignation, concerns, if any, raised by Secretary manages the provision of information to the an outgoing non-executive director are circulated by Board in consultation with the Chairman. the Chairman to the remaining members of the Board. None of the Directors who resigned during the year The Board held ten scheduled meetings during the have raised concerns. year. In addition the Board met on several occasions on an ad hoc basis to deal with urgent business, including Key activities of the Board the consideration and approval of transactions where Aside from day-to-day management issues, a decision was required before the next meeting. the Board has focused on turning around the The Senior Independent Non-Executive Director and financial performance of the business, focussing the Non-Executive Directors have met without the on the Phases 1 and 2 of the Turnaround Plan and the Chairman and Executive Directors being present. Immediate Actions initiated by Saad Hammad when he joined as Chief Executive Officer in August 2013. The Board requires all directors to devote sufficient Although there has been a substantial impact on our time to their duties and to use their best endeavours workforce, these vital actions have had the desired to attend meetings. The table below details the effect with £47m of cumulative cost savings achieved Directors’ attendance at the scheduled Board and in 2013/14. We are on track to increase this to the Committee meetings during the year. £71m target annual savings for 2014/15.
In addition, the Board oversaw the successful equity fund raise in March 2014, which saw the Group raise net proceeds of £150.1m at a share price only 7.2% lower than the previous closing price, and also saw the introduction of several new institutional shareholders. As a result, Flybe’s free float at 31 March 2014 was 95.0%, compared with 37.4% at March 2013.
Flybe Group plc Annual Report and Accounts 2013/14 51
55 of 179 Corporate governance Continued
Directors in office as at 31 March 2014
Safety & Security Audit Nomination Remuneration Review Year ended 31 March 2014 Board Committee Committee Committee Committee Executive Director Saad Hammad 6/6 n/a 1/1 n/a n/a Andrew Knuckey 10/10 n/a n/a n/a n/a
Non-Executive Director Simon Laffin 3/3 1/1 1/1 2/2 n/a David Longbottom 10/10 n/a 5/5 6/6 n/a Charlie Scott 10/10 6/6 5/5 6/6 n/a Alan Smith 10/10 6/6 5/5 6/6 4/4
Former Directors who served during the year
Safety & Security Audit Nomination Remuneration Review Year ended 31 March 2014 Board Committee Committee Committee Committee Executive Director Jim French 6/7 n/a 2/4 – n/a Mark Chown 4/4 n/a 1/2 n/a n/a Mike Rutter 4/4 n/a n/a n/a n/a Andrew Strong 3/4 n/a n/a n/a 2/2
Non-Executive Director Anita Lovell 0/2 n/a n/a n/a n/a Peter Smith 4/4 n/a n/a 1/1 2/2
Independence we have a Board with the optimum combination of The Board considers each of its Non-Executive skills and experience needed to support the business. Directors to be independent in character and As a result no targets have been established for the judgement and no one individual, or group of composition of the Board, whether in terms of racial individuals, dominates the Board’s decision making. background or gender.
Each of the Non-Executive Directors (other than Anita Overall information on the gender diversity Lovell, who represented Rosedale) who served during of the Board and the Group as a whole is given the year have been identified as independent on the on pages 40 and 41. basis of the criteria specified in paragraph A.3.1 of the Code and, generally, are free from any business Conflicts of interest or other relationship which could materially interfere In accordance with the Companies Act 2006, the with the exercise of their independent judgement. Company’s Articles of Association permit the Board to consider and, if thought fit, to authorise actual Diversity or potential conflicts of interest which may arise and All recruitment for the Board is led by the Nomination to impose such limits or conditions as it thinks fit. Committee. We recognise that diversity, in its widest The Board has established a formal procedure sense, is important for the Board’s effectiveness. whereby actual and potential conflicts of interest can However the Non-Executive Directors have been be recorded by each Director and authorised by the appointed on merit alone and specifically for their Board. The decision to authorise a conflict can only contributions from their knowledge and experience. be made by non-conflicted Directors (those who Their wide-ranging experience and backgrounds have no interest in the matter being considered) ensure that we can debate matters in relation to both and in making such a decision the Directors must the development of strategy and performance against act in a way they consider in good faith will be most the objectives set by the Board. We believe that the likely to promote the Company’s success. diverse backgrounds of the individual Directors ensure
52 Flybe Group plc Annual Report and Accounts 2013/14
56 of 179 Overview Strategic report Governance Financial and other information
Directors’ indemnity and insurance cover Board performance and evaluation In accordance with the Company’s Articles of The Board has considered and supports the Code’s Association, throughout the year the Directors have provisions on Board performance evaluation. It has been, and continue to be, indemnified to the fullest discussed its own performance, but decided that given extent permitted by law. Appropriate Directors’ and the degree of change at Board level in the last year, Officers’ liability insurance cover is arranged and there would be little value in a more formal self- maintained via the Company’s insurance brokers, evaluation process at this stage. The Non-Executive Willis, and its terms are reviewed annually. Directors meet regularly without the Executive Directors present, and have also met without the Matters reserved for the Board Chairman in order to evaluate his performance. The Board has approved a schedule of matters reserved for decision by it. This schedule is available Induction and continuing development for inspection at the Company’s registered office of Directors and on the Company’s website at www.flybe.com/en/ All new Directors receive a tailored induction on joining corporate/governance. The matters reserved for the Board, including meetings with senior management specific approval by the Board can be subdivided into and advisers and visits to major operating bases and a number of key areas including but not limited to: locations. The Chairman and Chief Executive Officer >> reviewing the Group’s overall safety and are responsible for reviewing the development needs security arrangements of individual directors. All the Non-Executive Directors have, during the course of the year, attended briefings >> approving the Group’s long-term objectives and seminars relevant to their role, including updates and strategy on best practice in audit and remuneration issues >> approving the Group’s annual operating and capital and economic affairs in general, as well as bringing expenditure budget knowledge and information gathered from their other business interests. >> Group financial reporting and controls including the approval of interim and final financial statements, All Directors have access to the advice and services interim management statements and dividends of the Company Secretary who is responsible to the Chairman on matters of corporate governance and >> ensuring a sound system of internal controls provides the Board with regular updates on relevant and risk management legislation, regulations and governance best practice. >> decisions relating to acquisitions, disposals The Directors may, at the Company’s expense, take and major items of capital expenditure independent professional advice where necessary and appropriate to do so. >> Board and Committee membership and succession planning Directors’ election and re-election >> remuneration All directors will retire at the forthcoming AGM and, >> corporate governance matters being eligible, will offer themselves for re-election. A biography for each of these directors, together with >> approving certain of the Group’s policies a description of the skills and experience they possess that the Company considers relevant, will be included Matters requiring Board approval are generally the in the proposals put to shareholders at the 2014 AGM. subject of a proposal by the Executive Directors submitted to the Board, together with supporting None of the Non-Executive Directors has served more information, as part of the Board, or Committee, than nine years in office. papers circulated prior to the relevant meeting. Any changes to the commitments of any Director are always considered by the Board to ensure they will continue to have sufficient time to enable them to fulfil their duties with the Company. The Board is satisfied that all of the Directors continue to perform effectively and demonstrate commitment to their roles, including commitment of time for Board and Committee meetings and any other duties which may be undertaken by them from time to time.
Flybe Group plc Annual Report and Accounts 2013/14 53
57 of 179
Information for
Flybe Group plc
Financials
58 of 179 Flybe Group PLC (LSE:FLYB) > Financials > Key Stats
In Millions of the trading currency, except per share items. Currency: Trading Currency Conversion: Historical Order: Latest on Right Units: S&P Capital IQ (Default) Decimals: Capital IQ (Default)
Key Financials¹ For the Fiscal Period Ending 12 months 12 months 12 months 12 months 12 months 12 months† 12 months 12 months Mar-31-2010A Mar-31-2011A Mar-31-2012A Mar-31-2013A Mar-31-2014A Mar-31-2015E Mar-31-2016E Mar-31-2017E Currency GBP GBP GBP GBP GBP GBP GBP GBP
Total Revenue 570.5 595.5 615.3 614.3 620.5 564.12 624.22 649.2 Growth Over Prior Year (1.1%) 4.4% 3.3% (0.2%) 1.0% (9.09%) 10.65% 4.00%
Gross Profit 84.5 75.5 68.1 65.2 81.2 - - - Margin % 14.8% 12.7% 11.1% 10.6% 13.1% - - -
EBITDA 25.6 19.6 12.7 (9.8) 14.8 42.63 66.48 75.27 Margin % 4.5% 3.3% 2.1% (1.6%) 2.4% 7.56% 10.65% 11.59%
EBIT 9.9 4.7 (2.5) (22.4) 1.3 - - - Margin % 1.7% 0.8% (0.4%) (3.6%) 0.2% - - -
Earnings from Cont. Ops. 22.2 3.8 (6.4) (42.2) 8.0 - - - Margin % 3.9% 0.6% (1.0%) (6.9%) 1.3% - - -
Net Income 22.2 3.8 (6.4) (42.2) 8.0 - - - Margin % 3.9% 0.6% (1.0%) (6.9%) 1.3% - - -
Diluted EPS Excl. Extra Items³ 0.42 0.06 (0.09) (0.56) 0.1 0.08 0.16 0.21 Growth Over Prior Year 437.8% (84.8%) NM NM NM - 101.20% 30.98%
Currency GBP GBP GBP GBP GBP GBP GBP GBP Exchange Rate 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 Conversion Method H H H H H S S S
¹All results are taken from the most recently filed statement for each period. When there has been more than one, earlier filings can be viewed on the individual statement pages. ³All forward period figures are consensus mean estimates provided by the brokers and may not be on a comparable basis as financials. †Growth rates for forward periods are calculated against prior period estimates or actual pro forma results as disclosed on the Estimates Consensus page. Growth Rates are calculated in originally reported currency only and will not reflect any currency conversion selected above.
59 of 179 Latest Capitalization (Millions of GBP) Currency GBP Share Price as of Sep-26-2014 1.27 Shares Out. 218.3
Market Capitalization** 276.2 - Cash & Short Term Investments 177.9 + Total Debt 101.5 + Pref. Equity - + Total Minority Interest - = Total Enterprise Value (TEV) 199.8
Book Value of Common Equity 194.1 + Pref. Equity - + Total Minority Interest - + Total Debt 101.5 = Total Capital 295.6
**For companies that have multiple share classes that publicly trade, we are incorporating the different prices to calculate our company level market capitalization. Please click on the value to see the detailed calculation. Prices shown on this page are the close price of the company’s primary stock class. Shares shown on this page are total company as-reported share values.
Note: Striped area represents the impact of negative Net Liability on Market Cap. Total Liability includes Total Debt, Minority Interest and Pref. Equity. Net Liability includes Total Liability, net of Cash and Short Term Investments. TEV includes Market Cap and Net Liability. Total Capital includes Common Equity and Total Liability.
60 of 179 Valuation Multiples based on Current Capitalization For the Fiscal Period Ending 12 months 12 months 12 months 12 months 12 months Mar-31-2013A Mar-31-2014A Mar-31-2015E Mar-31-2016E Mar-31-2017E TEV/Total Revenue 0.3x 0.3x 0.35x 0.32x 0.31x
TEV/EBITDA NM 14.0x 4.69x 3.00x 2.65x
TEV/EBIT NM 249.7x - - -
P/Diluted EPS Before Extra NM 13.1x 16.16x 8.03x 6.13x
P/BV 2.0x 1.4x - - -
Price/Tang BV 2.7x 1.5x - - -
61 of 179 Flybe Group PLC (LSE:FLYB) > Financials > Income Statement
In Millions of the reported currency, except per share items. Template: Standard Restatement: Latest Filings Period Type: Annual Order: Latest on Right Currency: Reported Currency Conversion: Historical Units: S&P Capital IQ (Default) Decimals: Capital IQ (Default)
Income Statement Restated Restated Reclassified Reclassified Restated For the Fiscal Period Ending 12 months 12 months 12 months 12 months 12 months 12 months Mar-31-2009 Mar-31-2010 Mar-31-2011 Mar-31-2012 Mar-31-2013 Mar-31-2014 Currency GBP GBP GBP GBP GBP GBP
Revenue 576.6 570.5 595.5 565.6 564.6 570.1 Other Revenue - - - 49.7 49.7 50.4 Total Revenue 576.6 570.5 595.5 615.3 614.3 620.5
Cost Of Goods Sold 520.9 486.0 520.0 547.2 549.1 539.3 Gross Profit 55.7 84.5 75.5 68.1 65.2 81.2
Selling General & Admin Exp. 52.5 24.1 24.5 25.5 25.1 23.3 R & D Exp. ------Depreciation & Amort. - 16.8 10.7 13.1 12.0 14.3 Other Operating Expense/(Income) - 33.7 35.6 32.0 50.5 42.3
Other Operating Exp., Total 52.5 74.6 70.8 70.6 87.6 79.9
Operating Income 3.2 9.9 4.7 (2.5) (22.4) 1.3
Interest Expense (6.5) (4.1) (2.6) (3.3) (2.5) (1.7) Interest and Invest. Income 1.8 0.2 0.3 0.8 0.7 0.7 Net Interest Exp. (4.7) (3.9) (2.3) (2.5) (1.8) (1.0)
Income/(Loss) from Affiliates - - - (3.0) (2.8) (0.5) Currency Exchange Gains (Loss) (3.1) 1.0 1.0 0.8 (4.7) 8.3 Other Non-Operating Inc. (Exp.) 17.2 17.1 (8.9) 0.4 - - EBT Excl. Unusual Items 12.6 24.1 (5.5) (6.8) (31.7) 8.1
Restructuring Charges - - - - (8.0) (0.2) Merger & Related Restruct. Charges (9.9) - - - - - Impairment of Goodwill ------Gain (Loss) On Sale Of Assets 0.2 0.5 0.4 0.6 (1.4) 0.2 Asset Writedown (2.8) - - - - - Other Unusual Items - - 0.8 - - - EBT Incl. Unusual Items 0.1 24.6 (4.3) (6.2) (41.1) 8.1
Income Tax Expense (4.0) 2.4 (8.1) 0.2 1.1 0.1 Earnings from Cont. Ops. 4.1 22.2 3.8 (6.4) (42.2) 8.0
62 of 179 Earnings of Discontinued Ops. ------Extraord. Item & Account. Change ------Net Income to Company 4.1 22.2 3.8 (6.4) (42.2) 8.0
Minority Int. in Earnings ------Net Income 4.1 22.2 3.8 (6.4) (42.2) 8.0
Pref. Dividends and Other Adj. ------
NI to Common Incl Extra Items 4.1 22.2 3.8 (6.4) (42.2) 8.0 NI to Common Excl. Extra Items 4.1 22.2 3.8 (6.4) (42.2) 8.0
Per Share Items Basic EPS 0.08 0.42 0.06 (0.09) (0.56) 0.1 Basic EPS Excl. Extra Items 0.08 0.42 0.06 (0.09) (0.56) 0.1 Weighted Avg. Basic Shares Out. 52.5 52.5 59.1 75.2 75.2 82.9
Diluted EPS 0.08 0.42 0.06 (0.09) (0.56) 0.1 Diluted EPS Excl. Extra Items 0.08 0.42 0.06 (0.09) (0.56) 0.1 Weighted Avg. Diluted Shares Out. 52.5 52.5 59.3 75.2 75.2 82.9
Normalized Basic EPS 0.15 0.29 (0.06) (0.06) (0.26) 0.06 Normalized Diluted EPS 0.15 0.29 (0.06) (0.06) (0.26) 0.06
Dividends per Share NA NA NA NA NA NA
Supplemental Items EBITDA 23.6 25.6 19.6 12.7 (9.8) 14.8 EBITA 3.2 9.9 4.7 (2.5) (22.4) 1.3 EBIT 3.2 9.9 4.7 (2.5) (22.4) 1.3 EBITDAR 85.2 97.3 100.4 95.0 74.3 103.0 As Reported Total Revenue* 572.4 570.5 595.5 615.3 614.3 620.5 Effective Tax Rate % NM 9.8% NM NM NM 1.2% Deferred Domestic Taxes NA 2.4 NA 0.2 1.1 0.1 Total Deferred Taxes (4.0) 2.4 (8.1) 0.2 1.1 0.1
Normalized Net Income 7.9 15.1 (3.4) (4.3) (19.8) 5.1 Interest Capitalized 0.7 0.1 NA NA NA NA Interest on Long Term Debt NA NA 2.6 3.3 11.6 10.1 Non-Cash Pension Expense - 0.1 2.1 (0.4) 0.2 0.3 Filing Date May-30-2010 Jun-29-2011 Jun-08-2012 Jun-21-2013 Jun-12-2014 Jun-12-2014 Restatement Type RS RS RC RC RS O Calculation Type REP REP REP REP REP REP
63 of 179 Supplemental Operating Expense Items Selling and Marketing Exp. NA 24.1 24.5 25.5 25.1 23.3 General and Administrative Exp. 52.5 NA NA NA NA NA R&D Exp. NA NA 1.0 1.0 NA NA Net Rental Exp. 61.6 71.7 80.8 82.3 84.1 88.2 Imputed Oper. Lease Interest Exp. 29.0 25.4 20.1 24.0 15.4 10.8 Imputed Oper. Lease Depreciation 32.6 46.3 60.7 58.3 68.7 77.4 Maintenance & Repair Exp. NA 29.0 37.2 37.7 37.2 41.9
Stock-Based Comp., COGS - 0.4 0.5 0.5 0.6 1.5 Stock-Based Comp., Unallocated 0.3 - - - - - Stock-Based Comp., Total 0.3 0.4 0.5 0.5 0.6 1.5
* Occasionally, certain items classified as Revenue by the company will be re-classified as other income if it is deemed to be non-recurring and unrelated to the core business of the firm. This field shows Total Revenue exactly as reported by the firm on its consolidated statement of income.
Note: For multiple class companies, per share items are primary class equivalent, and for foreign companies listed as primary ADRs, per share items are ADR-equivalent.
64 of 179 Flybe Group PLC (LSE:FLYB) > Financials > Balance Sheet
In Millions of the reported currency, except per share items. Template: Standard Restatement: Latest Filings Period Type: Annual Order: Latest on Right Currency: Reported Currency Conversion: Historical Units: S&P Capital IQ (Default) Decimals: Capital IQ (Default)
Balance Sheet Balance Sheet as of: Restated Restated Mar-31-2009 Mar-31-2010 Mar-31-2011 Mar-31-2012 Mar-31-2013 Mar-31-2014 Currency GBP GBP GBP GBP GBP GBP ASSETS Cash And Equivalents 56.6 46.1 87.7 42.9 23.3 177.9 Trading Asset Securities - 10.1 - - - - Total Cash & ST Investments 56.6 56.2 87.7 42.9 23.3 177.9
Accounts Receivable 34.5 30.8 34.0 48.7 37.6 28.4 Other Receivables 17.2 22.2 26.1 22.7 22.1 39.1 Total Receivables 51.7 53.0 60.1 71.4 59.7 67.5
Inventory 7.5 6.1 5.8 6.6 6.8 6.8 Prepaid Exp. 35.6 18.0 16.6 16.6 16.3 18.3 Restricted Cash - 8.0 9.3 16.8 24.2 33.9 Other Current Assets 31.2 1.3 36.9 16.1 29.4 0.4 Total Current Assets 182.6 142.6 216.4 170.4 159.7 304.8
Gross Property, Plant & Equipment 220.6 193.4 214.7 246.8 234.5 251.5 Accumulated Depreciation (82.6) (63.5) (78.4) (84.7) (69.1) (80.9) Net Property, Plant & Equipment 138.0 129.9 136.3 162.1 165.4 170.6
Long-term Investments - - - 16.2 13.2 12.4 Goodwill (0.4) - - - - - Other Intangibles 8.5 10.4 10.4 10.1 13.2 5.2 Deferred Tax Assets, LT - 7.1 9.9 8.6 4.6 6.1 Other Long-Term Assets - 40.1 41.1 47.9 49.7 48.9 Total Assets 328.7 330.1 414.1 415.3 405.8 548.0
LIABILITIES Accounts Payable 28.4 28.3 20.1 23.9 19.3 23.6 Accrued Exp. 24.2 59.5 62.4 55.7 36.9 24.4 Curr. Port. of LT Debt 28.6 9.7 16.9 21.3 18.7 10.4 Curr. Income Taxes Payable 18.3 - - - - - Unearned Revenue, Current 73.5 64.4 64.2 63.2 63.2 70.7 Other Current Liabilities 7.7 28.1 29.5 35.7 70.1 87.3 Total Current Liabilities 180.7 190.0 193.1 199.8 208.2 216.4
65 of 179 Long-Term Debt 77.8 73.8 66.8 76.0 102.3 91.1 Unearned Revenue, Non-Current 11.9 9.4 14.3 12.4 10.8 9.5 Pension & Other Post-Retire. Benefits - 4.8 - - - 2.5 Def. Tax Liability, Non-Curr. 1.1 11.4 11.6 5.5 2.6 1.6 Other Non-Current Liabilities 40.7 19.2 20.4 32.2 33.8 32.8 Total Liabilities 312.2 308.6 306.2 325.9 357.7 353.9
Common Stock - - 0.7 0.7 0.7 2.2 Additional Paid In Capital 1.0 1.0 60.6 60.6 60.6 209.2 Retained Earnings (13.7) (8.7) 1.7 (4.6) (46.0) (39.1) Treasury Stock ------Comprehensive Inc. and Other 29.2 29.2 44.9 32.7 32.8 21.8 Total Common Equity 16.5 21.5 107.9 89.4 48.1 194.1
Total Equity 16.5 21.5 107.9 89.4 48.1 194.1
Total Liabilities And Equity 328.7 330.1 414.1 415.3 405.8 548.0
Supplemental Items Total Shares Out. on Filing Date 52.5 52.5 75.2 75.2 75.2 216.7 Total Shares Out. on Balance Sheet Date 52.5 52.5 75.2 75.2 75.2 216.7 Book Value/Share 0.31 0.41 1.44 1.19 0.64 0.9 Tangible Book Value 8.4 11.1 97.5 79.3 34.9 188.9 Tangible Book Value/Share 0.16 0.21 1.3 1.06 0.46 0.87 Total Debt 106.4 83.5 83.7 97.3 121.0 101.5 Net Debt 49.8 27.3 (4.0) 54.4 97.7 (76.4) Debt Equiv. of Unfunded Proj. Benefit Obligation (3.3) 4.8 (4.6) (1.3) (1.5) 2.5 Debt Equivalent Oper. Leases 492.8 573.6 646.4 658.4 672.8 705.6 Equity Method Investments NA NA NA 16.2 13.2 12.4 Inventory Method Spec. ID Spec. ID Spec. ID Spec. ID Spec. ID NA Raw Materials Inventory 5.4 4.3 4.1 5.8 6.0 6.8 Work in Progress Inventory 1.1 1.1 0.9 NA NA NA Finished Goods Inventory 1.0 0.7 0.8 0.8 0.8 NA Land 11.3 11.5 13.7 24.5 24.6 24.6 Buildings 0.3 NA NA NA NA NA Machinery 209.0 178.7 176.4 222.3 209.9 226.9 Construction in Progress - 3.2 24.6 - - - Full Time Employees 3,000 2,798 2,507 2,510 2,322 1,529 Part-Time Employees NA NA 442 443 442 431 Accum. Allowance for Doubtful Accts NA 0.7 0.1 0.1 0.1 NA Filing Date May-30-2010 Jun-29-2011 Jun-08-2012 Jun-21-2013 Jun-12-2014 Jun-12-2014 Restatement Type RS RS NC NC NC O Calculation Type REP REP REP REP REP REP
Note: For multiple class companies, total share counts are primary class equivalent, and for foreign companies listed as primary ADRs, total share counts are ADR-equivalent.
66 of 179 Flybe Group PLC (LSE:FLYB) > Financials > Cash Flow
In Millions of the reported currency, except per share items. Template: Standard Restatement: Latest Filings Period Type: Annual Order: Latest on Right Currency: Reported Currency Conversion: Historical Units: S&P Capital IQ (Default) Decimals: Capital IQ (Default)
Cash Flow Restated Restated Restated For the Fiscal Period Ending 12 months 12 months 12 months 12 months 12 months 12 months Mar-31-2009 Mar-31-2010 Mar-31-2011 Mar-31-2012 Mar-31-2013 Mar-31-2014 Currency GBP GBP GBP GBP GBP GBP
Net Income 4.1 22.2 3.8 (6.4) (42.2) 8.0 Depreciation & Amort. 20.4 15.7 14.9 15.2 12.6 13.5 Depreciation & Amort., Total 20.4 15.7 14.9 15.2 12.6 13.5
Other Amortization - 1.1 1.0 1.0 0.9 0.8 (Gain) Loss From Sale Of Assets (0.2) (1.4) (0.4) (1.2) 1.4 (11.1) Asset Writedown & Restructuring Costs 2.8 - - - 6.6 (2.1) (Income) Loss on Equity Invest. - - - 3.0 2.8 0.5 Stock-Based Compensation - 0.4 0.5 0.5 0.6 1.5 Other Operating Activities (13.4) (12.0) 2.1 1.5 (3.3) (8.5) Change in Acc. Receivable (14.5) (10.8) (3.5) (18.3) 8.4 (8.2) Change In Inventories (0.2) 1.4 0.3 (0.8) (0.2) - Change in Acc. Payable 25.4 (1.2) (2.8) 4.5 7.5 (9.8) Change in Other Net Operating Assets (2.2) (0.5) 2.2 4.0 1.9 9.9 Cash from Ops. 22.2 14.9 18.1 3.0 (3.0) (5.5)
Capital Expenditure (9.5) (90.5) (42.5) (113.4) (39.4) (19.9) Sale of Property, Plant, and Equipment 22.2 78.3 21.7 72.4 10.6 13.6 Cash Acquisitions ------Divestitures ------Sale (Purchase) of Intangible assets (0.8) (0.4) (1.1) (0.7) (4.0) 16.2 Invest. in Marketable & Equity Securt. - - - (18.2) (0.3) - Net (Inc.) Dec. in Loans Originated/Sold ------Other Investing Activities (7.3) 25.5 (13.5) 1.8 0.5 12.5 Cash from Investing 4.6 12.9 (35.4) (58.1) (32.6) 22.4
Short Term Debt Issued ------Long-Term Debt Issued 7.8 62.2 17.6 90.9 39.5 14.7 Total Debt Issued 7.8 62.2 17.6 90.9 39.5 14.7 Short Term Debt Repaid ------Long-Term Debt Repaid (31.3) (84.5) (16.4) (77.3) (21.0) (25.4) Total Debt Repaid (31.3) (84.5) (16.4) (77.3) (21.0) (25.4)
67 of 179 Issuance of Common Stock - - 66.0 - - 155.7 Repurchase of Preferred Stock (14.1) - - - - -
Total Dividends Paid ------
Special Dividend Paid ------Other Financing Activities - (4.1) (8.3) (3.3) (2.5) (7.3) Cash from Financing (37.6) (26.4) 58.9 10.3 16.0 137.7
Net Change in Cash (10.8) 1.4 41.6 (44.8) (19.6) 154.6
Supplemental Items Cash Interest Paid 9.1 4.1 2.6 3.3 2.5 1.7 Cash Taxes Paid NA NA NA NA NA NA Levered Free Cash Flow 10.4 (2.3) (72.3) (97.5) (42.8) 37.9 Unlevered Free Cash Flow 14.5 0.3 (70.7) (95.5) (41.2) 38.9 Change in Net Working Capital (2.1) (67.8) 46.4 (3.5) (2.1) (26.0) Net Debt Issued (23.5) (22.3) 1.2 13.6 18.5 (10.7) Filing Date May-30-2010 Jun-29-2011 Jun-08-2012 Jun-21-2013 Jun-12-2014 Jun-12-2014 Restatement Type RS RS NC NC RS O Calculation Type REP REP REP REP REP REP
68 of 179 Flybe Group PLC (LSE:FLYB) > Financials > Multiples
View: Data Frequency: Quarterly Order: Latest on Right Decimals: Capital IQ (Default)
Multiples Detail In Millions of the reported currency, except per share items.
For Quarter Ending Jun-28-2013 Sep-30-2013 Dec-31-2013 Mar-31-2014 Jun-30-2014 Sep-26-2014 TEV/LTM Total Revenue Average 0.19x 0.25x 0.25x 0.33x 0.54x 0.28x High 0.22x 0.27x 0.27x 0.59x 0.64x 0.32x Low 0.18x 0.22x 0.24x 0.25x 0.28x 0.25x Close 0.21x 0.27x 0.25x 0.58x 0.29x 0.32x
TEV/NTM Total Revenues Average 0.19x - - - 0.57x 0.30x High 0.21x - - - 0.68x 0.35x Low 0.17x - - - 0.29x 0.27x Close 0.21x - - - 0.31x 0.35x
TEV/LTM EBITDA Average NM NM 170.21x 186.31x 13.80x 12.01x High NM NM 176.82x 200.62x 15.57x 13.97x Low NM NM 165.55x 174.73x 12.27x 10.72x Close NM NM 176.82x NM 12.76x 13.97x
TEV/NTM EBITDA Average 6.90x - - - 10.70x 4.01x High 11.80x - - - 15.84x 4.69x Low 5.62x - - - 4.09x 3.59x Close 8.21x - - - 4.25x 4.69x
TEV/LTM EBIT Average NM NM NM NM 242.94x 214.66x High NM NM NM NM 278.23x 249.71x Low NM NM NM NM 219.33x 191.57x Close NM NM NM NM 228.13x 249.71x
P/LTM EPS Average NM NM NM NM 13.10x 11.83x High NM NM NM NM 14.30x 13.11x Low NM NM NM NM 12.05x 10.99x Close NM NM NM NM 12.38x 13.11x
P/NTM EPS Average 18.53x - - - 11.91x 14.41x High 32.77x - - - 17.08x 16.16x Low 13.02x - - - 8.77x 13.54x Close 13.05x - - - 14.75x 16.16x
69 of 179 P/LTM Normalized EPS Average NM NM NM NM 20.67x 18.69x High NM NM NM NM 22.60x 20.72x Low NM NM NM NM 19.04x 17.36x Close NM NM NM NM 19.57x 20.72x
P/BV Average 0.45x 1.11x 1.33x 1.78x 1.90x 1.27x High 0.72x 1.41x 1.58x 2.01x 2.21x 1.41x Low 0.36x 0.73x 1.02x 1.54x 0.64x 1.18x Close 0.69x 1.39x 1.58x 1.95x 1.33x 1.41x
P/Tangible BV Average 0.53x 1.52x 1.83x 2.43x 2.50x 1.31x High 0.99x 1.94x 2.17x 2.75x 3.03x 1.45x Low 0.40x 1.00x 1.40x 2.12x 0.66x 1.22x Close 0.95x 1.92x 2.17x 2.68x 1.37x 1.45x
TEV/LTM Unlevered FCF Average NM NM 5.82x 7.92x 12.31x 4.41x High NM NM 6.05x 13.96x 15.28x 5.13x Low NM NM 5.67x 5.98x 4.51x 3.94x Close NM NM 6.05x 13.84x 4.69x 5.13x
Market Cap/LTM Levered FCF Average NM NM 2.98x 5.20x 11.00x 6.56x High NM NM 3.22x 11.59x 12.98x 7.30x Low NM NM 2.81x 3.14x 6.65x 6.07x Close NM NM 3.22x 11.46x 6.84x 7.30x
Average multiples are calculated using positive close values on each trading day within the frequency periods selected. Negative values are excluded from the calculation. When the Multiples are not meaningful, due to negative values, then they will not be displayed in the chart.
When a mismatch exists between the currency of the equity listing and the reported financial results such results are translated into the currency of the listing at the exchange rate applicable on the financial period end date.
70 of 179 Flybe Group PLC (LSE:FLYB) > Financials > Historical Capitalization
In Millions of the trading currency, except per share items. Frequency: Quarterly Order: Latest on Right Currency: Trading Currency Conversion: Historical Units: S&P Capital IQ (Default) Decimals: Capital IQ (Default)
Historical Capitalization Balance Sheet as of: Sep-30-2011 Mar-31-2012 Sep-30-2012 Mar-31-2013 Sep-30-2013 Mar-31-2014 Pricing as of* Nov-09-2011 Jun-08-2012 Nov-08-2012 Jun-21-2013 Nov-11-2013 Jun-12-2014 Currency GBP GBP GBP GBP GBP GBP Capitalization Detail Share Price 0.7 0.62 0.52 0.42 0.96 1.35 Shares Out. 74.9 75.2 74.9 75.2 75.2 216.7
Market Capitalization 52.4 46.6 38.9 31.2 72.0 293.0 - Cash & Short Term Investments 70.3 42.9 27.9 23.3 19.1 177.9 + Total Debt 66.6 97.3 109.1 121.0 98.2 101.5 + Pref. Equity ------+ Total Minority Interest ------= Total Enterprise Value (TEV) 48.7 101.0 120.1 128.9 151.1 216.6
Book Value of Common Equity 112.5 89.4 85.4 48.1 50.6 194.1 + Pref. Equity ------+ Total Minority Interest ------+ Total Debt 66.6 97.3 109.1 121.0 98.2 101.5 = Total Capital 179.1 186.7 194.5 169.1 148.8 295.6
* Pricing as of the filing date of the balance sheet period end date. For TEV calculation purposes on this page Capital IQ only uses balance sheet components from the original filing that is publicly available as of a given pricing date and does not use restated balance sheet data from a later filing. In the cases where a company did not disclose balance sheet values for a particular period, TEV is calculated using balance sheet components from the last reported balance sheet as of this date. The table above is organized along period end dates.
** For companies that have multiple share classes that publicly trade, we are incorporating the different prices to calculate our company level market capitalization. Please click on the value to see the detailed calculation. Prices shown on this page are the close price of the company’s primary stock class. Shares shown on this page are total company as-reported share values.
71 of 179 Flybe Group PLC (LSE:FLYB) > Financials > Capital Structure Summary
In Millions of the reported currency, except ratios and % of Total values. Restatement: Latest Filings Period Type: Annual Currency: Reported Currency Conversion: Historical Units: S&P Capital IQ (Default) Decimals: Capital IQ (Default) Order: Latest on Right
Capital Structure Data For the Fiscal Period Ending 12 months Mar-31-2012 12 months Mar-31-2013 12 months Mar-31-2014 Currency GBP GBP GBP Units Millions % of Total Millions % of Total Millions % of Total
Total Debt 97.3 52.1% 121.0 71.6% 101.5 34.3% Total Common Equity 89.4 47.9% 48.1 28.4% 194.1 65.7% Total Capital 186.7 100.0% 169.1 100.0% 295.6 100.0%
Debt Summary Data For the Fiscal Period Ending 12 months Mar-31-2012 12 months Mar-31-2013 12 months Mar-31-2014 Currency GBP GBP GBP Units Millions % of Total Millions % of Total Millions % of Total
Total Term Loans 97.3 100.0% 121.0 100.0% 101.5 100.0% Total Principal Due 97.3 100.0% 121.0 100.0% 101.5 100.0%
Total Debt Outstanding 97.3 100.0% 121.0 100.0% 101.5 100.0%
Available Credit Undrawn Revolving Credit 2.2 - 2.7 - 4.3 - Total Undrawn Credit 2.2 - 2.7 - 4.3 -
Additional Totals Total Cash & ST Investments 42.9 - 23.3 - 177.9 - Net Debt 54.4 - 97.7 - (76.4) - Total Senior Debt 97.3 100.0% 121.0 100.0% 101.5 100.0% Curr. Port. of LT Debt/Cap. Leases 21.3 21.9% 18.7 15.5% 10.4 10.2% Long-Term Debt (Incl. Cap. Leases) 76.0 78.1% 102.3 84.5% 91.1 89.8% Total Bank Debt 97.3 100.0% 121.0 100.0% 101.5 100.0% Total Secured Debt 97.3 100.0% 121.0 100.0% 101.5 100.0% Senior Secured Loans 97.3 100.0% 121.0 100.0% 101.5 100.0% Total Senior Secured Debt 97.3 100.0% 121.0 100.0% 101.5 100.0% Fixed Rate Debt 11.2 11.5% 5.4 4.5% 4.8 4.7% Variable Rate Debt 86.1 88.5% 115.6 95.5% 96.7 95.3%
72 of 179 Credit Ratios Net Debt/EBITDA 4.3x - NM - NM - Total Debt/EBITDA 7.7x - NM - 6.9x - Total Senior Debt/EBITDA 7.7x - NM - 6.9x - Total Senior Secured/EBITDA 7.7x - NM - 6.9x - Net Debt/(EBITDA-CAPEX) NM - NM - NM - Total Debt/(EBITDA-CAPEX) NM - NM - NM - Total Senior Debt/(EBITDA-CAPEX) NM - NM - NM - Total Senior Secured/(EBITDA-CAPEX) NM - NM - NM -
Fixed Payment Schedule LT Debt (Incl. Cap. Leases) Due +1 20.7 21.3% 18.6 15.4% 10.1 10.0% LT Debt (Incl. Cap. Leases) Due +2 7.7 7.9% 11.5 9.5% 12.9 12.7% LT Debt (Incl. Cap. Leases) Due +3 10.3 10.6% 13.2 10.9% 8.5 8.4% LT Debt (Incl. Cap. Leases) Due +4 10.3 10.6% 13.2 10.9% 8.5 8.4% LT Debt (Incl. Cap. Leases) Due +5 10.3 10.6% 13.2 10.9% 8.5 8.4% LT Debt (Incl. Cap. Leases) Due, Next 5 Yrs 59.4 61.1% 69.7 57.6% 48.6 47.9% LT Debt (Incl. Cap. Leases) Due, After 5 Yrs 37.9 38.9% 51.3 42.4% 52.9 52.1%
Operating Lease Commitment Due +1 81.7 - 88.0 - 81.0 - Operating Lease Commitment Due +2 79.7 - 79.2 - 73.8 - Operating Lease Commitment Due +3 65.5 - 66.2 - 58.1 - Operating Lease Commitment Due +4 65.5 - 66.2 - 58.1 - Operating Lease Commitment Due +5 65.5 - 66.2 - 58.1 - Operating Lease Commitment Due, Next 5 Yrs 358.0 - 365.8 - 329.2 - Operating Lease Commitment Due, After 5 Yrs 143.4 - 118.5 - 86.5 -
Contractual Obligations Due +1 36.8 - 35.7 - 36.8 - Contractual Obligations Due, Next 5 Yrs 36.8 - 35.7 - 36.8 - Total Contractual Obligations 36.8 - 35.7 - 36.8 -
Interest Rate Data Filing Date Jun-21-2013 - Jun-12-2014 - Jun-12-2014 -
73 of 179 Flybe Group PLC (LSE:FLYB) > Financials > Capital Structure Details
Principal Due in Millions of the reported currency. Period Type: Annual Source: A 2014 filed Jun-12-2014 Currency: Reported Currency Conversion: Historical Units: S&P Capital IQ (Default) Decimals: Capital IQ (Default)
FY 2014 (Mar-31-2014) Capital Structure As Reported Details
Coupon/Base Repayment Description Type Principal Due (GBP) Rate Floating Rate Maturity Seniority Secured Convertible Currency Secured Bank Loans: Fixed Term Loans 4.2 3.100% NA 2029 Senior Yes No GBP Rate Sterling Loans Secured Bank Loans: Fixed Term Loans 0.6 5.400% NA 2029 Senior Yes No USD Rate US Dollar Loans Secured Bank Loans: Floating Term Loans 9.2 3.200% LIBOR + 3.800% 2029 Senior Yes No GBP Rate Sterling Loans Secured Bank Loans: Floating Term Loans 87.5 2.200% LIBOR + 3.800% 2029 Senior Yes No USD Rate US Dollar Loans
FY 2013 (Mar-31-2013) Capital Structure As Reported Details
Coupon/Base Repayment Description Type Principal Due (GBP) Rate Floating Rate Maturity Seniority Secured Convertible Currency Secured Bank Loans: Fixed Term Loans 4.6 3.100% NA 2029 Senior Yes No GBP Rate Sterling Loans Secured Bank Loans: Fixed Term Loans 0.8 5.400% NA 2029 Senior Yes No USD Rate US Dollar Loans Secured Bank Loans: Floating Term Loans 17.7 3.200% LIBOR + 3.800% 2029 Senior Yes No GBP Rate Sterling Loans Secured Bank Loans: Floating Term Loans 97.9 2.200% LIBOR + 3.800% 2029 Senior Yes No USD Rate US Dollar Loans
74 of 179 Flybe Group PLC (LSE:FLYB) > Financials > Ratios
Restatement: Latest Filings Period Type: Annual Order: Latest on Right Decimals: Capital IQ (Default)
Ratios For the Fiscal Period Ending 12 months 12 months 12 months 12 months 12 months 12 months Mar-31-2009 Mar-31-2010 Mar-31-2011 Mar-31-2012 Mar-31-2013 Mar-31-2014 Profitability Return on Assets % 0.6% 1.9% 0.8% (0.4%) (3.4%) 0.2% Return on Capital % 1.5% 5.4% 2.0% (0.8%) (7.9%) 0.3% Return on Equity % 28.7% 116.8% 5.9% (6.5%) (61.4%) 6.6% Return on Common Equity % 28.7% 116.8% 5.9% (6.5%) (61.4%) 6.6%
Margin Analysis Gross Margin % 9.7% 14.8% 12.7% 11.1% 10.6% 13.1% SG&A Margin % 9.1% 4.2% 4.1% 4.1% 4.1% 3.8% EBITDA Margin % 4.1% 4.5% 3.3% 2.1% (1.6%) 2.4% EBITA Margin % 0.6% 1.7% 0.8% (0.4%) (3.6%) 0.2% EBIT Margin % 0.6% 1.7% 0.8% (0.4%) (3.6%) 0.2% Earnings from Cont. Ops Margin % 0.7% 3.9% 0.6% (1.0%) (6.9%) 1.3% Net Income Margin % 0.7% 3.9% 0.6% (1.0%) (6.9%) 1.3% Net Income Avail. for Common Margin % 0.7% 3.9% 0.6% (1.0%) (6.9%) 1.3% Normalized Net Income Margin % 1.4% 2.6% (0.6%) (0.7%) (3.2%) 0.8% Levered Free Cash Flow Margin % 1.8% (0.4%) (12.1%) (15.8%) (7.0%) 6.1% Unlevered Free Cash Flow Margin % 2.5% 0.1% (11.9%) (15.5%) (6.7%) 6.3%
Asset Turnover Total Asset Turnover 1.8x 1.7x 1.6x 1.5x 1.5x 1.3x Fixed Asset Turnover 4.0x 4.3x 4.5x 4.1x 3.8x 3.7x Accounts Receivable Turnover 16.6x 17.5x 18.4x 13.7x 13.1x 17.3x Inventory Turnover 70.2x 71.5x 87.4x 88.3x 82.0x 79.3x
Short Term Liquidity Current Ratio 1.0x 0.8x 1.1x 0.9x 0.8x 1.4x Quick Ratio 0.6x 0.6x 0.8x 0.6x 0.4x 1.1x Cash from Ops. to Curr. Liab. 0.1x 0.1x 0.1x 0.0x NM NM Avg. Days Sales Out. 22.0 20.9 19.9 26.8 27.9 21.1 Avg. Days Inventory Out. 5.2 5.1 4.2 4.1 4.5 4.6 Avg. Days Payable Out. 18.3 21.4 17.0 14.7 14.4 14.5 Avg. Cash Conversion Cycle 8.8 4.6 7.0 16.2 18.0 11.2
75 of 179 Long Term Solvency Total Debt/Equity 644.8% 388.4% 77.6% 108.8% 251.6% 52.3% Total Debt/Capital 86.6% 79.5% 43.7% 52.1% 71.6% 34.3% LT Debt/Equity 471.5% 343.3% 61.9% 85.0% 212.7% 46.9% LT Debt/Capital 63.3% 70.3% 34.9% 40.7% 60.5% 30.8% Total Liabilities/Total Assets 95.0% 93.5% 73.9% 78.5% 88.1% 64.6%
EBIT / Interest Exp. 0.5x 2.4x 1.8x NM NM 0.8x EBITDA / Interest Exp. 3.6x 6.2x 7.5x 3.8x NM 8.7x (EBITDA-CAPEX) / Interest Exp. 2.2x NM NM NM NM NM Total Debt/EBITDA 4.5x 3.3x 4.3x 7.7x NM 6.9x Net Debt/EBITDA 2.1x 1.1x NM 4.3x NM NM Total Debt/(EBITDA-CAPEX) 7.5x NM NM NM NM NM Net Debt/(EBITDA-CAPEX) 3.5x NM NM NM NM NM
Altman Z Score 1.73 1.62 2.0 1.53 1.1 1.35
Growth Over Prior Year Total Revenue 7.6% (1.1%) 4.4% 3.3% (0.2%) 1.0% Gross Profit (15.9%) 51.7% (10.7%) (9.8%) (4.3%) 24.5% EBITDA (22.9%) 8.5% (23.4%) (35.2%) NM NM EBITA (77.7%) 209.4% (52.5%) NM NM NM EBIT (77.7%) 209.4% (52.5%) NM NM NM Earnings from Cont. Ops. (88.2%) 441.5% (82.9%) NM NM NM Net Income (88.2%) 441.5% (82.9%) NM NM NM Normalized Net Income (64.4%) 91.3% NM NM NM NM Diluted EPS before Extra (88.8%) 437.8% (84.8%) NM NM NM
Accounts Receivable (1.1%) (10.7%) 10.4% 43.2% (22.8%) (24.5%) Inventory 2.3% (18.7%) (4.9%) 13.8% 3.0% 0.0% Net PP&E (10.2%) (5.9%) 4.9% 18.9% 2.0% 3.1% Total Assets 3.7% 0.4% 25.4% 0.3% (2.3%) 35.0%
Tangible Book Value (61.9%) 32.1% 778.4% (18.7%) (56.0%) 441.3% Common Equity 37.0% 30.3% 401.9% (17.1%) (46.2%) 303.5% Cash from Ops. NM (32.9%) 21.5% (83.4%) NM NM Capital Expenditures (81.6%) 852.6% (53.0%) 166.8% (65.3%) (49.5%) Levered Free Cash Flow NM NM NM NM NM NM Unlevered Free Cash Flow NM (98.0%) NM NM NM NM Dividend per Share NA NA NA NA NA NA
76 of 179 Compound Annual Growth Rate Over Two Years Total Revenue 25.3% 3.2% 1.6% 3.9% 1.6% 0.4% Gross Profit 1.9% 13.0% 16.4% (10.2%) (7.1%) 9.2% EBITDA (7.0%) (8.5%) (8.9%) (29.6%) NM 8.0% EBITA (54.8%) (17.0%) 21.2% NM NM NM EBIT (54.8%) (17.0%) 21.2% NM NM NM Earnings from Cont. Ops. NM (20.2%) (3.7%) NM NM NM Net Income NM (20.2%) (3.7%) NM NM NM Normalized Net Income (9.2%) (17.4%) NM NM NM NM Diluted EPS before Extra NA (22.5%) (9.5%) NM NM NM
Accounts Receivable (11.2%) (6.0%) (0.7%) 25.7% 5.2% (23.6%) Inventory 3.4% (8.8%) (12.1%) 4.0% 8.3% 1.5% Net PP&E (12.6%) (8.1%) (0.6%) 11.7% 10.2% 2.6% Total Assets (7.3%) 2.0% 12.2% 12.2% (1.0%) 14.9%
Tangible Book Value (29.9%) (29.1%) 240.7% 167.3% (40.2%) 54.3% Common Equity NM 33.6% 155.7% 103.9% (33.2%) 47.3% Cash from Ops. (14.6%) NM (9.7%) (55.1%) NM NM Capital Expenditures (52.8%) 32.4% 111.5% 11.9% (3.7%) (58.1%) Levered Free Cash Flow NA NM NM NM NM NM Unlevered Free Cash Flow NA NM NM NM NM NM Dividend per Share NA NA NA NA NA NA
Compound Annual Growth Rate Over Three Years Total Revenue NA 15.8% 3.6% 2.2% 2.5% 1.4% Gross Profit NA 16.3% 4.5% 6.9% (8.3%) 2.5% EBITDA NA (2.1%) (13.8%) (18.7%) NM (8.9%) EBITA NA (14.2%) (31.1%) NM NM (34.8%) EBIT NA (14.2%) (31.1%) NM NM (34.8%) Earnings from Cont. Ops. NA NM (52.2%) NM NM 28.2% Net Income NA NM (52.2%) NM NM 28.2% Normalized Net Income NA 16.4% NM NM NM NM Diluted EPS before Extra NA NA (54.9%) NM NM 14.7%
Accounts Receivable NA (11.0%) (0.9%) 12.2% 6.9% (5.8%) Inventory NA (4.6%) (7.5%) (4.2%) 3.7% 5.4% Net PP&E NA (10.4%) (3.9%) 5.5% 8.4% 7.8% Total Assets NA (4.8%) 9.3% 8.1% 7.1% 9.8%
Tangible Book Value NA (13.4%) 64.1% 111.3% 46.5% 24.7% Common Equity NA NM 107.7% 75.6% 30.8% 21.6% Cash from Ops. NA (21.2%) NM (48.7%) NM NM Capital Expenditures NA 28.5% (6.3%) 128.5% (24.2%) (22.3%) Levered Free Cash Flow NA NA NM NM NM NM Unlevered Free Cash Flow NA NA NM NM NM NM Dividend per Share NA NA NA NA NA NA
77 of 179 Compound Annual Growth Rate Over Five Years Total Revenue NA NA NA 10.9% 2.8% 1.5% Gross Profit NA NA NA 4.9% (0.3%) 7.8% EBITDA NA NA NA (14.2%) NM (8.9%) EBITA NA NA NA NM NM (16.5%) EBIT NA NA NA NM NM (16.5%) Earnings from Cont. Ops. NA NA NA NM NM 14.3% Net Income NA NA NA NM NM 14.3% Normalized Net Income NA NA NA NM NM (8.5%) Diluted EPS before Extra NA NA NA NA NM 4.3%
Accounts Receivable NA NA NA 2.2% 1.5% (3.8%) Inventory NA NA NA (1.2%) (1.5%) (1.9%) Net PP&E NA NA NA (2.2%) 1.5% 4.3% Total Assets NA NA NA 1.6% 5.1% 10.8%
Tangible Book Value NA NA NA 35.9% 9.6% 86.4% Common Equity NA NA NA NM 31.9% 63.7% Cash from Ops. NA NA NA (37.1%) NM NM Capital Expenditures NA NA NA 21.6% (5.2%) 15.9% Levered Free Cash Flow NA NA NA NA NM 29.5% Unlevered Free Cash Flow NA NA NA NA NM 21.9% Dividend per Share NA NA NA NA NA NA
78 of 179
Information for
Flybe Group plc
Comparable Company information
79 of 179 Flybe Group PLC (LSE:FLYB) > Quick Comparable Analysis > Inputs
Details Template: Capital IQ Default Comps Currency: British Pound
Company Comp Set Company Name 5 Year LTM Basic Business Description City Country Day LTM Diluted LTM LTM Beta EPS Close EPS Excl. EBIT EBIT Price Extra Items Latest easyJet plc (LSE:EZJ) 0.56 1.03 easyJet plc, together with its Luton United Kingdom 13.93 1.02 484.0 484.0 International Consolidated Airlines Group, S.A. (LSE:IAG) 1.48 0.28 International Consolidated Hounslow United Kingdom 3.71 0.28 706.9 706.9 Dart Group plc (AIM:DTG) 0.8 0.25 Dart Group PLC, together with Leeds United Kingdom 2.16 0.24 49.2 49.2 Air France-KLM SA (ENXTPA:AF) 1.39 ( 4.33) Air France-KLM S.A. primarily Paris France 5.85 ( 4.1) 317.1 317.1 Deutsche Lufthansa Aktiengesellschaft (DB:LHA) 0.9 0.74 Deutsche Lufthansa AG, an Cologne Germany 9.92 0.74 824.8 824.8 Ryanair Holdings plc (ISE:RY4B) 0.3 0.36 Ryanair Holdings plc, together Swords Ireland 5.83 0.36 617.7 617.7 Aer Lingus Group plc (ISE:EIL1) 0.96 0.07 Aer Lingus Group plc, together Dublin Ireland 1.11 0.07 54.4 54.4 Air Partner plc (LSE:AIP) 0.65 0.15 Air Partner plc provides Gatwick United Kingdom 3.44 0.17 2.2 2.2 AirAsia X Berhad (KLSE:AAX) - ( 0.03) AirAsia X Berhad provides long Sepang Malaysia 0.15 ( 0.03) (35.7) (35.7) Aegean Airlines S.A. (ATSE:AEGN) 0.85 0.63 Aegean Airlines S.A., an airline Athens Greece 5.31 0.63 65.9 65.9 Flybe Group PLC (LSE:FLYB) 0.75 0.1 Flybe Group plc operates as a Exeter United Kingdom 1.27 0.1 1.3 1.3
All values in millions, except per share data and ratios. Values converted at today's spot rate. Companies by default are sorted by S&P Capital IQ’s proprietary relevancy score.
80 of 179 LTM EBIT LTM EBIT, LTM NTM LTM NTM LTM LTM NTM EPS NTM EPS LTM Filing Financials NTM Forward NTM Forward Margin % 1 Yr EBITDA EBITDA EBITDA EBITDA EBITDA EBITDA, 1 (Capital IQ) (Capital IQ) Date, Income Updated P/E (Capital IQ) P/E (Capital Growth % (Capital (Capital IQ) Margin % Yr Growth % Statement IQ) IQ) 11.1% 23.79% 587.0 756.37 587.0 756.37 13.5% 18.59% 1.19 1.19 May-13-2014 May-15-2014 11.70x 11.70x 4.7% 426.16% 1,541.1 2,238.45 1,541.1 2,238.45 10.3% 63.06% 0.39 0.39 Aug-01-2014 Aug-03-2014 9.46x 9.46x 4.4% 29.82% 109.9 102.79 109.9 102.79 9.8% 31.77% 0.19 0.19 Jul-31-2014 Aug-04-2014 11.34x 11.34x 1.6% - 1,545.8 2,047.17 1,545.8 2,047.17 7.8% 35.55% 0.52 0.52 Aug-04-2014 Aug-05-2014 11.21x 11.21x 3.5% 14.16% 1,924.6 2,254.71 1,924.6 2,254.71 8.3% (4.20%) 1.44 1.44 Jul-31-2014 Aug-03-2014 6.90x 6.90x 15.2% 15.34% 897.3 983.92 897.3 983.92 22.1% 12.53% 0.4 0.4 Jul-28-2014 Jul-29-2014 14.66x 14.66x 4.8% 43.96% 119.5 116.44 119.5 116.44 10.4% 19.54% 0.07 0.07 Jul-30-2014 Aug-01-2014 15.71x 15.71x 1.1% - 2.4 4.74 2.4 4.74 1.2% - 0.29 0.29 Sep-23-2014 Sep-24-2014 12.03x 12.03x (7.0%) - (6.3) 59.2 (6.3) 59.2 (1.2%) - - - Aug-19-2014 Aug-21-2014 - - 10.3% 63.38% 75.8 159.15 75.8 159.15 11.8% 53.81% 0.75 0.75 Aug-30-2014 Sep-04-2014 7.10x 7.10x 0.2% - 14.8 42.63 14.8 42.63 2.4% - 0.08 0.08 Jun-12-2014 Jun-13-2014 16.16x 16.16x
81 of 179 LTM Gross Headquarters NTM LT EPS Market LTM LTM LTM Net LTM Net LTM Net Margin % Growth Rate Capitalization Minority Minority Debt Income Income, 1 Yr Liquidity (Capital IQ) Latest Interest Interest Margin % Growth % Operational Overall
21.5% Hangar 89, London Luton 3 - 5,473.3 - - (449.0) 9.27% 35.57% 1 3 19.6% 2 World Business Centre 4 - 7,556.4 239.8 239.8 600.7 3.78% - 2 3 16.3% Low Fare Finder House, Leeds 2 - 314.9 - - (253.9) 3.20% 15.06% 3 2 19.2% 2 rue Robert Esnault Pelterie, 4 - 1,731.9 34.37 34.37 4,813.1 (6.48%) - 3 4 18.7% Von-Gablenz-Strasse 2-6, 4 - 4,573.1 43.74 43.74 1,233.3 1.47% (55.18%) 2 4 26.0% Concourse Building, Airside 1 - 8,072.4 - - (431.9) 12.36% 16.93% 1 1 14.1% Dublin Airport, Dublin, Co. 2 - 593.0 - - (373.8) 3.09% 40.72% 4 2 11.0% 2 City Place, Beehive Ring 2 - 35.3 - - (18.0) 0.78% - 2 2 7.4% Jalan KLIA S7, Lot PT16, 3 - 353.5 - - 349.2 (9.11%) - 4 4 12.7% 31, Viltanioti Str., Kifisia, 1 - 379.3 - - (244.7) 6.97% 28.63% 3 1 13.1% Jack Walker House, Exeter 3 - 276.2 - - (76.4) 1.29% - 4 3
82 of 179 P/Diluted EPS P/Diluted EPS P/TangBV LTM P/TangBV LTM LTM Period Ending Primary Industry Primary Industry NTM Revenue NTM Revenue Shares Before Extra LTM - Before Extra LTM - Latest - Latest Classification Classification (Capital IQ) (Capital IQ) Outstanding Overall Latest - Latest Latest
3 13.7x 13.7x 4.6x 4.6x Mar-31-2014 Airlines Airlines 4,705.85 4,705.85 392.9 3 13.1x 13.1x 4.9x 4.9x Jun-30-2014 Airlines Airlines 16,025.81 16,025.81 2,038.4 2 8.9x 8.9x 1.8x 1.8x Mar-31-2014 Airlines Airlines 1,263.22 1,263.22 145.9 4 NM NM NM NM Jun-30-2014 Airlines Airlines 20,149.2 20,149.2 296.0 4 13.4x 13.4x 1.7x 1.7x Jun-30-2014 Airlines Airlines 23,920.71 23,920.71 461.1 1 16.3x 16.3x 3.0x 3.0x Jun-30-2014 Airlines Airlines 4,278.39 4,278.39 1,384.4 2 16.8x 16.8x 1.0x 1.0x Jun-30-2014 Airlines Airlines 1,176.67 1,176.67 532.7 2 20.8x 20.8x 3.2x 3.2x Jul-31-2014 Airlines Airlines 231.54 231.54 10.3 4 NM NM 1.7x 1.7x Jun-30-2014 Airlines Airlines 651.8 651.8 2,370.4 1 8.5x 8.5x 6.8x 6.8x Jun-30-2014 Airlines Airlines 749.12 749.12 71.4 3 13.1x 13.1x 1.5x 1.5x Mar-31-2014 Airlines Airlines 564.12 564.12 218.3
83 of 179 Shares State Street Address 1 Street Address 2 LTM Tangible LTM Tangible TEV/EBIT TEV/EBIT TEV/EBITDA LTM - TEV/EBITDA LTM - Outstanding Book Book LTM - Latest LTM - Latest Latest Latest Latest Solvency Value/Share Value/Share
392.9 2 - Hangar 89 London Luton Airport 3.01 3.01 10.4x 10.4x 8.6x 8.6x 2,038.4 3 - 2 World Business Centre Newall Road 0.74 0.74 11.6x 11.6x 5.3x 5.3x 145.9 1 - Low Fare Finder House Leeds Bradford International 1.2 1.2 1.2x 1.2x 0.6x 0.6x 296.0 4 - 2 rue Robert Esnault Pelterie - ( 0.54) ( 0.54) 44.6x 44.6x 4.8x 4.8x 461.1 3 - Von-Gablenz-Strasse 2-6 - 5.71 5.71 6.4x 6.4x 2.9x 2.9x 1,384.4 4 - Concourse Building Airside Business Park 1.96 1.96 12.4x 12.4x 8.5x 8.5x 532.7 2 - Dublin Airport - 1.17 1.17 4.0x 4.0x 1.8x 1.8x 10.3 1 - 2 City Place Beehive Ring Road 1.06 1.06 8.0x 8.0x 7.4x 7.4x 2,370.4 4 - Jalan KLIA S7 Lot PT16 0.09 0.09 NM NM NM NM 71.4 2 - 31, Viltanioti Str. Kifisia 0.78 0.78 2.0x 2.0x 1.8x 1.8x 218.3 3 - Jack Walker House Exeter International Airport 0.87 0.87 249.7x 249.7x 14.0x 14.0x
84 of 179 NTM TEV/Forward EBITDA NTM TEV/Forward EBITDA NTM TEV/Forward Total NTM TEV/Forward Total TEV/Total Revenues LTM - TEV/Total Revenues LTM - (Capital IQ) (Capital IQ) Revenue (Capital IQ) Revenue (Capital IQ) Latest Latest
6.64x 6.64x 1.07x 1.07x 1.2x 1.2x 3.76x 3.76x 0.53x 0.53x 0.5x 0.5x 0.59x 0.59x 0.05x 0.05x 0.1x 0.1x 3.21x 3.21x 0.33x 0.33x 0.3x 0.3x 2.59x 2.59x 0.24x 0.24x 0.3x 0.3x 7.77x 7.77x 1.79x 1.79x 1.9x 1.9x 1.88x 1.88x 0.19x 0.19x 0.2x 0.2x 3.66x 3.66x 0.07x 0.07x 0.1x 0.1x 11.87x 11.87x 1.08x 1.08x 1.4x 1.4x 0.85x 0.85x 0.18x 0.18x 0.2x 0.2x 4.69x 4.69x 0.35x 0.35x 0.3x 0.3x
85 of 179 LTM Total Cash & ST LTM Total Debt LTM Total Debt/Capital % LTM Total Debt/EBITDA Total LTM Total LTM Total LTM Total LTM Total Investments Enterprise Pref. Equity Pref. Equity Revenue Revenue Value Latest
1,069.0 620.0 27.18% 1.1x 5,024.3 - - 4,359.0 4,359.0 3,830.48 4,431.1 55.38% 2.9x 8,417.6 - - 14,958.7 14,958.7 263.7 9.8 5.12% 0.1x 61.0 - - 1,120.2 1,120.2 3,193.11 8,006.2 90.56% 5.2x 6,579.4 - - 19,778.1 19,778.1 2,916.6 4,149.9 51.70% 2.2x 5,850.2 - - 23,238.3 23,238.3 3,486.25 3,054.3 52.61% 3.4x 7,640.5 - - 4,054.0 4,054.0 724.22 350.5 35.56% 2.9x 219.2 - - 1,143.9 1,143.9 17.97 - - - 17.3 - - 194.5 194.5 27.44 376.7 64.66% NM 702.8 - - 510.3 510.3 288.38 43.6 26.13% 0.6x 134.6 - - 641.9 641.9 177.9 101.5 34.34% 6.9x 199.8 - - 620.5 620.5
86 of 179 LTM Total Zip Code Revenues, 1 Yr Growth %
9.25% LU2 9PF 4.70% TW6 2SF 28.88% LS19 7TU (0.73%) 75,007 (1.21%) 50,679 5.02% - 2.78% - - RH6 0PA 31.73% 64,000 33.05% 145 64 1.01% EX5 2HL
87 of 179 Flybe Group PLC (LSE:FLYB) > Quick Comparable Analysis > Financial Data
Details Template: Capital IQ Default Comps Currency: British Pound
Company Comp Set Company Name Day Close Shares Market LTM Net LTM LTM Total LTM Tangible LTM Filing LTM Total LTM LTM LTM Diluted NTM NTM EBITDA NTM EPS Price Latest Outstanding Capitalization Debt Total Minority Enterprise Book Date, Income Revenue EBITDA EBIT EPS Excl. Revenue (Capital IQ) (Capital IQ) Latest Latest Pref. Interest Value Latest Value/Share Statement Extra Items (Capital IQ) Equity easyJet plc (LSE:EZJ) 13.93 392.9 5,473.3 (449.0) - - 5,024.3 3.01 May-13-2014 4,359.0 587.0 484.0 1.02 4,705.85 756.37 1.19 International Consolidated Airlines Group, 3.71 2,038.4 7,556.4 600.7 - 239.8 8,417.6 0.74 Aug-01-2014 14,958.7 1,541.1 706.9 0.28 16,025.81 2,238.45 0.39 S.A. (LSE:IAG) Dart Group plc (AIM:DTG) 2.16 145.9 314.9 (253.9) - - 61.0 1.2 Jul-31-2014 1,120.2 109.9 49.2 0.24 1,263.22 102.79 0.19
Air France-KLM SA (ENXTPA:AF) 5.85 296.0 1,731.9 4,813.1 - 34.37 6,579.4 ( 0.54) Aug-04-2014 19,778.1 1,545.8 317.1 ( 4.1) 20,149.2 2,047.17 0.52 Deutsche Lufthansa Aktiengesellschaft 9.92 461.1 4,573.1 1,233.3 - 43.74 5,850.2 5.71 Jul-31-2014 23,238.3 1,924.6 824.8 0.74 23,920.71 2,254.71 1.44 (DB:LHA) Ryanair Holdings plc (ISE:RY4B) 5.83 1,384.4 8,072.4 (431.9) - - 7,640.5 1.96 Jul-28-2014 4,054.0 897.3 617.7 0.36 4,278.39 983.92 0.4 Aer Lingus Group plc (ISE:EIL1) 1.11 532.7 593.0 (373.8) - - 219.2 1.17 Jul-30-2014 1,143.9 119.5 54.4 0.07 1,176.67 116.44 0.07 Air Partner plc (LSE:AIP) 3.44 10.3 35.3 (18.0) - - 17.3 1.06 Sep-23-2014 194.5 2.4 2.2 0.17 231.54 4.74 0.29 AirAsia X Berhad (KLSE:AAX) 0.15 2,370.4 353.5 349.2 - - 702.8 0.09 Aug-19-2014 510.3 (6.3) (35.7) ( 0.03) 651.8 59.2 - Aegean Airlines S.A. (ATSE:AEGN) 5.31 71.4 379.3 (244.7) - - 134.6 0.78 Aug-30-2014 641.9 75.8 65.9 0.63 749.12 159.15 0.75 Flybe Group PLC (LSE:FLYB) 1.27 218.3 276.2 (76.4) - - 199.8 0.87 Jun-12-2014 620.5 14.8 1.3 0.1 564.12 42.63 0.08
Summary Statistics Day Close Shares Market LTM Net LTM LTM Total LTM Tangible LTM Filing LTM Total LTM LTM LTM Diluted NTM NTM EBITDA NTM EPS Price Latest Outstanding Capitalization Debt Total Minority Enterprise Book Date, Income Revenue EBITDA EBIT EPS Excl. Revenue (Capital IQ) (Capital IQ) Latest Latest Pref. Interest Value Latest Value/Share Statement Extra Items (Capital IQ) Equity High 13.93 2,370.4 8,072.4 4,813.1 - 239.8 8,417.6 5.71 - 23,238.3 1,924.6 824.8 1.02 23,920.71 2,254.71 1.44 Low 0.15 10.3 35.3 (449.0) - 34.37 17.3 ( 0.54) - 194.5 (6.3) (35.7) ( 4.1) 231.54 4.74 0.07 Mean 5.14 770.4 2,908.3 522.5 - 105.97 3,464.7 1.52 - 6,999.9 679.7 308.7 ( 0.06) 7,315.23 872.29 0.58 Median 4.51 427.0 1,162.5 (131.4) - 43.74 2,863.6 1.12 - 2,599.0 353.3 191.5 0.26 2,770.81 457.76 0.4
Displaying 11 Companies.
All values in millions, except per share data and ratios. Values converted at today's spot rate. Companies by default are sorted by S&P Capital IQ’s proprietary relevancy score.
88 of 179 Flybe Group PLC (LSE:FLYB) > Quick Comparable Analysis > Trading Multiples
Details Template: Capital IQ Default Comps Currency: British Pound
Company Comp Set Company Name TEV/Total Revenues TEV/EBITDA LTM - TEV/EBIT LTM - P/Diluted EPS Before P/TangBV LTM - NTM TEV/Forward NTM TEV/Forward NTM Forward P/E LTM - Latest Latest Latest Extra LTM - Latest Latest Total Revenue EBITDA (Capital IQ) (Capital IQ) (Capital IQ) easyJet plc (LSE:EZJ) 1.2x 8.6x 10.4x 13.7x 4.6x 1.07x 6.64x 11.70x International Consolidated Airlines Group, S.A. (LSE:IAG) 0.5x 5.3x 11.6x 13.1x 4.9x 0.53x 3.76x 9.46x Dart Group plc (AIM:DTG) 0.1x 0.6x 1.2x 8.9x 1.8x 0.05x 0.59x 11.34x Air France-KLM SA (ENXTPA:AF) 0.3x 4.8x 44.6x NM NM 0.33x 3.21x 11.21x Deutsche Lufthansa Aktiengesellschaft (DB:LHA) 0.3x 2.9x 6.4x 13.4x 1.7x 0.24x 2.59x 6.90x Ryanair Holdings plc (ISE:RY4B) 1.9x 8.5x 12.4x 16.3x 3.0x 1.79x 7.77x 14.66x Aer Lingus Group plc (ISE:EIL1) 0.2x 1.8x 4.0x 16.8x 1.0x 0.19x 1.88x 15.71x Air Partner plc (LSE:AIP) 0.1x 7.4x 8.0x 20.8x 3.2x 0.07x 3.66x 12.03x AirAsia X Berhad (KLSE:AAX) 1.4x NM NM NM 1.7x 1.08x 11.87x - Aegean Airlines S.A. (ATSE:AEGN) 0.2x 1.8x 2.0x 8.5x 6.8x 0.18x 0.85x 7.10x Flybe Group PLC (LSE:FLYB) 0.3x 14.0x 249.7x 13.1x 1.5x 0.35x 4.69x 16.16x
Summary Statistics TEV/Total Revenues TEV/EBITDA LTM - TEV/EBIT LTM - P/Diluted EPS Before P/TangBV LTM - NTM TEV/Forward NTM TEV/Forward NTM Forward P/E LTM - Latest Latest Latest Extra LTM - Latest Latest Total Revenue EBITDA (Capital IQ) (Capital IQ) High 1.9x 8.6x 44.6x 20.8x 6.8x 1.79x 11.87x 15.71x Low 0.1x 0.6x 1.2x 8.5x 1.0x 0.05x 0.59x 6.90x Mean 0.6x 4.6x 11.2x 13.9x 3.2x 0.55x 4.28x 11.12x Median 0.3x 4.8x 8.0x 13.6x 3.0x 0.29x 3.44x 11.34x
Displaying 11 Companies.
All values in millions, except per share data and ratios. Values converted at today's spot rate. Companies by default are sorted by S&P Capital IQ’s proprietary relevancy score.
89 of 179 Flybe Group PLC (LSE:FLYB) > Quick Comparable Analysis > Operating Statistics
Details Template: Capital IQ Default Comps Currency: British Pound
Company Comp Set Company Name LTM Gross LTM EBITDA LTM EBIT LTM Net LTM Total LTM EBITDA, 1 LTM EBIT, 1 Yr LTM Net Income, LTM Total LTM Total NTM LT EPS 5 Year Margin % Margin % Margin % Income Revenues, 1 Yr Yr Growth % Growth % 1 Yr Growth % Debt/Capital % Debt/EBITDA Growth Rate Beta Margin % Growth % (Capital IQ) easyJet plc (LSE:EZJ) 21.5% 13.5% 11.1% 9.27% 9.25% 18.59% 23.79% 35.57% 27.18% 1.1x - 0.56 International Consolidated Airlines Group, S.A. (LSE:IAG) 19.6% 10.3% 4.7% 3.78% 4.70% 63.06% 426.16% - 55.38% 2.9x - 1.48 Dart Group plc (AIM:DTG) 16.3% 9.8% 4.4% 3.20% 28.88% 31.77% 29.82% 15.06% 5.12% 0.1x - 0.8 Air France-KLM SA (ENXTPA:AF) 19.2% 7.8% 1.6% (6.48%) (0.73%) 35.55% - - 90.56% 5.2x - 1.39 Deutsche Lufthansa Aktiengesellschaft (DB:LHA) 18.7% 8.3% 3.5% 1.47% (1.21%) (4.20%) 14.16% (55.18%) 51.70% 2.2x - 0.9 Ryanair Holdings plc (ISE:RY4B) 26.0% 22.1% 15.2% 12.36% 5.02% 12.53% 15.34% 16.93% 52.61% 3.4x - 0.3 Aer Lingus Group plc (ISE:EIL1) 14.1% 10.4% 4.8% 3.09% 2.78% 19.54% 43.96% 40.72% 35.56% 2.9x - 0.96 Air Partner plc (LSE:AIP) 11.0% 1.2% 1.1% 0.78% ------0.65 AirAsia X Berhad (KLSE:AAX) 7.4% (1.2%) (7.0%) (9.11%) 31.73% - - - 64.66% NM - - Aegean Airlines S.A. (ATSE:AEGN) 12.7% 11.8% 10.3% 6.97% 33.05% 53.81% 63.38% 28.63% 26.13% 0.6x - 0.85
Flybe Group PLC (LSE:FLYB) 13.1% 2.4% 0.2% 1.29% 1.01% - - - 34.34% 6.9x - 0.75
Summary Statistics LTM Gross LTM EBITDA LTM EBIT LTM Net LTM Total LTM EBITDA, 1 LTM EBIT, 1 Yr LTM Net Income, LTM Total LTM Total NTM LT EPS 5 Year Margin % Margin % Margin % Income Revenues, 1 Yr Yr Growth % Growth % 1 Yr Growth % Debt/Capital % Debt/EBITDA Growth Rate Beta High 26.0% 22.1% 15.2% 12.36% 33.05% 63.06% 426.16% 40.72% 90.56% 5.2x - 1.48 Low 7.4% (1.2%) (7.0%) (9.11%) (1.21%) (4.20%) 14.16% (55.18%) 5.12% 0.1x - 0.3 Mean 16.7% 9.4% 5.0% 2.53% 12.61% 28.83% 88.09% 13.62% 45.43% 2.3x - 0.88 Median 17.5% 10.1% 4.6% 3.15% 5.02% 25.66% 29.82% 22.78% 51.70% 2.6x - 0.85
Displaying 11 Companies.
All values in millions, except per share data and ratios. Values converted at today's spot rate. Companies by default are sorted by S&P Capital IQ’s proprietary relevancy score.
90 of 179 Flybe Group PLC (LSE:FLYB) > Quick Comparable Analysis > Implied Valuation
Details Template: Capital IQ Default Comps Currency: British Pound
Company Comp Set Company Name LTM Total Revenue LTM EBITDA LTM EBIT NTM Revenue (Capital IQ) NTM EBITDA (Capital IQ) LTM Basic EPS NTM EPS (Capital IQ) LTM Tangible Book Value/Share Flybe Group PLC (LSE:FLYB) 620.5 14.8 1.3 564.12 42.63 0.1 0.08 0.87
Total Enterprise Value Multiples Pricing Multiples
LTM TEV/Total LTM TEV/EBITDA LTM TEV/EBIT NTM TEV/Forward Total Revenue NTM TEV/Forward EBITDA LTM P/Diluted EPS Before NTM Forward P/E LTM P/TangBV Revenues Extra High 1.9x 8.6x 44.6x 1.79x 11.87x 20.8x 15.71x 6.8x Low 0.1x 0.6x 1.2x 0.05x 0.59x 8.5x 6.90x 1.0x Mean 0.6x 4.6x 11.2x 0.55x 4.28x 13.9x 11.12x 3.2x Median 0.3x 4.8x 8.0x 0.29x 3.44x 13.6x 11.34x 3.0x
Implied Enterprise Value High 1,179.0 127.3 58.0 1,009.77 506.02 Low 62.1 8.9 1.6 28.21 25.15 Mean 384.7 68.6 14.5 311.96 182.54 Median 186.2 71.0 10.4 160.77 146.43
+ Total Cash & ST Investments 177.9 177.9 177.9 177.9 177.9 - Total Debt 101.5 101.5 101.5 101.5 101.5 - Total Pref. Equity ------Minority Interest - - - - -
= Implied Equity Value High 1,255.4 203.7 134.4 1,086.17 582.42 454.06 274.36 1,291.46 Low 138.5 85.3 78.0 104.61 101.55 185.56 120.5 189.92 Mean 461.1 145.0 90.9 388.36 258.94 304.26 194.26 605.64 Median 262.6 147.4 86.8 237.17 222.83 295.8 198.04 569.76
/ Shares Outstanding 218.3 218.3 218.3 218.3 218.3 218.3 218.3 218.3
= Implied Price per Share High 5.8 0.9 0.6 4.98 2.67 2.08 1.26 5.92 Low 0.6 0.4 0.4 0.48 0.47 0.85 0.55 0.87 Mean 2.1 0.7 0.4 1.78 1.19 1.39 0.89 2.77 Median 1.2 0.7 0.4 1.09 1.02 1.36 0.91 2.61
Mean Equity Value Across Multiples Equity Value Price Per Share
High 660.24 3.02 Low 125.48 0.57 Mean 306.06 1.4 Median 252.55 1.16
All values in millions, except per share data and ratios. Values converted at today's spot rate.
91 of 179 Flybe Group PLC (LSE:FLYB) > Quick Comparable Analysis > Valuation Chart
Details Template: Capital IQ Default Comps Currency: British Pound
Company Comp Set
All values in millions, except per share data and ratios. Values converted at today's spot rate.
92 of 179 Flybe Group PLC (LSE:FLYB) > Quick Comparable Analysis > Credit Health Panel
Details Template: Capital IQ Default Comps Currency: British Pound
Company Comp Set Company Name LTM Period Ending Financials Updated Primary Industry Overall Operational Solvency Liquidity Classification
Ryanair Holdings plc (ISE:RY4B) 1 1 4 1 Jun-30-2014 Jul-29-2014 Airlines Aegean Airlines S.A. (ATSE:AEGN) 1 3 2 1 Jun-30-2014 Sep-04-2014 Airlines Air Partner plc (LSE:AIP) 2 2 1 2 Jul-31-2014 Sep-24-2014 Airlines Dart Group plc (AIM:DTG) 2 3 1 2 Mar-31-2014 Aug-04-2014 Airlines Aer Lingus Group plc (ISE:EIL1) 2 4 2 2 Jun-30-2014 Aug-01-2014 Airlines easyJet plc (LSE:EZJ) 3 1 2 3 Mar-31-2014 May-15-2014 Airlines International Consolidated Airlines Group, S.A. (LSE:IAG) 3 2 3 4 Jun-30-2014 Aug-03-2014 Airlines Deutsche Lufthansa Aktiengesellschaft (DB:LHA) 4 2 3 4 Jun-30-2014 Aug-03-2014 Airlines Air France-KLM SA (ENXTPA:AF) 4 3 4 4 Jun-30-2014 Aug-05-2014 Airlines AirAsia X Berhad (KLSE:AAX) 4 4 4 3 Jun-30-2014 Aug-21-2014 Airlines
Flybe Group PLC (LSE:FLYB) 3 4 3 3 Mar-31-2014 Jun-13-2014 Airlines
Displaying 11 Companies.
All values in millions, except per share data and ratios. Values converted at today's spot rate.
Credit Health Panel metric values are calculated by converting all currencies to USD based on yesterday’s spot rate. Currencies displayed on the page are converted at today’s spot rate from yesterday’s
93 of 179
Information for
Flybe Group plc
Estimates Report
94 of 179 Flybe Group PLC (LSE:FLYB) > Capital IQ Estimates > Consensus
Currency: Reported Currency Conversion: Today's Spot Rate Units: Capital IQ (Default) Decimals: CapitalIQ (Default) Consolidation: Consolidated Acctg. Standard: IFRS
Current Fiscal Year End: Mar-31-2015 | FQ2 2015 Earnings Release Date: Nov-12-2014
LSE:FLYB - Recommendation: LSE:FLYB (GBP) Mean Median High/Low Std. Dev. No. of Estimates. Outperform (1.67) Target Price 1.73 1.7 1.90/1.60 0.12 3/3 1 - Buy 2 2 - Outperform 0 3 - Hold 1 4 - Underperform 0 5 - Sell 0 0 - No Opinion 0
LSE:FLYB Market Summary LSE:FLYB (IFRS|GBP) Current Currency British Pound Current Quarter Year NTM Latest Price/Last Close Price 1.24/1.27 EPS Normalized - 0.08 0.08 Company Level 52 Wk. High/Low 1.52/0.65 (IFRS|GBP) Potential Upside/Diff. from Target Price 37.02 %/0.47 Revenue - 564.12 564.12 EBITDA - 42.63 42.63
Fiscal Years LSE:FLYB (GBP) 2014 2015 2016 2017 EPS Normalized ( 0.00 A) 0.08 E 0.16 E 0.21 E Final Est. 0.01 E - - - Median 0.01 E 0.09 E 0.16 E 0.21 E High 0.02 E 0.12 E 0.19 E 0.21 E Low 0.01 E 0.02 E 0.12 E 0.20 E Std. Dev. 0.0 0.04 0.03 0.0 No. of Estimates 3/3 3/3 3/3 2/2 Acctg. Standard IFRS IFRS IFRS IFRS EPS (GAAP) 0.10 A 0.01 E 0.12 E 0.20 E Final Est. 0.07 E - - - Median 0.07 E 0.01 E 0.12 E 0.20 E High 0.07 E 0.01 E 0.16 E 0.20 E Low 0.06 E 0.01 E 0.08 E 0.20 E Std. Dev. 0.0 - 0.04 - No. of Estimates 2/2 1/2 2/2 1/1 Acctg. Standard IFRS IFRS IFRS IFRS
95 of 179 Company Level (GBP) 2014 2015 2016 2017 Revenue 620.50 A 564.12 E 624.22 E 649.20 E Final Est. 622.49 E - - - Median 621.12 E 564.12 E 624.22 E 649.20 E High 625.35 E 564.12 E 662.64 E 699.11 E Low 621.00 E 564.12 E 585.80 E 599.29 E Std. Dev. 2.02 - 38.42 49.91 No. of Estimates 3/3 1/2 2/2 2/2 Acctg. Standard IFRS IFRS IFRS IFRS EBITDA 15.80 A 42.63 E 66.48 E 75.27 E Final Est. 16.63 E - - - Median 16.63 E 42.63 E 66.48 E 75.27 E High 18.30 E 42.63 E 71.30 E 77.79 E Low 14.97 E 42.63 E 61.66 E 72.74 E Std. Dev. 1.67 - 4.82 2.52 No. of Estimates 2/2 1/2 2/2 2/2 Acctg. Standard IFRS IFRS IFRS IFRS
Calendar Years LSE:FLYB (GBP) 2014 2015 2016 EPS Normalized 0.06 E 0.14 E 0.19 E Median 0.07 E 0.14 E 0.19 E High 0.09 E 0.17 E 0.21 E Low 0.02 E 0.10 E 0.18 E Acctg. Standard IFRS IFRS IFRS EPS (GAAP) 0.03 E 0.09 E 0.18 E Median 0.02 E 0.09 E 0.18 E High 0.03 E 0.12 E 0.19 E Low 0.02 E 0.06 E 0.17 E Acctg. Standard IFRS IFRS IFRS
Company Level (GBP) 2014 2015 2016 Revenue 578.21 E 609.20 E 642.96 E Median 578.37 E 609.20 E 642.96 E High 579.42 E 638.01 E 689.99 E Low 578.34 E 580.38 E 595.92 E Acctg. Standard IFRS IFRS IFRS EBITDA 35.93 E 60.52 E 73.07 E Median 36.13 E 60.52 E 73.07 E High 36.55 E 64.13 E 76.17 E Low 35.72 E 56.90 E 69.97 E Acctg. Standard IFRS IFRS IFRS
96 of 179 Flybe Group PLC (LSE:FLYB) > Capital IQ Estimates > Multiples
Currency: Reported CurreConversion: Today's Spot Rate Units: Capital IQ (DefaultDecimals: CapitalIQ (Default) Consolidation: ConsolidatAcctg. Standard: IFRS
Current Fiscal Year End: Mar-31-2015
LSE:FLYB (Current Fiscal Year End: Mar-31-2015) Based on Market Price TEV/REV TEV/EBITDA TEV/EBIT Price/Earnings PEG P/BV NTM 0.35x 4.69x - 16.16x - - FY 2015 0.35x 4.69x - 16.16x - - FY 2016 0.32x 3.00x - 8.03x - - FY 2017 0.31x 2.65x - 6.13x - - CY 2014 0.35x 5.56x - 21.74x - - CY 2015 0.33x 3.30x - 9.19x - - CY 2016 0.31x 2.73x - 6.52x - -
97 of 179
Information for
Flybe Group plc
Firm placing and placing and open offer
98 of 179 FLYBE GROUP PLC - FIRM PLACING AND PLACING AND OPEN OFFER
FLYBE GROUP PLC FIRM PLACING AND PLACING AND OPEN OFFER
Financial Adviser, Sponsor, Broker and Underwriter
99 of 179
Creative Director:
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Operator: Rob R Date: 12 February 2014 6:10 PM Page: 1 Client: THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any LR13.3.1(4) doubt as to what action you should take, you are recommended to seek immediately your own financial advice from your stockbroker, bank manager, solicitor, accountant or other appropriate independent financial adviser duly authorised under the Financial Services and Markets Act 2000 (as amended) (“FSMA”) if you are resident in the United Kingdom or, if not, another appropriately authorised independent financial adviser. This document is not for distribution to any person or address in the United States. If you sell or have sold or otherwise transferred all of your Existing Ordinary Shares prior to the date the shares are LR13.3.1(6) traded “ex” the entitlement to the Open Offer, you should send this document, and if relevant, the accompanying Application Form and the enclosed Form of Proxy (and reply-paid envelope) at once to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for delivery to the purchaser or transferee. If you have sold or transferred any part of your registered holding of Existing Ordinary Shares in Flybe Group plc, please contact your stockbroker, bank or other agent through whom the sale or transfer was effected immediately and refer to the instructions regarding split applications set out in the Application Form, if relevant. However, no Application Form should be forwarded to or transmitted in or into the United States or any Excluded Territories where doing so may constitute a violation of local securities laws. Please refer to paragraph 6 of Part 2 of this document if you propose to send this document and/or the Application Form outside the United Kingdom. The distribution of this document and the accompanying documents, and/or the transfer of the Open Offer Entitlements through CREST into jurisdictions other than the United Kingdom, may be restricted by law. Therefore, persons into whose possession this document and any accompanying documents come should inform themselves about, and observe, any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. This document, which comprises a prospectus relating to Flybe prepared in accordance with the Prospectus Rules, has been approved as such by the FCA. A copy of this document has been filed with the FCA in accordance with paragraph 3.2.1 of the Prospectus Rules. This document has been made available to the public in accordance with paragraph 3.2.1 of the Prospectus Rules by the same being made available, free of charge, at Flybe’s registered office, details of which are set out on page 28 of this document. This document should be read as a whole. Your attention is drawn to the letter from the Chairman of Flybe set out on pages 31 to 43 (inclusive) of this document which recommends that you vote in favour of the Resolutions to be proposed at the General Meeting.
Annex I para 5.1.1 Flybe Group plc LR13.6.1(1)(a) (incorporated in England and Wales under the Companies Act 1985 with registered number 1373432)
Firm Placing of 91,400,000 New Ordinary Shares and Placing and Open Offer to Shareholders of up to 50,101,920 New Ordinary Shares at 110 pence per share and Notice of General Meeting Liberum Capital Limited Financial Adviser, Sponsor, Broker and Underwriter
The Existing Ordinary Shares are listed on the Official List and traded on the London Stock Exchange’s main market for listed securities. Application has been made to the FCA and to the London Stock Exchange for the New Ordinary Shares to be admitted to the Official List and to be admitted to trading on the London Stock Exchange’s main market for listed securities. It is expected that Admission will become effective and that dealings in the New Ordinary Shares will commence at 8.00 a.m. on 12 March 2014. Liberum Capital, which is LR13.3.1(9)(a) authorised and regulated in the United Kingdom by the FCA, is acting exclusively for Flybe and for no-one else in relation to the Firm Placing and Placing and Open Offer and will not be responsible to anyone other than Flybe for providing the protections afforded to clients of Liberum Capital nor for providing advice in relation to the Firm LR13.3.1(9)(h) Placing and Placing and Open Offer or any other transaction or arrangement referred to in this document and, apart from the responsibilities and liabilities which may be imposed on Liberum Capital by FSMA or the regulatory regime established thereunder, Liberum Capital accepts no responsibility whatsoever and makes no representation or warranty, express or implied, for or in respect of the contents of this document, including its
100 of 179 accuracy, completeness or verification, nor for any other statement made or purported to be made by it, or on its behalf, in connection with Flybe, the Group or the Firm Placing and Placing and Open Offer and nothing in this document shall be relied upon as a promise or representation in this respect, whether as to the future or past. Liberum Capital accordingly disclaims, to the fullest extent permitted by law, all and any liability whatsoever, whether arising in tort, contract or otherwise, which it might otherwise be found to have in respect of this document or any such statement. The Open Offer closes at 11.00 a.m. on 7 March 2014 and payment is required in full by this time. If you are a Qualifying non-CREST Shareholder and wish to apply or subscribe for Open Offer Shares under the Open Offer, you should complete the accompanying Application Form and return it with your remittance in accordance with the instructions set out in paragraph 4(a) of Part 2 of this document and in the Application Form. If you are a Qualifying CREST Shareholder the relevant CREST instructions must have settled as explained in this document by no later than 11.00 a.m. on 7 March 2014. The Application Form is personal to Qualifying Shareholders and cannot be transferred, sold or assigned except to satisfy bona fide market claims. Applications under the Open Offer may only be made by the Qualifying Shareholder originally entitled or by a person entitled by virtue of a bona fide market claim. Notice of the General Meeting of Flybe, to be held at 11.00 a.m. on 11 March 2014 at the offices of Instinctif Partners, 65 Gresham Street, London EC2V 7NQ, is set out at the end of this document. A Form of Proxy is enclosed for use by Shareholders in connection with the meeting. To be valid, Forms of Proxy, completed, or submitted electronically, in accordance with the instructions printed thereon, must be received at Flybe’s registrars, Capita Asset Services, PXS, 34 Beckenham Road, Beckenham BR3 4TU as soon as possible but in any event by no later than 11.00 a.m. on 7 March 2014. Completion and return of the Form of Proxy will not preclude Shareholders from attending and voting at the General Meeting should they so wish. Liberum Capital may, in accordance with applicable legal and regulatory provisions, engage in transactions in relation to the Firm Placing or the Open Offer and/or related instruments for its own account for the purpose of hedging its underwriting exposure or otherwise. Liberum Capital does not intend to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligation to do so. This document does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any securities, or any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, such securities by any person in any circumstances in which such offer or solicitation is unlawful.
NOTICE TO US AND OTHER OVERSEAS INVESTORS The New Ordinary Shares, the Open Offer Entitlements and the Excess Open Offer Entitlements have not been and will not be registered under the United States Securities Act of 1933, as amended (the “Securities Act”) or under the applicable securities laws of any state or other jurisdiction of the United States or qualified for distribution under any applicable securities laws in any of the Excluded Territories. Accordingly, the New Ordinary Shares, the Open Offer Entitlements and Excess Open Offer Entitlements are being offerred only outside of the United States in offshore transactions in reliance on Regulation S (“Regulation S”) under the Securities Act. The New Ordinary Shares, the Open Offer Entitlements and the Excess Open Offer Entitlements may not be offered, sold, taken up, resold, transferred or delivered, directly or indirectly, within the United States (as defined in Rule 902 under Regulation S) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state or local securities laws. Neither the New Ordinary Shares, the Application Form, the Form of Proxy, this document nor any other document connected with this Firm Placing and Placing and Open Offer have been or will be approved or disapproved by the United States Securities and Exchange Commission (“SEC”) or by the securities commissions of any state or other jurisdiction of the United States or any other regulatory authority, nor have any of the foregoing authorities or any securities commission passed upon or endorsed the merits of the offering of the New Ordinary Shares, the Application Form, the Form of Proxy or the accuracy or adequacy of this document or any other document connected with this Firm Placing and Placing and Open Offer. Any representation to the contrary is a criminal offence. Notwithstanding anything to the contrary herein, each prospective investor may disclose to any and all persons, without limitation of any kind, the US federal income tax treatment and tax structure of the Company and of the transactions contemplated by the Company. For this purpose, “tax structure” shall mean any fact that may be relevant to understanding the purported or claimed US federal tax treatment of the transaction; provided that none of the following shall for this purpose constitute tax treatment or tax structure information, the name of or other identifying information relating to the performance of the Company or its operations. Not all Shareholders will be Qualifying Shareholders. Shareholders in the United States or who have registered addresses in, or who are resident or ordinarily resident in, or citizens of, any of the Excluded Territories will not qualify to participate in the Firm Placing and Placing and Open Offer and will not be sent an Application Form or a placing letter or otherwise be permitted to participate in the Firm Placing and Placing and Open Offer. The attention of any Overseas Shareholders is drawn to paragraph 6 of Part 2 of this document. 2
101 of 179 NOTICE TO ISLE OF MAN INVESTORS
This document has not been, and is not required to be, filed or lodged with any regulatory or other authority in the Isle of Man. The Company is not subject to any regulatory approval in the Isle of Man and holders of Ordinary Shares are not protected by any statutory compensation arrangements in the event of the Company’s failure. The Isle of Man Financial Supervision Commission does not vouch for the financial soundness of the Company or the correctness of any statements made or opinions expressed with regard to it. No person may market, offer or sell New Ordinary Shares in or to persons in the Isle of Man other than in compliance with the licensing requirements of the Isle of Man Financial Services Act 2008 or in accordance with any relevant exclusion contained in the Isle of Man Regulated Activities Order 2011 or exemption contained in the Isle of Man Financial Services (Exemptions) Regulations 2011.
FOR THE ATTENTION OF PROSPECTIVE INVESTORS IN JERSEY
Consent to the circulation of this prospectus by Flybe Group plc has been granted by the Jersey Financial Services Commission (the “Commission”) pursuant to the Control of Borrowing (Jersey) Law 1947, as amended (the “Law”) and the Control of Borrowing (Jersey) Order 1958. The Commission is protected by the Law against liability arising from the discharge of its functions under the Law.
This prospectus may also be circulated in Jersey only by persons who are registered by the Commission in accordance with the Financial Services (Jersey) Law 1998 (the “FSL”) for the conduct of financial services business and the distribution of this prospectus, or are exempt from such registration in accordance with the FSL.
Those prospective investors or persons who are seeking to acquire an interest in the New Ordinary Shares who are resident in Jersey are strongly advised to seek independent appropriate professional advice.
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102 of 179 CONTENTS
Page
Summary Information 5
Risk Factors 14
Forward-Looking Statements 25
Important Information 26
Directors, Secretary and Advisers 28
Expected Timetable of Principal Events 29
Statistics relating to the Firm Placing and Placing and Open Offer 30
Part 1 Letter from the Chairman of Flybe Group plc 31
Part 2 Details of the Open Offer 44
Part 3 Information on Flybe Group plc 62
Part 4 Financial Information Relating to Flybe Group plc 77
Part 5 Operating and Financial Review of Flybe Group plc 78
Part 6 Unaudited Pro Forma Financial Information 113
Part 7 Additional Information 116
Definitions 173
Glossary of Technical Terms 181
Notice of General Meeting 183
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103 of 179 SUMMARY INFORMATION
Summaries are made up of disclosure requirements known as ‘Elements’. The Elements are numbered in Sections A–E (A.1–E.7).
This summary contains all the Elements required to be included in a summary for this type of security and issuer. Because some of the Elements are not required to be addressed, there may be gaps in the numbering sequence of the Elements.
Even though an Element may be required to be inserted in the summary because of the type of security and issuer, it is possible that no relevant information can be given regarding the Element. In this case a short description of the Element is included in the summary with the mention of the words ‘not applicable’.
Section A – Introduction and warnings
A.1 Warning This summary should be read as an introduction to this Prospectus. Any Annex XXII (Annex I) A.1 decision to invest in the securities should be based on consideration of the prospectus as a whole by the investor. Where a claim relating to the Annex XXII information contained in the Prospectus is brought before a court, the (Annex II) A.1 plaintiff investor might, under the national legislation of England and Wales, have to bear the costs of translating the prospectus before the legal Annex XXII proceedings are initiated. Civil liability attaches only to those persons who (Annex III) A.1 have tabled the summary including any translation thereof, but only if the summary is misleading, inaccurate or inconsistent when read together with the other parts of the prospectus or it does not provide, when read together with the other parts of the Prospectus, key information in order to aid investors when considering whether to invest in such securities.
A.2 Subsequent Not applicable – the Company has not given consent to the use of this Annex XXII resale of document for subsequent resale or any final placement of Ordinary Shares (Annex I) A.2 securities or final by financial intermediaries. placement of securities through financial intermediaries
Section B – Issuer and any guarantor
B.1 Legal and The Issuer’s legal and commercial name is Flybe Group plc. Annex XXII (Annex I) B.1 Commercial Name
B.2 Domicile/Legal The Company was incorporated on 14 June 1978 as a private company Annex XXII (Annex I) B.2 Form/Legislation/ limited by shares and registered in England and Wales under number Country of 1373432 with the name Spacegrand Limited. The Company was re- Incorporation registered as a public company on 7 December 2010, on which date the name of the Company was changed to Flybe Group plc. The principal legislation under which the Company operates is the Companies Act (including the Companies Act 1985) and the regulations made thereunder. The Company is subject to the Takeover Code.
B.3 Key factors of Flybe operates scheduled and white label (or contract flying) services in Annex XXII (Annex I) B.3 issuer’s current Europe and provides maintenance, repair and overhaul (“MRO”) and operations and training services, primarily to the airline industry. The Group’s schedule for principal activities the 2014 Summer Season comprises 164 routes between 35 UK and 48 European airports across 15 countries. The Group operates as one business operating through two reporting segments, being Flybe UK (comprising all of the Group’s scheduled UK-based operations, and its MRO and training service) and Flybe Finland (comprising all of the Group’s Finnish-based white label and scheduled operations).
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104 of 179 B.4a Significant trends The level of competition in the European airline industry is high. Airlines compete primarily on fare levels, frequency, service reliability, convenience, safety record, brand recognition and passenger amenities. The Group’s competitors include European LCCs legacy airlines, other established commercial and charter airlines and travel conglomerates with integrated airlines (some of which are larger and have greater financial resources than the Group), as well as alternative means of transport, such as high speed rail and road. Flybe, and the wider airline industry, remain exposed to competitive factors and wider economic conditions, both of which can impact on demand for its services.
The Group has a 49.6 per cent. share of the UK regional domestic air Annex XXII (Annex I) B.4a passenger sector, and is the largest independent regional branded airline and white label airline in Europe, all of which the Directors believe gives Flybe a strong platform for the future. Key cost variables, such as fuel and GBP:USD exchange rate, have been relatively stable to positive in the past 12 months. In that same period, UK economy returned to growth. These factors, together with implementation of the Group’s Turnaround Plan, resulted in a significant improvement in financial performance in H1 2013/14. Following Saad Hammad’s strategic review, the Directors believe that Flybe can achieve profitable growth in both branded and white label operations.
B.5 Group structure Flybe Group plc is the parent company of the Flybe Group. The Company Annex XXII (Annex I) B.5 has 9 direct or indirect significant subsidiary undertakings: Flybe Limited, Walker Aviation Leasing (UK) Limited, British Regional Air Lines Group Limited, Flybe Leasing Limited, Flybe (IOM) Limited, JEA Engineering UK Limited, Flybe Nordic AB and Flybe Finland Oy. The capital of each subsidiary is directly or indirectly wholly owned by Flybe, save for Flybe Nordic AB. 60 per cent. of the shares in Flybe Nordic AB are owned by Flybe Holdings Limited and 40 per cent. are owned by Finnair Oyj. Flybe Finland Oy is indirectly wholly owned by Flybe Nordic AB.
B.6 Notifiable As at 18 February 2014, being the last practicable date prior to the interests publication of this document, the interests (all of which are or will be beneficial unless otherwise stated) of the Directors and their connected persons in the share capital of the Company are as follows:
Per cent. Annex XXII Number of of issued (Annex I) B.6 Number of Per cent. Ordinary Ordinary Existing of Existing Shares Shares Ordinary Ordinary beneficially beneficially Shares Shares held held beneficially beneficially immediately immediately held held following following Name of Director at present at present Admission* Admission* Saad Hammad nil n/a 227,272 0.10% Andrew Knuckey 223,125 0.3% 223,125 0.10% Simon Laffin nil n/a 227,272 0.10% David Longbottom 12,500 n/a 26,760 0.01% Charlie Scott 12,500 n/a 12,500 0.01% Alan Smith 22,500 n/a 22,500 0.01%
* Assuming no take up under the Open Offer
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105 of 179 As at 18 February 2014, being the latest practicable date prior to the publication of this document, in addition to those persons described above, the Company is aware of the following persons who will be interested, directly or indirectly, in three per cent. or more of the issued share capital of the Company immediately following the proposals described in this document:
Number of Per cent. Existing of issued Ordinary Ordinary Shares Shares Number of Per cent. held held Existing of Existing immediately immediately Ordinary Ordinary following following Shareholder Shares held Shares held Admission* Admission* The Plimsoll Line Limited 10,925,847 14.54 10,925,847 5.04 Aberforth Partners LLP 8,222,756 10.94 18,223,169 8.41 Quantum Partners LP 7,066,200 9.40 14,835,200 6.85 Artemis Investment Management LLP 6,000,000 7.98 13,297,125 6.14 Standard Life Investments Ltd 5,842,015 7.77 12,947,001 5.98 The Wellcome Trust 3,228,400 4.96 7,154,740 3.30 Polar Capital Partners 3,248,850 4.32 3,248,850 1.50 * Assuming no take up under the Open Offer
The Company’s major shareholders do not have different voting rights.
There are no controlling interests in the Company.
B.7 Historical The selected financial information set out below has been extracted without Annex XXII (Annex I) B.7 financial material adjustment from the audited reports and accounts of the Group information prepared under IFRS for the years ended 31 March 2011, 31 March 2012 and 31 March 2013, and from the unaudited half-year accounts for each of the six months ended 30 September 2012 and 30 September 2013.
H1 H1 2011/12 2013/14 2012/13 2012/13 (restated) 2010/11 £m £m £m £m £m Group revenue 351.1 340.8 614.3 615.3 595.5 Revenue under management 477.3 396.3 781.5 678.8 595.5 EBITDAR 58.0 44.6 55.8 85.8 87.2 Adjusted EBITDAR 61.3 44.6 63.8 85.8 113.8 Operating profit/(loss) 12.2 (1.0) (26.3) (4.9) 7.6 before restructuring and IPO costs, unrealised gains and losses on fuel and foreign exchange hedges and revaluation on USD aircraft loans Profit/(loss) before tax 13.8 (1.6) (40.7) (6.2) (4.3)
Set out below are details of significant changes in the financial condition or operating results of the Group during the period covered by the audited annual report and accounts of the Group prepared under IFRS for the years ended 31 March 2011, 31 March 2012 and 31 March 2013, the unaudited half-year accounts to 30 September 2013 and the period since 30 September 2013 (being the date of the Group’s latest published half- year report) until 18 February 2014, being the latest practicable date prior to the publication of this document:
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106 of 179 ● In 2011 the Group experienced revenue growth, primarily generated by improved passenger yield. However, disruption caused by volcanic ash and adverse weather reduced profits by approximately £18.1 million, contributing to an overall decrease in profits from the previous year; ● In 2012, the Group’s revenue grew again, primarily through the combination of a small passenger number increase and greater passenger yield. In addition to the impact of accounting for the Group’s share of the Flybe Finland joint venture losses, costs also grew and overall the Group reported an operating loss in difficult trading conditions; ● In 2013, revenue under management grew significantly thanks to the first full year of operation of the Flybe Finland joint venture. Group revenue was stable, despite a small drop in passenger numbers and yield, due to new contract flying operations with SN Brussels (now Brussels Airlines), but costs continued to rise and the restructuring of the business was initiated, leading to a significant overall loss at both operating and before tax levels; ● The half year to 30 September 2013 saw a return to growth, with both revenue under management and Group revenue increasing, partially thanks to the improving economic backdrop. Operating costs benefited from the Group’s restructuring and, as a result, operating profit was higher than the comparative half year to 30 September 2012. ● There has been no significant change in the financial condition and operating results of the Group since 30 September 2013, being the date of the Group’s latest published half-year report.
The Group expects the general macroeconomic environment to continue improving 2013/14 and into the first half of 2014/15. The Group expects to see further improvements in its operations in Finland, as its operations in Finland mature and are further rebalanced in favour of more profitable white-label operations.
B.8 Pro forma If the net proceeds of the Firm Placing had been received at the beginning Annex XXII (Annex II) B.8 financial of the 2012/2013 financial period, save for any earned interest, there would information have been no material effect on earnings for the year ended 31 March 2013.
B.9 Profit forecast Not applicable – there are no profit forecasts contained in the prospectus. Annex XXII (Annex I) B.9
B.10 Qualifications in Not applicable – there are no qualifications in the audit reports on the Annex XXII (Annex I) B.10 the audit report historical financial information.
B.11 Working capital The Company is of the opinion that, taking into account existing cash Annex XXII (Annex III) B.11 balances and the net proceeds of the Firm Placing and Placing and Open Offer receivable by the Company, the Group has sufficient working capital for its present requirements, that is, at least 12 months following the publication of this document.
Section C – Securities
C.1 Type and class of The Firm Placed Shares being offered are New Ordinary Shares of the Annex XXII (Annex III) C.1 securities being Company of 1 pence each whose ISIN is GB00B4QMVR10. The Firm offered Placed Shares are denominated in Sterling, and the Offer Price is payable in Sterling.
The Open Offer Shares being offered are New Ordinary Shares of the Company of 1 pence each whose ISIN is GB00B4QMVR10. The Open Offer Shares are denominated in Sterling, and the Offer Price is payable in Sterling.
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107 of 179 The Excess Application Shares being offered are New Ordinary Shares of the Company of 1 pence each whose ISIN is GB00B4QMVR10. The Excess Application Shares are denominated in Sterling, and the Offer Price is payable in Sterling.
C.2 Currency The Firm Placed Shares, Open Offer Shares and Excess Application Shares Annex XXII (Annex III) C.2 are denominated in Sterling.
C.3 Number of The Company has 75,152,881 fully paid Ordinary Shares of 1 pence each Annex XXII (Annex I) C.3 shares in issue. The Company has no partly paid Ordinary Shares in issue.
C.4 Description of the The New Ordinary Shares will, when issued and fully paid, rank equally in Annex XXII (Annex III) C.4 rights attaching all respects with the Existing Ordinary Shares, including the right to receive to the securities all dividends or other distributions made, paid or declared, if any, by reference to a record date after the date of their issue.
C.5 Restrictions on The New Ordinary Shares and Existing Ordinary Shares are freely Annex XXII (Annex III) C.5 the free transferable, subject to the restrictions in the Articles. transferability of the securities
C.6 Admission Subject to shareholder approval, application will be made to the UK Listing Annex XXII (Annex III) C.6 Authority and the London Stock Exchange for all of the New Ordinary Shares to be admitted to the Official List and to trading on the London Stock Exchange’s main market for listed securities. The New Ordinary Shares will not be listed on any other regulated market.
C.7 Dividend policy The New Ordinary Shares will rank pari passu in all respects with the Annex XXII (Annex I) C.7 Existing Ordinary Shares including the right to receive all dividends and other distributions (if any) declared, paid or made by Flybe after Admission.
Section D – Risks
D.1 Key information Shareholders should carefully consider the following risks: Annex XXII (Annex I) D.1 on the key risks that are specific (a) Working capital and importance of the vote to the issuer or If the Resolutions are not approved, the Firm Placing and Placing and the industry Open Offer will not proceed. In such circumstances, the Group will not receive the net proceeds of the Firm Placing and Placing and Open Offer and therefore would not be able to pursue its strategy of building resilience or targeting profitable growth. Should the Firm Placing and Placing and Open Offer not proceed, the Company would risk being in a negative cash position of less than £5 million, and breaching financial covenants that it has given in respect of its aircraft financing arrangements, in the first quarter of the 2015 calendar year, and consequently the working capital available to the Group may be materially adversely affected, which might, as a further consequence, adversely affect the ability of the Group to continue to operate. Should the Firm Placing and Placing and Open Offer not proceed, the Group will continue to pursue its existing strategy of cash generation and the Directors are confident that the Group would be able to generate sufficient working capital through such means. However, the outcome of some of this strategy lies outside of the full control of the Company and, as a result, the Directors cannot be certain that it will be successful.
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108 of 179 (b) Aircraft accidents and associated safety issues may have a material adverse effect on the Group The Group is exposed to potentially significant losses or potential criminal liability if any of its aircraft is lost or subject to an accident, terrorist incident or other disaster. In addition, the Group operates a maintenance, repair and overhaul facility that provides services to third parties. Any defect in the standard of the service provided could lead to an aircraft accident or to an injury to the third party operator’s passengers, crew or other staff.
(c) The Group is exposed to a deterioration in general economic conditions The airline industry tends to experience comparatively adverse financial results during general economic downturns. A renewed deterioration in the global economy could result in a decrease in demand for air travel.
(d) The Group is exposed to fluctuations in foreign exchange rates The Group is exposed to changes in exchange rates between the Euro and, particularly, the US dollar, against Sterling. Consequently, any significant fluctuations in the US dollar and Euros against Sterling could have a material adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
(e) The Group is exposed to risks associated with fluctuations in fuel prices Fuel costs represent one of the largest components of the Group’s operating costs. A significant continuing upward trend in fuel costs, which may not be immediately recoverable from customers, could lead to material increases in the Group’s operating costs, which could have a material adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
(f) The Group is exposed to the effects of extraneous events, such as epidemics, natural occurrences or disasters and terrorist attacks The outbreak of a major epidemic or the occurrence of a natural disaster, may result in travel restrictions being imposed by governments or regulatory authorities, causing disruption or suspension of the Group’s services. Terrorist attacks, whether or not involving the airline industry, could result in decreased demand for or the disruption or suspension of, air travel, and increased insurance, security and other costs.
(g) The Group may not be successful in implementing its growth strategy The Group’s success in implementing its growth strategy is affected by matters such as the general condition of the global economy, demand for regional air transportation, the Group’s ability to acquire additional licenses, traffic rights and the Group’s ability to identify and attract suitable acquisition opportunities and joint venture, franchise, codeshare and interline partners to facilitate its expansion. Many of these factors are beyond the Group’s control.
(h) Any real or perceived safety or reliability-related problem with the Embraer regional jets, ATR 42, ATR 72 or Q400 aircraft types could adversely affect the Group’s operations The Group currently operates the Embraer E195, E175 and Bombardier Q400 aircraft in the UK and the Embraer E170, E190, ATR 42 and ATR 72 in Finland. The commonality of aircraft and associated engine types
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109 of 179 increases the Group’s exposure to risks flowing from the design of, systemic manufacturing defects relating to, or contractual non- performance by the manufacturers of, these aircraft or the engines which are used in them.
D.3 Key information Shareholders should carefully consider the following risks: Annex XXII (Annex III) D.3 on the key risks that are specific (a) Dilution to the securities The New Ordinary Shares issued through the Firm Placing and Placing and Open Offer will represent 65.3 per cent. of the Enlarged Share Capital, assuming full take up of the Open Offer. In light of the fact that Shareholders will not be eligible to participate in the Firm Placing, following the issue of the New Ordinary Shares to be allotted pursuant to the Firm Placing and Placing and Open Offer, Qualifying Shareholders who take up their Open Offer Entitlements in full will suffer a dilution of 42.2 per cent. to their interests in the Company, assuming full take up of the Open Offer.
(b) The Company does not currently pay dividends and it cannot assure investors that it will make dividend payments in the future The Company may not be able to or may choose not to pay dividends in the future. The payment of future dividends will depend on, among other things, the Group’s future profit, financial position, distributable reserves, working capital requirements, general economic conditions and other factors that the Directors deem significant from time to time.
Section E – Offer
E.1 Net proceeds The gross proceeds of the Firm Placing and Placing and Open Offer will be Annex XXII (Annex III) E.1 and expenses approximately £155.65 million. The net proceeds of the Firm Placing and Placing and Open Offer will be approximately £150.0 million, after estimated expenses of approximately £5.61 million.
E.2a Reasons for the The Directors intend to use the net proceeds of the Firm Placing and Placing Annex XXII (Annex III) E.2a offer and use of and Open Offer as follows: proceeds ● approximately £68 million for additional working capital to strengthen the Group’s balance sheet. The Directors believe that the Group will significantly benefit from a strengthening of its balance sheet, improving operational flexibility and providing additional cash reserves to enable the Group to protect itself from unforeseen disruptions or occurrences. A stronger liquidity position is expected by the Directors to assist additionally in securing better credit terms from a number of suppliers;
● approximately £14 million to reduce fleet ownership costs. The Directors intend to deploy capital to own aircraft with secured loans rather than full operating leases, thereby rebalancing Flybe’s fleet financing structure more towards ownership than operating leases;
● approximately £5 million to improve productivity. The Directors believe that increased investment in improvements to the Group’s IT and finance functions will result in greater robustness in infrastructure, cost savings and improved operating efficiencies within 6 to 12 months;
● approximately £5 million to enhance service to customers. The Directors believe that, in its branded business, the Flybe customer offering, product range and brand impact need to be developed further. With
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110 of 179 improved marketing, the Directors intend to increase the number of visitors to the Group’s website and enhance conversion rates by offering an improved customer proposition that enhances the brand promise and to identify improvements in the product that will mark the Flybe experience as different to others;
● approximately £35 million to expand the Group’s branded scheduled commercial operation with new routes and bases. The Directors believe that the expansion of Flybe-branded scheduled operations will primarily involve the development of new routes and bases within the UK within a 12 to 24 month timeframe; and
● approximately £23 million to expand white label flying. The Directors believe that there are other opportunities to roll out Flybe’s white label offering and have identified a number of national airlines in Europe for whom white label flying could be attractive, and are in ongoing commercial discussions with several of these airlines.
The Firm Placing and Placing and Open Offer require Shareholder approval. If any of the Resolutions are not passed, the Firm Placing and Placing and Open Offer will not proceed.
E.3 Terms and Flybe intends to issue 91,400,000 New Ordinary Shares through the Firm Annex XXII (Annex III) E.3 conditions Placing and up to 50,101,920 New Ordinary Shares through the Open Offer at 110 pence per New Ordinary Share to raise gross proceeds of up to £155.65 million.
The Firm Placing and Placing and Open Offer requires Shareholder approval, which will be sought at the General Meeting.
The Offer Price of 110 pence per New Ordinary Share represents a 7.2 per cent. discount to the Closing Price of an Existing Ordinary Share of 118.5 pence on 19 February 2014 (being the latest practicable date prior to the announcement of the Firm Placing and Placing and Open Offer).
Firm Placing The Firm Placees have agreed to subscribe for 91,400,000 New Ordinary Shares at the Offer Price (representing gross proceeds of up to £100.5 million). The Firm Placed Shares are not subject to clawback and are not part of the Open Offer.
Placing and Open Offer The Company has raised approximately £55.1 million (gross) through a Placing and Open Offer of 50,101,920 New Ordinary Shares at the Offer Price. Liberum Capital, as agents for the Company, have placed the Placing Shares with further investors subject to the Qualifying Shareholders’ right to take up their rights under the Open Offer.
Qualifying Shareholders are being given the opportunity to subscribe for New Ordinary Shares pro rata to their existing shareholdings at the Offer Price on the basis of:
2 New Ordinary Shares for every 3 Existing Ordinary Shares
held and registered in their name at the Record Date. Qualifying Shareholders may apply for any whole number of New Ordinary Shares. Excess applications will be satisfied only to the extent that corresponding
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111 of 179 applications by other Qualifying Shareholders are not made or are made for less than their pro rata entitlements. If there is an oversubscription resulting from excess applications, allocations in respect of such excess applications will be scaled down according to the Directors’ discretion.
Under the Open Offer, Flybe intends to issue up to 50,101,920 New Ordinary Shares at the Offer Price (representing gross proceeds of up to £55.1 million) to be made available pursuant to the Open Offer.
The Firm Placing and Placing and Open Offer have been fully underwritten by Liberum Capital on, and subject to, the terms and conditions of the Underwriting and Sponsor Agreement.
The New Ordinary Shares, when issued and fully paid, will rank in full for all dividends or other distributions declared, made or paid after Admission and in all other respects will rank pari passu with the Existing Ordinary Shares. Application has been made for the New Ordinary Shares to be admitted to the Official List and to trading on the London Stock Exchange’s main market for listed securities. It is expected that Admission will become effective on 12 March 2014 and that dealings for normal settlement in the New Ordinary Shares will commence at 8.00 a.m. on the same day.
The Plimsoll Line Limited, a subsidiary of International Consolidated Airlines Group, S.A. has signed an irrevocable undertaking to vote in favour of the Resolutions in respect of its entire shareholding in the Company (representing 14.54 per cent. of the Company’s existing issued share capital).
E.4 Conflicts of Not applicable – there are no interests (including conflicts of interest) which Annex XXII (Annex III) E.4 interest are material to the issue.
E.5 Lock-up Not applicable – there are no entities or persons offering to sell the security Annex XXII (Annex III) E.5 of Flybe. There are no lock-up agreements.
E.6 Dilution Following the issue of the New Ordinary Shares pursuant to the Firm Placing Annex XXII (Annex III) E.6 and Placing and Open Offer, Qualifying Shareholders who do not take up any of their Open Offer Entitlements will suffer a dilution of approximately 65.3 per cent. to their interests in the Company, assuming full take-up under the Open Offer. If a Qualifying Shareholder takes up his Open Offer Entitlement in full he will suffer a dilution of 42.2 per cent. to his interest in the Company, assuming full take-up under the Open Offer.
E.7 Expenses Assuming that all of the New Ordinary Shares are issued pursuant to the Annex XXII (Annex I) E.7 Firm Placing and Placing and Open Offer, the aggregate costs of the Firm Annex XXII Placing and Placing and Open Offer Issues are expected to amount to (Annex II) E.7
approximately £5.61. These costs and expenses will be deducted from the Annex XXII gross proceeds of the Firm Placing and Placing and Open Offer and will (Annex III) E.7 therefore be indirectly charged to investors.
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112 of 179 RISK FACTORS
The following risk factors, which the Directors believe include all known material risks in relation Annex I para 4:; para 12.2 to the Company or its industry, and the Firm Placing and Placing and Open Offer, should be carefully considered by Shareholders and investors when deciding (in the case of Shareholders) what action to take at the General Meeting and (in the case of investors) whether to make an investment in the Group. Shareholders and investors should carefully consider the whole of this document and not rely solely on the information set out in this section.
Investors should be aware that any investment in the Company involves a high degree of risk and should be made only by those with the necessary expertise to appraise the investment.
Additional risks currently unknown to Flybe, or currently believed to be immaterial, could have an adverse effect on the Group. Any or all of these factors could have a material and adverse effect on the Group’s operational results, financial condition and prospects. Furthermore, the trading price of the Ordinary Shares could decline, possibly rapidly, resulting in the loss of all or part of any investment therein.
A. RISKS ASSOCIATED WITH THE FIRM PLACING AND PLACING AND OPEN OFFER
Working Capital and importance of the vote If the Resolutions are not approved, the Firm Placing and Placing and Open Offer will not proceed. In such circumstances, the Group will not receive the net proceeds of the Firm Placing and Placing and Open Offer and therefore would not be able to pursue its strategy of building resilience or targeting profitable growth, as described in the ‘Future Strategy of Flybe’ paragraph of section 2 of Part 1 of this document.
Should the Firm Placing and Placing and Open Offer not proceed, the Company would risk being in a negative cash position of less than £5 million, and breaching financial covenants that it has given in respect of its aircraft financing arrangements, in the first quarter of the 2015 calendar year, and consequently the working capital available to the Group may be materially adversely affected, which might, as a further consequence, adversely affect the ability of the Group to continue to operate.
Should the Firm Placing and Placing and Open Offer not proceed, the Group will continue to pursue its existing strategy of cash generation and the Directors are confident that the Group would be able to generate sufficient working capital through such means. However, the outcome of some of this strategy lies outside of the full control of the Company and, as a result, the Directors cannot be certain that it will be successful.
B. RISKS RELATING TO THE INDUSTRY
(a) Aircraft accidents and associated safety issues may have a material adverse effect on the Group The Group is exposed to the risk of a significant accident involving one or more of its aircraft. The Group is exposed to potentially significant losses or potential criminal liability if any of its aircraft is lost or subject to an accident, terrorist incident or other disaster, including significant costs related to passenger claims, repairs or replacement of a damaged aircraft and temporary or permanent loss from service. In addition, the Group operates a maintenance, repair and overhaul facility that provides services to third parties. Any defect in the standard of the service provided could lead to an aircraft accident or to an injury to the third party operator’s passengers, crew or other staff. In the event of such an accident or injury, the Group is exposed to potentially significant costs related to claims from the third party operator or its passengers, crew or other staff.
(b) The Group is exposed to the risk of a significant increase in the cost of, or the loss of, insurance as a result of accidents, terrorist incidents or other disasters The airline industry is exposed to potentially catastrophic losses that may be incurred in the event of an accident, terrorist incident or other catastrophe. Although the Group considers its insurance coverage to be appropriate, there can be no assurance that the level of such coverage will be
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113 of 179 sufficient to cover all losses arising from a catastrophic event. Even if the level of the Group’s insurance coverage was adequate to cover all such losses in full, Flybe would be forced to bear substantial losses if its insurers were unwilling or unable to pay the agreed insurance benefits. Further, insurance premiums charged to the Group following any accident, terrorist incident or other catastrophe could increase significantly, as they did following the terrorist attacks of 11 September 2001. Any losses incurred by the Group as a result of an accident, terrorist incident or other disaster for which the Group is not insured, which exceed the amount insured or which the insurer cannot or will not pay (or any increased premiums charged to the Group as a result of an accident, terrorist incident or other disaster) could have a material adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
(c) The Group operates in a highly competitive market The level of competition in the European airline industry is high. Airlines compete primarily on fare levels, frequency, service reliability, convenience, safety record, brand recognition and passenger amenities. The Group’s competitors include European LCCs, legacy airlines, other established commercial and charter airlines and travel conglomerates with integrated airlines (some of which are larger and have greater financial resources than the Group), as well as alternative means of transport, such as high speed rail and road. The Group’s competitors may seek to protect or gain market share through fare- matching or price-discounting (something the airline industry has been historically susceptible to), by offering more attractive flight schedules or services, by introducing new routes, or by placing large orders for new aircraft and transferring excess capacity to markets and routes already served by the Group or which Flybe is contemplating serving. Some competitors may also be able to offer lower fares than Flybe as a consequence of, for example, providing passengers with fewer on-board services, having lower fixed and/or variable costs, or drawing upon sources of financial support unavailable to Flybe, such as intra group financial support, which could prevent Flybe from obtaining the passenger volumes required to sustain profitable operations on a new or existing route. In particular, some of these airlines are state owned, state controlled or state protected national flag carriers that have received or may receive in the future significant amounts of subsidies and state assistance from their respective governments. In addition, as an operator of primarily short-haul services, Flybe is more exposed to competition from alternative modes of transport, such as high-speed rail and road, than an airline operating long-haul, intercontinental services.
There can be no assurance that the Group will be able to continue to compete effectively with other airlines, any new entrants to the industry or other forms of transport. The sustained loss of a significant number of passengers to competing airlines or to alternative forms of transport, or a reduction in the Group’s revenues as a result of increased competition in the industry, could have a material adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
(d) Due to relatively high fixed costs, the Group’s profitability is vulnerable to relatively small changes in the numbers of passengers or in pricing, particularly during the summer season As is typical for the airline industry, the Group is characterised by relatively high fixed costs (including costs in respect of aircraft financing and ownership, lease and fuel costs, depreciation expenses and general labour costs). The revenues generated by flights are generally substantially more variable than costs as they are directly related to the number of passengers carried and the fare structure of the flight. Therefore, a relatively small reduction in the number of passengers flown and/or a detrimental change in the pricing structure for the Group’s tickets could have a disproportionate effect on the Group’s profit margins, and thereby on its business, results of operations, growth prospects and/or financial condition.
Demand for the Group’s services fluctuates over the course of the year, and has historically been higher in the summer season and lower in the winter season. As the majority of the Group’s profits are generated in the summer season, lower demand for air travel, flight cancellations or other factors that adversely affect aircraft utilisation during this period may have a disproportionately adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
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114 of 179 (e) The Group is exposed to a deterioration in general economic conditions The airline industry tends to experience comparatively adverse financial results during general economic downturns. The credit crisis beginning in late 2007 caused higher unemployment rates, constrained credit markets, housing related pressures and increased business operating costs. This in turn has caused a material decrease in the amount spent on discretionary items, such as air travel, which are often scaled back during economic downturns. A renewed deterioration in the global economy (and the UK and European economy in particular (being the markets served by the Group)) could result in a decrease in demand for air travel, as passengers may be inclined either not to travel at all or to opt for alternative (and perceived or actually cheaper) methods of transportation, such as road and rail. In such downturns, the Group may also be required to take delivery of new aircraft it has agreed to purchase or lease whether or not it requires additional capacity, or may be unable to dispose of surplus aircraft on financially acceptable terms. Prolonged economic uncertainty in certain markets may also lead other airlines to shift their capacity to markets and routes served by the Group, increasing competition in these markets and putting further downward pressure on Flybe’s fares. Any of the foregoing events could cause a fall in passenger numbers or fares, which could have a material adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
(f) The Group is exposed to fluctuations in foreign exchange rates A significant amount of the Group’s expenditure is incurred in US dollars, in areas such as aircraft fuel purchases, operating lease financing and engine and other maintenance costs, and in Euros, in areas such as airport charges and European air traffic control charges. In addition, as a result of the various locations to and from which the Group flies, approximately 11.2 per cent. of the Group’s revenue in the 2012/13 Financial Year was generated in Euros. The proportion of the Group’s revenue generated in Euros is likely to increase upon the implementation of the Group’s strategy to further expand its operations into continental Europe. The Group generates a significant amount of its revenues (primarily through ticket sales) in sterling. The Group also reports its financial results in sterling. The Group is exposed to changes in exchange rates between the Euro and, particularly, the US dollar, against sterling. Consequently, any significant fluctuations in the US dollar and Euros against sterling could have a material adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
To manage this exposure to the variability of cash flows as a result of movements in these currencies, the Group operates a foreign exchange hedging policy. Foreign exchange forward contracts are used in conjunction with fuel derivatives to mitigate procurement price risk and, further, the foreign exchange forward contracts are matched to planned purchases of aircraft, spare parts and lease costs to cover the majority of the Group’s exposure. There can be no assurance that these hedging activities will be sufficient to protect the Group from adverse effects of currency fluctuations. Hedging also limits the potential gain by the Group of any beneficial exchange rate developments. The Group’s assumptions and estimates regarding the future development of currency exchange rates and its chosen risk avoidance or risk tolerance strategies have a substantial impact on the success of its hedging policy. If these assumptions and estimates prove to be incorrect or if the Group’s hedging policy were to fail, this could have a material adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
(g) The Group is exposed to risks associated with fluctuations in fuel prices Fuel costs represent one of the largest components of the Group’s operating costs, accounting for 18.9 per cent. of total operating costs for the 2012/13 Financial Year. Due to the large proportion of fuel costs in the Group’s total operating cost base, even a relatively small increase in the price of aviation fuel, which increased significantly during the 2011/12 and 2012/13 Financial Years, can have a significant negative impact on the Group’s operating costs. The Directors expect this volatility to continue in at least the short to medium term. A significant continuing upward trend in fuel costs, which may not be immediately recoverable from customers, could lead to material increases in the Group’s operating costs, which could have a material adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
The Group currently operates a policy of hedging a portion (between 60 per cent. and 90 per cent.) of its aviation fuel requirements up to 12 months in advance. However, such arrangements do not
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115 of 179 completely protect the Group against price volatility, are limited in volume and duration, can be less effective during volatile market conditions and may carry counterparty risk. In addition, under the fuel hedge contracts the Group may enter into from time to time, counterparties to those contracts may require the Group to fund the margin associated with any loss position on the contracts if the price of crude oil falls below specified benchmarks. Substantial fuel price increases (whether covered by hedges or not), or meeting the Group’s obligations to fund margin calls under fuel hedge contracts, could have a material adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
(h) The Group is exposed to an increase in airport charges and taxes Airport charges represent a significant proportion (approximately 14 per cent. in the 2012/13 Financial Year) of the total operating costs of the Group. Certain airports which the Group serves in the UK are specifically regulated such that all users of the airport are required to be treated in a non-discriminatory manner, and the Group has very limited ability to negotiate preferential or improved commercial terms for the charges imposed at these airports. To the extent possible within the regulatory constraints, the Group has entered into commercial agreements with the airports from which it operates (some of which are on a short term or informal basis) whereby it has sought to negotiate the best possible commercial arrangements. However, there can be no assurance that these arrangements can be renewed on commercially similar terms and that the various airport charges covered by such arrangements, such as in relation to airport transit, landing fees and security charges, will not increase substantially. There can also be no assurance that airports at which the Group operates, which are not currently regulated as described above, will remain so.
In addition, taxes are levied on the sale of airline seats in many of the countries in which the Group operates. The UK currently levies one of the highest tax rates in Europe in relation to aircraft departures, airport passenger duty (“APD”).
Any increase in airport charges or taxes, such as APD, which cannot be passed on to the customer will result in an increase in operating costs for the Group. In addition, any increase in such costs which can be passed on to the customer may result in increased levels of competition from alternative forms of transport. Any significant increase in airport charges or taxes, whether through changes in regulation or otherwise, could therefore have a material adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
(i) The elimination of current tax exemptions for aviation fuel would lead to a substantial increase in the Group’s aviation fuel costs Over the past few years, there has been discussion at EU level and within EU member states regarding the existing tax exemptions for aviation fuel. While such exemptions are the subject of an international treaty and therefore not within the EU’s control, there can be no assurance that the current tax exemptions for aviation fuel will be maintained and any change to these exemptions could lead to a substantial increase in the Group’s aviation fuel costs, which could have a material adverse effect on its business, results of operations, growth prospects, and/or financial condition.
(j) Regulatory changes in the airline industry may have an adverse impact on an airline’s costs, operational flexibility, marketing strategy, business model and ability to expand The airline industry is highly regulated. Flybe is authorised to operate its airline business through an Operating License issued by the CAA, Flybe Aviation Services through an EASA approval from the CAA (pursuant to Article 4 of EU Regulation 2042/2003) and Flybe Finland through an Operating License issued by TRAFI. These authorisations are subject to Flybe’s ongoing compliance with applicable legislation, rules and regulations, including any new rules or regulations that may be adopted in the future. Changes to these rules and regulations in the future could require the Group to make changes to its operational practices and/or business strategy in order to retain its Operating Licenses and Route Licenses, which could in turn have an adverse impact on the Group’s financial condition and/or growth prospects.
Regulatory changes affecting the airline industry could also have an adverse impact on the Group’s costs, flexibility, marketing strategy, business model and ability to expand. It may not be feasible to pass regulatory and compliance costs on to customers and regulatory changes may affect how the
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116 of 179 Group markets its services. Regulatory authorities may for example, impose operating restrictions at airports served by the Group, such as take-off curfews, noise restrictions, mandatory flight paths, runway restrictions, limits on the average number of daily departures and restrictions on maximum total duty time for crew members. There can be no assurance that airports at which there are currently no restrictions may not implement restrictions in the future or that, where such restrictions already exist, they will not become more onerous. Any increase in the restrictions imposed by regulatory authorities, or the introduction of more onerous restrictions or other regulatory action may have a material adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
(k) The Group is exposed to negative environmental perception of the airline industry There has been increased focus in recent years amongst the media, governments and the public on environmental issues relating to the airline industry, and specifically the environmental impact of air travel. There can be no assurance that there will not be an increasingly negative perception of the airline industry in connection with environmental issues in the future which could have an adverse impact on the Group. Members of the public may seek to reduce their use of air travel in favour of alternative forms of transport with a perceived cleaner environmental record. Any negative change in public sentiment towards air travel could have a material adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
(l) Airlines may be adversely affected by any future application of restrictions with regard to the regulation of emissions trading and other environmental laws and regulations In February 2009 EU Directive 2008/101/EC came into force, bringing the aviation industry within the EU Emissions Trading Scheme (“EU ETS”). As a result, all flights departing from, and arriving at, EU airports have been included within the EU ETS from 2012. The EU ETS delivers a market price for carbon, capping total emissions to a fixed limit with operators required to acquire allowances for each reporting year to cover their total emissions. If the Group is not able to obtain sufficient allowances free of charge, consequently, it will have to purchase additional allowances within the open market. The purchase of sufficient allowances will increase the Group’s total costs, which could (depending on the cost of such allowances) have a material adverse effect on the Group’s business, results or operations, growth prospects and/or financial condition.
In the future, the UK and/or other European governments may choose to impose a more penal tax regime on air travel designed to reduce airline emissions by making air travel more expensive and therefore less attractive to customers. Any increase in cost to passengers brought about by a tougher taxation or other regulatory regime could have a material adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
(m) The Group is exposed to the effects of extraneous events, such as epidemics, natural occurrences or disasters and terrorist attacks The outbreak of a contagious disease, such as Severe Acute Respiratory Syndrome (SARS), the Influenza H1N1 virus, avian flu, or another contagious disease with the potential to become a pandemic, whether on a regional or global scale, or the occurrence of a natural disaster, such as the ash cloud generated by the eruption of the Eyjafjallajökull volcano in Iceland in April and May 2010, may result in travel restrictions being imposed by one or more governments or regulatory authorities and substantial reductions in, and cancellations of, bookings not only to the affected region but also more generally, thereby reducing overall demand for the Group’s services or causing disruption or suspension of those services. In addition, adverse winter weather arising from snow accumulations, ice, fog or other conditions can cause flights to be delayed or disrupted for extended periods, leading to flight cancellations, additional costs and reduced revenues.
Terrorist attacks, particularly those involving aircraft such as the 11 September 2001 attacks, had a negative effect on the airline industry. Further actual, attempted or suspected terrorist attacks, acts of sabotage, new military conflicts or the expansion of existing conflicts and similar events, whether or not involving the airline industry, could result in decreased demand for or the disruption or suspension of, air travel, and increased insurance, security and other costs, especially if they are directed against air traffic or business and tourist destinations.
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117 of 179 Furthermore, any accident, terrorist incident or other disaster directly affecting Flybe, even if fully insured against, could result in substantial losses to the Group. In addition, such an incident could increase the risk of litigation or regulatory action and could damage the Flybe brand, including through a perception that Flybe is less safe or reliable than other airlines, which could cause passengers to lose confidence in Flybe and switch to other airlines or other means of transport. Passengers could also lose confidence in Flybe even if an airline other than Flybe were to suffer such loss or damage, particularly if the airline is a UK or European carrier perceived by air travellers to be similar to Flybe.
Restrictions imposed by one or more governments or regulatory authorities as a result of the outbreak of a major epidemic, a natural occurrence or disaster, or as a result of a terrorist attack, or indeed the perception that an epidemic, natural disaster, terrorist attack or similar event may occur, could have a material adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
C. RISKS RELATING TO THE GROUP’S BUSINESS
(a) The Group is exposed to a reduction in UK domestic air travel, including business travel Approximately 74 per cent. of passengers who flew with the Group in the 2012/13 Financial Year did so on UK domestic routes. In addition, approximately 40 per cent. of passengers who flew with the Group during the same periods did so for business rather than personal reasons, with a further 30 per cent. of passengers flying to visit friends and family. Any sudden decreases in UK domestic air travel, in particular which the Group is unable to compensate for by increasing its services on new or other existing routes, or a significant and sustained decline in demand for UK domestic air travel or business travel generally, could have a material adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
(b) The Group may not be successful in implementing its growth strategy The Group’s medium-term growth strategy involves strengthening its market position through organic growth, relationships with other major carriers (such as codeshare, contract flying and joint ventures), selected acquisitions, the introduction of new flights to airports not currently served by the Group and the replication of the Group’s business model within other European regional marketplaces, including through the establishment of new airport bases.
The Group’s success in implementing its growth strategy is affected by matters such as the general condition of the global economy (particularly the UK and European economies) and the continued growth in demand for regional air transportation, the Group’s ability to acquire additional licenses, traffic rights and the Group’s ability to identify and attract suitable acquisition opportunities and joint venture, franchise, codeshare and interline partners to facilitate its expansion into its targeted marketplaces.
The Group’s growth prospects are also affected by the availability of landing and take-off slots at the airports from which it currently operates and other airports from which it may wish to operate in the future. Operational access to certain UK and European airports is regulated by a system of slot allocation. There is competition amongst airlines for the allocation of slots at such airports. Where new slots are not available (such as when an airport reaches full capacity) or their availability is restricted, either at airports from which Flybe currently operates or at airports from which it may wish to operate from in the future, the Group may have to amend its schedules, reduce aircraft utilisation or amend its growth plans.
The Group’s success in implementing its growth strategy is also affected by the Group’s ability to finance new aircraft on acceptable terms (whether through operating lease structures or borrowing). The Group has successfully financed 24 aircraft since October 2008, during a period of global economic instability.
Further, growth through acquisitions or joint ventures involves the successful integration of other existing businesses which may pose risks not foreseeable at the time of agreement. While the Directors believe that the BA Connect acquisition in 2007, the establishment of the joint venture with Finnair Oyj in 2011 and the ongoing Loganair franchise demonstrate respectively the Group’s ability
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118 of 179 to successfully execute and integrate a major acquisition, joint venture and franchise operation, there can be no assurance that the Group will be able to implement any future integration within the time frame or cost profile expected at the time of agreement.
Many of these factors are beyond the Group’s control. While the Group’s strategy is to replicate its business model within other European regional marketplaces, particularly through “white label” flying, the implementation of this strategy may result in the Group operating in countries where it has no or limited operating experience, and where the operating, financial and legal challenges presented could be significantly different from those faced by the Group in its existing markets. As such, there can be no assurance that the Group will be successful in implementing its strategy of replicating its business model within other European marketplaces, or that the costs associated with an unsuccessful implementation of this strategy will not have a material adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
(c) Costs will be incurred in developing new routes, and new routes proposed by the Group may not be profitable The Group’s growth strategy involves expanding the number of destinations served and increasing flight connection opportunities between existing destinations in the future. When an airline begins service on a new route, its passenger load factors and yields initially tend to be lower than those on its established routes, and its advertising and other promotional costs tend to be higher. Customers may make less use of new routes or additional capacity on existing routes than the Group may have expected. New routes may also experience more competition than current ones, or competition may otherwise exceed the Group’s expectations. As a result, the establishment of new routes usually generates initial losses. If the Group is unable to manage or implement its planned growth adequately by correctly assessing demand, capacity and fares, or if the Group is forced to terminate any unprofitable routes, this could have a material and adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
(d) The Group may not be successful in implementing its restructuring plan The Group’s plan to return to profitable growth involves (among other things) reducing costs through a substantial restructuring of its business, with a focus (among other things) on reducing employee headcount, base and route closures and the renegotiation of commercial terms with third party suppliers of goods and services (including lessors of the Group’s aircraft). The Group may not be able to achieve each of its desired cost reductions should negotiations with unions, employees and the suppliers of goods and services not proceed as planned. If the Group is unable to negotiate its desired cost reductions, or if the negotiations themselves have a negative impact on the Group’s relations with its unions, employees, customers and suppliers of goods and services, this could have a material and adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
(e) The Group is heavily dependent on its information technology systems and the internet to operate its business The Group’s ability to manage its operations (including its ability to receive and process ticket sales, and to manage reservations and its website), and to engage in other business critical tasks is dependent on the efficient and uninterrupted operation of its computer and communication systems and on the systems used by third parties in the course of their interaction with the Group. Although the Group has put in place appropriate disaster recovery procedures and adequate systems to protect against future attacks, it cannot guarantee the efficient and uninterrupted operation of systems used by the Group, particularly where the Group is affected by events beyond its control.
Further, the Group cannot guarantee that third parties who supply information technology services to the Group or whose systems interact with the Group’s in the operation of its business have or will be able to provide adequate support for service disruptions or will continue to maintain adequate disaster recovery procedures. Any significant disruption to the Group’s systems (and in particular any sustained period during which the Group’s website is rendered inoperative), any failure of the back- up systems (through power shortages, acts of terrorism or sabotage, computer viruses, fires or other events) or any inability of third party providers to supply necessary systems and services to the Group could significantly impair the Group’s ability to operate its business efficiently and could have a
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119 of 179 material adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
In the 2012/13 Financial Year the Group generated 70 per cent. of its revenues through the internet. Any compromise of internet security could deter people from using the internet or from using it to conduct transactions that involve transmitting confidential information, which could have a negative impact on the Group’s internet sales. The Group may also incur significant costs to protect against the threat of security breaches, particularly if the perceived risks of terrorist activity and/or third party misappropriation of information lead to government imposed increases in internet security and greater restrictions on ticket purchases made remotely. Costs may also be incurred in dealing with problems caused by internet security breaches. In addition, alleviating these problems may cause interruptions, delays or cessations in service to the Group’s customers, which could lead them to stop using the Group’s services or to make claims against the Group.
The Group retains personal information received from customers and has put in place security measures to protect against unauthorised access to such information. Personal information held both offline and online is highly sensitive and, if third parties were to access such information without the customer’s prior consent or if third parties were to misappropriate that information, customers may seek to bring legal claims against the Group which, if successful, could have a material adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
(f) The Group is exposed to an event, including a safety-related accident, damaging its reputation or brand As part of its overall business model, the Group relies on its reputation and positive brand recognition, amongst other things, to attract customers. Damage to the Group’s reputation or brand through either a single event, a series of events or an event affecting one of the Group’s partners, could adversely impact the Group’s ability to market its services and attract and retain customers, and could ultimately have a material adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
(g) Any real or perceived safety or reliability-related problem with the Embraer regional jets, ATR 42, ATR 72 or Q400 aircraft types could adversely affect the Group’s operations The Group currently operates the Embraer E195, E175 and Bombardier Q400 aircraft in the UK and the Embraer E170, E190, ATR 42 and ATR 72 in Finland. The Embraer regional jets utilise General Electric engines and the Q400, ATR 42 and ATR 72 aircraft utilise Pratt & Whitney engines. Although the Group’s choice of aircraft provides the Group with what it believes are many advantages, this commonality of aircraft and associated engine type increases the Group’s exposure to risks flowing from the design of, systemic manufacturing defects relating to, or contractual non-performance by the manufacturers of, these aircraft or the engines which are used in them. The Group is also exposed to the risk of any real or perceived adverse perception by the public that results in consumer avoidance of, or regulatory action in respect of, these aircraft.
(h) Flight cancellations or significant delays in departures or turn-around times can have an impact on the Group’s operations The Group seeks to maximise its aircraft utilisation rate by reducing turn-around times at the airports from which it operates, thereby increasing the number of sectors that may be flown by its aircraft each day. As a result of the Group’s comparatively short average sector length and high number of sectors flown per day, the Group may be disproportionately affected by delays, including those resulting from factors such as air traffic control, ground handling, regulatory requirements in relation to passenger data provision, air traffic or airport congestion, adverse weather, unexpected events (such as the ash cloud generated by the eruption of the Eyjafjallajökull volcano in Iceland in April and May 2010), acts of third parties on whom Flybe relies, maintenance or technical issues and the imposition of more onerous safety or security requirements. In addition, passengers who experience flight cancellations or significant delays are now able, in certain circumstances, to claim compensation under EC Regulation 261/2004. Flight cancellations or significant delays in departures or turn-around times, especially if repeated on multiple occasions, could damage the Group’s reputation or brand and have a material adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
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120 of 179 (i) The Group is exposed to fluctuations in interest rates The Group is exposed to movements in interest rates on operating lease payments made by the Group on its aircraft finance arrangements and its external borrowings. The Group hedges a proportion of its exposure to such movements in interest rates through the use of fixed rate interest agreements. There can be no assurance that these fixed rate agreements will be sufficient to protect the Group from adverse effects of interest rate movements. Hedging also limits the potential benefit to the Group of any positive interest rate movements. The Group’s assumptions and estimates regarding the future development of interest rates and its chosen risk avoidance or risk tolerance strategies could have a substantial impact on the success of its hedging policy. If these assumptions and estimates prove to be incorrect or if the Group’s hedging policy were to fail, this could have a material adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
(j) The Group is dependent on good industrial relations Many of the Group’s employees are represented by trade unions and the Group has voluntary recognition agreements in place with BALPA in respect of its pilots, UNITE in respect of its cabin crew and Prospect in respect of its engineers. Non-unionised staff are represented by a staff council called Open Channel. The Group undertakes collective bargaining with such unions and employee representatives on a financial yearly basis. Any breakdown in the bargaining process with BALPA, UNITE or Prospect could result in the Group being unable to continue to negotiate wages and salaries on terms that support it offering services at competitive prices, or could lead to strikes or other industrial action (or the threat of strikes or industrial action) which could damage the Group’s reputation or cause passengers to book with the Group’s competitors. A breakdown in the relationship with employee representative bodies or the employees themselves (particularly in the context of the Group implementing its restructuring plan), could lead to industrial action being taken which could in turn have a material adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
(k) The Group is exposed to shortages of pilots / licensed engineers and other key personnel Pilots are from time to time in short supply in the European airline industry and the Group may have to expend significant amounts of time in recruiting and training them. There has historically been a trend in the industry for senior pilots in short haul airlines (such as the Group) to leave in order to join airlines with longer haul routes, particularly when the global economy is strong and there is high demand for experienced pilots to fly on international routes. Although in the last few years the Group has maintained a relatively high retention rate in respect of pilots, this may change when the global economy improves. Similar recruitment and training issues exist for licensed engineers employed by Flybe Aviation Services and in relation to other key personnel more widely. Any significant shortage of highly trained or specialised employees could have a material adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
(l) The Group’s joint venture, Flybe Finland, is dependent on its relationship with its joint venture partner, Finnair Oyj Approximately 21 per cent. of the Group’s revenues under management in the 2012/13 Financial Year related to its Flybe Finland joint venture with Finnair Oyj. The success of Flybe Finland is dependent, in part, on the Group’s ongoing commercial relationship with Finnair Oyj. Should the Group’s relationship with Finnair Oyj deteriorate, whether as a result of the perceived underperformance of Flybe or Finnair Oyj (by the other joint venture party) in the operation of Flybe Finland or otherwise, thereby leading to a reduction in revenues attributable to Flybe Finland or a closure of Flybe Finland altogether, this could have a material adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
(m) The Group is exposed to the failure or non-performance of commercial and financial counterparties The Group is dependent on numerous third parties with whom it has commercial agreements for certain business critical services, such as aircraft manufacturers (for example, Embraer), engine manufacturers (specifically General Electric and Pratt & Whitney), aircraft component manufacturers, maintenance service providers, airport operators, fuel providers, ground handlers, caterers and other
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121 of 179 outsourced service providers. The efficiency, timeliness and quality of contract performance by third party providers is largely beyond the Group’s direct control. For example, any delay in the prompt delivery of aircraft or critical aircraft components in the future may have an adverse result on the Group’s operations. In addition, the Group is subject to the risk of failure by counterparties to its financial arrangements, such as money market deposits, fuel hedging contracts, foreign currency transactions and insurance policies. If one or more of these third parties failed to meet its contractual obligations to the Group, or if such services were temporarily (for example, as a result of technical problems or industrial action) or permanently unavailable, or not available on commercially acceptable terms, this could have a material adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
(n) The Group is reliant on the efficient operation of UK and European air traffic control systems Air traffic in Europe has become increasingly congested in recent years, particularly in the air space around UK regional airports, through which a significant portion of Flybe’s flights operate. The expected continuing growth of UK and European air traffic is likely to increase the pressure upon UK and European air traffic control systems. While the Directors have no expectation that the air traffic control systems will not be able to cope with the pressure from increased utilisation, any significant disruption in, or a complete breakdown of, these systems could have a material adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
(o) The Group is exposed to risks relating to the British Regional Airlines Group Pension Scheme As part of its acquisition of BA Connect in 2007, Flybe became the principal employer for the British Regional Airlines Group Pension Scheme, a defined benefit pension scheme. This scheme is closed to new members and was, with effect from 31 October 2007, closed to future benefit accrual for existing members.
A triennial valuation of the scheme (formally assessing the position as at 31 March 2013) is currently underway. Once conclusions are reached in the first half of 2014, the resulting actions will need to be agreed between the trustees of the scheme and the Group. The last triennial valuation of the scheme as at 31 March 2010 showed an actuarial surplus of £2.5 million. In addition, the scheme had an IAS 19 surplus of £0.5 million as at 30 September 2013. While the IAS 19 accounting valuation as at 30 September 2013 is the most recent assessment of the scheme’s position, it was not conducted on the same basis as the triennial valuation.
Depending on the results of the current and future triennial valuations, Flybe may be required (should the scheme fall into deficit in the future) to make top-up payments to the scheme under an agreed recovery plan.
Any requirement by the trustees of the scheme for top-up payments to be made (should the scheme fall into deficit in the future), could have a material adverse effect on the Group’s business, results of operations, growth prospects and/or financial condition.
Annex III para 2 D. RISKS RELATING TO THE STOCK MARKET AND TO SHARE TRADING
(a) Dilution The New Ordinary Shares issued through the Firm Placing and Placing and Open Offer will represent 65.3 per cent. of the Enlarged Share Capital, assuming full take up of the Open Offer. Specifically, the New Ordinary Shares issued through the Firm Placing will represent 42.2 per cent. of the Enlarged Share Capital and New Ordinary Shares issued through the Open Offer will represent 23.1 per cent. of the Enlarged Share Capital, assuming full take up of the Open Offer. In light of the fact that Shareholders will not be eligible to participate in the Firm Placing, following the issue of the New Ordinary Shares to be allotted pursuant to the Firm Placing and Placing and Open Offer, Qualifying Shareholders who take up their Open Offer Entitlements in full will suffer a dilution of 42.2 per cent. to their interests in the Company, assuming full take up of the Open Offer.
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122 of 179 (b) Fluctuation of share price The price at which the New Ordinary Shares will be quoted and the price which investors may realise for their New Ordinary Shares will be influenced by a large number of factors, some specific to Flybe and its operations and some which may affect the airline sector, or quoted companies generally. The Company’s share price has fluctuated, and may continue to fluctuate.
The Company’s share price may fall in response to market appraisal of its current strategy or if the Group’s operating results and prospects from time to time are below the expectations of market analysts and investors. In addition, stock markets have from time to time experienced significant price and volume fluctuations that have affected the market price of the companies whose shares are traded on such markets. Such fluctuations could affect the Company’s share price, though they may be unrelated to the Group’s actual operating performances and prospects.
(c) The Company does not currently pay dividends and it cannot assure investors that it will make dividend payments in the future The Company may not be able to or may choose not to pay dividends in the future. The payment of future dividends will depend on, among other things, the Group’s future profit, financial position, distributable reserves, working capital requirements, general economic conditions and other factors that the Directors deem significant from time to time. There can be no assurance that the Company will pay dividends or, if it does pay dividends, as to the amount of such dividends.
(d) Possible issue or sale of shares The Company may issue additional shares in the future, which may adversely affect the market price of the outstanding Ordinary Shares at that time. The Company has no current plans for a subsequent offering of its shares or of rights or invitations to subscribe for shares. Significant sales of shares by major Shareholders or the public perception that an offering may occur, could also have an adverse effect on the market price of the Company’s outstanding Ordinary Shares.
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123 of 179 FORWARD-LOOKING STATEMENTS
This document may contain forward-looking statements that reflect the Group’s current expectations regarding the business of Flybe, and management plans and objectives. Flybe considers any statements that are not historical facts as “forward-looking statements”. Forward-looking statements involve risks and uncertainties. Actual events could differ materially from those projected herein and depend on a number of factors, including the risks described in the Risk Factors set out in pages 14 to 24 (inclusive) of this document.
When used in this document the words “estimate”, “project”, “intend”, “aim”, “anticipate”, “believe”, “expect”, “should” and similar expressions, as they relate to Flybe or the management of the Group, are intended to identify such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as at the date of this document. Neither Flybe nor any other member of the Group undertakes any obligation publicly to update or revise any of the forward- looking statements, whether as a result of new information, future events or otherwise, save in respect of any requirement under applicable laws, the Listing Rules, Prospectus Rules, Disclosure and Transparency Rules and other regulations.
No person has been authorised to give any information or make any representations in relation to the Flybe Group or the Firm Placing and Placing and Open Offer other than those contained in this document and, if given or made, such information or representations must not be relied on as having been so authorised.
Investors and Shareholders should note that the contents of these paragraphs relating to forward-looking statements are not intended to qualify the statements made as to sufficiency of working capital in this document.
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124 of 179 IMPORTANT INFORMATION
Prospective investors are urged to read the sections of this document entitled “Summary”, “Risk Factors”, “Operating and Financial Review of Flybe Group plc” and “Information on Flybe Group plc” for a more complete discussion of the factors that could affect the Group’s future performance and the industry in which it operates. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements in this document may not occur.
No profit forecast No statement in this document is intended as a profit forecast and no statement in this document should be interpreted to mean that earnings per Ordinary Share for the current or future financial years would necessarily match or exceed the historical published earnings per Ordinary Share.
No incorporation of website information Save where expressly stated otherwise, neither the content of Flybe’s website nor the content of any website accessible from hyperlinks on Flybe’s website is incorporated into, or forms part of, this document.
Information not contained in this document No person has been authorised to give any information or make any representations in relation to the Flybe Group or the Firm Placing or the Open Offer other than those contained in or incorporated by reference into this document and, if given or made, such information or representations must not be relied on as having been so authorised by Flybe or Liberum Capital or any other person. Subject to the requirements of the Prospectus Rules, neither the delivery of this document nor any subscription or sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of Flybe since the date of this document or that the information in or incorporated by reference into this document is correct as of any time subsequent to the date hereof.
Recipients of this document acknowledge that: (i) they have not relied on Liberum Capital or any person affiliated with it in connection with any investigation of the accuracy of any information contained in or incorporated by reference into this document or their investment decision; and (ii) they have relied only on the information contained in or incorporated by reference into this document, and that no person has been authorised to give any information or to make any representation concerning the Flybe Group or the Firm Placing or the Open Offer or the New Ordinary Shares (other than as contained in or incorporated by reference into this document) and, if given or made, any such other information or representation should not be relied upon as having been authorised by Flybe or Liberum Capital.
Miscellaneous Liberum Capital, which is authorised and regulated in the United Kingdom by the FCA, is acting exclusively for Flybe and for no-one else in relation to the Firm Placing and Placing and Open Offer and will not be responsible to anyone other than Flybe for providing the protections afforded to clients of Liberum Capital nor for providing advice in relation to the Firm Placing and Placing and Open Offer, the contents of this document or any other transaction or arrangement referred to in this document.
Liberum Capital and its representatives do not make any representation to any offeree or purchaser of the New Ordinary Shares regarding the legality of an investment in the New Ordinary Shares by such offeree or purchaser or acquirer under the laws applicable to such offeree or purchaser or acquirer. In making an investment decision, each investor must rely on their own examination, analysis and enquiry of the Group and the terms of the Firm Placing and Placing and Open Offer, including the merits and risks involved.
Liberum Capital may, in accordance with applicable legal and regulatory provisions, engage in transactions in relation to the Firm Placing or the Open Offer and/or related instruments for its own account for the purpose of hedging its underwriting exposure or otherwise. Liberum Capital does not intend to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligation to do so.
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125 of 179 Apart from the responsibilities and liabilities, if any, which may be imposed on it or them under FSMA or the regulatory regime established thereunder: (i) Liberum Capital does not accept any responsibility whatsoever and makes no representation or warranty, express or implied, in relation to the content of this document, including its accuracy, completeness or verification or in relation to any other statement made or purported to be made by it, or on its behalf, in connection with Flybe, the Firm Placing, the Open Offer or the New Ordinary Shares and nothing in this document is or shall be relied upon as a promise or representation in this respect, whether as to the past or future; and (ii) Liberum Capital accordingly disclaims, to the fullest extent permitted by law, all and any liability whatsoever, whether arising in tort, contract or otherwise (except as referred to above) which it might otherwise have in respect of this document or any such statement.
Liberum Capital nor any person acting on its behalf accepts any responsibility or obligation to update, review or revise the information in this document or to publish or distribute any information which comes to its or their attention after the date of this document, and the distribution of this document shall not constitute a representation by Liberum Capital or any such person, that this document will be updated, reviewed or revised or that any such information will be published or distributed after the date hereof.
In connection with the Firm Placing and Placing and Open Offer, Liberum Capital and any of its affiliates, acting as an investor for its own account, may take up New Ordinary Shares in the Firm Placing and Placing and Open Offer and in that capacity may retain, purchase or sell for its own account such New Ordinary Shares or related investments otherwise than in connection with the Firm Placing and Placing and Open Offer. Accordingly, references in this document to New Ordinary Shares being offered or placed should be read as including any offering or placement of New Ordinary Shares to Liberum Capital or its affiliates acting in such capacity. Liberum Capital does not intend to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligation to do so.
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126 of 179 DIRECTORS, SECRETARY AND ADVISERS
Annex I para 1.1: Directors Annex III para 1.1 Executive Directors: Chief Executive Officer Saad Hammad Chief Financial Officer Andrew Knuckey
Non-Executive Directors: Independent Non-Executive Chairman Simon Laffin Deputy Chairman and Senior Independent Non-Executive Director Charlie Scott Independent Non-Executive Director David Longbottom Independent Non-Executive Director Alan Smith
Company Secretary Christopher Simpson
Registered and Head Office Jack Walker House Exeter International Airport Annex III para 10.1 Exeter EX5 2HL
Financial Adviser, Sponsor and Liberum Capital Limited Broker and Underwriter Ropemaker Place Level 12 25 Ropemaker Street London EC2Y 9LY
Legal Adviser to the Company Eversheds LLP Eversheds House 70 Great Bridgewater Street Manchester M1 5ES
Legal Adviser to the Ashurst LLP Financial Adviser, Sponsor and Broadwalk House Broker and Underwriter 5 Appold Street London EC2A 2HA
Auditors and Reporting Accountants Deloitte LLP 2 Hardman Street Manchester M60 2AT
Registrars Capita Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU
Receiving Agent Capita Asset Services Corporate Actions The Registry 34 Beckenham Road Beckenham Kent BR3 4TU
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127 of 179 EXPECTED TIMETABLE OF PRINCIPAL EVENTS
Announcement of offer 20 February 2014
Record Date for entitlements under the Open Offer Close of business on 18 February 2014
Ex-entitlement date 8.00 a.m. on 20 February 2014
Despatch of Prospectus, Application Forms and Forms of Proxy 20 February 2014
Open Offer Entitlements and Excess Open Offer Entitlements credited as soon as possible after to stock accounts in CREST of Qualifying CREST Shareholders 8.00 a.m. on 21 February 2014
Latest recommended date for requested withdrawal of Open Offer 4.30 p.m. on 3 March 2014 Entitlements and Excess Open Offer Entitlements from CREST
Latest recommended date for depositing Open Offer Entitlements and 3.00 p.m. on 4 March 2014 Excess Open Offer Entitlements into CREST
Latest time and date for splitting Application Forms (to satisfy bona fide market claims) 3.00 p.m. on 5 March 2014
Latest time and date for receipt of Forms of Proxy and electronic 11.00 a.m. on 7 March 2014 proxy appointments via the CREST system
Latest time and date for receipt of completed Application Forms and 11.00 a.m. on 7 March 2014 payment in full under the Open Offer or settlement of relevant CREST instructions (as appropriate)
General Meeting 11.00 a.m. on 11 March 2014
Results of the Firm Placing and Placing and Open Offer announced 11 March 2014 through an RIS
Admission and commencement of dealings in the 8.00 a.m. on 12 March 2014 Annex III para 4.7 New Ordinary Shares expected to commence
CREST stock accounts expected to be credited for the as soon as possible New Ordinary Shares after 8.00 a.m. on 12 March 2014
Share certificates for New Ordinary Shares expected to be despatched within 7 days of Admission
Notes Each of the times and dates in the above timetable is subject to change, in which event details of the new times and/or dates will be notified to the FCA and the London Stock Exchange and, where appropriate, Shareholders. Please note that any Existing Ordinary Shares sold prior to close of business on 20 February 2014, the date on which the Existing Ordinary Shares will trade with entitlement, will be sold to the purchaser with the right to receive entitlements under the Open Offer. If you have any queries on the procedure for application and payment under the Open Offer, you should contact Capita Asset Services at Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU or please telephone Capita Registrars between 9.00 a.m. and 5.30 p.m. (London time) Monday to Friday on 0871 664 0321 from within the UK or +44 20 8639 3399 if calling from outside the UK. Calls to the 0871 664 0321 number cost 10 pence per minute (including value added tax) plus your service provider’s network extras. Calls to the helpline from outside the UK will be charged at applicable international rates. Different charges may apply to calls from mobile telephones and calls may be recorded and randomly monitored for security and training purposes. The helpline cannot provide advice on the merits of the Firm Placing and Placing and Open Offer nor give any financial, legal or tax advice.
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128 of 179 STATISTICS RELATING TO THE FIRM PLACING AND PLACING AND OPEN OFFER
Offer Price 110 pence
Discount to Existing Ordinary Shares 1 7.2 per cent.
Entitlement under the Open Offer 2 Open Offer Shares for every 3 Existing Ordinary Shares
Number of Existing Ordinary Shares in issue as at 18 February 2014 75,152,881 (being the latest practicable date prior to the publication of this document)
Number of Firm Placed Shares 91,400,000
Number of Open Offer Shares to be offered by the Company up to 50,101,920
Number of New Ordinary Shares to be issued pursuant 141,501,920 to the Firm Placing and Placing and Open Offer 2
Number of Ordinary Shares in issue immediately upon 216,654,801 completion of the Firm Placing and Placing and Open Offer 2
Gross proceeds of the Firm Placing and Placing and Open Offer 2 £155.65 million Annex III para 8.1
Estimated net proceeds of the Firm Placing and Placing and £150.0 million Open Offer to be retained by the Company 2
New Ordinary Shares as a percentage of the Enlarged Issued Share Capital 2 65.3 per cent.
1. The discount is to the closing middle market price of Existing Ordinary Shares at the close of business on 19 February 2014, being the latest practicable date prior to the announcement of the Firm Placing and Placing and Open Offer. 2. This assumes full take up of the Open Offer and no further exercise of options or awards under the Share Schemes.
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129 of 179 PART 1
LETTER FROM THE CHAIRMAN OF FLYBE GROUP PLC (Incorporated in England and Wales with registered no 1373432)
Simon Laffin Independent Non-Executive Chairman Registered Office Saad Hammad Chief Executive Officer Jack Walker House Andrew Knuckey Chief Financial Officer Exeter International Airport Charlie Scott Deputy Chairman, Senior Independent Non-Executive Director Exeter Alan Smith Independent Non-Executive Director Devon EX5 2HL David Longbottom Independent Non-Executive Director 20 February 2014
To: Shareholders and, for information only, to holders of options and awards under the Share Schemes
Dear Shareholder,
FIRM PLACING OF 91,400,000 NEW ORDINARY SHARES AND PLACING AND OPEN OFFER OF UP TO 50,101,920 NEW ORDINARY SHARES AT A PRICE OF 110 PENCE PER SHARE NOTICE OF GENERAL MEETING
1. Introduction
The Firm Placing and Placing and Open Offer Annex III para 5.3.1 The Company announced on 20 February 2014 that it proposes to raise up to £150.0 million, net of expenses, by the issue of 91,400,000 New Ordinary Shares through a Firm Placing and up to 50,101,920 LR13.3.1(1) New Ordinary Shares through a Placing and Open Offer at 110 pence per New Ordinary Share. The Offer LR13.3.1(2) Price of 110 pence per New Ordinary Share represents a 7.2 per cent. discount to the Closing Price of 118.5 pence on 19 February 2014 (being the last practicable date prior to the announcement of the Firm Placing and Placing and Open Offer).
Shareholder approval The Firm Placing and Placing and Open Offer requires shareholder approval. If the Resolutions are not passed, the Firm Placing and Placing and Open Offer will not proceed.
The purpose of this document The purpose of this document is: (a) to provide you with information about the proposed Firm Placing and Placing and Open Offer; (b) to explain why the Board considers that the Firm Placing and Placing and Open Offer and the Resolutions are fair and reasonable and in the best interests of Flybe and the Shareholders as a whole; and (c) to explain why the Board unanimously recommends that Shareholders, to the extent they are permitted by the Listing Rules, vote in favour of the Resolutions to be proposed at the General Meeting, as they intend to do in respect of their own beneficial holdings.
The terms and conditions of the Open Offer are set out in full in Part 2 of this document.
The Firm Placing and Placing and Open Offer is fully underwritten by Liberum Capital on, and subject to, the terms and conditions of the Underwriting and Sponsor Agreement, further details of which are set out in paragraph 9.1 of Part 7 of this document.
You are recommended to read the whole of this document and not to rely on only part of it. In particular, you are advised to consult the section entitled “Risk Factors” on pages 14 to 24 of this document and the “Glossary of Technical Terms” at the end of this document, which sets out definitions of certain technical terms. 31
130 of 179 2. Background to and reasons for the Firm Placing and Placing and Open Offer and future strategy of Flybe The Directors believe that the Firm Placing and Placing and Open Offer will provide the platform for Flybe to improve further the efficiency and profitability of the Group. The Directors also believe that the Firm Placing and Placing and Open Offer will enable Flybe to build resilience and target profitable growth.
Background to and reasons for the Firm Placing and Placing and Open Offer In January 2013, following a significant decline in financial performance in prior years, the Group announced its intentions to embark on a turnaround strategy and set out a plan intended to return the Group to profitability in the 2013/14 Financial Year.
In May 2013, the Group released an update on the progress of this turnaround plan together with details of additional savings and revenue enhancement opportunities targeted by the Group, under the banner of “Making Flybe Fit to Compete”, along with the Group’s refocused network strategy. Key elements of the update included the exchange of Flybe’s arrival and departure slots at Gatwick for £20.0 million, deferring the delivery and pre-delivery payment commitments on 16 new aircraft, and an announcement that the turnaround would deliver savings to the Group of approximately £40 million by March 2014. The exchange of the Gatwick slots was approved by shareholders on 2 August 2013, £17.5 million of the total proceeds has been received by Flybe and the final balance of £2.5 million of the total proceeds is contracted to be received by Flybe in June 2014.
In August 2013, the Group introduced management changes and split the roles of Chairman and Chief Executive Officer, appointing Saad Hammad to be the new Chief Executive Officer. Saad Hammad brings considerable airline, commercial and business transformation experience. From October 2005 to April 2009, Saad Hammad was Chief Commercial Officer of easyJet plc at the time of the airline’s commercial transformation that delivered significant revenue growth while increasing easyJet’s European network, helping form the basis of easyJet’s current pan-European market position.
It was also announced in August 2013 that Andrew Knuckey, Chief Financial Officer since 2007, had decided to step down from the Board and leave the Company as soon as a successor can be appointed and a suitable handover has been completed. The search for his successor is continuing and an announcement will be made in due course.
Simon Laffin was appointed non-executive Chairman in November 2013, replacing Jim French who had previously held both the Chairman and Chief Executive Officer roles.
Future strategy of Flybe Upon joining Flybe, Saad Hammad initiated a full strategic review of the Group’s operations. As a result of Annex I para 6.5 that review, the Board believes that Flybe will achieve a sustainable competitive position in the European regional airline sector, based on: 1. Flybe developing an efficient operation, using regional aircraft that can operate profitably on ‘thinner’ regional routes, being routes with less than 400,000 passengers per annum; 2. Flybe offering a high frequency operation at smaller, more convenient regional airports serving local business and leisure passengers and accessing international hubs; and 3. Flybe providing a professional and personal service to all customers, with reliable on time performance.
The Directors intend for Flybe to become Europe’s best local airline with sustainable competitive positioning delivering regional connectivity through two main business activities: (a) a regional branded airline, providing scheduled services connecting passengers travelling in the regions, both on business and visiting friends and relatives, to each other and to international carriers at metropolitan airports; and (b) a regional “white label” provider, where Flybe provides crew under contract on a maintained and insured aircraft belonging to Flybe but operated on behalf of a third party airline (as it currently does for Finnair in Finland and Brussels Airlines in Belgium).
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131 of 179 The Directors believe Flybe has developed expertise and specialist skills in operating a regional branded airline alongside a regional white label operation, with the synergies between the two business activities driving economies of scale in both buying and operations. In addition, the two business activities complement each other in both earnings and risk profile. The regional branded airline’s operations are both higher margin and higher risk (due to the exposure to passenger demand, fuel costs and foreign exchange rates), with the white label business’s operations lower margin and lower risk due to income generated under contracts for the provision of the white label service.
Saad Hammad’s review identified a number of actions necessary to improve further the efficiency and profitability of the Group. Further to the review, the Board has now identified a three stage strategic programme:
1. Take immediate action – aimed at returning the Group to profitable operations, including the removal or rationalisation of unprofitable routes and bases, adjusting the fleet mix, further cost reductions and improved commercialisation;
2. Build resilience – strengthen the balance sheet to put the Group on a firm foundation for the future and deploy capital more effectively; and
3. Target profitable growth – implement the Group’s plans for a profitable growth strategy in both Flybe- branded scheduled flying and white label operations, whilst enhancing service to customers in branded flying.
Each of these three stages is outlined in detail below.
1. Take immediate action On 11 November 2013, Flybe announced that its airline business would implement additional immediate actions, on top of those already being implemented in the Turnaround Plan, to ensure a solid platform for profitable growth. These further initiatives cover both Flybe’s UK scheduled flying operations and its Finnish joint venture (“Immediate Actions”).
Within the UK, these Immediate Actions involved an optimisation of the Group’s configuration by: ● establishing a simplified integrated management structure and organisation (now referred to as “One Flybe”); ● rationalising the route network; ● reviewing the fleet mix; ● removing surplus aircraft capacity; ● improving aircraft and crew utilisation; ● implementing further cost reductions through redundancy of approximately a further 500 employees, rationalisation of suppliers and contract re-negotiations; and ● engaging with key suppliers to improve cost arrangements.
The Group also announced its intention to improve its commercialisation by: ● filling critical management gaps within Flybe’s commercial team; ● optimising pricing and revenue management; ● refocusing its network development; ● driving route management improvements; ● improving the impact of marketing initiatives; and ● developing further trading partnerships.
In addition, the Directors intend to improve the profitability of the Group’s joint venture with Finnair by: ● further enhancing cost and operational efficiency in white label flying; and ● reducing the number of aircraft deployed on loss-making scheduled flying operations. 33
132 of 179 The Directors believe that the immediate actions in the UK will deliver further cost benefits of approximately £7 million in the 2013/14 Financial Year and £26 million in the 2014/15 Financial Year, with around 450 anticipated redundancies (reduced from an anticipated 500 redundancies due to mitigating actions taken by the Company) and estimated one-off and surplus capacity costs of approximately £14 million in the 2013/14 Financial Year plus a further approximate £27 million in the 2014/15 Financial Year. Taking into account the Group’s announcements in January and May 2013 of anticipated redundancies of 300 and 290 respectively, these additional 450 anticipated redundancies would combine to take anticipated redundancies under the Turnaround Plan and Immediate Actions to 1,040.
2. Build resilience
Strengthen the balance sheet The Directors believe that the Group will significantly benefit from a strengthening of its balance sheet, improving operational flexibility and providing additional cash reserves to enable the Group to protect itself from unforeseen disruptions or occurrences. A stronger liquidity position is expected by the Directors to assist additionally in securing better credit terms from a number of suppliers. In addition, the Directors are aware that the CAA recommends that existing licence holders have financial resources in excess of three months of the future operating costs of the business. The Directors believe that maintaining a seasonal minimum of the equivalent of 10 weeks’ operating costs in unrestricted cash, cash equivalents or highly liquid short term investments will provide significant resilience to the Group.
3. Target profitable growth The Directors believe that Flybe can achieve profitable growth in both branded and white label operations. In addition, the Directors believe that enhanced customer service in Flybe’s branded operations is needed to drive profitable growth. a. Reduce fleet ownership costs The Directors intend to deploy capital to own aircraft with secured loans rather than full operating leases, thereby rebalancing Flybe’s fleet financing structure towards ownership rather than operating leases. The former typically provides a cheaper form of ownership, but requires an equity stake to be held, normally being 20 to 30 per cent. of the value of the aircraft. Currently, 87.1 per cent. of the fleet is financed through operating leases, which is sub-optimal versus Flybe’s peers. The Directors believe that deploying capital in this manner will deliver an estimated return on equity investment of between 15 and 18 per cent. b. Improved productivity The Directors believe that increased investment in improvements to the Group’s IT and finance functions will result in greater robustness in infrastructure, cost savings and improved operating efficiencies within 6 to 12 months. c. Expansion of Flybe-branded scheduled operations The Directors believe that the expansion of Flybe-branded scheduled operations will primarily involve the development of new routes and bases within the UK within a 12 to 24 month timeframe. Following completion of the route rationalisation strategy being carried out as described within the “Immediate Actions” above, the Directors intend for the Group to create a number of new routes in the next two years and will work with a number of regional airports, such as Manchester, to develop their capacity as domestic and internationals hubs. As part of this progressive route expansion, the Directors have identified nine routes from the New Route Planning Selection Model that has been adopted by the Group. The Directors believe that an additional 10 aircraft will be required in order to service these identified routes, which they plan to fund at a 75 per cent. loan to value ratio, thereby requiring approximately £35 million of equity financing and £103 million of debt financing. The Directors expect this planned funding structuring to be operating cash flow positive (after loan amortisation and setup costs) after year one of the funding structure. The Directors believe that “thinner” regional routes are unattractive for full service airlines and European LCCs. New route development will prioritise domestic routes in the UK between poorly connected catchment areas as well as the building of service density to European destinations which the Directors believe are underserved by current carriers and where the Directors believe that Flybe can maximise its competitive advantage of smaller aircraft that can operate from airports that have relatively
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133 of 179 short runways. In addition, Flybe’s aircraft and infrastructure are well suited to short sectors, with 79 per cent. of Flybe’s routes on sectors less than 350 miles in distance.
The Group is also looking at opportunities to develop new bases within a one to two year time frame. The Directors are currently evaluating these opportunities and will make further announcements as appropriate once commercial evaluations and negotiations with the relevant airports have progressed. d. Expansion of white label operations Flybe’s joint venture with Finnair, Flybe Finland, moved to profitability in H1 2013/14. Flybe Finland operates 22 of its 28 aircraft on profitable contract flying operations which balance its activity in scheduled flying. The Directors believe that there are other opportunities to roll out Flybe’s white label offering and have identified a number of national airlines in Europe for whom white label flying could be attractive, and are in ongoing commercial discussions with several of these airlines. The Board believes there is an initial requirement for six additional aircraft in order to service white label opportunities, which they plan to fund at a 75 per cent. loan to value ratio, thereby requiring approximately £23 million of equity financing and £62 million of debt financing. The Directors expect this planned funding structure to be operating cash flow positive (after loan amortisation and setup costs) after year one of the funding structure, with setup costs paid back in year two. The Directors anticipate that capital commitments would only be made by the Group after contracts have been signed. The Directors believe that Flybe needs financial strength in order to be seen as a credible player in the white label market. e. Enhanced service to customers The Directors believe that, in its branded business, the Flybe customer offering, product range and brand impact need to be developed further. With improved marketing, the Directors intend to increase the number of visitors to the Group’s website and enhance conversion rates by:
● an improved customer proposition that enhances the brand promise and identity. The Directors intend that this will be communicated through new creative copy, backed by increased media spending; and
● improvements in the product that will mark the Flybe experience as different to others. The Directors intend that this will include a simplified offering, rationalised pricing, an improved website, sustained focus on on-time performance and a relaunched customer loyalty programme, focusing on more frequent passengers with a view to increasing their use of Flybe further through improved rewards and benefits and by having reciprocal earning and spending agreements with partner airlines.
The Directors anticipate that the enhanced services to customers will be in place over the next 12 months.
3. Principal terms of the Firm Placing and Placing and Open Offer Flybe intends to issue 91,400,000 New Ordinary Shares through the Firm Placing and up to 50,101,920 New Ordinary Shares through the Open Offer at 110 pence per New Ordinary Share to raise gross proceeds of up to £155.65 million.
The Firm Placing and Placing and Open Offer requires Shareholder approval, which will be sought at the General Meeting.
The Offer Price of 110 pence per New Ordinary Share represents an 7.2 per cent. discount to the Closing Annex III para 6.3 Price of 118.5 pence on 19 February 2014 (being the latest practicable date prior to the announcement of the Firm Placing and Placing and Open Offer).
Firm Placing The Firm Placees have agreed to subscribe for 91,400,000 New Ordinary Shares at the Offer Price Annex III para 5.2.3(b) (representing gross proceeds of £100.5 million). The Firm Placed Shares are not subject to clawback and are not part of the Open Offer.
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134 of 179 Placing and Open Offer The Company has raised approximately £55.1 million (gross) through a Placing and Open Offer of 50,101,920 New Ordinary Shares at the Offer Price. Liberum Capital, as agents for the Company, have placed the Placing Shares with further investors subject to the Qualifying Shareholders’ right to take up their rights under the Open Offer.
Subject to the fulfillment of the conditions set out below and in Part 2 of this document, Qualifying Shareholders are being given the opportunity to subscribe for New Ordinary Shares pro rata to their existing shareholdings at the Offer Price on the basis of:
2 New Ordinary Shares for every 3 Existing Ordinary Shares held and registered in their name at the Record Date. Qualifying Shareholders may apply for any whole number of New Ordinary Shares. Excess applications will be satisfied only to the extent that corresponding applications by other Qualifying Shareholders are not made or are made for less than their pro rata entitlements. If there is an oversubscription resulting from excess applications, allocations in respect of such excess applications will be scaled down according to the Directors’ discretion.
Under the Open Offer, Flybe intends to issue up to 50,101,920 New Ordinary Shares at the Offer Price (representing gross proceeds of up to £55.1 million) to be made available pursuant to the Open Offer.
Fractions of Ordinary Shares will not be allotted and each Qualifying Shareholder’s entitlement under the Open Offer will be rounded down to the nearest whole number.
The New Ordinary Shares when issued and fully paid, will rank pari passu in all respects with the Existing LR13.3.1(9)(b) Ordinary Shares, including the right to receive all dividends or other distributions made, paid or declared after the date of their issue.
Qualifying Shareholders with holdings of Existing Ordinary Shares in both certificated and uncertificated form will be treated as having separate holdings for the purpose of calculating their entitlements under the Open Offer.
The Firm Placing and Placing and Open Offer is fully underwritten by Liberum Capital on, and subject to, the terms and conditions of the Underwriting and Sponsor Agreement, further details of which are set out in paragraph 9.1 of Part 7 of this document.
Application has been made for the Open Offer Entitlements and Excess Open Offer Entitlements to be Annex III para 6.1 admitted to CREST. It is expected that the Open Offer Entitlements and Excess Open Offer Entitlements will be admitted to CREST at 8.00 a.m. on 21 February 2014. The Open Offer Entitlements and Excess Open Offer Entitlements will also be enabled for settlement in CREST at 8.00 a.m. on 21 February 2014. Applications through the means of the CREST system may only be made by the Qualifying Shareholder originally entitled or by a person entitled by virtue of a bona fide market claim.
Qualifying Shareholders may apply for Excess Shares pursuant to the Excess Application Facility. Qualifying non-CREST Shareholders will have received an Application Form with this document, which sets out their maximum entitlement to Open Offer Shares as shown by the number of Open Offer Entitlements allocated to them, and gives them the opportunity to apply for Excess Shares under the Excess Application Facility. Qualifying CREST Shareholders will receive a credit to their appropriate stock accounts in CREST in respect of their Open Offer Entitlements and Excess Open Offer Entitlements as soon as possible after 8.00 a.m. on 21 February 2014.
Shareholders should note that the Open Offer is not a rights issue. Qualifying CREST Shareholders should Annex III para 5.1.10 note that, although the Open Offer Entitlements and Excess Open Offer Entitlements will be admitted to CREST and be enabled for settlement, applications in respect of entitlements under the Open Offer may only be made by the Qualifying Shareholder originally entitled or by a person entitled by virtue of a bona fide market claim raised by Euroclear’s Claims Processing Unit. Qualifying non-CREST Shareholders should note that the Application Form is not a negotiable document and cannot be traded.
Further information on the Open Offer and the terms and conditions on which it is made, including the procedure for application and payment, are set out in Part 2 of this document and, where relevant, in the Application Form. 36
135 of 179 For Qualifying non-CREST Shareholders, completed Application Forms, accompanied by full payment in accordance with the instructions in Part 2, paragraph 4 on pages 46 to 56 of this document, should be returned by post or by hand (during normal business hours only) to Capita Asset Services, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU so as to arrive as soon as possible and in any event so as to be received no later than 11.00 a.m. on 7 March 2014. For Qualifying CREST Shareholders the relevant CREST instructions must have settled as explained in this document by no later than 11.00 a.m. on 7 March 2014.
Applications by Qualifying Shareholders will be satisfied in full up to their Open Offer Entitlements. In addition and subject to availability, the Excess Application Facility will enable Qualifying Shareholders to apply for any whole number of Excess Shares in excess of their Open Offer Entitlements up to a maximum number of Excess Shares not exceeding 50,101,920. Qualifying non-CREST Shareholders should complete the relevant sections of the Application Form. Qualifying CREST Shareholders will have Excess Open Offer Entitlements credited to their stock account in CREST and should refer to paragraph 4(b)(iv) of Part 2 on how to apply for the Excess Shares pursuant to the Excess Application Facility. If there is an oversubscription resulting from excess applications, allocations in respect of such excess applications will be scaled down according to the Directors’ discretion.
The Firm Placing and Placing and Open Offer is subject to the satisfaction of the following material conditions: (i) the passing of the Resolutions; (ii) Admission becoming effective by not later than 8.00 a.m. on 12 March 2014 (or such later time and/or date as Liberum Capital and the Company may agree, not being later than 8.00 a.m. on 27 March 2014); and (iii) the Underwriting and Sponsor Agreement becoming unconditional in all respects and not having been terminated in accordance with its terms prior to Admission.
Accordingly, if any of such conditions are not satisfied or, if applicable, waived, the Firm Placing and Placing and Open Offer will not proceed and any Open Offer Entitlements and Excess Open Offer Entitlements admitted to CREST will thereafter be disabled.
4. Effect of the Firm Placing and Placing and Open Offer Upon Admission, the Enlarged Share Capital is expected to be 216,654,801 Ordinary Shares. On this Annex III para 9.1 para 9.2 basis, New Ordinary Shares issued through the Firm Placing and Placing and Open Offer will represent 65.3 per cent. of the Enlarged Share Capital. New Ordinary Shares issued through the Firm Placing will represent 42.2 per cent. of the Enlarged Share Capital and New Ordinary Shares issued through the Open Offer will represent 23.1 per cent. of the Enlarged Share Capital.
Following the issue of the New Ordinary Shares to be allotted pursuant to the Firm Placing and Placing and Open Offer, Qualifying Shareholders who do not take up any of their Open Offer Entitlement will suffer a dilution of approximately 65.3 per cent. to their interests in the Company, assuming full take up under the Open Offer. If a Qualifying Shareholder takes up his Open Offer Entitlement in full he will suffer a dilution of 42.2 per cent. to his interest in the Company, assuming full take up under the Open Offer.
Annex III para 3.4 5. Use of proceeds The Directors intend to use the net proceeds of the Firm Placing and Placing and Open Offer as follows: ● approximately £68 million for additional working capital to strengthen the Group’s balance sheet. The Directors believe that the Group will significantly benefit from a strengthening of its balance sheet, improving operational flexibility and providing additional cash reserves to enable the Group to protect itself from unforeseen disruptions or occurrences. A stronger liquidity position is expected by the Directors to assist additionally in securing better credit terms from a number of suppliers; ● approximately £14 million to reduce fleet ownership costs. The Directors intend to deploy capital to own aircraft with secured loans rather than full operating leases, thereby rebalancing Flybe’s fleet financing structure more towards ownership rather than operating leases;
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136 of 179 ● approximately £5 million to improve productivity. The Directors believe that increased investment in improvements to the Group’s IT and finance functions will result in greater robustness in infrastructure, cost savings and improved operating efficiencies within 6 to 12 months; ● approximately £5 million to enhance service to customers. The Directors believe that, in its branded business, the Flybe customer offering, product range and brand impact need to be developed further. With improved marketing, the Directors intend to increase the number of visitors to the Group’s website and enhance conversion rates by offering an improved customer proposition that enhances the brand promise and to identify improvements in the product that will mark the Flybe experience as different to others; ● approximately £35 million to expand the Group’s branded scheduled commercial operation with new routes and bases. The Directors believe that the expansion of Flybe-branded scheduled operations will primarily involve the development of new routes and bases within the UK within a 12 to 24 month timeframe; and ● approximately £23 million to expand white label flying. The Directors believe that there are other opportunities to roll out Flybe’s white label offering and have identified a number of national airlines in Europe for whom white label flying could be attractive, and are in ongoing commercial discussions with several of these airlines.
The Firm Placing and Placing and Open Offer is conditional upon Shareholder approval.
Annex I para 12.1 and para 12.2 6. Current trading and prospects for Flybe On 3 February 2014, the Company released an interim management statement for Q3 2013/14. Q3 2013/14 trading was in line with the Board’s overall expectations. Key highlights were that UK scheduled revenue per seat was up 2.3 per cent., whilst costs per seat (excluding fuel and restructuring costs) were down 5.2 per cent. In Finland, revenue from white label flying increased by 23.7 per cent.
Phase 1 of the Turnaround Plan (announced by the Company in January 2013), Phase 2 (announced by the Company in May 2013) and the Immediate Actions (launched by the Company in November 2013), are all now well advanced. The Immediate Actions were announced with targets to deliver underlying benefits of £7million in the 2013/14 Financial Year and £26 million in the 2014/15 Financial Year, with around 500 proposed redundancies and estimated one off and grounded aircraft costs of £14 million in the 2013/14 Financial Year plus a further £27 million in the 2014/15 Financial Year. It is now anticipated that job losses will total around 450 and work is continuing to reduce the cost of aircraft grounding.
The Directors believe that each of these actions is essential to provide the Company with a sustainable cost base and a platform upon which it can profitably grow its business in the future, as it implements the twin strategy, announced in November 2013, of being both a UK regional branded airline and a European regional white label provider.
Q3 2013/14 Trading Summary ● There was a 5.0 per cent. increase in total revenue under management to £203.5 million.
● Group revenue was in line with Q3 2012/13 at £142.9 million.
● UK Airline results: ● 0.4 per cent. increase in total revenues to £137.6 million; ● 2.3 per cent. increase in passenger revenue per seat to £48.46; ● 5.2 per cent. decrease in costs per seat (excluding fuel and restructuring costs) to £41.58.
● White label results: ● 23.7 per cent. increase in white label revenue in Flybe Finland to £52.2 million.
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137 of 179 Turnaround Update
1. Optimise configuration: ● Flybe’s UK route network has now been successfully rationalised for the Summer 2014 Season, impacting 55 out of last year’s 140 summer routes, including the discontinuation of 30 unprofitable routes;
● Flybe’s UK base network will reduce from 13 to seven bases by the end of March 2014, as indicated in the Group’s half year results announcement in November 2013. The refocus towards the larger bases will result in the closure of bases in Inverness, Aberdeen, Isle of Man, Newcastle, Jersey and Guernsey. Flybe will continue to operate services to and from all of these airports as part of a total of 119 routes being flown across its UK network in the 2014 Summer Season; and
● Surplus aircraft capacity is being addressed by grounding 10 aircraft by the end of March 2014 and a further four by the end of the 2014 Summer Season. Work is continuing to reduce the cost of this aircraft grounding.
2. Reducing costs further: ● Following the removal by the Group of its divisional structure in November 2013, Flybe has now implemented an integrated organisation structure and completed the streamlining of its senior management team;
● Further progress has been made to complete the delivery by the end of March 2014 of the cost savings previously announced in Phases 1 and 2 of the Turnaround Plan:
2013/14 Financial Year cost savings Phase 1 Phase 2 Total £m £m £m
Headcount reduction 16 4 20 Outsourcing 8 – 8 Procurement and other 6 6 12 ––––––––––– ––––––––––– ––––––––––– Total 30 10 40 ––––––––––– ––––––––––– –––––––––––
● Flybe is on track to achieve the further cost benefits, as previously announced, of £7 million in the 2013/14 Financial Year and £26 million in the 2014/15 Financial Year from network rationalisation, removal of the divisional structure and engagement with key suppliers. These include around 450 job losses, slightly down from the estimated 500 announced by the Company in November 2013. Of these, about half are expected to be voluntary redundancies, whilst others will be leavers and there are anticipated to be around 40-60 compulsory redundancies.
3. Improving commercialisation: ● Key management roles have been filled with a balance of external recruitment and internal appointments;
● Significant progress has been made with marketing enhancements, in both media and the website, and further work is in hand;
● A structured route profitability and selection methodology has been developed by the Group and is being rigorously implemented. Over 100 potential new routes have been assessed and 9 new routes are planned by the Group for Summer 2014;
● A variety of pricing, revenue management and route management improvements have been introduced. Early results are showing encouraging trends;
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138 of 179 ● Trading partnerships with major suppliers are being strengthened and developed further. Progress to date is underpinned by the Board’s growing confidence in the achievement of its targeted benefits from the Immediate Actions; and
● The Directors believe that the impact of the improvements is already evidenced by the growth, in Q3 2013/14, of Flybe’s share of the UK regional domestic air passenger sector to 49.6 per cent., up 1.2 ppts from the equivalent quarter in the prior year.
4. Finland Optimisation: ● The Flybe Finland JV continues to show strong progress in its profitable white label flying operations. A programme to reduce losses in the legacy scheduled risk flying portion of the Flybe Finland business is being implemented with effect from April 2014, with two of the six loss making lines of scheduled risk flying being removed, and Finnair working closely with Flybe on the commercial management of the remaining routes.
Current trading Flybe UK’s current forward passenger sales revenue is as follows: ● Q4 2013/14 shows an increase over Q4 2012/13 of approximately 3 per cent. driven by an increase in passenger volumes partially offset by lower yields; and ● Forward sales for the 2014 Summer Season are currently broadly in line with the 2013 Summer Season.
Outlook The UK economy has returned to growth, although the aviation sector remains highly competitive. The Directors believe that Flybe’s strong position in the regional aviation market is an attractive and sustainable one that plays an important part in aviation connectivity for regions, airports, passengers and indeed other airlines. In the short-term, the Company’s revenue will be affected as it discontinues unprofitable routes. However, the Group’s improved cost structure will, the Board believes, provide Flybe with a firm foundation for future profitable growth.
7. General Meeting You will find set out at the end of this document a notice convening the General Meeting to be held at the offices of Instinctif Partners, 65 Gresham Street, London EC2V 7NQ on 11 March at 11.00 a.m. where the following Resolutions will be proposed:
Resolution 1 An ordinary resolution to authorise the Directors to allot relevant securities for the purposes of section 551 LR13.8.1(1) of the Companies Act provided that such power be limited to the allotment of the New Ordinary Shares up to an aggregate nominal amount of £1,415,020.
Annex III Resolution 2 Para 5.3.3 A special resolution to grant the Directors authority to allot equity securities for cash pursuant to the LR13.8.2(1) authority conferred on them by Resolution 1 as if section 561 of the Companies Act did not apply to such allotment. This resolution is conditional upon the passing of Resolution 1.
The Resolutions are interconditional, therefore, if either of the Resolutions are not passed the Firm Placing and Placing and Open Offer will not proceed.
It should be noted that whilst the provisions of section 570 of the Companies Act confer on Shareholders LR13.8.1(3) rights of pre-emption on the allotment of equity securities for cash, Resolution 2 seeks to disapply this right for the purpose of the Firm Placing and Placing and Open Offer.
The authority and the power described in Resolutions 1 and 2 above will (unless previously revoked or LR13.8.1(4) varied by the Company in general meeting) expire on the date 15 months from the passing of such
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139 of 179 resolutions or at the conclusion of the next annual general meeting of the Company following the passing of the resolutions, whichever occurs first. The authority and the power described in Resolutions 1 and 2 above are in addition to any like authority or power previously conferred on the Directors.
8. Actions to be taken
In respect of the General Meeting A Form of Proxy for use at the General Meeting is enclosed with this document. Whether or not you intend to be present at the meeting, the Form of Proxy should be completed in accordance with the instructions printed thereon and returned to Capita Asset Services, PXS, 34 Beckenham Road, Beckenham BR3 4TU or submitted electronically through CREST as soon as possible, but in any event so as to be received by no later than 11.00 a.m. on 7 March 2014. The completion and return, or submission electronically, of a Form of Proxy will not preclude you from attending the General Meeting and voting in person, if you so wish.
In respect of the Open Offer If you are a Qualifying non-CREST Shareholder you will have received an Application Form together with this document. If you wish to apply for Open Offer Shares and any Excess Shares, you should complete the enclosed Application Form in accordance with the procedure for application set out in paragraph 4 of Part 2 of this document and on the Application Form itself. If you do not wish to apply for any Open Offer Shares, you should not complete or return the Application Form. Shareholders are nevertheless requested to complete and return or submit electronically the Form of Proxy.
If you are a Qualifying CREST Shareholder no Application Form is enclosed and you will receive a credit to your appropriate stock account in CREST in respect of the Open Offer Entitlements representing your maximum entitlement under the Open Offer and a credit in respect of the Excess Open Offer Entitlement for use in connection with the Excess Application Facility. You should refer to the procedure for application set out in paragraph 4(b) of Part 2 of this document.
The latest time for applications under the Open Offer to be received is 11.00 a.m. on 7 March 2014. The Annex III para 5.1.3 procedure for application and payment depends on whether, at the time at which application and payment is made, you have an Application Form in respect of your entitlement under the Open Offer or have Open Offer Entitlements and Excess Open Offer Entitlements credited to your stock account in CREST in respect of such entitlement. The procedures for application and payment are set out in Part 2 of this document. Further details also appear in the Application Forms which have been sent to Qualifying non-CREST Shareholders.
Qualifying CREST Shareholders who are CREST sponsored members should refer to their CREST sponsors regarding the action to be taken in connection with this document and the Open Offer.
9. Dividend policy The New Ordinary Shares will rank pari passu in all respects with the Existing Ordinary Shares including the Annex 1 para 20.7 right to receive all dividends and other distributions (if any) declared, paid or made by Flybe after Admission.
10. Additional information You are recommended to read all the information contained in this document and not just rely on the key or summarised information and your attention is drawn to the information set out in Parts 2 to 7 of this document.
11. Risk Factors Shareholders and investors should consider fully the Risk Factors associated with the Group and the New Ordinary Shares. Your attention is drawn to the Risk Factors set out in pages 14 to 24 (inclusive) of this document.
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140 of 179 12. Taxation Information about United Kingdom taxation, Jersey taxation, Guernsey taxation, taxation of Isle of Man resident individuals and taxation of Isle of Man resident companies is set out in paragraph 16 of Part 7 of this document. This information is a general guide only. If you are in any doubt as to your tax position, or you are subject to tax in a jurisdiction other than the United Kingdom, Jersey, Guernsey or the Isle of Man, you should consult your own independent professional adviser without delay.
13. Working Capital The Company is of the opinion that, taking into account existing cash balances and the net proceeds of Annex III para 3.1 the Firm Placing and Placing and Open Offer receivable by the Company, the Group has sufficient working capital for its present requirements, that is at least 12 months following the publication of this document.
14. Importance of Vote If the Resolutions are not approved, the Firm Placing and Placing and Open Offer will not proceed. In such circumstances, the Group will not receive the net proceeds of the Firm Placing and Placing and Open Offer and therefore would not be able to pursue its strategy of building resilience or targeting profitable growth, as described in the ‘Future Strategy of Flybe’ paragraph of section 2 of this Part 1 of this document.
Should the Firm Placing and Placing and Open Offer not proceed, the Company would risk being in a negative cash position of less than £5 million, and breaching financial covenants that it has given in respect of its aircraft financing arrangements, in the first quarter of the 2015 calendar year, and consequently the working capital available to the Group may be materially adversely affected, which might, as a further consequence, adversely affect the ability of the Group to continue to operate.
Should the Firm Placing and Placing and Open Offer not proceed, the Group will continue to pursue its existing strategy of cash generation and the Directors are confident that the Group would be able to generate sufficient working capital through such means. However, the outcome of some of this strategy lies outside of the full control of the Company and, as a result, the Directors cannot be certain that it will be successful.
15. Directors’ Participation in Firm Placing Mr Simon Laffin and Mr Saad Hammad each intend to subscribe for 227,272 New Ordinary Shares as part LR13.6.1(3) of the Firm Placing. Mr David Longbottom intends to subscribe for 14,260 New Ordinary Shares as part of the Firm Placing.
16. Irrevocable Undertaking The Plimsoll Line Limited, a subsidiary of International Consolidated Airlines Group, S.A. has signed an irrevocable undertaking to vote in favour of the Resolutions in respect of its entire shareholding in the Company (representing 14.54 per cent. of the Company’s existing issued share capital).
17. Financial Advice The Board has received financial advice from Liberum Capital in relation to the Firm Placing and Placing and Open Offer. In providing its financial advice to the Board, Liberum Capital has relied on the Board’s commercial assessment of the Firm Placing and Placing and Open Offer.
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141 of 179 18. Recommendation The Board considers the Firm Placing and Placing and Open Offer and the Resolutions to be proposed at LR13.3.1(5) the General Meeting of the Company to be in the best interests of the Company and its Shareholders as a whole.
Accordingly, the Board unanimously recommends that Shareholders vote in favour of all of the Resolutions to be proposed at the General Meeting.
Yours faithfully,
Simon Laffin Non-Executive Chairman
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142 of 179 PART 2
DETAILS OF THE OPEN OFFER
OPEN OFFER OF UP TO 50,101,920 NEW ORDINARY SHARES AT 110 PENCE PER SHARE
1. Introduction Annex III As explained in the letter from the Chairman of Flybe which comprises Part 1 of this document, the Board para 5.1.1 and para 5.1.2 proposes to raise up to £150.0 million (net of expenses) by the issue of 91,400,000 New Ordinary Shares LR13.6.1(3) through a Firm Placing and up to 50,101,920 New Ordinary Shares through a Placing and Open Offer at 110 pence per New Ordinary Share.
The Open Offer Shares have been placed conditionally with certain investors at the Offer Price, subject to clawback to satisfy valid applications by Qualifying Shareholders under the Open Offer.
The Firm Placing and Placing and Open Offer have been fully underwritten by Liberum Capital on, and Annex III para 5.4.3 subject to, the terms and conditions of the Underwriting and Sponsor Agreement. A summary of the Underwriting and Sponsor Agreement is set out in paragraph 9.1 of Part 7 of this document.
This document and, for Qualifying non-CREST Shareholders only, the accompanying Application Form contain the formal terms and conditions of the Open Offer.
2. The Open Offer Subject to the terms and conditions set out below and, where relevant, in the Application Form, and pursuant to the Underwriting and Sponsor Agreement, Qualifying Shareholders are invited to apply for Open Offer Shares at a price of 110 pence per share, payable in full on application, free of all expenses, on the basis of:
2 New Ordinary Shares for every 3 Existing Ordinary Shares held by them and registered in their names on the Record Date and so in proportion for any other number of Existing Ordinary Shares then held.
Qualifying Shareholders may apply for any whole number of New Ordinary Shares. Excess applications will be satisfied only to the extent that corresponding applications by other Qualifying Shareholders are not made or are made for less than their pro rata entitlements. If there is an oversubscription resulting from excess applications, allocations in respect of such excess applications will be scaled down according to the Directors’ discretion.
Holdings of Existing Ordinary Shares in certificated and uncertificated form will be treated as separate holdings for the purpose of calculating Qualifying Shareholders’ entitlements under the Open Offer.
Fractions of Ordinary Shares will not be allocated to Qualifying Shareholders and entitlements to apply for LR13.3.1(9)(f) New Ordinary Shares will be rounded down to the nearest whole number of New Ordinary Shares.
If you have received an Application Form with this document please refer to paragraph 4(a) and paragraphs 5 to 10 of this Part 2.
If you hold your Existing Ordinary Shares in CREST and have received a credit of Open Offer Entitlements and Excess Open Offer Entitlements to your CREST stock account, please refer to paragraph 4(b) and paragraphs 5 to 10 of this Part 2 and also to the CREST Manual for further information on the CREST procedures referred to below.
The Open Offer is not a rights issue. Qualifying CREST Shareholders should note that although the Open Offer Entitlements and Excess Open Offer Entitlements will be admitted to CREST and be enabled for settlement, applications in respect of entitlements under the Open Offer may only be made by the Qualifying Shareholder originally entitled or by a person entitled by virtue of a bona fide market claim raised
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143 of 179 by Euroclear’s Claims Processing Unit. Qualifying non-CREST Shareholders should note that the Application Form is not a negotiable document and cannot be traded.
Before making any decision to acquire Open Offer Shares, you are asked to read and carefully consider all the information in this document including, in particular, the important information set out in the letter from the Chairman of the Company in Part 1 of this document, as well as this paragraph 2 of Part 2 and the Risk Factors set out on pages 14 to 24 (inclusive) of this document. Shareholders who do not participate in the Open Offer will experience dilution of their shareholdings. The material terms of the Firm Placing and Placing and Open Offer are contained in this document.
The Existing Ordinary Shares are listed on the premium segment of the Official List and traded on the London Stock Exchange’s main market for listed securities. Application will be made to the FCA and to the London Stock Exchange for the New Ordinary Shares to be issued in the Firm Placing and Placing and Open Offer to be admitted to the premium segment of the Official List and to trading on the London Stock Exchange’s main market for listed securities respectively. It is expected that Admission will become effective on 12 March 2014 and that dealings for normal settlement in the New Ordinary Shares will commence at 8.00 a.m. on the same day.
The Existing Ordinary Shares are already admitted to CREST. No further application for admission to CREST is accordingly required for the New Ordinary Shares; all such shares, when issued and fully paid, may be held and transferred by means of CREST.
Application has been made for the Open Offer Entitlements and the Excess Open Offer Entitlements to be admitted to CREST. The conditions for such admission having already been met, the Open Offer Entitlements and the Excess Open Offer Entitlements are expected to be admitted to CREST with effect from 21 February 2014.
The Open Offer Shares will, when issued and fully paid, be identical to and rank in full for all dividends or LR13.3.1(9)(b) LR13.3.1(9)(c) other distributions declared, made or paid after Admission and in all other respects will rank pari passu with the Existing Ordinary Shares in issue. No temporary documents of title will be issued. Further details of the rights attaching to the New Ordinary Shares are set out in paragraph 4 of Part 7 of this document.
3. Conditions of the Firm Placing and Placing and Open Offer The Firm Placing and Placing and Open Offer is conditional upon the Underwriting and Sponsor Agreement Annex III becoming or being declared unconditional in all respects by 8.00 a.m. on 12 March 2014 (or such later para 5.1.4 time and/or date as Liberum Capital shall agree, being not later than 8.00 a.m. on 27 March 2014) and the para 5.2.3(g) Underwriting and Sponsor Agreement not being terminated in accordance with its terms. The Underwriting and Sponsor Agreement is subject to the satisfaction of the following material conditions: (a) the passing of the Resolutions (without amendment) at the General Meeting; and (b) Admission becoming effective by not later than 8.00 a.m. on the first dealing day after the General Meeting.
It is expected that all these conditions will be satisfied by 8.00 a.m. on 12 March 2014 and that Admission will become effective at 8.00 a.m. on 12 March 2014, and that dealings in the New Ordinary Shares will LR13.3.1(9)(a) commence at 8.00 a.m. on 12 March 2014. Definitive certificates in respect of New Ordinary Shares will Annex III para 5.1.4; be prepared and are expected to be posted to those allottees who have validly elected to hold their shares para 5.2.4 in certificated form within seven days of Admission. In respect of those allottees who have validly elected to hold their shares in uncertificated form, the New Ordinary Shares are expected to be credited to their accounts maintained in the CREST system as soon as possible after 8.00 a.m. on 12 March 2014.
Further details of the Underwriting and Sponsor Agreement are set out in paragraph 9.1 of Part 7 of this LR13.3.1(9)(e) document.
Further terms of the Firm Placing and Placing and Open Offer are set out in this letter and, where relevant, in the Application Form.
If the Underwriting and Sponsor Agreement is not declared or does not become unconditional in all respects, or if it is terminated in accordance with its terms, the Open Offer will be revoked and will not proceed. In such event, no New Ordinary Shares will be issued, and all monies received by Capita Registrars in connection with the Open Offer will be returned to applicants without interest and at their risk
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144 of 179 as soon as practicable and any Open Offer Entitlements and Excess Open Offer Entitlements admitted to CREST will thereafter be disabled. Liberum Capital may arrange sub-underwriting for some or all of the New Ordinary Shares.
4. Procedure for Application and Payment The action to be taken by you in respect of the Open Offer depends on whether, at the relevant time, you have an Application Form in respect of your entitlement under the Open Offer or you have Open Offer Entitlements and Excess Open Offer Entitlements credited to your CREST stock account in respect of such entitlement.
CREST sponsored members should refer to their CREST-sponsor, as only their CREST sponsor will be able Annex III to take the necessary action specified below to apply under the Open Offer in respect of the Open Offer para 5.1.3, para 5.1.6, Entitlements and Excess Open Offer Entitlements of such members held in CREST. CREST members who para 5.1.8 wish to apply under the Open Offer in respect of their Open Offer Entitlements and Excess Open Offer para 5.2.3(h) Entitlements in CREST should refer to the CREST Manual for further information on the CREST procedures referred to below.
If for any reason it becomes necessary to adjust the expected timetable as set out in this document, the Company will make an appropriate announcement to a Regulatory Information Service giving details of the revised dates.
(a) If you hold your shares in certificated form (not in CREST) in respect of your entitlement under the Open Offer
(i) General Qualifying non-CREST (certificated) Shareholders will have received an Application Form LR13.3.1(9)(g) enclosed with this document. The Application Form shows the number of Existing Ordinary Shares registered in your name on the Record Date. It also shows the maximum number of New Ordinary Shares for which you are entitled to apply on a pro rata basis under the Open Offer, as shown by the total number of Open Offer Entitlements allocated to you. You may also hold such an Application Form by virtue of a bona fide market claim.
The instructions and other terms set out in the Application Form form part of the terms of the Open Offer.
The Application Form has not been, and will not be, sent to Overseas Shareholders in, or with registered addresses in, the United States, or any Excluded Territories, brokers, banks and other agents may not send an Application Form to, or submit Application Forms on behalf of, Overseas Shareholders in, or with addresses in any of these countries or a person (including, without limitation, stockbrokers, banks or other agents) who has a contractual or other legal obligation to forward this document into a jurisdiction other than the United Kingdom.
(ii) Market Claims Applications may only be made on the Application Form and may only be made by the Qualifying LR13.3.1(8) Shareholder named in it or by a person entitled by virtue of a bona fide market claim in relation to a purchase of Existing Ordinary Shares through the market prior to the date upon which the Existing Ordinary Shares were marked “ex” the entitlement to the Open Offer by the London Stock Exchange, being 20 February 2014. Application Forms may be split up to 3.00 p.m. on 5 March 2014. The Application Form is not a negotiable document and cannot be separately traded. A Qualifying non-CREST Shareholder who has sold or transferred all or part of his holding of Existing Ordinary Shares prior to 20 February 2014, being the date upon which the Existing Ordinary Shares were marked “ex” the entitlement to the Open Offer by the London Stock Exchange, should consult his or her broker or other professional adviser as soon as possible, as the invitation to acquire New Ordinary Shares under the Open Offer may be a benefit which may be claimed by the transferee from his or her counterparty pursuant to the rules of the London Stock Exchange. Qualifying Shareholders who have sold all or part of their registered holdings should, if the market claim is to be settled outside CREST, complete Box 10
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145 of 179 on the Application Form and immediately send it to the stockbroker, bank or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.
The Application Form should not, however, be forwarded to or transmitted in or into the United States, or any of the Excluded Territories.
If the market claim is to be settled outside CREST, the beneficiary of the claim should follow the procedures set out in the accompanying Application Form. If the market claim is to be settled in CREST, the beneficiary of the claim should follow the procedures set out in paragraph 4(b) below.
(iii) Excess non-CREST Applications Qualifying non-CREST Shareholders who have taken up their Open Offer Entitlements in full may apply to acquire Excess Shares using the Excess Application Facility, should they wish. Qualifying non-CREST Shareholders wishing to apply to acquire Excess Shares may do so by following the relevant instructions on the Application Form. The total number of Open Offer Shares will not be increased in response to such excess applications. Excess applications will therefore only be satisfied to the extent that other Qualifying Shareholders do not apply for their Open Offer Entitlements in full. If there is an oversubscription resulting from excess applications, allocations in respect of such excess applications will be scaled down according to the Directors’ discretion. Excess monies in respect of scaled down applications will be returned to the applicant (at the applicant’s risk) without interest within 14 days of Admission by way of a cheque.
(iv) Application Procedures If you are a Qualifying non-CREST Shareholder and wish to apply for all or some of your entitlement to New Ordinary Shares under the Open Offer you should complete and sign the Application Form in accordance with the instructions on it and send it, together with the appropriate remittance and in accordance with the instructions in this Part 2, paragraph 4, by post or by hand (during normal business hours only) to Capita Asset Services, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU. A reply-paid envelope is enclosed for use by Qualifying non-CREST Shareholders within the UK, in connection with the Open Offer.
Please note that Capita Asset Services cannot provide financial advice on the merits of the Open Offer or as to whether or not you should take up your entitlement to New Ordinary Shares under the Open Offer. If any Application Form is sent by first-class post within the United Kingdom, Qualifying non-CREST (certificated) Shareholders are recommended to allow at least four Business Days for delivery. Liberum Capital may require the Company to treat as valid (i) Application Forms and accompanying remittances which are received through the post not later than 11.00 a.m. on the Business Day immediately following the final date for acceptance and payment of the Open Offer (the cover bearing a legible postmark not later than 11.00 a.m. on the final date for payment and acceptance); and (ii) applications in respect of which remittances are received prior to 11.00 a.m. on the final date for acceptance and payment of the Open Offer from an authorised person (as defined in the Financial Services and Markets Act 2000 (as amended)) specifying the number of New Ordinary Shares concerned and undertaking to lodge the relevant Application Form duly completed by not later than 11.00 a.m. on the second Business Day immediately following the final date for acceptance and payment of the Open Offer.
(v) Payments All payments must be in Sterling and cheques or banker’s drafts should be made payable to “Capita Registrars Limited Re: Flybe Group plc Open Offer A/C” and crossed “A/C payee only”. Cheques or banker’s drafts must be drawn on an account at a branch of a bank or building society in the United Kingdom, the Channel Islands or the Isle of Man which is either a settlement member of the Cheque and Credit Clearing Company Limited or the CHAPS Clearing Company Limited or which is a member of either of the Committees of Scottish or Belfast clearing houses or which has arranged for its cheques and banker’s drafts to be cleared through the facilities provided by any of those companies or committees. Such cheques or banker’s drafts must bear
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146 of 179 the appropriate sort code in the top right-hand corner and must be for the full amount payable on application.
Cheques must be drawn on the personal account of the individual investor where they have sole or joint title to the funds. Third party cheques will not be accepted with the exception of building society cheques or banker’s drafts where the building society or bank has confirmed the name of the account holder by stamping or endorsing the back of the building society cheque/banker’s draft to such effect. The account name should be the same as that shown on the application.
Cheques or banker’s drafts will be presented for payment upon receipt. The Company reserves the right to instruct Capita Asset Services to seek special clearance of cheques and banker’s drafts to allow the Company to obtain value for remittances at the earliest opportunity. No interest will be allowed on payments made as funds are held in a non-interest bearing account. It is a term of the Open Offer that cheques shall be honoured on first presentation, and the Company may elect in its absolute discretion to treat as invalid acceptances in respect of which cheques are not so honoured.
Application monies will be paid into a separate non-interest bearing bank account pending the Open Offer becoming unconditional. In the event that it does not become unconditional by 8.00 a.m. on 12 March 2014 or such later time and date as Liberum Capital shall agree (being no later than 8.00 a.m. on 27 March 2014), the Firm Placing and Placing and Open Offer will lapse and application monies will be returned by post to applicants, at the applicants’ risk and without interest, to the address set out on the Application Form, within 14 days thereafter.
(vi) Effect of Application All documents and remittances sent by post by or to an applicant (or as the applicant may direct) will be sent at the applicant’s own risk. By completing and delivering an Application Form, you (as the applicant(s)): (A) agree that all applications, and contracts resulting therefrom, under the Open Offer shall be governed by, and construed in accordance with, the laws of England; (B) confirm that in making the application you are not relying on any information or representation other than that contained in this document, and you accordingly agree that no person responsible solely or jointly for this document or any part thereof shall have any liability for any such information or representation not so contained; (C) represent and warrant to Flybe and Liberum Capital that if you have received some or all of your Open Offer Entitlements from a person other than the Company, you are entitled to apply under the Open Offer in relation to such Open Offer Entitlements by virtue of a bona fide market claim; (D) represent and warrant to Flybe and Liberum Capital that you are not a person who by virtue of being resident in or a citizen of any country outside the United Kingdom is prevented by the law of any relevant jurisdiction from lawfully applying for New Ordinary Shares; (E) represent and warrant to Flybe and Liberum Capital that you are acquiring New Ordinary Shares in an offshore transaction in accordance with Regulation S under the Securities Act and furthermore that, (i) you are not in the United States, or in any of the Excluded Territories or any other territory in which it is unlawful to make or accept an offer to apply for New Ordinary Shares or to use the Application Form in any manner in which you have used or will use it; (ii) you are not acting for the account or benefit of a person located within the United States, or within any of the Excluded Territories or any other territory in which it is unlawful to make or accept an offer to apply for New Ordinary Shares, and were not acting for the account or benefit of such a person at the time the instruction to apply for the New Ordinary Shares was given; and (iii) you are not acquiring New Ordinary Shares with a view to the offer, sale, resale, delivery or transfer, directly or indirectly, of any such New Ordinary Shares into the United States, or any of the Excluded Territories or any other territory in which it is unlawful to make or accept an offer to apply for New Ordinary Shares, except in each case of (i), (ii) and (iii) where proof satisfactory to the Company and Liberum
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147 of 179 Capital has been provided that you are entitled to take up your entitlement without and breach of applicable law; and (F) represent and warrant to Flybe and Liberum Capital that you are not, and nor are you applying as nominee or agent for, a person who is or may be liable to notify and account for tax under the Stamp Duty Reserve Tax Regulations 1986 at any of the increased rates referred to in Section 93 (depositary receipts) or Section 96 (clearance services) of the Finance Act 1986.
Further representations and warranties are contained in the Application Form. Each subscriber or purchaser acknowledges that Flybe and Liberum Capital will rely upon the truth and accuracy of the foregoing agreements, confirmations, representations and warranties and agrees that if any of the agreements, confirmations, representations or warranties made by such subscriber or purchaser are no longer accurate he shall promptly notify the Company and Liberum Capital. If such subscriber or purchaser is subscribing for, or purchasing, New Ordinary Shares as a fiduciary or agent for one or more investor accounts, each subscriber or purchaser represents that he has sole investment discretion with respect to each such account and full power to make the foregoing representations and agreements on behalf of each such account.
If you do not wish to apply for any of the New Ordinary Shares to which you are entitled under the Open Offer, you should not complete and return the Application Form.
If you are in doubt as to whether or not you should apply for any of the New Ordinary Shares under the Open Offer, you should consult your independent financial adviser immediately. All enquiries in relation to the procedure for application for Qualifying non-CREST (certificated) Shareholders under the Open Offer should be addressed to Capita Asset Services, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU or by telephone to Capita Registrars on 0871 664 0321 or, if telephoning from outside the UK, on +44 20 8639 3399. Calls to the Capita Registrars 0871 664 0321 number are charged at 10 pence per minute (including VAT) plus any of your service provider’s network extras. Calls to the Capita Registrars +44 20 8639 3399 number from outside the UK are charged at applicable international rates. Different charges may apply to calls made from mobile telephones and calls may be recorded and monitored randomly for security and training purposes. Capita Registrars cannot provide advice on the merits of the Open Offer nor give any financial, legal or tax advice.
(b) If you have Open Offer Entitlements and Excess Open Offer Entitlements credited to your stock account in CREST in respect of your entitlement under the Open Offer
(i) General Subject as provided in paragraph 6 of this Part 2 in relation to certain Overseas Shareholders, each Qualifying CREST Shareholder will receive a credit to his stock account in CREST of his Open Offer Entitlements equal to the basic number of New Ordinary Shares for which he is entitled to apply under the Open Offer and his Excess Open Offer Entitlements (see paragraph 4(b)(iii) below for further details).
The CREST stock account to be credited will be an account under the Participant ID and Member Account ID that apply to the Existing Ordinary Shares held on the Record Date by the Qualifying CREST Shareholder in respect of which the Open Offer Entitlements and Excess Open Offer Entitlements have been allocated.
If for any reason the Open Offer Entitlements and Excess Open Offer Entitlements cannot be admitted to CREST by, or the stock accounts of Qualifying CREST Shareholders cannot be credited by, 3.00 p.m. on 21 February 2014 or such later time as the Company may decide, an Application Form will be sent out to each Qualifying CREST Shareholder in substitution for the Open Offer Entitlements and/or Excess Open Offer Entitlements which should have been credited to his stock account in CREST. In these circumstances the expected timetable as set out in this document will be adjusted as appropriate and the provisions of this document applicable to Qualifying non-CREST (certificated) Shareholders with Application Forms will apply to Qualifying CREST Shareholders who receive Application Forms.
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148 of 179 CREST members who wish to apply for some or all of their entitlements to New Ordinary Shares should refer to the CREST Manual for further information on the CREST procedures referred to below. Should you need advice with regard to these procedures, please contact Capita Asset Services, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU or by telephone to Capita Asset Services on 0871 664 0321 or, if telephoning from outside the UK, on +44 20 8639 3399. Calls to the Capita Asset Services 0871 664 0321 number are charged at 10 pence per minute (including VAT) plus any of your service provider’s network extras. Calls to the Capita Asset Services +44 20 8639 3399 number from outside the UK are charged at applicable international rates. Different charges may apply to calls made from mobile telephones and calls may be recorded and monitored randomly for security and training purposes. Capita Asset Services cannot provide advice on the merits of the Open Offer nor give any financial, legal or tax advice. If you are a CREST sponsored member you should consult your CREST sponsor if you wish to apply for New Ordinary Shares as only your CREST-sponsor will be able to take the necessary action to make this application in CREST.
(ii) Market Claims The Open Offer Entitlements and Excess Open Offer Entitlements will constitute a separate security for the purposes of CREST. Although Open Offer Entitlements and Excess Open Offer Entitlements will be admitted to CREST and be enabled for settlement, applications in respect of Open Offer Entitlements and Excess Open Offer Entitlements may only be made by the Qualifying Shareholder originally entitled or by a person entitled by virtue of a bona fide market claim transaction. Transactions identified by the CREST Claims Processing Unit as “cum” the Open Offer Entitlements and Excess Open Offer Entitlements will generate an appropriate market claim transaction and the relevant Open Offer Entitlement(s) and Excess Open Offer Entitlements will thereafter be transferred accordingly.
(iii) Excess Application Facility Qualifying CREST Shareholders who have taken up their Open Offer Entitlements in full may apply to acquire Excess Shares using the Excess Application Facility, should they wish. The Excess Application Facility enables Qualifying CREST Shareholders to apply for Excess Shares in excess of their Open Offer Entitlement up to a maximum number of Excess Shares not exceeding 50,101,920 in which case applications made under the Excess Application Facility will be scaled down according to the Directors’ discretion. A Qualifying CREST Shareholder should not make an application under the Excess Application Facility unless such Qualifying CREST Shareholder has applied for his Open Offer Entitlements in full.
An Excess Open Offer Entitlement may not be sold or otherwise transferred. Subject as provided in paragraph 6 of this Part 2 in relation to Overseas Shareholders, the CREST accounts of Qualifying CREST Shareholders will be credited with an Excess Open Offer Entitlement in order for any applications for Excess Shares to be settled through CREST.
Qualifying CREST Shareholders should note that, although the Open Offer Entitlements and the Excess Open Offer Entitlements will be admitted to CREST, they will have limited settlement capabilities (for the purposes of bona fide market claims only). Neither the Open Offer Entitlements nor the Excess Open Offer Entitlements will be tradeable or listed and applications in respect of the Open Offer may only be made by the Qualifying Shareholders originally entitled or by a person entitled by virtue of a bona fide market claim.
To apply for Excess Shares pursuant to the Open Offer, Qualifying CREST Shareholders should follow the instructions in paragraph (iv) below and must not return a paper form and cheque. Should a transaction be identified by the CREST Claims Processing Unit as “cum” the Open Offer Entitlement and the relevant Open Offer Entitlement is transferred, the Excess Open Offer Entitlements will not transfer with the Open Offer Entitlement claim, but will be transferred as a separate claim. Should a Qualifying CREST Shareholder cease to hold all of his Existing Ordinary Shares as a result of one or more bona fide market claims, the Excess Open Offer Entitlement credited to CREST and allocated to the relevant Qualifying Shareholder will be transferred to the purchaser. Please note that a separate USE Instruction must be sent in respect of any application under the Excess Open Offer Entitlement.
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149 of 179 Fractions of Excess Shares will be rounded down to the nearest whole number.
The total number of Open Offer Shares is fixed and will not be increased in response to any applications under the Excess Application Facility. Applications under the Excess Application Facility will therefore only be satisfied to the extent that other Qualifying Shareholders do not apply for their Open Offer Entitlements in full. Applications under the Excess Application Facility shall be allocated in such manner as the Directors may determine, in their absolute discretion, and no assurance can be given that the applications by Qualifying Shareholders will be met in full or in part or at all. Excess monies in respect of applications which are not met in full will be returned to the applicant (at the applicant’s risk) without interest within 14 days thereafter, by way of cheque or CREST payment, as appropriate. The interest earned on such monies will be retained for the benefit of the Company.
All enquiries in relation to the procedure for application and completion of applications For Excess Open Offer Entitlements should be addressed to Capita Asset Services, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU. (Telephone Capita Asset Services on 0871 664 0321 from within the UK or on +44 20 8639 3399 if calling from outside the UK). Calls to the 0871 664 0321 number cost 10 pence per minute from a BT landline. Other network providers’ costs may vary. Lines are open 9.00 a.m. to 5.30 p.m. (London time) Monday to Friday. Calls to the helpline from outside the UK will be charged at the applicable international rate. Different charges may apply to calls from mobile telephones and calls may be recorded and randomly monitored for security and training purposes. The helpline cannot provide advice on the merits of the Offer nor give any financial, legal or tax advice.
(iv) USE Instructions CREST members who wish to apply for New Ordinary Shares in respect of all or some of their Open Offer Entitlements and their Excess Open Offer Entitlements in CREST must send (or, if they are a CREST sponsored member, procure that their CREST sponsor sends) an Unmatched Stock Event (“USE”) instruction to Euroclear which, on its settlement, will have the following effect: (A) the crediting of a stock account of Capita Asset Services under the Participant ID and Member Account ID specified below, with a number of Open Offer Entitlements or Excess Open Offer Entitlements corresponding to the number of New Ordinary Shares applied for; and (B) the creation of a CREST payment, in accordance with the CREST payment arrangements, in favour of the payment bank of Capita Asset Services in respect of the amount specified in the USE instruction which must be the full amount payable on application for the number of New Ordinary Shares referred to in (A) above.
(v) Content of USE Instructions The USE instruction must be properly authenticated in accordance with Euroclear’s specifications and must contain, in addition to the other information that is required for settlement in CREST, the following details: (A) the number of New Ordinary Shares for which application is being made (and hence the number of the Open Offer Entitlement(s) being delivered to Capita Registrars); (B) the ISIN of the Open Offer Entitlements. This is GB00BJBQC478; (C) the Member Account ID of the accepting CREST member from which the Open Offer Entitlements are to be debited; (D) the Participant ID of the accepting CREST Member; (E) the Participant ID of Capita Asset Services, in its capacity as CREST receiving agent. This is 7RA33; (F) the Member Account ID of Capita Asset Services, in its capacity as CREST receiving agent. This is 28172FLY;
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150 of 179 (G) the amount payable by means of a CREST payment on settlement of the USE instruction. This must be the full amount payable on application for the number of New Ordinary Shares referred to in (A) above; (H) the intended settlement date. This must be on or before 11.00 a.m. on 7 March 2014; and (I) the Corporate Action Number for the Open Offer. This will be available by viewing the relevant corporate action details in CREST.
In order for an application under the Open Offer to be valid, the USE instruction must comply with the requirements as to authentication and contents set out above and must settle on or before 11.00 a.m. on 7 March 2014.
In order to assist prompt settlement of the USE instruction, CREST members (or their sponsors, where applicable) may consider adding the following non-mandatory fields to the USE instruction: (a) a contact name and telephone number (in the free-format shared note field); and (b) a priority of at least 80.
CREST members and, in the case of CREST sponsored members, their CREST sponsors, should note that the last time at which a USE instruction may settle on 7 March 2014 in order to be valid is 11.00 a.m. on that day.
In the event that the Firm Placing and Placing and Open Offer does not become unconditional by 8.00 a.m. on 12 March 2014 or such later time and date as Liberum Capital shall agree (being no later than 8.00 a.m. on 27 March 2014), the Firm Placing and Placing and Open Offer will lapse, the Open Offer Entitlements admitted to CREST will be disabled and Capita Registrars will refund the amount paid by a Qualifying CREST Shareholder by way of a CREST payment, without interest, within 14 days thereafter.
(vi) Content of USE Instruction in respect of Excess Open Offer Entitlements The USE Instruction must be properly authenticated in accordance with Euroclear’s specifications and must contain, in addition to the other information that is required for settlement in CREST, the following details: (A) the number of Open Offer Shares for which the application is being made (and hence the number of the Excess Open Offer Entitlement(s) being delivered to the Registrar); (B) the ISIN of the Excess Open Offer Entitlement. This is GB00BJBQC585; (C) the Member Account ID of the accepting CREST member from which the Excess Open Offer Entitlements are to be debited; (D) the participant ID of the accepting CREST member; (E) the participant ID of Capita Asset Services, in its capacity as CREST receiving agent. This is 7RA33; (F) the Member Account ID of Capita Asset Services, in its capacity as CREST receiving agent. This is 28172FLY; (G) the amount payable by means of a CREST payment on settlement of the USE instruction. This must be the full amount payable on application for the number of Open Offer Shares referred to in paragraph (A) above; (H) the intended settlement date. This must be on or before 11.00 a.m. on 7 March 2014; and (I) the Corporate Action Number for the Open Offer. This will be available by viewing the relevant corporate action details in CREST.
In order for the application in respect of an Excess Open Offer Entitlement under the Open Offer to be valid, the USE instruction must comply with the requirements as to authentication and contents set out above and must settle on or before 11.00 a.m. on 7 March 2014.
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151 of 179 In order to assist prompt settlement of the USE instruction, CREST members (or their sponsors, where applicable) should add the following non-mandatory fields to the USE instruction: (aa) a contact name and telephone number (in the free format shared note field); and (bb) a priority of at least 80.
CREST members and, in the case of CREST sponsored members, their CREST sponsors, should note that the last time at which a USE instruction may settle on 7 March 2014 in order to be valid is 11.00 a.m. on that day.
In the event that the Firm Placing and Placing and Open Offer does not become unconditional by 8.00 a.m. on 12 March 2014 or such later time and date as Liberum Capital and the Company shall agree (being no later than 8.00 a.m. on 27 March 2014), the Firm Placing and Placing and Open Offer will lapse, the Open Offer Entitlements and the Excess Open Offer Entitlements admitted to CREST will be disabled and Capita Asset Services will refund the amount paid by a Qualifying CREST Shareholder by way of a CREST payment, without interest, within 14 days thereafter.
(vii) Deposit of Open Offer Entitlements and Excess Open Offer Entitlements into, and withdrawal from, CREST A Qualifying non-CREST Shareholder’s entitlement under the Open Offer as shown by the number of Open Offer Entitlements set out in his Application Form may be deposited into CREST (either into the account of the Qualifying Shareholder named in the Application Form or into the name of a person entitled by virtue of a bona fide market claim). Similarly, Open Offer Entitlements and Excess Open Offer Entitlements held in CREST may be withdrawn from CREST so that the entitlement under the Open Offer is reflected in an Application Form. Normal CREST procedures (including timings) apply in relation to any such deposit or withdrawal, subject (in the case of a deposit into CREST) as set out in the Application Form.
A holder of an Application Form who is proposing so to deposit the entitlement set out in such form is recommended to ensure that the deposit procedures are implemented in sufficient time to enable the person holding or acquiring the Open Offer Entitlements and the entitlement under the Excess Application Facility following their deposit into CREST to take all necessary steps in connection with taking up the entitlement prior to 11.00 a.m. on 7 March 2014. Shortly after depositing their Open Offer Entitlement into their CREST account, CREST holders will receive a credit for their Open Offer Entitlement and Excess Open Offer Entitlements which will be managed by the Registrar.
In particular, having regard to normal processing times in CREST and on the part of Capita Asset Services, the recommended latest time for depositing an Application Form with the CREST Courier and Sorting Service, where the person entitled wishes to hold the entitlement under the Open Offer set out in such Application Form as Open Offer Entitlements or Excess Open Offer Entitlements in CREST, is 3.00 p.m. on 4 March 2014, and the recommended latest time for receipt by Euroclear of a dematerialised instruction requesting withdrawal of Open Offer Entitlements and/or Excess Open Offer Entitlements from CREST is 4.30 p.m. on 3 March 2014, in either case so as to enable the person acquiring or (as appropriate) holding the Open Offer Entitlements and/or Excess Open Offer Entitlements following the deposit or withdrawal (whether as shown in an Application Form or held in CREST) to take all necessary steps in connection with applying in respect of the Open Offer Entitlements or Excess Open Offer Entitlements prior to 11.00 a.m. on 7 March 2014. CREST holders inputting the withdrawal of their Open Offer Entitlement from their CREST account must ensure that they withdraw their Open Offer Entitlement and the Excess Open Offer Entitlements.
Delivery of an Application Form with the CREST Deposit Form duly completed whether in respect of a deposit into the account of the Qualifying Shareholder named in the Application Form or into the name of another person, shall constitute a representation and warranty to the Company, Liberum capital and Capita Asset Services from the relevant CREST member(s) that you are aquiring New Ordinary Shares in an offshore transaction in accordance with Regulation S under the Securities Act, and furthermore that: (i) you are not in the United States,
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152 of 179 or in any of the Excluded Territories or any other territory in which it is unlawful to make or accept an offer to apply for New Ordinary Shares; (ii) you are not acting for the account or benefit of a person located within the United States, or within any of the Excluded Territories or any other territory in which it is unlawful to make or accept an offer to apply for New Ordinary Shares, and were not acting for the account or benefit of such a person at the time the instruction to apply for the New Ordinary Shares was given; and (iii) you are not acquiring the New Ordinary Shares with a view to the offer, sale, resale, delivery or transfer, directly or indirectly, of any such New Ordinary Shares into the United States, any of the Excluded Territories or any other territory in which it is unlawful to make or accept an offer to apply for New Ordinary Shares, except in each case of (i), (ii) and (iii) where proof satisfactory to the Company and Liberum Capital has been provided that you are entitled to take up your entitlement without breach of applicable law; and, where such deposit is made by a beneficiary of a market claim, a representation and warranty that the relevant CREST member(s) is/are entitled to apply under the Open Offer by virtue of a bona fide market claim.
Each subscriber or purchaser acknowledges that Flybe and Liberum Capital will rely upon the truth and accuracy of the foregoing agreements, confirmations, representations and warranties and agrees that if any of the agreements, confirmations, representations or warranties made by such subscriber or purchaser are no longer accurate he shall promptly notify the Company and Liberum Capital. If such subscriber or purchaser is subscribing for, or purchasing, New Ordinary Shares as a fiduciary or agent for one or more investor accounts, each subscriber or purchaser represents that he has sole investment discretion with respect to each such account and full power to make the foregoing representations and agreements on behalf of each such account.
(ix) Validity of Application A USE instruction complying with the requirements as to authentication and contents set out above which settles by no later than 11.00 a.m. on 7 March 2014 will constitute a valid application under the Open Offer.
(x) CREST Procedures and Timings CREST members and (where applicable) their CREST sponsors should note that Euroclear does not make available special procedures in CREST for any particular corporate action. Normal system timings and limitations will therefore apply in relation to the input of a USE instruction and its settlement in connection with the Open Offer. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST sponsored member, to procure that his CREST sponsor takes) such action as shall be necessary to ensure that a valid application is made as stated above by 11.00 a.m. on 7 March 2014. In this connection, CREST members and (where applicable) their CREST sponsors are referred in particular to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.
(xi) Incorrect or Incomplete Applications If a USE instruction includes a CREST payment for an incorrect sum, the Company through Capita Asset Services reserves the right: (A) to reject the application in full and refund the payment to the CREST member in question; (B) in the case that an insufficient sum is paid, to treat the application as a valid application for such lesser whole number of New Ordinary Shares as would be able to be applied for with that payment at the Offer Price, refunding any unutilised sum to the CREST member in question; or (C) in the case that an excess sum is paid, to treat the application as a valid application for all the New Ordinary Shares referred to in the USE instruction refunding any unutilised sum to the CREST member in question.
(xii) Effect of Valid Application A CREST member who makes or is treated as making a valid application in accordance with the above procedures will thereby:
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153 of 179 (A) pay the amount payable on application in accordance with the above procedures by means of a CREST payment in accordance with the CREST payment arrangements (it being acknowledged that the payment to Capita Asset Services payment bank in accordance with the CREST payment arrangements shall, to the extent of the payment, discharge in full the obligation of the CREST member to pay to the Company the amount payable on application); (B) request that the New Ordinary Shares to which he will become entitled be issued to him on the terms set out in this document and subject to the Articles; (C) agree that all applications and contracts resulting therefrom under the Open Offer shall be governed by, and construed in accordance with, the laws of England; (D) represent and warrant to Flybe and Liberum Capital that he is acquiring New Ordinary Shares in an offshore transaction in accordance with Regulation S under the Securities Act, and furthermore that, (i) he is not in the United States or in any of the Excluded Territories or any other territory in which it is unlawful to make or accept an offer to apply for New Ordinary Shares; (ii) he is not acting for the account or benefit of a person located within the United States, or within any of the Excluded Territories or any other territory in which it is unlawful to make or accept an offer to apply for New Ordinary Shares, and he was not acting for the account or benefit of such a person at the time the instruction to apply for the New Ordinary Shares was given; and (iii) he is not acquiring New Ordinary Shares with a view to the offer, sale, resale, delivery or transfer, directly or indirectly, of any such New Ordinary Shares into the United States, any of the Excluded Territories or any other territory in which it is unlawful to make or accept an offer to apply for New Ordinary Shares, except in each case of (i), (ii) or (iii) where proof satisfactory to the Company and Liberum Capital has been provided that he is entitled to take up your entitlement without breach of applicable law; (E) represent and warrant to Flybe and Liberum Capital that he is not, and nor is he applying as nominee or agent for, a person who is or may be liable to notify and account for tax under the Stamp Duty Reserve Tax Regulations 1986 at any of the increased rates referred to in section 93 (depository receipts) or section 96 (clearance services) of the Finance Act 1986; (F) confirm that in making such application he is not relying on any information in relation to the Company other than that contained in this document and agrees that no person responsible solely or jointly for this document or any part thereof or involved in the preparation thereof shall have any liability for any such other information and further agree that having had the opportunity to read this document, he will be deemed to have had notice of all the information concerning the Company contained therein; and (G) represent and warrant to Flybe and Liberum Capital that he is the Qualifying Shareholder originally entitled to the Open Offer Entitlements and the Excess Open Offer Entitlements or that he has received such Open Offer Entitlements by virtue of a bona fide market claim.
Further representations and warranties are contained in the Application Form.
Each subscriber or purchaser acknowledges that Flybe and Liberum Capital will rely upon the truth and accuracy of the foregoing agreements, confirmations, representations and warranties and agrees that if any of the agreements, confirmations, representations or warranties made by such subscriber or purchaser are no longer accurate he shall promptly notify the Company and Liberum Capital. If such subscriber or purchaser is subscribing for, or purchasing, New Ordinary Shares as a fiduciary or agent for one or more investor accounts, each subscriber or purchaser represents that he has sole investment discretion with respect to each such account and full power to make the foregoing representations and agreements on behalf of each such account.
(xiii) The Company’s Discretion as to Rejection and Validity of Applications The Company may in its sole discretion: (A) treat as valid (and binding on the CREST member concerned) an application which does not comply in all respects with the requirements as to validity set out or referred to in this Part 2;
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154 of 179 (B) accept an alternative properly authenticated dematerialised instruction from a CREST member or (where applicable) a CREST sponsor as constituting a valid application in substitution for or in addition to a USE instruction and subject to such further terms and conditions as the Company may determine; (C) treat a properly authenticated dematerialised instruction (in this subparagraph the “first instruction”) as not constituting a valid application if, at the time at which Capita Asset Services receives a properly authenticated dematerialised instruction giving details of the first instruction or thereafter, either the Company or Capita Asset Services has received actual notice from Euroclear of any of the matters specified in Regulation 35(5)(a) in relation to the first instruction. These matters include notice that any information contained in the first instruction was incorrect or notice of lack of authority to send the first instruction; and (D) accept an alternative instruction or notification from a CREST member or CREST sponsored member or (where applicable) a CREST sponsor, or extend the time for settlement of a USE instruction or any alternative instruction or notification, in the event that, for reasons or due to circumstances outside the control of any CREST member or CREST sponsored member or (where applicable) CREST sponsor, the CREST member or CREST sponsored member is unable validly to apply for New Ordinary Shares by means of the above procedures. In normal circumstances, this discretion is only likely to be exercised in the event of any interruption, failure or breakdown of CREST (or any part of CREST) or on the part of the facilities and/or systems operated by Capita Registrars in connection with CREST.
5. Money Laundering Regulations
(a) Holders of Application Forms It is a term of the Open Offer that to ensure compliance with the Money Laundering Regulations, Capita Asset Services may require, in its absolute discretion, verification of the identity of the person by whom or on whose behalf an Application Form is lodged with payment (which requirements are referred to below as the “verification of identity requirements”).
The person(s) (the “applicant”) who, by lodging an Application Form with payment, and in accordance with the other terms as described above, accept(s) the Open Offer in respect of the New Ordinary Shares (the “relevant shares”) comprised in such Application Form shall thereby be deemed to agree to provide Capita Asset Services with such information and other evidence as it may require to satisfy the verification of identity requirements.
Capita Asset Services may therefore undertake electronic searches for the purposes of verifying identity. To do so Capita Asset Services may verify the details against the Applicant’s identity, but also may request further proof of identity.
If Capita Asset Services determines that the verification of identity requirements apply to any applicant or application, the relevant shares (notwithstanding any other term of the Open Offer) will not be issued to the applicant unless and until the verification of identity requirements have been satisfied in respect of that application. Capita Asset Services is entitled, in its absolute discretion, to determine whether the verification of identity requirements apply to any applicant or application and whether such requirements have been satisfied, and none of Capita Asset Services, the Company or Liberum Capital will be liable to any person for any loss, expense or damage suffered or incurred (or alleged), directly or indirectly as a result of the exercise of such discretion.
If the verification of identity requirements apply, failure to provide the necessary evidence of identity within a reasonable time may result in delays in the despatch of share certificates or in crediting CREST accounts. If, within a reasonable period of time and in any event by not later than 7 March 2014, following a request for verification of identity, Capita Asset Services has not received evidence satisfactory to it as aforesaid, the Company may, in its absolute discretion, terminate the contract of allotment in which event the monies payable on acceptance of the Open Offer will be returned without interest to the account of the bank from which such monies were originally debited (without prejudice to the right of the Company to take proceedings to recover the amount by which the net proceeds of sale of the relevant New Ordinary Shares fall short of the amount payable thereon).
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155 of 179 Submission of an Application Form with the appropriate remittance will constitute a warranty from the applicant that the Money Laundering Regulations will not be breached by application of such remittance.
The verification of identity requirements will not usually apply:
(i) if the applicant is an organisation required to comply with the Money Laundering Directive (the Council Directive on the prevention of the use of the financial system for the purpose of money laundering (no. 91/308/EEC)); or (ii) if the applicant is a regulated United Kingdom broker or intermediary acting as agent and is itself subject to the Money Laundering Regulations; or (iii) if the applicant (not being an applicant who delivers his application in person) makes payment by way of a cheque drawn on an account in the name of such applicant; or (iv) if the aggregate subscription price for the relevant shares is less than the sterling equivalent of €15,000 (currently approximately £12,300).
In other cases the verification of identity requirements may apply. The following guidance is provided in order to assist in satisfying the verification of identity requirements and to reduce the likelihood of difficulties or delays and potential rejection of an application (but does not limit the right of Capita Asset Services to require verification of identity as stated above). Satisfaction of the verification of identity requirements may be facilitated in the following ways:
(A) if payment is made by building society cheque (not being a cheque drawn on an account of the applicant) or banker’s draft, by the building society or bank endorsing on the cheque or draft the applicant’s name and the number of an account held in the applicant’s name at such building society or bank, such endorsement being validated by a stamp and an authorised signature by the building society or bank on the reverse of the cheque or banker’s draft; or
(B) if the Application Form is lodged with payment by an agent which is an organisation of the kind referred to above or which is subject to anti-money laundering regulation in a country which is a member of the Financial Action Task Force (the non-European Union members of which are Argentina, Australia, Brazil, Canada, Hong Kong, Iceland, Japan, Mexico, New Zealand, Norway, Russian Federation, Singapore, South Africa, Switzerland, Turkey, the United States of America and, by virtue of their membership of the Gulf Cooperation Council, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates), the agent should provide written confirmation that it has that status with the Application Form and written assurance that it has obtained and recorded evidence of the identity of the persons for whom it acts and that it will on demand make such evidence available to Capita Asset Services or the relevant authority.
In order to confirm the acceptability of any written assurance referred to in (B) above or any other case, the applicant should contact Capita Asset Services; or
(C) if (an) Application Form(s) is/are in respect of relevant shares with an aggregate subscription price of the sterling equivalent of €15,000 (currently approximately £12,300) or more and is/are lodged by hand by the applicant in person, he should ensure that he has with him evidence of identity bearing his photograph (for example, his passport) and evidence of his address.
Third-party cheques will not be accepted.
(b) Open Offer Entitlements in CREST and Excess Open Offer Entitlements in CREST If you hold your Open Offer Entitlements in CREST and Excess Open Offer Entitlements in CREST and apply for New Ordinary Shares in respect of all or some of your Open Offer Entitlements in CREST and Excess Open Offer Entitlements in CREST as agent for one or more persons and you are not a UK or EU regulated person or institution (e.g. a UK financial institution), then irrespective of the value of the application, Capita Asset Services is obliged to take reasonable measures to establish the identity of the person or persons on whose behalf you are making the application.
You must therefore contact Capita Asset Services before sending any USE or other instruction so that appropriate measures may be taken. 57
156 of 179 Submission of a USE instruction which on its settlement constitutes a valid application as described above constitutes a warranty and undertaking by the applicant to provide promptly to Capita Asset Services such information as may be specified by Capita Registrars as being required for the purposes of the Money Laundering Regulations. Pending the provision of evidence satisfactory to Capita Asset Services as to identity, Capita Asset Services may in its absolute discretion take, or omit to take, such action as it may determine to prevent or delay issue of the New Ordinary Shares concerned. If satisfactory evidence of identity has not been provided within a reasonable time, then the application for the New Ordinary Shares represented by the USE instruction will not be valid. This is without prejudice to the right of the Company to take proceedings to recover any loss suffered by it as a result of failure to provide satisfactory evidence.
6. Overseas Shareholders
6.1 General The making of the Open Offer to Overseas Shareholders may be affected by the laws or regulatory requirements of the relevant jurisdiction. Overseas Shareholders who are in any doubt in this respect should consult their professional advisers. No person receiving a copy of this document and/or an Application Form and/or receiving a credit of Open Offer Entitlements and/or Excess Open Offer Entitlements to a stock account in CREST in any territory other than the United Kingdom may treat the same as constituting an invitation or offer to him, nor should he in any event use such Application Form and/or credit of Open Offer Entitlements and/or Excess Open Offer Entitlements to a stock account in CREST, unless, in the relevant territory, such an invitation or offer could lawfully be made to him or such Application Form or credit of Open Offer Entitlements and/or Excess Open Offer Entitlements to a stock account in CREST could lawfully be used without contravention of any legislation or other local regulatory requirements. Receipt of this document and/or an Application Form or the crediting of Open Offer Entitlements and/or Excess Open Offer Entitlements to a stock account in CREST does not constitute an invitation or offer to Overseas Shareholders in the territories in which it would be unlawful to make an invitation or offer and in such circumstances this document and/or any Application Forms are sent for information only. It is the responsibility of any person receiving a copy of this document and/or an Application Form and/or receiving a credit of Open Offer Entitlements and/or Excess Open Offer Entitlements to a stock account in CREST outside the United Kingdom and wishing to make an application for any New Ordinary Shares to satisfy himself as to the full observance of the laws and regulatory requirements of the relevant territory in connection therewith, including obtaining any governmental or other consents which may be required or observing any other formalities required to be observed in such territory and paying any issue, transfer or other taxes due in such other territory.
Persons (including, without limitation, stockbrokers, banks and other agents) receiving an Application Form and/or receiving a credit of Open Offer Entitlements and/or Excess Open Offer Entitlements to a stock account in CREST should not, in connection with the Open Offer, distribute or send the Application Form or transfer the Open Offer Entitlements and/or Excess Open Offer Entitlements into any jurisdiction where to do so would or might contravene local securities laws or regulations.
If an Application Form or a credit of Open Offer Entitlements and/or Excess Open Offer Entitlements to a stock account in CREST is received by any person in any such jurisdiction or by the stockbrokers, banks and other agents or nominees of such person, he or she must not seek to take up the New Ordinary Shares except pursuant to an express agreement with the Company. Any person who does forward an Application Form or transfer the Open Offer Entitlements and/or Excess Open Offer Entitlements into any such jurisdiction, whether pursuant to a contractual or legal obligation or otherwise, should draw the attention of the recipient to the contents of this paragraph. The Company and Liberum Capital reserve the right to reject an Application Form or transfer of Open Offer Entitlements and/or Excess Open Offer Entitlements from or in favour of Shareholders in any such jurisdiction or persons who are acquiring New Ordinary Shares for resale in any such jurisdiction.
The Company and Liberum Capital reserve the right in their absolute discretion to treat as invalid any application for New Ordinary Shares under the Open Offer if it appears to the Company and Liberum Capital and their agents that such application or acceptance thereof may involve a breach of the laws or regulations of any jurisdiction or if in respect of such application the Company and Liberum Capital have not been given the relevant warranty concerning overseas jurisdictions set out in the Application
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157 of 179 Form or in this document, as appropriate. All payments under the Open Offer must be made in Sterling.
6.2 United States The New Ordinary Shares, the Open Offer Entitlements and the Excess Open Offer Entitlements have not been and will not be registered under the Securities Act, or under the securities laws of any state or other jurisdiction of the United States and, may not be offered, sold, resold, taken up, delivered or distributed, directly or indirectly, within the United States, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and any applicable state or local securities laws.
Accordingly, the New Ordinary Shares, the Open Offer Entitlements and the Excess Open Offer Entitlements are being offered only outside the United States in offshore transactions in accordance with Regulation S under the Securities Act. This document does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any securities in the United States.
Application Forms are not being sent to, and Open Offer Entitlements and/or Excess Open Offer Entitlements are not being credited to a stock account in CREST of, any Shareholder with a registered address in the United States. Any application for New Ordinary Shares under the Open Offer will be treated as invalid if it appears to have been executed or effected in, postmarked or otherwise dispatched in or from the United States, or if it provides an address in the United States for the registration or issue of New Ordinary Shares in uncertificated form or for the delivery of New Ordinary Shares in certificated form, or if it appears to have been sent by a person who cannot make the representations and warranties set out in the Application Form or in this document.
In addition, until 40 days after the commencement of the Open Offer, an offer, sale or transfer of the New Ordinary Shares, the Open Offer Entitlements and the Excess Open Offer Entitlements within the United States by a dealer (whether or not participating in the Firm Placing and Placing and Open Offer) may violate the registration requirements of the Securities Act.
6.3 Jersey Consent to the circulation of this prospectus by Flybe Group plc has been granted by the Jersey Financial Services Commission (the “Commission”) pursuant to the Control of Borrowing (Jersey) Law 1947, as amended (the “Law”) and the Control of Borrowing (Jersey) Order 1958. The Commission is protected by the Law against liability arising from the discharge of its functions under the Law.
This prospectus may also be circulated in Jersey only by persons who are registered by the Commission in accordance with the Financial Services (Jersey) Law 1998 (the “FSL”) for the conduct of financial services business and the distribution of this prospectus, or are exempt from such registration in accordance with the FSL.
Those prospective investors or persons who are seeking to acquire an interest in the New Ordinary Shares who are resident in Jersey are strongly advised to seek independent appropriate professional advice.
6.4 Isle of Man This document has not been, and is not required to be, filed or lodged with any regulatory or other authority in the Isle of Man. The Company is not subject to any regulatory approval in the Isle of Man and holders of Ordinary Shares are not protected by any statutory compensation arrangements in the event of the Company’s failure. The Isle of Man Financial Supervision Commission does not vouch for the financial soundness of the Company or the correctness of any statements made or opinions expressed with regard to it.
No person may market, offer or sell New Ordinary Shares in or to persons in the Isle of Man other than in compliance with the licensing requirements of the Isle of Man Financial Services Act 2008 or
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158 of 179 in accordance with any relevant exclusion contained in the Isle of Man Regulated Activities Order 2011 or exemption contained in the Isle of Man Financial Services (Exemptions) Regulations 2011.
6.5 Other Excluded Territories Due to the restrictions under the securities laws of the Excluded Territories, Shareholders who have registered addresses in or who are resident or ordinarily resident in, or citizens of, any Excluded Territories will not qualify to participate in the Open Offer and will not be sent an Application Form and no Open Offer Entitlements and/or Excess Open Offer Entitlements will be credited to their CREST stock accounts.
The New Ordinary Shares have not been and will not be registered under the relevant laws of any of the Excluded Territories or any state, province or territory thereof and may not be offered, sold, resold, delivered or distributed, directly or indirectly in or into any of the Excluded Territories or to, or for the account or benefit of, any person with a registered address in, or who is resident or ordinarily resident in, or a citizen of, any Excluded Territories except pursuant to an applicable exemption.
7. Withdrawal Rights Annex III Qualifying Shareholders wishing to exercise statutory withdrawal rights after publication by the Company para 5.1.7 of a prospectus supplementing this document must do so by lodging a written notice of withdrawal which must include the full name and address of the person wishing to exercise statutory withdrawal rights and, if such person is a CREST member, the Participant ID and the Member Account ID of such CREST member, with Capita Asset Services, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU, so as to be sent by the Qualifying Shareholder no later than two Business Days after the date on which the supplementary prospectus is published. Notice of withdrawal given by any other means or which is deposited with or received by Capita Asset Services after expiry of such period will not constitute a valid withdrawal, provided that the Company will not permit the exercise of withdrawal rights after payment by the relevant Qualifying Shareholder of its subscription in full and the allotment of New Ordinary Shares to such Qualifying Shareholder becoming unconditional save to the extent required by statute. In such event Shareholders are advised to seek independent legal advice.
8. Taxation Information regarding United Kingdom taxation, Jersey taxation, Guernsey taxation, the taxation of Isle of Man resident individuals and the taxation of Isle of Man resident companies in respect of the New Ordinary Shares and the Firm Placing and Placing and Open Offer is set out in paragraph 16 of Part 7 of this document. If you are in any doubt about your tax position or are subject to tax in a jurisdiction other than the United Kingdom, Jersey, Guernsey or the Isle of Man, you should consult your professional adviser without delay.
9. Listing, Settlement, Dealings and Publication Applications have been made to the FCA for the New Ordinary Shares to be admitted to the premium segment of the Official List and to the London Stock Exchange for the same to be admitted to trading on its main market for listed securities subject to the fulfillment of the conditions of the Open Offer. Subject to the Firm Placing and Placing and Open Offer becoming unconditional in all respects (save only as to Admission), it is expected that admission of the New Ordinary Shares to the premium segment of the Official List and to trading on its main market for listed securities will become effective and that dealings therein for normal settlement will commence at 8.00 a.m. on 12 March 2014.
Open Offer Entitlements and Excess Open Offer Entitlements held in CREST are expected to be disabled in all respects after 11.00 a.m. on 7 March 2014 (the latest date for applications under the Open Offer). If the conditions to the Open Offer described above are satisfied, New Ordinary Shares will be issued in uncertificated form to those persons who submitted a valid application for New Ordinary Shares by utilising the CREST application procedures and whose applications have been accepted by the Company on the day on which such conditions are satisfied (expected to be 12 March 2014). On this day, Capita Asset Services will instruct Euroclear to credit the appropriate stock accounts of such persons with such persons, entitlement to New Ordinary Shares with effect from Admission (expected to be 12 March 2014).
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159 of 179 The stock accounts to be credited will be accounts under the same Participant IDs and Member Account IDs in respect of which the USE instruction was given.
Notwithstanding any other provision of this document, the Company reserves the right to send Qualifying CREST Shareholders an Application Form instead of crediting the relevant stock account with Open Offer Entitlements and Excess Open Offer Entitlements, and to allot and/or issue any New Ordinary Shares in certificated form. In normal circumstances, this right is only likely to be exercised in the event of any interruption, failure or breakdown of CREST (or of any part of CREST), or on the part of the facilities and/or systems operated by Capita Registrars in connection with CREST.
For Qualifying non-CREST Shareholders who have applied by using an Application Form, definitive share certificates in respect of the New Ordinary Shares validly applied for are expected to be despatched by post within seven days of Admission. No temporary documents of title will be issued and, pending the issue of definitive certificates, transfers of the New Ordinary Shares by Qualifying non-CREST (certificated) Shareholders will be certified against the share register. All documents or remittances sent by or to applicants, or as they may direct, will be sent through the post at their own risk. For more information as to the procedure for application, Qualifying non-CREST (certificated) Shareholders are referred to the Application Form.
Qualifying CREST Shareholders should note that they will be sent no confirmation of the credit of the New Ordinary Shares to their CREST stock account nor any other written communication by the Company in respect of the issue of the New Ordinary Shares.
The completion and results of the Firm Placing and Placing and Open Offer will be announced and made Annex III para 5.1.9 public through an announcement on a Regulatory Information Service as soon as possible after the results are known on 7 March 2014.
The terms and conditions of the Open Offer as set out in this document, the Application Form and any non-contractual obligation related thereto shall be governed by, and construed in accordance with, English law. The courts of England and Wales are to have exclusive jurisdiction to settle any dispute which may arise out of, or in connection with, the Open Offer, this document or the Application Form (including, without limitation, disputes relating to any non-contractual obligations arising out of or in connection with the Open Offer, this document or the Application Form). By taking up the Open Offer Shares, in accordance with the instructions set out in this document and, where applicable, the Application Form, Qualifying Shareholders irrevocably submit to the jurisdiction of the English courts (including, without limitation, in relation to disputes relating to any non-contractual obligations arising out of or in connection with the Open Offer, this document or the Application Form) and waive any objection to proceedings in any such court on the ground of venue or on the ground that proceedings have been brought in an inconvenient forum.
10. Other Information Your attention is drawn to the letter from your Chairman which is set out in Part 1 of this document and to the further information set out in Parts 2 to 7 of this document and also, where relevant, to the terms, conditions and other information printed on the accompanying Application Form.
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160 of 179 PART 3
INFORMATION ON FLYBE GROUP PLC
Investors are advised to read the whole of this document and not rely on only part of it. In particular, investors are advised to consult the Glossary at the end of this document, which sets out the definitions of certain technical terms. The Directors confirm that, where information in this document has been sourced from a third party, this information has been accurately reproduced and, as far as they are aware and are able to ascertain from information prepared by that third party, no facts have been omitted which would render the reproduced information inaccurate or misleading.
1. Introduction Flybe is headquartered in Exeter, Devon, and has two reporting segments. a. Flybe UK comprises: ● UK-based airline providing scheduled passenger regional airline services on a UK domestic and UK to Europe route network, together with charter and cargo transport services; ● white label services provider to other airlines, providing crew under contract on maintained and insured aircraft belonging to Flybe but operated on behalf of a third party airline; ● a maintenance, repair and overhaul (‘MRO’) facility for both Flybe and third party customers; and ● a training academy providing pilot, crew, engineering and other training services to Flybe and third parties.
There are 70 aircraft (with five aircraft due to be returned to lessors between February and May 2014) operating in Flybe’s scheduled flying segment, providing scheduled services to UK (including the Channel Islands and the Isle of Man) and continental European destinations. b. Flybe Finland, a joint venture with Finnair Oyj (“Finnair”), which operates 28 aircraft and provides both a white label service for Finnair and scheduled services in its own right from its base in Helsinki. Flybe Finland, through Flybe Nordic AB, is 60 per cent. owned by Flybe and 40 per cent. owned by Finnair.
The Group employs 2,664 full time equivalents across all of its operations and provides a conveniently timed, high frequency flight schedule from accessible regional airports, which is targeted at a core customer base of business and other repeat passengers.
2. History of the Group Flybe started operations in 1979 as Jersey European Airways. It was acquired in 1983 by C. Walker & Sons Annex I para 5.1.5 Limited, the parent company of a Blackpool-based charter airline named Spacegrand Aviation. The two airlines were run separately, with partially shared management, until their amalgamation in 1985 under the “Jersey European” name. The airline was renamed British European Airways in 2000.
In 2002, the Group was faced with the choice of continuing to operate at a loss, closing its operations or developing a new strategic direction. It was decided that the Group should be re-focused as a European regional airline which retained certain elements of its existing legacy airline business model and adopted other elements of the European low cost carrier model to take advantage of what the directors at the time saw as an opportunity to create a distinct market niche. In July 2002, the airline was re-launched with this new “hybrid” business model as Flybe.
In March 2007, Flybe acquired BA Connect, a subsidiary of British Airways and a business of similar size to the Group as it was then. Prior to the transaction, BA Connect had recorded substantial losses due, amongst other things, to its legacy airline business model, its older more inefficient fleet and historical working and commercial practices. Flybe moved quickly to integrate BA Connect into the Group and its business model and in the 12 months following the completion of the acquisition the Group achieved significant savings and synergies across the former BA Connect business. The acquisition provided the Group with an additional established route network, a well-trained workforce, an increase in its overall fleet size, and access to established, slot constrained, business destinations in Europe as well as to certain
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161 of 179 medium route density destinations in the UK. Through the BA Connect acquisition, Flybe acquired additional landing slots at slot constrained airports such as London Gatwick, Paris Charles De Gaulle, Düsseldorf International and Frankfurt am Main.
The Group was listed on the Official List and its shares admitted to trading on the Main Market of the London Stock Exchange in 2010, raising £60 million as part of the IPO process.
On 18 August 2011, Flybe entered into a joint venture arrangement with Finnair to acquire Finncomm, a Finnish regional airline (subsequently renamed Flybe Finland), with Flybe’s share of consideration, including expenses, being £19.1 million. The 16 aircraft in operation at the time were acquired on leases and utilised on a mix of commercial and white label flying. The Group owns, through Flybe Nordic AB, 60 per cent. of Flybe Finland with Finnair owning the remaining 40 per cent. On 28 October 2012, a further 12 leased aircraft were acquired from Finnair, all of which are operated on white label flying, bringing the total number of aircraft deployed in the joint venture to 28.
In January 2013, following a significant decline in financial performance in prior years, the Group announced its intentions to embark on a turnaround strategy and set out a plan to return the Group to profitability in the 2013/14 Financial Year. In May 2013, the Group released an update on the progress of this turnaround plan together with details of additional cost savings targets and cash generative projects. Key elements of the update included:
● An agreement by the Group to transfer all of its pairs of arrival and departure slots at London Gatwick Airport to a subsidiary of easyJet PLC for a gross consideration of £20.0 million; ● An agreement with Embraer to defer 16 new E175 aircraft due for delivery during 2014 and 2015. These aircraft will now not be delivered until 2017 to 2019. This deferral led to a reduction in pre-delivery payment commitments in the winter of the 2013/14 Financial Year of £20.0 million; and ● An announcement that the cost savings involved in the turnaround would deliver a benefit of £30 million in its initial phase, being early to mid 2013 (“Phase 1”), and that Phase 1 would be complemented by a further phase in the winter of the 2013/14 Financial Year with an additional £10 million of savings being targeted (“Phase 2”). In August 2013, the Group introduced management changes and split the roles of Chairman and Chief Executive Officer, appointing Saad Hammad to be the new Chief Executive Officer. Simon Laffin was appointed non-executive Chairman in November 2013, replacing Jim French who had previously held both roles.
It was also announced in August 2013 that Andrew Knuckey, Chief Financial Officer since 2007, had decided to step down from the Board and leave the Company as soon as a successor can be appointed and a suitable handover has been completed. The search for his successor is continuing and an announcement will be made in due course.
3. Information on the Group Flybe operates scheduled and white label (or contract flying) services in Europe and provides maintenance, Annex I para 6.1.1 repair and overhaul (“MRO”) and training services, primarily to the airline industry. The Group’s schedule for the 2014 Summer Season comprises 164 routes between 35 UK and 48 European airports across 15 countries. The Group now operates as one business operating through two reporting segments:
● Flybe UK – comprises all of the Group’s scheduled UK-based services and passenger operations. The core activities of the division comprise the provision of scheduled airline services, both within the UK and from the UK to continental Europe, on both commercial and white label flying operations. It also includes the Group’s MRO and Flybe Training Academy businesses, supporting Flybe’s UK and continental European activities and serving third-party customers. ● Flybe Finland – comprises all of the Group’s Finnish-based white label and scheduled services and passenger operations. The core activities of the division comprise the provision of contract flying airline services to the joint venture partner, Finnair. The Group is headquartered in Exeter and the Group’s shares are listed on the Premium Segment of the Official List and admitted to trading on the Main Market of the London Stock Exchange. As at the close of
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162 of 179 business on 19 February 2014 (being the latest practicable date prior to the publication of this document), its market capitalisation was £89.1 million.
The Group’s revenue for the year ended 31 March 2013 was £614.3 million, Adjusted EBITDAR Before Restructuring was £63.8 million and Adjusted Loss Before Restructuring Costs was £32.7 million. As at 31 March 2013, the Group had net assets of £48.1 million and gross assets of £405.8 million. During the year ended 31 March 2013, the Group’s average number of employees was 2,667. In the six months ending 30 September 2013, the Group’s revenue was £351.1 million and Adjusted EBITDAR Before Restructuring was £61.3 million. As at 30 September 2013, the Group had net assets of £50.6 million and gross assets of £388.3 million.
4. Strategy and prospects Upon joining Flybe, Saad Hammad initiated a full strategic review of the Group’s operations. As a result of Annex I para 6.1.2; that review, the Board believes that Flybe will achieve a sustainable competitive position in the European para 6.5; para 12.1; regional airline sector, based on; para 12.2
1. Flybe developing an efficient operation, using regional aircraft that can operate profitably on ‘thinner’ regional routes, being routes with less than 400,000 passengers per annum;
2. Flybe offering a high frequency operation at smaller, more convenient regional airports serving local business and leisure passengers and accessing international hubs; and
3. Flybe providing a professional and personal service to all customers, with reliable on time performance.
The Directors intend for Flybe to become Europe’s best local airline with sustainable competitive postioning, delivering regional connectivity through two main business activities:
(a) a regional branded airline, providing scheduled services connecting passengers travelling in the regions, both on business and visiting friends and relatives, to each other and to international carriers at metropolitan airports; and
(b) a regional “white label” provider, where Flybe provides crew under contract on a maintained and insured aircraft belonging to Flybe but operated on behalf of a third party airline (as it currently does for Finnair in Finland and Brussels Airlines in Belgium).
The Director’s believe Flybe has developed expertise and specialist skills in operating a regional branded airline alongside a regional white label operation, with the synergies between the two business activities driving economies of scale in both buying and operations. In addition, the two business activities complement each other in both earnings and risk profile. The regional branded airline’s operations are both higher margin and higher risk (due to the exposure to passenger demand, fuel costs and foreign exchange rates), with the white label business’s operations lower margin and lower risk due to income generated under contracts for the provision of the white label service.
Saad Hammad’s review identified a number of actions necessary to improve further the efficiency and profitability of the Group. Further to the review, the Board has now identified a three stage strategic programme: 1. Take immediate action – aimed at returning the Group to profitable operations, including the removal or rationalisation of unprofitable routes and bases, adjusting the fleet mix, further cost reductions and improved commercialisation; 2. Build resilience – strengthen the balance sheet to put the Group on a firm foundation for the future and deploy capital more effectively; and 3. Target profitable growth – implementing the Group’s plans for a profitable growth strategy in both Flybe-branded scheduled flying and white label operations, whilst enhancing service to customers in branded flying.
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163 of 179 Each of these three stages is outlined in detail below.
1. Take immediate action On 11 November 2013 Flybe announced that the company would implement the Immediate Actions on top of those being implemented in Phase 1 and Phase 2 of the Turnaround Plan to ensure a solid platform for profitable growth. These further initiatives cover both Flybe’s UK scheduled flying operations and its Finnish joint venture.
Within the UK, the Immediate Actions involved the following elements: (a) Optimise the Group’s configuration: (i) establish a simplified integrated management structure and organisation (“One Flybe”); (ii) rationalise the route network by eliminating unprofitable routes and exiting smaller, inefficient bases; (iii) review the fleet mix to determine whether the aircraft types used are appropriate for the Group’s operations, and establish long-term replacements for the existing fleet; (iv) remove surplus aircraft capacity by divesting of surplus aircraft as market conditions allow; (v) improve aircraft and crew utilisation by concentrating aircraft at fewer bases, thereby enabling a reduction in the number of crew sets per aircraft to be achieved and an increase in flight hours per day per aircraft; (vi) implement further cost reductions through redundancy of approximately a further 500 employees, rationalisation of suppliers and contract re-negotiations; and (vii) engage with key suppliers to improve cost arrangements.
(b) Improve commercialisation: (i) filling critical management gaps within Flybe’s commercial team. This included the recruitment of key executives such as Paul Simmons as Chief Commercial Officer, Ronnie Matheson as Director of Revenue Management and Ben Burge as Director of Network, and the internal appointment of Fred Kochak as Director of Route Performance; (ii) optimise pricing and revenue management through changes to the pricing architecture, with more competitive and coherent lead-in fares and price development as the date of departure nears, and improved revenue management rules to drive load factors at optimum yields at an individual flight level; (iii) refocus network development by developing the network planning and review process and by focusing on where the Flybe operating model operates most effectively, such as short routes with passenger volumes of under 400,000 per annum or into airports where size or other features exist that benefit Flybe’s operations; (iv) drive route management improvements through changes to the weekly review process, the management and identification of under-performing routes as well as the development of new opportunities arising from redeploying activity onto other routes; (v) improve the impact of marketing initiatives both in terms of unique visitor generation to the Flybe website (currently circa. 70 per cent. of revenue) and volumes from third party channels as well as driving unique visitor conversion into bookings; and (vi) develop further trading partnerships with other airlines and aviation partners, not only to develop new airline code-sharing agreements to enhance the spread of destinations offered to Flybe customers, but also to engage with airports and other partners to enhance customer experience at optimized cost. In addition, the Directors intend to improve the profitability of the Group’s joint venture with Finnair by: (a) further enhancing cost and operational efficiency in white label flying; and (b) reducing the number of aircraft deployed on loss-making flying operations.
The Directors believe that the Immediate Actions in the UK will deliver further cost benefits of approximately £7 million in the 2013/14 Financial Year and £26 million in the 2014/15 Financial Year, with around 450
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164 of 179 anticipated redundancies (reduced from an anticipated 500 redundancies due to mitigating actions taken by the Company)‚ and estimated one-off and surplus capacity costs of approximately £14 million in the 2013/14 Financial Year plus a further approximate £27 million in the 2014/15 Financial Year. Taking into account the Group’s announcements in January and May 2013 of anticipated redundancies of 300 and 290 respectively, these additional 450 anticipated redundancies would combine to take anticipated redundancies under the Turnaround Plan and Immediate Actions to 1,040.
2. Build resilience
Strengthen the balance sheet The Directors believe that the Group will significantly benefit from a strengthening of its balance sheet, improving operational flexibility and providing additional cash reserves to enable the Group to protect itself from unforeseen disruptions or occurrences. A stronger liquidity position is expected by the Directors to assist additionally in securing better credit terms from a number of suppliers. In addition, the Directors are aware that the CAA recommends that existing licence holders have financial resources in excess of three months of the future operating costs of the business. The Directors believe that maintaining a seasonal minimum of the equivalent of 10 weeks’ operating costs in unrestricted cash, cash equivalents or highly liquid short term investments will give significant resilience to the Group.
3. Target profitable growth The Directors believe that Flybe can achieve profitable growth in both branded and white label operations. In addition, the Directors believe that enhanced customer service in Flybe’s branded operations is needed to drive profitable growth: a. Reduce fleet ownership costs The Directors intend to deploy capital to own aircraft with secured loans rather than full operating leases, thereby rebalancing Flybe’s fleet financing structure towards ownership rather than operating leases. The former typically provides a cheaper form of ownership, but requires an equity stake to be held, typically being 20 to 30 per cent. of the value of the aircraft. Currently, 87.1 per cent. of the fleet is financed through operating leases, which is sub-optimal versus Flybe’s peers. The Directors believe that deploying capital in this manner will deliver an estimated return on equity investment of between 15 and 18 per cent. b. Improved productivity The Directors believe that increased investment in improvements to the Group’s IT and finance functions will result in greater robustness in infrastructure, cost savings and improved efficiencies within 6 to 12 months. c. Expansion of Flybe-branded scheduled operations The Directors believe that the expansion of Flybe-branded scheduled operations will primarily involve the development of new routes and bases within the UK within a 12 to 24 month period. Following completion of the route rationalisation strategy being carried out as described within the Immediate Actions, the Directors intend for the Group to create a number of new routes in the next two years and will work with a number of regional airports, such as Manchester, to develop their capacity as domestic and internationals hubs. As part of this progressive route expansion, the Directors have identified nine routes from the New Route Planning Selection Model that has been adopted by the Group. The Directors believe that an additional 10 aircraft will be required in order to service these identified routes, which they plan to fund at a 75 per cent. loan to value ratio, thereby requiring approximately £35 million of equity financing and £103 million of debt financing. The Directors expect this planned funding structuring to be operating cash flow positive (after loan amortisation and setup costs) after year one of the funding structure. The Directors believe that “thinner” regional routes are unattractive for full service airlines and European LLCs. New route development will prioritise domestic routes in the UK between poorly connected catchment areas as well as the building of service density to European destinations which the Directors believe are underserved by current carriers and where the Directors believe that Flybe can maximise its competitive advantage of smaller aircraft that can operate from airports that have relatively short runways. In addition, Flybe’s aircraft and infrastructure are well suited to short sectors, with 79 per cent. of Flybe’s routes on sectors less than 350 miles in distance.
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165 of 179 The Group is also looking at opportunities to develop new bases in the UK and Europe within a one to two year time frame. The Directors are currently evaluating these opportunities and will announce their intentions in this area once commercial evaluations and negotiations with the relevant airports have progressed. d. Expansion of white label operations Flybe’s joint venture with Finnair, Flybe Finland, moved to profitability in H1 2013/14. Flybe Finland operates 22 of its 28 aircraft on profitable contract flying operations, which balance Flybe Finland’s activity in scheduled flying. The Directors believe that there are other opportunities to roll out Flybe’s white label offering, and have identified a number of national airlines in Europe for whom white label flying could be attractive, and are in ongoing commercial discussions with several of these airlines. The Board believes there is an initial requirement for six additional aircraft in order to service white label opportunities, which they plan to fund at a 75 per cent. loan to value ratio, thereby requiring approximately £23 million of equity financing and £62 million of debt financing. The Directors expect this planned funding structure to be operating cash flow positive (after loan amortisation and setup costs) after year one of the funding structure, with setup costs paid back in year two. The Directors anticipate that capital commitments would only be made by the Group after contracts have been signed. The Directors believe that Flybe needs financial strength in order to be seen as a credible player in the white label market. e. Enhanced service to customers The Directors believe that, in its branded operations, the Flybe customer offering, product range and brand impact need to be developed further. With improved marketing, the Directors intend to increase the number of visitors to the Group’s website and enhance conversion rates by: ● an improved customer proposition that enhances the brand promise and identity. The Directors intend that this will be communicated through new creative copy, backed by increased media spending; and ● improvements in the product that will mark the Flybe experience as different to others. The Directors intend that this will include a simplified offering, rationalised pricing, an improved website, sustained focus on on-time performance and a relaunched customer loyalty programme, focusing on more frequent passengers with a view to increasing their use of Flybe further through improved rewards and benefits and by having reciprocal earning and spending agreements with partner airlines.
The Directors anticipate that the enhanced services to customers will be in place over the next 12 months.
5. Selected financial information The following table sets out certain summary financial information in respect of the Group in the six-month Annex I para 3.1 periods ended 30 September 2013 and 2012 and the financial years ended 31 March 2013, 2012 and para 3.2 2011: H1 H1 2011/12 2013/14 2012/13 2012/13 (restated) 2010/11 £m £m £m £m £m Group revenue 351.1 340.8 614.3 615.3 595.5 Revenue under management 477.3 396.3 781.5 678.8 595.5 EBITDAR(1) 58.0 44.6 55.8 85.8 87.2 Adjusted EBITDAR(2) 61.3 44.6 63.8 85.8 113.8 Operating profit/(loss) before restructuring and IPO costs, unrealised gains and losses on fuel and foreign exchange hedges and revaluation on USD aircraft loans 12.2 (1.0) (26.3) (4.9) 7.6 Profit/(loss) before tax 13.8 (1.6) (40.7) (6.2) (4.3)
Source: Annual and half-year accounts, unaudited management information (1) EBITDAR is defined as the profit or loss before tax after adding back net finance costs, taxation, depreciation, amortisation and aircraft rental costs. (2) Adjusted EBITDAR removes restructuring costs, IPO costs, unrealised gains and losses on fuel and foreign exchange hedges and estimated impact of disruption from volcanic ash and weather as reported in the income statement.
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166 of 179 The table below reconciles operating profit/(loss) to operating profit/(loss) before restructuring and IPO costs, unrealised gains and losses on fuel and foreign exchange hedges and revaluation on USD aircraft loans for the period under review: H1 H1 2011/12 2013/14 2012/13 2012/13 (restated) 2010/11 £m £m £m £m £m Operating profit/(loss) 8.9 (1.0) (34.3) (4.9) (0.9) Restructuring costs 3.3 – 8.0 – – IPO costs – – – – 1.7 Unrealised losses on fuel and foreign exchange hedges – – – – 6.8 –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– Operating profit/(loss) before restructuring and IPO costs, unrealised gains and losses on fuel and foreign exchange hedges and revaluation on USD aircraft loans 12.2 (1.0) (26.3) (4.9) 7.6 –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– Source: Annual and half-year accounts EBITDAR is defined as the profit or loss before tax after adding back net finance costs, taxation, depreciation, amortisation and aircraft rental costs. All EBITDAR metrics are non-GAAP measures. EBITDAR is a common airline profit measure which is used for making comparisons between airlines. Adjusted EBITDAR removes restructuring costs, IPO costs, unrealised gains and losses on fuel and foreign exchange hedges and the estimated impact of disruption from volcanic ash and weather as reported in the income statement. Non-GAAP measures exclude amounts that are included in the most directly comparable measure calculated and presented in accordance with IFRS, or are calculated using financial measures that are not calculated in accordance with IFRS. The non-GAAP measures are not regarded as a substitute for, or to be superior to, the equivalent measures calculated and presented in accordance with IFRS or those calculated using financial measures that are calculated in accordance with IFRS. The non- GAAP measures described may not be directly comparable with similarly-titled measures used by other companies.
The table below reconciles operating profit to EBITDAR and adjusted EBITDAR for the period under review:
H1 H1 2011/12 2013/14 2012/13 2012/13 (restated) 2010/11 £m £m £m £m £m Operating profit/(loss) 8.9 (1.0) (34.3) (4.9) (0.9) –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– Depreciation and amortisation 6.9 6.9 12.0 13.1 10.7 Aircraft rental charges 42.2 38.7 78.1 77.6 77.4 –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– EBITDAR(3) 58.0 44.6 55.8 85.8 87.2 IPO costs – – – – 1.7 Estimated impact of disruption from volcanic ash and weather – – – – 18.1 Unrealised losses on fuel and foreign exchange hedges – – – – 6.8 Restructuring costs 3.3 – 8.0 – – –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– Adjusted EBITDAR(4) 61.3 44.6 63.8 85.8 113.8 –––––––––––– –––––––––––– –––––––––––– –––––––––––– ––––––––––––
Source: Annual and half-year accounts (3) See footnote 1 above. (4) See footnote 2 above.
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167 of 179 Unaudited financial information for Q3 2013/14 Annex I para 20.6.1 Flybe KPIs (including Flybe Finland) Quarter to Quarter to 31 December 31 December Change 2013 2012 % Revenue Passenger revenue (£m) 137.4 136.9 0.4 Contract flying revenue (£m) 56.2 46.1 21.9 Revenue from other activities (£m) 9.9 10.9 (9.2) –––––––––––– –––––––––––– –––––––––––– Total revenue under management (£m) 203.5 193.9 5.0 –––––––––––– –––––––––––– ––––––––––––
Flybe UK UK Airline comprises Flybe’s UK domestic and UK to European airline operations.
KPIs Quarter to Quarter to 31 December 31 December Change 2013 2012 % Seats and passengers Scheduled seats (million) 2.69 2.74 (1.8) Passengers (million) 1.90 1.74 9.2 Load factor (%) 70.8% 63.7% 7.1 ppts –––––––––––– –––––––––––– –––––––––––– Revenue Passenger revenue (£m) 130.3 129.8 0.4 Contract flying revenue (£m) 4.0 3.9 2.6 Revenue from other activities (£m) 3.3 3.4 (2.9) –––––––––––– –––––––––––– –––––––––––– Total UK Airline revenue (£m) 137.6 137.1 0.4 –––––––––––– –––––––––––– –––––––––––– Yield Passenger yield (£) 68.42 74.44 (8.1) –––––––––––– –––––––––––– –––––––––––– Passenger revenue per seat (£) 48.46 47.39 2.3 –––––––––––– –––––––––––– –––––––––––– Revenue Scheduled seats flown in the period were 2.69 million, down 1.8 per cent. on Q3 2012/13.
Passenger revenues of £130.3 million were marginally higher than the prior year.
Passenger revenue per seat improved by 2.3 per cent. to £48.46: ● Passenger numbers in Q3 2013/14 were 1.90 million, 9.2 per cent. higher than in Q3 2012/13, with average load factor increasing by 7.1 ppts to 70.8 per cent; ● Passenger yield decreased by 8.1 per cent to £68.42 primarily as a result of the decision by the Directors to stimulate demand and improve load factor, as outlined in Part 1 of this document.
Contract flying revenue was £4.0 million in relation to four aircraft operating on a Brussels Airlines contract flying agreement. Two of these aircraft are contracted to exit this agreement in April 2014 and the remaining two in October 2014.
Revenue from other activities in Q3 2013/14 was in line with Q3 2012/13 at £3.3 million.
Costs Flybe UK’s costs per operated seat for Q3 2013/14 (excluding fuel and restructuring costs) decreased by 5.2 per cent. to £41.58.
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168 of 179 On a constant currency basis, Flybe UK’s costs per operated seat for Q3 2013/14 (excluding fuel and restructuring costs) decreased by 6.0 per cent. to £41.58.
Hedging Flybe UK’s current hedge books are summarised below (all hedges are forward swaps):
Jet fuel: ● Q4 2013/14 – 76 per cent. hedged at $990 per tonne; ● H1 2014/15 – 76 per cent. hedged at $959 per tonne; ● H2 2014/15 – 32 per cent. hedged at $969 per tonne;
US Dollar: ● Q4 2013/14 – 73 per cent. hedged at $1.54; ● H1 2014/15 – 68 per cent. hedged at $1.53; ● H2 2014/15 – 25 per cent. hedged at $1.62;
Carbon: ● Calendar year 2013 – 89 per cent. hedged at €3.73 per tonne; and ● Calendar year 2014 – 82 per cent. hedged at €4.37 per tonne.
Flybe UK currently has a broadly neutral position in Euro income and expenditure.
Market share Flybe’s share of the UK regional domestic air passenger sector in Q3 2013/14 was 49.6 per cent. (Q3 2012/13: 48.4 per cent).
Total UK domestic market share of Flybe in the same period was 25.9 per cent. (Q3 2012/13: 25.8 per cent.).
Flybe Finland KPIs Quarter to Quarter to 31 December 31 December Change 2013 2012 % Revenue Passenger revenue (£m) 7.1 7.1 – Contract flying revenue (£m) 52.2 42.2 23.7 Other revenue (£m) 1.3 1.4 (7.1) –––––––––––– –––––––––––– –––––––––––– Total Flybe Europe revenue (£m) 60.6 50.7 19.5 –––––––––––– –––––––––––– –––––––––––– Yield Passenger yield (£) 84.06 81.01 3.8 –––––––––––– –––––––––––– ––––––––––––
Passenger revenue per seat (£) 36.89 33.82 9.1 –––––––––––– –––––––––––– ––––––––––––
The 23.7 per cent. increase in revenues from contract flying to £52.2 million has been driven by the commencement on 28 October 2012 of an additional 12 E190 aircraft on contract flying for Finnair.
Fleet Deliveries In Flybe UK, two new 88-seat Embraer E175 regional jets were delivered in Q3 2013/14 – one financed on an operating lease basis and the other debt financed.
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169 of 179 Current fleet As at 31 December 2013, Flybe’s aircraft fleet under management is as follows:
Owned with debt Number finance or Operating of seats finance lease lease Total UK Airline Bombardier Q400 turboprop 78 2 43 45 Embraer E175 regional jet 88 7 4 11 Embraer E195 regional jet 118 – 14 14 –––––––––––– –––––––––––– –––––––––––– 9 61 70 –––––––––––– –––––––––––– –––––––––––– Flybe Finland ATR 42 turboprop 48 – 2 2 ATR 72 turboprop 68-72 – 12 12 Embraer E170 regional jet 76 – 2 2 Embraer E190 regional jet 100 – 12 12 – 28 28 –––––––––––– –––––––––––– –––––––––––– Total 9 89 98 –––––––––––– –––––––––––– ––––––––––––
Of the total fleet of 98 aircraft, 26 are being deployed on contract flying for Finnair and Brussels Airlines. The average age of Flybe’s fleet is 5.6 years.
Current trading Flybe UK’s current forward passenger sales revenue is as follows: ● Q4 2013/14 shows an increase over Q4 2012/13 of approximately 3 per cent. driven by an increase in passenger volumes partially offset by lower yields; and ● Forward sales for the 2014 Summer Season are currently broadly in line with the 2013 Summer Season.
6. Directors and Senior Management
The Board The Company has a board of directors headed by an Independent Non-Executive Chairman with Annex I para 14.1 management led by a Chief Executive. The Board comprises a Non-Executive Chairman, three Non-Executive Directors and two Executive Directors as set out below:
Simon Laffin Independent Non-Executive Chairman Saad Hammad Chief Executive Officer Andrew Knuckey Chief Financial Officer Charlie Scott Deputy Chairman, Senior Independent Non-Executive Director Alan Smith Independent Non-Executive Director David Longbottom Independent Non-Executive Director
Saad Hammad, Chief Executive Officer Saad Hammad joined Flybe as Chief Executive Officer on 1 August 2013. He has considerable airline experience having been Chief Commercial Officer of easyJet plc from 2005 to 2009. Mr Hammad was a non-executive Director of Air Berlin plc and has also held senior executive roles at The Gores Group, Procter & Gamble, Thorn-EMI, Vision Express, Minit Group and Tibbett & Britten.
Andrew Knuckey, Chief Financial Officer Andrew Knuckey joined Flybe in 2005, having previously had a 24 year career with KPMG LLP, latterly as a partner in audit and transaction services. Mr Knuckey played a key role in the successful acquisition and integration of BA Connect, following which he was appointed as Chief Financial Officer at Flybe in April
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170 of 179 2007. As Chief Financial Officer, he helped deliver the IPO on the London Stock Exchange in 2010 and, more recently, the design and implementation of Flybe’s Turnaround Plan. Mr Knuckey has informed the Flybe Board of his intention to stand down as Chief Financial Officer and leave the Company once a successor has been appointed and a suitable handover period completed.
Simon Laffin, Independent Non-Executive Chairman Simon Laffin was appointed to the Flybe board as Independent Non-Executive Chairman in November 2013. Mr Laffin is Chairman of Assura Group Limited, Chairman of the audit committee at Quintain Estates & Development PLC and an adviser to Dentsu Inc. Previously he was Group Finance and Property Director at Safeway plc between 1994 and 2004 and has served as a non-executive Director at Aegis Group Plc, Mitchells & Butlers plc and Northern Rock plc (as part of the rescue team), an adviser to CVC Capital Partners, and Chairman of Hozelock Group. Mr Laffin chairs Flybe’s nominations committee.
Charlie Scott, Deputy Chairman, Senior Independent Non-Executive Director Charlie Scott was formerly chairman of William Hill plc from 2004 until 2010. He is a chartered accountant and was previously Chief Executive Officer at Saatchi & Saatchi plc and chairman of Cordiant plc. Mr Scott has held other non-executive positions, including with airport group TBI plc. Mr Scott chairs Flybe’s audit committee.
Alan Smith, Independent Non-Executive Director Alan Smith is currently chairman of Fisher Leisure Holdings Limited. His career has included being managing director of Superdrug Stores plc, B&Q plc and The Victoria Wine Company Limited before working for the Boddington Group Limited as group managing director. In 1996, Mr Smith moved to Evans Halshaw Holdings plc as group chief executive before becoming chief executive of Somerfield plc from 2000 until 2002. Mr Smith chairs Flybe’s safety and security review committee.
David Longbottom, Independent Non-Executive Director David Longbottom is currently pro-chancellor and chairman of the board of governors of London South Bank University. He is also chairman of Horton International (UK) Limited, an executive search firm. Mr Longbottom was formerly the senior independent director of Luminar Leisure plc and a director of DSG International plc, and held a number of senior positions within the Dixons Group plc after joining in 1987 (including group human resources director). Previously, Mr Longbottom worked with British Gas plc, Courtaulds plc and Lloyds of London. Mr Longbottom chairs Flybe’s remuneration committee.
Senior Management Paul Simmons, Chief Commercial Officer Paul Simmons joined Flybe in September 2013 from easyJet where, for the last five years, he led their team in the UK as Director, UK Market. Prior to easyJet Mr Simmons held senior commercial positions at Oberoi Hotels Group (EVP – Sales & Marketing) and IHG (Global VP, InterContinental Brand) and a variety of marketing roles at Procter & Gamble, S.C. Johnson, Helene Curtis/Unilever and Kelloggs.
Chris Simpson, Company Secretary Chris Simpson qualified as a chartered accountant in Scotland before moving into the airline industry in 1985 where he has served as finance director and company secretary of several airlines. Between 2003 and 2007 Mr Simpson was Chief Financial Officer of Flybe, and was appointed as Company Secretary in 2010. Mr Simpson has resigned and will leave the Company on 7 March 2014.
John Palmer, Director of Operations John Palmer joined Flybe in 2006 as Director of Aviation Services and previously held senior management roles in British Airways, Virgin Atlantic and Zurich Financial Services. He was promoted to Director of Airline Operations and Deputy COO in 2009 before becoming, in 2011, Managing Director, Flybe Aviation Support. Appointed as Director of Operations in August 2013, Mr Palmer is now responsible for all aspects of the Flybe’s operations.
Simon Charles, Director of Human Resources and Health and Safety Simon Charles joined Flybe in January 2007 from RHM Plc where he was group director of organisation and people development and part of the management team involved in the initial public offering of shares
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171 of 179 in RHM plc. He has spent 25 years in human resources within significant companies having been European HR director at Quaker Inc. and held management positions with PricewaterhouseCoopers, Pepsico Inc. and Unilever plc.
Matt Bennett, Director of Internal Audit and Special Projects Matt Bennett, a Chartered Accountant, joined Flybe in January 2012, as the Director of Internal Audit and Risk to set up Company’s first Internal Audit Function. Mr Bennett has commercial auditing experience having led the audit function for four years at the Rank Group PLC, and more recently for six years in a joint Director of Financial Control and Audit role for Sony Computer Entertainment (Sony PlayStation). Mr Bennett reports to the Chief Executive Officer and the audit committee.
Matt Linsey, Acting Head of IT Matt Linsey joined Flybe in December 2003 as Systems Architect to direct the design activities of Flybe’s IT department. Mr Linsey brings 14 years’ experience of IT previously contracting in various sectors including military, education, and e-commerce. He was promoted to Head of IT Services in 2006 and then to Head of IT Development in 2008 before being made Acting Director of IT in October 2013 to oversee all IT delivery and operations for Flybe.
7. Corporate Governance The policy of the Board is to manage the affairs of Flybe to the highest standards of corporate governance and in accordance with the principles of good governance and the code of best practice as set out in the UK Corporate Governance Code (“the Code”). The Board considers that the Company is a “smaller company” for the purposes of the Code which defines this as a company which has been below the FTSE350 throughout the year immediately prior to a reporting year.
Compliance with the Provisions of the UK Corporate Governance Code Flybe is led and controlled by a Board currently consisting of a Non-Executive Chairman, three Annex I para 16.4 Non-Executive Directors and two Executive Directors. The Directors have significant experience of management within the airline industry. There is a clear division of responsibilities between the Chairman and Chief Executive Officer. The Board considers that the Non-Executive Chairman and the Non-Executive Directors are independent of management. The Chairman has no significant external commitments that would impact the performance of his duties and the Board considers that, at the time of his appointment, he met the independence criteria set out in the Code.
The Directors are satisfied that the Company, as at the date of this document, complies with the relevant provisions of the Code.
Board of Directors The Board of Directors (known internally as the “Group Board”) meets seven times per year or more frequently if required. There is a Schedule of Matters Reserved for decision by the Group Board. The Group Board establishes overall Group strategy, including new activities and withdrawal from existing activities. It approves the Group’s commercial strategy and the operating budget and monitors performance through the receipt of monthly management accounts.
The day-to-day management of the operation of the Group’s business is conducted by the “Operating Board” (which is not the Board for fiduciary purposes or the CA 2006), which meets twelve times per year or more frequently if required. The Operating Board currently comprises Mr Bennett, Mr Charles, Mr Hammad, Mr Linsey, Mr Knuckey, Mr Palmer and Mr Simmons.
Finally, each member of the “Operating Board” is also a member of the “Flybe Leadership Team” along with approximately 38 other senior employees of the Group who each report directly (or indirectly) to a member of the Operating Board on a specific area of the Group’s business (for example, marketing, fleet or crew training). The Flybe Leadership Team typically meets formally every two months, but may meet more regularly if appropriate.
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172 of 179 In accordance with the principles laid down in the Code, the Company has established separate audit, remuneration and nomination committees. In addition, the Company also has a safety and security review committee and a mergers and acquisitions committee.
Remuneration committee The remuneration committee comprises four independent Non-Executive Directors of the Company. The Annex I para 16.3 members of the remuneration committee are Mr Longbottom (Chairman), Mr Laffin, Mr Scott and Mr Smith. The committee has Terms of Reference approved, and reviewed regularly, by the Board.
The purpose of the committee is to advise the Board and make recommendations to it about all elements of the remuneration packages of the Executive Directors and other members of senior management as it is designated to consider, including any major changes in employee benefit structures throughout the Group.
The responsibilities of the committee include to:
● determine and agree with the Board the framework or broad policy for the remuneration of the Executive Directors, the Company Secretary and any other members of the executive management that the Board delegates to it ensuring that such policy provides appropriate incentives to encourage enhanced performance and, in a fair and responsible manner, rewards executives for their individual contributions to the success of the Group. When setting policy, have regard to trends across the Company, in other companies and to the provisions of the Code, the Listing Rules and associated guidance;
● determine the total individual remuneration package of the Chief Executive, Executive Directors, and any other members of the executive management that the Board delegates to it including bonuses, incentive payments and share options or other awards;
● approve the design of, and determine targets for, any performance related pay schemes operated by the Group and approving the total annual payments made under such schemes;
● approve the design of all share incentive plans for approval by the Board and shareholders, determine on an annual basis whether awards will be made, and if so the amounts of such awards in total to individuals;
● determine the policy for, and scope of, pension arrangements for each Executive Director and designated senior executives;
● determine the contractual terms on termination and individual termination payments, ensuring that the duty of the individual to mitigate loss is fully recognised;
● be told of, and advise on, any major changes in employee benefit structures in the Group; and
● recommend an annual report for the Board to put to shareholders on the Company’s remuneration policies and practices compliant with relevant legal and regulatory provisions.
The remuneration committee is authorised by the Board to:
● seek any information it requires from any employee or officer of the Group in order to perform its duties;
● be responsible for establishing the selection criteria and then for selecting, appointing and setting the terms of reference for any remuneration consultants providing advice to the remuneration committee, at the Group’s expense; and
● obtain, at the Group’s expense, expert legal or other professional advice where necessary in the course of its activities.
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173 of 179 Audit committee The audit committee comprises three independent Non-Executive Directors of the Company. The members of the audit committee are Mr Scott (chairman), Mr. Laffin and Mr Smith. Mr Scott is a chartered accountant and Mr Laffin is a chartered management accountant. The Board considers that Mr Scott and Mr Laffin have the appropriate recent and relevant experience to enable them to fulfil their role. The audit committee has Terms of Reference approved, and regularly reviewed, by the Board.
The role of the audit committee is to provide formal and transparent arrangements for considering how to apply the financial reporting, risk management and internal control principles set out in the Code, and to maintain an appropriate relationship with the Group’s external auditor. The committee develops and monitors policy on the engagement of the external auditor to supply non-audit services.
The responsibilities of the committee include to:
● monitor the integrity of the Group’s financial statements and formal announcements relating to Flybe’s performance and to review any significant financial reporting issues and/or judgements contained therein;
● keep under review the consistency of, and any changes to, accounting policies both on a year to year basis and across the Group, and challenging where necessary, the Company’s financial statements;
● review, and challenge where necessary, the operating and financial/business review and corporate governance statement insofar as is relates to audit matters or risk management;
● consider management’s response to any major external or internal audit recommendations
● consider applications for the post of Director of Internal Audit and Risk, approving appointments to the post and any dismissal of that post holder; and
● review the effectiveness of the Group’s internal controls and risk management systems
The Group has a clear internal control system, the purpose of which is to safeguard investment in the Group’s assets, which accords with the recommendations of the Financial Reporting Council. Through the audit committee the Board conducts reviews of the effectiveness of the Group’s systems of internal controls, its policies and its systems including its risk management systems. The audit committee considers reports prepared by the Group’s Internal Audit and Risk department and ensures that the annual Internal Audit and Risk plan reflects any material risks in internal control.
The Group employs procedures to ensure the continued independence of the external auditor. The audit committee has responsibility for monitoring and reviewing the external auditor’s objectivity and independence and for ensuring that clear and effective channels are maintained for communication between the external auditor and the Group’s financial and senior management.
The audit committee reviews the scope, results and cost-effectiveness of external audit, and has delegated power from the Board to keep under review the relationship with the external auditors, including the consideration or audit fees and any other fees which are payable to the Company’s external auditors in respect of non-audit matters.
Nomination committee The members of the nomination committee are Mr Laffin (Chairman), Mr Hammad, Mr Longbottom, Mr Scott and Mr Smith. The committee has Terms of Reference approved, and regularly reviewed, by the Board.
The nomination committee regularly reviews the structure, size and composition (including skills, knowledge, experience and diversity) of the Board and makes recommendations to the Board with regard to any adjustments that are deemed necessary.
In addition, the function of the nomination committee includes providing a formal, rigorous and transparent procedure for the appointment of new Directors to the Board.
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174 of 179 In carrying out its duties, the nomination committee is primarily responsible for:
● keeping under review the leadership needs of the organisation, both executive and non-executive, with a view to ensuring the continued ability to compete effectively in the market place;
● identifying and nominating candidates, for the approval of the Board, to fill Board vacancies;
● reviewing the time requirements of Non-Executive Directors; and
● giving full consideration to succession planning for directors and other senior executives taking into account the challenges and opportunities facing the Company and the balance of skills, knowledge, experience and diversity needed on the Board in the future.
Safety and security review committee The members of the safety & security review committee are Mr Smith (chairman), Mr Charles, Mr Palmer and Mr Wayne Jenner, who acts as an independent consultant to Flybe. Mr Jenner has had a career in both aviation and rail safety having, until February 2014, held the post of Director of Engineering at Southeastern Railway. Senior managers from within Flybe, Flybe Finland and Loganair attend meetings of this committee. The committee has terms of reference approved, and regularly reviewed, by the Board.
The purpose of the committee is to establish, review and monitor formal policies and procedures and have oversight of performance in connection with the safe and secure operation of the Group’s business. The committee reports regularly to the Board on matters relating to safety and produces an annual report which is reviewed and formally approved by the Board.
The duties of the safety and security review committee include to:
● review matters concerned with the safe and secure operation (both in the air and on the ground) of any aircraft operated by the Group;
● consider reports on incidents involving any aircraft operated by the Group. In cases involving the Group’s aircraft, the safety and security review committee will ensure that appropriate remedial action is taken and, in any other cases, that appropriate recommendations are made to third parties;
● consider reports of significant incidents concerning safety at airports and in engineering facilities and ensure remedial action or appropriate recommendations are implemented;
● review compliance with health and safety legislation; and
● ensure full attention is given to issues of security and advice received from relevant national agencies and authorities.
8. Employees As at 31 January 2014 (being the latest practicable date before the publication of this document), the Annex I para 17.1 Group had 2,090 permanent employees. The average number of employees employed by the Group during the periods covered by the historical financial information on Flybe contained in this document is as follows:
Year ended Year ended Year ended 31 March 31 March 31 March 2011 2012 2013 Average headcount employed in year (FTEs) 2,786 2,781 2,667
Source: Annual Accounts
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175 of 179 PART 4
FINANCIAL INFORMATION RELATING TO FLYBE GROUP PLC
The following documents, all of which are available on the Company’s website at www.flybe.com, are incorporated into this document by reference.
(a) Flybe’s 2013 Annual Report and Accounts comprising Flybe’s audited consolidated financial Annex I Para 10.5 statements for the year ended 31 March 2013 under IFRS together with relevant notes. The para 20.1, para 20.3 para 20.5.1: independent auditors’ report is on page 61, the consolidated balance sheet as at 31 March 2013 is and para 20.6.1 on page 64, the consolidated income statement for the year ended 31 March 2013 is on page 62, the consolidated statement of comprehensive income and changes in equity is on page 63, the consolidated statement of cash flows is on page 65 and the accounting policies and explanatory notes are on pages 66 to 103;
(b) Flybe’s 2012 Annual Report and Accounts comprising Flybe’s audited consolidated financial statements for the year ended 31 March 2012 under IFRS together with relevant notes. The independent auditors’ report is on page 59, the consolidated balance sheet as at 31 March 2012 is on page 62, the consolidated income statement for the year ended 31 March 2012 is on page 60, the consolidated statement of comprehensive income and changes in equity is on page 61, the consolidated statement of cash flows is on page 63 and the accounting policies and explanatory notes are on pages 64 to 101;
(c) Flybe’s 2011 Annual Report and Accounts comprising Flybe’s audited consolidated financial statements for the year ended 31 March 2011 under IFRS together with relevant notes. The independent auditors’ report is on page 53, the consolidated balance sheet as at 31 March 2011 is on page 56, the consolidated income statement for the year ended 31 March 2011 is on page 54, the consolidated statement of comprehensive income and changes in equity is on page 55, the consolidated statement of cash flows is on page 57 and the accounting policies and explanatory notes are on pages 58 to 95; and
(d) Flybe’s half-year report for the six months ended 30 September 2013 comprising Flybe’s unaudited consolidated financial statements for the six months ended 30 September 2013 under IFRS together with relevant notes. The independent auditors’ review report is on page 20, the consolidated balance sheet as at 30 September 2013 is on page 23, the consolidated statement of comprehensive income for the six months ended 30 September 2013 is on page 21, the consolidated statements of comprehensive income and changes in equity is on page 22, the consolidated statement of cash flows is on page 24 and the accounting policies and explanatory notes are on pages 25 to 31.
Flybe will provide without charge to each person to whom a copy of this document has been delivered, upon the written or oral request of such person, a copy of any documents incorporated by reference in this document except that exhibits to such documents will not be provided unless they are specifically incorporated by reference into this document. Requests for copies of any such documents should be directed to:
Flybe Group plc Jack Walker House Exeter International Airport Exeter Devon EX5 2HL
Attn: Chris Simpson Company Secretary Telephone: 01392 366669
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Information for
Flybe Group plc
Result of firm placing and placing and open offer
177 of 179 THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED IN IT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO AUSTRALIA, CANADA, JAPAN, SOUTH AFRICA OR THE UNITED STATES OR INTO ANY OTHER JURISDICTION WHERE TO DO SO MIGHT CONSTITUTE A VIOLATION OR BREACH OF ANY APPLICABLE LAW. THIS ANNOUNCEMENT, WHICH DOES NOT CONSTITUTE A PROSPECTUS OR DOCUMENT EQUIVALENT TO A PROSPECTUS, IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES AND NEITHER THIS ANNOUNCEMENT NOR ANYTHING HEREIN FORMS THE BASIS FOR ANY CONTRACT OR COMMITMENT WHATSOEVER.
CAPITALISED TERMS USED IN THIS ANNOUNCEMENT HAVE THE MEANINGS GIVEN TO THEM IN THE PROSPECTUS.
Flybe Group plc ('Flybe' or the 'Company')
Result of Firm Placing and Placing and Open Offer
On 20 February 2014, the Board of Directors of Flybe announced details of the Firm Placing and Placing and Open Offer of New Ordinary Shares to raise gross proceeds of approximately £155.65 million through the issue of 91,400,000 Firm Placed Shares and 50,101,920 Open Offer Shares, both at an issue price of 110 pence per New Ordinary Share. The Open Offer Shares pursuant to the Placing were subject to clawback to satisfy valid applications by Qualifying Shareholders pursuant to the Open Offer. The Firm Placed Shares were not subject to clawback and were not part of the Open Offer.
The Open Offer closed for acceptance at 11.00 a.m. on 7 March 2014. The Company announces that it has received valid acceptances in respect of 44,022,567 New Ordinary Shares from Qualifying Shareholders under the Open Offer. This represents approximately 87.9 per cent of the Open Offer Shares offered. Of the valid acceptances received, 38,252,456 New Ordinary Shares were satisfied pursuant to the Open Offer (representing all of the valid acceptances received in relation to Open Offer Entitlements) and 5,770,111 New Ordinary Shares were satisfied pursuant to the Excess Application Facility (all valid applications for Excess Shares were satisfied in full).
The remaining 6,079,353 New Ordinary Shares under the Open Offer, representing approximately 12.1 per cent of the Open Offer Shares, have been allocated to the placees with whom they had been conditionally placed under the terms of the Placing.
The Firm Placing and Placing and Open Offer are conditional, amongst other things, upon Admission occurring at 8:00 a.m. on 12 March 2014 (or such later time and/or date as the Company and Liberum Capital may agree).
Application has been made to the UKLA for the 141,501,920 New Ordinary Shares to be admitted to the premium segment of the Official List and to the London Stock Exchange for the New Ordinary Shares to be admitted to trading on the London Stock Exchange's main market for listed securities. It is expected that Admission will become effective and that dealings in the New Ordinary Shares will commence at 8:00 a.m. on 12 March 2014.
The New Ordinary Shares will rank pari passu in all respects with the Existing Ordinary Shares including the right to receive all dividends and other distributions (if any) declared, paid or made by
178 of 179 Flybe after Admission. The New Ordinary Shares (in uncertificated form) are expected to be credited to CREST accounts on or around 8.00 a.m. on 12 March 2014 and definitive share certificates for the New Ordinary Shares are expected to be despatched to certificated shareholders within seven days of Admission.
This announcement should be read in conjunction with the full text of the prospectus published by Flybe and sent to Shareholders on 20 February 2014 (the 'Prospectus'), copies of which are available on the Company's website at www.flybe.com/corporate/investors. Capitalised terms in this announcement have the same meaning as in the Prospectus.
10 March 2014
Enquiries:
Flybe Tel: +44 20 7457 2020 Saad Hammad, Chief Executive Officer Andrew Knuckey, Chief Financial Officer
Liberum Tel: +44 20 3100 2222 Peter Tracey Richard Crawley Tom Fyson Jamie Richards
Instinctif Partners Tel: +44 20 7457 2020 Mark Garraway Helen Tarbet
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