AnnuAl RepoRt
2018
Annual Report 2018
OUR FLEET (As at 21 September 2018)
Aircraft type
In operation ordered options
-
-
-
-
-
-
6
-
6
-
-
-
-
-
-
30
-
30
Boeing B777-300eR
Airbus A330-300
Airbus A321-200
Airbus A320-200
Airbus A220-300
A220
A220AIRBUS
Fokker 100
AtR 72-600
AtR 72-500
Total
1
1
8
3
2
5
13
6
39
2
MOdEL
Boeing 777-300eR
Airbus A330-300
MOdEL
Airbus A321-200
Airbus A320-200
MOdEL
Airbus A220-300
Fokker F100
MOdEL
AtR 72-600
AtR 72-500
3
Annual Report 2018
COMpany InFORMaTIOn
dIRECTORs:
Robert Jeffries Chatfield
Roderick Douglas Mahoney
Stephen John Fisher
Derek Sharples
COMpany sECRETaRy:
Duncan Gerard Stephen Scott
REgIsTEREd OFFICE:
5 Fleet place
london eC4M 7RD
united Kingdom
pRInCIpaL pLaCE OF bUsInEss:
65 Kampong Bahru Road
aUdITOR:
Singapore 169370
ernst & Young
eY Building
Harcourt Centre
Harcourt Street
2 Dublin
Ireland
sOLICITORs:
Charles Russell Speechlys llp
5 Fleet place
london eC4M 7RD
united Kingdom
REgIsTRaR:
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 - 27
directors’ Responsibilities statement ............................................................................ 28
auditor’s Report ..................................................................................................... 29 - 35
Consolidated Statement of Profit or Loss and Other Comprehensive Income ................. 36
Consolidated statement of Financial position ................................................................. 37
Company statement of Financial position ....................................................................... 38
Consolidated statement of Changes in Equity.......................................................... 39 - 40
Company statement of Changes in Equity ............................................................... 41 - 42
Consolidated statement of Cash Flows ........................................................................... 43
Company statement of Cash Flows ................................................................................. 44
notes to the Financial statements ......................................................................... 45 - 107
5
Annual Report 2018
ChaIRMan’s sTaTEMEnT
OvERvIEw
• Fleet assets increased by 38% to $1.030 billion since 30 June 2017;
• Revenue increased by 16% to $109.1 million;
• Total profit after tax decreased by 5.9% to $20.0 million;
• earnings per share (“epS”) decreased by 11% to 32.20 uS cents;
• Dividend per share of 7.25 uS cents, an increase of 21% year on year; and
• net asset value per share increased 13% year on year to $3.64 per share.
OpERaTIOnaL hIghLIghTs
• Redeployment of the proceeds from sales of aircraft in 2017 supported the acquisition
of $323 million in aircraft;
• Five aircraft added to the fleet, including three new aircraft types;
• An Airbus A320 aircraft was transitioned from Air Berlin to easyJet;
• Six new customers added taking total airline customers to thirteen at 30 June 2018;
• Credit enhancement with upgrades in credit ratings by Standard & poor’s (“S&p”) and
Fitch Ratings; and
• extension of debt maturity duration with an issue of $300 million 6.5% Senior notes
due 2021 under the Company’s Global Medium-term note programme.
bUsInEss REvIEw
grow the fleet and diversify the revenue base. This
the performance of Avation
showed growth consistent with
an increase in fleet assets and
record high monthly lease rental
collections as at 30 June 2018.
the leasing business delivered
the highest revenue and profit
in the history of the Company
when excluding one-off gains from trading. the
Directors are pleased to declare an increased interim
dividend of 7.25 uS cents per share. net asset value
per share increased to $3.64.
Avation was successful at redeploying the proceeds
generated by sales of aircraft in the previous financial
year, adding new aircraft and customers to further
included
investments
in twin-aisle Boeing 777-
300eR and Airbus A330-300 aircraft alongside new
technology narrow-body Airbus A220-300 aircraft.
Fleet metrics improved with the average age of the
fleet reduced to 3.2 years and the average remaining
lease term increased to 7.7 years as at 30 June 2018
with no operating leases expiring until 2021.
Added scale and diversification delivered credit
enhancement that saw credit rating upgrades from
both S&p and Fitch Ratings and also allowed the
issuance of $300 million 6.5% Senior notes due
2021, which extended debt maturity duration and
lowered Avation’s average cost of debt compared to
the previous financial year.
6
ChaIRMan’s sTaTEMEnT
Avation will continue to focus on growing the fleet
and adding new airline customers in the coming
financial year. The Company is currently assessing jet
aircraft for acquisition, in addition to the scheduled
deliveries of new AtR 72 turboprop aircraft from our
order book.”
InTERIM dIvIdEnd
In order to recognise shareholder ownership as it
continues the development of the business, the Board
has declared an interim dividend of 7.25 uS cents
per share in respect of the financial year ended 30
June 2018 (2017: 6.00 uS cents), which represents
an increase of 21%. The Company confirms its aim to
maintain a progressive dividend policy.
MaRkET pOsITIOnIng and RIsk
Avation’s strategy is to target growth and
diversification by adding new airline customers, while
maintaining strong average aircraft age and lease
term metrics. Avation focuses on new and relatively
new commercial passenger aircraft on long-term
leases. Avation is able to supply regional, narrow-body
and twin-aisle aircraft to the airline industry.
the Company’s business model involves rigorous
investment criteria and has a history of delivering
consistent profitability while seeking to mitigate
the risks associated with the aircraft leasing sector.
Avation will typically sell mid-life and older aircraft
and redeploy capital to newer assets. this approach
is
intended to mitigate technology-change risk,
operational and financial risk, support sustained growth
and deliver long-term shareholder value.
Avation is an active trader of aircraft and from time
to time will consider the acquisition or sale of individual
or smaller portfolios of aircraft, based on market
opportunities and considerations of risk and revenue
concentrations.
OUTLOOk
For the 2019 financial year the Company is focused
on growth in the fleet and the addition of new airline
customers.
Management believes that the risks associated with
its portfolio of aircraft have been reduced during the
2018 financial year through repositioning of the fleet,
growth and diversification. Avation has demonstrated
that it has the capability to acquire, finance and
deliver multiple aircraft transactions demonstrating
the strength of its leasing platform which will support
continued future growth.
Management believes that it can attract airline
customers, acquire aircraft and obtain the required
funding for growth. In addition to operational cash
flows, funding is traditionally sourced from capital
markets, asset backed bank lending and disposals of
selected aircraft. Access to acceptably priced funding
is a risk, which is common to all capital-intensive
businesses. Specific risks which are inherent to the
aircraft leasing industry include, but are not limited
to, the creditworthiness of customer airlines, over-
production of new aircraft and market saturation,
technology-change, residual value risks, competition
from other lessors and the risk of impairment of aircraft
assets.
In addition to offering fixed rate US Dollar denominated
leases, which form the majority of Avation’s lease
portfolio, the company is also able to offer floating rate
and euro or other currency denominated leases. the
ability to offer a variety of financial leasing products
provides Avation with an opportunity to attract new
customers and to generate value from its aircraft fleet.
Following the issue of $300 million 6.5% Senior notes
due 2021 under the Company’s Global Medium- term
Note programme during the financial period, Avation
has repaid some senior and junior debt to unencumber
or refinance existing aircraft. This has created balance
sheet flexibility which will support the acquisition of
additional aircraft, including the two AtR 72 aircraft
to be delivered to Danish Air transport later this year.
Avation’s Board of Directors is pleased to deliver solid
financial results from its aircraft leasing business
while redeploying capital into new fleet additions and
improving revenue diversification.
Robert Jeffries Chatfield
executive Chairman
Singapore
21 September 2018
7
Annual Report 2018
bOaRd OF dIRECTORs
Jeff Chatfield
Executive Chairman
stephen Fisher phd
Non-Executive Director
Mr Chatfield
the Executive
is
Chairman of Avation plC and has
been instrumental in establishing
and growing the Company. Mr
Chatfield has a track record of
leadership in a variety of profitable
and successful businesses. He is a qualified public
company director and business executive experienced
in the fields of commercial airlines, aircraft leasing
and finance, electronic commerce,
investment
management, radio and TV broadcasting. Mr Chatfield
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 flow generative. In the recent past Mr
Chatfield was chairman of Skywest Airlines Ltd, a LSE-
ASX dual-listed public company sold to Virgin Australia
Holdings ltd. He is a member of the Australian Institute
of Company Directors and a fellow of the Singapore
Institute of Directors. Mr Chatfield was born in Perth,
Australia and is a permanent resident of Singapore.
Rod Mahoney
Executive Director
Mr Mahoney is the Chief Commercial
Officer and an Executive Director of
the Company. Before this executive
appointment, he was a fleet
planning and aircraft procurement
consultant to the Company. He
has previously been a project advisor to a variety
of Asia-Pacific airlines, suppliers and other aviation
businesses, including Virgin Blue and Virgin Australia
and also held various senior executive positions at
Airbus for 23 years, largely within the sales division
covering Europe and Africa, China and the Pacific. He
holds a Bachelor of Science Degree in Aeronautical
engineering (BSc. Hons), a Masters in Air transport
(MSc.) and a Masters of Applied Finance (MAppFin). Mr
Mahoney holds dual citizenship of the united Kingdom
and Australia and resides in Singapore. Mr Mahoney
is a graduate member of the Australian Institute of
Company Directors and a member of the Singapore
Institute of Directors.
In addition to his role at Avation
plC, Stephen is Chairman, principal
and Chief Investment Officer of First
Degree Global Asset Management
pte. ltd., a privately owned
in
asset management company
Singapore. First Degree Global Asset Management
operates a number of strategies for its clients including
a fixed income focused hedge fund.
Stephen has had twenty-six 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 Pacific at JPMorgan Asset Management. Stephen
held the positions of Australian Head of Capital Markets
Research from 1992 - 1996, and Asia Pacific Regional
Head of Capital Markets Research at J.p. Morgan
Investment Management, Inc. from 1996-1998.
in
Stephen’s particular areas of expertise are
quantitative analysis of fixed 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.
derek sharples
Non-Executive Director
Mr Sharples recently retired as the
Chief Executive Officer of Airbus
Helicopters Southeast Asia. Mr
Sharples was formerly Corporate
Secretary and Head of legal Affairs
at Airbus in toulouse, France. He
has experience as a Director of a toronto listed public
company and companies in thailand, Singapore and
Indonesia.
Mr Sharples has a Bachelor of engineering and a
Master of Business Administration from the Cranfield
School of Management. He is a Fellow of the Royal
Aeronautical Society (FRAeS) and holds the military
rank of Commander, Royal navy.
Mr Sharples is a Singapore resident and is a member
of the Singapore Institute of Directors. He holds dual
British and French nationalities.
8
sTRaTEgIC REpORT
the Directors present their strategic report for the year
ended 30 June 2018.
bUsInEss OvERvIEw
Avation plC and its subsidiaries (“Avation”, the
“Group”) is a commercial passenger aircraft leasing
group managing a fleet of 38 aircraft, as at 30 June
2018, which are leased to airlines globally. Avation’s
customers include Virgin Australia, thomas Cook,
Fiji Airways, Mandarin Airlines, Air India Regional,
Flybe, Air France, easyJet, Vietjet Air, EVA Air, Philippine
Airlines, and airBaltic. The Group’s fleet includes Airbus
A220, A320 and A321 narrow-body jets, Boeing 777-
300ER and Airbus A330-300 twin-aisle jets, ATR 72
twin engine turboprop aircraft and five older Fokker
100 jets.
Avation operates from its headquarters in Singapore
where it is tax resident and, since 17 April 2014, a
beneficiary 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 aims to grow its fleet and continue to diversify
its customer base in the coming year. the Group has six
AtR 72-600 aircraft on order from the manufacturer
and holds options for a further 30 aircraft. the Group
may also acquire further new and second-hand jet
aircraft on an ad-hoc basis. older aircraft are sold when
opportunities arise in order to maintain a low average
fleet age.
Avation is listed on the main list of the london Stock
exchange under the ticker symbol lSe: AVAp.
bUsInEss MOdEL
Avation aims to grow its fleet and build long-term
shareholder value by focussing on a) new turboprop
regional aircraft, principally the popular and fuel-
efficient ATR 72-600 model and b) new and second-
hand jets in particular the popular Airbus A320/A321
family and Boeing 737 narrow-body jet aircraft. The
Group will also consider acquiring additional twin-
aisle aircraft in future as part of its strategy to build
a diversified portfolio of aircraft. Owning a diversified
portfolio of aircraft types is intended to mitigate overall
market and residual value risk.
The Group finances the acquisition of new aircraft
using internally generated cash flows, senior and junior
secured debt finance, the issuance of unsecured notes
under its Global Medium-term note programme and
the issuance of new ordinary shares. Debt on older
aircraft is re-financed when there is an opportunity
to reduce the Group’s overall cost of debt and also to
release equity for acquiring new aircraft.
The Board applies prudent financial management
principles to manage risk when acquiring aircraft by
seeking to match lease and financing duration, using
mostly fixed interest rate debt and amortising debt to
conservative balloon payments over the terms of the
underlying leases.
As the fleet grows, the Group seeks to diversify
its customer base as part of its overall credit risk
management strategy.
The Avation fleet of 38 aircraft (as at 30 June 2018)
has a weighted average age of 3.2 years and weighted
average remaining lease term of 7.7 years with a
current customer base of airlines in Australia, europe
and the Asia-Pacific region.
9
sTRaTEgIC REpORT
MaRkETs TREnds and FUTURE dEvELOpMEnTs
pRInCIpaL RIsks and UnCERTaInTIEs
Aircraft leasing is a growth industry which, historically,
has taken an increasing share of ownership of the
commercial passenger aircraft fleet. Avation expects
that the percentage of leased aircraft in the global
fleet will remain high in future due to the flexibility
that the leasing model provides for airlines and also
due to increased access to financial capital for leasing
companies.
The aircraft leasing industry also benefits from good
long-term fundamentals including growth in global
demand for air travel, capital constraints amongst
airlines and normal cycles of aircraft replacement.
The world fleet of commercial passenger aircraft is
predicted to grow substantially with aircraft traffic
expected to double every 15 years. Airbus forecasts
that over 37,000 aircraft (replacement and growth)
will be required over the next 20 years, of which 43%
are expected to be in Asia-Pacific, 19% in Europe, 17%
in north America, and of the total, 76% are expected
to be single aisle.1
Comparatively low interest rates and improved access
to capital, including unsecured debt, are supporting
the growth plans of established leasing companies and
new entrants into the global aircraft leasing market.
Many stand-alone aircraft lessors have improved their
leverage profile over the last several years and have
been able to diversify funding sources.
1 Airbus Global Market Forecast 2018
10
the aircraft leasing sector is highly competitive and
Avation is exposed to a number of market related,
operational and financial 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 identified as most significant 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 financially exposed to the demand for passenger
air travel. The financial 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 financial 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.
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.
Annual Report 2018 sTRaTEgIC REpORT
in aircraft
technology may
create
Advances
obsolescence in the fleet before the end of aircrafts’
current estimated useful lives. the Group regularly
obtains independent third-party valuations for its
fleet and may dispose of aircraft in order to reduce
its exposure to certain aircraft types. Avation has a
policy of investing in popular aircraft types on the basis
that asset values and lease rates will be supported by
continuing high demand for these aircraft. Avation
will consider acquiring additional twin-aisle aircraft, in
addition to narrow-body jets and turboprops, as part
of its strategy to build a diversified portfolio of aircraft.
Twin-aisle aircraft may have a risk profile which is more
exposed to technology change factors. the Company
will seek to mitigate this risk.
Operational risks:
Economic, legal and political risks
to
lessees
leases aircraft
Avation
in different
jurisdictions. As such the Group is exposed to economic,
legal and political risk in those jurisdictions. Avation’s
aircraft are subject to operational risks specific to the
aviation sector resulting from war, acts of terrorism
or the threat of terrorism, and natural disasters. the
Group mitigates against these risks by requiring airline
lessees to maintain adequate insurance over the
aircraft.
Regulatory risks
Avation’s fleet 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 financial results.
11
photo: Viktoria Dorosevits
Lessee risks
lessees are responsible
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 financial risk management objectives and
policies are set out in note 7 to the financial statements
and are as follows:
• Airline industry risks
• Credit risk
•
Interest rate risk
• Foreign currency risk
• liquidity risk
• Capital risk
Annual Report 2018
sTRaTEgIC REpORT
FInanCIaL REvIEw
Revenue
other income
Operating profit
Total profit
net cash from operating activities
total assets
total equity
Basic earnings per share
Dividend per share
2018
uS$’000s
2017
uS$’000s
109,053
2,777
58,613
20,000
102,696
1,152,205
228,178
94,173
1,086
60,199
21,257
63,020
895,927
195,924
32.20 cents
36.27 cents
7.25 cents
6.00 cents
Revenue increased by 15.8% to uS$109.1 million (2017: uS$94.2 million) primarily as a result of a one-off
recovery of maintenance reserves, following re-possession of an aircraft from Air Berlin who filed for insolvency
in August 2017 and subsequently defaulted on a lease, and changes in the aircraft fleet.
other income increased by 155.7% to uS$2.8 million (2017: uS$ 1.1m) primarily due to a gain derived from the
change in fair value of an interest rate swap contract of uS$2.1 million (2017: nil).
Depreciation increased by 6.1% to uS$34.3million (2017: uS$32.3 million) as a consequence of changes in the
fleet.
Gains on sales of aircraft during the period were nil (2017: uS$5.4 million) and impairment losses were uS$ 7.1
million (2017: nil). During the previous financial year, the Group sold three Airbus A321 aircraft and six ATR 72-
600 aircraft and also converted operating leases for five Fokker 100 aircraft to finance leases. The Group recorded
an impairment loss of $7.1 million in the year on an Airbus A320 aircraft which was re-possessed from Air Berlin.
Administrative expenses increased 26.8% to uS$10.2 million (2017: uS$8.0 million) primarily due to additional
headcount, audit, accounting and professional fees associated with a larger aircraft fleet. As a percentage of
revenue administrative expenses increased to 9.4% (2017: 8.5%). other expenses were uS$1.7 million (2017:
uS$0.1 million).
Operating profit decreased 2.6% to US$58.6 million (2017: US$60.2 million).
Finance expenses increased by 10.3% to uS$44.8 million (2017: uS$40.6 million) and total interest expense
within finance expenses increased to US$42.8 million (2017: US$37.4 million). The increases in finance expenses
and total interest expense were primarily attributable to new debt incurred to finance aircraft acquisitions during
the year. Interest on the unsecured notes issued under the Company’s Global Medium-term note programme
12
sTRaTEgIC REpORT
(“GMtn”) was uS$14.0 million (2017: uS$8.3 million). During the year the value of notes outstanding under the
GMtn was increased from uS$120.0 million to uS$300.0 million.
Finance income was uS$5.1 million (2017: uS$1.8 million). the increase was primarily due to uS$3.6 million
break gains resulting from the termination of interest rate swaps concurrent with early retirements of certain
loans during the year.
The majority of the Group’s operations are based in Singapore and are included in Singapore’s Aircraft Leasing
Scheme, benefitting from a concessionary tax rate. Taxation for the year was a credit of US$1.1 million (2017:
uS$0.1 million). the tax charge for the year was impacted by a net reduction of uS$2.3 million in prior years
current tax provisions resulting from utilisation of deferred tax assets in Singapore.
Operating cash flows increased by 63.0% to US$102.7 million (2017: US$63.0 million).
Total profit after tax for the financial year decreased 5.9% to US$20.0 million (2017: US$21.3 million). Basic
earnings per share increased by 11.2% to 32.2 uS cents (2017: 36.3 uS cents).
The Company confirms that there have been no changes to its accounting policies.
FLEET OvERvIEw
Type
1 July 2017
additions disposals
30 June 2018 On order
Options
AtR 72-500
AtR 72-600
A220-300
A320-200
A321-200
A330-300
B777-300eR
Fokker 100
total
6
13
-
3
8
-
-
5
35
-
2
1
-
-
1
1
-
5
-
2
-
-
-
-
-
-
2
6
13
1
3
8
1
1
5
38
-
6
1
-
-
-
-
-
7
-
30
-
-
-
-
-
-
30
the Company added a new Airbus A220-300, a new Boeing 777-300eR, two new AtR 72-600s and a second-hand
Airbus A330-300 aircraft to the fleet during the year, while two ATR 72-600 aircraft were sold to the lessee under
finance leases. As at 30 June 2018 the weighted average age of the fleet was 3.2 years (2017: 3.3 years) and the
weighted average remaining lease term was 7.7 years (2017: 7.5 years). As at 30 June 2018, all aircraft were
utilised on leases to airlines. Five Fokker 100 aircraft are classified as leased under finance leases.
The aircraft fleet was valued as at 30 June 2018 by a third-party valuer using lease encumbered basis in accordance
with the Group’s accounting policy. The revaluation of the fleet resulted in a net positive adjustment of aircraft net
book values of uS$3.8 million (2017: nil).
dEbT sUMMaRy
loans and borrowings
Cash and cash equivalents
net indebtedness
loan to value ratio
Weighted average cost of secured debt
Weighted average cost of total debt
13
2018
uS$’000s
2017
uS$’000s
868,600
643,605
57,950
56,849
810,650
586,756
70.4%
65.5%
4.3%
5.0%
4.5%
5.1%
sTRaTEgIC REpORT
Loans and borrowings and net indebtedness increased due to additional secured debt issued to fund fleet
acquisitions and the issue of $300 million 6.5% Senior notes due 2021 under the GMtn in May 2018. the
Company’s $120 million outstanding 2015 series 7.5% Senior notes due 2020 were fully redeemed in May 2018.
the weighted average cost of secured debt facilities decreased to 4.3% as at 30 June 2018 (2017: 4.5%)
principally due to retirements of certain higher cost secured loans following the issuance of $300 million 6.5%
Senior notes due 2021 under the Company’s GMtn in May 2018.
the weighted average cost of total debt was 5.0% at 30 June 2018 (2017: 5.1%).
At the end of the financial period, Avation’s overall loan to value ratio was 70.4% (2017: 65.5%) and 94.8% of
total debt was at fixed or hedged interest rates (2017: 95.1%). The proportion of unsecured debt to total debt
was 33.8% (2017: 18.3%).
In May 2018 both Standard & poor’s Global Ratings and Fitch Ratings advised that Avation’s
corporate credit ratings had been upgraded. the Company’s current credit ratings are as follows:
Rating agency
Standard & poor’s
Fitch Ratings
Japan Credit Ratings Company
Corporate Credit Rating
Unsecured notes Rating
B+ positive outlook
BB- stable outlook
BB stable outlook
B
BB-
nR
the leasing industry in general and Avation in particular operate in a capital-intensive industry. In Avation’s
current portfolio of debt, interest rate risk is managed as outlined in the risk management section of the note 7
in the notes to the financial statements. Any potential future increases in interest rates could impact the level
of profitability of any new business the group undertakes although this could be mitigated by new revenues
reflecting the current interest rate environment.
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 efficiency and lower
emissions. A substantial percentage of our fleet are modern regional turboprop aircraft which provide significant
environmental benefits over comparable jet aircraft due to their more economical use of fuel and consequently
lower carbon dioxide emissions.
CORpORaTE sOCIaL REspOnsIbILITy
Avation is committed to the principles of being a good corporate citizen. For the financial year 2018 the group did
not have any material matters to report on social, community and human rights issues.
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 2018 is set out below:
Directors of the Company
Senior managers
other employees
on behalf of the board
Robert Jeffries Chatfield
executive Chairman
21 September 2018
14
Male
Female
4
4
8
-
-
7
Annual Report 2018 dIRECTORs’ REpORT
The Directors present their report and financial statements for the year ended 30 June 2018.
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 23 to these financial 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 financial statements.
the Group has reviewed the environmental matters in the Strategic Report.
Results and dividends
The consolidated statement of profit or loss and other comprehensive income for the year is set out on page 36.
the Company paid a dividend of 6.00 uS cents on 10 August 2017 and a dividend of 3.25 uS cents on 13 october
2016. on 5 September 2018 the Directors declared a dividend of 7.25 uS cents payable on 18 october 2018.
Avation’s dividend policy is, subject to having the reserves to do so and within any restrictions imposed by debt
covenants, to declare a dividend if the Board considers that it is in the best long-term interests of the Company
and its shareholders. the dividend policy is progressive, in that if reserves are available the dividend shall
increase.
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 and end of the year, were as follows:
Ordinary shares of £0.01 each:
Robert Jeffries Chatfield
Roderick Douglas Mahoney
Stephen John Fisher
Derek Sharples
direct interest
deemed interest
30 June
2018
1 July
2017
30 June
2018
1 July
2017
1
1
11,155,000
10,705,000
433,000
300,000
5,000
10,000
5,000
10,000
-
-
-
-
-
-
15
dIRECTORs’ REpORT
Significant shareholdings
Ordinary shares of £0.01 each:
Jp Morgan prime nominees limited
Chase nominees limited
State Street nominees limited
lynchwood nominees limited
Roy nominees limited
Equal Opportunities policy
photo: Viktoria Dorosevits
Ordinary
shares
percentage
16,228,788
25.86%
6,116,140
5,812,903
4,534,370
3,775,000
9.75%
9.26%
7.22%
6.01%
It is the Group’s policy to employ individuals with the necessary qualifications without regard to sex, marital
status, race, creed, colour, nationality or religion. Full and fair consideration is given to applications for employment
made by disabled persons having regard to their particular aptitudes and abilities.
the 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 financial statements.
going Concern
After making appropriate enquiries and taking into account the matters set out in the principal Risks and
Uncertainties paragraph/section 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 financial statements.
16
Annual Report 2018 dIRECTORs’ REpORT
greenhouse gas Emissions statement
usage of the Company’s aircraft is under the control of lessees who are not required to provide emissions data
to the Company.
Carbon emissions are estimated by converting the Company’s energy usage in kilowatt hours (KWh) into kilograms
(Kg) of carbon dioxide emitted using Singapore’sGrid emission Factor (GeF), a measure of the amount of carbon
dioxide emitted per kilowatt hour of electrical energy generated in Singapore. energy usage is based on electricity
consumption at the Company’s sole office in Singapore.
In the year ended 30 June 2018 the Company used 27,031 KWh of energy (2017: 26,727 KWh) which was
converted to estimated carbon emission of 11,331 Kg (2017: 11,527 Kg) using a GeF of 0.4192 (2017: 0.4313).
Capital structure
Details of the Company’s issued share capital, together with details of the movements therein during the financial
year are shown in Note 28. The Company has one class of ordinary shares which carry no right to fixed income.
each share carries the right to one vote at general meetings of the Company.
There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed
by the general provisions of the Articles of Association and prevailing legislation. the Directors are not aware
of any agreements between holders of the Company’s shares that may result in restrictions on the transfers of
securities or on voting rights.
Details of employees share option schemes are set out in note 34.
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
April 2016 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 Chatfield and Roderick Douglas Mahoney) and two
non-executive Directors (Stephen John Fisher and Derek Sharples). 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 significant capital expenditures; the review of budgets; trading performance; and all significant
financial and operational issues.
the Company operates the following committees whose members are detailed below:
• Audit Committee - Robert Jeffries Chatfield, Stephen John Fisher and Derek Sharples; and
• Risk Committee – Derek Sharples, Stephen John Fisher, Iain Cawte (non-Board member), Duncan Scott
(non-Board member) and Richard Wolanski (non-Board member); and
• Remuneration Committee - Robert Jeffries Chatfield, Roderick Douglas Mahoney, Stephen John Fisher and
Derek Sharples
The Board is responsible for identifying and evaluating the major business risks faced by the Company and for
determining and monitoring the appropriate course of action to manage these risks. the key risks the Company
faces are described in the risk assessment section of this annual report and accounts.
the Board conducts a review of the 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 financial, operational
17
Annual Report 2018
dIRECTORs’ REpORT
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.
auditor
Ernst & Young have indicated their willingness to continue in office and in accordance with s489 of the Companies
Act 2006. A resolution proposing that they be reappointed as auditors of the Company will be put to the Annual
General Meeting.
purchase of own shares
During the financial year ended 30 June 2017 the Company sold 600 treasury shares. Following this sale the
Company does not own any of its own shares.
By a resolution passed at the Annual General Meeting held on 20 December 2017 the Company’s Directors are
authorised to buy back shares not exceeding 30 per cent of the total number of shares in issue on that date. Share
buy backs may be at market prices but not under £1.00 and not above £3.50 per share, excluding commissions
and other related expenses.
Subsequent events
See Note 40 to these financial 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 34, Share Based payments
Details of any contract of significance 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 Chatfield
executive Chairman
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
financial statements will be approved. The vote will have advisory status, will be in respect of the remuneration
policy and overall remuneration packages and will not be specific to the individual levels of remuneration.
The information in the Directors’ Remuneration Report is not audited, unless specifically 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 2018. 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 16%, total profit decreasing 6% and EPS decreasing 11%. After adjusting for exchange rates,
remuneration was commensurate with this performance.
Remuneration (audited)
the components of remuneration are:
• basic salary and benefits 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 2018
dIRECTORs’ REMUnERaTIOn REpORT
Component
purpose
Operation & framework used to assess performance
salary and
benefits
to provide the core reward
for the role at a sufficient
level torecruit and retain
individuals of the necessary
to
competence
execute
company’s business
the
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.
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 significant 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.
bonuses
to incentivise and recognise
execution of the business
strategy on a semi-annual
basis.
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 financial reporting; growth in asset
value and profits; and dividend growth.
share warrants to incentivise and recognise
execution of the business
strategy over the long-term.
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 was as follows:
Executive Directors:
Robert Jeffries Chatfield
Roderick Douglas Mahoney
Non-Executive Directors:
Stephen John Fisher
Derek Sharples
salaries
and fees
uS$’000s
bonuses
uS$’000s
Taxable
benefits
uS$’000s
Total
2018
uS$’000s
Total
2017
uS$’000s
558
345
41
41
985
-
174
-
-
53
-
-
-
611
519
41
41
174
53
1,212
541
398
29
19
987
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 benefits 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 Chatfield
29 April 2013
Indefinite
Roderick Douglas Mahoney
16 December 2011
Indefinite
Stephen John Fisher
Derek Sharples
29 April 2014
Indefinite
15 november 2016
Indefinite
4 months
3 months
1 month
1 month
-
-
-
-
share options and warrants (audited)
the Group has an ownership-based compensation scheme for employees of the Group. Warrants are granted to
employees of the Group to promote:
•
•
•
improvement in share price;
improvement in profit; 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.
21
Annual Report 2018
dIRECTORs’ REMUnERaTIOn REpORT
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 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
on 8 December 2017
Balance or 100 per cent of the grant if warrants were not
exercised after the first and second vesting years
Warrants granted to Directors on 16 november 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
on 16 november 2017 and before 16 november
2018
on 16 november 2018
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
22
dIRECTORs’ REMUnERaTIOn REpORT
Warrants granted to Directors on 27 november 2017 have a 3-year vesting schedule with details as follows:
vesting period
proportion of total share options that are
exercisable
Before 27 november 2018
0 per cent
on 27 november 2018 and before 27 november 2019 up to 33 per cent of the grant
on 27 november 2019 and before 27 november 2020 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
on 27 november 2020
Balance or 100 per cent of the grant if warrants were
not exercised after the first and second vesting years
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
exercise
during the
year
Balance
at end of
year
Robert Jeffries Chatfield *
8 Dec 2014
153.0p
450,000
Robert Jeffries Chatfield *
16 nov2015
130.0p
450,000
-
-
Robert Jeffries Chatfield *
27 nov 2017
215.0p
-
255,000
Roderick Douglas Mahoney
8 Dec 2014
153.0p
133,000
Roderick Douglas Mahoney
16 nov 2015
130.0p
400,000
-
-
Roderick Douglas Mahoney
27 nov 2017
215.0p
-
170,000
(450,000)
-
-
-
450,000
255,000
(133,000)
-
-
-
400,000
170,000
* Robert Jeffries Chatfield was granted the share warrants and assigned these to Epsom Assets Limited.
For warrants exercised by both Directors during theyear the market price was 217.5p at the date of exercise.
The closing market price of the shares subject to warrants at the year-end was 224.5p. The highest and lowest
closing market prices during the year were 205.0p and 250.0p.
23
Annual Report 2018
dIRECTORs’ REMUnERaTIOn REpORT
Company’s performance
the graph below shows the total shareholder return on a holding of shares in the Company as against the average
total shareholder return of thecompanies comprising the FtSe100 index. 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.
500
400
300
200
100
0
Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 Jan 17 Jul 17 Jan 18 Jun 18
Remuneration of Executive Chairman
Executive Chairman single figure
remuneration (uS$’000)
Annual bonus pay-out (as % of maximum)
long term incentive vesting rates against
maximum opportunity %
2018
2017
2015
2015
2014
611
-
N/A
541
15%
N/A
699
-
N/A
711
-
N/A
638
-
N/A
The table above shows the prescribed remuneration data for the Director, Robert Jeffries Chatfield, Executive
Chairman undertaking the role of Group Chief Executive Officer during each of the last five financial years.
24
dIRECTORs’ REMUnERaTIOn REpORT
Percentage change in remuneration of Chief Executive Officer
the table below sets out the percentage change in the remuneration of the executive Chairman who is undertaking
the role of Group Chief Executive Officer compared to that of all employees of the Group.
Change in remuneration
from 2017 to 2018
% change
in base
salary
% change
in annual
bonus
% change
in taxable
benefits
13%
6%
0%
55%
16%
52%
executive Chairman
All employees
Relative importance of spend on pay
the Chart below displays the relative expenditure of the Company on various matters, as required (in the case
of remuneration for group employees and shareholder distributions) by the relevant remuneration regulations:
25,000
20,000
15,000
10,000
5,000
0
(6%)
(26%)
(101%)
total remuneration for group
Current year earnings
Dividend paid
employees
2017 uS$ ‘000 2018 uS$ ‘000
25
Annual Report 2018
dIRECTORs’ REMUnERaTIOn REpORT
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 sufficient 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 financial reporting;
• growth in asset value and profits; 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. Remuneration of the Company’s
Non-Executive Directors is comprised of fixed Directors’ Fees.
Payments for loss of office
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. Benefits 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 benefits a new employee would have received from
a former employer.
26
dIRECTORs’ REMUnERaTIOn REpORT
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
note:
share Count
% of Total
42,857,490
0
42,857,490
0
100.00%
0.00%
100.00%
0.00%
The above numbers reflect the proxy vote, whereas at the annual general meeting, votes were taken as a show
of hands with a unanimous result in favour.
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 2017 was approved at the Annual General Meeting held on 20
December 2017.
on behalf of the Board
Robert Jeffries Chatfield
executive Chairman
27
Annual Report 2018
dIRECTORs’ REspOnsIbILITIEs
the Directors are responsible for the maintenance and
integrity of the corporate and financial information
included on the Company’s website. legislation in
the united Kingdom governing the preparation and
dissemination of the financial statements may differ
from legislation in other jurisdictions.
We confirm that to the best of our knowledge:
•
•
the financial statements, prepared in accordance
with IFRSs as adopted by the eu, give a true
and fair view of the assets, liabilities and financial
position of the Company and of the Group and of
the Group’s profit for the year;
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 financial statements,
taken as a whole, are fair, balanced and
information
understandable and provide
necessary for the shareholders to assess the
Group’s position, performance, business model and
strategy.
the
this responsibility statement was approved by the
Board of Directors on 21 September 2018 and is signed
on its behalf by Robert Jeffries Chatfield.
Robert Jeffries Chatfield
executive Chairman
directors’ Responsibilities statement
the Directors are responsible for preparing the Annual
Report and the financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare
financial statements for each financial year. Under that
law the Directors are required to prepare the Group
financial 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 financial statements under IFRSs as adopted
by the eu.
under company law the Directors must not approve
the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs
of the Company and of the Group and the financial
performance and cash flows of the Group for that year.
In preparing these financial statements, the Directors
are required to:
•
select suitable accounting policies and then apply
them consistently;
• make judgements and accounting estimates that
are reasonable and prudent;
• 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
specific IFRSs are insufficient to enable the users to
understand the impact of particular transactions,
other events and conditions on the entity’s financial
position and financial performance.
• properly select and apply accounting policies.
the Directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the Company’s and the Group’s transactions
and disclose with reasonable accuracy at any time the
financial position of the Company and the Group and
enable them to ensure that the financial statements
comply with the Companies Act 2006. they are also
responsible for safeguarding the assets of the Company
and the Group and hence for taking reasonable steps
for the prevention and detection of fraud and other
irregularities.
28
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC
Opinion
In our opinion:
Avation plc’s group financial statements and parent company financial statements (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 2018 and of the group’s profit for the year then ended;
the group financial statements have been properly prepared in accordance with IFRSs as adopted
by the European Union;
the parent company financial statements been properly prepared in accordance with IFRSs as
adopted by the European Union 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.
We have audited the financial statements of Avation plc which comprise:
Group
Parent company
Consolidated statement of profit and loss and other
comprehensive income for the year then ended
Consolidated statement of financial position as at 30 June
2018
Company statement of financial position
as at 30 June 2018
Consolidated statement of changes in equity for the year
then ended
Company statement of changes in equity
for the year then ended
Consolidated statement of cash flows for the year then
ended
Company statement of cash flows for the
year then ended
Related notes 1 to 41 to the financial statements,
including a summary of significant accounting policies
Related notes 1 to 41 to the financial
statements
including a summary of
significant accounting policies
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
to the parent company financial statements, as applied in accordance with the provisions of the
Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and
applicable law. Our responsibilities under those standards are further described in the Auditor’s
responsibilities for the audit of the financial statements section of our report below. We are independent
of the group and parent company in accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed
25
29
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC
public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these
requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require
us to report to you where:
the directors’ use of the going concern basis of accounting in the preparation of the financial
statements is not appropriate; or
the directors have not disclosed in the financial statements any identified material uncertainties that
may cast significant doubt about the group’s or the parent company’s ability to continue to adopt the
going concern basis of accounting for a period of at least twelve months from the date when the
financial statements are authorised for issue.
Overview of our audit approach
Key
matters
audit
Valuation of aircraft
Valuation of warrants
Audit scope
We performed an audit of the complete financial information of Avation Plc
in accordance with the materiality thresholds as set out below.
Materiality
Overall group materiality of $946 thousand which represents 5% of the profit
before tax for year ended 30 June 2018.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial statements of the current period and include the most significant assessed risks of
material misstatement (whether or not due to fraud) that we identified. These matters included those
which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were addressed in the context of our audit
of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate
opinion on these matters.
26
30
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC
Risk
Our response to the risk
observations
Key
communicated to the Audit
Committee
Aircraft Valuation
represents
The carrying value of jets and
the
turboprops
most significant asset in the
financial statements of Avation
Plc. As at 30 June 2018, the
carrying value of aircraft
is $981.1 million
reported
(2017: $744.6 million) as
detailed in Note 19 of the
financial statements.
As set out within Note 3 (f) and
3 (g) ‘Summary of Significant
Accounting Policies’, aircraft
are measured at fair value on a
Lease Encumbered Value
basis (“LEV”). As detailed in
‘Critical Accounting
Note 4
Estimates and Judgments’,
management need to apply
estimation and judgment as
part of
value
fair
assessment of aircraft.
their
the
LEV
purposes
For
of
determining the valuation, the
carrying value of each jet and
turboprop is compared to the
computed
is
LEV.
determined as the discounted
value of a jet or turboprop on
lease given a specified lease
payment stream and estimated
future residual value adjusted
for return conditions at lease
termination
We have assessed each aircraft as
they are deemed to be individually
material to the financial statements.
Our planned audit procedures
were completed without material
exception.
obtaining
In
evidence we:
sufficient
audit
Walked through the design
operating
and
key
of
effectiveness
controls
the
around
preparation and review of
the LEV model including
governance
appropriate
procedures
and
management review.
Obtained external aircraft
valuation reports validating
the calculation of the LEV
including residual values.
Validated and challenged
the key assumptions used
(weighted average cost of
lease payment
capital,
residual
streams
values).
and
Engaged specialists from
our
and
valuations
business modelling team to
the
assess
reasonableness of
the
weighted average cost of
capital used in discounting
the future cash flows of
aircraft in the model.
Assessed the calculations
underpinning
LEV
model by checking that the
data and the assumptions
input into the model were in
agreement with those that
we had evaluated.
the
Assessed
the
and
appropriateness
presentation of disclosures
in the financial statements
with relevant accounting
standards.
27
31
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC
Risk
Our response to the risk
observations
Key
communicated to the Audit
Committee
Valuation of Warrants
We have determined that the
valuation
warrants
of
represents a risk due to the
number of assumptions used
in
the
the calculation and
related estimation.
As set out within Note 3 (l)
Significant
of
‘Summary
Accounting Policies’, the cost
of warrants issued in favour of
employees is recognised as an
employee benefit expense in
the statement of profit or loss.
During the financial year ended
30 June 2018, $394 thousand
thousand) has
(2017: $220
been
an
as
employee benefit expense in
relation to warrants.
recognised
obtaining
In
evidence we:
sufficient
audit
Our planned audit procedures
were completed without material
exception.
Walked through the design
operating
and
key
of
effectiveness
controls
the
around
preparation and review of
valuation
the warrant
including
process
governance
appropriate
procedures
and
management review.
Engaged specialists from
accounting
financial
to
advisory
independently
value
warrants issued and the
appropriateness of
the
related model.
team
Assessed
the
reasonableness of non-
market estimates including
exit rates to approximate
the expected number of
warrants to vest.
Obtained grant deed and
exercise notices to validate
the details on the warrants
register.
model
Assessed the calculations
underpinning the warrants
valuation
by
checking that the data and
the assumptions input into
the model were
in
agreement with those that
we had evaluated.
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality
determine our audit scope for each entity within the Group. Taken together, this enables us to form an
opinion on the consolidated financial statements. We take into account size, risk profile, the organisation
of the group and effectiveness of group wide controls, changes in the business environment and other
factors such as recent Internal audit results when assessing the level of work to be performed at each
entity.
28
32
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC
In connection with our audit of the financial statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If
we identify such material inconsistencies or apparent material misstatements, we are required to
determine whether there is a material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that there
is a material misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions 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.
In our opinion, based on the work undertaken in the course of the audit:
the information given in the strategic report and the directors’ report for the financial year for which
the financial statements are prepared is consistent with the financial statements; and
the strategic report and directors’ report have been prepared in accordance with applicable legal
requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and its
environment obtained in the course of the audit, we have not identified material misstatements in the
strategic report or the directors’ report.
We have nothing to report in respect of the following matters in relation to which 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 and the part of the Directors’ Remuneration Report to be
audited are not in agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit
Responsibilities of directors
As explained more fully in the statement of directors’ responsibilities set out on page 24, the directors
are responsible for the preparation of the financial statements and for being satisfied that they give a
true and fair view, and for such internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or
error.
28,
In preparing the financial statements, the directors are responsible for assessing the group and parent
company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the directors either intend to liquidate
the group or the parent company or to cease operations, or have no realistic alternative but to do so.
30
33
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
Explanation as to what extent the audit was considered capable of detecting irregularities,
including fraud
The objectives of our audit, in respect to fraud, are; to identify and assess the risks of material
misstatement of the financial statements due to fraud; to obtain sufficient appropriate audit evidence
regarding the assessed risks of material misstatement due to fraud, through designing and implementing
appropriate responses; and to respond appropriately to fraud or suspected fraud identified during the
audit. However, the primary responsibility for the prevention and detection of fraud rests with both those
charged with governance of the entity and management.
Our approach was as follows:
We obtained an understanding of the legal and regulatory frameworks that are applicable to the
group and determined that the most significant are:
o Companies Act 2006
o Financial Reporting Council (FRC)
o Tax Legislation (governed by HM Revenue and Customs and Inland Revenue Authority
of Singapore)
We understood how Avation plc is complying with those frameworks holding discussions with
general counsel, external counsel and service providers. We inquired as to any known instances
of non-compliance or suspected non-compliance with laws and regulations.
We assessed the susceptibility of the group’s financial statements to material misstatement,
including how fraud might occur by holding discussions with senior management, including the
Chief Executive Officer, Chief Financial Officer, Audit Committee members and General
Counsel.
Based on this understanding we designed our audit procedures to identify non-compliance with
such laws and regulations. Our procedures involved inquiring of key management and reviewing
key policies.
A further description of our responsibilities for the audit of the financial statements is located on the
Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor’s report.
Other matters we are required to address
We were appointed by the company on 20 December 2017 to audit the financial statements for the
year ended 30 June 2018 and subsequent financial periods
31
34
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC
The period of total uninterrupted engagement including previous renewals and reappointments is
1 year, covering the period from our appointment through 30 June 2018.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or
the parent company and we remain independent of the group and the parent company in
conducting the audit.
The audit opinion is consistent with the audit results report to the audit committee
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part
16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the
company’s members those matters we are required to state to them in an auditor’s report and for no
other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
John McCormack (Senior statutory auditor)
for and on behalf of Ernst & Young, Statutory Auditor
Dublin
21 September 2018
Notes:
The maintenance and integrity of the Avation plc web site is the responsibility of the directors;
1.
the work carried out by the auditors does not involve consideration of these matters and, accordingly,
the auditors accept no responsibility for any changes that may have occurred to the financial statements
since they were initially presented on the web site.
Legislation in the United Kingdom governing the preparation and dissemination of financial
2.
statements may differ from legislation in other jurisdictions.
32
35
AVATION PLC
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2018
Continuing operations
Revenue
Other income
Depreciation
Gain 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
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Currency translation differences arising on consolidation
Fair value gain on derivative financial instruments
Items that may not be reclassified subsequently to profit or loss:
Revaluation gain/impairment on property, plant and equipment, net of tax
Other comprehensive income, net of tax
Note
2018
US$’000s
2017
US$’000s
9
10
19
19
11
12
13
14
16
17
109,053
2,777
111,830
(34,284)
-
(7,080)
(10,202)
(1,651)
58,613
5,117
(44,815)
18,915
94,173
1,086
95,259
(32,300)
5,357
-
(8,046)
(71)
60,199
1,790
(40,626)
21,363
1,085
20,000
(106)
21,257
27
5,239
5,266
3,355
8,621
-
2,804
2,804
(5,568)
(2,764)
Total comprehensive income for the year
28,621
18,493
Profit attributable to:
Equity holders of the Company
Non-controlling interests
Total comprehensive income attributable to:
Equity holders of the Company
Non-controlling interests
Earnings per share for profit
attributable to equity holders of the Company
Basic earnings per share:
Diluted earnings per share
19,992
8
20,000
28,613
8
28,621
21,262
(5)
21,257
18,509
(16)
18,493
18
18
32.20 cents
31.84 cents
36.27 cents
35.68 cents
33
36
AVATION PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
FOR THE YEAR ENDED 30 JUNE 2018
ASSETS
Non-current assets
Property, plant and equipment
Trade and other receivables
Finance lease receivables
Goodwill
Derivative financial instruments
Current assets
Trade and other receivables
Finance lease receivables
Options held for trading
Cash and bank balances
Assets held for sale
Total assets
EQUITY AND LIABILITIES
Equity
Share capital
Share premium
Treasury shares
Merger reserve
Asset revaluation reserve
Capital reserve
Other reserves
Retained earnings
Equity attributable to equity holders of the parent
Non-controlling interests
Total equity
Non-current liabilities
Loans and borrowings
Trade and other payables
Derivative financial instruments
Maintenance reserves
Deferred tax liabilities
Current liabilities
Loans and borrowings
Trade and other payables
Maintenance reserves
Income tax payables
Liabilities directly associated with assets held for sale
Note
2018
US$’000s
2017
US$’000s
19
20
21
22
24
20
21
25
26
27
28
28
29
30
31
24
32
33
30
31
32
27
981,176
6,790
5,529
1,902
7,848
1,003,245
3,914
3,199
2,000
91,102
100,215
48,745
148,960
744,731
5,190
8,728
1,902
2,372
762,923
5,031
36,641
3,640
87,692
133,004
-
133,004
1,152,205
895,927
1,080
53,083
-
6,715
27,847
8,876
6,389
124,119
228,109
69
228,178
796,896
12,397
-
22,504
2,988
834,785
71,704
13,390
1,040
2,608
88,742
500
89,242
1,058
48,365
-
6,715
24,492
8,876
801
105,556
195,863
61
195,924
550,561
11,480
1,901
20,813
3,318
588,073
93,044
14,920
451
3,515
111,930
-
111,930
Total equity and liabilities
1,152,205
895,927
Approved by the board and authorised for issue on 21 September 2018
………………………….
Robert Jeffries Chatfield
Executive Chairman
34
37
AVATION PLC
COMPANY STATEMENT OF FINANCIAL POSITION
FOR THE YEAR ENDED 30 JUNE 2018
ASSETS
Non-current assets
Property, plant and equipment
Trade and other receivables
Investment in subsidiaries
Derivative financial instruments
Current assets
Trade and other receivables
Options held for trading
Cash and bank balances
Total assets
EQUITY AND LIABILITIES
Equity
Share capital
Share premium
Treasury shares
Merger reserve
Asset revaluation reserve
Other reserves
Retained earnings
Total equity
Non-current liabilities
Loans and borrowings
Trade and other payables
Deferred tax liabilities
Current liabilities
Loans and borrowings
Trade and other payables
Note
2018
US$’000s
2017
US$’000s
19
20
23
24
20
25
26
28
28
29
30
31
33
30
31
14,829
54,737
15,375
2,036
86,977
93,817
2,000
3,646
99,463
15,919
4,698
15,375
-
35,992
82,734
3,640
3,046
89,420
186,440
125,412
1,080
53,083
-
6,715
2,833
733
34,388
98,832
48,309
150
1,453
49,912
3,068
34,628
37,696
1,058
48,365
-
6,715
2,862
411
30,897
90,308
-
250
1,814
2,064
7,362
25,678
33,040
Total equity and liabilities
186,440
125,412
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$4.92 million (2017: US$6.08 million).
Approved by the board and authorised for issue on 21 September 2018
………………………….
Robert Jeffries Chatfield
Executive Chairman
35
38
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B
AVATION PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2018
Cash flows from operating activities:
Profit before income tax
Adjustments for:
Depreciation expense
Warrants expense
Impairment loss on aircraft
Impairment loss on trade receivables
Amortisation of loan insurance premium
Amortisation of interest expense on non-current deposits
Non-trade receivables written off
Gain on disposal of aircraft
Gain on disposal of subsidiary
Fair value loss/(gain) on options held for trading
Fair value gain on derivatives
Finance income from discounting non-current deposits to fair value
Interest income
Interest expense
Operating cash flows before working capital changes
Movement in working capital:
Trade and other receivables and finance lease receivables
Trade and other payables
Maintenance reserves
Cash from operations
Interest received
Interest paid
Income tax paid
Net cash from operating activities
Cash flows from investing activities:
Cash inflow from disposal of subsidiary
Purchase of property, plant and equipment
Proceeds from disposal of aircraft
Net cash used in investing activities
Cash flows from financing activities:
Net proceeds from issuance of ordinary shares
Dividends paid to shareholders
Proceeds from sale of treasury shares
Dividend paid to non-controlling interest of a subsidiary
Placement of restricted cash balances
Proceeds from loans and borrowings, net of transactions costs
Repayment of loans and borrowings
Net cash from financing activities
Effects of exchange rates on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Note
2018
US$’000s
2017
US$’000s
18,915
21,363
15
19
12
14
14
12
10
12,10
10
13
13
14
34,284
394
7,080
-
1,078
349
-
-
(1)
1,640
(2,138)
(359)
(1,147)
42,782
102,877
36,143
2,320
2,280
143,620
1,163
(41,541)
(546)
102,696
32,300
220
-
41
1,078
924
30
(5,357)
-
(600)
(54)
(929)
(861)
37,396
85,551
5,034
(1,269)
10,501
99,817
846
(36,922)
(721)
63,020
10
1
(322,804)
-
-
(275,665)
211,714
(322,803)
(63,951)
3,238
(3,664)
-
-
(2,309)
600,627
(376,711)
221,181
27
1,101
56,849
57,950
9,102
(1,820)
1
(16)
(9,249)
236,243
(203,154)
31,107
-
30,176
26,673
56,849
26
26
40
43
AVATION PLC
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2018
Cash flows from operating activities:
Profit before taxation
Adjustments for:
Dividend income
Depreciation expense
Interest income
Interest expense
Fair value loss/(gain) on options held for trading
Fair value gain on derivatives
Warrant expense
Operating cash flows before working capital changes
Movement in working capital:
Trade and other receivables and prepayments
Trade and other payables
Cash used in operations
Interest received
Interest paid
2018
US$’000s
2017
US$’000s
4,565
6,878
(7,001)
1,062
(3,284)
4,015
1,640
(2,036)
394
(645)
(60,125)
1,710
(59,060)
316
(325)
(6,584)
1,088
(1,568)
1,410
(600)
-
220
844
(28,205)
(7,027)
(34,388)
384
(792)
Net cash used in operating activities
(59,069)
(34,796)
Cash flows from investing activities:
Dividends received
Purchase of property, plant and equipment
Net cash from investing activities
Cash flows from financing activities:
Net proceeds from issuance of ordinary shares
Dividends paid to shareholders
Proceeds from sale of treasury shares
Proceeds from loans and borrowings
Repayment of loans and borrowings
Net cash from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
26
26
7,001
(6)
6,995
6,584
(7)
6,577
3,238
(3,664)
-
108,464
(55,364)
52,674
600
3,046
3,646
9,102
(1,820)
1
17,908
(1,592)
23,599
(4,620)
7,666
3,046
41
44
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
1
GENERAL
Avation PLC is a public limited company incorporated in England and Wales under the Companies
Act 2006 (Registration Number 05872328) and is listed as a Standard Listing on the London
Stock Exchange. The address of the registered office is given on page 1.
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 23 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 1.321 (2017: 1.300).
The preparation of financial statements in conformity with IFRS requires the use of
significant accounting judgements, 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.
42
45
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
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 2018. 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.
43
46
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
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, which is 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.
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 the changes in fair value recognised in
profit or loss.
(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 a n d 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.
44
47
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
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 and aircraft purchase options in excess
of the Group’s usage requirements 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.
45
48
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
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, aircraft purchase options 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, aircraft
purchase options 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. 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:
Narrow-body jets and turboprops
Twin-aisle jets
Furniture and equipment
25 years from date of manufacture
23 years from date of manufacture
3 years
46
49
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
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 are based on 15% of cost for new
aircraft and estimated scrap values for second hand aircraft.
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.
47
50
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(i)
IMPAIRMENT OF NON-FINANCIAL ASSETS (continued)
Impairment losses are recognised in profit or loss to the extent that they do not reverse a
previous upwards revaluation. 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)
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.
(k) 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 expiry of a lease, any shortfall that is identified in
the maintenance reserve liabilities for an aircraft as compared to the expected future
reimbursement obligations to a lessee, or any surplus, will be charged or released to profit
or loss. Upon sale of an aircraft, the maintenance reserve liability for that aircraft which is
not transferred to the buyer will be released to profit or loss.
48
51
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(l)
SHARE-BASED PAYMENTS – The Group operates an equity-settled share-based
compensation plan. The value of the employee services received in exchange for the grant
of warrants is recognised as an expense in profit or loss with a corresponding increase in the
warrant reserve over the vesting period. The total amount to be recognised over the vesting
period is determined by reference to the fair value of the warrants granted on the date of
the grant using the binomial option pricing model method. Non-market vesting conditions
are included in the estimation of the number of shares under warrants that are expected to
become exercisable on the vesting date. At the end of each reporting period, the Group
revises its estimates of the number of shares under warrants that are expected to become
exercisable on the vesting date and recognises the impact of the revision of the estimates in
the profit or loss, with a corresponding adjustment to the warrant reserve over the remaining
vesting period.
When the warrants are exercised, the proceeds received and the related balance previously
recognised in the warrant reserve are credited to share capital and share premium accounts
when new shares area issued to the employees.
(m) 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 recognises contingent rents when they can be reliably measured.
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.
(n) 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.
49
52
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(o) 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 rental 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 a reduction
of the total rental income.
The Group recognises aircraft finance leases at the inception of the lease term at
the fair value of the leased asset or if lower, at the present value of the minimum
lease payments. Lease receipts are apportioned between finance income and
reduction of the lease asset so as to achieve a constant rate of interest on the
remaining balance of the asset. Finance income is credited directly to profit or loss.
(iii) The Group recognises revenue for estimated end of lease compensation payments
receivable in future periods only when it is able to make a reliable estimate of the
expected compensation amount. The Group does not recognise end of lease
compensation as revenue if there is reasonable expectation that the lessee will
extend the existing lease agreement rather than returning the aircraft at the end of
the current lease period.
(iv)
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.
(v) Sales of goods are recognised when goods are delivered and title has passed.
(vi) Dividend income from investments is recognised when the shareholders’ right to
receive payment have been established.
(p) 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.
50
53
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(q)
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.
51
54
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(r)
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.
(s)
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.
52
55
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(s)
FINANCIAL INSTRUMENTS (continued)
(ii) Cash and bank balances - Cash and bank balances comprise cash at bank and on
hand and call deposits which are subject to an insignificant risk of changes in value.
Restricted cash balances comprise bank balances which are pledged as security for
certain loan obligations.
(iii) Loans and 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.
(iv) 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.
(v) Equity instruments - Equity instruments issued by the Company are recorded at
the proceeds received, net of direct issue costs.
(t) 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.
53
56
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(t) 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.
(u)
IMPAIRMENT OF FINANCIAL ASSETS - The Group assesses at each 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.
(v) SEGMENTAL REPORTING - Operating segments are reported in a manner consistent
with the internal reporting provided to the Board of Directors who are responsible for
allocating resources and assessing performance of the operating segment.
54
57
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
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 and review of residual value of property, plant and equipment –
aircraft
The Group periodically evaluates its aircraft for impairment and also reviews the residual
value of the aircraft. Management exercises significant judgement in determining whether
there is any indication that any aircraft may have been impaired or changes in residual
value. This exercise involves management to consider both internal and external sources
of information which include but are not limited to: observable indications that the value
of the aircraft has declined during the period significantly more than would be expected as
a result of the passage of time or normal use; significant adverse changes in the expected
usage of the aircraft, technological or aviation environment that have taken place or will
take place in the near future; significant increase in market interest rates; evidence of
obsolescence or physical damage of the aircraft and worse than expected economic
performance 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.
55
58
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
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.
It was announced in Singapore Budget 2017 that the concessionary tax rate on
income tax under the ALS incentive will be streamlined to a single rate of 8% for
new or renewal incentive awards approved on or after 1 April 2017. As management
is of the view that the ALS will be renewed beyond 16 April 2019, management has
applied the concessionary tax rate of 8% in determining the carrying amount of
deferred tax asset and liability for temporary differences that are expected to be
realised or settled beyond 16 April 2019.
(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.
56
59
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
5
NEW STANDARDS AND INTERPRETATIONS NOT APPLIED AND STANDARDS IN
EFFECT IN 2018
(a)
Standards and interpretations adopted during the year
The Group has adopted the following new standards and amendments to standards, including
any consequential amendments to other standards, with a date of initial application of 1 January
2017:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
IAS 7 Statement of Cash Flows: Disclosure initiative
IAS 12 Income Taxes: Recognition of Deferred Tax Assets for Unrealised Losses
Annual Improvements Cycle – 2012-2016
IFRS 15 Revenue from Contracts with Customers
IFRIC Interpretation 22 Foreign Currency Transactions and Advance Considerations
IFRS 9 Financial Instruments
The nature and effects of the changes are explained below.
(i)
IAS 7 Statement of Cash Flows: Disclosure initiative
The amendments require entities to provide disclosure of changes in their liabilities
arising from financing activities, including both changes arising from cash flows and non-
cash changes (such as foreign exchange gains or losses). These amendments do not
have any impact on the Group.
(ii)
IAS 12 Income Taxes: Recognition of Deferred Tax Assets for Unrealised Losses
The amendments clarify that an entity needs to consider whether tax law restricts the
sources of taxable profits against which it may make deductions on the reversal of
deductible temporary difference related to unrealised losses. Furthermore, the
amendments provide guidance on how an entity should determine future taxable profits
and explain the circumstances in which taxable profit may include the recovery of some
assets for more than their carrying amounts. These amendments do not have any impact
on the Group.
(iii)
Annual Improvements Cycle – 2012-2016 Amendments to IFRS 12 Disclosure
of Interests in Other Entities: Clarification of the scope of disclosure
The amendments clarify that the disclosure requirements in IFRS 12, other than those
in paragraphs B10–B16, apply to an entity’s interest in a subsidiary, a joint venture or
an associate (or a portion of its interest in a joint venture or an associate) that is classified
(or included in a disposal group that is classified) as held for sale.
These amendments have had no significant impact on the Group’s financial statements
at 30 June 2018.
57
60
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
5
NEW STANDARDS AND INTERPRETATIONS NOT APPLIED AND STANDARDS IN
EFFECT IN 2018 (continued)
(iv)
IFRS 15 Revenue from Contracts with Customers
IFRS 15 was issued in May 2014 and establishes a five-step model to account for revenue
arising from contracts with customers. Under IFRS 15, revenue is recognised at an
amount that reflects the consideration to which an entity expects to be entitled in
exchange for transferring goods or services to a customer. The new revenue standard
will supersede all current revenue recognition requirements under IFRS. Either a full
retrospective application or a modified retrospective application is required for annual
periods beginning on or after 1 January 2018. Early adoption is permitted. The Group
has assessed the impact of the new standard and there is no impact on its Statement of
Financial Position or equity on applying IFRS 15.
(v)
IFRIC Interpretation 22 Foreign Currency Transactions and Advance
Considerations
IFRIC 22 is effective for annual periods beginning on or after 1 January 2018, with early
application permitted. The Interpretation clarifies that, in determining the spot exchange
rate to use on initial recognition of the related asset, expense or income (or part of it)
on the derecognition of a non-monetary asset or non-monetary liability relating to
advance consideration, the date of the transaction is the date on which an entity initially
recognises the non-monetary asset or non-monetary liability arising from the advance
consideration. If there are multiple payments or receipts in advance, then the entity must
determine the date of the transactions for each payment or receipt of advance
consideration. This Interpretation does not have any impact on the Group’s consolidated
financial statements.
(vi)
IFRS 9 Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that
replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous
versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial
instruments project: classification and measurement, impairment and hedge accounting.
IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early
application permitted. Except for hedge accounting, retrospective application is required
but providing comparative information is not compulsory. For hedge accounting, the
requirements are generally applied prospectively, with some limited exceptions.
The Group has assessed the impact of the new standard and there is no significant impact
on its Statement of Financial Position or equity on applying IFRS 9.
(a) Classification and measurement
The Group has assessed the impact and there is no significant impact on its
Statement of Financial Position or equity on applying the classification and
measurement requirements of IFRS 9.
58
61
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
5
NEW STANDARDS AND INTERPRETATIONS NOT APPLIED AND STANDARDS IN
NEW STANDARDS AND INTERPRETATIONS NOT APPLIED AND STARDARDS IN
EFFECT IN 2018 (continued)
(b) Impairment
IFRS 9 requires the Group to record expected credit losses on all of its debt
securities, loans and trade receivables, either on a 12-month or lifetime basis. The
Group will apply the simplified approach and record lifetime expected losses on all
trade receivables. The Group has assessed the impact and there is no significant
impact on its Statement of Financial Position or equity on applying the impairment
requirements of IFRS 9.
(c) Hedge accounting
The Group has assessed the impact and there is no significant impact on its
Statement of Financial Position or equity on applying the hedge accounting
requirements of IFRS 9.
(b)
New standards and interpretations not yet adopted
The standards and interpretations that are issued, but not yet effective, up to the date of issuance
of the Group’s financial statements are disclosed below. The standards listed below are those
which may have an impact on the Group. The Group intends to adopt these standards, if
applicable, when they become effective.
(i)
Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an
Investor and its Associate or Joint Venture
The amendments address the conflict between IFRS 10 and IAS 28 in dealing with the
loss of control of a subsidiary that is sold or contributed to an associate or joint venture.
The amendments clarify that the gain or loss resulting from the sale or contribution of
assets that constitute a business, as defined in IFRS 3, between an investor and its
associate or joint venture, is recognised in full. Any gain or loss resulting from the sale
or contribution of assets that do not constitute a business, however, is recognised only
to the extent of unrelated investors’ interests in the associate or joint venture. The IASB
has deferred the effective date of these amendments indefinitely, but an entity that early
adopts the amendments must apply them prospectively. The Group will assess the
impact of the new standard when it becomes effective.
(ii)
IFRS 16 Leases
IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining
whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-
27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS
16 sets out the principles for the recognition, measurement, presentation and disclosure
of leases and requires lessees to account for all leases under a single on-balance sheet
model similar to the accounting for finance leases under IAS 17. The standard includes
two recognition exemptions for lessees – leases of ’low-value’ assets (e.g., personal
computers) and short-term leases (i.e., leases with a lease term of 12 months or less).
59
62
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
5
NEW STANDARDS AND INTERPRETATIONS NOT APPLIED AND STANDARDS IN
NEW STANDARDS AND INTERPRETATIONS NOT APPLIED AND STARDARDS IN
EFFECT IN 2018 (continued)
(ii)
IFRS 16 Leases (continued)
At the commencement date of a lease, a lessee will recognise a liability to make lease
payments (i.e., the lease liability) and an asset representing the right to use the
underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be
required to separately recognise the interest expense on the lease liability and the
depreciation expense on the right-of-use asset. Lessees will also be required to
remeasure the lease liability upon the occurrence of certain events (e.g., a change in the
lease term, a change in future lease payments resulting from a change in an index or
rate used to determine those payments). The lessee will generally recognise the amount
of the remeasurement of the lease liability as an adjustment to the right-of-use asset.
Lessor accounting under IFRS 16 is substantially unchanged from today’s accounting
under IAS 17. Lessors will continue to classify all leases using the same classification
principle as in IAS 17 and distinguish between two types of leases: operating and finance
leases.
IFRS 16 also requires lessees and lessors to make more extensive disclosures than under
IAS 17.
IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early
application is permitted, but not before an entity applies IFRS 15. A lessee can choose
to apply the standard using either a full retrospective or a modified retrospective
approach. The Group plans to adopt the new standard on the required effective date
using the modified retrospective method. The standard’s transition provisions permit
certain reliefs. In 2018, the Group will continue to assess the potential effect of IFRS 16
on its financial statements.
(iii)
IFRIC Interpretation 23 Uncertainty over Income Tax Treatment
The Interpretation addresses the accounting for income taxes when tax treatments
involve uncertainty that affects the application of IAS 12 and does not apply to taxes or
levies outside the scope of IAS 12, nor does it specifically include requirements relating
to interest and penalties associated with uncertain tax treatments.
The Interpretation specifically addresses the following:
• Whether an entity considers uncertain tax treatments separately
• The assumptions an entity makes about the examination of tax treatments by taxation
authorities
• How an entity determines taxable profit (tax loss), tax bases, unused tax losses,
unused tax credits and tax rates
• How an entity considers changes in facts and circumstances
An entity has to determine whether to consider each uncertain tax treatment separately
or together with one or more other uncertain tax treatments. The approach that better
predicts the resolution of the uncertainty should be followed. The interpretation is
effective for annual reporting periods beginning on or after 1 January 2019, but certain
transition reliefs are available. The Group will apply the interpretation from its effective
date. Since the Group operates in a complex multinational tax environment, applying the
Interpretation may affect its consolidated financial statements. In addition, the Group
may need to establish processes and procedures to obtain information that is necessary
to apply the Interpretation on a timely basis.
60
63
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
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 bank balances, trade and other receivables, finance lease
receivables – current, trade and other payables - current and loans and borrowings – current 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.
Group
2018
2017
Carrying
amount
US$’000s
Fair value
US$’000s
Carrying
amount
US$’000s
Fair value
US$’000s
Financial assets:
Finance lease receivables – non-current
5,529
5,197
8,728
8,551
Financial liabilities:
Deposits collected – non-current
Loans and borrowings other than
unsecured notes – non-current
Unsecured notes
10,338
10,119
9,321
9,054
503,374
293,522
505,916
301,899
432,672
117,889
423,169
121,328
Company
2018
2017
Carrying
amount
US$’000s
Fair value
US$’000s
Carrying
amount
US$’000s
Fair value
US$’000s
Financial liabilities:
Deposits collected – non-current
Loans and borrowings - non-current
150
48,309
150
48,031
250
-
250
-
The fair values (other than the unsecured notes) above are estimated by discounting expected
future cash flows at market incremental leading rate for similar types of lending, borrowing or
leasing arrangements at the end of the reporting period. The fair value of the unsecured notes are
based on level 1 quoted prices (unadjusted) in active market that the Group can access at
measurement date.
61
64
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
6
FAIR VALUE MEASUREMENT (CONTINUED)
Non-financial assets measured at fair value:
Group
Company
2018
US$’000s
2017
US$’000s
2018
US$’000s
2017
US$’000s
Fair value measurement using
significant unobservable inputs:
Aircraft
981,122
744,624
14,818
15,879
Aircraft were valued at 30 June 2018 and 30 June 2017. Refer to Note 19 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 bank balances
Trade and other receivables
Finance lease receivables
Financial liabilities measured at
amortised cost:
Trade and other payables
Loans and borrowings
Group
Company
2018
US$’000s
2017
US$’000s
2018
US$’000s
2017
US$’000s
91,102
9,619
8,728
87,692
9,261
45,369
3,646
148,308
-
109,449
142,322
151,954
3,046
87,281
-
90,327
15,943
868,600
17,938
643,605
884,543
661,543
34,705
51,377
86,082
25,829
7,362
33,191
Derivative used for hedging:
Derivative financial instruments, asset
Derivative financial instruments, (liability)
Fair value through profit or loss:
Options held for trading
7,848
-
2,372
(1,901)
2,036
-
-
-
2,000
3,640
2,000
3,640
62
65
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
6
FAIR VALUE MEASUREMENT (CONTINUED)
A reconciliation of liabilities arising from financing activities is as follows:
Group
Loans and borrowings:
Current
Non-current
Unsecured notes:
Non-current
2017
US$’000s
Cash flows
US$’000s
Non-cash/
other
US$’000s
2018
US$’000s
93,044
432,672
(107,978)
156,261
86,638
(85,559)
71,704
503,374
117,889
643,605
175,633
223,916
-
1,079
293,522
868,600
The ‘other’ column includes the amortisation of loan insurance premium and reclassification of non-
current portion of loans and borrowings due to passage of time.
Company
Loans and borrowings:
Current
Non-current
Interest bearing payable due to
subsidiaries
2017
US$’000s
Cash flows
US$’000s
Non-cash/
other
US$’000s
2018
US$’000s
7,362
-
(4,294)
48,309
17,908
9,085
25,270
53,100
-
-
-
-
3,068
48,309
26,993
78,370
63
66
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
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
2018
US$’000s
2017
US$’000s
2,980
109
3,089
1,669
1,010
2,679
64
67
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
7
FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(b) Credit risk (continued)
(i)
Financial assets that are neither past due nor impaired
Financial assets that are neither past due nor impaired are comprised of bank
deposits and trade receivables. Bank deposits that are neither past due or impaired
are mainly deposits with banks with strong credit–ratings from international credit-
rating agencies. Trade receivables that are neither past due nor impaired amounting
to US$1.39 million (2017: US$1.76 million) are substantially due from companies
with a good payment track record.
(ii)
Financial assets that are past due and/or impaired
There is no class of financial assets that are past due and/or impaired except for
trade receivables.
The age analysis of trade receivables past due but not impaired is as follows:
Past due less than 3 months
Past due 3 to 6 months
Past due over 6 months
(c)
Interest rate risk
Group
2018
US$’000s
2017
US$’000s
1,325
210
167
816
59
46
1,702
921
The Group is exposed to interest rate risk through the impact of interest rate changes on
floating rate interest bearing liabilities and assets.
The Group seeks to reduce its exposure to interest rate risk by fixing interest rates on the
majority of its loans and borrowings. As at 30 June 2018, 95% (2017: 95%) of the Group’s
loans and borrowings are at fixed rates.
The interest rates and repayment terms for financial assets and financial liabilities are
disclosed in the respective notes to the financial statements.
(d)
Foreign currency risk
Foreign currency risk arises from transactions and cash balances that are not denominated
in the Group’s functional currency. The Group’s foreign currency exposures arose mainly
from movements in the exchange rate for Singapore Dollars and Euro against the United
States Dollar.
The Group aims to mitigate foreign currency risk by holding the majority of its cash balances
in United States Dollars. From time to time the Group utilises forward foreign currency
contracts to hedge its exposure to specific currency risks.
65
68
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
7
FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(d) Foreign currency risk (continued)
The Group’s foreign currency exposure is as follows:
Group
2018:
Pound sterling
Australian dollar
Euro
Singapore dollar
2017:
Pound sterling
Australian dollar
Euro
Swiss Franc
Singapore dollar
Company
2018:
Pound sterling
Australian dollar
Euro
Singapore dollar
2017:
Pound sterling
Australian dollar
Euro
Singapore dollar
Cash and
bank
balances
US$’000s
Trade and
other
receivables
US$’000s
Other
financial
liabilities
US$’000s
Net
currency
exposure
US$’000s
34
-
826
317
16
-
180
57
(112)
(5)
(29,339)
(533)
(62)
(5)
(28,333)
(159)
1,177
253
(29,989)
(28,559)
43
-
49
-
354
23
-
31
5
60
(114)
(5)
(63)
-
(493)
(48)
(5)
17
5
(79)
446
119
(675)
(110)
Cash and
bank
balances
US$’000s
Trade and
other
receivables
US$’000s
Other
financial
liabilities
US$’000s
Net
currency
exposure
US$’000s
16
-
-
25
41
21
-
-
25
46
(112)
(5)
(184)
(19)
(74)
(5)
(184)
50
(320)
(213)
(95)
(5)
-
(22)
(58)
(5)
-
192
(122)
129
22
-
-
44
66
16
-
-
189
205
66
69
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
7
FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(d) Foreign currency risk (continued)
The table below illustrates the effect on total profit and total equity that would result from a
strengthening of foreign currencies against the United States Dollar by 10% (2017: 10%)
with all other variables including tax rate being held constant:
Group
Company
2018
US$’000s
2017
US$’000s
2018
US$’000s
2017
US$’000s
Foreign currency:
Pound sterling
Euro
Singapore dollar
(6)
(2,833)
(16)
(5)
2
(8)
(7)
(18)
5
(6)
-
19
A weakening of the respective currencies by 10% against the United States Dollar would
have an equal and opposite effect.
The Group entered into a Euro denominated lease agreement for an aircraft and
subsequently arranged Euro denominated financing in order to hedge the exposure to
foreign exchange risk associated with the Euro denominated lease revenue.
(e)
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting financial obligations
due to shortage of funds. The Group’s exposure to liquidity risk arises primarily from
mismatches of the maturities of financial assets and liabilities. The Group monitors and
maintains a level of cash and cash equivalents that management deems adequate to finance
the Group’s operations and mitigate the effects of fluctuations in cash flows. Short-term
funding is obtained from loan facilities.
67
70
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
7
FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(e) Liquidity risk (continued)
Analysis of financial instruments by remaining contractual maturities
The table below summarises the maturity profile of the Group’s financial assets and non-
derivative liabilities at the end of the reporting period based on contractual undiscounted
repayment obligations:
One year or
less
US$’000s
One to five
years
US$’000s
Over five
years
US$’000s
Total
US$’000s
Group
2018:
Financial assets:
Cash and bank balances
Trade and other receivables
Finance lease receivable
Total undiscounted financial assets
97,929
12,135
91,102
3,191
3,636
-
6,428
5,707
-
-
-
-
91,102
9,619
9,343
110,064
Financial liabilities:
Trade and other payables
Loans and borrowings
Total undiscounted financial
liabilities
1,447
119,012
6,974
681,633
8,241
274,177
16,662
1,074,822
120,459
688,607
282,418
1,091,484
Total net undiscounted financial
liabilities
(22,530)
(676,472)
(282,418)
(981,420)
2017:
Financial assets:
Cash and bank balances
Trade and other receivables
Finance lease receivable
87,692
4,563
37,386
-
4,698
9,344
Total undiscounted financial assets
129,641
14,042
-
-
-
-
87,692
9,261
46,730
143,683
Financial liabilities:
Trade and other payables
Loans and borrowings
Total undiscounted financial
liabilities
8,623
124,084
4,302
416,487
7,588
256,528
20,513
797,099
132,707
420,789
264,116
817,612
Total net undiscounted financial
liabilities
(3,066)
(406,747)
(264,116)
(673,929)
68
71
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
7
FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(e) Liquidity risk (continued)
Company
2018:
Financial assets:
Cash and bank balances
Trade and other receivables
One year or
less
US$’000s
One to five
years
US$’000s
Over five
years
US$’000s
Total
US$’000s
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,646
148,308
151,954
34,633
57,570
92,203
59,751
3,046
87,281
90,327
25,829
7,362
33,191
57,136
3,646
93,571
-
54,737
Total undiscounted financial assets
97,217
54,737
Financial liabilities:
Trade and other payables
Loans and borrowings
Total undiscounted financial
liabilities
34,483
5,267
150
52,303
39,750
52,453
Total net undiscounted financial
assets
57,467
2,284
2017:
Financial assets:
Cash and bank balances
Trade and other receivables
3,046
82,583
-
4,698
Total undiscounted financial assets
85,629
4,698
Financial liabilities:
Trade and other payables
Loans and borrowings
Total undiscounted financial
liabilities
25,579
7,362
250
-
32,941
250
Total net undiscounted financial
assets
52,688
4,448
69
72
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
7
FINANCIAL INSTRUMENTS RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(f)
Capital risk
The Group’s objectives when managing capital are to safeguard the Group’s ability to
continue as a going concern and to maintain a suitable capital structure so as to fund growth
and maximise shareholder value. In order to maintain or achieve an optimal capital
structure, the Group may adjust the amount of dividend payments, return capital to
shareholders, issue new shares, buy back issued shares, incur new borrowings or sell assets
to reduce borrowings.
Management monitors capital based on a gearing ratio. The gearing ratio is calculated as
net debt divided by total capital. Net debt is calculated as borrowings less cash and bank
balances.
Group
Company
2018
US$’000s
2017
US$’000s
2018
US$’000s
2017
US$’000s
Current:
Net debt
Total equity
777,498
228,178
555,913
195,924
47,731
98,832
4,316
90,308
Total capital
1,005,676
751,837
146,563
94,624
Gearing ratio:
77%
74%
33%
5%
The Group is in compliance with all externally imposed capital requirements for the years
ended 30 June 2018 and 30 June 2017.
(g)
Fair value of financial assets and financial liabilities
The fair values of financial assets and financial liabilities reported in the statement of
financial position approximate the carrying amounts of those assets and liabilities.
70
73
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
8
RELATED PARTY TRANSACTIONS
In addition to related party information disclosed elsewhere in these financial statements, the
following transactions took place between the Group and related parties at terms agreed between
the parties.
(a) Remuneration of key management personnel
The remuneration of Directors and key management includes fees, salary, bonus,
commission and other emoluments (including benefits-in-kind) based on the cost incurred
by the Company and the Group, and where the Company or Group did not incur any costs,
the value of the benefits. Key management remuneration is as follows:
Group
Company
2018
US$’000s
2017
US$’000s
2018
US$’000s
2017
US$’000s
Key management:
Short-term employee benefits
2,515
2,007
441
381
The amount above includes remuneration in respect of the highest paid Director as follows:
Aggregate emoluments
611
541
Group
2018
US$’000s
2017
US$’000s
No contributions were made on behalf of any Directors to money purchase pension schemes.
71
74
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
8
RELATED PARTY TRANSACTIONS (continued)
(b) Significant related party transactions:
Entities controlled by key
management personnel
(including Directors):
Rental expenses paid
Consulting fee paid
Interest expense
Sale of dormant subsidiary
Directors
Interest expense
Group
Company
2018
US$’000s
2017
US$’000s
2018
US$’000s
2017
US$’000s
(209)
(250)
(373)
5
(213)
(193)
(424)
-
(103)
(250)
-
-
(119)
(163)
(15)
-
(14)
(44)
-
(29)
(c)
Significant transactions between the Company and its subsidiaries:
Commission income
Dividend income
Interest income
Management and service fee income
Rental income
Interest expense
Company
2018
US$’000s
2017
US$’000s
-
7,001
3,284
-
2,024
(1,663)
960
6,584
1,568
44
2,088
(997)
72
75
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
9
REVENUE
Lease rental revenue
Maintenance reserves released
End of lease return compensation
Group
2018
US$’000s
2017
US$’000s
97,581
10,491
981
92,414
-
1,759
109,053
94,173
The maintenance reserves revenue relates to the recovery of maintenance reserve from an
insolvent airline customer that defaulted on its lease payments. See Note 32.
End of lease return compensation represents contingent rents as set out in the revenue
recognition accounting policy.
Geographical analysis
2018
2017
Europe
US$’000s
Asia
Pacific
US$’000s
Total
US$’000s
34,777
33,620
74,276
60,553
109,053
94,173
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$26.5
million (2017: US$34.8 million), 24.3% (2017: 37%) of the Group’s total revenues from
continuing operations.
73
76
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
10
OTHER INCOME
Finance lease conversion fee
Fair value gain on options held for trading
Fair value gain on derivatives
Foreign currency exchange gain
Sale of aircraft parts
Gain on disposal of subsidiary
Others
Group
2018
US$’000s
2017
US$’000s
-
-
2,138
261
216
1
161
325
600
54
35
-
-
72
2,777
1,086
The fair value gain on derivatives arose from the mark-to-market gains on the ineffective hedge
portion of the interest rate swap contracts.
At of 30 June 0218, the Group disposed of a 100% owned subsidiary, MSN 429 Limited on 30 June
2018 for a cash consideration of US$5,025.
The aggregate cash inflows arising from the disposal of MSN 429 Limited were:
Cash
Identifiable net assets disposed
Gain on disposal
Cash proceeds from disposal
Less : cash and cash equivalents in subsidiary disposed
Net cash inflow on disposal
US$’000
4
4
1
5
(4)
1
74
77
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
11
ADMINISTRATIVE EXPENSES
Staff costs (note 15)
Other administrative expenses
12
OTHER EXPENSES
Fair value loss on options held for trading
Impairment loss on trade receivables
Non-trade receivables written off
Others
13
FINANCE INCOME
Interest income from financial institutions
Interest income from finance lease
Interest rate swap break gain
Finance income from discounting non-current deposits to fair value
Group
2018
US$’000s
2017
US$’000s
4,699
5,503
3,716
4,330
10,202
8,046
Group
2018
US$’000s
2017
US$’000s
1,640
-
-
11
1,651
-
41
30
-
71
Group
2018
US$’000s
2017
US$’000s
413
734
3,611
359
25
836
-
929
5,117
1,790
Interest rate swap break gain relates to the gain arising from the termination of the interest rate
swap contracts concurrently with early repayments of loans and borrowings.
75
78
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
14
FINANCE EXPENSES
Interest expense on borrowings
Interest expense on unsecured notes
Amortisation of loan insurance premium
Amortisation of interest expense on non-current deposits
Finance charges on early full repayment of borrowings
Others
15
STAFF COSTS
Salaries and fees
Bonuses
Defined contribution plans
Benefits
Warrants expense
Group
2018
US$’000s
2017
US$’000s
28,798
13,984
1,078
349
120
486
29,079
8,317
1,078
924
914
314
44,815
40,626
Group
2018
US$’000s
2017
US$’000s
3,532
627
93
53
394
3,001
367
83
45
220
4,699
3,716
The average number of Directors of the Company for the year is 4 (2017: 4). The average number
of other employees for the year is 18 (2017: 16).
16
PROFIT BEFORE TAXATION
Profit before taxation for the year is stated after charging/(crediting) the following:
Group
2018
US$’000s
2017
US$’000s
34,284
(216)
32,300
(35)
202
298
500
145
693
838
85
13
98
-
-
-
Depreciation of property, plant and equipment
Foreign currency exchange/(gain)
Audit fees:
Fees payable to the Company’s auditor and their associates
for the audit of the Company’s annual accounts
Fees payable to the Company’s auditor and their associates
for audits of the Company’s subsidiaries’ annual accounts
Total audit fees
Auditors’ remuneration for non-audit services:
- Tax compliance services
- All other assurance services
Total fees for non-audit services
76
79
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
17
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
Income tax (credit)/expense
Group
2018
US$’000s
2017
US$’000s
85
490
1,350
1,810
(2,279)
1,009
(464)
(261)
-
335
(1,085)
(2)
8
(686)
(936)
(1,479)
41
106
Income tax differs from the amount of income tax expense determined by applying the Singapore
tax rate of 17% to profit before income tax as a result of the following differences:
Group
2018
US$’000s
2017
US$’000s
18,915
21,363
3,215
3,632
(2,279)
1,009
-
937
(171)
(556)
51
(2,362)
(1,262)
-
(31)
335
29
(1,085)
(2)
8
(1,479)
2,593
(1,511)
113
-
-
(2,005)
(1,234)
(52)
41
2
106
Profit before income tax
Tax calculated at 17% (2017: 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
Deferred tax asset not recognised
Utilisation of deferred tax asset not recognised
Effect of concessionary tax rate at 10%
Effect of concessionary tax rate at 8%
Effect of tax exemption and tax relief
Withholding tax
Others
77
80
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
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 year.
Company
2018
US$’000s
2017
US$’000s
Net profit attributable to equity holders of the company
19,992
21,262
Weighted average number of ordinary shares (‘000s)
62,089
58,626
Basic earnings per share
32.20 cents
36.27 cents
(b) Diluted earnings per share
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 year) for the
same total proceeds is added to the denominator as the number of shares issued for no
consideration.
Diluted earnings per share attributable to equity holders of the Company is calculated as
follows:
Company
2018
US$’000s
2017
US$’000s
Net profit attributable to equity holders of the company
19,992
21,262
Weighted average number of ordinary shares (‘000s)
Adjustment for warrants (‘000s)
62,089
698
58,626
966
Weighted average number of ordinary shares (‘000s)
62,787
59,592
Diluted earnings per share
31.84 cents
35.68 cents
78
81
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
19
PROPERTY, PLANT AND EQUIPMENT
Group
2018:
Cost or valuation:
At beginning of year
Additions
Disposals/written-off
Reclassified as assets held for sale
Revaluation recognised in equity
At end of the year
Representing:
At cost
At valuation
Furniture
and
equipment
US$’000s
Jets
US$’000s
Turbo
props
US$’000s
Total
US$’000s
432
19
(105)
-
-
346
476,170
283,975
-
(51,281)
4,278
336,594
38,810
-
-
(528)
813,196
322,804
(105)
(51,281)
3,750
713,142
374,876
1,088,364
346
-
-
713,142
-
374,876
346
1,088,018
346
713,142
374,876
1,088,364
Accumulated depreciation and impairment:
At beginning of year
Depreciation expense
Disposals/written-off
Reclassified as assets held for sale
Impairment loss
At end of the year
Net book value:
At beginning of the year
At end of the year
325
72
(105)
-
-
292
107
54
25,088
21,709
-
(2,536)
7,080
43,052
12,503
-
-
-
68,465
34,284
(105)
(2,536)
7,080
51,341
55,555
107,188
451,082
293,542
744,731
661,801
319,321
981,176
79
82
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
19
PROPERTY, PLANT AND EQUIPMENT (continued)
Group
2017:
Cost or valuation:
At beginning of year
Additions
Disposals/written-off
Reclassified as held under finance leases
Impairment recognised in equity
Furniture
and
equipment
US$’000s
Jets
US$’000s
Turbo
props
US$’000s
Total
US$’000s
388
47
(3)
-
-
382,565
256,791
(126,916)
(32,383)
(3,887)
435,215
18,827
(117,448)
-
-
818,168
275,665
(244,367)
(32,383)
(3,887)
At end of the year
432
476,170
336,594
813,196
Representing:
At cost
At valuation
432
-
-
476,170
-
336,594
432
812,764
432
476,170
336,594
813,196
Accumulated depreciation and impairment:
At beginning of year
Depreciation expense
Disposals/written-off
Reclassified as held under finance leases
206
122
(3)
-
55,845
17,008
(27,609)
(20,156)
37,135
15,170
(9,253)
-
93,186
32,300
(36,865)
(20,156)
At end of the year
325
25,088
43,052
68,465
Net book value:
At beginning of the year
At end of the year
182
107
326,720
398,080
724,982
451,082
293,542
744,731
80
83
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
19
PROPERTY, PLANT AND EQUIPMENT (continued)
Company
2018
Cost or valuation:
At beginning of year
Additions
Impairment recognised in equity
Furniture
and
equipment
US$’000s
Jets
US$’000s
Total
US$’000s
196
6
-
19,949
-
(34)
20,145
6
(34)
At end of the year
202
19,915
20,117
Representing:
At cost
At valuation
Accumulated depreciation and impairment:
At beginning of year
Depreciation expense
202
-
-
19,915
202
19,915
202
19,915
20,117
156
35
4,070
1,027
4,226
1,062
At end of the year
191
5,097
5,288
Net book value:
At beginning of the year
At end of the year
40
11
15,879
14,818
15,919
14,829
81
84
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
19
PROPERTY, PLANT AND EQUIPMENT (continued)
Company
2017:
Cost or valuation:
At beginning of year
Additions
At end of the year
Representing:
At cost
At valuation
Accumulated depreciation and impairment:
At beginning of year
Depreciation expense
Furniture
and
equipment
US$’000s
Jets
US$’000s
Total
US$’000s
189
7
19,949
-
20,138
7
196
19,949
20,145
196
-
-
19,949
196
19,949
196
19,949
20,145
93
63
3,045
1,025
3,138
1,088
At end of the year
156
4,070
4,226
Net book value:
At beginning of the year
At end of the year
96
40
16,904
15,879
17,000
15,919
82
85
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
19
PROPERTY, PLANT AND EQUIPMENT (continued)
Assets pledged as security
The Group’s aircraft with carrying values of US$925.42 million (2017: US$725.86 million) are
mortgaged to secure the Group’s borrowings (Note 30).
Additions and Disposals
During the year, the Group acquired 3 Jet aircraft and 2 Turboprop aircraft. Aircraft with a net
book value of US$48.7 million were reclassified to assets held for sale.
Valuation
The Group’s aircraft were valued in June 2018 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% per annum for Jet aircraft and 8.1% per annum for Turboprop aircraft.
Different discount rates are considered appropriate for different aircraft based on their respective
risk profiles.
During the year, an impairment loss of US$7.1 million was recognised to write down the book
value of an aircraft to its fair value. The aircraft was repossessed from an insolvent airline and
leased to a new customer under a new lease with different terms and duration.
During the previous year, two aircraft were revalued downward prior to the sale of the aircraft
using discounted cash flow methodology based on the value specified in the sales agreement and
the present value of the remaining lease payments.
If the aircraft were measured using the cost model, the carrying amounts would be as follows:
Group
2018
2017
Jets
US$’000s
Turbo
props
US$’000s
Jets
US$’000s
Turbo
props
US$’000s
Cost
Accumulated depreciation and impairment
704,181
(51,586)
352,475
(53,232)
471,487
(25,903)
313,665
(42,041)
Net book value
652,595
299,243
445,584
271,624
Company
Cost
Accumulated depreciation and impairment
Net book value
2018
2017
Jets
US$’000s
16,561
(4,036)
12,525
Turbo
props
US$’000s
Jets
US$’000s
Turbo
props
US$’000s
-
-
-
16,561
(3,257)
13,304
-
-
-
83
86
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
19
PROPERTY, PLANT AND EQUIPMENT (continued)
Geographical analysis
2018
Capital expenditure
Net book value - aircraft
2017
Capital expenditure
Net book value - aircraft
20
TRADE AND OTHER RECEIVABLES
Current:
Trade receivables
Less:
Impairment loss on trade receivables
Other receivables:
– subsidiaries
– related parties
– third parties
Interest receivables:
– subsidiaries
– third parties
Deposits
Prepaid expenses
Non-current:
Other receivables:
– subsidiaries
Deposits for aircraft
Prepaid expenses
Europe
US$’000s
Asia
Pacific
US$’000s
Total
US$’000s
36,544
242,772
286,260
738,350
322,804
981,122
Europe
US$’000s
Asia
Pacific
US$’000s
Total
US$’000s
-
222,039
275,665
522,585
275,665
744,624
Group
Company
2018
US$’000s
2017
US$’000s
2018
US$’000s
2017
US$’000s
3,130
2,720
(41)
3,089
-
5
49
-
-
48
723
(41)
2,679
-
-
1,813
-
16
55
468
160
-
160
90,138
-
16
3,232
-
25
246
175
-
175
80,126
-
21
2,236
-
25
151
3,914
5,031
93,817
82,734
-
6,428
362
-
4,698
492
48,309
6,428
-
-
4,698
-
6,790
5,190
54,737
4,698
84
87
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
20
TRADE AND OTHER RECEIVABLES (CONTINUED)
Other receivables from subsidiaries includes interest bearing receivables of US$75.37 million
(2017: US$23.40 million). The receivables are unsecured and repayable upon demand. Interest
is charged at 3.0% to 6.0% (2017: 5.5% to 6.0%) per annum.
The average credit period generally granted to customers is 30 to 60 days. Rent for leased aircraft
is due in advance in accordance with the leases.
Trade and other receivables denominated in foreign currencies are as follows:
Group
Company
2018
US$’000s
2017
US$’000s
2018
US$’000s
2017
US$’000s
16
180
-
57
23
31
5
60
16
-
-
25
21
-
-
25
Pound sterling
Euro
Swiss Franc
Singapore dollar
21
FINANCE LEASE RECEIVABLES
During the previous year, a third party who leased 5 aircraft from the Group agreed to acquire the
aircraft at the end of their lease terms. As a result the leases for these aircraft have been
reclassified as finance leases. The leases have a remaining term of approximately 1.5 to 2.5 years.
Finance lease receivables do not include any contingent rents or residual value guarantees.
Future minimum lease payments receivable under finance are as follows:
Group
2018
2017
Minimum
lease
payments
US$’000s
Present
value of
payments
US$’000s
Minimum
lease
payments
US$’000s
Present
value of
payments
US$’000s
Within one year
Later than one year but not more than five
years
3,636
3,199
37,386
36,641
5,707
5,529
9,344
8,728
Total minimum lease payments
9,343
8,728
46,730
45,369
Less: amounts representing interest
income
Present value of minimum lease
payments
(615)
-
(1,361)
-
8,728
8,728
45,369
45,369
85
88
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
22
GOODWILL
Cost:
At beginning and end of the year
Accumulated amortisation and impairment:
At beginning and end of the year
Net carrying amount:
At beginning and end of the year
Impairment test of goodwill
Group
2018
US$’000s
2017
US$’000s
2,384
2,384
482
482
1,902
1,902
Goodwill is allocated to the cash generating unit ("CGU") of the Group which is in the aircraft
leasing 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
2018
%
2017
%
2.0
2.0
10.0
2.0
2.0
10.0
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$241.9 million (2017: US$174.4 million).
Management believes that no reasonably possible change in any of the above key assumptions
would cause the carrying value of the CGU to materially exceed its recoverable amount.
86
89
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
23
INVESTMENT IN SUBSIDIARIES
Company
2018
US$’000s
2017
US$’000s
Unquoted equity shares, at cost
15,375
15,375
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
2018
%
2017
%
Held directly by the Company:
Avation.net Inc
Avation Capital S.A.
Capital Lease Aviation Limited
MSN429 Leaseco Limited
Avation Group (S) Pte. Ltd.
AVAP Leasing (Europe) Limited
AVAP Leasing (Asia) Limited
AVAP Leasing (Asia) II Limited
AVAP Leasing (Asia) III Limited
AVAP Leasing (Asia) IV Limited
United States
Luxembourg
Procurement
Financing
United Kingdom Aircraft leasing
United Kingdom Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Singapore
Ireland
Ireland
Ireland
Ireland
Ireland
99.96
100.00
99.68
100.00
100.00
-
100.00
100.00
100.00
100.00
99.96
100.00
99.68
100.00
100.00
100.00
100.00
100.00
100.00
100.00
+
Held by Capital Lease Aviation Limited:
Capital Lease Malta Ltd.
Capital Lease Aviation (S) Pte. Ltd.
Capital MSN 4033 Limited
Capital MSN 4033 II Limited
(a)
+
Malta
Singapore
Ireland
Ireland
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
99.68
-
99.68
99.68
99.68
99.68
99.68
-
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.
Held by Avation Eastern Fleet III Pte. Ltd.:
Airframe Leasing (S) III Pte. Ltd.
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.
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
++ United Kingdom Aircraft leasing
-
100.00
Singapore
Aircraft leasing
100.00
100.00
87
90
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
23
INVESTMENT IN SUBSIDIARIES (continued)
Name of entity
Country of
incorporation
Principal
activities
Ownership
interest
2018
%
2017
%
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 Pacific Leasing II Pte. Ltd.
Avation Taiwan Leasing Pte. Ltd.
Avation Taiwan Leasing II Pte. Ltd.
Avation Taiwan Leasing III Pte. Ltd.
Avation Taiwan Leasing IV Pte. Ltd.
AVAP Leasing (Europe) II Pte. Ltd.
AVAP Leasing (Europe) III Pte. Ltd.
AVAP Leasing (Europe) IV Pte. Ltd.
AVAP Leasing (Europe) VI Pte. Ltd.
MSN 429 (S) Pte. Ltd.
F100 Fleet Pte. Ltd.
MSN 1607 Pte. Ltd.
AVAP Aircraft Trading Pte. Ltd.
AVAP Aircraft Trading II Pte. Ltd.
Avation Asia Fleet Pte. Ltd.
Avation Asia Fleet II Pte. Ltd.
Avation Asia Fleet III Pte. Ltd.
MSN 1922 Pte. Ltd.
Avation Denmark Leasing Pte. Ltd.
Avation Capital II Pte. Ltd.
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
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
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
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
-
-
-
All companies as at 30 June 2018 are audited by member firms of Ernst & Young except for the
following:
(a) Audited by Nexia BT, Malta
+ Dissolved during the year.
++ Disposed during the year.
For all non-controlling interests, voting rights not controlled by group are equivalent to ownership
interests.
88
91
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
24
DERIVATIVE FINANCIAL INSTRUMENTS
Group
Contract/
notional amount
Fair value
2018
US$’000s
2017
US$’000s
2018
US$’000s
2017
US$’000s
Interest rate swap – non-current asset
Interest rate swap – non-current liability
310,755
-
96,829
87,014
7,848
-
2,372
1,901
Company
Contract/
notional amount
Fair value
2018
US$’000s
2017
US$’000s
2018
US$’000s
2017
US$’000s
Interest rate swap – non-current asset
Interest rate swap – non-current liability
96,750
-
-
-
2,036
-
-
-
The Group pays fixed rates of interest of 1.57% to 2.63% per annum and receives floating rate
interest equal to 3-month LIBOR under the interest rate swap contracts. The swap contracts
mature between 23 September 2021 and 22 December 2028.
The fair value of the derivative financial instruments is determined by reference to marked-to-
market values provided by counterparties. The fair value measurement of all derivative financial
instruments under the Group is classified under Level 2 of the fair value hierarchy, for which inputs
other than quoted prices that are observable for the asset or liability, either directly (that is, as
prices) or indirectly (that is, derived from prices) are included as inputs for the determination of
fair value.
89
92
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
25
OPTIONS HELD FOR TRADING
Group and Company
2017
2018
US$’000s
US$’000s
Options to purchase aircraft, at fair value
2,000
3,640
26
CASH AND BANK BALANCES
Group
Company
2018
US$’000s
2017
US$’000s
2018
US$’000s
2017
US$’000s
Unrestricted
Restricted
Cash at bank and on hand
57,950
33,152
91,102
56,849
30,843
87,692
3,646
-
3,646
3,046
-
3,046
The Group’s restricted cash and bank balances have been pledged as security for certain loan
obligations.
The rate of interest for cash on interest earning accounts is approximately 0.01% to 1.08% (2017:
0.01% to 1.08%) per annum.
In the consolidated statement of cash flows, cash and cash equivalents comprises unrestricted
cash and bank balances.
Cash and bank balances denominated in foreign currencies are as follows:
Group
Company
2018
US$’000s
2017
US$’000s
2018
US$’000s
2017
US$’000s
Pound sterling
Euro
Singapore dollar
34
826
317
43
49
354
22
-
44
16
-
189
90
93
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
27
ASSETS HELD FOR SALE AND LIABILITIES DIRECTLY ASSOCIATED WITH
ASSETS HELD FOR SALE
As at 30 June 2018, the Group’s aircraft which met the criteria to be classified as assets held for
sale and the associated liabilities were as follows:
Group
2018
US$’000
2017
US$’000s
Assets held for sale:
Property, plant and equipment - aircraft
At beginning of year
Additions
At end of year
Liabilities directly associated with
assets held for sale:
-
48,745
48,745
Deposits collected
500
-
-
-
-
The Group has entered into a letter of intent to sell the aircraft currently classified as an asset
held for sale to a third party buyer subsequent to the year end. The buyer paid a deposit in
August 2018 and the sale is expected to complete by December 2018.
91
94
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
28
SHARE CAPITAL AND TREASURY SHARES
(a) Share capital
2018
2017
No of shares
US$’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
61,071,246
1,689,000
1,058
22
55,785,227
5,286,019
993
65
At end of the year
62,760,246
1,080 61,071,246
1,058
During the year, the Company issued 1,689,000 ordinary shares of 1 penny at prices ranging
130p to 153p following the exercise of warrants by warrant holders raising total gross
proceeds of US$3.29m.
The holders of ordinary shares (except for treasury shares) are entitled to receive dividends
as and when declared by the Company. All ordinary shares carry one vote per share without
restrictions.
(b)
Treasury shares
2018
2017
No of
treasury
shares
US$’000s
No of
treasury
shares
US$’000s
At beginning of the year
Acquired during the year
Re-issued during the year
At end of the year
-
-
-
-
-
-
-
-
600
-
(600)
-
1
-
(1)
-
(c) Net asset value per share
Net asset value per share (US$)(1)
Net asset value per share (GBP) (2)
2018
2017
$3.64
£2.76
$3.21
£2.47
(1) Net asset value per share is total equity divided by the total number of shares in issue at period
end.
(2) Based on GBP:US$ exchange rate as at 30 June 2018 of 1.321 (30 June 2017 : 1.300).
92
95
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
28
SHARE CAPITAL AND TREASURY SHARES
(a) Share capital
2018
2017
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
61,071,246
1,689,000
1,058
22
55,785,227
5,286,019
993
65
At end of the year
62,760,246
1,080 61,071,246
1,058
During the year, the Company issued 1,689,000 ordinary shares of 1 penny at prices ranging
130p to 153p following the exercise of warrants by warrant holders raising total gross
proceeds of US$3.29m.
The holders of ordinary shares (except for treasury shares) are entitled to receive dividends
as and when declared by the Company. All ordinary shares carry one vote per share without
restrictions.
(b)
Treasury shares
2018
2017
No of
treasury
shares
US$’000s
No of
treasury
shares
US$’000s
At beginning of the year
Acquired during the year
Re-issued during the year
At end of the year
-
-
-
-
-
-
-
-
600
-
(600)
-
1
-
(1)
-
(c) Net asset value per share
Net asset value per share (US$)(1)
Net asset value per share (GBP) (2)
2018
2017
$3.64
£2.76
$3.21
£2.47
(1) Net asset value per share is total equity divided by the total number of shares in issue at period
end.
(2) Based on GBP:US$ exchange rate as at 30 June 2018 of 1.321 (30 June 2017 : 1.300).
92
96
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
29
OTHER RESERVES
Group
Company
2018
US$’000s
2017
US$’000s
2018
US$’000s
2017
US$’000s
Capital redemption reserve
Warrant reserve
Fair value reserve
Foreign currency translation reserve
12
721
5,656
-
12
399
417
(27)
12
721
-
-
12
399
-
-
6,389
801
733
411
Movements in other reserves are as follows:
Group
Company
2018
US$’000s
2017
US$’000s
2018
US$’000s
2017
US$’000s
Warrant reserve:
At the beginning the year
Employee share warrant scheme:
- Value of employee services
- Issue of shares
- Expired
399
588
399
588
688
(348)
(18)
220
(403)
(6)
688
(348)
(18)
220
(403)
(6)
At end of the year
721
399
721
399
Fair value reserve:
At the beginning the year
Fair value gain
417
5,239
(2,387)
2,804
At end of the year
5,656
417
Foreign currency translation reserve:
At the beginning the year
Transfer to profit or loss
(27)
27
(27)
-
At end of the year
-
(27)
-
-
-
-
-
-
-
-
-
-
-
-
93
97
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
30
LOANS AND BORROWINGS
Group
Company
2018
US$’000s
2017
US$’000s
2018
US$’000s
2017
US$’000s
Secured borrowings
Junior secured borrowings
Unsecured notes (a)
555,787
19,291
293,522
502,301
23,415
117,889
51,377
-
-
7,362
-
-
Less: current portion of borrowings
(71,704)
(93,044)
(3,068)
(7,362)
868,600
643,605
51,377
7,362
796,896
550,561
48,309
-
Maturity
Weighted average
interest rate per annum
2018
US$’000s
2017
US$’000s
2018
%
2017
%
Secured borrowings
Junior secured borrowings
Unsecured notes (a)
2018-2028
2020-2023
2021
2017-2028
2020-2023
2020
4.2%
6.7%
6.5%
4.5%
6.7%
7.5%
Secured borrowings are secured by first ranking mortgages over the relevant aircraft, 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.
Borrowing costs capitalised into loans and borrowings amounted to US$9.72 million (2017:
US$4.38 million). The rate used to determine the amount of borrowing costs for capitalisation
was 5.8% (2017: 6.2%) per annum.
94
98
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
30
LOANS AND BORROWINGS (continued)
(a) 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. All Notes issued under the Programme are listed
on the Singapore Stock Exchange (“SGX”).
In May 2015, the Issuers issued US$100 million 7.5% Senior Notes due 2020 under the
Programme.
In May 2017, the Issuers issued US$20 million 7.5% Senior Notes due 2020 under the
Programme.
Entities over which a Director has significant influence held US$5.45 million of the May 2015
series of the 7.5% Senior Notes due 2020 as at 30 June 2017. The Notes were fully
redeemed during the year.
A Director of the Company held US$0.2 million of the May 2015 series of the 7.5% Senior
Notes due 2020 as at 30 June 2017. The Notes were fully redeemed during the year.
During the year, the Issuers issued US$30 million 7.5% Senior Notes due 2020 and US$300
million 6.5% Senior Notes due 2021 under the Programme.
The Group fully redeemed US$150 million 7.5% Senior Notes due 2020 during the year.
Loans and borrowings denominated in foreign currencies are as follows:
Group
Company
2018
US$’000s
2017
US$’000s
2018
US$’000s
2017
US$’000s
Euro
28,638
-
-
-
95
99
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
31
TRADE AND OTHER PAYABLES
Current:
Trade payables
Other payables:
- subsidiaries
- third parties
Dividend payable
Deposits collected
Deferred lease income
Revenue received in advance
Accrued expenses
Non-current:
Deposits collected
Deferred lease income
Group
Company
2018
US$’000s
2017
US$’000s
2018
US$’000s
2017
US$’000s
741
372
335
18
-
31
-
-
376
7,409
4,833
-
33
3,664
1,094
356
5,947
3,454
31,379
31
-
-
-
73
2,810
20,892
31
3,664
-
-
99
974
13,390
14,920
34,628
25,678
10,338
2,059
9,321
2,159
150
-
250
-
12,397
11,480
150
250
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$26.99 million (2017:
US$17.91 million) which are unsecured, payable upon demand and bear interest at 8.2% to 9.3%
(2017: 9.3%) per annum. Accrued expenses includes interest payable to subsidiaries of US$2.52
million (2017: US$0.86 million).
The average credit period taken to settle non-related party trade payables is approximately 30 to
60 days.
Deposits collected are security deposits collected from customers in respect of aircraft lease
commitments, and have been discounted to present value at a current pre-tax rate that reflect the
risks specific to these deposits. Deposits will be refunded at the end of the respective lease term.
Trade and other payables denominated in foreign currencies are as follows:
Pound sterling
Australian dollar
Euro
Singapore dollar
Group
Company
2018
US$’000s
2017
US$’000s
2018
US$’000s
2017
US$’000s
112
5
701
533
114
5
63
493
112
5
184
19
95
5
-
22
96
100
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
32 MAINTENANCE RESERVES
Current
Non-current
Group
2018
US$’000s
2017
US$’000s
1,040
22,504
451
20,813
Total maintenance reserves
23,544
21,264
At beginning of year
Contributions
Utilisations
Released to profit or loss
At end of the year
Group
2018
US$’000s
2017
US$’000s
21,264
13,193
(422)
(10,491)
10,763
10,668
(167)
-
23,544
21,264
During the financial year, maintenance reserves of US$10.49 million were released to profit or loss
as revenue due to the recovery of maintenance reserve from an insolvent airline customer that
defaulted on its lease payments. See Note 9.
The Group also holds letters of credit for US$21.33 million (2017: US$16.82 million) as security
for lessees’ obligations under operating leases for the maintenance of aircraft.
97
101
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
33
DEFERRED TAX LIABILITIES
Recognised deferred tax liabilities are attributable to the following:
Group
Company
2018
US$’000s
2017
US$’000s
2018
US$’000s
2017
US$’000s
Property, plant and equipment
Tax losses carried forward
4,286
(1,298)
4,168
(850)
1,453
-
1,814
-
2,988
3,318
1,453
1,814
Movements in temporary differences are as follows:
Group
2018
At beginning of the year
Recognised in profit or loss
Recognised in equity
Property,
plant and
equipment
US$’000s
Tax losses
carried
forward
US$’000s
Total
US$’000s
4,168
(277)
395
(850)
(448)
-
3,318
(725)
395
At end of the year
4,286
(1,298)
2,988
2017
At beginning of the year
Recognised in profit or loss
Recognised in equity
5,700
(3,213)
1,681
(962)
112
-
4,738
(3,101)
1,681
At end of the year
4,168
(850)
3,318
Company
2018
At beginning of the year
- Recognised in profit or loss
- Recognised in equity
At end of the year
2017
At beginning of the year
- Recognised in profit or loss
- Recognised in equity
At end of the year
Property,
plant and
equipment Other items
US$’000s
US$’000s
Total
US$’000s
1,814
(355)
(6)
1,453
432
796
586
1,814
-
-
-
-
-
-
-
-
1,814
(355)
(6)
1,453
432
796
586
1,814
The Group has unutilised tax losses of approximately US$2.26 million (2017: US$0.05 million) and
unabsorbed capital allowances of approximately US$102.94 million (2017: US$117.05 million) that
are available for offset against future taxable profits, for which no deferred tax asset is recognised
due to uncertainty of its recoverability. The use of these unutilised losses and capital allowances
is subject to the agreement of tax authorities and compliance with certain provisions of tax
legislation of the countries in which the Group operates.
98
102
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
34
SHARE BASED PAYMENTS
The Group has an ownership-based compensation scheme for all employees of the Group.
Each share warrant converts into one ordinary share of Avation PLC on exercise. No amounts are
paid or are payable by the recipient on receipt of the warrant. The warrants carry neither rights
to dividends nor voting rights.
Warrants are granted to all employees of the Group to promote:
Improvement in share price
Improvement in profit
Improvement in returns to shareholders
Movement in warrants during the year
The following table illustrates the number (No.) and weighted average exercise prices (WAEP)
of, and movements in, warrants during the year:
2018
2017
No.
WAEP
No.
WAEP
Outstanding at beginning of the year
- Granted
- Exercised
- Expired
3,581,190
1,000,000
(1,689,000)
(240,500)
136.3p
215.0p
142.9p
157.9p
5,948,500
-
(2,342,310)
(25,000)
133.9p
-
129.0p
153.0p
Outstanding at end of the year
2,651,690
159.8p
3,581,190
136.3p
Exercisable at end of the year
951,190
130.0p
1,138,690
136.1p
99
103
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
34
SHARE BASED PAYMENTS (continued)
The weighted average fair value of warrants granted during the year was 33 pence (2017: NIL).
The charge recognised in profit or loss in respect of share based payments is US$0.4 million
(2017: US$0.2 million).
During the year, 1,689,000 warrants were exercised (2017: 2,342,310).
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
2017
2018
8 December 2014
16 November 2015
27 November 2017
9 Dec 2017
16 Nov 2018
27 Nov 2020
153.0p
130.0p
215.0p
-
1,721,690
930,000
982,500
2,598,690
-
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
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
100
104
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
34
SHARE-BASED PAYMENTS (continued)
The warrants granted on 27 November 2017 have a 3-year vesting schedule and the details are
as follows:
Vesting period
Warrant series signed on 27 November 2017
Before 27 November 2018
On 27 November 2018 and before 27 November 2019 Up to 33 per cent of the grant
On 27 November 2019 and before 27 November 2020 Up to 33 per cent of the grant or up to 66 per
0 per cent
On 27 November 2020
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 valued using a binomial 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
granted on
27 November 2017
Warrant series
granted on
16 November 2015
Warrant series
granted on
8 December 2014
Inputs into the model:
Grant date share price
Exercise price
Expected volatility
Warrant life
Dividend yield
Risk free interest rate
215.0 pence
215.0 pence
25% to 28%
3 years
1.91%
0.83% to 0.93%
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%
101
105
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
35
CAPITAL COMMITMENTS
Capital expenditure contracted for at the reporting date but not recognised in the financial
statements is as follows:
Group
2018
US$’000s
2017
US$’000s
Property, plant and equipment
115,013
147,890
The above capital commitments represent amounts due under contracts entered into by the
Group to purchase aircraft. The company has paid deposits towards the cost of these aircraft
which are included in trade and other receivables.
As at the year end, the Group has commitments to purchase six ATR 72-600 aircraft from the
manufacturer with expected delivery dates over a 1 year period ending in June 2019. Two of
these aircraft are due to be delivered before the end of the calendar year 2018. Subsequent to
the date of this report, the Group has signed lease agreements for these aircraft. See note 40.
36
OPERATING LEASE COMMITMENTS
The Group leases out aircraft under operating leases. The future minimum lease payments
receivable under non-cancellable leases are as follows:
Within one year
In the second to fifth years inclusive
More than five years
Group
2018
US$’000s
2017
US$’000s
112,860
410,312
382,083
81,161
289,033
245,822
The Group holds cash deposits of US$13.19 million (2017: US$12.74 million) and letters of credit
for US$8.04 million (2017: US$4.05 million) as security for lessees’ obligations under operating
leases.
37
CONTINGENT LIABILITIES
Guarantees
Company
2018
US$’000s
2017
US$’000s
Guarantees
868,600
643,605
The maximum estimated amount that the Company could become liable for under guarantees is
as shown above.
102
106
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
38
DIVIDENDS
Declared/paid during the year:
Dividends on ordinary shares
- Interim exempt (one-tier) dividend for 6.00 US cents (2017: 3.25 US
cents) per share paid during the year
2018
US$’000s
2017
US$’000s
3,664
1,820
- Interim exempt (one-tier) dividend for Nil US cents (2017:6.00 US
-
3,664
cents) per share declared
Dividends to the Company’s shareholders are recognised when the dividends are approved for
payment.
39
ULTIMATE HOLDING COMPANY
No party controls the Company.
40
SUBSEQUENT EVENTS
On 19 July 2018 the Group acquired and leased a second new Airbus A220-300 aircraft to airBaltic,
the Latvian hybrid carrier, for a term of 12 years.
On 18 August 2018, the Group signed leases with Danish Air Transport A/S for the supply of two
new ATR 72-600 aircraft for a term of 12 years.
On 5 September 2018, the Directors of the Company declared a 7.25 US Cents interim dividend
for the financial year ended 30 June 2018.
On 6 September 2018, 2,335,000 warrants were granted at an exercise price of 232 pence per
share to the directors and employees of the Group.
41
APPROVAL OF FINANCIAL STATEMENTS
The financial statements of the Company and the consolidated financial statements of the Group
for the year ended 30 June 2018 were authorised for issue by the Board of Directors on 21
September 2018.
103
107
Annual Report 2018
Airbus A220-300 aircraft at production facility (Photo: CC BY 2.0 Kārlis Dambrāns)
AnnuAl RepoRt 2018
65 Kampong Bahru Road
Singapore 169370
www.avation.net
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Index:
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FtSe Sector:
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FtSe Sub Sector: transportation Services