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COMAIR LIMITED - Consolidated Interim Results for the six months ended 31 December 2018, Changes to Board and Dividend Declaration

Release Date: 19/02/2019 11:30
Code(s): COM     PDF:  
 
Wrap Text
Consolidated Interim Results for the six months ended 31 December 2018, Changes to Board and Dividend Declaration

Comair Limited
(Incorporated in the Republic of South Africa)
Reg. No. 1967/006783/06
Share code: COM
ISIN Code: ZAE000029823
(“Comair” or "the Company" or “the Group”)

Unaudited Unreviewed Condensed Consolidated Interim Results for the 
six months ended 31 December 2018, Changes to the Board and Cash
Dividend Declaration

Earnings review

Comair performed well to deliver a record 12% increase in revenue for the 
first-half of the year. This was achieved despite the technical recession in 
the 1st quarter of the financial year. However, this revenue growth was offset
by elevated fuel prices and unforeseen short-term aircraft leasing costs. 
Consequently, earnings per share (“EPS”) and headline earnings per share 
(“HEPS”) decreased by 38% to 27.2 cents per share (prior period: EPS and HEPS
of 43.6 cents per share).

The non-airline businesses continued to perform well nevertheless, maintaining
an overall contribution to Net Profit Before Taxation of 27% (prior period:
19%) and sustained prospects for further growth.

Cash generated from operations declined by R187 million to R436 million versus
R623 million in the comparative period. The decline in cash generated from
operations arose primarily as a result of elevated fuel prices. Investing
activities included R89 million that was paid towards predelivery payments on
the Boeing 737-8 MAX aircraft order and R253 million was invested in aircraft
heavy maintenance. This resulted in a closing cash balance of R331 million
(prior period: R777 million).

The Airline Business

Airline Passenger Revenue increased by 11% on the back of a combined increase
of 5% in passenger volumes and a 6% increase in the average fare per passenger.
Comair’s average seat occupancy has increased but remains below the global
average of 85%, which is indicative of the continued overcapacity in the
domestic airline market. 

Airline operating costs increased by 17% with the most significant driver being
a 35% increase in the Rand price of fuel per litre amounting to an additional
R263 million compared to the prior period, following a sharp escalation in the
Dollar price of oil combined with Rand volatility. 

The translation profit of the comparative period that arose from the effect of
the exchange rate on a Dollar-based aircraft loan, was reversed as the currency
deteriorated from R12.36 to R14.38 against the Dollar as at 31 December 2018.
This resulted in a reported loss of R11 million in the current period on the
loan value of USD15.7 million, compared to a profit of R11 million on the
revaluation of the loan at 31 December 2017.

In addition to the above, increased aircraft depreciation amounting to
R46 million arising from the re-assessment of depreciation on certain aircraft
components as well an additional R50 million in hard currency-based operational
costs, resulted in a higher cost base compared to the comparative period.

The well-documented problems with maintenance scheduling and parts inventory at
SAA Technical hampered on-time departures and operations, resulting in
unbudgeted, incremental costs of around R34 million, which included short-term
aircraft leases to sustain fleet availability.The airline has subsequently
commissioned heavy maintenance events overseas in order to alleviate the
backlog on local maintenance service capacity and is on track with the
implementation of its aircraft line maintenance arrangements with Lufthansa
Technik in South Africa. 

The airline will be taking delivery of two new Boeing 737-8 MAX aircraft in
February and March of 2019 as well as four leased Boeing 737-800 aircraft due
for delivery between April and September 2019, all of which will replace older
Boeing 737-400 equipment. The ongoing upgrades to our fleet are intended to
mitigate the rise in the fuel price, while enhancing the potential revenue per
flight and providing an improved customer proposition.

The Non-Airline Businesses

Training 

Effective 1 July 2018, the Group acquired a leadership development consultancy
firm, Metaco Holdings Proprietary Limited. The company focusses on strategic
development, organisational design and change management with a client base
that encompasses boards, leadership teams and individuals across a range of
industries in the private and public sectors. 

The cabin and ground crew training entities, EPT Aviation Training Proprietary
Limited and Global Training College South Africa Proprietary Limited, acquired
in December 2017, have performed well despite student volumes remaining
relatively consistent due to capacity constraints. There is significant
opportunity to expand these businesses.

External pilot training has been limited in order to accommodate internal
training needs. However, an Airbus A320 fixed-base trainer, costing 
R21 million, was installed in the first quarter of the 2019 financial year and
the Company has further negotiated a lease of a full motion Airbus A320
trainer. The Company has identified a suitably scaled revenue pipeline in view
of the investment in simulator equipment.

These acquisitions align with the Group’s view to establish an extensive
aviation training academy with a global customer base.

The Lounge Business

The SLOW Lounges have set a new standard for airport lounges with their design
and service excellence. Occupancy levels for the lounges continue to increase
despite the Group having expanded its domestic and international SLOW Lounges
at O.R. Tambo International Airport.

The Catering Business

The Group’s catering unit, Food Directions, currently leases premises from the
Group’s property-owning company, Alooca Properties Proprietary Limited, in
Anchor Industrial Park. This site allows for the ongoing expansion of Food
Directions.

Food Directions has recently been granted a licence to provide third party
catering services at the Airports Company South Africa airports, which will
allow it to provide catering to third-party airlines. 

Food Directions won the tender to cater for the food and beverage service
requirements for British Airways International lounges at both O.R. Tambo
International and Cape Town International airports. 

Finally, the Group has moved the catering and procurement needs of the SLOW
Lounge network to Food Directions. The combined procurement volumes have
allowed for improved buying discounts and numerous cost saving benefits to the
Group. Food cost inflation has been contained at below industry CPIX levels
since the inception of the Food Directions division.

The Travel Business

The Group has invested in the development of a ‘next generation’ distribution
platform for luxury inbound tourism into Africa amounting to approximately
R26 million over 3 years with R8 million invested to date. Studies show that
luxury travel has emerged as the fastest growing segment in global travel, with
growth in tourism arrivals in Sub-Saharan Africa exceeding that of the rest of
the world. However, the technology used in South Africa to compete for global
tourism is outdated and the Group has taken the opportunity to establish
effective global distribution channels. The new platform will commence selling
in mid-2019. 

The existing travel businesses, including kulula.work, kulula.holidays and
mtbeds continue to deliver good margins and steady growth despite a depressed
local travel market.

Technology Solutions

Consistent focus on implementing technology solutions has enhanced the Group’s
operating performance, customer service and revenue generation. The pace of
development in technology is relentless, and to this end, the Group has
acquired a data integration platform, at a total cost of R19 million over two
years with R12 million settled in the first half of the 2019 financial year and
R7 million in the 2018 financial year. This technology seamlessly connects all
applications and data sources and will eliminate the duplication of development
efforts across the Group’s various distribution channels while facilitating the
extraction of the maximum benefit from its customer data in order to improve on
its service offering and on the marketing of relevant products to its various
customer segments. 

The Group has further invested in the renewal of its Sabre suite of software
licenses, amounting to a total cost of R34 million over two years with
R18 million invested in the current reporting period and R16 million in the
2018 financial year.  

Effective 1 August 2018, the Group entered into a joint arrangement with an IT
technology company, Infinea SA Holdings Proprietary Limited, thereby
establishing a jointly held company called Nacelle Proprietary Limited. Nacelle
has been positioned as a service provider to the aviation and related sectors
to deliver services such as IT operations support, project deployment and
software development. The joint venture creates the opportunity to
commercialise decades of Comair’s operational discipline and expertise in
aviation through utilising Infinea’s expertise in software development,
software marketing, operations support and payment solutions. The company is
still in its start-up phase and to period end incurred a loss of R3.8 million,
with the Group’s proportionate share of unrecognised losses at period end being
R1.9 million.

People

The management of talent is considered to be a key differentiator of the Group
and remains a core focus. The Group values its talent and continues to make a
significant investment to support the management of its skills base. Talent
Management practices support decisions on building capacity now and into the
future, with the benefit to employees of building career paths.

Damages Claim

Comair’s claim against South African Airways SOC Limited (“SAA”) for damages
arising from anti-competitive conduct was heard in the Gauteng South High Court
between 18 April and 24 August 2016. Judgement in this matter was handed down
on 15 February 2017. In terms of the judgement, Comair was awarded damages in
the sum of approximately R1.16 billion, inclusive of costs and interest to that
date. On 15 February 2019, Comair and SAA entered into a full and final
settlement agreement relating to this matter, and the Settlement Agreement was
made an order of court by the Supreme Court of Appeal. In terms of the
settlement agreement, SAA will pay Comair an amount of R1 108 040 000 plus
interest. This settlement amount will be made in accordance with a payment
schedule commencing on 28 February 2019 and terminating on 28 July 2022, or
earlier should SAA elect to make payments earlier than agreed. In addition, SAA
will also pay Comair’s taxed legal costs incurred to date. As such, both SAA
and Comair will withdraw their appeal and cross appeal respectively currently
pending before the Supreme Court of Appeal. 

Prospects

The current weak economy is expected to maintain pressure on consumer spending
while the oversupply of seats in the domestic market continues to place
downward pressure on pricing across most routes. The Dollar price of oil has
declined subsequent to the end of the first half which will provide some relief
in the second half of the financial year. The ongoing investment in new
aircraft remains a key competitive differentiator for Comair, particularly in
an environment of higher oil prices and a poor exchange rate. 

The Group continues with its diversification strategy as a means of mitigating
airline risks such as fuel and exchange rate volatility and the inflationary
cost of fleet replacement, the rate of which continues to outpace growth in
margins.

Comair is well placed to operate in these conditions, with strong brands,
committed staff, effective equipment, an efficient cost base and investment
into the diversified, non-airline segment of the business, which is progressing
well and will receive ongoing focus.

Dividends

Notice is hereby given that a gross interim cash dividend of 5.00000 cents per
ordinary share has been approved and declared by the Board which is payable to
shareholders for the period ended 31 December 2018. The dividend has been
declared out of income reserves. 

The dividend will be subject to a local dividend tax rate of 20% or
1.00000 cent per ordinary share, resulting in a net dividend of 4.00000 cents
per ordinary share, unless the shareholder is exempt from paying dividend tax
or is entitled to a reduced rate in terms of the applicable double taxation
agreement. The Company’s tax reference number is 9281/874/7/1/0 and the number
of ordinary shares in issue at the date of this declaration is 469,330,865.

In accordance with the provisions of Strate, the electronic settlement and
custody system used by the JSE Limited, the relevant dates for the dividend are
as follows:

Event                                               Date
Last day to trade (cum divdend)                     Monday, 18 March 2019
Shares commence trading (ex dividend)               Tuesday, 19 March 2019
Record date (date shareholders recorded in books)   Friday, 22 March 2019
Payment date                                        Monday, 25 March 2019

Share certificates may not be dematerialised or rematerialised between,
Tuesday, 19 March 2019 and Friday, 22 March 2019, both days inclusive.

Directors’ Appointments and Resignations

Resignations

The following directors resigned: 
-  Mr N Li resigned as a Non-executive Director on 31 August 2018.
-  Mr C Luo resigned as a Non-executive Director on 31 August 2018.
-  Mr JM Kahn retired as an Independent Non-executive Director (and his 
   associated positions on the Remunerations Committee and Nominations 
   Committee) on 17 September 2018.
-  Dr PJ Welgemoed, an Independent Non-executive Director, retired as a member
   of the Audit Committee on 17 September 2018.
-  Mr SL Doyle resigned as an Independent Non-executive Director (and his
   associated position on the Audit Committee) on 1 February 2019 after his
   appointment with Aer Lingus.

Appointments 

-  Ms NB Sithole, an Independent Non-executive Director, was appointed as a
   member of the Audit Committee on 17 September 2018.
-  Mr SL Doyle, an Independent Non-executive Director, was appointed as a
   member of the Audit Committee on 17 September 2018.
-  Ms WD Stander, was appointed as an Executive Director of the company, on
   1 November 2018.
-  Ms CS Martinoli, was appointed as an Independent Non-executive Director of
   the company, on 18 February 2019 with immediate effect.

Unaudited Unreviewed Condensed
Consolidated Interim Results
Comair Limited
                                                        Group

                                        Unaudited    Unaudited         Audited
                                         6 months     6 months            Year
                                            ended        ended           ended
                                           31 Dec       31 Dec         30 June
                                             2018         2017            2018
                                            R'000        R'000           R'000
                                       ----------------------------------------
Condensed Consolidated Statements
of Profit or Loss

Revenue                                 3,705,181    3,301,043       6,536,540
Operating Expenses                     (3,170,419)  (2,715,226)     (5,412,752)
                                       ----------------------------------------
Operating profit*                         534,762      585,817       1,123,788
Depreciation and amortisation            (256,314)    (210,375)       (443,237)
Unrealised translation (loss)/gain
on dollar denominated aircraft loan       (11,336)      11,614         (12,056)
Profit on sale of assets                        -            -           2,085
                                       ----------------------------------------
Profit from operations                    267,112      387,056         670,580
Interest income                            12,360       20,297          36,611
Interest expense                         (121,370)    (124,921)       (248,938)
Gain/(loss) on remeasurement of
non-current assets held for sale                -         (266)             12
Income from equity accounted associates    11,328        6,606          12,979
                                       ----------------------------------------
Profit before taxation                    169,430      288,772         471,244
Taxation                                  (42,354)     (85,394)       (145,633)
                                       ----------------------------------------
- current year                            (48,809)     (85,394)       (145,633)
- prior year overprovision                  6,455            -               -
                                       ----------------------------------------
Profit for the period                     127,076      203,378         325,611
                                       ----------------------------------------

Profit for the period attributable to:-

Owners of the parent                      126,366      202,714         324,537
Non-controlling interest                      710          664           1,074
                                       ----------------------------------------
                                          127,076      203,378         325,611
                                       ----------------------------------------

* Operating profit before depreciation, amortisation, unrealised translation
(loss)/gain on translation of dollar denominated aircraft loan and profit on
sale of assets.

                                                        Group

                                        Unaudited    Unaudited         Audited
                                         6 months     6 months            Year
                                            ended        ended           ended
                                           31 Dec       31 Dec         30 June
                                             2018         2017            2018
                                            R'000        R'000           R'000
                                       ----------------------------------------

Condensed Consolidated Statements of
Comprehensive Income

Profit for the period                     127,076      203,378         325,611

Other comprehensive income, net 
of tax                                          -            -               -
                                       ----------------------------------------
Total comprehensive income for
the period                                127,076      203,378         325,611
                                       ----------------------------------------

Total comprehensive income for
the period attributable to:-

Owners of the parent                      126,366      202,714         324,537
Non-controlling interest                      710          664           1,074
                                       ----------------------------------------
                                          127,076      203,378         325,611
                                       ----------------------------------------

Earnings per share (cents)                   27.2         43.6            69.8
Headline Earnings per share (cents)          27.2         43.6            69.5
Diluted Earnings per share (cents)           27.2         43.6            69.8
Diluted Headline earnings per share
(cents)                                      27.2         43.6            69.5
Dividends per share paid (cents)             17.0         14.0            19.0

Actual number of shares in 
issue ('000)                              469,331      469,331         469,331
Weighted ordinary shares 
in issue ('000)                           465,089      465,089         465,089
Diluted weighted ordinary shares 
in issue ('000)                           465,089      465,089         465,089

Reconciliation between earnings and
headline earnings

Earnings attributable to ordinary
shareholders                              126,366      202,714         324,537
Add/(Less): IFRS 5 impairment/
(reversal of impairment) on 
remeasurement of non-current assets
held for sale                                   -          266             (12)
(Less)/Add: taxation effect of IFRS 5
(impairment)/reversal of impairment on
remeasurement of non-current assets
held for sale                                   -          (74)              3
Less: IAS 16 profit on disposal of
property, plant and equipment                   -            -          (2,085)
Add: taxation effect of IAS 16 profit
on disposal of property, plant and
equipment                                       -            -             584

                                       ----------------------------------------
Headline earnings attributable to
ordinary shareholders                     126,366      202,906         323,027
                                       ----------------------------------------


                                                        Group

                                        Unaudited    Unaudited         Audited
                                         6 months     6 months            Year
                                            ended        ended           ended
                                           31 Dec       31 Dec         30 June
                                             2018         2017            2018
                                            R'000        R'000           R'000
                                       ----------------------------------------

Condensed Consolidated Statements
of Financial Position

ASSETS
Property, plant and equipment           5,798,076    4,985,985       5,509,614
Intangible assets                          13,917       16,731          14,970
Investments in associates                  61,374       49,731          52,645
Investment in joint venture                     -            -               -
Goodwill                                   42,236       12,930          13,169
Deferred tax                                3,853        3,902           3,853
Current assets                            696,652    1,041,190       1,029,399
Non-current assets held for sale                -        3,337               -
                                       ----------------------------------------
                                        6,616,108    6,113,806       6,623,650
                                       ----------------------------------------

EQUITY AND LIABILITIES
Share capital and reserves              1,827,667    1,680,864       1,779,800
Interest bearing liabilities            2,098,630    2,246,191       2,176,595
Contingent consideration                   17,434            -               -
Deferred taxation                         613,890      520,437         571,726
Share-based payments                        1,851        5,032               -
Current liabilities                     2,056,636    1,661,282       2,095,529
                                       ----------------------------------------
                                        6,616,108    6,113,806       6,623,650
                                       ----------------------------------------

Net asset value per share (cents)           393.0        361.4           382.7


                                                        Group

                                        Unaudited    Unaudited         Audited
                                         6 months     6 months            Year
                                            ended        ended           ended
                                           31 Dec       31 Dec         30 June
                                             2018         2017            2018
                                            R'000        R'000           R'000
                                       ----------------------------------------

Condensed Consolidated Statements
of Cash Flows

Cash generated from operating
activities
Cash generated from operations            436,280      622,631       1,172,829
Interest paid                            (130,664)    (124,921)       (255,847)
Interest received                          12,360       20,297          36,611
Taxation paid                              (3,790)      (3,569)         (7,308)
                                       ----------------------------------------
Net cash from operating activities        314,186      514,438         946,285
                                       ----------------------------------------

Cash utilised in investing
activities
Additions to property, plant and
equipment                                (316,530)    (258,655)       (706,364)
Proceeds on disposal of property,
plant and equipment                             -        3,441           8,836
Additions to intangible assets             (4,368)      (5,157)         (8,795)
Pre-delivery payments                     (89,482)    (160,312)       (219,714)
Business combinations, net of
cash acquired                             (10,832)      (5,411)         (1,300)
Movement in investment in associate         2,600            -           5,630
                                       ----------------------------------------
Net cash utilised in investing
activities                               (418,612)    (426,094)       (921,707)
                                       ----------------------------------------

Cash utilised in financing activities
Raising of interest-bearing
liabilities                                55,571      131,138         240,989
Repayment of interest-bearing
liabilities                              (226,358)    (312,655)       (426,515)
Dividends paid                            (79,209)     (65,231)        (88,528)
                                       ----------------------------------------
Net cash utilised in financing
activities                               (249,996)    (246,748)       (274,054)
                                       ----------------------------------------

Total cash movement for the period       (354,422)    (158,404)       (249,476)
Cash and cash equivalents at the
beginning of the period                   685,437      934,913         934,913
                                       ----------------------------------------
Cash and cash equivalents at the
end of the period                         331,015      776,509         685,437
                                       ----------------------------------------


                                                        Group

                                        Unaudited    Unaudited         Audited
                                         6 months     6 months            Year
                                            ended        ended           ended
                                           31 Dec       31 Dec         30 June
                                             2018         2017            2018
                                            R'000        R'000           R'000
                                       ----------------------------------------

Condensed Consolidated
Segmental Reports

Segmental Revenue
Airline                                 3,513,683    3,148,957       6,207,526
Non-airline                               191,498      152,086         329,014
                                       ----------------------------------------
                                        3,705,181    3,301,043       6,536,540
                                       ----------------------------------------

Segmental Results
Airline                                   491,455      534,352       1,011,557
Non-airline                                43,307       51,465         112,231
                                       ----------------------------------------

Operating profit before depreciation,
amortisation, unrealised (loss)/gain
on translation on dollar denominated
aircraft loan and profit on sale
of assets                                 534,762      585,817       1,123,788

Depreciation and amortisation -
Airline                                  (240,606)    (197,984)       (416,439)
Depreciation and amortisation -
Non-airline                               (15,708)     (12,391)        (26,798)
Unrealised translation (loss)/gain on
dollar denominated aircraft loan
- Airline                                 (11,336)      11,614         (12,056)
Profit on sale of assets - 
Airline                                         -            -           1,656
Profit on sale of assets – 
Non-airline                                     -            -             429
                                       ----------------------------------------
Profit from operations                    267,112      387,056         670,580
                                       ----------------------------------------

Interest income – Airline                   5,894       10,273          18,329
Interest income - Non-airline               6,466       10,024          18,282
Interest expense - Airline               (121,370)    (124,912)       (248,741)
Interest expense - Non-airline                  -           (9)           (197)
Gain/(loss) on remeasurement of
non-current assets held for sale
- Airline                                       -         (266)             12
Income from equity accounted
investments - Non-airline                  11,328        6,606          12,979
                                       ----------------------------------------
Profit before tax                         169,430      288,772         471,244
                                       ----------------------------------------

Segmental assets - Airline              6,086,773    5,394,364       5,953,352
Segmental assets - Non-airline            529,335      719,442         670,298
Segmental liabilities - Airline        (4,669,638)  (4,313,235)     (4,716,041)
Segmental liabilities - Non-airline      (118,803)    (119,707)       (127,809)
Segmental capital additions - 
Airline (excluding borrowing costs
capitalised)                              313,943      163,759         789,737
Segmental capital additions- 
Non-airline                                66,647       97,266         118,135


                                                        Group

                                        Unaudited    Unaudited         Audited
                                         6 months     6 months            Year
                                            ended        ended           ended
                                           31 Dec       31 Dec         30 June
                                             2018         2017            2018
                                            R'000        R'000           R'000
                                       ----------------------------------------

Condensed Consolidated Statements
of Changes in Equity

Opening Balance                         1,779,800    1,542,717       1,542,717
Total comprehensive income for
the period                                127,076      203,378         325,611
Dividend paid                             (79,209)     (65,231)        (88,528)
                                       ----------------------------------------
                                        1,827,667    1,680,864       1,779,800
                                       ----------------------------------------

Business Combinations

EPT Aviation Training Proprietary Limited and Global Training College South
Africa Proprietary Limited.

On 11 December 2017, the Group acquired 100% of the share capital in EPT
Aviation Training Proprietary Limited and 100% of the share capital in Global
Training College South Africa Proprietary Limited (previously EPT Global
Training Proprietary Limited). These acquisitions were acquired for an
aggregate consideration of R8.5 million, which was settled in cash.

The accounting for this acquisition has now been finalised as allowed in terms
of IFRS 3 Business Combinations, the applicable accounting standard, and
contains no changes to the provisional amounts as included in the Group’s 2018
Annual Report.

Metaco Holdings Proprietary Limited

On 1 July 2018, the Group acquired 100% of the share capital of the leadership
development consultancy company Metaco Holdings Proprietary Limited. This
business was acquired for an aggregate estimated purchase consideration of
R30.3 million, on which an upfront cash payment of R12.9 million was made. The
remaining amount of R17.4 million is based on the cumulative net profit after
tax for the period from the effective date until the sixth anniversary of the
effective date, less 25%, being the deemed profit share to Comair (“the
contingent consideration”). The contingent consideration has been calculated
based on management’s best estimate of the projected profits for the
performance guarantee period. The liability is categorised under level 3 in the
fair value hierarchy.

The acquired business contributed revenue of R2.7 million and a net loss after
tax of R978 000 to the Group since acquisition.

These provisional amounts have been calculated in accordance with the Group’s
accounting policies.

The final purchase price accounting has not yet been completed at period end,
and will be completed within 12 months of the acquisition as defined in IFRS 3
Business Combinations, the applicable accounting standard.

The below table summarises the provisional amount of assets acquired and
liabilities assumed at the acquisition date:


                                                                         Group
                                                                     Unaudited
                                                                      6 months
                                                                         ended
                                                                        31 Dec
                                                                          2018
                                                                         R'000
                                                                ---------------
Purchase consideration                                                  30,295 

The summarised provisional assets and liabilities
arising from the acquisition are as follows:

Total assets                                                             3,168
Total liabilities                                                       (1,940)
                                                                ---------------
Fair value of net assets                                                 1,228
Goodwill                                                                29,067
                                                                ---------------
Total purchase consideration                                            30,295
                                                                ---------------

Purchase consideration                                                 (30,295)
                                                                ---------------
- Settled in cash                                                      (12,861)
- Contingent consideration                                             (17,434)
                                                                ---------------

Cash and cash equivalents in subsidiaries acquired                       2,029

                                                                ---------------
Cash outflow on acquisition                                            (10,832)
                                                                ---------------

Joint Arrangements

On 1 August 2018, the Group entered into a joint arrangement with an IT
technology company, Infinea SA Holdings Proprietary Limited, establishing a
joint venture called Nacelle Proprietary Limited (“Nacelle”).

The company is still in its start-up phase and to period end incurred a loss of
R3.8 million, with the Group’s proportionate share of unrecognised losses at
period end being R1.9 million.

Significant Commitments

Comair made pre-delivery payments of R157 million (of which R89 million was
funded out of cash reserves while the balance was financed) during the current
period to 31 December 2018 (prior period: R160 million) towards the delivery of
eight Boeing 737-8 MAX aircraft due for delivery between 2019 and 2023. The
Group has a remaining commitment to Boeing for R5.7 billion at period end
(prior period: R5.2 billion) in respect of the Boeing 737-8 MAX order. 

Of the remaining R5.7 billion commitment to Boeing, R1.1 billion falls due on
the delivery of the first two Boeing 737-8 MAX aircraft, with delivery expected
to take place between February 2019 and March 2019 respectively.

Pre-delivery payment finance has been mandated to Investec Bank.

Senior-debt financing of the February and March deliveries has been mandated to
Citibank.

The funding options for the remaining six Boeing 737-8 MAX on order will be
finalised closer to the time of delivery.

Basis of preparation

In terms of the Listings Requirements of the JSE Limited, the Group has
prepared its Unaudited Unreviewed Condensed Consolidated Interim Financial
Statements in accordance with International Financial Reporting Standards,
including IAS 34 Interim Financial Reporting, the SAICA Financial Reporting
Guides as issued by the Accounting Practices Committee, Financial Reporting
Pronouncements as issued by the Financial Reporting Standards Council and the
requirements of the Companies Act, Act No. 71 of 2008. At the beginning of the
period, the Group adopted IFRS 15 Revenue from Contracts with Customers and
IFRS 9 Financial Instruments. There was no significant impact from the adoption
of these new accounting standards and therefore no transition adjustments have
been processed. Other than the new standards adopted above, the accounting
policies used in the preparation of these results are consistent in all
material respects with those applied in the previous annual financial
statements.

These Unaudited Unreviewed Condensed Consolidated Interim Financial Statements
were prepared by Ryan de Miranda CA(SA), under the supervision of Kirsten King
CA(SA), the Financial Director.

These results have not been audited or reviewed by the Group’s auditors, BDO
South Africa Inc (Ben Frey (Audit Partner, Registered Auditor, Chartered
Accountant (SA)).

Subsequent Events

Comair’s claim against South African Airways SOC Limited (“SAA”) for damages
arising from anti-competitive conduct was heard in the Gauteng South High Court
between 18 April and 24 August 2016. Judgement in this matter was handed down
on 15 February 2017. In terms of the judgement, Comair was awarded damages in
the sum of approximately R1.16 billion, inclusive of costs and interest to that
date. On 15 February 2019, Comair and SAA entered into a full and final
settlement agreement relating to this matter, and the Settlement Agreement was
made an order of court by the Supreme Court of Appeal. In terms of the
settlement agreement, SAA will pay Comair an amount of R1 108 040 000 plus
interest. This settlement amount will be made in accordance with a payment
schedule commencing on 28 February 2019 and terminating on 28 July 2022, or
earlier should SAA elect to make payments earlier than agreed. In addition, SAA
will also pay Comair’s taxed legal costs incurred to date. As such, both SAA
and Comair will withdraw their appeal and cross appeal respectively currently
pending before the Supreme Court of Appeal.

No other matters have occurred between the reporting date and the date of
approval of the Unaudited Unreviewed Condensed Consolidated Interim Financial
Statements which would have a material effect on these financial statements.

By order of the Board
P van Hoven (Chairman)               E Venter (Chief Executive Officer)
18 February 2019

Sponsor
PSG Capital
19 February 2019
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