ANNUAL REPORT
ANNUAL REPORT 2020
65 Kampong Bahru Road
Singapore 169370
www.avation.net
L I S T E D
S T A N D A R D
SHARES
Reuters/BBG
Index:
LSE
AVAP.LN
AVAP
FTSE Sector:
Industrial Transportation
FTSE Sub Sector: Transportation Services
2020
Annual Report 2020
OUR FLEET (As at 30 June 2020)
Aircraft Type
In Operation Ordered Options
Boeing B777-300ER
Airbus A330-300
Airbus A321-200
Airbus A320-200
Airbus A220-300
A220
A220AIRBUS
Boeing B737-800
Fokker 100
ATR 72-600
ATR 72-500
Total
1
1
7
2
6
1
2
22
6
48
-
-
-
-
-
-
-
8
-
8
-
-
-
-
-
-
-
25
-
25
Boeing 777-300ER
Airbus A330-300
Airbus A321-200
Airbus A320-200
Airbus A220-300
Fokker F100
ATR 72-600
ATR 72-500
AVATION PLC
DIRECTORS’ REPORT AND
FINANCIAL STATEMENTS
FOR THE YEAR ENDED
30 JUNE 2020
REGISTERED NUMBER: 05872328 (ENGLAND & WALES)
AVATION PLC
CONTENTS
FOR THE YEAR ENDED 30 JUNE 2020
Company Information ..................................................................................................................... 1
Chairman’s Statement .............................................................................................................. 2 – 3
Strategic Report ...................................................................................................................... 4 - 12
Directors’ Report ................................................................................................................... 13 – 17
Directors’ Remuneration Report .............................................................................................. 18 – 26
Directors’ Responsibilities Statement .............................................................................................. 27
Auditor’s Report ................................................................................................................... 28 - 37
Consolidated Statement of Profit or Loss ......................................................................................... 38
Consolidated Statement of Comprehensive Income .......................................................................... 39
Consolidated Statement of Financial Position ................................................................................... 40
Company Statement of Financial Position ........................................................................................ 41
Consolidated Statements of Changes in Equity .......................................................................... 42 – 43
Company Statements of Changes in Equity .............................................................................. 44 - 45
Consolidated Statement of Cash Flows ............................................................................................ 46
Company Statement of Cash Flows ................................................................................................ 47
Notes to the Financial Statements ......................................................................................... 48 - 120
AVATION PLC
COMPANY INFORMATION
FOR THE YEAR ENDED 30 JUNE 2020
DIRECTORS:
COMPANY SECRETARIES:
REGISTERED OFFICE:
PRINCIPAL PLACE OF BUSINESS:
AUDITOR:
SOLICITORS:
REGISTRAR:
Robert Jeffries Chatfield
Roderick Douglas Mahoney
Stephen John Fisher
Derek Sharples
Duncan Gerard Stephen Scott
Jasmine Siow Fui San
5 Fleet Place
London EC4M 7RD
United Kingdom
65 Kampong Bahru Road
Singapore 169370
Ernst & Young
EY Building
Harcourt Centre
Harcourt Street
2 Dublin
Ireland
Charles Russell Speechlys LLP
5 Fleet Place
London EC4M 7RD
United Kingdom
Computershare Investor Services PLC
The Pavilions
Bridgewater Road
Bristol BS99 6ZZ
United Kingdom
1
AVATION PLC
CHAIRMAN’S STATEMENT
FOR THE YEAR ENDED 30 JUNE 2020
Overview
• Revenue increased 14% to a record $135.3 million;
• Unrealised gain on aircraft purchase rights of $27.1 million recognised;
• Cash and bank balances increased 7% to $114.6 million;
•
Impairment losses of $35.5 million recognised, reflecting the COVID-19 pandemic, industry
and customer disruption;
• Profit before taxation decreased 43% to $14.6 million, in challenging conditions; and
• Net cash from operating activities increased 20% to $88.5 million.
Operational highlights
• Two aircraft were repossessed from Thomas Cook and transitioned to VietJet;
• Three new ATR72-600 aircraft were acquired during the year;
• Three Fokker 100 aircraft were transferred to the lessee on completion of finance leases;
• First ever commercial aircraft financed with a Green loan – recognised by Airline Economics as
“Deal of the Year for Innovation”; and
• Ongoing management of exposure to Virgin Australia administration with transition of five of
13 aircraft on lease to date.
COVID-19 Strategy
• The Company has implemented a strategy to preserve liquidity and cashflow;
• Short-term rent deferrals totalling approximately $13.1 million granted to airline customers;
• Loan repayment deferrals totalling approximately $24.4 million obtained from secured lenders;
and
• The Company has elected to temporarily pause capital expenditure and dividends.
Business review
Avation has posted a satisfactory result in a volatile environment. Avation is profitable in a challenging
time for both the airline and aircraft leasing sector.
At the outset of the COVID-19 pandemic Avation instituted a programme of support for its airline
customers by agreeing to defer payment of a portion of their rent in the short-term. The cashflow
impact of this support programme has been mitigated by adjusting the amortisation profiles of related
financings with the agreement of lenders. Since the start of the pandemic the Company has also
reduced administration costs and has instituted a temporary pause on capital expenditure with the
goal of preserving liquidity.
The Company believes that airlines will require significant number of leased aircraft in the post
pandemic phase due to the vast number of older aircraft that have been retired and the impact of the
pandemic on airline balance sheets, reducing their ability to purchase aircraft directly. This supports
the Company strategy of being focussed on relatively new and popular commercial aircraft types.
The Company is fortunate that some of its largest customers are in countries where there has been a
brief or manageable impact from the pandemic. We are now observing a return to service of certain
customers including VietJet, airBaltic, EVA Air and Mandarin Airlines which combined represent of the
order of 60% of Avation’s future unearned contracted leasing revenue.
Avation is optimistic about the long-term opportunity for airline travel particularly the turboprop and
narrow-body aircraft sectors. The Company will position itself for a return to growth through
opportunistic purchases and delivery of its orderbook in a post pandemic environment
2
AVATION PLC
CHAIRMAN’S STATEMENT
FOR THE YEAR ENDED 30 JUNE 2020
Dividend
The Board declared an interim dividend of 2.1 US cents per share in respect of the six months ended
31 December 2019, which was paid 9 January 2020.
A dividend of 8.5 US cents per share declared in respect of the financial year ended 30 June 2019 was
paid on 18 October 2019.
The Company advised in May 2020 that as part of the COVID-19 strategy to preserve liquidity there
would be no further dividends for this financial period.
Market Positioning and Risk
Avation’s strategy is to target growth and diversification by adding new airline customers, while
maintaining a low average aircraft age and long remaining lease term metrics. Avation focuses on new
and relatively new commercial passenger aircraft on long-term leases. Avation is capable of owning,
managing and leasing turboprop, narrowbody and twin-aisle aircraft and engines.
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 prevailing market opportunities and consideration
of risk and revenue concentrations.
Outlook
The Company’s continuing focus for the 2021 financial year is to preserve liquidity and maintain
cashflow while the pandemic persists and the airline industry is severely impacted.
Management believes that the risks associated with its portfolio of assets have been reduced through
the growth and diversification that has been achieved in recent years.
In addition to operational cash flows, funding is traditionally sourced from capital markets, asset-
backed bank lending and disposal 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, ongoing pandemic impacts on travel, the
creditworthiness of airline customers, 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.
Robert Jeffries Chatfield
Executive Chairman
Singapore
29 October 2020
3
AVATION PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 30 JUNE 2020
The Directors present their strategic report for the year ended 30 June 2020.
BUSINESS OVERVIEW
Avation PLC and its subsidiaries (“Avation”, the “Group”) is a commercial passenger aircraft leasing
group managing a fleet of 48 aircraft, as of 30 June 2020, which are leased to airlines. Avation was
founded in 2006 and has now been in operation for 14 years, generating a profit every year. Avation
leases aircraft to 18 airline customers spread across 15 countries in Europe and the Asia-Pacific region,
as of 30 June 2020. Major customers include Vietjet Air, airBaltic, EVA Air and Philippine Airlines.
During the year ended 30 June 2020 Avation added four new airline customers. The Group’s fleet
includes 18 narrow-body jets, two twin-aisle jets and 28 ATR 72 twin-engine turboprop aircraft. An
analysis of the fleet is provided below under “Fleet Overview”.
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 (“ALS”) tax incentive. On 17 April 2019 Avation
was granted a five-year extension to its ALS tax incentive at a reduced 8% tax rate.
Avation’s management team has extensive experience in the aviation industry and has the expertise to
select, acquire and manage aircraft that have achieved strong operational performance for our
customers and generated stable returns for our shareholders. The company maintains in-house
commercial, legal, technical and finance teams and operates as a full-service aircraft leasing platform.
Avation aims to grow its fleet and continue to diversify its customer base over the coming years. The
Group has eight ATR 72-600 aircraft on order from the manufacturer, four of which are scheduled to
be delivered in the coming financial year. The Group also holds purchase rights for a further 25
aircraft. The Group may also acquire additional new and second-hand jet aircraft on an ad-hoc basis.
Older aircraft are sold when opportunities arise with the aim of maintaining 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, A220 and Boeing 737 families of 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. As the fleet grows, the Group seeks to
continually diversify its customer base as part of its overall credit risk management strategy.
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. The Group manages debt issuance with the
overall aim of achieving the lowest possible overall cost of debt, while maintaining appropriate leverage
ratios. Debt on older aircraft may be re-financed when there is an opportunity to reduce the Group’s
overall cost of debt, and to release equity for investment in new aircraft.
The Board applies prudent financial management principles to manage risk when acquiring aircraft by
seeking to match lease and financing in both term and currency. Interest rate risk is managed using
mostly fixed or hedged interest rate debt. Secured loans amortise to conservative balloon payments
over the terms of the underlying leases.
The Avation fleet of 48 aircraft (as of 30 June 2020) has a weighted average age of 4.1 years and
weighted average remaining lease term of 6.9 years, serving a diversified customer base of airlines in
Europe and the Asia-Pacific region.
4
AVATION PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 30 JUNE 2020
MARKETS TRENDS AND FUTURE DEVELOPMENTS
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 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 39,000 aircraft (replacement and growth)
will be required over the next 20 years, of which 42% 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 2019-2038
5
AVATION PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 30 JUNE 2020
PRINCIPAL RISKS AND UNCERTAINTIES
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 several factors
including but not limited to local and global economic conditions, increased competition between
airlines, speculative ordering of new aircraft, war, terrorism, pandemics 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.
Advances in aircraft technology may create 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 have a risk profile which may be more exposed to
technology change factors and the introduction of new more fuel-efficient models.
Operational risks:
Economic, legal and political risks
Avation leases aircraft to lessees in many 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 the Group’s financial results.
Lessee risks
Avation’s airline lessees are responsible for all maintenance and safety checks. The requirements 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 requires that some lessees make
maintenance reserve payments in order to ensure that there is adequate funding at all times for proper
maintenance of the aircraft.
6
AVATION PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 30 JUNE 2020
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
•
•
•
• Capital risk
Interest rate risk
Foreign currency risk
Liquidity risk
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
2020
2019
US$’000s
US$’000s
135,274
119,055
1,270
70,361
9,716
88,506
215
77,165
25,691
73,607
1,415,584
1,392,750
221,022
240,757
15.39 cents
40.26 cents
10.60 cents
9.25 cents
Revenue increased by 13.6% to US$135.3 million (2019: US$119.1 million) primarily as a result of
growth in the aircraft fleet.
Other income increased by US$1.1 million to US$1.3 million (2019: US$0.2 million) primarily due to
higher foreign currency exchange gains of US$0.5 million (2019: US$nil) and the release of a deposit
received from an airline which failed to take delivery of aircraft of US$0.2 million (2019: US$nil).
Depreciation increased by 13.9% to US$46.7 million (2019: US$41.0 million) as a consequence of
growth in the aircraft fleet and reductions in the residual value estimates for two widebody aircraft.
Gains on sales of aircraft during the period were US$3.2 million (2019: US$10.0 million) and
impairment losses were US$35.5 million (2019: US$nil).
During the current year, the Group recognised gains on disposal of aircraft of US$3.2 million (2019:
US$10.0 million) in connection with the inception of finance leases for three aircraft. During the prior
year the Group sold two narrow-body aircraft for at prices in excess of 10% above net book value,
generating sale profits of US$8.7 million and also recorded gains of US$1.0 million on recognition of
finance leases for two aircraft.
Impairment losses of US$6.3 million were recognised in relation to two widebody aircraft following a
change in residual value estimates. Impairment losses of US$18.9 million were recognised in relation
to aircraft formerly leased to Virgin Australia who defaulted on leases and filed for administration in
April 2020. Impairment losses of US$9.5 million were incurred on two aircraft formerly leased to
Thomas Cook Airlines Limited who defaulted on leases and entered compulsory liquidation in
September 2019.
Administrative expenses increased 8.2% to US$11.9 million (2019: US$11.0 million) primarily due to
increased staff costs of US$5.9 million (2019: US$5.2 million) arising from additional headcount
associated with managing a larger aircraft fleet. As a percentage of revenue administrative expenses
decreased to 8.8% (2019: 9.2%).
7
AVATION PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 30 JUNE 2020
Other expenses were US$2.4 million (2019: US$0.2 million). Other expenses in the current period
include aircraft repossession costs of US$1.4 million (2019: US$nil) resulting from the default of
Thomas Cook Airlines and expected credit losses on receivables of US$0.7 million (2019: US$0.2
million).
Operating profit decreased 8.8% to US$70.4 million (2019: US$77.2 million) as a result of the
foregoing.
Finance expenses increased by 3.4% to US$57.2 million (2019: US$55.3 million) and total interest
expense within finance expenses increased to US$50.5 million (2019: US$48.0 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 expense on the unsecured notes issued under
the Company’s Global Medium-Term Note programme (“GMTN”) was US$22.7 million (2019: US$21.9
million). During the year the Notes outstanding under the GMTN decreased from US$350.0 million to
US$349.0 million.
Finance income was US$1.5 million (2019: US$3.7 million). The decrease was primarily due to lower
break gains resulting from the termination of interest rate swaps of US$nil (2019: US$0.2 million) and
lower fair value gains on derivative interest rate swap contracts of US$nil (2019: US$0.8 million).
Most of the Group’s operations are based in Singapore and are included in Singapore’s Aircraft Leasing
Scheme (“ALS”), benefitting from a concessionary tax rate. Taxation expense for the year was US$4.9
million (2019: a credit of US$0.1 million). The tax charge for the year was impacted by a net increase
in deferred tax liabilities of US$4.6 million (2019: a reduction of US$3.3 million). The reduction in
deferred tax liabilities in 2019 primarily arose from renewal of the Group’s ALS tax incentive at a
reduced 8% tax rate.
Net cash from operating activities increased by 20.2% to US$88.5 million (2019: US$73.6 million)
primarily due to higher revenue.
Total profit after tax for the financial year decreased 62.3% to US$9.7 million (2019: US$25.7 million).
Basic earnings per share decreased by 61.8% to 15.4 US cents (2019: 40.3 US cents).
The Company confirms that there have been no changes to its accounting policies other than the
adoption of new IFRS standards and interpretations as set out in the notes to the financial statements.
FLEET OVERVIEW
Type
1 July 2019
Additions
Disposals
30 June 2020
On order
Purchase
rights
ATR 72-500
ATR 72-600
A220-300
A320-200
A321-200
A330-300
B737-800
B777-300ER
Fokker 100
Total
6
19
6
2
7
1
1
1
5
48
-
3
-
-
-
-
-
-
-
3
-
-
-
-
-
-
-
-
3
3
8
6
22
6
2
7
1
1
1
2
48
-
8
-
-
-
-
-
-
8
-
25
-
-
-
-
-
-
25
AVATION PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 30 JUNE 2020
The Company added three new ATR 72-600s to the fleet during the year. Three Fokker 100 aircraft
were sold during the year. As of 30 June 2020, the weighted average age of the fleet was 4.1 years
(2019: 3.4 years) and the weighted average remaining lease term was 6.9 years (2019: 7.5 years).
The aircraft fleet was valued as of 30 June 2020 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 negative
adjustment of aircraft net book values of US$5.0 million recognised in the consolidated statement of
changes in equity (2019: positive adjustment of US$8.6 million) and impairment charges of US$35.5
million (2019: US$nil).
Two Fokker 100 and five ATR 72-600 aircraft are classified as leased under finance leases.
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
2020
2019
US$’000s
US$’000s
1,071,738
1,078,288
35,290
61,689
1,036,448
1,016,599
75.7%
3.6%
4.5%
77.4%
3.7%
4.6%
Loans and borrowings decreased due to loan repayments exceeding additional secured debt issued to
fund fleet acquisitions during the year. Net indebtedness increased due to the reduction in cash and
cash equivalents exceeding net loan repayments.
The weighted average cost of secured debt facilities decreased to 3.6% as at 30 June 2020 (2019:
3.7%) principally due to the impact of repayments of higher cost loans and new loans issued to fund
fleet growth benefiting from a comparatively low interest rate environment.
The weighted average cost of total debt was 4.5% as of 30 June 2020 (2019: 4.6%).
At the end of the financial period, Avation’s overall loan to value ratio (defined as total loans and
borrowings divided by total assets) was 75.7% (2019: 77.4%) and 90.7% of total debt was at fixed or
hedged interest rates (2019: 92.0%). The proportion of unsecured debt to total debt was 32.3% (2019:
32.0%).
9
AVATION PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 30 JUNE 2020
In April 2020 Japan Credit Rating Agency downgraded Avation’s issuer rating to B with a negative
outlook.
In May 2020, Fitch Ratings downgraded Avation’s issuer rating to B (B- for unsecured notes) and
placed the rating on watch negative.
In August 2020, S&P Global Ratings downgraded Avation’s issuer rating to CCC (CCC- for unsecured
notes) and placed the rating on watch negative. The Company’s current credit ratings are as follows:
Rating Agency
Corporate Credit Rating
Unsecured Notes Rating
Standard & Poor’s
Fitch Ratings
Japan Credit Rating Agency
CCC credit watch negative
B rating watch negative
B negative
CCC-
B-
NR
Aircraft leasing is a capital-intensive industry. Avation manages 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 higher lease rates 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. Recent additions to the fleet
have included 6 new technology A200-300 aircraft, which provide significantly reduced fuel
consumption and emissions in comparison to older aircraft.
CORPORATE SOCIAL RESPONSIBILITY
Avation is committed to the principles of being a good corporate citizen. For the 2020 financial year 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 of 30 June 2020 is set out below:
Directors of the Company
Senior managers
Other employees
Male
Female
4
4
9
-
-
6
10
AVATION PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 30 JUNE 2020
SECTION 172(1) STATEMENT
On the following pages we have set out how the Board has acted in a way that promotes the success of
the Company for the benefit of its members as a whole, in accordance with the requirements of the
Companies (Miscellaneous Reporting) Regulations 2018, whilst having regard to the following matters
set out in s.172(1) of the Act. This reporting requirement applies to the Company for the first time
this year.
The likely consequences of any decision in the long term
The board is mindful that is should make decisions which are the best for the Company in the long
term. The nature of the business of aircraft leasing is long-term, with typical aircraft leases being for
ten or twelve years duration for new aircraft. The Company does undertake the trading of aircraft
where they have reached a certain age and when market conditions are favourable. However, the
transfer of an aircraft with a lease attached to it is transaction which would typically take three to five
months to complete and therefore such transactions are undertaken on strategic time-frames. Equity
released from the sale of aircraft is typically re-invested in financing or re-financing the purchase of
aircraft.
The interests of the Group’s employees
The board actively engages with employees to ensure that staff are kept up to date and informed. The
Company has regular management meetings at which typically two of the Company’s executive
directors are present and which are attended by the majority of the Company’s employees.
Throughout the COVID-19 pandemic, staff have received regular communications and updates from
the Board to ensure that they are kept up to date and informed in respect of action being taken by the
business, and of the impact of the situation on business performance, with management meetings
being held on a daily basis.
The need to foster the Group’s business relationships with suppliers, customers and others
Suppliers
The Company has long-term relationships with its suppliers which are primarily comprised of
commercial lending organisations such banks and other financial institutions, as well as the
manufacturers of aircraft and aircraft engines.
Customers
The Company has eighteen airline customers and maintains close relationships with them, indeed this
is inherent in the nature of aircraft leasing. In particular, the Company needs to ensure that its
customers are looking after and maintaining the aircraft and are otherwise complying with the terms of
the respective aircraft leases.
The impact of the Group’s operations on the community and the environment
The board recognises the importance of managing the community impact of the business and
minimising any adverse impact of our operations on the environment. The Company carried out a
review of its environmental, social and governance (ESG) performance and a copy of this report can be
found on the Company’s website at: www.avation.net/ESG.html
11
AVATION PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 30 JUNE 2020
The desirability of the Group maintaining a reputation for high standards of business
conduct
The board expects the highest standards of conduct throughout the business, both in respect of
employees and in respect of its suppliers, advisers and agents. The board receives regular updates in
respect of matters of regulatory compliance, and the business has policies, procedures and processes
in place in respect of modern slavery, bribery and corruption.
The need to act fairly as between members of the Company
The Company has a single class of ordinary shares so all shareholders are treated equally. Details of
how we engage with shareholders can be found in our corporate governance statement in the
Directors’ Report.
On behalf of the board
Robert Jeffries Chatfield
Executive Chairman
29 October 2020
12
AVATION PLC
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2020
The Directors present their report and financial statements for the year ended 30 June 2020.
Principal activities and business review
The principal activity of the Group is aircraft leasing. 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 environmental matters in the Strategic Report.
Results and dividends
The consolidated statement of profit or loss and the consolidated statement of other comprehensive
income for the year are set out on in these financial statements. The Company paid a dividend of 8.50
US cents on 18 October 2019 and a dividend of 2.10 US cents on 9 January 2020.
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:
Direct interest
Deemed interest
30 June
2020
1 July
2019
30 June
2020
1 July
2019
Ordinary shares of £0.01 each:
Robert Jeffries Chatfield
Roderick Douglas Mahoney
Stephen John Fisher
Derek Sharples
1
1
11,605,000
11,605,000
756,667
700,000
5,000
30,000
5,000
10,000
-
-
-
-
-
-
13
AVATION PLC
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2020
Significant shareholdings
Ordinary shares of £0.01 each:
JP Morgan Securities LLC
Lynchwood Nominees Limited
State Street Nominees Limited
Roy Nominees Limited
HSBC Global Custody Nominee (UK)
Equal Opportunities Policy
Ordinary
shares
Percentage
16,065,318
25.63%
5,619,675
5,516,838
5,017,735
4,394,635
8.97%
8.80%
8.01%
7.01%
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.
14
AVATION PLC
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2020
Going Concern
The Directors’ assessment of the Group’s ability to continue as a going concern is detailed in Note 3(e)
to the financial statements. The Note in its entirety is deemed to be incorporated into and form part of
the 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's Grid 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 2020 the Company used 40,756 KWh of energy (2019: 41,461 KWh) which
was converted to estimated carbon emissions of 17,069 Kg (2019: 17,380 Kg) using a GEF of 0.4188
(2019: 0.4192).
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 with the Code in full 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.
15
AVATION PLC
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2020
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 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 2020 the Company bought 1,910,000 treasury shares at prices
ranging from 220 pence to 295 pence per share.
During the previous financial year ended 30 June 2019 the Company bought 300,000 treasury shares at
prices ranging from 285 pence to 292 pence per share.
By a resolution passed at the Annual General Meeting held on 21 November 2019 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 £2.00 and not above £4.50
and not above a price equal to the higher of (i) 105% of the average of the middle market quotations for
the share price for the five business days preceding the buy-back date and (ii) the higher of the price for
the last independent share trade and the amount stipulated pursuant to Article 5(6) of the Market Abuse
Regulation (EU) No. 596/2014 per share, excluding commissions and other related expenses.
16
AVATION PLC
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2020
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.
On behalf of the board
Notes to the Financial Statements – Note 8, Related
Party Transactions
Robert Jeffries Chatfield
Executive Chairman
17
AVATION PLC
DIRECTORS’ REMUNERATION REPORT
FOR THE YEAR ENDED 30 JUNE 2020
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 substantially unchanged for 2020. Key aspects of the policy
are to attract and retain executives; be consistent with best practices and to ensure alignment between
performance and compensation.
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.
Component Purpose
Operation & framework used to assess performance
Salary and
benefits
To provide the core reward for
the role at a sufficient level to
recruit and retain individuals of
the necessary competence
to
execute the company’s business
strategy.
Operation:
Salaries are typically set after considering salary levels in
companies of a
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.
complexity,
size and
similar
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.
18
AVATION PLC
DIRECTORS’ REMUNERATION REPORT
FOR THE YEAR ENDED 30 JUNE 2020
Bonuses
incentivise and
the
of
To
execution
strategy on a semi-annual basis.
recognise
business
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
to prior year and
individual performance compared
expectations for the current year. Individual performance will
also be assessed against key performance metrics
established
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.
for each executive. Metrics considered
Share
Warrants
incentivise and
To
execution
the
of
strategy over the long-term.
recognise
business
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.
Individual Director’s remuneration was as follows:
Salaries
and fees
US$’000s
Bonuses
US$’000s
Taxable
benefits
US$’000s
Share
warrants
US$’000s
Total
2020
US$’000s
Total
2019
US$’000s
Executive Directors:
Robert Jeffries Chatfield
Roderick Douglas Mahoney
Non-Executive
Directors:
Stephen John Fisher
Derek Sharples
655
407
45
45
-
224
51
-
202
105
-
-
-
-
-
-
908
736
45
45
803
637
45
45
1,152
224
51
307
1,734
1,530
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.
19
AVATION PLC
DIRECTORS’ REMUNERATION REPORT
FOR THE YEAR ENDED 30 JUNE 2020
Service contracts
The employment contracts of the Executive Directors with the Company are terminable by either party
with the notice in writing to the other detailed in the table below.
The Directors’ service contracts are as follows:
Date of contract
term
Unexpired
Compensation
payable on
early
termination
Notice
period
Robert Jeffries Chatfield
Roderick Douglas Mahoney
Stephen John Fisher
Derek Sharples
29 April 2013
1 July 2016
29 April 2014
15 November 2016
Indefinite
Indefinite
Indefinite
Indefinite
4 months
4 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 the Company’s earnings per share;
•
• Reliable and high quality financial reporting;
• Growth in asset value and profits; and
• Growth in dividends.
Each share warrant converts into one ordinary share of Avation PLC on exercise. No amounts are paid
or are payable by the recipient on receipt of the warrant. The warrants carry neither rights to dividends
nor voting rights. There are no performance conditions that need to be met before warrants can be
exercised.
Warrants granted to Directors on 27 November 2017 have a 3-year vesting schedule with details as
follows:
Vesting period
Before 27 November 2018
On 27 November 2018 and before 27 November 2019
On 27 November 2019 and before 27 November 2020
On 27 November 2020 to 31 December 2020
Proportion of total share options that are
exercisable
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
20
AVATION PLC
DIRECTORS’ REMUNERATION REPORT
FOR THE YEAR ENDED 30 JUNE 2020
Warrants granted to Directors on 5 September 2018 have a 3-year vesting schedule with details as
follows:
Vesting period
Before 6 September 2019
On 6 September 2019 and before 6 September 2020
On 6 September 2020 and before 6 September 2021
On 6 September 2021 to 6 October 2021
Proportion of total share options that are
exercisable
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
Warrants granted to Directors on 8 March 2019 have a 3-year vesting schedule with details as follows:
Vesting period
Before 9 March 2020
On 9 March 2020 and before 9 March 2021
On 9 March 2021 and before 9 March 2022
On 9 March 2022 to 9 April 2022
Proportion of total share options that are
exercisable
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
Warrants granted to Directors on 20 September 2019 have a 3-year vesting schedule with details as
follows:
Vesting period
Before 21 September 2020
On 21 September 2020 and before 21 September 2021
On 21 September 2021 and before 21 September 2022
On 21 September 2022 to 21 October 2022
Proportion of total share options that are
exercisable
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
21
AVATION PLC
DIRECTORS’ REMUNERATION REPORT
FOR THE YEAR ENDED 30 JUNE 2020
Warrants granted to Directors on 21 November 2019 have a 3-year vesting schedule with details as
follows:
Vesting period
Before 22 November 2020
On 22 November 2020 and before 22 November 2021
On 22 November 2021 and before 22 November 2022
On 22 November 2022 to 22 December 2022
Proportion of total share options that are
exercisable
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 following share warrants issued to Directors were outstanding at the year-end:
Director
Robert Jeffries
Chatfield *
Robert Jeffries
Chatfield *
Robert Jeffries
Chatfield *
Robert Jeffries
Chatfield *
Robert Jeffries
Chatfield *
Roderick Douglas
Mahoney
Roderick Douglas
Mahoney
Roderick Douglas
Mahoney
Roderick Douglas
Mahoney
Roderick Douglas
Mahoney
Date
granted
Warrant
price
Balance at
beginning of
year
Granted
during the
year
Exercise
during the
year
Balance at
end of year
27 Nov 2017
215.0p
255,000
6 Sept 2018
232.0p
760,000
8 Mar 2019
294.5p
250,000
-
-
-
20 Sept 2019
296.0p
21 Nov 2019
274.5p
-
-
450,000
300,000
27 Nov 2017
215.0p
170,000
6 Sept 2018
232.0p
450,000
8 Mar 2019
294.5p
150,000
-
-
-
20 Sept 2019
296.0p
21 Nov 2019
274.5p
-
-
180,000
120,000
-
-
-
-
-
255,000
760,000
250,000
450,000
300,000
(56,667)
113,333
-
-
-
-
450,000
150,000
180,000
120,000
* Robert Jeffries Chatfield was granted the share warrants and assigned these to Epsom Assets
Limited.
For warrants exercised by both Directors during the year the market price was 292.5p at the date of
exercise. The aggregate amount of gains made by directors on the exercise of the warrants was
US$0.05 million.
The closing market price of the shares subject to warrants at the year-end was 175.0p. The highest and
lowest closing market prices during the year were 333.5p and 105.0p.
22
AVATION PLC
DIRECTORS’ REMUNERATION REPORT
FOR THE YEAR ENDED 30 JUNE 2020
Company’s performance
The graph below shows the total shareholder return on a holding of shares in the Company as against
the average total shareholder return of the companies comprising the FTSE100 index. The FTSE 100
Index was selected because in the opinion of the Board it is the most appropriate for the Company for
the purposes of a benchmark.
Remuneration of Executive Chairman
2020
2019
2018
2017
2016
Executive Chairman single figure
remuneration (US$’000)
Annual bonus pay-out (as % of
maximum)
Long term incentive vesting rates
against maximum opportunity %
908
-
N/A
803
-
N/A
682
-
N/A
541
15%
N/A
699
-
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.
23
AVATION PLC
DIRECTORS’ REMUNERATION REPORT
FOR THE YEAR ENDED 30 JUNE 2020
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 2019 to 2020
% change
in taxable
% change in
% change
benefits
in annual
and share
base salary
bonus
warrants
Executive Chairman
All employees
8%
5%
0%
27%
29%
16%
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:
(cid:32)(cid:29)(cid:25)(cid:29)(cid:29)(cid:29)(cid:1)
(cid:31)(cid:34)(cid:25)(cid:29)(cid:29)(cid:29)(cid:1)
(cid:31)(cid:29)(cid:25)(cid:29)(cid:29)(cid:29)(cid:1)
(cid:30)(cid:34)(cid:25)(cid:29)(cid:29)(cid:29)(cid:1)
(cid:30)(cid:29)(cid:25)(cid:29)(cid:29)(cid:29)(cid:1)
(cid:34)(cid:25)(cid:29)(cid:29)(cid:29)(cid:1)
(cid:29)(cid:1)
(cid:31)(cid:34)(cid:25)(cid:35)(cid:38)(cid:30)(cid:1)
(cid:26)(cid:35)(cid:31)(cid:41)(cid:1)
(cid:38)(cid:25)(cid:36)(cid:30)(cid:35)(cid:1)
(cid:30)(cid:33)(cid:41)
(cid:34)(cid:25)(cid:31)(cid:29)(cid:34)(cid:1)
(cid:34)(cid:25)(cid:38)(cid:30)(cid:35)(cid:1)
(cid:1)(cid:1)(cid:30)(cid:35)(cid:41)(cid:1)
(cid:34)(cid:25)(cid:37)(cid:33)(cid:29)(cid:1)(cid:1)
(cid:35)(cid:25)(cid:36)(cid:36)(cid:32)(cid:1)(cid:1)
(cid:4)(cid:14)(cid:18)(cid:5)(cid:11)(cid:1)(cid:16)(cid:7)(cid:12)(cid:21)(cid:13)(cid:7)(cid:16)(cid:5)(cid:19)(cid:14)(cid:13)(cid:1)(cid:8)(cid:14)(cid:16)(cid:1)(cid:9)(cid:16)(cid:14)(cid:21)(cid:15)(cid:1)
(cid:7)(cid:12)(cid:15)(cid:11)(cid:14)(cid:23)(cid:7)(cid:7)(cid:17)(cid:1)
(cid:2)(cid:21)(cid:16)(cid:16)(cid:7)(cid:13)(cid:18)(cid:1)(cid:23)(cid:7)(cid:5)(cid:16)(cid:1)(cid:7)(cid:5)(cid:16)(cid:13)(cid:10)(cid:13)(cid:9)(cid:17)(cid:1)
(cid:3)(cid:10)(cid:22)(cid:10)(cid:6)(cid:7)(cid:13)(cid:6)(cid:1)(cid:15)(cid:5)(cid:10)(cid:6)(cid:1)
(cid:31)(cid:29)(cid:30)(cid:38)(cid:1)
(cid:31)(cid:29)(cid:31)(cid:29)(cid:1)
24
AVATION PLC
DIRECTORS’ REMUNERATION REPORT
FOR THE YEAR ENDED 30 JUNE 2020
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 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.
25
AVATION PLC
DIRECTORS’ REMUNERATION REPORT
FOR THE YEAR ENDED 30 JUNE 2020
Statement of consideration of employment conditions elsewhere in the company
Pay and employment conditions of other employees in the company were taken into account when
setting the policy for Directors’ remuneration. Similar remuneration polices are in place for Directors
and employees of an equivalent level.
Shareholders' vote on remuneration
Votes cast in favour
Votes cast against
Total votes cast in favour or against
Votes withheld
Share Count
41,430,639
151,429
41,582,068
-
% of
vote cast
99.64%
0.36%
100.00%
-
Note:
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 2019 was approved at the Annual
General Meeting held on 21 November 2019.
On behalf of the Board
Robert Jeffries Chatfield
Executive Chairman
26
AVATION PLC
DIRECTORS’ RESPONSIBILITIES STATEMENT
FOR THE YEAR ENDED 30 JUNE 2020
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.
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
understandable and provide the information necessary for the shareholders to assess the
Group’s position, performance, business model and strategy.
This responsibility statement was approved by the Board of Directors on 29 October 2020 and is signed
on its behalf by Robert Jeffries Chatfield.
Robert Jeffries Chatfield
Executive Chairman
27
AVATION PLC
AUDITOR’S REPORT
FOR THE YEAR ENDED 30 JUNE 2020
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 2020 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 for the
year then ended
Consolidated statement of comprehensive
income for the year then ended
Consolidated statement of financial position as
at 30 June 2020
Company statement of financial
position as at 30 June 2020
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
financial
to 41
statements, including a summary of significant
accounting policies
the
to
Related notes 1 to 41 to the
financial statements including a
summary
significant
of
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.
28
AVATION PLC
AUDITOR’S REPORT
FOR THE YEAR ENDED 30 JUNE 2020
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC
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 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.
Material uncertainty related to going concern
We draw attention to Note 3 (e) in the financial statements, which indicates that there is a material
uncertainty in relation to the extension or refinancing of the unsecured outstanding notes which fall due to
repayment in May 2021. As stated in the Directors’ Report, these events or conditions, along with other
matters as set forth in Note 3 (e), indicate that a material uncertainty exists that may cast significant doubt
on the Group’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.
In addition to the matter described in the material uncertainty to going concern section, we have
determined the matters described below to be the key audit matters to be communicated in our report.
Overview of our audit approach
• Valuation of aircraft
• Valuation of aircraft purchase rights
• We performed an audit of the complete financial information of
Avation Plc in accordance with the materiality thresholds as set out
below.
• Overall group materiality of US$1.2 million which represents 5% of
the adjusted profit before tax for the year ended 30 June 2020.
Key audit
matters
Audit
scope
Materiality
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.
29
Key
observations
communicated
to
the Audit
Committee
planned
Our
audit
procedures
were completed
without material
exception.
AVATION PLC
AUDITOR’S REPORT
FOR THE YEAR ENDED 30 JUNE 2020
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC
Risk
Our response to the risk
Valuation of Aircraft
The carrying value of jet and
turboprop aircraft represent
the most significant asset in
the financial statements of
Avation Plc. As at 30 June
2020, the carrying value of
aircraft reported is US$1,056
million
(2019: US$1,225
million) as detailed in Note
financial
the
19
statements.
of
(g)
aircraft
As set out within Note 3 (f)
‘Summary of
and 3
Accounting
Significant
Policies’,
are
measured at fair value on a
Lease Encumbered Value
basis (“LEV”). As detailed in
Note
‘Critical
Accounting Estimates and
Judgments’, management
need to apply estimation and
judgment as part of their fair
value assessment of aircraft.
(b)
4
the
For
purposes
of
the valuation,
determining
the carrying value of each jet
and turboprop is compared
to the computed LEV. LEV is
determined by discounting
the lease income streams
lease
the
associated with
and
future
the expected
residual value of the aircraft
at
lease
adjusted for return conditions
at lease termination using
the weighted average cost of
capital.
the end of
the
they are deemed
We have assessed each aircraft
to be
as
individually material
the
financial statements.
to
In obtaining sufficient audit
evidence we:
• Walked through the design
effectiveness of key controls
around the preparation and
review of the LEV model
appropriate
including
governance procedures.
• Obtained external aircraft
valuation reports validating
the calculation of the LEV
including residual values.
• Assessed and evaluated the
key
used
assumptions
(weighted average cost of
lease
capital,
income
streams
residual
and
values).
Involved specialists from our
valuations and business
modelling team to assess
the reasonableness of the
weighted average cost of
capital used in discounting
the
flows of
aircraft in the model.
future cash
•
• Assessed
the calculations
underpinning the LEV model
by checking that the data
and the assumptions input
into
in
the model were
agreement with those that
we had evaluated.
• Assessed
the
appropriateness
and
presentation of disclosures
in the financial statements
for compliance with
the
relevant
accounting
standards.
30
AVATION PLC
AUDITOR’S REPORT
FOR THE YEAR ENDED 30 JUNE 2020
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC
Risk
Our response to the risk
Key
communicated
Audit Committee
observations
the
to
planned
Our
procedures
completed
material exception.
audit
were
without
Valuation of Aircraft
Purchase Rights
In obtaining sufficient audit
evidence we:
We have determined
that
the valuation of
aircraft purchase rights
represent a significant
risk. The fair value of
aircraft purchase rights
may not be correctly
valued and recorded in
accordance with IFRS
13.
As set out within Note 3
(h)
of
‘Summary
Significant Accounting
Policies’,
aircraft
rights are
purchase
measured at fair value
to profit or loss. The
Group values aircraft
purchase rights using
the
option
price model. Critical
in
assumptions made
determining
fair
the aircraft
value of
purchase rights include
the market
value
volatility rates used.
binomial
the
the
During
financial
the
year ended 30 June
fair value
2020,
for aircraft
recorded
purchase
is
US$27.1 million (2019:
US$Nil).
rights
• Obtained
an
the
understanding of
process,
valuation
a
performed
walkthrough
the
process and evaluated
the design effectiveness
of controls related to the
risk identified.
of
• Assessed
the
the
assumptions used by
and
management
the
evaluated
appropriateness
and
accuracy of inputs such
future market
as
values, volatility and the
discount rate;
Involved specialist from
our valuation team to
assess
the
reasonableness of the
discount rate used
in
valuation model.
•
• Evaluated
the
and
competency
independence of
the
external appraisers as
management experts for
the
external market
appraisals provided. We
obtained these external
to
valuation
validate
the market
inputs to the valuation
calculation.
reports
• Assessed
in
the
of
presentation
disclosures
the
financial statements for
compliance with
the
accounting
relevant
standards.
31
AVATION PLC
AUDITOR’S REPORT
FOR THE YEAR ENDED 30 JUNE 2020
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC
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 when assessing the level of work to be performed at each entity.
All audit work performed for the purposes of the audit was undertaken by the Group audit team.
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of
identified misstatements on the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be
expected to influence the economic decisions of the users of the financial statements. Materiality provides
a basis for determining the nature and extent of our audit procedures.
We determined materiality for the Group to be US$1.2 million (2019: US$1.3 million), which is 5% (2019:
5% of the profit before tax) of the adjusted profit before tax for the year ended 30 June 2020. We believe
that profit before tax provides us with a relevant measure used by investors and other stakeholders when
assessing the performance of the Group. The profit before tax was adjusted for COVID-19 related charges
offset by the gain on recognition of aircraft purchase rights which are deemed to be one-off during the
period. The impact of these adjustments was to increase the profit before tax by US$8.4 million.
We determined materiality for the Parent Company to be US$1.2 million (2019: US$238 thousand), which
is 0.5% of total assets (2019: 2% of total revenue). The users of the financial statements are concerned
with the asset value of the Company. Therefore, we believe that total assets provide us with the most
relevant measure used by investors and other stakeholders when assessing the performance of the
Company.
During the course of our audit, we reassessed initial materiality and no changes were required.
32
AVATION PLC
AUDITOR’S REPORT
FOR THE YEAR ENDED 30 JUNE 2020
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to
an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements
exceeds materiality.
On the basis of our risk assessment, together with our assessment of the Group’s overall control
environment, our judgement was that performance materiality was 75% (2019: 50%) of our planning
materiality, namely US$865 thousand (2019: US$650 thousand).
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in
excess of US$58 thousand (2019: US$64 thousand), which is set at 5% (2019: 5%) of planning materiality,
as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality
discussed above and in light of other relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the annual report, including the Chairman’s
Statement (set out on pages 2-3), Strategic Report (set out on pages 4-12), Directors’ Report (set out on
pages 13-19), Directors’ Remuneration Report (set out on pages 20–28) and Directors’ Responsibilities
Statement (set out on page 29) other than the financial statements and our auditor’s report thereon. The
directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information and, except to the extent
otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon.
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.
33
AVATION PLC
AUDITOR’S REPORT
FOR THE YEAR ENDED 30 JUNE 2020
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC
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 directors’ responsibilities statement set out on page 29, 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.
34
AVATION PLC
AUDITOR’S REPORT
FOR THE YEAR ENDED 30 JUNE 2020
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC
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.
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.
35
AVATION PLC
AUDITOR’S REPORT
FOR THE YEAR ENDED 30 JUNE 2020
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC
• 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.
The period of total uninterrupted engagement including previous renewals and reappointments is 3
years, covering the period from our appointment through 30 June 2020.
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
30 October 2020
36
AVATION PLC
AUDITOR’S REPORT
FOR THE YEAR ENDED 30 JUNE 2020
Notes:
1.
The maintenance and integrity of the Avation plc web site is the responsibility of the directors; 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.
2.
Legislation in the United Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
37
AVATION PLC
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
FOR THE YEAR ENDED 30 JUNE 2020
Continuing operations
Revenue
Other income
Depreciation
Gain on disposal of aircraft
Unrealised gain on aircraft purchase rights
Impairment loss on aircraft
Administrative expenses
Other expenses
Operating profit
Finance income
Finance expenses
Profit before taxation
Taxation
Profit from continuing operations
Profit attributable to:
Equity holders of the Company
Non-controlling interests
Note
2020
2019
US$’000s
US$’000s
9
10
19
19,27
25
19,27
11
12
13
14
16
17
135,274
119,055
1,270
215
136,544
119,270
(46,666)
(41,011)
3,230
27,110
(35,524)
(11,913)
(2,420)
70,361
10,026
-
-
(10,954)
(166)
77,165
1,471
3,722
(57,192)
(55,328)
14,640
25,559
(4,924)
9,716
132
25,691
9,714
2
25,690
1
9,716
25,691
Earnings per share for profit
attributable to equity holders of the Company
Basic earnings per share:
Diluted earnings per share
18
18
15.39 cents
40.26 cents
15.36 cents
40.10 cents
38
AVATION PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2020
Note
2020
2019
US$’000s
US$’000s
Profit from continuing operations
9,716
25,691
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Net loss on cash flow hedge, net of tax
Items that may not be reclassified subsequently to profit or loss:
Revaluation (loss)/gain on property, plant and equipment, net of tax
Other comprehensive income, net of tax
24
(12,947)
(12,947)
(18,009)
(18,009)
(4,230)
(17,177)
8,181
(9,828)
Total comprehensive income for the year
(7,461)
15,863
Total comprehensive income attributable to:
Equity holders of the Company
Non-controlling interests
(7,463)
15,862
2
1
(7,461)
15,863
39
AVATION PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
FOR THE YEAR ENDED 30 JUNE 2020
ASSETS
Non-current assets
Property, plant and equipment
Trade and other receivables
Finance lease receivables
Goodwill
Derivative financial assets
Aircraft purchase rights
Current assets
Trade and other receivables
Finance lease receivables
Cash and bank balances
Assets held for sale
Total assets
EQUITY AND LIABILITIES
Equity
Share capital
Share premium
Treasury shares
Merger reserve
Asset revaluation reserve
Capital reserve
Other reserves
Retained earnings
Equity attributable to equity holders of the parent
Non-controlling interests
Total equity
Non-current liabilities
Loans and borrowings
Trade and other payables
Derivative financial liabilities
Maintenance reserves
Deferred tax liabilities
Current liabilities
Loans and borrowings
Trade and other payables
Maintenance reserves
Income tax payables
Liabilities directly associated with assets held for sale
Note
2020
2019
US$’000s
US$’000s
19
20
21
22
24
25
20
21
26
27
28
28
1,057,901
1,225,324
11,601
85,019
1,902
-
27,110
8,930
37,137
1,902
363
-
1,183,533
1,273,656
18,210
7,988
114,585
140,783
91,268
232,051
4,425
7,221
107,448
119,094
-
119,094
1,415,584
1,392,750
1,108
57,747
1,104
56,912
(7,811)
(1,147)
6,715
30,162
8,876
6,715
34,392
8,876
29
(24,302)
(11,809)
148,455
220,950
72
145,644
240,687
70
221,022
240,757
534,755
1,005,693
11,725
27,928
57,141
698
16,091
10,174
31,325
179
632,247
1,063,462
536,983
10,155
3,836
1,058
552,032
10,283
562,315
72,595
11,964
1,166
2,806
88,531
-
88,531
30
31
24
32
33
30
31
32
27
Total equity and liabilities
1,415,584
1,392,750
Approved by the board and authorised for issue on 29 October 2020
Robert Jeffries Chatfield
Executive Chairman
40
AVATION PLC
COMPANY STATEMENT OF FINANCIAL POSITION
FOR THE YEAR ENDED 30 JUNE 2020
ASSETS
Non-current assets
Property, plant and equipment
Trade and other receivables
Investment in subsidiaries
Aircraft purchase rights
Current assets
Trade and other receivables
Cash and bank balances
Total assets
EQUITY AND LIABILITIES
Equity
Share capital
Share premium
Treasury shares
Merger reserve
Other reserves
Retained earnings
Total equity
Non-current liabilities
Loans and borrowings
Trade and other payables
Derivative financial liabilities
Deferred tax liabilities
Current liabilities
Loans and borrowings
Trade and other payables
Income tax payable
Total equity and liabilities
Note
2020
2019
US$’000s
US$’000s
19
20
23
25
20
26
28
28
29
30
31
24
33
30
31
21,470
136,628
12,869
27,110
37,550
145,604
13,492
-
198,077
196,646
76,441
1,421
77,862
64,433
16,634
81,067
275,939
277,713
1,108
57,747
(7,811)
6,715
(7,789)
47,875
97,845
1,104
56,912
(1,147)
6,715
(5,133)
33,713
92,164
125,779
136,900
516
7,725
2,701
200
2,817
340
136,721
140,257
12,717
28,656
-
41,373
10,574
33,227
1,491
45,292
275,939
277,713
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$20.9 million (2019: US$3.49 million).
Approved by the board and authorised for issue on 29 October 2020
Robert Jeffries Chatfield
Executive Chairman
41
AVATION PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2020
Note
Share
Share
Treasury
Merger
Asset
Capital
Other
Retained
Total
Non-
Total
capital
premium
Shares
reserve
revaluation
reserve
reserves
earnings
controlling
equity
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
reserve
interest
Attributable to shareholders of the parent
Balance at 1 July 2019
1,104
56,912
(1,147)
6,715
34,392
8,876
(11,809)
145,644
240,687
70
240,757
Effect of adoption of IFRS 16
Leases
5a
-
-
-
-
-
-
(199)
(199)
As at 1 July 2019 (adjusted)
1,104
56,912
(1,147)
6,715
34,392
8,876
(11,809)
145,445
240,488
Profit for the period
Other comprehensive income
Total comprehensive income
Dividends paid
Issue of new shares
Purchase of treasury shares
Share warrant expense
Total transactions with owners
recognised directly in equity
Expiry of share warrants
Total others
38
28
28
-
-
-
-
4
-
-
4
-
-
-
-
-
-
835
-
-
-
-
-
-
-
(6,664)
-
835
(6,664)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(4,230)
(4,230)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9,714
9,714
(12,947)
(12,947)
-
(69)
-
592
523
(69)
(69)
-
(17,177)
9,714
(6,773)
-
-
-
(7,463)
(6,773)
770
(6,664)
592
(6,773)
(12,075)
69
69
-
-
-
70
2
-
2
-
-
-
-
-
-
-
(199)
240,558
9,716
(17,177)
(7,461)
(6,773)
770
(6,664)
592
(12,075)
-
-
Balance at 30 June 2020
1,108
57,747
(7,811)
6,715
30,162
8,876
(24,302)
148,455
220,950
72
221,022
During the year the Company paid total dividends of 10.6 US cents (2019: 9.25 US cents) per share.
Other reserves consists of capital redemption reserve, share warrant reserve, fair value reserve and foreign currency translation reserve.
The merger reserve arose on acquisition of additional shares of the Company’s subsidiary Capital Lease Aviation Limited through the allotment of ordinary
shares in the year ended 30 June 2015. The merger reserve represents the difference between the fair value and the nominal value of the shares issued by the
Company.
42
AVATION PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2019
Attributable to shareholders of the parent
Note
Share
Share
Treasury
Merger
Asset
Capital
Other
Retained
Total
Non-
Total
capital
premium
shares
reserve
revaluation
reserve
reserves
earnings
controlling
equity
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
reserve
interest
Balance at 1 July 2018
Profit for the year
Other comprehensive income
Total comprehensive income
Dividend paid
Issue of new shares
Purchase of treasury shares
Share warrants expense
Total transactions with owners
recognised directly in equity
Expiry of share warrants
Release of revaluation reserve
upon sale of aircraft
Total others
38
28
28
1,080
53,083
-
-
-
-
24
-
-
24
-
-
-
-
-
-
-
3,829
-
-
-
-
-
-
-
-
(1,147)
-
3,829
(1,147)
-
-
-
-
-
-
6,715
27,847
8,876
6,389
124,119
228,109
69
228,178
-
-
-
-
-
-
-
-
-
-
-
-
8,181
8,181
-
-
-
-
-
-
(1,636)
(1,636)
-
-
-
-
-
-
-
-
-
-
-
-
25,690
(18,009)
-
25,690
(9,828)
(18,009)
25,690
15,862
-
(5,840)
(5,840)
(628)
-
478
(150)
(39)
-
(39)
-
-
-
3,225
(1,147)
478
(5,840)
(3,284)
39
1,636
1,675
-
-
-
1
-
1
-
-
-
-
-
-
-
-
25,691
(9,828)
15,863
(5,840)
3,225
(1,147)
478
(3,284)
-
-
-
Balance at 30 June 2019
1,104
56,912
(1,147)
6,715
34,392
8,876
(11,809)
145,644
240,687
70
240,757
43
AVATION PLC
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2020
Note
Share
capital
Share
Treasury
Premium
shares
Merger
reserve
Asset
Other
revaluation
reserves
Retained
earnings
Total
US$’000s
US$’000s
US$’000s
US$’000s
reserve
US$’000s
US$’000s
US$’000s
US$’000s
Balance at 1 July 2019
Effect of adoption of IFRS 16
Leases
As at 1 July 2019 (adjusted)
Profit for the year
Other comprehensive income
Total comprehensive income
Dividend paid
Issue of new shares
Purchase of treasury shares
Share warrants expense
Total transactions with
owners, recognised directly in
equity
Expiry of share warrants
Total others
38
28
28
1,104
56,912
(1,147)
6,715
-
1,104
-
-
56,912
(1,147)
-
6,715
-
-
-
-
4
-
-
4
-
-
-
-
-
-
835
-
-
-
-
-
-
-
(6,664)
-
835
(6,664)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Balance at 30 June 2020
1,108
57,747
(7,811)
6,715
During the year the Company paid total dividends of 10.60 US cents (2019: 9.25 US cents) per share.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(5,133)
33,713
92,164
-
(5,133)
-
(3,110)
(3,110)
-
(69)
-
592
(54)
33,659
20,920
-
20,920
(6,773)
-
-
-
(54)
92,110
20,920
(3,110)
17,810
(6,773)
770
(6,664)
592
523
(6,773)
(12,075)
(69)
(69)
69
69
-
-
(7,789)
47,875
97,845
44
AVATION PLC
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2019
Note
Share
capital
Share
Treasury
Premium
shares
Merger
reserve
Asset
Other
revaluation
reserves
Retained
earnings
Total
US$’000s
US$’000s
US$’000s
US$’000s
reserve
US$’000s
US$’000s
US$’000s
US$’000s
Balance at 1 July 2018
1,080
53,083
38
28
28
Profit for the year
Other comprehensive income
Total comprehensive income
Dividend paid
Issue of new shares
Purchase of treasury shares
Share warrants expense
Total transactions with
owners, recognised directly in
equity
Release of revaluation
reserve upon sale of aircraft
Expiry of share warrants
Total others
-
-
-
-
24
-
-
24
-
-
-
-
-
-
-
-
-
(1,147)
-
-
-
-
-
3,829
-
-
3,829
(1,147)
-
-
-
-
-
-
6,715
2,833
733
34,388
98,832
-
-
-
-
-
-
-
-
-
-
-
-
(1,197)
(1,197)
-
-
-
-
-
-
(5,677)
(5,677)
-
(628)
-
478
3,490
-
3,490
(5,840)
-
-
-
3,490
(6,874)
(3,384)
(5,840)
3,225
(1,147)
478
(150)
(5,840)
(3,284)
(1,636)
-
(1,636)
-
(39)
(39)
1,636
39
1,675
-
-
-
Balance at 30 June 2019
1,104
56,912
(1,147)
6,715
-
(5,133)
33,713
92,164
45
AVATION PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2020
Cash flows from operating activities:
Profit before income tax
Adjustments for:
Amortisation of lease incentive asset
Depreciation expense
Depreciation of right-of-use assets
Expected credit loss on receivables and accrued revenue
Finance income
Finance expense
Gain on disposal of aircraft
Interest income from finance leases
Impairment loss on aircraft
Share warrants expense
Unrealised gain on aircraft purchase rights
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
Finance income received
Finance expense paid
Income tax paid
Net cash from operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Proceeds from disposal of aircraft
Net cash used in investing activities
Cash flows from financing activities:
Net proceeds from issuance of ordinary shares
Dividends paid to shareholders
Purchase of treasury shares
Placement of restricted cash balances
Proceeds from loans and borrowings, net of transactions costs
Repayment of loans and borrowings
Net cash (used in)/from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Note
2020
2019
US$’000s
US$’000s
14,640
25,559
9
19
12
13
14
9
19,27
15
524
46,666
217
855
(1,471)
57,192
(3,230)
(3,266)
35,524
592
(27,110)
121,133
(5,105)
(5,551)
28,621
139,098
3,215
(51,712)
(2,095)
88,506
-
41,011
-
166
(3,722)
55,328
(10,026)
(1,382)
-
478
-
107,412
4,411
1,412
8,947
122,182
2,950
(48,579)
(2,946)
73,607
(58,739)
(328,570)
-
70,184
(58,739)
(258,386)
770
(6,773)
(6,664)
(33,536)
76,561
(86,524)
3,225
(5,840)
(1,147)
(12,607)
301,741
(96,854)
(56,166)
188,518
(26,399)
61,689
35,290
3,739
57,950
61,689
38
28
30
30
26
26
46
AVATION PLC
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2020
Cash flows from operating activities:
Profit before taxation
Adjustments for:
Dividend income
Depreciation expense
Depreciation of right-of-use assets
Expected credit loss on receivables and accrued revenue
Finance income
Finance expense
Gain on disposal of aircraft
(Reversal of)/Impairment loss on investment in subsidiary
Share warrant expense
Unrealised gain on aircraft purchase rights
Operating cash flows before working capital changes
Movement in working capital:
Trade and other receivables
Trade and other payables
Cash used in operations
Finance income received
Finance expense paid
Income tax paid
Note
2020
2019
US$’000s
US$’000s
24,719
4,113
-
44
77
711
(5,260)
6,535
(619)
(885)
592
(27,110)
(1,196)
(3,791)
3,785
(1,202)
5,230
(6,041)
(1,130)
(5,647)
1,023
-
-
(5,456)
5,834
(3,725)
1,883
478
-
(1,497)
(62,570)
(1,890)
(65,957)
7,719
(8,064)
-
Net cash used in operating activities
(3,143)
(66,302)
Cash flows from investing activities:
Dividends received
Return of capital from a subsidiary
Purchase of property, plant and equipment
Proceeds from disposal of aircraft
Net cash from/(used in) investing activities
Cash flows from financing activities:
Net proceeds from issuance of ordinary shares
Dividends paid to shareholders
Purchase of treasury shares
Proceeds from loans and borrowings
Repayment of loans and borrowings
Net cash (used in)/from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
-
1,508
(21,610)
38,265
18,163
770
(6,773)
(6,664)
-
(17,566)
(30,233)
(15,213)
16,634
1,421
5,647
-
(57,511)
36,050
(15,814)
3,225
(5,840)
(1,147)
253,823
(154,957)
95,104
12,988
3,646
16,634
19
38
28
30
26
26
47
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
1
GENERAL
Avation PLC is a public limited company incorporated in England and Wales under the
Companies Act 2006 (Registration Number 05872328) and is listed as a Standard Listing on
the London Stock Exchange. The address of the registered office is given on page 1.
As disclosed in the Directors’ Report, the Group’s principal activity is aircraft leasing. Details of
the activities of subsidiary companies are set out in Note 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”) and as applied in accordance with Companies Act 2006.
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”) as adopted by EU.
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 1.23 (2019: 1.27).
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.
48
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
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 2020. 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.
49
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
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 identifiable 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 equity is not remeasured
and its subsequent settlement is accounted for within equity. Contingent consideration
classified as an asset or liability that is a financial instrument and within the scope of
IFRS 9 Financial Instruments is measured at fair value with the changes in fair value
recognised in profit or loss. Other contingent consideration that is not within the scope of
IFRS 9 is measured at fair value at each reporting date with 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.
50
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(e) GOING CONCERN
COVID-19
The COVID-19 pandemic developed rapidly in 2020 causing a significant reduction in air
travel and negative impacts on the business models and cash flows of our customer
airlines. While it is difficult to predict the extent of the impact from COVID-19, the
outbreak and the related decreased demand for aircraft travel is significantly impacting
the Group’s airline customers, which could lead to their inability to meet their lease
payment obligations to the Group, lead to deferrals of lease payments, restructuring and
cancellations of lease contracts with the Group which could negatively affect the Group’s
financial condition, cash flows and results from operating activities.
Further airline insolvencies may occur if the effects of the COVID-19 pandemic on the
airline industry continues for an extended period.
The Group reacted to the impact of the COVID-19 pandemic pro-actively by engaging
with its airline customers to arrange deferral of certain rental payments in order to
provide cash flow relief, while simultaneously engaging with lenders to arrange deferral
of certain loan payments to mitigate the reduced rental cash flows from airlines. The
Group has entered into rent deferral agreements with 12 airline customers. The rent
deferral agreements provide that deferred rents are repaid to the Group over periods of
3-9 months with interest charged on the deferred amounts. The Group has also entered
into loan principal payment deferral agreements for 11 loans and the deferred loan
principal payments are repayable to lenders over periods of 6-12 months with interest
charged on the deferred amounts.
The Group has been re-marketing aircraft previously leased to Virgin Australia and
Braathens and as of the date of this report has successfully re-leased five and sold two of
these aircraft. The Group continues to market the remaining 8 aircraft for lease or sale.
In addition, the Group has entered into an agreement to finance a previously
unencumbered aircraft and has engaged in discussion with Avions de Transport Regional
with an intention to cancel or reschedule aircraft orders.
Further actions taken by the Group to mitigate the negative impacts of the COVID-19
pandemic on cash flow include a suspension of dividend payments, a moratorium on
capital expenditure and a suspension of the Group’s employee cash bonus scheme.
51
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(e) GOING CONCERN (continued)
Debt maturities
The Group has a US$349.0 million principal amount of unsecured 6.5% notes (the
“Notes”) outstanding which fall due for repayment in May 2021. As of the date of
issuance of this report the Group has not entered into any arrangement to re-finance,
exchange or extend the maturity date of the Notes.
The Group has engaged a financial adviser to negotiate with holders of the Notes, with
the expectation of securing agreement on appropriate terms to extend the maturity date
of the Notes by two or more years. An extension of the maturity date of the Notes
requires a resolution at an extraordinary meeting of Noteholders. The formal
announcement of the engagement of a financial adviser to assist in this process was
made on 19 October 2020.
Due to the current challenging environment, the Directors have considered the impact on
the Group, in the context of the Group’s use of the going concern basis of preparation at
the date of signing of these financial statements by evaluating all cash inflows and
outflows of the Company and its subsidiaries, over the coming year under the following
assumptions;
-
-
Current unrestricted cash on hand balance available,
Additional liquidity from available restricted cash and further loan deferrals to be
used in funding loan repayments,
- Deferral of all certain contractually committed lease cash inflows;
-
Forecasted cash outflows for all contractual debt and lease obligations and
selling, general and administrative expenses for the next 12 months
Based on this analysis and all information available at present, the Directors believe that
the actions that they have taken and intend to take will ensure that the Group has
sufficient liquidity to meet its obligations as they fall due and that it continues to be
appropriate to prepare the financial statements on a going concern basis of preparation.
However, the Directors are of the view that a material uncertainty exists that may cast
significant doubt upon the group’s ability to continue as a going concern with regard to
the group successfully securing agreement on appropriate terms to extend the maturity
date of the Notes beyond the current repayment date. The Directors’ view is that the
process to extend the maturity of the bond can be completed within the timeframe prior
to its maturity in May 2021.
52
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
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.
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.
53
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
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 for non-recurring
measurement, such as assets held for sale in discontinued operations.
External valuers are involved for valuation of significant assets, such as aircraft, aircraft
purchase options 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, 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 revalued amount 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
Aircraft engines
Furniture and equipment
25 years from date of manufacture
23 years from date of manufacture
15 years from date of acquisition
3 years
54
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
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, estimated scrap values for second hand aircraft and 33% of cost for new aircraft
engines.
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) AIRCRAFT PURCHASE RIGHTS – Aircraft purchase rights to acquire aircraft which the
Group held over and above its requirement will be disposed off. The Group values these
excess aircraft purchase rights using the Black Scholes model. The aircraft purchase rights
are measured at fair value through profit or loss.
(i) 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.
Property, plant and equipment and intangible assets are not depreciated or amortised
once classified as held for sale.
Assets and liabilities classified as held for sale are presented separately as current items
in the statement of financial position.
(j)
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.
55
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
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.
(k) PROVISIONS - Provisions are recognised when the Group has a present obligation as a
result of a past event, and it is probable that the Group will be required to settle that
obligation. Provisions are measured at the Directors’ best estimate of the expenditure
required to settle the obligation at the reporting date, and are discounted to present
value where the effect is material.
(l) MAINTENANCE RESERVES - Normal maintenance and repairs, airframe and engine
overhauls, and compliance with return conditions of the aircraft placed on operating
leases are provided by and paid for by the lessees. Certain lease agreements require the
lessees to make maintenance reserve contributions to the Group which subsequently can
be drawn on to pay for certain maintenance events carried out. These maintenance
reserve balances are accounted for as liabilities. Upon 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.
56
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(m) 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.
(n)
LEASES
Group as a lessor
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 profit or loss on a straight-line basis over the lease term. The
Group recognises contingent rents when they can be reliably measured.
Where the Group transfers substantially all the risks and rewards of ownership of an
asset, the lease is classified as a finance lease Lease receipts are apportioned between
finance income and reduction of the finance lease receivable so as to achieve a constant
rate of interest on the remaining balance of the asset. Finance income is credited to
revenue.
For sales–type leases, the Group recognise the difference between the net book value of
the aircraft and the net finance lease receivables as a gain or loss on sale of aircraft, less
any initial direct costs. The unearned income is recognised as finance lease interest
income within revenue over the lease term in a manner that produces a constant rate of
return on the finance lease receivables.
Under the terms of certain lease agreements, lessees are required to make maintenance
contributions to the Group. At the end of a lease, when we are able to determine the
amount, if any, by which maintenance contributions received exceed the amount we are
required under the lease to reimburse to the lessee for heavy maintenance, overhaul or
parts replacement, the excess is recognised as maintenance revenue. End of lease
compensation payments made to the Group are recognised as revenue when a reliable
estimate of the expected compensation amount can be determined. The Group does not
recognise end of lease compensation as revenue if there is a reasonable expectation that
the lessee will extend the existing lease agreement rather than returning the aircraft at
the end of the current lease period.
57
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(n)
LEASES (continued)
Group as a lessee
Prior to the adoption of IFRS 16, leases were either classified as operating or finance
leases. Payments made in respect of operating leases were charged to the income
statement on a straight-line basis over the duration of the lease. Finance leases were
recognised on the balance sheet with depreciation and interest being charged to the
income statement.
On transition to IFRS 16, the Group applies a single recognition and measurement
approach for all leases, except for short-term leases and leases of low-value assets. The
Group recognises lease liabilities to make lease payments and right-of-use assets
representing the right to use the underlying assets.
i)
Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the lease
(i.e., the date the underlying asset is available for use). Right-of-use assets are
measured at cost, less any accumulated depreciation and impairment losses, and
adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets
includes the amount of lease liabilities recognised, initial direct costs incurred, and
lease payments made at or before the commencement date less any lease
incentives received. Right-of-use assets are depreciated on a straight-line basis
over the shorter of the lease term and the estimated useful lives of the assets.
If ownership of the leased asset transfers to the Group at the end of the lease
term or the cost reflects the exercise of a purchase option, depreciation is
calculated using the estimated useful life of the asset.
The right-of-use assets are also subject to impairment.
The Group’s lease arrangements do not contain an obligation to dismantle and
remove the underlying asset, restore the site on which it is located or restore the
underlying asset to a specified condition.
The Group’s right-of-use assets are included in trade and other receivables.
ii)
Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities
measured at the present value of lease payments to be made over the lease term.
The lease payments include fixed payments (including in-substance fixed
payments) less any lease incentives receivable, variable lease payments that
depend on an index or a rate, and amounts expected to be paid under residual
value guarantees. The lease payments also include the exercise price of a
purchase option reasonably certain to be exercised by the Group and payments of
penalties for terminating the lease, if the lease term reflects the Group exercising
the option to terminate.
Variable lease payments that do not depend on an index or a rate are recognised
as expenses in the period in which the event or condition that triggers the
payment occurs.
58
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(n)
LEASES (continued)
In calculating the present value of lease payments, the Group uses its incremental
borrowing rate at the lease commencement date because the interest rate implicit
in the lease is not readily determinable. After the commencement date, the
amount of lease liabilities is increased to reflect the accretion of interest and
reduced for the lease payments made. In addition, the carrying amount of lease
liabilities is re-measured if there is a modification, a change in the lease term, a
change in the lease payments (e.g., changes to future payments resulting from a
change in an index or rate used to determine such lease payments) or a change in
the assessment of an option to purchase the underlying asset.
The Group’s lease liabilities are included in trade and other payables.
iii)
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term
leases of equipment (i.e., those leases that have a lease term of 12 months or less
from the commencement date and do not contain a purchase option). It also
applies the lease of low-value assets recognition exemption to leases of office
equipment that are considered to be low value.
Lease payments on short-term leases and leases of low value assets are
recognised as expense on a straight-line basis over the lease term.
(o) BORROWING COSTS - Borrowing costs are capitalised as part of the cost of a
qualifying asset if they are directly attributable to the acquisition, construction or
production of that asset. Capitalisation of borrowing costs commences when the activities
to prepare the asset for its intended use or sale are in progress and the expenditures and
borrowing costs are incurred. Borrowing costs are capitalised until the assets are
substantially completed for their intended use or sale. All other borrowing costs are
expensed in the period they occur. Borrowing costs consist of interest and other costs
that an entity incurs in connection with the borrowing of funds.
(p) REVENUE RECOGNITION – The Group as lessor, leases aircraft principally under both
operating leases and finance leases. Revenue which is not derived from leases is
measured as follows:
(i)
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.
(ii) Dividend income from investments is recognised when the company’s right to
receive payment have been established.
59
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(q) CONTINGENCIES – A contingent liability is:
(i)
a possible obligation that arises from past events and whose existence will be
confirmed only by the occurrence or non-occurrence of one or more uncertain
future events not wholly within the control of the Group; or
(ii)
a present obligation that arises from past events but is not recognised because:
i.
ii.
It is not probable that an outflow of resources embodying economic benefits
will be required to settle the obligation; or
The amount of the obligation cannot be measured with sufficient reliability.
A contingent asset is a possible asset that arises from past events and whose existence
will be confirmed only by the occurrence or non-occurrence of one or more uncertain
future events not wholly within the control of the Group.
(r)
TAXATION - Taxation expense represents the sum of current tax and deferred tax.
Current tax is based on taxable profit for the financial period. Taxable profit differs from
profit as reported in profit or loss because it excludes items of income or expense that
are taxable or deductible in other years and it further excludes items that are never
taxable or deductible. The Group’s liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the reporting date.
Deferred tax is recognised on differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax bases used in the
computation of taxable profit. Deferred tax liabilities are generally recognised for all
taxable temporary differences and deferred tax assets are recognised to the extent that
it is probable that taxable profits will be available against which deductible temporary
differences can be utilised. Such assets and liabilities are not recognised if the temporary
difference arises from goodwill or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that affects neither the
taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on
investments in subsidiaries, except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not reverse in
the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each reporting date and
reduced to the extent that it is no longer probable that sufficient taxable profits will be
available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when
the liability is settled or the asset realised. Deferred tax is charged or credited to profit or
loss, except when it relates to items charged or credited directly to equity, in which case
the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to
set off current tax assets against current tax liabilities and when they relate to income
taxes levied by the same taxation authority and the Group intends to settle its current
tax assets and liabilities on a net basis.
The Company is tax resident in Singapore.
60
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(s)
FOREIGN CURRENCIES - The Group’s consolidated financial statements and Company
financial statements are presented in United States Dollars. The individual financial
statements of each Group entity are presented in the currency of the primary economic
environment in which the entity operates (its functional currency) and United States
Dollars is the functional currency of most Group entities, including the parent company.
In preparing the financial statements of the individual entities, transactions in currencies
other than the entity’s functional currency (foreign currencies) are recorded at rates of
exchange prevailing on the dates of the transactions. At each reporting date, monetary
items denominated in foreign currencies are retranslated at rates prevailing on the
reporting date. Non-monetary items carried at fair value that are denominated in foreign
currencies are retranslated at rates prevailing on the date when the fair value was
determined. Non-monetary items that are measured in terms of historical cost in a
foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the
retranslation of monetary items, are included in profit or loss for the period. Exchange
differences arising on the retranslation of non-monetary items carried at fair value are
included in profit or loss for the period except for differences arising on the retranslation
of non-monetary items in respect of which gains and losses are recognised directly in
equity. For such non-monetary items, any exchange component of that gain or loss is
also recognised directly in equity.
For the purpose of presenting consolidated financial statements, the assets and liabilities
of the Group’s foreign operations are expressed in United States Dollars using exchange
rates prevailing on the reporting date. Income and expense items are translated at the
average exchange rates for the period, unless exchange rates fluctuated significantly
during that period, in which case the exchange rates at the dates of the transactions are
used. Exchange differences arising, if any, are classified as equity and transferred to the
Group’s translation reserve. Such translation differences are recognised in profit or loss
in the period in which the foreign operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are
treated as assets and liabilities of the foreign operation and translated at the closing
rate.
61
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(t)
FINANCIAL INSTRUMENTS
Financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, as subsequently measured at
amortised cost, fair value through other comprehensive income (OCI), and fair value
through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset’s
contractual cash flow characteristics and the Group’s business model for managing them.
With the exception of trade receivables that do not contain a significant financing
component or for which the Group has applied the practical expedient, the Group initially
measures a financial asset at its fair value plus, in the case of a financial asset not at fair
value thought profit or loss, transaction costs.
In order for a financial asset to be classified and measured at amortised cost or fair value
thought OCI, it needs to give rise to cash flows that are solely payments of principal and
interest (‘SPPI’) on the principal amount outstanding. This assessment is referred to as
the SPPI test and is performed at an instrument level.
The Group’s business model for managing financial assets refers to how it manages its
financial assets in order to generate cash flows. The business model determines whether
cash flows will result from collecting contractual cash flow, selling the financial assets or
both.
All purchases and sales of financial assets are recognised or derecognised on the trade
date which is the date that the Group commits to purchase or sell the asset.
Subsequent measurement
For the purposes of subsequent measurement, financial assets are classified in four
categories:
•
•
•
•
Financial assets at amortised cost (debt instruments)
Financial assets at fair value through OCI with recycling of cumulative gains and
losses (debt instruments)
Financial assets designated at fair value through OCI with recycling of cumulative
gains and losses upon derecognition (equity instruments)
Financial assets at fair value through profit or loss
62
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(t)
FINANCIAL INSTRUMENTS (continued)
(i)
Financial assets at amortised cost (debt instruments)
This category is the most relevant to the Group. The Group measures financial
assets at amortised cost if both of the conditions are met:
•
•
The financial asset is held within a business model with the objective to hold
financial assets in order to collect contractual cash flows
And
The contractual terms of the financial asset give rise on specific dates to cash
flows that are solely payments of principal and interest on the principal
amount outstanding
Financial assets at amortised cost are subsequently measured using the effective
interest (EIR) method and are subject to impairment. Gains and losses are
recognised in profit or loss when the asset is derecognised, modified or impaired.
The Group’s financial assets at amortised cost are cash and bank balances, trade
and other receivables and finance lease receivables.
(ii)
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held
for trading, financial assets designated upon initial recognition at fair value
through profit or loss, or financial assets mandatorily required to be measured at
fair value. Financial assets are classified as held for trading if they are acquired
for the purpose of selling or repurchasing in the near term. Derivatives,
including separated embedded derivatives, are also classified as held for trading
unless they are designated as effective hedging instruments. Financial assets
with cash flows that are not solely payments of principal and interest are
classified and measured at fair value through profit or loss, irrespective of the
business model. Notwithstanding the criteria for debt instruments to be
classified at amortised cost or at fair value through OCI, debt instruments may
be designated at fair value though profit or loss on initial recognition if doing so
eliminates, or significantly reduces, an accounting mismatch.
Financial assets at fair value through profit or loss are carried in the statement of
financial position at fair value with net changes in fair value recognised in the
statement of profit or loss.
The Group’s financial assets at fair value through profit or loss are options held
for trading and derivative financial assets.
Derecognition
A financial asset is derecognised where the contractual right to receive cash flows from
the asset has expired. On derecognition of a financial asset in its entirety, the
difference between the carrying amount and the sum of the consideration received and
any cumulative gain or loss that had been recognised in other comprehensive income
for financial assets is recognised in profit or loss.
63
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(t)
FINANCIAL INSTRUMENTS (continued)
Financial liabilities
Initial recognition and measurement
Financial liabilities are recognised when, and only when, the Group becomes a party to
the contractual provisions of the financial instrument. The Group determines the
classification of its financial liabilities at initial recognition. Financial liabilities are
recognised initially at fair value, minus in the case of financial liabilities not at fair value
through profit or loss, directly attributable transaction costs.
Subsequent measurement
The measurement of financial liabilities depends on their classification as follows:
(i)
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities
held for trading and financial liabilities designated upon initial recognition at fair
value. Financial liabilities are classified as held for trading if they are acquired
for the purpose of selling in the near term. Subsequent to initial recognition,
financial liabilities at fair value through profit or loss are measured at fair
value. Any gains or losses arising from changes in fair value of the financial
liabilities are recognised in profit or loss.
(ii)
Financial liabilities at amortised cost
After initial recognition, financial liabilities that are not carried at fair value
through profit or loss are subsequently measured at amortised cost using the
effective interest method. Gains and losses are recognised in profit or loss
when the liabilities are derecognised, and through the amortisation process.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged
or cancelled or expires. When an existing financial liability is replaced by another from
the same lender on substantially different terms, or the terms of an existing liability
are substantially modified, such an exchange or modification is treated as a de-
recognition of the original liability and the recognition of a new liability, and the
difference in the respective carrying amounts is recognised in profit or loss.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is presented in
the statement of financial position, when and only when, there is a currently
enforceable legal right to set off the recognised amounts and there is an intention to
settle on a net basis, or to realise the assets and settle the liabilities simultaneously.
64
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(u)
IMPAIRMENT OF FINANCIAL ASSETS - The Group recognises an allowance for
expected credit losses (“ECLs”) for all financial assets not held at fair value through profit
or loss. ECLs are based on the difference between the contractual cash flows due in
accordance with the contract and all the cash flows that the Group expects to receive,
discounted at an approximation of the original effective interest rate. The expected cash
flows will include cash flows from the sale of collateral held or other credit enhancements
that are integral to the contractual terms.
Loss allowances of the Group are measured on either of the following bases:
•
12-month ECLs: these are ECLs that result from default events that are possible
within the 12 months after the reporting date (or for a shorter period if the expected
life of the instrument is less than 12 months); or
•
Lifetime ECLs: these are ECLs that result from all possible default events over the
expected life of a financial instrument.
(i) Simplified approach
The Group applies the simplified approach to provide for ECLs for all trade
receivables. The simplified approach requires the loss allowance to be measured at
an amount equal to lifetime ECLs.
The Group established a provision matrix based on the Group’s historical credit loss
experience, adjusted for forward-looking factors specific to the debtors and the
economic environment.
(ii) General approach
The Group applies the general approach to provide for ECLs on finance lease
receivables and all other financial assets not held at fair value through profit or loss.
Under the general approach, the loss allowance is measured at an amount equal to
12-month ECLs at initial recognition.
At each reporting date, the Group assesses whether the credit risk of a financial
instrument has increased significantly since initial recognition. When credit risk has
increased significantly since initial recognition, loss allowance is measured at an
amount equal to lifetime ECLs.
When determining whether the credit risk of a financial asset has increased
significantly since initial recognition and when estimating ECLs, the Group considers
reasonable and supportable information that is relevant and available without undue
cost or effort. This includes both quantitative and qualitative information and
analysis, based on the Group’s historical experience and informed credit assessment
and includes forward-looking information.
If credit risk has not increased significantly since initial recognition or if the credit
quality of the financial instruments improves such that there is no longer a
significant increase in credit risk since initial recognition, loss allowance is measured
at an amount equal to 12-month ECLs.
For the purpose of recognition of an allowance for ECL, the Group considers a financial
asset to be in default:
• when the lessee does not pay the amounts due under its lease agreements to the
Group in excess of the security deposit or the value of the collateral; or
•
in the case where the financial asset is not secured, when the financial asset is more
than 90 days past due.
65
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(v) CASH AND BANK BALANCES - Cash and bank balances comprise cash and cash
equivalents and restricted cash.
• Cash and cash equivalents comprise cash at bank and on hand, demand deposits,
and short-term, highly liquid investments that are readily convertible to known
amount of cash and which are subject to insignificant risk of changes in value.
• Restricted cash balances comprise bank balances which are pledged as security for
certain loan obligations.
(w) TRADE AND OTHER PAYABLES – Liabilities for trade and other payables which are
normally settled within 30 to 60 days credit terms, are initially carried at cost which is
the fair value of the consideration to be paid in the future for goods and services
received, whether or not billed to the Group and subsequently measured at amortised
cost using the effective interest method.
Gains and losses are recognised in the profit or loss when the liabilities are derecognised
as well as through the amortisation process.
(x)
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).
• Modification of loans – The Group assesses whether the new terms of modified third
party loans results in a modification of contractual cash flows substantially different
to the original terms. In making this assessment, the Group considers, among
others, significant changes in the interest rate. If the terms are substantially
different, the Group derecognises the original financial liability and recognises a new
financial liability at fair value and recalculates a new effective interest rate for the
liability. If the terms are not substantially different, the modification does not result
in derecognition, and the Group recalculates the gross carrying amount based on the
revised cash flows of the liability recalculated by discounting the modified cash flows
at the original effective interest rate and recognises a modification gain or loss in
profit or loss. The present value of the modified cash flow of the financial liability is
subsequently amortised using the effective interest rate method over the remaining
life of the loan and recorded as part of finance income in the consolidated statement
of profit or loss.
(y) SHARE CAPITAL, SHARE ISSUANCE EXPENSES AND TREASURY SHARES -
Proceeds from issuance of ordinary shares in excess of the par value are recognised in
share premium in equity. Incremental costs directly attributable to the issuance of
ordinary shares are deducted from share premium.
Own equity instruments that are reacquired (treasury shares) are recognised at cost and
deducted from equity. No gain or loss is recognised in profit or loss on the purchase,
sale, issue or cancellation of the Group’s own equity instruments. Any difference between
the carrying amount and the consideration, if reissued, is recognised in share premium.
66
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(z) 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 hedged 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.
Hedging relationships designated under IAS 39 Financial Instruments that were still
existing as at 30 June 2018 are treated as continuing hedges and hedge documentation
was aligned accordingly to the requirements of IFRS 9 Financial Instruments.
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.
(aa) 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. The Group’s
principal activity is aircraft leasing and therefore only has one reportable segment.
67
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
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 considering 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.
The carrying amount of the property, plant and equipment at the end of the reporting
period is disclosed in Note 19.
(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. The factors considered in estimating the undiscounted cash flows
are impacted by changes in future periods due to changes in projected lease rental and
maintenance payments, residual values, economic conditions, technology, airline
demand for a particular aircraft type and other factors.
The carrying amount of the property, plant and equipment -aircraft at the end of the
reporting period is disclosed in Note 19.
(c)
Impairment of financial assets
The Group follows the guidance of IFRS 9 Financial Instruments in determining when a
financial asset is impaired, and this requires judgement on the correlation between
historical observed default rates and ECLs. The Group’s methodology for calculating ECLs
is set out in Note 7.
The carrying amount of financial assets at the end of the reporting period is disclosed in
Note 6.
68
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
4
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
(d) Fair value estimation for aircraft purchase rights
The Group values aircraft purchase rights using the binomial option price model. Critical
assumptions made in determining the fair value of the aircraft purchase rights include
the market value volatility rates used.
The carrying amount of aircraft purchase rights at the end of the reporting period is
disclosed in Note 25.
(e)
Income taxes and deferred income taxes
a.
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 was taxed at a concessionary
rate of 10%. Qualifying income during the period 17 April 2014 to 16 April 2019
was taxed at the concessionary rate subject to meeting the terms and conditions
of the incentive.
On 26 April 2019, Avation Group (S) Pte. Ltd. and its subsidiaries were awarded
another 5-year Aircraft Leasing Scheme incentive, where income from the leasing
of aircraft and aircraft engines and qualifying activities will be taxed at a
concessionary rate of 8%. The effective date is 17 April 2019. Accordingly,
qualifying income derived from the period 17 April 2019 to 16 April 2024 will be
taxed at the 8% concessionary rate subject to meeting the terms and conditions of
the incentive. Management’s judgement is required in the application of the
concessionary tax rate of 8% in determining the carrying amount of deferred tax
asset and liability for temporary differences that are expected to realised or settled
beyond 16 April 2024.
b.
Deferred tax assets are recognised for all unabsorbed capital allowances and
unutilised tax losses to the extent that it is probable that taxable profit will be
available against which the losses can be utilised. Management judgement is
required determine the amount of deferred tax assets that can be recognised,
based upon the likely timing and level of future taxable profits.
(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.
69
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
5
NEW ACCOUNTING STANDARDS AND INTERPRETATIONS
(a)
Standards and interpretations adopted during the year
The Group has adopted all new standards that have come into effect during the year ended 30
June 2020. The adoption of these standards did not have any material effect on the financial
performance or position of the Group and the Company except as set out below:
IFRS 16 Leases
The Group adopted IFRS 16 Leases on 1 July 2019. IFRS 16 supersedes 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. The
standard sets out the principles for the recognition, measurement, presentation and disclosure
of leases and requires lessees to recognise most leases on the statement of financial position.
Lessor accounting under IFRS 16 is substantially unchanged from IAS 17. Lessors will continue
to classify leases as either operating or finance leases using similar principles as in IAS 17.
Therefore, IFRS 16 did not have an impact for leases where the Group is the lessor.
The Group has lease contracts for offices as lessee. Before the adoption of IFRS 16, the Group
classified these leases as operating leases.
Upon adoption of IFRS 16, the Group applied a single recognition and measurement approach
for all leases. The standard provides specific transition requirements and practical expedients,
which have been applied by the Group.
Leases previously accounted for as operating leases
The Group recognised right-of-use assets and lease liabilities for lease contracts for offices
previously classified as operating leases. The right-of-use assets for most leases were
recognised based on the carrying amount as if the standard had always been applied, apart
from the use of incremental borrowing rate at the date of initial application. Lease liabilities
were recognised based on the present value of the remaining lease payments, discounted
using the weighted average of cost of debt of the Group of 4.6% at the date of initial
application.
The Group also applied the available practical expedients wherein it:
• Used a single discount rate to a portfolio of leases with reasonably similar characteristics
• Relied on its assessment of whether leases are onerous immediately before the date of
initial application
• Applied the short-term leases exemptions to leases with lease term that ends within 12
•
months of the date of initial application
Excluded the initial direct costs from the measurement of the right-of-use asset at the date
of initial application
• Used hindsight in determining the lease term where the contract contained options to
extend or terminate the lease
The lease liabilities as of 1 July 2019 can be reconciled to the operating lease commitments as
of 30 June 2019, as follows:
Operating lease commitments as of 30 June 2019
Weighted average of cost of debt as of 1 July 2019
Discounted operating lease commitments and lease liabilities as
of 1 July 2019
70
US$’000s
1,278
4.6%
1,144
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
5
NEW ACCOUNTING STANDARDS AND INTERPRETATIONS (continued)
The effect of adoption IFRS 16 as of 1 July 2019 (increase/(decrease) is, as follows:
Assets:
Right-of-use assets
Total assets
Liabilities:
Lease liabilities
Total liabilities
Total adjustment on equity:
Retained earnings
US$’000s
945
945
1,144
1,144
(199)
(199)
(b)
New standards and interpretations not yet adopted
The Group has not adopted the following new or amended standards and interpretations which
are relevant to the Group that have been issued but are not yet effective:
Description
Amendments to References to the Conceptual Framework in
IFRS Standards
Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate
Benchmark Reform
Effective date
(period beginning)
1 January 2020
1 January 2020
Amendments to IFRS 3: Definition of a Business
1 January 2020
Amendments to IAS 1 and IAS 8: Definition of Material
1 January 2020
Amendments to IFRS 16: Covid-19 Related Rent Concessions
1 June 2020
Interest Rate Benchmark Reform — Phase 2: Amendments to
IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (Not yet endorsed
for use in the EU.)
Amendments to IAS 1: Classification of Liabilities as Current or
Non-current
Amendments to IAS 37: Onerous Contracts – Cost of Fulfilling a
Contract
Amendments to IAS 16: Property, Plant and Equipment, Proceeds
before Intended Use
AIP (2018-2020 cycle): IFRS 9 Financial Instruments – Fees in
the ’10 per cent’ Test for Derecognition of Financial Liabilities
1 January 2021
1 January 2022
1 January 2022
1 January 2022
1 January 2022
Amendments to IFRS 3: Reference to the Conceptual Framework
1 January 2022
Amendments to IFRS 10 and IAS 28: Sale or Contribution of
Assets between an Investor and its Associate or joint venture
No effective date
Based on a preliminary assessment using currently available information, the Group does not
expect the adoption of the above standards to have a material impact on the financial
statements in the period of initial application. These preliminary assessments may be subject
to changes arising from ongoing analyses when the Group adopts the standards. The Group
plans to adopt the above standards on the effective date.
71
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
6
FAIR VALUE MEASUREMENT
The fair value of a financial instrument 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.
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.
The fair value of the maintenance reserves is not disclosed in the table below as the timing and
cost of the maintenance reserves cannot be determined with certainty in advance and hence the
fair value of the maintenance reserve cannot be measured.
Group
2020
Carrying
amount
US$’000s
Fair value
amount
Fair value
US$’000s
US$’000s
US$’000s
2019
Carrying
Financial assets:
Finance lease receivables – non-current
85,019
82,631
Derivative financial assets
-
-
37,137
363
35,661
363
Financial liabilities:
Deposits collected – non-current
9,185
8,639
13,979
13,273
Loans and borrowings other than
unsecured notes – non-current
Unsecured notes
Derivative financial liabilities
534,755
346,656
27,928
502,534
261,143
27,928
660,727
344,966
10,174
644,726
358,327
10,174
Company
2020
Carrying
amount
US$’000s
Fair value
amount
Fair value
US$’000s
US$’000s
US$’000s
2019
Carrying
Financial liabilities:
Deposits collected – non-current
300
300
200
200
Loans and borrowings - non-current
125,779
120,144
136,900
132,497
Derivative financial liabilities
7,725
7,725
2,817
2,817
The fair values (other than the unsecured notes and derivative financial assets and liabilities)
above are estimated by discounting expected future cash flows at market incremental lending
rate for similar types of lending, borrowing or leasing arrangements at the end of the reporting
period.
72
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
6
FAIR VALUE MEASUREMENT (continued)
The fair value of the unsecured notes are based on level 1 quoted prices (unadjusted) in active
market that the Group can access at measurement date.
The fair value of the derivative financial instruments is determined by reference to marked-to-
market values provided by counterparties. The fair value measurement of all derivative financial
instruments under the Group is classified under Level 2 of the fair value hierarchy, for which
inputs other than quoted prices that are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices) are included as inputs for the
determination of fair value.
Non-financial assets measured at fair value:
Group
Company
2020
2019
2020
2019
US$’000s
US$’000s
US$’000s
US$’000s
Fair value measurement using
significant unobservable inputs:
Aircraft
Aircraft purchase rights
1,055,970
1,225,285
27,110
-
19,566
27,110
37,547
-
Aircraft were valued at 30 June 2020 and 30 June 2019. Refer to Note 19 for the details on the
valuation technique and significant inputs used in the valuation.
Information about significant unobservable inputs used in Level 3 fair value
measurements
The following table shows the information about the fair value measurements using unobservable
inputs (Level 3):
Description
Valuation
techniques
Unobservable
inputs
Aircraft
Lease-encumbered
basis
Discount rates
Range
(weighted
average)
2020
5.50% to 8.00%
for Jet (6.56%)
Range
(weighted
average)
2019
5.75% to 7.75%
for Jet (6.80%)
5.50% to 9.00%
for Turboprops
(6.23%)
6.00% to 9.25%
for Turboprops
(7.17%)
Aircraft purchase
rights
Black Scholes model
Volatility rates
5.63% to 8.50%
(6.13%)
Not applicable
73
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
6
FAIR VALUE MEASUREMENT (continued)
Classification of financial instruments:
A comparison by category of carrying amounts of all the Group and Company's financial
instruments that are carried in the financial statements which are considered to equate to fair
value is set out below.
Financial assets measured at
amortised cost:
Cash and bank balances
Trade and other receivables
Finance lease receivables
Financial liabilities measured at
amortised cost:
Trade and other payables
Loans and borrowings
Maintenance reserves
Group
Company
2020
2019
2020
2019
US$’000s
US$’000s
US$’000s
US$’000s
114,585
107,448
19,800
93,007
12,616
44,358
1,421
212,624
-
16,634
209,927
-
227,392
164,422
214,045
226,561
15,282
19,324
1,071,738
1,078,288
60,977
32,491
29,172
138,496
-
33,427
147,474
-
1,147,997
1,130,103
167,668
180,901
Derivative used for hedging:
Derivative financial assets
-
363
-
-
Derivative financial liabilities
(27,928)
(10,174)
(7,725)
(2,817)
Fair value through profit or loss:
Aircraft purchase rights
27,110
-
27,110
-
74
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
6
FAIR VALUE MEASUREMENT (continued)
A reconciliation of liabilities arising from financing activities is as follows:
Group
Loans and borrowings:
Current
Non-current
Unsecured notes:
Current
Non-current
Group
Loans and borrowings:
Current
Non-current
Unsecured notes:
Non-current
Company
Loans and borrowings:
Current
Non-current
Interest bearing payable due to
subsidiaries
2019
Cash flows
other
2020
US$’000s
US$’000s
US$’000s
US$’000s
Non-cash/
72,595
660,727
(67,935)
185,667
58,735
(184,707)
190,327
534,755
-
-
346,656
346,656
344,966
1,078,288
(763)
(344,203)
-
(9,963)
3,413
1,071,738
2018
Cash flows
other
2019
US$’000s
US$’000s
US$’000s
US$’000s
Non-cash/
71,704
503,374
(47,371)
203,314
48,262
(45,961)
72,595
660,727
293,522
868,600
48,944
204,887
2,500
4,801
344,966
1,078,288
2019
Cash flows
other
2020
US$’000s
US$’000s
US$’000s
US$’000s
Non-cash/
10,574
136,900
(9,457)
-
11,600
(11,121)
12,717
125,779
29,984
(8,109)
-
21,875
177,458
(17,566)
479
160,371
75
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
6
FAIR VALUE MEASUREMENT (continued)
Company
Loans and borrowings:
Current
Non-current
Interest bearing payable due to
subsidiaries
2018
Cash flows
other
2019
US$’000s
US$’000s
US$’000s
US$’000s
Non-cash/
3,068
48,309
3,896
91,979
3,610
(3,388)
10,574
136,900
26,993
2,991
-
29,984
78,370
98,866
222
177,458
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.
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, equipment
failure and this year, Covid-19 pandemic. 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.
76
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
7
FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(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
Company
2020
2019
2020
2019
US$’000s
US$’000s
US$’000s
US$’000s
7,201
494
7,695
3,743
4
3,747
3
102
105
36
4
40
For trade receivables, the Group has applied the simplified approach and has calculated
ECLs based on lifetime expected losses. The Group has established a provision matrix
based on the Group’s historical credit loss experience, adjusted for forward-looking
factors specific to the debtors and the economic environment.
Trade receivables that are neither past due nor impaired amounting to US$1.5 million
(2019: US$1.1 million) are substantially due from companies with a good payment track
record.
77
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
7
FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(b) Credit risk (continued)
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 and interest bearing receivable. An allowance for expected credit losses of
US$0.2 million (2019: US$0.2 million) has been provided in relation to trade
receivables past due and impaired of US$1.9 million (2019: US$2.7 million). An
allowance for expected credit losses of US$0.7 million (2019: US$Nil) has been
provided in relation to interest bearing receivable.
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
Group
2020
2019
US$’000s
US$’000s
1,897
1,794
832
157
-
35
4,523
192
Bank deposits that are neither past due or impaired are mainly deposits with banks
with strong credit–ratings from international credit-rating agencies. While cash and
bank balances are also subject to the impairment requirements of IFRS 9, the
identified impairment loss was immaterial.
Other receivables from subsidiaries are low in default credit risk as these subsidiaries
are financially sound and with good payment track record.
For finance lease receivables, the Group applied the general approach under the
standard. The Group’s finance lease receivables are considered to have low credit risk
and the loss allowance recognised during the period was therefore limited to 12
months expected credit losses on non-secured amounts. The loss allowance for finance
lease receivables are recognised in profit or loss and reduces carrying amount of the
finance lease receivables. As the value of aircraft that secures the Group’s finance
lease receivables exceeds the value of the finance lease receivables, the Group has not
recognised any loss allowance in respect of its finance lease receivables during the year
ended 30 June 2020 (2019: US$nil).
(c)
Interest rate risk
The Group is exposed to interest rate risk through the impact of interest rate changes
on floating rate interest bearing liabilities and assets.
The Group seeks to reduce its exposure to interest rate risk by fixing interest rates on
the majority of its loans and borrowings. As at 30 June 2020, 90.7% (2019: 92.0%) of
the Group’s loans and borrowings are at fixed or hedged interest rates. The interest
rate risk is not material and therefore no sensitivity analysis presented.
The interest rates and repayment terms for financial assets and financial liabilities are
disclosed in the respective notes to the financial statements as of 30 June 2020.
78
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
7
FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(d) Foreign currency risk
Foreign currency risk arises from transactions and cash balances that are not denominated
in the Group’s functional currency. The Group’s foreign currency exposures arose mainly
from movements in the exchange rate for Singapore Dollars and Euro against the United
States Dollar.
The Group aims to mitigate foreign currency risk by holding the majority of its cash
balances in United States Dollars. From time to time the Group utilises forward foreign
currency contracts to hedge its exposure to specific currency risks.
The Group’s foreign currency exposure is as follows:
Group
2020:
Pound sterling
Australian dollars
Euro
Singapore dollar
2019:
Pound sterling
Euro
Singapore dollar
Cash and
Other
Other
Net
bank
financial
financial
currency
balances
assets
liabilities
exposure
US$’000s
US$’000s
US$’000s
US$’000s
82
-
6,109
232
21
1,503
56,931
121
(78)
(9)
(47,873)
(533)
25
1,494
15,167
(180)
6,423
58,576
(48,493)
16,506
66
5,307
245
62
(53)
30,389
(27,753)
29
(493)
75
7,943
(219)
5,618
30,480
(28,299)
7,799
Company
balances
assets
liabilities
exposure
US$’000s
US$’000s
US$’000s
US$’000s
Cash and
Other
Other
Net
bank
financial
financial
currency
2020:
Pound sterling
Australian dollars
Euro
Singapore dollar
2019:
Pound sterling
Euro
Singapore dollar
38
-
-
78
20
-
(47)
(4)
53,835
(54,014)
31
(28)
11
(4)
(179)
81
116
53,886
(54,093)
(91)
30
-
57
62
(19)
57,666
(57,825)
24
(47)
73
(159)
34
87
57,752
(57,891)
(52)
79
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
7
FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(d) Foreign currency risk (continued)
The table below illustrates the effect on total profit and total equity that would result from
a strengthening of foreign currencies against the United States Dollar by 10% (2019:
10%) with all other variables including tax rate being held constant:
Foreign currency:
Pound sterling
Australian dollars
Euro
Singapore dollar
Group
Company
2020
2019
2020
2019
US$’000s
US$’000s
US$’000s
US$’000s
3
149
1,517
(18)
7
-
794
(22)
1
-
(18)
8
7
-
(16)
3
A weakening of the respective currencies by 10% against the United States Dollar would
have an equal and opposite effect.
The Group entered into Euro denominated lease agreements for aircraft and
subsequently arranged Euro denominated financing and cross-currency swap contracts in
order to hedge exposure to foreign exchange risk associated with Euro denominated
lease revenue by offsetting Euro cash inflows and outflows over the lease term. See note
24.
(e)
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting financial
obligations due to shortage of funds. The Group’s exposure to liquidity risk arises primarily
from mismatches of the maturities of financial assets and liabilities. The Group monitors
and maintains a level of cash and cash equivalents that management deems adequate to
finance the Group’s operations and mitigate the effects of fluctuations in cash flows. Short-
term funding is obtained from loan facilities.
80
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
7
FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(e) Liquidity risk (continued)
Analysis of financial liabilities by remaining contractual maturities
The table below summarises the maturity profile of the Group’s financial liabilities at the
end of the reporting period based on contractual undiscounted repayment obligations:
Group
2020:
Financial liabilities:
Trade and other payables
Loans and borrowings
Maintenance reserves
2019:
Financial liabilities:
Trade and other payables
Loans and borrowings
Maintenance reserves
One year or
One to five
Over five
Total
less
years
US$’000s
US$’000s
years
US$’000s
US$’000s
1,207
608,966
3,836
3,767
384,308
57,141
8,394
217,738
-
13,368
1,211,012
60,977
614,009
445,216
226,132
1,285,357
849
125,702
1,166
7,550
832,463
31,325
9,021
327,494
-
17,420
1,285,659
32,491
127,717
871,338
336,515
1,335,570
81
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
7
FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(e) Liquidity risk (continued)
Analysis of financial liabilities by remaining contractual maturities
The table below summarises the maturity profile of the Company’s financial liabilities at
the end of the reporting period based on contractual undiscounted repayment
obligations:
Company
less
years
years
One year or
One to five
Over five
Total
US$’000s
US$’000s
US$’000s
US$’000s
2020:
Financial liabilities:
Trade and other payables
Loans and borrowings
2019:
Financial liabilities:
Trade and other payables
Loans and borrowings
28,511
18,187
530
128,521
46,698
129,051
33,081
15,757
200
145,327
48,838
145,527
-
-
-
-
-
29,041
146,708
175,749
33,281
161,084
194,365
82
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
7
FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(f)
Capital risk
For the purpose of the Group’s capital management, capital includes debt and equity items
such as issued capital, share premium and all other equity reserves attributable to the
equity holders of the parent.
The Group’s objectives when managing capital are to safeguard the Group’s ability to
continue as a going concern and to maintain a suitable capital structure so as to fund
growth and maximise shareholder value. In order to maintain or achieve an optimal
capital structure, the Group may adjust the amount of dividend payments, return capital to
shareholders, issue new shares, buy back issued shares, incur new borrowings or sell
assets to reduce borrowings.
Management monitors capital based on a gearing ratio. The gearing ratio is calculated as
net indebtedness divided by total assets. Net indebtedness is calculated as loans and
borrowings less unrestricted cash and bank balances.
The Group calculates its gearing ratio on the basis of net indebtedness divided by total
assets.
Group
Company
2020
US$’000s
2019
2020
2019
US$’000s
US$’000s
US$’000s
Net indebtedness
Total assets
1,036,448
1,415,584
1,016,599
1,392,750
137,075
275,939
130,840
277,713
Gearing ratio:
73.2%
73.0%
49.7%
47.1%
83
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
8
RELATED PARTY TRANSACTIONS
In addition to related party information disclosed elsewhere in these financial statements, the
following transactions took place between the Group and related parties at terms agreed
between the parties.
(a) Remuneration of key management personnel
The remuneration of Directors and key management includes fees, salary, bonus,
commission and other emoluments (including benefits-in-kind) based on the cost incurred
by the Company and the Group, and where the Company or Group did not incur any costs,
the value of the benefits. Key management remuneration is as follows:
Group
Company
2020
2019
2020
2019
US$’000s
US$’000s
US$’000s
US$’000s
Key management:
Short-term employee benefits
3,174
2,883
753
642
The amount above includes remuneration in respect of the highest paid Director as follows:
Group
2020
2019
US$’000s
US$’000s
Aggregate emoluments
908
803
The Directors do not receive any pension contribution from the Company.
84
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
8
RELATED PARTY TRANSACTIONS (continued)
(b) Significant related party transactions:
Group
Company
2020
2019
2020
2019
US$’000s
US$’000s
US$’000s
US$’000s
Entities controlled by key
management personnel
(including Directors):
Lease liability paid
Consulting fee paid
Service fee received
(286)
(376)
104
(292)
(417)
6
(98)
(376)
-
(111)
(417)
-
(c)
Significant transactions between the Company and its subsidiaries:
Sale of aircraft
Dividend income
Interest income
Rental income
Return of capital
Interest expense
Lease termination fee
Company
2020
2019
US$’000s
US$’000s
38,298
19,964
-
5,222
-
1,508
(1,127)
-
5,647
4,308
1,527
-
(1,271)
(174)
85
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
9
REVENUE
Lease rental revenue
Less: amortisation of lease incentive asset
Interest income on finance leases
Deposits released revenue
Maintenance reserves revenue
Group
2020
2019
US$’000s
US$’000s
127,140
117,673
(524)
-
126,616
117,673
3,266
3,774
1,618
1,382
-
-
135,274
119,055
The deposits released revenue relates to security deposits released from insolvent airline
customers that defaulted on lease payments.
The maintenance reserves revenue relates to the recovery of maintenance reserve from insolvent
airline customers that defaulted on lease payments. See Note 32.
Geographical analysis
2020
2019
Europe
US$’000s
Asia
Pacific
US$’000s
Total
US$’000s
34,537
31,385
100,737
87,670
135,274
119,055
During the year ended 30 June 2020, five customers individually represented more than 5% of
the Group’s total revenue (2019: six) of which four are based in Asia-Pacific (2019: four) and
one is based in Europe (2019: two). The largest customer, who is based in Asia-Pacific,
accounts for US$26.2 million or 19.3% of the Group’s total revenue (2019: US$26.4 million or
22.2%).
10
OTHER INCOME
Deposit released
Foreign currency exchange gain
Others
Group
2020
2019
US$’000s
US$’000s
193
539
538
-
29
186
1,270
215
86
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
11
ADMINISTRATIVE EXPENSES
Staff costs (note 15)
Other administrative expenses
12
OTHER EXPENSES
Aircraft repossession expenses
Expected credit loss on receivables and accrued revenue
Others
Group
2020
2019
US$’000s
US$’000s
5,916
5,997
5,205
5,749
11,913
10,954
Group
2020
2019
US$’000s
US$’000s
1,375
855
190
-
166
-
2,420
166
Aircraft repossession expenses arose due to an insolvent airline customer that defaulted on its
lease payments.
13
FINANCE INCOME
Interest income from financial institutions
Interest income from non-financial institutions
Interest rate swap break gains
Fair value gain on derivatives
Finance income from discounting non-current deposits to fair value
Gain on early cancellation of unsecured note
Lease modification gain
Loan modification gain
Others
Group
2020
2019
US$’000s
US$’000s
697
15
-
-
480
237
42
-
-
1,099
317
174
819
753
-
-
370
190
1,471
3,722
87
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
13
FINANCE INCOME (continued)
Interest rate swap break gains arose from the termination of interest rate swap contracts
concurrently with early repayments of loans and borrowings.
The fair value gain on derivatives arose from mark-to-market gains on the ineffective hedge
portion of interest rate swap contracts.
The gain on early cancellation of unsecured note arose when the Group repurchased its
unsecured notes through the market at a price of 76.25 per cent.
14
FINANCE EXPENSES
Interest expense on borrowings
Interest expense on unsecured notes
Amortisation of loan transaction cost
Amortisation of interest expense on non-current deposits
Finance charges on early full repayment of borrowings
Others
15
STAFF COSTS
Salaries and fees
Bonuses
Defined contribution plans
Benefits
Warrants expense
Group
2020
2019
US$’000s
US$’000s
27,730
22,745
5,281
438
357
641
26,116
21,851
5,640
771
166
784
57,192
55,328
Group
2020
2019
US$’000s
US$’000s
4,367
3,965
783
123
51
592
588
121
53
478
5,916
5,205
88
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
15
STAFF COSTS (continued)
The average number of Directors of the Company for the year is 4 (2019: 4). The average
number of other employees for the year is 19 (2019: 19) and in the following departments:
Administrative
Commercial
Finance
Legal
Technical
Group
2020
2019
3
4
5
4
3
3
5
5
4
2
19
19
16
PROFIT BEFORE TAXATION
Profit before taxation for the year is stated after charging/(crediting) the following:
Depreciation of property, plant and equipment
Foreign currency exchange (gain)
Audit fees:
Fees payable to the Company’s auditor and their associates
for the audit of the Company’s annual accounts
Fees payable to the Company’s auditor and their associates
for audits of the Company’s subsidiaries’ annual accounts
Total audit fees
Auditors’ remuneration for non-audit services:
- Tax compliance services
- All other assurance services
Total fees for non-audit services
Group
2020
2019
US$’000s
US$’000s
46,666
(539)
41,011
(29)
292
279
571
128
168
296
273
233
506
105
142
247
89
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
17
TAXATION
From continuing operations
Current tax expense:
- Singapore
- Overseas
(Over)/Under provision in prior years current tax expense:
- Singapore
- Overseas
Deferred tax expense:
- Singapore
- Overseas
(Over)/Under provision in prior years deferred tax expense:
- Singapore
- Overseas
Income tax expense/(credit)
Group
2020
2019
US$’000s
US$’000s
3
686
(369)
27
1,491
978
(16)
691
3,005
(67)
(5,074)
1,476
1,639
-
4,924
322
-
(132)
Income tax differs from the amount of income tax expense determined by applying the
Singapore tax rate of 17% to profit before income tax as a result of the following differences:
Group
2020
2019
US$’000s
US$’000s
14,640
25,559
2,489
4,345
(369)
27
1,639
-
1,165
(862)
560
66
(1,264)
1,483
(9)
-
(1)
4,924
(16)
691
322
-
1,809
(394)
1,736
540
(2,370)
(1,953)
(12)
(4,830)
-
(132)
Profit before income tax
Tax calculated at 17% (2019: 17%)
Effects of:
(Over)/under provision in prior years current tax expense
- Singapore
- Overseas
Under provision in prior years deferred tax expense:
- Singapore
- Overseas
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 8% (2019 : 10% and 8%)
Effect of tax exemption and tax relief
Deferred tax asset recognised
Others
Income tax expense/(credit)
90
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
17
TAXATION (continued)
The Group has unutilised tax losses of approximately US$0.9 million (2019: US$3.5 million) and
unabsorbed capital allowances of approximately US$41.5 million (2019: US$26.9 million) that
are available for offset against future taxable profits, for which no deferred tax asset is
recognised due to uncertainty of its recoverability. The use of these unutilised losses and capital
allowances is subject to the agreement of tax authorities and compliance with certain provisions
of tax legislation of the countries in which the Group operates.
18
EARNINGS PER SHARE
(a) Basic earnings per share (“EPS”)
EPS is calculated by dividing total profit attributable to equity holders of the Company by
the weighted average number of ordinary shares in issue during the year.
Company
2020
2019
US$’000s
US$’000s
Net profit attributable to equity holders of the company
9,714
25,690
Weighted average number of ordinary shares (‘000s)
63,121
63,818
Basic earnings per share
15.39 cents
40.26 cents
(b) Diluted earnings per share
For the purpose of calculating diluted earnings per share, total profit attributable to equity
holders of the Company and the weighted average number of ordinary shares outstanding
are adjusted for the effects of all dilutive potential ordinary shares. The Company has one
category of dilutive potential ordinary shares warrants.
For warrants, the weighted average number of shares on issue has been adjusted as if all
dilutive share options were exercised. The number of shares that could have been issued
upon the exercise of all dilutive share option less the number of shares that could have
been issued at fair value (determined as the Company’s average share price for the year)
for the same total proceeds is added to the denominator as the number of shares issued
for no consideration.
Diluted earnings per share attributable to equity holders of the Company is calculated as
follows:
Company
2020
2019
US$’000s
US$’000s
Net profit attributable to equity holders of the company
9,714
25,690
Weighted average number of ordinary shares (‘000s)
Adjustment for warrants (‘000s)
63,121
131
63,818
253
Weighted average number of ordinary shares (‘000s)
63,252
64,071
Diluted earnings per share
15.36 cents
40.10 cents
91
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
19
PROPERTY, PLANT AND EQUIPMENT
Furniture
and
Aircraft
Jet
Turboprop
Group
equipment
engine
aircraft
aircraft
Total
US$’000s
US$’000
US$’000s
US$’000s
US$’000s
2020:
Cost or valuation:
At beginning of year
Additions
Reclassified as held under finance
leases
Reclassified as asset held for sale
Impairment recognised in equity
80
12
-
-
-
-
916,534
450,439
1,367,053
1,940
-
-
-
-
-
57,737
59,689
(57,047)
(57,047)
(106,124)
-
(106,124)
4,339
(9,330)
(4,991)
At end of year
92
1,940
814,749
441,799
1,258,580
Representing:
At cost
At valuation
Accumulated depreciation and
impairment:
At beginning of year
Depreciation expense
Reclassified as asset held for
sale
Impairment loss
At end of year
Net book value:
At beginning of year
At end of year
92
-
92
41
19
-
-
60
39
32
1,940
-
-
2,032
-
814,749
441,799
1,256,548
1,940
814,749
441,799
1,258,580
-
41
-
-
73,065
31,928
68,623
14,678
141,729
46,666
(16,189)
-
8,738
19,735
(16,189)
28,473
41
97,542
103,036
200,679
-
843,469
381,816
1,225,324
1,899
717,207
338,763
1,057,901
92
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
19
PROPERTY, PLANT AND EQUIPMENT (continued)
Group
2019:
Cost or valuation:
At beginning of year
Additions
Disposals/written-off
Reclassified as held under finance leases
Revaluation recognised in equity
Furniture
and
Turboprop
equipment
Jet aircraft
aircraft
Total
US$’000s
US$’000s
US$’000s
US$’000s
346
8
713,142
211,548
(274)
(18,624)
-
-
-
10,468
374,876
117,014
-
(39,631)
(1,820)
1,088,364
328,570
(18,898)
(39,631)
8,648
At end of the year
80
916,534
450,439
1,367,053
Representing:
At cost
At valuation
80
-
-
-
80
916,534
450,439
1,366,973
80
916,534
450,439
1,367,053
Accumulated depreciation and impairment:
At beginning of year
Depreciation expense
Disposals/written-off
292
23
(274)
51,341
27,920
(6,196)
55,555
13,068
107,188
41,011
-
(6,470)
At end of the year
41
73,065
68,623
141,729
Net book value:
At beginning of the year
At end of the year
54
39
661,801
319,321
981,176
843,469
381,816
1,225,324
93
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
19
PROPERTY, PLANT AND EQUIPMENT (continued)
Company
2020
Cost or valuation:
At beginning of year
Additions
Disposal/written-off
At end of the year
Representing:
At cost
At valuation
Accumulated depreciation and impairment:
At beginning of year
Depreciation expense
At end of the year
Net book value:
At beginning of the year
At end of the year
Furniture
and
Aircraft
Turboprop
equipment
engine
aircraft
Total
US$’000
US$’000s
US$’000s
US$’000s
18
5
-
23
23
-
23
15
4
19
3
4
-
1,940
37,547
19,665
37,565
21,610
-
(37,646)
(37,646)
1,940
19,566
21,529
1,940
-
-
19,566
1,963
19,566
1,940
19,566
21,529
-
40
40
-
-
-
15
44
59
-
1,900
37,547
19,566
37,550
21,470
94
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
19
PROPERTY, PLANT AND EQUIPMENT (continued)
Company
2019
Cost or valuation:
At beginning of year
Additions
Disposal/written-off
Impairment recognised in equity
At end of the year
Representing:
At cost
At valuation
Accumulated depreciation and impairment:
At beginning of year
Depreciation expense
Disposal/written-off
At end of the year
Net book value:
At beginning of the year
At end of the year
Assets pledged as security
Furniture
and
Turboprop
equipment
Jet aircraft
aircraft
Total
US$’000
US$’000s
US$’000s
US$’000s
202
-
(184)
-
19,915
-
(18,473)
(1,442)
-
57,511
(19,964)
-
20,117
57,511
(38,621)
(1,442)
18
18
-
18
-
-
-
-
37,547
37,565
-
18
37,547
37,547
37,547
37,565
191
8
5,097
1,015
(184)
(6,112)
15
11
3
-
14,818
-
-
-
-
-
5,288
1,023
(6,296)
15
14,829
37,550
-
37,547
The Group’s aircraft with carrying values of US$1,083.6 million (2019: US$1,122.0 million) are
mortgaged to secure the Group’s borrowings (Note 30).
Additions and Disposals
During the year, the Group acquired 3 turboprop aircraft and 1 aircraft engine. 3 turboprop
aircraft were reclassified as held under finance leases. A gain on transfer of the aircraft to finance
lease of US$3.2 million was recorded and included within the gain on disposal of aircraft.
During the year, 2 jet aircraft were reclassified as held for sale.
95
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
19
PROPERTY, PLANT AND EQUIPMENT (continued)
Valuation
The Group’s aircraft were valued in June 2020 by independent valuers on a lease-encumbered
value 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 ranging from 5.50% to 8.00% (2019: 5.75% to 7.75%) per
annum for jet aircraft and 5.50% to 9.00% (2019: 6.00% to 9.25%) per annum for turboprop
aircraft. Different discount rates are considered appropriate for different aircraft based on their
respective risk profiles.
During the year, a downward revaluation of US$0.9 million to equity and an impairment loss of
US$2.5 million was recognised to write down the book value of 2 jet aircraft to their fair value
prior to reclassification as held for sale.
A downward revaluation of US$4.1 million to equity and an impairment loss of US$25.9 million
was recognised during the year.
During the previous year, one aircraft was damaged while undergoing maintenance. The affected
aircraft has been revalued downward by the estimated diminution in value resulting from the
damage. The lessee is responsible for maintenance and repair of the aircraft. The Group has
submitted a claim against the lessee for compensation for the estimated loss in value of the
aircraft resulting from the damage. The lessee is disputing the claim and at the current date no
agreement has been reached to settle the claim.(cid:1)
Changes in accounting estimates of residual values of aircraft
During the year, the Group revised the residual values of its old technology widebody aircraft
from base market value to soft market value to reflect the likely decrease in future residual
values for old technology widebody aircraft with effect from 1 July 2019. The effect of this
change is an increase in depreciation expense of approximately US$1.7 million for the year ended
30 June 2020.
The table below outline the effect of these changes in estimate on the current financial year
depreciation charge and subsequent years:
30 Jun
2020
US$’000s
30 Jun
2021
US$’000s
30 Jun
2022
30 Jun
2023
US$’000s US$’000s
30 Jun
2024
onwards
US$’000s
Increase in depreciation charge
1,781
1,781
1,781
1,781
28,068
96
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
19
PROPERTY, PLANT AND EQUIPMENT (continued)
If the aircraft were measured using the cost model, carrying amounts would be as follows:
Group
Cost
Accumulated depreciation and impairment
2020
2019
Jets
Turbo
props
Jets
Turbo
props
US$’000s
US$’000s
US$’000s
US$’000s
792,891
(97,291)
430,267
(99,149)
776,330
(58,706)
552,544
(81,504)
Net book value
695,600
331,118
717,624
471,040
Company
Cost
Accumulated depreciation and impairment
Net book value
2020
2019
Jets
Turbo
props
Jets
Turbo
props
US$’000s
US$’000s
US$’000s
US$’000s
-
-
-
19,566
-
19,566
-
-
-
37,547
-
37,547
Geographical analysis
2020
Europe
US$’000s
Asia
Pacific
US$’000s
Total
US$’000s
Capital expenditure
Net book value – aircraft and aircraft engines
59,583
331,651
106
726,218
59,689
1,057,869
2019
Capital expenditure
Net book value – aircraft
Europe
US$’000s
Asia
Pacific
US$’000s
Total
US$’000s
223,058
415,139
105,512
328,570
810,146
1,225,285
97
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
20
TRADE AND OTHER RECEIVABLES
Group
Company
2020
2019
2020
2019
US$’000s
US$’000s
US$’000s
US$’000s
Current:
Trade receivables
Less:
Allowance for estimated credit loss for
trade receivables
Accrued revenue
Less:
Allowance for expected credit loss for
accrued revenue
Other receivables:
– subsidiaries
– third parties
Less:
Allowance for estimated credit loss for
other receivables
Interest receivables:
– subsidiaries
– third parties
Less:
Allowance for estimated credit loss for
interest receivables
Deposits
Prepaid expenses
Non-current:
Other receivables:
– subsidiaries
Deposits for aircraft
Prepaid expenses
Right of use assets
7,900
3,954
137
(207)
3,747
(32)
105
40
-
40
-
-
-
-
-
-
74,796
1,826
64,052
62
(670)
75,952
-
64,114
160
15
(9)
166
23
195
145
-
-
145
24
110
-
-
-
-
106
-
106
-
12
-
12
47
513
(205)
7,695
8,522
(137)
8,385
-
1,922
(670)
1,252
-
217
(9)
208
46
624
18,210
4,425
76,441
64,433
-
10,599
279
723
-
8,704
226
-
125,779
10,599
-
250
136,900
8,704
-
-
11,601
8,930
136,628
145,604
98
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
20
TRADE AND OTHER RECEIVABLES (continued)
Accrued revenue represents deferred lease receivables from customers with whom the Group has
agreed to defer lease payments for a short term period in view of Covid-19 pandemic.
Other receivables from subsidiaries includes interest bearing receivables of US$141.1 million
(2019: US$150.0 million). Current receivables from subsidiaries are unsecured and repayable
upon demand. Interest is charged at 4.0% to 6.0% (2019: 4.0% to 6.0%) per annum.
Other receivables from third parties include interest bearing receivables of US$1.7 million (2019:
US$Nil). Interest is charged at 1.0% to 6.0% (2019: Nil%) 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.
The movement in allowance for expected loss for receivables and accrued revenue are set out
below:
Group
Company
2020
2019
2020
2019
US$’000s
US$’000s
US$’000s
US$’000s
At beginning of year
Provision for expected credit loss
Written off
At end of year
207
855
(41)
1,021
41
166
-
207
-
32
-
32
-
-
-
-
Trade and other receivables denominated in foreign currencies are as follows:
Group
Company
2020
2019
2020
2019
US$’000s
US$’000s
US$’000s
US$’000s
Pound sterling
Euro
Singapore dollar
21
2,902
121
62
4
29
20
62
53,835
57,666
31
24
99
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
21
FINANCE LEASE RECEIVABLES
Finance lease receivables do not include any contingent rents or residual value guarantees.
Future minimum lease payments receivable under finance leases are as follows:
Group
Within one year
One to two years
Two to three years
Three to four years
Four to five years
Later than five years
2020
2019
Minimum
lease
Present
value of
Minimum
lease
Present
value of
payments
payments
payments
payments
US$’000s
US$’000s
US$’000s
US$’000s
11,126
8,785
8,785
8,785
62,546
8,185
7,988
6,167
6,443
6,728
57,545
8,136
93,007
8,440
3,906
3,314
3,314
3,314
28,534
50,822
7,221
2,951
2,449
2,538
2,628
26,571
44,358
Total minimum lease payments
108,212
Less: amounts representing interest
income
(15,205)
-
(6,464)
-
Present value of minimum lease
payments
93,007
93,007
44,358
44,358
Finance lease receivables denominated in foreign currencies are as follows:
Australian dollars
Euro
Group
2020
2019
US$’000s
US$’000s
1,503
54,029
-
30,385
100
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
22
GOODWILL
Cost:
At beginning and end of the year
2,384
2,384
Group
2020
2019
US$’000s
US$’000s
Allowance for impairment:
At beginning and end of the year
Net carrying amount:
At beginning and end of the year
Impairment test of goodwill
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
2020
%
2019
%
2.0
2.0
6.0
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 the CGU
is US$267.6 million (2019: US$276.5 million).
Management believes that no reasonably possible change in any of the above key assumptions
would cause the carrying value of the CGU to materially exceed its recoverable amount.
101
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
23
INVESTMENT IN SUBSIDIARIES
Unquoted equity shares, at cost
At beginning of year
Written-off
At end of year
Less: allowance for impairment loss:
At beginning of year
(Reversal of)/charge for the year
Written-off
At end of year
Company
2020
2019
US$’000s
US$’000s
15,375
(2,506)
12,869
15,375
-
15,375
1,883
(885)
(998)
-
-
1,883
-
1,883
Net investment in subsidiaries
12,869
13,492
Impairment of US$1.9 million recognised during the previous year relates to a subsidiary,
Avation.net Inc, which was impaired to the recoverable amount based on the net tangible assets
of the subsidiary.
During the year, Avation.net Inc was dissolved and there was a return in equity investment of
US$1.5 million which resulted in the impairment loss recognised in the previous year of US$0.9
million being written back to profit or loss.
Details of subsidiaries are as follows:
Name of entity
Country of
incorporation
Principal
activities
Ownership interest
2020
%
2019
%
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 (Asia) Limited
AVAP Leasing (Asia) II Limited
AVAP Leasing (Asia) III Limited
AVAP Leasing (Asia) IV Limited
+
+
United States
Luxembourg
United Kingdom
United Kingdom
Singapore
Ireland
Ireland
Ireland
Ireland
Procurement
Financing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
-
100.00
99.68
-
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
Held by Capital Lease Aviation Limited:
Capital Lease Malta Ltd.
Capital MSN 4033 Limited
Capital MSN 4033 II Limited
(a)
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.
Malta
Ireland
Ireland
Aircraft leasing
Aircraft leasing
Aircraft leasing
99.68
99.68
99.68
99.68
99.68
99.68
Singapore
Aircraft leasing
100.00
100.00
Singapore
Aircraft leasing
100.00
100.00
Singapore
Aircraft leasing
100.00
100.00
102
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
23
INVESTMENT IN SUBSIDIARIES (continued)
Name of entity
Country of
incorporation
Principal
activities
Ownership
interest
2020
%
2019
%
+
+
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.
AVAP Leasing (Europe) II Pte. Ltd.
AVAP Leasing (Europe) III Pte. Ltd.
AVAP Leasing (Europe) IV Pte. Ltd.
AVAP Leasing (Europe) VI Pte. Ltd.
AVAP Leasing (Europe) VII Pte. Ltd.
AVAP Leasing (Europe) VIII Pte. Ltd
AVAP Leasing (Europe) IX Pte. Ltd.
F100 Fleet Pte. Ltd.
MSN 1607 Pte. Ltd.
AVAP Aircraft Trading Pte. Ltd.
AVAP Aircraft Trading II Pte. Ltd.
AVAP Aircraft Trading III 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.
AVAP Leasing (Asia) VI Pte. Ltd.
AVAP Aircraft Leasing Pte. Ltd.
AVAP Aircraft Leasing II Pte. Ltd.
AVAP Aircraft Leasing III Pte. Ltd.
AVAP Aircraft Leasing IV 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
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
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
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 2020 are audited by member firms of Ernst & Young except for the
following:
(a) Audited by Nexia BT, Malta
+ Dissolved during the year.
The registered office address of the Companies incorporated in the following countries are as
follows:
Ireland - 32 Molesworth Street, Dublin 2 D02 Y512, Ireland.
Luxembourg - 46A, Avenue J. F. Kennedy, L-1855 Luxembourg.
Malta - Office 2, Suite 2, The Penthouse Capital, Business Centre, Entrance C, Triq taz-Zwejt,
San Gwann SGN 3000, Malta.
Singapore -65 Kampong Bahru Road, Singapore 169370.
United Kingdom - 5 Fleet Place, London EC4M 7RD, United Kingdom.
United States - Corporation Trust Centre, 1209 Orange Street, Wilmington, Delaware 19801,
USA.
For all non-controlling interests, voting rights not controlled by group are equivalent to
ownership interests.
103
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
24
DERIVATIVE FINANCIAL ASSETS/LIABILITIES
Group
Non-current asset
Interest rate swap
Non-current liability
Interest rate swap
Contract/
notional amount
Fair value
2020
2019
2020
2019
US$’000s
US$’000s
US$’000s
US$’000s
-
63,185
-
363
304,507
267,118
(27,458)
(10,117)
Cross-currency interest rate swap
4,000
4,000
(470)
(57)
308,507
271,118
(27,928)
(10,174)
Contract/
notional amount
Fair value
2020
2019
2020
2019
US$’000s
US$’000s
US$’000s
US$’000s
Company
Non-current liability
Interest rate swap – non-current liability
83,750
90,250
(7,725)
(2,817)
Hedge accounting has been applied for interest rate swap contracts and cross-currency interest
rate swap contracts which have been designated as cash flow hedges.
The Group pays fixed rates of interest of 1.0% to 2.6% per annum and receives floating rate
interest equal to 1-month to 3-month LIBOR under the interest rate swap contracts.
The Group pays fixed rates of interest of 3.1% to 4.9% per annum and receives floating interest
equal to 3-month LIBOR under the cross-currency interest rate swap contracts.
The swap contracts mature between 23 September 2021 and 21 November 2030.
Changes in the fair value of these interest rate swap and cross-currency interest rate swap
contracts are recognised in the fair value reserve. The net fair value loss net of tax of US$14.8
million (2019: loss of US$18.5 million) on these derivative financial instruments was recognised
in the fair value reserve for the year.
104
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
24
DERIVATIVE FINANCIAL ASSETS/LIABILITIES (continued)
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.
The Group has also designated certain Euro denominated loans as cash flow hedges of foreign
currency exchange risk derived from Euro denominated leases. Unrealised foreign exchange
gains and losses arising on Euro denominated loans designated as cash flow hedges are
recognised in the foreign currency hedge reserve. Unrealised foreign exchange gains and
losses recorded in the foreign currency hedging reserve are systematically re-cycled through
profit or loss over the remaining term of the related loan on a straight-line basis.
The Group determine the hedging relationship between the hedging instruments and the hedged
item on a number of criteria including the reference interest rates, tenors, repricing dates and
maturities and to notional or par amounts. The Group assesses whether the derivative
designated in each hedging relationship is expected to be effective in offsetting changes in cash
flows of the hedged item using the hypothetical derivative method. In these hedge relationships,
the main sources of ineffectiveness are:
• Differences in the pricing dates between the swaps and the borrowings
• Differences in the timing of the cash flows of the hedged items and the hedging requirements
•
The counterparties’ credit risk differently impacting the fair value movements of the hedging
instruments and the hedged items
• Changes to the forecasted amount of cash flows of hedged items and hedging instruments
During the year 30 June 2020, the effect of the cash flow hedge in the consolidated statement
of profit or loss and consolidated statement of other comprehensive income was as follows:
Group
Interest rate swap
Cross currency swap
Foreign currency hedge
Total hedging
gain/(loss)
recognised in
OCI
Amount
reclassified
from
OCI to profit
or (loss)
US$’000s
US$’000s
Line item
in the
statement of
profit or loss
(14,403)
(413)
1,869
(1,735)
Finance expense
(155)
Finance expense
452 Other income
(12,947)
(1,438)
105
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
24
DERIVATIVE FINANCIAL ASSETS/LIABILITIES (continued)
During the year 30 June 2019, the effect of the cash flow hedge in the consolidated statement
of profit or loss and consolidated statement of other comprehensive income was as follows:
Group
Interest rate swap
Cross currency swap
Foreign currency hedge
25
AIRCRAFT PURCHASE RIGHTS
Total hedging
gain/(loss)
recognised in
OCI
Amount
reclassified
from
OCI to profit
or (loss)
US$’000s
US$’000s
(18,421)
(57)
469
(18,009)
-
-
132
132
Line item
in the
statement of
profit or loss
-
-
Other income
Group and Company
2020
2019
US$’000s
US$’000s
Aircraft purchase rights, at fair value
27,110
-
Prior to 31 December 2019, the Group held aircraft purchase rights for the purpose of acquiring
aircraft for its fleet. Aircraft purchase rights were accounted for as non-financial assets at
amortised cost.
With effect from 31 December 2019, the Group adopted a new business model for aircraft
purchase rights and determined that it would seek to dispose of excess aircraft purchase rights
over and above its requirement to acquire additional aircraft for its fleet. To reflect this change,
the Group now accounts for aircraft purchase rights through profit or loss. Disclosures about the
fair value measurement of aircraft purchase rights at fair value are included in Note 6.
106
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
26
CASH AND BANK BALANCES
Group
Company
2020
2019
2020
2019
US$’000s
US$’000s
US$’000s
US$’000s
Fixed deposits
Other cash and bank balances
Total cash and bank balances
Less : restricted
Cash and cash equivalents
10,067
104,518
114,585
(79,295)
35,290
6,700
100,748
107,448
(45,759)
61,689
-
1,421
1,421
-
5,000
11,634
16,634
-
1,421
16,634
The Group’s restricted cash and bank balances have been pledged as security for certain loan
obligations.
The rate of interest for cash on interest earning accounts is approximately 0.01% to 2.60%
(2019: 0.01% to 2.60%) per annum.
Cash and bank balances denominated in foreign currencies are as follows:
Group
Company
2020
2019
2020
2019
US$’000s
US$’000s
US$’000s
US$’000s
Pound sterling
Euro
Singapore dollar
82
6,109
232
66
5,307
245
38
-
78
30
-
57
107
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
27 ASSETS HELD FOR SALE AND LIABILITIES DIRECTLY ASSOCIATED WITH
ASSETS HELD FOR SALE
The Group’s aircraft which met the criteria to be classified as assets held for sale and the
associated liabilities were as follows:
Assets held for sale:
Property, plant and equipment - aircraft
At beginning of year
Additions
Impairment loss
Disposals
At end of year
Lease incentive asset
Liabilities directly associated with
assets held for sale:
Deposit collected
Lessor maintenance contribution
Maintenance reserves
Group
2020
US$’000
2019
US$’000s
-
48,745
89,935
(7,051)
-
-
-
(48,745)
82,884
8,384
91,268
1,240
8,908
135
10,283
-
-
-
-
-
-
-
An impairment loss of US$7.0 million was recognised to write down the book value of 2 jet
aircraft classified as held for sale to current market value during the year.
108
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
28
SHARE CAPITAL AND TREASURY SHARES
(a) Share capital
2020
2019
No of shares
US$’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
64,609,939
270,003
1,104
62,760,246
4
1,849,693
1,080
24
At end of the year
64,879,942
1,108 64,609,939
1,104
During the year, the Company issued 270,003 ordinary shares of 1 penny each at 215p to
232p following the exercise of warrants by warrant holders raising total gross proceeds of
US$0.8 million.
The holders of ordinary shares (except for treasury shares) are entitled to receive
dividends as and when declared by the Company. All ordinary shares carry one vote per
share without restrictions.
(b)
Treasury shares
2020
2019
No of shares
US$’000s
No of shares
US$’000s
At beginning of the year
Acquired during the year
At end of the year
300,000
1,910,000
2,210,000
1,147
6,664
7,811
-
300,000
300,000
-
1,147
1,147
(c) Net asset value per share
Net asset value per share (US$)
(1)
Net asset value per share (GBP)
(2)
2020
2019
$3.53
£2.86
$3.74
£2.95
(1)
Net asset value per share is total equity divided by the total number of shares in issue
excluding treasury shares at period end.
(2)
Based on GBP:US$ exchange rate as at 30 June 2020 of 1.23 (30 June 2019 : 1.27)
109
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
29
OTHER RESERVES
Group
Company
2020
2019
2020
2019
US$’000s
US$’000s
US$’000s
US$’000s
Capital redemption reserve
Warrant reserve
Fair value reserve
12
986
12
532
12
986
12
532
(27,638)
(12,822)
(8,787)
(5,677)
Foreign currency hedge reserve
2,338
469
-
-
(24,302)
(11,809)
(7,789)
(5,133)
Movements in other reserves are as follows:
Group
Company
2020
2019
2020
2019
US$’000s
US$’000s
US$’000s
US$’000s
Warrant reserve:
At the beginning the year
Employee share warrant scheme:
- Value of employee services
- Issue of shares
- Expired
532
721
532
721
592
(69)
(69)
478
(628)
(39)
592
(69)
(69)
478
(628)
(39)
At end of the year
986
532
986
532
Fair value reserve:
At the beginning the year
Effective portion of changes in fair value
Net change in fair value reclassified to
(12,822)
(16,706)
5,656
(18,478)
(5,677)
(3,733)
-
(5,677)
profit or loss
1,890
-
623
-
At end of the year
(27,638)
(12,822)
(8,787)
(5,677)
Foreign currency hedge reserve:
At the beginning the year
Effective portion of changes in fair value
Net change in fair value reclassified to
469
2,321
-
601
profit or loss
(452)
(132)
At end of the year
2,338
469
-
-
-
-
-
-
-
-
110
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
30
LOANS AND BORROWINGS
Group
Company
2020
2019
2020
2019
US$’000s
US$’000s
US$’000s
US$’000s
Secured borrowings
Unsecured notes (a)
725,082
733,322
138,496
147,474
346,656
344,966
-
-
Less: current portion of borrowings
(536,983)
(72,595)
(12,717)
(10,574)
1,071,738
1,078,288
138,496
147,474
534,755
1,005,693
125,779
136,900
Weighted average
Maturity
interest rate per annum
2020
2019
US$’000s
US$’000s
2020
%
2019
%
Secured borrowings
Unsecured notes (a)
2021-2031
2020-2031
2021-2031
2020-2031
2021
2021
2021
2021
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.
Secured borrowings are subject to certain covenants that give lenders the right to demand
repayment if breached. The Group was in breach of a covenant to maintain a minimum ratio of
tangible net worth to net debt of at least 2.3:10 as at 30 June 2020. The Group subsequently
obtained a waiver of the breach of this covenant on 21 October 2020. The carrying value of
borrowings subject to this covenant of US$119.4 million has been classified as a current
liability as at 30 June 2020.
Borrowing costs capitalised into loans and borrowings amounted to US$1.4 million (2019:
US$3.0 million). The rate used to determine the amount of borrowing costs for capitalisation
was 5.1% (2019: 5.1%) per annum.
During the year, the Group increased its secured borrowings by US$76.6 million (2019
:US$158.2 million) to fund aircraft acquisitions.
During the year, the Group repaid US$86.8 million (2019:US$96.9 million) of its secured
borrowings.
During the previous year, the Group recognised a day-one gain of US$0.4 million related to a
current debt modification.
111
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
30
LOANS AND BORROWINGS (continued)
Secured Loans and borrowings denominated in foreign currencies are as follows:
Group
Company
2020
2019
2020
2019
US$’000s
US$’000s
US$’000s
US$’000s
Euro
200,108
193,105
53,831
57,666
(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”).
During the year, the Group repurchased US$1 million (2019:US$nil) unsecured notes
through the market at a price of 76.25 per cent.
During the previous year, the Group issued US$50 million 6.5% Senior Notes due 2021
under the Programme.
31
TRADE AND OTHER PAYABLES
Current:
Trade payables
Other payables:
- subsidiaries
- third parties
Deferred lease income
Lease liability
Revenue received in advance
Accrued expenses
Non-current:
Deposits collected
Deferred lease income
Lease liability
Group
Company
2020
2019
2020
2019
US$’000s
US$’000s
US$’000s
US$’000s
230
-
119
297
250
4,412
4,847
92
-
162
427
-
6,192
5,091
129
36
27,972
118
-
84
-
353
32,781
75
-
-
335
10,155
11,964
28,656
33,227
9,185
1,889
651
13,979
2,112
-
300
-
216
200
-
-
11,725
16,091
516
200
Amounts due to subsidiaries are unsecured, interest free and without fixed repayment terms
unless otherwise stated.
112
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
31
TRADE AND OTHER PAYABLES (continued)
Other payables due to subsidiaries includes interest bearing payables of US$21.9 million (2019:
US$30.0 million) which are unsecured, payable upon demand and bear interest at 8.2% (2019:
8.2%) per annum.
The average credit period taken to settle non-related party trade payables is approximately 30 to
60 days.
Deposits collected are security deposits collected from customers in respect of aircraft lease
commitments, and have been discounted to present value at a current pre-tax rate that reflect
the risks specific to these deposits. Deposits will be refunded at the end of the respective lease
term.
Trade and other payables denominated in foreign currencies are as follows:
Pound sterling
Australian dollar
Euro
Singapore dollar
32 MAINTENANCE RESERVES
Current
Non-current
Group
Company
2020
2019
2020
2019
US$’000s
US$’000s
US$’000s
US$’000s
78
9
3,687
533
53
-
2,809
493
47
4
183
28
19
-
159
47
Group
2020
2019
US$’000s
US$’000s
3,836
57,141
1,166
31,325
Total maintenance reserves
60,977
32,491
At beginning of year
Contributions
Utilisations
Released to profit or loss
Transfer to buyer upon sale of aircraft
At end of the year
Group
2020
2019
US$’000s
US$’000s
32,491
34,503
(4,399)
(1,618)
23,544
15,413
(1,558)
-
-
(4,908)
60,977
32,491
During the year, maintenance reserve of US$1.6 million were released to profit or loss as
revenue following recovery from insolvent airline customers that defaulted on.
The Group also holds letters of credit for US$27.0 million (2019: US$38.8 million) as security for
lessees’ obligations under operating leases for the maintenance of aircraft.
113
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
33
DEFERRED TAX LIABILITIES
Recognised deferred tax liabilities are attributable to the following:
Group
Company
2020
2019
2020
2019
US$’000s
US$’000s
US$’000s
US$’000s
Property, plant and equipment
Tax losses carried forward
Cash flow hedge
4,239
(244)
(3,297)
179
-
-
4,500
-
(1,799)
340
-
-
698
179
2,701
340
Movements in temporary differences are as follows:
Group
2020
At beginning of the year
Recognised in profit or loss
Recognised in equity
Property,
plant and
equipment
US$’000s
Tax losses
carried
forward
US$’000s
Cash flow
hedge
US$’000s
Total
US$’000s
179
4,821
(761)
-
(244)
-
-
-
(3,297)
179
4,577
(4,058)
At end of the year
4,239
(244)
(3,297)
698
2019
At beginning of the year
Recognised in profit or loss
Recognised in equity
At end of the year
Company
2020
At beginning of the year
- Recognised in profit or loss
- Recognised in equity
4,286
(4,574)
467
179
(1,298)
1,298
-
-
Property,
plant and
equipment
US$’000s
-
-
-
-
2,988
(3,276)
467
179
Cash flow
hedge
US$’000s
Total
US$’000s
340
4,160
-
-
-
(1,799)
340
4,160
(1,799)
At end of the year
4,500
(1,799)
2,701
2019
At beginning of the year
- Recognised in profit or loss
- Recognised in equity
At end of the year
1,453
(868)
(245)
340
-
-
-
-
1,453
(868)
(245)
340
114
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
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 employees of the Group to promote:
Improvement in share price;
Improvement in the Company’s earnings per share;
•
•
• Reliable and high quality financial reporting;
• Growth in asset value and profits; and
• Growth in dividends.
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:
2020
2019
No.
WAEP
No.
WAEP
Outstanding at beginning of the year
- Granted
- Exercised
- Expired
3,709,997
1,925,000
(270,003)
(217,999)
242.5p
287.4p
228.2p
259.6p
2,651,690
3,158,000
(1,849,693)
(250,000)
159.8p
248.3p
135.9p
227.8p
Outstanding at end of the year
5,146,995
259.3p
3,709,997
242.5p
Exercisable at end of the year
1,128,673
241.0p
155,335
215.0p
The weighted average fair value of warrants granted during the year was 22 pence (2019: 20
pence). The charge recognised in profit or loss in respect of share based payments is US$0.6
million (2019: US$0.5 million).
During the year, 270,003 warrants were exercised (2019: 1,849,693).
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
2019
2020
27 November 2017
5 September 2018
8 March 2019
20 September 2019
21 November 2019
27 Nov 2020
6 Oct 2021
9 Apr 2022
21 Oct 2022
22 Dec 2022
215.0p
232.0p
294.5p
296.0p
274.5p
615,330
1,906,665
780,000
1,107,000
738,000
721,997
2,170,000
818,000
-
-
115
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
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
Proportion of total share options that are
exercisable
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 to 31 December 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 granted on 5 September 2018 have a 3-year vesting schedule and the details are
as follows:
Vesting period
Before 6 September 2019
On 6 September 2019 and before 6 September 2020
On 6 September 2020 and before 6 September 2021
On 6 September 2021 to 6 October 2021
Proportion of total share options that are
exercisable
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 8 March 2019 have a 3-year vesting schedule and the details are as
follows:
Vesting period
Before 9 March 2020
On 9 March 2020 and before 9 March 2021
On 9 March 2021 and before 9 March 2022
On 9 March 2022 to 9 April 2022
Proportion of total share options that are
exercisable
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
116
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
34
SHARE-BASED PAYMENTS (continued)
Warrants granted to Directors on 20 September 2019 have a 3-year vesting schedule with
details as follows:
Vesting period
Proportion of total share options that are
exercisable
Before 21 September 2020
On 21 September 2020 and before 21 September 2021 Up to 33 per cent of the grant
On 21 September 2021 and before 21 September 2022 Up to 33 per cent of the grant or up to 66 per
0 per cent
On 21 September 2022 to 21 October 2022
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
Warrants granted to Directors on 21 November 2019 have a 3-year vesting schedule with
details as follows:
Vesting period
Proportion of total share options that are
exercisable
Before 22 November 2020
On 22 November 2020 and before 22 November 2021 Up to 33 per cent of the grant
On 22 November 2021 and before 22 November 2022 Up to 33 per cent of the grant or up to 66 per
0 per cent
On 22 November 2022 to 22 December 2022
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 twelve months.
117
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
34
SHARE-BASED PAYMENTS (continued)
Warrant series
Warrant series
Warrant series
granted on
granted on
granted on
21 November 2019
20 September 2019
8 March 2019
274.5 pence
274.5 pence
15%
3 years
3.11%
0.53% to 0.58%
296.0 pence
296.0 pence
18%
3 years
3.11%
0.46% to 0.53%
294.5 pence
294.5 pence
17%
3 years
2.45%
0.75% to 0.79%
Warrant series
Warrant series
granted on
granted on
5 September 2018
27 November 2017
232.0 pence
232.0 pence
16%
3 years
2.45%
0.74% to 0.79%
215.0 pence
215.0 pence
25% to 28%
3 years
1.91%
0.83% to 0.93%
Inputs into the model:
Grant date share price
Exercise price
Expected volatility
Warrant life
Dividend yield
Risk free interest rate
Inputs into the model:
Grant date share price
Exercise price
Expected volatility
Warrant life
Dividend yield
Risk free interest rate
35
CAPITAL COMMITMENTS
Capital expenditure contracted for at the reporting date but not recognised in the financial
statements is as follows:
Group
2020
2019
US$’000s
US$’000s
Property, plant and equipment
155,140
169,034
Capital commitments represent amounts due under contracts entered into by the Group to
purchase aircraft. The company has paid deposits towards the cost of these aircraft which are
included in trade and other receivables.
As at the year end, the Group has commitments to purchase eight ATR 72-600 aircraft from
the manufacturer with expected delivery dates over a three-year period.
118
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
36
OPERATING LEASE COMMITMENTS
The Group leases out aircraft under operating leases. The future minimum lease payments
receivable under non-cancellable leases are as follows:
Within one year
One to two years
Two to three years
Three to four years
Four to five years
Later than five years
Group
2020
US$’000s
2019
US$’000s
112,258
98,713
94,549
93,134
90,308
265,039
132,112
132,265
117,605
98,733
92,638
337,207
754,001
910,560
The Group holds cash deposits of US$12.7 million (2019: US$16.2 million) and letters of credit
for US$8.7 million (2019: US$10.4 million) as security for lessees’ obligations under operating
leases.
37
CONTINGENT LIABILITIES
Company
2020
2019
US$’000s
US$’000s
Guarantees
1,071,738
1,078,288
The maximum estimated amount that the Company could become liable for under guarantees is
as shown above.
119
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
38
DIVIDENDS
2020
2019
US$’000s
US$’000s
Paid during the year:
Dividends on ordinary shares
- First interim exempt (one-tier) dividend for 8.50 US cents (2019: 7.25
5,454
4,550
US cents) per share
- Second interim exempt (one-tier) dividend for 2.10 US cents
1,319
1,290
(2019:2.00 US cents) per share
6,773
5,840
Dividends are recognised as liabilities when they are approved for payment.
39
ULTIMATE HOLDING COMPANY
No party controls the Company.
40
SUBSEQUENT EVENTS
On 10 July 2020, the Company repurchased US$1,000,000 of Avation Capital S.A. 6.5% Senior
Notes due 2021 through the market at a price equal to 76 per cent of face value.
On 5 August 2020, the Company repurchased US$2,434,000 of Avation Capital S.A. 6.5%
Senior Notes due 2021 through the market at a price equal to 71 per cent of face value.
On 11 August 2020, the Company repurchased US$1,609,000 of Avation Capital S.A. 6.5%
Senior Notes due 2021 through the market at a price equal to 71 per cent of face value.
On 27 August 2020, the Company entered into a 5-year lease agreement for an ATR72-500
aircraft with an Asian airline. The aircraft was subsequently delivered to the airline on 9
October 2020.
On 17 September 2020, the Company transferred title to two Fokker 100 aircraft to the lessee
on completion of their finance leases.
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 2020 were authorised for issue by the Board of Directors on 29
October 2020.
120
COPENHAGEN
FIJI
JAKARTA
HANOI
GLASGOW
LONDON
MALTA
MANILA
MEXICO CITY
NEW DELHI
PARIS
STOCKHOLM
TAIPEH
RIGA
SYLHET
YANGON
ANNUAL REPORT
ANNUAL REPORT 2020
65 Kampong Bahru Road
Singapore 169370
www.avation.net
L I S T E D
S T A N D A R D
SHARES
Reuters/BBG
Index:
LSE
AVAP.LN
AVAP
FTSE Sector:
Industrial Transportation
FTSE Sub Sector: Transportation Services
2020