Avation PLC Annual Report 2015

Plain-text annual report

ANNUAL REPORT 2015 ANNUAL REPORT 2015 OUR FLEET (AS AT 15 OCTOBER 2015) Aircraft Type In Operation Ordered Options Fokker 100 ATR 72-500 ATR 72-600 Airbus A320-200 Airbus A321-200 5 6 14 3 3 - - 8 - 2 - - 22 - - Total 31 10 22 2 MODEL Fokker F100 Airbus A320-200 MODEL Airbus A321-200 ATR 72-500 MODEL ATR 72-600* *Photo above and all photos page 9-23: Viktoria Dorosevits, unless noted otherwise. 3 ANNUAL REPORT 2015 COMPANY INFORMATION DIRECTORS: Robert Jeﬀ ries Chatﬁ eld Roderick Douglas Mahoney Stephen John Fisher COMPANY SECRETARIES: Duncan Gerard Stephen Scott Jason Francis Gollogly REGISTERED OFFICE: 5th Floor Cheyne House Crown Court 62-63 Cheapside London EC2V 6AX United Kingdom PRINCIPAL PLACE OF BUSINESS: 65 Kampong Bahru Road AUDITORS: Singapore 169370 Kingston Smith LLP Devonshire House 60 Goswell Road London EC1M 7AD United Kingdom SOLICITORS: Charles Russell Speechlys LLP 6 New Street Square London EC4A 3LX United Kingdom REGISTRARS: Computershare Investor Services LLC The Pavilions Bridgewater Road Bristol BS99 6ZZ United Kingdom 4 TABLE OF CONTENTS PAGE(S) Company Information ...................................................................................................................... 4 Chairmanʼs Statement ................................................................................................................ 6 ‒ 7 Board of Directors ........................................................................................................................... 8 Strategic Report .......................................................................................................................9 ‒ 14 Directorsʼ Report .................................................................................................................... 15 ‒ 18 Directorsʼ Remuneration Report ............................................................................................... 19 ‒ 23 Statement of Directorsʼ Responsibilities ........................................................................................... 24 Auditorsʼ Report ........................................................................................................................... 25 Consolidated Statement of Proﬁ t or Loss and Other Comprehensive Income ......................................... 26 Company Statement of Proﬁ t or Loss and Other Comprehensive Income .............................................. 27 Consolidated Statement of Financial Position ..................................................................................... 28 Company Statement of Financial Position ......................................................................................... 29 Consolidated Statement of Changes in Equity ............................................................................ 30 ‒ 31 Company Statement of Changes in Equity ........................................................................................ 32 Consolidated Statement of Cash Flows ...................................................................................... 33 ‒ 34 Company Statement of Cash Flows .................................................................................................. 35 Notes to the Financial Statements ............................................................................................ 36 ‒ 91 5 ANNUAL REPORT 2015 CHAIRMANʼS STATEMENT OVERVIEW For the year ended 30 June 2015: • Aircraft lease revenue increased by 17 per cent to $56.9 million (2014: $48.7 million); • The number of aircraft in the ﬂ eet increased to 29 aircraft (2014: 25 aircraft); • Dividend increase of 49 per cent to 3.00 US cents per share (2014: 2.01 US cents per share); • Underlying pre-tax proﬁ t from leasing business (which excludes gains or losses on the disposal of aircraft, a loss on the part-out disposal of an aircraft and the recovery of a lessee security deposit) increased to $14.8 million (2014: $13.2 million); • Net proﬁ t for the year decreased by 7 per cent to $13.3 million (2014: $14.3 million); • Net cash ﬂ ow from operating activities increased to $43.5 million (2014: $27.6 million); • Successful issue of ﬁ rst $100 million unsecured tranche and establishment of a $500 million Global Medium Term Note programme; and • Cash and cash equivalents as at 30 June 2015 of $108.6 million (2014: $23.4 million). BACKGROUND AND OUTCOME Avation has enjoyed remarkable growth and is positioned for further revenue and ﬂ eet expansion in the coming year. Lease revenues have increased by 17 per cent during the year, while yield remains at an industry leading 13.1 per cent. The average age of the aircraft ﬂ eet has decreased to 5.3 years in 2015. Avation has substantially increased lease revenue, cash operating margin, ﬂ eet assets and now has signiﬁ cant cash resources which can be deployed to fund additional growth. Group proﬁ ts are slightly lower in 2015 compared to 2014. This small reduction was primarily due to the variability in aircraft trading gains and losses between the respective ﬁ nancial periods. The one oﬀ gains from the sales of two aircraft in 2014 were not replicated in 2015. Furthermore, Avationʼs subsidiary, Capital Lease Aviation (“CLA”), incurred a loss of $1.2 million net of tax from the cessation of operations in North America and part out of an aircraft which was at the end of its useful life. As a result the Group generated a loss from aircraft trading and discontinued operations in 2015 compared to proﬁ t in 2014. The issue of the ﬁ rst $100 million unsecured tranche of the $500 million Global Medium Term Note programme (the “GMTN”) is transformative as the programme provides greater opportunities for the Group to address the key challenge of ﬁ nancing future aircraft acquisitions. The Groupʼs improved access to capital markets and stronger business fundamentals allow the Directors to propose a signiﬁ cant increase in dividends to shareholders. The key objectives for 2016 are to improve proﬁ tability through ﬂ eet growth, increase customer diversiﬁ cation and add scale to the business. 6 CHAIRMANʼS STATEMENT operator customer base to mitigate both concentration and geographic risks. The Board of Directors is pleased to deliver a fundamentally strong set of results from a core business in which the fundamentals continued to improve, in a year in which the business was signiﬁ cantly transformed. We remain committed to building growth, diversiﬁ cation and scale to the business. Robert Jeﬀ ries Chatﬁ eld, Executive Chairman Singapore 15 October 2015 DIVIDEND The underlying proﬁ tability of the leasing business has improved. The Board would like to thank the shareholders for their continued support as it continues in the successful development of Avation. The Board understands the importance of recognising shareholder ownership and has approved a dividend increase of 49 per cent to 3.00 US cents per share (2014: 2.01 US cents) in respect to the period ending 30 June 2015. The Company aims to continue to maintain a progressive dividend policy. OUTLOOK Avation has four aircraft contracted for delivery in the six months to 31 December 2015 and a further six aircraft for delivery in the six months to 30 June 2016, with a further two contracted for delivery in the second half 2016. Overall the 10 aircraft to be delivered in the current ﬁ nancial year have a purchase value of approximately $280 million. The funds raised from the issuance of unsecured notes under the GMTN support a portion of the funding of these aircraft and provide further capacity to acquire additional aircraft, beyond new aircraft orders, such as the Airbus A320 on lease to Air France announced August 2015. Committed future revenue from unexpired leases on the current ﬂ eet of 29 aircraft totals $369.2 million. Avation has also entered into leases of eight of the aircraft due to be delivered before 30 June 2016. These leases are scheduled to generate additional committed revenue of approximately $196.2 million over the terms of the leases. The total of future lease revenue from the existing ﬂ eet and contracted deliveries is $565.4 million. Management believes that the Company can obtain access to the required debt funding for future ﬂ eet growth. However, access to funding does remain a risk, which is common to all capital intensive business models. Speciﬁ c risks, which are inherent in the aircraft leasing industry, include the creditworthiness of client airlines, residual value risk and the risk of impairment of aircraft assets. The Company is seeking to diversify its airline 7 ANNUAL REPORT 2015 BOARD OF DIRECTORS Jeﬀ Chatﬁ eld Chairman Stephen Fisher PhD Non-Executive Director In addition to his role at Avation is Chairman, PLC, Stephen Principal and Chief Investment Oﬃ cer of First Degree Global Asset Management Pte. Ltd., asset privately a in management Singapore founded in 2011. First Degree Global Asset Management operates a number of strategies for its clients including a Fixed Income focused hedge fund. owned company Stephen has had twenty-two years experience as an investment professional with leading investment management groups in the United States, Asia and Australia. From 2000 to 2011 he was Managing Director and Head of Global Fixed Income Product ‒ Asia Paciﬁ c at JPMorgan Asset Management. Stephen held the positions of Australian Head of Capital Markets Research from 1992- 1996, and Asia Paciﬁ c Regional Head of Capital Markets Research at J.P. Morgan Investment Management, Inc. from 1996-1998. Stephenʼs particular areas of expertise are in quantitative analysis of ﬁ xed income, equities, asset allocation and derivatives. He has advised Central Banks and Sovereign Wealth Funds on their reserves management practice, and his research on investment management issues has been widely published in academic and industry journals. Stephen has a Master of Science (Finance) and a PhD (Finance) from the WE Simon Graduate School of Business Administration, University of Rochester, New York and a Bachelor of Economics (First Class Honours) from the University of Sydney. Mr Chatﬁ eld is the executive chairman of Avation PLC and has been instrumental in establishing and growing the Company. Mr Chatﬁ eld has a track record of leadership in a variety of proﬁ table and successful businesses. He is a qualiﬁ ed public company director and business executive experienced in the ﬁ elds of commercial airlines, aviation, aircraft leasing and ﬁ nance, electronic commerce, investment management, radio and TV broadcasting. Mr Chatﬁ eld holds both Bachelorʼs and Masterʼs Degrees in engineering from the University of Western Australia where he graduated top of the class. He has been involved in a number of successful businesses both private and public, the majority of which have been strongly cash ﬂ ow generative. In the recent past Mr Chatﬁ eld was chairman of Skywest Airlines Ltd, a LSE- ASX dual-listed public company recently sold to Virgin Australia Ltd. He is a member of the Australian Institute of Company Directors and a fellow of the Singapore Institute of Directors. Mr Chatﬁ eld was born in Perth, Australia and is a Permanent Resident of Singapore. Rod Mahoney Executive Director Mr Mahoney is the Chief Operating Oﬃ cer and an Executive Director of the Company. Before this executive appointment, he was a ﬂ eet planning and aircraft procurement consultant to the Company. He has previously been a project advisor to a variety of Asia-Paciﬁ c 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 Paciﬁ c. 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 and a member of the Singapore Institute of Directors. 8 STRATEGIC REPORT The Directors present their strategic report for the year ended 30 June 2015. a) new turbo-prop regional aircraft, principally the popular fuel eﬃ cient ATR 72-600 model; and BUSINESS OVERVIEW Avation PLC and its subsidiaries (“Avation”, the “Group”) is a specialist commercial passenger aircraft leasing group managing a ﬂ eet of 29 aircraft as at 30 June 2015 which it leases to airlines across the world. Avationʼs customers include Virgin Australia, Thomas Cook, Condor, Fiji Airways, UNI Air and Air India Regional. The Companyʼs ﬂ eet includes Airbus A320 family, Fokker 100 jet and ATR 72 twin engine turboprop aircraft. Avation operates from its headquarters in Singapore where it is tax resident and, since 17 April 2014, a beneﬁ ciary of the Singapore Aircraft Leasing Scheme tax incentive. Avationʼs management team has extensive experience in the aviation industry and has the expertise to select and acquire aircraft that will deliver value to the company, performance to its customers and generate returns to its shareholders. Avation will continue to grow its ﬂ eet and earnings in the coming year with ATR 72-600s ordered from the manufacturer, Airbus A321-200s to be acquired under sale and leaseback transactions and additional second hand aircraft. Avation is listed on the Standard segment of the UK oﬃ cial list and traded on the Main Market of the London Stock Exchange under the ticker symbol LSE: AVAP. BUSINESS MODEL Avation aims to generate growth in its ﬂ eet and build shareholder value by focussing on sectors being: 9 b) new and second-hand narrow body jets, in particular the popular Airbus A320/A321 family and Boeing 737NG aircraft. Owning diﬀ erent types of aircraft provides a beneﬁ t in terms of diversiﬁ cation of market and residual value risk. The Group ﬁ nances the acquisition of new aircraft using internally generated cash ﬂ ows and a mixture of senior and junior secured debt ﬁ nance and unsecured notes. Debt is re-ﬁ nanced on older aircraft when there is an opportunity to reduce the overall cost of debt funding and also to release equity which may be used to acquire new aircraft. The Board applies prudent ﬁ nancial management principles to manage risk when acquiring aircraft by seeking to match the terms of leases to the tenor of the relevant ﬁ nancing, using mostly ﬁ xed interest rate debt and by amortising debt aggressively. As the ﬂ eet grows the Group will also seek to diversify its customer base as part of its overall credit risk management policy. The Avation ﬂ eet of 29 aircraft has a weighted average age of 5.3 years, which is likely to reduce as the Group adds new aircraft and disposes of old aircraft. The weighted average remaining lease term of the ﬂ eet is 6.5 years. The Groupʼs current customer base of airlines is located in Australia, Europe and the Asia-Paciﬁ c region. ANNUAL REPORT 2015 STRATEGIC REPORT Source: ICAO, Airbus Global Market Forecast 2015 PRINCIPAL RISKS AND UNCERTAINTIES The aircraft leasing sector is competitive and Avation is exposed to a number of market related, operational and ﬁ nancial risks. The Group is committed to mitigating risk across the business through the application of prudent risk management policies. The risks and uncertainties described below are those that the Group has identiﬁ ed as the most signiﬁ cant risks to the business. Avationʼs Board of Directors is responsible for managing risk and reviews risk management policies regularly. Exposure to the airline industry The Groupʼs customers are commercial airlines who are ﬁ nancially exposed to the supply and demand for passenger air travel. The ﬁ nancial condition of commercial airlines may weaken due to a number of factors including but not limited to local and global economic conditions, increased competition between airlines, speculative ordering of new aircraft, war, terrorism or natural disasters. If the ﬁ nancial condition of the Groupʼs airline lessee customers weakens for any reason, the Group may be exposed to increased risks of lessee default and reduced lease rates for its aircraft. MARKETS AND TRENDS Aircraft leasing is a growth industry with an increasing share of the worldʼs total commercial passenger aircraft ﬂ eet owned by leasing companies. Avation expects that the percentage of leased aircraft in the world ﬂ eet will continue to grow over the coming years due to the ﬂ exibility that the leasing model provides for airlines and leasing companiesʼ increased access to ﬁ nancial capital. The aircraft leasing industry also beneﬁ ts from good long-term credit fundamentals supported by growth in air travel demand, capital constraints amongst airlines and normal cycles of aircraft replacement. The world ﬂ eet of commercial passenger aircraft is predicted to grow substantially with aircraft traﬃ c expected to double every 15 years. Forecast new aircraft deliveries over the next 20 years are 32,600 aircraft; of which 36% are expected to be in Asia-Paciﬁ c, 21% in Europe, 17% in North America and of the total, 70% are expected to be single aisle. 1 Improved access to capital, including unsecured debt and low interest rates, is supporting the growth plans of both established leasing companies and new entrants into the global aircraft leasing market. Many stand-alone aircraft lessors have improved their leverage proﬁ le over the last several years and have been able to diversify funding sources. 1 Airbus Global Market Forecast 2015 10 STRATEGIC REPORT Asset value risk Fluctuations in the supply and demand for aircraft and aircraft travel may impact values and lease rates for the Groupʼs aircraft. Market forces and prevailing economic conditions may change over the economic lives of the Groupʼs aircraft and could have a positive or negative impact on valuations. Advances in aircraft technology may create obsolescence in the ﬂ eet before the end of the current estimated useful life. The Group regularly obtains independent third party valuations the ﬂ eet and may dispose of aircraft in order to reduce its exposure to certain aircraft types. Avation has a policy of investing in popular aircraft types on the basis that asset values and lease rates will be supported by continuing high demand for these aircraft. From time to time the Group may place speculative orders for new aircraft for future delivery. There is uncertainty around the Groupʼs ability to lease those aircraft to airlines on terms which are economically favourable, or at all. Economic, legal and political risks Avation leases aircraft to lessees in diﬀ erent jurisdictions. As such the Group is exposed to economic, legal and political risk in those jurisdictions. Avationʼs aircraft are subject to operational risks speciﬁ c to the aviation sector resulting from war, acts of terrorism or the threat of terrorism and natural disasters. The Group mitigates against these risks by requiring airline lessees to maintain adequate insurance over the aircraft. Regulatory risks Avationʼs ﬂ eet operates in many jurisdictions and complies with tax and other regulatory requirements in those jurisdictions. There is a risk that changing tax and 11 regulatory regimes may have an impact on the business and ﬁ nancial results. Not all jurisdictions that the Group operates in have reliable aircraft repossession regimes and not all may be members of or signatories to the Cape Town Convention. responsible lessees are Lessee risks for all Avationʼs airline maintenance and safety checks. The requirement for each airline lessee to service and maintain the aircraft are set out in the lease agreements. There is a risk that airlines may not properly maintain aircraft which may lead to an impairment of the aircraftʼs value. In order to mitigate against this risk the Group closely monitors each airlineʼs usage of aircraft and their compliance with agreed maintenance schedules. Avation can require lessees to pay additional maintenance reserve payments in order to ensure that there is adequate funding at all times for proper maintenance of the aircraft. Financial risks Avationʼs ﬁ nancial risks, and management objectives and policies to mitigate those risks, are set out in note 7 to the ﬁ nancial statements and are as follows: • Airline industry risks • Credit risk Interest rate risk • • Foreign currency risk • • Capital risk Liquidity risk Annual Report 2015 STRATEGIC REPORT FINANCIAL REVIEW Income Lease revenue Total proﬁ t Net cash from operating activities Total assets Total equity Basic earnings per share Dividend per share 2015 2014 US$ʼ000s US$ʼ000s 60,134 56,932 13,285 43,451 586,182 128,204 52,126 48,691 14,263 27,571 415,628 110,767 24.12 cents 27.40 cents 3.00 cents 2.01 cents Income increased by 15 per cent to $60.1 million for the year ended 30 June 2015 (2014: $52.1 million). Lease revenue increased by 17 per cent to $56.9 million (2014: $48.7 million) as a result of continued ﬂ eet growth, whilst lease yields remain at an industry leading level of 13.1 per cent. Other income was $3.2 million for the year ended 30 June 2015 (2014: $3.4 million). Other income was primarily made up of the recovery of a security deposit from a lessee defaulting on a lease and a one-oﬀ gain from the early retirement of various junior loans. Other income for the prior year ended 30 June 2014 included a $2.9 million write back of excess maintenance reserve accruals. Avationʼs subsidiary CLA has reported a $1.2 million loss, net of a tax write-back, on the part-out disposal of a 25 year old aircraft. This loss is classiﬁ ed within discontinued operations as it represented the Groupʼs only aircraft operating in North America. Avation incurred a loss on the sale of an aircraft of $0.7 million in the year ended 30 June 2015. This loss resulted from the disposal of an aircraft that was repossessed following the lesseeʼs default on the lease. The loss was oﬀ set by the security deposit which has been recorded in other income. In 2014, the Group generated gains on sale of aircraft totalling $3.3 million, primarily from the sale of delivery positions of two new aircraft. As Avation continued to build its leasing business in 2015 the Company has preferred to add new ordered aircraft to the leasing ﬂ eet for long term returns rather than to sell aircraft for one oﬀ gains, as occurred in 2014. Excluding the eﬀ ect of aircraft trading, the pre-tax proﬁ t (ex-trading) from the underlying leasing business increased 11.6 per cent to $14.8 million (2014: $13.2 million). Depreciation on continuing activities increased by 22 per cent to $17.8 million in the year ended 30 June 2015 (2014: $14.6 million). The increase was due to adoption of a new depreciation policy and increased ﬂ eet size and value. Administrative expenses increased 3 per cent to $7.2 million for the year ended 30 June 2015 (2014: $7.0 million). 12 STRATEGIC REPORT Administrative expenses as a percentage of leasing revenue decreased to 12.6 per cent in the year ended 30 June 2015 (2014: 14.3 per cent). As Avation continues to deliver economies of scale it is expected that this trend will continue. Other expenses of $0.8 million include foreign exchange losses and a bad debt associated with a lesseeʼs default on a lease, as noted above, that was oﬀ set by the forfeited deposit. Finance expenses increased by 12 per cent to $18.9 million in 2015 (2014: $16.9 million). Interest expenses included within ﬁ nance expenses increased by 11 per cent to $17.3 million (2014: $15.6 million). This increase compares favourably to the increase in lease revenues of 17 per cent and resulted from debt raised to ﬁ nance new aircraft together with interest incurred on the GMTN issued in May 2015. The ratio of interest expense to lease revenue improved to 30.4 per cent (2014: 32.0 per cent). Finance income was $0.8 million (2014: $0.3 million). Taxation for the 2015 year was $1.0 million (2014: $2.5 million). The majority of the Groupʼs operations are now headquartered in Singapore, are included in the Republic of Singaporeʼs Aircraft Leasing Scheme and beneﬁ t from a 10 per cent concessionary tax rate. Proﬁ t for the year ended 30 June 2015 decreased by 7 per cent to $13.3 million (2014: $14.3 million) as a result of the above factors. The Company has amended the presentation of its ﬁ nancial statements in the current period to provide greater clarity. Comparative amounts have been reclassiﬁ ed to conform to the current presentation. Certain comparative amounts have been reclassiﬁ ed as discontinued operations, due to North American operations ceasing during the period. FLEET OVERVIEW Type 1 July 2014 Additions Disposals ATR 72-500 ATR 72-600 A320-200 A321-200 Fokker 100 Total 6 8 3 3 5 25 - 6 - - - 6 30 June 2015 On order (at 31 Aug 2015) Options - 1 1 - - 2 6 13 2 3 5 29 - 9 1 2 - 12 - 22 - - - 22 Six new aircraft were added to the ﬂ eet during the period, with one used aircraft sold and one parted out. As at 30 June 2015 the weighted average age of the ﬂ eet was 5.3 years (2014: 6.1 years) and the weighted average remaining lease term was 6.5 years (2014: 7.1 years). As at 30 June 2015, the ﬂ eet was 100 per cent utilised. 13 ANNUAL REPORT 2015 STRATEGIC REPORT DEBT SUMMARY Loans and borrowings Cash and cash equivalents Net indebtedness Loan to value ratio Weighted average cost of secured debt Weighted average cost of total debt 2015 2014 US$ʼ000s US$ʼ000s 428,095 108,647 319,448 73.0% 4.4% 5.1% 281,158 23,395 257,763 67.6% 5.0% 5.2% Net indebtedness increased due to additional debt being raised to fund ﬂ eet additions during the year. The weighted average cost of debt reduced to 5.1 per cent, as at 30 June 2015 (2014: 5.2 per cent). This was primarily due to a signiﬁ cant reduction in the weighted average cost of the Groupʼs secured debt facilities to 4.4 per cent, as at 30 June 2015 (2014: 5.0 per cent). This reduction was partially oﬀ set by interest costs associated with the GMTN established during the period. The issuance of the ﬁ rst tranche of the GMTN represents a signiﬁ cant achievement, as it marks the introduction of global debt capital markets as a new source of funding for the Company. This will support planned ﬂ eet growth in 2016 and provides the opportunity to raise further funds in the short to medium term. Future tranches will be priced based on market conditions and Avationʼs credit rating. The Companyʼs credit rating is expected to improve as increased scale and customer diversiﬁ cation are achieved. As at 30 June 2015 the majority of the funds raised from the issue of unsecured notes under the GMTN were held as cash. It is intended that these funds will be combined with secured senior debt and deployed to fund aircraft acquisitions during the ﬁ nancial year ending 30 June 2016. At current interest rates, this may result in a decline in the weighted average cost of debt across the ﬂ eet. The Groupʼs loan to value ratio increased to 72.7% as a result of the issue of the $100 million unsecured notes, in May 2015. As at 30 June 2015, 88.8 per cent of total Group debt has ﬁ xed interest rates. Environment Avation is committed to environmental responsibility as part of its business strategy. This is achieved by investing in technologically advanced designs of commercial aircraft that oﬀ er improved fuel eﬃ ciency and lower emissions. The majority of our ﬂ eet are modern regional turboprop aircraft which provide signiﬁ cant environmental beneﬁ ts over comparable jet aircraft due to their more economical use of fuel and consequently lower carbon dioxide emissions. Employees A breakdown by gender of the number of persons who were Directors of the Company, senior managers and other employees as at 30 June 2015 is set out below: Male Female 3 3 6 - - 5 Directors of the Company Senior managers Other employees On behalf of the board Robert Jeﬀ ries Chatﬁ eld Director 14 DIRECTORSʼ REPORT The directors present their report and ﬁ nancial statements for the ﬁ nancial year ended 30 June 2015. Principal activities and business review The principal activity of the Group is leasing aircraft. Details of activities carried out by subsidiary companies are set out in Note 22 to these ﬁ nancial statements. The principal risks and uncertainties aﬀ ecting the Groupʼs turnover are described in the Strategic Report. The full business review including KPIʼs can be found in the Strategic Report and in Note 7 to these ﬁ nancial statements. The Group has reviewed the environmental matters in the Strategic Report. Results and dividends The consolidated statement of proﬁ t or loss and other comprehensive income for the year is set out on page 23. The directors have resolved to pay a 3.00 US cents interim dividend. Directors and their interests The directors who served the Company during the year together with their interests and deemed interests in the shares of the Company at the beginning (or subsequent date of appointment) and end of the year, were as follows: Ordinary shares of £0.01 each: Robert Jeﬀ ries Chatﬁ eld Roderick Douglas Mahoney Stephen John Fisher Signiﬁ cant shareholdings Ordinary shares of £0.01 each: Direct interest Deemed interest 30 June 2015 1 July 2014 30 June 2015 1 July 2014 1 1 10,215,365 10,135,365 240,000 240,000 5,000 5,000 - - - - Ordinary shares Percentage Goldman Sachs Securities (Nominees) Limited 12,083,140 21.71% Chase Nominees Limited Lynchwood Nominees Limited Fitel Nominees Limited HSBC Global Custody Nominee (UK) Limited HSBC Global Custody Nominee (UK) Limited 5,331,140 5,189,197 4,996,318 3,338,227 2,850,000 9.58% 9.32% 8.98% 6.00% 5.12% 15 ANNUAL REPORT 2015 DIRECTORSʼ REPORT Equal Opportunities Policy It is the Groupʼs policy to employ individuals with the necessary qualiﬁ cations without regard to sex, marital status, race, creed, colour, nationality or religion. Full and fair consideration is given to applications for employment made by disabled persons having regard to their particular aptitudes and abilities. The Group recognises the great importance of the contribution made by all employees and aims to keep them informed of matters aﬀ ecting them as employees and developments within the Group. Communication and consultation is achieved by a variety of means both within individual companies or branches and on a group-wide basis. Directorsʼ 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. Future Developments In accordance with s414C(11) of the Companies Act 2006, the directors have chosen to include information about future developments in the Chairmanʼs Statement and Strategic Report. Financial Instruments See note 7 to these ﬁ nancial statements. Going Concern After making appropriate enquiries and taking into account the matters set out in the principal risks and uncertainties in the Strategic Report, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the ﬁ nancial statements. Greenhouse Gas Emissions Statement It is not practical for the Company to calculate its greenhouse gas emissions. Usage of the Companyʼs aircraft is under the control of lessees who are not required to provide emissions data to the Company. Capital Structure Details of the Companyʼs issued share capital, together with details of the movements therein during the ﬁ nancial year are shown in Note 30. The Company has one class of ordinary shares which carry no right to ﬁ xed income. Each share carries the right to one vote at general meetings of the Company. By a resolution passed at the AGM held on 24 November 2014 the Companyʼs Directors are authorised to buy back shares not exceeding 15 per cent of the total number of shares in issue on that date. Share buy backs may be at market prices but not under £0.50 and not above £3.00 per share, including commissions and other related expenses. 16 DIRECTORSʼ REPORT There are no speciﬁ c restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions of the Articles of Association and prevailing legislation. The directors are not aware of any agreements between holders of the Companyʼs shares that may result in restrictions on the transfers of securities or on voting rights. Details of employees share option schemes are set out in Note 31. No person has any special rights of control over the Companyʼs share capital and all issued shares are fully paid. With regards to the appointment and replacement of directors, the Company is governed by its Articles of Association, the Companies Act and related legislation. The Articles themselves may be amended by special resolution of the shareholders. The powers of directors are described in the Main Board Terms of Reference, copies of which are available on request, and the Corporate Governance Statement set out below. Corporate Governance Statement The Board is accountable to the shareholders for the good corporate governance of the Group. The principles of corporate governance and a code of best practice are set out in the UK Corporate Governance Code issued in September 2014. The Company is not required to comply in full with the Code nor state any areas with which it does not comply. The Board has adopted policies that it considers to be appropriate for the Companyʼs size and nature. The Board acts as the administrative, management and supervisory body overseeing the operation of the Group. The Board consist of two executive directors (Robert Jeﬀ ries Chatﬁ eld and Roderick Douglas Mahoney) and one non- executive director (Stephen John Fisher). The Board meets at least six times a year; matters for discussion at formal meetings are clearly laid down and decisions recorded. The Board is responsible for overall corporate strategy; the reviewing and approval of acquisition and divestment opportunities; the approval of signiﬁ cant capital expenditures; the review of budgets, trading performance, and all signiﬁ cant ﬁ nancial and operational issues. The Company operates the following committees whose members are detailed below: • Audit Committee - Robert Jeﬀ ries Chatﬁ eld and Stephen John Fisher; and • Risk Committee - Roderick Douglas Mahoney, Iain Cawte (non-Board member) and Ashley Nicholas (non-Board member) The Board is responsible for identifying and evaluating the major business risks faced by the Company and for determining and monitoring the appropriate course of action to manage these risks. The key risks the Company faces are described in the risk assessment section of this annual report and accounts. The Board conducts a review of the eﬀ ectiveness of the Companyʼs systems of internal control and risk management on an annual basis. Following this review it has concluded that the Companyʼs ﬁ nancial, operational and compliance controls and risk management procedures are appropriate and suitable to enable the Board to safeguard shareholdersʼ investments and the Companyʼs assets. 17 Annual Report 2015 DIRECTORSʼ REPORT The process and systems of internal control are designed to manage, rather than eliminate, the risk of failure to achieve the Companyʼs objectives, and can therefore only provide reasonable and not absolute assurance against material misstatement or loss. Statement as to disclosure of information to auditors • So far as the directors are aware, there is no relevant audit information of which the Companyʼs auditors are unaware, and • 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 Companyʼs auditors are aware of that information. Auditors Kingston Smith LLP have indicated their willingness to continue in oﬃ ce and in accordance with s489 of the Companies Act 2006. A resolution proposing that they be reappointed as auditors of the Company will be put to the Annual General Meeting. On behalf of the board Robert Jeﬀ ries Chatﬁ eld Director 18 DIRECTORSʼ REMUNERATION REPORT Introduction This report has been prepared in accordance with Schedule 8 of the Large and Medium Companies and Groups (Accounts and Reports) Regulations 2008 as amended in August 2013. As required a resolution to approve the Directorsʼ remuneration will be proposed at the forthcoming Annual General Meeting of the Company at which the ﬁ nancial statements will be approved. The vote will have advisory status, will be in respect of the remuneration policy and overall remuneration packages and will not be speciﬁ c to the individual levels of remuneration. The information in the Directorsʼ Remuneration Report is not audited, unless speciﬁ cally stated that the section is subject to audit. Remuneration (audited) The components of remuneration are: • basic salary and beneﬁ ts determined by the Remuneration Committee which are included in employment agreements and reviewed annually; • bonuses based upon performance of the Company and the individual concerned; and • Individual Directorʼs remuneration from the group was as follows: share options. Executive Directors: Robert Jeﬀ ries Chatﬁ eld Roderick Douglas Mahoney Non-executive Directors: Stephen John Fisher Bryant James McLarty (resigned 6 December 2013) Salaries and fees US$ʼ000s Bonuses US$ʼ000s Taxable beneﬁ ts US$ʼ000s Total 2015 US$ʼ000s Total 2014 US$ʼ000s 587 207 - 101 30 - - - 124 - - - 711 308 30 - 638 320 3 19 824 101 124 1,049 980 Taxable beneﬁ ts mainly relate to housing expenses and school fees. The information in this part of the Directorsʼ Remuneration Report is subject to audit. 19 ANNUAL REPORT 2015 DIRECTORSʼ REMUNERATION REPORT Service contracts The employment contracts of the executive directors with the Company are terminable by either party with no less than four weeksʼ notice in writing to the other. The directorsʼ service contracts are as follows: Date of contract Unexpired term Notice period Compensation payable on early termination Robert Jeﬀ ries Chatﬁ eld 29 April 2013 Roderick Douglas Mahoney 16 December 2011 Stephen John Fisher 29 April 2014 Indeﬁ nite Indeﬁ nite Indeﬁ nite 4 months 4 weeks 1 month - - - Share options and warrants (audited) The Group has an ownership-based compensation scheme for directors and senior management of the Group. Warrants are granted to directors and senior management of the Group to promote: • • • improvement in share price; improvement in net proﬁ t; and improvement in return to shareholders. 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. There are no performance conditions that need to be met before warrants can be exercised. Warrants granted to directors on 20 November 2013 have a 3 year vesting schedule with details as follows: Vesting period Proportion of total share options that are exercisable Before 20 November 2014 0 per cent On 20 November 2014 and before 20 November 2015 Up to 33 per cent of the grant On 20 November 2015 and before 20 November 2016 Up to 33 per cent of the grant or up to 66 per cent of the grant if warrants were not exercised after the ﬁ rst vesting year On 20 November 2016 Balance or 100 per cent of the grant if warrants were not exercised after the ﬁ rst and second vesting years Warrants granted to directors on 8 December 2014 have a 3 year vesting schedule with details as follows: Vesting period Proportion of total share options that are exercisable Before 8 December 2015 0 per cent On 8 December 2015 and before 8 December 2016 Up to 33 per cent of the grant On 8 December 2016 and before 8 December 2017 On 8 December 2017 Up to 33 per cent of the grant or up to 66 per cent of the grant if warrants were not exercised after the ﬁ rst vesting year Balance or 100 per cent of the grant if warrants were not exercised after the ﬁ rst and second vesting years 20 DIRECTORSʼ REMUNERATION REPORT The following share warrants issued to directors were outstanding at the year-end: Director Date granted Warrant price Balance at beginning of year Granted during the year Exercised/ expired during the year Balance at end of year Robert Jeﬀ ries Chatﬁ eld * 20 Nov 2013 Robert Jeﬀ ries Chatﬁ eld * 8 Dec 2014 Roderick Douglas Mahoney** 20 Nov 2013 110.0p 153.0p 110.0p 335,000 - - 450,000 300,000 - Roderick Douglas Mahoney 8 Dec 2014 153.0p - 400,000 - - - - 335,000 450,000 300,000 400,000 * Robert Jeﬀ ries Chatﬁ eld was granted the share warrants via Epsom Assets Limited. ** Roderick Douglas Mahoney was granted the share warrants via Douglas Aviation Pte Ltd. The closing market price of the shares subject to option at the year-end was £1.45. The highest and lowest closing market prices during the year were £1.78 and £1.23. Companyʼs 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 since the Companyʼs shares were ﬁ rst publicly traded in November 2006. 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. (cid:91) (cid:72) (cid:71) (cid:81) (cid:76) (cid:3) (cid:81) (cid:85) (cid:88) (cid:87) (cid:72) (cid:53) (cid:3)(cid:23)(cid:15)(cid:19)(cid:19)(cid:19) (cid:3)(cid:22)(cid:15)(cid:24)(cid:19)(cid:19) (cid:3)(cid:22)(cid:15)(cid:19)(cid:19)(cid:19) (cid:3)(cid:21)(cid:15)(cid:24)(cid:19)(cid:19) (cid:3)(cid:21)(cid:15)(cid:19)(cid:19)(cid:19) (cid:3)(cid:20)(cid:15)(cid:24)(cid:19)(cid:19) (cid:3)(cid:20)(cid:15)(cid:19)(cid:19)(cid:19) (cid:3)(cid:24)(cid:19)(cid:19) - (cid:49)(cid:82)(cid:89)(cid:3)(cid:19)(cid:25) (cid:49)(cid:82)(cid:89)(cid:3)(cid:19)(cid:26) (cid:49)(cid:82)(cid:89)(cid:3)(cid:19)(cid:27) (cid:49)(cid:82)(cid:89)(cid:3)(cid:19)(cid:28) (cid:49)(cid:82)(cid:89)(cid:3)(cid:20)(cid:19) (cid:49)(cid:82)(cid:89)(cid:3)(cid:20)(cid:20) (cid:49)(cid:82)(cid:89)(cid:3)(cid:20)(cid:21) (cid:49)(cid:82)(cid:89)(cid:3)(cid:20)(cid:22) (cid:49)(cid:82)(cid:89)(cid:3)(cid:20)(cid:23) (cid:36)(cid:89)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:51)(cid:79)(cid:70) (cid:41)(cid:55)(cid:54)(cid:40)(cid:20)(cid:19)(cid:19) 21 ANNUAL REPORT 2015 DIRECTORSʼ REMUNERATION REPORT Remuneration of Executive Chairman 2015 2014 2013 2012 2011 US$ʼ000s US$ʼ000s US$ʼ000s US$ʼ000s US$ʼ000s Executive Chairman single ﬁ gure remuneration Annual bonus pay-out (as % of maximum) Long term incentive vesting rates against maximum opportunity % 711 - N/A 638 - N/A 267 - N/A 250 - N/A 295 - N/A The table above shows the prescribed remuneration data for the Director, Robert Jeﬀ ries Chatﬁ eld, Executive Chairman undertaking the role of Group Chief Executive Oﬃ cer during each of the last ﬁ ve ﬁ nancial years. No bonus has been paid to the Executive Chairman. Percentage change in remuneration of Chief Executive Oﬃ cer The table below sets out the percentage change in the remuneration of the Executive Chairman who is undertaking the role of Group Chief Executive Oﬃ cer compared to that of all employees of the Group. Executive Chairman All employees Relative importance of spend on pay Change in remuneration from 2014 to 2015 % change in base salary % change in annual bonus % change in taxable beneﬁ ts 6% 60% - 75% 43% 134% The Chart below displays the relative expenditure of the Company on various matters, as required (in the case of remuneration for group employees and shareholder distributions) by the relevant remuneration regulations: (cid:20)(cid:23)(cid:15)(cid:19)(cid:19)(cid:19) (cid:20)(cid:21)(cid:15)(cid:19)(cid:19)(cid:19) (cid:20)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19) (cid:27)(cid:15)(cid:19)(cid:19)(cid:19) (cid:25)(cid:15)(cid:19)(cid:19)(cid:19) (cid:23)(cid:15)(cid:19)(cid:19)(cid:19) (cid:21)(cid:15)(cid:19)(cid:19)(cid:19) (cid:19) (cid:21)(cid:8) (cid:20)(cid:22)(cid:15)(cid:22)(cid:20)(cid:21) (cid:20)(cid:22)(cid:15)(cid:19)(cid:22)(cid:25) (cid:23)(cid:25)(cid:8) (cid:22)(cid:15)(cid:20)(cid:23)(cid:19) (cid:21)(cid:15)(cid:20)(cid:24)(cid:22) (cid:23)(cid:27)(cid:8) (cid:20)(cid:15)(cid:25)(cid:24)(cid:25) (cid:20)(cid:15)(cid:20)(cid:20)(cid:28) (cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:80)(cid:88)(cid:81)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:74)(cid:85)(cid:82)(cid:88)(cid:83) (cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86) (cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:72)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86) (cid:39)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:86)(cid:3)(cid:83)(cid:68)(cid:92)(cid:68)(cid:69)(cid:79)(cid:72) (cid:21)(cid:19)(cid:20)(cid:23)(cid:3)(cid:56)(cid:54)(cid:7)(cid:3)(cid:10)(cid:19)(cid:19)(cid:19) (cid:21)(cid:19)(cid:20)(cid:24)(cid:3)(cid:56)(cid:54)(cid:7)(cid:3)(cid:10)(cid:19)(cid:19)(cid:19) 22 DIRECTORSʼ REMUNERATION REPORT Directorsʼ remuneration policy The Company applies a policy for Directorsʼ remuneration which is designed to meet the following objectives: • provide a fair and transparent remuneration policy that is in alignment with shareholdersʼ interests; • provide both immediate and incentive remuneration that is suﬃ cient to attract and retain executives; • be consistent with best practice for governance of stock exchange listed companies; • allow claw-back of incentives from executives should previous performance be found to have led to future adverse circumstances for the Company; and • always ensure an alignment between performance and compensation. The Company targets the following outcomes in applying its policy to ensure alignment of Directorsʼ remuneration and shareholdersʼ interests: • • • share price appreciation; increase in the Companyʼs earnings per share; reliable and high quality ﬁ nancial reporting; • growth in asset value and proﬁ ts; and • dividend growth. Remuneration of the Companyʼs Executive Directors is comprised of the following components: • base salary; • • short-term incentives in the form of a cash bonus for linked to performance against individual KPIs; and long-term incentives in the form of share warrants and/or performance shares. Remuneration of the Companyʼs Non-Executive Directors is comprised of ﬁ xed Directorsʼ Fees. The Board as a whole considers the remuneration of the Directors and has not engaged external advisers. The remuneration report for the year ended 30 June 2014 was approved at the Annual General Meeting held on 24 November 2014. On behalf of the Board Robert Jeﬀ ries Chatﬁ eld Director 23 ANNUAL REPORT 2015 DIRECTORSʼ RESPONSIBILITIES Statement of Directorsʼ responsibilities The Directors are responsible for preparing the Directorsʼ Report and the ﬁ nancial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare ﬁ nancial statements for each ﬁ nancial year. Under that law the Directors are required to prepare the Group ﬁ nancial statements in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union (“EU”) and Article 4 of the IAS Regulation and have also chosen to prepare the Parent Company ﬁ nancial statements under IFRSs as adopted by the EU. Under Company Law the Directors must not approve the ﬁ nancial statements unless they are satisﬁ ed that they give a true and fair view of the state of aﬀ airs of the Company and of the Group and the ﬁ nancial performance and cash ﬂ ows of the Group for that year. In preparing these ﬁ nancial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; prepare the accounts on the going concern basis unless it is inappropriate to presume that the Company will continue in business. present information, including accounting policies, in a manner that provides relevant reliable, comparable and understandable information. The Directors are responsible for keeping adequate accounting records that are suﬃ cient to show and explain the Company and the Groupʼs transactions and disclose with reasonable accuracy at any time the ﬁ nancial position of the Company and the Group and enable them to ensure that the ﬁ nancial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and ﬁ nancial information included on the Companyʼs website. Legislation in the United Kingdom governing the preparation and dissemination of the ﬁ nancial statements may diﬀ er from legislation in other jurisdictions. We conﬁ rm that to the best of our knowledge: i. the ﬁ nancial statements, prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, ﬁ nancial position and proﬁ t or loss of the Company and of the Group; and ii. the strategic report includes a fair review of the development and performance of the business and the position of the Company and of the Group, together with a description of the principal risks and uncertainties that they face. provide additional disclosures when compliance with speciﬁ c IFRSs are insuﬃ cient to enable the users to understand the impact of particular transactions, other events and conditions on the entityʼs ﬁ nancial position and ﬁ nancial performance. By order of the Board Robert Jeﬀ ries Chatﬁ eld Director 15 October 2015 24 REPORT OF THE AUDITORS INDEPENDENT AUDITORSʼ REPORT TO THE MEMBERS OF AVATION PLC We have audited the ﬁ nancial statements of Avation PLC for the year ended 30 June 2015 which comprise the Consolidated Statement of Proﬁ t or Loss and other Comprehensive Income, the Company Statement of Proﬁ t or Loss and other Comprehensive Income, the Consolidated Statement of Financial Position, the Company Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Company Statement of Changes in Equity, the Consolidated Statement of Cash Flows, the Company Statement of Cash Flows and the related notes. The ﬁ nancial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (“IFRSs”) as adopted by the European Union and as regards the Parent Company ﬁ nancial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the Companyʼs 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 Companyʼs members those matters which we are required to include in an auditorsʼ 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 Companyʼs 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 Directorsʼ Responsibilities Statement set out on page 24 the directors are responsible for the preparation of the ﬁ nancial statements and for being satisﬁ ed that they give a true and fair view. Our responsibility is to audit and express an opinion on the ﬁ nancial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Boardʼs (APBʼs) Ethical Standards for Auditors. Scope of the audit of the ﬁ nancial statements An audit involves obtaining evidence about the amounts and disclosures in the ﬁ nancial statements suﬃ cient to give reasonable assurance that the ﬁ nancial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Groupʼs and the Parent Companyʼs circumstances and have been consistently applied and adequately disclosed; the reasonableness of signiﬁ cant accounting estimates made by the directors; and the overall presentation of the ﬁ nancial statements. In addition, we read all the ﬁ nancial and non-ﬁ nancial information in the Annual Report to identify material inconsistencies with the audited ﬁ nancial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we became aware of any apparent material misstatements or inconsistencies we consider the implications in our report. Opinion on the ﬁ nancial statements In our opinion: the ﬁ nancial statements give a true and fair view of the state of the Groupʼs and of the Parent Companyʼs aﬀ airs 25 as at 30 June 2015 and of the Groupʼs proﬁ t for the year then ended; the Groupʼs ﬁ nancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company ﬁ nancial statements have been prepared properly in accordance with IFRS as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006, and the ﬁ nancial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group ﬁ nancial statements, Article 4 of the IAS Regulation. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: the part of the Directors Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; the information given in the Corporate Governance Statement included in the Directorsʼ report with respect to internal control and risk management systems in relation to ﬁ nancial reporting processes and about share capital structures is consistent with the ﬁ nancial statements; and the information given in the Directorsʼ Report for the ﬁ nancial year for which the ﬁ nancial statements are prepared is consistent with the ﬁ nancial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or the Parent Company ﬁ nancial statements are not in agreement with the accounting records and returns; or certain disclosures of directorsʼ remuneration speciﬁ ed by law are not made; or we have not received all the information and explanations we require for our audit; and a Corporate Governance Statement has not been prepared by the Company. Mark Twum-Ampofo (Senior Statutory Auditor) For and on behalf of Kingston Smith LLP, Statutory Auditor Devonshire House 60 Goswell Road London EC1M 7AD 15 October 2015 AVATION PLC CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 Continuing operations Lease revenue Other income Depreciation (Loss)/gain on disposal of aircraft Administrative expenses Other expenses Operating profit Finance income Finance expenses Profit before taxation Taxation Profit from continuing operations Discontinued operations Loss from discontinued operations Total profit Other comprehensive income: Items that may be reclassified subsequently to profit or loss: Currency translation differences arising on consolidation Fair value loss on derivative financial instruments Other comprehensive income, net of tax Note 2015 2014 US$’000s US$’000s (Restated) 9 23 10 11 12 13 15 16 56,932 3,202 60,134 48,691 3,435 52,126 (17,775) (14,615) (729) (7,199) (823) 33,608 3,322 (6,958) - 33,875 807 296 (18,895) (16,906) 15,520 17,265 (1,039) (2,504) 14,481 14,761 17 (1,196) (498) 13,285 14,263 (23) (229) (252) 2 - 2 Total comprehensive income for the year 13,033 14,265 Profit attributable to: Equity holders of the Company Non-controlling interests Total comprehensive income attributable to: Equity holders of the Company Non-controlling interests 13,036 249 13,285 12,786 247 13,033 13,312 951 14,263 13,313 952 14,265 26 AVATION PLC CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 Earnings per share for profit from continuing and discontinued operations attributable to equity holders of the Company Basic earnings per share: From continuing operations From total operations Diluted earnings per share: From continuing operations From total operations 2015 2014 US$’000s US$’000s (Restated) 18 26.29 cents 28.36 cents 24.12 cents 27.40 cents 18 26.13 cents 28.36 cents 23.97 cents 27.40 cents The Company has taken advantage of the exemption of section 408 of the Companies Act 2006 not to present the Company statement of profit or loss and other comprehensive income. The Company’s profit for the year was US$12.42 million (2014: US$1.12 million). 27 AVATION PLC CONSOLIDATED STATEMENT OF FINANCIAL POSITION FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 Note 2015 2014 US$’000s US$’000s 19 20 21 20 23 24 25 26 27 25 26 28 29 30 30 32 33 108,647 3,284 19,600 1,078 30 23,395 2,804 - 2,156 - 132,639 28,355 10,794 6,286 11,269 6,295 434,079 367,325 2,384 2,384 453,543 387,273 586,182 415,628 10,280 431 51,584 825 63,120 11,271 376,511 229 6,847 6,414 1,099 62,173 - 69,686 9,768 218,985 - 6,422 394,858 235,175 991 (682) 38,692 6,715 10,159 8,459 50 62,363 126,747 1,457 891 (682) 31,424 - 10,159 3,856 12 50,446 96,106 14,661 128,204 110,767 586,182 415,628 ASSETS: Current assets: Cash and cash equivalents Trade and other receivables Loan receivable Prepaid loan premium Assets held for sale Total current assets Non-current assets: Trade and other receivables Prepaid loan premium Property, plant and equipment Goodwill Total non-current assets Total assets LIABILITIES AND EQUITY: Current liabilities: Trade and other payables Provision for taxation Loans and borrowings Maintenance reserves Total current liabilities Non-current liabilities: Trade and other payables Loans and borrowings Derivative financial instruments Deferred tax liabilities Total non-current liabilities Equity attributable to shareholders: Share capital Treasury shares Share premium Merger reserve Asset revaluation reserve Capital reserve Other reserves Retained earnings Non-controlling interest Total equity Total liabilities and equity Approved by the board and authorised for issue on 15 October 2015 …………………………. Robert Jeffries Chatfield Director 28 Note 2015 2014 US$’000s US$’000s 19 20 20 22 23 25 26 25 26 29 30 30 32 1,490 48,647 50,137 9,053 15,353 17,436 41,842 1,975 31,578 33,553 11,269 6,969 19,131 37,369 91,979 70,922 13,355 3,546 16,901 1,163 8,954 493 10,610 16,492 3,416 19,908 958 10,639 624 12,221 991 (682) 891 (682) 38,692 31,424 6,715 2,873 300 15,579 64,468 - 2,873 12 4,275 38,793 91,979 70,922 AVATION PLC COMPANY STATEMENT OF FINANCIAL POSITION FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 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 Loans and borrowings Total current liabilities Non-current liabilities: Trade and other payables Loans and borrowings Deferred tax liabilities Total non-current liabilities Equity attributable to shareholders: Share capital Treasury shares Share premium Merger reserve Asset revaluation reserve Other reserves Retained earnings Total equity Total liabilities and equity Approved by the board and authorised for issue on 15 October 2015 …………………………. Robert Jeffries Chatfield 29 t s e r e t n i e v r e s e r s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ l a t o T y t i u q e g n i l l o r t n o c i s g n n r a e s e v r e s e r e v r e s e r n o i t a u l a v e r e v r e s e r i m u m e r p s e r a h s - n o N l a t o T d e n i a t e R r e h t O l a t i p a C t e s s A r e g r e M e r a h S y r u s a e r T t n e r a p e h t l f o s r e d o h e r a h s o t e l b a t u b i r t t A e r a h S l a t i p a c e t o N Y T I U Q E N I S E G N A H C F O T N E M E T A T S D E T A D I L O S N O C 5 1 0 2 E N U J 0 3 D E D N E R A E Y L A I C N A N I F E H T R O F C L P N O I T A V A ) 2 5 2 ( 5 8 2 , 3 1 ) 9 1 1 , 1 ( 3 3 0 , 3 1 3 1 4 6 8 6 , 4 1 ) 3 0 6 ( 8 8 2 ) 2 ( 9 4 2 7 4 2 - 8 1 - - - 7 6 7 , 0 1 1 1 6 6 , 4 1 6 0 1 , 6 9 6 3 0 , 3 1 ) 0 5 2 ( ) 9 1 1 , 1 ( 6 8 7 , 2 1 5 9 3 6 8 6 , 4 1 ) 3 0 6 ( 8 8 2 ) 1 6 2 , 9 ( ) 9 6 4 , 3 1 ( 8 0 2 , 4 - 6 4 4 , 0 5 6 3 0 , 3 1 ) 9 1 1 , 1 ( 6 3 0 , 3 1 - - - - - - 2 1 ) 0 5 2 ( ) 0 5 2 ( - - - - - 8 8 2 - - - - - - - 5 9 3 8 0 2 , 4 - - - - - - - - - 6 5 8 , 3 9 5 1 , 0 1 - - - - - - - - - 5 1 7 , 6 - - - - - - - ) 3 0 6 ( 1 7 8 , 7 - - - - - - - - - 4 2 4 , 1 3 ) 2 8 6 ( 1 9 8 - - - - - 8 3 i d a p d n e d v D i i i y r a d i s b u s a f o s e r a h s y r u s a e r T e m o c n i e v i s n e h e r p m o c r e h t O e m o c n i e v i s n e h e r p m o c l a t o T 4 1 0 2 l y u J 1 t a e c n a a B l r a e y e h t r o f t i f o r P 0 0 1 0 3 l a t i p a c e r a h s d e u s s i n i e s a e r c n I - - - n i t s e r e t n i i p h s r e n w o n i e g n a h C i y r a d i s b u s a s e s n e p x e e u s s i e r a h S e s n e p x e s t n a r r a W 30 4 0 2 , 8 2 1 7 5 4 , 1 7 4 7 , 6 2 1 3 6 3 , 2 6 0 5 9 5 4 , 8 9 5 1 , 0 1 5 1 7 , 6 2 9 6 , 8 3 ) 2 8 6 ( 1 9 9 5 1 0 2 e n u J 0 3 t a e c n a l a B e h t r o f i d a p n o i t a r e d i s n o c l a t o T . % 1 7 . 6 9 o t % 5 8 . 8 6 m o r f C L P n o i t a v A i e s a e L l a t i p a C i y r a d i s b u s s t i n i i l g n d o h e r a h s s t i d e s a e r c n i y n a p m o C e h t r a e y e h t g n i r u D s ’ y n a p m o C e h t f o t n e m t o l l a e h t h g u o r h t C L P n o i t a v A i e s a e L l a t i p a C i y r a d i s b u s s t i f o i l g n d o h e r a h s l a n o i t i d d a e h t f o n o i t i s i u q c a n o e s o r a e v r e s e r r e g r e m e h T e h t y b d e u s s i l a t i p a c e r a h s e h t f o e u a v l l i a n m o n e h t d n a e u a v l r i a f e h t n e e w t e b e c n e r e f f i d e h t s t n e s e r p e r e v r e s e r r e g r e m e h T . r a e y e h t g n i r u d s e r a h s y r a n d r o i . y n a p m o C . e v r e s e r n o i t a l s n a r t y c n e r r u c i n g e r o f d n a e v r e s e r e u a v l r i a f , e v r e s e r t n a r r a w , e v r e s e r n o i t p m e d e r l a t i p a c f o s t s i s n o c s e v r e s e r r e h t O . e r a h s r e p ) s t n e c S U 8 7 . 1 : 4 1 0 2 ( s t n e c S U 1 0 . 2 f o d n e d v d i i a i d a p y n a p m o C e h t r a e y e h t g n i r u D . s e r a h s y r a n d r o i s ’ y n a p m o C e h t f o 8 8 0 , 9 5 0 , 3 f o t n e m t o l l a e h t d n a h s a c n o i l l i m 4 8 . 0 $ S U d e d u l c n i i l g n d o h e r a h s l a n o i t i d d a e h t f o n o i t i s i u q c a t s e r e t n i e v r e s e r s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ l a t o T y t i u q e g n i l l o r t n o c i s g n n r a e s e v r e s e r e v r e s e r n o i t a u l a v e r e v r e s e r i m u m e r p s e r a h s - n o N l a t o T d e n i a t e R r e h t O l a t i p a C t e s s A r e g r e M e r a h S y r u s a e r T t n e r a p e h t l f o s r e d o h e r a h s o t e l b a t u b i r t t A e r a h S l a t i p a c e t o N Y T I U Q E N I S E G N A H C F O T N E M E T A T S D E T A D I L O S N O C 4 1 0 2 E N U J 0 3 D E D N E R A E Y L A I C N A N I F E H T R O F C L P N O I T A V A ) 3 2 2 , 2 ( ) 1 8 3 , 3 ( 8 5 1 , 1 2 7 3 2 , 8 9 3 6 2 , 4 1 5 6 2 , 4 1 ) 7 6 8 ( ) 8 6 4 ( 7 4 2 7 8 5 , 1 - ) 1 1 ( 1 1 5 9 2 5 9 - - 9 7 - - - 1 1 0 , 7 1 1 6 2 2 , 1 8 2 1 3 , 3 1 - 9 4 9 , 7 3 2 1 3 , 3 1 3 1 3 , 3 1 2 1 3 , 3 1 ) 7 6 8 ( ) 8 6 4 ( 8 6 1 7 8 5 , 1 - ) 1 1 ( - - - - - 2 5 ) 7 6 8 ( - 1 1 - - - ) 2 5 ( - ) 2 5 ( - - - - - - - - - 8 6 1 8 5 1 , 1 - - - - - - - - - - 5 1 1 0 3 5 , 2 9 5 1 , 0 1 7 6 7 , 0 1 1 1 6 6 , 4 1 6 0 1 , 6 9 6 4 4 , 0 5 2 1 6 5 8 , 3 9 5 1 , 0 1 - - - - - - - - - - - - - - - - - - - - ) 1 1 ( 6 2 6 , 1 - - - - ) 8 6 4 ( - - - - - - - - - - - - - - 3 1 9 0 8 , 9 2 ) 4 1 2 ( 8 7 8 8 3 0 3 e m o c n i e v i s n e h e r p m o c r e h t O e m o c n i e v i s n e h e r p m o c l a t o T 3 1 0 2 l y u J 1 t a e c n a a B l r a e y e h t r o f t i f o r P i d a p d n e d v D i i i y r a d i s b u s a f o s e r a h s y r u s a e r T s e r a h s y r u s a e r t f o e s a h c r u P 0 3 l a t i p a c e r a h s d e u s s i n i e s a e r c n I n i t s e r e t n i i p h s r e n w o n i e g n a h C i y r a d i s b u s a s e s n e p x e e u s s i e r a h S d e r i p x e s t n a r r a W 31 4 2 4 , 1 3 ) 2 8 6 ( 1 9 8 4 1 0 2 e n u J 0 3 t a e c n a l a B s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ e v r e s e r s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ l a t o T d e n i a t e R i s g n n r a e r e h t O t e s s A s e v r e s e r n o i t a u l a v e r r e g r e M e v r e s e r e r a h S i m u m e r p y r u s a e r T s e r a h s e r a h S l a t i p a c e t o N Y T I U Q E N I S E G N A H C F O T N E M E T A T S Y N A P M O C C L P N O I T A V A 5 1 0 2 E N U J 0 3 D E D N E R A E Y L A I C N A N I F E H T R O F 8 6 4 , 4 6 9 7 5 , 5 1 0 0 3 3 7 8 , 2 5 1 7 , 6 2 9 6 , 8 3 ) 2 8 6 ( - 3 9 7 , 8 3 3 2 4 , 2 1 3 2 4 , 2 1 ) 9 1 1 , 1 ( 6 8 6 , 4 1 ) 3 0 6 ( 8 8 2 - - - - 5 7 2 , 4 3 2 4 , 2 1 ) 9 1 1 , 1 ( 3 2 4 , 2 1 - - - - - - 8 8 2 - - - - - - - 2 1 3 7 8 , 2 - - - - - - - 5 1 7 , 6 - - - - - ) 3 0 6 ( 1 7 8 , 7 - - - - - - - 4 2 4 , 1 3 ) 2 8 6 ( 1 9 8 - - - - - - 0 0 1 1 9 9 8 3 0 3 e m o c n i e v i s n e h e r p m o c r e h t O e m o c n i e v i s n e h e r p m o c l a t o T 4 1 0 2 l y u J 1 t a e c n a a B l r a e y e h t r o f t i f o r P i d a p d n e d v D i i l a t i p a c e r a h s d e u s s i n i e s a e r c n I s e s n e p x e e u s s i e r a h S e s n e p x e s t n a r r a W 5 1 0 2 e n u J 0 3 t a e c n a l a B 32 . e r a h s r e p ) s t n e c S U 8 7 . 1 : 4 1 0 2 ( s t n e c S U 1 0 . 2 f o d n e d v d i i a i d a p y n a p m o C e h t r a e y e h t g n i r u D s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ e v r e s e r s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ s 0 0 0 $ S U ’ l a t o T d e n i a t e R i s g n n r a e r e h t O t e s s A s e v r e s e r n o i t a u l a v e r r e g r e M e v r e s e r e r a h S i m u m e r p y r u s a e r T s e r a h s e r a h S l a t i p a c e t o N Y T I U Q E N I S E G N A H C F O T N E M E T A T S Y N A P M O C C L P N O I T A V A 4 1 0 2 E N U J 0 3 D E D N E R A E Y L A I C N A N I F E H T R O F - 1 2 1 , 1 1 3 4 , 7 3 1 2 1 , 1 ) 7 6 8 ( ) 8 6 4 ( 7 8 5 , 1 - ) 1 1 ( - 9 6 9 , 3 1 2 1 , 1 ) 7 6 8 ( 1 2 1 , 1 - - - 2 5 3 9 7 , 8 3 5 7 2 , 4 6 1 1 3 7 8 , 2 - - - - - ) 2 5 ( - ) 2 5 ( 2 1 - - - - - - - - 3 7 8 , 2 - - - - - - - - - - 4 2 4 , 1 3 ) 2 8 6 ( 1 9 8 4 1 0 2 e n u J 0 3 t a e c n a l a B - - - - - - ) 1 1 ( 6 2 6 , 1 - - - - - - - ) 8 6 4 ( - - - - - - - 3 1 9 0 8 , 9 2 ) 4 1 2 ( 8 7 8 8 3 0 3 0 3 e m o c n i e v i s n e h e r p m o c r e h t O e m o c n i e v i s n e h e r p m o c l a t o T 3 1 0 2 l y u J 1 t a e c n a a B l r a e y e h t r o f t i f o r P i d a p d n e d v D i i l a t i p a c e r a h s d e u s s i n i e s a e r c n I s e r a h s y r u s a e r t f o e s a h c r u P s e s n e p x e e u s s i e r a h S d e r i p x e s t n a r r a W 33 AVATION PLC CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 Cash flows from operating activities: Profit before taxation from continuing operations Loss before taxation from discontinued operations Profit before income tax Adjustments for: Depreciation expense Warrants expense Claim on maintenance reserves Discount on early settlement of loans Impairment loss on aircraft Impairment loss on trade receivables Amortisation of loan premium Amortisation of interest expense on non-current deposits Loss/(gain) on disposal of aircraft Loss on disposal of assets held for sale Finance income from discounting non-current deposits to fair value Interest income Interest expense Operating cash flows before working capital changes Movement in working capital: Trade and other receivables and prepaid loan premium Trade and other payables Maintenance reserves Cash from operations Interest received Interest paid Income tax paid Net cash from operating activities Cash flows from investing activities: Purchase of property, plant and equipment Proceeds from disposal of aircraft Proceeds from disposal of assets held for sale Investment in loans receivable Purchase of additional shares in a subsidiary Repurchase of a subsidiary’s treasury shares Net cash used in investing activities Cash flows from financing activities: Net proceeds from issuance of ordinary shares Dividends paid Repurchase of treasury shares Proceeds from loans and borrowings, net of transactions costs Repayment of loans and borrowings Capital element of finance lease repayments Net cash 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 34 Note 2015 2014 US$’000s US$’000s 15,520 (1,625) 13,895 17,265 (707) 16,558 17,925 15,259 14 9 9 11 13 13 12 12 13 288 - (1,160) 3,850 145 1,078 317 729 1,600 (309) (498) 17,295 55,155 (141) 4,194 825 60,033 498 - (115) - 713 - 1,078 258 (3,322) - (273) (23) 15,570 45,703 1,573 (255) (3,642) 43,379 23 (16,228) (14,882) (852) (949) 43,451 27,571 (110,173) (71,775) 18,074 1,210 (19,600) (843) (413) 39,001 - - (881) (248) (111,745) (33,903) 6,591 (1,119) - 212,410 (64,313) - 153,569 (23) 85,252 23,395 108,647 728 (867) (468) 85,141 (27,581) (46,851) 10,102 2 3,772 19,623 23,395 AVATION PLC COMPANY STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 Cash flows from operating activities: Profit before taxation Adjustments for: Dividend income Depreciation expense Interest income Interest expense Gain on disposal of aircraft Warrant expense Operating cash flows before working capital changes Movement in working capital: Trade and other receivables and prepayments Trade and other payables Cash (used in) from operations Interest received Interest paid 2015 2014 US$’000s US$’000s 12,292 1,378 (12,915) 1,072 (803) 1,090 (42) 288 982 (12,622) (3,128) (14,768) 488 (894) (1,500) 1,045 (611) 826 - - 1,138 (13,478) 14,599 2,259 12 (795) Net cash (used in) from operating activities (15,174) 1,476 Cash flows from investing activities: Dividend received Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Investment in subsidiaries Net cash from (used in) investing activities Cash flows from financing activities: Net proceeds from issuance of ordinary shares Dividends paid Repurchase of treasury shares Proceeds from loans and borrowings Repayment of loans and borrowings Capital element of finance lease repayments Net cash from (used in) financing activities 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 11,000 (158) 823 (893) 10,772 6,591 (1,119) - 2,500 (4,055) - 3,917 (485) 1,975 1,490 - (4) - (881) (885) 728 (867) (468) 12,888 (833) (13,470) (2,022) (1,431) 3,406 1,975 35 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 1 GENERAL Avation PLC is a public limited company incorporated in England and Wales under the Companies Act 2006 (Registration Number 05872328) and is listed as a Standard Listing on the London Stock Exchange. The address of the registered office is given on page 1. As disclosed in the Directors’ Report, the Group’s principal activity is aircraft leasing. Details of the activities of subsidiary companies are set out in Note 22 to these financial statements. 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 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”). The financial statements have been prepared on a going concern basis and have been prepared in accordance with the historical cost convention, as modified by the revaluation of certain assets and liabilities. The financial statements are presented in United States Dollars and all values are rounded to the nearest thousand (US$’000s). The year-end exchange rate for Pounds Sterling to United States Dollars is 1.572. 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 have been applied consistently by the Company and its subsidiaries, unless otherwise disclosed. 36 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (b) BASIS OF CONSOLIDATION - The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 30 June 2015. Subsidiaries are all entities over which the Group has control. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has: • • • Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee) Exposure, or rights, to variable returns from its involvement with the investee, and The ability to use its power over the investee to affect its returns When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: The contractual arrangement with the other vote holders of the investee • • Rights arising from other contractual arrangements • The Group’s voting rights and potential voting rights Whether or not the Group controls, an investee is re-assessed if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. Profit or loss and each component of other comprehensive income (“OCI”) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. 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 interests • 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 OCI to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities. Investments in subsidiaries are stated at cost less impairment in the Company’s separate financial statements. For all non-controlling interests voting rights not controlled by the Group are equivalent to ownership interests. 37 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (c) BUSINESS COMBINATIONS - 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 interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred 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 held by the acquiree. If the business combination is achieved in stages, any previously held equity interest is re-measured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss. It is then considered in the determination of goodwill. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 Financial Instruments: Recognition and Measurement, is measured at fair value with changes in fair value recognised either in either profit or loss or as a change to OCI. If the contingent consideration is not within the scope of IAS 39, it is measured in accordance with the appropriate IFRS. Contingent consideration that is classified as equity is not re-measured and subsequent settlement is accounted for within equity. (d) GOODWILL- Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the re-assessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash- generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained. (e) GOING CONCERN – The financial statements have been prepared on a going concern basis. The directors have reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. 38 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (f) FAIR VALUE MEASUREMENT – The Group measures financial instruments, such as derivatives, and non-financial assets such as aircraft, at fair values at each reporting date. The fair values of debt instruments are not considered to be materially different from their amortised cost. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: • • In the principal market for the asset or liability, or In the absence of a principal market, in the most advantageous market for the asset or liability The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. In the case of aircraft, unless otherwise disclosed, the assets are valued using lease encumbered value (“LEV”). Under such a valuation, which reflects highest and best use given the fact that the aircraft are held for use in a leasing business, the income streams associated with the lease and the expected future market value of the aircraft at the end of the lease are discounted to current values. The valuers prepare their valuation report based on the market for second hand aircraft, which is active, known and measurable. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: • • • Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. 39 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (f) FAIR VALUE MEASUREMENT (continued) The Group’s management determines the policies and procedures for both recurring fair value measurement, such as aircraft and unquoted available for sale (“AFS”) financial assets, and for non-recurring measurement, such as assets held for distribution in discontinued operations. External valuers are involved for valuation of significant assets, such as aircraft and AFS financial assets, and significant liabilities, such as contingent consideration. At each reporting date, management analyses the movements in the values of assets and liabilities which are required to be re-measured or re-assessed as per the Group’s accounting policies. For this analysis, the management verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant documents so far as possible. Management, in conjunction with the Group’s external valuers, also compares the changes in the fair value of each asset and liability with relevant external sources to determine whether the change is reasonable. For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. (g) PROPERTY, PLANT AND EQUIPMENT – All items of property, plant and equipment are initially recorded at cost. Such cost include the cost of replacing part of the property. The cost of an item of property, plant and equipment is recognised as an asset if, it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Subsequent to recognition, aircraft are stated in the statement of financial position at their fair value. All items of property plant and equipment other than aircraft are measured at cost 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 reporting date. However, these aircraft have been reviewed for impairment. 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. 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: Jets Turbo props Furniture and equipment 25 years from date of manufacture 25 years from date of manufacture 3 years 40 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (g) PROPERTY, PLANT AND EQUIPMENT (continued) Residual values, useful lives and depreciation methods are revised and adjusted if appropriate, at each reporting date. Residual value of aircraft are based on their estimated scrap value. 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. Changes in accounting estimates of useful lives of aircraft The Group revised the estimated useful lives of its aircraft from 30 years to 25 years with effect from 1 July 2014. The effect of this change is an increase in depreciation expense of US$0.35 million for the financial year ended 30 June 2015 and a decrease in the net book value of the aircraft as of 30 June 2015 of the same amount. It is not practical to estimate the impact on future periods. (h) NON-CURRENT ASSETS HELD FOR SALE – Non-current assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal) group is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification. (i) IMPAIRMENT OF NON-FINANCIAL ASSETS - At each reporting date the Group assesses whether there is an indication that an asset may be impaired. If any indication exists, or when an annual impairment testing for an asset is required, the Group makes an estimate of the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or cash-generating unit's fair value less costs of disposal and its value-in-use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets. Where the carrying amount of an asset or cash- generating unit exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value-in-use, the estimated future cash flows expected to be generated by the asset are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account, if available. If no such costs can be identified, an appropriate valuation model is used. 41 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (i) IMPAIRMENT OF NON-FINANCIAL ASSETS (continued) Impairment losses are recognised in profit or loss. An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset's or cash-generating unit's recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increase cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised previously. Such reversal is recognised in profit or loss. Impairment losses are recognised as an immediate expense. However, the impairment loss shall be recognised in other comprehensive income to the extent of any credit balance existing in the revaluation surplus in respect of that asset. The decrease recognised in other comprehensive income reduces the amount accumulated in equity under the heading of revaluation surplus. (j) JOINTLY CONTROLLED ASSETS – A jointly controlled asset involves joint control and ownership by the Group and other venturers of assets contributed to or acquired. The Group accounts for its share of the jointly controlled assets, any liabilities it has incurred, its share of any liabilities jointly incurred with other ventures, income from the sale or used of its share of the joint venture’s output, together with its share of the expense incurred by the joint venture, and any expenses it incurs in relation to tits interest in the joint venture. (k) PROVISIONS - Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the reporting date, and are discounted to present value where the effect is material. (l) MAINTENANCE RESERVES - Normal maintenance and repairs, airframe and engine overhauls, and compliance with return conditions of the aircraft placed on operating leases are provided by and paid for by the lessees. Certain lease agreements require the lessees to make maintenance reserve contributions to the Group which subsequently can be drawn on to pay for certain maintenance events carried out. These maintenance reserve balances are accounted for as liabilities. Upon termination of the lease, any unutilised maintenance reserve balance will be released to profit and loss or continued to be retained as reserves for drawdown by the follow-on operator. Upon sale of the aircraft, any unutilised maintenance reserve balance held in respect of historic operation of the aircraft that are required to maintain the aircraft to the required standards by a follow-on operator are provided as a charge to profit and loss. There has been a change in accounting policy with regards to the treatment of maintenance contributions and reserves whereby in prior years maintenance rental income recognised in the profit or loss is based on the number of flight hours and cycles the aircraft are operated during the term of the lease. The Group in prior years considered that the lessee acts as agent for the Group in performing the repair and therefore that it was appropriate to recognise income from maintenance rent as revenue and the cost of performing those repairs in expense. There is no impact to the profit or loss or balance sheet due to this change of the accounting policy as there were no maintenance reserves in existence at 30 June 2014. 42 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (m) SHARE-BASED PAYMENTS – The cost of share based payment arrangements whereby employees receive remuneration in the form of warrants, is recognised as an employee benefit expense in profit or 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 reporting date. Fair value is measured by the use of the Black-Scholes method and is based on a reasonable expectation of the extent to which performance criteria will be met. (n) 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. (o) PREPAID LOAN PREMIUM – Prepaid loan premiums represent loan insurance premiums securing amounts due to third parties and are amortised over 10 years. (p) BORROWING COSTS - Borrowing costs are capitalised as part of the cost of a qualifying asset if they are directly attributable to the acquisition, construction or production of that asset. Capitalisation of borrowing costs commences when the activities to prepare the asset for its intended use or sale are in progress and the expenditures and borrowing costs are incurred. Borrowing costs are capitalised until the assets are substantially completed for their intended use or sale. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. 43 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (q) 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) (ii) Aircraft lease revenue 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. 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 and commissions pursuant to the licence agreement are recognised as earned. (r) CONTINGENCIES – A contingent liability is: (i) a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group; or (ii) a present obligation that arises from past events but is not recognised because: i. ii. It is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or The amount of the obligation cannot be measured with sufficient reliability. A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. 44 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (s) TAXATION - Taxation expense represents the sum of current tax and deferred tax. Current tax 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 reporting 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. 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 reporting 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. The Company is Singapore resident for tax purposes. 45 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (t) FOREIGN CURRENCIES - The Group’s consolidated financial statements and Company financial statements are presented in United States dollars. 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 most Group entities, 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 rates of exchange prevailing on the dates of the transactions. At each reporting date, monetary items denominated in foreign currencies are retranslated at rates prevailing on the reporting date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at 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 profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in 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 United States dollars using exchange rates prevailing on the reporting 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. (u) FINANCIAL INSTRUMENTS - Financial assets and financial liabilities are recognised in the Group’s statement of financial position 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 fair value upon initial recognition, 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. 46 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (u) FINANCIAL INSTRUMENTS (continued) (ii) Cash and cash equivalents - Cash and cash equivalents comprise cash at bank and 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). Insurance premiums paid to export credit agencies independent of the lending bank or financial institution are not considered to constitute transaction costs and are accounted for separately. (v) Trade and other payables - Trade payables are stated at their original invoiced value, as the interest that would be recognised from discounting future cash payments over the short payment period is not considered to be material. (vi) Equity instruments - Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. (v) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING – The Group uses derivative financial instruments such as interest rate swap contracts to hedge its risks associated with interest rate fluctuations. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into, and are subsequently re-measured at fair value. Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are taken directly into profit or loss. At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedged item or transaction, the hedging instrument, the nature of the risk being hedged and how the Group will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s (or transaction’s) cash flows attributable to the hedge risk. Such hedges are expected to be highly effective in achieving offsetting changes in cash flows, and are assessed on an ongoing basis to determine that they have been highly effective throughout the financial reporting periods for which they are designated. 47 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (v) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING (continued) Derivatives are classified as fair value through profit or loss unless they qualify for hedge accounting. Derivatives which meet the criteria for hedge accounting are accounted for as cash flow hedges. For cash flow hedges, the effective portion of the gain or loss on the hedging instrument is recognised directly in the fair value reserve, while the ineffective portion is recognised in profit or loss. Amounts taken to the fair value reserve are transferred to profit or loss when the hedged transaction affects profit or loss, such as when a forecast sale or purchase occurs. If the hedged item is a non-financial asset or liability, the amounts taken to the fair value reserve are transferred to the initial carrying amount of the non-financial asset or liability. (w) IMPAIRMENT OF FINANCIAL ASSETS - The Group assesses at each end of the reporting date whether there is any objective evidence that a financial asset is impaired. For financial assets carried at amortised cost, the Group first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss on financial assets carried at amortised cost has incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the financial asset's original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account. The impairment loss is recognised in profit or loss. When the asset becomes uncollectible, the carrying amount of impaired financial assets is reduced directly or if an amount was charged to the allowance account, the amounts charged to the allowance account are written off against the carrying value of the financial asset. To determine whether there is objective evidence that an impairment loss on financial assets has incurred, the Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments. If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that the carrying amount of the asset does not exceed its amortised cost at the reversal date. The amount of reversal is recognised in profit or loss. (x) SEGMENTAL REPORTING - Operating segments are reported in a manner consistent with the internal reporting provided to the executive chairman who is responsible for allocating resources and assessing performance of operating segments. 48 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and assumptions concerning the future are made in the preparation of 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 at the reporting 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. (a) 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 or, a significant change in an aircraft’s physical condition or cash-flow associated with the use of the aircraft. The Group has not identified any impairment related to its existing aircraft fleet during the financial year. (b) Revaluation of property, plant and equipment – aircraft The Group periodically revalues its aircraft using lease encumbered value (“LEV”). Under such a valuation, which reflects highest and best use given the fact that the aircraft are held for use in a leasing business, the income streams associated with the lease and the expected future market value of the aircraft at the end of the lease are discounted to current values. Critical assumptions made in determining LEV are the discount rate applied to cashflows associated with the lease and the expected future value of aircraft at the end of the lease. (c) Impairment of loans and receivables At the end of each reporting period the Group assesses whether there is any objective evidence that a financial asset is impaired. The Company considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments to determine whether there is objective evidence of impairment. Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on historical loss experience for assets with similar risk characteristics. (d) Income taxes (i) Commencing 17 April 2014, Avation Group (S) Pte Ltd (“AGS”) and its subsidiaries were awarded a 5-year Aircraft Leasing Scheme incentive (“ALS”) by the Singapore Economic Development Board, whereby income from the leasing of aircraft and aircraft engines and qualifying activities will be taxed at a concessionary rate of 10%. Qualifying income during the period 17 April 2014 to 16 April 2019 will be taxed at the concessionary rate subject to meeting the terms and conditions of the incentive. (ii) The Group is subject to income taxes in different jurisdictions where it operates. Significant judgment is required in determining capital allowances and the deductibility of certain expenses relevant to the estimation of the provision for income taxes. 49 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued) (e) Consolidation of special purpose entity (“SPE”) – Avation Airframe Holdings Pte. Ltd. Although the ultimate shareholder of the SPE is a trust, the directors of Avation PLC consider that they have the power to, and in practice, control the day to day activities of the SPE. Furthermore, Avation PLC is entitled to the benefits and is exposed to the risks of the activities of the SPE, which are consistent with the operations of the Group, and are conducted on behalf of the Group according to the Group’s specific business needs. Accordingly the SPE is consolidated 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 AND STANDARDS IN EFFECT IN 2015 (a) 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 (accounting periods commencing after) Amendments to IFRS 11 Joint arrangements 1 January 2016 Amendments to IAS 16 Property plant and equipment 1 January 2016 Amendments to IAS 38 Intangible assets Amendments to IFRS 10 and IAS 28 1 January 2016 1 January 2016 Amendments to IAS 27 Separate financial statements 1 January 2016 IFRS 14 Regulatory deferral accounts Annual improvements 2014 1 January 2016 1 July 2016 IFRS 15 Revenue from contracts with customers 1 January 2018 IFRS 9 Financial Instruments 1 January 2018 The directors of the Group have not fully considered the impact on its financial position or performance on the adoption of these standards and interpretations. (b) Standards in effect in 2015 The Group has adopted all new standards that have come into effect during the financial year. 50 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 6 FAIR VALUE MEASUREMENT The fair value of a financial instrument is the amount at which the instrument could be exchanged or settled between knowledgeable and willing parties in an arm’s length transaction, other than a forced or liquidation sale. The carrying amounts of cash and cash equivalents, trade and other receivables, trade and other payables and loans and borrowings are a reasonable approximation of fair value either due to their short-term nature or because the interest rate charged closely approximates market interest rates or that the financial instruments have been discounted to their fair value at a current pre-tax interest rate. Non-financial assets measured at fair value: Group Company 2015 2014 2015 2014 US$’000s US$’000s US$’000s US$’000s Fair value measurement using significant unobservable inputs: Aircraft 433,810 367,265 17,305 19,127 Aircraft were valued at 30 June 2015 and 30 June 2014. Refer to Note 23 for the details on the valuation technique and significant inputs used in the valuation. Classification of financial instruments: A comparison by category of carrying amounts of all the Group and Company's financial instruments that are carried in the financial statements which are considered to equate to fair value is set out below. Loans and receivables: Cash and cash equivalents Trade and other receivables Loan receivables Financial liabilities measured at amortised cost: Trade and other payables Loans and borrowings Maintenance reserves Group Company 2015 2014 2015 2014 US$’000s US$’000s US$’000s US$’000s 108,647 13,133 19,600 23,395 13,128 - 1,490 57,594 - 1,975 42,784 - 141,380 36,523 59,084 44,759 15,282 428,095 825 10,800 281,158 - 14,419 12,500 - 17,337 14,055 - 444,202 291,958 26,919 31,392 Fair value through profit or loss: Derivative financial instruments 229 - - - 51 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 7 FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s activities expose it to a number of market related, operational and financial risks. Risk is mitigated through the application of prudent risk management policies. The risks described below are those that the Group has identified as the most significant risks to the business. The directors are responsible for managing risk and review risk management policies regularly. The Group utilises derivative financial instruments as part of its overall risk management strategy. (a) Airline Industry Risks The Group faces risks specific to the aviation sector including war, terrorism, and equipment failure. These exposures are managed through the requirement for 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. (b) Credit risk Credit risk refers to the risk that debtors will default on their obligations to repay amounts owing to the Group. The Group has adopted a prudent credit policy towards extending credit terms to customers and in monitoring those credit terms. This includes assessing customers’ credit standing and periodic reviews of their financial status to determine appropriate credit limits. The Group generally requires its customers to provide collateral in the form of cash or letters of credit as security deposits for leases. The maximum exposure to credit risk in the event that counterparties fail to perform their obligations in relation to each class of financial assets is the carrying amount of those assets as stated in the statement of financial position. The maximum exposure to credit risk for trade receivables at the reporting date by geographical area is: Australia India Others Group 2015 2014 US$’000s US$’000s 1,552 1,024 311 2,887 1,311 - 223 1,534 The Group’s concentration of customers is disclosed in Note 36. 52 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 7 FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (b) Credit risk (continued) (i) Financial assets that are neither past due nor impaired Financial assets that are neither past due nor impaired are comprised of bank deposits and trade receivables. Bank deposits that are neither past due or impaired are mainly deposits with banks with strong credit–ratings from international credit-rating agencies. Trade receivables that are neither past due nor impaired amounting to US$1.75 million (2014: US$1.32 million) are substantially due from companies with a good payment track record. (ii) Financial assets that are past due and/or impaired There is no class of financial assets that are past due and/or impaired except for trade receivables. The age analysis of trade receivables past due but not impaired is as follows: Past due less than 3 months Past due 3 to 6 months Past due over 6 months (c) Interest rate risk Group 2015 2014 US$’000s US$’000s 927 - 59 - 43 170 986 213 The Group is exposed to interest rate risk through the impact of interest rate changes on floating rate interest bearing liabilities and assets. The Group seeks to reduce its exposure to interest rate risk by fixing interest rates on the majority of its loans and borrowings. As at 30 June 2015 89% (2014: 100%) of the Group’s loans and borrowings are at fixed rates. The interest rates and repayment terms for financial assets and financial liabilities are disclosed in the respective notes to the financial statements. (d) Foreign currency risk Foreign currency risk arises from transactions and cash balances that are not denominated in the Group’s functional currency. The Group’s foreign currency exposures arose mainly from movements in the exchange rate for British Pounds against the United States Dollar. The Group aims to mitigate foreign currency risk by holding the majority of its cash balances in United States Dollars. From time to time the Group utilises forward foreign currency contracts to hedge its exposure to specific currency risks. 53 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 7 FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (d) Foreign currency risk (continued) The Group’s foreign currency exposure is as follows: Group equivalents receivables liabilities exposure US$’000s US$’000s US$’000s US$’000s Cash and Trade and Other Net cash other financial currency 2015: Pound sterling Australian dollar Euro Singapore dollar 2014: Pound sterling Australian dollar Euro Singapore dollar 160 12 20 307 499 361 6 14 251 632 - - 2 3 5 - 1 7 37 45 (130) (13) (14) (504) 30 (1) 8 (194) (661) (157) (136) (6) (81) (92) 225 1 (60) 196 (315) 362 Company equivalents receivables liabilities exposure US$’000s US$’000s US$’000s US$’000s Cash and Trade and Other Net cash other financial currency 2015: Pound sterling Australian dollar Euro Singapore dollar 2014: Pound sterling Australian dollar Euro Singapore dollar - - - - - - - 5 - 5 (102) (13) - (136) (251) (91) (6) (76) (16) (89) (13) - 16 (86) 171 (6) (71) 131 (189) 225 13 - - 152 165 262 - - 147 409 54 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 7 FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (d) Foreign currency risk (continued) The table below illustrates the effect on total profit and total equity that would result from a strengthening of foreign currencies against the United States Dollar by 10% (2014: 10%) with all other variables including tax rate being held constant: Foreign currency: Pound sterling Australian dollar Euro Singapore dollar Group Company 2015 2014 2015 2014 US$’000s US$’000s US$’000s US$’000s 3 - - (20) 23 - (6) 20 (9) (1) - 2 17 - (7) 13 A weakening of the respective currencies by 10% against the United States Dollar would have an equal and opposite effect. (e) Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting financial obligations due to shortage of funds. The Group’s exposure to liquidity risk arises primarily from mismatches of the maturities of financial assets and liabilities. The Group monitors and maintains a level of cash and cash equivalents that management deems adequate to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. Short- term funding is obtained from loan facilities. Analysis of financial instruments by remaining contractual maturities The table below summarises the maturity profile of the Group’s financial assets and non- derivative liabilities at the end of the reporting period based on contractual undiscounted repayment obligations: 55 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 7 FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (e) Liquidity risk (continued) Group less years years One year or One to five Over five Total US$’000s US$’000s US$’000s US$’000s 2015: Financial assets: Cash and cash equivalents Trade and other receivables Loan receivable 108,647 2,955 19,600 - 9,053 - - 108,647 5,597 - 17,605 19,600 Total undiscounted financial assets 131,202 9,053 5,597 145,852 Financial liabilities: Trade and other payables Loans and borrowings Maintenance reserves 5,507 68,556 825 2,833 328,249 - 8,804 116,322 - 17,144 513,127 825 Total undiscounted financial 74,888 331,082 125,126 531,096 liabilities Total net undiscounted financial liabilities 56,314 (322,029) (119,529) (385,244) 2014: Financial assets: Cash and cash equivalents Trade and other receivables 23,395 1,859 - 11,269 Total undiscounted financial assets 25,254 11,269 - - - 23,395 13,128 36,523 Financial liabilities: Trade and other payables Loans and borrowings Total undiscounted financial liabilities 2,611 74,744 1,548 148,199 8,549 113,113 12,708 336,056 77,355 149,747 121,662 348,764 Total net undiscounted financial liabilities (52,101) (138,478) (121,662) (312,241) 56 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 7 FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (e) Liquidity risk (continued) Company less years years One year or One to five Over five Total US$’000s US$’000s US$’000s US$’000s 2015: Financial assets: Cash and cash equivalents Trade and other receivables 1,490 48,541 - 9,053 Total undiscounted financial assets 50,031 9,053 Financial liabilities: Trade and other payables Loans and borrowings 13,256 4,073 1,163 9,653 Total undiscounted financial 17,329 10,816 liabilities - - - - - - 1,490 57,594 59,084 14,419 13,726 28,145 Total net undiscounted financial assets/(liabilities) 32,702 (1,763) - 30,939 2014: Financial assets: Cash and cash equivalents Trade and other receivables 1,975 31,515 - 11,269 Total undiscounted financial assets 33,490 11,269 Financial liabilities: Trade and other payables Loans and borrowings Total undiscounted financial liabilities 16,379 3,993 978 11,646 20,372 12,624 Total net undiscounted financial assets/(liabilities) 13,118 (1,355) - - - - - - - 1,975 42,784 44,759 17,357 15,639 32,996 11,763 57 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 7 FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (f) Capital risk The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern and to maintain a suitable capital structure so as to fund growth and maximise shareholder value. In order to maintain or achieve an optimal capital structure, the Group may adjust the amount of dividend payments, return capital to shareholders, issue new shares, buy back issued shares, incur new borrowings or sell assets to reduce borrowings. Management monitors capital based on a gearing ratio. The gearing ratio is calculated as net debt divided by total capital. Net debt is calculated as borrowings plus trade and other payables less cash and cash equivalents. Group Company 2015 2014 2015 2014 US$’000s US$’000s US$’000s US$’000s Current: Net debt Total equity 340,999 128,204 273,945 110,767 25,528 64,468 29,530 38,793 Total capital 469,203 384,712 89,996 68,323 Gearing ratio: 73% 71% 28% 43% The Group is in compliance with all externally imposed capital requirements for the financial years ended 30 June 2015 and 30 June 2014. (g) Fair value of financial assets and financial liabilities The fair values of financial assets and financial liabilities reported in the statement of financial position approximate the carrying amounts of those assets and liabilities. 58 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 8 RELATED PARTY TRANSACTIONS In addition to related party information disclosed elsewhere in these financial statements, the following transactions took place between the Group and related parties at terms agreed between the parties. (a) Remuneration of key management personnel The remuneration of directors and key management includes fees, salary, bonus, commission and other emoluments (including benefits-in-kind) based on the cost incurred by the Company and the Group, and where the Company or Group did not incur any costs, the value of the benefits. Key management remuneration is as follows: Group Company 2015 2014 2015 2014 US$’000s US$’000s US$’000s US$’000s Key management: Short-term employee benefits 1,633 1,127 361 333 The amount above includes remuneration in respect of the highest paid director as follows: Aggregate emoluments 711 638 Group 2015 2014 US$’000s US$’000s No contributions were made on behalf of any directors to money purchase pension schemes. 59 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 8 RELATED PARTY TRANSACTIONS (continued) (b) Significant related party transactions: Group Company 2015 2014 2015 2014 US$’000s US$’000s US$’000s US$’000s Entities controlled by key management personnel (including directors): Interest income Rental expenses paid Consulting fee paid Service fee paid Interest expense paid 3 (111) (202) (10) (615) 9 - (178) (11) (811) 3 (55) (202) (10) (399) 9 - (178) (11) (200) Ex-director of a subsidiary: Interest expense paid - (20) - - (c) Significant transactions between the Company and its subsidiaries: Commission income Dividend income Interest income Management and service fee income Rental income Interest expense Company 2015 2014 US$’000s US$’000s 589 12,915 638 199 2,088 (216) 1,036 1,500 599 - 2,088 - 60 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 9 OTHER INCOME Reversal of maintenance reserve expense Foreign currency exchange gain Discount on early settlement of loans Reversal of excess maintenance reserve accruals Fees for cancellation of aircraft Other 10 ADMINISTRATIVE EXPENSES Staff costs (note 14) Other administrative expenses 11 OTHER EXPENSES Foreign currency exchange loss Impairment of trade receivables Other Group 2015 2014 US$’000s US$’000s - - 1,160 - 300 1,742 115 202 - 2,914 - 204 3,202 3,435 Group 2015 2014 US$’000s US$’000s 3,140 4,059 2,153 4,805 7,199 6,958 Group 2015 2014 US$’000s US$’000s 535 145 143 823 - - - - 61 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 12 FINANCE INCOME Interest income Finance income from discounting non-current deposits to fair value 13 FINANCE EXPENSES Interest expense on borrowings Amortisation of loan insurance premium Notional interest on deposit collected Other 14 STAFF COSTS Wages and salaries Warrant expense Group 2015 2014 US$’000s US$’000s 498 309 23 273 807 296 Group 2015 2014 US$’000s US$’000s 17,295 1,078 317 205 15,570 1,078 258 - 18,895 16,906 Group 2015 2014 US$’000s US$’000s 2,852 288 2,153 - 3,140 2,153 The average number of directors of the Company for the financial year is 3 (2014: 3). The average number of other employees for the financial year is 15 (2014: 11). 62 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 15 PROFIT BEFORE TAXATION Profit before taxation for the year is stated after charging / (crediting) the following: Reversal of maintenance reserve expense Depreciation of property, plant and equipment Foreign currency exchange loss/(gain) Audit fees: Fees payable to the Company’s auditor and their associates for the audit of the Company’s annual accounts Fees payable to the Company’s auditor and their associates for audits of the Company’s subsidiaries’ annual accounts Total audit fees Auditors’ remuneration for non-audit services: - Tax compliance services - Tax advisory services - Other services Group 2015 2014 US$’000s US$’000s - 17,775 535 (115) 14,615 (202) 37 51 88 7 - 41 48 32 53 85 7 3 5 15 63 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 16 TAXATION From continuing operations Current tax expense: - Singapore - Overseas (Over)/under provision in prior years: - Singapore - Overseas Deferred tax expense: - Singapore - Overseas Withholding tax - Singapore From discontinued operations Deferred tax expense: - Overseas Tax expense attributable to: - continuing operations - discontinued operations (Note 17) Group 2015 2014 US$’000s US$’000s 313 35 (32) (144) 737 117 13 1,039 (429) 610 1,039 (429) 610 256 1,028 6 (229) 1,260 183 - 2,504 (209) 2,295 2,504 (209) 2,295 Income tax differs from the amount of income tax expense determined by applying the Singapore tax rate of 17% to profit before income tax as a result of the following differences: Group 2015 2014 US$’000s US$’000s 15,520 (1,625) 13,895 17,265 (707) 16,558 2,362 2,815 (32) (144) 1,625 (1,411) (245) (1,516) (23) 13 (19) 610 6 (229) 1,413 (387) 3 (1,267) (58) - (1) 2,295 Profit before income tax - continuing operations - discontinued operations (Note 17) Tax calculated at 17% (2014: 17%) Effects of: (Over)/under provision in prior years: - Singapore - Overseas Non-deductible items Income not subject to tax Different tax rates of other countries Effect of concessionary tax rate at 10% Singapore statutory stepped tax exemption Withholding tax - Singapore Others 64 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 17 DISCONTINUED OPERATIONS The Company’s subsidiary Capital Lease Aviation PLC has reported a US$1.2 million loss, net of a tax write-back, on the part-out disposal of a 25 year old aircraft. This loss is classified within discontinued operations as it represents the Group’s only aircraft operating in North America. Comparative amounts for the Group’s North America operations have been reclassified as discontinued operations to conform to the current presentation as required by IFRS5. (a) Results of discontinued operations Revenue Expenses Loss before tax from discontinued operations Taxation Loss after tax from discontinued operations (b) Cash flows from discontinued operations Operating cash inflows Investing cash inflows Total cash inflows (c) Earnings per share from discontinued operations Group 2015 2014 US$’000s US$’000s 3,997 (5,622) (1,625) 429 (1,196) 650 (1,357) (707) 209 (498) Group 2015 2014 US$’000s US$’000s 3,975 1,210 5,185 650 - 650 Group 2015 2014 US$’000s US$’000s Loss per share from discontinued operation attributable to equity owners of the Company (cents per share) Basic Diluted (2.17) cents (0.96) cents (2.16) cents (0.96) cents 65 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 18 EARNINGS PER SHARE (a) Basic earnings per share (“EPS”) EPS is calculated by dividing total profit attributable to members of the Company by the weighted average number of ordinary shares in issue during the financial year. Total profit attributable to equity holders of the company - Continuing operations - Discontinued operations Company 2015 2014 US$’000s US$’000s 14,210 (1,174) 13,036 13,777 (465) 13,312 Weighted average number of ordinary shares (‘000s) 54,050 48,583 Basic earnings per share: - Continuing operations - Discontinued operations (b) Diluted earnings per share 26.29 cents 28.36 cents (2.17) cents (0.96) cents 24.12 cents 27.40 cents For the purpose of calculating diluted earnings per share, total profit attributable to equity holders of the Company and the weighted average number of ordinary shares outstanding are adjusted for the effects of all dilutive potential ordinary shares. The Company has one category of dilutive potential ordinary shares; warrants. For warrants, the weighted average number of shares on issue has been adjusted as if all dilutive share options were exercised. The number of shares that could have been issued upon the exercise of all dilutive share option less the number of shares that could have been issued at fair value (determined as the Company’s average share price for the financial year) for the same total proceeds is added to the denominator as the number of shares issued for no consideration. 66 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 18 EARNINGS PER SHARE (continued) (b) Diluted earnings per share (continued) Diluted earnings per share attributable to equity holders of the Company is calculated as follows: Total profit attributable to equity holders of the company - Continuing operations - Discontinued operations - Total operations Company 2015 2014 US$’000s US$’000s 14,210 (1,174) 13,036 13,777 (465) 13,312 Weighted average number of ordinary shares (‘000s) Adjustment for Warrants (‘000s) 54,050 335 48,583 - Weighted average number of ordinary shares (‘000s) 54,385 48,583 Diluted earnings per share: - Continuing operations - Discontinued operations - Total operations 26.13 cents 28.36 cents (2.16) cents (0.96) cents 23.97 cents 27.40 cents 19 CASH AND CASH EQUIVALENTS Group Company 2015 2014 2015 2014 US$’000s US$’000s US$’000s US$’000s Cash at bank and on hand Short term bank deposits 108,647 - 19,627 3,768 1,490 - 1,975 - 108,647 23,395 1,490 1,975 The rate of interest for cash on interest earning accounts is approximately 0.01% to 0.10% (2014: 0.14% to 2.50%) per annum. Cash and cash equivalents denominated in foreign currencies are as follows: Pounds sterling Australian dollar Euro Singapore dollar Group Company 2015 2014 2015 2014 US$’000s US$’000s US$’000s US$’000s 160 12 20 307 361 6 14 251 13 - - 152 262 - - 147 67 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 20 TRADE AND OTHER RECEIVABLES Current: Trade receivables Other receivables: – subsidiaries (a) – related parties (b) – third parties Accrued interest Deposits Prepaid expenses Dividend receivable Non-current: Deposits for aircraft Prepaid expenses Group Company 2015 2014 2015 2014 US$’000s US$’000s US$’000s US$’000s 2,742 1,535 6 592 - - 155 - 58 329 - - 124 121 43 36 945 - 45,229 - 46 322 24 106 2,914 30,693 124 44 62 - 63 - 3,284 2,804 48,647 31,578 10,178 616 10,794 11,269 - 11,269 9,053 - 9,053 11,269 - 11,269 (a) Other receivables from subsidiaries includes interest bearing receivables of US$6.89 million (2014: US$0.42 million). The receivables are unsecured and repayable upon demand. Interest is charged at 5.5% to 6.0% (2014: 1.0% to 5.5%) per annum. (b) Interest bearing receivable of US$NIL (2014: US$0.12 million) is due from an entity controlled by a director. The receivable is unsecured and repayable upon demand. Interest is charged at 5.0% (2014: 5.0%) per annum. The receivable was fully repaid during the financial year. The average credit period generally granted to customers is 30 to 60 days. Rent for leased aircraft is due in advance in accordance with the leases. Trade and other receivables denominated in foreign currencies are as follows: Pound sterling Australian dollar Euro Singapore dollar Group Company 2015 2014 2015 2014 US$’000s US$’000s US$’000s US$’000s - - 2 3 - 1 7 37 - - - - - - 5 - 68 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 21 LOAN RECEIVABLE Loan receivable Group 2015 2014 US$’000s US$’000s 19,600 - The Group has granted a loan facility of up to US$24 million to a third party for the purpose of financing the acquisition of two new aircraft. The third party is obliged to sell these aircraft to the Group in the next financial year, and the Group will in turn will lease these aircraft back to the third party under operating leases. As of 30 June 2015, the third party has drawn down US$19.6 million. The loan receivable is repayable within 12 month and interest is charged at LIBOR + 3.95% per annum. 22 INVESTMENT IN SUBSIDIARIES Unquoted equity shares, at cost Quoted equity shares, at cost Company 2015 2014 US$’000s US$’000s 2,556 12,797 2,506 4,463 Balance at beginning and end of the year 15,353 6,969 Quoted equity shares, at market value 25,660 18,600 In the opinion of management there is no impairment of the value of investments in subsidiaries. Details of subsidiaries are as follows: Name of entity Country of incorporation Principal activities Ownership interest 2015 % 2014 % Held directly by the Company: Avation.net Inc Avation Capital S.A. Capital Lease Aviation PLC Avation Eastern Fleet Pte. Ltd. Avation Airframe Holding Pte. Ltd. Avation Eastern Fleet (IV) Pte. Ltd. MSN1922 Pte. Ltd. MSN429 Leaseco Limited F100 Fleet Pte. Ltd. AVAP Aircraft Trading Pte. Ltd. Avation Group (S) Pte. Ltd. F100 Pty Ltd. AVAP Leasing (Europe) Limited AVAP Leasing (Asia) Limited United States Luxembourg Singapore Singapore Singapore Singapore (a) (g) (b) United Kingdom (e) (e) (e) (e) (b) United Kingdom (e) (e) (e) (c) (f) (f) Singapore Singapore Singapore Australia Ireland Ireland Procurement Financing Aircraft leasing Aircraft leasing Aircraft leasing Aircraft leasing Aircraft leasing Aircraft leasing Aircraft leasing Procurement Aircraft leasing Aircraft leasing Aircraft leasing Aircraft leasing 99.96 100.00 96.71 100.00 - - 100.00 100.00 - 100.00 100.00 100.00 100.00 100.00 99.96 - 68.85 100.00 - 100.00 100.00 100.00 100.00 100.00 100.00 100.00 - - 69 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 22 INVESTMENT IN SUBSIDIARIES (continued) Name of entity Country of incorporation Principal activities Ownership interest 2015 % 2014 % (e) (d) (a) (e) Held by Capital Lease Aviation PLC: Capital Lease Malta Ltd. Capital Lease Aviation (S) Pte. Ltd. MSN 1607 Pte. Ltd. Held by Avation Eastern Fleet Pte. Ltd.: Airframe Leasing (S) Pte. Ltd. Held by Avation Eastern Fleet II Pte. Ltd.: Airframe Leasing (S) II Pte. Ltd. (a) Held by Avation Eastern Fleet III Pte. Ltd.: Airframe Leasing (S) III Pte. Ltd. (e) Held by Avation Eastern Fleet IV Pte. Ltd.: Airframe Leasing (S) IV Pte. Ltd. Held by MSN 429 Leaseco Limited: MSN 429 Limited Held by F100 Fleet Pte. Ltd.: F100 Leasing Pte. Ltd. Held by Avation Group (S) Pte. Ltd.: Avation Eastern Fleet II Pte. Ltd. Avation Eastern Fleet III Pte. Ltd. Avation Eastern Fleet IV Pte. Ltd. Avation Pacific Leasing Pte. Ltd. Avation Taiwan Leasing Pte. Ltd. AVAP Leasing (Europe) II Pte. Ltd. AVAP Leasing (Europe) III Pte. Ltd. MSN 429 (S) Pte. Ltd. F100 Fleet Pte. Ltd. (e) (e) (e) (e) (e) (e) (g) (e) (e) (e) (e) Malta Singapore Singapore Aircraft leasing Aircraft leasing Aircraft leasing 96.71 96.71 96.71 68.85 68.85 68.85 Singapore Aircraft leasing 100.00 100.00 Singapore Aircraft leasing 100.00 100.00 Singapore Aircraft leasing 100.00 100.00 Singapore Aircraft leasing 100.00 100.00 (b) United Kingdom Aircraft leasing 100.00 100.00 Singapore Aircraft leasing 100.00 100.00 Singapore Singapore Singapore Singapore Singapore Singapore Singapore Singapore Singapore Aircraft leasing Aircraft leasing Aircraft leasing Aircraft leasing Aircraft leasing Aircraft leasing Aircraft leasing Aircraft leasing Aircraft leasing 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 - 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 (f) Audited by KSi Faulkner Orr, Dublin, Ireland (g) Audited by Kingston Smith LLP, London, United Kingdom for consolidation purposes. For all non-controlling interests, voting rights not controlled by group are equivalent to ownership interests 70 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 23 PROPERTY, PLANT AND EQUIPMENT Group equipment Jets Furniture and Turbo- props Total US$’000s US$’000s US$’000s US$’000s 2015: Cost or valuation: At beginning of year Additions Disposals/written-off Reclassified to assets held for sale 133 311 (87) - - 177,596 - (1,078) (13,478) - 253,000 109,862 (18,370) - - 430,729 110,173 (19,535) (13,478) - At end of the year 357 163,040 344,492 507,889 Representing: At cost At valuation Accumulated depreciation and impairment: At beginning of year Depreciation expense - Continuing operations - Discontinued operations Impairment loss – discontinued operations Disposals/written-off Reclassified to assets held for sale 357 - - - 357 163,040 344,492 507,532 357 163,040 344,492 507,889 73 90 - 90 - 48,129 15,202 63,404 6,680 150 6,830 3,850 11,005 - 11,005 - (360) 17,775 150 17,925 3,850 (731) - (10,638) (75) - (296) (10,638) At end of the year 88 47,875 25,847 73,810 Net book value: At beginning of the year At end of the year 60 269 129,467 237,798 367,325 115,165 318,645 434,079 71 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 23 PROPERTY, PLANT AND EQUIPMENT (continued) Group equipment Jets Furniture and Turbo- props Total US$’000s US$’000s US$’000s US$’000s 2014: Cost or valuation: At beginning of year Additions Disposals 20 113 - 177,596 - - 217,016 71,663 394,632 71,776 (35,679) (35,679) At end of the year 133 177,596 253,000 430,729 Representing: At cost At valuation 133 - - - 133 177,596 253,000 430,596 133 177,596 253,000 430,729 Accumulated depreciation and impairment: At beginning of year Depreciation expense - Continuing operations - Discontinued operations Impairment loss – discontinued operations 12 61 - 61 - 39,647 7,773 47,432 7,125 644 7,769 713 7,429 - 7,429 - 14,615 644 15,259 713 At end of the year 73 48,129 15,202 63,404 Net book value: At beginning of the year At end of the year 8 60 137,949 209,243 347,200 129,467 237,798 367,325 72 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 23 PROPERTY, PLANT AND EQUIPMENT (continued) Company 2015: Cost or valuation: At beginning of year Additions Disposals At end of the year Representing: At cost At valuation Accumulated depreciation and impairment: At beginning of year Depreciation expense Disposals At end of the year Net book value: At beginning of the year At end of the year Furniture and equipment Jets Total US$’000s US$’000s US$’000s 8 158 - 20,452 - (1,078) 20,460 158 (1,078) 166 19,374 19,540 166 - - 19,374 166 19,374 166 19,374 19,540 4 31 - 35 1,325 1,041 (297) 1,329 1,072 (297) 2,069 2,104 4 131 19,127 17,305 19,131 17,436 73 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 23 PROPERTY, PLANT AND EQUIPMENT (continued) Company 2014: Cost or valuation: At beginning of year Additions At end of the year Representing: At cost At valuation Accumulated depreciation and impairment: At beginning of year Depreciation expense At end of the year Net book value: At beginning of the year At end of the year Furniture and equipment Jets Total US$’000s US$’000s US$’000s 4 4 8 8 - 8 1 3 4 3 4 20,452 20,456 - 4 20,452 20,460 - 8 20,452 20,452 20,452 20,460 283 1,042 284 1,045 1,325 1,329 20,169 19,127 20,172 19,131 74 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 23 PROPERTY, PLANT AND EQUIPMENT (continued) Assets pledged as security The Group’s aircraft with carrying values of US$433.81 million (2014: US$359.58 million) are mortgaged to secure the Group’s borrowings (Note 26). Valuation The Group’s aircraft were valued in June 2015 by independent valuers on lease-encumbered basis (“LEV’). LEV takes into account the current lease arrangements for the aircraft and estimated residual values at the end of the lease. These amounts have been discounted to present value using discount rates of 6.5% and 8.5% per annum. Different discount rates are considered appropriate for different aircraft based on their respective risk profiles. Management estimates that a change of 1% in the discount rate used would increase/decrease the total LEV of the fleet by US$1.16 million. An impairment loss of US$3.85 million (2014: US$0.71 million) has been made during the year to An impairment loss of US$3.85 million (2014: 0.71 million) has been made during the year to write down the aircraft to its fair value less costs to sell prior to the aircraft being reclassified to asset for sale. This is a non-recurring fair value which has been measured using observable inputs, being the prices for recent sales of similar aircraft parts, and is therefore within Level 2 of the fair value hierarchy. If the aircraft were measured using the cost model, the carrying amounts would be as follows: Group Cost Accumulated depreciation and impairment 2015 2014 Jets Turbo- props Jets Turbo- props US$’000s US$’000s US$’000s US$’000s 144,058 (38,878) 344,366 (25,846) 157,190 253,000 (35,215) (15,202) Net book value 105,180 318,520 121,975 237,798 Company Cost Accumulated depreciation and impairment Net book value 2015 2014 Jets Turbo- props Jets Turbo- props US$’000s US$’000s US$’000s US$’000s 16,561 (1,905) 14,656 - - - 17,639 (1,152) 16,487 - - - 75 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 24 GOODWILL Group 2015 2014 US$’000s US$’000s Cost: Balance at beginning and end of the year 2,384 2,384 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 the CGU has been determined based on value-in-use calculations. Cash flow projections used in the value-in-use calculations were based on financial budgets approved by management covering a three-year period. Key assumptions used for value-in-use calculations: Average cash flow growth rate Terminal growth rate Discount rate 2015 % 2014 % 2.0 2.0 6.5 2.0 2.0 6.5 Management determined cash flow growth based on past performance and its expectations of market development. The terminal growth rate of 2% that was used to extrapolate cash flows beyond the budget period did not exceed the long term average growth rate for the business in which the CGU operates. Management has estimated that the recoverable amount of CGU is US$3.27 million (2014: US$2.76million). Management believes that no reasonably possible change in any of the above key assumptions would cause the carrying value of the CGU to materially exceed its recoverable amount. 76 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 25 TRADE AND OTHER PAYABLES Current: Trade payables Other payables: - subsidiaries - third parties Accrued interest Deferred income Deposits collected Accrued expenses Non-current: Deposits collected Deferred lease income Group Company 2015 2014 2015 2014 US$’000s US$’000s US$’000s US$’000s 2,001 1,268 615 1,213 - 99 7 4,773 1,000 2,400 - 110 28 3,803 - 1,205 11,510 15,030 - 7 99 1,000 124 - 10 113 - 126 10,280 6,414 13,355 16,492 9,775 1,496 8,189 1,579 1,163 - 958 - 11,271 9,768 1,163 958 Amounts due to subsidiaries are unsecured, interest free and without fixed repayment terms unless otherwise stated. Other payables due to subsidiaries includes interest bearing payables of $3.48 million (2014: $Nil million) which are unsecured, payable upon demand and bear interest at 5.5% to 6.0% per annum. The average credit period taken to settle non-related party trade payables is approximately 30 to 60 days. Deposits collected are security deposits collected from customers in respect of aircraft lease commitments, and have been discounted to present value at a current pre-tax rate that reflect the risks specific to these deposits. Deposits will be refunded at the end of the respective lease term. Trade and other payables denominated in foreign currencies are as follows: Pound sterling Australian dollar Euro Singapore dollar Group Company 2015 2014 2015 2014 US$’000s US$’000s US$’000s US$’000s 130 13 14 504 136 6 81 92 102 13 - 136 91 6 76 16 77 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 26 LOANS AND BORROWINGS Group Company 2015 2014 2015 2014 US$’000s US$’000s US$’000s US$’000s Secured borrowings Junior secured borrowings Related party borrowings (a), (b) Unsecured 7.5% notes due 2020 324,671 253,706 4,928 2,000 96,496 20,952 6,500 - 10,500 - 2,000 - 12,055 - 2,000 - Less: current portion of borrowings (51,584) (62,173) (3,546) (3,416) 428,095 281,158 12,500 14,055 376,511 218,985 8,954 10,639 Weighted average Maturity interest rate per annum 2015 2014 US$’000s US$’000s 2015 % 2014 % Secured borrowings Junior secured borrowings Related party borrowings (a) Unsecured 7.5% notes due 2020 (b) 2015-2027 2014-2026 2020-2024 2020-2023 2015 2020 - - 4.3% 6.3% 8.0% 7.5% 4.9% 6.4% 9.8% - Secured borrowings are secured by first ranking mortgages over the aircraft financed by the related borrowings, security assignments of the Group’s rights under leases and other contractual agreements relating to the aircraft, charges over bank accounts in which lease payments relating to the aircraft are received and charges over the issued share capital of certain subsidiaries. Junior secured borrowings are secured by second ranking aircraft mortgages, security assignments and charges over bank accounts. (a) Borrowings from related parties are as follows: i. ii. Interest bearing unsecured loan due to an entity over which a director has significant influence of US$2 million (2014: US$2 million). The loan is repayable by December 2015. Interest is charged at 8% (2014: 10%) per annum. Interest bearing unsecured loan due to an entity over which a director has significant influence of US$ NIL (2014: US$4.5 million). The loan was repaid during the year. Interest was charged at 9.75% (2014: 9.75%) per annum. 78 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 26 LOANS AND BORROWINGS (continued) (b) In May 2015, the Company through its wholly-owned subsidiaries, Avation Capital S.A. and Avation Group (S) Pte Ltd (together, "the Issuers") established a US$500 million global medium term note programme (the "Programme") guaranteed by the Company. Under the Programme, the Issuers may from time to time issue Notes (the “Notes") denominated in any currency as agreed. In May 2015, the Issuers issued US$100 million unsecured Notes with a fixed coupon rate of 7.5% per annum and a tenor of 5 years repayable in May 2020 under the Programme. The Notes are listed on the Singapore Exchange (SGX). An entity over which a director has significant influence has subscribed to US$5 million of the May 2015 series of the unsecured Notes. The carrying amounts of borrowings approximate fair value. 27 MAINTENANCE RESERVES Balance at 1 July Contributions Balance at 30 June Group 2015 2014 US$’000s US$’000s - 825 825 - - – The Group also holds letters of credit for $7.3 million (2014: $3.0 million) as security for lessees’ obligations under operating leases for the maintenance of aircraft. 28 DERIVATIVE FINANCIAL INSTRUMENTS Group Contract/ notional amount Fair value 2015 2014 2015 2014 US$’000s US$’000s US$’000s US$’000s Interest rate swap 15,031 - 229 - The Group pays a fixed rate of interest of 2.3% per annum and receives floating rate interest equal to 3-month LIBOR under the interest rate swap contract. The swap contract matures on 30 May 2026. 79 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 29 DEFERRED TAX LIABILITIES Recognised deferred tax liabilities are attributable to the following: Group Company 2015 2014 2015 2014 US$’000s US$’000s US$’000s US$’000s Property, plant and equipment Other items 6,847 - 6,464 (42) 493 - 624 - 6,847 6,422 493 624 Movements in temporary differences are as follows: Group Balance at 1 July 2014 Recognised in profit or loss - Continuing operations - Discontinued operations Balance at 30 June 2015 Balance at 1 July 2013 Recognised in profit or loss - Continuing operations - Discontinued operations Property, plant and equipment Other items US$’000s US$’000s Total US$’000s 6,464 (42) 6,422 812 (429) 6,847 5,197 1,476 (209) 42 - - 854 (429) 6,847 (9) 5,188 (33) - 1,443 (209) Balance at 30 June 2014 6,464 (42) 6,422 Company Balance at 1 July 2014 - Recognised in profit or loss Balance at 30 June 2015 Balance at 1 July 2013 - Recognised in profit or loss Balance at 30 June 2014 Property, plant and equipment Other items US$’000s US$’000s Total US$’000s 624 (131) 493 367 257 624 - - - - - - 624 (131) 493 367 257 624 80 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 30 SHARE CAPITAL AND TREASURY SHARES (a) Share capital 2015 2014 No of shares US$’000s No of shares US$’000s Allotted, called up and fully paid Ordinary shares of 1 penny each: At 1 July Issue of shares 49,604,639 6,059,088 891 100 48,822,960 781,679 878 13 At 30 June 55,663,727 991 49,604,639 891 The holders of ordinary shares (except for treasury shares) are entitled to receive dividends as and when declared by the Company. All ordinary shares carry one vote per share without restrictions. (i) On 3 July 2014, the Company issued 3,000,000 ordinary shares of 1 penny each at 140 pence each following a private placement exercise raising gross proceeds of GBP4.2 million (equivalent to US$7.19 million). (ii) On 24 September 2014, the Company issued 273,027 ordinary shares of 1 penny each at 164 pence each as consideration for the acquisition of 2,184,216 ordinary shares in its subsidiary, Capital Lease Aviation PLC. (iii) On 20 November 2014, the Company issued 2,786,061 ordinary shares of 1 penny each at 164 pence each as consideration for the acquisition of 21,065,334 ordinary shares in its subsidiary, Capital Lease Aviation PLC. 155 (b) Treasury shares 2015 2014 No of treasury shares 450,000 - No of treasury shares US$’000s US$’000s 682 - 150,000 300,000 214 468 At 1 July Acquired during the financial year At 30 June 450,000 682 450,000 682 81 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 31 SHARE BASED PAYMENTS The Group has an ownership-based compensation scheme management. for directors and senior 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 are granted to the directors and senior management of the Group to promote: • • • Improvement in share price Improvement in net profit Improvement in return to shareholders Movement in warrants during the financial year The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of, and movements in, warrants during the financial year: Outstanding at 1 July - Granted - Exercised - Lapsed/cancelled 2015 2014 No. WAEP No. WAEP 1,240,000 2,180,000 - - 110.0p 150.0p - - 800,000 1,240,000 (400,000) (400,000) 110.5p 110.0p 110.5p - Outstanding at 30 June 3,420,000 136.0p 1,240,000 110.0p Exercisable at 30 June 414,000 110.0p - - The weighted average fair value of warrants granted during the financial year was 14.96 pence (2014: 1.06 pence). The charge recognised in profit or loss in respect of share based payments is $0.3 million (2014: $NIL). No warrants were exercised in the year ended 2015. The weighted average share price at the date of exercise of the warrants exercised during 2014 was 110.5 pence.(cid:1) All warrants are settled in cash. Warrants outstanding at the end of the year have the following expiry date and exercise price: Warrant series granted on Expiry date Exercise price Number of warrants 2014 2015 20 November 2013 8 December 2014 21 Nov 2016 9 Dec 2017 110.0p 153.0p 1,370,000 2,050,000 1,240,000 - 82 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 31 SHARE-BASED PAYMENTS (continued) The warrants granted on 20 November 2013 have a 3 year vesting schedule and the details are as follows: Vesting period Warrant series signed on 20 November 2013 Before 20 November 2014 On 20 November 2014 and before 20 November 2015 Up to 33 per cent of the grant On 20 November 2015 and before 20 November 2016 Up to 33 per cent of the grant or up to 66 per 0 per cent On 20 November 2016 cent of the grant if warrants were not exercised after the first vesting year Balance or 100 per cent of the grant if warrants were not exercised after the first and second vesting years The warrants granted on 8 December 2014 have a 3 year vesting schedule and the details are as follows: Vesting period Warrant series signed on 8 December 2014 Before 8 December 2015 On 8 December 2015 and before 8 December 2016 On 8 December 2016 and before 8 December 2017 On 8 December 2017 0 per cent Up to 33 per cent of the grant Up to 33 per cent of the grant or up to 66 per cent of the grant if warrants were not exercised after the first vesting year Balance or 100 per cent of the grant if warrants were not exercised after the first and second vesting years 83 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 31 SHARE-BASED PAYMENTS (continued) The warrants were priced using the Black-Scholes option pricing model. Where relevant, the expected life used in the model has been adjusted based on 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 Warrant series granted on granted on 8 December 2014 20 November 2013 153.5 pence 153.0 pence 20% 3 years 0.73% 0.35% 123.0 pence 110.0 pence 20% 3 years 1.01% 0.35% 84 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 32 OTHER RESERVES Capital redemption reserve Warrant reserve Fair value reserve Foreign currency translation reserve Group Company 2015 2014 2015 2014 US$’000s US$’000s US$’000s US$’000s 12 288 (229) (21) 50 12 - - - 12 12 288 - - 300 12 - - - 12 Movements in other reserves are as follows: Warrant reserve: Beginning of the financial year Employee share warrant scheme: - Value of employee services - Issue of shares - Warrants expired End of the financial year Fair value reserve: Beginning of the financial year Fair value loss End of the financial year Foreign currency translation reserve: Beginning of the financial year Currency translation differences arising from consolidation of foreign subsidiaries Less: non-controlling interests End of the financial year Group Company 2015 2014 2015 2014 US$’000s US$’000s US$’000s US$’000s - 104 - 104 288 - - 288 - (229) (229) - (23) 2 (21) - (52) (52) - - - - (1) 2 (1) - 288 - - 288 - - - - - - - - (52) (52) - - - - - - - - 85 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 33 NON-CONTROLLING INTERESTS Summarised financial information in respect of the Group’s subsidiary Capital Lease Aviation PLC, which has material non-controlling interests, is set out below. No other non-controlling interests are material. Current assets Non-current assets Current liabilities Non-current liabilities Equity attributable to the Company Non-controlling interests Revenue Expenses Taxation Profit from continuing operations Loss from discontinued operations Total profit Profit attributable to owners of the Company Profit attributable to the non-controlling interests Total profit Total comprehensive income attributable to owners of the Company Total comprehensive income attributable to non-controlling interests Total comprehensive income for the year Net cash inflow from operating activities Net cash inflow (outflow) from investing activities Net cash outflow from financing activities Net cash inflow Group 2015 2014 US$’000s US$’000s 15,347 74,848 10,538 35,377 42,823 1,457 11,164 (9,080) (220) 1,864 (1,196) 668 419 249 668 398 247 645 6,784 1,108 (1,598) 6,294 6,229 86,058 31,695 13,530 32,401 14,661 11,711 (8,751) (2) 2,958 (498) 2,460 1,509 951 2,460 1,510 952 2,462 8,348 (2) (7,941) 405 86 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 34 CAPITAL COMMITMENTS Capital expenditure contracted for at the reporting date but not recognised in the financial statements are as follows: Group 2015 2014 US$’000s US$’000s Property, plant and equipment 292,232 201,842 The above capital commitments represent amounts due under contracts entered into by the group to purchase aircraft. The company has paid deposits towards the cost of these aircraft which are included in trade and other receivables. In addition to the aircraft which the group has committed to purchasing, the group holds options to purchase an additional 5 aircraft at agreed prices. The options are held in the statement of financial position at cost as it is not possible to place a reliable estimate on their fair values. Uncertainties exist over the finance to exercise the options and the market price of the aircraft at the time of delivery, given aircraft are non-financial assets with no indexed market and long lead times. There is no open market on which to trade the options, accordingly it is not considered appropriate to recognise any potential gain on these options arising from potential increases in aircraft values over and above the option price. 35 OPERATING LEASE COMMITMENTS The Group leases out aircraft under operating leases. The future minimum lease payments receivable under non-cancellable leases are as follows: Within one year In the second to fifth years inclusive More than five years Group 2015 2014 US$’000s US$’000s 58,154 193,946 115,926 49,521 175,181 111,266 The Group holds cash deposits of $10.4 million (2014: $9.1 million) and letters of credit for $2.3 million (2014: $1.3 million) as security for lessees’ obligations under operating leases. 87 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 36 SEGMENT INFORMATION Management has determined the operating segments based on reports reviewed by the Executive Chairman (“Chief Operating Decision Maker” or “CODM”) that are used to make strategic decisions. The CODM considers the business from a business segment perspective. Management manages and monitors the business in 2 primary business areas: aircraft leasing and business procurement. (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. Business segments are 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 while information for geographical segments is based on the geographical areas where 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 are mostly comprised 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. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one year. (b) Business segments During the year ended 30 June 2015, the Group was organised into two main business segments which are aircraft leasing and business procurement. Other Group operations mainly comprise investment holding which does not constitute a separate reportable segment. There are no inter-segment transactions recorded during the financial period. The business procurement segment does not meet the quantitative thresholds and is not separately disclosed. 88 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 36 SEGMENT INFORMATION (continued) (c) Geographical analysis 2015 Europe US$’000s North America US$’000s Australia and Oceania US$’000s Asia US$’000s Total US$’000s Lease income from continuing activities Capital expenditure and valuation movements Net book value - aircraft Total assets 11,682 18,371 74,764 127,040 - - - - 40,405 4,845 56,932 18,009 287,050 291,028 73,793 71,996 168,114 110,173 433,810 586,182 2014 Europe US$’000s North America US$’000s Australia and Oceania US$’000s Asia US$’000s Total US$’000s Lease income from continuing activities Capital expenditure and valuation movements Net book value - aircraft Total assets 11,700 - 79,216 96,653 - - 36,991 - 48,691 36,096 35,680 71,776 6,841 6,841 281,208 307,695 - 4,439 367,265 415,628 During the year, certain customers accounted for more than 10% of the Group’s total revenues. There is one customer based in the Australia and Oceania geographical area that accounts for US$38.3 million (67%) of the Group’s total revenues from continuing operations. There is one customer based in the European geographical area accounts for US$7.5 million (13%) of the Group’s total revenue. 89 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 37 CONTINGENT LIABILITIES (a) Lease-end/re-delivery adjustment compensation The Company’s subsidiary MSN 1607 Pte Ltd owns an aircraft where there is a contingent liability to pay amounts to the lessee dependent upon the return condition of the aircraft at the end of the lease term. A liability would only become payable in the event that the aircraft is returned at the end of the lease in April 2018 in a condition which exceeds certain criteria agreed at the inception of the lease. Given that the lease continues until April 2018, the directors are of the opinion that it is impossible to accurately estimate the return condition of the aircraft given the number of variables such as aircraft usage and timing of future maintenance events. The directors have assessed several different outcomes and consider that the likely outcome would result in a cash inflow from the lessee. On this basis, the directors have not recognised a contingent asset or liability in this set of financial statements. (b) Guarantees Group 2015 2014 US$’000s US$’000s Guarantees 426,095 274,658 The maximum estimated amount that the Group could become liable for under guarantees is as shown above. 38 DIVIDEND 2015 2014 US$’000s US$’000s Declared and paid during the financial year Dividends on ordinary shares - Final exempt (one-tier) dividend for 2014: 2.01 US cents (2013: 1.78 US cents) per share 1,119 867 Proposed but not recognised as a liability as at 30 June Dividends on ordinary shares, subject to shareholders’ approval at the Annual General Meeting - Final exempt (one-tier) dividend for 2015: Nil US cents (2014: 2.01 US cents) per share - 988 Dividends to the Company’s shareholders are recognised when the dividends are approved for payment. 90 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2015 39 ULTIMATE HOLDING COMPANY No party controls the Company. 40 SUBSEQUENT EVENTS Subsequent to the financial year end, the directors of the Company declared a 3 US cents interim dividend for the financial year ending 30 June 2015. The interim dividend was paid to the shareholders of the Company on 28 September 2015. 41 COMPARATIVE INFORMATION The Company has amended the presentation of its financial statements in the current financial year to provide greater clarity. Certain comparatives amounts have been reclassified to conform to the current year presentation. The comparative statement of profit or loss and other comprehensive income has been re-presented to show the discontinued operations separately from continuing operations. 42 APPROVAL OF FINANCIAL STATEMENTS The financial statements of the Company and the consolidated financial statements of the Group for the financial year ended 30 June 2015 were authorised for issue by the Board of Directors on 15 October 2015. 91 THIS PAGE INTENTIONALLY LEFT BLANK. THIS PAGE INTENTIONALLY LEFT BLANK. ATR 72-600 aircraft at production facility ANNUAL REPORT 2015 65 Kampong Bahru Road Singapore 169370 www.avation.net L I S T E D S T A N D A R D SHARES Index: LSE FTSE Sector: Industrial Transportation FTSE Sub Sector: Transportation Services Reuters/BBG AVAP.LN AVAP

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