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Chairman's Statement - Dart Group PLC

24th June 2011

DART GROUP PLC - PRELIMINARY UNAUDITED RESULTS FOR YEAR ENDED 31 MARCH 2011

Chairman’s Statement 

 

I am pleased to report on the Group’s trading for the year ended 31 March 2011.  Group turnover increased to £543m (2010: £435m) and profit before tax amounted to £26.2m (2010: £22.2m) with earnings per share of 12.2p (2010: 11.1p).  Underlying profit before tax and before specific IAS 39 fair value movements was £25.9m (2010: £19.1m).

In consideration of the Group’s current trading performance, the Board recommends a final dividend of 0.83p per share (2010: 0.75p).  If approved at the Group's Annual General Meeting to be held on 8 September 2011, this dividend will be payable on 21 October 2011 to shareholders on the Group's register at the close of business on 16 September 2011.  The associated ex-dividend date will be 14 September 2011.

Profitability increased in Aviation, primarily due to increasing load factors, but decreased in Distribution, due to start-up costs at its new North West distribution centre and the rationalisation of its container operations.

Capital expenditure for the year was £68.0m (2010: £32.1m).  This expenditure related principally to long term maintenance spend on aircraft airframes and engines and the freehold acquisition of the distribution centre at Heywood, near Manchester, “the Hub”.  Net cash flow from operating activities amounted to £113.8m (2010: £73.2m), driven principally by improved forward bookings at Jet2.com and Jet2holidays, the Group’s ATOL bonded tour operator.

As at 31 March 2011, the cash position amounted to £106.8m (2010: £52.2m), including money market deposits, at which point Jet2.com had received circa £135m of advance payments from customers in respect of future flights.

Aviation

Our strategy is to understand and meet the holiday needs of our Northern based customers.  We fly carefully scheduled flights to high volume leisure destinations, offering “friendly low fares” to seat only customers and “package holidays you can trust” to Jet2holidays customers. 

Both products meet the demand for real value in these difficult and uncertain economic times.  Higher utility prices, the rising cost of food and fuel, and employment uncertainty, are all taking their toll on leisure spend.  Both our seat only and package holiday products are absolutely geared to meet the holiday needs of value seeking customers.

To ensure we continue to deliver the right product, we are working hard to build our customer data capture and analysis capabilities which, coupled with our substantial in-house IT development expertise, means that we can progressively improve the tailoring of our leisure products, both seat only and packages, to meet our customers’ needs, both present and future.  Customer demand will lead our strategy - understanding the needs of our customers is key and we believe we are making great progress along this exciting and interesting path.

Aviation revenues rose by 28% as a result of increased passenger volumes and the growth of Jet2holidays. This revenue growth was achieved despite the disruption to Jet2.com’s flying programme caused by the eruption of volcano Eyjafjallajӧkull in April and May 2010, which resulted in the cancellation of over 400 flights.  The overall profit impact as a result of this disruption is estimated at £3m, comprising refunded flight revenues, compensation claims and the repatriation of customers who were stranded overseas, together with an estimate of lost revenues, offset by variable operating cost savings on cancelled flights.  In January 2011, we reluctantly took the decision to cease services to Sharm El Sheikh, Hurghada and Tunisia due to political unrest, re-directing the capacity to Western Mediterranean resorts.

During the financial year the company flew 135 routes from its Northern bases to 51 destinations.  Our unique proposition of “great flight times”, “22 kg baggage allowance”, “allocated seating” and “loyalty points for free flights” helped us to raise our overall load factor to 85% (2010: 80%).  In March 2011 we commenced operations from our eighth Northern base, Glasgow, with services to nine popular sun destinations.  This contributed to a 26% overall increase in network seat capacity for summer 2011. 

We are particularly pleased to report the progress of Jet2holidays which is gaining encouraging sales momentum.  We carried nearly 98,000 of our own package holiday customers on our flights during the past year, and we are now working to double that number for the current financial year. 

Our packages encompass the flight, transfer and accommodation, with “3 star” and “4 star”, “half board” and “all inclusive” packages being the top sellers.  The company now has over 800 directly contracted hotels in leading Eastern and Western Mediterranean resorts.  We are determined to develop these relationships further in order to deliver our “best value” product.  There are major opportunities to cross sell between our flight only and package holiday customers and we look forward to the continued growth of both.

Tremendous progress continues to be made with the development of our in-house sales and reservation systems for both Jet2.com and Jet2holidays.  Our industry leading IT team has enabled us to build a fast and very customer friendly sales platform for both our flight only and package products.  Our revenue and IT teams work closely together to deliver additional customer focussed services including choice of seating, meals, onboard entertainment and car hire.  Together, these yielded £25.39 in additional retail revenue per passenger during the last financial year (2010: £21.12).  Both Jet2.com and Jet2holidays revenues will benefit from our continued IT innovations and associated retail product developments. 

As we build our customer focussed leisure brand, information on all customer purchases and trends is constantly being gathered from bookings, questionnaires, surveys and focus groups.  This is collated by our data management team and forms the basis of our continually evolving future strategy.  Overall we believe we have the right formula of innovation and differentiation for continued development and success in a tough and competitive trading environment.

Distribution

The Group’s leading logistics business Fowler Welch, which specialises in the distribution of chilled and ambient foods on behalf of leading supermarkets and their suppliers, has experienced challenges during a year of considerable growth and development.  Our new 50,000 pallet capacity Heywood distribution centre, the Hub, which is located near Bury on the M62, north of Manchester, was opened with its enhanced facilities, IT infrastructure and layout alterations, all being ready for business prior to Christmas.  However, a combination of factors led to operational challenges and higher than anticipated operating costs in the initial months to ensure that customer service was protected.  These early development issues have now been resolved.  The Hub is now set to become the focal point for our ambient business with a strong sales pipeline and improving financial performance.  There are very significant opportunities for growth at this site over the coming years. 

Overall our distribution revenues grew by 18% year on year, as a result of both new business wins and additional volumes, although operating margins have suffered from increased costs.  Our Washington, Kent, South Coast and European operations each performed satisfactorily, although margins remained under pressure.  Our main Spalding distribution centre had a more challenging period of trading and a weaker financial performance.  Fowler Welch was careful to protect customer service at the expense of contribution in a challenging period of trading.  The outcome of this has been the securing of additional business, as a direct result of the achievement of generally satisfactory service levels, especially during the very severe weather disruption during the Christmas trading period.

Fowler Welch (Containers) Limited (formally Bawdsey Haulage) experienced difficult trading conditions in the container market, which led to the review and subsequent closure of our container operation in Felixstowe, whilst retaining a significant presence in the container market at our Kent, Spalding and Alconbury sites.  Although reduced in scale, Fowler Welch (Containers) will retain the ability to provide a full service to its customers.

Following the success of our Tesco Express store distribution operations from Washington in the North East, we are delighted to have secured the business to develop a similar distribution operation to service Tesco’s smaller stores in the South West.  A newly leased site in Newton Abbot, Devon, will come on stream in the first half of this financial year to service Devon and Cornwall.  We expect this to be the basis of further business expansion in the South West. 

Considerable progress is being made in developing IT infrastructure across the business.  The efficient Manhattan warehouse system has been fully implemented, yielding significant operational improvements.  Further work is now being carried out to choose a solution to upgrade our transport management capabilities in this financial year, thereby giving greater transparency for managing fleet resources and enhancing the service we offer to our customers.  The investment in fleet telemetry and management, coupled with the continual selection of increasingly efficient vehicles and the expansion of our double-deck trailer fleet, will generate both fuel savings and operating efficiencies and further improve our carbon footprint.

Over the past few years, the company has significantly expanded its operations, widening its customer base and building a considerable position in the ambient distribution market, alongside its leading chilled distribution operations.  We are now taking the opportunity to strengthen the senior management team in order that we fully capitalise on the potential of our distribution infrastructure, network, expertise and our reputation.

Our Staff

I believe we all understand and appreciate the financial challenges being experienced by our customers.  To succeed in these difficult times, we have to deliver the best possible service at the lowest possible price.  Fowler Welch, Jet2.com and Jet2holidays each depends on our customers’ satisfaction for continuing and, hopefully, increasing business.  I count on everyone’s support in delivering this together in the coming months.

Outlook

We hope to grow both our businesses in the year ahead, despite the continuing uncertain economic climate.  Fowler Welch has significant business development opportunities throughout its operations and particularly, of course, in the North West.  We have expanded our leisure airline for summer 2011 with four additional aircraft, a new base at Glasgow and a growing package holiday programme.

Both businesses have started the year reasonably satisfactorily, although we expect these challenging economic conditions to continue to impact on yields in the Aviation sector for the foreseeable future.

Philip Meeson

Chairman

23 June 2011

Posted in Announcements

June 24, 2011 at 08:39