NATS-Annual-Report-2015

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Annual Report and Accounts 2015 | NATS Holdings Limited Strategic Report 8 Chairman’s statement I am pleased to present my first statement as Chairman. My predecessor, John Devaney, retired in August after nine years. On behalf of the Board, I would like to thank him for his significant contribution over this period. In May 2015, Richard Deakin stood down as Chief Executive Officer after five years. During that time, Richard led NATS through a period of continued operational and financial improvement. Under his leadership the company has delivered high levels of safety and service as well as a strong financial performance for our shareholders. When I became Chairman in September of last year, we were coming to the end of a five-year programme of operational improvement and the regulatory period (CP3/RP1). As the company embarks on the new regulatory period and prepares to implement the Single European Sky initiative, the Board and Richard have agreed that now is an appropriate time to make a change to the leadership of the company, and to bring a new perspective and approach. I would like to thank Richard and wish him well in the future. To ensure continuity, NATS’ Managing Director of Operations Martin Rolfe has been appointed to the role. The Board has instigated a search process to identify and appoint a successor from both internal and external candidates. Safety and performance During the year, NATS provided customers with a safe and very efficient operational service with no ATC delay attributable to NATS for 99.8% of flights. However, a technical failure at our Swanwick Control Centre in December led to intense media and public focus on our service following a more significant but unrelated failure in the previous year. This prompted an independent enquiry, whose findings were made public in May 2015. The Board is pleased that the report acknowledged that safety was not compromised at any time and recognised the quality and timeliness of NATS’ response. NATS accepts the majority of the enquiry’s recommendations. On behalf of the Board, I apologise for the inconvenience caused to passengers and our customers as a result of this failure. Profit before tax was £200m compared with £158m in 2014. This reflected strong underlying financial and operational performance coupled with a reduction in exceptional charges, which had a significant impact on the prior year. The economically regulated service achieved an average pre-tax real return of just over 8% for Control Period 3 (2011-2014) compared with the regulatory return of 6.76% assumed in the regulatory settlement. The company also paid dividends of £77m (2014: £62m). I have been immensely impressed by the commitment and professionalism of everyone I have met at NATS. There is a clear focus on safety and a real drive for excellence in customer service. Strategic Report
Annual Report and Accounts 2015 | NATS Holdings Limited Strategic Report 9 Chairman’s statement (continued) Business developments NERL is the core of NATS’ operations and represents more than 75 per cent of our revenue. Its safe and efficient operation is vital to the operation of UK airspace (in the UK, NATS Services compliments this by delivering efficient tower services at the largest airports). I am therefore pleased that the European Commission has endorsed our ambitious plan for NERL’s UK en route service for RP2. This aims to maintain our high levels of safety and service, while handling projected traffic increases of 13%, together with real price reductions for NERL’s customers of over 21% by the end of 2019. This will be very challenging as we seek to achieve this alongside the deployment of new Single European Sky (SES) technology. If traffic forecasts and other regulatory assumptions are achieved, NERL will earn revenues in RP2 approaching £3bn with a regulatory return of just under 6% (pre-tax real). Turning to NATS Services, I am delighted with the award by the Ministry of Defence (MOD) of Project Marshall to our Aquila joint venture. This contract offers a genuine transformation for the provision of the UK’s military ATM service, which will help achieve significant cost savings while upgrading its infrastructure. This year Gatwick Airport Limited decided to award its air traffic control contract to one of our competitors, with the transition planned for March 2016. We were disappointed to lose this contract after many years of service during which we have played a key part in increasing capacity and efficiency at Gatwick airport. We are restructuring the cost base of NATS Services to make it more competitive. Internationally, we are focusing our efforts on the Middle East and Asia Pacific – two regions where our skills and experience can help ATC providers cope with a significant growth in air traffic. Board – other changes Dr Harry Bush CB and Mr Will Facey joined the Board during the year. Dr Bush brings a deep knowledge of economic regulation and Mr Facey an airline customer perspective. Chris Bennett, Warwick Brady and Mike Powell left this year, and I thank them for their contribution. Employees The most important investment that a company can make is in its people. There is no doubt in my mind that NATS’ success reflects the talent and commitment of its workforce. On behalf of the Board, I would like to thank them all. Outlook for 2016 Overall we expect a reduction in the group’s revenue and profit margins over the medium term, following the RP2 price reductions, and as we respond to the increasingly competitive UK airport market. Also, taking into account other cost pressures including higher pension accounting costs and depreciation charges, group profit before tax is likely to be much lower in 2016. We will continue to influence the development of air traffic services in Europe through engagement with our industry partners on deploying SES technology and in developing free route airspace through our Borealis Alliance with other ATC service providers. Dr Paul Golby, CBE Chairman Strategic Report
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