BBA Aviation's (BBAVF) CEO Wayne Edmunds on Q4 2017 Results - Earnings Call Transcript

BBA Aviation PLC (OTCPK:BBAVF) Q4 2017 Earnings Conference Call March 1, 2018 3:30 AM ET

Executives

Wayne Edmunds - Interim Group CEO & Director

David Crook - Group Finance Director & Director

Analysts

Samuel Bland - JPMorgan Chase & Co.

Rishika Savjani - Barclays Bank PLC

Joseph Spooner - Jefferies LLC

Alex Paterson - Investec Bank plc

Wayne Edmunds

Well, good morning, ladies and gentlemen. And I'm Wayne Edmunds, and I want to thank you for your continuing interest in BBA aviation. Welcome to our presentation of our earnings for 2017, and for those you in the room, thank you for taking the time to brave the elements this morning. We have had a good year. At the half-year presentation, I said that we were going to do a number of important things, one of which was appoint a new CEO, review the capital structure, complete our negotiations on our major Signature contracts and most importantly, also undertook to assure that we maintain the momentum in the business that we had at the half year. And the good news is that we have done all of that.

2017 was another successful year for the Group with the BBA meeting all of its key commercial and financial commitments, while setting in emotion a number of important investments and important initiatives that will support our future growth. So the next 30 minutes or so, we'll give the highlights for the full year performance, including the details on these key commercial and financial developments. First, let me start by introducing the BBA team joining me today, David Crook, our Finance Director, Kate Moy, there you are Kates, our Investor Relations Director; Mark Johnstone who will be assuming the role of CEO for BBA on April 1, welcome, congratulations. And then after my opening comments, David will review our financial performance. I'll then come back after David is done to conclude with some comments on future prospects.

As usual, the session is being recorded. The webcast will be available through the BBA aviation website shortly after the meeting. And one last administrative item, there are no fire alarms planned today. So if one does go off, please exit at the back in an orderly manner.

Okay. We delivered a strong financial performance in 2017 with continuing operating profit of 19%, our grew to 11% and the strong cash flow - free cash flow resulted in a further delivering of the business to 2.6x EBITDA. David will give you more color on this in a moment. I think perhaps more importantly, we've accomplished all the operating commitments we've made at our half-year announcement. For Signature, we completed the contracting activity for those customers, who comprised about 50% of the total Signature revenue stream. And as a reminder, this work involved combining the contracts of Signature and then form a landmark into a new working relationship, which recognized our larger network in a wider range of nonfatal services. The new contracts very well received and have been reflected in our numbers via higher volumes and improved loyalties statistics. We have also continued to invest in our physical facilities and nonfatal services. We saw good growth in these high-margin services, and we've been seeing particular interest in our hanger, our ground lease, and ramp access in constraint aviation market such as New York. We've completed review of our capital structure. And, as you know, our financing structure was designed when BBA was a diversified conglomerate. We have evolved to a larger more focused portfolio and we are evolving our financing accordingly. We have also demonstrated consistent ability to drive cost efficiencies over the last few years. And again, cost synergies have contributed to profit growth in 2017. Just as importantly, behind the scenes, operationally, ongoing productivity product projects largest to harvest funding, which we put back into the business to refresh our core customer service, billing, pricing, data analytics and revenue management programs. More can David will explain more programs in more detail in the future meetings as this work comes online.

Ontic, a part of the business that is not necessarily received as much of visibility in the past, has emerged as a consistently strong performer in the last 24 months, and it's contributed well in 2017 as you will see from the aftermarket performance.

And we've also evolved the Board level as well. We've added two new board members as part of our routine rotation and they have recent experience B2B marketing, branding, the application of data analytics and revenue management tools into a business such as ours as well as airport management, including the evolution of the evolving commercial and relationships at major airports around the world.

Finally, our engine repair and overhaul business is completed, it's three-year restructuring work and is the stronger shape for many years. And so now, that the business is healthy, and the market conditions are stable, our board believes it's the right time to conduct a strategic review of the business to evaluate our options.

So let me get down to the unit level. As I've mentioned all three units deliver good market performance and all benefited from a generally good market condition. In Signature, the completion of the important contract renegotiations really settled our business. We saw good growth in fuel volumes, modest improvements to our customer satisfaction and loyalty results, which we think is an important measure of performance at airports with multiple FBO choices. We had improvements in fuel margins and good growth in nonfatal services. So our performance across such as wide range of financial and operating KPI, I think gives some real-life examples of the Signature network effect and overall progress we've in operations in 2017.

Our Ontic performance was marked by further expansion of the all-important license base. We added roughly $40 million in new licenses in 2017, and we also successfully integrated the large bundle of GE licenses that we purchased at the end of 2016.

And the new and improved cost base and operating capabilities of Yaro has allowed the business to so stability and some profit improvement despite continued weaker market conditions for engine repair. So overall, strong performance by both life-support and aftermarket.

Now that the Signature integration behind is behind us, our portfolio is settling and we've announced revisions to our capital structure, it's now time to look forward towards next business. In particular, we want to share our investment ideas and how we manage the strong ongoing cash flow from the business in the future. So with that, because a result, those will conclude my opening comic spirit and let me turn it over to David who will run you through the financials, and I'll return after he's done.

David Crook

Thank you, Wayne, and good morning. As Wayne mentioned, BBA performed well in 2017. Both business segments delivering strong operating profit growth and that delivered 19% growth over 2016. Value being realized from the acquisitions in 2016 in both Signature and Ontic. A strong pipeline as well for Ontic in terms of license flow, and the much improved performance from Yaro, particularly, in the second half. It's over performance has delivered and earnings per share up to 24% to $0.24. Apologies for the slides in the room. Dividend also increased to 5% reflecting our continued confidence in future growth. And strong free cash flow supporting deleverage to 2.6x, and today setting a new target leverage range of 2.5x to 3x. I will now turn to visual performance before coming back to the income statement, cash flow and leverage.

Firstly, Flight Support on Slide 5, which delivered strong operating profit growth of 12%. Flight Support now makes up approximately 83% of the continuing group. On the revenue chart on the top right, you can see last year's revenue of $1.443 million. This is increased for the net effect of fuel and FX taking it to a like-for-like number of $1,531 million. The first bar on the revenue is revenue from acquisitions, which were made in the last 12 months. This is primarily one-month of Landmark taking us to the first anniversary of the acquisition.

The organic growth of $59 million is the growth in the enlarged Signature business, including Landmark from February 2017. This represents 3.8% organic growth against US B&GA movements for the group by 3.7%. Operating profit shows the development from a like-for-like $285 million to $329 million.

The prior year operating profit is adjusted for FX and the contribution from the disposed Landmark FBOs that we were mandated to sell by the DOJ in 2016. Here you can see the acquisition's contribution. Remember, this is a 1-month number for Landmark. And then you see the organic drop through at $32.2 million being around 55%. This is driven by top line growth and the incremental synergies building on 2016. That incremental synergy is a one-time effect for 2017 in terms of that 55% drop-through value.

During the year, we straighten the network through Key lease at Dulles International, and a lease extension at Santa Barbara. This delivered operating profit to grow for organically of 11% and push ROIC above 12%.

Now let's turn to Aftermarket Services on Slide 6. In Aftermarket Services, operating profit was up some 55% with strong performance from Ontic, which delivered through the performance of the acquisition from 2016, and we saw organic growth in its base business from cyclical military orders.

ERO delivered a much improved performance during 2017, particularly in the second half and this was despite continued challenging markets. Although we did see the organic revenue decline start to flatten during the second half. Ontic continues to represent a clear majority of the earnings within the Aftermarket Services segment.

Turning to the revenue charts. On the right-hand side chart, you can see the contribution from the 2016 acquisitions within Ontic, and these are delivering as expected. The organic revenue decline relates to ERO and a more than offset the organic growth we saw from those cyclical military orders within Ontic.

Organic revenue turning to the operating profit performance, Ontic 2016 acquisitions delivered $11.5 million during the year, a drop through of 29% margin. And we largely completed the physical transition of the GE licenses and the part associated with that into our facility during the second half.

Cost reduction supporting improved margins in ERO, along with cyclical improvements in Ontic's base business delivered $13 million of organic operating profit growth. In the year, significantly improved at 11.3%. So that's the business overview. Returning to the group income statement. We complete the overall operating profit picture with the central cost, which were $34 million, and broadly flat with last year. Here, we saw the benefits of the cost previously supporting ASIC, which being substantially removed from business and absorbed under the transition service agreement with Menzies, offset by additional cost stock-based compensation as expected, along with one-time cost from transitioning CEOs and the impact of the recent hurricanes that was absorbed by our captive insurance company. Below operating profit, we have net interest, which decreased largely due to lower drawer debt, offsetting higher interest rates. And the continuing group underlying tax rate increased to 17.5%, lower than I anticipated, which is due to some wear adjustments on final tax filings associated with Landmark.

I will return to tax shortly to explain the impact of U.S. tax reform, which is not reflected in the 2017 underlying tax rate. Continued adjusted earnings per share, up 24% at $0.24. And as Wayne mentioned earlier, ROIC advanced 90 basis points to 11%. And finally, with a 5% increase in dividend, which reflects our continued confidence in the growth for future.

Turning to exceptional and other items on Slide 8. Mostly, non-cash amortization of $93.8 million, restructuring cost of $28 million on the final ERO footprint rationalization charges, restructuring to address the take house as of the previously supported ASIG business and the write-down of specific assets within our ERO Abu Dhabi facility, which is scheduled to close in April when the final engine overhaul is completed.

Tax on exceptional and other items reflects the impact of U.S. tax reform and includes $17.5 million non-cash charge being the impact of the revaluation and reassessments of the deferred tax assets and liabilities. In addition, we didn't care $3 million one-time repatriation tax charge on the unlimited earnings of overseas subsidaries owned by U.S. parent. This charge will be cash settled, but over an eight-year period and minimum effect on groups tax rate.

I will return to tax shortly to discuss guidance for 2018. And finally, on discontinued operations, we have the disposal of ASIC net of tax. And that completes - now, let's complete the overall picture with cash flow and leverage. In evaluating the cash performance for 2017, it is important to distinguish between continuing and discontinued operations.

Turning to continuing group first. We see the growth in the EBITDA for the continuing group, which delivered $448 million. On working capital, we have an outflow of $20 million, which is largely represents the expected reversal of the outperformance from 2016, which we highlighted last March. And CapEx stands at $80 million and is favorable compared to expectations due to timing on spend on FBO development projects. Net interest payments of $57 million and cash tax payments of $33 million. Exceptional and other items represents cash spent on restructuring costs relating to ERO's footprint rationalization and the exiting of the cost previously supporting ASIC.

All this delivered free cash flow for continuing operations of $254 million. You can see that EBITDA payments along with the acquisition funds predominantly for the GE acquisition along with recent Ontic licenses, which we completed prior to the year-end. Turning to discontinued operations, we have a $25 million of working capital outflow on ASIC during January, flight to disposals and cash tax payments of $8 million as a result of taxable gain on the business.

Finally, you can see the net proceeds of the cost from disposal of ASIC at some $170 million. All that results in group net debt of $1,167 million and an EBITDA covenant at 2.6x by the year-end. This clearly demonstrates the fundamental cash characteristics of the continuing group continue to support further value creation.

Now turning to few key measures for 2018. On central costs, I expect these to be around $25 million, reflecting the nonrepeat of CEO transition and insurance cost associated with the hurricanes, partly offset by additional stock-based compensation charges.

The Group CapEx in 2018 is expected to be in the region of $100 million to $110 million. This reflects the timing of the a few projects carried forward from 2017 and increased investment being made in areas such as technology, mobile service units to support further organic growth. In the medium term, I continue to expect 1x depreciation to be a good guide in terms of overall CapEx. This excludes the investment in Ontic licenses, which I expect to continue at an average of around $30 million per annum.

The underlying effective tax rate for 2018 is expected to be around 20%. The net effect of the U.S. tax reform is broadly balanced to BBA in 2018, the increasing underlying effect - the decrease in underlying - sorry the increasing underlying effective tax rate is largely a result of the nonrepeat and prior year adjustment relating to Landmark from 2017, and the further concentration of U.S. profits. The cash tax for 2018 is expected to be around 10%. This reflects the changes on the U.S. tax reform, which allow for 100% capital allowances on non-real estate investments for the next five years. Interest for 2018 will be a product of the refinancing put in place and expect update on this. That concludes the results and some guidance for 2018 I will now turn to capital structure and capital allocation.

Following the transformational acquisition of Landmark in early 2016, we have established the business with strong fundamental free cash flow characteristics coupled with longevity. Through our portfolio of U.S. FBO licenses with an average life of 18 years, supported by Ontic's portfolio of over 150 licenses for the legacy aftermarket, this also comes with the capacity to flex the business cash flows across the cycle both from operating cost point of view with circa 75% of cost being variable, and on capital commitments both in terms of flexible timing of capital expenditure across individual between the FBO portfolio and the patent in place of the investment in licenses within Ontic.

Turning to Slide 12, on capital allocation, most specifically the strategy that involves the capital allocation policy. BBA has a wide range of organic growth opportunities that will underpin the capacity for our performance against our markets. When will expand on these shortly in terms of what lies ahead for the next phase of BBA's growth. BBS capital allocation policy will firstly, ensure we delivered the invest in the wide range of organic growth opportunities available to the group, and expect that to be circa $100 million or 1x depreciation from my earlier comment.

Secondly, enlisting continues to be an attractive pipeline of opportunities for Ontic from existing OEMs and from new OEMs to see the benefit Ontic can bring from owning and managing the IP during this legacy lifecycle phase, and these to be an average of $30 million per annum. Thirdly, investing both on acquisitions in both the B&GA and potentially in the legacy aftermarket space the criteria of 12% return on invested capital and enhance the network relevancy and IP-protected portfolio attributes of the group. The group will also maintain a sustainable progressive dividend policy and finally, we anticipate the group's leverage falling below the target range after funding the investment opportunities available to the group in the sustainable progressive dividend, we will return funds to shareholders at a level that brings the group back to the lower end of the target leverage range.

Finally, the group will now undertake a refinancing of its debt facilities during 2018 to address the revolving credit facility and facility B of the acquisition debt. repaying $120 million of the U.S. PP notes that mature in May. We expect to refinance Facility B in the nonbank market, and to follow a similar pattern with Facility C in due course. While reviewing our position on the U.S. PP notes, periodically as we refinance. The overall outcome for the refinancing package will support the new target leverage range and extend the weighted average maturity of our debt to better reflect the long-term nature of the assets about this is financing.

So in summary, strong underlying operating profit growth from both business segments, devastates the businesses continue to attract fundamentals, signatures and large network proposition from both fuel and nonfuel, supported by solid execution in Ontic with a good pipeline of opportunities and much improved performance from ERO and over then opportunity to generate cash to support the business going forward that the opportunities available to it.

And, finally, the capital structure that is fits our purpose that the organization and the strategy going forward. I will now hand back to Wayne, who will provide some further insight into what lies ahead for BBA in 2018 and beyond.

Wayne Edmunds

Dave, thanks. We've transformed BBA in the past three years. We've focused the business portfolio to become the leader - global leader in fixed-base operations. The natural question is what's next? Where will the growth come from in the future? What will plants be for the strong cash flow that's evident in the business? What changes will be in a capital allocation process? That bought the board and investors over the next couple of years. So to take us on the discussion, let's start with the basics on the BBA business model. The core assets of this business are at the 198 FBO locations with an average lease term of 18 years and 150-plus long-term IP-protected licenses held by Ontic business. This gives us a very durable and a very defensible position and a good free cash flow, from which to launch our new growth. And they also provide us with a very straightforward financial formula, which drives our decision-making. More volume with a wider range of high value, high-margin services across competitively fixed base, ample size of financials EBITDA, cash flow and ROIC going for a few so beyond and also be on the pure financial benefits, the size of our business offers some scale related cost advantages and operational activities such as IT, purchasing and, of course, overhead support.

Another important factor when evaluating more options is that we now have many years of proven experience in acquiring and integrating new FBO locations adding new nonfuel services and adding new licenses. These are proving to be excellent investments, individually and collectively with a ROIC of 12% or more, and we are also very manageable risk profile, which is important. So looking ahead, we plan to do more. In the past few years, we have experienced excellent EBITDA growth, including 16% this year. That growth has been achieved in a number of ways. First, we've grown fuel volumes, generally, above market with a good drop-through the profit. We've also expanded our nonfuel revenue and that includes things such as hanger property management, ramp access, customer service, customer services, pilot services, airplane support and so forth. That represents about a third of the Signature revenue overall. And so that combination of fuel volume and nonfuel service growth contributed high single-digit decline growth in 2017. Second, we have made additional investments in FBO Ontic licenses and also some newer nonfuel services, including things you will remember December 2016 where we made a $60 million license from General Electric for Ontic.

This growth investment has added several points to our EBITDA growth as well. And finally, we benefited from about 5% from synergies and short-term benefits of a stable ERO.

So moving off of the business model to our cash flow. So let's talk about cash on capital allocation. Looking ahead, the consensus free cash flow for BBA is roughly $250 million to $300 million over the next few years, that includes the typical recent capital investment of approximately 1x depreciation or $100 million that go towards our asset maintenance and to support some of our core growth.

Assuming dividend - 2017 dividend of $130 million and typical about $30 million of annual investments in Ontic licenses, this leaves us with somewhere between $100 million and $150 million in discretionary cash that's available for either the investment in the business or return to shareholders.

So as we look to the future, we are clearly not going to be looking for a single next big thing. There are no more Landmark deals out there at this point, but rather, we plan to expansion of services and the deployment of additional capital of about $100 million plus annually into the sweet spots I've just described in our Signature and Ontic businesses. We believe these investments will achieve a ROIC of 12% and they'll be going into our sweet spots. All the while continuing overtime to provide profit ROIC and cash flow benefits as I have described in the business - my previous business model descriptions.

So in summary, we believe BBA offers classic yield management opportunities. But the Magdalene by driving more revenue across base by making additional investments in the sweet spots of our existing businesses. So also the question has been raised in recent, why now? Well, Landmark integration has been a very major undertaking for this business, and it is behind us. We've also started the final major portfolio work for the business. We also understand or new business model very well and we've established a financing plan that will be aligned with our new BBA portfolio. So let's begin to Signature little bit further, and let me give you a few examples of Signature growth opportunities. So, the foundation for Signature is the long-term expansion of B&GA volumes, which averaged about 2.5% growth of the past 10 years. Because of the scale and attributes of our business model, we were capable of achieving an additional 2% EBITDA outperformance from that volume growth. Adding to that baseline is the normal flow of leases, FBO ownership changes, which we believe over time will allow us to further expand our network.

The next leg of the growth story is the network agreements with our major customers and volume relative pricing agreements for some of our other long and diverse group of customers. As evidenced by second half of 2018, we'll believe that the cost, the convenience and the shared scale benefits will allow us to gradually induce more volume on those networks we are these agreements, while adding to the normal market growth. As I look back at recent investor relations communications in corresponding by the thematic emphasis on fuel volumes and revenue performance that are related to fuel sales. Fuel always be the largest source of revenue and margin for the business. However, nonfuel services, including hangering, baggage handling, deicing, customer pilot services, currently represent about a third of the total Signature revenue and yield high margins as well. This revenue stream has grown high single-digits in the past few years, and our goal is to maintain or expand that rate of growth. And beyond immediate airplane-related FBO revenue stream, we have work underway to expand our broader service offering.

We have activities, including franchising and joint venture work, which are aimed at extending that network outside of the United States or within the United States at some of our - some of the smaller bases, which are important to our customers. We have also made investments this year door offer enhanced convenience service to our customers, including on-site line maintenance for routine maintenance in work and we extended our travel services capabilities with new relationships with hotels, car rental services, local attractions and also U.S. Customs services. We can offer charter options affiliation and finally, we are in a very early days of upgrading our internal systems to collect a new customer and travel data that comes across our day-to-day to offer targeted promotions in more sophisticated revenue management capabilities.

So in summary, the Signature growth will come across numerous initiatives, and will be applied across this network over a period of time. The rest of the financials for Signature flow directly from this growth. The Signature model is hardwired for long-term durable growth and really, as we look forward, thematically, it's about the convenience and the customer service combined with the scale driven fuel economics that she's going to make us to network of choice, is the combination that's going to really be the magic.

Let me move on to the bit of the hidden gem of the BBA portfolio, or Ontic business. As a reminder, this business provides Aftermarket Services ranging from manufacturing to supply chain management for a wide range of airplane platforms and it does so by licensing rights from some of the major global OEMs, including Honeywell, General Electric, Pratt & Whitney and Rolls-Royce. And it's about $200 million business with a 15% ROIC, and it's grown in importance to our business in recent years. Our licenses give us IP rights often - sorry, source IP rights to our portfolio, which allows us to service a wide range of commercial and military aviation. Our typical investment in new license in the past few years has been around $30 million with some spikes, including one bundle such as the GE bundle of $60 million came at the end of 2016. The business model for Ontic is very different from Signature, and so are the sources of growth. Aftermarket businesses by their nature require technology evaluation and ability to place value onto licenses to be successful, and Ontic has been very skilled in those areas over the past couple of years.

Furthermore, Aftermarket businesses must be reliable. Because any issue ultimately reflect back on the OEM license and evidence of Ontic success is with simple fact, they're excellent service performance offer as an opportunity to bid on a wider range of licenses from a wider range of OEMs.

So what's next for Aftermarket Services? So Ontic has several sources of growth. The first is sound product management skills and data analytics to support pricing and end-of-life services. Before you make light of this, we have to remember that many of these license products have extremely long tails as evidenced by the large orders of B52 parts that we received in the second half of this year. To ensure that this work is handled with a degree of discipline and sophistication, we've invested heavily in recent years in product management, pricing and also related technologies support and will continue to invest in that capability.

Next, we'll invest an average of $30 million in new license annually, and we certainly plan to invest even more. That said, this process, unfortunately, is largely outside of our control because it is depends on OEM outsourcing decisions. To put more investment to work in Ontic, our goal is basically to expand our scope, that to reach a larger number of aircraft platforms and technology and prototypes and extending our OEM relationships. It will be a gradual process, but it'll certainly be a very durable process. And beyond traditional licensing, we are also looking to acquire smaller aftermarket Forms to expand our reach into new technologies and airplane platforms. So in summary, we had to invest more in Ontic and more than we have in past few years because it's become a very reliable performer and certainly has earned the opportunity to be more expensive in its investment views.

As I mentioned earlier, in the past, we have promised to hard look at the ERO business when the time was right and it is so at present. So we will consider all options and we'll keep you informed as review progresses.

So then kind of tied us off between the business model and the cash flow, the capital allocation process has been defined by David. As we have said it previously, we believe we can deploy dependably $100 million to $150 million of additional investments annually to an attractive and plentiful pipeline of opportunities in our core businesses. These investments are going to prove an area such as FBO, nonfuel services, or internal analytics and revenue management capabilities, Ontic licenses and also some board on M&A. The investments will return 12% ROIC or better, and add to the value proposition overall for both the Signature and Ontic business lines. The Group will maintain a dividend policy of lying to sustainable long growth in earnings and of course, will distribute funds to shareholders as David described in the pipeline and that if the pipeline of internal investments is inadequate.

In 2018, we have quite a number of major financial operational activities underway. In H1, these will include our financing. The ERO strategic view as well as ongoing evaluation of the number small M&A investments. So when those settle, certainly, likely by midyear, we'll give you a more clear direction on both the one-time and ongoing cash distributions.

So a very short comment on our investment case. In summary, we believe, the journey has just started for the new BBA aviation. Using the unique real estate and license assets as a foundation, we believe we can bring on an arrival excess services, technology inconvenience to a segment in a market that is still underdeveloped. Our business model is straightforward. We need to put more scale work and we did insured deployment of capital into our core businesses is done systematically. And we will ensure through a capital allocation process that free cash flow will be put to good use through internal investments or through timely shareholder returns.

So we've accomplished a lot in 2017. We have completed our Signature contract transition, appointed a new CEO. We've started our work on the new capital structure in financing. We've initiated a strategic review of ERO, and produced good financial results. Behind the scenes, key staffing technology and work plans have progressed as well. So as we look at 2018, we're facing generally good economic condition and expect solid B&GA growth. We've developed growth plans. We'll put more money to work in the best-performing parts of the Signature and Ontic. Some implemented occasionally by M&A and FBO in some of our Ontic license space. Our balance sheet and financing management ample resources to support the plan.

And if I could just leave you with one take I would it is still early days in the maturation of the FBO space, and you should expect BBA to continue to play a leading role in the shaping and development of the industry.

On a personal note, it has been fun and being very, very satisfying to be part of the BBA evolution over the last eight months. Just would be technology and thanking the BBA executive team and the employees for, frankly, just getting on with it through the whole year of '17. Mark will be taking over on April 1, and I want to certainly wish him and David the best for the future. We will be conducting a Capital Markets Day to allow Mark and David to give you much more detail on the subjects we introduced today. And that should be taking place early fourth quarter of this year. That concludes my formal comments. So let's take some questions.

Question-and-Answer Session

Operator

Q - Samuel Bland

Sam Bland from JPMorgan. First one, so may be a slight change of the message on the capital structure, capital return story. Where do you think that's kind of come from and how that's developed over the last six months? Is it more - actually, it's just more available to buy more attractive things maybe you thought that was six months ago management change had anything to with that? And that the second one on the renegotiations of Signature with the enlarged network, is it probably fair to say that your focusing now on driving share of wallet and volume growth and signing up new customers rather than try to increase pricing high yields is that fair?

David Crook

I'll first one. Well, couple of things, I think, probably the biggest thing I know when I joined the business six months ago is that the overhang, the amount of effort that was required to do the Landmark integration was I think much heavier than perhaps the other board and external investors realized. It was outstanding outcome, but it certainly was quite a consuming process. So one of the things that what we did when I got there back in July is to sit down with the management team, Mark, David and others, and have a good freethink leading ultimately up to our formal plan in October, November, about ways to be more expansive with our growth ideas. And that led into rich dialogue about additional opportunities for nonfuel services, a little bit richer and more formal list of FBO and other licensing - leasing opportunities. And generally, frankly, a little bit of exhale in our next step forward kind of approach that I think was the business was more than ready for it.

Ontic, frankly, it's a matter of, frankly, demonstrating how good they are. The last couple of years, you couldn't help but take notice that they simply kept getting on with acquiring large and larger bundles of licensing, continuing to improve their operations and basically continuing to improve their sophistication. And so, in a similar manner, when we all got together, we sat down with the full Ontic leadership team and said, "okay, let's - first tell me how we're going to be able to go after more licenses as you heard there are natural limitations, but there are things that can be done." And then we asked the question, "well, is there anything else out there that given the opportunity you would like to look at." And that's where the idea of so many smaller bolt-ons. The premises of bolt-ons is actually straightforward to believe as for them any M&A, is that we could do more with the license pool because our skills, our contacts, our channels and so forth owners could. And, therefore, there would be potentially more beneficial standalone small business.

And so, that was - that was really at the heart of it. We simply put our heads down, did a good plan and identified things that were right on the streets parts, I just fell, particularly the scale were talking here Ontic, might be looking at bolt-on M&A that would be the scale perhaps with GE deal - the last GE deal $60 million, $70 million, we've already done a on couple, why would we want to do more. And we've already done Landmark, why would we want to do more FBOs. So there's nothing that's out of line here or anything new being introduced for just that were capable of doing more. Little bit long-winded on that one, but that really was kind of at the heart of the change. David, on the second part.

David Crook

Yes, second question, Sam, and around pricing. I mean, as Wayne mentioned, we want to continue to be the FBO of choice. So this is about a very balanced and positioned with the customer in terms of those renegotiations, in terms of the range of services we can bring where we sit on pricing relative to volume opportunities. And continuing to look at that in a balanced way, be that customers factor of choice on a number of levels. So it certainly not a one dimensional aspect in terms of the approach to the ongoing customer development of the back of the renegotiations and that clearly approach sat well with the customers as we went through the negotiation process and those contracts were signed up as we went into the, sort of, midterm, so we have a good sense of how that's landed with the customers and continue to look at it in a very balanced way.

Wayne Edmunds

Yes. The only thing I would add to that is that the - while we talk we often will talk about discrete fuel and nonfuel services. When you go back, when you talk to customers, they simply want support. And so, the notion of fuel and a nice terminal and handling local online break fix maintenance and having a U.S. Customs location available and perhaps using - sorry, utilizing overnight parking or a hanger or any number of things, their concept here is one we looking it as a lifetime relationship, not an optimization for a given year and the second thing is frankly, we are trying to introduce year is we plan to sell more than funerals. So you can do this business without funeral, but you certainly can do way more than we are presently to aid and convenience of flying for our customer base. And so this is also a long, long relationship thing. We want them to get into the habit at the same habit of opening up and googling something that takes a little bit of work and we like to get into the habit of just yes, for a choice between Signature and a small player. Of course, I want to Signature and we get there and that just well for the long-term overall growth of the business.

Rishika Savjani

I'm Savjani from Barclays. I have three questions if I may. the first one is you haven't yet commented on the market environment and clearly last year was a strong year for overall market growth. And can you maybe just give us some thoughts in terms of how you're seeing that? And whether or not this is a sustainable level for the coming year does U.S. tax reform kind of continue to be scope of confidence in investment in U.S. in general? And my second question was around the loyalty metrics that you mentioned, you said there was an improvement there since the renegotiation process has been going on. Can you maybe give us something a bit more tangible on that? What medics are looking at, what implement our using that be very interesting? And then very finally, just on shareholder returns as and when they do come. Are you able to comment - are you willing to comment your preferred kind of methodology of way of implementing that?

Wayne Edmunds

I think I may have joked - I certainly joked with somebody this morning, and said if I could forecast that I'd a very wealthy man. It's very clear. It should be a good year. Last year was, I think most would agree, was an exceptional year. The pattern, if you look over a 10-year period, you very really 2 or 3 consecutive exceptional years it tends to be somewhat moderation of your time. Our best guess later was that was a 2% to 3% range that we published. January, weather related was rather poor, was down kind of 1% range. We have seen some recovery in February. Beyond that, truly, it is a little bit of a guesses two years to three years if you can step up a little bit higher. But, it's still a completely normal market at this stage. We see no signs of slowing down at all.

David Crook

Yes, I had a piece tax reform of the back of that I think anything as well and just that plays in. I think, we've seen commentators referring to the capital investment position in the U.S. And they said 1 or 2 notes from the OEMs who are expecting to see some flow in terms of new jets. Those will take time to come through the manufacturing pipeline. But as I noted earlier, just in terms of BBAs own cash tax rate, the U.S. business environment will enjoy a 100% capital deduction for five years and a tailing offer that over future years as well. So a fairly long, long way for get ordering capital investments and the extent that starts to show in new plane investments and that can only good thing for the industry.

Wayne Edmunds

And on loyalty, the way the measures apply within the business is we simply - when airplane lands on a field where there are multiple FBOs, we track where the plane ultimately takes its fuel. And we've had a pattern in history that has been collected, reliably both our Landmark and Signature over the last couple of years for largest customers as with their typical decision patterns have been. The first half of this year became more irregular, they kind of broke the historical pattern as a result of short-term disruption from the contracts. Once the contracts were bedded down, we returned - it returned to normal - the loyalty patterns returned to those that we have seen in the past, and in many of cases, showed modest improvements in line with the commitment that had been reached at the time of the agreement. It's an important tool for that, for us because it does give us insights as to kind of habits, not just for the largest customers, but just tracking face and that's under the, where corporate buyers are going, where our individual owners - where they're going and why they're growing? And then trying to remain in communications with them to see if we're able to determine is there something we can do business versus very valuable tool. It's homegrown. It's a really just a series of historical patterns and we - I don't think it's an industry-wide measure, but it's a very useful tool.

David Crook

Yes. I think to Sam's question earlier. There is a general underpinned we've spoken about in terms of continued investment in technology and option of that data rational approach. To be into track the data, evaluate the data, better understand individual customer flying patterns, needs, and be somewhat more predictive in terms of being on the identifying, trends or aspects that we can work on in support of customer allowing them to manage that's cost of flight and operating across the Landmark.

Wayne Edmunds

A lot of the technology that will be - has started to go in and will be going in will be aimed at making the service experience better by putting better tools in your the hands of our frontline FBOs. But behind the scenes, the tracking of the data and having improved IP systems in order to get this stuff to be, term real-time, the data collection is a real-time analytics and response. We'd like to shorten the interval. So when we see pattern changes due to weather, pattern changes due to decision-making and individual airports, we think there's plenty of room for improvement in terms of our responsiveness, and it has to be technology driven.

David Crook

You had a final piece around shareholder return. And no set decision in terms of mechanism I think as we touch on in presentation, we will continue to monitor and evolve on a rolling basis that pipeline of opportunity business has in front of it and our capacity to execute in that space and to the extent we start to see any indication that the cash flow generation take outside of the range. We will start readying ourselves to appropriate action to allow and manage correction back into the lower end of the range rather than a mediocre stalking response in terms of that evolution. So it's going to be a constant process against all the opportunities relative to the cash flow development in the business over time.

Joseph Spooner

Joseph Spooner from Jefferies. You touched by the third of Signature revenues been nonfuel. Can you give us a sense of how that splits and does that kind of nominated anything, in particular, I'm thinking perhaps and when you're talking about deploying the $150 million to $200 million integrated opportunities, is that pipeline already there? Should we expect that level of activity from this year forward or will take a little bit of a time to ramp up to that? And, I guess, in the term of the list of opportunities that you there a priority that you would focus on short-term within that list?

Wayne Edmunds

Sure. Yes, the nonfuel services as you might expect is down there by real estate related activities that hankering, parking or ramp access that always dominant particularly as you get into areas such as the New York metropolitan area where premium. And we expect that going - we do, certainly, expect that to be dominant part going forward. But what we are finding is the demand - I'll just used the MRO services. We have always had an MRO offering and it's been very well-received and it's been customer pole rather than out push to expand and rationalize the service so that it gets into the location. So, for example, a large scale charter or large-scale fraction can actually use it to plan on going maintenance in a more - in an easily way. So huge and is a huge opportunity to develop sticky relationship and an important part of the business. So that was under one take field. So on the ongoing activity, yes, we have had things underway for a number of months, several on each side of the business.

The properties within the FBO space will be always be in that network relevance and probably first and foremost. Secondly, just continuing to make investments to nonfuel services even though it's not major. Behind the scenes, there are some self-funded money going into improve our RMO - MRO offers. So why it's not necessarily $100 million, $150 million, it still is embedded in our numbers at the moment. And they're probably 2 or 3 kind of GE size activities transactions that might be available to Ontic that they have to go through the process of evaluating as well all of these the usual problem is we just never know, which one's when, and so forth and that's David question, promise, that we got to get the money moving, we have to keep the velocity up. But it is a little bit tricky, trying to figure out exactly what will fall when. And that's combining that financing an ERO, it just - if we can buy a few months, we will be sensible that will allow us a few things to bed down before little bit more directive.

David Crook

And just couple of points, just on the MRO piece, and clearly, we have maintenance shops at certain key locations now. Wayne talked about some of that being covered in the CapEx program and that's another good example where we can deploy CapEx, but it's not maintenance CapEx. It's growth CapEx and that maintenance option we can look about it in capital lightweight. So you heard me in the presentation earlier reference mobile service units. So that's another clear example of where you can deploy capital right assets to facilitate and deliver your service at one automotive bureaus and to be there for the customers. So some good flexibility all about how we deploy that in a most effective way in a capital lightweight. And I think in terms of that M&A pipeline aspect as well. Yes, clearly, it's that big judgment as to where things will drop and how it will drop. I think, one of the pleasing aspects is that two years post-Landmark now, the business has a certain format to it, the way in which cash flows evolve from the business against the given backdrop. So although we're trying to manage and was that profile, that's against the backdrop of those flexible and robust as those that I mentioned earlier, in presentation. So it allows us to look through and see the pattern evolving and make some of adjustments as we go along rather, very choppy evolution of cash.

Wayne Edmunds

One thing to also acknowledge is you probably a lot of ease and I have commented about this. I was of the generation where M&A was something it's somebody did. It was done by some team often in who miraculously came up with the great ideas. I mean, that is obviously - that's very old idea. Most businesses now business development right from front lines and bring them up. And it's part of what one does. There is a line operator for a given profit center. And we have certainly have some of that as clear evidence of our acquisition and disposition. We are pretty mature with that. But I still think, one of the nice thing still there Mark and David will be that continued kind of down and make sure that the operators understand that growth is imperative and that's not just David and Mark's problem or opportunity, is that one of the things has been fun, frankly, is - and you often hear it from people in private equity where say, go into a business as front-line people what you want to do? and you get great ideas. Well, we did. And we actually did. We went back and we just as the business for some of the things they were thinking about, that was pretty - it's a good list. It was a very good list. And, again, I keep coming back to it. But it says basically the same stuff we're doing now. So no crazy ideas come out of this. So more licenses and more services and more of FBO.

Alex Paterson

It's Alex Paterson from Investec. Can I just start one question on Ontic? And it's really few as you are buying in a more licenses fairly consistently. How consistent is the performance on the profile of those licenses against you've already got? Are they giving a different profile in terms of revenues, longevity, that kind of thing so that you're developing portfolio affect our old completely different into randomness just when things drop, as for the B52 this year?

Wayne Edmunds

Yes. Well there's certainly - there's a degree of randomness of what comes out, when. But I think, you've actually raised more important. And that's how the portfolio is developing because we have a 115, how many? About 6,000 products

David Crook

Yes.

Wayne Edmunds

Yes. I mean, when you go back in, one of the things that we have asked Ontic to report through our planning process is they give us the profile of the airplane platforms they are on, the engine platforms they are on, the technology platforms they are on. And then we try to ask them to harmonize that get it into a great shape so we understand what we're investing overinvested in a given platform or a given technology. And actually the answer is, no. So we actually do a formal process to kind of do a risk and opportunity profile and what's been happening, the licenses drop randomly, but once they do drop, the evaluation process within a framework. In other words, we try to stick good ball that my balance of commercial in Ministry because a bunch of platforms Richie we think have and little by little, they haven't technology capabilities.

So I mean, that's one thing, that's been interest, new range from physical and mechanical and electrical and into more complex systems has evolved over the last three years in a very dependable way. They can do an awful lot. I think the most remarkable thing getting onto the field is actually walking into one of the shops where you go to one part of the factory where they're doing a part that they do, three off every three years and they get another one with 30 of and they are side-by-side. And I can tell you first hand, I've been with businesses, the ones that do the latter are easy, the ones that do former are buggers. And the fact that they bring side-by-side is really quite remarkable. It's an interesting way they've developed the skills.

Wayne Edmunds

Okay. Again, thank you all for coming, and for your continued interest.

David Crook

Thank you.