Annual Report 2011 ANNUAL REPORT 2011 Our Fleet (AS AT OCTOBER 2011) Model Details Date of acquisition Airbus A321-200 MSN 1921 30 June 2008 Lessee Thomas Cook (OY-VKB) Operational area Europe, Scandinavia Airbus A321-200 MSN 1881 30 June 2008 Thomas Cook (OY-VKA) Europe, Scandinavia Model Details Date of acquisition Airbus A320-200 MSN 429 2 April 2010 Airbus A320-200 MSN 052 25 March 2008 Lessee Skywest Airlines (VH-FNP) US Airways Inc (N620AW) Operational area Australia North America Model Details Date of acquisition Fokker 100 MSN 11461 25 September 2007 Fokker 100 MSN 11391 31 July 2008 Lessee Skywest Airlines (VH-FNT) Skywest Airlines (VH-FSW) Operational area Western Australia Western Australia 2 Fokker 100 MSN 11373 31 July 2007 Fokker 100 MSN 11334 Fokker 100 MSN 11326 28 February 2008 28 September 2007 Skywest Airlines (VH-FNU) Skywest Airlines (VH-FNC) Skywest Airlines (VH-FNN) Western Australia, Northern Territory, Bali Western Australia, Charter Operations Western Australia Fokker 100 MSN 11489 15 November 2006 Fokker 100 MSN 11484 11 April 2007 Fokker 100 MSN 11488 15 November 2006 Skywest Airlines (VH-FNJ) Skywest Airlines (VH-FNY) Skywest Airlines (VH-FNR) Western Australia, Northern Territory, Bali Western Australia, Northern Territory, Bali Western Australia, Northern Territory, Bali ATR 72-500 MSN 954 11 August 2011 ATR 72-500 MSN 955 18 August 2011 ATR 72-500 MSN 974 13 October 2011 Virgin Australia (VH-FVH) Victoria, New South Wales, Queensland Virgin Australia (VH-FVI) Virgin Australia (VH-FVL) Victoria, New South Wales, Queensland Victoria, New South Wales, Queensland MSN denotes Manufacturer’s Serial Number 3 ANNUAL REPORT 2011 Contents Chairman’s Statement Company Overview Board of Directors Report of the Directors Directors’ Remuneration Report Statement of Directors’ Responsibilities Independent Auditors’ Report PAGE 5 6 7 8 10 13 14 Financial Statements Consolidated Income Statement Consolidated Balance Sheet Company Balance Sheet Consolidated Statement of Changes in Equity Company Statement of Changes in Equity Consolidated Cash Flow Statement Company Cash Flow Statement Notes to the Consolidated Financial Statements Top 20 Shareholders PAGE 15 16 17 18 19 20 21 22 23 56 4 Chairman’s Statement Your Board overwhelmingly recognises the importance of rewarding shareholders and is recommending to shareholders a fi nal dividend payment of 1 pence per share and the Company hopes to maintain a progressive dividend policy going forward. The record date for this fi nal dividend will be announced in the meeting materials for the upcoming annual general meeting. The Company is registered in England and Wales, however, the group is operationally headquartered in Singapore. Therefore during 2011 the Company successfully made an application to migrate its tax resident to Singapore. With eff ect from 1 April 2011 the Company became a Singaporean Corporate Taxpayer. The current corporation tax rate in Singapore is 17%. The Company and its subsidiaries have secured the bulk of its debt funding at a cost of around 6% per annum. Whilst the Company believes that it can obtain access to further funds for the purchase of aircraft, access to funding nevertheless remains a risk, this risk is common to all businesses that are capital intensive, such as your business. Specifi c aviation based industry risks are also present and include the creditworthiness of client airlines. My colleagues and I are committed to continue to work tirelessly to build your Company into a respected, profi table, diversifi ed and cash generative aircraft leasing business. The Board would like to thank you – the shareholders and all other stakeholders - for your continued support and goodwill and look forward to the future with confi dence in the successful development of Avation PLC. Robert Jeff ries Chatfi eld, Chairman Singapore 28 October 2011 On behalf of your Board of Directors, I present to you the audited fi nancial statements for Avation PLC and its subsidiaries for the year ended 30th June 2011 and inform you of the progress that the Avation Group has made. The highlights are: • Record net after tax profi ts, increased by 120% to: GBP 3,627,293; • Record earnings per share increased by 87% to 11.95 pence; and • Dividends increased by 66% to: 1.00 pence per share. Your Board is pleased to report that in respect of the year ending 30th June 2011 the consolidated net profi t after tax was GBP 3,627,293 on revenues of GBP 16,291,428 with earnings per share of 11.95 pence. The operating businesses had a good year with the signing of a major strategic growth initiative with Virgin Australia in respect to the delivery of between 8 and 18 new Aircraft. Operationally there were excellent cash fl ows being recorded across the Group. The business has continued to grow and we have increased the net profi t after tax for the Group by 120%. As of June 30th, the net assets of the Group have increased from GBP 36,031,926 to GBP 49,460,598 by 37%. The Board of Directors believe that they have demonstrated that the Group has a sustainable business model which demonstrates consistent performance. The Group has entered into 10-year loan facility agreements for up to US$152.2m, principally under a mandate to Credit Agricole Corporate and Investment Bank. The loan facilities can be drawn down progressively by an aircraft by aircraft basis for the purpose of purchasing eight new ATR72 Aircraft for operation in Australia. The aircraft are being leased by the Company to Australian carrier Skywest Airlines, who in turn operate the aircraft on behalf of Virgin Australia, under the Virgin Australia brand, pursuant to 10 year wet-leases. As at the balance sheet date of June 30th 2011, Avation Plc had not delivered any of the ATR72 aircraft to be operated for Virgin Australia. Therefore the fi nancial performance presented in these results does not include any revenues from these aircraft. All deliveries and revenues commence after the balance date. The fi rst Virgin Australia aircraft was delivered on the 11th of August 2011, the second on the 18th of August 2011 and the third on the 13th of October 2011. It is anticipated that the 4th aircraft will be delivered during November 2011 and four deliveries are planned to occur during mid 2012. 5 ANNUAL REPORT 2011 Company Overview Group Structure AVATION PLC UK Co. No. 5872328 REGISTERED OFFICE: Georgian House, 63 Coleman Street, London EC2R 5BB DATE OF INCORPORATION: England & Wales, 11 July 2006, admitted on LSE, UK on 6 October 2010 100% 51.18% 99.96% 100% F100 PTY LTD CAPITAL LEASE AVIATION PLC AVATION.NET INC MSN 429 LIMITED REGISTERED OFFICE: REGISTERED OFFICE: REGISTERED OFFICE: REGISTERED OFFICE: “Barringtons House” 283 Rokeby Road Subiaco WA 6008 Georgian House 63 Coleman Street London EC2R 5BB Corporation Trust Center 1209 Orange Street Wimington USA Georgian House 63 Coleman Street London EC2R 5BB DATE OF INCORPORATION: DATE OF INCORPORATION: DATE OF INCORPORATION: DATE OF INCORPORATION: Australia, 15 November 2006 England & Wales, 6 June 2007 Delaware, USA, 18 January 2000 England & Wales, 24 March 2010 100% 100% 100% CAPITAL LEASE MALTA LIMITED CAPITAL LEASE AUSTRALIAN PORTFOLIO ONE PTY LTD AVATION.NET INC SINGAPORE BRANCH REGISTERED OFFICE: REGISTERED OFFICE: REGISTERED OFFICE: Suite 2, Towers Business Centre “Barringtons House” Tower Street Swatar, Birkirkara BK 4013 Malta 283 Rokeby Road Subiace WA 6008 510 Thomson Road #12-04 SLF Building Singapore 298135 DATE OF INCORPORATION: DATE OF INCORPORATION: DATE OF INCORPORATION: Victoria, Australia, 11 September 2007 Singapore, 2 October 2007 Malta, 20 June 2008 6 Board of Directors Jeff Chatfi eld Chairman Mr Chatfi eld is the Chairman of Avation PLC and has been instrumental in establishing and growing the Company. He is also the Group Executive Andrew Baudinette Non-Executive Director Mr Baudinette has been a director of the Company since incorporation on 11 July 2006. He is an Australian citizen and a resident of the Republic of Singapore. A skilled Chairman of Skywest Airlines Ltd and Chairman of Skywest Airlines (Australia) Pty Ltd. Mr Chatfi eld has managed and been a director of a number of companies involved in the airline industry, data distribution, electronics, investment, broadcasting and manufacturing sectors. He has worked in a number of successful start-up companies and is the author and registered holder of a variety of patents. He has a Bachelor of Engineering and a Master of Engineering Science from the University of Western Australia. He is a member of the Australian Institute of Company Directors and the Singapore Institute of Directors. He was born in Perth, Australia and is a Permanent Resident of Singapore. marketer and manager, he has a 25 year history in media, having held management positions in the Australian radio and newspaper industries. Prior to this, he was a broadcaster and radio programmer in regional Australian radio. He was appointed as CEO of the Company’s subsidiary Avation.net Inc in 2003 and became its Managing Director in 2005. As well as having signifi cant management level experience in all facets of commercial media and emerging technology, Mr Baudinette has had practical exposure to corporate re-structuring. He has been involved with and driven start-up businesses in the advertising, travel, technology and entertainment industries. Bryant McLarty Non-Executive Director Appointed as a Director of the Company in 2007, Mr McLarty has extensive experience in corporate strategy and management with a practical working knowledge of securities and equity markets. He currently is Executive Chairman of the Australian pharmaceutical company PharmAust Limited and has been the Managing Director of several ASX listed companies and is currently a director of a number of listed and unlisted companies. He is also a member of the Australian Institute of Company Directors. 7 ANNUAL REPORT 2011 Report of the Directors The directors have pleasure in presenting their report and fi nancial statements for the fi nancial year ended 30 June 2011. The full business review can be found in the Chairman’s statement on page 5. The Group has not sought to review environmental matters nor social and community issues. Principal activities and business review Results and dividends The principal activities of the group are the holding of investments, involved in the owning and leasing of aircraft. The Company also owns and leases aircraft in its own right. The principal risks and uncertainties aff ecting the Group’s turnover are described in note 6. The consolidated statement of comprehensive income for the period is set out on page 16. The directors have proposed to pay a 1p (2010: 0.6p) fi nal dividend. Directors and their interests The directors who served the Company during the period together with their interests (including family interests) in the shares of the Company and other group companies at the beginning (or subsequent date of appointment) and end of the period, were as follows: The Company Direct interest Deemed interest Robert Jeff ries Chatfi eld Andrew Baudinette Bryant James McLarty 30 June 2011 1 July 2010 30 June 2011 1 July 2010 1 1 1 1 6,863,210 4,400,000 620,000 620,000 50,000 57,300 7,300 - 8 Report of the Directors (cont’d) Signifi cant Shareholdings Creditors Payment Policy Ordinary Shares of £0.01 each Percentage Fitel Nominees Limited 6,553,210 17% Fitel Nominees Limited 2,700,000 Fitel Nominees Limited 2,314,156 Apollo Nominees Ltd 1,913,000 Credit Suisse Securities (Europe) Limited 1,583,244 Equal Opportunities Policy 7% 6% 5% 4% It is the group’s policy to employ individuals with the necessary qualifi cations without regard to sex, marital status, race, creed, colour, nationality or religion. Full and fair consideration is given to applications for employment made by disabled persons having regard to their particular aptitudes and abilities. The group recognises the great importance of the contribution made by all employees and aims to keep them informed of matters aff ecting them as employees and developments within the group. Communication and consultation is achieved by a variety of means both within individual companies or branches and on a group-wide basis. Directors’ Insurance The group maintains insurance policies on behalf of all the directors against liability arising from negligence, breach of duty and breach of trust in relation to the group. Combined code The group’s current policy concerning the payment of trade creditors is to: - settle the terms of payment with suppliers when agreeing the terms of each transaction; - ensure that suppliers are made aware of the terms of payment by inclusion of the relevant terms in contracts; and - pay in accordance with the group’s contractual and other legal obligations. On average, trade creditors at the year end represented 60 days’ purchases. Statement as to disclosure of information to auditors (a) so far as the directors are aware, there is no relevant audit information of which the Company’s auditors are unaware, and (b) they have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. Auditors Kingston Smith LLP have indicated their willingness to continue in off ice and in accordance with s489 of the Companies Act 2006, a resolution proposing that they be reappointed as auditors of the Company will be put to the Annual General Meeting. On behalf of the board Robert Jeff ries Chatfi eld Director The company has no requirement to comply with the Combined Code. 28 October 2011 9 ANNUAL REPORT 2010 Directors Remuneration Report Introduction Share options and warrants The Group has an ownership-based compensation scheme for directors and senior management of the Group. Each share warrant converts into one ordinary share of Avation PLC on exercise. No amounts are paid or are payable by the recipient on receipt of the warrant. The warrants carry neither rights to dividends nor voting rights. Warrants may be exercised at any time from the date of vesting to the date of their expiry. Warrants are granted to the directors and senior management of the Group to gain: • • • Improvement in share price Improvement in net profi t Improvement in return to shareholders This report has been prepared in accordance with Part 15 Chapter 6 of the Companies Act 2006. As required a resolution to approve the Directors’ remuneration will be proposed at the forthcoming Annual General Meeting of the Company at which the fi nancial statements will be approved. The vote will have advisory status, will be in respect of the remuneration policy and overall remuneration packages and will not be specifi c to the individual levels of remuneration. Remuneration policy The Group aims to ensure that the executive remuneration arrangements are in line with the Group’s overall practice on pay and benefi ts and having regards to the size and nature of the business, are competitive and designed to attract, retain motivate directors of high calibre. Each director is employed by the Company under a written contract of employment. Remuneration (audited) Individual Director’s remuneration was as follows Year ended 30 June 2011 £ Year ended 30 June 2011 £ Percentage Executive Robert Jeff ries Chatfi eld 185,680 131,725 Non-executive Andrew Baudinette 109,073 82,022 Bryant James McLarty 12,500 10,831 307,253 224,578 10 Directors Remuneration Report (cont’d) The following share warrants issued to directors existed at the year end: Director’s name Date granted Warrant price Balance at beginning of year Granted during the year Exercised/ expired during the year Balance at end of year Robert Jeff ries Chatfi eld * 30 Oct 2006 4 p 2,889,490 Robert Jeff ries Chatfi eld * 21 Dec 2009 Robert Jeff ries Chatfi eld * 2 Dec 2010 Andrew Baudinette ** 21 Dec 2009 Andrew Baudinette ** 2 Dec 2010 Bryant James McLarty 21 Dec 2009 Bryant James McLarty 2 Dec 2010 35.5 p 67.5 p 35.5 p 67.5 p 35.5 p 67.5 p 200,000 - - (2,889,490) - (23,720) 176,280 - 200,000 - 200,000 75,000 - (75,000) - 75,000 50,000 - - 50,000 - - - - 75,000 50,000 50,000 * Robert Jeff ries Chatfi eld was granted the share warrants via Epsom Assets Limited. ** Andrew Baudinette was granted the share warrants via Giant Mix Investments Limited. On 26 October 2010, Robert Jeff ries Chatfi eld via Epsom Assets Limited exercised 2,313,210 warrants at the exercise price of 4p and 35.5p, the market price on that day of exercise was 65p. On 11 April 2011, Andrew Baudinette via Giant Mix Investments Limited exercised 75,000 warrants at the exercise price of 35.5p, the market value on that day of exercise was £1.17. 11 ANNUAL REPORT 2011 Directors Remuneration Report Company’s performance The graph below shows the total shareholder return on a holding of shares in the company as against the average total shareholder return of the companies comprising the FTSE 100 Index over the last fi ve years. The FTSE 100 Index was selected because in the opinion of the Board it is the most appropriate for the company for the purposes of a benchmark. 24/04/08 21/10/08 19/04/09 16/10/09 14/04/10 11/10/10 09/04/11 06/10/11 Avation FTSE 100 3500 3000 2500 2000 1500 1000 500 0 01/11/06 30/04/07 27/10/07 On behalf of the board Robert Jeff ries Chatfi eld Director 28 October 2011 12 Directors’ Responsibilities Statement of Directors’ responsibilities The Directors are responsible for preparing the Directors’ Report and the fi nancial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare fi nancial statements for each fi nancial year. Under Company Law the Directors must not approve the fi nancial statements unless they are satisfi ed that they give a true and fair view of the state of aff airs of the Company and of the Group and the fi nancial performance and cash fl ows of the Group for that year. In preparing these fi nancial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • • • state whether in preparation of the Company and the Group fi nancial statements, the Company and the Group has complied with IFRS as adopted by the European Union as applied in accordance with the provisions of the Companies Act 2006, subject to any material departures disclosed and explained in the Group fi nancial statements; the Directors are required under the Standard Rules of the London Stock Exchange to prepare Group fi nancial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) and have elected to prepare the Company fi nancial statements in accordance with IFRS as adopted by the EU as applied in accordance with the provisions of Companies Act 2006. • prepare the accounts 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 that are suff icient to show and explain the Company and the Group’s transactions and disclose with reasonable accuracy at any time the fi nancial position of the Company and the Group and enable them to ensure that the fi nancial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and fi nancial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of the fi nancial statements may diff er from legislation in other jurisdictions. 13 ANNUAL REPORT 2011 Report of the Auditors INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF AVATION PLC We have audited the fi nancial statements of Avation PLC for the year ended 30 June 2011 which comprise the Consolidated Statement of Comprehensive Income, the Company Statement of Comprehensive Income, the Consolidated Balance Sheet, the Company Balance Sheet, the Consolidated Statement of Changes in Equity, the Company Statement of Changes in Equity, the Consolidated Statement of Cash Flows, the Company Statement of Cash Flows and the related notes. The fi nancial 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 fi nancial 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 for no purpose other than to draw to the attention of the Company’s members those matters which we are required to include in an auditors’ report addressed to them. To the fullest extent permitted by law, we do not accept or assume responsibility to any party other than the Company and Company’s members as a body, for our work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Directors’ Responsibilities Statement set out on page 10 the directors are responsible for the preparation of the fi nancial statements and for being satisfi ed that they give a true and fair view. Our responsibility is to audit and express an opinion on the fi nancial 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 (APB’s) Ethical Standards for Auditors. Scope of the audit of the fi nancial statements An audit involves obtaining evidence about the amounts and disclosures in the fi nancial statements suff icient to give reasonable assurance that the fi nancial 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 circumstances and have been consistently applied and adequately disclosed; the reasonableness of signifi cant accounting estimates made by the directors; and the overall presentation of the fi nancial statements. In addition, we read all the fi nancial and non-fi nancial information in the fi nancial statements to identify material inconsistencies with the audited fi nancial statements. If we became aware of any apparent material misstatements or inconsistencies we consider the implications in our report. Opinion on the fi nancial statements In our opinion the group fi nancial statements: • • • • the fi nancial statements give a true and fair view of the state of the Group’s and of the parent company’s aff airs as at 30 June 2011 and of the Group’s profi t for the year then ended; the Group’s fi nancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company fi nancial statements have been prepared properly in accordance with IFRS as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006, and the fi nancial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group fi nancial statements, Article 4 of the IAS Regulation. Opinion on other matter 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 fi nancial year for which the fi nancial statements are prepared is consistent with the fi nancial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us 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 • 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 fi nancial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specifi ed • by law are not made; or • we have not received all the information and explanations we require for our audit. Matthew Meadows (Senior Statutory Auditor) for and on behalf of Kingston Smith LLP, Statutory Auditor Devonshire House 60 Goswell Road London EC1M 7AD 28 October 2011 14 Financial Statements FOR THE FINANCIAL YEAR ENDED 30 JUNE 2011 REGISTERED NUMBER: 5872328 (ENGLAND & WALES) 15 ANNUAL REPORT 2011 Consolidated Statement of Comprehensive Income FOR THE FINANCIAL YEAR ENDED 30 JUNE 2011 Continuing operations Revenue Cost of sales Gross profi t Other income Other operating expenses Expenses - Administrative expenses - Finance expenses Profi t before taxation Taxation Note 2011 £ 2010 £ 8 16,291,428 17,552,513 (739,278) (983,879) 15,552,150 16,568,634 297,792 5,948 (6,207,042) (8,864,955) (1,255,756) (841,892) (2,755,498) (3,319,635) 5,631,646 3,548,100 (574,920) (729,517) 9 10 11 13 14 Profi t from continuing operations for the year 5,056,726 2,818,583 Other comprehensive income Gain on dilution of interest in subsidiary Currency translation diff erences arising on consolidation Revaluation gains on property, plant and equipment, gross of tax Deferred tax on revaluation gains on property, plant and equipment Other comprehensive income for the year, (net of tax) Total comprehensive income for the year Profi t attributable to: Equity holders of the parent Non-controlling interest Total comprehensive income attributable to: Equity holders of the parent Non-controlling interest Earnings per share 15 - Basic – continuing and total operations - Fully Diluted – continuing and total operations COMPANY STATEMENT OF COMPREHENSIVE INCOME Profi t for the year Other comprehensive income: Revaluation gains on property, plant and equipment, gross of tax Deferred tax on revaluation gains on property, plant and equipment Other comprehensive income for the year, (net of tax) – 1,733 (1,809,245) 4,076,569 1,341,951 (482,322) (949,616) – – 4,078,302 4,107,110 6,896,885 3,627,293 1,429,433 5,056,726 3,128,808 978,302 4,107,110 1,653,027 1,165,556 2,818,583 4,069,879 2,827,006 6,896,885 11.95 pence 6.39 pence 11.84 pence 6.30 pence 2011 £ 2010 £ 1,288,382 262,668 26,696 (4,538) 22,158 – – – Total comprehensive income for the year 1,310,540 262,668 16 Consolidated Balance Sheet AS AT 30 JUNE 2011 ASSETS Current assets: Cash and cash equivalents Trade and other receivables Inventories Total current assets Non-current assets: Property, plant and equipment Goodwill Total non-current assets Total assets LIABILITIES AND EQUITY Current liabilities: Trade and other payables Provision for taxation Loans and borrowings Short-term provisions Total current liabilities Non-current liabilities: Trade and other payables Loans and borrowings Deferred tax liabilities Total non-current liabilities Equity attributable to shareholders: Share capital Share premium Assets revaluation reserve Capital redemption reserve Warrant reserve Foreign currency translation reserve Retained earnings Non-controlling interest Total liabilities and equity Note 2011 £ 2010 £ 16 17 19 20 21 22 23 21 22 24 5,626,771 7,542,395 1,946 13,171,112 1,227,881 1,195,859 707 2,424,447 84,896,190 92,520,577 1,324,541 1,324,541 86,220,731 93,845,118 99,391,843 96,269,565 3,331,862 3,818,692 38,748 18,368 9,865,455 9,602,462 2,849,839 2,047,185 16,085,904 15,486,707 942,009 1,379,641 28,091,394 39,123,267 4,811,938 4,248,024 33,845,341 44,750,932 25 386,072 10,543,750 7,436,517 7,000 74,381 262,190 1,249,258 6,760,372 7,000 - 2,388,729 3,563,359 14,890,326 11,434,226 35,726,775 23,276,405 13,733,823 12,755,521 49,460,598 36,031,926 99,391,843 96,269,565 Approved by the board and authorised for issue on 28 October 2011. Robert Jeff ries Chatfi eld Director 17 Note 2011 £ 2010 £ 16 18 19 21 22 22 24 3,310,383 5,961,754 9,272,137 1,440,336 5,654,618 7,094,954 214,497 348,492 562,989 1,440,287 4,952,825 6,393,112 16,367,091 6,956,101 719,896 642,679 – 1,252,377 1,972,273 1,738,069 138,340 1,876,409 72 1,163,482 1,806,233 3,070,295 193,266 3,263,561 25 386,072 262,190 10,543,750 1,249,258 22,158 7,000 74,381 – 7,000 – 1,485,048 12,518,409 367,859 1,886,307 16,367,091 6,956,101 ANNUAL REPORT 2011 Company Balance Sheet AS AT 30 JUNE 2011 ASSETS Current assets: Cash and cash equivalents Trade and other receivables Total current assets Non-current assets: Investment in subsidiaries Property, plant and equipment Total non-current assets Total assets LIABILITIES AND EQUITY Current liabilities: Trade and other payables Provision for taxation Loans and borrowings Total current liabilities Non-current liabilities: Loan and borrowings Deferred tax liabilities Total non-current liabilities Capital and reserves: Share capital Share premium Assets revaluation reserve Capital redemption reserve Warrant reserve Retained earnings Net equity Total liabilities and equity Approved by the board and authorised for issue on 28 October 2011. Robert Jeff ries Chatfi eld Director 18 Consolidated Statement of Changes in Equity FOR THE FINANCIAL YEAR ENDED 30 JUNE 2011 Assets Capital currency Share Non- Share Share Revaluation Redemption Warrant Translation Option Retained Controlling Total Capital Premium Reserve Reserve Reserve Reserve Reserve Earnings Total Interest Equity £ £ £ £ £ £ £ £ £ £ £ Foreign Group Balance at 1 July 2010 Profi t for the year Other comprehensive income Total comprehensive income Dividend related to 2010 paid Increase in issued share capital Share issue expenses Warrant expenses Balance at 30 June 2011 Balance at 1 July 2009 Profi t for the year Other comprehensive income Total comprehensive income Transfer between reserve Dividend related to 2009 paid Increase in issued share capital Balance at 30 June 2010 262,190 1,249,258 6,760,372 7,000 – – – – – – – 676,145 – – 676,145 – – – – – – – – – – – – – – 74,381 123,882 10,002,743 – (708,251) – – – – 3,563,359 – 11,434,226 23,276,405 12,755,521 36,031,926 – – 3,627,293 3,627,293 1,429,433 5,056,726 – (1,174,630) – – (498,485) (451,131) (949,616) – (1,174,630) – 3,627,293 3,128,808 978,302 4,107,110 – – – – – (171,193) (171,193) – (171,193) – – – – 10,126,625 – 10,126,625 – (708,251) – (708,251) – 74,381 – 74,381 386,072 10,543,750 7,436,517 7,000 74,381 2,388,729 – 14,890,326 35,726,775 13,733,823 49,460,598 255,555 1,216,336 6,760,372 7,000 – – – – – – – – – – 6,635 32,922 – – – – – – – – – – – – – – 1,148,240 12,788 9,897,773 19,298,064 9,928,515 29,226,579 - – 1,653,027 1,653,027 1,165,556 2,818,583 – 2,415,119 – 1,733 2,416,852 1,661,450 4,078,302 – 2,415,119 – 1,654,760 4,069,879 2,827,006 6,896,885 – – – – (12,788) 12,788 – – – – – – (131,095) (131,095) – (131,095) – – 39,557 – 39,557 262,190 1,249,258 6,760,372 7,000 – 3,563,359 – 11,434,226 23,276,405 12,755,521 36,031,926 During the prior fi nancial year, the Company diluted the interest in its subsidiary, Capital Lease Aviation PLC from 51.22% to 51.18% shareholding through the issue of 663,500 new ordinary shares of £0.001 each at £0.24 per ordinary share. The 2011 dividend paid during the year was for 0.6p (2010: 0.6p) per share. 19 ANNUAL REPORT 2011 Company Statement of Changes in Equity FOR THE FINANCIAL YEAR ENDED 30 JUNE 2011 Asset Capital Share Share Revaluation Redemption Warrant Retained Capital Premium Reserve Reserve Reserve Earnings Total £ £ £ £ £ £ £ Company Balance at 1 July 2010 262,190 1,249,258 Profi t for the year Other comprehensive income Total comprehensive income Dividend relating to 2010 paid Increase of issued share capital – – – – – – – – 123,882 10,002,743 Share issue expenses – (708,251) Warrant expenses – – Balance at – – 22,158 22,158 – – – – 7,000 – – – – – – – – – – – 367,859 1,886,307 1,288,382 1,288,382 – 22,158 1,288,382 1,310,540 – (171,193) (171,193) – – – 10,126,625 – (708,251) 74,381 – 74,381 30 June 2011 386,072 10,543,750 22,158 7,000 74,381 1,485,048 12,518,409 Balance at 1 July 2009 Profi t for the year Other comprehensive income Total comprehensive income Dividend relating to 2009 paid Increase of issued share capital Balance at 30 June 2010 255,555 1,216,336 – – – – – – – – 6,635 32,922 262,190 1,249,258 – – – – – – – 7,000 – – – – – 7,000 – – – – 236,286 1,715,177 262,668 262,668 – – 262,668 262,668 – (131,095) (131,095) – – – 39,557 367,859 1,886,307 The 2011 dividend paid during the year was for 0.6p (2010: 0.6p) per share. 20 Consolidated Statement of Cash Flows FOR THE FINANCIAL YEAR ENDED 30 JUNE 2011 Cash fl ows from operating activities: Profi t before taxation Adjustments for: Depreciation expense Claim on maintenance reserve Warrant expense Interest expense Interest income Operating profi t before working capital changes Movement in working capital: Trade and other receivables Inventories Trade and other payables Short-term provisions Cash from operations Interest paid Interest received Corporation tax paid Net cash from operating activities Cash fl ows from investing activities: Purchase of property, plant and equipment Loan to related parties Net cash used in investing activities Cash fl ows from fi nancing activities: Net proceeds from issuance of ordinary shares Net proceeds from issuance of subsidiary’s shares to minority Dividends paid Proceeds from borrowings Repayment of borrowings Capital element of fi nance lease repayments Net cash from (used in) fi nancing activities Eff ects of exchange rates on cash and cash equivalents Net increase in cash and cash equivalents Cash and cash equivalents at beginning of fi nancial year Cash and cash equivalents at end of fi nancial year 2011 £ 2010 £ 5,631,646 3,548,100 4,964,453 1,242,589 74,381 2,680,231 (3,607) 14,589,693 (5,157,029) (1,239) (972,482) (311,597) 8,147,346 (2,809,256) 3,607 (440,543) 4,901,154 (19,233) (1,579,860) (1,599,093) 9,418,374 – (171,193) 1,257,800 (8,192,846) (1,355,278) 956,857 139,972 4,398,890 1,227,881 5,626,771 4,704,804 4,102,127 – 3,156,229 (5,948) 15,505,312 379,919 (214) 796,367 (3,143,497) 13,537,887 (3,156,229) 5,948 (204,574) 10,183,032 (1,237) – (1,237) 39,557 22,972 (131,095) – (4,283,186) (781,036) (5,132,788) (4,860,447) 188,560 1,039,321 1,227,881 Cash and cash equivalents in the consolidated cash fl ow statement are not restricted in use and are denominated in the following currencies: Pounds Sterling United States Dollars Australian Dollars Euro Singapore Dollars Interest earning balances 2011 £ 2,878,890 2,686,475 11,089 1,198 49,119 5,626,771 5,577,652 2010 £ 120,956 1,011,459 49,119 441 45,906 1,227,881 1,181,975 The rate of interest for the cash on interest earning accounts is at 1.0% to 4.5% (2010:1.0% to 4.5%) per annum. These approximate the weighted eff ective interest rate. 21 ANNUAL REPORT 2011 Company Statement of Cash Flows FOR THE FINANCIAL YEAR ENDED 30 JUNE 2011 Cash fl ows from operating activities: Profi t before taxation Adjustments for: Depreciation Warrant expense Interest expense Operating profi t before working capital changes Movement in working capital: Trade and other receivables Trade and other payables Cash (used in) from operations Interest paid Corporation tax paid Net cash from operating activities Cash fl ows from investing activities: Loan to related parties Investment in subsidiaries Net cash used in investing activities Cash fl ows used in fi nancing activities: Net proceeds from issuance of ordinary shares Dividends paid Capital element of fi nance lease repayments Net cash used in fi nancing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of fi nancial year Cash and cash equivalents at end of fi nancial year 2011 £ 2010 £ 1,228,848 474,695 226,093 74,381 154,744 1,684,066 (4,645,598) 29,195 61,989 - 88,413 625,097 8,034 588,714 (2,932,337) 1,221,845 (283,769) - (88,413) (94,474) (3,216,106) 1,038,958 (1,579,860) (49) (1,579,909) 9,418,374 (171,193) (1,355,280) 7,891,901 3,095,886 214,497 3,310,383 - (1) (1) 39,557 (131,095) (781,036) (872,574) 166,383 48,114 214,497 Cash and cash equivalents in the cash fl ow statement are not restricted in use and are denominated in the following currencies: Pounds Sterling United States dollars 2011 £ 2,824,927 485,456 3,310,383 2010 £ 60,390 154,107 214,497 The rate of interest for the cash on interest earning accounts is at 1.0% (2010:1.0%) per annum. These approximate the weighted eff ective interest rate. 22 Notes to Financial Statements FOR THE FINANCIAL YEAR ENDED 30 JUNE 2011 1 GENERAL Avation PLC is a public limited company incorporated in England and Wales under the Companies Act 2006 (Registration Number 05872328) and is listed as a Standard Listing on the London Stock Exchange. The address of the registered off ice is given on page 1. As disclosed in the Report of the Directors, the principal activities of the Company and its subsidiaries are the holding of investments involved in owning and leasing of aircraft. The Company also owns and leases aircraft in its own right. 2 STATEMENT OF COMPLIANCE These fi nancial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and their interpretations issued or adopted by the International Accounting Standards Board as adopted by use in the European Union (“IFRS”). 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) BASIS OF PREPARATION – The fi nancial statements have been prepared in accordance with IFRS including standards and interpretations issued by the International Accounting Standards Board (“IASB”), and have been prepared in accordance with the historical cost convention, as modifi ed by the revaluation of aircraft. The fi nancial statements are presented in Pounds Sterling, rounded to the nearest Pound. The preparation of fi nancial statements in conformity with IFRS requires the use of estimates and assumptions that aff ect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the fi nancial statements and the reported amounts of revenues and expenses during the fi nancial period. Although these estimates are based on management’s best knowledge of current events and actions, actual results may ultimately diff er from those estimates. The accounting policies set out below have been applied consistently throughout the fi nancial period presented in these fi nancial statements and the accounting policies have been applied consistently by the Company and its subsidiaries. b) BASIS OF CONSOLIDATION - The consolidated fi nancial statements comprise the fi nancial statements of Avation PLC and its subsidiaries as at 30 June 2011. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. The fi nancial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in full. Losses within a subsidiary are attributed to the non-controlling interest even if that results in a defi cit balance. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it: • • • • • • • Derecognises the assets (including goodwill) and liabilities of the subsidiary Derecognises the carrying amount of any non-controlling interest Derecognises the cumulative translation diff erences, recorded in equity Recognises the fair value of the consideration received Recognises the fair value of any investment retained Recognises any surplus or defi cit in profi t or loss Reclassifi es the parent’s share of components previously recognised in other comprehensive income to profi t or loss. 23 ANNUAL REPORT 2011 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 c) BUSINESS COMBINATIONS Business combinations from 1 July 2009 Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifi able net assets. Acquisition costs incurred are expensed and included in administrative expenses. When the Group acquires a business, it assesses the fi nancial assets and liabilities assumed for appropriate classifi cation and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profi t or loss. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, will be recognised in accordance with IAS 39 either in profi t or loss or as a change to other comprehensive income. If the contingent consideration is classifi ed as equity, it is not remeasured until it is fi nally settled within equity. Business combinations prior to 1 July 2009 In comparison to the above-mentioned requirements, the following diff erences applied: Business combinations were accounted for using the purchase method. Transaction costs directly attributable to the acquisition formed part of the acquisition costs. The non-controlling interest (formerly known as minority interest) was measured at the proportionate share of the acquiree’s identifi able net assets. Business combinations achieved in stages were accounted for as separate steps. Any additional acquired share of interest did not aff ect previously recognised goodwill. When the Group acquired a business, embedded derivatives separated from the host contract by the acquiree were not reassessed on acquisition unless the business combination resulted in a change in the terms of the contract that signifi cantly modifi ed the cash fl ows that otherwise would have been required under the contract. Contingent consideration was recognised if, and only if, the Group had a present obligation, the economic outfl ow was more likely than not and a reliable estimate was determinable. Subsequent adjustments to the contingent consideration were recognised as part of goodwill. d) INTEREST IN JOINT VENTURE – A Joint venture is a contractual arrangement whereby the group and other parties undertake an economic activity that is subject to joint control (ie when the strategic fi nancial and operating policy decision relating to the activities of the joint venture require the unanimous consent of the parties sharing control). When a group undertakes its activities under joint venture arrangements directly, the group’s share of jointly controlled assets and any liabilities incurred jointly with other ventures are recognised in the fi nancial statements of the relevant entity and classifi ed according to their nature. Liabilities and expenses incurred directly in respect of interests in jointly controlled assets are accounted for on an accruals basis. Income from the sale or use of the group’s share of the output of jointly controlled assets, and its share of joint venture expenses, are recognised when it is probable that the economic benefi ts associated with the transactions will fl ow to/from the group and their amount can be measured reliably. e) GOODWILL - Goodwill arising on the acquisition of a subsidiary represents the excess of the cost of acquisition over the Group’s interest in the net fair value of the identifi able assets, liabilities and contingent liabilities of the subsidiary recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the 24 24 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 cost of the business combination over the Group’s interest in the net fair value of the identifi able assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifi able assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in the profi t or loss. The interest of signifi cant minority shareholders in the acquiree is initially measured at the non-controlling interest’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefi t 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 fi rst 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 profi t or loss on disposal. f) INVENTORIES – Inventories of consumable spare parts are stated at the lower of cost or market value determined on a portfolio basis. g) PROPERTY, PLANT AND EQUIPMENT – Aircraft held for use in the supply or rental service, are stated in the balance sheet at their revalued amounts, being the fair value at the date of revaluation, less any accumulated depreciation and accumulated impairment losses. Revaluations are performed with suff icient regularity such that the carrying amount does not diff er materially from that which would be determined using fair values at the balance sheet date. Any revaluation increase arising on the revaluation of such aircraft is credited to the assets revaluation reserve, except to the extent that it reverses a revaluation decrease for the same asset previously recognised in profi t or loss, in which case the increase is credited to profi t or loss to the extent of the decrease previously charged. A decrease in carrying amount arising on the revaluation of such aircraft is charged to profi t or loss to the extent that it exceeds the balance, if any, held in the assets revaluation reserve relating to a previous revaluation of that asset. Depreciation on revalued aircraft is charged to profi t or loss. On the subsequent sale or retirement of a revalued aircraft, the attributable revaluation surplus remaining in the asset revaluation reserve is transferred directly to retained earnings. Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is charged so as to write off the cost or valuation of assets less residual values, over their estimated useful lives, using the straight-line method, on the following bases: Aircraft Furniture and equipment - - 30 years 3 years Fully depreciated assets still in use are retained in the fi nancial statements. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the diff erence between the sales proceeds and the carrying amount of the asset and is recognised in profi t or loss. During the fi nancial year, the following accounting estimates in relation to items of property, plant and equipment have been reviewed and adjusted at the last reporting date with eff ect from 1 July 2010: Useful life has been changed from 25 years to 30 years The residual value has been changed from directors estimates to estimates based on information from independent valuers. The impact of these changes on the current year was to increase the depreciation expense by £276,831. 25 ANNUAL REPORT 2011 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 h) IMPAIRMENT OF ASSETS - At each balance sheet date, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suff ered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. 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. Impairment losses are recognised as an expense immediately. When 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 only to the extent 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 as income immediately. i) 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 balance sheet date, and are discounted to present value where the eff ect is material. In respect of maintenance rent, a corresponding provision is made in accordance with the expected maintenance costs that will be drawn in accordance with the lease conditions and lease term. j) SHARE-BASED PAYMENTS – The cost of share based payment arrangement whereby employees receive remuneration in the form of warrants, is recognised as an employee benefi t expense in the profi t or loss. The total expense to be apportioned over the vesting period of the benefi t is determined by reference to the fair value at date of grant. The assumption underlying the number of warrants expected to vest are subsequently adjusted for the eff ects of non market-based vesting conditions prevailing at the balance sheet date. Fair value is measured by the use of the Binomial option pricing model and is based on a reasonable expectation of the extent to which performance criteria will be met. k) LEASES – The Group leases aircraft to airlines under operating leases. Leases of aircraft where the Group retains substantially all risks and rewards incidental to ownership are classifi ed as operating leases. Rental income from operating leases (net of any incentives given to the lessees) is recognised in the profi t or loss on a straight-line basis over the lease term. The Group leases aircraft for use in the business. Where the Group bears substantially all the risk and rewards of ownership of the item, the lease is classifi ed as a fi nance lease and the item is capitalised within the appropriate class of property, plant and equipment at the lower of the fair value of the leased item and the minimum lease payments. Each lease payment is allocated between the liability and fi nance charges so as to obtain a constant rate on the fi nance balance outstanding. The outstanding capital element of the lease payments are included within current and long-term payables as appropriate; the interest element of the lease payments is charged to profi t or loss over the period of the lease so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. l) REVENUE RECOGNITION – Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and sales related taxes. (i) Aircraft rental income is recognised in the profi t or loss on a straight line basis over the terms of the lease. Lease incentives granted are recognised as an integral part of the total rental income. (ii) Interest income is accrued on a time basis, by reference to the principal outstanding and at the eff ective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the fi nancial asset to that asset’s net carrying amount. (iii) Sales of goods are recognised when goods are delivered and title has passed. 26 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 (iv) Dividend income from investments is recognised when the shareholders’ right to receive payment have been established. (v) Licence fees received are recognised over the life of the licence agreement. Ongoing royalties/commissions pursuant to the licence agreement are recognised as earned. m) BORROWING COSTS - Borrowing costs directly attributable to the acquisition of property, plant and equipment are added to the cost of the assets and amortised over the life of the assets. The loan facility fees added to the cost of the assets are amortised between 5 years to 25 years, which is the life of the assets. All other borrowing costs are recognised in profi t or loss in the period in which they are incurred. During the fi nancial year, the Company revised the fi nance lease interest rate from 8% to 5% based on current economic conditions. This resulted in the capitalisation of an additional borrowing cost of £240,973 and a reduction in the interest expensed to the profi t or loss by £88,638. n) TAXATION - Taxation expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profi t for the fi nancial period. Taxable profi t diff ers from profi t as reported in profi t or loss because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is recognised on diff erences between the carrying amounts of assets and liabilities in the fi nancial statements and the corresponding tax bases used in the computation of taxable profi t, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary diff erences and deferred tax assets are recognised to the extent that it is probable that taxable profi ts will be available against which deductible temporary diff erences can be utilised. Such assets and liabilities are not recognised if the temporary diff erence arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that aff ects neither the taxable profi t nor the accounting profi t. Deferred tax liabilities are recognised for taxable temporary diff erences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary diff erence and it is probable that the temporary diff erence will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that suff icient taxable profi ts will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited to profi t or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are off set when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. With eff ect from 1 April 2011 the Company migrated its business to become Singapore resident for tax purposes. o) FOREIGN CURRENCIES - The Group’s consolidated fi nancial statements and Company fi nancial statements are presented in Pound Sterling, which is the presentational currency. Sterling has been retained as the presentational currency of the Company as it was UK resident for tax purposes for part of the year. The Company will consider its presentational currency for the coming year. The individual fi nancial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency) and United States Dollars is the functional currency of the each of the Group entity, including the parent company. 27 ANNUAL REPORT 2011 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 In preparing the fi nancial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non- monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange diff erences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the profi t or loss for the period. Exchange diff erences arising on the retranslation of non-monetary items carried at fair value are included in the profi t or loss for the period except for diff erences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity. For the purpose of presenting consolidated fi nancial statements, the assets and liabilities of the Group’s foreign operations are expressed in Pound Sterling using exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fl uctuated signifi cantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange diff erences arising, if any, are classifi ed as equity and transferred to the Group’s translation reserve. Such translation diff erences are recognised in profi t or loss in the period in which the foreign operation is disposed of. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. (p) FINANCIAL INSTRUMENTS - Financial assets and fi nancial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. (i) Trade and other receivables – Trade and other receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the eff ective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profi t or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured as the diff erence between the asset’s carrying amount and the present value of estimated future cash fl ows discounted at the eff ective interest rate computed at initial recognition. (ii) Cash and cash equivalents - Cash and cash equivalents comprise cash on hand and call deposits which are subject to an insignifi cant risk of changes in value. (iii) Financial liabilities and equity - Financial liabilities and equity instruments issued by the Group are classifi ed according to the substance of the contractual arrangements entered into and the defi nitions of a fi nancial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The accounting policies adopted for specifi c fi nancial liabilities and equity instruments are set out below. (iv) Borrowings - Interest-bearing loans from banks and fi nancial institutions are initially measured at fair value, and are subsequently measured at amortised cost, using the eff ective interest rate method. Any diff erence between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance with the Group’s accounting policy for borrowing costs (see above). (v) Trade and other payables - Trade payables are stated at their original invoiced value, as the interest that would be recognised from discounting future cash payments over the short payment period is not considered to be material. (vi) Trade receivables - Trade receivables are stated at their original value, as the interest that would be recognised from discounting future cash receipts over the short credit period is not considered to be material. Trade receivables are reduced by appropriate allowances for estimated irrecoverable amounts. Interest on overdue trade receivables is recognised as it accrues. (vii) Equity instruments - Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. 28 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and assumptions concerning the future are made in the preparation of the fi nancial statements. They aff ect the application of the Group’s accounting policies, reported amounts of assets, liabilities, income and expenses and disclosures made. They are assessed on an ongoing basis and are based on experience and relevant factors, including expectations of future events that are believed to be reasonable under the circumstances. The key assumptions concerning the future estimation uncertainty at the balance sheet date, that have a signifi cant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fi nancial year are discussed below. (i) Impairment of property, plant and equipment – aircraft The Group periodically evaluates its aircraft for impairment. Factors that would indicate potential impairment would include, but not be limited to, signifi cant decreases in the market value of aircraft, a signifi cant change in an aircraft’s physical condition or cash-fl ow associated with the use of the aircraft. The Group continues to record positive cash fl ows from its aircraft. The Group has not identifi ed any impairment related to its existing aircraft fl eet during the fi nancial year. (ii) Revaluation of property, plant and equipment – aircraft The Group regularly revalues its aircraft using valuations prepared by independent specialist valuers. During the fi nancial year, the Group revalued its aircraft using independent valuers valuations. During the fi nancial year, the Group revalued all its aircraft and the revaluation gains were transferred to the asset revaluation reserve. (iii) Maintenance reserve claim The Group provides for maintenance reserve claims for certain aircraft. Management has relied on industry experience and information from aircraft manufacturers and airlines to estimate the provision for the maintenance reserve claims. These estimates can be subject to revisions depending on a number of factors such as the timing of the planned maintenance, the utilisation of the aircraft, changes to the manufacturer’s maintenance program or a change in the estimated costs. Management evaluates its estimates and assumptions and, when warranted, adjusts these assumptions which may impact the maintenance reserve claim expense in the profi t or loss. (iv) Income taxes Signifi cant judgment is required in determining the capital allowances and deductibility of certain expenses during the estimation of the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax issues based on estimates of whether additional taxes will be due. Where the fi nal tax outcome of these matters is diff erent from the amounts that were initially recorded, such diff erences will impact the income tax and deferred income tax provisions in the period in which the determination is made. 5 NEW STANDARDS AND INTERPRETATIONS NOT APPLIED IASB and IFRIC have issued the following standards and interpretations with an eff ective date after the date of these fi nancial statements: The Group intends to apply these standards and interpretations when they become eff ective. Eff ective Date International Accounting Standards (IAS/IFRS) IAS 24 – Revised defi nition of related parties 1 January 2011 IFRS 9 – Financial Instruments: Classifi cation and Measurement 1 January 2013 IAS 1 – Presentation of Financial Statements (Amendments) IAS 19 – Employee Benefi ts (Amendments) IFRS 10 – Consolidated Financial Statements IFRS 11 – Joint Arrangements IFRS 12 – Disclosure of Interest with Other Entities IFRS 13 – Fair Value Measurement Improvements to IFRS (issued in May 2010) 1 July 2012 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 The Group, however, expects no impact from the adoption of the amendments on its fi nancial position or performance. 29 ANNUAL REPORT 2011 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 6 FINANCIAL RISK MANAGEMENT The main risks arising from the Group’s fi nancial assets and liabilities are airline industry risks, credit risk, interest rate risk, foreign exchange risk and liquidity risks. i) Airline Industry Risks The Group faces risks specifi c to the aviation sector, war, terrorism, equipment failure and risks specifi c to the aviation business. These exposures are managed through the equipment of the airlines that lease the Group’s assets to maintain insurance, adequate maintenance policies and/or contribute to a maintenance reserve for the major maintenance on each aircraft. ii) Credit risk Credit risk refers to the risk that debtors will default on their obligations to repay the amounts owing to the Group, resulting in a loss to the Group. The Group has no signifi cant concentrations of credit risk. The Group has adopted relevant credit policy in extending credit terms to customers and in monitoring its credit terms. The credit policy spelt out clearly the guidelines on extending credit terms to customers, including monitoring the process. This includes assessing customers’ credit standing and periodic review of their fi nancial status to determine the credit limits to be granted. The Company performs ongoing credit evaluation of its customers’ fi nancial condition and generally, requires no collateral from its customers. The maximum exposure to credit risk in the event that the counterparties fail to perform their obligations as at the end of the fi nancial period in relation to each class of fi nancial assets is the carrying amount of those assets as stated in the balance sheet. The Group currently has exposure to three airline customers across three continents with regards to its aircraft leasing business and diversifi cation will continue as the Company grows its asset base. The maximum exposure to credit risk for trade receivables at the reporting date by geographical area is: Australia United Kingdom Others Group 2011 £ 2010 £ 1,137,182 723,582 74,916 18,167 – 2,103 1,230,265 725,685 1) Financial assets that are neither past due nor impaired Bank deposits that are neither past due or impaired are mainly deposits with banks with high credit–ratings assigned by international credit-rating agencies. Trade receivables that are neither past due nor impaired are substantially companies with a good collection track record with the Group. The Group’s trade receivable not past due include receivables amounting to £1,129,826 (2010: £560,150). 2) Financial assets that are past due and/or impaired There is no class of fi nancial assets that are past due and /or impaired except for trade receivables. The age analysis of trade receivables past due but not impaired is as follows: Past due < 3 months Past due 3 to 6 months Past due over 6 months 30 Group 2011 £ 49,216 51,223 2010 £ 163,415 2,120 – – 100,439 165,535 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 iii) Interest rate risk The Group is exposed to interest rate risk through the impact of rate changes on interest bearing liabilities and assets. The Group further seeks to reduce this risk by fi xing interest rates on loans to match the term of the underlying lease term of the asset. The interest rate and terms of repayment of fi nancial assets and fi nancial liabilities are disclosed in the respective notes to the fi nancial statements. iv) Foreign currency risk Foreign currency risk occurs as a result of the Group’s transactions that are not denominated in its functional currencies. The Group’s foreign currency exposures arose mainly from the exchange rate movements of the Pound Sterling and United States dollar. These exposures are managed primarily by using natural hedges that arise from off setting assets and liabilities that are denominated in foreign currencies. The Group does not utilise forward foreign currency contracts to hedge its exposure to specifi c currency risks. The Group’s currency exposure based on the information provided to key management is as follows: Group 2011 Pounds Sterling £ United States dollars £ Australian Dollars Euro Singapore Dollars £ £ £ Total £ Cash and cash equivalents 2,878,890 2,686,475 11,089 1,198 49,119 5,626,771 Trade and other receivables 6,841 7,124,170 402,672 Loans and borrowings – (37,956,849) – 42 – 8,670 7,542,395 – (37,956,849) Other fi nancial liabilities (76,503) (4,027,341) (18,308) (5,815) (145,904) (4,273,871) Currency exposure 2,809,228 (32,173,545) 395,453 (4,575) (88,115) (29,061,554) 2010 Cash and cash equivalents 120,956 1,011,459 49,119 Trade and other receivables 44,122 921,865 218,952 Loans and borrowings – (48,725,729) – 441 299 – 45,906 10,621 1,227,881 1,195,859 – (48,725,729) Other fi nancial liabilities (68,591) (5,013,463) (6,302) (5,022) (104,955) (5,198,333) Currency exposure 96,487 (51,805,868) 261,769 (4,282) (48,428) (51,500,322) Company 2011 Pounds Sterling £ United States dollars £ Australian Dollars Singapore Dollars £ £ Total £ Cash and cash equivalents 2,824,927 485,456 Trade and other receivables 6,786 5,947,153 - (2,990,446) – – – – 3,310,383 7,815 5,961,754 – (2,990,446) Loans and borrowings Other fi nancial liabilities Currency exposure Cash and cash equivalents Trade and other receivables Loans and borrowings Other fi nancial liabilities Currency exposure (51,180) (604,003) 2,780,533 2,838,160 (4,385) (4,385) (60,326) (52,511) (719,896) 5,561,795 60,390 49,638 154,107 298,664 - (4,233,777) (34,778) (576,046) 75,250 (4,357,052) – – – – – – 190 214,497 348,492 – (4,233,777) (31,855) (642,679) (31,665) (4,313,467) 31 ANNUAL REPORT 2011 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 If the foreign currencies changes against the Pound Sterling by 10% (2010: 10%) with all other variables including tax rate being held constant, the eff ects arising from the net fi nancial liability/asset position will be as follows: Group USD against £ - strengthen - weakened AUD against £ - strengthen - weakened Euro against £ - strengthen - weakened SGD against £ - strengthen - weakened Company USD against £ - strengthen - weakened AUD against £ - strengthen - weakened SGD against £ - strengthen - weakened v) Liquidity risk Increase/(Decrease) Increase/(Decrease) 2011 Profi t after tax 2011 Equity 2010 Profi t after tax 2010 Equity £ (3,217,355) 3,217,355 39,545 (39,545) (458) 458 (8,812) 8,812 £ – – – – – – – – £ (5,180,587) 5,180,587 26,177 (26,177) (428) 428 (4,843) 4,843 £ – – – – – – – – Increase/(Decrease) Increase/(Decrease) 2011 Profi t after tax 2011 Equity 2010 Profi t after tax 2010 Equity £ 283,816 (283,816) (439) 439 (5,251) 5,251 £ – – – – – – £ (435,705) 435,705 – – (3,167) 3,167 £ – – – – – – In the management of liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by management to fi nance the Group’s operations and mitigate the eff ects of fl uctuations in cash fl ows. Short-term funding is obtained from bank loan facilities. 32 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 The table below analyses the maturity profi le of the fi nancial liabilities of the Group and the Company based on contractual undiscounted cash fl ows. Group 2011 Trade and other payables Loans and borrowings 2010 Trade and other payables Loans and borrowings Company 2011 Trade and other payables Loans and borrowings 2010 Trade and other payables Loans and borrowings vi) Capital risk Less than 1 year Between 1 and 2 years Between 2 and 5 years Over 5 years £ £ £ 3,331,862 2,437 939,572 11,953,758 12,017,462 19,182,962 15,285,620 12,019,899 20,122,534 3,818,692 2,274 1,377,367 12,488,015 16,514,404 28,165,653 16,306,707 16,516,678 29,543,020 £ - - - – – – Less than 1 year Between 1 and 2 years Between 2 and 5 years Over 5 years 719,896 1,373,458 2,093,354 642,679 1,460,137 2,102,816 - 1,779,253 1,779,253 - 3,351,680 3,351,680 – – – – – – – – – – – – The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern and to maintain an optimal capital structure so as to maximise shareholder value. In order to maintain or achieve an optimal capital structure, the Group may adjust the amount of dividend payment, return capital to shareholders, issue new shares, buy back issued shares, obtain new borrowings or sell assets to reduce borrowings. Management monitors capital based on a gearing ratio. The gearing ratio is calculated as net debt divided by total capital. Net debt is calculated as borrowings plus trade and other payables less cash and cash equivalents. Net debt Total equity Total capital Gearing ratio Group Company 2011 £ 2010 £ 2011 £ 2010 £ 36,603,949 52,696,181 399,959 49,460,598 36,031,926 12,518,409 86,064,547 88,728,107 12,918,368 4,661,959 1,886,307 6,548,266 42% 59% 3% 71% The Group and the Company are in compliance with all externally imposed capital requirements for the fi nancial years ended 30 June 2011 and 30 June 2010. vii) Fair value of fi nancial assets and fi nancial liabilities The fair values of fi nancial assets and fi nancial liabilities reported in the balance sheet approximate the carrying amount of those assets and liabilities. 33 ANNUAL REPORT 2011 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 7 RELATED PARTY TRANSACTIONS Related parties are entities with common direct or indirect shareholders and/or directors. Parties are considered to be related if one party has the ability to control the other party or exercise signifi cant infl uence over the other party in making fi nancial and operating decisions. Some of the Company and Group’s transactions and arrangements are with related parties and the eff ect of these on the basis determined between the parties is refl ected in these fi nancial statements. The balances are unsecured, interest-free and without fi xed repayment terms. (a) Compensation of directors and key management personnel The remuneration of directors and key management’s remuneration includes fees, salary, bonus, commission and other emoluments (including benefi ts-in-kind) based on the cost incurred by the Company and the Group, and where the Company or Group did not incur any costs, the value of the benefi ts. The key management’s remuneration is as follows: Group Company 2011 £ 2010 £ 2011 £ 2010 £ Key management of the Group - Directors’ fee paid to directors of the Company 92,500 34,831 92,500 34,831 - Directors’ fee paid to directors of subsidiaries - Superannuation paid for a director of subsidiaries - Salary paid to a director of the Company 313,942 304,127 21,949 94,073 20,780 70,022 – – – – – – The amount above includes remuneration in respect of the highest paid director as follows: Aggregate emoluments Group 2011 £ 2010 £ 185,680 131,725 No contributions were made on behalf of any directors to money purchase pension schemes. 34 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 (b) Signifi cant related party transactions: Sales of goods to a related party 1 Service rendered to a related party 2 Maintenance rent received from a related party 5 Rental income received from a related party 5 Service fee income from a related party 5 Expenses rebilled to a related party 5 Interest income received from a related party 7 Service fee paid to Loeb Aron & Company Ltd 3 Guarantee and commitment fee paid to a related party 4 Expenses rebilled from a related party 6 Arrangement fee paid to a related party 8 Interest expense paid to a related party 8 Interest expense paid to a related party 9 Interest expense paid to a related party 4 Interest expense paid to a related party 10 Group Company 2011 £ 659,547 109,352 2010 £ 303,137 661,103 1,274,280 3,320,157 6,996,229 5,975,334 2011 £ 2010 £ – – – – 19,586 29,873 433 8,501 75,267 32,124 15,723 33,017 13,757 15,597 – – – 19,586 – – 5,000 8,501 163,406 – – – – – – 16,947 – – – – – – 498 Purchase of aircraft from a related party 11 660,217 – 660,217 – – – – – – – – – – – – – – – – 1 - Sales of goods to Skywest Airlines (Australia) Pty Ltd in which a director of the Company is also a director of Skywest Airlines (Australia) Pty Ltd. 2 - Services rendered to Skywest Airlines (Australia) Pty Ltd in which a director of the Company is also a director of Skywest Airlines (Australia) Pty Ltd. 3 - Paid to Loeb Aron & Company Ltd in which a director of a subsidiary is a director of Loeb Aron & Company Ltd. 4 - Paid to CaptiveVision Capital Ltd in which a director of the Company is a director of CaptiveVision Capital Ltd. 5 - Received from Skywest Airlines (Australia) Pty Ltd in which a director of the Company is also a director of Skywest Airlines (Australia) Pty Ltd. 6 - Paid to Skywest Airlines (Singapore) Pte Ltd in which a director of the Company is also a director of Skywest Airlines (Singapore) Pte Ltd. 7 - Received from Giant Mix Investments Ltd in which a director of the Company is a director of Giant Mix Investments Ltd. 8 - Paid to Lovelie Investment & Asset Holding Pte Ltd in which a director of the Company is also a director of Lovelie Investment & Asset Holding Pte Ltd. 9 - Paid to Fleet Solution Consulting Pte Ltd in which a director of a subsidiary is also a director of Fleet Solution Consulting Pte Ltd. 10 - Interest expense paid to Australian Historical Investments Pty Ltd in which a director of the Company is also a director of Australian Historical Investments Pty Ltd. 11 - Purchase of an aircraft from Skywest Airlines (S) Pte Ltd in which a director of the Company is also a director of Skywest Airlines (Singapore) Pte Ltd. During the year, Avation PLC made a loan of US$2.55m to Skywest Airlines (Singapore) Pte Ltd for the purposes of acquiring an aircraft. A 39.216% interest in the aircraft was subsequently sold by Skywest Airlines (Singapore) Pte Ltd to Avation PLC for US$1M. The remaining loan was assigned by Skywest Airlines (Singapore) Pte Ltd to CaptiveVision Capital Limited and Takeoff Services Pte Ltd in exchange for the remaining parts of the aircraft. 35 ANNUAL REPORT 2011 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 8 REVENUE Rental income Maintenance rent revenue Management and service income Sales of fi nished goods 9 OTHER INCOME Interest income Foreign currency exchange adjustment gain Others 10 OTHER OPERATING EXPENSES Group 2011 £ 2010 £ 14,052,487 13,082,643 1,274,280 3,320,157 128,940 835,721 483,343 666,370 16,291,428 17,552,513 Group 2011 £ 3,608 293,565 619 297,792 2010 £ 5,948 – – 5,948 Group 2011 £ 2010 £ Claim on maintenance reserve expense charged directly to profi t or loss – 1,241,148 Claim on maintenance reserve expense Depreciation of property, plant and equipment Foreign currency exchange adjustment loss 11 FINANCE EXPENSES Interest expense on secured borrowings Guarantee and commitment fee 12 STAFF COSTS 1,242,589 2,860,979 4,964,453 4,704,804 – 58,024 6,207,042 8,864,955 Group 2011 £ 2010 £ 2,680,231 3,156,229 75,267 163,406 2,755,498 3,319,635 There were no staff costs during the fi nancial year ended 30 June 2010 and 30 June 2009 except for fees and salaries paid to directors. See Note 7 for details. Directors’ fees paid to directors of the Company Directors’ fee paid to directors of the subsidiaries Wages and salaries Employer’s contribution to defi ned contribution plans including superannuation Warrant expense 36 Group 2011 £ 92,500 313,942 120,859 21,949 57,912 2010 £ 34,831 304,127 70,022 20,780 - 607,162 429,760 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 13 PROFIT BEFORE TAXATION Profi t before taxation for the year is stated after charging / (crediting) the following: Claim on maintenance reserve expense charged directly to profi t or loss - 1,241,148 Group 2011 £ 2010 £ Claim on maintenance reserve expense Depreciation of property, plant and equipment Foreign currency exchange adjustment (gain)/loss Auditors’ remuneration for audit services Auditors’ remuneration for non-audit services - Corporate taxation 14 TAXATION Current tax expense - United Kingdom (in relation to prior years) - Overseas Deferred tax expense – United Kingdom Deferred tax expense – overseas Other tax – overseas – current Other tax – overseas – prior years 1,242,589 2,860,979 4,964,453 4,704,804 (293,565) 19,000 58,024 37,500 1,000 4,250 Group 2011 £ 2010 £ 23,494 194,862 (142,724) 478,564 20,724 - 18,761 19,722 308,870 324,560 19,779 37,825 574,920 729,517 The standard rate of current tax for the period based on the UK standard rate of corporation tax is 27.5% (2010: 28%). The current tax expense for the period is less than 27.5% (2010: 28%) for the reasons set out in the following reconciliation: Profi t before income tax Tax calculated at tax rate of 27.5% Eff ects of: Non-taxable items Capital allowances and other temporary diff erences Diff erent tax rates of other countries Adjustment to tax charge in respect of previous periods Total income tax expense Group 2011 £ 2010 £ 5,631,646 3,548,100 1,548,703 993,468 (411,527) (1,018,857) (411,016) (553,908) 100,109 (72) 218,356 9,378 561 38,483 37 ANNUAL REPORT 2011 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 15 EARNINGS PER SHARE a) Basic earnings per share (“EPS”) EPS is calculated by dividing the net profi t attributable to members of the Company by the weighted average number of ordinary shares in issue during the fi nancial year. Group 2011 £ 2010 £ Net profi t attributable to equity holders of the Company 3,627,293 1,653,027 Weighted average number of ordinary shares Basic earnings per share b) Diluted earnings per share 30,355,109 25,878,072 11.95 pence 6.39 pence For the purpose of calculating diluted earnings per share, profi t attributable to equity holders of the Company and the weighted average number of ordinary shares outstanding are adjusted for the eff ects of all dilutive potential ordinary shares. The Company has one category of dilutive potential ordinary shares; warrants. For warrants, the weighted average number of shares on issue has been adjusted as if all dilutive share options were exercised. The number of shares that could have been issued upon the exercise of all dilutive share option less the number of shares that could have been issued at fair value (determined as the Company’s average share price for the fi nancial year) for the same total proceeds is added to the denominator as the number of shares issued for no consideration. No adjustment is made to the net profi t. Diluted earnings per share attributable to equity holders of the Company is calculated as follows: Group 2011 £ 2010 £ Net profi t attributable to equity holders of the Company 3,627,293 1,653,027 Weighted average number of ordinary shares 30,355,109 25,878,072 Adjustment for: - Warrants Weighted average number of ordinary shares Diluted earnings per share 286,238 346,452 30,641,347 26,224,524 11.84 pence 6.30 pence 38 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 16 TRADE AND OTHER RECEIVABLES Subsidiaries Non-trade receivables – related parties Trade receivables – related party Trade receivables Other receivables Prepayments Tax recoverable Advances – related party Accrued income – related party Deposit for aircraft Group Company 2011 £ 2010 £ – – 988,380 1,134,033 96,232 23,463 30,454 440,795 10,782 178,271 8,327 716,988 8,697 23,237 27,780 218,952 5,099 186,779 2011 £ 309,156 987,250 – – 15,990 9,373 – – – 4,639,985 – 4,639,985 2010 £ 322,854 8,225 – – 7,250 10,163 – – – – 7,542,395 1,195,859 5,961,754 348,492 In respect of the Company, the current amounts due from subsidiaries include the followings: a) £279,520 (2010: £297,160) from F100 Pty Ltd. Management and service income of £175,000 (2010: £312,232) and dividend income of £Nil (2010: £76,900) were received from F100 Pty Ltd. b) £10,421 (2010: £25,504) from MSN 429 Limited. Management and service income of £Nil (2010: £24,000) and rental income of £1,422,565 (2010: £372,654) were received from MSN 429 Limited. c) £202 (2010: £190) from Capital Lease Australian Portfolio One Pty Ltd. d) £18,053 (2010: £Nil) from Avation.net Inc. Management and service income of £22,475 (2010: £24,000) e) £960 (2010: £Nil) from Avation Eastern Fleet Pte. Ltd In respect of the Company, the current amounts due from related parties include the followings: a) £19,586 (2010: £8,225) from Skywest Airlines (Australia) Pty Ltd in which a director of the Company is a director of Skywest Airlines (Australia) Pty Ltd. Arrangement fee of £19,586 (2010:£Nil) were paid to Skywest Airlines (Australia) Pty Ltd. Expense of £Nil (2010: 8,225) were paid by the Company on behalf of Skywest Airlines (Australia) Pty Ltd. b) £686,730 (2010: £Nil) from CaptiveVision Capital Ltd in which a director of the Company is a director of CaptiveVision Capital Ltd. c) £280,934 (2010: £Nil) from Takeoff Services Pte. Ltd. in which a director of the Company is a director of Takeoff Services Pte. Ltd. 39 ANNUAL REPORT 2011 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 In respect of the group, the current amounts due from related parties include the followings: a) Trade receivables of £1,134,033 (2010: £716,988) from Skywest Airlines (Australia) Pty Ltd, in which a director of the Company is a director. Rental income of £6,996,229 (2010: £5,975,334), maintenance rent revenue of £1,274,280 (2010: £3,320,157), sales of fi nished goods of £659,547 (2010: £303,137) and management and service income of 109,352 (2010: 661,103) were received from Skywest Airlines (Australia) Pty Ltd b) £19,586 (2010: £8,225) from Skywest Airlines (Australia) Pty Ltd in which a director of the Company is a director of Skywest Airlines (Australia) Pty Ltd. c) £686,838 (2010: £102) from CaptiveVision Capital Ltd in which a director of the Company is a director of CaptiveVision Capital Ltd. d) £280,934 (2010: £Nil) from Takeoff Services Pte. Ltd. in which a director of the Company is a director of Takeoff Services Pte. Ltd. e) £1,022 (2010: £Nil) from Skywest Airlines (S) Pte. Ltd. in which a director of the Company is a director of the Skywest Airlines (S) Pte. Ltd. f) £10,782 (2010: £Nil) due Giant Mix Investments Ltd in which a director of the Company is a director of Giant Mix Investments Ltd. The advance is unsecured, at interest rate at 5% per annum and payable upon demand. g) Accrued income of £178,271 (2010: £186,779) from Skywest Airlines (Australia) Pty Ltd in which a director of the Company is a director. The amounts due from subsidiaries and related parties are unsecured, interest-free and payable on demand unless otherwise stated. The average credit period generally granted to non-related trade receivables customers is 30 to 60 days. In respect to leased aircraft, rent is due in advance in accordance with the leases. The trade and other receivables are denominated in the following currencies: Pounds Sterling United States Dollars Australian Dollars Euro Singapore Dollars 17 INVENTORIES Group Company 2011 £ 6,841 7,124,170 402,672 42 8,670 2010 £ 44,122 921,865 218,952 299 10,621 2011 £ 6,786 5,947,153 – – 7,815 2010 £ 49,638 298,664 – – 190 7,542,395 1,195,859 5,961,754 348,492 Group Company 2011 £ 2010 £ 2011 £ 2010 £ Finished goods, at cost 1,946 707 – – The cost of inventories recognised as an expense and included in the cost of sales amounts to £739,278 (2010: £983,879). 40 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 18 INVESTMENT IN SUBSIDIARIES Unquoted equity shares, at cost Quoted equity shares, at cost Quoted equity shares, at market value Company 2011 £ 2010 £ 1,390,236 1,390,187 50,100 50,100 1,440,336 1,440,287 7,515,000 7,765,500 In the opinion of management, no impairment in the value of the investment in subsidiaries is necessary. Details of the subsidiaries are as follows: Name of Company Principal activities Country of Incorporation/ operations Company’s cost of investment Group’s eff ective equity interest 2011 2010 2011 2010 £ £ % % The subsidiaries held directly by the Company: Avation.net Inc (a) Procurement United States of America 1,390,181 1,390,181 99.96 Capital Lease Aviation PLC (b) Leasing of aircraft United Kingdom 50,100 50,100 51.18 99.96 51.18 F100 Pty Ltd (c) MSN 429 Ltd (b) Avation Eastern Fleet Pte Ltd (e) Leasing of aircraft Australia Leasing of aircraft United Kingdom Leasing of aircraft Singapore The subsidiaries held by Capital Lease Aviation PLC : Capital Lease Australian Portfolio One Pty Ltd (c) Leasing of aircraft Australia Capital Lease Malta Ltd (d) Leasing of aircraft Malta The subsidiary held by Avation Eastern Fleet Pte Ltd : Airframe Leasing Pte Ltd (f) Leasing of aircraft Singapore (a) Audited by Jasmine Chua and Associates, Singapore (b) Audited by Kingston Smith LLP, London, UK (c) Audited by Moore Stephens, Perth, Australia (d) Audited by Nexia BT, Malta (e) Audited by Ernst & Young LLP, Singapore 5 1 49 – – – 5 100.00 100.00 1 100.00 100.00 - 100.00 100.00 – 51.18 51.18 – 51.18 51.18 – 100.00 – (f) Company was incorporated during the year, the company was dormant and therefore did not require an audit. Signifi cant transactions with subsidiaries are as follows: Company Rental income Management and service fee income Dividend income Service fee expense 2011 £ 1,422,565 197,475 – – 2010 £ 372,654 360,232 76,900 66,820 41 ANNUAL REPORT 2011 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 19 PROPERTY, PLANT AND EQUIPMENT Group 2011 Cost or valuation: At beginning of year Additions Revaluation surplus Currency realignment At end of year Representing: Cost Valuation Accumulated depreciation: At beginning of year Depreciation for the year Increase on revaluation Currency realignment At end of year Net book value: At beginning of year At end of year 2010 Cost or valuation: At beginning of year Additions Disposal/written off Reclassifi cation Currency realignment At end of year Representing: Cost Valuation Accumulated depreciation: At beginning of year Depreciation for the year Disposal/written off Reclassifi cation Currency realignment At end of year Net book value: At beginning of year At end of year 42 Furniture and equipment Aircraft £ £ Total £ 995 6,652 – (108) 7,539 7,539 – 7,539 995 1,295 – (70) 2,220 – 5,319 101,640,622 101,641,617 913,768 1,112,985 (5,613,834) 98,053,541 – 98,053,541 98,053,541 9,120,044 4,963,158 (229,056) (691,476) 920,420 1,112,985 (5,613,942) 98,061,080 7,539 98,053,541 98,061,080 9,121,039 4,964,453 (229,056) (691,546) 13,162,670 13,164,890 92,520,577 84,890,871 92,520,577 84,896,190 Furniture and equipment £ Aircraft £ Total £ 4,367 - (3,620) – 248 995 995 - 995 4,140 238 (3,620) – 237 995 227 - 88,883,092 5,016,050 - (2,301,383) 10,042,862 88,887,459 5,016,050 (3,620) (2,301,383) 10,043,110 101,640,621 101,641,616 5,014,813 96,625,808 5,015,808 96,625,808 101,640,621 101,641,616 5,829,393 4,704,566 - 5,833,533 4,704,804 (3,620) (2,301,383) (2,301,383) 887,468 9,120,044 887,705 9,121,039 83,053,699 92,520,577 83,053,926 92,520,577 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 Company 2010 Cost or valuation: At beginning of year Additions At end of year Representing: Cost Accumulated depreciation: At beginning of year Depreciation for the year At end of year Net book value: At beginning of year At end of year Aircraft £ Total £ – – 5,014,814 5,014,814 5,014,814 5,014,814 5,014,814 5,014,814 – 61,989 61,989 – 61,989 61,989 – – 4,952,825 4,952,825 On 25 March 2008, the subsidiary, Capital Lease Aviation PLC acquired the right, title and interest in the aircraft held on trust by Wilmington Trust Company (“Wilmington”), a US trust company. As the aircraft is registered in the US, legal title to the aircraft is held by Wilmington and Capital Lease Aviation PLC is the benefi cial owner. The aircraft is leased by Wilmington to a US airline. The Group’s property, plant and equipment include borrowing costs from bank loans specifi cally used for purchase of aircraft. During the fi nancial year, the borrowing costs capitalised as cost of property, plant and equipment amount to £12,578 (2010: £Nil). The carrying value of the Group and Company’s property, plant and equipment held under fi nance lease at 30 June 2011 was £4,994,400 (2010 : £4,952,825). The lease asset is pledged as security for the related fi nance lease. Depreciation relating to property plant and equipment held under fi nance lease at 30 June 2011 was £226,093 (2010: £61,989) On 30 June 2011, the Group acquired a 39.216% interest in an aircraft with a cost of £660,217. The Group’s aircraft were revalued in June 2011 by independent valuers, on the basis of lease encumbered value as of 30 June 2011. The revaluation surplus net of applicable deferred income taxes was credited to an asset revaluation reserve in shareholders equity. At 30 June 2010 the Group reviewed its classifi cation of assets giving rise to reclassifi cation of £2,301,383 between cost and accumulated depreciation. This reclassifi cation has had no impact on either the income statement or the balance sheet. If the aircraft were measured using the cost model, the carrying amounts would be as follows: Cost Accumulated depreciation Net carrying value Group 2011 £ 2010 £ 92,899,707 84,360,409 (11,904,413) (8,080,345) 80,995,294 76,280,064 43 ANNUAL REPORT 2011 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 20 GOODWILL ON CONSOLIDATION Group 2011 £ 2010 £ Cost: Balance at beginning and at end of year 1,324,541 1,324,541 Impairment test of goodwill Goodwill is allocated to the cash generating unit (“CGU”) Avation.net Inc which is in the procurement business. The recoverable amount of Avation.net Inc has been determined based on a value-in-use calculation using cash fl ow projections from fi nancial budgets approved by management covering the next fi nancial year. Management believes that no reasonably possible change in any of the above key assumptions would cause the recoverable amount of the CGU to fall materially below its carrying amount as shown in the fi nancial statements. 21 TRADE AND OTHER PAYABLES Current Subsidiaries Related parties Director Trade payables Deferred income Other payables Accrued expenses Non-current Group Company 2011 £ – 622,860 62 462,376 996,320 404,821 845,423 3,331,862 2010 £ – 390,818 – 1,826,774 1,059,199 2011 £ 85,093 52,878 – 31,257 2010 £ 448,979 25,290 – 9,112 114,089 127,067 – 404,821 – 541,901 3,818,692 31,760 32,231 719,897 642,679 Group Company 2011 £ 2010 £ 2011 £ 2010 £ Related parties 942,009 1,379,641 – – In respect of the Company, the current amounts due to subsidiaries include the followings: a) £74,275 (2010: £54,266) due to F100 Pty Ltd. b) £10,818 (2010: £730) due to Capital Lease Aviation PLC. c) £Nil (2010: £15,674) due to Avation.net Inc. d) £Nil (2010: £378,309) due to MSN 429 Limited. e) Deferred income of £114,089 (2010: £127,067) from MSN 429 Limited. In respect of the Company, the current amounts due to related parties include the followings: a) 16,807 (2010: £7,853) due to Skywest Airlines Ltd in which a director of the Company is also a director. b) £36,071 (2010: £17,437) due to Skywest Airlines (Singapore) Pte Ltd in which a director of the Company is also a director. 44 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 In respect of the Group, the current amounts due to related parties include the followings: a) £61,680 (2010: £65,753) due to Skywest Airlines Ltd in which a director of the Company is also a director. b) £74,005 (2010: £38,385) due to Skywest Airlines (Singapore) Pte Ltd in which a director of the Company is also a director. c) £341,414 (2010: £NIL) due to Fleet Solution Consulting Pte Ltd in which a director of the subsidiary is also a director and includes accrued interest on this loan amount to £13,656 (2010: NIL). d) £140,830 (2010: £263,415) due to CaptiveVision Capital Ltd in which a director of the subsidiary is also a director and includes accrued interest on this payable amount to £1,602 (2010: NIL). e) £4,931 (2010: £23,265) due to Skywest Airlines (Australia) Pty Ltd in which a director of the subsidiary is also a director. The amount due to subsidiaries and related parties are unsecured, interest free and without fi xed repayment terms unless otherwise stated. The average credit period taken to settle non-related party trade payables is approximately 60 days. The trade and other payables are denominated in the following currencies: Pounds Sterling United States dollars Australian dollars Euro Singapore dollars 22 LOAN AND BORROWINGS Secured borrowing I Secured borrowing II Secured borrowing III Secured borrowings IV Secured borrowings V Secured borrowings VI Secured borrowings VII Secured borrowings VIII Secured borrowings IX Secured borrowings X Group Company 2011 £ 2010 £ 76,503 68,591 4,027,341 5,013,463 18,308 5,815 145,904 6,302 5,022 104,955 4,273,871 5,198,333 2011 £ 51,179 604,003 4,385 – 60,329 719,896 2010 £ 34,778 576,046 – – 31,855 642,679 Group Company 2011 £ 2010 £ 2011 £ 2010 £ 1,750,076 2,937,994 707,461 904,671 1,274,693 1,377,163 2,525,577 3,698,619 11,379,987 13,695,982 11,949,492 14,321,402 1,584,762 2,719,338 1,594,715 2,185,895 1,053,687 – 1,515,975 2,280,866 – – – – – – – – – – – – – – – – – – – – Obligations under fi nance lease 2,990,446 4,233,777 2,990,446 4,233,777 Total 37,956,849 48,725,729 2,990,446 4,233,777 Less: current portion of loan borrowings (9,865,455) (9,602,462) (1,252,377) (1,163,482) 28,091,394 39,123,267 1,738,069 3,070,295 45 ANNUAL REPORT 2011 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 Obligations under fi nance leases: Future minimum payments due: Within one year After more than one year but within 5 years Less: Finance charges Present value of minimum lease payments The present value of minimum lease payments is analysed as follows: Within one year After more than one year but within 5 years Balance at end of year Group & Company 2011 £ 2010 £ 1,373,266 1,787,175 3,160,441 (169,995) 2,990,446 1,460,137 3,352,277 4,812,414 (578,637) 4,233,777 1,252,377 1,738,069 2,990,446 1,163,482 3,070,295 4,233,777 Secured borrowing III is for a fi ve year period and maturing in 2013, repayable monthly. The loan is secured by fi xed and fl oating charges over all aircraft purchased by its subsidiary, F100. Secured borrowing IV is for a fi ve year period to January 2013, repayable monthly. The loan is secured by the aircraft of the its subsidiary, Capital Lease Aviation PLC (“CLA”). Secured borrowing V is for a seven year period to March 2015, repayable monthly. The loan is secured by the aircraft of its subsidiary, Capital Lease Malta Ltd (“CLM”) and a charge over the shares in CLM. Secured borrowing VI is for a seven year period to February 2015, repayable monthly. The loan is secured by the aircraft of its subsidiary, CLM and a charge over the shares in CLM. Secured borrowing VII is for a fi ve year period and maturing 2012 repayable monthly. The loan is secured by the aircraft of its subsidiary, Capital Lease Australian Portfolio One Pty Ltd. Secured borrowing VIII is for a fi ve year period and maturing 2013 repayable monthly. The loan is secured by the aircraft of its subsidiary, Capital Lease Australian Portfolio One Pty Ltd. Secured borrowing IX is for a three year period to December 2013 repayable monthly. The loan is secured by the aircraft of its subsidiary, Capital Lease Australian Portfolio One Pty Ltd. Secured borrowing X is for a four year period and maturing in 2013, repayable monthly. The loan is secured by fi xed and fl oating charges over all aircraft purchased by its subsidiary, F100. The Group had a facility with a related party, CaptiveVision Capital Ltd, in which the related party granted a lender of the secured borrowings of the Group a charge over its assets for US$2,000,000 and this facility has expired during the fi nancial year. CaptiveVision Capital Ltd charged the Group interest at 14% per annum based on the committed asset amount of A$2,089,967 until November 2010 and interest charged at 14 % on the outstanding balance due to CaptiveVision Capital Ltd. The average interest rates for the outside party borrowings range from 5.00% to 6.50% per annum (2010: 6% to 11% per annum). All the loans are denominated in United States Dollars. The carrying amounts of the borrowings approximate their fair values. 23 SHORT-TERM PROVISIONS Maintenance reserve claim 46 Group 2011 £ 2010 £ 2,849,839 2,047,185 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 Movement in provision for maintenance provisions claim is as follows: Balance at beginning of fi nancial year Provision made during the fi nancial year Provision used during the fi nancial year Currency realignment Balance at end of fi nancial year Group 2011 £ 2010 £ 2,047,185 1,242,589 1,088,555 2,860,979 (311,597) (2,045,903) (128,338) 143,554 2,849,839 2,047,185 A provision of £1,242,589 (2010: £2,860,979) was made during the year ended 30 June 2011. This provision is based on maintaining a suff icient balance to match expected drawdowns of reserves over the lease period of the aircraft. There were drawdowns totalling £311,597 (2010: £2,045,903) on the reserves for the year ended 30 June 2011. 24 DEFERRED TAX LIABILITIES Recognised deferred tax assets and liabilities are attributable to the following: Group Property, plant and equipment Other items Tax losses carried forward Tax assets Set off tax Net tax (assets)/ liabilities Property, plant and equipment Other items Tax losses carried forward Tax assets Set off tax Net tax (assets)/ liabilities Assets Liabilities 2011 £ 2011 £ Net 2011 £ – 4,385,283 4,385,283 (641,782) 1,163,387 (94,950) – 521,605 (94,950) (736,732) 5,548,670 4,811,938 736,732 (736,732) – – 4,811,938 4,811,938 Assets Liabilities 2010 £ 2010 £ Net 2010 £ – 4,112,643 4,112,643 (614,415) (190,856) 940,652 326,237 – (190,856) (805,271) 5,053,295 4,248,024 805,271 (805,271) – – 4,248,024 4,248,024 Movement in temporary diff erences during the fi nancial year: Recognised Group Balance in profi t 1 July 2010 and loss Recognised in equity Currency realignment Balance 30 June 2011 £ £ £ £ £ Property, plant and equipment 4,379,440 (218,483) 482,322 (257,996) 4,385,283 Other items Tax losses carried forward 59,441 (190,857) 469,124 85,199 – – (6,960) 10,708 521,605 (94,950) 4,248,024 335,840 482,322 (254,248) 4,811,938 47 ANNUAL REPORT 2011 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 Movement in temporary diff erences during the last fi nancial year: Recognised Group Balance in profi t 1 July 2009 and loss Recognised in equity Currency realignment Balance 30 June 2010 £ £ £ £ £ Property, plant and equipment 3,533,023 Other items (324,025) 419,873 395,714 Tax losses carried forward – (182,157) 3,208,998 633,430 – – – – 426544 (12,248) (8,700) 405,596 4,379,440 59,441 (190,857) 4,248,024 Recognised deferred tax assets and liabilities are attributable to the following: Company Property, plant and equipment Other items Tax losses carried forward Tax assets Set off tax Net tax (assets)/ liabilities Property, plant and equipment Other items Tax losses carried forward Tax assets Set off tax Net tax (assets)/ liabilities Assets 2011 £ Liabilities 2011 £ Net 2011 £ Assets 2010 £ – – – – – – – – – – – – 138,340 138,340 – – – – 138,340 138,340 – – 138,340 138,340 Liabilities 2010 £ Net 2010 £ 193,266 193,266 – – – – 193,266 193,266 – – 193,266 193,266 Movement in temporary diff erences during the fi nancial year: Company Property, plant and equipment Balance 1 July 2010 Recognised in profi t and loss Recognised in equity Balance 30 June 2011 £ 193,266 £ (59,464) £ 4,538 £ 138,340 Movement in temporary diff erences during the last fi nancial year: Company Balance 1 July 2009 Recognised in profi t and loss Recognised in equity Balance 30 June 2010 £ £ £ £ Property, plant and equipment – 193,266 – 193,266 48 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 25 SHARE CAPITAL Company 2011 £ 2010 £ Allotted, called up and fully paid: 38,607,220 (2010: 26,219,010) ordinary shares of 1 penny each 386,072 262,190 a) On 26 October 2010, the Company issued 2,313,210 ordinary shares of 1 penny each following the exercise of warrants by a warrant holder for £100,000. b) On 30 March 2011, the Company issued 10,000,000 ordinary shares of 1 penny each following a private placement exercise for £10,000,000. c) On 11 April 2011, the Company issued 75,000 ordinary shares of 1 penny each following the exercise of warrants by a warrant holder for £26,625. 26 SHARE-BASED PAYMENTS a) Share options and warrants The Group has an ownership-based compensation scheme for directors and senior management of the Group. Each share warrant converts into one ordinary share of Avation PLC on exercise. No amounts are paid or are payable by the recipient on receipt of the warrant. The warrants carry neither rights to dividends nor voting rights. Warrants may be exercised at any time from the date of vesting to the date of their expiry. Warrants are granted to the directors and senior management of the Group to gain: • • • Improvement in share price Improvement in net profi t Improvement in return to shareholders The following share-based payment arrangements were in existence during the current reporting period: Balance at Granted Exercised Balance at Fair value Warrant series beginning during during Expired/ end of Expiry Exercise at grant signed on of year the year the year Cancelled year date price date (1) 30 Oct 2006 2,289,490 – (2,289,490) (2) 21 Dec 2009 425,000 – (98,720) (3) 2 Dec 2010 – 425,000 – – – – – 29 Oct 2010 4.0 p 0.3 p 326,280 21 Dec 2011 35.5 p 3.88 p 425,000 2 Dec 2012 67.5p 13.63p The weighted average fair value of the warrants granted during the fi nancial year is 13.63 pence (2010:3.88 pence). The value of the warrants granted during the year is £57,912 (2010: £16,490). The warrants were priced using the Binomial option pricing model. Where relevant, the expected life used in the model has been adjusted based on the management’s best estimate for the eff ects of non-transferability, exercise restrictions (including the probability of meeting market conditions attached to the option), and behavioural considerations. Expected volatility is based on the historical share price volatility over the past four months. Inputs into the model Grant date share price Exercise price Expected volatility Warrant life Dividend yield Risk free interest rate Warrant series signed on 2 December 2010 Warrant series signed on 21 December 2009 67.5 pence 67.5 pence 50% 2 years 0.88% 3.23% 35.5 pence 35.5 pence 30% 2 years 1.42% 0.50% The Company issued a total of 425,000 warrants during the fi nancial year at 67.5 pence when the then market price was 67.5 pence. 49 ANNUAL REPORT 2011 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 27 CAPITAL COMMITMENTS Capital expenditures contracted for at the balance sheet date but not recognised in the fi nancial statements are as follows: Group 2011 £ 2010 £ Property, plant and equipment 87,921,230 – 28 OPERATING LEASES a) Leases as Lessor The Group and the Company lease out their aircraft held under operating leases. The future minimum lease payments under non-cancellable leases are as follows: In the second to fi fth years inclusive More than fi ve years b) Contingencies Group 2011 £ 2010 £ 22,668,333 38,841,715 – – The Company’s subsidiaries, Capital Lease Australian Portfolio One Pty Ltd and F100 Pty Ltd receive maintenance rent from the lease of its aircraft in addition to the base rent. Lessees may be entitled to be reimbursed for specifi c long term maintenance items (“maintenance rent activities”) that they may incur during the term of the lease. The lessees must not be in default of the lease and must satisfy certain conditions before they can claim. Furthermore, the lessees must provide invoices and supporting documentation as satisfactory evidence to Capital Lease Australian Portfolio One Pty Ltd and F100 Pty Ltd that the maintenance rent activity has been carried out necessarily. The amount of the claim for any one maintenance rent activity is limited to the total amount of the maintenance rent received for that specifi c maintenance rent activity to date under the lease for that aircraft. The carrying out of each specifi c maintenance activity is dependant on the number of cycles and fl ying hours conducted by the aircraft. Consequently, Capital Lease Australian Portfolio One Pty Ltd and F100 Pty Ltd have a contingent liability which is conditional on the volume of cycles and fl ying hours of the aircraft, upon the actual cost of maintenance rent activity, the lessee making a valid claim with the required documents in the required time frame, and there being an unclaimed balance against the specifi c maintenance rent activity for that aircraft. Any unclaimed balance that Capital Lease Australian Portfolio One Pty Ltd and F100 Pty Ltd hold at the end of the lease is not refundable to the lessees. During the fi nancial year ended 30 June 2011, Capital Lease Australian Portfolio One Pty Ltd and F100 Pty Ltd had received £1,274,280 (2010: £3,320,157) in maintenance rent. The future claims against the maintenance reserves funds can be estimated according to manufacturers’ recommendations and typical aircraft usage. Unforeseen events may occur however, which creates some uncertainty for the Company in calculating the fi nal future claimable amount and the timing of such claims from the maintenance reserve funds. 50 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 29 SEGMENT INFORMATION a) Segment reporting policy A segment is a distinguishable component of the Group within a particular economic environment (geographical segment) and to a particular industry (business segment) which is subject to risks and rewards that are diff erent from those of other segments. The primary format, business segments, is based on the Group’s management and internal reporting structure, as reported to the chief operating decision maker. In presenting information on the basis of business segments, segment revenue and segment assets are based on the nature of the products or services provided by the Group, information for geographical segments is based on the geographical areas where the customers are located. Inter-segment pricing is determined on an arm’s length basis. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly of corporate assets and liabilities or profi t or losses items that are not directly attributable to a segment or those that cannot be allocated on a reasonable basis. Common expenses were allocated based on revenue from the Group. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one year. b) Primary reporting segment – business segments During the year ended 30 June 2011, the Group was organised into two main business segments which are aircraft leasing and business procurement. Other operations of the Group mainly comprise investment holding which does not constitute a separate reportable segment. There are no inter-segment transactions recorded during the fi nancial period. Group Financial year ended 30 June 2011 Revenue & other operating income - Sales - Other income Total of all segments Less: elimination of inter-segment revenue Consolidated revenue Group Financial year ended 30 June 2011 Results Segment results Finance income Finance expense Unallocated corporate expenses Profi t before taxation Taxation Profi t after taxation Other segment items Capital expenditure & valuation movement - property, plant and equipment Depreciation Aircraft leasing £ Business procurement £ Total £ 16,976,513 945,074 17,921,587 289,745 (401) 289,344 18,210,931 (1,621,711) 16,589,220 Aircraft leasing £ Business procurement £ Total £ 15,346,354 205,796 15,552,150 3,068 (2,755,498) (7,168,073) 5,631,646 (574,920) 5,056,726 2,027,526 4,963,394 5,879 1,059 2,033,405 4,964,453 51 51 ANNUAL REPORT 2011 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 Group Financial year ended 30 June 2011 Segment assets Unallocated assets Consolidated total assets Segment liabilities Trade and other payables Provisions of taxation Short term provisions Loans and borrowings Deferred tax liabilities Unallocated liabilities Consolidated total liabilities Group Financial year ended 30 June 2010 Revenue & other operating income - Sales - Other income Total of all segments Less: elimination of inter-segment revenue Consolidated revenue Group Financial year ended 30 June 2010 Results Segment results Finance income Finance expense Unallocated corporate expenses Profi t before taxation Taxation Profi t after taxation Other segment items Capital expenditure & valuation movement - property, plant and equipment Depreciation Aircraft leasing £ Business procurement £ Total £ 97,440,829 626,473 98,067,302 - - - 98,067,302 3,653,046 620,825 4,273,871 38,748 2,849,839 37,956,849 4,811,938 - - - - 38,748 2,849,839 37,956,849 4,811,938 – 49,931,245 Aircraft leasing £ Business procurement £ Total £ 17,275,930 1,149,713 18,425,643 63,649 18,489,292 (929,098) 17,560,194 Aircraft leasing £ Business procurement £ Total £ 6,854,574 7,213 6,861,787 5,948 (3,319,635) - 3,548,100 (729,517) 2,818,583 5,016,050 4,704,566 – 238 5,016,050 4,704,804 52 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 Group Financial year ended 30 June 2010 Segment assets Unallocated assets Consolidated total assets Segment liabilities Trade and other payables Provisions of taxation Short term provisions Loans and borrowings Deferred tax liabilities Unallocated liabilities Consolidated total liabilities Aircraft leasing £ Business procurement £ Total £ 94,685,198 259,826 94,945,024 - 94,945,024 4,902,278 296,055 5,198,333 14,532 2,047,185 48,725,729 4,248,024 3,836 18,368 – – – 2,047,185 48,725,729 4,248,024 – 60,237,639 c) Second reporting segment – geographical segments The following table provides an analysis of the revenues by geographical market, irrespective of the origin of the goods: Group Financial year ended 30 June 2011 Revenue movements £ £ Capital expenditure and valuation Total assets £ Australia United States Denmark Malta United Kingdom Other 9,185,359 1,396,158 5,660,100 – – 49,811 1,232,461 35,628,465 487,625 306,667 – 773 5,879 7,074,476 42,619,016 925,606 9,949,037 1,870,702 16,291,428 2,033,405 98,067,302 Group Financial year ended 30 June 2010 Revenue movements £ £ Capital expenditure and valuation Total Assets £ Australia United States Denmark Nigeria Malta United Kingdom Other 9,418,881 2,200,000 5,764,395 89,294 – – 79,943 5,016,050 38,795,211 – – – – – – 7,649,047 47,368,403 – 534,235 338,302 259,826 17,552,513 5,016,050 94,945,024 53 ANNUAL REPORT 2011 Notes to Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 Group Financial year ended 30 June 2011 Australia United States Denmark Group Financial year ended 30 June 2010 Australia United States Denmark Net book value Aircraft £ 35,197,379 7,074,476 42,619,016 84,890,871 Net book value Aircraft £ 37,503,127 7,649,047 47,368,403 92,520,577 During the year, certain customers accounted for greater than 10% of the Group’s total revenues. There is one customer that accounts for £9,185,359 (56%) of the Group’s total revenues. These revenues were based in the Australia operating segment. There is one customer that accounts for £5,660,100 (35%) of the Group’s total revenue. These revenues were based in the Denmark segment. 30 CONTINGENT LIABILITIES Group 2011 £ 2010 £ Guarantees 32,440,826 40,793,333 The maximum estimated amount the Group could become liable is as shown above. The Group has guaranteed the loans of its subsidiaries, Capital Lease Portfolio Australian One Pty Ltd, Capital Lease Malta Ltd and F100 Pty Ltd. 30 SUBSEQUENT EVENTS Subsequent to the end of the reporting period, the following events have occurred: a) The Group has entered into 10-year loan facility agreements for up to US$152.2m (in aggregate), principally provided under a mandate to Credit Agricole Corporate and Investment Bank. The loan facilities can be drawn down progressively by the Group on an aircraft by aircraft basis for the purpose of purchasing a fl eet of eight new ATR72 Aircraft for operation in Australia. b) The eight aircraft are being leased by the Group to Australian Carrier, Skywest Airlines (Australia) Pty Ltd, who in turn operate the aircraft on behalf of Virgin Australia, under the Virgin Australia brand, pursuant to 10-year wet leases. The Group has delivered three aircraft to Skywest Airlines (Australia) Pty Ltd. 31 ULTIMATE HOLDING COMPANY No party controls the Company. 32 APPROVAL OF FINANCIAL STATEMENTS The fi nancial statements of the Company and the consolidated fi nancial statements of the Group for the fi nancial period ended 30 June 2011 were authorised for issue by the Board of Directors on 28 October 2011. 54 Register of Top 20 Shareholders (AS AT 30 JUNE 2011) Name of Shareholder FITEL NOMINEES LIMITED FITEL NOMINEES LIMITED FITEL NOMINEES LIMITED APOLLO NOMINEES LTD CREDIT SUISSE SECURITIES (EUROPE) LIMITED VIDACOS NOMINEES LIMITED CHASE NOMINEES LIMITED LYNCHWOOD NOMINEES LIMITED LOEB ARON & COMPANY LTD HSBC GLOBAL CUSTODY NOMINEE (UK) LIMITED SMITH & WILLIAMSON NOMINEES LIMITED FITEL NOMINEES LIMITED FITEL NOMINEES LIMITED VIDACOS NOMINEES LIMITED HARGREAVE HALE NOMINEES LIMITED FITEL NOMINEES LIMITED HSBC GLOBAL CUSTODY NOMINEE (UK) LIMITED FITEL NOMINEES LIMITED THE CORPORATION OF LLOYDS HSBC CLIENT HOLDINGS NOMINEE (UK) LIMITED Holding (Number of shares) 6,553,210 2,700,000 2,314,156 1,913,000 1,583,244 1,525,000 1,500,000 1,123,092 920,000 900,000 853,000 750,000 750,000 749,972 665,000 600,000 500,000 430,000 400,000 383,110 55 DIRECTORS: Robert Jeffries Chatfield Andrew Baudinette Bryant James McLarty COMPANY SECRETARIES: Siobhan Mary Macgroarty Cool REGISTERED OFFICE: Georgian House 63 Coleman Street London EC2R 5BB AUDITORS: Kingston Smith LLP Devonshire House 60 Goswell Road London EC1M 7AD REGISTRARS: Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZZ Reuters/BBG Index: LSE AVAP.PZ AVAP FTSE Sector: Industrial Transportation FTSE Sub Sector: Transportation Services
Continue reading text version or see original annual report in PDF format above