Dart Group PLC News

Interim Report 2011 - Chairman's Statement

17th November 2011

Chairman’s Statement

I am pleased to report on the performance of the Group’s principal trading companies, Jet2.com, Jet2holidays and Fowler Welch, for the six months ended 30 September 2011.  The Group’s profit before tax was £41.6m, an increase of 8% on last year (2010: £38.7m); turnover was up 31% at £445.7m (2010: £340.4m).  The increase in profitability reflects improved performance in the Jet2holidays operation.  Jet2.com's profit margins declined as a result of cost increases out-stripping revenue growth, in particular jet fuel costs, which increased by 24% per tonne.  EBITDA decreased by 1% to £63.5m (2010: £64.0m). 

Net cash flow from operations of £10.7m was generated in the period (2010: £31.0m).  The reduction over last year reflected, in part, a lower operating margin within Jet2.com.  Total capital expenditure amounted to £10.6m (2010: £35.0m).  The previous year included expenditure on the acquisition of a distribution centre in the North West for Fowler Welch

The Group had an overall cash inflow of £5.1m (2010: outflow £4.2m).  Net cash, including money market deposits, at the end of the period amounted to £97.7m, a £50.0m improvement on 30 September 2010, with Jet2.com customer advance payments of circa £48m (2010: £40m).

Earnings per share has increased to 21.82p from 19.72p.  The Board has decided to pay an increased interim dividend of 0.43p per share (2010: 0.40p), in line with the increased profit performance.  The dividend will be paid on 27 January 2012 to shareholders on the register at 30 December 2011.

Leisure Airline

Jet2.com has grown significantly, with capacity up by 29% in the six months.  In total, revenues rose by 27% to £316m, as a result of increased passenger volumes.  The company flew 3.2m scheduled passengers (2010: 2.4m) in the period, an increase of 32%, with the total number of routes served from all bases rising to 148 (2010: 117).  The growth of Jet2holidays accounted for almost a quarter of the increase in Jet2.com passenger volumes.  Load factors were increased from 87.5% to 89.8%, however net ticket yields decreased from £53.79 to £52.63 as a result of the challenging trading conditions.  This, coupled with rising costs - jet fuel in particular increasing 24% per tonne relative to the same period last year - and a weaker sterling exchange rate, resulted in a reduction in Jet2.com's operating margins.

A new base was established in Glasgow for Summer 2011, and aircraft were also added at Manchester, Newcastle and East Midlands.  The company operates 38 aircraft focusing on its core high volume leisure routes from eight Northern UK bases (Belfast, Blackpool, East Midlands, Edinburgh, Glasgow, Leeds Bradford, Manchester and Newcastle).

Retail revenue per passenger increased 7% to £27.87 during the half year (2010: £25.93) through a continued focus on pre-departure, in-flight and ancillary product sales.   We are also rapidly developing our database driven e-marketing campaigns targeting customers with relevant retail products prior to departure. 

In total, aircraft charter sales were down 16% in the first half of the year.  Activity reduced in the period as a result of both a decision not to operate passenger charter flights during our peak scheduled flying months and the weakness of the charter market in other months.  However, forward charter bookings for the Winter are encouraging.  We fly 18 nightly services for the Royal Mail ensuring that the first class post arrives on time, in line with demanding service levels. 

For the coming Winter 2011/12, Jet2.com has increased capacity by 15%, with growth driven by the first Winter of services from Glasgow, plus increased frequency on leisure city routes from Manchester including Budapest and Prague.  Additional services to the Canary Islands will fuel the continued growth of Jet2holidays as customers continue to seek alternative winter sun destinations to Egypt.

Looking forward to Summer 2012 we plan to grow capacity by around 12% (Summer 2011: 29%) with a third aircraft based in Glasgow, following the successful introduction of services this summer, in addition to new services and additional capacity at other bases to support the growth of Jet2holidays.  We have recently added Berlin, Istanbul and Pula in Croatia to the leisure destinations to be served next Summer.

Package Holidays

Jet2holidays, our ATOL protected tour operator, carried over 158,000 customers on package holidays in the half year to 30 September 2011 (2010: 71,300).  Revenue increased by 146% to £83.3m (2010: £33.8m).  This very considerable growth reflects our focused development of the package holiday product, improvements to the Jet2holidays.com website and our ability to offer great value holidays ideally suited to the current difficult economic environment.  We offer holiday packages encompassing flights, transfers and accommodation ranging from budget self catering to five star luxury hotels, with all inclusive packages being particularly popular.  A separate “Indulgent Escapes” brochure has been launched for Winter 2011/12 onwards focusing on luxury properties.

Jet2holidays has improved gross margins through the full implementation of its margin management system, which enables a very flexible and dynamic approach to the pricing of holidays.  We have increased Holidays retail revenues by adding to the retail products sold through the Jet2holidays booking process, so our customers can start their holiday with an in-flight meal or an extra leg-room seat.  We are continually developing the Jet2holidays.com website in order to make the online booking process easier and to increase the conversion of enquiries into sales.  Travel agency distribution remains an important part of the overall sales mix, with circa 40% of sales being delivered through that channel via a range of national, regional and local agencies. 

The Summer 2012 product range sees a significant expansion in the number of beach hotels.  We have a team of hotel contractors with almost 90% of total holiday sales now being made to a hotel with which we have developed a direct relationship.  We are also further developing the city product to provide a range of packaged city breaks across the Jet2.com network.  Growth in airline capacity is focussed on developing Jet2holidays, with new routes and additional capacity being concentrated on key Holidays destinations. 

Distribution & Logistics

The Group’s logistics company, Fowler Welch, provides an integrated supply chain solution for retailers, food manufacturers, growers and importers.  Services from distribution centres in Spalding (Lincolnshire), Teynham (Kent), Washington (Tyne & Wear), Heywood (Greater Manchester) and Portsmouth (Hampshire) include both chilled and ambient storage and distribution, together with value adding pick-to-order warehousing operations.  Other operations are focussed around imports through our Dutch hub; container logistics in Alconbury (Cambridgeshire) and Sheerness (Kent); and transport and logistics solutions for customers in Desborough, Slough, Avonmouth and Newton Abbot.  Overall revenues are up 5% year on year, despite a planned reduction in container activity, with strong growth in Washington (Tyne & Wear), the Netherlands and the South Coast.  Operating margins are below last year principally as a result of further investment in the growth of the Fowler Welch network and operating infrastructure.

Having rationalised the Company’s container operations with the closure of the Felixstowe site at the end of the last financial year, these are now centred on our Alconbury facility.  This unit is now contributing positively as well as retaining this key service offering for our customers.

The Distribution business is in a strong position to capitalise on its significant pipeline of Ambient sales opportunities.  In May 2010, the Group completed the purchase of a 500,000 sq. ft, 50,000 pallet, freehold distribution centre in Heywood, Greater Manchester “the Hub” which is now operating at break-even and offers significant potential for further growth.

In June 2011, a distribution centre was opened in Newton Abbot, Devon, initially dedicated to serving Tesco Express stores, similar to our operations in Washington, Tyne and Wear.  This was implemented on time and within budget.  The company intends to build further its business in the South West over the coming months.

The Distribution & Logistics business is very dependent on IT and we devote considerable resources to the development of IT systems and infrastructure.  The next stage of the systems evolution has started with the successful implementation of phase one of a new Transport Management System at Heywood, ahead of its roll out across the whole transport network in 2012.  This will provide the company with far greater visibility of resources and volumes. 

Whilst the marketplace remains extremely competitive and price focussed, the outlook for Fowler Welch is encouraging.  The company’s commitment to operational excellence, its national network coverage, and its growing presence in the ambient arena positions it well for future growth. 

Outlook

Performance in the first six-month trading period has been challenging in what has been a difficult retail trading environment.  The Board still hopes that full year results will be in line with market expectations.

Jet2.com and Jet2holidays forward booking levels are encouraging for next summer and there is a significant new business pipeline at Fowler Welch.  However, in this challenging trading environment we expect limited opportunities to deliver profit growth in the short term. 

Philip Meeson
Chairman
17 November 2011

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November 17, 2011 at 07:17

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