ANNUAL REPORT
2016
Annual Report 2016
OUR FLEET
Aircraft Type
In Operation
Ordered
Options
ATR 72-500
ATR 72-600
Airbus A320-200
Airbus A321-200
Fokker 100
Total
6
18
3
6
5
-
9
-
3
-
-
27
-
-
-
38
12
27
2
MODEL
ATR 72-500
ATR 72-600
MODEL
Airbus A320-200*
Airbus A321-200
MODEL
Fokker F100
*Photo: Habib M’henni / Wikimedia Commons
3
Annual Report 2016
COMPANY INFORMATION
DIRECTORS:
Robert Jeffries Chatfi eld
Roderick Douglas Mahoney
Stephen John Fisher
COMPANY SECRETARIES:
Duncan Gerard Stephen Scott
Jason Francis Gollogly
REGISTERED OFFICE:
5 Fleet Place
London EC4M 7RD
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
5 Fleet Place
London EC4M 7RD
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
Chairman’s Statement .................................................................................................... 6 - 7
Board of Directors ............................................................................................................... 8
Strategic Report ........................................................................................................... 9 - 14
Directors’ Report ........................................................................................................ 15 - 18
Directors’ Remuneration Report .................................................................................... 19 - 26
Statement of Directors’ Responsibilities ............................................................................... 27
Auditors’ Report ........................................................................................................ 28 - 29
Consolidated Statement of Profi t or Loss and Other Comprehensive Income ....................... 30 - 31
Consolidated Statement of Financial Position ......................................................................... 32
Company Statement of Financial Position .............................................................................. 33
Consolidated Statement of Changes in Equity ................................................................. 34 - 35
Company Statement of Changes in Equity ...................................................................... 36 - 37
Consolidated Statement of Cash Flows ................................................................................. 38
Company Statement of Cash Flows ...................................................................................... 39
Notes to the Financial Statements ................................................................................. 40 - 96
5
Annual Report 2016
CHAIRMAN’S STATEMENT
OVERVIEW
•
In Avation’s tenth year as a public company, it has reported record revenue and profi t
• Lease revenue increased by 25.0% to US$71.2 million (2015: US$56.9 million)
• Operating profi t grew 35.6% to US$45.6 million (2015: US$33.6 million)
• Total profi t after tax increased 37.6% to US$18.3 million (2015: US$13.3 million)
• Operating cash fl ows increased 20.9% to US$52.5 million (2015: US$43.5 million)
• Earnings per share (“EPS”) increased 42.5% to 34.2 US cents (2015: 24.0 US cents)
•
Interim dividend per share to increase by 8.3% to 3.25 US cents (2015: 3.00 US cents)
Increased scale and containment of costs resulted in
improved profi tability, with operating profi t margin
increasing to 64.0% and total profi t after tax margin
increasing to 25.7%. Avation is well positioned for
continued growth.
INTERIM DIVIDEND
Earnings and profi tability of Avation’s leasing business
have improved. The Board would like to reward
ownership and recognise shareholder support as it
continues the successful development of the business.
Accordingly, the Board has approved an interim
dividend increase to 3.25 US cents per share (2015:
3.00 US cents) in respect of the fi nancial year. The
Company confi rms its aim to maintain a progressive
dividend policy.
BACKGROUND AND
OUTCOME
We are pleased to report that,
for the fi nancial year, Avation
produced record revenue, profi t
and earnings. Lease revenue
increased by 25.0% to US$71.2
million and EPS increased by
42.5% to 34.2 US cents.
During the fi nancial year, the value of Avation’s aircraft
assets increased by 67.0% to US$725 million. Avation
has added nine aircraft to its fl eet on a net basis. As
each aircraft was acquired or delivered, monthly lease
revenue increased. Revenue growth accelerated during
the second half, a period in which six new aircraft were
delivered.
Fleet metrics improved with the weighted average
age of the aircraft fl eet decreasing from 5.3 to 4.2
years and the weighted average remaining lease term
increasing to 6.8 years. Avation’s strategy includes
the acquisition of new aircraft and to maintain a low
average age of the fl eet. The fl eet’s lease yield for the
fi nancial year was 12.3%.
6
CHAIRMAN’S STATEMENT
In its tenth year as a public company Avation’s Board
of Directors is pleased to deliver record revenue,
profi t and earnings per share from the aircraft leasing
business while executing a strategy of fl eet growth.
Avation remains committed to delivering diversifi cation
and further scale to the business in the future.
Robert Jeffries Chatfi eld,
Executive Chairman
Singapore
30 September 2016
OUTLOOK
Fleet size and lease revenue run rate increased
signifi cantly during the fi nancial year. Additional
aircraft have been acquired since the commencement
of the 2017 fi nancial period and lease revenue has
subsequently continued to increase. Further aircraft
deliveries are scheduled in the near term. As at the
date of this report, contracted lease revenue for the
2017 fi nancial period is over US$95 million. At 30 June
2016, total contracted future lease revenue from the
existing fl eet and committed deliveries was US$745.8
million (2015: US$565.4 million).
Avation’s strategy continues to include the acquisition
of new aircraft, maintenance of low average fl eet age,
increased scale and customer diversifi cation. The
Company will seek to trade mid-life and older aircraft
when conditions permit in order to mitigate certain
risks. Avation’s average aircraft age has decreased as
it has acquired new aircraft. Avation expects its lease
yield to reduce correspondingly as older, higher yielding
aircraft are sold off. The Company believes that this is
suitable risk mitigation by trading yield against longer
term unexpired revenue and lowering risk by owning
new aircraft.
Management believes that it can attract airline
customers and periodically obtain the required funding
for growth. In addition to operational cash fl ows,
funding is traditionally sourced from capital markets,
asset backed bank lending and disposal of selected
aircraft. Access to acceptably priced funding remains
a risk, which is common to all capital-intensive
businesses. Specifi c risks which are inherent in the
aircraft leasing industry include, but are not limited to,
the creditworthiness of client airlines, over-production
of new aircraft and market saturation, technology
change in engines and aircraft, residual value risks,
competition from other lessors and the general risk of
impairment of aircraft assets.
7
Annual Report 2016
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.
Stephen’s 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.
instrumental
Mr Chatfi eld is the executive
chairman of Avation PLC and
has been
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 Bachelor’s and Master’s 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
is
he was
Mr Mahoney
the Chief
Operating Offi cer and an
Executive Director of
the
Company. Before this executive
appointment,
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
Photo: Viktoria Dorosevits
BUSINESS MODEL
Avation aims to grow its fl eet and build shareholder
value over the long term by focussing on a) new turbo-
prop regional aircraft, principally the popular and fuel
effi cient ATR 72-600 model and b) new and second-
hand narrow body jets in particular the popular Airbus
A320/A321 family and Boeing 737NG aircraft. Owning
different 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 overall cost of debt funding and
also to release equity for acquiring new aircraft.
The Board applies prudent fi nancial management
principles to manage risk when acquiring aircraft by
seeking to match lease and fi nancing duration, using
mostly fi xed interest rate debt and amortising debt
aggressively over lease periods.
As the fl eet grows, the Group seeks to diversify
the customer base as part of its overall credit risk
management policy.
The Avation fl eet of 38 aircraft (as at 30 June 2016)
has a weighted average age of 4.2 years, which is
likely to reduce in the short term as the Group adds
new aircraft and disposes of old aircraft, and weighted
average remaining lease term of 6.8 years with a
current customer base of airlines in Australia, Europe
and the Asia-Pacifi c region.
The Directors present their strategic report for the year
ended 30 June 2016.
BUSINESS OVERVIEW
Avation PLC and its subsidiaries (“Avation”, the
“Group”) is a commercial passenger aircraft leasing
group managing a fl eet of 38 aircraft, as at 30 June
2016, which are leased to airlines globally. Avation’s
customers include Virgin Australia, Thomas Cook,
Condor, Fiji Airways, UNI Air, Air India Regional, Flybe,
Air France, Air Berlin and Vietjet Air. The Group’s fl eet
includes Airbus A320 and A321 narrow body jets, ATR
72 twin engine turboprop aircraft and fi ve older Fokker
100 jets.
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.
Avation’s management team has extensive experience
in the aviation industry and has the expertise to select
and acquire aircraft that will achieve strong operational
performance for our customers and generate stable
returns for our shareholders.
Avation will continue to grow its fl eet and earnings in
the coming year with additional Airbus A321-200s to
be acquired under sale and leaseback transactions,
ATR 72-600s on order from the manufacturer, and the
possibility to add further second hand aircraft on an ad-
hoc basis. Older aircraft will be sold when opportunities
arise in order that a low average fl eet age is maintained.
Avation is listed on the main list of the London Stock
Exchange under the ticker symbol LSE: AVAP.
9
Annual Report 2016
STRATEGIC REPORT
MARKETS AND TRENDS
PRINCIPAL RISKS AND UNCERTAINTIES
Source: ICAO, Airbus Global Market Forecast 2016
The aircraft leasing sector is highly competitive and
Avation is exposed to a number of market related,
operational and fi nancial risks. The Group is committed
to mitigating business risk through the application
of prudent risk management policies. The risks and
uncertainties described below are those that the Group
has identifi ed as most signifi cant to the business.
Avation’s Board of Directors is responsible for managing
risk and reviews risk management policies regularly.
Market related risks:
Exposure to the airline industry
The Group’s customers are commercial airlines which
are fi nancially exposed to the 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 and natural
disasters. If the fi nancial condition of the Group’s
airline customers weakens for any reason, the Group
may be exposed to increased risks of lessee default
and lower lease rates for its aircraft.
Aircraft leasing is a growth industry with an increasing
market share of the world’s total commercial passenger
aircraft fl eet. Avation expects that the percentage of
leased aircraft in the world fl eet will continue to grow
in future due to the fl exibility that the leasing model
provides for airlines and also due to increased access
to fi nancial capital for leasing companies.
The aircraft leasing industry also benefi ts from good
long-term fundamentals including 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. Airbus forecasts
that over 33,000 new aircraft are required over the
next 20 years; of which 41% are expected to be in
Asia-Pacifi c, 20% in Europe, 18% in North America and
of the total, 68% are expected to be single aisle. 1
Low interest rates and improved access to capital,
including unsecured debt, are 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 2016
10
STRATEGIC REPORT
Asset value risk
Fluctuations in the supply and demand for aircraft and
aircraft travel may impact values of and lease rates
for the Group’s aircraft. Market forces and prevailing
economic conditions may change over the economic
lives of the Group’s aircraft and could have a positive
or negative impact on aircraft valuations.
in aircraft
technology may
Advances
create
obsolescence in the fl eet before the end of aircrafts’
current estimated useful lives. The Group regularly
obtains independent third party valuations for its
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 narrowbody aircraft
types on the basis that asset values and lease rates
will be supported by continuing high demand for these
aircraft.
to
lessees
Operational risks:
Economic, legal and political risks
Avation
in different
leases aircraft
jurisdictions. As such the Group is exposed to economic,
legal and political risk in those jurisdictions. Avation’s
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.
11
Regulatory risks
Avation’s 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 regulatory regimes may have an impact on the
business and fi nancial results.
lessees are responsible
Lessee risks
Avation’s airline
for all
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 aircraft’s value. In order
to mitigate against this risk the Group closely monitors
each airline’s usage of aircraft and their compliance
with agreed maintenance schedules. Avation can
require lessees to pay maintenance reserve payments
in order to ensure that there is adequate funding at all
times for proper maintenance of the aircraft.
Financial risks
Avation’s fi nancial risk management objectives and
policies 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
• Liquidity risk
• Capital risk
Annual Report 2016
STRATEGIC REPORT
FINANCIAL REVIEW
Lease revenue
Operating profi t
Total profi t
Net cash from operating activities
Total assets
Total equity
Basic earnings per share
Dividend per share
2016
2015
US$’000s
US$’000s
71,190
45,573
18,280
52,547
831,785
173,608
56,932
33,608
13,285
43,451
586,182
128,204
34.35 cents
24.12 cents
3.25 cents
3.00 cents
Lease revenue increased by 25.0% to US$71.2 million (2015: US$56.9 million) as a result of the increase in the
size of the aircraft fl eet.
Operating profi t increased 35.6% to US$45.6 million (2015: US$33.6 million).
Depreciation increased as a consequence of overall fl eet growth by 30.5% to US$23.2 million (2015: US$17.8
million).
Gains on sales of aircraft during the period were US$3.7 million (2015: loss of US$0.7 million). One aircraft in the
fl eet was impaired during the Financial Year with an impairment of US$0.9 million.
Administrative expenses increased 4.9% to US$7.5 million (2015: US$7.2 million). As a percentage of lease
revenue administrative expenses decreased to 10.6% (2015: 12.6%). Other expenses were US$0.7 million
(2015: US$0.8 million).
With the addition of aircraft assets, fi nance expenses increased by 52.0% to US$28.7 million (2015: US$18.9
million). Total interest expense within fi nance expenses increased to US$26.8 million (2015: US$17.3 million). The
increase in total interest expense was primarily attributable to interest on the unsecured notes issued under the
Company’s Global Medium Term Note Programme (“GMTN”), which was US$8.3 million (2015: US$0.8 million).
Finance income was US$1.2 million (2015: US$0.8 million).
12
STRATEGIC REPORT
The majority of the Group’s operations are based in Singapore and are included in Singapore’s Aircraft Leasing
Scheme, benefi tting from a concessionary tax rate. Taxation for the year was a credit of US$0.2 million primarily
due to the reversal of an over-provision for deferred taxation (2015: US$1.0 million expense).
Operating cash fl ows increased by 20.9% to US$52.5 million (2015: US$43.5 million). EBITDA defi ned as the sum
of pre-tax profi t from continuing operations, fi nance expenses and depreciation increased by 34.0% to US$70.0
million (2015: US$52.2 million).
Total profi t after tax for the Financial Year increased 37.6% to US$18.3 million (2015: US$13.3 million).
Total diluted earnings per share increased by 42.5% to 34.2 US cents (2015: 24.0 US cents).
The Company confi rms that there have been no changes to its accounting policies.
FLEET OVERVIEW
Type
1 July 2015
Additions
Disposals 30 June 2016
On order
Options
ATR 72-500
ATR 72-600
A320-200
A321-200
Fokker 100
Total
6
13
2
3
5
29
-
6
2
3
-
11
-
1
1
-
-
2
6
18
3
6
5
38
-
9
-
3
-
12
-
27
-
1
-
28
Eight new and two second hand aircraft were added to the fl eet during the period, with one new aircraft acquired
and sold immediately after delivery. One 23 year old aircraft was sold during the year. As at 30 June 2016 the
weighted average age of the fl eet was 4.2 years (2015: 5.3 years) and the weighted average remaining lease
term was 6.8 years (2015: 6.5 years). As at 30 June 2016, the fl eet was 100 per cent utilised.
Aircraft totalling US$33.5 million were transferred to receivables as a result of two aircraft in the fl eet being sold
under fi nance leases.
In accordance with the Company’s accounting policy requiring periodic re-valuation, the fl eet has been revalued
as at 30 June 2016. The revaluation has resulted in a net uplift to the fl eet value of US$29.4 million which includes
the impairment of US$0.9 million referred to above. Apart from the impairment, this revaluation has no impact
on total profi t or earnings per share.
13
Annual Report 2016
STRATEGIC REPORT
DEBT SUMMARY
Loans and borrowings
Cash and cash equivalents
Net indebtedness
Loan to value ratio
Weighted average cost of secured debt
Weighted average cost of total debt
2016
2015
US$’000s
US$’000s
615,724
48,267
567,457
74.0%
4.3%
4.8%
428,095
108,647
319,448
73.0%
4.4%
5.1%
Loans and borrowings and net indebtedness increased due to additional secured debt issued to fund fl eet
acquisitions.
The weighted average cost of total debt continued to decline to 4.8% as at 30 June 2016 (2015: 5.1%). The
weighted average cost of the group’s secured debt facilities was lower at 4.3% as at 30 June 2016 (2015: 4.4%).
The overall decrease in the Group’s cost of debt resulted from paying down debt with higher interest rates,
increasing the proportion of secured debt as a percentage of total debt and improved interest rates on new
secured loans drawn down in the year.
The issue of the notes under the GMTN in 2015 provided funding to support growth during 2016. These funds
were combined with proceeds from aircraft sales, ordinary earnings and additional secured debt and deployed to
fund aircraft acquisitions. The Board is pleased to report achieving both signifi cant fl eet growth and a reduction
in the weighted average cost of debt.
At the end of the Financial Year, Avation’s overall loan to value ratio was 74.0% (2015: 73.0%). At 30 June 2016,
91.6% of total debt was at fi xed interest rates (2015: 88.8%). At 30 June 2016, there was no related party debt
other than pursuant to participation in notes issued under the GMTN (2015: US$2.0 million).
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 offer improved fuel effi ciency and lower emissions.
The majority of our fl eet are modern regional turbo-prop 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 2016 is set out below:
Male
Female
3
3
5
-
-
7
Directors of the Company
Senior managers
Other employees
On behalf of the board
Robert Jeffries Chatfi eld
Director
30 September 2016
14
DIRECTORS’ REPORT
Photo: Viktoria Dorosevits
The directors present their report and fi nancial statements for the fi nancial year ended 30 June 2016.
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 24 to these fi nancial statements.
The principal risks and uncertainties affecting the Group’s turnover are described in the Strategic Report.
The full business review including KPI’s 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 30.
The directors have resolved to pay a 3.25 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 Jeffries Chatfi eld
Roderick Douglas Mahoney
Stephen John Fisher
Signifi cant shareholdings
Ordinary shares of £0.01 each:
Goldman Sachs Securities (Nominees) Limited
Chase Nominees Limited
Fitel Nominees Limited
Lynchwood Nominees Limited
State Street Nominees Limited
HSBC Global Custody Nominee (UK) Limited
Direct interest
Deemed interest
30 June
2016
1 July
2015
30 June
2016
1 July
2015
1
1
10,405,000
10,215,365
300,000
240,000
5,000
5,000
-
-
-
-
Ordinary shares
Percentage
14,427,188
7,691,140
5,624,006
5,275,746
4,269,769
3,792,405
25.86%
13.79%
10.08%
9.46%
7.65%
6.80%
15
Annual Report 2016
DIRECTORS’ REPORT
Photo: Viktoria Dorosevits
Equal Opportunities Policy
It is the Group’s policy to employ individuals with the necessary qualifi cations without regard to sex, marital status,
race, creed, colour, nationality or religion. Full and fair consideration is given to applications for employment made
by disabled persons having regard to their particular aptitudes and abilities.
The Group recognises the great importance of the contribution made by all employees and aims to keep them
informed of matters affecting them as employees and developments within the Group. Communication and
consultation is achieved by a variety of means both within individual companies or branches and on a group-wide
basis.
Directors’ Insurance
The Group maintains insurance policies on behalf of all the directors against liability arising from negligence,
breach of duty and breach of trust in relation to the Group.
Future Developments
In accordance with s414C(11) of the Companies Act 2006, the directors have chosen to include information about
future developments in the Chairman’s 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 Company’s aircraft is
under the control of lessees who are not required to provide emissions data to the Company.
Capital Structure
Details of the Company’s issued share capital, together with details of the movements therein during the fi nancial
year are shown in Note 32. 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 16 November 2015 the Company’s 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
DIRECTORS’ REPORT
Photo: Viktoria Dorosevits
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 Company’s 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 33.
No person has any special rights of control over the Company’s 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.
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 Company’s 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 Jeffries 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 Jeffries Chatfi eld, Roderick Douglas Mahoney, Stephen John Fisher and Iain Cawte
(non-Board member); and
• Risk Committee - Robert Jeffries Chatfi eld, Roderick Douglas Mahoney, Stephen John Fisher, Iain Cawte
(non-Board member), Duncan Scott (non-Board member), Richard Wolanski (non-Board member), Sumit
Vasudeva (non-Board member) and Ashley Nicholas (non-Board member).
• Remuneration Committee - Robert Jeffries Chatfi eld, Roderick Douglas Mahoney, Stephen John Fisher
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.
17
Annual Report 2016
DIRECTORS’ REPORT
The Board conducts a review of the effectiveness of the Company’s systems of internal control and risk
management on an annual basis. Following this review it has concluded that the Company’s fi nancial, operational
and compliance controls and risk management procedures are appropriate and suitable to enable the Board to
safeguard shareholders’ investments and the Company’s assets.
The process and systems of internal control are designed to manage, rather than eliminate, the risk of failure to
achieve the Company’s 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 Company’s 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 Company’s 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.
Purchase of own shares
During the fi nancial year, the Company purchased 3,750,600 shares for US$7.94 million. These were held as
treasury shares and presented within shareholders equity. The Company subsequently sold 4,200,000 treasury
shares.
Subsequent events
See Note 41 to these fi nancial statements.
Information to be included in annual report
In accordance with the UK Financial Conduct Authority’s Listing Rules (LR 9.8.4C), the following table provides
references to where the information to be included in the annual report and accounts, where applicable, under
LR 9.8.4, is set out.
Listing Rule requirement
Reference
Details of any long-term incentive schemes as required
by LR 9.4.3 R.
Directors’ Remuneration report and Notes to the
Financial Statements – Note 33, Share Based Payments
Details of any contract of signifi cance subsisting during
the period under review to which the listed company,
or one of its subsidiary undertakings, is a party and
in which a director of the listed company is or was
materially interested.
Notes to the Financial Statements – Note 8, Related
Party Transactions
On behalf of the board
Robert Jeffries Chatfi eld
Director
18
DIRECTORS’ 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
Directors’ remuneration will be proposed at the forthcoming Annual General Meeting of the Company at which the
fi nancial statements will be approved. The vote will have advisory status, will be in respect of the remuneration
policy and overall remuneration packages and will not be specifi c to the individual levels of remuneration.
The information in the Directors’ Remuneration Report is not audited, unless specifi cally stated that the section
is subject to audit.
Statement by the Chair of the remuneration committee
The Company’s remuneration policy remains substantiality unchanged for 2016. Key aspects of the policy are to
attract and retain executives; be consistent with best practices and to ensure alignment between performance
and compensation. The Company’s performance in the current year was in line with expectations with revenue
increasing 25% and earnings per share increasing 40% and remuneration was commensurate with this
performance.
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
•
share warrants.
19
Annual Report 2016
DIRECTORS’ REMUNERATION REPORT
Component Purpose
Operation & framework used to assess performance
Salary and
benefi ts
To provide the core reward for
the role at a suffi cient level to
recruit and retain individuals of
the necessary competence to
execute the company’s business
strategy.
Operation: Salaries are typically set after considering salary
levels in companies of a similar size and complexity, the
responsibilities of each individual role, progression within the
role, individual performance and an individual’s experience.
Our overall policy, having had due regard to the factors noted,
is normally to target salaries at the market median level.
Bonuses
incentivise and recognise
To
business
the
execution
strategy on a semi-annual basis.
of
Share
Warrants
incentivise and recognise
business
the
To
execution
of
strategy over the long-term.
Salaries may be adjusted in line with the market and adjustments
out of line with the market may be awarded in certain
circumstances such as where there is a change in responsibility,
progression in the role, experience or a signifi cant increase in
the scale of the role and/or size, value and/or complexity of
the Group. Salary levels for current incumbents are set out
elsewhere in this report.
Framework used to assess performance:
The remuneration committee considers individual salaries at
the appropriate committee meeting each year after having due
regard to the factors noted in operating the salary policy. No
recovery provisions apply to salary.
Operation: Bonuses are paid in cash twice yearly to Directors
based on a target percentage of the employee’s basic salary.
All bonus payments are at the discretion of the Committee, as
shown following this table.
Framework used to assess performance:
The remuneration committee will assess company and individual
performance compared to prior year and expectations for the
current year. Individual performance will also be assessed
against key performance metrics established for each executive.
Metrics considered in awarding bonuses include share price
appreciation; increase in the Company’s earnings per share;
reliable and high quality fi nancial reporting; growth in asset
value and profi ts; and dividend growth.
Operation: Each year share warrants and/or performance
shares awards may be granted subject to the achievement of
performance targets. Awards normally vest over a three-year
period.
Framework used to assess performance:
Same as for bonus.
20
DIRECTORS’ REMUNERATION REPORT
Individual Director’s remuneration from the group was as follows:
Executive Directors:
Robert Jeffries Chatfi eld
Roderick Douglas Mahoney
Non-executive Directors:
Stephen John Fisher
Salaries
and fees
US$’000s
Bonuses
US$’000s
Taxable
benefi ts
US$’000s
Total
2016
US$’000s
Total
2015
US$’000s
528
230
70
198
101
-
699
428
711
308
30
-
-
30
30
788
268
101
1,157
1,049
Bonuses are subject to the discretion of the remuneration committee and are awarded after assessing company
and individual performance compared to prior years and expectations for the current year. Individual performance
is also assessed against key performance metrics established for each executive.
Taxable benefi ts mainly relate to housing expenses.
The information in this part of the Directors’ Remuneration Report is subject to audit.
Service contracts
The employment contracts of the executive Directors with the Company are terminable by either party with no
less than four weeks’ notice in writing to the other.
The Directors’ service contracts are as follows:
Date of contract
Unexpired
term
Notice
period
Compensation
payable
on early
termination
Robert Jeffries Chatfi eld
29 April 2013
Indefi nite
4 months
Roderick Douglas Mahoney
16 December 2011
Indefi nite
4 weeks
Stephen John Fisher
29 April 2014
Indefi nite
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 profi t; and
improvement in returns 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:
21
Annual Report 2016
DIRECTORS’ REMUNERATION REPORT
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
Warrants granted to directors on 8 December 2015 have a 3 year vesting schedule with details as follows:
Vesting period
Proportion of total share options that are
exercisable
Before 16 November 2016
0 per cent
On 16 November 2016 and before 16 November 2017 Up to 33 per cent of the grant
On 16 November 2017 and before 16 November 2018 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 16 November 2018
Balance or 100 per cent of the grant if warrants were
not exercised after the fi rst and second vesting years
22
DIRECTORS’ 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
during the
year
Balance at
end of
year
Robert Jeffries Chatfi eld *
20 Nov 2013
110.0p
Robert Jeffries Chatfi eld *
8 Dec 2014
153.0p
335,000
450,000
-
-
Robert Jeffries Chatfi eld *
16 Nov 2015
130.0p
-
450,000
Roderick Douglas
Mahoney**
20 Nov 2013
110.0p
300,000
Roderick Douglas Mahoney
8 Dec 2014
153.0p
400,000
-
-
Roderick Douglas Mahoney 16 Nov 2015
130.0p
-
400,000
(35,000)
-
-
-
-
-
300,000
450,000
450,000
300,000
400,000
400,000
* Robert Jeffries Chatfi eld was granted the share warrants via Epsom Assets Limited. For warrants exercised
during the year the market price was 147.0p at the date of exercise.
** Roderick Douglas Mahoney was granted the share warrants via Douglas Aviation Pte Ltd.
The closing market price of the shares subject to warrants at the year-end was £1.41. The highest and lowest
closing market prices during the year were £1.50 and £1.19.
Company’s performance
The graph below shows the total shareholder return on a holding of shares in the Company as against the average
total shareholder return of the companies comprising the FTSE100 index since the Company’s 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.
Avation PLC
FTSE100
23
Annual Report 2016
DIRECTORS’ REMUNERATION REPORT
Remuneration of Executive Chairman
2016
2015
2014
2013
2012
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
Executive Chairman single fi gure remuneration
Annual bonus pay-out (as % of maximum)
Long term incentive vesting rates against
maximum opportunity %
699
15%
N/A
711
-
N/A
638
-
N/A
267
-
N/A
250
-
N/A
The table above shows the prescribed remuneration data for the Director, Robert Jeffries Chatfi eld, Executive
Chairman undertaking the role of Group Chief Executive Offi cer during each of the last fi ve fi nancial years.
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
Change in remuneration
from 2015 to 2016
% change
in base
salary
% change
in annual
bonus
% change
in taxable
benefi ts
(10%)
8%
N/A
73%
(18%)
0%
24
DIRECTORS’ REMUNERATION REPORT
Relative importance of spend on pay
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:
Directors’ remuneration policy
The Company applies a policy for Directors’ remuneration which is designed to meet the following objectives:
• provide a fair and transparent remuneration policy that is in alignment with shareholders’ 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
• ensure alignment between performance and compensation.
The Company targets the following outcomes in applying its policy to ensure alignment of Directors’ remuneration
and shareholders’ interests:
•
•
•
share price appreciation;
increase in the Company’s earnings per share;
reliable and high quality fi nancial reporting;
• growth in asset value and profi ts; and
• dividend growth.
Remuneration of the Company’s 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.
25
Annual Report 2016
DIRECTORS’ REMUNERATION REPORT
Remuneration of the Company’s Non-Executive Directors is comprised of fi xed Directors’ Fees.
Payments for loss of offi ce
No provisions are made under the Directors’ service contracts for any payments beyond the applicable notice
period.
Remuneration for the appointment of a new Executive Director
Base salary levels are set in accordance with the Company’s remuneration policy, taking into account the experience
and calibre of the individual. Benefi ts are provided in line with those offered to other employees, with relocation
expenses/arrangements provided if necessary. The Company may offer a cash amount on recruitment, payment
of which may be deferred, as compensation for the value of benefi ts a new employee would have received from
a former employer.
Statement of consideration of employment conditions elsewhere in the company
Pay and employment conditions of other employees in the company were taken into account when setting the
policy for Directors’ remuneration. Similar remuneration polices are in place for Directors and employees of an
equivalent level.
Shareholders’ vote on remuneration
Votes cast in favour
Votes cast against
Total votes cast in favour or against
Votes withheld
Share Count % of Total
24,725,407
4,710,000
84.00%
16.00%
29,435,407
100.00%
2,375,000
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 2015 was approved at the Annual General Meeting held on 16
November 2015.
On behalf of the Board
Robert Jeffries Chatfi eld
Director
26
DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for the maintenance and
integrity of the corporate and fi nancial information
included on the Company’s website. Legislation in
the United Kingdom governing the preparation and
dissemination of the fi nancial statements may differ
from legislation in other jurisdictions.
We confi rm that to the best of our knowledge:
• 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;
• 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; and
• the annual report and fi nancial statements, taken
as a whole, are fair, balanced and understandable
and provide the information necessary for the
shareholders
the Group’s position,
performance, business model and strategy.
to assess
By order of the Board
Robert Jeffries Chatfi eld
Director
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Directors’
Report and the fi nancial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare
fi nancial statements for each fi nancial year. Under 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 affairs
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;
• 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 entity’s fi nancial
position and fi nancial performance;
• properly select and apply accounting policies.
The Directors are responsible for keeping adequate
accounting records that are suffi cient to show and
explain the Company’s and the Group’s transactions
and disclose with reasonable accuracy at any time the
fi nancial position of the Company and the Group and
enable them to ensure that the fi nancial statements
comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the Company
and the Group and hence for taking reasonable steps
for the prevention and detection of fraud and other
irregularities.
27
AVATION PLC
AUDITORS’ REPORT
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF AVATION PLC
We have audited the financial statements of Avation PLC for the year ended 30 June 2016 which
comprise the Consolidated Statement of Profit or Loss and other Comprehensive Income, the
Consolidated Balance Sheet, the Company Balance Sheet, the Consolidated Statement of Changes in
Equity, the Company Statement of Changes in Equity, the Consolidated Statement of Cash Flows, the
Company Statement of Cash Flows and the related notes. The financial reporting framework that has
been applied in their preparation is applicable law and International Financial Reporting Standards
(“IFRSs”) as adopted by the European Union and as regards the Parent Company financial statements,
as applied in accordance with the provisions of the Companies Act 2006.
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part
16 of the Companies Act 2006. Our audit work has been undertaken for no purpose other than to draw
to the attention of the Company’s members those matters which we are required to include in an
auditors’ report addressed to them. To the fullest extent permitted by law, we do not accept or assume
responsibility to any party other than the Company and Company’s members as a body, for our work,
for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As explained more fully in the Directors’ Responsibilities Statement set out on page 27 the directors
are responsible for the preparation of the financial statements and for being satisfied that they give a
true and fair view. Our responsibility is to audit and express an opinion on the financial statements in
accordance with applicable law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for
Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements
sufficient to give reasonable assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an assessment of: whether the
accounting policies are appropriate to the Group’s and the Parent Company’s circumstances and have
been consistently applied and adequately disclosed; the reasonableness of significant accounting
estimates made by the directors; and the overall presentation of the financial statements. In addition,
we read all the financial and non-financial information in the Annual Report to identify material
inconsistencies with the audited financial statements 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 financial statements
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the Group’s and of the Parent
Company’s affairs as at 30 June 2016 and of the Group’s profit for the year then ended;
the Group’s financial statements have been properly prepared in accordance with IFRSs as
adopted by the European Union;
the parent company financial statements have been prepared properly in accordance with IFRS
as adopted by the European Union and as applied in accordance with the provisions of the
Companies Act 2006, and
the financial statements have been prepared in accordance with the requirements of the
Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS
Regulation.
28
AVATION PLC
AUDITORS’ REPORT
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
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 Directors’ report
with respect to internal control and risk management systems in relation to financial reporting
processes and about share capital structures is consistent with the financial statements; and
the information given in the Directors’ Report for the financial year for which the financial
statements are prepared is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires
us to report to you if, in our opinion:
•
•
adequate accounting records have not been kept by the Parent Company, or returns adequate
for our audit have not been received from branches not visited by us; or
the Parent Company financial statements are not in agreement with the accounting records
and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
•
• we have not received all the information and explanations we require for our audit; 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
30 September 2016
Devonshire House
60 Goswell Road
London
EC1M 7AD
29
AVATION PLC
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
Continuing operations
Lease revenue
Other income
Depreciation
Gain/(loss) on disposal of aircraft
Impairment loss on aircraft
Administrative expenses
Other expenses
Operating profit
Finance income
Finance expenses
Profit before taxation
Taxation
Profit from continuing operations
Discontinued operations
Profit/(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
Items that may not be reclassified subsequently to profit or loss:
Revaluation gain on property, plant and equipment, net of tax
Other comprehensive income, net of tax
Note
2016
2015
US$’000s
US$’000s
9
71,190
3,045
74,235
56,932
3,202
60,134
25
(23,201)
(17,775)
10
11
12
13
15
16
17
3,660
(902)
(7,550)
(669)
45,573
(729)
-
(7,199)
(823)
33,608
1,202
807
(28,706)
(18,895)
18,069
15,520
202
(1,039)
18,271
14,481
9
(1,196)
18,280
13,285
(6)
(2,158)
(2,164)
30,987
28,823
(23)
(229)
(252)
-
(252)
Total comprehensive income for the year
47,103
13,033
Profit attributable to:
Equity holders of the Company
Non-controlling interests
Total comprehensive income attributable to:
Equity holders of the Company
Non-controlling interests
18,279
1
18,280
47,098
5
47,103
13,036
249
13,285
12,786
247
13,033
30
AVATION PLC
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
Earnings per share for profit from continuing and discontinued
operations attributable to equity holders of the Company
Basic earnings per share:
From continuing operations
From total operations
Diluted earnings per share:
From continuing operations
From total operations
2016
2015
US$’000s
US$’000s
18
34.33 cents
26.29 cents
34.35 cents
24.12 cents
18
34.13 cents
26.13 cents
34.15 cents
23.97 cents
The Company has taken advantage of the exemption under 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$16.68 million (2015: US$12.42 million).
31
AVATION PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
Note
2016
2015
US$’000s
US$’000s
ASSETS:
Current assets:
Cash and cash equivalents
Trade and other receivables
Loan receivable
Finance lease receivables
Options held for trading
Assets held for sale
Total current assets
Non-current assets:
Trade and other receivables
Finance lease receivables
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
Maintenance reserves
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
19
20
21
22
23
20
22
25
26
27
28
29
27
28
30
31
29
32
32
34
Total liabilities and equity
Approved by the board and authorised for issue on 30 September 2016
Robert Jeffries Chatfield
Director
32
48,267
5,631
-
3,032
3,040
-
108,647
4,362
19,600
-
-
30
59,970
132,639
11,304
33,627
17,080
-
724,982
434,079
1,902
2,384
771,815
453,543
831,785
586,182
10,065
1,029
72,423
7,440
90,957
13,471
543,301
2,387
4,738
3,323
10,280
431
51,584
825
63,120
11,271
376,511
229
6,847
-
567,220
394,858
993
(1)
38,925
6,715
41,142
8,876
(1,814)
78,679
173,515
93
991
(682)
38,692
6,715
10,159
8,459
50
62,363
126,747
1,457
173,608
128,204
831,785
586,182
AVATION PLC
COMPANY STATEMENT OF FINANCIAL POSITION
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
ASSETS:
Current assets:
Cash and cash equivalents
Trade and other receivables
Options held for trading
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
Note
2016
2015
US$’000s
US$’000s
19
20
23
20
24
25
27
28
27
28
31
32
32
34
7,666
52,476
3,040
63,182
5,567
15,375
17,000
37,942
1,490
48,647
-
50,137
9,053
15,353
17,436
41,842
101,124
91,979
9,359
1,592
10,951
1,406
7,362
432
9,200
13,355
3,546
16,901
1,163
8,954
493
10,610
993
(1)
991
(682)
38,925
38,692
6,715
3,448
600
30,293
80,973
6,715
2,873
300
15,579
64,468
Total liabilities and equity
101,124
91,979
Approved by the board and authorised for issue on 30 September 2016
Robert Jeffries Chatfield
Director
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37
AVATION PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
Note
2016
2015
US$’000s
US$’000s
Cash flows from operating activities:
Profit before taxation from continuing operations
Profit /(Loss) before taxation from discontinued operations
Profit before income tax
Adjustments for:
Depreciation expense
Warrants expense
Discount on early settlement of loans
Impairment loss on aircraft
Impairment loss on trade receivables
Impairment loss on goodwill
Amortisation of loan insurance premium
Amortisation of interest expense on non-current deposits
(Gain)/Loss on disposal of aircraft
(Gain)/Loss on disposal of assets held for sale
Fair value gain on options held for trading
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 finance lease receivables
14
9
11
11
13
13
9
12
12
13
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
Purchase of options held for trading
Proceeds from disposal of aircraft
Proceeds from disposal of assets held for sale
Investment in loans receivable
Purchase of additional shares in a subsidiary from non-controlling interest
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 to shareholders
Repurchase of treasury shares
Proceeds from sale of treasury shares
Dividend paid to non-controlling interest of a subsidiary
Proceeds from loans and borrowings, net of transactions costs
Repayment of loans and borrowings
Net cash from financing activities
Effects of exchange rates on cash and cash equivalents
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of financial year
Cash and cash equivalents at end of financial year
38
18,069
9
18,078
23,201
339
-
902
7
482
1,078
376
(3,660)
(25)
(2,940)
(393)
(809)
26,811
63,447
3,798
1,226
9,938
78,409
809
15,520
(1,625)
13,895
17,925
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
(26,034)
(16,228)
(637)
(852)
52,547
43,451
(323,222)
(110,173)
(100)
24,755
55
-
(22)
(884)
-
18,074
1,210
(19,600)
(843)
(413)
(299,418)
(111,745)
196
(1,656)
(7,936)
8,310
(46)
6,591
(1,119)
-
-
-
233,869
212,410
(46,240)
(64,313)
186,497
153,569
(6)
(23)
(60,380)
108,647
48,267
85,252
23,395
108,647
AVATION PLC
COMPANY STATEMENT OF CASH FLOWS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
Cash flows from operating activities:
Profit before taxation
Adjustments for:
Dividend income
Depreciation expense
Interest income
Interest expense
Gain on disposal of aircraft
Fair value gain on options held for trading
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 operations
Interest received
Interest paid
2016
2015
US$’000s
US$’000s
16,618
12,292
(14,810)
(12,915)
1,034
(1,087)
1,115
-
(2,940)
339
269
(2,529)
(7,869)
(10,129)
358
(1,081)
1,072
(803)
1,090
(42)
-
288
982
(12,622)
(3,128)
(14,768)
488
(894)
Net cash used in operating activities
(10,852)
(15,174)
Cash flows from investing activities:
Dividend received
Purchase of property, plant and equipment
Purchase of options held for trading
Proceeds from sale of property, plant and equipment
Investment in subsidiaries
Net cash from investing activities
Cash flows from financing activities:
Net proceeds from issuance of ordinary shares
Dividends paid
Repurchase of treasury shares
Re-issue of treasury shares
Proceeds from loans and borrowings
Repayment of loans and borrowings
Net cash (used in)/from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of financial year
Cash and cash equivalents at end of financial year
17,724
(23)
(100)
-
(22)
11,000
(158)
-
823
(893)
17,579
10,772
196
(1,656)
(7,936)
8,310
4,081
(3,546)
(551)
6,176
1,490
7,666
6,591
(1,119)
-
-
2,500
(4,055)
3,917
(485)
1,975
1,490
39
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
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 4.
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 24 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 1.339.
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.
40
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
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 2016. 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.
41
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
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.
42
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
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.
43
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
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
44
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
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 values 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.
(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.
45
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
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 its 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.
46
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
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) 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.
47
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(p) 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.
(q) 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.
48
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(r)
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.
49
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(s)
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.
(t)
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.
50
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(t)
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.
(u) 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.
51
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(u) 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.
(v)
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.
(w) 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.
52
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
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.
(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)
Fair value estimation on options held for trading
The Group holds options to acquire aircraft. Management periodically assesses the
Group’s future fleet requirements and will identify options in excess of requirements as
held for trading. The Group values options held for trading as the expected market value
of the relevant aircraft based on its estimated delivery date less the Group’s estimated
contract price to acquire the aircraft, discounted to present value. Critical assumptions
made in determining the fair value of these options include the discount rate of 8.1%, an
inflation rate of 1.5% per annum used to estimate the future contract price for the
aircraft and the expected open market future value of the aircraft at delivery.
53
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
4
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
(e)
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.
(f)
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.
54
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
5
NEW STANDARDS AND INTERPRETATIONS NOT APPLIED AND STANDARDS IN
EFFECT IN 2016
(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 2012-2014 cycle
1 January 2016
1 January 2016
IFRS 15 Revenue from contracts with customers
1 January 2018
IFRS 9 Financial Instruments
IFRS 16 Leases
1 January 2018
1 January 2019
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 2016
The Group has adopted all new standards that have come into effect during the financial
year.
55
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
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
2016
2015
2016
2015
US$’000s
US$’000s
US$’000s
US$’000s
Fair value measurement using
significant unobservable inputs:
Aircraft
724,800
433,810
16,904
17,305
Aircraft were valued at 30 June 2016 and 30 June 2015. Refer to Note 25 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
Finance lease receivables
Financial liabilities measured at
amortised cost:
Trade and other payables
Loans and borrowings
Maintenance reserves
Group
Company
2016
2015
2016
2015
US$’000s
US$’000s
US$’000s
US$’000s
48,267
9,647
-
36,659
94,573
108,647
13,133
19,600
-
7,666
57,907
-
-
1,490
57,594
-
-
141,380
65,573
59,084
15,219
615,724
10,763
15,282
428,095
825
10,666
8,954
-
14,419
12,500
-
641,706
444,202
19,620
26,919
Fair value through profit or loss:
Options held for trading
Derivative financial instruments
3,040
2,387
-
229
3,040
-
-
-
56
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
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 pay rentals in advance and 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:
Asia Pacific
Europe
Group
2016
2015
US$’000s
US$’000s
2,355
1,304
3,659
2,576
311
2,887
The Group’s concentration of customers is disclosed in Note 37.
57
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
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$2.76 million (2015: US$1.75 million) are
substantially due from companies with a good payment track record.
(ii)
Financial assets that are past due and/or impaired
There is no class of financial assets that are past due and/or impaired except for
trade receivables.
The age analysis of trade receivables past due but not impaired is as follows:
Past due less than 3 months
Past due 3 to 6 months
Past due over 6 months
(c)
Interest rate risk
Group
2016
2015
US$’000s
US$’000s
828
-
69
927
-
59
897
986
The Group is exposed to interest rate risk through the impact of interest rate changes on
floating rate interest bearing liabilities and assets.
The Group seeks to reduce its exposure to interest rate risk by fixing interest rates on the
majority of its loans and borrowings. As at 30 June 2016 92% (2015: 89%) of the Group’s
loans and borrowings are at fixed rates.
The interest rates and repayment terms for financial assets and financial liabilities are
disclosed in the respective notes to the financial statements.
(d)
Foreign currency risk
Foreign currency risk arises from transactions and cash balances that are not denominated
in the Group’s functional currency. The Group’s foreign currency exposures arose mainly
from movements in the exchange rate for British Pounds against the United States Dollar.
The Group aims to mitigate foreign currency risk by holding the majority of its cash
balances in United States Dollars. From time to time the Group utilises forward foreign
currency contracts to hedge its exposure to specific currency risks.
58
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
7
FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(d) Foreign currency risk (continued)
The Group’s foreign currency exposure is as follows:
Group
equivalents
receivables
liabilities
exposure
US$’000s
US$’000s
US$’000s
US$’000s
Cash and
Trade and
Other
Net
cash
other
financial
currency
2016:
Pound sterling
Australian dollar
Euro
Swiss Franc
Singapore dollar
2015:
Pound sterling
Australian dollar
Euro
Singapore dollar
245
16
23
-
335
2
91
23
6
1
(86)
(101)
(91)
(16)
(432)
161
6
(45)
(10)
(96)
619
123
(726)
16
160
12
20
307
499
-
-
2
3
5
(130)
(13)
(14)
(504)
30
(1)
8
(194)
(661)
(157)
Company
equivalents
receivables
liabilities
exposure
US$’000s
US$’000s
US$’000s
US$’000s
Cash and
Trade and
Other
Net
cash
other
financial
currency
2016:
Pound sterling
Australian dollar
Euro
Singapore dollar
2015:
Pound sterling
Australian dollar
Euro
Singapore dollar
1
-
-
-
1
-
-
-
-
-
(60)
(10)
-
(19)
124
(10)
-
36
(89)
150
(102)
(13)
-
(136)
(89)
(13)
-
16
(251)
(86)
183
-
-
55
238
13
-
-
152
165
59
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
7
FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(d) Foreign currency risk (continued)
The table below illustrates the effect on total profit and total equity that would result from
a strengthening of foreign currencies against the United States Dollar by 10% (2015:
10%) with all other variables including tax rate being held constant:
Foreign currency:
Pound sterling
Australian dollar
Euro
Swiss Franc
Singapore dollar
Group
Company
2016
2015
2016
2015
US$’000s
US$’000s
US$’000s
US$’000s
16
-
(5)
(1)
(10)
3
-
-
(20)
12
(1)
-
-
4
(9)
(1)
-
-
2
A weakening of the respective currencies by 10% against the United States Dollar would
have an equal and opposite effect.
(e)
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting financial
obligations due to shortage of funds. The Group’s exposure to liquidity risk arises primarily
from mismatches of the maturities of financial assets and liabilities. The Group monitors
and maintains a level of cash and cash equivalents that management deems adequate to
finance the Group’s operations and mitigate the effects of fluctuations in cash flows. Short-
term funding is obtained from loan facilities.
Analysis of financial instruments by remaining contractual maturities
The table below summarises the maturity profile of the Group’s financial assets and non-
derivative liabilities at the end of the reporting period based on contractual undiscounted
repayment obligations:
60
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
7
FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(e) Liquidity risk (continued)
Group
less
years
years
One year or
One to five
Over five
Total
US$’000s
US$’000s
US$’000s
US$’000s
2016:
Financial assets:
Cash and cash equivalents
Trade and other receivables
Finance lease receivable
48,267
4,080
3,032
-
5,567
33,627
Total undiscounted financial assets
55,379
39,194
-
-
-
-
48,267
9,647
36,659
94,573
Financial liabilities:
Trade and other payables
Loans and borrowings
Maintenance reserves
Total undiscounted financial
3,497
98,203
7,440
2,831
405,312
3,323
11,061
182,402
-
17,389
685,917
10,763
liabilities
109,140
411,466
193,463
714,069
Total net undiscounted financial
liabilities
(53,761)
(372,272)
(193,463)
(619,496)
2015:
Financial assets:
Cash and cash equivalents
Trade and other receivables
Loan receivable
108,647
2,955
19,600
-
10,178
-
Total undiscounted financial assets
131,202
10,178
-
-
-
-
108,647
13,133
19,600
141,380
Financial liabilities:
Trade and other payables
Loans and borrowings
Maintenance reserves
Total undiscounted financial
liabilities
5,507
68,556
825
2,833
328,249
-
8,804
116,322
-
17,144
513,127
825
74,888
331,082
125,126
531,096
Total net undiscounted financial
liabilities
56,314
(320,904)
(125,126)
(389,716)
61
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
7
FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(e) Liquidity risk (continued)
Company
less
years
years
One year or
One to five
Over five
Total
US$’000s
US$’000s
US$’000s
US$’000s
2016:
Financial assets:
Cash and cash equivalents
Trade and other receivables
7,666
52,340
-
5,567
Total undiscounted financial assets
60,006
5,567
Financial liabilities:
Trade and other payables
Loans and borrowings
Total undiscounted financial
liabilities
9,260
1,993
1,406
7,660
11,253
9,066
Total net undiscounted financial
assets/(liabilities)
48,753
(3,499)
2015:
Financial assets:
Cash and cash equivalents
Trade and other receivables
1,490
48,541
-
9,053
Total undiscounted financial assets
50,031
9,053
Financial liabilities:
Trade and other payables
Loans and borrowings
Total undiscounted financial
liabilities
13,256
4,073
1,163
9,653
7,666
57,907
65,573
10,666
9,653
20,319
45,254
1,490
57,594
59,084
14,419
13,726
-
-
-
-
-
-
-
-
-
-
-
-
-
17,329
10,816
28,145
Total net undiscounted financial
assets/(liabilities)
32,702
(1,763)
-
30,939
62
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
7
FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(f)
Capital risk
The Group’s objectives when managing capital are to safeguard the Group’s ability to
continue as a going concern and to maintain a suitable capital structure so as to fund
growth and maximise shareholder value. In order to maintain or achieve an optimal
capital structure, the Group may adjust the amount of dividend payments, return capital to
shareholders, issue new shares, buy back issued shares, incur new borrowings or sell
assets to reduce borrowings.
Management monitors capital based on a gearing ratio. The gearing ratio is calculated as
net debt divided by total capital. Net debt is calculated as borrowings less cash and cash
equivalents.
Group
Company
2016
2015
2016
2015
US$’000s
US$’000s
US$’000s
US$’000s
Current:
Net debt
Total equity
567,457
173,608
319,448
128,204
1,288
80,973
11,010
64,458
Total capital
741,065
447,652
82,261
75,478
Gearing ratio:
77%
71%
2%
15%
The Group is in compliance with all externally imposed capital requirements for the
financial years ended 30 June 2016 and 30 June 2015.
(g)
Fair value of financial assets and financial liabilities
The fair values of financial assets and financial liabilities reported in the statement of
financial position approximate the carrying amounts of those assets and liabilities.
63
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
8
RELATED PARTY TRANSACTIONS
In addition to related party information disclosed elsewhere in these financial statements, the
following transactions took place between the Group and related parties at terms agreed
between the parties.
(a) Remuneration of key management personnel
The remuneration of directors and key management includes fees, salary, bonus,
commission and other emoluments (including benefits-in-kind) based on the cost incurred
by the Company and the Group, and where the Company or Group did not incur any costs,
the value of the benefits. Key management remuneration is as follows:
Group
Company
2016
2015
2016
2015
US$’000s
US$’000s
US$’000s
US$’000s
Key management:
Short-term employee benefits
1,985
1,633
439
361
The amount above includes remuneration in respect of the highest paid director as follows:
Aggregate emoluments
699
711
Group
2016
2015
US$’000s
US$’000s
No contributions were made on behalf of any directors to money purchase pension
schemes.
64
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
8
RELATED PARTY TRANSACTIONS (continued)
(b) Significant related party transactions:
Entities controlled by key
management personnel
(including directors):
Interest income
Rental expenses paid
Consulting fee paid
Service fee paid
Interest expense
Directors
Interest expense
Group
Company
2016
2015
2016
2015
US$’000s
US$’000s
US$’000s
US$’000s
-
(217)
(107)
(15)
(506)
3
(111)
(202)
(10)
(615)
-
(119)
(107)
(15)
(74)
3
(55)
(202)
(10)
(399)
(9)
-
-
-
(c)
Significant transactions between the Company and its subsidiaries:
Commission income
Dividend income
Interest income
Management and service fee income
Rental income
Interest expense
Company
2016
2015
US$’000s
US$’000s
105
14,428
1,087
759
2,088
(596)
589
12,915
638
199
2,088
(216)
65
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
9
OTHER INCOME
Discount on early settlement of loans
Fair value gain on options held for trading
Fees for cancellation of aircraft
Others
10
ADMINISTRATIVE EXPENSES
Staff costs (note 14)
Other administrative expenses
11
OTHER EXPENSES
Foreign currency exchange loss
Impairment loss on trade receivables
Impairment loss on goodwill
Others
Group
2016
2015
US$’000s
US$’000s
-
2,940
-
105
1,160
-
300
1,742
3,045
3,202
Group
2016
2015
US$’000s
US$’000s
3,841
3,709
3,140
4,059
7,550
7,199
Group
2016
2015
US$’000s
US$’000s
47
7
482
133
535
145
-
143
669
823
66
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
12
FINANCE INCOME
Interest income
Finance income from discounting non-current deposits to fair value
13
FINANCE EXPENSES
Interest expense on borrowings
Interest expense on unsecured 7.5% notes
Amortisation of loan insurance premium
Amortisation of interest expense on non-current deposits
Others
14
STAFF COSTS
Wages and salaries
Warrant expense
Group
2016
2015
US$’000s
US$’000s
809
393
498
309
1,202
807
Group
2016
2015
US$’000s
US$’000s
18,546
8,265
1,078
376
441
16,530
765
1,078
317
205
28,706
18,895
Group
2016
2015
US$’000s
US$’000s
3,502
339
2,852
288
3,841
3,140
The average number of directors of the Company for the financial year is 3 (2015: 3). The
average number of other employees for the financial year is 16 (2015: 15).
67
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
15
PROFIT BEFORE TAXATION
Profit before taxation for the year is stated after charging / (crediting) the following:
Depreciation of property, plant and equipment
Foreign currency exchange loss
Audit fees:
Fees payable to the Company’s auditor and their associates
for the audit of the Company’s annual accounts
Fees payable to the Company’s auditor and their associates
for audits of the Company’s subsidiaries’ annual accounts
Total audit fees
Auditors’ remuneration for non-audit services:
- Tax compliance services
- Tax advisory services
- Other services
Total audit fees
16
TAXATION
From continuing operations
Current tax expense:
- Singapore
- Overseas
(Over)/Under provision in prior years current tax expense:
- Singapore
- Overseas
Deferred tax expense:
- Singapore
- Overseas
Over provision in prior years deferred tax expense:
- Singapore
Withholding tax - Singapore
From discontinued operations
Deferred tax expense:
- Overseas
Tax expense attributable to:
- continuing operations
- discontinued operations (Note 17)
68
Group
2016
2015
US$’000s
US$’000s
23,201
47
17,775
535
65
34
99
5
-
-
5
37
51
88
7
-
41
48
Group
2016
2015
US$’000s
US$’000s
1,018
188
(31)
56
(349)
(466)
(622)
4
(202)
-
(202)
(202)
-
(202)
313
35
(32)
(144)
737
117
-
13
1,039
(429)
610
1,039
(429)
610
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
16
TAXATION (continued)
Income tax differs from the amount of income tax expense determined by applying the
Singapore tax rate of 17% to profit before income tax as a result of the following differences:
Profit before income tax
- continuing operations
- discontinued operations (Note 17)
Tax calculated at 17% (2015: 17%)
Effects of:
(Over)/under provision in prior years current tax expense
- Singapore
- Overseas
Over provision in prior years deferred tax expense:
- Singapore
Non-deductible items
Income not subject to tax
Different tax rates of other countries
Effect of concessionary tax rate at 10%
Effect of tax exemption and tax relief
Withholding tax - Singapore
Others
Group
2016
2015
US$’000s
US$’000s
18,069
9
18,078
15,520
(1,625)
13,895
3,073
2,362
(31)
56
(622)
1,492
(1,971)
223
(2,417)
(89)
4
80
(202)
(32)
(144)
-
1,625
(1,411)
(245)
(1,516)
(23)
13
(19)
610
69
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
17
DISCONTINUED OPERATIONS
In the prior financial year, the Company’s subsidiary Capital Lease Aviation PLC reported a
US$1.2 million loss, net of a tax write-back, on the part-out disposal of a 25 year old aircraft.
This loss was classified within discontinued operations as it represented the Group’s only
aircraft operating in North America.
(a) Results of discontinued operations
Revenue
Expenses
Profit/(Loss) before tax from discontinued operations
Taxation
Profit/(Loss) after tax from discontinued operations
(b) Cash flows from discontinued operations
Operating cash/(outflow) inflows
Investing cash inflows
Total cash inflows
(c)
Earnings per share from discontinued operations
Group
2016
2015
US$’000s
US$’000s
25
(16)
9
-
9
3,997
(5,622)
(1,625)
429
(1,196)
Group
2016
2015
US$’000s
US$’000s
(16)
55
39
3,975
1,210
5,185
Group
2016
2015
Profit/(Loss) per share from discontinued operation attributable to
equity owners of the Company (cents per share)
Basic
Diluted
0.02 cents
(2.17) cents
0.02 cents
(2.16) cents
70
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
18
EARNINGS PER SHARE
(a) Basic earnings per share (“EPS”)
EPS is calculated by dividing total profit attributable to members of the Company by the
weighted average number of ordinary shares in issue during the financial year.
Total profit attributable to equity holders of the company
- Continuing operations
- Discontinued operations
Company
2016
2015
US$’000s
US$’000s
18,270
9
18,279
14,210
(1,174)
13,036
Weighted average number of ordinary shares (‘000s)
53,208
54,050
Basic earnings per share:
- Continuing operations
- Discontinued operations
(b) Diluted earnings per share
34.33 cents
26.29 cents
0.02 cents
(2.17) cents
34.35 cents
24.12 cents
For the purpose of calculating diluted earnings per share, total profit attributable to equity
holders of the Company and the weighted average number of ordinary shares outstanding
are adjusted for the effects of all dilutive potential ordinary shares. The Company has one
category of dilutive potential ordinary shares; warrants.
For warrants, the weighted average number of shares on issue has been adjusted as if all
dilutive share options were exercised. The number of shares that could have been issued
upon the exercise of all dilutive share option less the number of shares that could have
been issued at fair value (determined as the Company’s average share price for the
financial year) for the same total proceeds is added to the denominator as the number of
shares issued for no consideration.
71
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
18
EARNINGS PER SHARE (continued)
(b) Diluted earnings per share (continued)
Diluted earnings per share attributable to equity holders of the Company is calculated as
follows:
Total profit attributable to equity holders of the company
- Continuing operations
- Discontinued operations
- Total operations
Weighted average number of ordinary shares (‘000s)
Adjustment for Warrants (‘000s)
Company
2016
2015
US$’000s
US$’000s
18,270
9
18,279
53,208
314
14,210
(1,174)
13,036
54,050
335
Weighted average number of ordinary shares (‘000s)
53,522
54,385
Diluted earnings per share:
- Continuing operations
- Discontinued operations
- Total operations
34.13 cents
26.13 cents
0.02 cents
(2.16) cents
34.15 cents
23.97 cents
19
CASH AND CASH EQUIVALENTS
Group
Company
2016
2015
2016
2015
US$’000s
US$’000s
US$’000s
US$’000s
Cash at bank and on hand
48,267
108,647
7,666
1,490
The rate of interest for cash on interest earning accounts is approximately 0.01% to 0.10%
(2015: 0.01% to 0.10%) per annum.
Cash and cash equivalents denominated in foreign currencies are as follows:
Pounds sterling
Australian dollar
Euro
Singapore dollar
Group
Company
2016
2015
2016
2015
US$’000s
US$’000s
US$’000s
US$’000s
245
16
23
335
160
12
20
307
183
-
-
55
13
-
-
152
72
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
20
TRADE AND OTHER RECEIVABLES
Current:
Trade receivables
Other receivables:
– subsidiaries
– third parties
Accrued interest
Deposits
Prepaid expenses
Prepaid loan premiums
Dividend receivable
Non-current:
Deposits for aircraft
Prepaid expenses
Prepaid loan premiums
Group
Company
2016
2015
2016
2015
US$’000s
US$’000s
US$’000s
US$’000s
3,659
2,742
15
6
-
391
-
30
469
1,082
-
-
155
-
58
329
1,078
-
51,019
255
1,051
-
136
-
-
45,229
46
322
24
106
-
2,914
5,631
4,362
52,476
48,647
5,567
529
5,208
10,178
616
6,286
5,567
9,053
-
-
-
-
11,304
17,080
5,567
9,053
Other receivables from subsidiaries includes interest bearing receivables of US$24.96 million
(2015: US$6.89 million). The receivables are unsecured and repayable upon demand. Interest is
charged at 5.5% to 6.0% (2015: 5.5% to 6.0%) per annum.
The average credit period generally granted to customers is 30 to 60 days. Rent for leased
aircraft is due in advance in accordance with the leases.
Trade and other receivables denominated in foreign currencies are as follows:
Pound sterling
Australian dollar
Euro
Swiss Franc
Singapore dollar
Group
Company
2016
2015
2016
2015
US$’000s
US$’000s
US$’000s
US$’000s
2
91
23
6
1
-
-
2
-
3
1
-
-
-
-
-
-
-
-
-
73
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
21
LOAN RECEIVABLE
Loan receivable
Group
2016
2015
US$’000s
US$’000s
-
19,600
The Group 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 loan facility bore interest at LIBOR + 3.95%
per annum.
During the financial year, the Group purchased the two aircraft from the third party and the
US$24 million loan receivable was offset against the purchase price for the aircraft. The Group
currently leases these aircraft to the same third party under operating leases.
22
FINANCE LEASE RECEIVABLES
During the financial year, a third party who leases two aircraft from the Group agreed to acquire
the aircraft at the end of their lease terms. As a result the leases for these aircraft have been
reclassified as finance leases. The leases have a remaining term of approximately 1.5 years.
Future minimum lease payments receivable under these finance are as follows:
Group
2016
2015
Minimum
lease
Present
value of
Minimum
lease
Present
value of
payments
payments
payments
payments
US$’000s
US$’000s
US$’000s
US$’000s
Within one year
3,600
3,032
Later than one year but not more than five
years
33,600
33,627
Total minimum lease payments
37,200
36,659
Less: amounts representing interest
income
(541)
-
Present value of minimum lease
payments
36,659
36,659
-
-
-
-
-
-
-
-
-
-
74
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
23
OPTIONS HELD FOR TRADING
Options to purchase aircraft, at fair value
3,040
-
Group and Company
2016
2015
US$’000s
US$’000s
24
INVESTMENT IN SUBSIDIARIES
Unquoted equity shares, at cost
Quoted equity shares, at cost
Company
2016
2015
US$’000s
US$’000s
15,375
-
2,556
12,797
15,375
15,353
Quoted equity shares, at market value
-
25,660
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
2016
%
2015
%
(a)
(c)
United States
Luxembourg
Procurement
Financing
99.96
100.00
99.96
100.00
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Procurement/
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
99.68
-
-
-
100.00
-
100.00
-
100.00
100.00
96.71
100.00
-
100.00
100.00
100.00
100.00
100.00
100.00
100.00
Held directly by the Company:
Avation.net Inc
Avation Capital S.A.
Capital Lease Aviation Limited
(formerly known as Capital Lease
Aviation PLC)
Avation Eastern Fleet Pte. Ltd.
Avation Airframe Holding Pte. Ltd.
MSN 1922 Pte. Ltd.
MSN429 Leaseco Limited
United Kingdom
Singapore
Singapore
Singapore
(b)
(e)
(e)
(e)
(b) United Kingdom
AVAP Aircraft Trading Pte. Ltd.
Avation Group (S) Pte. Ltd.
F100 Pty Ltd.
AVAP Leasing (Europe) Limited
AVAP Leasing (Asia) Limited
(e)
(e)
(h)
(g)
(f)
Singapore
Singapore
Australia
Ireland
Ireland
75
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
24
INVESTMENT IN SUBSIDIARIES (continued)
Name of entity
Country of
incorporation
Principal
activities
Ownership
interest
2016
%
2015
%
AVAP Leasing (Asia) II Limited
AVAP Leasing (Asia) III Limited
AVAP Leasing (Asia) IV Limited
(g)
(g)
(g)
Ireland
Ireland
Ireland
Aircraft leasing
Aircraft leasing
Aircraft leasing
100.00
100.00
100.00
-
-
-
Held by Capital Lease Aviation Limited:
Capital Lease Malta Ltd.
Capital Lease Aviation (S) Pte. Ltd.
MSN 1607 Pte. Ltd.
Capital MSN 4033 Limited
(d)
(a)
(e)
(f)
Malta
Singapore
Singapore
Ireland
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
99.68
99.68
-
99.68
96.71
96.71
96.71
-
(e)
(e)
(e)
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 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.
MSN 1607 Pte. Ltd.
AVAP Aircraft Trading Pte. Ltd.
AVAP Leasing (Europe) IV Pte. Ltd.
Avation Leasing (China) Pte. Ltd.
AVAP Leasing Holding Pte. Ltd.
Avation Asia Fleet Pte. Ltd.
MSN 1922 Pte. Ltd.
(e)
(e)
(e)
(e)
(e)
(e)
(e)
(e)
(e)
(e)
(e)
(e)
(e)
(e)
(e)
(g)
(e)
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
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
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
100.00
100.00
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 Artemis Audit and Advisory, Luxembourg
(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.
(h) Dissolved during the financial year.
For all non-controlling interests, voting rights not controlled by group are equivalent to
ownership interests.
76
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
25
PROPERTY, PLANT AND EQUIPMENT
Group
equipment
Jets
Furniture
and
Turbo-
props
Total
US$’000s
US$’000s
US$’000s
US$’000s
2016:
Cost or valuation:
At beginning of year
Additions
Disposals/written-off
Reclassified as held under finance leases
Movement in revaluation reserve
357
31
-
-
-
163,040
226,914
(7,999)
-
610
344,492
115,877
(19,258)
(35,601)
29,705
507,889
342,822
(27,257)
(35,601)
30,315
At end of the year
388
382,565
435,215
818,168
Representing:
At cost
At valuation
388
-
-
-
388
382,565
435,215
817,780
388
382,565
435,215
818,168
Accumulated depreciation and impairment:
At beginning of year
Depreciation expense – continuing
operations
Disposals/written-off
Reclassified as held under finance leases
Impairment loss
88
47,875
25,847
73,810
118
-
-
-
9,704
(2,636)
-
902
13,379
-
(2,091)
-
23,201
(2,636)
(2,091)
902
At end of the year
206
55,845
37,135
93,186
Net book value:
At beginning of the year
At end of the year
269
182
115,165
318,645
434,079
326,720
398,080
724,982
77
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
25
PROPERTY, PLANT AND EQUIPMENT (continued)
Group
equipment
Jets
Furniture
and
Turbo-
props
Total
US$’000s
US$’000s
US$’000s
US$’000s
2015:
Cost or valuation:
At beginning of year
Additions
Disposals/written-off
Reclassified as assets held for sale
133
311
(87)
-
177,596
-
(1,078)
(13,478)
253,000
109,862
(18,370)
-
430,729
110,173
(19,535)
(13,478)
At end of the year
357
163,040
344,492
507,889
Representing:
At cost
At valuation
Accumulated depreciation and impairment:
At beginning of year
Depreciation expense
- Continuing operations
- Discontinued operations
Impairment loss – discontinued operations
Disposals/written-off
Reclassified as assets held for sale
357
-
-
-
357
163,040
344,492
507,532
357
163,040
344,492
507,889
73
90
-
90
-
48,129
15,202
63,404
6,680
150
6,830
3,850
11,005
-
11,005
-
(360)
17,775
150
17,925
3,850
(731)
-
(10,638)
(75)
-
(296)
(10,638)
At end of the year
88
47,875
25,847
73,810
Net book value:
At beginning of the year
At end of the year
60
269
129,467
237,798
367,325
115,165
318,645
434,079
78
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
25
PROPERTY, PLANT AND EQUIPMENT (continued)
Company
2016:
Cost or valuation:
At beginning of year
Additions
Movement in revaluation reserve
Furniture
and
equipment
Jets
Total
US$’000s
US$’000s
US$’000s
166
23
-
19,374
19,540
-
575
23
575
At end of the year
189
19,949
20,138
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
189
-
-
19,949
189
19,949
189
19,949
20,138
35
58
93
2,069
976
2,104
1,034
3,045
3,138
131
96
17,305
16,904
17,436
17,000
79
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
25
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
80
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
25
PROPERTY, PLANT AND EQUIPMENT (continued)
Assets pledged as security
The Group’s aircraft with carrying values of US$724.80 million (2015: US$433.81 million) are
mortgaged to secure the Group’s borrowings (Note 28).
Valuation
The Group’s aircraft were valued in June 2016 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 8.1% 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$15.70 million.
An impairment loss of US$0.9 million was recognised during the year to write down the book
value of a 24 year old aircraft to LEV. An impairment loss of US$3.85 million was recognised
during the previous financial year to write down an aircraft to its fair value less costs to sell
prior to the aircraft being reclassified as an asset held for sale. This was a non-recurring
impairment loss which was measured using observable inputs, being the prices for recent sales
of similar aircraft parts, and is therefore within Level 2 of the fair value hierarchy.
If the aircraft were measured using the cost model, the carrying amounts would be as follows:
Group
Cost
Accumulated depreciation and impairment
2016
2015
Jets
Turbo-
props
Jets
Turbo-
props
US$’000s
US$’000s
US$’000s
US$’000s
363,011
(44,031)
405,510
(37,135)
144,058
(38,878)
344,366
(25,846)
Net book value
318,980
368,375
105,180
318,520
Company
Cost
Accumulated depreciation and impairment
Net book value
2016
2015
Jets
Turbo-
props
Jets
Turbo-
props
US$’000s
US$’000s
US$’000s
US$’000s
16,561
(2,479)
14,082
-
-
-
16,561
(1,905)
14,656
-
-
-
81
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
26
GOODWILL
Cost:
At beginning and end of the year
2,384
2,384
Group
2016
2015
US$’000s
US$’000s
Accumulated amortisation and impairment:
At beginning of the year
Impairment loss
At end of the year
Net carrying amount:
At beginning of the year
At end of the year
Impairment test of goodwill
-
482
482
-
-
-
2,384
1,902
2,384
2,384
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 two-year period.
Key assumptions used for value-in-use calculations:
Average cash flow growth rate
Terminal growth rate
Discount rate
2016
%
2015
%
2.0
2.0
7.0
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$1.90 million (2015: US$3.27 million).
Management believes that no reasonably possible change in any of the above key assumptions
would cause the carrying value of the CGU to materially exceed its recoverable amount.
82
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
27
TRADE AND OTHER PAYABLES
Current:
Trade payables
Other payables:
- subsidiaries
- third parties
Accrued interest on related party loan
Deposits collected
Deferred lease income
Revenue received in advance
Accrued expenses
Non-current:
Deposits collected
Deferred lease income
Group
Company
2016
2015
2016
2015
US$’000s
US$’000s
US$’000s
US$’000s
535
2,001
167
615
-
31
-
-
365
6,203
2,931
-
99
7
1,000
329
4,444
2,400
8,714
31
-
-
-
99
348
11,510
-
7
1,000
-
99
124
10,065
10,280
9,359
13,355
11,722
1,749
9,775
1,496
1,406
-
1,163
-
13,471
11,271
1,406
1,163
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 US$4.08 million (2015:
US$3.48 million) which are unsecured, payable upon demand and bear interest at 5.5% to 6.0%
(2015: 5.5% to 6.0%) per annum.
The average credit period taken to settle non-related party trade payables is approximately 30 to
60 days.
Deposits collected are security deposits collected from customers in respect of aircraft lease
commitments, and have been discounted to present value at a current pre-tax rate that reflect
the risks specific to these deposits. Deposits will be refunded at the end of the respective lease
term.
Trade and other payables denominated in foreign currencies are as follows:
Pound sterling
Australian dollar
Euro
Swiss Franc
Singapore dollar
Group
Company
2016
2015
2016
2015
US$’000s
US$’000s
US$’000s
US$’000s
86
101
91
16
432
130
13
14
-
504
60
10
-
-
19
102
13
-
-
136
83
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
28
LOANS AND BORROWINGS
Group
Company
2016
2015
2016
2015
US$’000s
US$’000s
US$’000s
US$’000s
Secured borrowings
Junior secured borrowings
Related party borrowings (a)
Unsecured 7.5% notes due 2020 (b)
510,640
319,451
8,954
10,500
8,017
-
97,067
10,148
2,000
96,496
-
-
-
-
2,000
-
Less: current portion of borrowings
(72,423)
(51,584)
(1,592)
(3,546)
615,724
428,095
8,954
12,500
543,301
376,511
7,362
8,954
Weighted average
Maturity
interest rate per annum
2016
2015
US$’000s
US$’000s
2016
%
2015
%
Secured borrowings
Junior secured borrowings
Related party borrowings (a)
Unsecured 7.5% notes due 2020 (b)
2015-2028
2015-2027
2020-2024
2020-2024
-
2020
2015
2020
4.3%
6.3%
8.0%
7.5%
4.3%
6.3%
8.0%
7.5%
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) Interest bearing unsecured loan due to an entity over which a director has significant
influence amount to US$2.0 million as at 30 June 2015. The loan was repaid during the
financial year. Interest was charged at 8.0% (2015: 8.0%) per annum.
84
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
28
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).
Entities over which a director has significant influence hold US$5.45 million (2015:
US$5.00 million) of the May 2015 series of the unsecured Notes as at 30 June 2016.
A director of the Company holds US$0.4 million (2015: US$Nil) of the May 2015 series of
the unsecured Notes as at 30 June 2016.
The carrying amounts of borrowings approximate fair value.
29 MAINTENANCE RESERVES
Current
Non-current
Group
2016
2015
US$’000s
US$’000s
7,440
3,323
825
-
Total maintenance reserves
10,763
825
At beginning of year
Transfer from sellers
Contributions
At end of the year
Group
2016
2015
US$’000s
US$’000s
825
8,552
1,386
-
-
825
10,763
825
The Group also holds letters of credit for US$14.10 million (2015: US$7.30 million) as security
for lessees’ obligations under operating leases for the maintenance of aircraft.
85
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
30
DERIVATIVE FINANCIAL INSTRUMENTS
Group
Contract/
notional amount
Fair value
2016
2015
2016
2015
US$’000s
US$’000s
US$’000s
US$’000s
Interest rate swap
54,010
15,031
2,387
229
The Group pays fixed rates of interest of 1.78% to 2.3% per annum and receives floating rate
interest equal to 3-month LIBOR under the interest rate swap contracts. The swap contracts
mature between 30 May 2026 and 26 May 2028.
31
DEFERRED TAX LIABILITIES
Recognised deferred tax liabilities are attributable to the following:
Group
Company
2016
2015
2016
2015
US$’000s
US$’000s
US$’000s
US$’000s
Property, plant and equipment
Tax losses carried forward
Other items
5,700
(962)
-
6,847
-
-
432
-
-
493
-
-
4,738
6,847
432
493
Movements in temporary differences are as follows:
Group
2016
At beginning of the year
Recognised in profit or loss
- Continuing operations
Recognised in equity
Property,
plant and
equipment
US$’000s
Tax losses
carried
forward
/other
items
US$’000s
Total
US$’000s
6,847
(475)
(672)
-
6,847
(962)
-
(1,437)
(672)
At end of the year
5,700
(962)
4,738
2015
At beginning of the year
Recognised in profit or loss
- Continuing operations
- Discontinued operations
At end of the year
6,464
(42)
6,422
812
(429)
6,847
42
-
-
854
(429)
6,847
86
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
31
DEFERRED TAX LIABILITIES (continued)
Company
2016
At beginning of the year
- Recognised in profit or loss
At end of the year
2015
At beginning of the year
- Recognised in profit or loss
At end of the year
Property,
plant and
equipment Other items
US$’000s
US$’000s
Total
US$’000s
493
(61)
432
624
(131)
493
-
-
-
-
-
-
493
(61)
432
624
(131)
493
32
SHARE CAPITAL AND TREASURY SHARES
(a) Share capital
2016
2015
No of shares
US$’000s
No of shares
US$’000s
Allotted, called up and fully paid
Ordinary shares of 1 penny each:
At beginning of the year
Issue of shares
55,663,727
121,500
991
2
49,604,639
6,059,088
891
100
At end of the year
55,785,227
993
55,663,727
991
During the financial year, the Company issued 121,500 ordinary shares of 1 penny each at
a price of 110p following the exercise of warrants by warrant holders raising gross
proceeds of US$196,000.
The holders of ordinary shares (except for treasury shares) are entitled to receive
dividends as and when declared by the Company. All ordinary shares carry one vote per
share without restrictions.
87
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
32
SHARE CAPITAL AND TREASURY SHARES (continued)
(b)
Treasury shares
2016
2015
No of
treasury
shares
US$’000s
At beginning of the year
450,000
Acquired during the financial year
3,750,600
682
7,936
Re-issued during the financial year
(4,200,000)
(8,617)
No of
treasury
shares
450,000
-
-
At end of the year
600
1
450,000
US$’000s
682
-
-
682
During the financial year, the Company purchased 3,750,600 shares through the market
into treasury at prices ranging from 118 pence to 140 pence and subsequently sold
4,200,000 treasury shares at a price of 138 pence.
33
SHARE BASED PAYMENTS
The Group has an ownership-based compensation scheme for directors and senior
management.
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 profit
Improvement in returns 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:
2016
2015
No.
WAEP
No.
WAEP
Outstanding at beginning of the year
- Granted
- Exercised
- Lapsed/cancelled
3,420,000
3,000,000
(121,500)
(350,000)
136.0p
130.0p
110.0p
130.0p
1,240,000
2,180,000
-
-
110.0p
150.0p
-
-
Outstanding at end of the year
5,948,500
133.9p
3,420,000
136.0p
Exercisable at end of the year
1,433,500
130.5p
414,000
110.0p
88
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
33
SHARE BASED PAYMENTS (continued)
The weighted average fair value of warrants granted during the financial year was 11.82 pence
(2015: 14.96 pence). The charge recognised in profit or loss in respect of share based
payments is US$0.3 million (2015: US$0.3 million).
During the financial year 121,500 warrants were exercised (2015: Nil).
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
2015
2016
20 November 2013
8 December 2014
16 November 2015
21 Nov 2016
9 Dec 2017
16 Nov 2018
110.0p
153.0p
130.0p
1,248,500
2,050,000
2,650,000
1,370,000
2,050,000
-
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
89
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
33
SHARE-BASED PAYMENTS (continued)
The warrants granted on 16 November 2015 have a 3 year vesting schedule and the details are
as follows:
Vesting period
Warrant series signed on 16 November 2015
Before 16 November 2016
On 16 November 2016 and before 16 November 2017 Up to 33 per cent of the grant
On 16 November 2017 and before 16 November 2018 Up to 33 per cent of the grant or up to 66 per
0 per cent
On 16 November 2018
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 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 previous nine months.
Warrant series
Warrant series
Warrant series
granted on
granted on
granted on
16 November 2015
8 December 2014
20 November 2013
Inputs into the model:
Grant date share price
Exercise price
Expected volatility
Warrant life
Dividend yield
Risk free interest rate
130.0 pence
130.0 pence
20%
3 years
1.01%
0.35%
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%
90
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
34
OTHER RESERVES
Group
Company
2016
2015
2016
2015
US$’000s
US$’000s
US$’000s
US$’000s
Capital redemption reserve
Warrant reserve
Fair value reserve
Foreign currency translation reserve
12
588
(2,387)
(27)
12
288
(229)
(21)
12
588
-
-
12
288
-
-
(1,814)
50
600
300
Movements in other reserves are as follows:
Group
Company
2016
2015
2016
2015
US$’000s
US$’000s
US$’000s
US$’000s
Warrant reserve:
At the beginning the year
Employee share warrant scheme:
- Value of employee services
- Issue of shares
288
339
(39)
-
288
288
-
339
(39)
-
288
-
At end of the year
588
288
588
288
Fair value reserve:
At the beginning the year
Fair value loss
(229)
(2,158)
-
(229)
At end of the year
(2,387)
(229)
Foreign currency translation reserve:
At the beginning the year
Currency translation differences arising
from consolidation of foreign subsidiaries
Less: non-controlling interests
(21)
(6)
-
-
(23)
2
At end of the year
(27)
(21)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
91
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
35
CAPITAL COMMITMENTS
Capital expenditure contracted for at the reporting date but not recognised in the financial
statements are as follows:
Group
2016
2015
US$’000s
US$’000s
Property, plant and equipment
327,955
292,232
The above capital commitments represent amounts due under contracts entered into by the
group to purchase aircraft. The company has paid deposits towards the cost of these aircraft
which are included in trade and other receivables.
Included in the above are commitments to purchase nine ATR 72-600 aircraft from the
manufacturer with expected delivery dates over a three-year period ending in June 2019. Two
of these aircraft are due to be delivered before the end of the calendar year 2016. As at the
date of this report the Group has not placed these aircraft on leases. Management intends to
arrange leases for or agree sales of these aircraft prior to delivery.
36
OPERATING LEASE COMMITMENTS
The Group leases out aircraft under operating leases. The future minimum lease payments
receivable under non-cancellable leases are as follows:
Within one year
In the second to fifth years inclusive
More than five years
Group
2016
2015
US$’000s
US$’000s
84,182
313,268
240,947
58,154
193,946
115,926
The Group holds cash deposits of US$12.80 million (2015: $10.40 million) and letters of credit
for US$4.70 million (2015: US$2.30 million) as security for lessees’ obligations under operating
leases.
92
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
37
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 2016, 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.
93
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
37
SEGMENT INFORMATION (continued)
(c) Geographical analysis
2016
Lease income from continuing
activities
Capital expenditure and valuation
movements
Net book value - aircraft
Total assets
2015
Lease income from continuing
activities
Capital expenditure and valuation
movements
Net book value - aircraft
Total assets
Europe
US$’000s
Asia
Pacific
US$’000s
Total
US$’000s
22,030
49,160
71,190
293,912
341,765
370,708
79,225
383,035
461,077
373,137
724,800
831,785
Europe
US$’000s
Asia
Pacific
US$’000s
Total
US$’000s
11,682
45,250
56,932
18,371
74,764
127,040
91,802
359,046
459,142
110,173
433,810
586,182
During the year, certain customers accounted for more than 10% of the Group’s total
revenues. There is one customer based in the Asia Pacific geographical area that
accounts for US$37.7 million (2015: US$38.3 million), 53% (2015: 67%) of the Group’s
total revenues from continuing operations.
94
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
38
CONTINGENT LIABILITIES
(a)
Lease-end/re-delivery adjustment compensation
The Company’s subsidiary MSN 1607 Pte Ltd owns an aircraft where there is a contingent
liability to pay amounts to the lessee dependent upon the return condition of the aircraft at
the end of the lease term. A liability would only become payable in the event that the
aircraft is returned at the end of the lease in April 2018 in a condition which exceeds
certain criteria agreed at the inception of the lease. Given that the lease continues until
April 2018, the directors are of the opinion that it is impossible to accurately estimate the
return condition of the aircraft given the number of variables such as aircraft usage and
timing of future maintenance events. The directors have assessed several different
outcomes and consider that the likely outcome would result in a cash inflow from the
lessee. On this basis, the directors have not recognised a contingent asset or liability in
this set of financial statements.
(b) Guarantees
Group
2016
2015
US$’000s
US$’000s
Guarantees
615,724
426,095
The maximum estimated amount that the Group could become liable for under guarantees
is as shown above.
39
DIVIDEND
2016
2015
US$’000s
US$’000s
Declared/paid during the financial year:
Dividends on ordinary shares
- Final exempt (one-tier) dividend for 2015: Nil US cents (2014: 2.01 US
cents) per share
- Interim exempt (one-tier) dividend for 2016: 3.00 US cents per share
-
1,656
1,119
-
Dividends to the Company’s shareholders are recognised when the dividends are approved for
payment.
95
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016
40
ULTIMATE HOLDING COMPANY
No party controls the Company.
41
SUBSEQUENT EVENTS
On 29 July 2016 the Group announced the successful purchase and delivery of a new Airbus
A321-200 aircraft which is leased to Vietjet, a leading domestic and international Vietnamese
airline.
On 22 August 2016, the Group announced the successful purchase and delivery of a second new
Airbus A321-200 aircraft leased to Vietjet.
On 2 September 2016, the Group entered into two agreements to purchase and lease two
additional new Aircraft A321-200 aircraft to Vietjet.
On 8 September 2016, the directors of the Company declared a 3.25 US cents interim dividend
for the financial year ending 30 June 2017.
On 8 September 2016, the Group announced the sale of the first of two 2003 built Airbus A321
aircraft which are leased to Thomas Cook Airlines.
On 13 September 2016, the Group announced the sale of the second of two 2003 built Airbus
A321 which are leased to Thomas Cook Airlines.
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 2016 were authorised for issue by the Board of Directors on
30 September 2016.
96
Annual Report 2016
ATR 72-600 aircraft at production facility
ANNUAL REPORT 2016
65 Kampong Bahru Road
Singapore 169370
www.avation.net
L I S T E D
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