Corporate Participants
* Simon Pryce
BBA Aviation PLC - Group Chief Executive
* Mark Hoad
BBA Aviation PLC - Group Finance Director
* Michael Scheeringa
BBA Aviation PLC - President, Signature Flight Support
* Peg Billson
BBA Aviation PLC - President, Legacy Support
Conference Call Participants
* Edward Stanford
Oriel Securities - Analyst
* Will Shirley
Liberum Capital - Analyst
* Hugo Mills
Citigroup - Analyst
* Gerald Khoo
Espirito Santo - Analyst
* Alex Brignall
UBS - Analyst
* Joe Spooner
Jefferies - Analyst
Presentation
SIMON PRYCE, GROUP CHIEF EXECUTIVE, BBA AVIATION PLC: Ladies and gentlemen, can everybody hear me? Yes? Good. Well, thanks very much for your continuing interest in BBA Aviation, and thanks very much for attending this morning's presentation on the Group's final results for 2011.
As usual, this presentation and any subsequent Q&As will be the subject of a live webcast. And the recording, together with an interview with me and Mark now, will be available through the BBA Aviation website shortly after the close of this meeting.
In the spirit of continuous improvement, we thought this year that we might slightly tweak the presentation. So I'll provide an overview of 2011, together with some business and operational highlights, and then I'll hand over to Mark who'll take a deeper dive into the numbers. And then I'll get back up to share with you some comments about BBA Aviation's longer-term growth drivers before wrapping up with a quick view on what we think might be happening in 2012.
We're going to try and run through the presentation in about 30 minutes, so that should give you plenty of time for any questions and answers that you may have. Well, questions you might have and answers we might give.
So, as the slide says and as I hope you'll agree as Mark and I run through this presentation, through the hard work of a lot of people, 11,000 BBA Aviation employees, we had a very strong 2011.
And just so that everybody in the room is aware, we've actually got the divisional presidents with us again today and if, guys, you can stand up when I just announce your name. Hugh McElroy, who runs our ERO business, most of you know; Mike Askew, who runs our APPH landing gear business; Michael Scheeringa, who runs our Signature Flight Support business; and finally Peg, who runs our Legacy operations.
Those of you that know us well -- these individuals are obviously representing the 11,000 people we have out there that are working so hard -- will notice that Keith isn't here. It's not because of anything that we or he has done; unfortunately, he has a bad back. So he sends his apologies and I, as I think I've done once before, will act as a rather taller, and I used to say slimmer but can no longer say slimmer, version of him.
So, despite the challenging macro environment, it was a year of continued growth for the Group, with revenue up 9% due to a mix of continued, albeit rather muted, recovery together with outperformance by a number of our businesses, and contributions from the acquisitions that we made during the year. We delivered a good operating performance, with positive profit and cash conversion, and our operating profit was up 16%.
We made further strategic progress, with $129m invested in seven acquisitions in Signature and in Legacy Support, which together have an annualized revenue of some $76m. And we've also committed a further $37m to organic expansion opportunities and to lease extensions on some of our more important Signature locations. And we'll see the benefits of those investments -- those organic investments come through in 2013.
Mark and the team also implemented a long-term and diversified funding structure, and that means that we've got plenty of significant additional investment capacity for further growth.
Our efforts resulted in good progress in driving superior returns, with our returns on invested capital up 1.1%. And reflecting this strong performance and obviously the Board's continued confidence in the future exciting prospects of the Group, we've also announced a 6.5% dividend increase.
Now let's have a look at some of the operational and financial highlights of the year. In Flight Support, we experienced slow growth in our core markets, with B&GA movements in North America and in Europe growing by a rather muted 2% with the second half broadly flat, whilst commercial air transport movements actually declined by 1% over the year.
Despite this, as you can see from the charts on the top right and bottom right of this slide, where the blue bars are revenue and the light blue lines are movements, both Signature and ASIG outperformed their markets, with revenue growth well in excess of the movements they're generating that revenue from.
Signature and ASIG strengthened and extended their networks. Signature added eight new locations during the year and actually added another, Omaha, Nebraska, post yearend. And Signature's network now extends to 112 locations, with an average remaining lease term of 17 years.
ASIG itself also extended its network, commencing operations in three new airports. ASIG also continues to expand the services that it delivers to its customers on the airports that it operates at, and achieved good renewals and contract wins.
Flight Support continued its expansion into new and emerging markets in a managed way, with Signature entering the Caribbean market, an important leisure market, for the first time, acquiring FBOs in St Maarten, which is the busiest B&GA airport and indeed the second busiest commercial airport in the region, and in San Juan. And also ASIG commenced into-plane refueling operations and fuel farm management at the important Central American Tocumen International Airport in Panama.
Finally, the acquisitions that we've made during the year are all integrating well and performing as anticipated.
On the aftermarket side of things, as you can see from the chart on the top right-hand slide, or in fact on the right-hand side of the slide, with revenue growth of 18%, of which 12% was organic. Aftermarket Services & Systems, which now makes up 43% of the Group, had a really good year.
We saw strong aftermarket demand in Engine Repair, which benefited from the growth in flying hours that we saw in the second half of 2010 and the first half of 2011. As you'll remember, Engine Repair tends to lag B&GA flying hours by six to nine months. And we also saw some deferred repair demand begin to come through.
Engine Repair also benefited from the fact that constrained OE component supply, particularly in the first part of the year but more generally through 2011, resulted in an increased demand for the serviceable spares and accessory repair business.
Peg and her team had a good year. Legacy Support grew by 11% on an organic basis, due both to mix and more active selling of Legacy product into its markets as an alternative to both repair and to serviceable spares. And we saw strengthened order books, with Legacy exiting the year with another record order book, now in excess of $100m, and in APPH where we saw good new orders for Agusta Westland Wildcat and for the Hawk.
In Aftermarket, like Flight Support, we're also continuing our measured expansion into the emerging markets with the extension of ERO's field service capabilities in South America, the launch of TFE731 hot section capability in Brazil and our first regional turbine center in Asia Pacific, which we opened in Singapore a couple of weeks ago.
We're very pleased with the progress that we're making on the adoption and integration of last year's Legacy fuel measurement system and Legacy fuel measurement business into a new facility that we've created in Cheltenham. And pleasingly, the acquisition continues to perform ahead of our expectations.
And on the operational front, 2011 was a year of good operational progress. In Flight Support, Signature's Service with a Leading Edge program is resulting in improved customer satisfaction levels, which are now at all-time highs. We've realized a $2m fuel procurement benefit from our 2010 fuel purchasing initiative, with more to come.
And building on our experience in Montreal, Nice and Fresno, Signature has developed and launched at NBAA in October Signature Select, which is a way of extending Signature's service experience to customers across a broader range of FBOs. This affiliate program, which is a low-cost and low-capital way of achieving that extension of our service to a broader range of our customers, allows independent FBOs to benefit and adopt Signature's systems, service, training and other standards, and to become a preferred supplier to Signature's customer base. And it also allows them to share Signature's purchasing power.
So we're in the first stages of Signature Select, but this is a potential very interesting and low-capital way of continuing Signature's expansion.
We've achieved effective flexing of costs, particularly in ASIG, as improved efficiency allows us to absorb additional growth without a commensurate increase in costs, and good ZIPP driven performance improvements. ZIPP is our internal Zero Incident Performance and Process program, which we're using to drive health and safety improvements throughout the Group. It's been particularly successful in ASIG, and I'm pleased to say that over 134 of our locations in 2011 were completely incident free.
In Aftermarket, ERO opened a European operations control center for on-wing service as part of its extension of F1RST SUPPORT. Legacy achieved significant improvement in many of its operational metrics, such as on-time delivery and first-pass quality, in part through the work they're doing on assembly and test optimization and supply chain rationalization.
And in APPH, where the business has stabilized, the strengthened team led by Mike has identified significant opportunities for operational improvement and footprint consolidation, which in time will result in improved profitability and value creation.
And finally, and almost most pleasingly to me, we captured an incremental $2m of contribution through greater cross-business cooperation, where we're actually enhancing individual business customer loyalty programs to encourage them to attract their customers to take a broader range of BBA Aviation's services and products. And that has been a very successful first year and we see lots more potential there to come.
So with that trot through what I think has been quite a busy year, I'll now hand you over to Mark, who'll take you through how all this effort has impacted our numbers. Mark.
MARK HOAD, GROUP FINANCE DIRECTOR, BBA AVIATION PLC: Thank you, Simon. Good morning, everyone. So first I'm going to expand a little bit on the financial highlights that Simon has just mentioned, and then we'll get into a bit more detail.
So, as Simon said, 2011 again saw us deliver good revenue growth, with revenue up 9% excluding fuel price increases, which consisted of a 5% organic improvement together with a $56m revenue contribution from acquisitions. This growth was once again converted strongly, and as a result operating profit increased by 16% to $198.9m. With an increased number of shares in issue following the placing in March, adjusted basic earnings per share increased by 6% to $0.29.
Cash conversion was again very good, at 102%. Free cash flow increased by 4% to $185.8m, and leverage has now been reduced to 1.5 times at the end of 2011.
And finally, as Simon said, return on invested capital again increased by 110 basis points to 10.6%. With the improvement [coming] both from the positive performance of recent acquisitions as well as continued progress in the base business. Return on invested capital is now up 220 basis points from the trough in 2009, with 40 basis points of the improvement coming from acquisitions and 180 basis points from improved performance in the base business.
And finally, as Simon said, the Board is now proposing a final dividend of $0.0995 per share, taking the full-year dividend to $0.1394, an increase of 6.5%.
Looking at the numbers in a little more detail and starting with the income statement, as you're all well aware, this is the first set of results we've reported in US dollars, and the comparisons are therefore no longer significantly impacted by exchange rates. In the appendix you'll find a slide that shows our performance over the last five years in US dollars, and that also has constant fuel price revenues and margins.
Revenue increased by 17% in 2011, but $131m or 8% of this was a result of higher fuel prices, which was a straight pass-through as ever. There was a $56m revenue contribution from acquisitions, and the organic revenue increase amounted to 5%.
Operating profit increased by 16% or $28m. There was a strong improvement in profits derived from the organic growth and continued operational improvements, and acquisitions contributed $10m of the increased operating profit. It's also worth remembering that in 2010 we had a one-off $4.8m pensions gain.
Reported operating margins of 9.3% were unchanged from that reported in 2010. But adjusting for fuel price, the like-for-like improvement in margins was 60 basis points, and if you exclude the one-off pensions gain 80 basis points.
The underlying interest expense increased by $5m as a result of the higher costs associated with the new bank debt facility and US private placements. The tax rate reduced slightly, from 21.2% to 20.3%, and EPS was up 6%.
And as we just said, having declared a 5% interim dividend increase, the Board is now proposing a full-year increase of 6.5%, reflecting its confidence in the future prospects for the Group, particularly given the inherent medium-term growth embedded in the business which we can deliver on from the existing invested capital base, combined with the fact that we have and will continue to generate capacity through earnings accretive and value creative investments.
For the full year, the dividend is covered 2.1 times on an earnings basis and 2.8 times on a free cash flow basis.
Diving down now into the results by divisions, taking Flight Support first, as ever, fuel prices impacted headline revenue and operating margin by $131m and 100 basis points, respectively.
The FBO acquisitions made in 2011 and the SGS acquisition made in 2010 both made good incremental contributions, increasing revenue by $21m and operating profit by $3m, with the SGS acquisition in particular delivering well ahead of expectations, as you'll hear from Simon shortly.
The recovery experienced in the first half of the year slowed in the second half and for the year as a whole Flight Support delivered 2% organic growth.
Signature exited the Miami and Tampa FBOs during the year and adjusting for those on a like-for-like basis revenue grew by 3% in North America compared to North American B&GA market growth of 2%. In Europe, Signature experienced a 1% organic revenue decline compared with a market growth of 2%, and this was largely due to strong competition at our largest location, Luton. The commercial market declined by 1% in both North America and Europe, but despite this ASIG delivered 2% organic revenue growth.
The organic revenue increase was once again converted strongly. And overall, operating profit increased by 10% or $11m and fuel adjusted margins increased by 50 basis points.
Cash conversion in the year increased to 152%, in part supported by $14m of asset disposals, including the refund of our residual investments in Miami and Tampa. And return on invested capital was improved by a further 90 basis points, to 10.6%.
The Aftermarket Division built on the strong performance seen in the first half of the year, delivering an organic revenue increase of 12% for the year as a whole.
ERO saw very good organic revenue growth of 15%, building on the 10% growth in BG&A movements seen in 2010, but also experiencing the benefits of investment in field service and customer support as it outperformed its markets.
Legacy Support delivered organic revenue growth of 11% for the year. And the fuel measurement business acquired by Legacy in the first half is performing well, yielding $35m in revenue and $7m in operating profit since its acquisition in May.
APPH is yet to experience market recovery, but the rate of decline moderated in the second half of the year, resulting in a revenue reduction for the whole year of 6%.
Here too, operating profit conversion was strong, resulting in OP growth of 23%, despite the prior year including the one-off pensions gain. And on a like-for-like basic, operating margins improved by 110 basis points. The growth here did result in some working capital consumption, but cash conversion was still up at 98% and return on invested capital increased by 160 basis points to 10.7%.
Looking now at exceptionals, total 2011 exceptional items resulted in a $16m credit for the year, compared with a $16m charge in 2010. Our restructuring costs reduced substantially, with the only costs incurred this year relating to a project to drive synergies out of the Finance function by standardizing processes across the Group globally. The prior year, you'll remember, included costs relating to the closure of APPH's Bolton landing gear facility and the compression of ERO's Neosho overhaul facility.
Other operating expenses relate to costs associated with acquisitions, and amortization of acquired intangibles increased as a result of the acquisitions made in 2011.
The loss on disposal of businesses principally relates to non-cash write-down of goodwill in relation to Tampa. This is a technical adjustment in accordance with the relevant accounting standards and should not be inferred as any kind of impairment of the broader Signature goodwill.
Finally, interest and tax resulted in a $35m credit and cash inflow as a result of securing a refund of tax together with associated interest in relation to a claim which we've been pursuing for some time associated with tax paid in Germany back in 2000.
On cash flow and debt, free cash flow, as I said, has increased this year by 4%, with the working capital outflow experienced in the first half of the year reversing in the second half, as we expected. Net capital expenditure reduced, compared to 2010, particularly as a result of the repayment of our residual investments in Miami and Tampa, together with the disposal of a couple of surplus hangers.
Increases in underlying interest as a result of the fees associated with the bank and private placement refinancing, together with higher interest payable in the second half on the new facilities, were largely offset by the interest elements of the tax refund. And excluding the tax refund of $23.7m, there was a tax cash outflow of $15m.
Pension deficit and admin expense payments in the UK amounted to $7m, as expected. We also made payments of $4m in the US, half of which was deficit contributions and the other half related to retiring employees.
All of these things combined meant that overall cash conversion was towards the upper end of our expected range, at 102%.
We spent $129m in the year on acquisitions and made disposals worth $3m. We also made commitments totaling $37m to growth projects such as the dedicated NetJets facility at Palm Beach International in Florida, and to secure lease extensions at four US FBOs, three of which are sole source.
And we ended the year with leverage now at 1.5 times and having put in place new bank and PP debt facilities mid-year, exit the year with substantial leverage and facility capacity.
And then finally, just a few things -- looking at a few things to be thinking about for 2012. In terms of exceptional items, the project to drive synergies out of the Finance function is ongoing and is likely to incur another $5m or so of exceptional costs in 2012. Once fully implemented, it's likely to have a payback of around one year.
We're currently consulting with employees at APPH's Basingstoke facility, which may lead to the closure of that facility and transfer of capability to the main landing gear site at Runcorn. If the closure does go ahead, we'd expect to incur exceptional P&L charge of $8m and cash costs of around $7m in 2012, but would avoid the need for approximately $4m of future investment in Basingstoke and will generate annualized savings of around $1m from 2013.
There will, of course, also be the usual non-cash amortization of acquired intangibles. And the amount spent on acquisitions will depend on the opportunities we're able to find during the course of the year.
Cash conversion should once again be good, and is likely to be somewhere in the middle of our expected range of 75% to 105% operating profit to operating cash flow conversion with net CapEx increasing, particularly without the repeat of the asset disposals seen in 2011.
Pension deficit contribution and admin expense payments for the UK and US schemes combined will be of the order of $10m in excess of the P&L charge.
In the course of 2011, we closed out $200m of our cross-currency swaps and then a further EUR50m early in 2012. And we now have $200m of cross-currency swaps still outstanding. They have a current mark-to-market loss of $34m. Of those, $75m with a mark-to-market loss of $8m are due to mature during the course of 2012, with the balance maturing in 2013.
And lastly, the effective underlying P&L tax rate is expected to increase to around 23% for 2012, with some further modest increases over time as profitability recovers.
With that, I'll hand back to Simon.
SIMON PRYCE: Thanks, Mark. So, as I hope you'll have gathered from the presentations from Mark and myself, that in 2011 we made good further progress in all four areas that I think will drive the delivery by BBA Aviation of superior long-term returns, namely revenue growth, operational progress, strong cash generation and value creative investment.
What I'd like to do over the next few slides is to take you through each of these drivers, to give you a feel for the future potential that they represent for the Group.
So, first to revenue growth. And growth in commercial air transport is pretty highly correlated to GDP, and growth in our Legacy space is very much license and platform specific. So I thought it would be worthwhile, in this growth area, focusing just for the moment on B&GA flying, particularly in North America.
So as you can see from the chart on the top right, where hours flown are the bars and US GDP is the light blue line, there is a close long-term correlation in North America between B&GA flying and GDP. However, it's important to understand that demographics and the lack of alternative intermodal alternatives means that B&GA in North America is actually driven by corporate profits, because it's principally a business efficiency tool. In fact, it's really driven by anticipation of corporate profits, which obviously themselves show a correlation to GDP.
And the profile of a recovery is very much driven by not just how the corporate economic and broader economic cycle recovers, but also by other issues such as technology changes, capability changes, new deliveries, and things like the evolution of lower-cost private jet ownership models such as fractionals.
So how's this recovery going? Well, if you look at the chart in the bottom right-hand side of the slide, where we're showing in light blue the US B&GA movements versus the same month in the prior year, and the grey line is movements -- is the gap between movements that we're seeing versus the peak in 2007. Since the 2009 trough, you can see it bottoms in about March of 2009, we've seen continued recovery in B&GA flying hours, but at a slower rate during 2011 with the market broadly flat in the second half. And this is despite US GDP and corporate profits continuing to improve over that period.
Likely this is caused by what I alluded to a bit earlier, a short-term decline in corporate confidence that actually drives B&GA flying. But it's also influenced by a bunch of other factors, so, for example, in North America at the end of the year there was the National Basketball Association strike; there are changing weather patterns. So you do see, within a cycle and in a recovery, some volatility and a decoupling between what GDP and corporate profits are doing.
And importantly, in this recovery the stimulators of accelerated growth from prior cycles have so far been absent. However, the OEs are continuing to invest in new products. And the first major new platform, which is actually also a whole mission system change, the first major new platform that does that this cycle enters deliveries in 2012. That's the G650.
And importantly, a number of our medium-term indicators are beginning to improve. Those are things like OE book-to-bill rates, OE production rates. Bombardier announced yesterday a 10% increase in their business jet production rates for 2012. Secondhand availability, which has bottomed and for in-production fleets is beginning to rise, and secondhand pricing which has stabilized if not started to rise. And there's even anecdotal evidence that economic rationality is finally swaying overriding political nicety, with large corporates beginning to reenter the large private jet purchase market.
So whilst there has been a slow start to this recovery, there is no fundamental change to the underlying structure of the B&GA market in North America, which remains one of structural growth. Indeed, the most recent FAA forecasts continue to project a 4% to 6% real growth in B&GA movements out through 2020.
I think almost more importantly, it's important to understand that this market has only recovered 12% from its trough, and that actually it remains 22% below its prior peak. So, whilst market growth may continue to be slow in the short term, given the changing medium-term indicators that are out there, hopefully this gives you a feel for the broader growth potential that exists in Business and General Aviation in North America.
Now obviously that's going to be supplemented by growth in our other markets, and also by growth in Business and General Aviation flying in Europe, which is likely to be subdued but by the more rapid growth, albeit from a very low base in the emerging markets that we continue to take a slow and steady interest in.
And although we've made good operational progress over the last three years, we continue to identify further opportunities for operational efficiency improvements. These result from our increasing focus on continuous improvement and through greater coordination and cross-business cooperation, the like of which I referred to earlier.
As we deliver these opportunities, it improves the quality of the products and services that we provide, whilst further reducing the marginal costs of delivering them. Essentially, we're continuing to focus on reducing the operational cost of delivering growth. As a result, we see an improved profit impact from additional volume in the future.
And the progress that we've already made to date in this regard is reflected in the fact that actually, despite our major markets still being down over 20%, our operating profit and our EPS are already approaching levels only achieved at the peak of the last cycle.
So, to strong cash generation. As the chart on the top right shows, where the blue bars are free cash flow and the grey-bluey line is cash conversion, I hope there is no longer any doubt that this Group is a proven cash generator. And it's a proven cash generator really at any point in the cycle. And as we've shown this year, even when we're growing it is not a big absorber of cash.
Our strong cash conversion, which as Mark alluded to was over 100% again this year and has averaged over 100% over the last five years, continues to be strong and will be strong going forward.
Now, despite the cash generative capacity of the Group, we continue to feel it's prudent in the current environment to operate broadly within a targeted net leverage range of 1.75 to 2.25. And those of you that are quick on the uptake will recognize that 1.5 times net leverage is actually currently below that targeted leverage range.
And as a result what it means is that whilst we continue to generate through our cash flow $150m or so of investment capacity over and above CapEx every year, at this particular point in the cycle we have over $300m to invest right now. And as Mark said a bit earlier, the ability to deploy this investment capacity represents a significant and ongoing earnings growth and value creation opportunity for the Group.
Now, there was a lot of debate internally about whether we should or should not share this slide with you but we thought it would be helpful, and very much on a one-off basis because of its commercially sensitive nature, to share with you the results of the investments that we've made over the last three years and how they are performing. And in fact, if we went back to 2007, actually the story would be very similar; it's just we didn't have room on the slide.
So what this table shows you, on the left-hand column it's the year, in the middle column under acquisitions it's what we bought, and then towards the right-hand side the benefits that we have brought to the acquisitions that we have made and the returns on invested capital that those acquisitions are delivering in 2011.
Over the period, we have made 14 acquisitions at a cost of about $315m. And one or two of them, with hindsight, were not always made at the most advantageous point in the cycle. Despite this, we're already exceeding our targeted returns on invested capital on all the investments that we've made in each of those years, and together they're generating nearly 16% in 2011.
How are we generating these returns? Well in Signature, where we've had very little help from the market so far, it's all about customer capture, share gain and cost reduction. In ASIG, it's about customer and service expansion, it's about service efficiency and it's about cost reduction. And in Legacy, it's all about scale benefits, it's all about effective supply chain management and it's all about effective pricing and demand management.
And as he's not here, as an aside, I'd just like to call out Keith, because it's actually Keith and ASIG, the business that historically has attracted some relatively negative comment from one or two people in this room, that actually holds the prize for the greatest return and the quickest payback on any acquisition made, certainly in my tenure here, with the acquisition of SGS at Heathrow.
So hopefully this gives you an appreciation of the additional value that we can create by the continued execution of our strategy and by deploying that investment capacity that we've talked about, particularly in Signature and Legacy, and selectively obviously in our other businesses.
So that's a trot through of what I hope will be -- you will appreciate is really quite an exciting set of growth drivers for the Group in the future. So what about 2012? Well, we anticipate that 2012 will be a year of further progress. We anticipate delivering further revenue growth. Whilst we anticipate that the uncertain global economic climate will result in a continued slow recovery in our major markets, we take comfort from the fact that sentiment and importantly our medium-term growth indicators are improving. And we see a full year of contribution, obviously, from the acquisitions that we made in 2011.
But our growth is not just dependent on market revenue growth. We continue to identify and to realize opportunities for enhancing profitability in our businesses through continuous operational improvement, flexing our costs effectively whilst pursuing a number of significant cross-business cost reduction opportunities. And we've commenced a major back office standardization project, as Mark referred to earlier, that will have a material impact on 2013.
We anticipate further strong cash generation with good cash conversion, building on our significant investment capacity. We've got a great pipeline of opportunities, which presents us with the opportunity for significant further value creative investment. And the acquisitions that we've made in 2011 are delivering well as we enter 2012. And indeed, we actually executed another acquisition just after the yearend, acquiring an FBO in Omaha, Nebraska for a cash consideration of $3m.
Put all this together, this Group is very robust, and we anticipate that 2012 will be another year of good progress.
So, let's go back to the BBA Aviation investment proposition slide that we shared with you back at our Investor Day in 2010. And as I wrap up, I feel that BBA Aviation's performance over the last three years, and I hope you'll agree, validates its unique opportunity and its exciting future. I'm very comfortable with the value creation opportunity that our balanced aviation services and aftermarket focus represents.
So far, we've only seen slow growth in our major markets, but with organic -- but with both recovery and structural growth to come, there's lots more of it out there.
We're going to continue to drive and achieve a strong underlying performance from an experienced team led by the guys in the front row, who've brought both a strategic perspective and importantly an operational focus to bear, and who are doing all the right things that include driving cash generation.
We've got lots of consolidation opportunity out there and we'll continue to generate significant investment capacity that allows us to take advantage of it. And it's important to understand that the value creation opportunity represented by that investment capacity and the fragmented markets in which we operate is potentially a very significant opportunity for us.
So, all in all, I'm pretty pleased but not complacent with where we are. I'm comfortable that BBA Aviation is in a better shape than it's ever been, and as a result is more than capable of delivering those superior through-cycle returns that we've talked about whilst continuing to support a progressive dividend policy.
So with that quick trot through, which took a couple of minutes more than we originally anticipated, I'd like to hand it over to you guys. We've got a couple of ladies at the back who've got mikes. If you could put your hand up, say your name, the institution you represent, and then we'll deal with any questions you might have.
Questions and Answers
EDWARD STANFORD, ANALYST, ORIEL SECURITIES: Good morning. It's Edward Stanford from Oriel. Two questions, please. One, interested to hear about Signature Select, which seems to be some -- perhaps one might interpret it as a form of franchising operation. Could you just explain the economics from BBA's point of view in terms of how you get paid? And are they in areas that ultimately you'd like to have ownership of FBOs and this is an interesting way of becoming involved with potential targets?
And secondly, could you amplify a little bit on the competitive situation in Luton? What has caused that increase in competition and how do you see that panning out in the next year? Thank you.
SIMON PRYCE: If I will, Ed, I'm actually going to pass over to Michael, who can answer both the economics of the Signature Select affiliate program and the competition that he's seeing at Luton.
MICHAEL SCHEERINGA, PRESIDENT, SIGNATURE FLIGHT SUPPORT, BBA AVIATION PLC: Thank you very much. Signature Select, so we started in May of 2009 with Nice, France and we licensed three different locations over the last three years, prior to launching Select in October of this year. We have two different business models for a return. One is we get a share of the gain an FBO would make on the field by becoming a Signature. So in additional contribution, we get a 50% share of additional contribution generated by those FBOs. And the second is if the FBO would be a sole source location it's a share of revenue, are the two models.
Each one of the Selects have a right of first refusal, so if you were to say filling the pipeline. And so it gives us an opportunity to go to a potential prospect that we would like to buy and say we'd like to buy a joint venture, and if you're not ready to sell here's an avenue to become part of the Signature family a little bit earlier. That might work for the seller, as it worked for us. So we'll see how this goes over the next year and then report back next year on Select.
As far as Luton is, there is a competitor on the field and there's a change of ownership with the second -- there's three people on the field, one competitor, one through an ownership change last year and the other one was new to market the year prior. And there has been discounting on the field at levels that we hadn't seen at Luton before.
And so with that is that we have maintained our position in terms of price and service on the field and we maintain a large majority of revenue share on the field, but there has been a traffic decline. But I would say it's lower quality traffic, not higher quality traffic. And in fact I had a business review at Luton earlier this week and I would say I'm pretty confident on the quality of traffic remaining with the customer services Signature. Thank you.
SIMON PRYCE: I would add, Ed, that also those of you that know Luton, the Signature facility is not our finest facility. We're also hampered a little bit by perceptions, which tends to have people go, at least on a one-off basis, to one or two of our competitors. We're actually addressing that as part of a broader redevelopment discussion with Luton Airport. So I suspect you'll see some quite interesting developments at Luton for Signature over the next couple of years.
WILL SHIRLEY, ANALYST, LIBERUM CAPITAL: Thank you. Will Shirley from Liberum. A couple of questions from me. First of all, just on the Signature Select again, could you just give us an idea of the level of rollout that you expect there and how many FBOs you could target on that model over the next few years?
SIMON PRYCE: Yes. Have you got another one?
WILL SHIRLEY: Yes. And then, secondly, a very quick one on the pension. Could you give us an indication of where we might expect the triennial evaluation to come up at the end of the year?
SIMON PRYCE: I'll let Mark answer the one about the question and I'm going to -- about pensions and I'm actually going to answer the one for Michael, because what Michael thinks he's going to do and what I think you're going to do might be a bit different.
So this is still -- Signature Select is still a program in its relative infancy. And I think we've seen interesting and quite significant take-up initially in independent FBOs wanting to understand what it's all about, us helping them understand how it's a mutually beneficial value-creation opportunity for them. We'll have a better feel for how many of those actually convert into true Signature Select participants probably by the interims. So, Will, if I can, we think it's an interesting add-on, we don't think it's a game changer, and we'll let you know as our views develop and as people sign up or don't.
MARK HOAD: On pensions, so the last valuation was done as at March 31 2009, which at the time everyone was confident was probably the worst point you could be doing a pensions valuation. Obviously the world has not developed quite as people might have thought. But notwithstanding that, the deficit back then was somewhere around GBP30m or $50m. It will obviously depend on conditions at March 31 this year, but I would think it will be a similar amount.
HUGO MILLS, ANALYST, CITIGROUP: Hi. Thanks. Hugo Mills from Citi. Just first of all on Signature, can you remind us whether you've got any more RFP bids coming up in the near future?
SIMON PRYCE: There are no RFPs in the foreseeable future on our -- on bases that we currently occupy. There are one or two out there that may or may not appear over the next 12 months, the most prominent being San Jose, probably.
HUGO MILLS: Right. Okay. And then the second question is on Legacy. Obviously the order book, very strong order book. Can you talk about phasing on that, where opportunities might come to win more business?
SIMON PRYCE: Peg, why don't you pick up the question on the Legacy order book?
PEG BILLSON, PRESIDENT, LEGACY SUPPORT, BBA AVIATION PLC: So the question has two answers. Our order book of over $100m is our firm, and that's over the next two, two and a half years. So 50% plus of our business is make-to-order, primarily from the US government, and now with the fuels business coming from Boeing and Airbus' production build. Our growth in addition to that is coming from the classic places. It's licensing or acquiring product lines from the OEs.
And we're starting to see some fruits of our effort over the last couple of years of expanding our OE relationships, and so we've seen some more opportunities popping from some different places than we've typically done business with. So we're starting to see a lot more movement and opportunities from across the aerospace industry.
SIMON PRYCE: Thanks, Peg. Any other questions? I knew you wouldn't disappoint, Gerald. I couldn't believe you weren't going to take the opportunity.
GERALD KHOO, ANALYST, ESPIRITO SANTO: Hi. Gerald Khoo from Espirito Santo. A few questions. Can you just -- on Tampa, where you exited, can you just remind us when that was in the yearend, how that came about?
On ASIG, obviously -- presumably American Airlines is quite a big customer. Has there been any impact to date from their Chapter 11 filing? And in terms of where their restructuring might go, do you think there will be any impact?
And finally, CapEx this year, even on a gross basis, seems to be below depreciation. What do you think the outlook for that is this year, next year? I think in the past you've talked about it normalizing to above depreciation at some stage.
SIMON PRYCE: Okay. On Tampa, Michael, we exited in October, I think. Frankly, we were quite pleased we exited because we weren't making a huge amount of money there, Gerald.
On ASIG and American, we did have quite a significant exposure to American -- well, significant for us, couple of million dollars -- but because of our ability to act as a preferred supplier, we have minimized the adverse impact of that Chapter 11 filing in our numbers. So it's like a couple of hundred thousand bucks or something, Gerald. Basically, they don't get fuel unless they can settle with their key suppliers.
What does the American Chapter 11 filing mean going forward? I think not a huge amount. As you guys all know, we don't have any single customer that is more than 6% or 7% of ASIG, let alone of the Group. So as an individual customer, it's not a major issue. Secondly, those planes are going to fly; they're continuing to fly today. The only thing that we have seen is they're more ready to cancel flights when they're only a third full but actually, frankly, they're all doing that anyway.
And thirdly, if anything, there may be an opportunity that comes out of this because as part of the Chapter 11 discussions that American will undoubtedly have, it will address some of the labor issues that it has. And as you know, historically that's triggered a bunch of outsourcing opportunity. So I think we'll see how it plays out, Gerald, but I don't think it's a major negative or positive for us at the moment.
And then finally, Mark, do you want to take CapEx?
MARK HOAD: Yes. I think in 2012 CapEx is probably going to be around 1 times depreciation. I think the 10-year look, the average is 1 times, and that's obviously a period in which we delivered quite a lot of growth. The range is 0.7 times up to about 1.2 times. So I think you would only expect it to increase materially as and when we get to a period where we're getting stronger growth coming through again.
SIMON PRYCE: And I think, Gerald, to your point, I don't think we think, over the cycle, that CapEx to depreciation should ever exceed 1 on average. Basically, the economic lives of our assets are longer than the book lives of our assets.
ALEX BRIGNALL, ANALYST, UBS: Hi. Just two questions. Alex Brignall from UBS. Firstly, you talked about market share gains in the US. Given your now very strong balance sheet position, do you see any larger-scale opportunities, takeover opportunities, potentially?
Second one on costs. You obviously took out I think $30m of costs in the downturn. I think you've put about a third of that back in. Where do you stand on that and the flexibility around different macro environments? Thanks very much.
SIMON PRYCE: Okay. I think you're referring -- in terms of share, I think you're probably referring to the pipeline of acquisition opportunities. I think there are lots and lots of FBOs in North America. There are a relatively small number of chains. We're by far the biggest, Atlantic is second, Landmark is third. Then you've got things like Ross, TAC and Sheltair.
I think there are ongoing discussions on everything, but what actually happens we'll have to wait and see. I think, as you know, something will happen around the ownership structures of a couple of those chains that I've mentioned earlier at some stage over the next couple of years. Whether we play or not will all come down to price.
But certainly, independent of those, there's a great pipeline of other FBO opportunities that we continue to pursue. But we're pretty capital disciplined. And sadly, pricing expectations of sellers never come down as quickly as you'd like, and we -- as you will have read in the press, we do lose opportunities for FBOs with other people out there being prepared to pay higher prices than we are. But I'm very comfortable with the pipeline and that we will make further inroads into our investment capacity this year.
On the cost piece, I think, yes, $30m or so we took out?
MARK HOAD: Yes.
SIMON PRYCE: And we said about --
MARK HOAD: A third of that's probably gone back in.
SIMON PRYCE: A third of it will have gone back in. And I think we've always said we'll hang on to a chunk of that. And I think what you heard me refer to, both in the things we've done in 2011, the things we're going to do in 2012 and beyond, we continue to reduce the costs of delivering that extra dollar of revenue. So rather than be specific, Alex, it's going in the right direction is what I'd say.
Any other questions? Gerald.
GERALD KHOO: Thanks. Gerald Khoo from Espirito Santo again. On Legacy, you've made comments about the fuel measurement acquisition being better than expected. I'm wondering whether you could maybe provide a bit more color as to why that's the case, whether that's the sort of thing that you feel is repeatable in future deals and whether you feel that -- at what stage you feel that you'd be ready to do something else in that division.
SIMON PRYCE: I think -- I'm not going to get into the specifics -- we are very pleased with the acquisition. I think Peg and her team, and to be fair the GE people too, have done a very good job in collaborating to ensure the effective transfer of that facility and that product into our own operations, effective management of the supply chain that supports it and, importantly, effective management of the customers so that they're comfortable with the handover of what is quite a relatively, for us, high level of in-production volume.
So I think it's all around effective integration, a cooperative seller, Gerald. And yes, we think we can do more of these going forward. I think the facility at Cheltenham is up and running now. We'll finish moving production probably towards the end of the summer, Peg, something like that, maybe a bit earlier. And I think after that we're ready for our next one, Gerald.
And in the meantime, Peg and the team are already adopting and absorbing additional licenses. We signed up an additional two last year, which will go into Chatsworth. And as Peg has alluded to, there's lots of continuing opportunities going on. So, yes, I think we're ready for more in Legacy.
JOE SPOONER, ANALYST, JEFFERIES: Joe Spooner from Jefferies. You obviously talked about the environment, which slowed down in the second half of last year. And as we move forward, that's the starting point for this year. On the costs side, what are the ambitions this year beyond the efficiency savings you alluded to? Is it just about trying to keep pace with inflation, or are you seeing anything different within that cost base as you move forward in the environment that you're seeing on the revenue side, I guess?
SIMON PRYCE: I hope, Joe, as I said a bit earlier, and I don't want to get into specifics on this, but obviously we continue to focus on reducing the costs of delivering every additional dollar of revenue that we generate. And part of that is dealing with inflationary cost pressures, but part of it is fundamentally continuing to change, improve the nature of the services that we provide, the price that people are prepared to pay for those services, and reducing the costs and indeed capital of delivering them.
So I don't want to get into specifics in that regard, but this is a very cost-flexible business, and we will deal with whatever volume increases or decreases that we see. But particularly on the increase side, it's costing us less to take that additional volume of revenue than it has in the past.
JOE SPOONER: When you're looking on the airfields, a lot of your competitors are private equity owned and they have their own pressures on them. Are you seeing any let-up in the level of competition for the margin you pay above the cost of the fuel?
SIMON PRYCE: No. I think on the one hand private equity players can be challenging, particularly when you're out -- historically, when you've been out trying to acquire assets. But the great thing about those sorts of institutions is that they introduce a financial discipline into their investments which is very healthy. They are both cash and profit disciplined. And actually, the competitive environment on the field has remained pretty stable. You always get somebody who's going to grab a bit of share, somebody who's running the business for cash.
But fundamentally, the competitive environment is such that we haven't seen any major erosion in margins or anything like that. And if anything, there's probably a bit more strength on the pricing side at the moment.
Okay. Well, ladies and gentlemen, thanks very much for your time and we look forward to seeing you, if not before, in August.
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