FastJet publishes half year results in London

FASTJET PUBLISHES HALF YEAR RESULTS

(Posted 01st October 2013)

FastJet PLC, the UK based ‘holding’ company for the airline’s African operations, has yesterday announced their half year results, which for their Tanzanian operations show an accumulated loss of 13.3 million US Dollars.

The full statement, as published under the UK’s reporting requirements for publicly quoted companies, can be accessed via the following link: www.londonstockexchange.com/exchange/news/market-news/market-news-detail.html?announcementId=11724815

The media release, self explanatory as it is, received from the airline’s PR agency, is shown for the benefit of the readers here below. Notably has no new date been set as yet for the start of flights from Dar es Salaam to Johannesburg (see recent article here via http://wolfganghthome.wordpress.com/2013/09/26/south-african-aviation-authority-kills-spirit-of-unwtos-world-tourism-day/) as the South African Department of Transport continues to drag their feet, probably putting every work, comma and full stop under the microscope to allow their national airline continue exploit travellers to and from Dar es Salaam through their monopoly on the route for a little while longer. It is also understood that the Tanzanian Civil Aviation Authority has yet to intervene on behalf of FastJet, an airline they designated to fly on the route under the reciprocal Bilateral Air Services Agreement, perhaps shy not to step on their SADC Big Brother’s toes. Although South African Airways has not been directly linked to this chain of events, it is nevertheless expected to bear the full broadside of negative PR fallout and market reaction when FastJet will eventually commence flights to Johannesburg, as many travel agents have in direct communications with this correspondent already vowed to ‘punish them’. Watch this space therefore but meanwhile the statement from FastJet as of yesterday afternoon which in every respect is quite self explanatory and in line with previous reports file here:

fastjet Plc – Interim Results

fastjet announces its unaudited interim results for the six months ended 30 June 2013.

HIGHLIGHTS

· First-half underlying EBIT loss $24.9m including US$13.3m trading losses in the Tanzanian operation.

· Tanzanian operation reported quarterly EBIT loss of US$9.1m in Q1 and US$4.2m in Q2 – a 54% reduction quarter on quarter.

· Net cash at 30th June 2013 was $4.4m. Subsequent to this $9.3m (gross) has been raised via equity issuance.

· fastjet Tanzania achieved US$81 revenue per passenger in June – almost double January’s achieved rate of US$46.

· Tanzanian operation is now profitable on an underlying route level basis; and based on current performance once scale increases with additional routes and fully utilised resources the business is expected to become profitable at the EBIT level.

· Growing endorsement of the fastjet brand and low cost airline model by Tanzanian consumers

· Launch of the first international route, from Dar-es-Salaam to Johannesburg is expected imminently, with others planned in the near future.

· Development of an Airline Management Services organisation, enabling the fastjet brand to be rolled-out more rapidly across Africa; reducing shareholder risk and minimising capital requirements is underway.

· Restructuring of the legacy Fly540 businesses progressing well; further progress will be reported in due course; a further $5.7m of goodwill and intangible assets, and $8.8m of investments written down in the period.

fastjet’s CEO and Interim Chairman, Ed Winter, commented :

"We are extremely pleased with our operational performance in Tanzania and the endorsement of the fastjet brand by Tanzanian consumers. In response to our consistently high levels of operational reliability, passengers are rapidly adopting fastjet’s low-cost model and booking early in order to pay the lowest prices and allowing us to yield manage to high load factors. We are significantly changing the view of air travel and taking the lead in developing the aviation industry in Tanzania.

Building on our existing operation and the strong consumer faith in our brand, we are moving ahead with our growth plans and plan very soon to launch our first international route from Dar es Salaam to Johannesburg. We expect to add further international routes over the next few months, including to destinations in Zambia and Malawi. In addition to this, we will be adding a fifth city, Mbeya, to our Tanzanian domestic network from 1st November following completion of the redevelopment of Songwe airport to accommodate modern jet aircraft.

These interim results include start-up losses associated with launching fastjet Tanzania. Of particular note was that the those losses were more than halved in Q2 compared to Q1. Our performance is expected to considerably improve in the second half of 2013 with yields having grown from US$42 to US $81 between January and June. As our planned network expansion progresses and scale covers fixed operating costs, we fully expect fastjet Tanzania to become profitable.

Once Tanzania is fully established and profitable we will turn our attention again to the South African market. Regional routes from South Africa to Sub-Saharan destinations lack effective competition and are both underserved and overpriced and ready for an alternative to the cosy relationship between South African Airways and the respective national carrier of each country. It can cost the same amount to fly direct between two Southern African cities on a flight of 3-6 hours as it does to fly to Europe on a 10-12 hour flight.

Based on our success in Tanzania to date, fastjet is confident in the potential of its long-term strategy to become the pan-African low cost airline of choice."

CHAIRMAN AND CHIEF EXECUTIVE’S REVIEW

I am pleased to present my report for the 6 month period to 30th June 2013.

fastjet operations

Following last year’s strategic review of the acquired Fly540 businesses, fastjet was launched in Tanzania on 29th November 2012. The operation has been a success, both operationally and financially. Average revenue perpassenger has risen from USD$46 in January to USD$81 in June and average load factors have risen from 66 per cent to 78 per cent during the period. Monthly ticket revenue more than doubled over the six month period and monthly losses were reduced from $9.1m in Q1 to $4.2m in Q2. On time performance for the period has comfortably exceeded 90 per cent. It is expected that these trends will continue throughout the third and fourth quarters of the year.

During the first half of 2013, management successfully secured fastjet’s first international route rights and whilst time delays due to bureaucracy have had a negative impact on growth during the period, it is pleasing that fastjet’s first international route, Dar es Salaam to Johannesburg, is now on-sale and it is expected that the service will shortly be operating three times a week. We expect to add further international routes over the next few months, including to destinations in Zambia and Malawi.

38 per cent of fastjet’s passengers in the first half of 2013 were first time fliers and 34,000 seats were sold to those booking early at the base-price of only USD$20, so establishing the low cost model in Tanzania. In June 2013 over 1,200 seats were sold for USD$20 each and, importantly, over 300 seats were sold for USD$200 each. It is clear that the low-cost airline model works in Tanzania and is effective in stimulating and growing the market; customer acceptance has been even more rapid than we expected. The booking window (days between booking and flight) has increased dramatically with customers quickly adopting the "book early for cheapest seats" model. Due to unreliability of air services prior to the arrival of fastjet, the majority of passengers booked tickets on the intended day of travel. Feedback on customer satisfaction during the period was been extremely positive, with 98 per cent of fastjet customers surveyed saying that they would fly with fastjet again and 100 per cent saying that they would recommend fastjet to friends and business colleagues.

In order to offset lower rates of commercial activity on internet and credit card usage in Africa, management continues to develop cutting-edge customer communication and facilitation tools. These include extensive use of social media such as Facebook and Twitter with fastjet rapidly becoming the most "liked" airline in sub Saharan Africa, well ahead of long established airlines such as South African Airways and Kenya Airways. Mobile phone penetration throughout Africa is very high, and our website is optimised for use on smart phones. Our customers increasingly use mobile phone payment methods such as M-Pesa and Tigo to pay for seats. In June 2013, 15 per cent of ticket revenue was paid for via M-Pesa. Tigo functionality was introduced in July this year and by August 17 per cent of ticket revenue for the month was paid for via mobile money.

Ancillary revenue streams, predominantly from baggage and flight change fees, continue to see steady improvement, increasing from USD$2.75 per passenger in January 2013 to USD$5.79 per passenger in June. For the remainder of 2013 and in the first-half of 2014, additional services such as in-flight retail, allocated seating, hotel and travel insurance services will be introduced with the objective that ancillary revenue will continue to rise, both in absolute terms and as a percentage of total revenue.

fastjet’s Tanzanian operation which comprises a well recognised brand name and both domestic and international routes, means that it is now well placed to further develop its Tanzanian operations. Management plans a controlled expansion, with all three aircraft fully optimised within the schedule by the first-half of 2014. This will enable fixed overhead costs to be spread over a larger operation, a key factor in turning the Tanzanian operation profitable.

Fly540 operations

The Fly540 businesses acquired from Lonrho Plc continued to seriously underperform relative to expectations in the first-half of 2013 with an EBITDA loss due to continued Fly540 operations being $6.2m.

We have further reviewed the fair value and the goodwill and impairment of the assets acquired as a result of the Lonrho Aviation and Fly540 acquisitions and made further impairments totalling $5.7m. We have taken a further impairment of USD$8.7m on our investment in Fly540 Kenya. Details are set out in the interim financial statements.

Regrettably the Board has decided that whilst the current Fly540 operations do not consume material amounts of cash, the turbo-prop business model of Fly540 based on relatively small turbo-prop aircraft is unlikely to achieve profitability in the short term. The Board has therefore sanctioned a restructuring plan and management is taking increasingly aggressive steps to restructure these businesses and remove legacy inefficiencies.

Fly540 Angola

· Whilst Angola has the potential to be a profitable and sustainable business, operational issues, including the inability to quickly and efficiently obtain aircraft parts, and constraints imposed by the Angolan Central Bank on the flow of funds meant that the first-half flying schedule was materially disrupted. Seats offered varied from 18,000 in March to nearly 45,000 in May.

· Consequently, whilst cash demands have been negligible, operating losses have continued. We are currently in negotiations with our Angolan partners to reduce our shareholding in Fly540 Angola, with the aim of ultimately reducing PLC management time and resulting in the eradication of future losses. We aim to retain the right to introduce the fastjet low cost model into Angola at an appropriate time i.e. when the current operational constraints have been resolved.

Fly540 Ghana

· With a population of more than 350m people the Economic Community of West Africa (ECOWAS) is a significant but immature aviation market. However, domestic competition in Ghana remained intense during the first half of 2013, especially on the key Accra to Kumasi route. In addition to this, the Kumasi airport runway has yet to be upgraded to accommodate Airbus A319 aircraft and Government taxes on international flights and fuel remain prohibitively high for the introduction of a profitable fastjet operation. Fly540 Ghana has been granted designations on five international routes from Accra to Abidjan, Cote d’Ivoire; Freetown, Sierra Leone; Lagos, Nigeria; Ouagadougou, Burkina Faso; and Monrovia, Liberia, however these routes are not being operated at this time. We expect to be able to develop a low-cost domestic network which could then be used as a launch pad for international routes once the Kumasi airport runway upgrade has taken place.

· Negotiations have been underway during the first half of 2013 to bring in a significant local equity partner to reduce capital requirements and risk, during the period prior to introducing the fastjet low cost model.

Fly540 Kenya

· As previously reported, fastjet now treats Kenya as an investment. On 23rd April 2013 fastjet entered into a Memorandum of Understanding (MoU) with Don Smith, Chief Executive Officer of Fly540 Kenya, with a view to establishing a way by which the two parties could work together to maximise the value and business prospects of both Fly540 and fastjet in Kenya. We continue to work with Don Smith and the creditors of the Kenyan operation with the aim of maximising value for the company from this relationship.

· Notwithstanding these issues, we expect Kenya, the most mature air travel market in East Africa, to eventually be capable of supporting a very significant low-cost operation.

Future Initiatives

Based on our experience in Tanzania, we have great confidence that we can fulfil our strategy of becoming the pan African Low Cost Airline of choice. We have seen the low cost model stimulate the Tanzanian market in the same way other such markets in other areas of the world were stimulated by its introduction in the past. The Tanzanian consumer has embraced the brand and model with incredible speed and enthusiasm. Lessons learned whilst establishing the Tanzanian operation will be deployed to our advantage during our expansion into other markets. The success of the Tanzanian operation has also caught the attention of other African governments who have approached us to enquire about introducing fastjet operations.

In some countries, developing the fastjet brand will involve direct investment (as is the case in Tanzania), while in other countries it will be via a licencing agreement. Direct investment is most likely in larger, more mature markets, such as South Africa and Kenya, with licencing agreements more likely in smaller, less well-developed markets and those with a difficult investment environment such as Nigeria. fastjet plans to undertake direct investment in a planned and orderly way, such that a material portion of the required investment can be internally funded.

fastjet Airline Management Services

For countries where fastjet considers a licencing agreement to be the appropriate route to establishing the brand, we have developed an Airline Management Services (AMS) concept. AMS facilitates the delivery of core elements of the fastjet service, such as, safety, brand, a revenue management system and sales and distribution channels, while other investors provide the capital required to fund the aircraft and start-up costs. In addition, fastjet AMS would offer other optional commercial, operational and management services. The key benefit of this approach is the ability to establish the fastjet brand and deliver the fastjet standard of service quickly, without requiring a material amount of external capital. It would also enable a less-experienced airline management team to receive group-level strategic guidance and management information to develop and operate an airline to international standards whilst benefiting from the financial synergies present in a larger airline.

Discussions are on-going in a number of African countries, including Nigeria, with a view to launching airlines in this way under the fastjet brand.

Funding

The convertible securities agreement with Bergen Global Opportunity Fund, LP ("Bergen"), an institutional investment fund manager, which commenced in March 2013, was terminated on 10th June 2013, in favour of an EFF facility with Darwin Strategic. After the end of the period fastjet received shareholder approval for a 10:1 share consolidation in order to preserve its ability to continue to make use of this drawdown facility. The continued use of the EFF has provided the Company with working capital funding to allow it to progress discussions with interested parties regarding the future funding of the Company required to develop and expand the business.

Going Concern

The Interim Statement has been prepared on a Going Concern basis as set out in Note 1.

Chairman

David Lenigas resigned from the Board on 10th June 2013. The Board would like to take this opportunity to thank David for his invaluable contribution to both the launch and initial development of fastjet. The Board wishes him the very best for the future. David stepped down in order to concentrate on his other business ventures. Ed Winter has temporarily taken on the role of Chairman in addition to his role as Chief Executive. The Board intends to appoint a successor in due course.

Board

Geoffrey White, Executive Director resigned from the Board on 25th July 2013. Geoffrey was nominated to the Board of fastjet by Lonrho Plc. Geoffrey will now focus all of his time on the Lonrho core businesses. The Board would like to thank Geoffrey for his contribution to the initial development of fastjet. Lonrho retain their right to appoint up to two Directors to the fastjet Board.

Outlook

Based on our success in Tanzania to date, fastjet is confident in the potential of its long-term strategy to become the pan-African low cost airline of choice. The Board remains confident that it has the right strategy and team in place to build a successful and profitable future for our shareholders. The Board would like to take this opportunity to thank its staff and our shareholders for their continued support.

Ed Winter

Interim Chairman and Chief Executive Officer

30 September 2013