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

Dart Group PLC Company Reports

Business and Financial Review

The Group’s financial performance for the year ended 31 March 2019 is reported in line with International Financial Reporting Standards (“IFRS”), as adopted by the EU. 

Group Financial Performance 2018/19

Summer 2018 proved to be a particularly strong season for our Leisure Travel business, as demand for both our flight-only offering from Jet2.com and our higher margin package holiday product from Jet2holidays proved buoyant throughout. However, the favourable trading conditions gave way to a more uncertain consumer environment in the second half of the year, which led to increased levels of price discounting to achieve the planned growth in customer volumes. Overall, Leisure Travel revenue increased by 34% to £2,964.4m (2018: £2,211.4m), and together with a 6% increase in Distribution & Logistics revenue to £178.7m (2018: £168.6m), Group revenue increased by 32% to £3,143.1m (2018: £2,380.0m).

Operating losses for the second half of the year increased, as we continued to invest in additional aircraft and marketing, together with the increasing cost of retaining and attracting colleagues in readiness for our expanding Summer 2019 flying programme. Notwithstanding these increased losses, overall Group operating profit for the year increased by 61% to £203.4m (2018: £126.2m). 

Net financing expense of £25.6m (2018: £16.3m) is stated after the receipt of bank interest of £10.7m (2018: £4.8m) and after interest payable on loans and finance leases of £36.3m (2018:  £21.1m), predominantly in relation to borrowings drawn to fund the acquisition of the Group’s new Boeing 737-800NG aircraft deliveries. In addition, net FX revaluation losses of £2.6m (2018: £20.0m net gain) were incurred, arising from the revaluation of foreign currency denominated monetary balances.

As a result, the Group achieved a statutory profit before taxation for the year of £177.5m (2018: £130.2m). Group EBITDA increased by 42% to £337.2m (2018: £238.1m). The Group’s effective tax rate of 18% (2018: 18%) was marginally lower than the 19% headline rate of corporation tax due to the recognition of deferred tax at 17%. Basic earnings per share increased by 36% to 97.98p (2018: 72.16p).

The Group generated increased net cash flow from operating activities of £440.9m (2018: £414.9m), driven by the Leisure Travel business trading performance. Total capital expenditure incurred of £302.3m (2018: £411.1m) included the purchase of both new and used Boeing 737-800NG aircraft, continued investment in the long-term maintenance of our existing aircraft fleet and the purchase of a fifth flight simulator for our training centre in Bradford. Investment in technology and various infrastructure projects across the Group were also undertaken, which included extending the footprint at Holiday House, our commercial centre in central Leeds, to fully occupy this seven-floor building, and a replacement roof for Fowler Welch’s Heywood depot.

New loans totalling £228.3m (2018: £458.2m) were drawn down, as the Group secured both commercial debt and on balance sheet finance lease funding for the purchase of its new Boeing aircraft deliveries, offset by £96.7m (2018: £128.8m) of aircraft loan repayments. Overall, this resulted in a net cash inflow of £265.7m (2018: £319.6m) and an improved year-end gross cash position, including money market deposits, of £1,274.3m (2018: £1,008.6m). Net cash, stated after borrowings of £983.1m (2018: £806.6m), was £291.2m (2018: £202.0m).

At the reporting date, the Group had received payments in advance of travel from its Leisure Travel customers amounting to £905.9m (2018: £777.9m), had no cash restricted by its merchant acquirers and had no cash placed with counterparties in the form of margin calls to cover out-of-the-money hedge instruments (2018: £nil). The Group continues to comfortably exceed the UK Civil Aviation Authority’s ‘liquidity threshold test’.

Total shareholders’ equity increased by £81.6m (2018: £93.9m) which primarily comprised profit after taxation of £145.6m (2018: £107.1m) and an adverse (2018: adverse) movement in the cash flow hedging reserve. This movement was primarily a result of in-the-money jet fuel forward contracts held at the end of the previous financial year which matured during the year.

Segmental Performance - Leisure Travel

The growing awareness and appreciation of our leisure travel products resulted in an overall 24% increase in passenger sectors flown to 12.82m (2018: 10.38m). Passengers choosing our important flight-only product increased by 21% to 6.49m (2018: 5.37m), whilst customers choosing our higher margin package holiday product increased by 27% to 3.17m (2018: 2.50m). Package holiday customers now represent 49% of overall flown customers (2018: 48%). Our two newest operating bases at Birmingham and London Stansted are proving popular in just their second year of operation, with many passengers having chosen Real Package Holidayswith Jet2holidays.

Average flight-only ticket yield per passenger sector at £81.79 (2018: £73.01) was 12% higher compared to the challenging market experienced in the prior year, with average load factors increasing to 92.8% (2018: 92.2%) against a 23% increase in seat capacity.

The increasing mix of Package Holiday customers is pleasing, as the longer duration, end-to-end holiday experience allows greater value to be added through product innovation and service at each point in the customer’s journey. This proposition lends itself to brand loyalty and retention and a better quality of recurring revenue and profitability, compared to the more impulsive, price-sensitive, shorter duration, flight-only product.

The percentage of overall package holiday customers taking shorter duration package holidays increased by 2 percentage points during the year, whilst the percentage taking all-inclusive holidays and higher value 4 and 5-star packages has remained broadly consistent. The cost of acquiring hotel rooms increased primarily because of the stronger Euro and as a result the overall average price of a package holiday increased to £669 (2018: £633).

Non-ticket retail revenue per passenger grew by 7% to £24.07 (2018: £22.52). This revenue stream, which is primarily discretionary in nature, continues to be optimised through our customer contact programme as we focus on continually developing our customer services.

Overall, revenue in our Leisure Travel business grew by 34% to £2,964.4m (2018: £2,211.4m) at an operating profit margin of 6.7% (2018: 5.5%), resulting in operating profit growth of 63% to £199.1m (2018: £121.8m).

We recognise that investing for the long-term success of the business is essential to stay ahead. For many families, booking a holiday is the most important purchase of the year and we know that in an increasingly crowded market, it is vital that customers are constantly made aware of our brand and product proposition, to consider us when making a booking. We therefore commit significant marketing investment to ensure our brand building share of voice is imaginative and strong, whether that be through traditional media such as TV, radio, newspapers or outdoor advertising, or via social media channels, video on demand or influencers. 

The delivery of a friction-free experience at every stage of the customer booking journey is of paramount importance, whichever booking channel is chosen. Over 60% of our package holidays are sold online via Jet2holidays.com, whilst 91% of our flight-only seats are booked directly on the Jet2.com website. We know that our websites and mobile applications must work for everyone, as customers’ online browsing and purchasing habits perpetually evolve – our shop window is whatever screen a customer is looking at and we want everyone to be able to find and book our holiday flights and package holidays quickly and easily. Investment in, and development of, digital strategy is therefore integral to the Leisure Travel business and we commit considerable monies to ensure that the search and booking experience is as effortless and efficient as possible, whether the customer uses a PC, tablet or mobile phone.

Additionally, we continue to build on the strong foundation of our existing Customer Relationship Management programme and to invest in our data science and analytics capability to improve our recommendations algorithms. Over time this will deliver even more personalised communications and content to customers to strengthen our already strong relationships with them.

We also recognise that personal interaction is important for many customers when making such an important purchase. Our customer contact centres in Leeds, Manchester and Palma, Majorca, employ over 350 sales and customer service advisers to ensure customers’ individual needs are catered for. Currently 15% (or approximately 480,000) of our package holiday customers book through this channel. In addition, approximately a quarter of our package holiday sales are booked through independent travel agents, who are considered very valuable and important distribution partners for our business.

Brand awareness continues to improve as a result of our broad marketing strategy and attention to customer service, with increasing repeat bookings from customers satisfied by the overall product experience. With our sparkling net promoter scores and Jet2.com and Jet2holidays having recently been awarded Which? Recommended Provider status, it’s a clear endorsement of the VIP experience we offer, and why we believe the Leisure Travel business remains well-placed to deliver successfully going forward.

Segmental Performance – Distribution & Logistics

Revenue at Fowler Welch increased by 6% to £178.7m (2018: £168.6m) as two significant contracts commenced mid-way through the financial year, supplemented by organic growth. Operationally, the business performed well, though varying chilled volume profiles at certain depots led to some operational inefficiency as customer service levels were maintained. As a result, profit before taxation fell slightly by £0.1m to £4.3m (2018: £4.4m).

Our Spalding depot located in the major growing and key food producing region of Lincolnshire, is one of the largest chilled food consolidation warehouses in the UK and is the largest chilled site in the Fowler Welch network. Following investment in the previous financial year to create a more efficient and modern environment, revenue in the year to 31 March 2019 grew by 2.4% as new long-term customer contracts were secured. This operation now distributes over 60,000 pallets each week. The benefit of the new contracts will be greater in the current financial year due to the full-year volume effect and the non-recurrence of start-up costs.

Revenue growth of 2.7% from our Kent distribution facilities at Teynham and Paddock Wood was driven by incremental volume from existing customers. These distribution facilities sit in the heart of that county’s fruit growing areas and their proximity to both the port of Dover and the Channel Tunnel make them ideally positioned to provide packing and distribution services for businesses producing locally and for fruit and produce imported from across the English Channel.

The performance of Integrated Service Solutions (ISS), Fowler Welch’s joint venture operation at Teynham, which ripens, grades and packs a variety of stone fruit, berries and exotic fruits, was particularly pleasing. The business delivered a significant year-on-year revenue increase underpinned by a growth in berry categories which led to improved profitability. Further product packing opportunities place ISS in a strong position for the future.   

The Hilsea depot, which is located near to Portsmouth International Port, achieved a revenue increase of 10% as it benefited from growth across several suppliers, demonstrating the importance of this region in providing salads, herbs and vegetables to UK retailers and underlining the strength of the range of warehousing, consolidation and distribution services offered.

The regional distribution centres at Washington in Tyne and Wear and Newton Abbot, near Exeter in Devon, continued to provide high quality direct store delivery services to over 100 supermarkets and both sites achieved improved profit performance year on year.

A strong revenue pipeline at our operation at Nuneaton saw several new customers added towards the end of the financial year, with others implemented at the start of the current financial year.

Our 500,000 square foot ambient (non-temperature controlled) shared user distribution facility at Heywood near Bury, Greater Manchester, made good progress in the year. Investment in the site has delivered an improvement to operational service, with a subsequent improvement to financial performance towards the end of the year. This positive momentum is expected to continue into the current financial year.

With its strong and committed team, and the expertise and flexibility to operate effectively in both the temperature-controlled (chilled and produce) and ambient arenas, we remain confident in the future growth prospects for Fowler Welch.