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Financial Analysis for Silverjet, Ryanair & Air Canada

Company’s Background:

 

The company is involved in the business of airlines and providing some transportation, catering and some other services to some other airline company’s customers. In May 2006, Silverjet effectively Launched IPOs on the AIM. In April 2007, following this was the end of this financial year. The company productively rose additional funding through placing further shares in the market and we continued to get an outstanding response from high quality investors. The have progressed in an exceptional way till now and is making innovations in air traveling experience with award-winning products and services of Silverjet. Major and brilliant feature of our aircraft are 100 6ft 3inch lie-flat seats, personal in-flight service, wonderful choices of menu and entertainment, and customers are enjoying a revolutionary 30 minute check-in and boarding service at our Silver Lounges in London Luton and New York Newark Airports.

 

Silver jet’s second daily service to New York Newark, which was due to enter commercial service on 2 July 2007, was delayed to accommodate some additional work on the 18-month ‘C’ check of our first aircraft and we are pleased to have confirmed a commencement date for the service of 23 September 2007.

 

The companies have also announced the introduction of a new daily service to Dubai from our base at London Luton. Silverjet third Boeing 767 aircraft will operate on the route which will commence in November 2007. The company is well committed to comply with the principles of good governance contained in the Corporate Governance Guidelines for AIM Companies wherever this is practicable, issued by the Quoted Companies Alliance.

 

 

 

Preview:

 

The report is all about Silverjet an air craft and participating and providing related services to the other aircraft companies. In the very start of the company’s business there are a lot of expenses are according few amongst those are the merger and amalgamation expenses.  In the begging of the company the revenues are also very few because this air craft company is initially is having just a single air craft. The details of the vast expenses and low revenues are given in the first part of the report describing the revenues and expenses. The big loss in the first year of the business is explained in income statement section of this report.

 

The second part in the repot is telling the preliminary activities of the business it supports the first part and gives explanation of the goodwill earned by the company in term of assets in the amalgamation process which expenses are described in the early part of report.  Secondly the same part is adding some information of the intangible assets other than goodwill. Some licenses and highly attentive website are summarized in other intangible assets. Then there is explanation of cash flow which tells that what the corpsman’s initial activities which are causing the huge loss to Silverjet. In the end of this part fuel hedging is elaborating, how company is planning for saving some expenses in term of fuel for the air flights.

 

Third part is composed of some calculations made on the financial statement of the Silverjet. It includes the common size analysis and then three are all five types of ratios are described in the last part. Categories of ratios explained are Valuation Ratios, Activity, Ratios, Liquidity Ratios, Solvency Ratios and Profitability Ratios. All of the categories of ratios described are explaining the current financial position of the aircraft company.  

 

The final fourth part of the company is describing the future plans and perspectives of the company. It tells us that how the company is going to perform in the coming future of the business and what are the plans and activities after the balance sheet or the fiscal year. The last part is a bit different form the previous parts of the report it gives some positives symptoms for the perspectives success of the company.  It describes the positive and flourishing and resentful activities going on in the company’s current business.

 

 

 

 

Current Year Analysis:

Current Business Position:

This part is describing the income statement item which further tells that what the revenues are for the company, what the major expenses are and why the business is suffering from losses. The current business position for the year is described as under:

 

The Income statement rationale:

Revenue

Consolidated revenue for the company the result of scheduled and charter flights for the period to 31 March 2007 amounted to £12.8 million. Revenue from scheduled flights consists of the income from seat sales, together with income from changes to bookings and commission from the sales of hotel, chauffer drive and valet parking services.

 

Revenue from scheduled operations amounted to £2.5 million and charter operations, £10.2 million expenditure and exceptional items the group’s loss before taxation for the year amounted to £18.2 million, after exceptional goodwill impairment write-off of £6.3 million. Total expenditure on operations included in cost of sales amounted to £21.8 million.

 

Administrative expenses for the Silverjet for 2007 amounted £3.5 million and mainly composed of head office costs and legal and professional fees. Company incurred an exceptional impairment of goodwill accruing the acquisition of Flyjet Limited and Skylease Limited of £6.3 million. The company’s interest income investment of surplus was funds amounting to £0.6 million 2007.

 

Loss after tax and loss per share

The net loss after tax for the company was £18.2 million. Basic loss per share for the year which company incurred was 67.70 pence. After adjusting for the exceptional item referred to above adjusted basic loss per share for the year was 44.15 pence.

 

 

Balance Sheet and cash Flow Activities:

 

Goodwill

 

In the balance sheet year Silverjet acquired the whole of the issued share capital of Flyjet Limited and Skylease Limited. The goodwill arising on the acquisition, after recognition of intangible assets acquired, totaled £6.3 million. Calculating the goodwill value group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. As at 31 March 2007, the future cash flows predicted from the Charter business to which the goodwill relates were estimated as negative. Now the company is planning for the impairment for the goodwill. Company has determined that it should impair goodwill arising on the acquisition of Flyjet Limited and Skylease Limited in an amount of £6.3 million. This impairment of goodwill is affecting the profits of the company and increasing the further expenses for the company.

 

On the basis of lastly mentioned decision the group has decided that it will not plan to secure further aircraft when the leases on its two Boeing 757 aircraft operated by Flyjet Limited expire and therefore its charter flights will cease operation from 31 October 2007.

 

 

Intangible assets

 

Recognition of intangible assets by acquisition of Flyjet Limited and Skylease Limited resulted in the as follows:

  •  valuation of licenses and permits, including air operator’s certificate and worldwide route license, US foreign carriers permit  and ETOPS Certificate, amounting to £2.4 million.
  •  Below market valuation of aircraft lease, amounting to £2.0 million.

 

In the year 2007 company incurred costs of £0.1 million for development of its website and in acquiring a variety of software licenses. The group has also completed an impairment review on these assets impairment of assets’. No impairment has been identified on any of the intangible assets other than goodwill.

 

Cash flow

The company raised funds at IPOs on 12 May 2006; Silverjet raised net proceeds of £25.3 million in an initial public offering through the sale of 23,767,857 ordinary shares of 1p at a premium of £1.11 per share. A further 232,143 ordinary shares of 1p were issued to financial advisers as part of the cost of the IPO and the nominal amount was issued from the share premium account. Gross proceeds of £26.6 million were offset by IPO expenses of £1.3 million, including the value of the shares issued to financial advisers, written off to share premium.

 

Fuel hedging

 

Fuel is one of the major expenses for the company especially for cast based expenditures.  The company’s board has agreed that until the time as the group obtains sufficient credit in the market, which will reduce the need to provide restricted cash guarantee to support hedge contracts, company will make rolling monthly fixed price contracts with preferred suppliers at the end of each route flown for a fixed proportion of each month’s planned fuel uplift, and will tender for these contracts.

 

Vertical Analysis

Vertical analyses are explained in the profitability ratios part of the repot for silverjet financial analysis.

 

Horizontal analysis:

Because there is no record for the last year for the company performance, so it is not possible to make a comparative horizontal analysis.

 

Profitability Ratios:

Following are the profitability ratios of Silver jet describing the profit position of the company. There is no profitability ratio showing any profit to the business. All the ratios are showing some huge level of losses for the Silverjet.

 

Gross Profit Ratio: Gross Profit/Turn Over:

 

-70.60%

 

The company is suffering from serious setback in the start of the business. In the very start of the business of the company is not generating enough revenues to cover even the fixed expenses or cost of the businesses.  The company is not working on the best of its abilities and strength. It still has to make a lot of investments in the business area even to cover the fixed cost. 70.60 is a big gross loss in any industry or business in this world. 

 

The company’s fixed expenses are including; direct operating employee costs, Depreciation and amortization cost, Handling charges, catering and other operating costs, Sales, distribution and marketing costs and accommodation, ground equipment and information &  technology costs -580, -12,530, -3,302 &-458 respectively which are 4.54%, -98.07%, -25.85% & -3.58% of the sales or revenues of the business. The percentages especially the figure percentage of Handling charges, catering and other operating costs is contributing an extreme level of gross loss to the company.

 

 The company is yet to establish and make a mark in the market. It has got some future plans and a lot of advertisement expenses to increase the revenues of the company.

 

Operating income margin: Operating income (loss)/Net sales

 

-142.24%

Again in this profitability ratio there is no profit what so ever. There is a huge amount of loss being shown in the ratio. 142.24 Percent is a mighty big loss for the company. It shows that it is having a small amount of sales but huge amounts of expense are there.

 

Activity Ratios:

These ratios measures that how efficient a company performs day to day tasks, such as he collection of receivables and management of inventory. The summery and interpretation for these ratios to Silverjet is described as under:

 

Receivables turnover Ratio:

Revenue/Average Receivables

 

In this ratio we have revenues including only those which are the credit revenues or credit sales. But in airline industry we don’t have any credit sales. This is a really positive sign for the industry. Any way the ratio is not applicable to this company.

 

Inventory Ratios:

 

As Silverjet is a service oriented company. The company is also not having any inventory in the balance sheet. So, these inventory radios are also not applicable for the company.

 

Fixed Assets turnover Ratio:

Revenues/Net Fixed Assets

                                    1.69443

The ratio lets us know that how efficiently the company is managing its fixed assets. 1.6 for the airline industry is a fine enough ratios means that it is generating a large amount of revenues by its fixed assets.

 

Total Assets turnover:

 

Revenue/Average Total Assets:

 

We will consider the same ratio as above because can’t take average of the two years as this is the first year of the company’s business.

 

Liquidity Ratios:

These Ratios are reflecting the Silverjet’s position at point in time and measures the company’s ability to meet its short term obligations.

 

Current Ratio:

 

Current Assets/Current Liabilities

                        0.861

 

The current ratio for the Silverjet is very low for he first year of the business. 0.861430756 means that company is not able to pay its short term obligations from its current assets. This ratio below one is always dangerous for the business of the company.

 

Quick Ratio: Current Assets inventory/Current Liabilities

 

Because the company don’t have any inventory in its current assets so we will consider the ratio same as above.

 

 

Solvency Ratios:

These ratios measure the company’s ability to meet the long term obligations. Subset these ratios are also known as leverage or long term ratios.

 

Debt to assets ratio:

Total Debt/Total Assets

            13.14%

This ratio measure the percentage of the total assets financed with debt. The company is not financed by a large amount of debt. It just has got 13.14% percent of debt in its total equity. Even this amount of debt is lying in the shape of liabilities of the company. The company is having a good solvency position. Its is less risky with respect to long term solvency.

 

Debt Equity Ratio: Debt/Equity

 

As company don’t have got any long term bank’s or any other type of long term debt so this ratio is not applicable to the company.

 

Valuation Ratios:

These are the ratios which are measuring the quantity of an asset or flow associated with ownership of a specified claim. These ratios are generally used by the investor or financial analysts of the company. Silverjet has its valuation ratios as follows:

 

P/E Ratios:

Price per share/Earning per share

 

The share price for company for the year 2007 was 5 euros. The ratio tells us that how many times the company is having its share price comparing to earning of the company. The company is not having any profits. It is going in a huge loss so the ratio is also not applicable. According to this static investor should not invest in it.

 

EPS:

Net income/Number of ordinary shares

 

The radio explains the earning of the company on its each share. As mentioned many times before the company is not having any profit. The company is not having earning per share but instead it is having loss per share. Basic loss per share for the year was 67.70 pence. After adjusting for the exceptional item referred to above adjusted basic loss per share for the year was 44.15 pence.

 

Dividends related Ratios:

 

Because company is already going in the loss, so there is no dividend paid to the shareholders of the Silverjet. Also no dividend ratio is applicable to the company analysis. These all of the statistic are not good for the investor’s point of view.

 

 

 

Future Perspectives:

 

The company is having a bright future if we take a look on the after 31 march events by the company. The company is involved in following activities after 31st march 2007 for advancement and has a progress to be a profit oriented company:

 

After the balance sheet date Silverjet signed an agreement to acquire two Boeing 767 aircraft from Thomson fly limited for a total of $28.2 million. The total cost for these passenger panes, together with the revamp and fit out, totaled $38.5 million was financed through a sale and leaseback arrangement with Novus Aviation Limited. The delivery dates for the aircrafts are 27 April 2007 and 11 September 2007 for fist and second aircraft respectively. On 1 June 2007 Silverjet entered into a letter of intent with Thomson fly to secure for two more 767 aircraft, for a total consideration of $37.0 million. Company has paid an initial deposit of $1.85 million to secure delivery of both aircraft in March 2008. In this way Silverjet would be a full fledge air craft company.

 

The company has a dedicated Silverjet terminal opened at London Luton in time for the first commercial flight. This private splendid lounge terminal offers customers an exceptional experience with 30 minute check-in, dedicated security and seamless boarding.

 

Now the yields are strong and revenue load factor has increased time to time reached 80% in August 2007. Continuing to see a strong forward booking with increasing yields. There is a lot of advancements are made for whish future perspectives for the company are bright.

 

The second aircraft by the company Boeing 767 joined the fleet in April 2007, with a third delivered in September 2007. Two additional long range Boeing 767 aircraft are under an exclusive letter of intent for delivery in March 2008. Silverjet is well placed to develop and grow in the market environment and restore its share price as it continues to build on its successes delivered to date.

Competitive strategy

 

Now the company has a competitive strategy to face the intense international competitions.  Silver jet’s principal competitive strategy is to offer low fares, relative to the competition, for a business class only service,   including an inclined 6ft 3inch flat bed and a 30 minute check in and private jet terminal experience.

 

Distribution

 

We are progressing in an excellent way by securing online distribution on both sides of the Atlantic through a number of search engines, such as Goggle and Yahoo. Online sales are contributing 80-90% of combined sales and our online investment is generating an excellent return on capital employed.

 

New flights

The Group’s second entering for the new flights with the newly accrued aircrafts like commercial service from London Luton to New York Newark had to be started to commence on 2 July 2007 but it was delayed.  The launch of this service planned on 31 July 2007 but finally started on and the second flight on 23 September 2007. The cost of this additional work is expected to amount to approximately £1.75 million.

 

The third aircraft, which was acquired from Thomson fly Limited on 11 September 2007, was commenced from London Luton to Dubai route in November 2007 a commercial flight.

 

Conclusion:

IN the concluding remarks we can say that the company’s current business position is very bad. It is suffering from a huge loss. The reasons for the loss are that the company is going in only its first year of the business. This is not an absolutely newly establish company but in fact this is an amalgamation case and because of the merger the changed business is bearing a lot of amalgamation expenses, in the result it sis also incurring a lot of intangible assets like goodwill, few licenses and splendid websites are acquired.

 

A common size analysis & profitability ratio concludes that currently there is not any sort of profit for the company. There is only loss and even there is a gross loss of 70.6% which shows the current year of the business is suffering from a huge loss and this is a real bad start for the company.  Liquidity ratios also describes that company is not being able to fulfill it current liability from its current assets.  The company is not having a lot of long term debts it is handling the business from its equity. Shareholders of the company are bearing the whole risk for the company and resultantly there is no interest expense. Even the Investor analyses are not good at all for the current year of the company.

 

If are going to keep our analysis restricted to the last financial statements of the company then we can easily say that company is suffering from losses and it very difficult to recover form the losses like these in the coming future. But we must have to take a look on the future perspectives after the balance sheet activities sited in the last part of the report. 

 

Now the company have purchase a couple of more air crafts of high class, it is having more flights in the new destinations.  Now the company is also producing some more innovative services for the passengers.  In term of Statistics Company have achieved an eighty% increase in the sale and doing a great work in the internet advertisement. The company is in the way of success and very soon it would be earning more profits for the business.  It would be able to have good profitability and liquidity radios form next year.

 

All of the above mentioned activities are happening after the balance sheet date. In the start of the businesses and especially in the amalgamation cases, it happens often that the business is suffering from losses and don’t have got a profitable and absolute liquid position and resultantly three are no good results for the investor analysis. The company is passing form the same period of the business life cycle.

 

In the final conclusion we can say the future for the company business is bright. 
Appendix:

Silverjet plc

Consolidated Income Statement Common size analysis

Year ended 31 March 2007

Revenue

12,776

100.00%

Direct operating employee costs

-4,926

-38.56%

Depreciation and amortization

-580

-4.54%

Handling charges, catering and other operating costs

-12,530

-98.07%

Sales, distribution and marketing costs

-3,302

-25.85%

Accommodation, ground equipment and information &

 

 

technology costs

-458

-3.58%

Cost of sales

-21,796

-170.60%

Gross loss

-9,020

-70.60%

Administrative expenses

-3,515

-27.51%

Exceptional item - Goodwill impairment

-6,322

49.48%

Operating loss

-18,857

-147.60%

Investment revenues

631

4.94%

Loss before tax

-18,226

-142.66%

Tax

53

0.41%

Loss for the financial year

-18,173

-142.24%

Loss per share

 

 

Basic (p) and diluted (p)

-67.7

 

 

 

 

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