2 3 Air Partner plc Annual Report 2014 Making it happen... Air Partner is a world leading air charter company providing private jets, commercial airliners and air freight services anywhere in the world since 1961. Our global network of 20 offices spans Europe, North America, the Middle East and Asia, and we operate a full 24-hour flight operations centre giving clients instant access to air charter services all year round. Through our four business divisions we are able to respond immediately to the most demanding of aircraft charter requirements. Contents 01 Financial highlights 02 Group at a glance 06 Strategic report 06 Chairman’s statement 08 Chief Executive’s review 12 Chief Financial Officer’s review 13 Business model 14 Principal risk and uncertainties 16 Key performance indicators 18 Corporate social responsibility 20 Going concern basis 22 Board of Directors 24 Leadership Team 26 Directors’ report 36 Directors’ remuneration report 54 Unaudited pro-forma information 58 Notes to the unaudited pro-forma information Independent Auditors’ report 65 67 Financial statements 73 Notes to the financial statements Our business divisions Charter of large aircraft (20+ seats) for governments, industrial and commercial clients and tour operators An in-house travel agency, the Emergency Planning Division and Ops24 provide additional services to support clients and operators Commercial Jet Broking Private Jet Broking Support Services Freight Broking Charter of smaller aircraft (19 seats or fewer) for groups, individuals, air ambulance services and for roadshows Charter of cargo transport including emergency aid drops and a Time Critical door to door freight delivery service Financial highlights Air Partner plc Annual Report 2014 01 Highlights for the year ended 31 January 2014 Revenue £m Underlying profit before tax £m Profit before tax £m Cash £m Revenue up by 7% UK Revenue up by 1% USA Revenue up by 63% Europe Revenue up by 3% Underlying PBT up by 28% Commercial Jet Division revenue up by 14% Strong Tour Operating business mitigating reduced government spending Private Jet Division revenue up by 21% Freight Division showing signs of improvement Group Remains debt free £224m £4.3m £2.8m £18.4m* 0 . 4 2 2 2 . 9 0 2 3 . 4 3 . 3 2 . 3 8 . 2 * 4 . 8 1 * 3 . 7 1 3 1 0 2 4 1 0 2 3 1 0 2 4 1 0 2 3 1 0 2 4 1 0 2 3 1 0 2 4 1 0 2 Underlying basic EPS pence Basic EPS pence Dividends for 12 month period pence 29.8 p 19.2 p 28 p . 8 9 2 9 . 1 2 4 . 2 2 2 . 9 1 . 0 8 2 . 8 8 1 3 1 0 2 4 1 0 2 3 1 0 2 4 1 0 2 3 1 0 2 4 1 0 2 * JetCard cash 2014 £8.8m – 2013 *£8.6m Commercial Jets Air Partner plc Annual Report 2014 02 Charter of larger aircraft (20+ seats) for governments, industrial and commercial clients and tour operators In the world of commercial airliner charter, success depends on experience, expertise and a reputation built over decades. Air Partner’s Commercial Jets team offers logistical excellence, value for money and dependability. Over the last five decades and continuing into our sixth, Air Partner have devised and executed many of the most complex flights in civil aviation, but we also complete hundreds of routine, individually tailored chartered flights every week. % of Group revenue 2014 2013 66.4% £148.7m 62.4% £130.7m Number of passengers flown by Tour ops 354,500 Dedicated aircraft chartered by Air Partner 4.5 aircraft Reasons for Tour ops flying Destinations flown to Winter and Summer vacation destinations 378 Most remote destinations Venezuela, South Sudan, Libya, Kruger National Park Tour ops destinations Greece Cyprus Turkey Morocco France (Alps) Egypt Reasons for flying Football teams attending matches Corporate shuttle flights Wedding parties to India Group musical events Sports events Senior executive meetings Product launches Flying high to view comets and polar lights Company incentive trips Private Jets Air Partner plc Annual Report 2014 03 Charter of smaller aircraft (19 seats or fewer) for groups, individuals, air ambulance service and roadshows As one of the world’s largest suppliers of aircraft charter in the world, Air Partner has the resources, experience and expertise to customise solutions to our clients every aviation need. We provide the entire spectrum of private aviation products. This makes us the natural partner whether our clients needs are for occasional private jet charter, the pre-purchase simplicity of JetCard or private jet ownership. A dedicated team of account managers is on call around the clock, ready to respond to any change in requirements and ensure our clients experience the highest level of comfort and security alongside our first-class service with all private jet flights. % of Group revenue Hours flown (booked by Air Partner) Number of Jets chartered 2014 2013 25.0% £55.9m 22.2% £46.4m 16,693 hours Most remote destinations Soloman Islands, Alaska, Bora Bora, Galapagos Islands 4,094 Number of people flown by us 5,246 Aircraft type most chartered (UK) Why people flew with us Citation XLS Business meetings Corporate conventions Government trade missions Industry conferences/exhibitions Family weekend breaks Significant life event celebration Medical emergencies Commuting between homes World events we flew clients to Sochi Winter Olympics, F1 Grand Prix races, G8 Summits, World Economic Forum, Maastrict Art Fair, Turkish Open (golf), key football matches Freight Air Partner plc Annual Report 2014 04 Charter of cargo transport including emergency aid drops and a Time Critical door to door freight delivery service Air Partner’s Freight team delivers tailored air services to meet the most demanding schedules at the best possible rates, reliably. Air cargo charter places our clients in control of their shipments, timing and security. Air Partner provides an aircraft for every need – from a light cabin Learjet to the giant Antonov 225 freighter. Air Partner has quick access to the latest data on aircraft capabilities and airfield infrastructure, even in the most remote areas. Combining this with up-to-the-minute information and our years of in-house expertise, we plan the task to save clients money as well as time. % of Group revenue Number of flights we flew 2014 2013 5.2% £11.7m 7.6% £15.9m 922 Different kinds of aircraft chartered Most remote destinations Destinations flown to 104 Sochi, Djibouti, Bahrain, Izmir, Cebu 395 Major world events supported in 2013 Number of on-board courier flights Strangest and most unusual cargo 50 Flights made in 2013 Artwork collection Sochi mascots Chickens TV equipment for winter olympics Large main Deck Loader Bobsleighs and other winter sport gear Aerospace equipment Phillipines flood relief, Sochi, 588 Support Services Air Partner plc Annual Report 2014 05 Charter of cargo transport including emergency aid drops and a Time Critical door to door freight delivery service Our 24 hour Operations division provides a complete outsourced flight operations service for passenger and freight flights worldwide as well as replacement aircraft when maintenance, crew shortages or logistical problems threaten to disrupt the scheduled timetable. The provision of diversionary fuel to major international airlines is handled by our experienced team. The planning, management and execution of air evacuations for companies and governments worldwide is the remit of our Emergency Planning Division, whilst inbound, onward and ad hoc travel arrangements can be arranged through our in-house travel agency. % of Group revenue Most popular locations travel agency flew to 2014 3.4% 2013 £7.7m 7.8% £16.3m Largest number of scheduled flights booked for a single event 2,000 tickets Planned readiness for evacuations for specific clients out of Frankfurt, Las Vegas, Barcelona, Naples Libya, South Sudan, South Korea, Ukraine, Venezuela Number of major evacuations Key event supported in 2013 Number of individuals evacuated 2 5,242 IMEX Exhibition, Frankfurt During 2013 Air Partner changed its accounting reference date from 31 July to 31 January. As a consequence the statutory results are in respect of the 18 month trading period from 1 August 2012 to 31 January 2014, with a 12 month comparative to 31 July 2012. To aid understanding pro forma results have also been provided for the 12 months to 31 January 2014 with a 12 month comparative to 31 January 2013. The narrative to the results is based on the pro forma results with additional comments on the statutory results where it aids understanding. Chairman’s statement Air Partner has performed strongly during the 12 months to 31 January 2014 with turnover growing by 7% to £224m and underlying profit increasing by 28% to £4.3m. Commercial Jet’s strong performance was led by significant growth in the tour operating sector and successful new business wins helped replace the on-going contraction in government work, leading to a 14% increase in revenue and a 38% increase in underlying profit before tax. Private Jet’s also performed well, particularly in the UK and the US, with revenues up by 21% and underlying profit before tax increasing by 36%. The Group remains cash generative and debt free. In the 12 month period, cash rose by £1.1m to £18.4m. £8.8m (2013: £8.6m) of cash is JetCard clients’ deposits, which are segregated and held on deposit. During the period, the Group undertook a fundamental review of its investment in new technology systems and, additionally moved the business to a product led structure. Unfortunately the technology review has resulted in a significant impairment of the IT investment and this, together with the restructuring and redundancy costs largely associated with the new product led structure has led to a charge of £1.4m to the income statement. After the impact of these non-trading items profit before tax was £2.8m (2013: £3.2m). The Group has made good progress against its stated strategy in the period under review. The strategy is focused on prioritising growth in the US, the Private Jet business in Europe and broking in the Oil & Gas and Tour Operating sectors. This is resulting in a good diversification of broking revenues with strong performances seen. In fact, it is pleasing to report that revenue in these areas grew by 91% to £91.4m. However, growth in the continental European private jet market remains challenging, reflecting the economic conditions in the region. Air Partner continues to evolve its people and systems, selectively investing in skills and initiatives that support the strategy and help create a long term competitive advantage. In the period under review, the Group has added to its senior management team, strengthened and re-energised the sales force in selected growth areas, reviewed and refined the Information Technology (IT) strategy, while finalising a successful transition to a product-led structure. Dividend The Board remains confident in the Group’s long term prospects and is pleased to propose a final dividend of 14.0p per share, to be paid on 16 June 2014, to shareholders on the register on 16 May 2014 (subject to shareholder approval at the General Meeting). Due to the change to the accounting reference date, the Group paid an increased interim dividend of 14.0p in October 2013, equivalent to the amount that would have been paid as a final dividend prior to the change of year-end. This brings the total dividend for the 18 months to January 2014 to 34.05p, 87% higher than the total dividend for the statutory 12 month comparative period. The business pays dividends subject to performance and typically they are split on the basis of one third interim payment and two thirds final payment. In future the board anticipates returning to a one-third and two third split and intends to continue the recent practice of growing the dividend by 10% per annum. Board Changes Shareholders will be aware of Tony Mack’s intention to retire from the Board at the forthcoming General Meeting. Under his initial leadership and subsequent guidance, Air Partner has become the successful business that it is today. The whole Company owes him a debt of gratitude and we wish him well for the future, while continuing to draw on his unique experience as Life President of the Company. Elsewhere we have added to the Board and in September 2013 we welcomed Grahame Chilton as a Non-Executive Director. Grahame brings a wealth of global business experience, particularly in broking businesses. As previously announced, Gavin Charles will be leaving on 30 April. Neil Morris was appointed interim Chief Financial Officer on 1 April 2014 to allow for a transitional handover period. Neil was Air Partner’s Group Financial Controller, a position he held since July 2013. Before joining Air Partner, Neil was Group Finance Director of All Leisure Group PLC, the niche cruise and tour operator listed on AIM, and prior to that he spent 11 years at Deloitte LLP, primarily working in the aviation and travel sector. We continue to work with Odgers Berndtson, one of the UK’s pre-eminent executive search firms, to assist in the search process for a permanent Chief Financial Officer and will provide an update as soon as practical. Strategic report Air Partner plc Annual Report 2014 07 Outlook Current trading is in line with the Board’s expectations, and while the economic environment continues slowly to improve, our experience leads us to balance such optimism with a degree of conservatism in our outlook and planning. Our focus on areas of strategic importance continues to produce results, and we are confident that further improvements in IT, efficiency and productivity combined with the opportunities we are seeing across the business, will generate further gains. We are a well-funded group with a trusted brand and an enviable reputation. We have a clear strategy and a strong product offering with a depth of management experience that positions us well for the future. Richard Everitt, Chairman 9 April 2014 Chief Executive’s review This is a strong performance with revenue growing by 7% and underlying profit before tax up 28%. However after the impact of the one-off, non-trading items, profit before tax was £2.8m (2013: £3.2m); please refer to the Chief Financial Officer’s Review for further details. Pleasingly on an underlying basis, profit before tax grew by 28% to £4.3m (2013: £3.3m). This reflected good trading in both Commercial Jets and Private Jets which have performed well and benefitted from the recent restructuring into product lines. Our close management of the areas of strategic focus (USA, Private Jets in Europe, Oil & Gas and Tour Operators) has continued to deliver excellent results, with revenue up across these areas by 91%. Strategic report Air Partner plc Annual Report 2014 09 Mark Briffa, CEO This growth is significant for the business and marks excellent progress against the Group’s aim to further diversify its revenues and clients. The Freight division, a small but important part of the Group, has started to show some signs of improvement. However, the results reflect a tough comparable period due to the conclusion of a large government contract and the on-going difficulties in the market. While revenues contracted, pleasingly underlying profit before tax remained unchanged due to the early management action on cost control. The Group’s transition to a product led structure enabled synergies to be better captured, and has improved the ability to direct skills, expertise and knowledge across borders in an inclusive and integrated approach. The restructuring, announced in March 2013, has significantly contributed to the strong Private Jet and Commercial Jet performances in these results. The restructuring associated with delivering this change resulted in the need to make a number of roles redundant and the costs associated with this are included in the £646,000 of restructuring and redundancy costs incurred in the period. Air Partner has historically underinvested in technology and as part of a step change in IT, Colin Jowers was appointed Global Director of Business Technology in January. Until recently, Colin was global Chief Operating Officer of Royal Bank of Scotland’s Global Banking and Markets Research and Strategy division. He has also been involved in numerous broking service industry initiatives, focused on maximising technology and operational efficiencies. Colin’s appointment is a direct reflection of the Group’s desire to place technology at the heart of Air Partner’s offer, enabling the Group to better understand its customers, putting their needs first, while more accurately measuring performance against these aims. With that objective in mind I am pleased to announce the start of Project Connect, a multi-year global technology project, which will include the deployment of Microsoft Dynamics CRM across the business. The transition to a product led restructure required a strengthened senior management team, capable of developing business divisions in multiple territories and furthering growth across the company’s areas of strategic focus. Significant progress has been made on this front, and in August 2013 Paul Richardson was appointed as Director of Private Jets. Paul previously worked in the wealth management, sports and entertainment sectors, both at Coutts and Barclays Wealth and his experience and insight working with high net worth individuals is proving valuable. The revenue from Inclusive Tour Operating has increased by 200% against the prior period, with significant new contracts won. The team was further strengthened in September 2013 with the appointment of Alan Murray as Director of Inclusive Tour Programmes. Alan was previously MD and COO of Voyages of Discovery and Director of Monarch Airlines; his wide range of experience is already making a positive impact. Marketing helps drive both the existing and new areas of strategic focus and last December Kiran Parmar joined as Global Director of Marketing. Kiran previously held senior international marketing roles at Bentley Motors and Ford Motor Company, enabling him to understand both the luxury side of our Private Jets business and the Commercial Jets and Freight divisions too. This growth is significant for the business and marks excellent progress against the Group’s aim to further diversify its revenues and clients.““ Chief Executive’s review continued Colin’s deep knowledge and experience are already proving themselves and having reviewed the Group’s IT systems, he is already transforming the way we work. As part of his review, Colin recommended Air Partner continue with its planned CRM development, but discontinue the integrated broker and finance tools. Subsequently, the CRM element will go live this year, but the £774,000 investment in the broker and finance tool will now not be utilised and has been fully impaired. However, we are confident that the revised system, under Colin’s management and combined with the new systems will be better placed to help drive future growth. Colin will be responsible for all of Air Partner’s global IT going forward, Project Connect being the initial focal point for this. Phase one includes a global IT infrastructure upgrade, enabling the CRM to be delivered in the second half of this financial year, and thereafter, the critical introduction of the platform to support our new technology strategy and product roadmap across the Group. As a result of the increased strategic focus on technology and Project Connect, going forward we expect the annual technology cost for the Group to increase, albeit off a low base. We are confident that this is strategically the right investment to be making and the increased cost will better position the Company for the long term. Commercial Jet Broking Revenue in the 12 months to 31 January 2014 increased by 14% to £148.7m (2013: £130.7m) with underlying profit before tax 38% higher at £2.3m (2013: £1.7m). The growth has been driven by excellent performances in the UK, US and France, resulting from an increased sales focus and the development of closer relationships with clients. These strong results have been achieved despite the slowdown of government business. Private Jet Broking Revenue increased in the period by 21% to £55.9m (2013: £46.4m) with underlying profit before tax increasing by 36% to £1.5m (2013: £1.1m). Significant growth was achieved in the UK and US, which was driven by investment in high calibre talent that has added a new dimension to the private jet division, with an increased focus on sales and improved tailoring of products to suit local markets. The recruitment of key individuals into the division has had a positive impact, strengthening our specialist expertise and capabilities in our strategic areas, for example in Tour Operating and Oil & Gas. Today, we have an even better understanding of customers’ requirements and have improved our ability to provide the bespoke solutions our clients require. Tour Operating in Europe has delivered strong results and has contributed 35% of the revenue in the division. While our established presence in Aberdeen and Houston has enabled us to gain good traction in the Oil & Gas sector and revenue has increased by 54%. The team in the US carried out several successful evacuations, rescuing stranded cruise line passengers and also won the prestigious programme to fly the World Cup Trophy to 90 different countries before the World Cup tournament starts in Brazil in June. The Conference and Incentive market remains slow to come out of recovery and the sector remains extremely competitive with low margins. We are seeing particularly strong interest from high net worth individual leisure traffic, and in line with this, our JetCard continues to perform well. Sales and renewals are up 29% for the period with card utilisation up by 84%. The product continues to provide the flexibility that both corporates and high net worth individuals demand. This flexibility has been improved further with the launch of our new card product aimed specifically at the corporate market. As the economy continues to improve, we are well placed to benefit from further HNWI flying as potential clients seek to enhance their air travel preferences. The traction gained in the Continental European private jet market has not been as great as expected. The market conditions remain challenging, reflecting the economic conditions in the region, but we continue to build our talent and skill set in our European private jet offices. We are confident that the recruitment and steps taken to date leave the division well placed for the future, as continental economies improve. Mark Briffa, CEO Our JetCard continues to perform well with sales and renewals up 29% for the period. ““ Strategic report Air Partner plc Annual Report 2014 11 Freight Broking Although revenue was down by 26% to £11.7m (2013: £15.9m), underlying profit before tax was level with the comparable 12 month period at £0.2m, due to early management of the cost base. The lower revenues reflect on-going challenging conditions in the freight sector, and the comparative period, which still included a large government contract which ended in March 2012. However, over the last 6 months, a positive upturn has been seen in the market and the level of new business has increased. Two significant flying programmes were completed; delivering humanitarian aid to the Philippines and flying equipment to the Winter Olympics in Sochi. Freight remains a core product offering and to support this, investment has been made in experienced industry specialists based in Cologne and Istanbul. Progress building new business around the Air Partner Time Critical offering is being made and this is helping to reinforce an improving performance. In conclusion, I am pleased to report that the Group has delivered a strong performance for the year and continued its positive progress against our strategic objectives. While the global macro environment continues slowly to improve, over 50 years’ aviation experience reminds us to balance optimism with a healthy degree of conservatism in our outlook and planning. We are well funded with a robust cash balance sheet and intend to deliver a growing dividend for our shareholders into the foreseeable future. This strong position enables Air Partner to invest in areas such as new IT, product development, recruitment, training, brand marketing and in strengthening the global office infrastructure. I would like to thank all of my Air Partner colleagues for their hard work and commitment through the year. Our company is trusted by customers to respond quickly and deliver the highest standards of service and I am proud that we achieve these high standards day in, day out. . Mark Briffa, CEO After the impact of non-trading items, the performance of the divisions is as follows: Chief Financial Officer’s review Financial review This is a strong set of results with 7% revenue growth and 28% underlying profit growth. The results were driven by strong performances in the two key divisions – Commercial Jets and Private Jets. Commercial Jet revenues improved by 14% to £148.7m and Private Jet revenues were 21% stronger at £55.9m. This contrasted with Group revenues, which showed year on year revenue growth of 7%, reflecting continued Freight weakness, and the Group’s Operations divisions (Fuel and Ops24) transitioning from revenue seeking business units to smaller support services functions. There were two significant non-trading expenditures in the period, which negatively impacted profit before tax and earnings per share. Firstly, the capital cost associated with the CRM, resulting in a £774,000 impairment charge, leaving an asset value of £260,000. This represents the CRM element of the new system which is being retained as part of Project Connect and will go-live in the second half of this financial year. Secondly, the restructuring and redundancy costs, largely associated with delivering the transition to a product led focus, resulted in restructuring costs of £646,000 in the period. After the impact of non-trading items, the performance of the divisions is as follows: (unaudited) Year ended 31 January 2014 Underlying profit before tax Non-trading items Profit before tax Year ended 31 January 2013 Underlying profit before tax Non-trading items Profit before tax Dividend The Board has recommended a final dividend for the period of 14.0p per share which together with the interim paid in April 2013 of 6.05p and the increased interim dividend of 14.0p paid in October 2013 respectively represent a total dividend for the period of 34.05p per share. If approved by shareholders the dividend will be paid on 16 June 2014 to shareholders on the register on 16 May 2014. Commercial Jet Broking £’000 Private Jet Broking £’000 Freight Broking £’000 Support Services £’000 2,331 (777) 1,554 £’000 1,684 (84) 1,600 1,509 (494) 1,015 £’000 1,110 6 1,116 207 (69) 138 £’000 238 (42) 196 203 (80) 123 £’000 298 (2) 296 Total £’000 4,250 (1,420) 2,830 £’000 3,330 (122) 3,208 The business pays dividends subject to performance and typically they are split on the basis of one third interim payment and two thirds final payment. In future the board anticipates returning to a one-third and two third split and intends to continue the recent practice of growing the dividend by 10% per annum. Cash During the period from 31 January 2013 to 31 January 2014, cash rose by £1.1m to £18.4m. The Group’s short term cash balances show high levels of short term volatility due to the timing differences in the receipt of funds from clients and payment to aircraft operators. It should be noted that £8.8m (2013: £8.6m) of the cash balance is due to JetCard clients’ deposits with the Group and to improve the visibility of this split, it is now shown separately as a footnote on the Consolidated Statement of Cash Flows. Gavin Charles, CFO Strategic report Air Partner plc Annual Report 2014 13 — Freight provides whole aircraft charter for freight usage. Clients are typically transporting cargo not suitable for scheduled freight services – often due to the size, the weight or the destination. Freight provides an ad hoc service and a Time Critical product meeting the need for urgent, tracked delivery. — Other Services comprises an in house travel agency and an Emergency Planning department. The travel agency enables Air Partner to meet the needs of clients combining scheduled flying and private charter. The Emergency Planning department provides large companies with employees working in volatile parts of the world with detailed evacuation plans. The business also provides 24/7 tracking of flights, 365 days of the year. This enables Air Partner to address operational issues and respond to additional client requests at any time of the day. The aircraft charter broking market has low barriers to entry and a large number of competing businesses, including many sole traders. Air Partner is one of the largest charter brokers in the world. This gives it a number of advantages when tendering for larger pieces of work, including: — The expertise, capability and contacts that have been built up over the last 50 years of trading. — A reputation for providing a high quality product and excellent customer service. — Financial reassurance for the client. Air Partner is the only quoted air charter broker and this provides clients with the highest level of financial transparency and rigour. Air Partner also has an extremely strong Balance Sheet with approaching 20m of cash and no debt. Business model Air Partner is a global aviation charter specialist with customers spanning governments, individuals, corporate and other organisations. The business has 20 offices in 17 countries and employs about 200 people. The business is managed on a divisional basis, with a product led focus. The divisions are as follows: — Commercial Jets covers the charter of passenger aircraft with over 20 seats. The division has a wide range of clients including governments, tour operator businesses, oil & gas and automotive companies and sports organisations. The business has successfully diversified its client base over the last three years, with the reduction of government business and an increase in tour operator and oil & gas work. — Private Jets provides charters of aircraft with 20 seats or less. Clients can charter aircraft on an ad hoc basis or purchase hours in advance (a JetCard) and benefit from an all-inclusive fixed price and various aircraft availability commitments. Whilst predominantly bought by private individuals, Air Partner has recently launched a new card aimed specifically at corporate clients. The Board has not delegated its responsibility for financial risk management, including the management of treasury activities. Further information on interest rate risk, credit risk and liquidity risk is given in note 20 to the financial statements. Other risks and uncertainties which the Board considers to be material to Air Partner’s ability to continue in business are summarised in the chart below. The principal risk to the Group’s business stems from the general economic conditions in which our clients operate, affecting their willingness to charter. Ad hoc charters are likely to continue to be impacted by serious economic instability in the major world markets. Principal risk and uncertainties Lead times for ad hoc bookings are measured in days or weeks, rather than months. Forward bookings can be impacted very suddenly by changes in financial markets, political instability and natural events affecting the movement of people or cargo from one country to another. Economic uncertainty affects corporate, government and individual clients and affects the quality of supply of aircraft as operators consolidate or leave the market. These are trends outside the Group’s control but the strategy remains to diversify to address seasonality and changes in the client mix. Aircraft charter broking on the Air Partner model can be classed as a relatively low financial risk business, in that the broker sells capacity on aircraft owned and operated by a third party and contracts are normally placed as mirrored transactions. The Group does not have any contractual arrangements with any significant individual or company which are essential to continuation of the business. The profile of risks fluctuates from time to time and not all risks can be listed in full, nor can the actions being taken to manage and control risks be guaranteed to mitigate completely their effects on the business or to reduce risks absolutely. “The principal risk to the Group’s business stems from the general economic conditions in which our clients operate, affecting their willingness to charter. “ Strategic report Air Partner plc Annual Report 2014 15 Type of risk Impact on Air Partner business Management/mitigation of risk Economic risk Economic uncertainty, including Eurozone volatility, reduces the demand for ad hoc aviation solutions. Aviation risk Failure of aircraft chartered by Air Partner. Diversification of the client base across governments and non-governmental organisations, commercial enterprises and individuals and across geographic regions allows for some smoothing when there are seasonal or sectorial changes in demand. High quality standards apply to the choice of aircraft and carrier for each charter. Air Partner maintains non-owned aircraft liability insurance which can also be extended to clients. All flights are watched in operation by the in-house operations team. External risk Legal and Regulatory risk Adverse weather conditions or external incidents outside Air Partner’s control (eg earthquake, ash cloud, terrorist alerts) closed airports or meaning flying is prohibited. The in-house operations team monitors external conditions very closely and will advise clients of any potential problems. There is potential upside if private charters can use smaller airfields or ad hoc freight charter can recover deliveries otherwise delayed by a lack of scheduled flights. The Group has to comply with a large number of different laws and regulations, including tax and civil aviation authority requirements. Such regulations are subject to continual change and there is a risk that Group does not comply with applicable laws and regulations, or inadvertently breaches regulations. Management reviews policies and processes at Leadership Team level. The business has a range of policies to minimise these risks and reviews and updates them on a regular basis. Supply risk Suitable aircraft are not available for charter in key sectors / geographic areas. Air Partner deals with many different operators worldwide and is not reliant on a single supplier or contractor. Competitor risk Air Partner falls behind competitors in product development, standards of service or cost effectiveness. The Group undertakes client surveys to ensure it remains responsive to client demands and within acceptable market price levels for the quality and standards of service provided. Business Interruption risk Systems for sourcing and booking aircraft and for client management and administration fail or cannot be accessed by employees. International scope reduces reliance on a single office location. Back-up operating systems are provided for this and employees can work remotely if necessary. Employee risk Failure to attract, retain and motivate high quality employees. The Group invests in recruitment, talent management, learning and development programmes to maintain staffing levels and improve performance on a continuing basis. Remuneration and motivational incentives are reviewed regularly and regular social events are provided to encourage family feeling across the Group. Reputational risk Air Partner’s reputation is damaged by an incident or inappropriate action, causing client losses. Air Partner’s brand values of honesty, truth and reliability are treated very seriously. Discretion is key to our customer service and its importance is communicated to all members of the team. Key performance indicators The Group’s Key Performance Indicators (“KPI’s”) are shown here. The financial indicators are designed to help management and investors to assess performance and are capable of being measured over the longer term. Operational indicators relate to the number of people with Air Partner whose efforts drive performance. All KPI’s are based on total rather than underlying measures, except for underlying profit before tax and underlying basic earnings per share. A high percentage of the Group’s business is driven by the short term needs of the client. A long forward order book is therefore not available and not appropriate to use as a measure of the Group’s longer term prospects. Detailed segmental reporting is set out in note 3 to the financial statements. Year ended 31 January 2014 v Year ended 31 January 2013 (unaudited) Revenue £m Gross Profit £m Underlying profit before tax £m 6 5 4 3 2 1 3 1 0 2 4 1 0 2 300 250 200 150 100 50 30 25 20 15 10 5 3 1 0 2 4 1 0 2 Net cash £m Staff voluntary churn % 18 16 14 12 10 8 6 4 2 20 18 16 14 12 10 8 6 4 2 3 1 0 2 4 1 0 2 3 1 0 2 4 1 0 2 3 1 0 2 4 1 0 2 Strategic report Air Partner plc Annual Report 2014 17 Underlying basic earnings per share Pence Basic earnings per share Pence Dividends per share Pence 35 30 25 20 15 10 5 23 22 21 20 19 18 17 3 1 0 2 4 1 0 2 30 25 20 15 10 5 3 1 0 2 4 1 0 2 Return on equity % Total shareholder return % 3 1 0 2 4 1 0 2 35% 30% 25% 20% 15% 10% 5% 70% 60% 50% 40% 30% 20% 10% 3 1 0 2 4 1 0 2 3 1 0 2 4 1 0 2 Jet travel does have significant environmental consequences. Although we do not operate aircraft directly, we work with our clients, our suppliers and our service partners to monitor and review the impact of our operations. Many clients are conscious of, and would like to reduce, the environmental impact of their flights and we are happy to recommend aircraft which have a lower fuel burn profile, though this is not always available for large freight flights in particular. We can calculate automatically the carbon footprint of every flight and can provide clients with the data they need to make realistic decisions about both costs and emissions. We also include optional carbon offset costs as standard in our proposals. The number of tonnes offset can only be decided upon by our clients. The amount of carbon offset has shown a significant increase over the last three years but this remains a very small proportion in terms of the number of flights undertaken each year. Air Partner also offers a Carbon Neutral JetCard for frequent fliers. Carbon offsets are used to help fund climate-friendly technology projects in less developed parts of the world which make use of renewable energy sources or improve energy efficiency, also providing socio-economic benefits. Projects this year, which have been vetted and endorsed by The CarbonNeutral Company, have included the installation of wind turbines in Maharashtra, India. This project involves the development of 25 x 800kW wind turbines with a total installed capacity of 20 MW located in the village of Panchpatta. The project provides 35GWh of renewable electricity to the Western regional electricity grid of India per year, reducing CO2 emissions by displacing electricity from fossil fuel-based electricity generation plants (particularly coal-based generation). This project is validated to the Verified Carbon Standard (VCS). Corporate social responsibility Air Partner regularly reviews and identifies ways in which its impact on the environment and its contribution to the community as a whole could be improved. Sustainability and Corporate Social Responsibility are an important part of Air Partner’s vision, mission and values and are key to achieving our goals. The Group’s Business Ethics policy implemented last year contains a separate statement on Corporate Hospitality and can be downloaded from the corporate website: www.airpartner.com/ investors/corporate-governance. Environmental awareness The Group seeks to reduce its carbon footprint year on year, and the move to new offices at Gatwick has improved energy efficiency and reduced road usage as staff and visitors utilise excellent local transport connections. Rail travel for staff and local buses for staff and visitors alike are subsidised by the Company. A waste monitoring and reduction programme has also been instigated. For information on the Group’s output of greenhouse gases, please see the Directors’ Report on page 28. The Group is committed to providing equal opportunities and ensuring that employees are able to work without discrimination. ““ Dream flight over the London skyline for inspiring boy with Spina Bifida A six year old boy from Lambeth had his dream come true when he had the chance to take the controls of a helicopter before enjoying an incredible flight over the London skyline. Abel Seleshi, who has spina bifida and hydrocephalus, which has left him unable to stand or walk and reliant on a wheelchair was given the opportunity to hold the controls of Elite Helicopters’ Agusta A109 helicopter before enjoying the trip of a lifetime. Taking off from the grounds of his primary school in West Dulwich, Abel was given the chance to enjoy a bird’s eye view of London flying as low as 500 feet over the Olympic Stadium and the London Eye by Air Partner. In association with WellChild, the national charity for sick children, Air Partner carefully planned and orchestrated this special trip for Abel and by sponsoring the PLC Awards we raised money to help the charity continue to provide essential support for seriously ill children, young people and their families across the UK. Strategic report Air Partner plc Annual Report 2014 19 There are occasions when air transport is the only solution and environmental damage has to be set against the undoubted benefit of being able to deliver fast, targeted help for those in need. Air Partner has expertise in chartering air ambulance and organ transplant flights and is proud of its involvement in providing humanitarian relief flights to deliver much needed aid and support to victims of war, famine, floods and earthquakes around the world. Employees The efforts of every single person in the business count towards Group performance. Investment in people has been targeted by the Board as a priority and a number of key appointments have been made during the financial year. Whether those people are experienced professional support staff, brokers or sales team all are expected to produce returns in the form of aircraft charters successfully delivered for clients. Remuneration is linked to performance throughout the business. Air Partner is proud of its commitment to learning and development. The Group provides induction training in the UK for every new member of staff, followed by short courses designed to increase knowledge, develop new ideas and promote and strengthen relationships between international teams and offices. We also encourage continued professional development. There are regular updates on the Group’s performance, through regular team and Divisional briefings and with individual office summaries and commentaries available on the staff intranet. Talent management and learning and development initiatives were implemented within the year to encourage personal success, to ensure that Air Partner people are “best in industry”. The Group is committed to providing equal opportunities and ensuring that employees are able to work without discrimination. Full and fair consideration is given to employment applications from persons with a disability. If an employee were to become disabled while in employment, the Group would make every effort to enable the employee to continue in employment and would make arrangements for additional equipment, support and training as appropriate. The breakdown of employees as at 31 January 2014: Main Board Leadership Team Group totals Male 6 6 99 Female 0 1 97 Going concern basis Going concern Having considered the Group’s current financial position, the factors affecting its cost base, the state of the air charter market as a whole and budget forecast figures for a period of not less than twelve months from the date of approval of these financial statements, the directors are satisfied that the Group and the Company have adequate resources to continue in business for the foreseeable future and the Company is a going concern. The directors have continued to adopt the going concern basis in the preparation of the financial statements. Expected future developments The Group intends to concentrate on the core business of broking but will seek to widen and broaden its client base, focusing on niche areas of business which align well with the Group’s strengths. In particular, the Group will highlight industries and territories where different Air Partner offices can work together to provide high levels of service. Air Partner has highlighted its intention to continue to invest in staff and IT infrastructure. Air Partner remains committed to becoming the Number One Air Charter specialists. The Directors continue to believe that the best route to increasing long term value for shareholders is to deliver excellent service across the product range and across the broadest possible geographic area. This report was approved by the board of directors on 9 April 2014 and signed on its behalf by; Mark Briffa Chief Executive The Group will highlight industries and territories where different Air Partner offices can work together to provide high levels of service. ““ Strategic report Air Partner plc Annual Report 2014 21 AC – Member of the Audit Committee RC – Member of the Remuneration Committee NC – Member of the Nomination Committee Richard Everitt (65) AC RC NC Independent Non-Executive Chairman Richard qualified as a solicitor, rising to the position of Director of BAA plc with responsibility for strategy and regulatory matters following its privatisation. He subsequently became Chief Executive of National Air Traffic Services in 2001 and, since December 2004, has been Chief Executive of the Port of London Authority. Richard was appointed as non-executive Chairman on 9 February 2012. Mark Briffa (49) NC CEO Mark started his career with Air Partner as a Commercial Jets broker in 1996 and joined the Board in 2006 as Chief Operating Officer, becoming CEO in April 2010. He has direct experience of air charter broking and wide knowledge of the private aviation sector worldwide, built up over more than 20 years’ experience in the industry. Tony Mack (65) AC RC Non-Executive Director Tony is the son of Air Partner’s founder and first joined the family business in 1970, becoming Managing Director in 1979. He was appointed as Executive Chairman in 1985 and led the initial flotation of Air Partner shares on the London Stock Exchange, before stepping back into a non-executive role in 2008. His knowledge and experience of private aviation are unequalled within Air Partner and he personifies the link between the Group’s modern international presence and its founding principles of value and service. He is to retire from the Board at the forthcoming AGM. Gavin Charles (48) CFO Gavin qualified as a chartered accountant with Ernst & Young and has more than 20 years’ experience, having served as Finance Director in a number of UK and international companies. He was UK Finance Director of Miele Company Ltd before joining Air Partner as CFO in June 2010. As previously announced his agreement will terminate with effect from 1 May 2014. Board of Directors Air Partner plc Annual Report 2014 23 Grahame Chilton (55) AC RC Independent Non-Executive Director Grahame has enjoyed a long career in the re-insurance market. He was a leading member of the management team which lead the buyout of the Benfield Group in 1988 becoming Chief Executive in 1996 . Benfield was acquired by the AON Corporation in 2008. Until l November 2013 he was the Chairman of Aon Holdings Limited. Grahame has established ( and is Chairman and CEO) Capsicum Re a global reinsurance intermediary in partnership with AJ Gallagher (a NYSE listed insurance broker). On joining the Board in July 2013 Grahame became the Chairman of the Remuneration Committee. Charles (Chuck) Pollard (56) AC RC Independent Non-Executive Director Chuck brings to Air Partner over 20 years’ experience of the international non-scheduled airline industry as the former CEO of OmniAir International and World Airways. He is a director of Allegiant Travel Company, a US low cost air carrier listed on NASDAQ and AirCastle Limited, an aircraft leasing and finance company listed on the New York Stock Exchange. He has served as a non-executive director since July 2009. Andrew Wood (62) AC RC NC Senior Independent Non-Executive Director Andrew joined the Board in June 2011 and is the Senior Independent Director , Chairman of the Audit Committee and until July 2013, Chairman of the Remuneration Committee . He was from 2001 to 2010 group finance director of BBA Aviation plc and RACAL Electronics Group from 1995–2000. A chartered management accountant Andrew is also a non- executive director and Chairman of the Audit Committee of Berendsen plc and Lavendon Group plc. On 1 November 2013 Andrew became a non – executive director of Stobart Group Limited . The Leadership Team has collective responsibility for running the Group’s business by: — developing Air Partner’s strategy and budget for Board approval, — recommending to the Board capital expenditure and investment budgets, — monitoring financial, operational and service performance, — allocating resources across Air Partner as agreed by the Board, — planning and delivering major programmes, and — reviewing the senior talent base and succession plans. The Terms of Reference for the Leadership Team are reviewed and approved by the Board annually, under which it can approve, up to limits beyond which Board approval is required, capital expenditure, and disposals of fixed assets, investments and divestments. The members of the Leadership Team call upon over 90 years of aviation experience. Mark Briffa CEO Gavin Charles CFO Richard Smith Director, Freight and Support Services Leadership Team Air Partner plc Annual Report 2014 25 Neil Morris Acting CFO Paul Argyle Director, Commercial Jets Paul Richardson Director Private Jets Phil Mathews President of Air Partner, Inc. (US) Rachel Davies Group HR Director Kiran Parmar Group Marketing Director Share capital structure and shareholder rights The authorised share capital of the Company is £750,000 divided into 15,000,000 ordinary shares of 5 pence each. All ordinary shares have equal rights to dividends and capital and to vote at general meetings of the Company, as set out in the Company’s Articles of Association. The number of ordinary shares of 5 pence each issued and fully paid at 31 January 2014 was 10,261,393 (2012: 10,261,393). No shares were issued during the year. The directors present their reports and the audited financial statements for the eighteen months to 31 January 2014. Information within the Strategic report, the Chairman’s statement, the Chief Executive’s review and the Chief Financial Officer’s review on pages 6 to 12 is incorporated into the Directors’ report by reference, which constitutes the fair review of the business required by the Companies Act 2006. Corporate governance is discussed on pages 29 to 31. The details of the salaries, bonuses, benefits and share interests of directors are shown in the directors’ remuneration report on pages 36 to 53. Results and dividends The Group results are shown in the consolidated income statement on page 67. Profit after taxation for the year was £2.8 million (2012: £3.0 million). Factors influencing the results are discussed in the Chief Financial Officer’s Review on page 12. Subject to shareholder approval at the AGM a final dividend of 14.00 pence per share is proposed, to be paid on 16 June 2014 to shareholders on the register on 16 May 2014. Together with the interim dividend of 6.05 pence per share paid in April 2013 and the second interim dividend paid in October 2013 of 14.00p per share paid, the total dividend for the eighteen month accounting period amounts to 34.05 pence per share (2012: total dividend of 18.2 pence per share). Substantial shareholdings As at 9 April 2014 the Company was aware of substantial interests in the Company’s shares or had been notified of interests in voting rights under Chapter 5 of the Disclosure and Transparency Rules, as follows: Substantial shareholdings Shareholder Aberforth Partners LLP Schroder Investments Ltd BlackRock Investment Management (UK) Ltd R Griffiths A G Mack and family Miton Asset Management Limited Barclays Stockbrokers Unicorn Asset Management Limited Allianz Global Investors Hargreaves Lansdown Stockbrokers Brewin Dolphin Stockbrokers Number of shares 1,129,834 1,070,000 767,483 759,600 751,500 474,133 455,123 422,953 400,000 396,997 373,570 % held 11.01 10.43 7.48 7.40 7.32 4.62 4.44 4.12 3.90 3.87 3.64 Nature of holding Indirect Indirect Indirect Indirect Direct Indirect Indirect Indirect Indirect Indirect Indirect The interests shown may include shares held under discretionary management agreements for which the manager may not exercise voting rights. Based on Shares in Issue of 10,261,393 Source: RDIR, RNS Directors’ report Air Partner plc Annual Report 2014 27 The issued share capital of the Company is £513,000 divided into 10,261,393 ordinary shares of 5 pence each. Options outstanding under all employee share schemes amounted to 8.76% of the Company’s issued share capital as at 31 January 2014. This includes options granted which have not yet vested. No more than 20% of issued share capital in any rolling 10 year period may be taken up by employee share schemes. In addition options representing 7.4% of the issued share capital have been exercised within the 10 years preceding 31 January 2014. No more than 20% of the issued share capital in any rolling ten year period may currently be taken up by employee share schemes by way of dilution but it is proposed to reduce this limit to 10% with any excess (up to a further 10% of the issued share capital) being acquired by purchase in the market via an employee benefit trust. Under the Articles of Association, the Company has authority to issue 15,000,000 ordinary shares. Resolutions to renew the authorities given to directors to allot shares, to disapply certain pre-emption rights and to make market purchases of the Company’s own shares, all subject to appropriate limits, will be put to the Annual General Meeting (“AGM”) to replace the authorities granted in 2012. There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions of the Articles of Association and prevailing legislation. The directors are not aware of any agreements between holders of the Company’s shares that may result in restrictions on the transfer of securities or on voting rights. No person has any special rights of control over the Company’s share capital and all issued shares are fully paid. No individual or corporate entity has the right to appoint a director. The appointment and replacement of directors is governed by the Articles of Association, the UK Corporate Governance Code, the Companies Act 2006 and related legislation. During the period, the Group established the Air Partner Employee Benefit Trust (“the Trust”) in order to satisfy options under the Group’s share option schemes. At 31 January 2014 the number of ordinary shares held by the Trust was 224,932. Shares held by the Trust will not be voted. ““ Disabled employees Applications for employment by disabled persons are always considered, bearing in mind the aptitudes of the applicant concerned. In the event of members of staff becoming disabled every effort is made to ensure that their employment with the group continues and appropriate training is arranged.It is the policy of the group that the training, career development and promotion, of disabled persons should, as far as possible, be identical to that of other employees. Greenhouse gas emmissions The Group is reporting as required under the Large and Medium – Sized Companies and groups (Accounts and Reports) Regulation 2008 as amended in 2013. The GHG Protocol Accounting and Reporting Standard and emission factors from the UK Government’s GHG Conversion Factors have been used for calculating the results. The key source of emissions is the use of gas and electricity in offices located around the world. The Group does not operate a significant number of motor vehicles. Vehicles Electricity Total 2014 (tonnes) 15 226 241 We have reported on all of the emission sources required under the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008 as amended in August 2013. The reporting boundary used for collation of the above data is consistent with that used for consolidation purposes in the financial statements. We have used the GHG Protocol Corporate Accounting and Reporting Standard (revised edition), data gathered to fulfil our requirements under the CRC Energy Efficiency scheme, and emission factors from the UK Government’s GHG Conversion Factors for Company Reporting 2014 to calculate the above disclosures. The Group use of greenhouse gasses is restricted to office use and the operation of a small number of vehicles. In the case of offices occupation is usually within a multi occupied building without separate metering for individual parts where this has occurred an estimate has been used. Directors’ statement of responsibility for disclosure of information to auditors As required by section 418 of the Companies Act 2006, each director serving at the date of approval of the financial statements confirms that: — to the best of his knowledge and belief, there is no information relevant to the preparation of their reports of which the Company’s auditor is unaware; and — each director has taken all the steps a director might reasonably be expected to have taken to be aware of relevant audit information and to establish that the Company’s auditor is aware of that information. Words and phrases used in this confirmation should be interpreted in accordance with section 418 of the Companies Act 2006. Directors’ indemnity The Company has made qualifying third-party indemnity provisions for the benefit of its directors which remain in force at the date of this report. In certain circumstances, the Company can indemnify directors, in accordance with its Articles of Association, against costs incurred in the defence of legal proceedings brought against them by virtue of their office. Directors’ and officers’ liability insurance is provided for the benefit of all directors, the Company Secretary and senior managers. Auditor Deloitte LLP have confirmed that they are willing to be reappointed as auditor for the financial year ending 31 January 2015. In accordance with Section 489 of the Companies Act 2006, a resolution proposing the appointment of a statutory auditor will be proposed at the AGM. The Directors’ Report was approved by the Board on 9 April 2014 and is signed on its behalf by: David M Hatton FCA Company Secretary Air Partner plc (registered in England and Wales, under company number 00980675 2 City Place, Beehive Ring Road, Gatwick. West Sussex RH6 0PA) The Group use of greenhouse gasses is restricted to office use and the operation of a small number of vehicles. ““ Directors’ report Air Partner plc Annual Report 2014 29 Corporate governance statement Compliance with the UK Corporate Governance Code For the period year ended 31 January 2014 the Board considers it complied with all aspects of the UK Corporate Governance Code June 2010 (the “Code”). Diversity Air Partner is a team made up of people with a broad range of backgrounds but does not intend to adopt a quota system, preferring to appoint the best candidate for any position. Instructions to any external agent appointed for senior appointments require that agent to provide a list of candidates from as many different backgrounds as possible. Performance evaluation During the year, an internal review of the performance of the Board and of individual Directors was carried out. As part of the review, objectives have been set for the Board for the next 12 months. These areas include; — Succession planning for the Board — Review of Group strategy Progress in achieving these objectives will form part of the next review. Board constitution The Board, as shown on pages 22 and 23, is made up of two executive and five non-executive directors, including the Chairman who is responsible for leadership of the Board. The balance of the Board is such that no individual or group of individuals can dominate the Board’s decision making and there is a mix of skills and experience. Neither of the executive directors is a director of a public company outside the Group. Clear responsibilities are allocated to each of the non-executive Chairman, the CEO, the CFO and the Senior Independent Director. These terms and conditions of appointment are set out in writing and are available from the Company Secretary or at www.airpartner.com/investors/ corporate-governance. The Board carries ultimate responsibility for the conduct of the Group’s business. A formal schedule of matters is reserved for Board decision, including formulation and development of strategy, major acquisitions or disposals, significant bank borrowings, Board level appointments, the approval of financial reports and price sensitive statements and overall business risk assessment. A copy of the schedule is available online at www.airpartner.com/ investors/corporate-governance. The Board receives reports at each meeting from the CEO, the CFO and, following meetings of Board Committees, from their respective Chairmen. Independence of non-executive directors The Board considers all the non-executive directors, other than Tony Mack, to be independent. Tony Mack is a former executive Chairman and holds more than 6% of the Company’s share capital. In the case of Mr Everitt, Mr Pollard and Mr Wood given their relatively small shareholdings, the Board does not believe that this impacts on their independence. The Chairman’s other directorships are listed in his biography. Re-election of directors In accordance with best practice, all directors except for Tony Mack (who is to retire from the Board at the forthcoming AGM) and Gavin Charles (his agreement will terminate with effect from 1 May 2014) will resign at this year’s AGM and stand for re-election. Following performance evaluation, the Board confirms its belief that all directors bring significant value to the business, are effective in Board decision-making and show the appropriate level of commitment to their roles. The Board therefore recommends the re-election of all directors, as listed in the separate Notice of AGM. Number of meetings Executive Directors M A Briffa G Charles* Non-executive Directors R Everitt A G Mack C W Pollard A R Wood G Chilton** Board and committee meetings The Board meets formally at least six times per year, with additional meetings to approve the publication of the annual and interim results. Attendance at Board and Committee meetings by each director in the eighteen months to 31 January 2014 is set out below. A Nomination Committee will be constituted for each new director appointment and is constituted as a formal sub-committee of the Board with its own defined Terms of Reference. The Committee’s principal role is to review the composition of the Board and to manage the process for nomination of candidates and recommendation of a shortlist for the appointment of a non-executive director or Chairman. Membership will vary but the terms of reference for the Committee have been agreed by the Board and are available online at www.airpartner.com/investors/ corporate-governance. When proposing appointments of Directors, the Committee considers the skills, knowledge and experience that a candidate possesses compared to the skill sets and experience of the Board as it currently stands. Selection of candidates also takes into consideration the breadth of knowledge that the Board has and that it may require to provide a well balanced environment which encourages scrutiny and appropriate challenge of the Executive management. Independence of non-executive Directors is of paramount importance being a cornerstone of good corporate governance. In November 2013 the Nomination Committee made up of Richard Everitt, Andrew Wood and Mark Briffa appointed external search agents Odgers Berndtson to provide a shortlist of suitable external candidates for the position of Chief Finance Officer of the Company. Main Board 10/10 10/10 10/10 9/10 8/10 10/10 2/4 Audit Committee Remuneration Committee Nomination Committee – 5/5* 5/5 4/5 5/5 5/5 – – – 5/6 5/6 5/6 6/6 2/3 1/1 – 1/1 – – 1/1 – * Gavin Charles is not a member of the Audit Committee but attends meetings by invitation. ** Grahame Chilton became a director on 31 July 2013. Directors’ report Air Partner plc Annual Report 2014 31 The Remuneration Committee is made up of the non-executive directors and is chaired by Grahame Chilton. The Remuneration Committee reviews remuneration policy on behalf of the Board and, in particular, is responsible for setting executive remuneration levels and making discretionary performance-related awards to the executive directors. The Remuneration Committee’s report appears in full on pages 36 to 53. The Audit Committee is also made up of non-executive directors except G. Chilton, and is chaired by Andrew Wood. Although not members, the external auditor and the CFO are notified of all meetings and may attend by invitation. At each meeting, the Committee has the opportunity to talk to the external auditor without the CFO being present. The principal duties of the Audit Committee are to monitor the integrity of the Company’s financial statements, to ensure that appropriate accounting policies and standards are being followed, to review on behalf of the Board the effectiveness of audit procedures and the work of the independent auditor and to monitor on behalf of the Board the systems for internal financial control. The Board as a whole is responsible for internal control and risk management. The Audit Committee is required to report its findings to the Board, making any necessary recommendations for action or improvements. The Audit Committee’s report appears in full on pages 32 to 34. Leadership Team The Leadership Team meets monthly to monitor operational performance, to consider new developments in line with the Group’s strategic aims and to discuss issues relating to different trading divisions or geographic regions . The Leadership Team has its own terms of reference and limits of authority, below those of the main Board. The executive directors report back to each main Board meeting. Leadership Team members will be invited to attend main Board sessions during each year, to have the opportunity to present their business plans, report on progress and give an update on key operational activity, future plans and business opportunities. In turn, non-executive directors attend some sessions of the Leadership Team, purely as observers, to gain a better understanding of current issues across the Group. Company Secretary All directors have access to the Company Secretary who is charged with ensuring that Board procedures are followed, that the Company complies with applicable rules and regulations and that Board members receive appropriate and timely information to enable them to discharge their duties effectively. The Company Secretary advises the Board on governance matters and can make arrangements for the provision of independent legal advice for individual directors, on request and up to a maximum fee limit set by the Board. The appointment and removal of the Company Secretary is a matter for the Board as a whole. During the year, the full Board was responsible for the Group’s system of internal control. Report of the Audit Committee for the eighteen months ended 31 January 2014 The committee met five times during the period. In addition to reviewing the interim and annual results announcements in advance of publication and planning for the annual statutory audit, the Committee has focused on documenting more formally the process for risk management and continues to review internal control developments. A formal report was received from the statutory auditor, Deloitte LLP, in respect of the audit and matters arising from the report were discussed prior to the Board’s approval of the financial statements. The Committee has reviewed the external auditor’s independence and the effectiveness of the audit process, taking into consideration relevant UK regulatory requirements. Deloitte LLP also provide taxation advice to the Group but a clear distinction is maintained between audit and non-audit work to ensure that their independence and objectivity is not prejudiced by the level of fees received, or the nature of the work performed. The total amount paid for non-audit work in the eighteen month period was £61,000 – (2012 – £186,000). The Committee considered in advance the content and scope of audit work and the audit fees proposed by Deloitte LLP and discussed changes in accounting policies and new developments within the business which might affect financial reporting going forward. Internal control During the year, the full Board was responsible for the Group’s system of internal control and for reviewing its effectiveness, though reports are provided in the first instance to the Audit Committee by the CFO and the statutory auditor. ““ Directors’ report Air Partner plc Annual Report 2014 33 — Each of the Group’s major offices is visited at least once a year by a senior member of the Finance team. — Risk registers are reviewed by the Audit Committee twice each year. Between such meetings, any significant risks identified will be notified to directors and control procedures suggested for their approval to mitigate against such risks, where possible. — The Group does not trade speculatively in derivatives. Other than forward foreign exchange contracts, the Group does not use complex treasury instruments in the normal course of business and any specific projects that may involve such instruments require Board approval. — Clearly defined authority limits and controls are in place over the extension of credit to clients. The key internal procedures currently in place are as follows: — A detailed and comprehensive annual budget is produced and formally approved by the Board. — The Board maintains a schedule of key matters reserved for its approval, which include financing and changes to banking arrangements, all significant capital expenditure and all acquisitions and disposals. — Both the Leadership Team and the main Board receive monthly financial reports, showing the performance of each Division and country, with relevant commentaries to highlight variance from budget or particular areas of concern. — Business performance reports are circulated to the Leadership Team on a weekly basis for sales bookings, and monthly to monitor overall performance. — Clearly defined authority limits and controls are in place over contract signing limits and purchasing commitments; in particular, brokers operate within individual, pre-set limits of authority and only those staff who have successfully completed a six month probationary period can sign charter commitments on behalf of the Group. An internal audit function was established in the year. The Audit Committee reviewed and approved a work programme for the function comprising internal audit visits to selected offices with a self -review programme of work. The largest offices receive an internal audit visit annually with smaller offices reviewed less frequently. The findings of the internal audit work programme are presented to the Audit Committee for review. The internal audit function is not fully independent of management as it is currently staffed by a member of the finance function. In their review, the directors will consider the nature of the Group’s business, the risks to which that particular business is exposed, the likelihood of such risks occurring and the costs of protecting against them. However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable, and not absolute, assurance. A whistle-blowing policy is in place across the Group to enable members of staff to bring to the attention of any director serious matters of financial misconduct which they believe would damage the performance or reputation of Air Partner plc. Applying the principles of the Code Improvements have been made in corporate governance during the year as well as establishing an internal audit function. Air Partner’s main market listing on the London Stock Exchange is valued by clients and suppliers as a mark of quality and transparency of information and I believe that the systems in place for Board governance, as detailed above, are appropriate for a smaller listed company. Additional information for shareholders Information on share capital and major interests in shares, which is required to be disclosed under Rule 7.2.6 of the Disclosure and Transparency Rules, appears within the Directors’ Report on page 26. Communication with shareholders The Board is keen to ensure that effective communication with shareholders, analysts and the financial press is maintained throughout the year. This is achieved through timely publication of the annual and half year results and other announcements, as well as through presentations to analysts and significant shareholders. The Board seeks to present its strategy and performance in an objective and balanced manner. Directors are encouraged to meet significant shareholders and are keen to gain an understanding of the views and comments of both institutional and private individual shareholders. The Board welcomes the participation of shareholders in the AGM and will again, this year, count all votes cast, whether in person or by proxy, by means of a poll on every resolution. The Chairmen of Board Committees will be available at the AGM to answer any questions that might arise. In accordance with the Corporate Governance Code the votes cast and the numbers of shares voted for and against each resolution, and any votes withheld, will be made public by means of an announcement through a Regulatory Information Service and on the Company’s website. The AGM will be held at 11:00 am on Thursday 5 June 2014 at 2 City Place, Beehive Ring Road, Gatwick, West Sussex RH6 0PA. The Notice of AGM is contained in a separate document which has been sent by post, together with a Proxy Form, to those shareholders who prefer a paper copy and by email where shareholders have agreed that Air Partner can communicate with them electronically. Both the Notice of AGM and the Proxy Form are available to download at www.airpartner.com/investors/ shareholder-information. Andrew Wood Chairman Directors’ report Air Partner plc Annual Report 2014 35 Directors’ responsibility statement The directors are responsible for preparing the Strategic report incorporating the business review, the Directors’ report, the Directors’ remuneration report and the Group and parent Company financial statements. The directors are required to prepare financial statements for the Group in accordance with International Financial Reporting Standards (“IFRS”) as adopted for use in the European Union and have also elected to prepare financial statements for the Company in accordance with IFRS as adopted for use in the European Union. Company law requires the directors to prepare such financial statements in accordance with IFRS and the Companies Act 2006 and Article 4 of the IAS Regulation. International Accounting Standard 1 requires that financial statements present fairly for each financial year the Group’s and Company’s financial position, financial performance and cash flows. This requires the fair presentation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board’s “Framework for the Preparation and Presentation of Financial Statements”. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRS. Directors are also required to: — select suitable accounting policies and apply them consistently; — make judgments and estimates that are reasonable and prudent; — state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; — present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; — provide additional disclosures when compliance with specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and — prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The directors are responsible for keeping adequate accounting records which disclose with reasonable accuracy at any time the financial position of the Group and of the Company, for safeguarding the assets, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of a Directors’ Report and Directors’ Remuneration Report which comply with the requirements of the Companies Act 2006. The directors are responsible for the maintenance and integrity of the Group website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions. Directors’ statement of responsibility for financial statements Each of the directors serving at the date of approval of the accounts confirms that, to the best of his knowledge and belief: — the financial statements, which have been prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and financial performance of the Group and Company; and — the Chairman’s Statement, the Business Review, the Financial Review and the Directors’ Report give a fair review of the Group, together with a description of the principal risks and uncertainties that the Group faces. The responsibility statement was approved by the Board of Directors on 9 April 2014. The Companies Act 2006 requires the auditors to report to the shareholders on certain parts of the Director’s Remuneration Report and to state whether, in their opinion; those parts of the report have been properly prepared in accordance with the Regulations. The parts of the annual report on remuneration that are subject to audit are indicated in that report. The statement by the Chairman of the Remuneration Committee and the policy report are not subject to audit. Policy report The Company’s policy in relation to executive directors remains unchanged from prior financial years and is designed to attain, retain and motivate individuals of the calibre and expertise to manage the Group’s strategic plans and lead the management team. The policy is designed to achieve strategically stretching goals as well as aligning their interests to shareholders and stakeholders alike. The Committee seeks to ensure that the Company’s remuneration system and policy encourage value creation for shareholders, promote responsible and safe practices and maintain a demonstrably fair relationship between pay and performance. Introduction Process This report is on the activities of the Remuneration Committee for the period to 31 January 2014. It sets out the remuneration policy and remuneration details for the executive and non-executive directors of the company. This is the first time the Company has prepared this report in accordance with the Large and Medium Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013; the Companies Act 2006 and meets the requirements of the Financial Conduct Authority’s Listing Rules. A resolution to approve the report will be proposed at the 2014 Annual General Meeting of the Company at which the financial statements will be approved. The report has been divided into separate sections for audited and unaudited information and is split into three main areas; the statement by the Chair of the Remuneration Committee, the annual report on remuneration and the policy report. The policy report has been approved by the Board and will be subject to a binding shareholder vote at the 2014 Annual General Meeting on 5 June and will take effect on the day following. The annual report on remuneration has been approved by the Board and provides details on remuneration in the period and some other information required by the Regulations. It will be subject to an advisory shareholder vote at the 2014 Annual General Meeting. Directors’ remuneration report Air Partner plc Annual Report 2014 37 Annual statement of the Chairman of Remuneration Committee Key Activities of the Committee during the 18 months accounting period to 31 January 2014 I am pleased to present the remuneration committee’s report on director’s remuneration for the period ended 31 January 2014. The information set out on pages 49 to 53 of this Directors’ Remuneration Report represents the auditable disclosures referred to in the Auditor’s report on pages 65 to 66 as specified by the UK Listing Authority and the Regulations The Remuneration Committee’s philosophy for remuneration remains to attract and retain leaders who are focussed and encouraged to deliver business transformation, develop a sustainable, profitable business and increase shareholder value. Our policy is unchanged from that in force in prior financial years and will take effect from the day following the Annual General Meeting on 5 June 2014 and will operate for up to three years. Future reviews of future business and remuneration strategies during this three year period may alter the policy. If such alterations are deemed by the Remuneration Committee to be significant, the policy will be submitted to the next available General Meeting for shareholder approval. — The Remuneration of the Executive Directors is reviewed annually to be effective from 1 August to ensure that the packages offered are effective in promoting the Company’s business strategy. — The Committee also determines the extent to which the performance measures in respect of the incentives plan have been achieved. — Bonus targets are set for each year following the approval of the financial budget. — The 2012 Share Option Plan and the LTIP were approved by shareholders at the AGM held in 2012. The Committee has approved awards under these schemes. — Compensation package for Gavin Charles. — Consideration of the remuneration package for the recruitment of the CFO Grahame Chilton Chairman, Remuneration Committee Remuneration policy table The table below sets out a summary of Air Partner’s future remuneration policy for executive directors. Remuneration Element Purpose and link to remuneration policy Key features and operation Maximum potential value Paid in cash Normally reviewed annually to take effect on 1 August but exceptionally may take place at other times of the year; In determining base salaries, the committee considers; — Pay levels at companies of a similar size and complexity — External market conditions — Pay and conditions elsewhere in the Group — Personal performance In determining pension arrangements, the Committee takes into account relevant market practice. The scheme is defined contribution. A salary sacrifice scheme is in operation for executive directors Bonuses are non -pensionable Executive directors can receive life assurance, health insurance, car allowance, income protection, critical illness cover and sports club or gym membership Base salary Supports the recruitment and retention of executive directors of the calibre required to fulfill the role without paying more than is necessary to do so Rewards executives for the performance of their role Reflects the individual skills, experience and role within the Group Pension Provides funds to allow executives to save for retirement Provides a market competitive retirement benefit Incentive and retention tool Benefits in kind To provide a market competitive level of benefits to executive directors Relocation / expatriate assistance Assistance to executive directors who are required to work away from their home location to enable the Company to recruit the best person for the role Performance metrics Provision for claw back or withholding of payment N/A None The Committee’s policy is to set base salary at an appropriate level taking into account the factors outlined in this table there is no maximum value N/A None CEO receives a company contribution of 12.0% CFO receives a company contribution of 12.0% There is no maximum value N/A None N/A None Assistance will include (but not limited to) facilitating or meeting the costs of obtaining visas or work permits for executive directors and their immediate family, removal and other relocation costs, house purchase or rental costs, limited amount of travel costs, tax equalization arrangements There are a number of variables affecting the amount that may be payable, but the Committee would pay no more than it judged reasonably necessary. The maximum amount payable shall not exceed £50,000 per individual in any financial year Directors’ remuneration report Air Partner plc Annual Report 2014 39 Remuneration Element Purpose and link to remuneration policy Key features and operation Maximum potential value Performance metrics Annual bonus Paid in cash following announcement of financial year results Bonuses are not pensionable Rewards and incentivises the achievement of annual financial objectives which are aligned with key strategic goals and supports the enhancement of shareholder value Maximum opportunity to achieve: — CEO: 110.5% of base salary — CFO: 82.975% of base salary Bonus accrues from threshold levels of performance Awards vest after three years based on Group financial targets Maximum plan award of 150% of base salary Awards are in the form of nil-cost shares and must be exercised within four years of vesting Usual award levels will be: — CEO: 100 to 150% of base salary — CFO: 75 to 100% of base salary Long Term Incentive Plan (“LTIP”) Incentivises executives to achieve Air Partner’s long-term strategy and create sustainable shareholder value Enhances shareholder value by motivating growth in earnings and maintenance of an efficient and sustainable level of return of capital Aligns with shareholder interests through the delivery of shares CEO bonus payment based on: — KRA: 30% based on performance towards Key Result Areas defined at the beginning of each financial year; — Company performance: 70% based on financial metrics CFO bonus payment based on: — KRA: 30% based on performance towards Key Result Areas defined at the beginning of each financial year; — Company performance: 70% based on financial metrics LTIP award vesting is subject to a combination of 50% EPS and 50% TSR TSR : — 100% vest if performance greater than 75th percentile — Proportionate vesting where performance falls between the 50th and 75th percentile rankings EPS : — 100% vest if performance greater than RPI + 10% — Proportionate vesting where performance between the RPI + 5% pa and RPI + 10% pa growth Provision for claw back or withholding of payment Bonus is usually not paid to a good leaver should they leave before the payment date of said bonus As per the Rules of the scheme awards will lapse if the executive leaves before the end of the Performance Period Committee has discretion in certain circumstances (for example death, serious illness, redundancy) to permit an award to vest before the end of the Performance Period Key to charts — Salary, benefits in kind and pension (as per the remuneration policy) are shown as estimated cash cost or taxable value to the individual — Air Partner’s bonus schemes operate so that amounts in respect of the current financial period are only paid in the following financial year, after the completion of the audit and Board approval of the accounts. The charts reflect the accrual in the accounts earned in the period and not necessarily the actual amount paid in the period. — Bonus at below threshold performance reflects a position where none of the personal or corporate metrics where achieved at threshold level; expectation reflects metrics achieved at target level and maximum reflects the position where every metric is achieved at stretch up to the amount of the bonus cap. — LTIP awards are made in the year but do not normally vest until three years after award. The charts reflect the value at the strike price of the award made during the financial period varied according to company performance alone. Three scenarios are illustrated for each executive director. CEO and CFO Maximum — fixed pay plus full vesting of all performance related pay; At expectation — fixed pay plus short and long-term performance related pay vesting at the levels reasonably expected; and Minimum — only fixed pay (salary, benefits in kind and pension) is payable and no short or long term performance- related pay accrues. Please note that the following information is indicative and not final, although will be agreed in due course. Remuneration outcomes in different performance scenarios The charts below set out an illustration of the remuneration policy for 2014. The charts provide an illustration of the proportion of total remuneration made up of each component of the remuneration policy and the value of each component. The bonus scheme for senior executives was introduced in September 2010 and is based on on-target performance. The first 30% of the on-target bonus depends on individual achievement in Key Responsibility Areas (KRAs), determined each year by the Remuneration Committee. The remaining 70% is linked to corporate performance, evidenced by the reported underlying profit of the Group, excluding discontinued and exceptional items. Company outperformance is rewarded for each 1% above target profit, up to a maximum amount of the original profit target. LTIP (performance and matching performance CEO £’000 CFO £’000 Annual bonus Fixed pay Minimum At expectation Maximum Minimum At expectation Maximum 494 518 0% 46% 48% 269 100% 54% 52% 550 500 450 400 350 300 250 200 150 100 50 550 500 450 400 350 300 250 200 150 100 50 245 40% 255 0% 42% 148 100% 60% 58% Future policy – Non-executive directors Remuneration element Fees Purpose and link to remuneration policy Fees for non-executive directors are set at an appropriate level to recruit and retain directors of a sufficient calibre without paying more than is necessary to do so. Fees are set taking into account the following factors; the time commitment required to fulfil the role, typical practice at other companies of a similar size and salary levels of employees throughout the Group. Key features and operation (including maximum levels) The non-executive director fees policy is; — to pay a basic fee for membership of the Board — additional fees for chairmanship of the Board and — chairmanship of a committee to take into account the additional responsibilities and time commitment of these roles. Fees are reviewed at appropriate levels at appropriate intervals (normally once every year) by the Board. There is no increase in fees planned for 2014. Air Partner’s current fee policy is as follows: — Basic fee – £30,000 — Board Chairman – £30,000 — Committee Chairman – £5,000 Directors’ remuneration report Air Partner plc Annual Report 2014 41 Policy provisions relating to directors’ remuneration Such discretion for those key areas are detailed as follows; Flexibility, discretion and judgment Every attempt has been made to ensure that the majority of situations and scenarios that may arise in relation to director remuneration have been covered in this policy. However, there may be times when the Remuneration Committee may need a level of discretion, judgment or flexibility to achieve a fair result. Discretion will be required at times where changes to business requirements require short term incentives to drive appropriate behaviours and incentivise. Judgment and flexibility may also be needed in downgrading, as well as upgrading, certain remuneration elements there by permitting the Committee to adapt to changing situations. Although the Committee will maintain a strict adherence to the three year policy whenever possible, the requirement to engage with shareholders each and every time a short time measure is required can be onerous in time and expense. It remains a commitment of the Committee to maintain engagement with shareholders throughout the three year life and, where appropriate, formally engage them in placing a revised policy to a General Meeting for approval before the three year period expires. — Bonus – Bonus programmes for executive directors are unique and tailored to their respective roles with performance criteria aligned to the needs of the Company and shareholders. Maximum bonuses are capped for the CEO and CFO at 110.5% and 82.975% respectively. The Committee will have the discretion (1) to alter the performance criteria each year as progress is made towards the Group’s strategy and the needs of the Group (but in no event to exceed the maximum capped bonus stated in the policy table above without reference to shareholders in General Meeting), (2) in relation to leavers as provided for in the policy table and (3) on a change of control of the Company, to determine the amount of bonus for that year taking into account such factors it considers appropriate, including performance and time- apportionment and any additional terms which may apply to such payment, and (4) whether to settle bonus awards in cash or shares. — LTIP – Committee will have the discretion (1) to determine who is to participate each year in the plan and the levels of award to be made (but not to exceed the levels stated in the LTIP Rules), (2) to set or alter the performance criteria at the outset of each award, (3) in relation to leavers as provided for in the policy table, and (4) on a change of control of the Company, to determine the level of vesting of awards taking into account performance and such other factors as the Committee believes to be relevant. — Relocation / expatriate assistance – as provided for in the policy table up to a maximum amount payable not to exceed £50,000 per individual in any financial year. — Make payment proposals on hiring a new executive director which are outside the standard policy but as restricted and stipulated below under Recruitment remuneration arrangements. Recruitment remuneration arrangements In the event that the Company recruits a new executive director (either from within the organisation or externally) when determining appropriate remuneration arrangements, the Committee will take into consideration all relevant factors (including but not limited to quantum, the type of remuneration being offered and the jurisdiction the candidate was recruited from) to ensure that arrangements are in the best interests of both the Company and its shareholders without paying more than is necessary to recruit an executive of the required calibre. The Committee would generally seek to align the remuneration package offered with Air Partner’s remuneration policy outlined in the table above. However, the Committee retains the discretion to make: — proposals on hiring a new executive Executive director service contracts Each of the service contracts for executive directors: director which are outside the standard policy. In the first year of appointment, the Committee may offer additional remuneration arrangements that it considers appropriate and necessary to recruit and retain the individual but shall not be offered in successive years. Such remuneration may be made in the form of cash or share based awards which may vest immediately or at a future point in time. Vesting may be subject to performance conditions selected by the Committee. — awards on appointing an executive director to “buy-out” remuneration arrangements forfeited on leaving a previous employer. In doing so the Committee will take account of relevant factors attached to these awards, the form in which they were granted (e.g. cash or shares) and the time frame over which they would have vested. Generally buy-out awards will be made on a comparable basis to those forfeited. — in the event of recruitment, the Committee may also grant awards to a new executive director under Listing Rule 9.4.2 which allows for the granting of awards, specifically to facilitate, in unusual circumstances, the recruitment or retention of an executive director, without seeking prior shareholder approval. No sign-on payments will be made to non-executive directors nor shall they be offered share options or LTIPs. Mark Briffa entered into a service agreement with the Company dated 8 February 2012. His agreement is terminable by either party giving not less than 12 months’ written notice. If the Company terminates employment without due notice, other than in circumstances such as gross misconduct or other immediate justifiable causes, the Company is required to make a payment equal to the aggregate of the executive director’s basic salary and the value of any contractual benefits for the notice period including any accrued but untaken holiday. Gavin Charles entered into a service agreement with the Company on 23 June 2010. His agreement will be terminated by the Company on 1 May 2014 without due notice. The Company is therefore required to make a payment equal to the aggregate of the executive director’s basic salary and the value of any contractual benefits for the notice period including any accrued but untaken holiday. The Remuneration Committee generally seeks to apply practical mitigation in respect of termination payments where appropriate. Under terms of reference agreed in September 2010, any ex-gratia payments made at the discretion of the Remuneration Committee in excess of statutory or contractual obligations will be limited to an amount not exceeding one year’s bonus plus legal fees, so long as such fees do not exceed £5,000. The service agreements are held at the registered office and are available to shareholders to view on request from the Company Secretary. Executive director services contracts Director M Briffa G Charles Date of service contract 8 Feb 2012 23 Jun 2010 Date of appointment Unexpired term at 31 Jan 2014 Notice period 1 Jan 2005 29 Jul 2010 12 months 12 months 12 months 12 months Directors’ remuneration report Air Partner plc Annual Report 2014 43 New letters of appointment were issued in September 2011 to Mr Mack and Mr Pollard, aligning their terms of appointment with those agreed for Mr Wood in June 2011. The new letters confirm a standard term of three years, renewable once by mutual consent and, in exceptional circumstances, by one further period, such that no non-executive director may serve for a period of more than nine years. All appointments are subject to the Company’s Articles of Association and annual re-election by shareholders. Terms and conditions for the Chairman and non-executive directors Richard Everitt was appointed as a non-executive director of the Company on 1 January 2005. Mr Everitt’s letter of appointment was updated following his appointment as Chairman on 9 February 2012 and his initial appointment was for a maximum period of three years ending on 8 February 2015. The Chairman’s appointment may be terminated by the Company in accordance with the letter of appointment giving three months’ notice, the Company’s Articles of Association or the Companies Act 2006. In the event of early termination of contract, there will be no payment for loss of office or for the unexpired appointment term. In addition to the time commitment, the annual engagement fee and other business interests, the Chairman is entitled to hold other directorships provided such appointment does not interfere with his position at the Company. The non-executive directors have letters of appointment from the Company covering matters such as duties, time commitment, fees and other business interests. The non- executive directors are appointed for an initial three year period which may be renewed once by mutual consent. In exceptional circumstances, one further extension may be agreed, but no Non-Executive Director may serve for a period of more than nine years from their date of appointment. Non-executive director appointments may be terminated by the Company in accordance with the letter of appointment giving three months’ notice, the Company’s Articles of Association or the Companies Act 2006. In the event of early termination of contract, there will be no payment for loss of office or for unexpired appointment term. In addition to the time commitment, the annual engagement fee and other business interests, the non Executive Directors are entitled to hold other directorships provided such appointment does not interfere with their position at the Company. Non-executive directors’ Letters of Appointment Director R L Everitt A G Mack C W Pollard A R Wood G Chilton Date of initial letter Date of appointment Term 9 Feb 2012 18 Mar 2008 2 Jul 2009 7 Jun 2011 25 July 2013 9 Feb 2012 1 Apr 2008 6 Jul 2009 7 Jun 2011 31 July 2013 3 years 5 years 6 years 3 years 3 years Unexpired term at 31 Jan 2014 1 y 0 m 0 y 3 m 1 y 6 m 0 y 5 m 2 y 6 m Notice period 3 months 3 months 3 months 3 months 3 months Non-executive directors’ Letters of Appointment The Company intends to have at least two independent non-executives on the Board at any time. The Board considers each of Mr Everitt, Mr Pollard, Mr Wood and Mr Chilton to be independent. No director has any direct or indirect interest in any contract or arrangement subsisting at the date of these financial statements which is significant in relation to the business of the Group and which has not otherwise been disclosed. Policy on payment for loss of office Notice periods set in executive directors service contracts are driven by the need to protect shareholder value and interests. As noted above, both executive directors have notice periods of twelve months. A bonus is not usually paid to a good leaver should they leave before the payment date of said bonus and there is no mechanism for claw back. The principles on which the determination for payments on termination will be approached are as follows: — service contracts legally oblige the Company to either continue to pay salary and pension allowances and other contractual benefits for any unworked notice period or, at the option of the Company, to make payment in lieu of notice unless where an executive director’s employment is summarily terminated. The committee reserves the right to make discretionary payments in lieu of notice which may be paid in a lump sum, quarterly or monthly; — the payment of a performance bonus and/or other short term incentives may be offered to the departing executive director during his/her notice period, based on an assessment of personal and corporate performance up to the date of departure. Bonuses will not be paid for any unworked period of notice; — where a role fulfilled by an executive director is declared redundant then the individual may have the legal right to either statutory redundancy pay or to a payment under the Group’s normal severance arrangements applicable to employees generally; — in case of poor performance, contractual termination payments may generate undue and potentially excessive reward, in such circumstances, the Remuneration Committee will consider terminating a service contract on a fair basis, whilst protecting the rights of the Company; — payments for loss of office as a director of Air Partner plc or any of its subsidiaries will not be paid; Directors’ remuneration report Air Partner plc Annual Report 2014 45 The Company’s various incentive schemes are governed by formal rules, all of which have been approved by shareholders. Directors have no contractual rights to the value inherent in any awards held under these plans and these plans provide for vesting in different leaver scenarios. If employment is terminated by the Company, the departing executive may have a legal entitlement (under statute or otherwise) to additional amounts, which would need to be met. The Committee retains discretion to settle any other amounts reasonably due to the executive where the Company wishes to enter into a settlement agreement. In certain circumstances, the Committee may approve new contractual arrangements with departing executives, potentially including settlement, confidentiality, restrictive covenants and/or consultancy arrangements. These will only be used where the Committee believes it is in the best interests of the Company. Consideration of employee remuneration arrangements Air Partner employs a number of colleagues in a variety of roles, from administration support staff and brokers to senior management and directors across a range of geographies. Its reward structure for all employees is built around a set of common reward principles on a framework altered to suit the needs of the business for our different employee groups across the Company. Reward packages therefore differ, taking into account a number of factors including seniority, impact on the business, local practice, custom and legislation. The remuneration policy for the executive directors reflects the overall remuneration philosophy and principles of the wider Group. When determining remuneration policy and arrangements for executive directors, the Remuneration Committee consider the wider pay and employment conditions elsewhere in the Group to ensure pay structures from director to senior management are appropriately aligned. When considering salary increases for the executive directors, the Committee considers the general level of salary increase across the Group. Typically, salary increases will be aligned with those received elsewhere in the Group unless the Committee considers that specific circumstances require a different level of increase for executive directors. Considering shareholder views The Committee is dedicated to an on-going dialogue with shareholders and seeks shareholder views when any significant charges are being made to remuneration arrangements. Over the last few years the Committee has consulted shareholders regarding the implementation of the 2012 Share Option Scheme and 2012 Long Term Incentive Plan and applicable performance measures. Air Partner employs a number of colleagues in a variety of roles, from administration support staff and brokers to senior management and directors across a range of geographies. ““ Remuneration Committee structure The Remuneration Committee is constituted as a formal sub-committee of the Board with its own defined Terms of Reference. Its primary role is to review and set the remuneration policy for the executive directors, within the context of salaries and benefits paid across the Group as a whole. The full Board agrees the remuneration of the Chairman and non-executive directors on the principle that no individual should be able to determine their own remuneration. All the non-executive directors were members of the Committee for the whole year, with the exception of Grahame Chilton who was appointed in July 2013. The Committee is chaired by Grahame Chilton who, upon his appointment, succeeded Andrew Wood. The Committee can, and did obtain information and advice during the period under review from the the Group HR Director, the Company Secretary, the executive directors and may seek advice from any other employees as required. It may also obtain, at the expense of the Company, any necessary legal or professional advice, up to a pre-determined limit but has not needed to do so in the year under review. Individual components of remuneration Share options Share options were awarded at the Remuneration Committee’s discretion under the Company Share Option Plan which was first approved by shareholders in 2003. This plan is now closed and no further grants of options may be made under this scheme. Exercises of options by staff below director level and exercises of all options granted before 24 May 2010 are subject only to a service condition. Options vest three years from the date of grant and expire if not exercised within ten years, except in exceptional circumstances such as the death of the holder. All outstanding options lapse upon cessation of employment, unless there are special circumstances such as redundancy or retirement when options must be exercised within a six month period. Options may not be granted at a discount and the aggregate market price for options awarded during any one year period may not exceed four times the individual’s relevant emoluments. The vesting of options granted to directors on or after 24 May 2010 is subject to additional performance criteria intended to align directors’ interests with those of investors. A maximum of 80% of the options awarded may vest in 2013 if growth in the Group’s undiluted earnings per share from continuing operations (EPS) has increased by 33% over a period of approximately three years. Half of this number of options will vest if EPS over the same period has increased by 22.5%, with a sliding scale for growth between 22.5% and 33%. None of these options will vest if EPS has grown by less than 22.5% over the period. The initial measurement of EPS was taken from the annual accounts of the Company to 31 July 2010 and options may vest if the performance conditions have been satisfied by reference to the annual accounts of the Company as at 31 July 2013. The remaining 20% of options shall vest completely if underlying profit before tax from activities outside the UK has increased by 50% over the same three year period. This target has been set to align with the Group’s stated business objective to increase its geographical diversification. In respect of the grants of options made on 26 October 2010, 80% of the options granted will vest if EPS has grown over the three year period from 26.8 pence to 35.7 pence. None of these options will vest if EPS after three years does not exceed 32.8 pence. Directors’ remuneration report Air Partner plc Annual Report 2014 47 The Remuneration Committee is constituted as a formal sub-committee of the Board with its own defined Terms of Reference. Options granted on 20 April 2012 will vest if the following criteria are met over a three year period ending 2015; 1 Vesting of 50% of the options granted will depend on outperformance of Air Partner plc’s Total Shareholder Return relative to the FTSE UK Small Cap Index, ex Investment Trusts (the “Index”). — No options will vest if TSR outperformance is less than the equivalent of 5% per annum (compounded) relative to the Index. — If TSR outperformance is the equivalent of 5% per annum (compounded) relative to the Index, half of the number of options subject to this performance condition will vest. — If TSR outperformance is the equivalent of 10% per annum (compounded) relative to the Index, all of the options subject to this performance condition will vest. — Options will vest on a sliding scale if TSR outperformance is between 5% and 10%. 2 The remaining options granted will vest if underlying profit before tax (“PBT”) for the financial year ending 31 July 2015 exceeds twice the underlying PBT for the financial year ending 31 July 2012 or £6 million, whichever is the higher. None of these options shall vest if PBT for the financial year ending 31 July 2015 is below £6 million. Grants of options will generally be made within 42 days of the announcement of annual or half yearly results and the base measurement for EPS will be that shown in the annual or half yearly accounts of the Company most recently published. The Remuneration Committee must be satisfied at the time of vesting that the underlying performance of the Company justifies the vesting. No options may vest until the Committee has written to participants to confirm that the necessary conditions have been fulfilled. At the AGM in 2012, shareholders approved a new share option scheme. Under the 2012 Scheme options may be granted to eligible employees (including executive directors) within the Air Partner Group, subject to defined limits. There is no present intention of granting options to the executive directors of Air Partner plc but if that position changes the performance conditions set out below will be reconsidered to ensure they remain appropriate. The 2012 Scheme will comply with the institutional guidelines relating to employee share incentives. Appropriate reference will be made to the Company’s Remuneration Committee (comprising only non-executive directors who are ineligible to participate in the 2012 Scheme) with regard to the establishment of performance conditions at the time (or shortly before) options are granted. These performance conditions, which must be met prior to the exercise of the options, will be designed so that they will only be met in the event of a significant and sustained improvement in the underlying financial performance of the Company. It is intended that, the first one third of the number of shares placed under option to any individual will vest if the Company’s underlying basic earnings per share increases over a fixed period of three consecutive financial years by an average of at least 3% per annum in excess of inflation over the same period as measured by reference to the Retail Prices Index (“RPI”). Vesting of the full number of shares under option will be subject to meeting an increased target of RPI + 7% per annum over that period with straight line vesting in between. There will be no re-testing of performance conditions if they are not met by the end of the relevant performance period. ““ In respect of the grants of LTIPs made on 22 October 2013, 25% of LTIPs granted will vest if EPS has grown over the three year period by 5% + RPI. 100% of LTIPs granted will vest if EPS has grown over the three year period by 10% + RPI. For intermediate performance between RPI + 5%pa and RPI + 10% pa vesting will occur on a straight-line basis. Long term incentives Long term incentives are awarded at the Remuneration Committee’s discretion under the Air Partner Long Term Incentive Plan 2012 (“LTIP”) which was approved by shareholders in 2012. Awards made under the LTIP will be subject to performance conditions based on Total Shareholder Return (“TSR”) and Earnings per Share (“EPS”) as, in the view of the Committee, these remain key performance indicators of the business. Individual limits will normally be restricted to 100% of basic salary per annum. However, in circumstances considered by the Remuneration Committee to be exceptional, the limit may be increased to 150% of basic salary on a non-recurring basis. These are the maximum annual limits and the actual level of awards will be considered each year by the Committee before they are made. The vesting of awards will be subject to challenging TSR and EPS performance conditions being achieved over a minimum period of three years. Directors’ remuneration report Air Partner plc Annual Report 2014 49 Remuneration report for the eighteen month period to 31 January 2014 (Audited) Salary Taxable benefits Bonus 2014 £ 2012 £ 2014 £ 2012 £ 2014 £ 2012 £ Gain in vesting of share option 2014 £ 2012 £ 276,032 182,500 3,237 2,870 283,080 41,975 61,000 211,750 140,000 4,173 2,877 154,818 24,507 8,600 – – Mark Briffa Gavin Charles Total Pension Total 2014 £ 2012 £ 2014 £ 2012 £ 33,124 21,900 656,473 249,245 25,410 16,800 404,751 184,184 487,782 322,500 7,410 5,747 437,898 66,482 69,600 – 58,534 38,700 1,061,224 433,429 Executive director remuneration (audited) The table above sets out the fees payable to each director performing an executive function for the financial period. The resultant percentages against each of the bonus measures achieved by each Executive Director are shown below: — Salary and fees – the executive directors received a 2.5% pay increase in the period — Taxable benefits – executive directors receive a benefits package including life assurance, subsidised gym membership, home telephone and internet facility. — Bonus – the maximum bonus for the period for the CEO is capped at 110.5% and for the CFO at 82.975% — Long term incentives – an award under The Air Partner Long Term Share Incentive Plan 2012 was made to both executive directors in the period and are subject to performance and continued service conditions. — Pension related benefit – both executive directors are members of the Air Partner Pension Scheme (a defined contribution scheme). — Included in the bonus figures for Mr Briffa is an accrual for the period to 31 January 2014 of £90,725 and for Mr Charles of £52,198. The bonuses in respect of Mr Briffa are based upon the achievement of 83.3% of KRA and 100 % in respect of corporate performance and Mr Charles upon the achievement of 91.7% of KRA and 100% in respect of corporate performance. Mark Briffa % of performance target achieved Aug 12 – July 13 26 78 Aug 13 – Jan 14 27* 72* Gavin Charles % of performance target achieved Aug 12 – July 13 15 59 Aug 13 – Jan 14 21* 53* Measure Key Responsibility Area Company Performance * Accrued In the year ended 31 July 2012 there was a pay freeze in operation in the UK and therefore the CEO did not receive a salary increase. In July 2013 the average pay increase in the UK was 2.5%, which was also awarded to the CEO. Payment table of employee wages and other company metrics Total employee pay compared to prior period (£m) Profit before tax (£m) Total dividends paid (pence) 2012–2014* 2011–2012 % variance 19,875 4,156 32.75 12,602 4,139 16.5 57.7 0.4 98.5 * Eighteen month period (1 August 2012 – 31 January 2014) Performance graph and CEO remuneration table To help investors to measure Air Partner’s comparative performance, the graph below shows the change in the total shareholder return of the Company for each of the last five financial years compared with the FTSE All Share Index. Air Partner is not currently a constituent member of the FTSE All Share Index but the Index has been selected as an appropriate comparator because it is easily accessible by investors and covers the performance of a broad range of companies, including aviation, transport and luxury retail businesses. The table right sets out the details for the director undertaking the role of chief executive officer: The table right shows the percentage change in remuneration of the director undertaking the role of chief executive officer and the Group’s UK employees as a whole between the period ended 31 January 2014, on an annualised basis, and 31 July 2012: 250 225 200 175 150 125 100 75 50 Year 2014 2012 2011 2010 2009 % Air Partner and FTSE All Share Index total return (rebased) Air Partner FTSE All Share J a n 0 9 A p r 0 9 J u l 0 9 O c t 0 9 J a n 1 0 A p r 1 0 J u l 1 0 O c t 1 0 O c t 1 0 J a n 1 1 A p r 1 1 J u l 1 1 O c t 1 1 J a n 1 2 A p r 1 2 J u l 1 2 O c t 1 2 J a n 1 3 A p r 1 3 J u l 1 3 O c t 1 3 J a n 1 4 CEO single figure of total remuneration Annual bonus against maximum £ 656,473* 249,245 368,732 214,565 351,735 Salary 2.5 2.5 Long term incentive vesting rates against maximum opportunity % 66.7 – – – – £ 92.8 16.8 100.0 15.0 22.4 Benefits Annual bonus – – 358.3 447.7 CEO Average pay based on all of the Group’s UK employees * 18 month period Directors’ remuneration report Air Partner plc Annual Report 2014 51 Non-executive director remuneration The table below sets out the fees payable to each director not performing an executive function for the financial period 1 August 2012–31 January 2014. Non-executive directors do not participate in the annual bonus scheme or any long term incentive plans. (Audited) Date of joining R L Everitt A G Mack C W Pollard † A R Wood G Chilton ** A J Adams*** Total 10/10/2004 01/04/2008 06/07/2009 07/06/2011 31/07/2013 – Basic fees £ 45,000 45,000 45,000 45,000 15,000 – Committee Chair fee Board Chair fee £ – 45,000 – – – – – 15,000 – 2,500 – – 2014 * Total £ 90,000 45,000 45,000 60,000 17,500 – 2012 Total £ 35,000 30,000 30,000 37,917 – 31,429 195,000 17,500 45,000 257,500 164,346 * Payments made relate to the eighteen month period to 31 January 2014 ** Payments made to G Chilton for the prior year were from the date of his appointment 31 July 2013 *** Payments made to A J Adams for the year up to the date of his resignation 8 February 2012 Payments were made monthly to Mr Pollard in US dollars (total $70,821). The total has † been translated using an exchange rate of $1.5707/£1, set in August 2012. Non-executive directors are reimbursed for legitimate business expenses incurred in the performance of their duties. Expenses reimbursed to Mr Pollard, including economy air fares to Board meetings, amounted to $14,437 in the year to 31 January 2014 (Year to 31 July 2012: $11,636). (Audited) M A Briffa G Charles R L Everitt A G Mack C W Pollard A R Wood G Chilton Directors’ beneficial interests in shares The directors who held office during the year had the following beneficial interests in ordinary shares of 5p each in the Company, fully paid up, at the beginning and end of the year, or as shown: There were no changes in the directors’ beneficial interests in shares between 31 January 2014 and 9 April 2014 (being the latest practicable date prior to the publication of this report). No director has a non-beneficial interest in the shares of the Company. 31 January 2014 33,061 – 5,000 751,500 25,000 10,000 – 31 July 2012 24,600 – 5,000 1,111,567 25,000 10,000 – Share options Non-executive directors are not eligible to participate in the Company’s share option scheme. Details of the options held by executive directors at the beginning and end of the year are as follows: Share options (audited) Name Notes 31 July 2012 Granted Exercised Expired Forfeited 31 July 2014 Exercise price Earliest date of exercise Expiry date Number of options M A Briffa G Charles (a) 40,000 (b) 10,000 (c) 40,000 50,000 25,000 75,000 240,000 40,000 35,000 75,000 * option vested but not exercised – – – – – – – – – – – 50,000 – – 50,000 8,000 – 8,000 – – – – – – – – – – – – 20,000 – 40,000 10,000 40,000 – 5,000 75,000 20,000 170,000 32,000 – 32,000 – 35,000 35,000 21 Nov 2016 792.5p* 21 Nov 2009 24 Jan 2018 884.0p* 24 Jan 2011 545.0p* 27 Nov 2018 27 Nov 2011 338.0p 24 May 2013 24 May 2020 26 Oct 2020 392.5p 20 Apr 2022 277.5p 26 Oct 2013 20 Apr 2015 392.5p 277.5p 26 Oct 2013 20 Apr 2015 26 Oct 2020 20 Apr 2022 I would like to apologise for the inaccuracy in previous Annual Reports which stated that the options in question had performance conditions attached. Following a review of other share options in the business I can confirm that this was an isolated error. Options are generally exercisable between three and ten years from the date of grant, subject to continuing service. Exercises of options under grants (a) (b) and (c) are not subject to any additional performance criteria. During the period Mark Briffa exercised 50,000 share options granted in May 2010. These options had historically been disclosed as having performance conditions attached to them, hence, external legal advice clarified that the amendments made to the options in November 2010 to incorporate performance conditions were ineffective. Accordingly, Mark Briffa was legally able to exercise these options in full. Directors’ remuneration report Air Partner plc Annual Report 2014 53 Long term incentive plan (LTIP) (audited) Number of LTIP Name M A Briffa G Charles 31 July 2012 Granted Exercised Expired Forfeited 31 July 2014 Exercise price Earliest date of exercise Expiry date – – – – 55,840 55,840 28,557 28,557 – – – – – – – – – – – – 55,840 55,840 28,557 28,557 0.0p 22 Oct 2016 22 Oct 2020 0.0p 22 Oct 2016 22 Oct 2020 Share options granted to Mr Charles on 26 October 2010 vested on 26 October 2013; options over 32,000 lapsed as was the case with options over 20,000 granted to Mr Briffa as performance criteria attached to this grant were not met in full. The number of shares awarded under the LTIP was determined by using the closing price of an Air Partner plc share on the day preceding the date of grant (21 October) as ascertained by the Official List which was 502.5p per share. The market price per share at 31 January 2014 was 517.5 pence (31 July 2012: 242.0 pence) and ranged between 620.00 pence and 240.00 pence during the 18 months period . The average price during the 18 months period was 378.26 pence per share. An independent valuation of the fair value of options has been carried out. Further details are shown in note 21 to the financial statements “Share-based payments”. The Directors’ Remuneration Report was approved by the Board on 9 April 2014 and is signed on its behalf by: Grahame Chilton Chairman of the Remuneration Committee Unaudited pro-forma information for the year ended 31 January 2014 BASIS OF PREPARATION During the period, the Group’s accounting reference date was changed from 31 July to 31 January, as described in Note 2 to the financial statements. Accordingly, and to ensure greater understanding and comparability of the financial performance of the Group on a consistent basis, the following pages present ‘unaudited pro-forma’ financial information comprising a consolidated income statement, a consolidated statement of comprehensive income, a consolidated statement of changes in equity, consolidated statement of financial position and consolidated statement of cash flows and selected notes comparing the financial performance for the year ended 31 January 2014 to that for the year ended 31 January 2013. Management has selected the items for inclusion in the unaudited proforma information on a consistent basis with that presented in the Group’s interim report for the 12 month period ended 31 July 2013. Consolidated income statement (unaudited) Year End 31 January 2014 Continuing operations Revenue Cost of sales Gross profit Administrative expenses Operating profit Finance income Finance expense Profit before tax Taxation Profit for the period Attributable to: Owners of the parent company Earnings per share: Continuing operations Basic Diluted * Before non-trading items (see note P3) Year ended 31 January 2014 Non-trading items £’000 Underlying* £’000 Total £’000 Underlying* £’000 Non-trading items £’000 Year ended 31 January 2013 Note P2 P7 223,977 (200,158) 23,819 (19,561) 4,258 21 (29) 4,250 (1,221) 3,029 – – – (1,420) (1,420) – – (1,420) 339 (1,081) 223,977 (200,158) 23,819 (20,981) 2,838 21 (29) 2,830 (882) 1,948 209,228 (188,146) 21,082 (17,787) 3,295 40 (5) 3,330 (1,078) 2,252 – – – (211) (211) – 89 (122) 164 42 Total £’000 209,228 (188,146) 21,082 (17,998) 3,084 40 84 3,208 (914) 2,294 3,029 (1,081) 1,948 2,252 42 2,294 P5 P5 29.8p 29.3p (10.6)p (10.5)p 19.2p 18.8p 21.9p 21.9p 0.5p 0.5p 22.4p 22.4p Consolidated statement of comprehensive income (unaudited) Year End 31 January 2014 Profit for the period Other comprehensive income – items that may subsequently be reclassified to profit or loss Exchange differences on translation of foreign operations Exchange differences on liquidation of foreign operations Total comprehensive income for the period Attributable to: Owners of the parent company Year ended 31 January 2014 £’000 Year ended 31 January 2013 £’000 1,948 2,294 (137) – 1,811 77 22 2,393 1,811 2,393 Unaudited pro-forma information Air Partner plc Annual Report 2014 55 Consolidated statement of changes in equity (unaudited) for the year ended 31 January 2014 Share capital £’000 – 513 – Opening equity as at 1 February 2012 Profit for the period Exchange differences on translation of foreign operations Exchange differences on liquidation of foreign operations Total comprehensive income for the period Share option movement for the period Dividends paid Closing equity as at 31 January 2013 Profit for the period Exchange differences on translation of foreign operations – – Total comprehensive income for period – Share option movement for the period Deferred tax on shared-based payment transaction – – Own shares acquired in the period – Share options exercised during the period – Dividends paid 513 Closing equity as at 31 January 2014 – – – – 513 – Share premium account £’000 4,518 – – – – – – 4,518 – – – – – – – – 4,518 Own shares £’000 Translation reserve £’000 – – 1,139 – Share Option reserve £’000 1,212 – Retained earnings £’000 5,991 2,294 Total equity £’000 13,373 2,294 – – – – – – – – – – – (2,000) 846 – (1,154) 77 – – 77 22 99 – – 1,238 – (137) (137) – – – – – 1,101 – – 118 – 1,330 – – – 100 – – – – 1,430 – 2,294 – (1,867) 6,418 1,948 – 1,948 – 68 – (271) (2,058) 6,105 22 2,393 118 (1,867) 14,017 1,948 (137) 1,811 100 68 (2,000) 575 (2,058) 12,513 Consolidated statement of financial position (unaudited) as at 31 January 2014 Assets Non-current assets Goodwill Other intangible assets Property, plant and equipment Deferred tax assets Current assets Trade and other receivables Current tax assets Cash and cash equivalents Asset held for sale Derivative financial instruments Total assets Current liabilities Trade and other payables Current tax liabilities Other liabilities Provisions Derivative financial instruments Net current assets Total liabilities Net assets Equity Share capital Share premium account Own shares Translation reserve Share option reserve Retained earnings Total equity Note P8 P9 P10 P11 31 January 2014 £’000 31 January 2013 £’000 918 396 697 247 2,258 956 601 792 557 2,906 20,812 665 18,419 – – 39,896 42,154 33,855 455 17,252 697 19 52,278 55,184 (5,746) (128) (22,987) (734) (46) (29,641) 10,255 (11,720) (55) (28,720) (672) – (41,167) 11,111 (29,641) 12,513 (41,167) 14,017 513 4,518 (1,154) 1,101 1,430 6,105 12,513 513 4,518 – 1,238 1,330 6,418 14,017 Unaudited pro-forma information Air Partner plc Annual Report 2014 57 Consolidated statement of cash flows (unaudited) for the twelve months ended 31 January 2014 Year ended 31 Year ended 31 January 2013 January 2014 £’000 £’000 Note P6 Cash flows from operating activities Continuing operations Net cash inflow from operating activities Investing activities Continuing operations – Interest received – Purchases of property, plant and equipment – Purchases of intangible assets – Purchases in respect of asset held for sale – Proceeds on disposal of property, plant and equipment – Proceeds on disposal of asset held for sale Net cash generated by/(used in) investing activities Financing activities Continuing operations – Dividends paid – Proceeds on exercise of share options – Purchase of own shares Net cash used in financing activities Net increase in cash and cash equivalents Opening cash and cash equivalents Effect of foreign exchange rate changes Closing cash and cash equivalents P4 4,874 4,874 5,254 5,254 21 (72) (597) (10) 8 815 165 40 (177) (572) – – – (709) (2,058) 575 (2,000) (3,483) 1,556 17,252 (389) 18,419 (1,867) – – (1,867) 2,678 14,337 237 17,252 JetCard cash The closing cash and cash equivalents balance can be further analysed into ‘JetCard cash’ (being unrestricted cash received by the Group in respect of its JetCard product) and ‘non-JetCard cash’ as follows: JetCard cash Non-JetCard cash Cash and cash equivalents Group 31 January 2014 £’000 31 January 2013 £’000 8,752 9,667 18,419 8,624 8,628 17,252 P1 Basis of preparation As a result of the change of accounting reference date to 31 January, as described in Note 2 to the financial statements, the following pages present ‘unaudited pro-forma’ financial information comprising a consolidated income statement, a consolidated statement of comprehensive income, a consolidated statement of changes in equity, consolidated statement of financial position and consolidated statement of cash flows and selected notes comparing the financial performance for the year ended 31 January 2014 to that for the year ended 31 January 2013. P2 Segmental analysis The services provided by the Group consist of hiring different types of aircraft for charter to its customers and related aviation services. The Board reviews the performance of the services that are provided by the Group on the following basis: Commercial Jet Broking, Private Jet Broking, Freight Broking and Support Services (which includes fuel, emergency planning and travel services). Each of these components has been identified as an operating segment. Sale transactions between operating segments are carried out on an arm’s length basis and all revenues, results, assets and liabilities which are reviewed by the Board are prepared on a basis consistent with those that are reported in the financial statements. The Board does not review assets and liabilities at a segmental level, therefore these items are not disclosed. The segmental information, as provided to the Board for the reportable segments on a monthly basis, is as follows: Year ended 31 January 2014 (Unaudited) Continuing operations Total revenues Revenues from transactions with other operating segments Revenues from external customers Depreciation and amortisation Finance income and expense Underlying profit before tax Non-trading items (see note P3) Profit before tax Year ended 31 January 2013 (Unaudited) Continuing operations Total revenues Revenues from transactions with other operating segments Revenues from external customers Depreciation and amortisation Finance income and expense Underlying profit before tax Non-trading items (see note P3) Profit before tax Commercial Jet Broking £’000 150,776 (2,100) 148,676 (102) (3) 2,331 (777) 1,554 Private Jet Broking £’000 55,965 (87) 55,878 (66) (3) 1,509 (494) 1,015 Freight Broking £’000 11,979 (252) 11,727 (9) (1) 207 (69) 138 Commercial Private Freight Jet Broking Jet Broking Broking £’000 131,833 (1,099) 130,734 (133) 62 1,684 (84) 1,600 £’000 46,449 (96) 46,353 (91) 39 1,110 6 1,116 £’000 16,498 (624) 15,874 (17) 12 238 (42) 196 Support Services £’000 7,840 (144) 7,696 (8) (1) 203 (80) 123 Support Services £’000 15,652 615 16,267 (24) 11 298 (2) 296 Total £’000 226,560 (2,583) 223,977 (185) (8) 4,250 (1,420) 2,830 Total £’000 210,432 (1,204) 209,228 (265) 124 3,330 (122) 3,208 The Company is domiciled in the UK but, due to the nature of the Group’s operations, a significant amount of revenue from external customers is derived from overseas countries. The Group reviews revenue based upon the location of the assets used to generate those revenues. Apart from the UK, no single country is deemed to have material revenue and non-current asset levels, other than goodwill in relation to the French operations. Notes to the unaudited pro-forma information Air Partner plc Annual Report 2014 59 The Board also reviews information on a geographical basis based on the parts of the world which are considered to be key to operational activities. As a result, the following additional information is provided showing a geographical split of the United Kingdom, Europe, the United States of America and the Rest of the World: United Kingdom £’000 United States of America £’000 Europe £’000 Rest of the World £’000 Total £’000 Year ended 31 January 2014 (Unaudited) Revenues from external customers Non-current assets (excluding deferred tax assets) Year ended 31 January 2013 (Unaudited) Revenues from external customers Non-current assets (excluding deferred tax assets) P3 Non-trading items 103,931 83,230 34,045 2,771 223,977 968 736 280 27 2,011 103,157 80,883 20,839 4,349 209,228 1,158 908 234 49 2,349 Continuing operations US Federal Excise Tax Impairment of aircraft Impairment of intangible assets Restructuring costs Non-trading items before taxation Tax effect of non-trading items Non-trading items after taxation Year ended 31 Year ended 31 January 2013 January 2014 (Unaudited) (Unaudited) £’000 £’000 – – (774) (646) (1,420) 339 (1,081) 532 (335) – (319) (122) 164 42 At the commencement of the prior period, a provision of £1,000,000 was held in relation to unpaid Federal Excise Tax due on certain flights contracted by the Company outside the US but involving a US destination. During the prior year, the Company and its US tax advisors concluded discussions with the relevant authorities, resulting in payments totalling £468,000 including interest for late payment and professional fees. The remaining provision of £532,000 was written back to the income statement, resulting in a gain of £443,000 within administrative expenses and a gain of £89,000 within finance expense. In the prior period the carrying value of the Group’s sole owned aircraft was written down by £335,000 to its fair value less costs to sell of £690,000 based on a third party valuation. The aircraft was disposed of during the twelve month period ended 31 July 2013. See note P11 for further details. The reorganisation of the Group to report on a product-led basis has resulted in restructuring costs of £646,000 in the current period. In the prior period, the Group’s cost reduction restructuring exercise resulted in costs of £319,000. These costs in both the current and prior periods comprised redundancy payments, external legal advice and outplacement costs. These costs were included within administrative expenses. In the current period, management conducted a review of ongoing intangible asset related projects and identified that an impairment was required to write down the assets to their recoverable amount, totaling £774,000. For details see note P9. Notes to the unaudited pro-forma information for the year ended 31 January 2014 continued P4 Dividends Year ended 31 January 2014 (Unaudited) £’000 Year ended 31 January 2013 (Unaudited) £’000 Amounts recognised as distributions to owners of the parent company in the period First interim dividend for the eighteen month period ended 31 January 2014 of 6.05 pence (interim dividend for the year ended 2012: 5.5 pence) per share Second interim dividend for the eighteen month period ended 31 January 2014 of 14.0 pence (2013: final dividend for year ended 31 July 2012 of 12.7 pence) per share 621 564 1,437 2,058 1,303 1,867 P5 Earnings per share The calculation of the basic and diluted earnings per share is based on the following data: Continuing operations Earnings for the calculation of basic and diluted earnings per share Profit attributable to owners of the parent company Non-trading items Underlying profit Number of shares Weighted average number of ordinary shares for the calculation of basic earnings per share Effect of dilutive potential ordinary shares: share options Weighted average number of ordinary shares for the calculation of diluted earnings per share Year ended 31 January 2014 (Unaudited) £’000 Year ended 31 January 2013 (Unaudited) £’000 1,948 1,081 3,029 2,294 (42) 2,252 10,169,490 10,261,393 – 155,875 10,325,365 10,261,393 The calculation of underlying earnings per share (before non-trading items) is included as the directors believe it provides a better understanding of the underlying performance of the Group. Non-trading items are disclosed in note P3. Notes to the unaudited pro-forma information Air Partner plc Annual Report 2014 61 P6 Net cash inflow from operating activities Continuing operations Year ended 31 Year ended 31 January 2013 January 2014 (Unaudited) (Unaudited) £’000 £’000 Profit for the period Adjustments for: Finance income Finance expense Income tax expense Depreciation and amortisation Impairment of intangible assets Impairment of asset held for sale Loss on disposal of property, plant and equipment Profit on disposal of asset held for sale Fair value losses/(gains) on derivative financial instruments Share option cost for period Increase/(decrease) in provisions Foreign exchange differences Operating cash flows before movements in working capital Decrease/(increase) in receivables (Decrease)/increase in payables Cash generated from operations Income taxes paid Interest paid Net cash inflow from operating activities 1,948 2,294 (21) 29 882 185 774 – 4 (82) 65 100 62 174 4,120 12,519 (11,086) 5,553 (650) (29) 4,874 (40) (84) 914 265 – 335 – – (46) 118 (669) (120) 2,967 (10,998) 15,019 6,988 (1,729) (5) 5,254 P7 Taxation Continuing operations Current tax: UK corporation tax Foreign tax Amounts under-provided in previous years Deferred tax Total tax Of which: Tax on underlying profit Tax on non-trading items (see note P3) Year ended 31 Year ended 31 January 2013 January 2014 (Unaudited) (Unaudited) £’000 £’000 503 158 (148) 513 369 882 1,221 (339) 882 645 389 30 1,064 (150) 914 1,078 (164) 914 Notes to the unaudited pro-forma information for the year ended 31 January 2014 continued P8 Goodwill Cost At 1 February 2012 Foreign currency adjustments At 31 January 2013 Foreign currency adjustments At 31 January 2014 Provision for impairment At 1 February 2012, 31 January 2013 and 31 January 2014 Net book value At 31 January 2014 At 31 January 2013 At 1 February 2012 Goodwill £’000 925 31 956 (38) 918 – 918 956 925 For further details regarding goodwill, please refer to note 11 to the financial statements. P9 Other intangible assets Cost At 1 February 2012 Additions Foreign currency adjustments At 31 January 2013 Additions Foreign currency adjustments At 31 January 2014 Amortisation At 1 February 2012 Charge for the period Foreign currency adjustments At 31 January 2013 Charge for the period Impairment loss Foreign currency adjustments At 31 January 2014 Net book value At 31 January 2014 At 31 January 2013 At 1 February 2012 Software £’000 49 572 – 621 597 (1) 1,217 4 15 1 20 27 774 – 821 396 601 45 There were no commitments at the period end to purchase any intangible assets. Notes to the unaudited pro-forma information Air Partner plc Annual Report 2014 63 P10 Property, plant and equipment Short leasehold property and leasehold improvements £’000 Fixtures and equipment £’000 Motor vehicles £’000 Cost At 1 February 2012 Additions Foreign currency adjustments At 31 January 2013 Additions Foreign currency adjustments Disposals At 31 January 2014 Depreciation At 1 February 2012 Charge for the period Foreign currency adjustments Disposals At 31 January 2013 Charge for the period Foreign currency adjustments Disposals At 31 January 2014 Net book value At 31 January 2014 At 31 January 2013 At 1 February 2012 822 1 5 828 8 (5) (8) 823 147 85 5 – 237 55 (5) (6) 281 542 591 675 1,706 28 18 1,752 72 (30) (8) 1,786 1,393 159 15 – 1,567 99 (25) (7) 1,634 152 185 313 42 – 2 44 – (2) (38) 4 20 6 2 – 28 4 (2) (29) 1 3 16 22 Total £’000 2,570 29 25 2,624 80 (37) (54) 2,613 1,560 250 22 – 1,832 158 (32) (42) 1,916 697 792 1,010 There were no commitments at the period end to purchase any items of property, plant or equipment. P11 Asset held for sale At 1 February 2012 Impairment Foreign currency adjustments At 31 January 2013 Additions Foreign currency adjustments Disposal At 31 January 2014 Aircraft £’000 (Unaudited) 1,033 (335) (1) 697 10 26 (733) – In August 2011, the Group commenced actively marketing its sole owned aircraft for sale and accordingly, the aircraft was reclassified as an asset held for sale. The aircraft was subsequently disposed of during the year ended 31 January 2014 for a consideration of US$1,230,000 (£815,000). Notes to the unaudited pro-forma information for the year ended 31 January 2014 continued P12 Contingent liabilities At 31 January 2014, the Group had a charge over cash of £376,000 (31 January 2013: £240,000) in respect of a passenger sales agency agreement. Additionally, at 31 January 2014 the Group had a bank guarantee for £17,000 (31 January 2013: £17,000) lodged in regard to certain employee rights in Dubai. P13 Provisions Administration claims Restructuring 31 January 2014 (Unaudited) £’000 465 269 31 January 2013 (Unaudited) £’000 474 198 734 672 At 31 January 2014, a provision of £465,000 (31 July 2012: £474,000) was held in relation to the potential costs of settlement of claims which have been received from third parties following the closure of Air Partner Private Jets Limited. All remaining claims within this provision are expected to be settled by 31 March 2016. During the prior financial year, the Group completed a cost reduction restructuring exercise. This resulted in a provision of £198,000 for employees who left the Group after the year end. Of this amount, £139,000, net of foreign exchange differences, was utilised during the current financial period and the remaining £59,000 will still be required. Additionally, and as a result of the change to a product-led reporting structure, during the current financial period further redundancies were identified and communicated to the relevant employees, resulting in a further provision of £210,000 being required. Independent auditor’s report to the members of Air Partner plc Independent auditor’s report Air Partner plc Annual Report 2014 65 We have audited the financial statements of Air Partner plc for the period ended 31 January 2014 which comprise the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Statement of Changes in Equity, Company Statement of Changes in Equity, Company Statement of Financial Position, Consolidated and Company Statement of Cash Flows and the related notes 1 to 30. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As explained more fully in the statement of Directors’ Responsibilities in Relation to the Financial Statements, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and the parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion: − the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 31 January 2014 and of the Group’s profit for the period then ended; − the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; − the parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and − the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. Independent auditor’s report to the members of Air Partner plc continued Opinion on other matters prescribed by the Companies Act 2006 In our opinion: − the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and − the information given in the Directors’ Report for the financial period for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: − adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches not visited by us; or − the parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or − certain disclosures of directors’ remuneration specified by law are not made; or − we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review: − the directors’ statement, set out on page 20, in relation to going concern; − the part of the Corporate Governance Statement relating to the Company’s compliance with the nine provisions of the UK Corporate Governance Code specified for our review; and − certain elements of the report to shareholders by the Board on directors’ remuneration. Robert Knight (Senior statutory auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor Crawley, United Kingdom 9 April 2014 Financial statements Air Partner plc Annual Report 2014 67 Consolidated income statement for the period ended 31 January 2014 Continuing operations Revenue Cost of sales Gross profit Administrative expenses Operating profit Finance income Finance expense Profit before tax Taxation Profit for the period Attributable to: Owners of the parent company Earnings per share: Continuing operations Basic Diluted * Before non-trading items (see note 5) 18 months ended 31 January 2014 Year ended 31 July 2012 Note 3 4 7 7 8 Underlying* £’000 326,125 (291,823) 34,302 (28,731) 5,571 37 (32) 5,576 (1,729) 3,847 Non-trading items £’000 Total £’000 Underlying* £’000 Non-trading items £’000 – – – (1,420) (1,420) – – (1,420) 339 (1,081) 326,125 (291,823) 34,302 (30,151) 4,151 37 (32) 4,156 (1,390) 2,766 227,556 (205,792) 21,764 (18,573) 3,191 51 (10) 3,232 (1,049) 2,183 – – – 818 818 – 89 907 (100) 807 Total £’000 227,556 (205,792) 21,764 (17,755) 4,009 51 79 4,139 (1,149) 2,990 3,847 (1,081) 2,766 2,183 807 2,990 10 10 37.7p 37.3p (10.6)p (10.5)p 27.1p 26.8p 21.3p 21.3p 7.8p 7.8p 29.1p 29.1p Consolidated statement of comprehensive income for the period ended 31 January 2014 Profit for the period Other comprehensive income – items that may subsequently be reclassified to profit or loss: Exchange differences on translation of foreign operations Exchange differences on liquidation of foreign operations Total comprehensive income for the period Attributable to: Owners of the parent company 18 months ended 31 January 2014 £’000 Year ended July 2012 £’000 2,766 2,990 138 22 2,926 (152) – 2,838 2,926 2,838 Financial statements for the period ended 31 January 2014 continued Consolidated statement of financial position as at 31 January 2014 31 January 2014 £’000 31 July 2012 £’000 Assets Non-current assets Goodwill Other intangible assets Property, plant and equipment Deferred tax assets Current assets Trade and other receivables Current tax assets Cash and cash equivalents Asset held for sale Total assets Current liabilities Trade and other payables Current tax liabilities Other liabilities Provisions Derivative financial instruments Net current assets Total liabilities Net assets Equity Share capital Share premium account Own shares Translation reserve Share option reserve Retained earnings Total equity 11 12 13 22 16 14 17 18 19 20 24 25 918 396 697 247 2,258 871 287 890 469 2,517 20,812 665 18,419 – 39,896 42,154 30,544 212 15,716 690 47,162 49,679 (5,746) (128) (22,987) (734) (46) (29,641) 10,255 (8,247) (367) (26,138) (724) (90) (35,566) 11,596 (29,641) (35,566) 12,513 14,113 513 4,518 (1,154) 1,101 1,430 6,105 12,513 513 4,518 – 941 1,238 6,903 14,113 These financial statements were approved and authorised for issue by the Board on 9 April 2014 and were signed on its behalf by: M A Briffa Director G Charles Director Financial statements Air Partner plc Annual Report 2014 69 Consolidated statement of changes in equity for the period ended 31 January 2014 Opening equity as at 1 August 2011 Profit for the period Exchange differences on translation of foreign operations Total comprehensive income for the period Share option movement for the period Dividends paid Closing equity as at 31 July 2012 Share capital £’000 513 – – – – – 513 Opening equity as at 1 August 2012 Profit for the period Exchange differences on translation of foreign operations Exchange differences on liquidation of foreign operations Total comprehensive income for the period Share option movement for the period Deferred tax on share-based payment transactions Own shares acquired in the period Share options exercised during the period Dividends paid Closing equity as at 31 January 2014 513 – – – – – – – – 513 Share premium account £’000 4,518 – – – – – 4,518 4,518 – Own shares £’000 Translation reserve £’000 – – – – – – – – – – 1,093 – (152) (152) – – 941 941 – 138 22 160 – – – – – 1,101 Share option reserve £’000 1,087 – – – 151 – 1,238 1,238 – Retained earnings £’000 Total equity £’000 5,606 2,990 12,817 2,990 – 2,990 – (1,693) 6,903 (152) 2,838 151 (1,693) 14,113 6,903 2,766 14,113 2,766 – – 138 – – 192 – – – – 1,430 – 2,766 – 68 – (271) (3,361) 6,105 22 2,926 192 68 (2,000) 575 (3,361) 12,513 – – – – – – – – – 4,518 – – – – (2,000) 846 – (1,154) Company statement of changes in equity for the period ended 31 January 2014 Company Opening equity as at 1 August 2011 Profit for the period Total comprehensive income for the period Share option movement for the period Dividends paid Closing equity as at 31 July 2012 Opening equity as at 1 August 2012 Profit for the period Total comprehensive income for the period Share option movement for the period Share option movement for the period Own shares acquired in the period Share options exercised during the period Dividends paid Closing equity as at 31 January 2014 Share capital £’000 Share premium account £’000 Own shares £’000 513 – – – – 513 513 – – – – – – – 513 4,518 – – – – 4,518 4,518 – – – – – – – 4,518 – – – – – – – – – – – (2,000) 846 – (1,154) Share option reserve £’000 1,087 – – 151 – 1,238 1,238 – – 192 – – – – 1,430 Retained earnings £’000 3,337 3,580 3,580 – (1,693) 5,224 5,224 3,729 3,729 – 68 – (271) (3,361) 5,389 Total equity £’000 9,455 3,580 3,580 151 (1,693) 11,493 11,493 3,729 3,729 192 68 (2,000) 575 (3,361) 10,696 Own shares The own shares reserve represents the cost of shares in Air Partner PLC purchased in the market and held by The Air Partner Employee Benefit Trust to satisfy options under the Group’s share option schemes (see note 25). Translation reserve The translation reserve represents the accumulated exchange differences arising from the impact of the translation of subsidiaries with a functional currency other than pounds Sterling. Share option reserve The share option reserve relates to the accumulated costs associated with the outstanding share options issued to staff but not exercised. Financial statements Air Partner plc Annual Report 2014 71 Company statement of financial position as at 31 January 2014 Assets Non-current assets Intangible assets Property, plant and equipment Investments Deferred tax assets Current assets Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables Current tax liabilities Other liabilities Provisions Derivative financial instruments Net current assets Total liabilities Net assets Equity Share capital Share premium account Own shares Share option reserve Retained earnings Total equity 2014 £’000 2012 £’000 392 576 1,844 149 2,961 277 749 1,769 30 2,825 12,592 10,899 23,491 26,452 17,946 7,459 25,405 28,230 (2,853) (176) (12,006) (675) (46) (15,756) 7,735 (15,756) 10,696 (2,660) (284) (13,193) (510) (90) (16,737) 8,668 (16,737) 11,493 513 4,518 (1,154) 1,430 5,389 10,696 513 4,518 – 1,238 5,224 11,493 12 13 15 22 16 17 18 19 20 24 25 These financial statements were approved and authorised for issue by the Board on 9 April 2014 and were signed on its behalf by: M A Briffa Director G Charles Director Air Partner plc Registered No. 00980675 Financial statements for the period ended 31 January 2014 continued Consolidated and company statement of cash flows for the period ended 31 January 2014 Group Company 18 month period ended 31 Year ended January 2014 31 July 2012 January 2014 31 July 2012 £’000 Year ended £’000 £’000 £’000 Note 18 month period ended 31 Cash flows from operating activities Continuing operations Discontinued operations Net cash inflow from operating activities 26 7,245 – 10,871 664 7,274 – 5,536 664 7,245 11,535 7,274 6,200 Investing activities Continuing operations – Interest received 37 – Dividends received from subsidiaries – – Purchases of property, plant and equipment (87) – Purchases of intangible assets (920) – Purchases in respect of asset held for sale (10) – Proceeds on disposal of property, plant and equipment 8 – Proceeds on disposal of asset held for sale 815 51 – (230) (298) – – – 36 1,632 (5) (920) – – – 36 1,765 (56) (284) – – – Net cash (used in)/generated by investing activities (157) (477) 743 1,461 Financial activities Continuing operations – Dividends paid (3,361) 575 – Proceeds on exercise of share options (2,000) – Purchase of own shares Net cash used in financing activities (4,786) Net increase in cash and cash equivalents 2,302 Opening cash and cash equivalents 15,716 Effect of foreign exchange rate changes 401 18,419 Closing cash and cash equivalents (1,693) – – (1,693) 9,365 7,151 (800) 15,716 (3,361) 575 (2,000) (4,786) 3,231 7,459 209 10,899 (1,693) – – (1,693) 5,968 1,864 (373) 7,459 Discontinued operations During the year ended 31 July 2012, the Group and Company received £664,000 of dividends from the administrators of Air Partner Private Jets Limited. JetCard cash The closing cash and cash equivalents balance can be further analysed into ‘JetCard cash’ (being unrestricted cash received by the Group and Company in respect of its JetCard product) and ‘non-JetCard cash’ as follows: JetCard cash Non-JetCard cash Cash and cash equivalents Group Company 2014 £’000 8,752 9,667 18,419 2012 £’000 2014 £’000 7,611 8,105 15,716 7,242 3,657 10,899 2012 £’000 6,485 974 7,459 Notes to the financial statements Air Partner plc Annual Report 2014 73 1 General information Air Partner plc (“the Group”, “the Company”) is a company incorporated and domiciled in England and Wales under registration number 00980675. The address of the registered office is 2 City Place, Beehive Ring Road, Gatwick, West Sussex, RH6 0PA. The nature of the Group’s operations and its principal activities are set out in the Chief Executive’s review on pages 8 to 11. 2 Accounting policies a) Basis of preparation of financial statements The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted for use in the European Union in accordance with EU law (IAS regulation EC1606/2002) and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements are presented in Sterling, being the currency of the primary economic environment in which the Group operates. Unless otherwise stated, figures are rounded to the nearest thousand. They are prepared on the historical cost basis, except for the revaluation of certain financial instruments which are stated at fair value. The accounting policies adopted are consistent with those of the previous financial year, except as described in the following sections. Change of accounting reference date On 26 July 2013 the Group announced it was changing its accounting reference date from 31 July to 31 January. Accordingly, these financial statements have been prepared for the 18 month period ended 31 January 2014. This decision will bring the busier part of the year, where most of the profit is generated, into the first six months of the Group’s financial year. This will enable better investment planning internally and will give shareholders greater visibility, at an earlier stage, of the likely full year result. Adoption of new and revised standards No new or revised standards or interpretations have been adopted in the current financial period. New standards, amendments and interpretations in issue but not yet effective The following standards, amendments and interpretations to existing standards have been published and are not mandatory for the current accounting period, and have not been early adopted by the Group: − Annual Improvements 2009-2011 cycle; effective for periods beginning on or after 1 January 2013; − IAS 19 Employee Benefits (2011); effective for periods beginning on or after 1 January 2013; − IAS 27 Separate Financial Statements (2011); effective for periods beginning on or after 1 January 2013; − IAS 28 Investments in Associates and Joint Ventures (2011); effective for periods beginning on or after 1 January 2013; − Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32); effective for periods beginning on or after 1 January 2014; − Disclosures — Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7); effective for periods beginning on or after 1 January 2013; − Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36); effective for periods beginning on or after 1 January 2014; − Novation of Derivatives and Continuation of Hedge Accounting (Amendments to IAS 39); effective retrospectively for periods beginning on or after 1 January 2014; − Government Loans (Amendments to IFRS 1); effective for periods beginning on or after 1 January 2013; − IFRS 9 Financial Instruments (2009) and IFRS 9 Financial Instruments (2010); effective for periods beginning on or after 1 January 2015; − IFRS 10 Consolidated Financial Statements; effective for periods beginning on or after 1 January 2013; − IFRS 11 Joint Arrangements; effective for periods beginning on or after 1 January 2013; Notes to the financial statements for the period ended 31 January 2014 continued − IFRS 12 Disclosure of Interests in Other Entities; effective for periods beginning on or after 1 January 2013; − IFRS 13 Fair Value Measurement; effective for periods beginning on or after 1 January 2013; − Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance; effective for periods beginning on or after 1 January 2013; − Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27); effective for periods beginning on or after 1 January 2014; − IFRIC 21 Levies; effective for periods beginning on or after 1 January 2014. There are no standards and interpretations in issue but not yet adopted which, in the opinion of the directors, will have a material effect on the reported income or net assets of the Group or the Company. b) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company (including its branch in Dubai) and entities controlled by the Company (its subsidiaries) made up to 31 January each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. c) Key accounting estimates and judgments The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. These estimates and associated assumptions are based on historical experience and various other factors believed to be reasonable under the circumstances. Actual results could differ from these estimates. These underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period; or in the period of the revision and future periods if these are also affected. Impairment of intangible assets In the current period, management conducted a review of ongoing intangible asset related projects and identified that an impairment of £774,000 was required to write down the assets to their recoverable amount. Please refer to the Chief Executive’s Review on page 10 for further details about the impairment. Third party claims An assessment has been made of the potential costs of settlement of third party claims received following the closure of Air Partner Private Jets Limited, based on discussions with advisors and the outcomes of similar legal cases. There is no guarantee that such claims will be successful, nor that the full amount of the provision will be required. See note 5 for further details. Accruals related to air charter contracts When revenues and costs for air charter contracts are initially recognised, estimates may need to be made in order to accrue items of income and expenditure that have not been invoiced. These estimates may not reflect the ultimate outcome. During the year ended 31 July 2012, an extensive review of historical accruals related to air charter contracts was performed and as a result a number of accruals were reversed. See note 5 for further details. Notes to the financial statements Air Partner plc Annual Report 2014 75 d) Going concern The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive’s Review on pages 8 to 11. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Chief Financial Officer’s Review on page 12. In addition, note 20 to the financial statements includes the Group’s objectives, policies and processes for managing its capital risk; details of its financial instruments and hedging activities; and its exposures to interest rate risk, credit risk, liquidity risk and foreign currency risk. The Company has considerable cash resources and no debt. As a consequence, the directors believe that the Company is well placed to manage its business risks successfully despite the current uncertain economic outlook. The directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements. e) Foreign currency i) Foreign currency transactions Transactions in foreign currencies are translated at the foreign exchange rate prevailing at the time of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency of the entity at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. ii) Financial statements of foreign operations The assets and liabilities of foreign operations are translated at exchange rates prevailing at the reporting date. Income and expenses are translated at the average rate for the period. Exchange differences arising are classified as equity and transferred to the Group’s translation reserve. f ) Goodwill Goodwill arising in a business combination is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest (if any) in the entity over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the Group’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash- generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. Notes to the financial statements for the period ended 31 January 2014 continued g) Intangible assets Intangible assets acquired separately are stated at cost less accumulated amortisation and any impairment losses. Intangible assets with finite lives are amortised over their useful economic life and assessed for impairment whenever there is an indication that the asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. Amortisation is charged to the income statement so as to write off the cost of assets less their residual values over their estimated useful lives, as follows: Software – 10–20% per annum on a straight-line basis h) Property, plant and equipment Items of property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. Depreciation is charged to the income statement so as to write off the cost of assets less their residual values over their estimated useful lives, as follows: Short leasehold property Leasehold improvements Fixtures and equipment Motor vehicles – – – – over the life of the lease on a straight-line basis over the life of the lease on a straight-line basis 10–33% per annum on a straight-line basis 25% per annum on a reducing balance basis i) Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment at least annually and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. j) Assets in disposal groups classified as held for sale Non-current assets and disposal groups are classified as held for sale only if available for immediate sale in their present condition and a sale is highly probable and expected to be completed within one year from the date of classification. Such assets are measured at the lower of carrying amount and fair value less costs to sell and are not depreciated or amortised. Notes to the financial statements k) Financial instruments Air Partner plc Annual Report 2014 77 Financial assets The Group classifies its financial assets in the following categories: at fair value through profit or loss, and loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. Purchases and sales of financial assets are recognised on the trade date – the date on which the Group commits to purchase or sell the asset. Financial assets are initially recognised at fair value plus transaction costs, except for financial assets held at fair value through profit or loss which are initially recognised at fair value and transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if expected to be settled within 12 months; otherwise, they are classified as non-current. Financial assets at fair value through profit or loss are initially recognised at fair value at the date the contract is entered into, and subsequently gains or losses arising from changes in their fair value are presented in the income statement within administrative expenses in the period in which they arise. The Group’s financial assets at fair value through profit or loss comprise derivative financial instruments. Derivative financial instruments The Group enters into derivative financial instruments, including foreign exchange forward contracts, to manage its exposure to foreign exchange rate risk. Derivatives not designated into an effective hedge relationship are classified as a financial asset or a financial liability. The Group has not designated any derivatives as hedging items and therefore does not apply hedge accounting. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months at the end of the reporting period. These are classified as non-current assets. Loans and receivables are subsequently carried at amortised cost using the effective interest method. The Group’s loans and receivables comprise ‘trade receivables’, ‘other receivables’, ‘accrued income’ and ‘cash and cash equivalents’ in the balance sheet. Trade receivables Trade receivables are amounts due from customers for services performed in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets. Other receivables Other receivables are other amounts contractually due from third parties, for example deposits receivable for leased assets. Accrued income Accrued income is revenue that has been contracted and recognised in accordance with the Group’s accounting policies, but not yet invoiced. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits with an original maturity of three months or less. The carrying amount of these assets approximates their fair value. Notes to the financial statements for the period ended 31 January 2014 continued Financial liabilities The Group classifies its financial liabilities in the following categories: at fair value through profit or loss, and at amortised cost. The classification depends on the purpose for which the financial liabilities were acquired. Management determines the classification of its financial liabilities at initial recognition. Financial liabilities are recognised when the Group becomes a party to the contractual agreement of the instrument. Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss are financial liabilities held for trading. A financial liability is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. Liabilities in this category are classified as current liabilities if expected to be settled within 12 months; otherwise, they are classified as non-current. Financial liabilities at fair value through profit or loss are initially recognised at fair value at the date the contract is entered into, and subsequently gains or losses arising from changes in their fair value are presented in the income statement within administrative expenses in the period in which they arise. The Group’s financial liabilities at fair value through profit or loss comprise derivative financial instruments. Financial liabilities at amortised cost The Group’s financial liabilities at amortised cost comprise ‘trade payables’, ‘other payables’ and ‘accrued costs’. They are initially measured at fair value, net of transaction costs, and are subsequently measured at amortised cost using the effective interest method. Trade payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Other payables Other payables that are financial liabilities at amortised cost are certain customer deposits which are contractually refundable to customers on demand. Accrued costs Accrued costs are costs that have been contracted and recognised in accordance with the Group’s accounting policies, but for which invoices have not yet been received or payments made, as applicable. Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. Equity instruments issued by the Group An equity instrument is a contract that evidences a residual interest in the asset of an entity after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs. The Group’s equity instruments comprise ‘share capital’ in the balance sheet. l) Provisions Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the reporting date, and are discounted to present value. A restructuring provision is recognised when the Group has developed a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to those affected by it. Notes to the financial statements Air Partner plc Annual Report 2014 79 m) Revenue Revenue is measured as the fair value of the consideration received for the provision of goods and services to third-party customers and is stated exclusive of Value Added Tax. In respect of the Group’s principal activities (being that of air charter brokers and providers of travel agency services), the full contract value is realised as revenue when the economic benefits are deemed to have passed to the customer, which is generally the flight date. Amounts invoiced to customers in respect of future flights, including amounts related to the JetCard product, are deferred at the balance sheet date and only recognized in income once the flight has taken place. n) Segmental reporting Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker. The Chief Operating Decision Maker, who is responsible for resource allocation and assessing performance of the operating segments, is considered to be the Board. The nature of the operating segments is set out in note 3. o) Share-based payments The Group will from time to time grant options to employees to subscribe for ordinary shares in the Company. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which employees become unconditionally entitled to the options, based on management’s estimate of the number of options which will ultimately vest, adjusting at each reporting date for the effect of non market-based vesting conditions. p) Retirement benefit costs Payments to defined contribution retirement benefit schemes are charged as an expense in the period in which the employees render service. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the Group’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme. q) Taxation The tax expense represents current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustments to the tax payable in respect of previous years. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary differences arise from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax is calculated at the tax rates that are enacted or substantively enacted at the reporting date. r) Non-trading items Non-trading items are those items that in the directors’ view are required to be separately disclosed by virtue of their size or incidence to assist in understanding the Group’s performance. Notes to the financial statements for the period ended 31 January 2014 continued s) Leasing Leases are classified as finance leases whenever the terms of the lease transfer all, or substantially all, of the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Rental income or expenditure from operating leases is recognised on a straight-line basis over the lease term. t) Dividends Final dividends on ordinary shares are recognised as a liability in the period in which the dividends are approved by the Company’s shareholders. Interim dividends are recognised as a liability in the period in which they are paid. 3 Segmental analysis The services provided by the Group consist of hiring different types of aircraft for charter to its customers and related aviation services. The Board reviews the performance of the services that are provided by the Group on the following basis: Commercial Jet Broking, Private Jet Broking, Freight Broking and Other Services (which includes operations and travel services). Each of these components has been identified as an operating segment. Sale transactions between operating segments are carried out on an arm’s length basis and all revenues, results, assets and liabilities which are reviewed by the Board are prepared on a basis consistent with those that are reported in the financial statements. The Board does not review assets and liabilities at a segmental level, therefore these items are not disclosed. The segmental information, as provided to the Board for the reportable segments on a monthly basis, is as follows: 2014 Continuing operations Commercial Jet Broking £’000 Private Jet Broking £’000 Freight Broking £’000 Other Services £’000 Total £’000 216,044 Total revenues Revenues from transactions with other operating segments (2,508) Revenues from external customers 213,536 78,699 19,970 14,634 329,347 (162) (324) (228) (3,222) 78,537 19,646 14,406 326,125 Depreciation and amortisation (169) Finance income and expense 3 Underlying profit before tax 3,050 (777) Non-trading items (see note 5) 2,273 Profit before tax (107) 2 1,940 (494) 1,446 (15) – 272 (69) 203 (17) – 314 (80) 234 2012 Continuing operations Commercial Jet Broking £’000 Private Jet Broking £’000 Freight Broking £’000 Other Services £’000 (308) 5 5,576 (1,420) 4,156 Total £’000 139,675 Total revenues Revenues from transactions with other operating segments (773) Revenues from external customers 138,902 44,033 26,972 19,166 229,846 (64) (1,078) (375) (2,290) 43,969 25,894 18,791 227,556 Depreciation and amortisation Finance income and expense (138) 64 Underlying profit before tax 1,597 447 Non-trading items (see note 5) 2,044 Profit before tax (88) 40 1,011 284 1,295 (29) 14 337 95 432 (25) 12 287 81 368 (280) 130 3,232 907 4,139 Notes to the financial statements Air Partner plc Annual Report 2014 81 The Company is domiciled in the UK but, due to the nature of the Group’s operations, a significant amount of revenue from external customers is derived from overseas countries. The Group reviews revenue based upon the location of the assets used to generate those revenues. Apart from the UK, no single country is deemed to have material non-current asset levels, other than goodwill in relation to the French operation. The Board also reviews information on a geographical basis based on the parts of the world which are considered to be key to operational activities. As a result the following additional information is provided showing a geographical split of the United Kingdom, Europe, the United States of America and the Rest of the World: United Kingdom £’000 United States of America £’000 Europe £’000 Rest of the World £’000 Total £’000 2014 Revenues from external customers Non-current assets (excluding deferred tax assets) 2012 Revenues from external customers Non-current assets (excluding deferred tax assets) 156,869 119,388 45,446 4,422 326,125 968 736 280 27 2,011 110,089 94,446 18,064 4,957 227,556 990 850 163 45 2,048 For the current period, the Group did not have any customers who accounted for more than 10% of the Group’s external revenue during the year (2012: one customer with revenue of £38,039,000). In respect of the year ended 31 July 2012, this customer is based in the United Kingdom and operates in each business segment. 4 Operating profit Operating profit for the year has been arrived at after charging / (crediting) the following: Net foreign exchange loss/(gain) Change in the fair value of derivative financial instruments Depreciation of property, plant and equipment Impairment of aircraft Amortisation of intangible fixed assets Impairment of intangible assets Profit on disposal of asset held for resale Loss on disposal of property, plant and equipment Operating lease rentals – land and buildings Operating lease rentals – other Staff costs (see note 6) 2014 £’000 43 (44) 271 – 37 774 (82) 4 561 71 19,775 2012 £’000 (588) 46 271 335 9 – – – 603 88 12,602 Notes to the financial statements for the period ended 31 January 2014 continued Fees payable to the principal auditor and its network firms for audit and other services are disclosed below. 2014 £’000 2012 £’000 102 53 13 115 2014 £’000 14 67 2012 £’000 126 60 186 The analysis of auditor’s remuneration is as follows: Fees payable to the Company’s auditor for the audit of the Company’s annual financial statements Fees payable to the Company’s auditor and its associates for the audit of subsidiaries pursuant to legislation (including that of countries and territories outside Great Britain) Total audit fees Fees payable to the Company’s auditor and its associates for other services to the Group: Tax services Other services Total non-audit fees 12 49 61 5 Non-trading items Continuing operations Write-back of historical accruals and other credit balances US Federal Excise Tax credited Impairment of aircraft Impairment of intangible assets Restructuring costs Non-trading items before taxation Tax effect of non-trading items Non-trading items after taxation 2014 £’000 2012 £’000 – – – (774) (646) (1,420) 339 (1,081) 1,029 532 (335) – (319) 907 (100) 807 At the commencement of the prior year, the Group wrote back £1,029,000 of credit balances from the balance sheet, resulting in a gain within administrative expenses in the income statement. These balances were estimates of invoices and credit notes for revenues and costs related to air charter contracts. Following an extensive review, the Group concluded that these balances should no longer be retained. At the commencement of the prior year, a provision of £1,000,000 was held in relation to unpaid Federal Excise Tax due on certain flights contracted by the Company outside the US but involving a US destination. During the prior year, the Company and its US tax advisors concluded discussions with the relevant authorities, resulting in payments totalling £468,000 including interest for late payment and professional fees. The remaining provision of £532,000 was written back to the income statement, resulting in a gain of £443,000 within administrative expenses and a gain of £89,000 within finance expense. In the prior year, the carrying value of the Group’s sole owned aircraft was written down by £335,000 to its fair value less costs to sell of £690,000 based on a third party valuation. The aircraft was disposed of during the current financial period; see note 14 for further details. Notes to the financial statements Air Partner plc Annual Report 2014 83 The reorganisation of the Group to report on a product-led basis has resulted in restructuring costs of £646,000 in the current period. In the prior period, the Group’s cost reduction restructuring exercise resulted in costs of £319,000. These costs in both the current and prior periods comprised redundancy payments, external legal advice and outplacement costs. These costs were included within administrative expenses. In the current period, management conducted a review of ongoing intangible asset related projects and identied that an impairment of £774,000 was required to write down the assets to their recoverable amount. 6 Directors and employees The average number of people employed by the Group (including directors) during the year, analysed by category was as follows: Continuing operations Operations Administration The aggregate payroll costs comprised: Continuing operations Wages and salaries Social security costs Pension costs Share-based payments 2014 Number 2012 Number 124 72 196 156 59 215 2014 £’000 16,104 2,865 614 192 19,775 2012 £’000 10,201 1,863 387 151 12,602 The Group contributes to personal pension plans of certain employees and this cost is charged to the income statement in the year in which it is incurred. Full disclosure of directors’ emoluments, share options and directors’ pension entitlements which form part of their remuneration packages, and their interests in the Company’s share capital are disclosed in the Directors’ Remuneration Report. 7 Finance income and expense Continuing operations Finance income Interest on bank deposits Continuing operations Finance expense Interest on bank overdrafts Unwinding of discount on provisions Interest credited on unpaid Federal Excise Tax (see note 5) 2014 £’000 2012 £’000 37 51 2014 £’000 10 22 – 32 2012 £’000 10 – (89) (79) Notes to the financial statements for the period ended 31 January 2014 continued 8 Taxation Continuing operations Current tax: UK corporation tax Foreign tax Amounts (overprovided)/underprovided in previous years Deferred tax (see note 22) Total tax Of which: Tax on underlying profit Tax on non-trading items (see note 5) 2014 £’000 2012 £’000 771 446 (108) 1,109 281 1,390 1,729 (339) 1,390 823 357 18 1,198 (49) 1,149 1,049 100 1,149 Corporation tax in the UK was calculated at 23.4% (2012: 25.33%) of the estimated assessable profit for the period. Taxation for other jurisdictions was calculated at the rates prevailing in the respective jurisdictions. The charge for the year can be reconciled to the profit per the consolidated income statement as follows: Profit from continuing operations before tax Tax at the UK corporation tax rate of 23.4% (2012: 24%) Effect of UK corporation tax rate at 24% from 1 August to 31 March 2013 (2012: 26%) Tax effect of expenses that are not deductible in determining taxable profit Tax effect of losses not previously recognised Tax effect of different tax rates of subsidiaries operating in other jurisdictions Amounts underprovided in previous periods Total tax charge 2014 £’000 4,156 973 2012 £’000 4,139 993 5 100 219 (8) 299 (193) 309 (108) 1,390 (68) 18 1,149 The UK corporation tax rate decreased from 24% to 23% from 1 April 2013. The impact on the current year’s tax charge is shown above. Further reductions to the UK corporation tax rate have been announced. A reduction to 21% with effect from 1 April 2014 and a further reduction to 20% effective from 1 April 2015 were substantively enacted on 17 July 2013 and the deferred tax balance has been adjusted to reflect this change (see note 22). Notes to the financial statements Air Partner plc Annual Report 2014 85 9 Dividends Amounts recognised as distributions to owners of the parent company in the period Final dividend for year ended 31 July 2012 of 12.7 pence (Year end 2011: dividend of 11.0 pence) per share First interim dividend for eighteen month period ended 31 January 2014 of 6.05 pence (Interim dividend for the year ended 31 January 2012: 5.5 pence) per share Second interim dividend for the eighteen month period ended 31 January 2014 of 14.0 pence (2012: nil) per share 2014 £’000 2012 £’000 1,303 1,129 621 564 1,437 3,361 – 1,693 10 Earnings per share The calculation of the basic and diluted earnings per share is based on the following data: Earnings for the calculation of basic and diluted earnings per share Continuing and discontinued operations Profit attributable to owners of the parent company Non-trading items Underlying profit – continuing and discontinued operations 2,766 1,081 3,847 2,990 (807) 2,183 2014 £’000 2012 £’000 Number of shares Weighted average number of ordinary shares for the calculation of basic earnings per share Effect of dilutive potential ordinary shares: share options Weighted average number of ordinary shares for the calculation of diluted earnings per share 10,216,004 10,261,393 105,414 7,791 10,321,418 10,269,184 The calculation of underlying earnings per share (before non-trading items) is included as the directors believe it provides a better understanding of the underlying performance of the Group. Non-trading items are defined in note 2 and disclosed in note 5. Notes to the financial statements for the period ended 31 January 2014 continued 11 Goodwill Group Cost At 1 August 2011 Foreign currency adjustment At 31 July 2012 Foreign currency adjustments At 31 January 2014 Provision for impairment At 1 August 2011, 31 July 2012 and 31 July 2013 Net book value At 31 January 2014 At 31 July 2012 At 31 July 2011 Goodwill £’000 755 116 871 47 918 – 918 871 755 Goodwill has been allocated entirely to one cash generating unit, being Air Partner International SAS. For the purpose of impairment testing, the recoverable amount of the cash generating unit was measured on the basis of its value in use, by applying cash flow projections based on financial forecasts covering a three-year period. The key assumptions for the value in use calculation were those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the forecast period. The estimated growth rates were based on past performance and expectation of future changes in the market. The growth rate used to extrapolate cash flow projections beyond the period covered by the financial forecasts was 2% (2012: 2%). The pre-tax rate used to discount the forecast cash flows was 14% (2012: 10%). The directors do not believe that there are any reasonably possible changes to the key assumptions that would result in a material impairment of goodwill. Notes to the financial statements Air Partner plc Annual Report 2014 87 12 Other intangible assets Software Cost At 1 August 2011 Additions Foreign currency adjustments At 31 July 2012 Additions Foreign currency adjustments At 31 January 2014 Amortisation and impairment At 1 August 2011 Charge for the period Foreign currency adjustments At 31 July 2012 Charge for the period Impairment loss Foreign currency adjustments At 31 January 2014 Net book value At 31 January 2014 At 31 July 2012 At 31 July 2011 Group £’000 Company £’000 – 298 (1) 297 920 – 1,217 – 9 1 10 37 774 – 821 396 287 – – 284 – 284 920 – 1,204 – 7 – 7 31 774 – 812 392 277 – Other intangible assets comprise acquired software. Please refer to notes 2 and 5 for further details regarding the nature of the impairment loss made during the current financial period. Notes to the financial statements for the period ended 31 January 2014 continued 13 Property, plant and equipment Short leasehold property and leasehold improvements £’000 Aircraft £’000 Fixtures and equipment £’000 Motor vehicles £’000 Group Cost At 1 August 2011 Additions Foreign currency adjustments Reclassified as held for sale At 31 July 2012 Additions Foreign currency adjustments Disposals At 31 January 2014 Depreciation and impairment At 1 August 2011 Charge for the period Foreign currency adjustments Reclassified as held for sale At 31 July 2012 Charge for the period Foreign currency adjustments Disposals At 31 January 2014 Net book value At 31 January 2014 At 31 July 2012 At 31 July 2011 803 28 (15) – 816 8 7 (8) 823 112 81 (13) – 180 100 7 (6) 281 542 636 691 1,711 – – (1,711) – – – – – 731 – – (731) – – – – – – – 980 1,703 62 (74) – 1,691 79 24 (8) 1,786 1,335 183 (63) – 1,455 164 22 (7) 1,634 152 236 368 45 – (6) – 39 – 3 (38) 4 18 7 (4) – 21 7 2 (29) 1 3 18 27 Total £’000 4,262 90 (95) (1,711) 2,546 87 34 (54) 2,613 2,196 271 (80) (731) 1,656 271 31 (42) 1,916 697 890 2,066 In August 2011, the Group commenced actively marketing its sole owned aircraft for sale. Accordingly, the aircraft was reclassified as an asset held for sale. The aircraft was disposed during the current period; see note 14 for further details. Notes to the financial statements Air Partner plc Annual Report 2014 89 Short leasehold property and leasehold improvements £’000 Fixtures and equipment £’000 Motor vehicles £’000 805 28 (24) (89) 720 (5) – 715 92 69 (89) 72 87 – 159 556 648 713 1,403 28 24 (559) 896 10 (7) 899 1,231 126 (559) 798 89 (6) 881 18 98 172 15 – – – 15 – – 15 10 2 – 12 1 – 13 2 3 5 Company Cost At 1 August 2011 Additions Reclassifications Disposals At 31 July 2012 Additions Disposals At 31 January 2014 Depreciation At 1 August 2011 Charge for the period Disposals At 31 July 2012 Charge for the period Disposals At 31 January 2014 Net book value At 31 January 2014 At 31 July 2012 At 31 July 2011 14 Asset held for sale At 1 August 2011 Reclassification from property, plant and equipment Impairment (see note 5) Foreign currency adjustments At 31 July 2012 Additions Foreign currency adjustments Disposal At 31 January 2014 Total £’000 2,223 56 – (648) 1,631 5 (7) 1,629 1,333 197 (648) 882 177 (6) 1,053 576 749 890 Aircraft £’000 – 980 (335) 45 690 10 33 (733) – In August 2011, the Group commenced actively marketing its sole owned aircraft for sale and accordingly, the aircraft was reclassified as an asset held for sale. The aircraft was subsequently disposed of during the current period for a consideration of US$1,230,000 (£815,000). Notes to the financial statements for the period ended 31 January 2014 continued 15 Investments Company Investments in shares of to subsidiaries £’000 Capital contributions to subsidiaries £’000 Cost At 1 August 2011 Additions – capital contributions to subsidiaries Additions – group share-based payments Reclassification Disposal of investment in Air Partner Leasing USA, Inc. At 31 July 2012 Additions – capital contributions At 31 January 2014 1,286 – – 212 (319) 1,179 – 1,179 1,133 725 55 (212) (603) 1,098 122 1,220 Total £’000 2,419 725 55 – (922) 2,277 122 2,399 Amounts provided At 1 August 2011 Impairment of investment in Air Partner Leasing USA, Inc. Impairment of investment in Air Partner Nordic AB Disposal of investment in Air Partner Leasing USA, Inc. At 31 July 2012 Impairment of investment in Air Partner Nordic AB At 31 January 2014 Net book value At 31 January 2014 At 31 July 2012 At 31 July 2011 420 285 705 – – (319) 101 – 101 1,078 1,078 866 603 122 (603) 407 47 454 603 122 (922) 508 47 555 766 1,844 691 1,769 848 1,714 In the prior year, the Company disposed of its investment in the entire issued share capital of Air Partner Leasing USA, Inc., to the Company’s wholly owned subsidiary Air Partner, Inc., for consideration of one ordinary share issued by Air Partner, Inc. The Company tests its investments for impairment if there are indications that the investments may be impaired. The recoverable amount of each investment was measured on the basis of its value in use, by applying cash flow projections based on the financial forecasts covering a three-year period. The key assumptions for the value in use calculation for each subsidiary were those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. The estimated growth rates were based on past performance and expectation of future changes in the market. The growth rate used to extrapolate cash flow projections beyond the period covered by the financial forecasts was 2% (2012: 2%). The rate used to discount the forecast cash flows was 14% (2012: 10%). The directors do not believe that there are any reasonably possible changes to the key assumptions that would result in a further impairment of the Company’s investments. Notes to the financial statements Air Partner plc Annual Report 2014 91 The following is a list of the principal trading subsidiaries of which Air Partner plc, incorporated in England and Wales, is the beneficial owner: Name Principal activity Country of incorporation Holding Air Partner International SAS Air Partner International GmbH Air Partner, Inc. Air Partner Leasing USA, Inc. Air Partner (Switzerland) AG Air Partner Travel Management Company Limited Air Partner Srl Air Partner Havacilik ve Tasimacilik Limited Sirketi Air Partner Nordic AB Air Partner Jet Charter and Sales Private Limited * 100% is held by a subsidiary undertaking. ** 40% is held by a subsidiary undertaking. Air charter broking Air charter broking Air charter broking Aircraft leasing Air charter broking France Germany US US Switzerland 100% 100% 100% 100%* 100% Travel agency Air charter broking England and Wales Italy 100% 100% Air charter broking Air charter broking Turkey 100%** 100% Sweden Air charter broking India 100%*** *** 99.99% is held by one subsidiary undertaking and 0.01% is held by another subsidiary undertaking. In the opinion of the directors the recoverable amount of the Company’s subsidiary undertakings is considered to be in excess of the carrying value. 16 Trade and other receivables Gross trade receivables Allowance for bad and doubtful debts Trade receivables Amounts owed by Group undertakings Social security and other taxes Other receivables Prepayments and accrued income Group Company 2014 £’000 2012 £’000 13,680 (381) 13,299 – 551 174 6,788 20,812 19,004 (151) 18,853 – 178 201 11,312 30,544 2014 £’000 7,538 (235) 7,303 774 404 32 4,079 12,592 2012 £’000 10,265 (61) 10,204 1,342 135 32 6,233 17,946 The directors consider that the carrying amount of trade and other receivables approximates their fair value. Notes to the financial statements for the period ended 31 January 2014 continued All trade and other receivables have been reviewed for indicators of impairment. The following receivables were determined to be impaired and were fully provided for, because of poor payment history: At 1 August 2011 Charge for the year Receivables written off during the period At 31 July 2012 Charge for the year Receivables written off during the period At 31 January 2014 Group £’000 252 77 (178) 151 346 (116) 381 Company £’000 134 78 (151) 61 235 (61) 235 Of the amounts impaired during the period, £117k was for an amount past due by more than 6 months but less than 1 year with the remainder being all overdue by more than one year. In addition, some of the unimpaired trade receivables were past due at the reporting date. The ageing of financial assets was as follows: Neither past due nor impaired Past due but not impaired: – By not more than 3 months – By more than 3 months but not Group Company 2014 £’000 2012 £’000 2014 £’000 2012 £’000 8,159 12,444 3,995 6,345 3,463 5,575 2,112 3,349 more than 6 months 714 336 361 245 – By more than 6 months but not more than 1 year – By more than 1 year 17 Trade and other payables 423 540 13,299 149 349 18,853 291 544 7,303 84 181 10,204 Trade payables Other taxation and social security payable Group Company 2014 £’000 5,174 572 5,746 2012 £’000 7,745 502 8,247 2014 £’000 2,680 173 2,853 2012 £’000 2,500 160 2,660 The directors consider that the carrying amount of trade and other payables approximates their fair value. 18 Other liabilities Deferred income Accruals Other liabilities Amounts owed to Group undertakings Group Company 2014 £’000 18,916 3,689 382 – 22,987 2012 £’000 19,613 6,148 377 – 26,138 2014 £’000 10,280 1,662 41 23 12,006 2012 £’000 9,656 3,514 – 23 13,193 The directors consider that the carrying amount of other liabilities approximates their fair value. Notes to the financial statements Air Partner plc Annual Report 2014 93 19 Provisions Administration claims Restructuring Group Company 2014 £’000 465 269 734 2012 £’000 474 250 724 2014 £’000 465 210 675 2012 £’000 474 36 510 Administration Administration Group Company At 1 August 2012 Additional provision in the year Utilisation of provision Adjustment for change in discount rate Unwinding of discount Foreign currency adjustments At 31 January 2014 claims Restructuring £’000 £’000 474 250 Total £’000 724 claims Restructuring £’000 £’000 Total £’000 474 36 510 – 428 428 – 210 210 (1) (412) (413) (1) (36) (37) (30) – (30) (30) – (30) 22 – 22 22 – 22 – 465 3 269 3 734 – 465 – 210 – 675 A provision of £465,000 (2012: £474,000) was held in relation to the potential costs of settlement of claims which have been received from third parties following the closure of Air Partner Private Jets Limited. All remaining claims within this provision are expected to be settled by 31 March 2016. During the prior financial year, the Group completed a cost reduction restructuring exercise. This resulted in a provision of £250,000 for employees who left the Group after the year end. Of this amount, £191,000, net of foreign exchange differences, was utilised during the current financial period and the remaining £59,000 will still be required. Additionally, and as a result of the change to a product-led reporting structure, during the current financial period further redundancies were identified and communicated to the relevant employees, resulting in a further provision of £428,000, of which £218,000 was utilised during the period and the remaining £210,000 will still be required. Notes to the financial statements for the period ended 31 January 2014 continued 20 Financial instruments The objectives of the Group’s treasury activities are to manage financial risk, minimise adverse effects of fluctuations in the financial markets on the value of the Group’s financial assets and liabilities and to ensure that the working capital requirements fit the needs of the ongoing business. The Group has various financial instruments such as cash, trade receivables and trade payables that arise directly from its operations, along with forward currency contracts undertaken to minimise risk on future business. a) Interest rate risk The Group’s policy is to manage interest rate risk and to maximise its return from its cash balances. The Group’s main interest rate risk is related to variable rates on cash held at the bank. Certain cash balances are deposits on fixed interest terms, but are never lodged for more than three months to ensure that the Group does not suffer unduly from the risk of interest rate variation. Cash held at year end on fixed interest rates Cash held at year end on variable interest rates Group Company 2014 £’000 2012 £’000 2014 £’000 2012 £’000 3,314 1,208 12 16 15,105 18,419 14,508 15,716 10,887 10,899 7,443 7,459 The following table illustrates the sensitivity of cash held on variable interest rates on profit before tax for the year to a reasonably possible change in interest rates, with effect from the beginning of the year. There was no additional impact on shareholders’ equity. These changes are considered to be reasonably possible based on observation of current market conditions. The rate range on which interest was receivable during the year was 0.0% to 0.5% (2012: 0.0% to 10.4%). Group Cash held at year end on variable interest rates Company Cash held at year end on variable interest rates Effect on profit before tax 100 basis points increase 100 basis points decrease 2014 £’000 2012 £’000 2014 £’000 2012 £’000 151 145 (151) (145) Effect on profit before tax 100 basis points increase 100 basis points decrease 2014 £’000 2012 £’000 2014 £’000 2012 £’000 109 74 (109) (74) Notes to the financial statements Air Partner plc Annual Report 2014 95 b) Credit risk The carrying amount of financial assets recognised at the reporting date, as summarised below, represents the Group’s maximum exposure to credit risk: Cash and cash equivalents Trade and other receivables Group Company 2014 £’000 2012 £’000 2014 £’000 18,419 13,622 32,041 15,716 18,853 34,569 10,899 8,125 19,024 2012 £’000 7,459 11,546 19,005 The Group constantly monitors defaults of customers and other counterparties and incorporates this information into its credit risk controls. It is the Group’s policy that all counterparties who wish to trade on credit terms are subject to an external credit verification process. The directors consider that all of the above financial assets that are not impaired for each of the reporting dates under review are of good credit quality, including those that are past due. The Group has no significant concentration of credit risk to commercial customers, as credit risk is predominantly government based. The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies. Refer to note 16 for details of impairment losses for financial instruments. c) Liquidity risk The Group faces liquidity risks in paying operators before a flight occurs or before payment is received from the client. The Group aims to mitigate liquidity risk by, where possible, making payments to operators only once payment from the client has been received. The Group manages cash within its operations and ensures that cash collection is efficiently managed. Any excess cash is placed on low-risk, short-term interest-bearing deposits or distributed to shareholders through dividends, although the Group retains enough working capital in the business to ensure that the business operations can run smoothly. As at 31 January 2014, the Group’s financial liabilities had contractual maturities which are summarised below: Group Trade and other payables Derivative financial instruments Company Trade and other payables Derivative financial instruments Current Non-current Within 6 months 2014 £’000 17,615 46 17,661 2012 £’000 15,356 90 15,446 Current Within 6 months 2014 £’000 11,607 46 11,653 2012 £’000 9,008 90 9,098 2014 £’000 – – – 2014 £’000 – – – 6 to 12 months 1 to 5 years More than 5 years 2012 £’000 – – – 2012 £’000 – – – 6 to 12 months 2014 £’000 – – – 2014 £’000 – – – 2012 £’000 – – – 2014 £’000 – – – 2012 £’000 – – – Non-current 1 to 5 years More than 5 years 2012 £’000 – – – 2014 £’000 – – – 2012 £’000 – – – Notes to the financial statements Air Partner plc Annual Report 2014 97 d) Foreign currency risk The Group has invested in foreign operations outside the United Kingdom and also buys and sells goods and services denominated in currencies other than Sterling. As a result the value of the Group’s non-Sterling revenue, purchases, financial assets and liabilities and cash flows can be affected by movements in exchange rates in general and in US Dollar and Euro rates in particular. The Group’s policy on foreign currency risk is not to enter into forward contracts until a firm contract has been signed. The Group considers using derivatives where appropriate to hedge its exposure to fluctuations in foreign exchange rates. The purpose is to manage the currency risks arising from the Group operations. It is the Group’s policy that no trading in financial instruments will be undertaken. Foreign currency denominated financial assets and liabilities, translated into Sterling at the closing rate, are as follows: Group Financial assets Financial liabilities Short-term exposure Financial assets Financial liabilities Long-term exposure Company Nominal amounts Financial assets Financial liabilities Short-term exposure Financial assets Financial liabilities Long-term exposure Eur € 15,998 (10,916) 5,082 – – – 5,082 2014 £’000 US $ 5,949 (4,111) 1,838 – – – 1,838 GBP £ 9,689 (2,513) 7,176 – – – 7,176 2014 £’000 2012 £’000 Other 405 (74) 331 – – – 331 Eur € 15,798 (10,750) 5,048 – – – 5,048 US $ 6,244 (1,954) 4,290 – – – 4,290 GBP £ 11,579 (2,405) 9,174 – – – 9,174 Other 948 (337) 611 – – – 611 2012 £’000 Eur € US $ GBP £ Other Eur € US $ GBP £ Other 7,273 (7,310) (37) – – – (37) 3,041 (1,739) 1,302 – – – 1,302 8,814 (2,531) 6,283 – – – 6,283 (104) (27) (131) – – – (131) 4,362 (5,988) (1,626) – – – (1,626) 3,878 (1,016) 2,862 – – – 2,862 10,213 (2,083) 8,130 – – – 8,130 552 (11) 541 – – – 541 The following table demonstrates the sensitivity of financial instruments to a reasonably possible change in the Euro and US Dollar exchange rates, with all other variables held constant, on profit before tax and equity. It assumes a 10% change of the Sterling/Euro exchange rate for the year ended 31 January 2014 (2012: 10%). A 10% change is also assumed for the Sterling/US Dollar exchange rate (2012: 10%). Both of these percentages have been determined based on the average market volatility in exchange rates in the previous 12 months. The sensitivity is based on the Group’s foreign currency financial instruments held at each reporting date and also takes into account forward exchange contracts that offset effects from changes in currency exchange rates. Notes to the financial statements for the period ended 31 January 2014 continued If Sterling had strengthened against the Euro and US Dollar by 10% (2012: 10%) and 10% (2012: 10%) respectively the impact would have been as follows: Group Eur € Financial assets (1,600) Financial liabilities 1,092 Effect on profit before tax (508) Company Financial assets Financial liabilities Effect on profit before tax Eur € (727) 731 2014 £’000 US $ (595) 411 (184) 2014 £’000 US $ (304) 174 Total (2,195) 1,503 Eur € (1,580) 1,075 (692) (505) Total (1,031) 905 Eur € (436) 599 2012 £’000 US $ Total (624) 195 (2,204) 1,270 (429) 2012 £’000 US $ (388) 102 (934) Total (824) 701 4 (130) (126) 163 (286) (123) If Sterling had weakened against the Euro and US Dollar by 10% (2012: 10%) and 10% (2012: 10%) respectively the impact would have been as follows: Group Eur € Financial assets 1,600 Financial liabilities (1,092) Effect on profit before tax 508 Company Eur € Financial assets 727 Financial liabilities (731) Effect on profit before tax (4) 2014 £’000 US $ 595 (411) 184 2014 £’000 US $ 304 (174) Total 2,195 (1,503) Eur € 1,580 (1,075) 692 505 Total 1,031 (905) Eur € 436 (599) 2012 £’000 US $ Total 624 (195) 2,204 (1,270) 429 2012 £’000 US $ 388 (102) 934 Total 824 (701) 130 126 (163) 286 123 Notes to the financial statements Air Partner plc Annual Report 2014 99 e) Forward contracts The Group utilises currency derivatives to hedge significant future transactions and cash flows. The Group is a party to foreign currency forward contracts in the management of its exchange rate exposures. The instruments purchased are primarily denominated in the currencies of the Group’s principal markets. Derivatives that do not qualify for hedge accounting are accounted for as trading instruments and any change in their fair value is recognised in the income statement. No derivatives qualified for hedge accounting during the year (2012: none). At the reporting date, the total notional amount of outstanding forward foreign exchange contracts that the Group had committed are as below and their related fair value was as follows (terms not exceeding three months from 31 January 2014): Group & Company Forward foreign exchange contracts Financial liability 2014 £’000 2012 £’000 2,672 4,248 (90) (46) Changes in the fair value of derivative financial instruments amounting to £44,000 have been credited to the income statement in the period (2012: charge of £46,000). These derivative financial instruments are not traded in active markets. Their fair value has been determined by using valuation techniques which maximise the use of observable market data, namely the contract exchange rate and the bank’s forward rate. The derivatives are therefore categorised as level 2 using the fair value hierarchy. f ) Capital risk management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders. The Group has no debt and capital therefore consists entirely of equity. The Group’s primary tool in managing risk is cash flow analysis. In addition to strategic cash flow management the Group performs detailed weekly cash flow modelling. The schedule of matters reserved for Board decision includes approval of any financial instruments or bank borrowings in excess of £2,000,000. Notes to the financial statements for the period ended 31 January 2014 continued g) Financial assets by category Group Loans and receivables Current assets which are not financial assets Total current assets Company Loans and receivables Current assets which are not financial assets Total current assets h) Financial liabilities by category Group Financial liabilities held at fair value through profit or loss Financial liabilities measured at amortised cost Current liabilities which are not financial liabilities Total current liabilities Company Financial liabilities held at fair value through profit or loss Financial liabilities measured at amortised cost Current liabilities which are not financial liabilities Total current liabilities 2014 £’000 2012 £’000 32,041 7,855 39,896 34,569 12,593 47,162 2014 £’000 2012 £’000 19,024 4,467 23,491 19,005 6,400 25,405 2014 £’000 2012 £’000 (46) (8,863) (20,732) (29,641) (90) (15,356) (20,120) (35,566) 2014 £’000 2012 £’000 (46) (4,365) (11,345) (15,756) (90) (9,008) (7,639) (16,737) The directors consider that the carrying amount of the financial assets and liabilities approximates their fair value. Notes to the financial statements Air Partner plc Annual Report 2014 101 21 Share-based payments The Company operates a share option scheme under which options may be granted to certain senior staff of the Group to subscribe for ordinary shares in the Company. The Scheme rules cover grants under an Approved and an Unapproved section of the scheme. According to those rules, options may be granted at an exercise price equal to the average quoted market price of the Company’s shares on the dealing day immediately preceding the date of grant. The vesting period is three years. With certain exceptions, options are forfeited if an employee leaves the Group and outstanding options expire if they remain unexercised after a period of 6.8 to 10 years from the date of grant. Details of the share options outstanding during the year are as follows: 2014 2012 Weighted average Number exercise of share options price (pence) Weighted average Number of share exercise options price (pence) 1,043,766 Outstanding as at 1 August Granted during the period 201,151 Forfeited during the period (176,905) Exercised during the period (168,945) Outstanding at the end of the period 899,067 411.1 797,315 14.4 340,000 (93,549) 715.7 340.6 – 343.7 1,043,766 Exercisable at the end of the period 425,416 541.8 370,666 470.8 277.5 434.9 – 411.1 603.6 The weighted average remaining contractual life of share options outstanding at the year end was 6.307 years (2012: 7.56 years). The exercise prices of share options outstanding at the year end ranged from nil pence to 884 pence (2012: 277.5 pence to 884 pence). The fair value received in return for share options granted is measured by reference to the fair value of the share options granted. The estimate of fair value of the services received for share options granted during the year was measured based on the Monte Carlo model. The contractual life of the option (6.8 or 10 years) is used as an input into this model. The inputs into the Monte Carlo model for all options granted during the period are as follows: 7 January 2013 26 October 2013 Underlying share price (pence) Exercise price (pence) Expected volatility Vesting period Option life Employee exit rate Employee exercise multiple Risk-free interest rate Dividend yield 290.0p 290.0p 30% 500.p 000.0p 30% 3 years 2.8 years 10 years 6.8 years 10% 1.5 2.00% 5.0% 10% 1.5 2.15% 5.0% The 10,000 options granted on 7 January 2013 were subject to both service and non-market performance conditions. Notes to the financial statements for the period ended 31 January 2014 continued One third of the number of shares under option will be exercisable if, in respect of the Performance Period, the increase in the Earnings Per Share (“EPS”) has exceeded inflation (as measured by the RPI) by an average of at least 3% per annum. The total number of shares under option will be exercisable if, in respect of the Performance Period, the increase in EPS has exceeded inflation (as measured by the RPI) by an average of at least 7% per annum. Between one third and the total number of shares under option, determined on a straight-line basis, will be exercisable if the performance falls between these two target levels. If the performance is below the minimum target level above, options will lapse and cease to be exercisable. The 191,151 options granted on 26 October 2013 were subject to both service and performance conditions, with half of the options being subject to an EPS growth performance condition and the other half subject to a Total Shareholder Return (“TSR”) condition. For the EPS condition, all shares will vest if, in respect of the performance period, the increase in EPS with reference to the base year (31 July 2013) exceeds RPI by at least 10% per annum. If the increase in EPS exceeds RPI by between 5 and 10% over the performance period, then 25% of the share will vest. However, if EPS growth is lower than RPI plus 5% per annum over the performance period then none of the options awarded will vest. For the TSR condition, vesting will be determined by comparing the Group’s TSR against the TSR of the FTSE Small Cap Total Return Index in accordance with the following conditions: − if the Group ranks below the 50th percentile, no options will vest; − if the Group is at the 50th percentile, 25% of the options will vest; − if the Group is at the 75th percentile, or above, 100% of the options will vest; and − there will be proportionate vesting where performance falls between the 50th and 75th percentile rankings. Expected volatility was determined by calculating the historical volatility of the Group’s share price over the ten years prior to the grant date, along with six other quoted companies that were considered to exhibit some degree of comparability with Air Partner. The weighted average fair value of options granted during the year was £3.95 (2012:£0.86). The total charge for the year relating to employee share-based payment plans was £192,000 (2012: £151,000), all of which related to equity share-based payment transactions. Notes to the financial statements Air Partner plc Annual Report 2014 103 22 Deferred tax Deferred tax has been calculated at 20% (2012: 23%) in respect of UK companies and at the prevailing tax rates for the overseas subsidiaries. The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting periods. Group At 1 August 2011 Exchange differences on opening balances Credit / (expense) to the income statement At 31 July 2012 Exchange differences on opening balances (Expense)/credit to the income statement Credit direct to equity At 31 January 2014 Net accelerated tax depreciation £’000 97 Tax Share-based payment £’000 248 losses £’000 – Other temporary differences £’000 73 Total £’000 418 (3) – – (4) (7) 89 183 246 246 (248) – (29) 40 58 469 (4) (7) – 2 (9) (139) – 40 (239) – – 62 68 130 35 – 77 (281) 68 247 Net accelerated Company At 1 August 2011 Expense to the income statement At 31 July 2012 (Expense)/credit to the income statement Credit direct to equity At 31 January 2014 depreciation £’000 54 (24) 30 (11) – 19 tax Share-based payment £’000 248 (248) – 62 68 130 Other temporary differences £’000 36 (36) – – – – Total £’000 338 (308) 30 51 68 149 The following is the analysis of the deferred tax balances for financial reporting purposes: Deferred tax assets Group Company 2014 £’000 247 2012 £’000 469 2014 £’000 149 2012 £’000 30 At the balance sheet date the Group had undistributed earnings in respect of overseas subsidiaries that would be subject to overseas withholding taxes on remission to the UK. No liability has been recognised in respect of these earnings because the Group is in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the foreseeable future. At the balance sheet date, the Group had unused tax losses totalling £317,000 (2012: £404,000) for which no deferred tax asset was recognised, as it is not considered probable that there will be future taxable profits available. Notes to the financial statements for the period ended 31 January 2014 continued 23 Employee benefits In the UK, the Company operates a defined contribution retirement benefit scheme for all qualifying employees. The assets of the scheme are held in individual personal pension schemes which are fully transferable if the employee leaves the Company. Similar schemes operate across the rest of the Group depending on local regulations and individual social contribution levels. The amount of expense related to such pension contributions is disclosed in note 6. 24 Share capital 2014 £’000 2012 £’000 Authorised 15,000,000 (2012: 15,000,000) ordinary shares of 5.0 pence each 750 750 Issued and fully paid 10,261,393 (2012: 10,261,393) ordinary shares of 5.0 pence each 513 513 The Company has one class of ordinary shares which carries no right to fixed income and entitles holders to one vote per share at general meetings of the Company. 25 Own shares Balance at 1 August 2012 Acquired in the period Disposed of on exercise of options Balance at 31 January 2014 Group & Company £’000 – 2,000 (846) 1,154 The own shares reserve represents the cost of shares in Air Partner plc purchased in the market and held by the Air Partner Employee Benefit Trust, which was established during the period to satisfy the future exercise of options under the Group’s share options schemes (see note 21). The number of ordinary shares held by the Air Partner Employee Benefit Trust at 31 January 2014 was 224,932 (2012: nil). Notes to the financial statements Air Partner plc Annual Report 2014 105 26 Net cash inflow from operating activities Group Company 2014 £’000 2012 £’000 2014 £’000 2012 £’000 2,766 2,990 3,729 3,580 Continuing operations Profit for the year Adjustments for: Dividends received Finance income Finance expense Income tax expense Depreciation and amortisation Impairment of intangible assets Impairment of aircraft Impairment of investments Loss on disposal of property, plant and equipment Profit on disposal of asset held for sale Fair value (gains)/losses on derivative financial instruments Share option cost for period Increase/(decrease) in provisions Foreign exchange differences Operating cash flows before movements in working capital Decrease in receivables Decrease in payables Cash generated from operations Income taxes paid Interest paid Net cash flow from operating activities – (37) 32 1,390 308 774 – – 4 (82) (44) 192 10 (182) 5,131 10,351 (6,404) 9,078 (1,801) (32) 7,245 – (51) (79) 1,149 280 – 335 – – – 46 151 (907) 236 4,150 11,927 (3,908) 12,169 (1,288) (10) 10,871 (1,632) (36) 26 541 208 774 – 47 1 – (44) 192 165 (209) 3,762 5,354 (1,116) 8,000 (700) (26) 7,274 (1,765) (36) (79) 1,113 204 – 725 – – 46 96 (1,121) 373 3,136 9,804 (6,736) 6,204 (658) (10) 5,536 27 Operating lease arrangements The Group as lessee Minimum lease payments under operating leases recognised as costs for the year 2014 Land and buildings £’000 2012 Land and buildings £’000 2014 2012 Other £’000 Other £’000 2014 Total £’000 2012 Total £’000 561 603 71 88 632 691 At the reporting date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows: The Group as lessee Within one year In the second to fifth year inclusive After five years 2014 Land and buildings £’000 442 1,230 795 2,467 2012 Land and buildings £’000 353 755 670 1,778 2014 2012 Other £’000 61 114 – 175 Other £’000 77 80 – 157 2014 Total £’000 503 1,344 795 2,642 2012 Total £’000 430 835 670 1,935 Operating lease payments represent rentals payable by the Group for certain office properties, motor vehicles and office equipment it uses. Leases are negotiated in isolation, dependent on the trading conditions in the country / region concerned. Aircraft leasing rental income earned during the year was £nil (2012: £144,000). 28 Profit for the financial year The Group financial statements do not include a separate income statement for Air Partner plc (the parent undertaking) as permitted by Section 408 of the Companies Act 2006. The parent company profit after tax for the financial year was £3,729,000 (2012: £3,580,000) including dividends from subsidiary companies of £1,632,000 (2012: £1,765,000). The parent company has no other items of comprehensive income. 29 Related party transactions The Company had the following transactions with related parties in the ordinary course of business during the year under review. Trading transactions Subsidiaries Sales to subsidiaries Purchases from subsidiaries Amounts owed by subsidiaries at period end Amounts owed to subsidiaries at period end 2014 £’000 2012 £’000 310 2,401 774 (23) 179 1,012 1,342 (23) Outstanding balances that relate to trading balances are placed on inter-company accounts with no specific credit period. Compensation of key management (being the directors) Short-term employee benefits Post-employment benefits Termination benefits Share-based payment 2014 £’000 1,191 59 191 30 1,471 The total amounts for directors’ remuneration in accordance with schedule 5 of the Accounting Regulations were as follows: Aggregate directors’ remuneration Salaries, fees, bonuses and benefits in kind Gains on exercise of share options Money purchase pension contributions 2014 £’000 1,382 92 59 1,533 2012 £’000 559 39 – 73 671 2012 £’000 559 – 39 598 Two (2012: two) directors were members of money purchase schemes. Further information about the remuneration of individual directors is provided in the audited part of the Directors’ remuneration report on pages 49 to 53. 30 Contingent liabilities The Group had a charge over cash of £376,000 in respect of a passenger sales agency agreement (2012: £240,000). Additionally the Group had a bank guarantee for £17,000 (2012: £17,000) lodged in regard to certain employee rights in Dubai. Designed and produced by Imagination. Printed by CPI Colour. This report is printed on Edixion Challenger Offset paper which is an FSC accredited, uncoated offset stock made using 100% ECF pulp. Air Partner plc 2 City Place Beehive Ring Road Gatwick West Sussex RH6 0PA +44 (0)1293 844 800 www.airpartner.com