2007/082006/072005/062004/052003/042002/03Key Documents

Dart Group PLC Company Reports

Business and Financial Review

The Group’s financial performance for the year ended 31 March 2018 is reported in line with International Financial Reporting Standards (“IFRS”), as adopted by the EU.

Group Financial Performance 2017/18

It was a strong year of passenger growth for both Jet2.com and Jet2holidays, but challenging in terms of summer 2017 pricing. However, net ticket yields improved in the second half of the year as the pricing environment normalised. The passenger volume increase, plus a £5.1m increase in Distribution & Logistics revenue to £168.6m (2017: £163.5m), resulted in Group revenue increasing by 38% to £2,391.8m (2017: £1,729.3m).

The growth of our leisure travel products resulted in an overall 46% increase in passenger sectors flown (2017: 17% increase). However, the mix of our higher margin package holidays decreased slightly as a percentage of overall passengers to 48.3% (2017: 48.7%), as a result of stronger flight-only demand in the second half and the dilution effect of the first seasons of operation of our two new operating bases at Birmingham and London Stansted.

Operating losses for the second half increased, as we continued to invest in people, aircraft and marketing in readiness for our expanded summer 2018 flying programme, together with careful cost investment to further differentiate our product and improve the customer experience. As a result, overall Group operating profit for the year increased by 27% to £130.6m (2017: £103.0m).

Net financing income of £3.7m (2017: net cost of £12.9m) was after both a charge for finance costs of £21.1m (2017: £5.1m) and a credit of £20.0m (2017: £10.9m charge) for foreign exchange revaluation gains arising from US dollar denominated aircraft debt and other foreign currency denominated balances. The year-on-year increase in finance costs was a result of borrowings drawn to fund the acquisition of the Group’s new Boeing 737-800NG aircraft deliveries. The revaluation of the US dollar aircraft debt cannot be naturally offset against the value of the aircraft, which is fixed in pounds sterling at the point of acquisition to comply with the requirements of IFRS.

As a result, the Group achieved a statutory profit before taxation for the year of £134.6m (2017: £90.1m). Group EBITDA increased by 28% to £242.5m (2017: £190.0m). The Group’s effective tax rate of 18% (2017: 15%) was marginally lower than the 19% headline rate of corporation tax due to the recognition of deferred tax at 17%. Basic earnings per share increased by 44% to 74.59p (2017: 51.80p).

The Group generated increased net cash flow from operating activities of £414.9m (2017: £331.1m), driven by the Leisure Travel business trading performance. Total capital expenditure incurred of £411.1m (2017: £473.9m) includes the purchase of both new Boeing 737-800NG and mid-life aircraft, plus pre-delivery payments, which have been substantially financed, for further new aircraft deliveries. Additionally, we continued to invest in the long-term maintenance of our existing aircraft fleet and funded the set-up of aircraft self-handling operations at East Midlands, Birmingham and London Stansted airports.

New loans totalling £458.2m (2017: £515.6m) were drawn down, as the Group secured both commercial debt and on balance sheet finance lease funding for the purchase of the new Boeing aircraft deliveries, offset by £128.8m (2017: £91.2m) of aircraft loan repayments. Overall, this resulted in a net cash inflow of £319.6m (2017: £277.0m) and an improved year-end gross cash position, including money market deposits, of £1,008.6m (2017: £689.0m). Net cash, stated after borrowings of £806.6m (2017: £520.5m), was £202.0m (2017: £168.5m).

The Group continues to be funded, in part, by payments received in advance of travel from its Leisure Travel customers, which at the reporting date amounted to £747.5m (2017: £553.9m). Of these customer advances, £80.3m (2017: £82.9m) was considered restricted by the Group’s merchant acquirers as collateral against a proportion of forward bookings paid for by credit or debit card. These balances become unrestricted once our customers have travelled. At the reporting date, the business had no cash placed with counterparties in the form of margin calls to cover out-of-the-money hedge instruments (2017: £nil).

In December 2017, the Group completed the refinancing of its existing banking facilities, replacing them with a £100m committed 5-year facility.

The Group continues to comfortably exceed the UK Civil Aviation Authority’s required levels of ‘available liquidity’, which is defined as free cash plus available undrawn banking facilities.

Total shareholders’ equity increased by £97.5m (2017: £112.7m) which primarily comprised profit after taxation of £110.7m (2017: £76.7m) and an adverse (2017: favourable) movement in the cash flow hedging reserve. This movement was primarily a result of the reversal of in-the-money currency and jet fuel forward contracts held at the end of the previous financial year which matured in the year, offset by a net out-the-money movement on currency forward contracts, which mature after the reporting date.

Segmental Performance - Leisure Travel

Flown passengers in the Leisure Travel business increased by 46% to 10.38m (one-way passenger sectors) (2017: 7.10m). Encouragingly, 58% of the total year-on-year passenger growth of 3.28m resulted from our two new operating bases at Birmingham and London Stansted which are already proving popular, with many passengers having chosen Real Package Holidays™ with Jet2holidays.

Average net ticket price per passenger reduced by 15% to £73.65 (2017: £86.65) as a challenging first half of the year gave way to a more normalised pricing environment in the second half. The average load factor increased to 92.2% (2017: 91.5%), a particularly encouraging performance given this included the first year of operation from our two new bases.

The percentage of customers taking shorter duration package holidays increased during the year, whilst the percentage taking all-inclusive holidays at 41% and higher value 4 and 5-star packages at 54% has remained consistent. The cost of acquiring hotel rooms increased, primarily because of the stronger Euro which directly impacted package holiday price. Some of this cost increase was absorbed by the business to drive increased package holiday customer volumes and to drive market share. The overall average price of a package holiday increased to £633 (2017: £617).

Non-ticket retail revenue per passenger increased by 1% to £33.25 (2017: £33.01). This revenue stream, which is primarily discretionary in nature, continues to be optimised through our customer contact programme as we focus on both Pre-departure and In-flight sales.

As a result, total Leisure Travel revenue grew by 42% to £2,223.2m (2017: £1,565.8m). 

The Real Package Holidays™ experience allows greater value to be added through product innovation and service at each point in the customer’s journey. We recognise that investing for the long-term success of the business, leading the market in differentiating our product and pleasing the customer from start to finish, lends itself to customer brand loyalty and therefore a better quality of recurring revenue and profitability.

Our market leading Resort Flight Check-In® service, which allows customers to check-in their baggage for their return flight at their hotel and enjoy a hassle and bag free final day in resort, is extremely attractive. As a result, this service has been expanded to over 250 hotels in 9 key holiday destinations for summer 2018 (summer 2017: 180 hotels). Our Jet2Villas product, launched in June 2017 is also proving popular, offering the freedom of a great value Jet2.com flight + car + villa holiday wrapped up in one ATOL protected package and has been expanded to over 1,600 villas in more than 30 destinations for summer 2018. We also took the opportunity to set up our own aircraft self-handling operations at East Midlands, Birmingham and London Stansted airports, to improve on-time performance and customer service.

This incremental investment, together with the pre-summer 2018 costs required to support the ongoing growth in the flying programme, led to an increase in second-half losses, resulting in the overall Leisure Travel operating profit for the year increasing by 28% to £126.2m (2017: £98.5m).

For many families, booking a holiday is the most important purchase of the year and we recognise that every customer has different aspirations and needs. Our booking channels reflect this, as close to 60% of our package holidays are sold online via Jet2holidays.com, whilst 97% of our flight-only seats are booked directly on the Jet2.com website.

Investment in, and development of, digital strategy is integral to the Leisure Travel business. Its capability helps to build customer loyalty, drive revenue growth and deliver greater customer satisfaction. Increasing numbers of customers make online bookings through mobile platforms as functionality and accessibility improve and the development of our websites and apps continue to deliver efficiencies as customers find it easier to search for, and ultimately book, holiday flights and package holidays. Additionally, we continue to build on the strong foundation of our existing Customer Relationship Management programme and are working to increasingly deliver personalised communications to customers to strengthen our already strong relationships with them.

We also recognise that personal interaction is important for many customers when making such an important purchase, to ensure their individual needs are catered for. Currently 17% (or approximately 400,000) of our package holiday customers book through our customer contact centres in Leeds, Manchester and Palma, Majorca, which employ over 500 sales and customer service advisers. Approximately a quarter of our package holiday sales come through independent travel agents, who are considered very valuable and important distribution partners for the business.

Looking forward, we will continue to innovate and differentiate our product supported by a broad, imaginative marketing strategy and underpinned by great customer service, to ensure that Jet2 is always front of mind when a customer considers booking a holiday.

Segmental Performance – Distribution & Logistics

Revenue at Fowler Welch increased by 3% to £168.6m (2017: £163.5m) as the full year effect of the Dairy Crest operation at Nuneaton, plus growth at our Teynham, Washington and Heywood sites, was partially offset by lower revenue at our Spalding operation.

Our 156,000 square foot depot at Spalding in the major growing region of Lincolnshire, is one of the largest chilled food consolidation hubs in the UK and is the largest chilled site in the Fowler Welch network. Revenue from this operation reduced by 3.5% in the year, primarily a result of the planned movement of volume to other company sites to create space to upgrade the warehouse facility. The subsequent £2m investment in new white walling, lighting and racking, to what is already a very successful operation, has created a more efficient and modern environment from which to attract new customers.  Revenue from our Kent operations at Teynham and Paddock Wood distribution centres increased by close to 7%, primarily due to the commencement of a new contract for the distribution of salads. These distribution facilities sit in the heart of the county’s fruit growing areas and provide packing and distribution services for this important local industry and for businesses importing fruit and produce from across the English Channel. 

Integrated Service Solutions (ISS), Fowler Welch’s joint venture operation at Teynham, which ripens, grades and packs a variety of stone fruit, berries and exotic fruits, had a challenging year as volume fluctuation, new line implementation, shorter production runs and retailer promotional peaks stretched the operational team. Recovery took time to implement and pleasingly, with improved controls now in place, the final quarter’s performance was encouraging and this has continued into the new financial year.

The Hilsea depot, which is located near to Portsmouth International Port, warehouses, consolidates and distributes supplies of salads, herbs and vegetables to UK retailers. In what was another year of encouraging performance, the business increased operating profit from slightly reduced revenues, as it delivered operating efficiency improvements.

The regional distribution operations at Washington in Tyne and Wear and Newton Abbot, near Exeter in Devon, provide direct store delivery services on behalf of leading retailers to over 100 stores every day. Both improved their operating profit performance year-on-year, as they reacted swiftly to handle additional volume following the failure of a major UK wholesaler.

The operation at Nuneaton, near Coventry, significantly improved its operating profit performance, due to a full year of trading (the operation having commenced in June 2016), the planned transfer of incremental volume from Spalding to allow upgrades to that depot, plus new customer wins as the operation progressively expands.

The Heywood ‘Hub’ is Fowler Welch’s 500,000 square foot ambient (non-temperature controlled) shared user and distribution centre near Bury, Greater Manchester. Considerable operational progress was made during the year as several new suppliers for its major retail client were successfully implemented. In addition, a new material commercial agreement with a mixed fruit soft drink manufacturer was implemented. With strong customer relationships and ongoing investment in its infrastructure, the year ahead for Heywood is set to be positive.

Several projects were also successfully delivered in the year – the roll out of a fleet of Lithium Ion warehouse handling equipment to improve operating efficiency and a further 4.1% improvement in vehicle miles per gallon, a result of continued focus on driver training and operational efficiency – these were key factors in Fowler Welch winning the Waste2Zero Award for Best Practice in Logistics.

Though the marketplace remains extremely competitive, Fowler Welch’s principles of adding value for customers through Listening, Responding and Delivering remain undiminished. With its strong and committed team, a well-positioned national network of sites and the expertise to operate effectively in both the temperature-controlled (chill and produce) and ambient arenas, Fowler Welch has strong operational foundations from which to continue to grow.