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Gama Aviation reports strong year amid ongoing legal battles
Business aviation services provider Gama Aviation updated the market on its trading for the full year to 31 December 2017 on Friday, in advance of the publication of its full year results.
The AIM-traded firm said it will release its full year results on 19 March.
It said underlying earnings for the full year were in line with its own expectations, and consistent with the trading outlook provided at the time of the interim results published in September.
The company said it continued the "solid progress" it made during the first half of the year in improving its cash conversion, resulting in cash and cash equivalents at 31 December of $22m - up from $11m year-on-year.
After funding the acquisition of 51% of Gama Group Mena FZC, which closed in October, and securing a further $2m of finance leases in July for the purchase of a support aircraft under the Scottish Air Ambulance contract, net debt was $13m as at 31 December - down from $19m a year earlier.
In Gama's air division, the board said the US Air associate, which includes the Landmark acquisition from the start of the year, delivered "significant" revenue growth over the period.
"The 'Wheels Up' programme continues to support contracted growth in the US," the board said in its statement.
"In the final quarter of 2017, the US business invested heavily in its sales force to enhance the growth of the managed fleet and charter."
Gama said the EU Air division continued to build on the operational efficiencies implemented in 2016, with "significant" margin improvements being realised over the year.
The Middle East and Asia Air divisions had a stable year, it added, and both begin 2018 with "solid platforms" for growth.
In its ground division, the US Ground business enjoyed "strong" organic revenue growth over the year.
As planned, the board said the operating margin and profit achieved in 2017 reflected the company's focus on scaling up the business, recruiting line maintenance engineers ahead of revenue growth and significant investment in training.
"Having made this investment, the division is now poised to return to more normalised margins in 2018," Gama's board explained.
"The EU Ground division grew modestly over the year, with an improvement in levels of discretionary spend and increased base maintenance activity at the Oxford facility."
Gama said the Middle East Ground division had a stable year with the number of aircraft movements through the FBO facilities showing an improving trend.
The Asia Ground division delivered its first revenues during the final quarter of 2017 through its commercial collaboration with China Aircraft Services Limited.
"The company is involved in a number of legal proceedings, most of which arise from historic Hangar 8 trading activity, prior to the merger completed in January 2015, and those relating to disputes with Dustin Dryden - a former non-executive director of the Company who resigned in September 2015 - and affiliated entities," the board explained on the subject of exceptionals and adjustments.
"Taking account of the circumstances of each set of proceedings, legal advice received in relation to them and the company's views as to the merits of such proceedings, the company intends to continue to vigorously pursue [and/or] defend such proceedings."
Gama said it incurred legal costs of $1.0m associated with the proceedings in the year ended 31 December, which would be treated as an exceptional item.
The board said it believed a similar amount would be incurred for future legal costs, through to the conclusion of the various proceedings, which would also be treated as exceptional.
Additionally, $0.6m of exceptional charges for transaction costs and business and reorganisation costs were taken in the first half of the year, with a similar charge incurred in the second half.
"In respect of one of the proceedings against the company, amounting to $1.9m, arising as a result of historic unrecorded liabilities in the Hangar 8 business, the board has decided to make a $1.3m provision in the form of a prior year adjustment," the board added.
It said the remaining proceedings fell into two categories - the first involved proceedings by the company to recover long-standing trade receivables that amount to approximately $5.5m.
The company had made adequate provisions or held security against those claims, and as a result the board said it did not expect any further provisions would be required.
In addition, based on legal advice, the board said it considered the proceedings to recover those receivables were likely to be successful.
"The second involves a number of proceedings brought against the company in which the claimants seek to recover damages for alleged contractual breaches which amount to approximately $15.3m," the board explained.
"Based on a detailed analysis of the claims and legal advice, the board believes that these claims are speculative or overlapping, and the company continues to vigorously defend them."
By the time all of the proceedings - some of which are with the same counterparties - are determined or settled, the board said it expected the overall awards and settlements to result in a cash inflow to the company.
"We are pleased to affirm that our underlying earnings for the year ended 31 December 2017 have been delivered in line with our expectations whilst continuing to improve cash conversion," said Gama's chief executive Marwan Khalek.
"Both our Air and Ground divisions are performing well and we continue to invest across both divisions and all of our geographies in line with our strategy of becoming the market leader in business aviation services.
"We enter 2018 confident in the strength of the Company's operations and its growth potential."