Fastjet PLC performance much improved

FASTJET PLC ANNOUNCES ANNUAL RESULTS FOR 2013 FINANCIAL YEAR

(Posted 26th June 2014)

Fastjet PLC, a public company in the UK, earlier this morning announced their annual results in London.

Among the highlights of the announcement were the following key points, showing significant improvements in financial and operating performance since a year ago:

Operational Highlights

· Establishment of the first true low cost carrier model in Africa

· Solid growth of domestic routes in Tanzania

· Launch of first international route between Tanzania and South Africa

· Restructuring of the legacy Fly 540 businesses initiated (for Angola and Ghana)

Financial Highlights

· Group revenue increased by 154% from $21.0 million to $53.4 million of which $26.0 million is attributable to Tanzania in 2013

· Operating loss before exceptionals of $47.6 million of which $21.9m is attributable to Tanzania

· Average load factor for the year of 72%

· Average 2013 revenue per passenger rose from $46.30 to $95.20; average revenue per passenger for the year of $71.10

2014 Operational Highlights (January to June)

· Disposal of Fly540 Kenya as announced yesterday

· Second international route launched between Tanzania and Zambia; launch of third route from Tanzania to Zimbabwe imminent

· Launch of new domestic route in Tanzania (Mbeya); capacity increase on existing routes

· Board strengthened by new appointments

Ed Winter, CEO of Fastjet PLC and Interim Chairman, when making the announcements, said: ‘2013 was a very significant year for Fastjet with the company proving the low cost airline model in Tanzania works. In the first half of 2014 we have built upon that foundation and continued to grow, moving towards our vision of becoming a true pan African low cost airline. Our recent successful fundraise moves us even closer to that goal and I am delighted with the encouraging response we received from the market generally, and Fastjet shareholders specifically, demonstrating support for our strategy and vision. The disposal of Fly540 Kenya, which was announced yesterday, is a hugely significant step that allows us to fully pursue our expansion in East Africa. Our experience to date confirms our long-held view that people across Africa are embracing the opportunities offered by Fastjet’s reliable, safe and great value air travel. The combination of the management team’s experience in Africa and Fastjet’s stronger financial position means that we are now ready to continue our expansion and leverage our first mover advantage to the benefit of passengers and shareholders alike."

The following added information was received from Fastjet PLC to further elaborate on the challenges of the past year, the progress made during 2013 and the first half of 2014 and the outlook of Fastjet as a continental aviation brand.

Start quote:

Chairman and CEO’s review

Following launch on 29 November 2012, Fastjet rapidly developed a reputation for reliability and punctuality. This reputation led to the low cost model of booking early for the cheapest prices being rapidly adopted by Tanzanian passengers. Punctuality (arrival with 15 minutes of schedule) has been in excess of 95% and cancellations less than 1%. This has enabled effective revenue management with early booker paying US$20 plus taxes one way and customers booking on the day paying upwards of US$200. Yield per passenger grew from US$47 in January 2013 to US$97 in December 2013. The market has been hugely stimulated with 38% of passengers in the first 5 months being first time flyers.

Although the yield is at a level which could provide a profitable operation, resources are not being utilised fully and capacity needs to increase before fixed cost and overheads can be fully covered.

Higher frequencies and more international routes are being progressively introduced to increase aircraft utilization from 5.7 hours per day in Q1 2014 up to a planned 11.7 hours per day by end of Q3 2014.

Almost twice the number of seats will be available with virtually the same fixed costs (Aircraft Leases, Insurance, Fixed Maintenance etc.) and overheads, generating a forecast 53% drop in Fixed Cost per Available Seat Kilometre (CASK) and a forecast 27% reduction in Total CASK.

Fly 540

All of the Fly 540 operations inherited from Lonrho Aviation have been disappointing and have not performed as contemplated at the time of the acquisition.

· Fly 540 Tanzania- This was a very small operation and was replaced by Fastjet Tanzania in November 2012.

· Fly 540 Kenya- Following a thorough and lengthy evaluation of Fly 540 Kenya, the company concluded that converting the business into the Fastjet low cost model would not be economically viable. All legal and financial ties between Fly 540 Kenya and the Fastjet group have been removed, and Fastjet is fully indemnified against any and all liabilities relating to Fly 540 Kenya. Disposing of the investment in Fly 540 Kenya, allows Fastjet Plc to pursue its priority objective of creating Fastjet Kenya as a new entity which will operate to the same low cost model and high standards as Fastjet Tanzania and use the same distribution platforms.

· Fly 540 Ghana- Operations are currently suspended pending completion of restructuring. There are infrastructure issues at Ghanaian airports that need rectification prior to the introduction of a fastjet operation. The country is also currently suffering from adverse economic conditions with the Ghana Cedi / US$ exchange rate deterioration over the past year adding considerable costs to aviation where many costs are US$ denominated. fastjet Plc remains confident that West Africa and Ghana in particular presents very significant long-term opportunities for the fastjet low cost model. Fly 540 Ghana had an $11.7m adverse impact on the financial results of the group in 2013.

· Fly 540 Angola- Operations are currently suspended pending completion of restructuring. Although Angola, with its lack of current air capacity and rapid GDP growth, represents an opportunity, the difficulties of remitting currency, government imposed competitive restrictions and the logistical hurdles of importing aircraft spares make this a poor investment opportunity at the current time. Fly 540 Angola had a $22.8m adverse impact on the financial results of the group in 2013.

During 2013 less than $650,000 of Fastjet Plc cash was utilized in the legacy Fly540 operations.

Changes to the board

On 10 June 2013 David Lenigas resigned as Executive Chairman – Having been Executive Chairman since launch and making an invaluable contribution leading the Company successfully through its first year, David stepped down in order to concentrate on his other business ventures.

On 24 July 2013 Geoffrey White resigned as Executive Director – Following the privatization of Lonrho, Geoffrey resigned to be able to focus all of his time on the Lonrho core businesses. He had been an Executive Director of Fastjet since the beginning and provided the Board with great support with his unrivalled African experience and knowledge.

On 1 June 2014 Krista Bates was appointed as Executive Director and General Counsel – Krista had been providing legal services to Fastjet for the previous 20 months through her role as a corporate consultant at a leading Nairobi law firm. Her appointment deepens Fastjet’s legal and strategic capabilities across Africa and the UK as the Company expands its operations and continues to develop strategies against Africa’s complex legal and political background. Having Krista as a part of the team will be a huge advantage, given her wealth of experience and knowledge gained in both UK and Africa.

On 1 June 2014 Richard Bodin, Chief Commercial Officer, was appointed as Executive Director – Richard was a part of the team that developed the original Fastjet business plan, and as Chief Commercial Officer he played a vital role proving the low cost model can be successful in Africa. His input will be invaluable at Board level.

On 1 June 2014 Clive Carver was appointed as Non-Executive Director – Clive’s appointment adds another dimension to the Board. Clive adds essential and extensive city experience to the Board as the Company moves forward in this next phase of development. His experience and reputation, gained working in corporate finance both with merchant banks and broker Finncap and his position as a Board member on a range of companies will be a real asset to the Board.

Funding

Bergen Global Opportunity Fund – On 21 June 2013 the Company made the final conversion of securities issue to Bergen Global Opportunity Fund. In the year ended 31 December 2013 the facility was used to raise $4.2m (£2.6m)

Darwin Strategic Limited – On 10 April 2014 the Company terminated the Equity Financing Facility (‘EFF’) with Darwin Strategic Ltd which was originally announced on 13th June 2013 and further extended on 12th March 2014. This facility has served the Company well, providing capital to allow the Company to successfully reach its current position from where it can now expand, but is no longer required to finance further growth. In the year ended 31 December 2013 the facility was used to raise $24.9m (£15.9m)

Fund raising in 2014

Having proved the low cost model in Fastjet Tanzania the Company was able to complete a very successful fund raising in April 2014. Gross proceeds of $24.8m (£14.9m) were raised through a placing and an open offer. The $18.2m (£11m) placing brought a number of key institutional investors, Standard Life, Henderson Global, Majedie and City Financial on to Fastjet’s share register with management also investing over $1.6m (£1m). Director’s shareholdings are now: Edward Winter 31,300,000, Angus Saunders 6,250,000, Richard Bodin 3,125,000 and Robert Burnham 147,305.

Sir Stelios Haji-Ioannou invested $1.6m (£1m) in the placing and also agreed to terminate the Management Fee in exchange for $2.5m (£1.5m) in shares at the placing price. This replaces 8 years at 605k euro per year plus inflation. In money of the day terms easyGroup exchanges a receivable of £4.3m in return for equity valued at $2.5m (£1.5m) as another show of confidence. The rest of the Brand Licence and royalty remain in place unchanged until July 2022 at which time Fastjet will own the brand.

The funds raised in April have been allocated to funding Fastjet Tanzania until it becomes cash flow positive, funding central services and improving IT capability to support future bases, initial capital to set up licenses and approvals for future bases, which at the moment are planned to be in Zambia, Kenya and South Africa with a level of contingency to cover the unpredictable timing of African government approvals.

Once each base is ready to commence operations further capital will be required to launch services. fastjet Plc capital contribution will depend upon the level of local equity raised.

Current trading

Capacity has increased over the past months with total seats flown in May increasing to 60,320 from 54,230 in April, an 11% increase. Year on year seats increased by 68% and revenue increased by 81% compared to May 2013.

Individual route increases have been Dar es Salaam to Lusaka – 27% (May vs April); Dar es Salaam Mbeya – 43% (May vs April); Dar es Salaam to Mwanza 23% – (April vs March). Tanzanian domestic routes have come under increased competitive pressure over the past few months with irrational pricing behaviour from both Precision Air and Air Tanzania. Management do not see this as a long term threat and our increased frequencies are combating that pressure.

A new international route from Dar es Salaam to Harare, Zimbabwe is now on sale, with first flights scheduled to operate on 2nd August. More international routes will be announced in the near future.

Regulatory environment

Although there have been many declarations of an intent to liberalize the aviation market in various parts of Africa, there has been very little regulatory freedom put in place. As a consequence aviation regulation in Africa is very similar to Europe pre 1990s. Each country has individual regulatory requirements regarding control and ownership for an airline company wishing to operate within or from that country. Additionally flights between countries are controlled through Bilateral Air Service Agreements which are unique to each pair of countries. Airlines operating between countries also need to obtain a Foreign Operator Permit giving approval for their crewing and maintenance arrangements.

The Company continues to lobby at the highest level of governments and within the industry to promote relaxation of the regulatory environment regarding route rights.

On the other hand the regulatory environment regarding operating standards and safety within the industry is variable and in some cases well below international standards. As a consequence, fastjet imposes constraints on its own operations to comply as though the airline was regulated in Europe. The Company takes every opportunity to lobby for improved safety and operational regulation and oversight by the various civil aviation authorities.

Future developments

The Company has a two phase growth strategy for the next 4 years.

Phase 1: Building up the Tanzanian base

· Increased frequency on existing routes (Dar es Salaam to Mbeya, Mwanza, Kilimanjaro, Lusaka, Johannesburg and Harare), and adding new routes including routes to Kenya, Malawi and Uganda to fully utilize current resources.

Phase 2: Rolling-out beyond Tanzania

· Tanzania, Kenya, South Africa and Zambia have been identified as major growth opportunities. There are approximately 160m people in the region with currently only 0.21 air seats per head of population per annum. By 2018, fastjet expects to operate 24 aircraft and carry 6 million passengers. This represents only a 13% market share of estimated pan African passengers in these markets.

· The Company plans to make appropriate commercial and marketing links with third party airlines in particularly inter-continental airlines to increase distribution from outside of Africa.

· The Company intends to increase pan-African reach using an Airline Management Service franchise model to develop a pan African Fastjet network where appropriate and in particular where we want to de-risk expansion financially or politically. Negotiations are progressing in a number of countries with interested parties.

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