AnnuAl RepoRt 2012 ANNUAL REPORT 2012 ouR Fleet (AS AT OCTOBER 2012) Model MSN Lessee Airbus A321-200 1921 Thomas Cook (OY-VKB) Operational area Europe, Scandinavia Airbus A321-200 1881 Thomas Cook (OY-VKA) Europe, Scandinavia Model MSN Lessee Airbus A320-200 429 Airbus A320-200 052 Skywest Airlines (VH-FNP) US Airways Inc (N620AW) Operational area Australia North America Model MSN Lessee Fokker 100 11373 Fokker 100 11391 Skywest Airlines (VH-FNU) Skywest Airlines (VH-FSW) Operational area Western Australia, Northern Territory, Western Australia, Victoria Bali (Indonesia) Model MSN Lessee Fokker 100 11484 Fokker 100 11488 Skywest Airlines (VH-FNY) Skywest Airlines (VH-FNR) Operational area Western Australia, Northern Territory, Western Australia, Northern Territory, Bali (Indonesia) Bali (Indonesia) 2 ouR Fleet Fokker 100 11489 ATR 72-500 954 ATR 72-500 955 Skywest Airlines (VH-FNJ) Virgin Australia (VH-FVH) Virgin Australia (VH-FVI) Western Australia Eastern Australia Eastern Australia ATR 72-500 974 ATR 72-500 978 ATR 72-500 979 Virgin Australia (VH-FVL) Virgin Australia (VH-FVU) Virgin Australia (VH-FVM) Eastern Australia Eastern Australia Eastern Australia ATR 72-500 986 ATR 72-600 1025 ATR 72-600 1039 Virgin Australia (VH-FVX) Virgin Australia (VH-FVP) Virgin Australia (VH-FVN) Eastern Australia Eastern Australia Eastern Australia MSN denotes Manufacturer’s Serial Number Image credits: This Page: VH-FVH: Damian Freiberg. Pages 5, 8, 13, 14, 19: V Doroshevitch. Page 16: Mickael Cavaco 3 ANNUAL REPORT 2012 4 Tail of Virgin Australia Airlines ATR 72 aircraft Contents Chairman’s Statement About Avation PLC Sale of Australian Subsidiary Company Overview Board of Directors Current Aircraft in Fleet Future Strategy Report of the Directors Directors’ Remuneration Report Statement of Directors’ Responsibilities Independent Auditors’ Report PAGE PAGE Financial Statements Statement of Comprehensive Income Consolidated Balance Sheet Company Balance Sheet Consolidated Statement of Changes in Equity Company Statement of Changes in Equity Consolidated Statement of Cash Flows Company Statement of Cash Flows Notes to the Consolidated Financial Statements Top 20 Shareholders 23 24 25 26 27 28 29 31 32 66 6 8 9 10 11 12 14 16 18 21 22 5 ANNUAL REPORT 2012 ChaiRman’s statement On behalf of your Board of Directors, I present to you the audited financial statements for Avation PLC and its subsidiaries the year for ended 30th June 2012 and to inform you of the progress that the Avation Group has made. The highlights are: • Increased number of aircraft from 12 to 15 with a fleet value of GBP 137 Million (US$ 214 Million); • Net after tax profits of GBP 3,307,126; • Basic Earnings per share of 8.16 pence; • Dividends increased by 4% to: 1.04 pence per share; • Delivered first six new ATR 72 aircraft into the Australian Regional Airline Network Alliance (“ARAN”) to Virgin Australia; • Arranged commercial funding of US$180 million for the initial 10 ATR aircraft; • Cumulative Fleet growth of 25% p.a. with planned fleet expansion under the ARAN of a minimum 5 aircraft per year for the next 5 years; and • Progressing dual listing on the Singapore Stock Exchange. Your Board is pleased to report that in respect of the year ended 30th June 2012 the consolidated net profit after tax was GBP 3,307,126 on revenues of GBP 22,098,019 with earnings per share of 8.16 pence. Returns comprise cash yield (income) from the lease payments plus the net asset value (capital) realisable from the sale of the aircraft after repayment of associated debt obligations. The ARAN alliance between Avation, Skywest Airlines and Virgin Australia is a unique long term aircraft operating lease arrangement and delivers a solid operating platform for the continued asset and earnings growth of the Avation business. The ARAN Fleet commenced with the order of 15 ATR 72 aircraft and 25 options and purchase rights to enable a fleet expansion of 40 aircraft to service Virgin Australia’s regional airline network on the east coast of Australia with a potential value of up to US$800 million. In the period to 30th June 2012, Avation successfully; (i) delivered 6 new ATR 72-500 aircraft with a further 4 new ATR 72-600’s to be delivered by end December 2012; (ii) converted 5 options to firm delivery for aircraft delivery in 2013 and January 2014; and (iii) ordered 8 more option ATR 72-600 aircraft for delivery in 2014 and 2015. The Avation fleet of 15 aircraft has an average age and lease term of 10.6 years and 7.8 years respectively and generates a rental yield of 14.6% from a current customer base of 4 airlines in Australia, Europe and North America. Avation’s fleet is diverse, comprising the new ATR aircraft and other aircraft including the Fokker 100s and A320 aircraft which are used for core transport services to the mining and resources sector in Australia. Avation continues to provide active fleet and financial management to ensure the retention of asset values and maximisation of earnings. In accordance with this policy the Group sold its Australian leasing subsidiary Capital Lease Australian Portfolio One Pty Ltd (“C1”) on 28th June 2012 to Skywest Airlines.This C1 sale delivered a higher cash return on ageing and end of lease aircraft. Whilst increasing the overall cash reserves of the Avation Group, earnings were impacted by a fall of 1.0 penny per share on a fully diluted basis. Revenue growth to GBP 22,098,019 was consistent with the build-out and significant investment in the ATR fleet and reflected lease income commencing in August 2011 from the delivery of the 6 ATR’s. Lease revenues are forecast to grow by GBP 4.6 million in 2013 and GBP 2.9 million in 2014 respectively from the proposed ATR fleet expansion. As of June 30th, total assets increased by GBP 58,740,060 to GBP 158,131,903. Corresponding liabilities increased to GBP 105,610,847 resulting in a moderate net asset increase of 6.2% to GBP 52,521,056. The Company secured committed funding of US$180 million covering all aircraft deliveries for the period ending 31st December 2012 from traditional aircraft financing banks. Debt facilities are primarily asset based and limited recourse financings and matched to the leases in terms of currency, term and loan servicing ensuring there is no “through lease term” re-financing risk. The Company believes that it can obtain access to the necessary debt for the purchase of aircraft. Access to funding nevertheless remains a risk, which is common to all businesses that are capital intensive. Specific aviation based industry risks are also present and include the creditworthiness of client airlines. 6 ChaiRman’s statement My colleagues and I are committed to continue to work tirelessly to build your Company into a respected, profitable, diversified and cash generative aircraft leasing business. The Board would like to thank you, the shareholders, for your continued support and goodwill and look forward to the future with confidence in the successful development of Avation PLC. Robert Jeffries Chatfield, Chairman Singapore 30 October 2012 Directors believe that they have demonstrated that the Group has a sustainable business model and are committed to develop the Avation business as a differentiated aircraft operating lease business to provide constant and defined IRR’s, cash yields and predictive capital returns from investment in the narrow body aircraft market and more particularly in the Australian and South East Asian regional airline sector. Our business provides for continued and sustainable growth in 2013 and beyond. Our fleet procurement and investment policies are robust and we will only acquire aircraft with leases attached, ensuring there is no “ramp-up” phase or speculation. The outlook for 2013 is positive with scheduled ATR aircraft investment in FY 2013 of US$ 111 million and US$ 74 million for 2014. Net Profit after Tax is expected to increase proportionately with these increased revenues. Avation continues to actively evaluate further preferred aircraft acquisition investment opportunities. As a result, the Company is well advanced with respect to funding of its 2013 deliveries and is developing formalised capital funding programs to provide a diversified funding base with access to both debt and equity markets. Our Singapore Stock Exchange listing remains a priority and core feature of our capital strategy going forward. Whilst the business is engaged in funding the significant asset growth of the fleet, your Board overwhelmingly recognises the importance of rewarding shareholders and is recommending to shareholders a final dividend payment of 1.04 pence per share. Accordingly, the Company hopes to maintain a progressive dividend policy going forward. The record date for this final dividend will be announced in the meeting materials for the upcoming annual general meeting. 7 ANNUAL REPORT 2012 aBout aVation plC Avation PLC is a public company incorporated in England and Wales (11 July 2006) with its headquarters and operations now based in Singapore. The shares of the Company are traded on the Official List (Standard Listing) on the London Stock Exchange’s main market for listed securities and have been since 2010. Prior to that, the Company was listed on the PLUS Markets exchange since November 2006. Under the Australian Regional Airline Network (“ARAN”) the Company, Skywest Airlines agreement between (Australia) Pty. Ltd. (“Skywest Airlines”) and Virgin Australia Airlines Pty. Ltd. (“Virgin Australia”), the Company has agreed to supply a fleet of a minimum of 18 ATR 72 aircraft for use by Virgin Australia under a wet lease arrangement operated by Skywest Airlines. The Company is principally an aircraft leasing company, which directly and through its subsidiaries either owns or leases seventeen (as of 30 October 2012) commercial passenger jet and turboprop aircraft that are leased to various airlines in Europe, the United States and Australia. The Company has a 62 per cent holding in Capital Lease Aviation PLC (“CLA”) whose shares are admitted to trading on AIM. CLA is an aircraft leasing company whose focus is on a different customer base to the Company. The Company also owns 99.96 per cent of Avation.net Inc., a subsidiary incorporated in Delaware, through which the Company offers a procurement service to purchase technical spare parts and consumables. Under this ARAN agreement, the Company has so far delivered 8 new ATR72 aircraft, (as of 30 Oct 2012). It will deliver 2 more ATR72 aircraft before the end of 2012 and it has firm commitments to deliver a minimum of 4 ATR72 aircraft in 2013 and a minimum of a further 4 ATR72 aircraft in 2014. The ATR72 aircraft are leased on terms of ten years, which provides the Company with a stable cash flow. The Company believes that its services will become increasingly in demand as airlines look to reduce capital expenditure by leasing, rather than purchasing, aircraft. 8 sale oF austRalian suBsidiaRy In 2012 Avation subsidary Capital Lease Aviation Plc (“CLA”) sought to reduce exposure to some older aircraft assets in its portfolio. CLA therefore sold its wholly owned subsidiary Capital Lease Australian Portfolio One Pty Ltd (“C1”) to Skywest Airlines (S) Pte Ltd (“SKWS”) on 28 June. C1 owned three Fokker F100 aircraft which were on lease to Skywest Airlines (Australia) Pty Ltd. The leases for these aircraft were to expire on 26 September 2012, 28 September 2012 and 28 February 2013. Given the approaching lease expiries and a preference to complete transactions on newer aircraft, CLA took the opportunity to dispose of all the aircraft. The gross sale price for the company and associated CLA loan assets was $9,300,000 USD. After adjustments for obligations of the company, the net cash settlement received on 2 July 2012 by CLA was $4,319,753. CLA has improved its cash position considerably and has a relatively low level of gearing placing it in a good position to acquire some newer aircraft assets and return the company to growth. On 28 June CLA announced an interim dividend of 0.45 pence per share, expected to be be paid in the third quarter of 2012. In the year ended 30 June 2011, C1 had revenues of US$4.6m and profit before tax of US $1.57m. and had net assets of $7.5m. 9 ANNUAL REPORT 2012 Company oVeRVieW GRoup stRuCtuRe AVATIOn PlC uK Co. no. 5872328 Registered Office: Cheyne house, Crown Court, 61-63 Cheapside, london eC2V 6aX Date Of Incorporation: england & Wales, 11 July 2006, admitted on lse, on 6 october 2010 100% 62.07% 99.96% 100% 100% 100% F100 PTY lTD CAPITAl lEASE AVIATIOn PlC AVATIOn.nET InC MSn 429 lIMITED AVATIOn EASTERn FlEET PTE lTD AVATIOn EASTERn FlEET II PTE lTD Registered Office: Registered Office: Barringtons house 283 Rokeby Road subiaco Wa 6008 Date of Incorporation: Cheyne house, Crown Court, 62-63 Cheapside, london eC2V 6aX Registered Office: Corporation trust Center Registered Office: Registered Office: Registered Office: Cheyne house, Crown Court, 510 thomson Road 510 thomson Road #12-04 slF Building #12-04 slF Building 1209 orange street 61-63 Cheapside, singapore 298135 singapore 298135 Wimington usa london eC2V 6aX Date Of Incorporation: Date Of Incorporation: Victoria, australia, Date Of Incorporation: Date Of Incorporation: Date Of Incorporation: singapore, 15 november 2006 england & Wales, 6 June 2007 delaware, usa, 18 January 2000 england & Wales, 8 February 2011 24 march 2010 singapore, 12 January 2012 100% 100% 100% 100% 100% CAPITAl lEASE MAlTA lIMITED CAPITAl lEASE AVIATIOn (S) PTE lTD AVATIOn.nET InC SInGAPORE BRAnCH Registered Office: Registered Office: Registered Office: suite 2, tower Business 510 thomson Road 510 thomson Road Centre #12-04 slF Building #12-04 slF Building Ground Floor, tower singapore 298135 singapore 298135 AIRFRAME lEASInG (S) PTE lTD AIRFRAME lEASInG (S) II PTE lTD Registered Office: Registered Office: 510 thomson Road 510 thomson Road #12-04 slF Building #12-04 slF Building singapore 298135 singapore 298135 Date Of Incorporation: Date Of Incorporation: Date Of Incorporation: Date Of Incorporation: singapore, 30 november 2011 singapore, 2 october 2007 singapore, 12 may 2011 singapore, 13 January 2012 street, swatar Birkirkara BKR 4013 malta Date Of Incorporation: malta, 20 June 2008 10 BoaRd oF diReCtoRs Jeff Chatfield Chairman Andrew Baudinette Non-Executive Director Mr Chatfield is the Chairman of Avation PLC and has been instrumental establishing in and growing the Company. He is also the Group Executive Chairman of Skywest Airlines Ltd and Chairman of Skywest Airlines (Australia) Pty Ltd. Mr Chatfield 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 of a variety of patents. He has Bachelor of Engineering and Master of Engineering Science degrees 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. Rod Mahoney Executive Director Mr Mahoney is the Chief Operating Officer and an Executive Director of this the Company. Before executive appointment, he was a fleet planning and aircraft procurement consultant to the Company. He has previously been a project advisor to a variety of Asia-Pacific airlines, suppliers and other aviation businesses, including Virgin Blue and V Australia and also held various senior executive positions at Airbus for 23 years, largely within the sales divisions covering Europe and Africa, China and the Pacific. He holds a Bachelor of Science Degree in Aeronautical Engineering (BSc. Hons), a Masters in Air Transport (MSc.) and a Masters of Applied Finance (MAppFin). Mr Mahoney holds dual citizenship of the United Kingdom and Australia and resides in Singapore. Mr Mahoney is a graduate member of the Australian Institute of Company Directors. is a Mr Baudinette founding director of the Company and long- serving executive of the Group. In 2003, Mr Baudinette was appointed CEO of the Company’s subsidiary Avation.net Inc and has been its Managing Director since 2005, not only growing the existing business but also conceiving and developing its activities as the major procurement arm of the Group. A skilled marketer and manager, he has a 25 year history in media, having held management positions in the Australian radio and newspaper industries and previously worked as a broadcaster and radio programmer in regional Australian radio. Mr Baudinette has also been involved with and driven start-up businesses in the advertising, travel, technology and entertainment industries. Mr Baudinette has assisted the Group with corporate re-structuring, transactional projects and asset acquisition. He is also a director of a number of unlisted companies. 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. He is also a director of a number of listed and unlisted companies and is also a member of the Australian Institute of Company Directors. 11 ANNUAL REPORT 2012 CuRRent aiRCRaFt in Fleet (AS AT OCTOBER 2012) MSN Registration Aircraft Type 11484 (VH-FNY) Fokker 100 11489 (VH-FNJ) Fokker 100 11488 (VH-FNR) Fokker 100 11373 (VH-FNU) Fokker 100 11391 (VH-FSW) Fokker 100 52 (N620AW) 1881 (OY-VKA) 1921 (OY-VKB) 429 (VH-FNP) Airbus A320- 200 Airbus A321- 200 Airbus A321- 200 Airbus A320- 200 Commencement Date (Original Date) Lease term (months) 3 April 2007 114 24 April 2004 117 3 August 2004 117 8 August 2008 72 Areas of Operation Western Australia, Northern Territory, Bali (Indonesia) Western Australia, Northern Territory, Bali (Indonesia) Western Australia, Northern Territory, Bali (Indonesia) Western Australia, Northern Territory, Bali (Indonesia) 19 August 2008 64 Western Australia, Victoria Airline Lessee Skywest Airlines (Australia) Pty Ltd Skywest Airlines (Australia) Pty Ltd Skywest Airlines (Australia) Pty Ltd Skywest Airlines (Australia) Pty Ltd Skywest Airlines (Australia) Pty Ltd US Airways Inc 28 September 275 North America 1990 Thomas Cook Airlines Scandinavia A/S Thomas Cook Airlines Scandinavia A/S Skywest Airlines (Australia) Pty Ltd 1 April 2003 144 Europe, Scandinavia 28 February 2003 144 Europe, Scandinavia 4 April 2010 36 Western Australia, Victoria 954 (VH-FVH) ATR Virgin Australia 11 August 2011 120 Eastern Australia 72-500 955 (VH-FVI) ATR Virgin Australia 18 August 2011 120 Eastern Australia 72-500 974 (VH-FVL) ATR Virgin Australia 13 October 2011 120 Eastern Australia 72-500 979 (VH-FVM) ATR Virgin Australia 29 November 2011 120 Eastern Australia 72-500 978 (VH-FVU) ATR Virgin Australia 26 January 2012 120 Eastern Australia 72-500 986 (VH-FVX) ATR Virgin Australia 1 February 2012 120 Eastern Australia 72-500 1025 (VH-FVP) ATR Virgin Australia 3 August 2012 120 Eastern Australia 72-600 1039 (VH-FVN) ATR Virgin Australia 6 September 2012 120 Eastern Australia 72-600 12 atR deliVeRy sChedule (AS AT OCTOBER 2012) Delivered Aircraft Type Delivery Date Aircraft 1 Aircraft 2 Aircraft 3 Aircraft 4 Aircraft 5 Aircraft 6 Aircraft 7 Aircraft 8 Scheduled Future Deliveries as part of firm options Aircraft 9 Aircraft 10 Aircraft 11 Aircraft 12 Aircraft 13 Aircraft 14 Aircraft 15 ATR 72-500 August 2011 ATR 72-500 August 2011 ATR 72-500 October 2011 ATR 72-500 November 2011 ATR 72-500 January 2012 ATR 72-500 February 2012 ATR 72-600 August 2012 ATR 72-600 September 2012 ATR 72-600 November 2012 ATR 72-600 December 2012 ATR 72-600 February 2013 ATR 72-600 ATR 72-600 April 2013 July 2013 ATR 72-600 October 2013 ATR 72-600 January 2014 13 ANNUAL REPORT 2012 FutuRe stRateGy The Company’s strategy is to continue to expand the Group’s aircraft leasing business by: ongoing aircraft leasing requirements, in particular, with the ATR aircraft used by Virgin Australia in the ARAN. • • • • “Capitalising on continued growth in the aircraft leasing market by acquiring additional aircraft:” the Company intends to exploit the current growth in the aircraft leasing market by acquiring additional aircraft. The Company will adopt a flexible approach to the type of aircraft it purchases and this will depend principally on the requirements of its growing customer base. The Company is continuously evaluating potential opportunities for growth in line with its strategy, notably growing its portfolio of aircraft, in particular by maintaining communications with aircraft owners and manufacturers. “Leasing aircraft to both regional and international airlines:” the Directors expect the Group’s customer base to comprise both regional and global airline companies. The Group’s customer base will not be restricted to a particular geography or type of customer. “Efficiently raising capital to execute its growth strategy:” the Company expects to fund its growth strategy through a mix of retained cashflow, debt and equity financing. The Company may utilize a broad range of funding options to support its growth strategy. “Continuing to support Skywest Airlines:” the Company was originally incorporated in order to support Skywest Airlines by providing aircraft leasing facilities. While the Group now provides aircraft leasing facilities to larger airlines, Skywest Airlines will continue to be an important customer of the Group and it is intended that Avation will continue to assist Skywest Airlines with its Aircraft Demand and the Global Commercial Aircraft Fleet Demand for new aircraft is derived from both traffic growth and replacement of older equipment. Historically, demand for growth has been driven by economic growth and market maturity, market liberalization and the adoption of new business models. Aircraft replacement is related to the relative operating economics of old and new aircraft, fuel prices, technological improvements and the demand for conversions of passenger aircraft to freighters. Growth Drivers The world fleet is expected to grow steadily as airlines continue to develop service offerings to accommodate the world’s rapidly growing demand for air travel. Key elements that are currently driving growth in demand for both new and used aircraft include: • High rates of economic growth and increasing propensity to travel in emerging markets; • • Liberalisation of air service between and within countries; and Stimulation of traffic from growing Low Cost Carriers offering lower fares. Replacement Drivers The requirement to replace older aircraft that are retired or converted to freighter configuration also forms a substantial driver of aircraft demand, particularly in large mature regions. Replacement demand is driven by a number of factors including: 14 FutuRe stRateGy • Relative operating economics, environmental considerations; reliability, and • • • Technological advancement, including the introduction of new aircraft and engines; Aircraft reaching their economic useful lives, driving retirement demand; and Freighter conversion demand, driving replacement demand of passenger aircraft. Overall, the size of the global commercial aircraft fleet is expected to double over the next two decades. Airbus forecasts growth to 31,424 total aircraft by 2030, of which 26,931 will be mainline passenger jets (with more than 100 seats). In addition, Airbus predicts that the world’s airlines will require more than 5,000 smaller aircraft, either jet or turboprop, to serve regional demand, especially in Europe and the United States. Boeing predicts that the world fleet will reach 39,530 aircraft in 2030, of which the vast majority - 36,030 - will be mainline passenger jets (with more than 90 seats) of which 33,500 units will be delivered new between 2011 and 2030, 60% being for growth and 40% for replacement. Aircraft Financing and Leasing Markets Few airlines have the internal cash available to self-finance acquisitions of new or used aircraft, and most airlines seek financing from a variety of sources, including traditional bank debt, export credit guarantees, tax leases, capital markets, and operating leases. An aircraft operating lease is a lease wherein the lessor retains ownership of the aircraft and where the aircraft will be returned to the lessor at the end of the lease. Such leases do not impact the balance sheet of the lessee. Aircraft operating leasing has evolved over the last 40 years to become highly sophisticated and attractive to airlines, in effect becoming a source of capital that carriers utilise along with debt and equity to finance their equipment acquisitions. Airlines are attracted to operating leasing for a variety of reasons, including low capital outlay requirements, fleet planning flexibility, delivery date availability and residual value risk avoidance. Furthermore, operating leases are often preferred by start-up carriers because they lower the capital costs for market entry. Aircraft lessors have an intermediary role attractive to both the aircraft manufacturers and airlines. They provide an added distribution channel and an important alternative source of funding. Aircraft lessors command a sizeable position in the order books of Airbus and Boeing in particular. the past 20 years, Over the world’s airlines have increasingly turned to operating leases for their aircraft financing requirements: the percentage of the global active commercial aircraft fleet under operating lease by non- airline affiliated entities has increased from 20% in 1996 to nearly 40% in 2012. AIRCRAFT 14000 12000 10000 8000 6000 4000 2000 0 36.8% NEW AIRCRAFT DELIVERIES 2012-31 (Source: Boeing - Curret Market Outlook 2012) 22.4% 22.5% 7.5% 7.7% 3.2% 2.4% Asia Pacific North America Europe Middle East Latin America CIS Africa REGIONS 15 ANNUAL REPORT 2012 RepoRt oF the diReCtoRs The directors have pleasure in presenting their report and financial statements for the financial year ended 30 June 2012. Principal activities and business review 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 affecting the Group’s turnover are described in note 6. The full business review including KPI’s can be found in the Chairman’s statement on page 6. The Group has not sought to review environmental matters nor social and community issues. Results and dividends The consolidated statement of comprehensive income for the period is set out on page 24. The directors have proposed to pay a 1.04 pence final 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 (in name of director and nominee) Deemed interest Ordinary Shares of £0.01 each 30 June 2012 1 July 2011 30 June 2012 1 July 2011 Robert Jeffries Chatfield Andrew Baudinette 1 1 1 1 7,039,490 6,863,210 670,000 620,000 Bryant James Mclarty 117,300 57,300 Roderick Douglas Mahoney 110,000 - - - - - 16 RepoRt oF the diReCtoRs Significant Shareholdings Creditors Payment Policy Ordinary shares Percentage The group’s current policy concerning the payment of trade creditors is to: Fitel Nominees Limited 6,729,490 15.17% HSBC Client Holdings Nominee (UK) Limited Lynchwood Nominees Limited 5,173,463 11.66% 3,404,972 7.67% Fitel Nominees Limited 2,700,000 6.08% Fitel Nominees Limited 2,269,156 5.11% Equal Opportunities Policy It is the group’s policy to employ individuals with the necessary qualifications 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 great importance of The group recognises the contribution made by all employees and aims to keep them informed of matters affecting 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 • 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 office 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 Jeffries Chatfield Director The company has no requirement to comply with the Combined Code. 30 October 2012 17 ANNUAL REPORT 2012 diReCtoRs RemuneRation RepoRt Introduction Share options and warrants 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 financial 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 specific to the individual levels of remuneration. 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 management of the Group to gain: to the directors and senior • • • Improvement in share price Improvement in net profit Improvement in return to shareholders Remuneration (audited) Individual Director’s remuneration was as follows Year ended 30 June 2012 £ Year ended 30 June 2011 £ Group Executive Robert Jeffries Chatfield 157,716 185,680 Roderick Douglas Mahoney 72,384 - Non-executive Andrew Baudinette 140,746 109,073 Bryant James Mclarty 21,273 12,500 392,119 307,253 18 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 Jeffries Chatfield * 21 Dec 2009 Robert Jeffries Chatfield * 2 Dec 2010 35.5 p 67.5 p 176,280 200,000 - - Robert Jeffries Chatfield * 12 Dec 2011 110.5 p - 400,000 (176,280) - - - 200,000 400,000 Andrew Baudinette ** 2 Dec 2010 67.5 p 200,000 - (75,000) 125,000 Andrew Baudinette ** 12 Dec 2011 110.5 p - 200,000 - 200,000 Bryant James Mclarty 21 Dec 2009 Bryant James Mclarty 2 Dec 2010 35.5 p 67.5 p 50,000 50,000 - - Bryant James Mclarty 12 Dec 2011 110.5 p - 200,000 (50,000) - - - 50,000 200,000 * Robert Jeffries Chatfield was granted the share warrants via Epsom Assets Limited. ** Andrew Baudinette was granted the share warrants via Giant Mix Investments Limited. On 12 December 2011, Robert Jeffries Chatfield via Epsom Assets Limited exercised 176,280 warrants, Andrew Baudinette via Giant Mix Investments Limited exercised 75,000 warrants and Bryant James Mclarty exercised 50,000 warrants, at the exercise price of 35.5p and 67.5p. The market price on that day of exercise was 109.5p. The weighted average fair value of the warrants granted during the financial year is 8.17 pence. 19 ANNUAL REPORT 2012 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 FTSE100 index over the last five 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. On behalf of the board Robert Jeffries Chatfield Director 30 October 2012 20 AvationFTSE 100Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-12 Mar-12 Jun-12 Sep-12200180160140120100806040200 diReCtoRs’ ResponsiBilities Statement of Directors’ responsibilities The Directors are responsible for preparing the Directors’ Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under Company Law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the Group and the financial performance and cash flows of the Group for that year. In preparing these financial 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 financial statements, the Company and the Group has complied with IFRS as adopted by the European Union, and, in respect of the Company as applied in accordance with the provisions of the Companies Act 2006, subject to any material departures disclosed and explained in the Group financial statements; • • the Directors are required under the Standard Rules of the London Stock Exchange to prepare Group financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) and have elected to prepare the Company financial 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. for keeping adequate The Directors are responsible accounting records that are sufficient to show and explain the Company and the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial 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 financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions. 21 ANNUAL REPORT 2012 RepoRt oF the auditoRs INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF AVATION PLC We have audited the financial statements of Avation PLC for the year ended 30 June 2012 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 financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken 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 financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements. If we became aware of any apparent material misstatements or inconsistencies we consider the implications in our report. Opinion on the financial statements In our opinion: • • • • the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 30 June 2012 and of the Group’s profit for the year then ended; the Group’s financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company financial 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 in the financial statements have been prepared accordance with the requirements of the Companies Act 2006 and, as regards the Group financial 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 financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following 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 the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified • by law are not made; or • we have not received all the information and explanations we require for our audit. Matthew Meadows (Senior Statutory Auditor) for and on behalf of Kingston Smith LLP, Statutory Auditor Devonshire House 60 Goswell Road London EC1M 7AD 30 October 2012 22 FinanCial statements For the financial year ended 30 June 2012 Registered number: 5872328 (england & Wales) 23 ANNUAL REPORT 2012 Consolidated statement oF CompRehensiVe inCome FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012 Continuing operations Revenue Cost of sales Gross profit Other income Other operating expenses Expenses - Administrative expenses - Finance expenses Profit before taxation Taxation Note 2012 £ 2011 £ 8 22,098,019 16,291,428 (713,126) (739,278) 21,384,893 15,552,150 160,549 297,792 (9,159,965) (6,207,042) (2,193,520) (1,255,756) (4,951,087) (2,755,498) 5,240,870 (1,079,660) 5,631,646 (574,920) 9 10 11 13 14 Profit from continuing operations for the year 4,161,210 5,056,726 Other comprehensive income Currency translation differences arising on consolidation 528,268 (1,809,245) Revaluation (loss) / gain on property, plant and equipment, net of tax (3,081,286) 859,629 Other comprehensive income for the year, (net of tax) (2,553,018) (949,616) Total comprehensive income for the year 1,608,192 4,107,110 Profit 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 - Basic – continuing and total operations - Fully Diluted – continuing and total operations COMPANY STATEMENT OF COMPREHENSIVE INCOME Profit for the year Other comprehensive income: Revaluation gains on property, plant and equipment, net of tax Other comprehensive income for the year, (net of tax) Total comprehensive income for the year 3,307,126 854,084 4,161,210 3,627,293 1,429,433 5,056,726 1,462,520 3,128,808 145,672 978,302 1,608,192 4,107,110 15 8.16 pence 11.95 pence 8.13 pence 11.84 pence 2012 £ 2011 £ 953,896 1,288,382 – – 22,158 22,158 953,896 1,310,540 24 Consolidated BalanCe sheet AS AT 30 JUNE 2012 ASSETS Current assets: Cash and cash equivalents Trade and other receivables Prepayments Inventories Total current assets Non-current assets: Trade and other receivables Prepayments Property, plant and equipment Goodwill Total non-current assets Total assets LIABILITIES AND EQUITY Current liabilities: Trade and other payables Deferred lease income Provision for taxation Loans and borrowings Short-term provisions Total current liabilities Non-current liabilities: Trade and other payables Deferred lease income 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 Capital reserve Foreign currency translation reserve Retained earnings Non-controlling interest Note 2012 £ 2011 £ 16 17 18 16 17 20 21 22 23 24 25 22 23 24 26 27 5,824,099 5,770,332 297,904 9,168 11,901,503 5,403,585 2,452,619 137,049,655 1,324,541 146,230,400 5,626,771 7,542,395 – 1,946 13,171,112 – – 84,896,190 1,324,541 86,220,731 158,131,903 99,391,843 3,242,101 58,519 332,421 12,522,177 1,901,456 18,056,674 3,883,863 468,156 79,402,426 3,799,728 87,554,173 423,745 14,192,267 5,465,206 7,000 120,779 1,636,511 2,515,434 17,790,185 42,151,127 10,369,929 52,521,056 3,331,862 – 38,748 9,865,455 2,849,839 16,085,904 942,009 – 28,091,394 4,811,938 33,845,341 386,072 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 Total liabilities and equity 158,131,903 99,391,843 Approved by the board and authorised for issue on 30 October 2012 Robert Jeffries Chatfield Director 25 ANNUAL REPORT 2012 Company BalanCe sheet AS AT 30 JUNE 2012 ASSETS Current assets: Cash and cash equivalents Trade and other receivables Total current assets Non-current assets: Trade and other receivables 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: Trade and other payables 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 30 October 2012 Robert Jeffries Chatfield Director 26 Note 2012 £ 2011 £ 16 16 19 20 22 24 22 24 26 757,149 6,632,083 7,389,232 5,403,585 3,145,790 5,356,415 13,905,790 3,310,383 5,961,754 9,272,137 – 1,440,336 5,654,618 7,094,954 21,295,022 16,367,091 815,303 719,896 – 1,350,401 2,165,704 1,697,447 432,491 201,754 – 1,252,377 1,972,273 – 1,738,069 138,340 2,331,692 1,876,409 27 423,745 386,072 14,192,267 10,543,750 22,158 7,000 120,779 22,158 7,000 74,381 2,031,677 1,485,048 16,797,626 12,518,409 21,295,022 16,367,091 Consolidated statement oF ChanGes in equity FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012 Assets Capital Foreign currency Non- Share Share revaluation Redemption Warrant Capital translation Retained Controlling Total capital premium reserve reserve Reserve reserve reserve earnings Total Interest Equity £ £ £ £ £ £ £ £ £ £ £ 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 Group Balance at 1 July 2011 Profit for the year Other comprehensive income Total comprehensive income Dividend related to 2011 paid Dividend of subsidiary paid to minority shareholders Increase in issued share capital Acquisition of ordinary shares in subsidiary Share issue expenses Capital expenses Warrant expenses Balance at 30 June 2012 Balance at 1 July 2010 Profit 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 – – – – – – – – – 37,673 3,817,724 – – – – – (169,207) – – 123,882 10,002,743 – – (708,251) – – – – (1,971,311) – (1,971,311) – – – – – 676,145 – 676,145 – – – – – – – – – – – – – – – – – – – – – – – (18,988) – – – – – – – – 1,636,511 65,386 – – – 3,307,126 3,307,126 854,084 4,161,210 – 126,705 – (1,844,606) (708,412) (2,553,018) – 126,705 3,307,126 1,462,520 145,672 1,608,192 – (407,267) (407,267) – (407,267) – – – – – – – – (167,603) (167,603) – 3,836,409 – 3,836,409 – – – – – (3,341,963) (3,341,963) (169,207) 1,636,511 65,386 – (169,207) – 1,636,511 – 65,386 – – – – – – – 74,381 – 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) 74,381 – – (708,251) 74,381 – – – – – – – – – – – 423,745 14,192,267 5,465,206 7,000 120,779 1,636,511 2,515,434 17,790,185 42,151,127 10,369,929 52,521,056 262,190 1,249,258 6,760,372 7,000 386,072 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 During the financial year, the Company increased its share holding in its subsidiary, Capital Lease Aviation PLC from 51.18% to 62.07%. The consideration for the acquisition of the CLA shares is through the allotment of 1,647,781 new ordinary shares. The dividend paid during the year was for 1p (2011: 0.6p) per share. 27 ANNUAL REPORT 2012 Company statement oF ChanGes in equity FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012 Asset Capital Share Share Revaluation redemption Warrant Retained capital premium Reserve Reserve Reserve earnings Total £ £ £ £ £ £ £ Company Balance at 1 July 2011 386,072 10,543,750 22,158 7,000 74,381 1,485,048 12,518,409 Profit for the year Other comprehensive income Total comprehensive income Dividend relating to 2011 paid Increase of issued share capital Share issue expenses Warrant expenses – – – – – – – – 37,673 3,817,724 – – (169,207) – – – – – – – – – – – – – – – – – – 953,896 953,896 – – 953,896 953,896 – (407,267) (407,267) (18,988) – 65,386 – – – 3,836,409 (169,207) 65,386 Balance at 30 June 2012 423,745 14,192,267 22,158 7,000 120,779 2,031,677 16,797,626 Balance at 1 July 2010 262,190 1,249,258 Profit for the year Other comprehensive income Total comprehensive income Dividend relating to 2010 paid Increase of issued share capital Share issue expenses Warrant expenses – – – – – – – – 123,882 10,002,743 – – (708,251) – – – 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 – – – 74,381 (171,193) (171,193) – 10,126,625 – – (708,251) 74,381 Balance at 30 June 2011 386,072 10,543,750 22,158 7,000 74,381 1,485,048 12,518,409 The dividend paid during the year was for 1p (2011: 0.6p) per share. 28 Consolidated statement oF Cash FloWs FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012 Cash flows from operating activities: Profit before taxation Adjustments for: Depreciation expense Claim on maintenance reserve Impairment loss on property plant and equipment Amortisation of loan premium Amortisation of deferred lease expense Loss on disposal of subsidiary Warrant expense Interest expense Interest income Operating profit before working capital changes Movement in working capital: 2012 £ 2011 £ 5,240,870 5,631,646 6,515,334 1,257,494 4,964,453 1,242,589 990,924 225,283 4,207 396,213 65,386 – – – – 74,381 4,721,597 2,680,231 (59,643) (3,607) 19,357,665 14,589,693 Trade and other receivables and prepayments (4,099,516) (5,157,029) Inventories Deferred lease income Trade and other payables Short-term provisions Cash from operations Interest paid Interest received Corporation tax paid Net cash from operating activities Cash flows from investing activities: Cash outflow from disposal of subsidiary – See Note A Purchase of property, plant and equipment Loan to related parties Net cash (used in) investing activities Cash flows from financing activities: Net proceeds from issuance of ordinary shares Dividends paid Proceeds from borrowings Repayment of borrowings Capital element of finance lease repayments Net cash (used in) from financing activities Effects of exchange rates on cash and cash equivalents Net increase in cash and cash equivalents Cash and cash equivalents at beginning of financial year Cash and cash equivalents at end of financial year (7,222) 526,675 5,416,497 (571,189) (1,239) – (972,482) (311,597) 20,622,910 8,147,346 (4,721,597) (2,809,256) 59,643 (298,554) 15,662,402 3,607 (440,543) 4,901,154 (127,977) – (4,884,565) (19,233) – (1,579,860) (5,012,542) (1,599,093) 1,961,749 (407,266) – 9,418,374 (171,193) 1,257,800 (10,960,417) (8,192,846) (1,497,535) (1,355,278) (10,903,469) 450,937 197,328 5,626,771 5,824,099 956,857 139,972 4,398,890 1,227,881 5,626,771 29 ANNUAL REPORT 2012 Consolidated statement oF Cash FloWs FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012 Note A – Disposal of a subsidiary, Capital Lease Australian Portfolio One Pty Ltd: The aggregate cash inflows arising from the disposal of Capital Lease Australian Portfolio One Pty Ltd were: Cash Trade and other receivables Property, plant and equipment Trade and other payables Borrowings Provisions Income tax payable Identifiable net assets disposed Loss on disposal Cash proceeds from disposal Less: cash and cash equivalents in subsidiary disposed Net cash inflow on disposal, receivable after year end £ 127,977 1,194,144 6,849,275 (2,564,404) (2,392,449) (1,634,688) (329,515) 1,250,340 (396,213) 854,127 (127,977) 726,150 Cash and cash equivalents in the consolidated cash flow 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 2012 £ 36,680 5,663,893 10,734 1,060 111,732 2011 £ 2,878,890 2,686,475 11,089 1,198 49,119 5,824,099 5,626,771 5,712,367 5,577,652 The rate of interest for the cash on interest earning accounts is at 1.0% to 4.5% (2011:1.0% to 4.5%) per annum. These approximate the weighted effective interest rate. 30 Company statement oF Cash FloWs FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012 Cash flows from operating activities: Profit before taxation Adjustments for: Dividend income Depreciation Warrant expense Interest expense 2012 £ 2011 £ 1,017,381 1,228,848 (274,272) 299,376 65,386 56,375 - 226,093 74,381 154,744 Operating profit before working capital changes 1,164,246 1,684,066 Movement in working capital: Trade and other receivables Trade and other payables Cash (used in) from operations Interest paid Corporation tax paid Net cash (used in) operating activities Cash flows from investing activities: Loan to related parties Purchase of property, plant and equipment Investment in subsidiaries Net cash (used in) investing activities Cash flows from financing activities: Net proceeds from issuance of ordinary shares Dividends paid Capital element of finance lease repayments Net cash from financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of financial year Cash and cash equivalents at end of financial year (5,799,642) (4,645,598) 1,792,854 29,195 (2,842,542) (2,932,337) (56,375) (283,769) (72) - (2,898,989) (3,216,106) - (1,579,860) (1,173) (1) - (49) (1,174) (1,579,909) 1,961,749 (407,266) 9,418,374 (171,193) (1,207,554) (1,355,280) 346,929 7,891,901 (2,553,234) 3,095,886 3,310,383 214,497 757,149 3,310,383 Cash and cash equivalents in the cash flow statement are not restricted in use and are denominated in the following currencies: Pounds Sterling United States dollars Singapore dollars 2012 £ 27,399 726,622 3,128 2011 £ 2,824,927 485,456 - 757,149 3,310,383 The rate of interest for the cash on interest earning accounts is at 1.0% (2011:1.0%) per annum. These approximate the weighted effective interest rate. 31 1 GENERAL Avation PLC is a public limited company incorporated in England and Wales under the Companies Act 2006 (Registration Number 5872328) and is listed as a Standard Listing on the London Stock Exchange. The address of the registered office 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 financial 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 financial 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 modified by the revaluation of aircraft. The financial statements are presented in Pounds Sterling, rounded to the nearest Pound. The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the financial period. Although these estimates are based on management’s best knowledge of current events and actions, actual results may ultimately differ from those estimates. The accounting policies set out below have been applied consistently throughout the financial period presented in these financial statements and the accounting policies have been applied consistently by the Company and its subsidiaries. b) BASIS OF CONSOLIDATION - The consolidated financial statements comprise the financial statements of Avation PLC and its subsidiaries as at 30 June 2012. 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 financial 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 deficit 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 differences, recorded in equity • Recognises the fair value of the consideration received • Recognises the fair value of any investment retained • Recognises any surplus or deficit in profit or loss • Reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss. 3232 ANNUAL REPORT 2012Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 notes to FinanCial statements FOR THE YEAR ENDED 30 JUNE 2012 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 identifiable net assets. Acquisition costs incurred are expensed and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification 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 profit 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 profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it is not remeasured until it is finally settled within equity. Business combinations prior to 1 July 2009 In comparison to the above-mentioned requirements, the following differences 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 identifiable net assets. Business combinations achieved in stages were accounted for as separate steps. Any additional acquired share of interest did not affect 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 significantly modified the cash flows 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 outflow 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 financial 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 financial statements of the relevant entity and classified 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 benefits associated with the transactions will flow 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 identifiable 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 cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is 33 recognised immediately in the profit or loss. The interest of significant 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 benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. 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 sufficient regularity such that the carrying amount does not differ 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 profit or loss, in which case the increase is credited to profit 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 profit 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 profit 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 The residual values, useful lives and depreciation methods are revised and adjusted if appropriate, at each reporting date. Fully depreciated assets still in use are retained in the financial statements. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. 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 suffered 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. 34 ANNUAL REPORT 2012Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 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 effect 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 benefit expense in the profit and loss. The total expense to be apportioned over the vesting period of the benefit 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 effects 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 classified as operating leases. Rental income from operating leases (net of any incentives given to the lessees) is recognised in the profit 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 classified as a finance 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 finance charges so as to obtain a constant rate on the finance 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 profit 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.d. 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 profit 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 effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount. (iii) Sales of goods are recognised when goods are delivered and title has passed. (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 profit or loss in the period in which they are incurred. 35 Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 n) TAXATION - Taxation expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the financial period. Taxable profit differs from profit as reported in profit 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 differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference 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 sufficient taxable profits 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 profit 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 offset 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 effect from 1 April 2011 the Company migrated its business to become Singapore resident for tax purposes. o) FOREIGN CURRENCIES - The Group’s consolidated financial statements and Company financial 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 a UK incorporated Company. The individual financial 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. In preparing the financial 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 differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in the profit or loss for the period except for differences 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 financial statements, the assets and liabilities of the Group’s foreign operations are expressed in Pounds 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 fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve. Such translation differences are recognised in profit 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. 36 ANNUAL REPORT 2012Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 (p) FINANCIAL INSTRUMENTS - Financial assets and financial 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 effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective 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 insignificant risk of changes in value. (iii) Financial liabilities and equity - Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial 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 specific financial liabilities and equity instruments are set out below. (iv) Borrowings - Interest-bearing loans from banks and financial institutions are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Any difference 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 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 - 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. 4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and assumptions concerning the future are made in the preparation of the financial statements. They affect 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 significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial 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, significant decreases in the market value of aircraft, a significant adverse change in an aircraft’s physical condition or a significant adverse change in cash-flow associated with the use of the aircraft. The Group continues to record positive cash flows from its aircraft. (ii) Revaluation of property, plant and equipment – aircraft The Group regularly revalues its aircraft using independent valuers valuations. During the financial year, the Group revalued its older aircraft using independent valuers valuations and the carrying amount of the aircraft is reduced to its recoverable value. Impairment losses were recognised as an expense immediately. (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 37 Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 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 profit or loss. (iv) Income taxes Significant 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 final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred income tax provisions in the period in which the determination is made. (v) Consolidation of special purpose entity (“SPE”) – Avation Airframe Holdings Pte. Ltd. The directors have considered whether this company, which was set up during the year and which forms part of a financing structure to facilitate the acquisition of certain new aircraft, should be consolidated as a subsidiary undertaking. Although the ultimate shareholder of the SPE is a trust, the directors consider that Avation PLC has the power to control the day to day activities of the SPE and indeed does so in practice through one of its wholly owned subsidiary undertakings. Furthermore, Avation PLC is entitled to the benefits and exposed to the risks of the activities of the SPE, which are entirely consistent with the ongoing major operations of the Avation Group, and are conducted on behalf of the Group according to the Group’s specific business needs. Accordingly the directors consider that the SPE is controlled by the Group and have consolidated it as a subsidiary in these financial statements. The Group would cease to control the SPE in the event of a “Relevant Event” as defined in the financing agreement, for example, a delay in payment of interest. Were this to occur consolidation would cease at that point although the Group has no intention, or anticipation, that any such event will occur. 5 NEW STANDARDS AND INTERPRETATIONS NOT APPLIED The IASB and IFRIC have issued the following standards and interpretations with an effective date after the date of these financial statements: The Group intends to apply these standards and interpretations when they become effective. International Accounting Standards (IAS/IFRS) Effective Date IAS 1 Presentation of Items of Other Comprehensive Income - Amendments to IAS 1 1 July 2012 IAS 12 Income Taxes (Amendment) – Deferred Taxes : Recovery of Underlying Assets 1 January 2013 IAS 19 Employee Benefits (Revised) IAS 27 Separate Financial Statements IAS 28 Investments in Associates and Joint Ventures IFRS 9 Financial Instruments – Classification and Measurement IFRS 10 Consolidated Financial Statements IFRS 11 Joint Arrangements IFRS 12 Disclosure of Interest with Other Entities IFRS 13 Fair Value Measurement 1 January 2013 1 January 2013 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 financial position or performance. 6 FINANCIAL RISK MANAGEMENT The main risks arising from the Group’s financial 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 specific to the aviation sector, war, terrorism, and equipment failure.. 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. 38 ANNUAL REPORT 2012Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 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 significant 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 financial status to determine the credit limits to be granted. The Company performs ongoing credit evaluation of its customers’ financial 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 financial period in relation to each class of financial 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 diversification 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 2012 £ 580,392 119,755 1,531,609 2,231,756 2011 £ 1,137,182 74,916 18,167 1,230,265 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 £1,129,826). trade receivable not past due include receivables amounting to £1,391,251 (2011: 2) Financial assets that are past due and/or impaired There is no class of financial 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 iii) Interest rate risk Group 2012 £ 163,133 654,448 22,925 840,506 2011 £ 49,216 51,223 – 100,439 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 fixing interest rates on loans to match the term of the underlying lease term of the asset. The interest rate and terms of repayment of financial assets and financial liabilities are disclosed in the respective notes to the financial statements. 39 Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 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 offsetting assets and liabilities that are denominated in foreign currencies. The Group does not utilise forward foreign currency contracts to hedge its exposure to specific currency risks. The Group’s currency exposure based on the information provided to key management is as follows: Group 2012 Pounds Sterling £ United States Dollars £ Australian Dollars £ Euro £ Singapore Dollars £ Total £ Cash and cash equivalents 36,680 5,663,893 10,734 1,060 111,732 5,824,099 Trade and other receivables 246,943 10,833,491 3,711 52,172 37,600 11,173,917 Prepayments Loans and borrowings Deferred lease income – – – 2,801,896 (91,924,603) (526,675) – – – – – – – – – 2,801,896 (91,924,603) (526,675) Other financial liabilities (121,108) (6,539,685) (7,221) (5,228) (452,723) (7,125,965) Currency exposure 162,515 (79,691,683) 7,224 48,004 (303,391) (79,777,331) 2011 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 financial 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) Company 2012 Pounds Sterling £ United States dollars £ Australian Dollars £ Euro £ Singapore Dollars £ Total £ Cash and cash equivalents 27,399 726,622 – – Trade and other receivables 241,772 11,733,016 3,711 51,795 3,128 5,374 757,149 12,035,668 Loans and borrowings – (1,782,892) – – – (1,782,892) Other financial liabilities (72,097) (2,322,201) (4,312) (1,394) (112,746) (2,512,750) Currency exposure 197,074 8,354,545 (601) 50,401 (104,244) 8,497,175 2011 Cash and cash equivalents 2,824,927 485,456 Trade and other receivables 6,786 5,947,153 Loans and borrowings – (2,990,446) Other financial liabilities (51,179) (604,003) Currency exposure 2,780,534 2,838,160 – – – (4,385) (4,385) – – – – – – 3,310,383 7,815 5,961,754 – (2,990,446) (60,329) (52,514) (719,896) 5,561,795 40 ANNUAL REPORT 2012Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 If the foreign currencies changes against the Pound Sterling by 10% (2011: 10%) with all other variables including tax rate being held constant, the effects arising from the net financial 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 Euro against £ - strengthen - weakened SGD against £ - strengthen - weakened Increase/(Decrease) Increase/(Decrease) 2012 Profit after tax 2012 Equity 2011 Profit after tax 2011 Equity £ (7,969,168) 7,969,168 722 (722) 4,800 (4,800) (30,339) 30,339 £ – – – – – – – – £ (3,217,355) 3,217,355 39,545 (39,545) (458) 458 (8,812) 8,812 £ – – – – – – – – Increase/(Decrease) Increase/(Decrease) 2012 Profit after tax 2012 Equity 2011 Profit after tax 2011 Equity £ 835,455 (835,455) (60) 60 5,040 (5,040) (10,424) 10,424 £ – – – – – – – – £ 283,816 (283,816) (439) 439 – – (5,251) 5,251 £ – – – – – – – – 41 Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 v) Liquidity risk In the management of liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by management to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. Short-term funding is obtained from bank loan facilities. The table below analyses the maturity profile of the financial liabilities of the Group and the Company based on contractual undiscounted cash flows. Group 2012 Trade and other payables Deferred lease income Loans and borrowings 2011 Trade and other payables Deferred lease income Loans and borrowings Company 2012 Trade and other payables Loans and borrowings 2011 Trade and other payables Loans and borrowings vi) Capital risk Less than 1 year Between 1and 2 years Between 2 and 5 years Over 5 years £ £ £ £ 3,242,101 58,519 - - 3,883,863 62,727 188,181 217,248 15,900,805 10,244,405 27,929,755 53,288,663 19,201,425 10,307,132 28,117,936 57,389,774 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 - - - - Less than 1 year Between 1and 2 years Between 2 and 5 years Over 5 years £ £ £ £ 815,303 1,697,447 1,825,138 2,640,441 – 1,697,447 719,896 1,373,458 2,093,354 - 1,779,253 1,779,253 – – – – – – – – – – – – The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern and to maintain a suitable capital structure so as to fund growth and 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. 42 ANNUAL REPORT 2012Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 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 2012 £ 2011 £ 2012 £ 2011 £ 93,226,468 36,603,949 3,538,493 399,959 52,521,056 49,460,598 16,797,626 12,518,409 145,747,524 86,064,547 20,336,119 12,918,368 64% 42% 17% 3% The Group and the Company are in compliance with all externally imposed capital requirements for the financial years ended 30 June 2012 and 30 June 2011. vii) Fair value of financial assets and financial liabilities The fair values of financial assets and financial liabilities reported in the balance sheet approximate the carrying amount of those assets and liabilities. 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 significant influence over the other party in making financial and operating decisions. Some of the Company and Group’s transactions and arrangements are with related parties and the effect of these on the basis determined between the parties is reflected in these financial statements. The balances are unsecured, interest-free and without fixed 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 benefits-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 benefits. The key management’s remuneration is as follows: Key management of the Group - Directors’ fee paid to directors of the Company - Directors’ fee paid to directors of subsidiaries - Superannuation paid for a director of subsidiaries - Salary paid to a director of the Company Group Company 2012 £ 2011 £ 2012 £ 2011 £ 151,657 323,368 25,560 116,746 92,500 79,273 92,500 313,942 21,949 94,073 – – – – – – The amount above includes remuneration in respect of the highest paid director as follows: Aggregate emoluments No contributions were made on behalf of any directors to money purchase pension schemes. Group 2012 £ 2011 £ 157,716 185,680 43 Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 (b) Significant Related party transactions: Group Company 2012 £ 2011 £ 2012 £ 2011 £ Sales of goods to a related party 1 Sales of goods to a related party 2 Sales of goods to a related party 3 Sales of goods to a related party 4 Service fee income from a related party 6 Service rendered to a related party 5 198,070 659,547 4,652 933 9,470 75,235 36,219 – – – – 109,352 Maintenance rent received from a related party 7 1,264,655 1,274,280 Rental income received from a related party 7 12,485,232 6,996,229 – – – – – – – – Rental income received from a related party 8 228,235 – 228,235 Service fee income from a related party 7 Sale of a subsidiary to a related party 6 Expenses rebilled to a related party 7 Interest income received from a related party 9 Interest income received from a related party 10 Interest income received from a related party 11 Service fee paid to Loeb Aron & Company Ltd 12 Service fee paid to Giant Mix Investment Ltd 13 Service fee paid to Takeoff Services Pte Ltd 14 Service fee paid to a related party 15 Consulting fee paid to a related party 15 Guarantee and commitment fee paid to a related party 16 Expenses rebilled from a related party 15 Arrangement fee paid to a related party 17 Advance fee paid to a related party 18 Interest expense paid to a related party 17 Interest expense paid to a related party 18 Interest expense paid to a related party 16 Purchase of aircraft from a related party 19 – 19,586 854,127 – – 29,873 12,293 484 42,895 12,189 10,164 161,260 2,033 235,614 – 32,873 – 48,214 – 89,269 2,835 – 433 – 8,501 – – – – 75,267 32,124 15,723 33,017 13,757 15,597 – 660,217 – – – 12,293 – 42,895 12,189 10,164 161,260 2,033 19,171 – – – 69,934 – – – – – – – – – – – 19,586 – – – – – 8,501 – – – – – – – – – – 660,217 16,306 16,947 – 32,430 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 - Sales of goods to Skywest Airlines (Singapore) Pte Ltd in which a director of the Company is also a director of Skywest Airlines (Singapore) Pte Ltd. 3 - Sales of goods to Takeoff Services Pte Ltd in which a director of the Company is also a director of Takeoff Services Pte Ltd. 4 - Sales of goods to F11305 Pte Ltd in which a director of the Company is also a director of F11305 Pte Ltd. 5 - 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. 6 - On 28 June 2012, the Group disposed of its 100% interest in Capital Lease Australian Portfolio One Pty Ltd 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 Skywest Airlines (Australia) Pty Ltd in which a director of the Company is also a director of Skywest Airlines (Australia) Pty Ltd. 8 - Received from F11305 Pte Ltd in which a director of the Company is also a director of F11305 Pte Ltd. 9 - Received from Takeoff Services Pte Ltd in which a director of the Company is also a director of Takeoff Services Pte Ltd. 44 ANNUAL REPORT 2012Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 (b) Significant Related party transactions (cont‘d): 10 - Received from Giant Mix Investments Ltd in which a director of the Company is a director of Giant Mix Investments Ltd. 11 - Received from CaptiveVision Capital Ltd in which a director of the Company is a director of CaptiveVision Capital Ltd. 12 - Paid to Loeb Aron & Company Ltd in which a director of a subsidiary is a director of Loeb Aron & Company Ltd. 13 - Paid to Giant Mix Investment Ltd in which a director of a subsidiary is a director of Giant Mix Investment Ltd. 14 - Paid to Takeoff Services Pte Ltd in which a director of a subsidiary is a director of Takeoff Services Pte Ltd. 15 - Paid to Skywest Airlines (Singapore) Pte Ltd in which a director of the Company is also a director of Skywest Airlines (Singapore) Pte Ltd. 16 - Paid to CaptiveVision Capital Ltd in which a director of the Company is a director of CaptiveVision Capital Ltd. 17 - 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. 18 - Paid to Fleet Solution Consulting Pte Ltd in which a director of a subsidiary is also a director of Fleet Solution Consulting Pte Ltd. 19 - 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 last financial 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. 8 REVENUE Rental income Maintenance rent revenue Management and service income Sales of finished goods 9 OTHER INCOME Interest income Foreign currency exchange adjustment gain Others 10 OTHER OPERATING EXPENSES Claim on maintenance reserve expense Depreciation of property, plant and equipment Impairment loss on property plant and equipment Loss on disposal of a subsidiary (1) Group 2012 £ 2011 £ 19,797,214 14,052,487 1,264,655 1,274,280 205,514 830,636 128,940 835,721 22,098,019 16,291,428 Group 2012 £ 59,643 84,738 16,168 2011 £ 3,608 293,565 619 160,549 297,792 Group 2012 £ 2011 £ 1,257,494 1,242,589 6,515,334 4,964,453 990,924 396,213 – – 9,159,965 6,207,042 (1) On 28 June 2012, the Company disposed of its 100% interest in Capital Lease Australian Portfolio One Pty Ltd for a cash consideration of £854,127. The carrying amounts of identifiable net assets disposed of were £1,250,340 at 28 June 2012, resulting in a loss on disposal of £396,213. 45 Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 11 FINANCE EXPENSES Interest expense on secured borrowings Guarantee and commitment fee Amortisation of loan premium Amortisation of deferred lease expense 12 STAFF COSTS Directors’ fees paid to directors of the Company Directors’ fee paid to directors of the subsidiaries Wages and salaries Employer’s contribution to defined contribution plans including superannuation Warrant expense 13 PROFIT BEFORE TAXATION Profit before taxation for the year is stated after charging / (crediting) the following: Claim on maintenance reserve expense Depreciation of property, plant and equipment Foreign currency exchange adjustment gain Auditors’ remuneration for audit services Auditors’ remuneration for non-audit services - Corporate taxation 14 TAXATION Current tax expense - United Kingdom - Overseas (Over)/Under provision in prior years tax expense - United Kingdom - Overseas Deferred tax expense – United Kingdom Deferred tax expense – overseas Under provision in prior years deferred tax expense - overseas Other tax – overseas – current 46 Group 2012 £ 2011 £ 4,721,597 2,680,231 – 75,267 225,283 4,207 – – 4,951,087 2,755,498 Group 2012 £ 151,657 323,368 116,746 25,560 65,386 2011 £ 92,500 313,942 120,859 21,949 57,912 682,717 607,162 Group 2012 £ 2011 £ 1,257,493 1,242,589 6,515,334 4,964,453 (81,216) (293,565) 21,750 19,000 2,250 1,000 Group 2012 £ 2011 £ 58,004 834,034 1,318 (6,140) 6,908 166,234 7,690 11,612 1,079,660 23,494 194,862 - - (142,724) 478,564 - 20,724 574,920 ANNUAL REPORT 2012Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 The standard rate of current tax for the period based on the Singapore standard rate of corporation tax is 17% (2011: 27.5%). The current tax expense for the period is less than 17% (2011: 27.5%) for the reasons set out in the following reconciliation: Profit before income tax Tax calculated at tax rate of 17% (2011: 27.5%) Effects of: Non-taxable items Capital allowances and other temporary differences Different tax rates of other countries Adjustment to tax charge in respect of previous periods Total income tax expense 15 EARNINGS PER SHARE a) Basic earnings per share (“EPS”) Group 2012 £ 2011 £ 5,240,870 5,631,646 890,948 1,548,703 (83,792) (411,527) (552,436) (1,018,857) 637,318 (4,822) 887,216 100,109 (72) 218,356 EPS is calculated by dividing the net profit attributable to members of the Company by the weighted average number of ordinary shares in issue during the financial year. Group 2012 £ 2011 £ Net profit attributable to equity holders of the Company 3,307,126 3,627,293 Weighted average number of ordinary shares Basic earnings per share b) Diluted earnings per share 40,515,436 30,355,109 8.16 pence 11.95 pence For the purpose of calculating diluted earnings per share, profit attributable to equity holders of the Company and the weighted average number of ordinary shares outstanding are adjusted for the effects 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 financial 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 profit. Diluted earnings per share attributable to equity holders of the Company is calculated as follows: Group 2012 £ 2011 £ Net profit attributable to equity holders of the Company 3,307,126 3,627,293 Weighted average number of ordinary shares 40,515,436 30,355,109 Adjustment for: - Warrants Weighted average number of ordinary shares Diluted earnings per share 165,337 286,238 40,680,773 30,641,347 8.13 pence 11.84 pence 47 Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 16 TRADE AND OTHER RECEIVABLES Current Group Company 2012 £ 2011 £ 2012 £ 2011 £ Non-trade receivables -subsidiaries Trade receivables - subsidiaries – – – – Non-trade receivables – related parties 3,027,831 988,380 Trade receivables – related party 1,832,212 1,134,033 6,139,552 309,156 119,755 333,283 20,091 – 10,053 9,349 – – – – 987,250 – – 15,990 9,373 – – – 399,544 17,557 369,925 – 19,749 103,514 96,232 23,463 30,454 440,795 10,782 178,271 – 4,639,985 4,639,985 5,770,332 7,542,395 6,632,083 5,961,754 Group Company 2012 £ 2011 £ 2012 £ 2011 £ Trade receivables Other receivables Prepaid expense Tax recoverable Advances – related party Accrued income – related party Deposit for aircraft Non-current Deposit for aircraft 5,403,585 – 5,403,585 – In respect of the Company, the current amounts due from subsidiaries include the following: a) £222,251 (2011: £279,520) from F100 Pty Ltd. Management and service income of £200,000 (2011: £175,000). b) £89 (2011: £10,421) and trade receivables of £119,755 (2011: £Nil) from MSN 429 Limited. Rental income of £1,408,297 (2011: £1,422,565) were received from MSN 429 Limited. c) £Nil (2011: £202) from Capital Lease Australian Portfolio One Pty Ltd. d) £274,272 (2011: £Nil) from Capital Lease Aviation Plc. Dividend income of £274,272 (2011: £Nil) were received from Capital Lease Aviation Plc. e) £197,090 (2011: £18,053) from Avation.net Inc. Management and service income of £Nil (2011: £22,475) and interest income of £800 (2011: £Nil). f) £681,095 (2011: £960) from Avation Eastern Fleet Pte. Ltd g) £259,395 (2011: £Nil) from Avation Eastern Fleet II Pte. Ltd h) £1,007 (2011: £Nil) from Airframe Leasing (S) Pte. Ltd i) £4,504,353 (2011: £Nil) from Avation Airframe Holding Pte. Ltd In respect of the Company, the current amounts due from related parties include the following: a) £Nil (2011: £19,586) 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 £Nil (2011:£19,586) were paid to Skywest Airlines (Australia) Pty Ltd. b) £107,839 (2011: £686,730) from CaptiveVision Capital Ltd in which a director of the Company is a director of CaptiveVision Capital Ltd. c) £225,242 (2011: £280,934) from Takeoff Services Pte. Ltd. in which a director of the Company is a director of Takeoff Services Pte. Ltd. d) £202 (2011: £Nil) from Capital Lease Australian Portfolio One Pty Ltd. in which a director of the Company is a director of Capital Lease Australian Portfolio One Pty Ltd. e) Trade receivables of £20,091 (2011: £Nil) from F11305 Pte Ltd. in which a director of the Company is a director of F11305 Pte Ltd. Rental income of £228,235 (2011: £Nil) was received from F11305 Pte Ltd. 48 ANNUAL REPORT 2012Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 In respect of the group, the current amounts due from related parties include the following: a) Trade receivables of £1,812,121 (2011: £1,134,033) from Skywest Airlines (Australia) Pty Ltd, in which a director of the Company is a director. Rental income of £12,485,232 (2011: £6,996,229), maintenance rent revenue of £1,264,655 (2011: £1,274,280), sales of finished goods of £783,292 (2011: £659,547) and management and service income of £45,688 (2011: £109,352) were received from Skywest Airlines (Australia) Pty Ltd. b) Trade receivables of £20,091 (2011: £Nil) from F11305 Pte Ltd. in which a director of the Company is a director of F11305 Pte Ltd. Rental income of £228,235 (2011: £Nil) were received from F11305 Pte Ltd. c) £Nil (2011: £19,586) from Skywest Airlines (Australia) Pty Ltd in which a director of the Company is a director of Skywest Airlines (Australia) Pty Ltd. d) £107,839 (2011: £686,838) from CaptiveVision Capital Ltd in which a director of the Company is a director of CaptiveVision Capital Ltd. e) £225,242 (2011: £280,934) from Takeoff Services Pte. Ltd. in which a director of the Company is a director of Takeoff Services Pte. Ltd. f) £202 (2011: £Nil) from Capital Lease Australian Portfolio One Pty Ltd. in which a director of the Company is a director of Capital Lease Australian Portfolio One Pty Ltd. g) £2,694,548 (2011: £1,022) from Skywest Airlines (S) Pte. Ltd. in which a director of the Company is a director of the Skywest Airlines (S) Pte. Ltd. h) £19,749 (2011: £10,782) due from 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. i) Accrued income of £103,514 (2011: £178,271) 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 PREPAYMENTS Group Company 2012 £ 2011 £ 2012 £ 2011 £ 246,943 6,841 241,772 6,786 10,833,492 7,124,170 11,733,016 5,947,153 3,711 52,171 37,600 402,672 42 8,670 3,711 51,795 5,374 – – 7,815 11,173,917 7,542,395 12,035,668 5,961,754 Prepayments represent loan premiums on amount due to outside parties and are amortised over 10 years. 18 INVENTORIES Group Company 2012 £ 2011 £ 2012 £ 2011 £ Finished goods, at cost 9,168 1,946 – – The cost of inventories recognised as an expense and included in the cost of sales amounts to £713,126 (2011: £739,278). 49 Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 19 INVESTMENT IN SUBSIDIARIES Unquoted equity shares, at cost Quoted equity shares, at cost Quoted equity shares, at market value Company 2012 £ 2011 £ 1,390,237 1,390,236 1,755,553 50,100 3,145,790 1,440,336 10,256,645 7,515,000 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 effective equity interest 2012 2011 2012 2011 £ £ % % The subsidiaries held directly by the Company: Avation.net Inc (a) Procurement United States of America 1,390,181 1,390,181 99.96 99.96 Capital Lease Aviation PLC (b) Leasing of aircraft United Kingdom 1,755,553 50,100 F100 Pty Ltd (c) MSN 429 Ltd (b) Leasing of aircraft Australia Leasing of aircraft United Kingdom Avation Eastern Fleet Pte Ltd (e) Leasing of aircraft Singapore Avation Eastern Fleet II Pte Ltd (a) Leasing of aircraft Singapore Avation Airframe Holding Pte Ltd (e) 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 Capital Lease Aviation (S) Pte Ltd (a) Leasing of aircraft Singapore The subsidiary held by Avation Eastern Fleet Pte Ltd: 5 1 49 1 – – – – 62.07 51.18 5 1 100.00 100.00 100.00 100.00 49 100.00 100.00 – – – – – 100.00 – – – – 51.18 62.07 62.07 51.18 – Airframe Leasing (S) Pte Ltd (e) Leasing of aircraft Singapore – – 100.00 100.00 The subsidiary held by Avation Eastern Fleet II Pte Ltd: Airframe Leasing (S) II Pte Ltd (a) Leasing of aircraft Singapore – – 100.00 – (a) Audited by Jasmine Chua and Associates, Singapore (b) Audited by Kingston Smith LLP, London, United Kingdom (c) Audited by Moore Stephens, Perth, Australia (d) Audited by Nexia BT, Malta (e) Audited by Ernst & Young LLP, Singapore 50 ANNUAL REPORT 2012Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 Significant transactions with subsidiaries are as follows: Rental income Management and service fee income Dividend income 20 PROPERTY, PLANT AND EQUIPMENT Group 2012 Cost or valuation: At beginning of year Additions Disposal of subsidiary Currency realignment At end of year Representing: Cost Valuation Accumulated depreciation: At beginning of year Depreciation for the year Impairment loss Disposal of subsidiary Currency realignment At end of year Net book value: At beginning of year At end of year Company 2012 £ 2011 £ 1,408,297 1,422,565 200,000 274,272 197,475 – Furniture and equipment £ Aircraft £ Total £ 7,539 1,789 98,053,541 98,061,080 69,338,834 69,340,623 – (13,904,233) (13,904,233) 193 2,384,128 2,384,321 9,521 155,872,270 155,881,791 9,521 – 9,521 – 155,872,270 155,872,270 9,521 155,872,270 155,881,791 2,220 2,505 – – 90 13,162,670 13,164,890 6,512,830 6,515,335 5,551,385 5,551,385 (6,798,079) (6,798,079) 398,515 398,605 4,815 18,827,321 18,832,136 5,319 84,890,871 84,896,190 4,706 137,044,949 137,049,655 51 Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 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 Company 2012 Cost or valuation: At beginning of year Additions At end of year Representing: Cost Valuation 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 52 Furniture and equipment £ Aircraft £ Total £ 995 101,640,622 101,641,617 6,652 913,768 920,420 – 1,112,985 1,112,985 (108) 7,539 (5,613,834) (5,613,942) 98,053,541 98,061,080 7,539 – 7,539 – 98,053,541 98,053,541 7,539 98,053,541 98,061,080 995 1,295 – (70) 9,120,044 9,121,039 4,963,158 4,964,453 (229,056) (691,476) (229,056) (691,546) 2,220 13,162,670 13,164,890 – 92,520,577 92,520,577 5,319 84,890,871 84,896,190 Furniture and equipment £ Aircraft £ Total £ – 5,941,237 5,941,237 1,173 1,173 1,173 – 1,173 5,941,237 5,942,410 – 1,173 – 5,941,237 5,941,237 1,173 5,941,237 5,942,410 – 260 260 286,619 299,116 585,735 286,619 299,376 585,995 – 5,654,618 5,654,618 913 5,355,502 5,356,415 ANNUAL REPORT 2012Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 Company 2011 Cost or valuation: At beginning of year Additions Revaluation surplus At end of year Representing: Valuation Accumulated depreciation: At beginning of year Depreciation for the year Increase on revaluation At end of year Net book value: At beginning of year At end of year Assets held on trust Furniture and equipment Aircraft £ £ Total £ – – – – – – – – – – – 5,014,814 5,014,814 901,190 25,233 901,190 25,233 5,941,237 5,941,237 5,941,237 5,941,237 61,989 226,093 (1,463) 286,619 61,989 226,093 (1,463) 286,619 4,952,825 4,952,825 5,654,618 5,654,618 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 beneficial owner. The aircraft is leased by Wilmington to a US airline. Assets held under finance lease During the financial year, the Group and Company acquired aircraft with an aggregated cost of £23,694,800 (2011: £Nil) and by means of finance leases respectively. The carrying amount of the Group and Company’s aircraft held under finance leases at the end of the reporting period were £28,105,337 and £4,746,001 (2011: £4,994,400) respectively. Assets pledged as security In addition to assets held under finance leases, the Group’s aircraft with carrying values of £108,330,111 (2011: £79,236,253) are mortgaged to secure the Group’s borrowings (Note 24). The Group’s property, plant and equipment include borrowing costs from bank loans specifically used for purchase of aircraft. During the financial year, the borrowing costs capitalised as cost of property, plant and equipment amount to £Nil (2011: £12,578). The Group’s older aircraft were revalued in June 2012 by independent valuers, on the basis of lease encumbered value as of 30 June 2012 and the carrying value of the aircraft is reduced to its recoverable value. Impairment losses were recognised as an expense immediately. If the aircraft were measured using the cost model, the carrying amounts would be as follows: Cost Accumulated depreciation Net carrying value Group 2012 £ 2011 £ 145,106,979 92,899,707 (14,187,391) (11,904,413) 130,919,588 80,995,294 53 Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 21 GOODWILL ON CONSOLIDATION Group 2012 £ 2011 £ 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 flow projections from financial budgets approved by management covering the next financial year. Management believes that no reasonably possible change in any of the above key assumptions would cause the carrying value of the CGU to materially exceed its recoverable amount. 22 TRADE AND OTHER PAYABLES Current Trade payables - subsidiaries Non-trade payables - subsidiaries Related parties Director Trade payables Deferred income – subsidiaries Deferred income – related parties Deferred income Other payables Accrued expenses Non-current Subsidiaries Related parties Group Company 2012 £ 2011 £ – – – – 333,143 622,860 – 62 422,825 462,376 – 891,460 480,300 312,084 802,289 – – 996,320 404,821 845,423 3,242,101 3,331,862 2012 £ 35,259 255,153 73,874 – 284,647 119,756 9,375 – – 37,239 815,303 2011 £ – 85,093 52,878 – 31,257 114,089 – – 404,821 31,758 719,896 Group Company 2012 £ 2011 £ 2012 £ 2011 £ – – 365,028 3,883,863 3,883,863 942,009 942,009 1,332,419 1,697,447 – – – In respect of the Company, the current and non-current amounts due to subsidiaries include the following: Trade payables of £35,259 (2011: £Nil) due to Capital Lease Aviation (S) Pte Ltd. a) £Nil (2011: £74,275) due to F100 Pty Ltd. b) £Nil (2011: £10,818) due to Capital Lease Aviation PLC. c) £255,153 (2011: £Nil) due to Airframe Leasing (S) II Pte Ltd. d) Deferred income of £119,756 (2011: £114,089) from MSN 429 Limited. e) Deposit collected of £365,028 (2011: £Nil) from MSN 429 Limited. In respect of the Company, the current and non-current amounts due to related parties include the following: a) £412 (2011: £16,807) due to Skywest Airlines Ltd in which a director of the Company is also a director. b) £73,462 (2011: £36,071) due to Skywest Airlines (Singapore) Pte Ltd in which a director of the Company is also a director. 54 ANNUAL REPORT 2012Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 c) Deferred income of £9,375 (2011: £Nil) from F11305 Pte Ltd in which a director of the Company is also a director. d) Deposit collected of £45,303 (2011: £Nil) from F11305 Pte Ltd in which a director of the Company is also a director. e) £1,287,116 (2011: £Nil) due to Fleet Solution Consulting Pte Ltd in which a director of the Company is also a director. In respect of the Group, the current and non-current amounts due to related parties include the following: a) £40,801 (2011: £61,680) due to Skywest Airlines Ltd in which a director of the Company is also a director. b) £292,342 (2011: £74,005) due to Skywest Airlines (Singapore) Pte Ltd in which a director of the Company is also a director. c) £Nil (2011: £341,414) due to Fleet Solution Consulting Pte Ltd in which a director of the Company is also a director and includes accrued interest on this loan amount to £Nil (2011: £13,656). d) £Nil (2011: £140,830) due to CaptiveVision Capital Ltd in which a director of the Company is also a director and a) includes accrued interest on this payable amount to £Nil (2011: £1,602). e) £Nil (2011: £4,931) due to Skywest Airlines (Australia) Pty Ltd in which a director of the Company is also a director. f) Deferred income of £9,375 (2011: £Nil) from F11305 Pte Ltd in which a director of the Company is also a director. g) Deferred income of £882,085 (2011: £Nil) from Skywest Airlines (Australia) Pty Ltd in which a director of the subsidiary is also a director. h) £1,287,116 (2011: £Nil) due to Fleet Solution Consulting Pte Ltd in which a director of the Company is also a director. i) Deposit collected of £45,303 (2011: £Nil) from F11305 Pte Ltd in which a director of the Company is also a director. j) Deposit collected of £2,551,444 (2011: £942,009) from Skywest Airlines (Australia) Pty Ltd in which a director of the Company is also a director. The amount due to subsidiaries and related parties are unsecured, interest free and without fixed 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: Pound Sterling United States Dollars Australian Dollars Euro Singapore Dollars 23 DEFERRED LEASE INCOME Group Company 2012 £ 2011 £ 2012 £ 121,108 76,503 72,097 6,539,685 4,027,341 2,322,201 7,221 5,228 18,308 5,815 4,312 1,394 452,722 145,904 112,746 7,125,964 4,273,871 2,512,750 2011 £ 51,179 604,003 4,385 – 60,329 719,896 The deferred lease income is the difference between the present value and the principal amount of the deposits received from a related party. The deferred lease income is amortised through the statement of comprehensive income on a straight line basis over the lease period of 9 years. 55 Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 24 LOAN AND BORROWINGS Group Company 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 Secured borrowings XI Secured borrowings XII Secured borrowings XIII Secured borrowings XIV 2012 £ 683,619 187,398 498,959 2011 £ 1,750,076 707,461 904,671 1,612,644 2,525,577 10,131,761 11,379,987 10,696,681 11,949,492 – – – 1,584,762 1,594,715 1,053,687 865,206 1,515,975 10,687,725 10,682,730 11,026,363 10,948,763 – – – – 2012 £ 2011 £ – – – – – – – – – – – – – – – – – – – – – – – – – – – – Obligations under finance lease 23,902,754 2,990,446 1,782,892 2,990,446 Total 91,924,603 37,956,849 1,782,892 2,990,446 Less: current portion of loan borrowings (12,522,177) (9,865,455) (1,350,401) (1,252,377) 79,402,426 28,091,394 432,491 1,738,069 Obligations under finance lease Group Company 2012 £ 2011 £ 2012 £ 2011 £ Future minimum lease payments due: Within one year 4,275,308 1,373,266 1,408,877 1,373,266 After more than one year but within 5 years 11,902,172 1,787,175 436,450 1,787,175 More than 5 years 24,000,719 – – – 40,178,199 3,160,441 1,845,327 3,160,441 Less: Finance charges (16,275,445) (169,995) (62,435) (169,995) Present value of minimum lease payments 23,902,754 2,990,446 1,782,892 2,990,446 The present value of minimum lease payments is analysed as follows: Within one year 2,093,215 1,252,377 1,350,401 1,252,377 After more than one year but within 5 years 4,301,301 1,738,069 432,491 1,738,069 More than 5 years Balance at end of year 17,508,238 – – – 23,902,754 2,990,446 1,782,892 2,990,446 Secured borrowing I is for a five year period and maturing in 2013, repayable monthly. The loan is secured by fixed and floating charges over all aircraft purchased by its subsidiary, F100 Pty Ltd (“F100”). Secured borrowing II is for a four year period and maturing in 2012, repayable monthly. The loan is secured by fixed and floating charges over all aircraft purchased by its subsidiary, F100. Secured borrowing III is for a five year period and maturing in 2013, repayable monthly. The loan is secured by fixed and floating charges over all aircraft purchased by its subsidiary, F100. Secured borrowing IV is for a five year period to January 2013, repayable monthly. The loan is secured by the aircraft of the its subsidiary, Capital Lease Aviation PLC (“CLA”). 56 ANNUAL REPORT 2012Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 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 five 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 five 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 fixed and floating charges over all aircraft purchased by its subsidiary, F100. Secured borrowing XI – XIV, the Group entered into loan agreements (“ECA Loan Facilities”) with a bank to partially finance the purchase of aircraft. These aircraft have been leased to other related parties. The loans are secured by the following: (a) Aircraft mortgages in respect of the aircraft purchased with the proceeds of ECA Loan Facilities (the “Aircraft”) (b) Security assignments of the Group’s right under the leases and other contractual documents relating to the Aircraft (c) A charge over its bank accounts into which lease payments relating to the Aircraft are received; (d) A charge over the entire issued share capital of Avation Eastern Fleet Pte Ltd (a subsidiary) Each advance under a ECA Loan Facility is a separate 10 year loan whose term matches the term of the lease of the Aircraft purchased with the proceeds of such loan. The security given by the Group in respect of each such loan is for a term also matching the term of the loan and lease of the corresponding Aircraft. The Group may not deal with any Aircraft nor the associated assets and rights relating to each such Aircraft without the consent of the bank under the ECA Loan Facility, save to the extent that such transaction would enable the Group to repay the loan relating to the Aircraft. The average interest rates for the outside party borrowings range from 4.00% to 9.90% per annum (2011: 5% to 6% per annum). All the loans are denominated in United States Dollars. The carrying amounts of the borrowings approximate their fair values. 25 SHORT-TERM PROVISIONS Maintenance reserve claim Movement in provision for maintenance provisions claim is as follows: Balance at beginning of financial year Provision made during the financial year Provision used during the financial year Disposal of a subsidiary Currency realignment Balance at end of financial year Group 2012 £ 2011 £ 1,901,456 2,849,839 Group 2012 £ 2011 £ 2,849,839 2,047,185 1,879,254 1,242,589 (1,275,104) (311,597) (1,611,587) – 59,054 (128,338) 1,901,456 2,849,839 A provision of £1,879,254 (2011: £1,242,589) was made during the year ended 30 June 2012. This provision is based on maintaining a sufficient balance to match expected drawdowns of reserves over the lease period of the aircraft. There were drawdowns totalling £1,275,104 (2011: £311,597) on the reserves for the year ended 30 June 2012. 57 Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 26 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)/ liabilities 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 2012 £ 2012 £ Net 2012 £ – – – – – – 3,367,889 3,367,889 413,034 18,805 413,034 18,805 3,799,728 3,799,728 – – 3,799,728 3,799,728 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 Movement in temporary differences during the financial year: Group Balance 1 July 2011 £ Recognised in profit and loss £ Recognised in equity £ Currency realignment £ Balance 30 June 2012 £ Property, plant and equipment 4,385,283 89,569 (267,538) (839,425) 3,367,889 Other items Tax losses carried forward 521,605 (94,950) 4,811,938 (274,084) 114,562 (69,953) – – 165,513 (807) 413,034 18,805 (267,538) (674,719) 3,799,728 Movement in temporary differences during the last financial year: Group Balance 1 July 2010 £ Recognised in profit 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) 4,248,024 469,124 85,199 335,840 – – (6,960) 10,708 521,605 (94,950) 482,322 (254,248) 4,811,938 58 ANNUAL REPORT 2012Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 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 Liabilities 2012 £ 2012 £ Net 2012 £ Assets 2011 £ – – – – – – – – – – – – 201,754 201,754 – – – – 201,754 201,754 – – 201,754 201,754 Liabilities 2011 £ Net 2011 £ 138,340 138,340 – – – – 138,340 138,340 – – 138,340 138,340 Movement in temporary differences during the financial year: Company Balance 1 July 2011 Recognised in profit and loss Recognised in equity Balance 30 June 2012 £ £ £ £ Property, plant and equipment 138,340 63,414 – 201,754 Movement in temporary differences during the last financial year: Company Balance 1 July 2010 Recognised in profit and loss Recognised in equity Balance 30 June 2011 £ £ £ £ Property, plant and equipment 193,266 (59,464) 4,538 138,340 27 SHARE CAPITAL Company 2012 £ 2011 £ Allotted, called up and fully paid: 42,374,463 (2011: 38,607,220) ordinary shares of 1 penny each 423,745 386,072 a) On 9 December 2011, the Company issued 1,818,182 ordinary shares of 1 penny each following a private placement exercise for £2,000,000. b) On 12 December 2011, the Company issued 301,280 ordinary shares of 1 penny each following the exercise of warrants by 3 warrant holders for £130,954. c) On 20 January 2012, the Company issued 1,647,781 ordinary shares of 1 penny each in consideration for the additional 10.89% of the shares acquired in Capital Lease Aviation PLC for £1,705,453. 5959 Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 28 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 profit Improvement in return to shareholders The following share-based payment arrangements were in existence during the current reporting period: Warrant series beginning signed on Balance at Granted Exercised during the year during the year of year Expired/ Cancelled Balance at end of year Expiry date Fair value Exercise at grant price Date (1) 21 Dec 2009 326,280 – (226,280) (100,000) – 21 Dec 2011 35.5 p 3.88 p (2) 02 Dec 2010 550,000 – (75,000) (3) 14 Dec 2011 – 800,000 – – – 475,000 01 Dec 2012 67.5 p 13.63 p 800,000 11 Dec 2013 110.5 p 8.17 p The weighted average fair value of the warrants granted during the financial year is 8.17 pence (2011:13.63 pence). The value of the warrants granted during the year is £65,386 (2011: £57,912). 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 effects 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 14 December 2011 Warrant series signed on 21 December 2010 110.5 pence 110.5 pence 20% 2 years 0.91% 0.35% 67.5 pence 67.5 pence 50% 2 years 0.88% 3.23% The Company issued a total of 800,000 warrants during the financial year at 110.5 pence when the then market price was 110.5 pence. 29 CAPITAL COMMITMENTS Capital expenditure contracted for at the balance sheet date but not recognised in the financial statements are as follows: Group 2012 £ 2011 £ Property, plant and equipment 99,410,201 87,921,230 60 ANNUAL REPORT 2012Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 30 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: Within one year In the second to fifth years inclusive More than five years b) Contingencies Group 2012 £ 2011 £ 18,907,095 13,867,576 45,838,254 22,668,333 37,207,115 – The Company’s subsidiary, F100 Pty Ltd receives maintenance rent from the lease of its aircraft in addition to the base rent. Lessees may be entitled to be reimbursed for specific 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 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 specific maintenance rent activity to date under the lease for that aircraft. The carrying out of each specific maintenance activity is dependent on the number of cycles and flying hours conducted by the aircraft. Consequently, F100 Pty Ltd have a contingent liability which is conditional on the volume of cycles and flying 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 specific maintenance rent activity for that aircraft. Any unclaimed balance that F100 Pty Ltd holds at the end of the lease is not refundable to the lessees. During the financial year ended 30 June 2012, the Group had received £1,264,655 (2011: £1,274,280) 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 Group in calculating the final future claimable amount and the timing of such claims from the maintenance reserve funds. 31 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 different from those of other segments. The primary format, business segments, is based on the Group’s management and internal reporting structure. 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 profit 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. 61 Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 b) Primary reporting segment – business segments During the year ended 30 June 2012, 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 financial period. Group Financial year ended 30 June 2012 Revenue & other operating income - External sales - Other income Total of all segments Less: elimination Consolidated revenue Group Financial year ended 30 June 2012 Results Segment results Finance income Finance expense Unallocated corporate expenses Profit before taxation Taxation Profit after taxation Other segment items Capital expenditure & valuation movement - property, plant and equipment Depreciation Group Financial year ended 30 June 2012 Segment assets Unallocated assets Consolidated total assets Segment liabilities Trade and other payables Deferred lease income Provisions of taxation Short term provisions Loans and borrowings Deferred tax liabilities Unallocated liabilities Consolidated total liabilities 62 Aircraft leasing £ Business procurement £ Total £ 29,786,084 876,325 30,662,409 830,727 (7,862) 822,865 31,485,274 (9,226,706) 22,258,568 Aircraft leasing £ Business procurement £ Total £ 21,221,694 163,199 21,384,893 84,737 (4,951,087) (11,277,673) 5,240,870 (1,079,660) 4,161,210 69,340,007 6,513,349 615 69,340,622 1,985 6,515,334 Aircraft leasing £ Business procurement £ Total £ 157,335,380 796,523 158,131,903 – 158,131,903 6,243,980 881,984 7,125,964 526,675 332,421 1,901,456 91,924,603 3,799,728 – – – – – – – 526,675 332,421 1,901,456 91,924,603 3,799,728 – 105,610,847 ANNUAL REPORT 2012Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 notes to FinanCial statements FOR THE YEAR ENDED 30 JUNE 2012 Group Financial year ended 30 June 2011 Revenue & other operating income - External sales - Other income Total of all segments Less: elimination Consolidated revenue Group Financial year ended 30 June 2011 Results Segment results Finance income Finance expense Unallocated corporate expenses Profit before taxation Taxation Profit after taxation Other segment items Capital expenditure & valuation movement - property, plant and equipment Depreciation 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 Aircraft Business leasing 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 Business leasing procurement Total £ £ £ 15,346,354 205,796 15,552,150 3,067 (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 Aircraft Business leasing 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 63 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 2012 Revenue £ Capital expenditure and valuation movements £ Total assets £ Australia United States Denmark Malta United Kingdom Other Group Financial year ended 30 June 2011 Australia United States Denmark Malta United Kingdom Other Group Financial year ended 30 June 2012 Australia United States Denmark Group Financial year ended 30 June 2011 Australia United States Denmark 14,317,892 69,338,833 90,946,768 1,404,541 5,682,150 – 89,482 603,954 – – – – 5,662,061 41,684,917 599,386 11,514,454 1,789 7,724,317 22,098,019 69,340,622 158,131,903 Capital expenditure and valuation movements £ Total assets £ 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 Revenue £ 9,185,359 1,396,158 5,660,100 – – 49,811 16,291,428 2,033,405 98,067,302 Net book value Aircraft £ 89,698,256 5,661,776 41,684,917 137,044,949 Net book value Aircraft £ 35,197,379 7,074,476 42,619,016 84,890,871 During the year, certain customers accounted for greater than 10% of the Group’s total revenues. There is one customer that accounts for £14,317,892 (65%) of the Group’s total revenues. These revenues were based in the Australia operating segment. There is one customer that accounts for £5,682,150 (26%) of the Group’s total revenue. These revenues were based in the Denmark segment. 64 ANNUAL REPORT 2012Notes to FiNaNcial statemeNtsFOR THE YEAR ENDED 30 JUNE 2012 notes to FinanCial statements FOR THE YEAR ENDED 30 JUNE 2012 32 CONTINGENT LIABILITIES Guarantees Group 2012 £ 2011 £ 23,063,624 32,440,826 The maximum estimated amount the Group could become liable is as shown above. The Group has guaranteed the loans of its subsidiaries, Capital Lease Malta Ltd and F100 Pty Ltd. 33 SUBSEQUENT EVENTS Subsequent to the end of the reporting period, the following events have occurred: 1) On 5 July 2012, the Company issued 2,000,000 ordinary shares of 1 penny each following a private placement exercise for £2,000,000. 2) The Group took delivery of 2 ATR 72-600 series aircraft on 3 August 2012 and 6 September 2012. 3) Following a confirmation from Virgin Australia in October 2012 of its desire for an additional three ATR 72-600 aircraft to be made available to it throughout the course of 2014, the Group will exercise aircraft purchase options to acquire three new additional ATR 72-600 aircraft for this purpose. 34 ULTIMATE HOLDING COMPANY No party controls the Company. 35 APPROVAL OF FINANCIAL STATEMENTS The financial statements of the Company and the consolidated financial statements of the Group for the financial period ended 30 June 2012 were authorised for issue by the Board of Directors on 30 October 2012. 65 ANNUAL REPORT 2012 ReGisteR oF top 20 shaReholdeRs (AS AT 30 OCTOBER 2012) Name of Shareholder FITEL NOMINEES LIMITED HSBC CLIENT HOLDINGS NOMINEE (UK) LIMITED LYNCHWOOD NOMINEES LIMITED FITEL NOMINEES LIMITED FITEL NOMINEES LIMITED CHASE NOMINEES LIMITED APOLLO NOMINEES LTD CREDIT SUISSE SECURITIES (EUROPE) LIMITED HSBC GLOBAL CUSTODY NOMINEE (UK) LIMITED VIDACOS NOMINEES LIMITED LOEB ARON & COMPANY LTD FITEL NOMINEES LIMITED HARGREAVE HALE NOMINEES LIMITED HSBC GLOBAL CUSTODY NOMINEE (UK) LIMITED FITEL NOMINEES LIMITED FITEL NOMINEES LIMITED FITEL NOMINEES LIMITED THE CORPORATION OF LLOYDS SMITH & WILLIAMSON NOMINEES LIMITED W H IRELAND NOMINEES LIMITED Holding (Number of shares) 6,729,490 5,173,463 3,404,972 2,900,000 2,369,156 2,250,000 2,011,879 1,583,244 1,437,500 1,363,549 920,000 750,000 715,000 531,079 500,000 500,000 490,000 480,922 394,000 392,100 66 ATR-72 aircraft under construction for Avation at the Avions de Transport Régional plant at Toulouse Airport at Blagnac, France DIRECTORS: Robert Jeffries Chatfield andrew Baudinette Roderick mahoney Bryant mclarty COMPAnY SECRETARIES: siobhan Cool duncan scott Jason Gollogly REGISTERED OFFICE: 5th Floor Cheyne house Crown Court 61-63 Cheapside london eC2V 6aX 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:ln aVap Ftse sector: industrial transportation Ftse sub sector: transportation services
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