TIDMFJET
RNS Number : 7430D
Fastjet PLC
28 June 2019
fastjet Plc
("fastjet" or the "Company")
(AIM: FJET)
Final results for the year to
31 December 2018
28 June 2019
fastjet, the low-fare African airline, announces its audited
final results for the year ended 31 December 2018. The table below
summarises the financial performance of the fastjet Group's (the
"Group") continuing activities.
2018 2017
US$ US$
Revenue 38.5m 14.4m
Group Operating loss (25.5)m (13.2)m
Loss from continuing activities
after tax (58.2)m (11.2)m
Loss for the year after tax (65.0)m (24.5)m
Loss per share from continuing activities
(US$) (0.08) (0.03)
Cash balance at year end 6.6m* 20.0m
*Cash balance at 25 June 2019 US$2.6m (of which US$ 0.4m
restricted in Zimbabwe).
Strategic highlights
-- Completion of shareholding acquisition in Federal Airlines in October 2018.
-- Exit from Tanzania following regulatory challenges and uneconomic pricing by competitors.
-- US$12.0m loan facility agreement with Solenta Aviation
Holdings Limited ("SAHL") to fund the exercise of the Company's
option over the purchase of the three ATR72 aircraft with the
balance to be used for general working capital purposes.
-- US$2.0m loan facility from SSCG for general working capital purposes across the Group on an interest-bearing loan at 6% fixed per annum, for an initial period of six months - $1.25m of this amount has been repaid post year-end.
-- fastjet Zimbabwe deposited RTGS$5.0m of its restricted bank
balances held in Zimbabwe with Annunaki on an interest-bearing
deposit at 4% fixed per annum, for an initial period of six months.
This deposit has been refunded in full post year-end.
-- Fundraising of US$ 10 million in July 2018 and additional
refinancing of US$ 40 million in December 2018.
Financial and Operational highlights
-- Group revenue from continuing operations increased by 167% to
US$38.5m (2017: US$14.4m). This was driven by an increase in
passenger numbers of 45% in Zimbabwe and 575% in Mozambique (as
Mozambique only operated for two months in 2017), and an overall
increase in yields of 33%.
-- Zimbabwe revenue increased 102% year on year to US$26.0m
(2017: US$12.9m). This was achieved by an increase in available
capacity of 30%, an increase in passengers of 45%, which included
the start of Harare - Bulawayo route, a significant increase in
yield of 40% and a further 5% increase in average load factors.
-- Mozambique revenue increased 642% year on year to US$8.9m
(2017:US$1.2m). This was achieved by an increase in available
capacity of 613%, an increase in passengers of 575% (based on full
year of operations), an increase in yield of 10% and a 5% decrease
in average load factors.
-- Costs from continuing operations before exceptional items
increased by 132% to US$64.1m (2017: US$27.6m). This increase in
costs is driven largely by the above-mentioned increase in capacity
in both markets adding US$36.5m additional costs in the 2018
financial year.
-- Exceptional items of $ 22.1m impacting the increase in costs for the year included:
o US$11.3m release of shares in lock-up transactions after the
December 2018 capital raise and following the acquisition of the
E145 aircraft on lease;
o the exercise of the option to purchase FedAir, requiring a
purchase price allocation and valuation of FedAir to be performed,
which resulted in a write down of US$4.6m;
o the impairment of goodwill of US$1.5m;
o the impairment of Air Operations Certificate of US$3.0m;
o the impairment of brands US$1.3m; and
o US$0.4m other costs.
-- The loss after tax for the year from continuing operations,
excluding US$22.1m exceptional items mentioned above, and the
Zimbabwe related exchange loss of US$8.5m was US$27.6m (2017:
US$11.2m);
-- Total costs increased by 278% year on year to US$96.4m (2017:
US$25.5m) of which exceptional items were US$22.1m (2017: US$
nil).
Discontinued Operations
The Group discontinued operations in Tanzania and reported a
loss from discontinued activities net of tax and exchange
differences on translation of US$6.9m (2017: US$13.3m) which
related to:
-- a US$8.9m trading loss of Tanzania CGU;
-- US$16.9m gain on net liabilities no longer consolidated;
-- US$5.5m reclassification of foreign currency translation loss;
-- US$14.6m loss on disposal of the three ATR 72-600 aircraft
acquired specifically for the Tanzanian business; and
-- US$0.3m relating to expenses accrued for forward sales liabilities for Tanzania.
Outlook
The encouraging performance of our continuing operations in the
final quarter of 2018 is expected to continue into 2019, with a
near break-even Group operating result in quarter 1 of 2019
(seasonally the weakest quarter of the year) supporting the Board's
expectation of the Group achieving an operating profit for the 2019
financial year excluding the significant foreign exchange losses
triggered in Zimbabwe specifically.
The Directors continue to adopt the going concern basis,
notwithstanding the expected need for further funding and assumed
the ability to extract hard currency funds from Zimbabwe in the
foreseeable future.
fastjet, with a restructured balance sheet and optimised
organisational structure, a refined operating model and having
diversified its geographic revenue streams over the past two years
is now better positioned to strategically deliver sustainable
growth.
Nico Bezuidenhout, fastjet Chief Executive Officer,
commented:
"2018 saw the successful completion of the stabilization process
we embarked upon in 2016. It was a year during which substantial
changes were implemented which will have long-lasting, structural
benefits for fastjet. Most notably, fastjet withdrew from Tanzania
- a market that had been consistently loss-making over a number of
years - as well as completing its fleet transition, further
reducing overhead costs, substantially reducing long-term debt, and
replacing and enhancing our financial and management information
core systems. 2018 also saw a strong performance from fastjet's
first full year of operations in Mozambique, the exercise of a
purchase option that allows the Group entry into the South African
market through the acquisition of a shareholding in a profitable
business in this country, and increased seat occupancy rates and
revenue levels in our Zimbabwean business. These efforts required
commitment from all our stakeholders and significant time, effort
and financial resource for which the Management and Board of
fastjet is thankful to our employees, investors, suppliers and
customers.
"The fastjet of today is a fundamentally different business to
that of eighteen months ago, as evidenced by the Group achieving
operational profitability in two of its three markets for the last
quarter of 2018. We remain focused on managing the macro-economic
challenges confronting the business and on improving fastjet's
performance still further."
fastjet's report and accounts for the year ended 31 December
2018 ("2018 Annual Report and Accounts"),
notice of a General Meeting ("GM") and the form of proxy are
expected to be posted to shareholders on 28 June 2019.
A copy of the 2018 Annual Report and Accounts will be available
to view and download shortly from the
Company's website: www.fastjet.com
This announcement is released by fastjet plc and contains inside
information for the purposes of Article 7 of the Market Abuse
Regulation (EU) 596/2014 (MAR), and is disclosed in accordance with
the Company's obligations under Article 17 of MAR.
For the purposes of MAR and Article 2 of Commission Implementing
Regulation (EU) 2016/1055, this announcement is being made on
behalf of the Company by Kris Jaganah, Chief Financial Officer.
For more information, contact:
fastjet Plc Tel: +27 (0) 10
070 5151
Nico Bezuidenhout, Chief Executive Officer
Kris Jaganah, Chief Financial Officer
Media - Citigate Dewe Rogerson Tel: +44 (0) 20
7638 9571
Angharad Couch, Toby Moore, Nick Hayns
For investor enquiries please contact:
Liberum Capital Limited - Nominated Tel: +44 (0) 20
Adviser and Broker 3100 2222
Andrew Godber, Clayton Bush, James Greenwood,
Trystan Cullen, William Hall
NOTES TO EDITORS
About fastjet Plc
Fastjet is a multi-award-winning value African airline that
began flight operations in 2012. Their awards include, Leading
African Low-Cost Carrier World Travel Awards 2016, 2017, 2018 and
2019, and Skytrax World Airline Awards Best Low-Cost Airline in
Africa 2017. Today, Fastjet connects Zimbabwe by flying between
Harare and Victoria Falls, Harare and Bulawayo, and from Harare to
Victoria Falls. They also offer flights from Harare and Vic Falls
to Johannesburg in South Africa. The airline also began branded
domestic flights in Mozambique, using Embraer E145, a 50-seater
aircraft operated by Solenta Aviation Mozambique, in November 2017.
As part of a codeshare agreement entered with LAM - Mozambique
Airlines, fastjet is able to offer its customers flights between
Maputo, Tete, Beira and Quelimane.
Since commencing operations, fastjet flown over 3 million
passengers and has established itself as a punctual, reliable, and
affordable low-cost carrier.
Preliminary Statement
During the past year, the fastjet team has worked hard in a
challenging trading environment to ensure the long-term
sustainability of the Group. Several strategic initiatives were
completed, most notably the re-evaluation of the entire group
business by country of operation. This resulted in the very
difficult, yet important decision, to dispose of the group's
Tanzania business entirely. The Board also decided to decentralise
the business and its commercial and financial management structures
to ensure that the key areas of control and management
effectiveness are attained in each business.
To implement the above, a capital raise was required in
December, the result of which allowed the fastjet group to end the
year with significantly stronger balance sheet, a complete exit
from Tanzania and the elimination of significant long-term debt and
lease obligations, together with the purchase of the remaining
operational fleet.
The decentralisation has been implemented. The Board and the
executive management team continue to focus on the significant work
ahead of improving profitability and operating cash flow and that
key areas of decentralised control and effectiveness are attained
in all business units in 2019.
The year saw excellent growth in our Zimbabwe market and the
first full year of operations in Mozambique. fastjet Zimbabwe, the
country's only major private domestic carrier, saw growth in
capacity of 30% and an increase in yields of 40%, as the company
entrenched itself as a competitive non-State-owned carrier in the
market. Market share on the Johannesburg to Harare route grew
during the year to become the most frequented carrier with up to
four daily return flights. The addition of a daily Harare to
Bulawayo flight in July (and a second daily flight started in early
January 2019) contributed to the capacity increase. fastjet
Zimbabwe's route from Harare to Victoria Falls continues to do well
and saw an increase in capacity of 52% year on year.
Whilst the fastjet Zimbabwe outlook remains positive and cash
generating, Zimbabwe continues to be a difficult market in which to
operate. This includes a monthly devaluing RTGS$ currency and rapid
inflation in 2019. Like other Zimbabwean businesses, fastjet
Zimbabwe has experienced significant difficulties in obtaining
access to foreign currency to settle foreign suppliers using
restricted bank balances. Although the position has improved from
October 2018, with the airline starting to access US$ funds to
settle certain foreign suppliers based on allocations granted by
the Reserve Bank of Zimbabwe. The company continues to pursue a
strategy of increasing local currency spend through localising key
supply chain elements into Zimbabwe such as the relocation of the
call centre which previously were being performed in South
Africa.
In quarter two of 2019, through monetary policy changes in
Zimbabwe and the introduction of the RTGS$ local currency and
separate US$ Nostro accounts, this has allowed fastjet Zimbabwe to
start selling tickets in both RTGS$ and US$ currencies. Currently
these changes have allowed fastjet Zimbabwe to generate more than
50% of its ticket sales in hard currency US$ which are being used
to settle foreign suppliers. However, the rapidly devaluing RTGS$
currency, rampant inflation and reduced buying power of individuals
and companies has impacted our overall load factors.
fastjet Mozambique had its first full year of operations, having
commenced operations in November 2017. During 2018, despite
increasing capacity, load factors remained weak as a result of lack
of demand and competitive activities from the local state-owned
carrier Linhas Aéreas de Moçambique ("LAM"). fastjet Mozambique
ceased operating the Maputo to Nampula route on the 28 of October
2018 in order to reduce route losses. This lost capacity was
immediately replaced with a new route from Maputo to Quelimane on
the 29 of October 2018. In December, Ethiopian Airlines entered the
Mozambique market putting further pressure on the route load
factors. To compete effectively and profitably, fastjet made use of
its commercial agreement with LAM to provide consumers with
codeshare bookings. The Board continues to monitor this market
closely and will adjust its strategy accordingly to changes in
market conditions.
fastjet exercised its option to purchase Federal Airlines
("FedAir") on 7 October 2018, which saw FedAir now consolidated
into the Group. FedAir performed well during the year and has
contributed positively to the Group results. FedAir has a
well-established market in the unscheduled safari business,
carrying tourists directly to their destinations in the Sabi Sands,
Kruger National Park and surrounding areas. In addition, its
charter business continues to do well. The acquisition of FedAir by
fastjet will allow operating synergies to be achieved and provides
the group with an important foothold in the important South African
market for the future.
During 2018, the Tanzania market remained an extremely
challenging environment for fastjet. As a result of continued
regulatory and operational difficulties, together with competitive
pressures, in September 2018 the Board resolved to cease providing
working capital to fastjet Tanzania. The group disposed of its
stake in the Tanzanian holding company on 27 November 2018.
Regulatory challenges had significantly delayed the importation and
clearance of the ATR72-600 fleet. Domestic route right approvals
for both the ATR72-600 and ERJ190 were stalled many months with
unexplained delays. Furthermore, the national carrier began an
uneconomic pricing policy on the two key routes operated by
fastjet, where it began flying its newly acquired B787 Dreamliner
(approximately 280-seater long-haul aircraft) on short domestic
sectors and at sub-economical fares.
Although 2018 presented numerous operational and strategic
challenges for the group, the balance sheet has been strengthened,
the operations rationalised and excellent growth achieved in the
Zimbabwean market.
Funding Activities
Shareholder Loan Facility
In April 2018, the Company entered into a US$12.0m loan facility
agreement with Solenta Aviation Holdings Limited ("SAHL") to fund
the exercise of the Company's option over the purchase of the three
ATR72s aircraft with the balance to be used for general working
capital purposes.
Loan from SSCG and loan to Annunaki
Original transaction
In July 2018, fastjet Plc borrowed US$2.0m from SSCG for general
working capital purposes across the Group on an interest-bearing
loan at 6% fixed per annum, for an initial period of six
months.
At the same time, fastjet Zimbabwe deposited RTGS$5.0m of its
restricted bank balances held in Zimbabwe with Annunaki on an
interest-bearing deposit at 4% fixed per annum, for an initial
period of six months.
Monetary policy changes within Zimbabwe
In October 2018, the Reserve Bank of Zimbabwe ("RBZ") announced
a monetary policy change introducing a new and separate US$ bank
account, which was called US$ Nostro accounts. In doing this, the
RBZ separated US$ restricted bank balances ("RTGS$") and accounts
into two identifiable and separate new bank accounts, whereby all
US$ restricted bank balances effectively became domestic RTGS$ bank
balances; thereafter all companies were required to open up the new
US$ Nostro account for future hard currency US$ transactions.
By doing this, the RBZ informally recognised a parallel
currency, and this resulted in the Zimbabwean market no longer
recognising the official exchange rate of RTGS$ 1.00 = US$
1.00.
Because of this, management took the decision to revalue all
RTGS$ denominated financial assets held at year end at an exchange
rate RTGS$ 4.6923 = US$ 1.00, which significantly affected the
carrying value of the original US$5.0m Annunaki loan.
At 31 December 2018, the original RTGS$5.0m was valued at
US$1.1m based on management's implied exchange rate of RTGS$ 4.6923
= US$ 1.00. An exchange loss of US$3.9m was incurred because of the
significant devaluation of the RTGS$ currency against the US$.
Loan amendments
On 1 March 2019, the Company agreed with both Annunaki and SSCG
that the terms of the unsecured loans will be extended to 31 March
2019. The terms of the Loan Agreements will remain the same except
for the following changes:
-- The loan amount from fastjet Zimbabwe to Annunaki was
increased from RTGS$5.0m to RTGS$7.0m due to devaluation of the
underlying RTGS$ currency;
-- During the term of the Loan Agreement with SSCG, SSCG shall
have the option to convert the US$2.0 m repayment plus any
outstanding interest into ordinary shares in the Company (subject
always to the shareholders of the Company granting the directors
sufficient authority to allot and issue such shares on a
non-pre-emptive basis) (the "Option to Convert") either (i) upon
the happening of an event of default under the Loan Agreements, or
(ii) after 28 February 2019; and
-- Any ordinary shares in the Company issued pursuant to the
Option to Convert shall be issued at the higher of:
-- the volume weighted average price per ordinary share over the
preceding 30 trading days on the London Stock Exchange ending on
the date on which SSCG has given such written notice to convert;
or
-- At par value.
Loan - second term extension
On 05 March 2019, the parties agreed to extend the Loan
arrangements to 30 June 2019.
Loan - repayment and extension
On the 11 June 2019, an amount of US$1.25m was repaid to SSCG
and the remaining US$0.75m was extended to 31 January 2020.
Additionally, between 12 June 2019 and 14 June 2019, Annunaki
repaid the RTGS$7.0m to fastjet Zimbabwe together with all the
accrued interest.
At the time of repayment, the RTGS$7.0m was valued at US$1.1m
based on the Zimbabwean interbank exchange rate of RTGS$ 6.1200 =
US$1.00. Between 31 December 2018 and the time of repayment, an
additional exchange loss of US$0.7m was incurred because of further
devaluation of the RTGS$ currency against the US$.
Shareholder Fundraising
On 05 July 2018, the company issued:
-- 66,495,310 new ordinary shares of 1 pence each were issued at
a price of 8 pence per share raising gross proceeds of GBP5.3 m
(US$7.0m).
-- 28,924,538 new ordinary shares of 1 pence each to SAHL at a
price of 8 pence per share, raising gross proceeds of GBP2.3 m
(US$3.0m).
-- On 27 July 2018, 2,824,504 new ordinary shares of 1 pence
each were issued by way of an open offer to existing shareholders
at a price of 8 pence per share, on the basis of one share for
every 26 existing ordinary shares. This raised gross proceeds of
GBP0.2m (US$0.3m).
On 13 December 2018, the company issued:
-- 3,124,999,999 new ordinary shares of 1 pence each which were
issued at a price of 1 penny per share raising gross proceeds of
GBP31.3m (US$39.3m).
-- 55,171,979 new ordinary shares of 1 pence each which were
issued by way of an open offer to existing shareholders at a price
of 1 penny per share, on the basis of 57 shares for every 10
existing ordinary shares. This raised gross proceeds of GBP0.6m
(US$0.7m).
Of the above US$40.0m, US$15.1m was received in cash, and
US$10.0m of the Shareholder Loan Facility above was converted into
equity together with arrears interest of US$0.4m. US$11.5m was used
to purchase the four Embraer 145 aircraft, US$2.5m was used to
settle raising fees and legal costs and US$0.5 was used to settle
the penalty relating to the early termination of the SAHL
lease.
Of the US$15.1m cash raised, US$11.5m was used to settle
obligations to allow the divestment from Tanzania and the balance
of US$3.6m was retained by the Group as working capital.
In aggregate in 2018, the issue of shares raised gross proceeds
of GBP39.7m (US$50.3m) (2017: US$90m).
The Board is grateful to all the loan providers and shareholders
who participated in the fundraising exercises for their continued
support.
Financial Performance
The Group recorded a loss for the year of US$58.2m from
continuing operations (2017: US$11.2m loss from continuing
operations). The results included the start-up losses incurred in
fastjet Mozambique, the impact of the divestment of the Tanzanian
business and exceptional items of US$22.1m. The exceptional items,
which are more fully described in Note 6, included inter alia the
write-off of the equity settled share-based payment transaction of
US$11.3m following the purchase of four E145 aircraft from SAHL,
the impairment of US$4.6m of the FedAir Brand License Agreement
from the other financial asset as detailed in Note 13, an
impairment of US$3.0m of the air operations certificate, an
impairment of US$1.5m of goodwill, an impairment of US$1.3m of
brands and US$0.4m of other. Included also in the current year loss
for the year is US$8.5m relating to Zimbabwe foreign exchange
losses on financial assets. Refer to Note 8 and Note 24 of the
published Annual Report for further details.
When the company purchased the four E145 aircraft from SAHL, it
agreed with SAHL to conclude the old share-based payment agreement,
thereby creating the need to write off the remaining balance of the
Equity Settled Share Based Transaction account of US$11.3m.
Group revenue increased by US$24.1m, of which US$13.0m was from
Zimbabwe's much improved capacity, yield growth and passenger
numbers, US$7.8m related to the first full year of operations in
Mozambique, US$3.6m related to the FedAir subsidiary which was
acquired in October 2018, and the balance offset by a reduction of
US$0.3m in Central revenue.
Operating costs were relatively stable, increasing in line with
capacity and as a result of the addition of fastjet Mozambique for
a full year of operations added to the cost base. Operating costs
were also impacted by an increase in the fuel price during the
year.
Discontinued operations of fastjet Tanzania and the resultant
disposal of the three ATR 72-600 aircraft which had been purchased
specifically for operations in Tanzania, triggered a loss of
US$6.9m. This amount consists of an operating loss by fastjet
Tanzania of US$8.9m, a gain on the deconsolidation of the net
liabilities of fastjet Tanzania of US$16.9m, a reclassification of
foreign currency translation loss reserve of US$5.5m, a loss on
disposal of the returned three ATR72-600 aircraft of US$14.6m and
US$0.3m expenses relating to forward sales liabilities.
The Directors believe that after the disposal of Tanzania and
the balance sheet restructuring from the December capital raise,
the current economic and trading outlook in fastjet's key markets
of Zimbabwe and South Africa remains positive, whilst Mozambique
remains challenging. In 2019, the Group is expecting to increase
market share in the Zimbabwean market, look at growth opportunities
in the South African market, and will continue to monitor the
health of Mozambique.
In preparing these financial statements, the Directors have
concluded that the continued adoption of the Going Concern basis is
appropriate. The key assumptions and risks that the Directors have
considered in reaching this conclusion are set out in the Going
Concern section within the Financial Review below and in Note 1 of
the notes to the Financial Statements.
Strategic Developments
Stabilisation Plan
fastjet's Stabilisation Plan, which commenced in the second half
of 2016, was designed to strengthen the commercial, cost management
and financial aspects of the business. This initiative has now been
concluded, and the following achievements realised:
-- Network: Since 2016, fastjet has moved from being a business
with more than 99% revenue exposure to one country, Tanzania, to a
business with a more-balanced geographic exposure with operations
in Zimbabwe, South Africa and Mozambique;
-- Fleet: The Company has concluded its fleet transition, moving
from larger Airbus A319 aircraft to a fleet of ERJ 145 aircraft
that is now fully owned and unencumbered. The fleet changes
implemented have resulted in a better match between supply and
demand, translating into load factors improving from 54% in 2016 to
72% in 2018;
-- Brand, Service and Reach: fastjet has continued to build
equity in its brand, which it acquired from the easyGroup in 2017,
and boast one of the largest social media followings of any airline
on the African continent. During 2018 fastjet was awarded Africa's
Best Low-Cost Carrier award at the World Travel Awards, following
award of the same accolade in 2017. Despite this, due to the exit
from Tanzania which was a significant part of fastjet group
revenues and passengers carried, management has impaired the
carrying value of the fastjet brand acquired from easyGroup by
US$1.2m (refer to Note 11);
-- Revenue and Distribution: During the course of the
Stabilisation Plan, fastjet replaced its core reservations and
revenue management platforms. It also implemented global
distribution partnerships with travel agent platforms such as
Travelport and Amadeus. Further fastjet added Interline Agreements
with Emirates and Qatar Airways. In March 2018, a strategic
cooperation agreement with LAM, Mozambique's National Carrier, was
established. In May 2019, this strategic cooperation transitioned
into a fully-fledged codeshare agreement. The improved
supply-demand match achieved through fastjet's re-fleeting
exercise, combined with increased yields, has seen the Company
increase its unit revenue (RASK) by 112% from US$0.0592 in 2016 to
US$0.1254 in 2018 (see page 20);
-- Cost: A key feature of the Stabilisation Plan was to achieve
a reduction in costs across all areas of the business. Although
costs are continuously under review, the plan has already resulted
in a reduction in cost-drivers such as labour cost which reduced by
43% between 2016 and 2018 (immediately prior to the disposal of the
Tanzania operation);
-- Support Systems: Substantial effort was applied during the
Stabilisation Plan to improve decision support and control systems
within the business, in addition to the sales and distribution
system changes referred to above. fastjet in 2018 implemented a new
financial accounting platform across all operating units and
further implemented a revenue accounting and data warehouse
solution, designed to equip the business with relevant and timeous
information - we continue to develop and enhance these
solutions.
The Board is pleased with the results achieved by the
Stabilisation Plan which have placed fastjet on a substantially
firmer footing but recognises that there is still much to be
done.
Business Model Flexibility
Having gained full control of the fastjet brand together with
the establishment of the requisite system support infrastructure,
has enabled fastjet to develop and implement a refined business
model that is premised on centralised support and oversight and
decentralised operational deployment, with a level of equity
participation/commercial risk assumption that varies from
country-to-country.
fastjet is now in a position where each of its prospective
markets may be assessed based on market attractiveness, entry
risk/complexity and fastjet's access to start-up capital for a new
geography at a given point in time. The Company is now in a
position to pursue geographic expansion by means of either a
franchise, joint venture or owned operation deployment.
Importantly, the deployment model for a given country is not static
and may change over time, as the FedAir example in South Africa
illustrated (initially a brand franchise arrangement that has now
progressed to an owned basis of operation).
We believe that the flexibility of fastjet's refined business
model will better equip the Company to pursue expansion across the
African continent. Accordingly, the time, cost and management
bandwidth associated with entering each of the 54 African countries
on a wholly owned basis may be substantially lessened in this
way.
Organisational Restructuring
With the Stabilisation Plan having been completed in 2018 and
considering the implications of refinements made to fastjet's
business model as outlined above, as well as the Group's exit from
the Tanzanian Market, the Board embarked on an organisational
restructuring at the end of 2018. This organisational restructure
has resulted in a further streamlined head-office infrastructure
and headcount reduction, based in Johannesburg, South Africa, and
separate funding allocations per operational country which supports
ground-level performance accountability and investment management
aligned to shareholder return optimisation.
Board of Directors
On 02 July 2018, Mark Hurst - a SAHL representative - joined the
Board as a Non-Executive director. On 01 January 2019, Mark was
appointed the Deputy Group CEO of the company, thereby changing his
role to an Executive Director. On 18 September 2018, Peter Hyde an
independent Non-Executive director, resigned from the Board.
Michael Muller, the Chief Financial Officer resigned effective 29
March 2019 and Kris Jaganah joined the Board as the new Chief
Financial Officer on 05 April 2019.
SAHL is, under the terms of the strategic partnership agreement,
entitled to appoint two Non-Executive directors. In addition, the
Shareholder Loan Facility granted by SAHL to fastjet in April 2018
entitles SAHL to appoint a further director. To date SAHL have
nominated one director, being Mark Hurst.
Corporate Governance
We believe that good governance is integral to delivering growth
in shareholder value. In line with best practice and regulations.
The Corporate Governance report is presented on page 26.
Outlook for 2019
2018 proved to be a difficult year for African aviation, with
airlines on the continent, according to the International Air
Transport Association, realising net losses of approximately
US$400m. For fastjet it was a year that necessitated strategic
decisions and decisive actions, which resulted in two (South Africa
and Zimbabwe) of the Group's three operating countries delivering
profits for the last quarter of the year, the exit from one market
(Tanzania) and a sharp focus on the evolution of our newest market,
Mozambique.
The encouraging performance of our continuing operations in the
final quarter of 2018 is expected to continue into 2019, with a
near break-even Group operating result in quarter 1 of 2019
(seasonally the weakest quarter of the year) supporting the Board's
expectation of the Group achieving an operating profit for the 2019
year before the significant foreign exchange losses triggered in
Zimbabwe specifically.
Further evidence for this expectation is relatively robust GDP
growth expectations of 4.2% and 4.5% for Zimbabwe and Mozambique
respectively, according to the African Development Bank. While
South Africa is expecting a more modest 2.0% GDP growth, the sheer
size of the aviation market (> 20 times that of Zimbabwe and
Mozambique combined) represents an exciting growth opportunity for
the Group that we will pursue in the future.
In the medium to longer term the committed implementation of
open skies by several African countries as encompassed in the
African Union's Single African Air Transport Market ("SAATM")
initiative also bodes well, as access to growing aviation markets
becomes less impeded by challenging regulatory constraints and
restrictions.
The Group faces risk and uncertainty from the monetary policy
changes implemented by the Zimbabwean government at the end of
February 2019, increased occurrences of natural disasters and
greater competitive intensity in Mozambique. In this regard,
fastjet's geographic revenue diversification, our localisation of
services in Zimbabwe, our flexible deployment model in Mozambique
and FedAir's revenues weighted towards the second half of the year,
all stand fastjet in good stead.
An enhanced risk in Zimbabwe which needs to be managed weekly is
the fast devaluing RTGS$ currency against the US$ and rampant
inflation triggered by this, which is forecast to reach 100% in
RTGS$ terms in the imminent future. To address this, management has
focused on managing all revenues and costs against US$ baseline and
operating target. The key direct risk is doing this is reduced load
factors against receiving the right US$ per passenger carried
revenue as well as retaining key in-country resources and
employees.
fastjet, with a restructured balance sheet and optimised
organisational structure, a refined operating model and having
diversified its geographic revenue streams over the past two years
is now better positioned to strategically deliver sustainable
growth.
Financial Review
fastjet Group
The Group is subject to various risks, including those that
derive from the nature of the aviation industry and from operating
in Africa. Risk assessment and evaluation is an essential part of
the Group's planning and an important aspect of the Group's
internal control system. As more fully described in the Going
Concern statement in the Financial Review below, there are a number
of material uncertainties and risks including but not limited to
the following that may cast significant doubt upon the Group's and
the parent Company's ability to continue as a going concern.
-- Safety: A major safety incident could adversely affect
fastjet's operations, financial performance and reputation.
fastjet's quality and safety management systems ensure that there
are appropriate safety resources and procedures. There is also
additional assurance from the licenced post holders in Zimbabwe and
Mozambique, and oversight from the fastjet Plc Board's Safety
Committee;
-- Strategic: The continued operation of existing routes, the
commencement of operations in new markets and the selection of
fleet type can have a material impact on the Group's financial
performance and future prospects. During 2018 the management team
has fundamentally addressed the Group's services and fleet and
introduced more rigorous criteria against which new services will
be evaluated;
-- Political uncertainty: This is continuously monitored by the
Board and actions taken if and when required. The group strives to
have positive working relationships in the countries it operates in
and operates according to domestic and international recognised
standards and principles;
-- Regulatory: The retention of regulatory approvals and
licences is essential for services and operations to continue
uninterrupted. The Group has the management and systems in place to
ensure compliance with aviation regulations in its licenced markets
- Zimbabwe, South Africa and Mozambique;
-- Oil price: The Group does not enter into fuel hedging
contracts but ensures that where possible its ticket pricing
strategy reflects current oil prices. There is a residual oil price
risk in possible movements in fuel price for sold but un-flown
tickets. However, this is naturally mitigated by the very short
timeframe from the booking date to flight date. Most fuel purchases
are currently priced on a fixed monthly basis to mitigate this
risk;
-- Commercial: Network and fleet planning, and the need for
effective competitor and market analysis and revenue management are
important to ensure effective on-going revenue growth. The Group
has an experienced management and commercial team, which utilises
in-house marketing tools and, where appropriate, external market
analysis. In addition, the Group enters into and maintains
contracts with related parties which underpin the Group's
operations. Group management and the commercial team regularly
monitor the Group's compliance and that of the counterparties with
respect to these contracts;
-- Operational: Maintenance of a safe, reliable airline is
essential. The Group has in place the necessary systems and
internal controls to ensure sufficient crew levels to operate the
schedule and effective contract management around key supplier
relationships, such as aircraft lessors, maintenance providers and
ground handlers. fastjet works together with the appropriate
authorities to ensure that security measures are in place and
effective, and performs regular audits;
-- Finance: The Group needs to ensure that it has the financial
resources to continue operations and deliver its strategic
objectives. The Group has appropriate budgeting, forecasting and
cash management systems in place. The Company is in the process of
further enhancing and strengthening its reporting and internal
control environment;
-- Information Technology ("IT"): Appropriate IT security
protocols have been put in place to ensure minimal breaches to the
system. Regular backups are done, and appropriate failovers are in
place.
The risk management and internal control systems encompass the
Company's policies, culture, organisational behaviour, processes
and systems. The Group has a risk management framework and process
that identifies and monitors its principal risks and regularly
identifies mitigating actions to those risks.
The Board ensures, and intends to further enhance, its
assessment of the risks and associated mitigating actions, in
relation to the approved business model and strategy.
Financial Review
fastjet Group
In the second half of 2018 the Board undertook a comprehensive
and major review and restructuring of the fastjet business and
operations. This concluded with the decision to discontinue the
Tanzania airline cash generating unit ("CGU"). At the time,
Tanzania comprised more than half our revenues, but generated most
of our losses, consumed most of the cashflow, and held significant
long-term liabilities. Additionally, over the years, it had
consumed most of our key management's time and was the most
challenging political environment in which to operate.
Whilst all our markets in Africa have challenging environments,
in Zimbabwe, South Africa and Mozambique, fastjet has been welcomed
and supported at all levels of government and aviation
authorities.
Continuing Operations
Group revenue from continuing operations increased by 167% to
US$38.5m (2017: US$14.4m). This was driven by an increase in flown
passenger numbers of 45% in Zimbabwe and 575% in Mozambique (as
Mozambique only operated for two months in 2017), and an overall
increase in yields of 33%.
Zimbabwe revenue increased 102% year on year to US$26.0m
(2017:US$12.9m). This was achieved by an increase in available
capacity of 30%, an increase in flown passengers of 45%, which
included the start of Harare - Bulawayo route, a significant
increase in yield of 40% and a further 5% increase in average load
factors.
Mozambique revenue increased 642% year on year to US$8.9m
(2017:US$1.2m). This was achieved by an increase in available
capacity of 613%, an increase in flown passengers of 575% (based on
full year of operations), and an increase in yield of 10% and a 5%
decrease in average load factors.
In October 2018, the option to acquire a stake in FedAir was
exercised resulting in the consolidation of FedAir. The revenue
consolidated for the three months was US$3.6m with a positive
contribution.
Costs from continuing operations before exceptional items
increased by 132% to US$64.1m (2017: US$27.6m). This increase in
costs is driven largely by the above-mentioned increase in capacity
in both markets adding US$36.5m additional costs in the 2018
year.
Exceptional items impacting the increase in costs for the year
included US$11.3m release of the equity settled share-based payment
transaction after the December 2018 capital raise, the exercise of
the option to purchase FedAir, necessitating a purchase price
allocation and valuation of FedAir to be performed, which resulted
in a write down of US$4.6m, the impairment of goodwill US$1.5m,
impairment of Air operations certificate US$3.0m , impairment of
brands US$1.3m and US$0.4m other.
Total costs increased by 278% year on year to US$96.4m (2017:
US$25.5m) of which exceptional items was US$22.1m (2017: US$
nil).
The loss after tax for the year from continuing operations was
US$58.2m (2017: US$11.2m).
Discontinued Operations
The Group reported a loss from discontinued activities net of
tax of US$6.9m (2017: US$13.3m) which related to a US$8.9m trading
loss of Tanzania CGU, US$16.9m gain on net liabilities no longer
consolidated , US$5.5m reclassification of foreign currency
translation loss, US$14.6m loss on disposal of the three ATR 72-600
aircraft acquired specifically for the Tanzanian business and
US$0.3m relating to expenses accrued for forward sales liabilities
for Tanzania(see Note 3).
Key performance indicators
The Directors consider the following to be the key performance
indicators ("KPIs") when measuring fastjet's underlying operational
performance. The KPIs reflect standard airline industry metrics
which provide measures of efficiency and business performance. They
provide a mechanism for the Group to track performance at both a
Group level and industry level. They are indicative of how the
business is achieving its strategy and objectives from an
operational, cost and revenue perspective. These measures are now
split between scheduled and unscheduled services, whereby the
former relates to the combined operating performance of fastjet
Zimbabwe and fastjet Mozambique, and the latter to the operations
of Federal Airlines.
Scheduled Airline Services (Continuing Operations)
Measure 2018 2017 (restated) Movement
Passenger numbers 254,982 136,765 86%
Revenue per Passenger (US$) 134.0 101.0 33%
Revenue per Seat (US$) 96.6 69.5 39%
Seats Flown 354,650 199,109 78%
Available Seat Kilometres ("ASK") 305,173,450 174,134,053 75%
Load Factor 72% 69% 3pp
Revenue per ASK (US cents) 12.54 8.27 52%
Cost per ASK (US cents)
(excluding exceptional items) 20.99 15.87 32%
Cost per ASK ex. Fuel (US cents)
(excluding exceptional items) 16.72 12.84 30%
Aircraft Utilisation (Hours) 8,67 4,84 79%
Aircraft Utilisation at Year End (Hours) 6,01 6,36 -6%
Unscheduled Airline Services (3 Months)
Measure 2018 2017 Movement
Passenger numbers - Shuttle 8,168 - n/a
Passenger numbers - Charter 2,321 - n/a
Revenue per pax (US$) - Shuttle 276 - n/a
Revenue per pax (US$) - Charter 581 - n/a
Note: 2017 comparatives figures were restated to exclude fastjet
Tanzania.
Funding Activities
Shareholder Fundraising
On 05 July 2018, the company issued:
-- 66,495,310 new ordinary shares of 1 pence each were issued at
a price of 8 pence per share raising gross proceeds of GBP5.3 m
(US$7.0m).
-- 28,924,538 new ordinary shares of 1 pence each to SAHL at a
price of 8 pence per share, raising gross proceeds of GBP2.3 m
(US$3.0m).
-- On 27 July 2018, 2,824,504 new ordinary shares of 1 pence
each were issued by way of an open offer to existing shareholders
at a price of 8 pence per share, on the basis of one share for
every 26 existing ordinary shares. This raised gross proceeds of
GBP0.2m (US$0.3m).
On 13 December 2018, the company issued:
-- 3,124,999,999 new ordinary shares of 1 pence each which were
issued at a price of 1 penny per share raising gross proceeds of
GBP31.3m (US$39.3m).
-- 55,171,979 new ordinary shares of 1 pence each which were
issued by way of an open offer to existing shareholders at a price
of 1 penny per share, on the basis of 57 shares for every 10
existing ordinary shares. This raised gross proceeds of GBP0.6m
(US$0.7m).
In aggregate in 2018, the issue of shares raised gross proceeds
of GBP39.7m (US$50.3m) (2017: US$90m).
Shareholder Loan Facility
In April 2018, the Company entered into a US$12.0m loan facility
agreement with Solenta Aviation Holdings Limited ("SAHL") to fund
the exercise of the Company's option over the purchase of the three
ATR72s aircraft with the balance to be used for general working
capital purposes.
Loan from SSCG and loan to Annunaki
Original transaction
In July 2018, fastjet Plc borrowed US$2.0m from SSCG for general
working capital purposes across the Group on an interest-bearing
loan at 6% fixed per annum, for an initial period of six
months.
At the same time, fastjet Zimbabwe deposited RTGS$5.0m of its
restricted bank balances within Zimbabwe with Annunaki on an
interest-bearing deposit at 4% fixed per annum, for an initial
period of six months.
Monetary policy changes within Zimbabwe
In October 2018, the Reserve Bank of Zimbabwe announced a
monetary policy change introducing a new and separate US$ bank
accounts which they called US$ Nostro accounts. In doing this, they
effectively separated US$ restricted bank balances and accounts
into two identifiable and separate new bank accounts, whereby all
current US$ restricted bank balances became domestic RTGS$ bank
balances; thereafter all companies were required to open up the new
US$ Nostro account for future hard currency US$ transactions.
By doing this, the Reserve Bank of Zimbabwe informally
recognised a parallel currency, and this resulted in the Zimbabwean
market no longer recognising the official exchange rate of RTGS$
1.00 = US$ 1.00.
Because of this, management took the decision to revalue all
RTGS$ denominated financial assets held at year end at an exchange
rate RTGS$ 4.6923 = US$ 1.00, which significantly affected the
carrying value of the original RTGS$5.0m Annunaki loan.
At 31 December 2018, the original RTGS$5.0m was valued at
US$1.1m based on management's implied exchange rate of RTGS$ 4.6923
= US$ 1.00. An exchange loss of US$3.9m was incurred because of the
significant devaluation of the RTGS$ currency against the US$.
Loan amendments
On 1 March 2019, the Company agreed with both Annunaki and SSCG
that the terms of the unsecured loans will be extended to 31 March
2019. The terms of the Loan Agreements will remain the same except
for the following changes:
-- The loan amount from fastjet Zimbabwe to Annunaki was
increased from RTGS$5.0m to RTGS$7.0m due to devaluation of the
underlying RTGS$ currency;
-- During the term of the Loan Agreement with SSCG, SSCG shall
have the option to convert the US$2.0 m repayment plus any
outstanding interest into ordinary shares in the Company (subject
always to the shareholders of the Company granting the directors
sufficient authority to allot and issue such shares on a
non-pre-emptive basis) (the "Option to Convert") either (i) upon
the happening of an event of default under the Loan Agreements, or
(ii) after 28 February 2019; and
-- Any ordinary shares in the Company issued pursuant to the
Option to Convert shall be issued at the higher of:
-- the volume weighted average price per ordinary share over the
preceding 30 trading days on the London Stock Exchange ending on
the date on which SSCG has given such written notice to convert;
or
-- At par value.
Loan - second term extension
On 05 March 2019, the parties agreed to extend the Loan
arrangements to 30 June 2019.
Loan - repayment and extension
On the 11 June 2019, an amount of US$1.25m was repaid to SSCG
and the remaining US$0.75m was extended to 31 January 2020.
Additionally, between 12 June 2019 and 14 June 2019, Annunaki
repaid the RTGS$7.0m to fastjet Zimbabwe together with all the
accrued interest.
At the time of repayment, the RTGS$7.0m was valued at US$1.1m
based on the Zimbabwean interbank exchange rate of RTGS$ 6.1200 =
US$1.00. Between 31 December 2018 and the time of repayment, an
additional exchange loss of US$0.7m was incurred as a result of
further devaluation of the RTGS$ currency against the US$.
Going Concern
The Group has in recent years operated at a loss and incurred a
further operating cash outflow during 2018. The Group reviewed its
current operating model in 2018 and took the following initiatives
to reduce cash outflow:
- Divestment from Tanzania;
- Downsizing and restructuring of Head Office;
- Conversion of debt into equity;
- Acquisition of leased aircraft for shares;
- Restructuring of legacy debts;
- Localisation of services in Zimbabwe;
- Route optimisation; and
- Increase in fares to match costs.
There are risks associated with operating in Africa including
but not limited to political, judicial, administrative, fiscal and
other regulatory matters. Many countries in Africa, including those
in which the Group currently operate may in the future experience
severe socio-economic hardship and political instability, including
political unrest and government change.
The commitment of local business people, government officials
and agencies and the judicial system to abide by legal requirements
and negotiated agreements may be more uncertain, creating concerns
with respect to licences and agreements for business which may be
susceptible to delay, revision or cancellation, as a result of
which legal redress may be uncertain or delayed.
In preparing these financial statements, the Directors continue
to adopt the going concern basis, notwithstanding the expected need
for further funding and assumed the ability to extract hard
currency funds from Zimbabwe in the foreseeable future.
The Directors believe, based on current financial projections
and funds available and expected to be made available, that the
Group will have sufficient resources to meet its operational needs
over the relevant period, being at least until June 2020.
Accordingly, in preparing these Financial Statements, the Directors
continue to adopt the going concern basis. However, the headroom of
available cash resources is minimal and the projections are very
sensitive to any assumptions not being met.
The matters described above represent material uncertainties
that may cast significant doubt upon the Group's and the parent
Company's ability to continue as a going concern and, therefore, to
continue realising its assets and discharging its liabilities in
the normal course of business. The Financial Statements do not
include any adjustments that would result if the basis of
preparation proved inappropriate.
The key assumptions applied by the Directors in the preparation
of the detailed cash flow forecasts, which form the basis of this
forecast are:
- Load factors will average 74% for second half of 2019;
- Introduction of new initiatives to drive ex South Africa passengers;
- Focused, country-centric marketing by the commercial teams;
- 90% of revenue generated in US$ and ZAR;
- Mozambique operating expenses reducing following revised terms with Solenta;
- Exchange rates: fastjet cashflows are exposed to movements in
the RTGS$ and ZAR. In its forecasting fastjet has assumed that the
key exchange rates remain as at current levels.
The Directors have considered a number of risks in preparing
these forecasts, including inter alia:
- Not achieving forecast passenger numbers and load factors;
- An increase in aviation fuel prices, which are currently not hedged;
- Adverse currency exchange rate movements; and
- Ability to successfully remit cash from Zimbabwe.
Non-trading financial performance
Post balance sheet events
Loan from SSCG and loan to Annunaki - first term extension
On 1 March 2019, the Company agreed with both Annunaki and SSCG
that the terms of the unsecured loans will be extended to 31 March
2019. The terms of the Loan Agreements will remain the same except
for the following changes:
-- The loan amount from fastjet Zimbabwe to Annunaki was
increased from RTGS$5.0m to RTGS$7.0m due to devaluation of the
underlying RTGS$ currency;
-- During the term of the Loan Agreement with SSCG, SSCG shall
have the option to convert the US$2.0m repayment plus any
outstanding interest into ordinary shares in the Company (subject
always to the shareholders of the Company granting the directors
sufficient authority to allot and issue such shares on a
non-pre-emptive basis) (the "Option to Convert") either (i) upon
the happening of an event of default under the Loan Agreements, or
(ii) after 28 February 2019; and
-- Any ordinary shares in the Company issued pursuant to the
Option to Convert shall be issued at the higher of:
-- the volume weighted average price per ordinary share over the
preceding 30 trading days on the London Stock Exchange ending on
the date on which SSCG has given such written notice to convert;
or
-- At par value.
Loan - second term extension
On 05 March 2019, the parties agreed to extend the Loan
arrangements to 30 June 2019.
Loan - repayment and extension
On 11 June 2019, an amount of US$1.25m was repaid to SSCG and
the remaining US$0.75m was extended to 31 January 2020.
Additionally, between 12 June 2019 and 14 June 2019, Annunaki
repaid the RTGS$7.0m to fastjet Zimbabwe together with all the
accrued interest.
At 31 December 2018, the original RTGS$5.0m was valued at
US$1.1m based on management's implied exchange rate of RTGS$ 4.6923
= US$1.00. An exchange loss of US$3.9m was incurred because of the
significant devaluation of the RTGS$ currency against the US$.
At the time of repayment, the RTGS$7.0m was valued at US$1.1m
based on the Zimbabwean interbank exchange rate of RTGS$ 6.1200 =
US$1.00. Between 31 December 2018 and the time of repayment, an
additional exchange loss of US$0.7m was incurred as a result of
further devaluation of the RTGS$ currency against the US$.
Devaluation of Zimbabwe's domestic RTGS currency against the
US$
During the second half of 2018, a parallel exchange rate market
developed in Zimbabwe for RTGS$ to US$. In October 2018, the
government separated RTGS$ bank accounts and US$ bank accounts held
with commercial banks into two identifiable and separate bank
accounts with US$ bank accounts being called a US$ Nostro account.
By doing this, the Reserve Bank of Zimbabwe informally recognised a
parallel currency, and this resulted in the Zimbabwean market no
longer recognising the official exchange rate of RTGS$ 1.00 =
US$1.00. Because of this management took the decision to revalue
all RTGS$ denominated financial assets held at year end at an
exchange rate RTGS$ 4.6923 = US$1.00.
On 22 February 2019, the Reserve Bank of Zimbabwe formally
announced the introduction of a new domestic currency, which
effectively devalued its domestic US dollar denominated assets and
liabilities, including cash balances. At the same time, they
introduced an interbank exchange rate of RTGS$ 2.500 = US$1.00.
Since March 2019 to date, because of the above changes, the
RTGS$ to US$ exchange rates via interbank market have devalued
significantly from the starting RTGS$2.500 to a current interbank
rate of RTGS$6.1200 as of 18 June 2019. This has driven a
significant increase in costs of all supplies in country with
resultant inflation currently running at between 70% to 100% in
RTGS$ terms.
Fuel cost
During the 2018 financial year fastjet purchased its fuel at
prevailing market prices, and adjusted ticket prices accordingly
where required. The Board will keep its fuel price strategy under
review.
Consolidated income statement
(Re-presented)
Year ended Year ended
31 December 2018 31 December 2017
US$'000 US$'000
----------------------------------------------- ------------------- ------------------
Revenue 38,514 14,396
Cost of sales (50,273) (18,095)
------------------- ------------------
Gross loss (11,759) (3,699)
Administrative costs (13,774) (9,539)
Operating loss (25,533) (13,238)
Exceptional items (22,106) -
Finance income 431 2,131
Finance charges (10,641) (44)
------------------- ------------------
Loss from continuing activities before tax (57,849) (11,151)
Taxation (324) -
Loss from continuing activities after tax (58,173) (11,151)
Loss from discontinued activities net of tax (6,867) (13,345)
Loss for the year (65,040) (24,496)
------------------- ------------------
Attributable to:
Shareholders of the parent company (65,040) (24,496)
Non-controlling interests - -
------------------- ------------------
Loss per share (basic and diluted) (US$)
From continuing activities (0.08) (0.03)
From discontinued activities (0.01) (0.03)
----------------------------------------------- ------------------- ------------------
Total (0.09) (0.06)
----------------------------------------------- ------------------- ------------------
Consolidated statement of comprehensive income
(Re-presented)
Year ended Year ended
31 December 2018 31 December 2017
US$'000 US$'000
------------------------------------------------------------------ ------------------- ------------------
Loss for the year (65,040) (24,496)
------------------- ------------------
Items that may be reclassified to profit or loss: - -
- Exchange differences on translation of continuing operations 73 (3,222)
- Exchange differences on translation of discontinued operations (5,491) -
Total other comprehensive income / (expense) for the year (5,418) (3,222)
------------------- ------------------
Total comprehensive expense (70,458) (27,718)
------------------- ------------------
Attributable to:
Shareholders of the parent company (70,458) (27,718)
Non-controlling interests - -
------------------------------------------------------------------ ------------------- ------------------
Total comprehensive expense (70,458) (27,718)
------------------------------------------------------------------- ------------------- ------------------
Consolidated balance sheet
Year ended Year ended
31 December 2018 31 December
US$'000 2017
US$'000
---------------------------------------- ------------------ -------------
Non-current assets
Intangible assets 6,384 2,921
Property, plant and equipment 16,561 42,322
------------------ -------------
22,945 45,243
------------------ -------------
Current assets
Inventory 138 -
Cash and cash equivalents 6,573 20,079
Trade and other receivables 4,409 6,439
Loan to Annunaki 1,090 -
Other financial assets - 11,000
12,210 37,518
Total assets 35,155 82,761
================== =============
Equity
Share capital 192,077 150,752
Share premium account 215,004 209,216
Treasury shares (288) (288)
Shares in lock-up transactions - (16,571)
Reverse acquisition reserve 11,906 11,906
Retained earnings (403,297) (338,538)
Translation reserve (4,997) 421
------------------ -------------
Equity attributable to shareholders of
the Parent Company 10,405 16,898
Non-controlling interests - -
------------------ -------------
Total equity 10,405 16,898
------------------ -------------
Liabilities
Non-current liabilities
Loans and other borrowings 3,767 7,577
Obligations under finance leases - 27,678
Deferred tax liability 3,746 -
------------------ -------------
7,513 35,255
------------------ -------------
Current liabilities
Loans and other borrowings 2,709 1,107
Obligations under finance leases - 3,418
Trade and other payables 14,528 25,984
Taxation - 99
------------------ -------------
17,237 30,608
------------------ -------------
Total liabilities 24,750 65,863
------------------ -------------
Total liabilities and equity 35,155 82,761
================== =============
Consolidated cash flow statement
(Re-presented)
Year ended Year ended
31 December 2018 31 December
US$'000 2017
US$'000
--------------------------------------------------------------------- ------------------- ---------------
Operating activities
Loss for the year (65,040) (24,496)
Adjustments for non-cash items:
Loss from discontinued activities 6,867 13,345
Equity-settled share-based payment - released 11,317 -
Equity-settled share-based payment - services received 5,254 2,653
Amortisation of other intangible assets 1,034 198
Impairment of FedAir Brand Licensing Agreement 4,609 -
Impairment of goodwill 1,499 -
Impairment of air operations certificate 2,979 -
Impairment of fastjet Plc brand 1,220 -
Impairment of FedAir brand 108 -
Lease rental arrears on the aircraft converted into equity 495 -
Finance income (431) (2,131)
Finance charges 10,641 44
Depreciation of aircraft 692 -
Depreciation of other property, plant and equipment 111 110
Share option charges 281 579
Tax expense (continuing operations) 324 -
Changes in working capital:
Decrease in trade and other receivables 1,405 2,623
(Decrease) in trade and other payables (14,672) (28,711)
------------------- ---------------
Cash utilised in operating activities (31,307) (35,786)
------------------- ---------------
Cash generated from operating activities of discontinued activities 1,426 1,033
Interest received 124 -
------------------- ---------------
Net cash utilised in operating activities (29,757) (34,753)
------------------- ---------------
Investing activities
Purchase of subsidiary (net of cash acquired) (2,412) -
Purchase of intangibles (526) (2,809)
Purchase of property, plant and equipment (627) (2)
Disposal of discontinued operation (net of cash disposed) (84) -
Investing activities from discontinued operations (41) -
------------------- ---------------
Net cash flow from investing activities (3,690) (2,811)
------------------- ---------------
Financing activities
Proceeds from the issue of shares (net of expenses) 24,668 56,947
Loan received - SAHL 12,000 -
Loan received - SSCG 2,000 -
Loan advanced - Annunaki (5,000) -
Interest paid (1,642) (1,878)
Instalment sale liabilities repayments (177) -
Finance lease obligations repayments (2,284) -
Loan notes and interest paid - discontinued operations (1,234) (959)
Net cash flow from financing activities 28,331 54,110
------------------- ---------------
Net movement in cash and cash equivalents (5,116) 16,546
Effect of exchange rate changes on cash (8,390) (74)
Opening net cash 20,079 3,607
------------------- ---------------
Closing net cash 6,573 20,079
=================== ===============
Consolidated statement of changes in equity
Shares in Reverse
Share Share Treasury lock-up Acquisition Translation Retained
Capital Premium Shares transactions Reserve Reserve Earnings Equity
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------------------------- -------- -------- -------- ------------- ------------ ----------- --------- --------
Balance at
31 December 2016 145,324 127,185 - - 11,906 3,643 (314,621) (26,563)
Shares issued
* 4,882 71,577 (288) (19,224) - - - 56,947
Shares issued
for business
combination * 546 10,454 - - - - - 11,000
Share based payments - - - - - - 579 579
Share services
received - - - 2,653 - - - 2,653
Transactions
with owners 5,428 82,031 (288) (16,571) - - 579 71,179
------------------------- -------- -------- -------- ------------- ------------ ----------- --------- --------
Loss for the
year - - - - - - (24,496) (24,496)
Other comprehensive
income - - - - - (3,222) - (3,222)
Total comprehensive
loss for the
year - - - - - (3,222) (24,496) (27,718)
------------------------- -------- -------- -------- ------------- ------------ ----------- --------- --------
Balance at 31
December 2017 150,752 209,216 (288) (16,571) 11,906 421 (338,538) 16,898
------------------------- -------- -------- -------- ------------- ------------ ----------- --------- --------
Shares issued
net of issuance
costs * 41,325 5,788 - - - - - 47,113
Share based payments - - - - - - 281 281
Share services
received ** - - - 5,254 - - - 5,254
Share services
released ** - - - 11,317 - - - 11,317
------------------------- -------- -------- -------- ------------- ------------ ----------- --------- --------
Transactions
with owners 41,325 5,788 - 16,571 - - 281 63,965
------------------------- -------- -------- -------- ------------- ------------ ----------- --------- --------
Loss for the
year - - - - - - (65,040) (65,040)
Other comprehensive income:
- Exchange differences
on translation
of continuing
operations - - - - - 73 - 73
- Exchange differences
on translation
of discontinued
operations recycled
to income statement - - - - - (5,491) - (5,491)
------------------------- -------- -------- -------- ------------- ------------ ----------- --------- --------
Total other comprehensive
income - - - - - (5,418) - (5,418)
------------------------- -------- -------- -------- ------------- ------------ ----------- --------- --------
Total comprehensive
loss for the
year - - - - - (5,418) (65,040) (70,458)
------------------------- -------- -------- -------- ------------- ------------ ----------- --------- --------
Balance at 31
December 2018 192,077 215,004 (288) - 11,906 (4,997) (403,297) 10,405
------------------------- -------- -------- -------- ------------- ------------ ----------- --------- --------
Notes to the consolidated financial statements
1. Significant accounting policies
fastjet Plc is the Group's parent company. It is incorporated in
England and Wales. The address of its registered office is the 6th
Floor, 60 Gracechurch Street, London, EC3V OHR. The Company's
shares are quoted on the AIM market of the London Stock
Exchange.
Holding Company
fastjet Plc's holding company is Solenta Aviation Holdings
Limited ("SAHL"), a Maltese company, registered under company
number C 86476, of registered office 4th Floor, Avantech Building,
St Julian's Road, San Gwann, SGN 2805, Malta. Solenta Aviation
Holdings Limited holds 59.34% of the group's equity as at 31
December 2018 (2017: 29.91%).
Basis of preparation
The financial information has been abridged from the audited
financial information for the year ended 31 December 2018.
The financial information set out above does not constitute the
Company's consolidated statutory accounts for the years ended 31
December 2018 or 2017 but is derived from those accounts.
Statutory accounts for 2017 have been delivered to the Registrar
of Companies and those for 2018 will be delivered following the
Company's Annual General Meeting. The Auditors have reported on
those accounts; their reports were unqualified but did draw
attention to the material uncertainty over going concern without
qualifying their reports.
While the financial information included in this preliminary
announcement has been prepared in accordance with the recognition
and measurement criteria of International Financial Reporting
Standards ('IFRS'), this announcement does not itself contain
sufficient financial information to comply with IFRS. The Group
will be publishing full financial statements that comply with IFRS
in June 2019.
These financial statements are prepared on the historical cost
basis except certain financial assets and liabilities that are
stated at their fair value, and equity-settled share based payments
which are measured at fair value on the date of grant and expensed
on a straight line basis over the vesting period.
They are prepared in accordance with applicable International
Financial Reporting Standards ("IFRS") as adopted by the EU and the
applicable reporting requirements of the Companies Act 2006.
The significant accounting policies are set out below and have,
unless otherwise stated, been applied consistently, in all material
respects, throughout all periods presented in these financial
statements.
Presentation of results
The Group has presented results in the income statement to
separately identify exceptional items and discontinued operations
in order to provide readers with a clear and consistent
presentation of the underlying operating performance of the Group's
ongoing business, see Note 3 and Note 6 respectively.
On 26 November 2018 the Group sold its shares in fastjet Air TZ
(BVI) Limited, which further held 49% in fastjet Airlines Limited.
In addition, the Board further resolved to close the Guernsey
structure which consisted of dormant entities, as further described
in Note 3. The closure of these entities resulted in a loss from
discontinued operations after tax of US$6.9m (see Note 3). The 2017
comparatives have therefore been re-presented to report fastjet Air
TZ (BVI) Limited, fastjet Airlines Limited and the dormant entities
as discontinued operations.
Functional and presentation currencies
All amounts are presented in US$, being the Company's functional
currency and the Group's reporting and presentation currency. This
currency has been chosen as the Group's expenses and product prices
are denominated in US$, due to the nature of operating in the
aviation sector. All amounts are shown in round thousands (US$'000)
except where indicated. In preparing the financial statements of
the individual companies, transactions denominated in foreign
currencies in that country are translated into the respective
functional currency of the Group entities using the exchange rates
prevailing at the dates of transactions.
The functional currency of the various Group subsidiary
companies is as follows:
- fastjet Tanzania is Tanzania shillings;
- fastjet Zimbabwe is US$;
- fastjet Mozambique is Mozambican metical;
- fastjet Africa is South African rand;
- Federal Airlines ("FedAir") is South African rand;
- fastjet Zambia is Zambian kwacha;
- fastjet Kenya is Kenyan shillings; and
- fastjet Plc is US$.
Non-monetary assets and liabilities are translated at the
historic rate. Monetary assets and liabilities denominated in
foreign currencies are translated into the functional currency at
the rates of exchange ruling at the reporting date. Non-monetary
assets and liabilities denominated in foreign currencies that are
measured at fair value are retranslated to the functional currency
at the exchange rate at the date that fair value was
determined.
Exchange differences arising on the settlement of monetary
items, and on the retranslation of monetary items, are included in
the income statement for the period. Exchange differences arising
on translating foreign cash balances are shown as finance income or
expense. Exchange differences arising on the retranslation of
non-monetary items carried at fair value in respect of which gains
and losses are recognised directly in equity, are also recognised
directly in equity.
For the purpose of presenting consolidated financial statements,
the assets and liabilities of the Group's foreign operations are
translated at exchange rates prevailing at the reporting date.
Income and expense are translated at the average exchange rates for
the period, unless exchange rates fluctuate significantly during
that period, in which case weighted average rates are used.
Exchange differences arising, if any, are classified in equity and
are transferred to the Group's foreign currency translation reserve
within equity. Such translation is recognised as income or as
expense in the period in which the operation is disposed of.
Subsidiaries within the Group hold monetary intercompany
balances for which settlement is neither planned nor likely to
occur in the foreseeable future and thus are considered to be part
of the Group's net investment in the relevant subsidiary. Due to
the equity-like nature of these balances, any exchange differences
arising on translation are recognised on consolidation directly
into equity through the Consolidated Statement of Other
Comprehensive Income, only being recognised in the Consolidated
Income Statement on the disposal of the net investment.
The exchange rates that has been used to translate the operating
results, assets and liabilities of key foreign businesses to US$
are:
Year 2018 Year 2017
Currency Income Statement Balance Sheet Income Statement Balance
(average rate) (closing (average Sheet (closing
rate) rate) rate)
----------------- ----------------- ----------------
South African
rand 13.284 14.3960 13.30625 12.3936
Mozambican metical 60.4774 61.3799 60.0225 58.9057
Zambian Kwacha 10.6410 11.9328 9.5633 10.08919
Tanzanian shilling
* 2,275.6287 2,300.0138 2,239.2441 2,237.1104
Kenyan shilling 101.2916 - 103.7892 103.2950
----------------- -------------- ----------------- ----------------
* For 2018, the Balance Sheet (closing rate) for Tanzanian
shillings is the closing rate on 30 November 2018, the date of the
fastjet Tanzania CGU disposal.
Going Concern
The Group has in recent years operated at a loss and incurred a
further operating cash outflow during 2018. The Group reviewed its
current operating model in 2018 and took the following initiatives
to reduce cash outflow:
- Divestment from Tanzania;
- Downsizing and restructuring of Head Office;
- Conversion of debt into equity;
- Acquisition of leased aircraft for shares;
- Restructuring of legacy debts;
- Localisation of services in Zimbabwe;
- Route optimisation; and
- Increase in fares to match costs.
There are risks associated with operating in Africa including
but not limited to political, judicial, administrative, fiscal and
other regulatory matters. Many countries in Africa, including those
in which the Group currently operate may in the future experience
severe socio-economic hardship and political instability, including
political unrest and government change.
The commitment of local business people, government officials
and agencies and the judicial system to abide by legal requirements
and negotiated agreements may be more uncertain, creating concerns
with respect to licences and agreements for business which may be
susceptible to delay, revision or cancellation, as a result of
which legal redress may be uncertain or delayed.
In preparing these financial statements, the Directors continue
to adopt the going concern basis, notwithstanding the expected need
for further funding and assumed the ability to extract hard
currency funds from Zimbabwe in the foreseeable future.
The Directors believe, based on current financial projections
and funds available and expected to be made available, that the
Group will have sufficient resources to meet its operational needs
over the relevant period, being at least until June 2020.
Accordingly, in preparing these Financial Statements, the Directors
continue to adopt the going concern basis. However, the headroom of
available cash resources is minimal and the projections are very
sensitive to any assumptions not being met.
The matters described above represent material uncertainties
that may cast significant doubt upon the Group's and the parent
Company's ability to continue as a going concern and, therefore, to
continue realising its assets and discharging its liabilities in
the normal course of business. The Financial Statements do not
include any adjustments that would result if the basis of
preparation proved inappropriate.
The key assumptions applied by the Directors in the preparation
of the detailed cash flow forecasts, which form the basis of this
forecast are:
- Load factors will average 74% for the second half of 2019;
- Introduction of new initiatives to drive ex South Africa passengers;
- Focused, country-centric marketing by the commercial teams;
- 90% of revenue generated in US$ and ZAR;
- Mozambique operating expenses reducing following revised terms with Solenta; and
- Exchange rates: fastjet cashflows are exposed to movements in
the RTGS$ and ZAR. In its forecasting fastjet has assumed that the
key exchange rates remain as at current levels.
The Directors have considered a number of risks in preparing
these forecasts, including inter alia:
- Not achieving forecast passenger numbers and load factors;
- An increase in aviation fuel prices, which are currently not hedged;
- Adverse currency exchange rate movements; and
- Ability to successfully remit cash from Zimbabwe.
New accounting standards, interpretations and amendments
The Group has adopted IFRS 15 and IFRS 9 for the first time in
the year ended 31 December 2018.
Due to the transition methods chosen by the Group in applying
these standards, comparative information throughout these financial
statements has not been restated to reflect the requirements of the
new standards except for separately presenting impairment loss on
trade receivables.
The effect of initially applying these standards is mainly
attributed to the following:
-- An increase in impairment losses recognised on financial assets; and
-- Deferring revenue from ancillary services received before
year end for flights scheduled for the following year.
IFRS 15 establishes a comprehensive framework for determining
whether, how much and when revenue is recognised. It replaced IAS
18 Revenue and related interpretations.
On adopting IFRS 15, only passenger ancillary fees were
affected. The amount and the effect on retained earnings at 1
January 2018 was not material at US$51k.
Under IFRS 15, revenue is recognised when a customer obtains
control of the goods or services (passenger has flown). Determining
the timing of the transfer of control at a point in time or over
time requires judgement. In the company's case when a passenger
actually flies, revenue is recognised.
The Group has adopted IFRS 15 using the cumulative effect
method. The effects of adopting this standard have been recognised
on 01 January 2018. Accordingly, the information presented for 2017
has not been restated.
There was no material impact on the Group's income statement,
statement of comprehensive income, balance sheet and cash flows for
the year ended 31 December 2018.
Ancillary fees
Included in the Group's Ancillary fees are flight alteration
fees and credit card payment fees. Under IAS 18, flight alteration
fees and credit card fees were recognised when a passenger
requested a change and pays the fees. These transactions were
considered as separate services.
Under IFRS 15, the alteration fees and credit card fees are not
considered distinct because the customer cannot benefit from it
without taking the flight. Although these services are provided in
advance of the flight, the benefit from it is not provided until
the customer takes the flight. As a result, the charge is
recognized as revenue together with the original ticket sale that
is on the date of travel. The impact of this change on items other
than revenue is an increase in deferred revenue which is now
included in contract liabilities.
IFRS 15 did not have significant impact on the Group's
accounting policy with respect to revenue for the provision of air
travel.
IFRS 9
On transition to IFRS 9, there was no impact on the group's
retained earnings.
IFRS 9 contains three principal classification categories
whereby financial assets are measured at:
-- amortised cost;
-- fair value through other comprehensive income ("FVOCI"); and
-- fair value through profit and loss ("FVTPL").
The classification of financial assets under IFRS 9 is generally
based on the business model in which a financial asset is managed
and its contractual cash flow characteristics. IFRS 9 eliminates
the previous IAS 39 categories of held to maturity, loans and
receivables and available for sale. Under IFRS 9, derivatives
embedded in contracts where the host is a financial asset in the
scope of the standard are never separated. Instead, the hybrid
financial instrument as a whole is assessed for classification.
IFRS 9 largely retains the existing requirements in IAS 39 for
the classification and measurement of financial liabilities. The
adoption of IFRS 9 had no effect on the Group's accounting policies
related to financial liabilities.
The following table and the accompanying notes below explain the
original measurement categories under IAS 39 and the new
measurement categories under IFRS 9 for each class of the Group's
financial assets and financial liabilities as at 01 January 2018.
The effect of adopting IFRS 9 on the carrying amounts of financial
assets at 01 January 2018 relates solely to the new impairment
requirements.
Original classification New classification Carrying Carrying
under IAS 39 under IFRS 9 amount amount
under under
IAS 39 IFRS 9
01 Jan 01 Jan
2018 2018
US$'000 US$'000
----------------------- ------------------------- -------------------- --------- ----------
Financial assets
Trade and other
receivables Loans and receivables Amortised cost 4,920 4,920
Cash and cash
equivalents Loans and receivables Amortised cost 20,079 20,079
FedAir brand Fair value through Fair value through
license agreement profit and loss profit and loss 4,609 4,609
Fair value through Fair value through
Call option asset profit and loss profit and loss 6,391 6,391
Total financial
assets 35,999 35,999
--------- ----------
Financial liabilities
Other financial Other financial
Trade payables liabilities liabilities 19,652 19,652
Other financial Other financial
Loans and borrowings liabilities liabilities 8,684 8,684
Finance lease Other financial Other financial
obligations liabilities liabilities 31,096 31,096
Total financial
liabilities 59,432 59,432
--------- ----------
The following table reconciles the carrying amounts of financial
assets under IAS 39 to the carrying amounts under IFRS 9 on
transition to IFRS 9 on 1 January 2018.
IAS 39 carrying Reclassification Remeasurement IFRS9 carrying
amount at amount
31 Dec 2017 at
1 Jan
2018
US$'000 US'$000 US$'000 US'$000
----------------------------- ----------------- ------------------ --------------- ---------------
Financial assets
Amortised cost
Cash and cash equivalents - - - -
Brought forward: Loans 20,079 - - -
and receivables
Remeasurement - -
Carried forward amortised
cost - - - 20,079
Trade and other receivables - - - -
Brought forward: Loans 6,439 - - -
and receivables
Remeasurement - -
Carried forward amortised
cost - - - 6,439
----------------------------- ----------------- ------------------ --------------- ---------------
Impairment of financial assets
IFRS 9 replaces the 'incurred loss' model in IAS 39 with an
'expected credit loss' ("ECL") model. The new impairment model
applies to financial assets measured at amortised cost. Under IFRS
9, credit losses are recognised earlier than under IAS 39.
For assets in the scope of the IFRS 9 impairment model,
impairment losses are generally expected to increase and become
more volatile. The Group has determined that the application of
IFRS 9's impairment requirements at 1 January 2018 results in an
additional allowance for impairment as follows:
Loss allowance as at 31 December 2017 under IAS 39 -
Additional impairment recognised as 1 January 2018 on: -
Trade and other receivables -
Cash and cash equivalents -
Loss allowance as 1 January 2018 under IFRS 9 -
Recent accounting developments
The following new accounting standards, amendments and
interpretations to existing standards have been published but are
not yet effective and have not been applied early by the Group in
these financial statements. The anticipated impact on adoption is
currently being assessed.
-- IFRS 16 Leases - This is effective for periods beginning on or after 01 January 2019.
The new standard eliminates the classification of leases as
either operating leases or finance leases and instead introduces a
single lessee accounting model. The Group has a number of operating
leases for assets including aircraft and property. All aircraft
operating leases are short term in nature (one year or less) and
can generally be terminated by the group on ninety (90) day notice.
Property leases vary in duration from one to five years.
Details of the Group's operating lease commitments are disclosed
in Note 25.
The Group has assessed the impact of the new standard and
expects its implementation to have a minimal impact on the
financial statements from the date of adoption. The main changes
will be as follows:
-- The amounts recognised as assets and liabilities on adoption
of IFRS 16 will be subject to a number of judgements, estimates and
assumptions. This includes:
a) Assumptions used to calculate the discount rate to apply to
lease obligations, which is likely to be based on the incremental
borrowing rate for the estimated lease term.
b) Estimation of the lease term, including options to extend the
lease where the Group is reasonably certain to extend.
-- Interest-bearing borrowings and non-current assets will
increase on implementation of the standard as obligations to make
future payments under leases currently classified as operating
leases will be recognised on the balance sheet, along with the
related 'right-of-use' asset. It is expected that lease
obligations, which are not US dollar denominated, will be
recognised at the exchange rate ruling on the date of adoption and
the appropriate incremental borrowing rate at that date, with the
related 'right-of-use' asset recognised at the exchange rate ruling
at the commencement of the lease.
-- There will be a reduction in expenditure on operations and an
increase in finance costs as operating lease costs are replaced
with depreciation and lease interest expense.
-- The Group's operating and financial statistics will also be
impacted. These comprise operating margin and operating margin
before exceptional items; earnings before interest, tax,
depreciation, amortisation and rent "EBITDAR" and net debt/total
capital ratio. The definitions of these metrics will be reviewed on
adoption of IFRS 16 to ensure that they continue to measure the
outcome of the Group's strategy and monitor performance against
long-term planning targets.
-- For future reporting periods after adoption, foreign exchange
movements on lease obligations, will be re-measured at each balance
sheet date, however the right-of-use asset will be recognised at
the historic exchange rate. This will create volatility in the
income statement.
Annual operating lease expense, which would have been recognized
under the existing leases standard, will be replaced by anticipated
similar levels of depreciation and interest expense, such that no
major impact on profit before tax is expected in the year of
transition.
With respect to IFRS 16, fastjet anticipates applying the
modified transition method.
-- IFRIC 23 Uncertainty over Income Tax Treatments - It is
expected that this will have no material impact on reported
transactions.
Basis of consolidation
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group
controls an entity when it is exposed to, or has rights to,
variable returns from its involvement with the entity and has the
ability to affect those returns through its power over the entity.
In assessing control, the Group takes into consideration potential
voting rights. The acquisition date is the date on which control is
transferred to the acquirer. The financial statements of
subsidiaries are included in the consolidated financial statements
from the date that control commences until the date that control
ceases.
Loss of control
When the group loses control over a subsidiary, it derecognises
the assets and liabilities of the subsidiary, and any related
non-controlling interest ("NCI") and other components of equity.
Any resulting gain or loss is recognised in profit or loss. Any
interest retained in the former subsidiary is measured at fair
value when control is lost.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income
and expenses arising from intra-group transactions, are eliminated.
Unrealised gains arising from transactions with equity-accounted
investees are eliminated against the investment to the extent of
the Group's interest in the investee. Unrealised losses are
eliminated in the same way as unrealised gains, but only to the
extent that there is no evidence of impairment.
Business combinations
The group accounts for the acquisition of subsidiaries and
businesses using the purchase method. The cost of acquisition is
measured at the aggregate of the fair values of assets given and
equity instruments issued, plus any liabilities assumed. The
acquired entities' assets, liabilities and contingent liabilities
that meet the recognition criteria set out in IFRS 3 (Revised) are
recognised at fair value. Costs directly attributable to the
business combination are expensed as incurred except the costs to
issue debt which are amortised as part of the effective interest
and costs to issue equity which are included in equity.
Goodwill
Goodwill represents the excess of the cost of a business
combination over the Group's interest in the fair value of
identifiable assets, liabilities and contingent liabilities
acquired.
Cost comprises the fair value of assets given, liabilities
assumed, and equity instruments issued, plus the amount of any
non-controlling interests in the acquiree plus, if the business
combination is achieved in stages, the fair value of the existing
equity interest in the acquiree. Contingent consideration is
included in cost at its acquisition date fair value and, in the
case of contingent consideration classified as a financial
liability, remeasured subsequently through profit or loss.
Goodwill is capitalised as an intangible asset with any
impairment in carrying value being charged to the consolidated
statement of comprehensive income. Where the fair value of
identifiable assets, liabilities and contingent liabilities exceed
the fair value of consideration paid, the excess is credited in
full to the consolidated statement of comprehensive income on the
acquisition date.
The interest of non-controlling interests in the acquired
entities is initially measured at the non-controlling party's
proportion of the net fair value of the assets, liabilities and
contingent liabilities recognised.
Exceptional items
The Group presents those items which, because of their size,
nature or expected infrequency of events giving rise to them, merit
separate presentation to allow the users of the financial
statements to understand better the Group's financial performance
in the period. Examples of items that may give rise to disclosure
as exceptional items include:
-- Impairments of intangible assets or property, plant and
equipment as well as the reversal of such write downs or
impairments;
-- Restructuring provisions or their reversal including
redundancy costs, lease surrender costs or similar contract
cancellation costs;
-- Corporate-related costs including refinancing costs, and
significant costs relating to acquisitions and disposals;
-- Disposals of items of property, plant and equipment and intangible assets; and
-- Abnormal legal costs, litigation settlements and other similar settlements.
Where these exceptional items are material in size and nature to
the performance of the Group in the period, they are disclosed on a
separate line in the consolidated statement of comprehensive
income.
Discontinued operations
A discontinued operation is a component of the Group's business
that represents a separate major line of business or geographical
area of operations that has been disposed of or is held for sale,
or has been abandoned, or is a subsidiary acquired exclusively with
a view to resale.
Classification as a discontinued operation occurs upon disposal
or when the operation meets the criteria to be classified as held
for sale.
When an operation is classified as a discontinued operation, the
statement of comprehensive income is re-presented as if the
operation had been discontinued from the start of the comparative
period. Discontinued operations are presented in the consolidated
statement of comprehensive income as a single line which comprises
the post-tax profit or loss of the discontinued operation along
with the post-tax gain or loss recognised on the re-measurement to
fair value less costs to sell or on disposal of the assets or
disposal Groups constituting discontinued operations.
Property, plant and equipment
Property, plant and equipment are stated at cost, net of
accumulated depreciation and any provision for impairment.
Depreciation is calculated so as to write off the cost of an asset,
less its estimated residual value, over the useful economic life of
that asset as follows:
Owned aircraft - 25 years
Leased aircraft - 25 years
Leasehold property - term of the lease
Motor vehicles - 4 years
Fixtures, fittings and office equipment - 4 to 7 years
Plant and machinery - 10 years
Aircraft
Aircraft held under finance leases are depreciated over their
expected useful lives, as shown above.
Residual values, where applicable, are reviewed annually against
prevailing market rates at the balance sheet date for equivalently
aged assets and depreciation rates adjusted accordingly on a
prospective basis. The carrying value is reviewed for impairment if
events or changes in circumstances indicate that the carrying value
may not be recoverable.
Aircraft purchased with some economic life expired are
depreciated over the remaining economic life. Subsequent costs
incurred which lend enhancement to future periods, such as
long-term scheduled maintenance and major overhaul of aircraft and
engines are capitalised and depreciated over the length of period
benefiting from these enhancements. All other maintenance costs are
charged to the income statement as incurred.
Each component of an item of aircraft and other fixed assets
with a cost that is significant in relation to the total cost of
the item is depreciated separately. The depreciation charge for
each period is recognised in profit or loss unless it is included
in the carrying amount of another asset.
On acquisition, each aircraft is split into its component
assets, being each of its engines and its airframes. Major engine
maintenance incurred by the company is capitalised into the cost of
each engine asset. Depreciation of Airframe and Landing Gear is
provided on the straight-line method and depreciation of aircraft
engines (Engine Overhaul or Shop Restoration, plus Engine Hot
Section Inspection and Auxiliary Power Unit) is provided on the
sum-of-units method to write off the cost of each asset to its
residual values over the estimated useful life.
The estimated useful lives are as follows;
Aircraft fleet Airframe Engine Overhaul Engine Hot Landing Auxiliary
(1) / Shop Restoration Section Gear (1) Power Unit
(2) Inspection ("APU")
(2) (2)
Embraer 145 25 years 7,000 Hours - 144 months 5,000 Hours
C208B Fleet 25 years 3,600 Hours 1,800 Hours - -
PC12 Fleet 25 years 3,600 Hours 2,000 Hours - -
--------- -------------------- ------------ ----------- ------------
(1.) Depreciated on the straight-line method
(2.) Depreciated on the sum-of-units method (per hour flown /
utilized)
Goodwill and other intangible assets
Goodwill arises on the acquisition of subsidiaries and
represents the excess of the consideration paid over the net fair
value of the identifiable assets and liabilities of the acquiree.
Where the net fair value of the identifiable assets and liabilities
of the acquiree is in excess of the consideration paid, a gain on
bargain purchase is recognised immediately in the income statement.
Goodwill is stated at cost less accumulated impairment losses. It
has indefinite expected useful life and is tested for impairment at
least annually or where there is indication of impairment.
Intangible assets (other than goodwill) are recognised at cost
less accumulated amortisation charges and any provision for
impairment, or they are deemed to have an indefinite economic life
and are not amortised but tested annually for impairment or more
frequently, if events or changes in circumstances indicate the
carrying value may not be recoverable.
Amortisation is charged on a straight-line basis, as
follows:
Air Operator Certificates (AOCs) - 10 years
Brand licence agreement - 10 years
Purchased Brand - Indefinite
Computer Software - 4 years
Impairment of assets
For the purposes of assessing impairment, assets are grouped at
the lowest levels for which there are largely independent cash
inflows (cash-generating units). As a result, some assets are
tested individually for impairment and some are tested at
cash-generating unit level.
All individual assets or cash-generating units are tested for
impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the
assets' or cash-generating unit's carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of value
in use and fair value less costs to sell. To determine the
recoverable amount, management estimates expected future cash flows
from each cash-generating unit and determines a suitable discount
rate in order to calculate the present value of those cash flows.
The data used for impairment testing procedures are directly linked
to the Group's latest approved budget, adjusted as necessary to
exclude the effects of future reorganisations and asset
enhancements. Discount factors are determined individually for each
cash-generating unit and reflect their respective risk profiles as
assessed by management.
Impairment losses for cash-generating units reduce the
recognised value of assets in the cash-generating unit. All assets
are subsequently reassessed for indications that an impairment loss
previously recognised may no longer exist. An impairment charge is
reversed if the cash-generating unit's recoverable amount exceeds
its carrying amount. Impairment charges are included in profit or
loss, except to the extent they reverse gains previously recognised
in other comprehensive income. An impairment charge on the value of
goodwill cannot be reversed in a subsequent period.
Leases
Leases are classified as finance lease whenever the terms of the
lease transfer substantially all the risks and rewards of ownership
to the lessee. All other leases are classified as operating
leases.
Operating leases
Rental charges on operating leases are charged to the income
statement on a straight-line basis over the life of the lease. In
the event that lease incentives are received to enter into
operating leases, such incentives are recognised as a liability.
The aggregate benefit of incentives is recognised as a reduction of
rental expense on a straight-line basis over the life of the
respective asset.
Finance leases
The asset is recorded in the balance sheet as property, plant
and equipment, and is depreciated over the estimated useful life to
the Group. The asset is recorded at the lower of its fair value,
less accumulated depreciation, and the present value of the minimum
lease payments at the inception of the finance lease. Future
instalments under such leases, net of finance charges, are included
as obligations under finance leases. Rental payments are
apportioned between the finance element, which is charged to the
income statement, and the capital element, which reduces the
outstanding obligation for future instalments. The finance charge
is allocated to each period during the lease term so as to produce
a constant periodic rate of interest on the remaining balance of
the liability.
Provisions
The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at the
balance sheet date, taking into account the risks and uncertainties
surrounding the obligation. Where a provision is measured using the
cash flows estimated to settle the present obligation, its carrying
amount is the present value of those cash flows.
When some or all of the economic benefits required to settle a
provision are expected to be recovered from a third party, a
receivable is recognised as an asset if it is virtually certain
that reimbursement will be received and the amount of the
receivable can be measured reliably.
Revenue
The Group has applied IFRS 15 from 1 January 2018. Revenue is
measured based on the consideration specified in a contract with a
customer. The Group recognises revenue when it transfers control
over goods and services to a customer. Revenue for the provision of
air travel is recognised on the date of departure. Ancillary fees
such as baggage fees, credit card fees and flight alteration fees
are also recognised on the date of departure as these are not
considered distinct because the customer cannot benefit from it
without taking the flight.
The Group incurs costs to obtain a customer contract that would
otherwise not have been incurred. Such costs include credit card
fees, travel agency fees and other commissions paid and global
distribution systems ("GDS") booking fees .The Group has elected to
apply the optional practical expedient for costs to obtain a
contract which allows the Group to immediately expense sales
commissions (included under employee benefits and part of cost of
sales) because the amortisation period of the asset that the Group
otherwise would have used is one year or less.
For shuttle and charter, clients are invoiced at an agreed rate,
based on the higher of actual aircraft utilisation during the
actual flight and a minimum fixed amount quoted per shuttle ticket
or charter flight. Revenue is only recognised in the income
statement when the actual flight has been performed. Any amounts
received prior to flight date are recorded as creditors under
deferred income. See Note 15.
Inventory
Inventories are stated at the lower of cost or net realisable
value. Cost is determined using the weighted average cost method.
Inventory comprises aircraft general spares and rotables. Inventory
excludes borrowing costs and freight. Net realisable value is the
estimated selling price in the ordinary course of business, less
estimated costs to completion and applicable variable selling
expenses.
Pension costs
Defined contribution plans
A defined contribution plan is a post-employment benefit plan
under which the company pays fixed contributions into a separate
entity and will have no legal or constructive obligation to pay
further amounts. Obligations for contributions to defined
contribution pension plans are recognised as an expense in the
income statement in the periods during which services are rendered
by employees.
Taxation
Current tax is the tax currently payable or receivable based on
the result for the period.
Deferred income taxes are calculated using the liability method
on temporary differences. Deferred tax is generally provided on the
difference between the carrying amounts of assets and liabilities
and their tax bases. However, deferred tax is not provided on the
initial recognition of goodwill, nor on the initial recognition of
an asset or liability unless the related transaction is a business
combination or affects tax or accounting profit. Deferred tax on
temporary differences associated with shares in subsidiaries is not
provided if reversal of these temporary differences can be
controlled by the Group and it is probable that reversal will not
occur in the foreseeable future. In addition, tax losses available
to be carried forward as well as other income tax credits to the
Group are assessed for recognition as deferred tax assets.
Deferred tax liabilities are provided in full, with no
discounting. Deferred tax assets are recognised to the extent that
it is probable that the underlying deductible temporary differences
will be able to be offset against future taxable income. Current
and deferred tax assets and liabilities are calculated at tax rates
that are expected to apply to their respective period of
realisation, provided they are enacted or substantively enacted at
the balance sheet date.
Changes in deferred tax assets or liabilities are recognised as
a component of tax expense in the income statement, except where
they relate to items that are charged or credited directly to
equity in which case the related deferred tax is also charged or
credited directly to equity.
Share-based payments
Employee benefits
The Company operates equity-settled share-based remuneration
plans for certain employees (including Directors).
Equity-settled share-based payments are measured at fair value
at the date of grant. The fair value determined at the grant date
of the equity-settled share-based payments is expensed on a
straight-line basis over the vesting period, together with a
corresponding increase in equity, based upon the Company's estimate
of the number of shares that will vest.
Fair value is measured using the Black-Scholes pricing model.
The expected life used in the model is adjusted, based on
management's best estimate, for the effects of non-transferability,
exercise restrictions and behavioural considerations. Where
employees are rewarded using share-based payments, the fair values
of employees' services are determined indirectly by reference to
the fair value of the instrument granted to the employee. Upon
exercise of share options, the proceeds received net of
attributable transaction costs are credited to share capital, and
where appropriate to share premium.
Equity-settled share-based payment transactions
Share-based payment arrangements in which the Company receives
goods or services as consideration for its own equity instruments
are accounted for as equity-settled share-based payment
transactions, regardless of how the equity instruments are obtained
by the Company.
Operating segments
Operating segments are reported in a manner consistent with the
internal reporting provided to the Chief Operating Decision Maker.
The Chief Operating Decision Maker, in the context of IFRS 8
"Operating segments", is considered to be the Board of Directors.
The Board of Directors monitors the performance of business
segments and makes decisions about the allocation of resources
between those segments.
Financial instruments
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand
deposits.
Equity
Equity comprises the following:
-- "Share capital" represents the nominal value of equity shares that have been issued.
-- "Share premium" represents the excess over nominal value of
the fair value of consideration received for equity shares, net of
expenses of the share issue.
-- "Retained earnings" mostly comprise all current and prior
period results as disclosed in the income statement as well as
costs taken directly to equity.
-- "Translation reserve" represents the cumulative amount of
foreign exchange gains and losses recognised outside of retained
earnings.
-- "Reverse acquisition reserve" represents the balancing figure
on combination of Rubicon and Lonrho's reserves in 2012.
-- "Treasury shares" represents the value of shares in fastjet
Plc that are held by fastjet Plc Employee Benefit Trust.
-- "Shares in lock-up transactions" represent the value as at 31
December 2017 of fastjet shares issued to Solenta Aviation Holdings
Limited for services that were to be received in future, see Note
23.
Financial assets
All financial assets are recognised when the Group becomes a
party to the contractual provisions of the instrument.
On initial recognition the group classifies, a financial asset
as measured at:
-- Amortised cost
-- Fair value through profit and loss
A financial asset is measured at amortised cost if it meets both
of the following conditions and is not designated as at fair value
through profit and loss:
- It is held within a business model whose objective is to hold
assets to collect contractual cash flows;
- Its contractual terms give rise on specified dates to
cashflows that are solely payments of principal and interest on the
principal amount outstanding.
Amortised cost:
These assets arise principally from the provision of goods and
services to customers (e.g. trade receivables), but also
incorporate other types of financial assets where the objective is
to hold these assets in order to collect contractual cash flows and
the contractual cash flows are solely payments of principal and
interest. They are initially recognised at fair value plus
transaction costs that are directly attributable to their
acquisition or issue and are subsequently carried at amortised cost
using the effective interest rate method, less provision for
impairment.
The Group's financial assets measured at amortised cost comprise
trade and other receivables and cash and cash equivalents in the
consolidated statement of financial position. Cash and cash
equivalents include cash in hand and deposits held at call with
banks.
All financial assets not classified as measured at amortised
cost are measured at fair value through profit and loss. This
includes all derivative financial assets.
Fair value through profit or loss:
All financial assets not classified as measured at amortised
cost are measured at fair value through profit and loss. This
includes all derivative financial assets. They are carried in the
statement of financial position at fair value with changes in fair
value recognised in the consolidated statement of comprehensive
income in the finance income or expense line. Other than derivative
financial instruments which are not designated as hedging
instruments, the Group does not have any assets held for trading
nor does it voluntarily classify any financial assets as being at
fair value through profit or loss.
Share options:
Share options are classified as financial assets at fair value
through profit or loss. When the company purchases an option, an
amount equal to the fair value which is based on the premium paid
is recorded as an asset.
Subsequent to initial recognition, share options are measured at
fair value with changes in fair value recognised in profit and loss
in the period in which they arise.
The group purchased a share option to purchase shareholding in
Federal Airlines Proprietary Limited. Further details of the call
option agreement are included in Note 13.
Derivatives
Derivatives embedded in other financial instruments or other
non-financial host contracts are treated as separate derivatives
when their risks and characteristics are not closely related to
those of the host contract and the host contract is not carried at
fair value with unrealised gains or losses reported in profit or
loss.
Changes in the fair value of derivative financial instruments
are recognised in profit or loss as they arise.
Derivatives are classified as financial assets at fair value
through profit or loss.
Subsequent to initial recognition, derivatives are measured at
fair value with changes in fair value recognised in profit and loss
in the period in which they arise.
Options
An option is a contractual arrangement under which the seller
(writer) grants the purchaser (holder) the right, but not the
obligation, either to buy (a call option) or sell (a put option) at
or by a set date or during a set period, a specific amount of
securities or a financial instrument at a predetermined price. The
seller receives a premium from the purchaser in consideration for
the assumption of the future securities price. The group is exposed
to credit risk on purchased options only to the extent of their
carrying amount, which is their fair value.
Financial liabilities
Financial liabilities are obligations to pay cash or other
financial assets and are recognised when the Group becomes a party
to the contractual provisions of the instrument. Financial
liabilities are classified according to the substance of the
contractual agreements entered into.
The Group's financial liabilities include finance leases,
borrowings, and trade and other payables.
Loan notes are initially recognised at fair value, net of
transactions costs, and are subsequently recorded at amortised cost
using the effective interest method.
Other financial liabilities are initially recognised at fair
value, net of transaction costs, and are subsequently recorded at
amortised cost using the effective interest method.
Treasury shares
Purchases of own shares (treasury shares), including the related
costs, are deducted directly from equity in the Consolidated
Financial Statements.
Key judgements and estimates
The preparation of financial statements in conformity with
adopted IFRS requires management to make judgements, estimates and
assumptions that affect the application of policies and reported
amounts of assets and liabilities, income and expenses. The
estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period or in the period of the revision and future
periods if the revision affects both current and future
periods.
Estimates made by management in the application of adopted IFRS
that have significant effect on the financial statements with a
significant risk of material adjustment in the next year are
discussed in the following Notes:
-- The valuation of the FedAir CGU, using the discounted
cashflow method, resulted in the valuation of the business at
US$5.0m as at 31 December 2018 (see Note 11). The valuation makes
use of estimates to determine future load factors, pricing,
revenue, costs and capital expenditure requirements. The
recoverable amount of FedAir was assessed by management to have
been lower than the carrying amount of the assets and liabilities
and hence an impairment loss was recognised. This resulted in the
impairment of goodwill of US$1.5m, impairment of the FedAir Air
Operations Certificate ("AOC") of US$3.0m and impairment of FedAir
brand of US$0.1m as at 31 December 2018.
-- Impairment of the US$4.6m FedAir brand license agreement held
by the Group, for the right to charge Brand Licence Fees to FedAir,
due to the call option having been exercised during 2018; this
resulted therefore in the asset lacking substance to be carried
forward as an asset.
-- Impairment of intangible assets (Note 11). Intangible assets
comprise of the fastjet and FedAir brands which were acquired at
US$2.5m and US$0.3m respectively and had an indefinite useful life.
Impairment of the fastjet brand is assessed annually making use of
the company's forecasts on future brand licence fees to fastjet
branded airline subsidiaries, on a discounted cash flow method.
There are a number of sensitivities on the forecasts that support
the value of the intangible assets. This future brand license fees
recoverable, based on the current operating airline businesses,
resulted in a provision for impairment of these brands of
US1.3m.
Judgements made by management in the application of adopted IFRS
that have significant effect on the financial statements. These
include:
-- the determination of going concern shown above on page 23 - 24.
-- the determination of the functional currencies of
subsidiaries. Judgement is used within operating entities regarding
use of functional currency. The functional currency which is
considered appropriate is determined depending on the cost base and
the revenue denomination of the entity. This includes an element of
judgement due to the number of currencies in use in subsidiaries,
including local currency and US$. This judgement impacts the
foreign exchange gains/losses within the income statement and the
translation reserve.
-- the determination of the implied exchange rate in Zimbabwe
between US$ and RTGS during the course of 2018. Since 2009,
Zimbabwe had operated in a multi-currency system with US dollars
emerging as the primary and functional currency of the economic
environment. In 2016, monetary policy introduced Real Time Gross
Settlement (RTGS) dollars and bond notes as legal tender officially
maintaining these at parity with US$. However, during 2018, there
was an unofficial difference in rates between US dollars and
RTGS/bond notes which the Zimbabwean market well understood.
Management made the judgement that RTGS$, from October 2018, met
the definition of a currency. As at 31 December 2018, the Directors
took the decision to fair value all monetary assets using an
implied exchange rate of RTGS$4.6923 to US$1.00. In the absence of
an official exchange rate, management used the Old Mutual Implied
Rate ("OMIR") as a proxy for the exchange rate between RTGS$ and
US$; being the only market source of data available in the public
domain. Please also see Note 24 for further considerations. Whilst
this indicates a high inflation, management judgement for 2018 is
that the Zimbabwean economy was not hyper-inflationary. Please see
Note 24 for further details.
-- The group holds less than 50% voting rights in the following
companies. The group consolidates these subsidiaries even though
the parent company holds less than 50% of the voting rights:
- fastjet Zimbabwe;
- fastjet Zambia; and
- Parrot Aviation (Proprietary) Limited.
Management believes that the consolidation of the above
subsidiaries is appropriate as the parent company has influence
over the management team, board representation, airline commercial
activities support, operational route network and fleet selection
and ticket distribution systems, through the fastjet brand
licencing agreements with these companies, together with
inter-group loan agreements supporting working capital needs of the
operational subsidiary.
Additionally, the group has pre-emptive rights to acquire
additional shareholding above the current shareholding from
remaining shareholders that would allow the group shareholding to
increase past 50%. This is always subject to any local shareholding
restrictions and requirements for airline companies that apply from
time to time in each respective country.
Due to the above, management does not recognise any
non-controlling interest.
-- With respect to FedAir, management consolidated the results
effective from 07 of October 2018. The change and updated
shareholding between Parrot (75%) and fastjet Plc (25%) has been
notified to the regulatory authorities in accordance with
regulations.
2. Segmental reporting
The Group's continuing business comprises that of airline
services. That business operates across a number of different
geographical territories, all within Africa. Accordingly, these
geographical territories are the basis for the Company's segmental
reporting disclosure.
The results of fastjet Plc head office and the Group's several
holding companies are disclosed under the heading 'Central'. The
accounting policies of these segments are in line with those set
out in Note 1.
Year ended 31 December 2018 Zimbabwe Mozambique Central Federal Airlines Eliminate Inter-segment Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
---------------------------- --------- ---------- --------- ----------------- ------------------------ ---------
External 25,930 8,937 5 3,642 - 38,514
Inter-segment 32 - 28,407 - (28,439) -
--------- ---------- --------- ----------------- ------------------------ ---------
Total revenue 25,962 8,937 28,412 3,642 (28,439) 38,514
--------- ---------- --------- ----------------- ------------------------ ---------
EBITDA (4,341) (6,238) (29,661) 245 - (39,995)
Other finance income /
(expense) (7,739) (100) (4,866) (50) 3,751 (9,004)
Depreciation and
amortisation (643) - (6,984) (17) - (7,644)
Loss before tax (12,723) (6,338) (41,511) 178 3,751 (56,643)
--------- ---------- --------- ----------------- ------------------------ ---------
Tax - - - (324) - (324)
--------- ---------- --------- ----------------- ------------------------ ---------
Net loss (12,723) (6,338) (41,511) (146) 3,751 (56,967)
--------- ---------- --------- ----------------- ------------------------ ---------
Non-current assets 11,108 - 8,031 3,806 - 22,945
--------- ---------- --------- ----------------- ------------------------ ---------
Year ended 31 December
2017 (Re-presented) Zimbabwe Mozambique Central Federal Airlines Eliminate Inter-segment Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
--------------------------- --------- ----------- --------- ----------------- ------------------------ ---------
External 12,961 1,187 248 - - 14,396
Inter-segment - - 20,815 - (20,815) -
--------- ----------- --------- ----------------- ------------------------ ---------
Total revenue 12,961 1,187 21,063 - (20,815) 14,396
--------- ----------- --------- ----------------- ------------------------ ---------
EBITDA (5,578) (640) (6,712) - - (12,930)
Other finance income /
(expense) (1,442) 459 (3,091) - 6,161 2,087
Depreciation and
amortisation (55) - (253) - - (308)
--------- ----------- --------- ----------------- ------------------------ ---------
Loss before tax (7,075) (181) (10,056) - 6,161 (11,151)
--------- ----------- --------- ----------------- ------------------------ ---------
Tax - - - - - -
--------- ----------- --------- ----------------- ------------------------ ---------
Net loss (7,075) (181) (10,056) - 6,161 (11,151)
--------- ----------- --------- ----------------- ------------------------ ---------
Non-current assets 129 - 44,964 - 150(1) 45,243
--------- ----------- --------- ----------------- ------------------------ ---------
The Board monitors the performance of the business units and the
overall Group. It monitors loss after tax and its individual
components and therefore these are disclosed above. ((1) relates to
Tanzania assets in 2017)
3. Discontinued operations
The loss from discontinued operations net of tax comprise of the
following components:
Component Year ended Year ended
31 December 2018 31 December2017
US$'000 US$'000
----------------------------------------------------------------- ------------------ -----------------
fastjet Airlines Limited:
- trading loss net of tax (see note 3.1) (8,907) (13,241)
- gain on net liabilities no longer consolidated (see note 3.2) 16,944 -
fastjet Air TZ (BVI) Limited 21 17
ATR 72-600 disposal (see note 3.3) (14,630) -
Guernsey structure (dormant entities) - (121)
Forward sales liability (295) -
Total (6,867) (13,345)
----------------------------------------------------------------- ------------------ -----------------
3.1 fastjet Airlines Limited - trading loss net of tax
On 26 November 2018 the Group sold its shares in fastjet Air TZ
(BVI) Limited, which held 49% of fastjet Airlines Limited, to
Lawrence Masha and Hein Kaiser (collectively the Purchaser) for a
purchase consideration of US$ 1.00. As the shares in the company
were sold at par value, there was no capital gains tax.
fastjet Air TZ (BVI) Limited and its subsidiary, fastjet
Airlines Limited, no longer form part of the Group Consolidated
accounts with effect from this date. Consequently, these entities
have been deconsolidated and disclosed as discontinued operations
with comparative results re-presented.
The loss from discontinued activities net of tax in the
consolidated income statement comprises:
(Re-presented)
Year ended Year ended
31 December 2018 31 December 2017
US$'000 US$'000
---------------------- ------------------ ------------------
Revenue 27,185 31,844
Cost of sales (27,567) (33,527)
------------------ ------------------
Gross loss (382) (1,683)
Administrative costs (7,568) (10,288)
Exceptional items (409) -
------------------ ------------------
Operating loss (8,359) (11,971)
Finance charges (442) (1,174)
------------------ ------------------
Loss before tax (8,801) (13,145)
Taxation (106) (96)
Loss for the year (8,907) (13,241)
---------------------- ------------------ ------------------
3.2 fastjet Airlines Limited - gain on net liabilities no longer
consolidated
The effect of the disposal of individual assets and liabilities
of fastjet Airlines Limited is as follows:
Balance Sheet as at November 2018 - Assets / (Liabilities) Total
US$'000
------------------------------------------------------------ ---------
Property, plant and equipment 95
Trade and other receivables 2,039
Cash and cash equivalents 84
Loans and borrowings - non-current (6,728)
Loans and borrowings - current (700)
Trade and other payables (6,118)
Tax (125)
Total (11,453)
------------------------------------------------------------ ---------
Reclassification of foreign exchange translation reserve (5,491)
Gain on disposal (16,944)
------------------------------------------------------------ ---------
3.3 ATR 72-600 disposal
The ATR 72-600 fleet had been acquired for the fastjet Airlines
Limited (Tanzania) operations. Unfortunately, the aircraft remained
undeployed due to ongoing regulatory challenges and delays from the
authorities. Due to the Board's decision to discontinue the
Tanzanian operation, the fleet was no longer required, and could
not be deployed operationally within the remaining business units.
In light of this, a decision was taken to dispose of the fleet in
order to terminate the remaining nine-year financial obligation
attached to the fleet and US$14.6m was written off.
(Re-presented)
Net cash outflow on disposal of fastjet Tanzania Year ended Year ended
31 December 2018 31 December 2017
US$'000 US$'000
Cash consideration received - -
Cash disposed off (84) (696)
Net cash outflow on disposal of Tanzania (84) (696)
--------------------------------------------------- --------------------- ---------------------
4. Revenue
Revenue from continuing operations is made up of the
following:
(Re-presented*)
Year ended Year ended
31 December 2018 31 December 2017
US$'000 * US$'000
Passenger revenue 35,034 12,539
Charter revenue 1,415 -
Ancillary services 1,965 1,857
Cargo revenue 16 -
Other revenue 84 -
Total 38,514 14,396
------------------- --------------------- ---------------------
The group has disaggregated revenue into various categories in
the table below, which is intended to enable users to understand
the nature of the revenue by country.
Year ended 31 December 2018 Zimbabwe Mozambique FedAir Central
US$'000 US$'000 US$'000 US$'000 Total US$'000
Passenger revenue 24,369 8,411 2,254 - 35,034
Charter revenue 67 - 1,348 - 1,415
Ancillary services 1,462 503 - - 1,965
Cargo revenue 16 - - - 16
Other revenue 16 23 40 5 84
Total 25,930 8,937 3,642 5 38,514
---------------------------- ------------ -------------- ------------ ------------ -----------------
Year ended 31 December 2017 Zimbabwe Mozambique FedAir Central
(re-presented *) US$'000 US$'000 US$'000 US$'000 Total US$'000
Passenger revenue 11,504 1,035 - - 12,539
Charter revenue - - - - -
Ancillary services 1,457 152 - 248 1,857
Cargo revenue - - - - -
Other revenue - - - - -
Total 12,961 1,187 - 248 14,396
---------------------------- ------------- -------------- ------------- ------------- -----------------
* 2018 figures and 2017 comparative figures exclude fastjet
Tanzania discontinued operations.
The Group applied IFRS 15 from 1 January 2018.
Revenue for the provision of air travel or charters is
recognised on the date of departure / flight.
Ancillary fees such as baggage fees, credit card fees and flight
alteration fees are also recognised on the date of departure as
these are not considered distinct because the customer cannot
benefit from it without taking the flight.
On adopting IFRS 15, only passenger ancillary fees were
affected. The amount and the effect on retained earnings at 1
January 2018 was not material at US$51k.
Deferred income (forward ticket sales)
Amounts included in Trade and other payables Year ended Year ended
(linked to forward ticket sales) 31 December 2018 31 December 2017
US$'000 US$'000
Balance - 01 January 2,524 2,065
Amounts released to revenue during the year (2,524) (2,065)
Tickets booked and banked in advance for the following year not
recognised as revenue during
the period - included in liabilities 2,517 2,524
Balance - 31 December 2,517 2,524
------------------------------------------------------------------------ --------------------- ---------------------
5. Operating loss
Operating loss is stated after charging the following disclosable items: (Re-presented)
Year ended Year ended
31 December 2018 31 December 2017
US$'000 US$'000
------------------------------------------------------------------------- ----------------- ---------------------
Operating lease costs
* Property 254 426
* Aircraft from the SAHL group (related party) 16,637 6,568
* Aircraft from other lessors or operators 4,065 2,116
Fuel 13,036 5,279
Net foreign exchange gains 278 2,105
Foreign exchange loss on Zimbabwean financial assets 8,475 -
Amortisation of other intangible assets 1,034 198
Depreciation of property, plant and equipment
* Property, plant and equipment 111 110
* Aircraft 692 -
fastjet Plc brand - gain on purchase - (1,769)
Audit fees paid:
* Group - 2018 (BDO) 105 -
* Group - 2017 (KPMG) 207 248
* Subsidiary companies - 2018 (BDO) 168 -
* Subsidiary companies - 2017 (KPMG) 39 49
73 -
* Subsidiary companies - 2018 (PWC and Deloitte)
52 -
* Subsidiary company - 2017 (Deloitte)
Non-audit services - FedAir due diligence: KMPG South Africa - 63
Share option charges 281 579
Cost of sales:
Cost of sales analysis for continuing operations comprise of the following (Re-presented)
main cost categories: Year ended Year ended
31 December 2018 31 December 2017
US$'000 US$'000
---------------------------------------------------------------------------- ----------------- ---------------------
Aircraft leases 20,702 8,684
Fuel 13,036 5,279
Crew costs and training
- Flight crew and cabin crew salaries 1,979 236
- Other crew costs 902 450
- Training 330 -
Aircraft maintenance and overhaul 4,191 (489)
Airport costs (landing, parking, overfly and navigation) 2,239 1,086
Ground handling 2,606 1,321
Passenger variable costs 2,945 619
Aircraft depreciation 692 -
Other passenger costs 149 74
Aircraft insurance 216 235
Other operational costs 286 600
Total 50,273 18,095
---------------------------------------------------------------------------- ----------------- ---------------------
Administrative costs:
Administrative costs for continuing operations comprise of the following (Re-presented)
main cost categories: Year ended Year ended
31 December 2018 31 December 2017
US$'000 US$'000
---------------------------------------------------------------------------- ----------------- ---------------------
Employee costs
- salaries and wages 5,426 5,062
- other employee costs 791 671
- sub-contractors and consultants 921 1,448
Legal and professional 2,118 814
Marketing and advertising costs 1,609 1,417
Depreciation of property, plant and equipment 111 110
Amortisation of intangible assets 1,034 198
Other costs 1,049 423
fastjet Plc brand gain on purchase - (1,769)
IT costs 715 1,165
Total 13,774 9,539
---------------------------------------------------------------------------- ----------------- ---------------------
6. Exceptional Items
Exceptional items include the following non-cash items: Year ended Year ended
31 December 2018 31 December 2017
US$'000 US$'000
Shares in lock-up transactions * (a) 11,317 -
Other financial assets - FedAir Brand License Agreement *(b) 4,609 -
Goodwill impairment * (c) 1,499 -
Air Operations Certificate impairment* (c) 2,979 -
Impairment of FedAir brand * (c) 108
Impairment of fastjet Plc brand * (d) 1,220 -
Other exceptional items 374 -
Total 22,106 -
------------------------------------------------------------- --------------------- ---------------------
a) Of the US$16.6m at 31 December 2017 relating to the shares in
lock-up transactions, US$5.3m was expensed during 2018 for flying
services received and US$11.3m was written off due to the SAHL
services contract being terminated as part of the December 2018
capital raise (refer to Note 23 on page 99 - 101). This value
represents the unexpended share-based payment portion relating to
the lease termination.
The lease agreement was terminated to avoid paying the future
cash component of the total lease obligations of US$615k per month,
for the remaining 42-month period under the original 60-month lease
commitment. This resulted in a contractual cash outflow saving of
US$25.8m. However as certain services under the original agreement
(maintenance, crew support and training) will remain under a
revised replacement agreement, the net cash saving from acquisition
over the 42-month period will be US$7.0m. This arose following the
purchase of four Embraer 145 aircraft from SAHL during the December
2018 capital raise and the decision to fully crew and operate the
Zimbabwean aircraft fleet, minimising hard currency obligations
from within Zimbabwe.
b) In 2017, a valuation was undertaken to determine the future
economic value of the 8% Brand Licence Agreement signed with FedAir
over the five (5) year period, to which a future value of US$4.6m
was assigned and recognised in 2017. Following the acquisition of
FedAir by Parrot in October 2018, and the consolidation of its
results into the Group, the future economic value attached to the
Brand Licence Agreement has been nullified, and in light of this
the company decided to impair this asset fully in 2018 (refer to
Note 13).
It is noted that the fair value of this asset was carved out of
the overall valuation of FedAir in September 2017 of US$15.0m less
the future exercise consideration of US$4.0m (as detailed in Note
11). As such this US$4.6m impairment of the brand licence agreement
asset is related to the overall US$9.2m decrease in the valuation
of FedAir in October 2018 at the point of acquisition. It is noted
that a further $0.8m decrease in the value of FedAir was due to
dividends being taken by the previous shareholder prior to the call
option being exercised (which reduced the future consideration
price down to US$3.2m from the original US$4.0m - see (c) below).
As such the overall decrease from the September 2017 valuation to
that made in October 2018 was US$10.0m. The remaining US$4.6m was
recognised in the resultant investment in FedAir (on exercise of
the FedAir call option (see point c below)).
c) On exercise of the call option, a further US$3.2m was paid to
complete the acquisition of FedAir by Parrot in October 2018. The
total purchase consideration of US$9.6m was the sum of this
exercise payment together with the original US$6.4m paid for the
option in 2017. An amount of US$1.5m was recognised as goodwill, an
amount of US$7.9m was recognised relating to the air operations
certificate ("AOC") and US$0.3m was recognised relating to the
FedAir brand.
As noted above the FedAir brand licence agreement (point b
above) and this the initial FedAir call option (which crystallised
into the investment in FedAir) are intrinsically linked. Following
07 October 2018, being management's judgement of the point of
control, management calculated the recoverable amount of FedAir to
be US$5.0m. Based on this updated valuation, an amount of US$4.6m
was impaired to the FedAir investment. A further US$4.6m impairment
was recognised on the FedAir brand licence agreement (as noted in b
above). As such the overall impairment across these linked assets
was US$9.2m. The FedAir investment impairment of US$4.6m was first
allocated to the goodwill of US$1.5m and the balance was allocated
to the air operations certificate US$3.0m and the FedAir brand
US$0.1m.
Management's US$5.0m valuation reflected a forecast decreased
cash flow outlook as compared to the 2017 valuation reflecting both
a specific loss of revenue to a competitor and a general decrease
in market outlook. The forecast cash flow compound average growth
and terminal growth rates of the value in use valuation models were
seen to decrease from 9.5% to 2.5% and 3.0% to 2.0% respectively
(refer to Note 11).
The fastjet Plc brand was impaired on 31 December 2018. This was
after management had established that the recoverable amount was
lower than the carrying amount. The recoverable amount of the
fastjet Plc brand has been calculated with reference to value
generated through its use which is modelled on the cash flows
generated from the 0.5% royalty on operating entity revenue. Full
details relating to this are in Note 11.
Intangible assets
Goodwill AOCs** Brands* Computer software Total
US$000 US$'000 US$'000 US$'000 US$'000
---------------------------------- ------------- ------------- ------------- --------------------- ------------
Cost
At 31 December 2016 - 5,462 11,764 553 17,779
Additions - - 2,500 309 2,809
Acquired through Business
Combination - - - - -
Disposals - - (11,764) - (11,764)
At 31 December 2017 - 5,462 2,500 862 8,824
============= ============= ============= ===================== ============
Additions - - - 526 526
Acquired through Business
Combination 1,499 7,893 297 2 9,691
Discontinued operations Tanzania - (5,462) - - (5,462)
Foreign currency difference - - - 90 90
At 31 December 2018 1,499 7,893 2,797 1,480 13,669
============= ============= ============= ===================== ============
Less:
Amortisation and Impairment
At 31 December 2016 - 5,462 11,764 241 17,467
Disposals - - (11,764) - (11,764)
Charge for the year - - - 200 200
At 31 December 2017 - 5,462 - 441 5,903
============= ============= ============= ===================== ============
Discontinued operations Tanzania - (5,462) - - (5,462)
Charge for the year - - - 1,038 (2) 1,038
Impairments for the year 1,499 (1) 2,979 (1) 1,328 (1) - 5,806
At 31 December 2018 1,499 2,979 1,328 1,479 7,285
============= ============= ============= ===================== ============
Net carrying amount
At 31 December 2016 - - - 312 312
============= ============= ============= ===================== ============
At 31 December 2017 - - 2,500 421 2,921
============= ============= ============= ===================== ============
At 31 December 2018 - 4,914 1,469 1 6,384
============= ============= ============= ===================== ============
(1) Included in exceptional items - Note 6
(2) US$1,038k included in administrative costs - Note 5 and
US$4k relating to discontinued operations; net amount excluding
discontinued operations of US$1,034k as per cashflow statement.
* Indefinite life intangible assets considered significant in
comparison to the Group's total carrying amount of such assets have
been allocated to cash generating units or groups of cash
generating units as follows:
Year ended Year ended
Indefinite life Intangible asset 31 December 2018 31 December 2017
US$'000 US$'000
fastjet Plc brand (1) 2,500 2,500
Less: impairment (1,220) -
--------------------- ---------------------
1,280 2,500
--------------------- ---------------------
FedAir brand (2) 297 -
Less: impairment (108) -
--------------------- ---------------------
189 -
--------------------- ---------------------
Total 1,469 2,500
----------------------------------- --------------------- ---------------------
(1) fastjet Plc brand:
The recoverable amount of the fastjet Plc brand has been
calculated with reference to its value in use based on brand
licensing fees chargeable to fastjet branded airline operations.
The key assumptions of this calculation are shown below:
Key Assumptions Year ended Year ended
31 December 2018 31 December 2017
Period in which management forecasts are based 2019-2022 2018 - 2021
Growth rate applied beyond approved forecast period 3.00% 4.00%
Discount rate 15.00% 16.00%
---------------------------------------------------- ----------------- ------------------
The recoverable amount of the Cash Generating Units (CGUs) to
which this brand asset is allocated have been measured based on
value in use, using a discounted cash flow method. Cash flow
projections are based on the business plan approved by the Board
covering a four-year period. Cash flows beyond the two-year period
are projected to increase in line with the long-term growth rate
mentioned above. The indefinite life intangible asset is allocated
to the following Cash Generating Units ("CGU"):
Cash Generating Unit Year ended Year ended
31 December 2018 31 December 2017
fastjet Airlines Limited (Tanzania) - discontinued operation - 1,220
fastjet Zimbabwe 1,171 1,171
fastjet Mozambique 109 109
FedAir (airline operations) - -
Total 1,280 2,500
------------------------------------------------------------- ----------------- -----------------
Sensitivity Analysis:
If the inputs to the valuation model above were 1% higher /
lower, while all other variables were held constant, the carrying
amount of the brand would change as reflected below:
1% decrease in the growth rate (US$ 77,394)
1% increase in the discount rate (US$ 103,930)
(2) FedAir brand:
On the acquisition of FedAir by Parrot on 07 October 2018, an
amount of US$1.5m was recognised as goodwill, an amount of US$7.9m
was recognised relating to the air operations certificate and
US$0.3m was recognised relating to the FedAir brand. The air
operations certificate value was based on the intrinsic value of
being able to operate the fastjet brand using the FedAir air
operations certificate. (refer to Note 22).
As at 31 December 2018, management calculated the recoverable
amount of FedAir using a discounted cashflow method based on
FedAir's current shuttle business (being a single CGU).
The key assumptions of this calculation are shown below:
Key Assumptions Year ended Year ended
31 December 2018 31 December 2017
Period in which management forecasts are based 2019-2022 n/a
Growth rate applied beyond approved forecast period 2.40% n/a
Discount rate 15.00% n/a
Foreign exchange rate ZAR: US$ R14.00 = US$1.00 n/a
--------------------------------------------------- ----------------- -----------------
The recoverable amount was established to be US$5.0m and an
amount of US$4.6m had to be written off as impairment. The
impairment was first allocated to the goodwill of US$1.5m and
US$3.1 was split pro-rata between the air operations certificate at
US$3.0m and the FedAir brand at US$0.1m refer to Note 6.
Sensitivity Analysis:
If the inputs to the valuation model above were 1% higher / 1%
lower or R1.00 fluctuation in exchange rate, while all other
variables were held constant, the carrying amount of the FedAir
business would change as reflected below based on the discounted
cashflow model:
1% decrease in the growth rate (US$ 413,913)
1% increase in the discount rate (US$ 384,746)
R1:00 increase in ZAR:US$ exchange rate (US$ 331,995)
** FedAir Air Operators Certificate ("AOC")
On the acquisition of FedAir by Parrot on 07 October 2018, an
amount of US$1.5m was recognised as goodwill, an amount of US$7.9m
was recognised relating to the air operations certificate and
US$0.3m was recognised relating to the FedAir brand. The air
operations certificate value was based on the intrinsic value of
being able to operate the fastjet brand using the FedAir air
operations certificate. (refer to Note 22).
As at 31 December 2018, management calculated the recoverable
amount of FedAir using a discounted cashflow method based on
FedAir's current shuttle business. The recoverable amount was
established to be US$5.0m and an amount of US$4.6m was hence
written off as impairment. The impairment was first allocated to
the goodwill of US$1.5m and US$3.1m was split pro-rata between the
air operations certificate at US$3.0m and the FedAir brand at
US$0.1m. Management's US$5.0m valuation reflected a forecast
decreased cash flow outlook as compared to the 2017 valuation
reflecting both a specific loss of revenue to a competitor and a
general decrease in market outlook. The forecast cash flow compound
average growth and terminal growth rates of the value in use
valuation models were seen to decrease from 9.5% to 2.5% and 3.0%
to 2.0% respectively.
Other financial assets
Year ended Year ended
31 December 2018 31 December 2017
US$'000 US$'000
FedAir brand license agreement - 4,609
Call Option asset - 6,391
---------------------- ---------------------
- 11,000
------------------------------------------------------ ---------------------
On 29th September 2017, as part of the funding exercise, the
Company entered into three agreements with SAHL to support its
growth initiatives. All three agreements were signed simultaneously
and were not mutually exclusive. The agreements were:
a) A Restraint of Trade Agreement ("RTA");
b) Call Option Agreement to acquire an equity interest in FedAir; and
c) Brand Licence Agreement with FedAir and Solenta Aviation Mozambique Limitada ("SAM").
Restraint of trade agreement ("RTA"): US$11.0m
SAHL, the holding company of Federal Airlines (Pty) Limited
("Fedair") and SAM, entered into a restraint of trade agreement
("RTA") for US$11.0m in favour of fastjet pursuant to which SAHL
covenanted that it will not (whether by itself, a connected person,
subsidiary or affiliate), for a period of 5 years from the date of
the RTA, carry on or be engaged or interested in the carriage of
passengers by air and/or any business which would be in competition
with the Company's activities in the Republic of South Africa,
Tanzania, Zimbabwe and Mozambique.
Call Option agreement:
Parrot Aviation Proprietary Limited ("Parrot") is a joint
venture company in which the Company acquired a 25% equity interest
and Rashid Wally, the Company's Chairman, acquired a 75% equity
interest. Parrot acquired a call option (the "Option") with the
shareholders of Fedair granting Parrot the option to buy 100% of
the shares in Fedair at any time or to subscribe for the share
capital of Fedair to the maximum extent permissible under South
African Aviation Legislation, subject to the necessary approvals
from relevant governing authorities or regulators as and when
appropriate.
The Option was exercised on 7 October 2018, and Parrot entered
into a share purchase agreement to acquire the shareholding in
FedAir, resulting in the payment of US$3.2m cash to the selling
shareholders of FedAir.
FedAir brand license agreement:
Fedair signed a Brand Licence Agreement with the company
allowing Fedair to use the Fastjet brand for a period of five (5)
years in return for an 8% royalty income from Fedair's future
revenues.
In 2017, the US$11.0m paid for the RTA, was valued and allocated
between the above three agreements, as follows:
Restraint of Trade Agreement - US$0m of US$ 11.0m
No future economic value was assigned to this agreement, as on
signature it was enforced, and SAHL had no competing commercial
airline businesses at the time.
FedAir brand license agreement - US$4.6m of US$ 11.0m
A valuation was undertaken to determine the future economic
value of the 8% Brand Licence Agreement signed with FedAir over the
five (5) year period, to which a value of US$4.6m was assigned.
This asset was recognised in 2017 and represented the future
discounted cashflow value of this agreement over the five-year
period.
Due to the acquisition of FedAir and the consolidation of its
results into the Group, the future economic value attached to the
Brand Licence Agreement has been nullified, and in light of this,
the company decided to impair this asset in 2018.
Call Option Asset - US$6.4m of US$ 11.0m
The remaining value of the US$11.0m less the FedAir brand
license agreement of US$4.6m, was then assigned to the Call Option
on FedAir. The ability to acquire FedAir allowed the company to
start scheduled airline operations in South Africa and deploy the
fastjet Brand into Africa's biggest aviation market.
Following the exercise of the call option to acquire FedAir, the
total consideration of US$9.6m made up of the original $6.4m call
option asset paid in 2017, together with the cash purchase price of
US$3.2m on exercise, was crystallised into the investment value on
the 07 October 2018, which when compared to the updated management
valuation of FedAir as at 31 December 2018 of US$5.0m, resulted in
an impairment of US$4.6m.
Loans and other borrowings
Year ended Year ended
31 December 2018 31 December 2017
US$'000 US$'000
----------------------------------------------------- --------------------- ---------------------
Non-current
Solenta Aviation Holdings Limited loan (1) 2,000 -
Instalment sale liabilities (2) 1,767 -
4% loan notes issued by fastjet Airlines Limited (1) - 7,577
----------------------------------------------------- --------------------- ---------------------
Total 3,767 7,577
----------------------------------------------------- --------------------- ---------------------
Current
Instalment sale liabilities (2) 689 -
4% loan notes issued by fastjet Airlines Limited (1) - 1,107
Loan from SSCG (1) 2,020 -
----------------------------------------------------- --------------------- ---------------------
Total 2,709 1,107
----------------------------------------------------- --------------------- ---------------------
(1) US$ denominated
(2) South African Rands (ZAR) denominated
Solenta Aviation Holdings Limited loan
On 4 April 2018 the Company entered into a US$12.0m loan
facility agreement with Solenta Aviation Holdings Limited ("SAHL")
to fund the exercise of the Company's option over the three ATR
72-600 with the balance to be used for general working capital
purposes. These same aircraft were part of the Tanzania divestment
in November 2018 which triggered a loss on disposal of US$14.6m
(refer to Note 3.3).
The salient terms of the Facility were as follows:
-- The Facility was for a loan of up to US$12.0m to be provided by SAHL to fastjet;
-- An interest rate of (i) the higher of US$ 30-day LIBOR plus
6.45% pa or 8% pa until 30 June 2019, and (ii) from 1 July 2019,
the higher of US$ 30-day LIBOR plus 8.45% pa or 10% pa;
-- Repayment of the loan by either (at fastjet's election)
bullet repayment in full on 30 June 2019 or eight quarterly
instalments of 12.5% of the loan, commencing 29 March 2019 and
concluding 28 December 2020;
-- Drawdown of the Facility was available until 30 April 2018,
or such later date as the parties may agree and subject first to
satisfying certain conditions precedent including execution and
delivery of security for the loan;
-- The required security for the loan comprises security over
certain key material assets of the fastjet Group including the
fastjet brand and trademarks, the majority interest in the shares
held by the Group in fastjet Zimbabwe Limited, the shares acquired
by the Group in Federal Airlines (Pty) Limited ("FedAir") and the
economic rights of the Group to be acquired in the three ATRs;
-- The security includes an SAHL right to nominate directors to
the boards of FedAir and fastjet Zimbabwe Limited together with an
additional director to the Board of fastjet Plc (such nominated
individuals in each case to constitute a minority of directors of
the respective boards of the companies);
-- fastjet utilised the Facility principally for the purpose of
the payment of the ATR Purchase Option Deposit of approximately
US$11.0m;
-- SAHL was entitled to a raising fee of US$240,000 on the date
of drawdown of the Facility and this was capitalised. As per the
December 2018 capital raise where US$10.0m of the original loan and
some outstanding interest was converted to equity the original loan
was seen to have been extinguished and hence the previously
capitalised transaction costs were realised to the income
statement; and
-- The Facility agreement includes standard representations,
warranties and events of default, including restrictions on future
borrowing and security (subject to exceptions).
As part of the December 2018 capital raise, SAHL agreed to
convert US$10.0m of the loan together with accumulated unpaid
interest of US$448,752 into fastjet Plc shares.
Additionally, the following were the main changes to the loan
terms mentioned above:
-- The applicable interest rate was changed to a fixed 6% per annum;
-- Bullet repayment date and final repayment dates were removed
and replaced with repayment after 48 months provided that there has
been six months of trading profitability;
-- The lender can allow repayment after 36 months, provided that
the six months profitability condition has been met; and
-- Addition of fastjet Africa (excluding fastjet Mozambique
Limitada) as additional security for the remaining term.
-- Due of the extinguishment of the original loan, there was a
change in the original effective interest which would result
increase the cashflows by US$2.1m.
Instalment sale liabilities
Liabilities under instalment sale agreements are South African
Rand denominated loans held with Standard Bank of South Africa
Limited. The loans arose when FedAir purchased four of their
operational aircrafts which are currently reflected under owned
aircraft (included in business combination US$5,0m see Note 12).
The loans bear interest at South African prime (currently 10.25%)
plus or minus 1%. Final instalments are due between 2019 and
2022.
As at 31 December 2018, the instalment sale liabilities are
secured by the four owned aircraft with a book value in FedAir of
US$3.6m and motor vehicles with a book value in FedAir of
US$35k.
Acquisition of Federal Airlines Proprietary Limited
On 07 October 2018, Parrot Aviation Proprietary Limited, a
company in which the Company has a 25% interest and Rashid Wally,
the Company's Chairman who has a 75% equity interest, acquired 100%
of the shares of Federal Airlines Proprietary Limited.
Consideration transferred
The following table summarises the acquisition date fair value
of each major class of consideration transferred
US$'000
Call option asset* 6,391
Cash 3,200
Total consideration 9,591
========
* Details relating to the call option assets are explained in
Note 13.
Identifiable assets acquired and liabilities assumed
The table below summarises the recognised amounts of assets
acquired, and liabilities assumed at the date of acquisition being
01 October 2018. FedAir assets and liabilities are predominately
South African Rand denominated and as at date of acquisition these
values were translated from South African Rand to US$ at an
exchange rate of R14.18 = US$1.00.
Carrying Fair value adjustments US$'000 Adjusted fair value US$'000
amount
US$'000
----------------------------
Property, plant and equipment 4,205 982 5,187
Intangible assets 2 8,190 8,192
Inventory 141 - 141
Trade and other receivables 1,283 - 1,283
Tax receivable 101 - 101
Cash and cash equivalents 946 - 946
Loans and borrowings - non-current (2,157) - (2,157)
Deferred tax liability (847) (2,568) (3,415)
Trade and other payables (2,186) - (2,186)
Total identifiable net assets acquired 1,488 6,604 8,092
---------------------------------------- --------- ------------------------------- ----------------------------
Purchase of FedAir subsidiary - cash consideration
The following table summarises the acquisition date fair value
of each major class of consideration transferred
US$'000
Cash paid to shareholders of FedAir on acquisition 3,200
Foreign exchange difference 158
Cash and cash equivalents held in FedAir on acquisition (946)
Net cash consideration paid on purchase of subsidiary (as per consolidated cashflow statement) 2,412
========
Goodwill
Goodwill arising from the date of acquisition has been
recognised as follows:
US$'000
Consideration transferred 9,591
Fair value of identifiable assets (8,092)
Goodwill 1,499
========
As at 31 December 2018, management calculated the recoverable
amount of FedAir using a discounted cashflow method based on
FedAir's current shuttle business only. The recoverable amount was
established to be US$5.0m and an amount of US$4.6m had to be
written off as impairment. The impairment was first allocated to
the goodwill of US$1.5m and the balance was allocated to Air
operations certificate US$3.0m and the FedAir brand US$0.1m.
Since the acquisition date, FedAir has contributed US$3.6m to
group revenues and US$178k to group profit before tax. If the
acquisition had occurred on 01 January 2018, FedAir would have
contributed US$13.1m to group revenues and US$1.1m to group profit
before tax.
Loan from SSCG
Original transaction
In July 2018, fastjet Plc borrowed US$2.0m from SSCG for general
working capital purposes across the Group on an interest-bearing
loan at 6% fixed per annum, for an initial period of six
months.
At the same time, fastjet Zimbabwe deposited RTGS$5.0m with
Annunaki, on an interest-bearing deposit at 4% fixed per annum for
an initial period of six months.
Loan - first term extension
On 1 March 2019, the Company agreed with both Annunaki and SSCG
that the terms of the unsecured loans will be extended to 31 March
2019. The terms of the Loan Agreements will remain the same except
for the following changes:
-- The loan amount from fastjet Zimbabwe to Annunaki was
increased from RTGS$5.0m to RTGS$7.0m due to devaluation of the
underlying RTGS$ currency;
-- During the term of the Loan Agreement with SSCG, SSCG shall
have the option to convert the US$2.0 m repayment plus any
outstanding interest into ordinary shares in the Company (subject
always to the shareholders of the Company granting the directors
sufficient authority to allot and issue such shares on a
non-pre-emptive basis) (the "Option to Convert") either (i) upon
the happening of an event of default under the Loan Agreements, or
(ii) after 28 February 2019; and
-- Any ordinary shares in the Company issued pursuant to the
Option to Convert shall be issued at the higher of:
-- the volume weighted average price per ordinary share over the
preceding 30 trading days on the London Stock Exchange ending on
the date on which SSCG has given such written notice to convert;
or
-- At par value.
Loan - second term extension
On 05 March 2019, the parties agreed to extend the Loan
arrangements to 30 June 2019.
Loan - repayment and extension
On the 11 June 2019, an amount of US$1.25m was repaid to SSCG
and the remaining US$0.75m was extended to 31 January 2020.
Additionally, between 12 June 2019 and 14 June 2019, Annunaki
repaid the RTGS$7.0m to fastjet Zimbabwe together with all the
accrued interest.
Related Parties
Solenta:
Solenta Aviation Holdings Limited ("SAHL") is currently a 59.34%
shareholder in fastjet Plc and provides aircraft leasing and
related services to the Group.
During 2017, fastjet Plc entered into various agreements with
SAHL and/or its subsidiaries which included (i) an option to
purchase FedAir, (ii) FedAir brand licence agreement, (iii) a
restraint of trade agreement with SAHL group (as further explained
in Note 13).
During 2018, fastjet Plc entered into a loan agreement with SAHL
as further explained in Note 17.
On 07 October 2018, Parrot Aviation and fastjet Plc exercised
its option to purchase the shareholding of FedAir, which at the
time of purchase was owned 67.60% by Solenta Investment Holdings
Proprietary Limited, a subsidiary company of SAHL.
The amounts included in the balance sheet for these items are as
follows:
Year ended Year ended
31 December 2018 31 December 2017
SAHL group entity US$'000 US$'000
------------------------------------------------- ------------------- ------------------ ------------------
Current assets
Other financial assets SAHL - 11,000
Non-current liabilities
Long term loan SAHL 2,000 -
Current liabilities
ATR 72-600 accrual(1) AL&M - 10,946
Accruals 157 512
Trade payables
SAHL 97 -
* Solenta Aviation Holdings Limited
* Solenta Aviation Mozambique Limitada SAM 857 301
PTY 570 -
* Solenta Aviation (Pty) Limited
Equity
Equity-settled share-based payment transactions SAHL - 16,571
(1) AL&M is a subsidiary company of the ACIA Aero Capital
Limited ("AACL") group, which is not part of the SAHL group of
companies. However, a 1.24% shareholder of SAHL also owns shares of
AACL and via this relationship, AL&M has been reflected as a
related party for total transparency purposes.
On 1 November 2017, Solenta Aviation Mozambique Limitada ("SAM")
and fastjet Mozambique Limited ("FAM") entered into an agreement in
which Solenta Mozambique S.A supplies to fastjet Mozambique Limited
all the required flight operations activities and functions,
administration and management support, administration support for
the purpose of settlement of operations and related billing,
maintenance activities and operations, supervision of fuel
uplifting provided by the third-party suppliers, supervision of
airside ground handling activities provided by the third party
suppliers and airside oversight of asset security. The amounts
relating to this are reflected in the table above.
Additionally, fastjet Plc entered into a brand license agreement
with SAM to allow SAM to operate on its AOC the fastjet brand.
There have been no transactions during the year with SAM in regard
to this agreement.
The amounts included in the Income Statement in relation to
transactions with the SAHL group of companies during the year were
as follows:
Year ended Year ended
31 December 2018 US$'000 31 December 2017 US$'000
--------------------------------------------------------------- -------------------------- -------------------------
Crew, Maintenance, Insurance services - Solenta Aviation
Mozambique S.A. 3,059 -
Aircraft operating dry leases - Solenta Aviation Holdings
Limited 2,400 1,320
Aircraft operating dry leases - share release component -
Solenta Aviation Holdings Limited
(see Note 23, page 99 - 101) 5,254 2,653
Crew and Maintenance services - Solenta Aviation (Pty) Ltd 5,924 2,595
16,637 6,568
-------------------------- -------------------------
Interest charges - SAHL loan 628 -
Raising fee - SAHL loan 240 -
Liberum Capital Limited:
Liberum is fastjet's nominated advisor and currently holds a
5.52% shareholding in fastjet. The following were the transactions
that took place between Liberum and fastjet during the year:
Year ended Year ended
31 December 2018 US$'000 31 December 2017 US$'000
------------------ ------------------------------ -----------------------------
Professional fees 2,469 4,317
------------------------------ -----------------------------
Directors:
Directors are considered related parties, further information of
which can be found on pages 28 - 30 of the Director's Report.
Additionally, Mark Hurst, the fastjet Group Deputy CEO with
effect from 01 January 2019, is also a Director of ACIA Aero
Capital Limited and certain of its subsidiaries.
Transactions with subsidiaries:
Transactions with Group companies have been eliminated on
consolidation and are not disclosed separately under related
parties above. See Note 21 for the list of subsidiaries.
Post balance sheet events
Loan from SSCG and loan to Annunaki - first term extension
On 1 March 2019, the Company agreed with both Annunaki and SSCG
that the terms of the unsecured loans will be extended to 31 March
2019. The terms of the Loan Agreements will remain the same except
for the following changes:
-- The loan amount from fastjet Zimbabwe to Annunaki was
increased from RTGS$5.0m to RTGS$7.0m due to devaluation of the
underlying RTGS$ currency;
-- During the term of the Loan Agreement with SSCG, SSCG shall
have the option to convert the US$2.0 m repayment plus any
outstanding interest into ordinary shares in the Company (subject
always to the shareholders of the Company granting the directors
sufficient authority to allot and issue such shares on a
non-pre-emptive basis) (the "Option to Convert") either (i) upon
the happening of an event of default under the Loan Agreements, or
(ii) after 28 February 2019; and
-- Any ordinary shares in the Company issued pursuant to the
Option to Convert shall be issued at the higher of:
-- the volume weighted average price per ordinary share over the
preceding 30 trading days on the London Stock Exchange ending on
the date on which SSCG has given such written notice to convert;
or
-- At par value.
Loan - second term extension
On 05 March 2019, the parties agreed to extend the Loan
arrangements to 30 June 2019.
Loan - repayment and extension
On the 11 June 2019, an amount of US$1.25m was repaid to SSCG
and the remaining US$0.75m was extended to 31 January 2020.
Additionally, between 12 June 2019 and 14 June 2019, Annunaki
repaid the RTGS$7.0m to fastjet Zimbabwe together with all the
accrued interest.
At 31 December 2018, the original RTGS$5.0m was valued at
US$1.1m based on management's implied exchange rate of RTGS$ 4.6923
= US$1.00. An exchange loss of US$3.9m was incurred because of the
significant devaluation of the RTGS$ currency against the US$.
Please see Note 24 for further details.
At the time of repayment, the RTGS$7.0m was valued at US$1.1m
based on the Zimbabwean interbank exchange rate of RTGS$ 6.1200 =
US$1.00. Between 31 December 2018 and the time of repayment, an
additional exchange loss of US$0.7m was incurred because of further
devaluation of the RTGS$ currency against the US$.
Devaluation of Zimbabwe's domestic RTGS currency against the
US$
During the second half of 2018, a parallel exchange rate market
developed in Zimbabwe for RTGS$ to US$. In October 2018, the
government separated RTGS$ bank accounts and US$ bank accounts held
with commercial banks into two identifiable and separate bank
accounts with US$ bank accounts being called a US$ Nostro account.
By doing this, the Reserve Bank of Zimbabwe informally recognised a
parallel currency, and this resulted in the Zimbabwean market no
longer recognising the official exchange rate of RTGS$ 1.00 =
US$1.00. As a result of this management took the decision to
revalue all RTGS$ denominated financial assets held at year end at
an exchange rate RTGS$ 4.6923 = US$1.00. Please see Note 24 for
further details.
On 22 February 2019, the Reserve Bank of Zimbabwe formally
announced the introduction of a new domestic currency, which
effectively devalued its domestic US dollar denominated assets and
liabilities, including cash balances. At the same time, they
introduced an interbank exchange rate of RTGS$ 2.500 = US$1.00.
Since March 2019 to date, because of the above changes, the
RTGS$ to US$ exchange rates via interbank market have devalued
significantly from the starting RTGS$2.500 to a current interbank
rate of RTGS$ 6.1200 as of 18 June 2019. This has driven a
significant increase in costs of all supplies in country with
resultant inflation currently running at between 70% to 100% in
RTGS$ terms.
On 26 June 2019, an official (s35 of exchange control
regulations statutory instrument 109 of 1996) announcement was made
by the Reserve Bank of Zimbabwe of the removal of multi-currency,
with the RTGS$/ bond notes as the only legal tender in country.
Management will consider the implications for pricing in two
currencies going forward, as well as the impact of using the US$
proceeds to settle local costs.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR LFFFFRFIDFIA
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June 28, 2019 02:01 ET (06:01 GMT)
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