You are on page 1of 8

Surname

Name
Course
Instructor
Date
Financial Report for BBA Aviation (Annual Report 2010)
Background
BBA Aviation PLC is an international aviation company with a core
business in flight support and aftermarket services. The Company was
established in 1879 and is based in London, United Kingdom with auxiliary
head offices the United States. BBA Aviation is a listed company on the
London Stock Exchange (LSE) under symbol BBA and is included in the FTSE
250 Index which indicates it is among the 350 largest companies listed on
the LSE. The company has primarily employed acquisitions as its main
expansion strategy through the purchase of fixed-base operators such as
APPH in 1986, Trinity Aerospace Engineering (1996), H+S Aviation (1998),
and Oxford Aviation in 2000, along with several other FBOs in the Americas,
Europe and Asia. The companys Flight Support division involves refuelling,
cargo management and ground handling. The aftermarket services segment
involves the designing, overhaul, and maintenance of jet engines, subsystems and aerospace modules such as landing gear and hydraulic
systems. The company currently has approximately 10,000 registered
employees who facilitate its operations in more than 200 locations
worldwide. As of 2010, BBA Aviation generated revenue of 1.8 billion and

Surname

recorded a net income of 65 million with 75% of its pre-tax profit being
attributed to the US market.

Financial Analysis
To determine the financial status of BBA Aviation, it is important to
evaluate pertinent data predicated on the companys financial statements.
Using the companys financial report for the year 2009 and 2010, a volume
of information can be obtained through horizontal analysis. Using critical
data such as revenue, COGS and net profit, a horizontal analysis of the
companys income statement can be conducted as shown in the table below.

Revenue
Cost of Sale
Gross profit
Operating profit
(EBIT)
Net profit

2010
(m)
1,183

Increase/decreas
e (m)
102.2

Percentage difference
(%)
9.5

955.7
227.3
100.4

2009
(m)
1,080.8
0
875.5
205.3
82.3

80.2
22.0
18.1

9.2
10.7
22.0

65

45.5

19.5

42.9

According to the horizontal or trend analysis, it is evident that the company


experienced extensive growth between the 2009 and 2010 financial period.
This is exemplified by a 9% increase in revenue, a 22% increase in operating
profit and a 42.9% increase in net profit. Three key ratios can also be
calculated from the companys 2010 financial report namely; price earning
(P/E) ratio, return on capital employed (ROCE) ratio and Quick/Acid test ratio.
These ratios are expressed as;
P/E ratio = Market price per equity share / Earnings per share

Surname

ROCE ratio = [EBIT/ (Net assets Current liabilities)]*100


Acid test ratio = (Current Assets inventories)/current liabilities
The P/E and ROCE ratios are profitability ratios that are important in
measuring the efficacy of business operations and overall performance of the
company. The Acid test ratio measures the short term solvency of the
company by evaluating its ability to meet short term obligations. BBA
Aviations financial ratios for the 2010 fiscal year are;
P/E ratio = 256.6 / 17.6 =14.58
ROCE ratio = [100.4/ (1,367.7 404.9)]*100 = 10.4
Acid test ratio = (441.8136.2)/ 404.9 = 0.75
A 14.58 P/E ratio indicates investors are willing to pay 14.58 for every 1 of
earning. This ratio is in forecasting by determining the inherent value of a
companys share relative to the industry. A 10.4 ROCE ratio is indicative of
the companys high profitability relative to its assets while a 0.75 quick ratio
suggests that BBA Aviation could not meet all its current liabilities for the
year 2010. The companys share price has been ascending since 2008
signifying an ascending trend as shown in the graph below.

Surname

BBA Aviation Funding


The company is primarily funded through shareholders where the
company often engages in share placing and private placement to raise new
capital. For the 2010 financial year, the company was able to accrue a total
share capital largely though the sale of shares. For instance in March 2011,
the company placed more than 43 million new ordinary shares that were
priced at 2.05 per Placing Share. Consequently, the company was able to
raise an additional capital of 88.6 million or 9.99% of the companys share
capital. In addition, the company has significant reserves of additional paidin capital which is essentially extra shareholder equity that obtained through
oversubscription or the willingness of investors to pay a significant premium
above the companys shares par value. According to the companys 2010

Surname

financial report, institutional investors such as Nominee and other companies


are the largest contributors to the companys equity with holding of
419,798,172 shares or approximately 97.1% of the companys share capital.
Individuals and pension funds hold the remaining 2.9% of the companys
share capital with a total of 10,532,391 and 27,794 shares respectively in a
pool of 432,395,033 shares. The company also utilizes retained earnings that
are obtained from net income that is not allocated as dividend to fund some
of its activities though retained earnings only constitute 0.1% of its total
capital according to the 2010 report. Since BBA is an international company,
it utilizes foreign exchange hedges to mitigate foreign exchange risk by using
forward contracts which set the exchange rate for future transactions
thereby allowing the company to derive equity from stronger foreign
currencies that supersede the specified exchange rate. According to the
2010 report, equity on foreign exchange cash flow hedges only contributed
0.7% of the companys total capital.

Surname

Qualitative Issues
BBA Aviation requires managers to lead by example through
participation communication and efficiency. Consequently, the company has
a CSR director that is responsible for maintaining an active environment that
not only promotes CSR goals among employees and senior teams, but also
ensures that these goals are integrated into the companys operations. The
company for example introduced the Signature Energy Management
program that focuses on controlling energy consumption by measuring the
energy used in real time and conveying the information to the teams
involved. Safety and responsibility are among BBA Aviations core values
where the health and safety of employees is a priority within the companys

Surname

goals. To this effect the company has a Safety Management System (SMS)
that is based on standard safety best practices such as hazard assessment,
risk control and employee training. In 2010, the company introduced the
Charitable Giving Programme that meant to provide an appraisal and
management structure for the companys charity activities. Under this
program, charities and non-profit organisations can apply for donations from
BBA Aviation through the BBA Aviation Charitable Giving Committee. The role
of the committee is to identify applicants with goals that are similar to the
companys Charitable Giving Framework. In 2010 for instance, the company
donated more than 150,000 through the Charitable Giving Programme.

Conclusion
As an aviation company in the transport industry, BBA Aviation PLC is
one of the fastest growing companies in the UK due to its international
presence. The company is largely owned by individual and institutional
shareholders and is a listed company on the London Stock Exchange (LSE:
BBA) under the FTSE 250 Index. A financial analysis of the companys 2010
annual report reveals that the company is expected to grow in the coming
years due to the significant increase in profits and revenue. The company
also has fairly valued shares which have been increasing in value since 2008.
BBA Aviation has resolute corporate governance that underscores on
employee and environmental safely, and the company is also a major
participant is CSR activities such as charity and community development.

Surname