AnnuAl RepoRt AnnuAl RepoRt 2023 65 Kampong Bahru Road Singapore 169370 www.avation.net Reuters/BBG Index: lSe AVAp.ln AVAp FtSe Sector: Industrial transportation FtSe Sub Sector: transportation Services 2023 AVATION PLC DIRECTORS’ REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 REGISTERED NUMBER: 05872328 (ENGLAND & WALES) AVATION PLC CONTENTS FOR THE YEAR ENDED 30 JUNE 2023 Company Information ..................................................................................................................... 1 Chairman’s Statement ............................................................................................................... 2 – 4 Strategic Report ...................................................................................................................... 5 - 22 Directors’ Report ................................................................................................................... 23 – 28 Directors’ Remuneration Report .............................................................................................. 29 – 38 Directors’ Responsibilities Statement ....................................................................................... 39 - 40 Auditor’s Report .................................................................................................................... 41 - 51 Consolidated Statement of Profit or Loss ......................................................................................... 52 Consolidated Statement of Comprehensive Income .......................................................................... 53 Consolidated Statement of Financial Position ................................................................................... 54 Company Statement of Financial Position ........................................................................................ 55 Consolidated Statements of Changes in Equity ......................................................................... 56 – 57 Company Statements of Changes in Equity............................................................................... 58 - 59 Consolidated Statement of Cash Flows ............................................................................................ 60 Company Statement of Cash Flows ................................................................................................. 61 Notes to the Financial Statements ......................................................................................... 62 - 136 AVATION PLC COMPANY INFORMATION FOR THE YEAR ENDED 30 JUNE 2023 DIRECTORS: Robert Jeffries Chatfield Roderick Douglas Mahoney Stephen John Fisher Derek Sharples Mark Stephen Shelton (appointed on 14 December 2022) COMPANY SECRETARIES: Duncan Gerard Stephen Scott Jasmine Siow Fui San REGISTERED OFFICE: PRINCIPAL PLACE OF BUSINESS: AUDITOR: SOLICITORS: REGISTRAR: 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 2023 Financial Highlights (cid:120) Revenue and other income for the year was US$99.3 million, fleet assets1 were US$898.6 million and total assets were US$1,179.6 million; Total cash and bank balances of US$116.9 million (2022: US$119.2 million); (cid:120) Net indebtedness2 reduced by 7.8% to US$731.2 million (2022: US$792.9 million); (cid:120) (cid:120) Operating profit of US$70.6 million (2022: US$90.2 million); (cid:120) (cid:120) Profit after tax of US$12.2 million (2022: US$17.1 million); Earnings per share of 17.4 US cents (2022: 24.7 US cents); and Operational Activity (cid:120) Two ATR 72-600 turboprop aircraft and a Boeing 737-800 aircraft were sold during the year; (cid:120) One ATR 72-600 aircraft was repossessed from an airline in Myanmar and subsequently commenced a new lease with an airline in Tahiti; (cid:120) One off-lease ATR 72-500 started a lease with a new airline customer in Nepal; (cid:120) Avation received a creditors distribution of $3.4 million from Virgin Australia; (cid:120) Two Airbus A220-300 aircraft were re-financed with fixed rate long-term loans, reducing Avation’s exposure to interest rate changes; The Company entered into an agreement to sell an eleven-year-old off-lease ATR 72-600; and The Company entered into a lease agreement for a second eleven-year-old off-lease ATR 72-600 which is expected to commence in November 2023. (cid:120) (cid:120) Business review During the year ended 30 June 2023 Avation reduced the number of off-lease aircraft in the fleet from six to two by transitioning or selling off-lease aircraft. Avation has agreed to sell or lease both remaining off-lease aircraft and on completion of these transactions will have a fully utilised fleet. Avation has continued to de-lever its balance sheet, achieving a reduction to 62.0% in the ratio of net debt to total assets as at 30 June 2023. A significant portion of the cashflow generated by the fleet is directed towards repayments of debt. Scheduled loan repayments for the 2024 financial year, amounting to around US$62 million, exceeding expected depreciation of the fleet over the same period. The Company is hedged against further interest rate changes on 95.8% of its loans and borrowings. A bond repurchase tender was concluded in February, resulting in the repurchase and retirement of US$7.1m of Avation Capital S.A. 8.25%/9.0% unsecured notes. The Company may pursue other liability management exercises from time to time with the aim of further reducing the cost and/or outstanding amount of unsecured debt in issue. 1 Fleet assets is defined as property, plant and equipment plus assets held for sale plus finance lease receivables. 2 Net indebtedness is defined as loans and borrowings less unrestricted cash and bank balances. 2 AVATION PLC CHAIRMAN’S STATEMENT FOR THE YEAR ENDED 30 JUNE 2023 After the recovery from the COVID-19 pandemic, Avation plans to re-grow its business in a prudent and sensible manner. We will target organic growth, which includes leasing the two ATR aircraft we have on order for delivery in 2024. We have paid all pre-delivery payments for the two ordered aircraft and believe that the balance due on delivery can be funded with senior secured debt. Avation has a significant purchase rights position on a stream of new ATR 72 aircraft. The manufacturer expects that, with a new engine variant, these aircraft will be approved for use with sustainable aviation fuel in 2025. The Company believes that the ATR 72 aircraft is the most sustainable commercial aircraft type currently available. The Company has significantly lowered overheads by reducing headcount and actively managing legal expenses and other expenditure. Few aircraft were built during the COVID-19 pandemic so lessors that own them have seen positive developments in valuations. As a result, Avation has been able to reverse around US$3.3 million of previously recognised impairment charges and has seen a positive impact on the valuation of our 28 purchase rights for ATR aircraft. We are reasonably confident that the Company will be able to arrange leases for the two new aircraft ordered for delivery in 2024. Market Positioning Avation’s long-term 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 supports the transition of the aircraft industry towards aircraft capable of using sustainable aviation fuel to produce lower CO2 emissions on a net basis. Reducing CO2 emissions is key to providing a sustainable future for the global aviation industry and in addressing climate-change risks. The Company’s business model involves rigorous investment criteria that seeks 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 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. Funding for aircraft acquisitions is traditionally sourced from capital markets, asset-backed lending, operational cash flows and disposals of aircraft. The ability to access acceptably priced funding is key profit driver in aircraft leasing. Principal risks factors facing the aircraft leasing industry include, but are not limited to, exposure to the airline industry and the risk of deterioration in the financial condition of airline customers, asset value risk driven by changing patterns of supply and demand and technological change, operational risks including risks resulting from war, acts of terrorism and natural disasters, regulatory risks from changes to government regulations and tax laws and climate-change risks. 3 AVATION PLC CHAIRMAN’S STATEMENT FOR THE YEAR ENDED 30 JUNE 2023 Outlook The global aviation industry has continued to recover strongly from the pandemic in 2023. In its latest update IATA reported that industry-wide revenue passenger-kilometres (RPKs) increased 26.2% year- on-year in July, reaching 95.6% of the traffic numbers seen in 2019. IATA also reports that domestic air travel, a driving force in the recovery of global passenger demand since the onset of the pandemic, reached a new all-time RPK high in July 2023 surpassing the previous record set in July 2019. Avation has primarily focussed on transitioning or disposing of unutilised aircraft, maintaining liquidity, and reducing leverage in the year ended 30 June 2023. The Company recently agreed to sell one of its last two remaining unutilised aircraft and to lease the other to a new customer airline. On completion of these two transactions the Company’s fleet will be fully utilised for the first time since early in 2020. The company’s focus will now shift towards leasing two ATR 72-600 aircraft from its orderbook, which are currently scheduled for delivery in April and May 2024, and identifying opportunities to lease, finance and deliver additional ATR aircraft by exercising purchase rights. Avation aims to gradually transition to a more sustainable, lower CO2 emissions aircraft fleet. Aircraft delivered from Avation’s orderbook and exercised purchase rights will be fitted with the new Pratt & Whitney PW127XT engine. The PW127XT engine promises 20% lower maintenance costs, extended time on wing, 3% lower fuel consumption and 5% more power compared with the current engine variant. The manufacturer expects that the PW127XT engine will be certified to operate with 100% sustainable aviation fuel from 2025. Net emissions of CO2 will be reduced by 80% when using sustainable aviation fuel. We also anticipate gradually trading out of older aircraft types and focussing on aircraft types such as the Airbus NEO and A220 series in addition to ATR turboprop aircraft. The Company’s portfolio already includes a significant proportion of Airbus A220 and ATR 72 aircraft. Robert Jeffries Chatfield Executive Chairman Singapore 26 October 2023 4 AVATION PLC STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2023 The Directors present their strategic report for the year ended 30 June 2023. BUSINESS OVERVIEW Avation PLC and its subsidiaries (“Avation”, the “Group”) is a commercial passenger aircraft leasing group managing a fleet of 36 aircraft, as of 30 June 2023. Avation was founded in 2006 and has now been in operation for 17 years. Avation leases aircraft to 17 airline customers spread across 14 countries in Europe and the Asia-Pacific region. Major customers include Vietjet Air, airBaltic, EVA Air and Philippine Airlines. The Group’s fleet includes 13 narrow-body jets, two twin-aisle jets and 21 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 two ATR 72-600 aircraft on order from the manufacturer, which are currently scheduled to be delivered in April and May 2024. The Group also holds purchase rights for a further 28 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’s shares are traded on the Standard Segment of the Main Market 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 narrow-body jets, in particular the popular Airbus A320/A321, A220 and Boeing 737 aircraft families. The Group will also consider acquiring additional twin-aisle aircraft 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. Avation has developed a sustainable, low emissions aircraft growth strategy. This initiative was supported by the recent release of the new lower emissions PW127XT engine and announcement that future variants of the ATR 72 aircraft will include hybrid technology and use 100% Sustainable Aviation Fuel. In addition, an ATR 72 aircraft has also completed the first 100% Sustainable Aviation Fuel commercial flight. 5 AVATION PLC STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2023 The Company’s future business strategy will be to focus on leasing modern, low CO2 emissions, fuel- efficient aircraft. We anticipate gradually trading out of older aircraft types and focussing on aircraft types such as the Airbus NEO and A220 series in addition to ATR 72 aircraft with the recently announced new generation engines. The Company’s portfolio already comprises a significant proportion of Airbus A220 and ATR 72 aircraft showing our commitment to new technology, fuel-efficient aircraft types. Future ATR 72 deliveries from Avation’s orderbook will be powered by the new Pratt & Whitney PW127XT engine which promises 20% lower maintenance costs, extended time on wing, 3% lower fuel consumption and 5% more power compared with the current engine. The manufacturer expects that the PW127XT engine will be certified to operate with 100% SAF from 2025. When using SAF net emissions of CO2 will be reduced by 80%. Industry data suggests that airlines will require significant numbers of leased aircraft in the future to replace older aircraft that will be retired and to satisfy projected growth in demand for air travel. Airlines’ balance sheets were negatively impacted during the COVID-19 pandemic, reducing their ability to purchase aircraft directly. This supports the Company’s strategy of focussing on young and popular commercial aircraft. 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 are amortised to conservative balloon payments over the terms of the underlying leases. The Avation fleet of 36 aircraft (as of 30 June 2023) has a weighted average age of 6.4 years and weighted average remaining lease term of 5.0 years, serving a diversified customer base of airlines in Europe and the Asia-Pacific region. 6 AVATION PLC STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2023 MARKET 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 the ability of leasing companies to access financial capital. The global aviation industry has continued to recover from the COVID-19 pandemic. Global domestic travel capacity in May 2023 was estimated to be at 108% of 2019 levels and international travel capacity at 89% of 2019 levels. International travel will further benefit from the continued reopening of the Chinese travel market which is expected to fully recover to pre-COVID levels in 2024. 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. Airbus estimates that the global commercial aircraft fleet will more than double from around 23,000 aircraft to over 46,000 aircraft between 2023 and 2042. Passenger traffic is expected to increase at a compounded annual growth rate of 3.6% which implies a doubling of demand over the next 20 years. Airbus forecasts that 40,850 aircraft (replacement and growth) will be required over the next 20 years, of which 46% are expected to be in Asia-Pacific, 20% in Europe, 17% in North America, and of the total, 80% are expected to be single aisle. 3 Around 25% of the current global commercial aircraft fleet are new generation more fuel-efficient types such as the Airbus A220 and A320/A321 neo types. Over the next 20-year period 95% of the global fleet to expected to transition to new generation aircraft types. Avation expects that this trend will support the company’s future strategy of gradually trading out of older aircraft types and focussing on aircraft types such as the Airbus NEO and A220 series in addition to ATR 72 aircraft with the new generation engines. 3 Airbus Global Market Forecast 2023 7 AVATION PLC STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2023 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 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 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 to ensure that there is adequate funding at all times for proper maintenance of the aircraft. 8 AVATION PLC STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2023 Climate-related risks: Physical risks Avation’s fleet may be exposed to the risk of physical damage or loss caused by climate-change related extreme weather events such as severe storms, flooding or fire. Demand for and patterns of air travel may be negatively impacted by long-term impacts of climate change such as rising sea levels. Transition risks Regulatory actions to control greenhouse gas emissions are likely to impose additional legal and compliance costs on aviation business models, including aircraft lessors. The gradual transition of airline fleets away from older more polluting aircraft types to latest technology more fuel-efficient types is likely to have a negative impact on the secondary market and residual values for older aircraft. This risk is likely to increase further as new aircraft types featuring low carbon emissions propulsion systems such as hydrogen or electric power are introduced. Consumer and market sentiment changes such as an increasing preference for lower emissions aircraft are likely to make it more difficult for businesses who continue to own or operate older aircraft types to raise capital or finance aircraft at competitive prices, or at all. Owners and/or operators of older aircraft types may also face reputational risk if not deemed to be transitioning to a low carbon emissions business model quickly enough. Financial risks: Avation’s financial risk management objectives and policies are set out in note 7 to the financial statements and are as follows: (cid:120) Airline industry risks (cid:120) Credit risk (cid:120) (cid:120) (cid:120) (cid:120) Capital risk Interest rate risk Foreign currency risk Liquidity risk FINANCIAL REVIEW Revenue US$ ‘000s Lease rental revenue Less: amortisation of lease incentive assets Interest income from finance leases Maintenance reserves revenue End of lease compensation revenue Year ended 30 June, 2023 2022 85,936 (1,368) 84,568 2,230 5,063 - 93,352 (1,383) 91,969 2,918 13,207 4,138 91,861 112,232 Lease rental revenue decreased by 7.9% from US$93.4 million in the year ended 30 June 2022 to US$85.9 million in the year ended 30 June 2023. The decrease was principally due to the reduction in the number of aircraft in the fleet from 39 at 30 June 2022 to 36 at 30 June 2023. Interest income from finance leases decreased by 23.6% from US$2.9 million in the year ended 30 June 2022 to US$2.2 million in the year ended 30 June 2023. The decrease was principally due to the reduction in the number of aircraft leased on finance leases from 6 at 30 June 2022 2021 to 5 at 30 June 2023. 9 AVATION PLC STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2023 Other income US$ ‘000s Foreign currency exchange gain Claim recovery Fees for late payment Aircraft late delivery compensation Deposit released Others Year ended 30 June, 2023 2022 3,154 3,137 966 - - 132 7,389 1,018 - 1,940 540 200 454 4,152 Foreign currency exchange gains in the year ended 30 June 2023 arose principally from the release of deferred hedged foreign currency exchange gains on two Euro loans that were refinanced during the period. The claim recovery recognised in other income is the balance of a distribution paid to creditors of Virgin Australia in excess of amounts allocated to trade receivables. Administrative expenses US$ ‘000s Staff costs Other administrative expenses Year ended 30 June, 2023 2022 5,587 3,173 8,760 6,771 2,694 9,465 Staff costs reduced by 17.5% from US$6.8 million in the year ended 30 June 2022 to US$5.6 million in the year ended 30 June 2023 principally due to a reduced average headcount, lower bonus payments and lower charges for employee share warrants. Other administrative expenses increased by 17.8% from US$2.7 million in the year ended 30 June 2022 to US$3.2 million in the year ended 30 June 2023 principally due to increased marketing related travel expenses. 10 AVATION PLC STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2023 Other operating income and expense items US$ ‘000s Depreciation Gain on derecognition of a finance lease Loss on disposal of aircraft and aircraft engine Unrealised gain on aircraft purchase rights Unrealised gain on equity investment Reversal of/impairment (loss) on aircraft Aircraft transition expenses Expected credit losses Legal and professional fees Year ended 30 June, 2023 2022 (38,566) (39,304) 2,792 (1,000) 20,540 7,520 3,287 (11,389) (659) (2,382) - (2,396) 38,320 - (6,158) (5,479) (1,980) (3,698) Depreciation reduced by 1.9% from US$39.3 million to US$38.6 million due to a reduction in the fleet. A gain of US$2.8 million was recognised on derecognition of a finance lease for an aircraft repossessed from a defaulting airline in Myanmar. The gain represents the positive difference between the outstanding value of the finance lease receivable and the broker valuation of the aircraft’s market value at the date of termination of the lease. A loss of US$1.0 million was recognised on the sale of two ATR 72-600 aircraft during the year. A loss of US$ 2.4 million was recognised in the year ended 30 June 2022 on the sales of an Airbus A220-300, an Airbus A321-200 and three ATR 72-600 aircraft. The Company’s 28 aircraft purchase rights were revalued at 30 June 2023 using a Black-Scholes option pricing model. The principal factors leading to the recognition of a gain of US$20.5 million (2022: US$ 38.2 million) were increases in the appraised value of the ATR 72-600 aircraft and increases in risk-free interest rates. The Company recorded an unrealised gain of US$7.5 million on its holding of shares in Philippine Airlines, Inc. The Company received these shares as part of the settlement awarded to creditors in the bankruptcy restructuring of the airline in December 2021. Aircraft transition expenses of US$11.4 million (2022: US$5.5 million) represent repairs and maintenance expenditure on aircraft repossessed following airline defaults resulting from the COVID-19 pandemic. The Company expects transition expenses to be substantially reduced in future periods as most aircraft which were repossessed as a result of the COVID-19 pandemic have now been transitioned to new lessees or sold. Expected credit losses of US$0.7 million primarily relate to rent arrears and a payment plan agreement loan granted to an airline in South-East Asia. Legal and professional fees reduced by 35.6% from US$3.7 million in the year ended 30 June 2022 to US$ 2.4 million in the year ended 30 June 2023 due to a reduction in transaction activity. 11 AVATION PLC STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2023 Finance income US$ ‘000s Interest income Fair value gain on financial derivatives Finance income from discounting non-current deposits to fair value Gain on repurchase of unsecured notes Gain on early full repayment of borrowings Year ended 30 June, 2023 2022 3,129 1 611 508 1,657 5,906 281 2,492 571 - - 3,344 Interest income increased in the year ended 30 June 2023 due to an improved interest rate environment for depositors. The group has proactively transferred funds into term deposit accounts to take advantage of increased deposit interest rates. Interest income includes US$1.1 million interest on payment plan agreement loans granted to a customer. Avation generated a gain of US$0.5 million on the repurchase of US$11.4 million of Avation Capital S.A. 8.25%/9.0% unsecured notes at a discount during the year. A gain of US$1.7 million on early full repayment of borrowings arose when two loans were refinanced in November 2022. Finance expenses US$ ‘000s Interest expense on secured borrowings Interest expense on unsecured notes Interest expense on borrowings from related parties Amortisation of loan transaction costs Amortisation of IFRS 9 gain on debt modification Fair value loss on financial derivatives Amortisation of interest expense on non-current borrowings Finance charges on early full repayment of borrowings Others Year ended 30 June, 2023 2022 21,170 30,976 271 1,057 8,711 577 571 - 206 63,539 24,062 29,913 - 2,226 8,805 - 539 731 1,205 67,481 Interest expense on secured borrowings reduced by 12.0% to US$21.2 million in the year ended 30 June 2023 from US$24.1 million in the year ended 30 June 2022 as a result of net repayments of secured loans. Secured borrowings have been paid down by US$79.4 million from US$531.9 million at 30 June 2022 to US$452.5 million at 30 June 2023. Interest expense on unsecured notes includes US$8.6 million (2022: US$4.3 million) of non-cash interest paid in kind by increasing the face value of Avation Capital S.A. 8.25%/9.0% unsecured notes. 12 AVATION PLC STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2023 Amortisation of IFRS 9 gain on debt modification of US$8.7 million (2022: US$ 8.8 million) represents the non-cash accretion in the book value of Avation Capital S.A. 8.25%/9.0% unsecured notes resulting from the accounting treatment of the extension and changes to the terms of the notes agreed with noteholders in March 2021. The extension was accounted for as a substantial modification of a debt instrument in accordance with IFRS 9. The face value of Avation Capital S.A. 8.25%/9.0% unsecured notes outstanding as of 30 June 2023 is US$345.2 million. 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 2022 Additions Disposals 30 June 2023 On order Purchase rights ATR 72-500 ATR 72-600 A220-300 A320-200 A321-200 A330-300 B737-800 B777-300ER Total 5 18 5 2 6 1 1 1 39 - - - - - - - - - - 2 - - - - 1 - 3 5 16 5 2 6 1 - 1 36 - 2 - - - - - 2 - 28 - - - - - 28 At 30 June 2023, Avation’s fleet comprised 36 aircraft, including five aircraft on finance lease. Avation serves 17 customers in 14 countries. The weighted average age of the fleet is 6.4 years (30 June 2022: 5.6 years) and the weighted average remaining lease term is 5.0 years (30 June 2022: 5.7 years). Two ATR 72-600 and one Boeing 737-800 aircraft were sold during the period. Turboprop and narrowbody aircraft make up 82% of fleet assets as at 30 June 2023. Fleet assets have decreased 9.0% to US$898.6 million (30 June 2022: US$988.0 million) as a result of aircraft sales and depreciation. As at the date of this report, Avation has two off-lease aircraft. One of these aircraft is expected to commence a new lease in November 2023 and the remaining aircraft is subject to an agreed sale which is expected to complete shortly. Avation has orders for two new ATR 72-600 aircraft and purchase rights for a further 28 aircraft as at 30 June 2023. The order-book and purchase rights provide a pathway to organic fleet growth. 13 AVATION PLC STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2023 DEBT SUMMARY Current loans and borrowings Non-current loans and borrowings Total loans and borrowings Unrestricted cash and bank balances Net indebtedness4 Net debt to total assets5 Weighted average cost of secured debt6 Weighted average cost of total debt7 2023 US$’000s 2022 US$’000s 61,401 694,575 755,976 24,816 731,160 62.0% 4.5% 6.1% 63,900 764,230 828,130 35,267 792,863 65.1% 4.0% 5.7% During the period net indebtedness was reduced by 7.8% to US$731.2 million (30 June 2022: US$792.9 million). Two aircraft previously financed under the Group’s floating rate warehouse loan facility were re-financed with long-term fixed rate debt, reducing exposure to changes in interest rates. The weighted average cost of total debt has increased to 6.1% as at 30 June 2023 (30 June 2022: 5.7%) due to repayments of lower cost secured loans in the period. The weighted average cost of secured debt also increased to 4.5% at 30 June 2023 (30 June 2022: 4.0%). At the end of the financial period, Avation’s net debt to total assets ratio improved to 62.0% (30 June 2022: 65.1%). As at 30 June 2023, 95.8% of total debt was at fixed or hedged interest rates (30 June 2022: 90.0%). The ratio of unsecured debt to total debt was 40.1% (30 June 2022: 35.8%). In August 2022, S&P Global Ratings revised Avation’s issuer rating to B- (CCC+ for unsecured notes) on improving capital structure and liquidity. The Company’s current credit ratings are as follows: Rating Agency Corporate Credit Rating Unsecured Notes Rating Standard & Poor’s B- (Stable outlook) CCC+ Aircraft leasing is a capital-intensive industry. Avation manages interest rate risk 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. 4 Net indebtedness is defined as loans and borrowings less unrestricted cash and bank balances. 5 Net debt to assets is defined as net indebtedness divided by total assets. 6 Weighted average cost of secured debt is the weighted average interest rate for secured loans and borrowings at period end. 7 Weighted average cost of total debt is the weighted average interest rate for total loans and borrowings at period end. 14 AVATION PLC STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2023 ENVIRONMENTAL, SOCIAL AND GOVERNANCE 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. The most recent additions to the fleet have included 6 latest technology A220-300 aircraft, which provide significantly reduced fuel consumption and emissions in comparison to older aircraft. As of 30 June 2023, 72% of our overall fleet by number are newer technology or lower carbon emission ATR and Airbus A220 aircraft. Avation is a member of the Aviation Working Group (AWG) which has developed the aviation industry Aircraft Carbon Calculator, aimed at monitoring the carbon emissions of aircraft fleets. The AWG Aircraft Carbon Calculator provides an industry standard methodology for calculating and comparing aircraft carbon dioxide emissions. Use of the Aircraft Carbon Calculator will provide meaningful information and assist in monitoring and reporting of aircraft emissions. Avation notes the Singapore Government’s commitment to achieve net-zero carbon emissions by 2050. While Avation supports this initiative it is not currently realistic for Avation to make a matching commitment given that the technology for achieving commercially viable zero emissions mass air travel is not yet available. Avation intends to develop a net-zero strategy when the technological advances required to make zero emissions commercial air travel viable have been achieved. Additionally, the Company will comply with all carbon emissions laws and regulations as and when they are enacted in jurisdictions in which the Company operates. Avation’s Environmental, Social and Governance report is published on the Company’s website at: https://www.avation.net/ESG.html. As of 30 June 2023, Avation PLC has an MSCI ESG rating of BB (2022:BB). Climate-Related Financial Disclosures The Risk Committee makes recommendations to the Board on the principal risks of relevance to the business. Climate-related risks are considered in terms of potential for contribution to these principal risks. The issues considered include both the risk of physical disruption to the business from climate change, and the risks and opportunities as the global economy transitions to significantly lower carbon emissions. In the current period, the Risk Committee concluded that climate related risks did not give rise to the level of a principal risk, except as part of Legal and Regulatory Compliance. 15 AVATION PLC STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2023 The following table is consistent with the Task Force on Climate-Related Financial Disclosures (“TCFD”) recommended disclosures on climate-change risks: TCFD Recommended Disclosure Compliance Status Governance Describe the Board’s oversight of climate-related risks and opportunities. Describe management’s role in assessing and managing climate-related risks and opportunities. Strategy Describe the climate-related risks and opportunities the organisation has identified over the short, medium, and long term. The Board of Directors has accountability for the management of climate related risks and opportunities. The Executive Directors are responsible for the day-to- day implementation, monitoring and management of our climate policies. The Group’s Risk Committee supports the Directors in ensuring material climate- related narratives are identified and integrated into the Group’s risk management processes, in addition to reviewing and recommending policy proposals to the Board. Identified climate-related risks and opportunities are communicated to the Group’s management team in bi- weekly meetings attended by the Group’s executive Directors and senior members of the management team. Individuals tasked with particular climate- related tasks to carry out or reports to prepare provide regular updates on performance at these meetings. Physical risks Avation’s fleet may be exposed to the risk of physical damage or loss caused by climate-change related extreme weather events such as severe storms, flooding or fire. Demand for and patterns of air travel may be negatively impacted by long-term impacts of climate change such as rising sea levels, should these occur. Transition risks Regulatory actions to impose controls on greenhouse gas emissions are likely to result in additional legal and compliance costs for aviation business models, including aircraft lessors. The gradual transition of airline fleets away from older more-polluting aircraft types to latest- technology more fuel-efficient types is likely to have a negative impact on the secondary market and residual values for older aircraft. This risk is likely to increase further as new aircraft types featuring low carbon emissions propulsion systems such as SAF, hydrogen or electric power are introduced. Regulatory actions, consumer and market sentiment changes such as an increasing preference for lower emissions aircraft are likely to make it more difficult for businesses who continue to own or operate older aircraft types to raise capital or finance aircraft at competitive prices, or at all. Owners and/or operators of older aircraft types may also face reputational risk if not deemed to be transitioning to a low carbon emissions business model quickly enough. 16 AVATION PLC STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2023 Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning. Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario. The Risk Committee makes recommendations to the Directors on the principal risks of relevance to the business. Climate-related risks are considered in terms of potential for contribution to these principal risks. The issues considered include both the risk of physical disruption to the business from climate change, and the risks and opportunities as the global economy transitions to significantly lower carbon emissions. In the current period, the Risk Committee concluded that climate related risks did not give rise to the level of a principal risk, except as part of Legal and Regulatory Compliance. Worst Case scenario (>3ºC) Our Worst-Case Scenario is a theoretical construct and narrative describing a world where climate action is delayed by world governments failing to act on climate change. Such delay may result in a world where physical climate change risks are the greatest across our three scenarios. Under the Worst-Case scenario the Group may face greater physical risks from climate-change related weather events and greater transitional risks from accelerated changing demand patterns. Paris Alignment Scenario (2-3ºC) This scenario involves a market-led transition to a lower carbon future through global government commitments to the Paris Agreement. This would result in increased regulation of climate action and a reduction of the physical impacts of climate change compared with our Worst-Case scenario, where governments fail to legislate in accordance with the Paris Agreement. Under the Paris Alignment scenario the Group expects that its strategy will mitigate the material impacts of climate risk. Transformation Scenario (<2ºC) This scenario sees a rapid decarbonisation pathway, where global emissions are close to zero in 2040, driven by society. The speed of change required to limit global warming to 1.5 degrees is likely to create instability in our supply chain as suppliers try to keep pace with decarbonisation demands and shifting preferences towards localisation. Under the Transformation Scenario the Group may face reduced physical risks but additional financial and transitional risks and additional opportunities from a more rapid switch to lower carbon emission Under this propulsion systems for aircraft. scenario there is a risk that ordinary aircraft passengers may be priced out of the air travel market. Hence, passenger numbers could fall. 17 AVATION PLC STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2023 Risk Management Describe the organisation’s processes for identifying and assessing climate-related risks. Describe the organisation’s processes for managing climate-related risks. Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organisation’s overall risk management. Metrics and targets Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process. Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks. Avation’s Risk Committee is responsible for identifying and assessing climate change related risks and for notifying the Board of any identified principal risks which are deemed to be material to the Company. The Directors are directly able to determine which risks and opportunities could have a material impact on the Group, as well as how to prioritise them. With a flat management structure and by taking a hands-on approach, the risks are actively managed within all aspects of the business. Climate change related matters are monitored by the Directors and Risk Committee to ensure that they are embedded in our risk management and planning process, in addition to our long-term strategic decision- making. Please refer to the table below. Please refer to the table below. As the majority of the Company’s GHG emissions are derived from our customers’ use of our fleet of aircraft, total emissions may increase due to factors outside our control. Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets. The company is making available to the market up to 30 low carbon emissions ATR72 aircraft by way of its purchase rights and order book. Greenhouse Gas Emissions Direct emissions Direct emissions are produced by sources which are owned or controlled by the reporting organisation and include electricity use, burning oil or gas for heating, and fuel consumption because of business travel or distribution. Indirect emissions Indirect emissions result from a company’s upstream and downstream activities. These are typically from outsourced activities, and products and the services offered by the organisation. Scope Scope 1 Scope 2 Scope 3 Total Activity - Consumption of purchased electricity Customers’ use of our aircraft Employee business travel TCO2e 2023 - 16 525,100 144 525,260 TCO2e 2022 - 13 418,900 28 418,941 Usage of the Company’s aircraft is under the control of lessees who are not required to provide emissions data to the Company. The Company estimates carbon emissions from lessees’ usage of our aircraft using the “AWG Carbon Calculator” tool provided by the Aircraft Working Group. The AWG Carbon Calculator uses OEM source data to provide consistent and reliable estimates of aircraft carbon emissions. 18 AVATION PLC STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2023 Carbon emissions from consumption of purchased electricity 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. Carbon emissions from employee business travel are estimated using UK Government Conversion Factors for greenhouse gas reporting. Scope 3 Emissions from Customers’ Use of Our Aircraft Total emissions (TCO2e) Aircraft flight hours Average seats per aircraft Average CO2 emissions per flight hour (TCO2e) Average CO2 emissions per seat per flight hour (kgCO2e) CORPORATE SOCIAL RESPONSIBILITY 2023 2022 525,100 74,683 162 7.0 43.5 418,900 61,450 158 6.8 43.0 Avation is committed to the principles of being a good corporate citizen. For the 2023 financial year the group did not have any material matters to report on social, community and human rights issues. CORPORATE ETHICS AND BEHAVIOUR Avation operates the following policies governing corporate ethics and behaviour: (cid:120) Anti-bribery policy (cid:120) Gifts and entertaining policy (cid:120) Modern slavery policy (cid:120) Whistleblowing policy (cid:120) Policy for dealing with Company securities 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 2023 is set out below: Directors of the Company Senior managers Other employees Male Female 5 4 7 - 2 5 19 AVATION PLC STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2023 A breakdown by gender of the number of persons who were Directors of the Company or senior managers as of 30 June 2023 is set out below: Number of board members Percentage of the board Number of senior positions on the board (CEO, CFO, SID and Chair) Number in executive management Percentage of executive management Men Women 5 - 100% - 2 - 4 2 67% 33% A breakdown by ethnic identity of the number of persons who were Directors of the Company or senior managers as of 30 June 2023 is set out below: Number of board members Percentage of the board Number of senior positions on the board (CEO, CFO, SID and Chair) Number in executive management Percentage of executive management White British or other white (including minority- white groups) Asian/Asian British 5 - 100% - 2 - 3 3 50% 50% The Company collects data on gender and ethnic identity from employees and directors by means of self-identification. As at 30 June 2023 the Company does not meet targets for: (cid:120) (cid:120) (cid:120) at least 40% of the individuals on its board of directors to be women; at least one of the positions of the chair, the chief executive, the senior independent director or the chief financial officer on its board of directors to be held by a woman; and at least one individual on its board of directors to be from a minority ethnic background. The Company engages directors on the basis of ability without discrimination and has no internal targets for representation on the board on the basis of gender or ethnic identity. 20 AVATION PLC STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2023 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. The likely consequences of any decision in the long term The board is mindful that it 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 timeframes. 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 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 seventeen 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. 21 AVATION PLC STRATEGIC REPORT FOR THE YEAR ENDED 30 JUNE 2023 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 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 26 October 2023 22 AVATION PLC DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2023 The Directors present their report and financial statements for the year ended 30 June 2023. 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 22 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 did not declare and pay any dividend during the year. 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 1 July 2022/ Appointment date 30 June 2023 30 June 2023 1 July 2022/ Appointment date Ordinary shares of £0.01 each: Robert Jeffries Chatfield Roderick Douglas Mahoney Stephen John Fisher Derek Sharples Mark Stephen Shelton 1 870,000 25,000 50,000 4,500 1 856,667 25,000 50,000 4,500 12,530,000 - 11,995,000 - - - - - - - 23 AVATION PLC DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2023 Significant shareholdings Ordinary shares of £0.01 each: Vidacos Nominees Limited Goldman Sachs Securities (Nominees) Limited HSBC Global Custody Nominee (UK) Limited Luna Nominees Limited HSBC Global Custody Nominee (UK) Limited Vidacos Nominees Limited Pershing Nominees Limited Lynchwood Nominees Limited Equal Opportunities Policy Ordinary shares Percentage 16,065,318 22.66% 5,456,860 5,350,000 5,030,000 5,013,635 3,505,478 2,371,725 2,239,800 7.70% 7.55% 7.10% 7.07% 4.95% 3.35% 3.16% 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. 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. 24 AVATION PLC DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2023 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. The Company estimates carbon emissions from lessees’ usage of our aircraft using the “AWG Carbon Calculator” tool provided by the Aircraft Working Group. The AWG Carbon Calculator uses OEM sources data to provide consistent and reliable estimates of aircraft carbon emissions. Carbon emissions from consumption of purchased electricity 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 2023 the Company used 39,016 KWh of energy (2022: 32,496 KWh) which was converted to estimated carbon emissions of15,829 Kg (2022: 13,258 Kg) using a GEF of 0.4057 (2022: 0.4080). Carbon emissions from employee business travel are estimated using UK Government Conversions Factors for greenhouse gas reporting. 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 30. 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 37. 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. 25 AVATION PLC DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2023 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 July 2018. 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 Mark Stephen Shelton) and three Non-Executive Directors (Roderick Douglas Mahoney, Stephen John Fisher (independent) and Derek Sharples (independent)). 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. Information on how the Directors have had regard to the need to foster the Company’s business relationships with suppliers, customers and other, and the effect of that regard, including on the principal decisions taken by the Company during the financial year, is included in the Section 172(1) Statement included in the Strategic Report. The Company operates the following committees whose members are detailed below: (cid:120) Audit Committee - Stephen John Fisher, Derek Sharples Iain Cawte (non-Board member) and Mark Stephen Shelton; and (cid:120) Risk Committee – Derek Sharples, Stephen John Fisher, Iain Cawte (non-Board member) and Duncan Scott (non-Board member); and (cid:120) 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. 26 AVATION PLC DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2023 Statement as to disclosure of information to auditors (cid:120) So far as the Directors are aware, there is no relevant audit information of which the Company's auditors are unaware, and (cid:120) 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 year ended 30 June 2023, the Company bought 100,000 treasury shares at a market price of 77.2 pence per share and subsequently cancelled 2,310,000 treasury shares. During the financial year ended 30 June 2022, the Company did not buy any treasury shares. By a resolution passed at the Annual General Meeting held on 1 December 2021, 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 £0.75 and not exceeding 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 (as in force in the United Kingdom pursuant to the European Union (Withdrawal) Act 2018), and in any case, not exceeding £3.00 per share, excluding brokerage, commissions and other related expenses. 27 AVATION PLC DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2023 Subsequent events See Note 42 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 37 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 28 AVATION PLC DIRECTORS’ REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2023 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 the year ended 30 June 2023. 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: (cid:120) (cid:120) (cid:120) 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 the necessary competence to execute the company’s business strategy. individuals of Operation: Salaries are typically set after considering salary levels in companies of a similar size and complexity, the responsibilities of each individual role, progression within the role, individual performance and an individual’s experience. Our overall policy, having had due regard to the factors noted, is normally to target salaries at the market median level. Salaries may be adjusted in line with the market and adjustments out of line with the market may be awarded in certain circumstances such as where there is a change in responsibility, progression in the role, experience or a significant increase in the scale of the role and/or size, value and/or complexity of the Group. Salary levels for current incumbents are set out elsewhere in this report. Framework used to assess performance: The remuneration committee considers individual salaries at the appropriate committee meeting each year after having due regard to the factors noted in operating the salary policy. No recovery provisions apply to salary. 29 AVATION PLC DIRECTORS’ REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2023 Bonuses incentivise and To recognise execution of the business strategy on a semi-annual basis. Operation: Bonuses are paid in cash twice yearly to Directors based on a target percentage of the employee’s basic salary. All bonus payments are at the discretion of the Committee, as shown following this table. Framework used to assess performance: The remuneration committee will assess company and individual performance compared to prior year and expectations for the current year. Individual performance will also be assessed against key performance metrics established for each executive. Metrics considered in awarding bonuses include share price appreciation; increase in the Company’s earnings per share; reliable and high quality financial reporting; growth in asset value and profits; and dividend growth. Share Warrants incentivise and recognise To execution of the business strategy over the long-term. Operation: Each year share warrants and/or performance shares awards may be granted subject to the achievement of performance targets. Awards normally vest over a three-year period. Framework used to assess performance: Same as for bonus. Individual Director’s remuneration was as follows: Executive Director: Robert Jeffries Chatfield Mark Stephen Shelton Non-Executive Directors: Roderick Douglas Mahoney* Stephen John Fisher Derek Sharples Salaries and fees US$’000s Bonuses Taxable benefits US$’000s US$’000s Share warrants US$’000s Total 2023 US$’000s Total 2022 US$’000s 694 58 271 48 48 1,119 - - - - - - 73 - - - - 384 9 169 - - 1,151 67 1,224 - 440 48 48 877 45 45 73 562 1,754 2,191 *Roderick Douglas Mahoney retired as an executive of the Company during the year and he will continue to serve the shareholders as a non-executive director of the Company 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, medical expenses and private car expenses. The information in this part of the Directors’ Remuneration Report is subject to audit. 30 AVATION PLC DIRECTORS’ REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2023 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 Robert Jeffries Chatfield Roderick Douglas Mahoney Stephen John Fisher Derek Sharples Mark Stephen Shelton 29 April 2013 21 February 2022 29 April 2014 15 November 2016 15 September 2023 Indefinite Indefinite Indefinite Indefinite Indefinite Compensation payable on early termination - - - - - Notice period 4 months 2 months 1 month 1 month 2 weeks Share 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; (cid:120) (cid:120) Reliable and high quality financial reporting; (cid:120) Growth in asset value and profits; and (cid:120) 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 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 The exercise price for the warrants granted on 20 September 2019 was re-priced on 14 October 2022 from 296.0 pence to 101.25 pence. The warrant expiry date extended to 21 January 2023. 31 AVATION PLC DIRECTORS’ REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2023 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 exercise price for the warrants granted on 21 November 2019 was re-priced on 14 October 2022 from 274.5 pence to 101.25 pence. The warrant expiry date extended to 22 March 2023. Warrants granted to Directors on 23 December 2020 have a 3-year vesting schedule with details as follows: Vesting period Before 23 December 2021 On 23 December 2021 and before 23 December 2022 On 23 December 2022 and before 23 December 2023 On 23 December 2023 to 23 January 2024 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 29 September 2022 have a 3-year vesting schedule with details as follows: Vesting period Before 29 September 2023 On 29 September 2023 and before 29 September 2024 On 29 September 2024 and before 29 September 2025 On 29 September 2025 to 29 November 2025 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 32 AVATION PLC DIRECTORS’ REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2023 Warrants granted to Directors on 2 March 2023 have a 3-year vesting schedule with details as follows: Vesting period Before 2 March 2024 On 2 March 2024 and before 2 March 2025 On 2 March 2025 and before 2 March 2026 On 2 March 2026 to 2 May 2026 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: Granted during the year Exercised during the year Expired during the year Date granted (re-priced) Warrant price (re-priced) 20 Sep 2019 (14 Oct 2022) 21 Nov 2019 (14 Oct 2022) 296.0p (101.25p) 274.5p (101.25p) Balance at beginning of year 450,000 300,000 23 Dec 2020 130.0p 1,200,000 29 Sept 2022 102.0p 2 Mar 2023 126.0p 20 Sep 2019 (14 Oct 2022) 21 Nov 2019 (14 Oct 2022) 296.0p (101.25p) 274.5p (101.25p) - - 1,000,000 230,000 180,000 120,000 23 Dec 2020 130.0p 750,000 29 Sept 2022 102.0p 2 Mar 2023 126.0p 29 Sept 2022 102.0p 2 Mar 2023 126.0p - - - - 275,000 25,000 50,000 18,000 - - - - - - (235,000) (215,000) (300,000) - - - (180,000) (120,000) - - - - - - - - - - - - - - - - Balance at end of year - - 1,200,000 1,000,000 230,000 - - 750,000 275,000 25,000 50,000 18,000 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 Mark Stephen Shelton Mark Stephen Shelton * Robert Jeffries Chatfield was granted the share warrants and assigned these to Epsom Assets Limited. The closing market price of the shares subject to warrants at the year-end was 123.0 pence. The highest and lowest closing market prices during the year were 142.0 pence and 68.0 pence. 33 AVATION PLC DIRECTORS’ REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2023 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. 34 AVATION PLC DIRECTORS’ REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2023 Remuneration of Executive Chairman 2023 2022 2021 2020 2019 Executive Chairman single figure remuneration (US$’000) Annual bonus pay-out (as % of maximum) 1,151 1,224 1,394 - - - 908 - 803 - 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. Percentage change in remuneration of Chief Executive Officer and annual percentage change in remuneration for directors and employees 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 and directors compared to that of all employees of the Group. Change in remuneration from 2022 to 2023 Base salary and fees Bonus Taxable benefits Warrants expense Executive Chairman: Robert Jeffries Chatfield Executive Director: Mark Stephen Shelton Non-executive Director: Douglas Roderick Mahoney Non-executive Director: Stephen John Fisher Non-executive Director: Derek Sharples All employees -2% NA 0% NA -30% -100% 6% 6% -3% 0% 0% -96% 4% NA 0% 0% 0% 4% -13% NA -37% 0% 0% -20% Change in remuneration from 2021 to 2022 Base salary and fees Bonus Taxable benefits Warrants expense Executive Chairman: Robert Jeffries Chatfield Executive Director: Douglas Roderick Mahoney Non-executive Director: Stephen John Fisher Non-executive Director: Derek Sharples All employees -1% 0% -18% -25% 0% 0% 0% -22% 0% 0% 254% -18% -17% -15% 105% 0% 0% 0% 0% 2% 35 AVATION PLC DIRECTORS’ REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2023 Percentage change in remuneration of Chief Executive Officer and annual percentage change in remuneration for directors and employees (continued) Change in remuneration from 2020 to 2021 Base salary and fees Bonus Taxable benefits Warrants expense Executive Chairman: Robert Jeffries Chatfield Executive Director: Douglas Roderick Mahoney Non-executive Director: Stephen John Fisher Non-executive Director: Derek Sharples All employees 10% 12% 0% 0% -2% Relative importance of spend on pay 0% 69% 192% -52% 0% 0% 0% 0% 0% 229% 0% 0% -71% 69% 191% 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: 36 AVATION PLC DIRECTORS’ REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2023 Directors’ remuneration policy The Company applies a policy for Directors’ remuneration which is designed to meet the following objectives: (cid:120) (cid:120) (cid:120) (cid:120) 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 (cid:120) 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: (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) 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: (cid:120) (cid:120) base salary; short-term incentives in the form of a cash bonus linked to performance against individual key performance indicators; and (cid:120) 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, except that Non-Executive Directors are entitled to receive payment of two years fees on loss of office pursuant to a change of control. 37 AVATION PLC DIRECTORS’ REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2023 Statement of consideration of employment conditions elsewhere in the company Pay and employment conditions of other employees in the company were taken into account when setting the policy for Directors’ remuneration. Similar remuneration polices are in place for Directors and employees of an equivalent level. Shareholders' vote on remuneration Votes cast in favour Votes cast against Total votes cast in favour or against Votes withheld Note: Share Count 23,650,489 17,723 23,668,212 9,593 % of vote cast 99.93% 0.07% 100.00% - 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 2022 was approved at the Annual General Meeting held on 13 December 2022. On behalf of the Board Robert Jeffries Chatfield Executive Chairman 38 AVATION PLC DIRECTORS’ RESPONSIBILITIES STATEMENT FOR THE YEAR ENDED 30 JUNE 2023 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 Company and Group financial statements in accordance with UK-adopted International Accounting Standards (“IFRSs”) in conformity with the requirements of the Companies Act 2006. 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 the 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; (cid:120) (cid:120) make judgements and accounting estimates that are reasonable and prudent; (cid:120) 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 the specific requirements in IFRSs adopted 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. (cid:120) (cid:120) (cid:120) 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. 39 AVATION PLC DIRECTORS’ RESPONSIBILITIES STATEMENT FOR THE YEAR ENDED 30 JUNE 2023 We confirm that to the best of our knowledge: (cid:120) (cid:120) (cid:120) the financial statements, prepared in accordance with IFRSs inconformity with the Companies Act 2006, 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 26 October 2023 and is signed on its behalf by Robert Jeffries Chatfield. Robert Jeffries Chatfield Executive Chairman 40 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 2023 and of the group’s profit for the year then ended; the group financial statements have been properly prepared in accordance with UK adopted international accounting standards; the parent company financial statements been properly prepared in accordance with UK adopted international accounting standards as applied in accordance with section 408 of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. 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 2023 Company statement of financial position as at 30 June 2023 Consolidated statement of changes in equity for the year then ended Company statement of changes in equity for the year then ended Consolidated statement of cash flows for the year then ended Company statement of cash flows for the year then ended Related notes 1 to 43 to the financial statements, including a summary of significant accounting policies Related notes 1 to 43 to the financial statements, including a summary of significant accounting policies The financial reporting framework that has been applied in their preparation is applicable law and UK adopted international accounting standards and as regards to the parent company financial statements, as applied in accordance with section 408 of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report below. We are independent of the group and parent company in accordance with the ethical requirements that are 41 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED) 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. Conclusions relating to going concern In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the group and parent company’s ability to continue to adopt the going concern basis of accounting included: • In conjunction with our walkthrough of the Group’s financial statements close process, we confirmed our understanding of the going concern assessment process and engaged with management to ensure all key factors were considered in their assessment. • We obtained management’s going concern assessment, including their covenant assessment and cashflow analysis and forecast for a period of 13 months from the expected date of signing of the financial statements. • We reviewed the sources of cash inflows available to the Group and the various scenario analyses performed by management. We noted that in management’s most stressed scenario, management’s forecasted minimum cash requirement would still be generated by the Group. • We have considered the assumptions included in the cashflow analysis prepared and considered the appropriateness of the methods used within the cashflow analysis and determined through inspection and testing of the methodology and calculations that the methods utilised were appropriate. • We have further stressed managements’ sensitivities to test the resilience of the Group’s business under more pessimistic scenarios. • We have reviewed the appropriateness of the disclosures made by management as detailed under Note 3 (e) of the financial statements. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group and parent company’s ability to continue as a going concern for a period of 12 months from when the financial statements are authorised for issue. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s ability to continue as a going concern. 42 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED) Overview of our audit approach Audit scope • We performed an audit of the complete financial information of Avation plc in accordance with the materiality thresholds as set out below. Key matters audit • Valuation of aircraft • Valuation of aircraft purchase rights • Expected credit loss (ECL) on trade and other receivables Materiality • Overall group materiality of US$2.4m which represents 1% of total equity as of 30 June 2023. 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, the potential impact of climate change and other factors such as recent Internal audit results 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. Climate change Stakeholders are increasingly interested in how climate change will impact Avation plc. The Group has determined that the most significant future impacts from climate change on its operations will be the physical risks and the transition risks as the global economy transitions to lower carbon emissions. These are explained on page 9 in the principal risks and uncertainties and pages 15-17 for climate related financial disclosures in the strategic report. All of these disclosures form part of the “Other information,” rather than the audited financial statements. Our procedures on these unaudited disclosures therefore consisted solely of considering whether they are materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appear to be materially misstated, in line with our responsibilities on “Other information”. As explained in the Note 3 (a) Basis of preparation and Note 4 Critical accounting estimates and judgements, the governmental and societal responses to climate change risks are still developing and are interdependent upon each other. Consequently, financial statements cannot capture all possible future outcomes as these are not yet known. The degree of certainty of these changes may also mean that they cannot be fully taken into account when determining asset and liability valuations and timing of future cash flows under the requirements of UK adopted international accounting standards. As explained in Note 3 (a), management believe that reasonably possible changes arising from climate risk would not have a material impact on the financial statements. 43 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED) As part of our audit, we have made enquiries of management to understand the extent of the potential impact of climate change risk on the Group’s financial statements, including how climate is considered as part of the investment making and monitoring processes. We have performed a risk assessment \as to how the impact of climate change may affect the financial statements, including reading board minutes and applying our knowledge of the Group and sector in which it operates to understand the extent of the potential impact of climate change risk on the Group’s financial statement. Based on our work we have not identified the impact of climate change on the financial statements to be a key audit matter or to impact a key audit matter. 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. 44 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED) Key observations to communicated the Audit Committee Our planned audit procedures were completed without material exception. Risk Our response to the risk Valuation of Aircraft (2023: US$845.5 million,2022:US$813.9 million) Refer to Note 3 (g) of the Accounting policies (page 66); Note 6 (page 87) and Note 18 of the Consolidated Financial Statements (page 104). The carrying value of jet and turboprop aircraft represent the most significant asset in the financial statements of Avation plc. As at 30 June 2023, the carrying value of aircraft reported is (2022: US$813.9 US$845.5 million million) as detailed in Note 18 of the financial statements. aircraft As set out within on pages 64-66 Notes 3 (f) and 3 (g) ‘Summary of Significant Accounting Policies’, are measured at fair value on a Lease Encumbered Value basis (“LEV”). As detailed in Note 4 (b) ‘Critical Accounting Estimates Judgments’, and management applies estimation and judgment as part of their fair value assessment of aircraft. to turboprop is compared For the purposes of determining the valuation, the carrying value of each jet the and computed LEV. LEV is determined by discounting the lease income streams associated with the the expected future residual value of the aircraft at the end of the lease adjusted for return conditions at lease termination using an appropriate discount rate. lease and The nature and size of these balances and their importance to the Group are such that we have identified this as a key audit matter. We have assessed each aircraft as they are deemed to be individually material to the financial statements. In obtaining sufficient audit evidence we: • Obtained an understanding of the process for the valuation of aircraft on an LEV basis and performed a walkthrough of the process, including controls over of the calculation, and evaluated the design of controls in relation to the identified risk. assumptions inputs and • Assessed in the and used evaluated the appropriateness and accuracy of the key LEV assumptions calculation, through recalculation and scenario analysis. Involved specialists from our valuations and business modelling team to assess the reasonableness of the discount rates used in discounting the future cash flows of aircraft in the model. As part of our audit procedures, we also evaluated the appropriateness of credit premia and discounts applied by management for each their lessee by analysing respective credit risks. • • Evaluated the independence and competence of experts engaged by management in valuing the LEV in accordance with the requirements of auditing standards. • Assessed the accuracy of factual inputs, such as lease income streams, by reviewing and amendments, as necessary. agreements lease • Assessed the calculations underpinning the LEV model by checking that the data, the assumptions and inputs into the model were in agreement with those that we had evaluated in other areas of the audit. • Assessed the appropriateness and presentation of disclosures the financial statements for compliance with the relevant accounting standards. in 45 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED) Key observations communicated to the Audit Committee Our procedures were completed without material exception. Risk Our response to the risk Valuation of Aircraft Purchase Rights (2023: US$85.82 million, 2022: US$65.28 million) Refer to the Note 3(h) Accounting policies (page 67); Note 6 (page 87) and Note 24 of the Consolidated Financial Statements (page 118). that We have determined 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, Fair Value Measurement. As set out on page 82 within Note 4 (d) ‘Critical accounting estimates and judgements’, aircraft purchase rights are measured at fair value through profit or loss. The Group values aircraft purchase rights using the Black Scholes price model. Critical assumptions made in determining the fair value of the aircraft purchase rights include the market value volatility rates used. The nature and size of these balances and their importance to the Group are such that we have identified this as a key audit matter. In obtaining sufficient audit evidence we: • Obtained an understanding of the aircraft purchase rights valuation process, performed a walkthrough of the process and evaluated the design effectiveness of controls related to the risk identified. • • Assessed the assumptions used by management and evaluated the appropriateness and accuracy of inputs such as assumed delivery dates, purchase right exercise dates, the asset price and risk-free, volatility and inflation rates. Involved valuation reasonableness of model. • Evaluated our the the valuation from to assess specialists team the competence and external of independence the appraisers as management experts for the external market appraisals provided. We obtained these external the valuation reports market the valuation calculation. to validate inputs to • Assessed the appropriateness and presentation of disclosures in the financial statements for compliance with accounting relevant the standards. 46 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED) Risk Our response to the risk Expected credit loss (ECL) on Trade and Other Receivables (2023: US$11.95 million, 2022: US$11.34 million) In obtaining sufficient audit evidence we: • Obtained an understanding of the the credit process for assessing profile of airlines and the expected credit loss model. Key observations communicated to the Audit Committee Our procedures were completed without material exception. Refer to the Note 3 (u) Accounting policies (page 77); and Note 19 of the Financial Statements (page 109) Consolidated loss on We have determined that expected credit trade and other receivables represents a significant risk because there is high level of receivables and historical lease restructurings. The allowance for expected credit losses may not be adequately recognised during the financial year. As set out on page 90 within Note 7 (b) Credit risk, 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 ECL. these The nature and size of balances and their importance to the Group are such that we have identified this as a key audit matter. • Performed a walkthrough of the process and evaluated the design effectiveness of controls identified. • Obtained management’s assessment of the ECL and their evaluation of the risks associated with each airline customer and the exposure at default and loss given default. recalculated • Evaluated the appropriateness and accuracy of key assumptions, such as probability of default and loss given default • • Evaluated the accuracy of factual inputs, such as security deposits and letters of credit held for each lessee, which were treated as credit enhancements in determining the net exposure Independently checked the credit rating of similar airlines in the same region and of a similar size and validated management’s inputs. • Evaluated management’s overall approach in conjunction with the guidance for reasonableness. IFRS of 9 • Assessed the appropriateness and presentation of disclosure in the financial statements for compliance with accounting relevant the standards. In the prior year our auditor’s report included a key audit matter in relation to going concern. In the current year we did not identify going concern as a key audit matter due to the recovery of the aviation sector post-Covid. 47 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED) 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$2.4 million (2022: US$2.3million), which is 1% (2022: 1%) of total equity. We believe that total equity provides us with the most relevant measure used by investors and other stakeholders when assessing the performance of the Group. We determined materiality for the Parent Company to be US$1.5 million (2022: US$1.7 million), which is 0.5% (2022: 0.5%) of total assets. During the course of our audit, we reassessed initial materiality and no change in final materiality from original assessment at planning. 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 assessments, together with our assessment of the Group’s overall control environment, our judgement was that performance materiality was 50% (2022: 50%) of our planning materiality, namely US$1.2m (2022: US$1.1m). We have set performance materiality at this percentage due to a higher likelihood of misstatements in the current year. 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$121,000 (2022: US$113,000), which is set at 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 page 2-4), Strategic Report (set out on pages 5-21), Directors’ Report (set out on pages 22-26), Directors’ Remuneration Report (set out on pages 27–36) and Directors’ Responsibilities Statement (set out on page 37-38) other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information. 48 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED) 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 this gives rise to a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: • • the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and the strategic report and directors’ report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company,; or • 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 37-38), 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 49 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED) enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. 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 Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the company 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 Tax Legislation (governed by HM Revenue and Customs and Inland Revenue Authority of Singapore) o Financial Conduct Authority (FCA) Listing Rules o Disclosure Guidance and Transparency Rules (DTR) of the FCA • 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. 50 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED) • 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 ending 30 June 2018 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments is 6 years, covering the years ending 30 June 2018 to 30 June 2023. • 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 additional 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. Vincent Bergin (Senior statutory auditor) for and on behalf of Ernst & Young, Chartered Accountants and Statutory Auditor Dublin 26 October 2023 Notes: The maintenance and integrity of the Avation plc web site is the responsibility of the directors; 1. the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the web site. 2. statements may differ from legislation in other jurisdictions. Legislation in the United Kingdom governing the preparation and dissemination of financial 51 AVATION PLC CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 30 JUNE 2023 Continuing operations Revenue Other income Depreciation Gain on derecognition of finance lease Loss on disposal of aircraft and aircraft engine Unrealised gain on aircraft purchase rights Unrealised gain on equity investments Reversal of/impairment (loss) on aircraft Aircraft transition expenses (Provision for)/reversal of expected credit losses Administrative expenses Legal and professional fees Operating profit Loss on debt modification Finance income Finance expenses Profit before taxation Taxation Profit from continuing operations Profit attributable to: Shareholders of Avation PLC Non-controlling interests Note 2023 US$’000s 2022 US$’000s 9 10 18 18 24 25 18,29 19,20 11 33 12 13 15 16 91,861 7,389 99,250 (38,566) 2,792 (1,000) 20,540 7,520 3,287 (11,389) (659) (8,760) (2,382) 112,232 4,152 116,384 (39,304) - (2,396) 38,320 - (6,158) (5,479) 1,980 (9,465) (3,698) 70,633 90,184 - 5,906 (63,539) 13,000 (808) 12,192 (3,545) 3,344 (67,481) 22,502 (5,375) 17,127 12,191 1 17,126 1 12,192 17,127 Earnings per share for profit attributable to shareholders of Avation PLC Basic earnings per share (US cents) Diluted earnings per share (US cents) 17 17 17.43 17.38 24.65 24.65 52 AVATION PLC CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2023 Note 2023 US$’000s 2022 US$’000s Profit from continuing operations 12,192 17,127 Other comprehensive income: Items that may be reclassified subsequently to profit or loss: Net gain on cash flow hedge, net of tax 23 Items that may not be reclassified subsequently to profit or loss: Revaluation (loss)/gain on property, plant and equipment, net of tax 31 Other comprehensive income, net of tax 410 410 (966) (556) 35,387 35,387 16,209 51,596 Total comprehensive income for the year 11,636 68,723 Total comprehensive income attributable to: Shareholders of Avation PLC Non-controlling interests 11,635 1 11,636 68,722 1 68,723 53 AVATION PLC CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS OF 30 JUNE 2023 ASSETS Non-current assets Property, plant and equipment Finance lease receivables Trade and other receivables Derivative financial assets Aircraft purchase rights Lease incentive assets Goodwill Current assets Finance lease receivables Trade and other receivables Derivative financial assets Investment in equity, fair value through profit or loss Lease incentive assets Cash and bank balances Assets held for sale Total assets EQUITY AND LIABILITIES Equity Share capital Share premium Treasury shares Merger reserve Asset revaluation reserve Capital reserve Other reserves Retained earnings Equity attributable to shareholders of Avation PLC Non-controlling interests Total equity Non-current liabilities Loans and borrowings Trade and other payables Derivative financial liabilities Maintenance reserves Deferred tax liabilities Current liabilities Loans and borrowings Trade and other payables Maintenance reserves Income tax payable Liabilities directly associated with assets held for sale Total equity and liabilities Approved by the board and authorised for issue on 26 October 2023 Robert Jeffries Chatfield - Executive Chairman 54 Note 2023 2022 US$’000s US$’000s 18 20 19 23 24 27 21 20 19 23 25 27 28 29 30 30 31 32 33 34 23 35 36 33 34 35 29 845,471 813,908 41,213 14,258 13,442 85,820 4,686 1,902 55,208 19,388 5,920 65,280 310 1,902 1,006,792 961,916 3,932 31,035 54 11,235 1,643 116,905 164,804 8,000 172,804 5,624 13,202 - 3,715 137 119,171 141,849 113,255 255,104 1,179,596 1,217,020 1,182 70,024 - 6,715 50,764 8,876 15,069 88,995 241,625 7 241,632 1,203 67,681 (7,811) 6,715 51,730 8,876 14,174 84,519 227,087 6 227,093 694,575 764,230 20,185 1,632 54,587 26,440 18,274 1,055 75,131 25,437 797,419 884,127 61,401 17,167 61,456 521 140,545 - 140,545 63,900 15,940 10,156 658 90,654 15,146 105,800 1,179,596 1,217,020 AVATION PLC COMPANY STATEMENT OF FINANCIAL POSITION AS OF 30 JUNE 2023 ASSETS Non-current assets Trade and other receivables Derivative financial assets Investment in debt instrument, fair value through profit or loss Investment in subsidiaries Aircraft purchase rights Current assets Trade and other receivables Cash and bank balances Total assets EQUITY AND LIABILITIES Equity Share capital Share premium Treasury shares Merger reserve Other reserves Retained earnings Total equity Non-current liabilities Loans and borrowings Trade and other payables Derivative financial liabilities Deferred tax liabilities Current liabilities Loans and borrowings Trade and other payables Note 2023 US$’000s 2022 US$’000s 19 23 26 22 24 19 28 30 30 32 33 34 23 36 33 34 54,879 3,399 - 3,328 85,820 147,426 161,463 671 162,134 100,238 1,281 5,925 3,328 65,280 176,052 145,491 9,709 155,200 309,560 331,252 1,182 70,024 - 6,715 3,333 74,678 1,203 67,681 (7,811) 6,715 1,089 70,849 155,932 139,726 59,535 55,749 1,632 13,102 130,018 13,207 10,403 23,610 113,086 33,061 1,055 9,680 156,882 16,353 18,291 34,644 Total equity and liabilities 309,560 331,252 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$11.5 million (2022: US$36.5 million). Approved by the board and authorised for issue on 26 October 2023 Robert Jeffries Chatfield Executive Chairman 55 O t h e r C a p i t a l r e s e r v e c o m p r i s e s a c q u i s i t i o n s w i t h n o n - c o n t r o l l i n g i n t e r e s t s t h a t d o n o t r e s u l t i n a c h a n g e o f c o n t r o l . r e s e r v e s c o n s i s t s o f c a p i t a l r e d e m p t i o n r e s e r v e , s h a r e w a r r a n t r e s e r v e , f a i r l v a u e r e s e r v e a n d f o r e g n i c u r r e n c y h e d g e r e s e r v e . S e e N o t e 3 2 . 3 0 J u n e 2 0 1 5 . T h e m e r g e r r e s e r v e r e p r e s e n t s t h e d i f f e r e n c e b e t w e e n t h e f a i r l v a u e a n d t h e 5 6 n o m n a i l l v a u e o f t h e s h a r e s i s s u e d b y t h e C o m p a n y . T h e m e r g e r r e s e r v e a r o s e o n a c q u i s i t i o n o f a d d i t i o n a l s h a r e s o f t h e C o m p a n y ’ s s u b s i d a r y i C a p i t a l L e a s e i A v a t i o n i L m i t e d t h r o u g h t h e a l l o t m e n t o f i o r d n a r y s h a r e s i n t h e y e a r e n d e d B a l a n c e a t 1 J u l y 2 0 2 2 1 , 2 0 3 6 7 , 6 8 1 ( 7 , 8 1 1 ) 6 , 7 1 5 5 1 , 7 3 0 8 , 8 7 6 1 4 , 1 7 4 8 4 , 5 1 9 2 2 7 , 0 8 7 B a l a n c e a t 3 0 J u n e 2 0 2 3 1 , 1 8 2 7 0 , 0 2 4 T o t a l o t h e r s E x p i r y o f s h a r e w a r r a n t s 3 2 - - - - - - - r e c o g n i s e d d i r e c t l y i n e q u i t y ( 2 1 ) 2 , 3 4 3 7 , 8 1 1 T o t a l t r a n s a c t i o n s w i t h o w n e r s S h a r e w a r r a n t e x p e n s e P u r c h a s e o f t r e a s u r y s h a r e s C a n c e l l a t i o n o f t r e a s u r y s h a r e s I s s u e o f s h a r e s P r o f i t f o r t h e y e a r T o t a l c o m p r e h e n s i v e i n c o m e O t h e r c o m p r e h e n s i v e i n c o m e 3 2 3 0 3 0 3 0 ( 3 9 ) - 1 8 - - - - 2 , 3 4 3 - - - - - - 7 , 9 0 5 ( 9 4 ) - - - - - 6 , 7 1 5 5 0 , 7 6 4 8 , 8 7 6 1 5 , 0 6 9 8 8 , 9 9 5 2 4 1 , 6 2 5 7 2 4 1 , 6 3 2 - - - - - - - - - - - - - - - - - ( 9 6 6 ) ( 9 6 6 ) - - - - - - - - - - - ( 1 9 0 ) ( 1 9 0 ) 1 9 0 1 9 0 - - 6 7 5 ( 7 , 9 0 5 ) 2 , 9 0 3 1 , 1 4 2 3 9 - ( 5 0 6 ) 4 1 0 4 1 0 - 1 2 , 1 9 1 - - ( 7 , 9 0 5 ) 1 , 8 5 5 1 1 , 6 3 5 ( 9 4 ) - 1 2 , 1 9 1 1 2 , 1 9 1 - ( 5 5 6 ) - 1 , 1 4 2 - - - - - - - 1 - 1 6 2 , 9 0 3 1 , 1 4 2 ( 9 4 ) - 1 1 , 6 3 6 1 , 8 5 5 ( 5 5 6 ) 2 2 7 , 0 9 3 1 2 , 1 9 2 - - A V A T I O N P L C F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 2 3 C O N S O L I D A T E D S T A T E M E N T O F C H A N G E S I N E Q U I T Y A t t r i b u t a b l e l t o s h a r e h o d e r s o f A v a t i o n P L C N o t e c a p i t a l S h a r e p r e m u m i S h a r e s r e s e r v e r e v a l u a t i o n r e s e r v e r e s e r v e s e a r n n g s i c o n t r o l l i n g e q u i t y S h a r e T r e a s u r y M e r g e r A s s e t C a p i t a l O t h e r R e t a i n e d T o t a l N o n - T o t a l ’ U S $ 0 0 0 s ’ U S $ 0 0 0 s ’ U S $ 0 0 0 s ’ U S $ 0 0 0 s ’ U S $ 0 0 0 s ’ U S $ 0 0 0 s ’ U S $ 0 0 0 s ’ U S $ 0 0 0 s ’ U S $ 0 0 0 s ’ U S $ 0 0 0 s ’ U S $ 0 0 0 s r e s e r v e i n t e r e s t B a l a n c e a t 3 0 J u n e 2 0 2 2 1 , 2 0 3 6 7 , 6 8 1 ( 7 , 8 1 1 ) 6 , 7 1 5 5 1 , 7 3 0 8 , 8 7 6 1 4 , 1 7 4 8 4 , 5 1 9 2 2 7 , 0 8 7 5 7 i i D v d e n d s p a d i t o n o n - P r o f i t f o r t h e y e a r T o t a l c o m p r e h e n s i v e i n c o m e O t h e r c o m p r e h e n s i v e i n c o m e T o t a l o t h e r s r e c o g n i s e d d i r e c t l y i n e q u i t y T o t a l t r a n s a c t i o n s w i t h o w n e r s E x p i r y o f s h a r e w a r r a n t s 3 2 u p o n s a e l o f a i r c r a f t l R e e a s e o f r e v a u a t i l o n r e s e r v e 3 1 c o n t r o l l i n g i n t e r e s t S h a r e w a r r a n t e x p e n s e 3 2 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ( 2 , 0 8 1 ) ( 2 , 0 8 1 ) - 1 6 , 2 0 9 1 6 , 2 0 9 - - - - - - - - - - - - - ( 1 , 2 5 4 ) ( 1 , 2 5 4 ) - 1 , 4 2 3 1 , 4 2 3 - 3 , 3 3 5 1 , 2 5 4 2 , 0 8 1 - - - 3 5 , 3 8 7 3 5 , 3 8 7 1 7 , 1 2 6 - - 1 7 , 1 2 6 - - - 6 - - - 2 2 7 , 0 9 3 - - - 1 , 4 2 3 ( 6 3 ) 1 , 3 6 0 1 , 4 2 3 - 6 8 , 7 2 2 5 1 , 5 9 6 1 7 , 1 2 6 ( 6 3 ) - 1 , 4 2 3 ( 6 3 ) 1 - 1 6 8 , 7 2 3 5 1 , 5 9 6 1 7 , 1 2 7 A V A T I O N P L C F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 2 2 C O N S O L I D A T E D S T A T E M E N T O F C H A N G E S I N E Q U I T Y B a l a n c e a t 1 J u l y 2 0 2 1 1 , 2 0 3 6 7 , 6 8 1 ( 7 , 8 1 1 ) 6 , 7 1 5 3 7 , 6 0 2 8 , 8 7 6 ( 2 1 , 3 8 2 ) 6 4 , 0 5 8 1 5 6 , 9 4 2 6 8 1 5 7 , 0 1 0 A t t r i b u t a b l e l t o s h a r e h o d e r s o f A v a t i o n P L C N o t e c a p i t a l S h a r e p r e m u m i S h a r e s r e s e r v e r e v a l u a t i o n r e s e r v e r e s e r v e s e a r n n g s i c o n t r o l l i n g e q u i t y S h a r e T r e a s u r y M e r g e r A s s e t C a p i t a l O t h e r R e t a i n e d T o t a l N o n - T o t a l ’ U S $ 0 0 0 s ’ U S $ 0 0 0 s ’ U S $ 0 0 0 s ’ U S $ 0 0 0 s ’ U S $ 0 0 0 s ’ U S $ 0 0 0 s ’ U S $ 0 0 0 s ’ U S $ 0 0 0 s ’ U S $ 0 0 0 s ’ U S $ 0 0 0 s ’ U S $ 0 0 0 s r e s e r v e i n t e r e s t O t h e r r e s e r v e s c o n s i s t s o f c a p i t a l r e d e m p t i o n r e s e r v e , s h a r e w a r r a n t r e s e r v e a n d f a i r l v a u e r e s e r v e . S e e n o t e 3 2 . 5 8 I s s u e o f s h a r e s S h a r e w a r r a n t s e x p e n s e P u r c h a s e o f t r e a s u r y s h a r e s C a n c e l l a t i o n o f t r e a s u r y s h a r e s P r o f i t f o r t h e y e a r B a l a n c e a t 1 J u l y 2 0 2 2 T o t a l c o m p r e h e n s i v e i n c o m e O t h e r c o m p r e h e n s i v e i n c o m e T o t a l o t h e r s E x p i r y o f s h a r e w a r r a n t s B a l a n c e a t 3 0 J u n e 2 0 2 3 d i r e c t l y i n e q u i t y T o t a l t r a n s a c t i o n s w i t h o w n e r s , r e c o g n i s e d 3 2 3 2 3 0 3 0 3 0 - - ( 2 1 ) ( 3 9 ) - 1 8 - - - - - - - - - 2 , 3 4 3 7 , 8 1 1 2 , 3 4 3 - - - - - - 7 , 9 0 5 ( 9 4 ) - - - - - 1 , 2 0 3 6 7 , 6 8 1 ( 7 , 8 1 1 ) 6 , 7 1 5 1 , 1 8 2 6 7 , 8 4 1 6 , 7 1 5 3 , 3 3 3 7 6 , 8 6 1 1 5 5 , 9 3 2 - - - - - - - - - - ( 1 9 0 ) ( 1 9 0 ) 1 9 0 1 9 0 - - 6 7 5 ( 5 , 7 2 2 ) 2 , 9 0 3 1 , 1 4 2 3 9 - ( 5 0 6 ) 1 , 7 5 9 1 , 7 5 9 - 1 , 0 8 9 ( 7 , 9 0 5 ) - - - 1 1 , 5 4 4 - 1 1 , 5 4 4 7 0 , 8 4 9 1 , 1 4 2 ( 9 4 ) - 1 , 8 5 5 1 3 , 3 0 3 1 1 , 5 4 4 1 , 7 5 9 1 3 9 , 7 2 6 ’ U S $ 0 0 0 s T o t a l A V A T I O N P L C F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 2 3 C O M P A N Y S T A T E M E N T O F C H A N G E S I N E Q U I T Y N o t e ’ U S $ 0 0 0 s c a p i t a l S h a r e ’ U S $ 0 0 0 s P r e m u m i S h a r e ’ U S $ 0 0 0 s s h a r e s T r e a s u r y ’ U S $ 0 0 0 s r e s e r v e M e r g e r ’ U S $ 0 0 0 s r e s e r v e s O t h e r ’ U S $ 0 0 0 s e a r n n g s i R e t a i n e d 5 9 A V A T I O N P L C F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 2 2 C O M P A N Y S T A T E M E N T O F C H A N G E S I N E Q U I T Y P r o f i t f o r t h e y e a r B a l a n c e a t 1 J u l y 2 0 2 1 T o t a l c o m p r e h e n s i v e i n c o m e O t h e r c o m p r e h e n s i v e i n c o m e T o t a l o t h e r s E x p i r y o f s h a r e w a r r a n t s B a l a n c e a t 3 0 J u n e 2 0 2 2 d i r e c t l y i n e q u i t y S h a r e w a r r a n t s e x p e n s e T o t a l t r a n s a c t i o n s w i t h o w n e r s , r e c o g n i s e d 3 2 3 2 1 , 2 0 3 6 7 , 6 8 1 ( 7 , 8 1 1 ) 6 , 7 1 5 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1 , 0 8 9 ( 1 , 2 5 4 ) ( 1 , 2 5 4 ) 1 , 4 2 3 1 , 4 2 3 4 , 9 7 0 4 , 9 7 0 - 1 , 2 0 3 6 7 , 6 8 1 ( 7 , 8 1 1 ) 6 , 7 1 5 ( 4 , 0 5 0 ) 7 0 , 8 4 9 1 3 9 , 7 2 6 1 , 2 5 4 1 , 2 5 4 - - 3 6 , 5 3 4 - 3 6 , 5 3 4 3 3 , 0 6 1 1 , 4 2 3 1 , 4 2 3 4 1 , 5 0 4 4 , 9 7 0 3 6 , 5 3 4 9 6 , 7 9 9 - - N o t e ’ U S $ 0 0 0 s c a p i t a l S h a r e ’ U S $ 0 0 0 s P r e m u m i S h a r e ’ U S $ 0 0 0 s s h a r e s T r e a s u r y ’ U S $ 0 0 0 s r e s e r v e M e r g e r ’ U S $ 0 0 0 s r e s e r v e s O t h e r ’ U S $ 0 0 0 s e a r n n g s i R e t a i n e d ’ U S $ 0 0 0 s T o t a l AVATION PLC CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2023 Cash flows from operating activities: Profit before income tax Adjustments for: Amortisation of lease incentive asset Depreciation expense Depreciation of right-of-use assets Provision for/(reversal of) expected credit losses Finance income Finance expense Gain on derecognition of finance lease Loss on debt modification Loss on disposal of aircraft and aircraft engine Interest income from finance leases (Reversal of)/impairment loss on aircraft Share warrants expense Foreign currency exchange gain Unrealised gain on aircraft purchase rights Unrealised gain on equity investments 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: Investment in fixed term deposits Purchase of property, plant and equipment Proceeds from disposal of aircraft and aircraft engine Net cash from investing activities Cash flows from financing activities: Net proceeds from issuance of ordinary shares Purchase of treasury shares Dividend paid to non-controlling interest of a subsidiary (Increase)/decrease of restricted cash balances Proceeds from loans and borrowings, net of transactions costs Repayment of loans and borrowings Net cash used in 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 60 Note 2023 US$’000s 2022 US$’000s 13,000 22,502 9 18 19,20 12 13 33 9 18,29 14 24 25 18 33 33 28 28 1,368 38,566 233 659 (5,906) 63,539 (2,792) - 1,000 (2,230) (3,287) 1,142 (3,107) (20,540) (7,520) 74,125 (3,296) 2,042 15,503 88,374 4,713 (44,091) (610) 48,386 (1,225) (6) 39,750 38,519 1,855 (94) - (6,960) 42,958 1,383 39,304 218 (1,980) (3,344) 67,481 - 3,545 2,396 (2,918) 6,158 1,423 - (38,320) - 97,848 12,923 1,562 (7,124) 105,209 1,581 (51,700) (610) 54,480 - (17) 65,636 65,619 - (63) 13,500 17,060 (135,115) (140,396) (97,356) (109,899) (10,451) 35,267 24,816 10,200 25,067 35,267 AVATION PLC COMPANY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2023 Cash flows from operating activities: Profit before taxation Adjustments for: Dividend income Depreciation expense Depreciation of right-of-use assets Expected credit losses Fair value (gain)/loss on investment in debt instrument Finance income Finance expense Gain on receivables modification Loss on debt modification Loss on disposal of aircraft and aircraft engine 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 generated from/(used in) operations Finance income received Finance expense paid Income tax paid Net cash generated from/(used in) operating activities Cash flows from investing activities: Dividends received Return of capital from a subsidiary Investment in debt instrument, fair value through profit or loss Proceeds from disposal of aircraft and aircraft engine Net cash (used in)/generated from investing activities Cash flows from financing activities: Net proceeds from issuance of ordinary shares Purchase of treasury shares Proceeds from loans and borrowings Repayment of loans and borrowings Net cash used in 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 61 Note 2023 US$’000s 2022 US$’000s 14,691 42,476 18 19 26 24 26 28 28 - - 79 - (858) (2,868) 7,150 - - - 1,142 (20,540) (1,204) 33,199 (6,906) 25,089 6,920 (9,147) (84) 22,778 - - (3,305) - (3,305) 1,855 (94) 22,590 (52,862) (28,511) (9,038) 9,709 671 (8,941) 87 74 354 164 (10,719) 11,224 (3,517) 3,545 452 1,423 (38,320) (1,698) (8,429) 2,420 (7,707) 7,644 (10,961) - (11,024) 8,941 10,819 - 1,275 21,035 - - 41,268 (47,083) (5,815) 4,196 5,513 9,709 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 1 GENERAL Avation PLC is a public limited company incorporated in England and Wales under the Companies Act 2006 (Registration Number 05872328) and its shares are traded on the Standard Segment of the Main Market of the London Stock Exchange. The address of the registered office is given on page 1. As disclosed in the Directors’ Report, the Group’s principal activity is aircraft leasing. Details of the activities of subsidiary companies are set out in Note 22 to these financial statements. 2 STATEMENT OF COMPLIANCE These financial statements have been prepared in accordance with UK-adopted International Accounting Standards (“IFRSs”) in conformity with the requirements of the Companies Act 2006. 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PREPARATION – The financial statements have been prepared in accordance with UK-adopted International Accounting Standards (“IFRSs”) in conformity with the requirements of the Companies Act 2006. (a) 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) unless otherwise indicated. The year-end exchange rate for Pounds Sterling to United States Dollars is 1.27 (2022: 1.22). The preparation of financial statements in conformity with UK-adopted International Accounting Standards (“IFRSs”) 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 by the Company and its subsidiaries, unless otherwise disclosed. As the governmental and societal responses to climate change are still developing, it is not possible to consider all future outcomes when determining the carrying amount of assets and liabilities in the preparation of the financial statements. The Group’s view is that the possible changes arising from climate related risks would not have a material impact on the financial statements. 62 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 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, together the Group as at 30 June 2023. 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: (cid:120) (cid:120) (cid:120) 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 control over an investee, including: The contractual arrangement with the other vote holders of the investee (cid:120) (cid:120) Rights arising from other contractual arrangements The Group’s voting rights and potential voting rights (cid:120) 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 shareholders of Avation PLC 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: (cid:120) Derecognises the assets (including goodwill) and liabilities of the subsidiary (cid:120) Derecognises the carrying amount of any non-controlling interests (cid:120) Derecognises the cumulative translation differences recorded in equity (cid:120) Recognises the fair value of the consideration received (cid:120) Recognises the fair value of any investment retained (cid:120) Recognises any surplus or deficit in profit or loss (cid:120) 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. 63 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 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. 64 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (e) GOING CONCERN These consolidated financial statements have been prepared on a going concern basis. As part of the going concern assessment, management has considered all projected cash inflows and outflows of the Company and its subsidiaries, over the coming year including: (cid:120) Current unrestricted cash on hand balance available, (cid:120) (cid:120) Projected collections of receivable balances and contracted assets sales, Forecasted cash outflows for all contractual debt and lease obligations and selling, general and administrative expenses for the next 12 months, Forecasted cash outflows for capital expenditure for the next 12 months (cid:120) Management has also conducted sensitivity analysis on projected cash flows for changes in base assumptions around rent collection rates and other significant factors. In addition, the Directors have considered the maturity profiles of all loans and borrowings and have evaluated the Group’s compliance with financial and non-financial covenants. 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. (f) FAIR VALUE MEASUREMENT – The Group measures financial instruments, such as derivatives, investment in equity and non-financial assets, such as aircraft and aircraft purchase rights 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: (cid:120) (cid:120) 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. 65 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (f) FAIR VALUE MEASUREMENT (continued) 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: (cid:120) (cid:120) (cid:120) 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. The Group’s management determines the policies and procedures for both recurring fair value measurement, such as aircraft, aircraft purchase rights 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 rights 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. 66 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (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. These aircraft have been reviewed for impairment. Any revaluation increase arising on the revaluation of such aircraft is credited to the asset 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 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 until they are disposed of or retired. 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. 67 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (h) AIRCRAFT PURCHASE RIGHTS – Purchase rights to acquire aircraft which are over and above the Group’s requirement for use in the leasing business will be disposed of. The Group values these excess aircraft purchase rights using the Black Scholes model. 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 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. 68 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (j) 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. Any reversal of an impairment loss of a revalued asset is treated as a revaluation increase. A reversal of an impairment loss on a revalued asset is recognised in other comprehensive income and increases the revaluation surplus for that asset. However, to the extent that an impairment loss on the same revalued asset was previously recognised in profit or loss, a reversal of that impairment is also 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. 69 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 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 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 are issued to the employees. (n) LEASES Group as a lessor The Group leases aircraft to airlines under operating leases. At lease inception or modification date, the Group reviews all necessary criteria to determine proper lease classification. 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. 70 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (n) LEASES (continued) Lease maintenance contribution Some of the Group’s leases contain provisions which may require the Company to pay a portion of the lessee’s costs for heavy maintenance, overhaul, or replacement of certain high-value components. The Group records liabilities for contractual obligations to contribute to the lessee’s cost of major maintenance events expected to occur during the lease. The Group regularly reviews the level of these contractual obligations under current lease contracts and makes adjustments as necessary. Lessor maintenance contributions represents a lease incentive and are recorded as a charge against lease rental income over the life of the associated lease on a straight-line basis. When aircraft are sold the portion of the accrued liability not specifically assigned to the buyer is derecognised from the Consolidated Statement of Financial Position as part of the gain or loss on disposal of the aircraft. Group as a lessee 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. 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. 71 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (n) LEASES (continued) 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. 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 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. 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. 72 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (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 has been established. (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. 73 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (r) TAXATION (continued) 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. (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 Avation PLC. 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. 74 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 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: (cid:120) (cid:120) (cid:120) (cid:120) 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 75 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 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: (cid:120) (cid:120) 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 and Company’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 and Company’s financial assets at fair value through profit or loss are options held for trading, investment in equity, investment in debt instrument 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. 76 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 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. The Group and Company’s financial liabilities at fair value through profit or loss are derivative financial liabilities, including share warrants. (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. The Group and Company’s financial liabilities at amortised cost are trade and other payables, loans and borrowings and maintenance reserves. 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. 77 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 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: (cid:120) 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 (cid:120) 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 credit risk 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. 78 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) For the purpose of recognition of an allowance for ECL, the Group considers a financial asset to be in default: (cid:120) 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. The Group will recognise an allowance for ECL based on the historical observed default rates, current credit rating of the customers, forecasted economic conditions to assess the amount of ECL allowance required . Financial assets are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Group, and a failure to make contractual payments for a period of greater than 90 days past due or where the trade receivables were in excess of the security packages held by the Group. (cid:120) (cid:120) in the case where the financial asset is not secured, when the financial asset is more than 90 days past due. (v) CASH AND BANK BALANCES - Cash and bank balances comprise cash and cash equivalents and restricted cash. (cid:120) 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. (cid:120) 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 profit or loss when the liabilities are derecognised as well as through the amortisation process. 79 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (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). (cid:120) 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 measured at and amortised using the effective interest rate method over the remaining life of the loan and recorded as part of finance expense 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. (z) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING – The Group uses derivative financial instruments such as interest rate swap contracts and cross currency 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. 80 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (z) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING (continued) 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. Cash flow hedges Hedges are classified as cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction and could affect profit or loss. 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. If the hedged future cashflows are no longer expected to occur, amounts previously recognised in hedging reserve are transferred to profit or loss. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in hedging reserve remain in other comprehensive income until the future cash flows occur, if the hedged future cash flows are still expected to occur. (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 there is only one reportable segment. The financial results from this segment are equivalent to the financial statements of the Group as a whole. 81 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 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 Group has considered the impact of climate change on the accounting estimates and judgements. Many effects arising from climate change will be longer term in nature, with an inherent level of uncertainty, and have been assessed as having limited effect on accounting judgements and estimates for the current period. Refer to page 15 on the climate related financial disclosures in the strategic report. 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 if there are any indications of 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 property, plant and equipment at the end of the reporting period is disclosed in Note 18. (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 the 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 property, plant and equipment - aircraft at the end of the reporting period is disclosed in Note 18. 82 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued) (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. (d) Fair value estimation for aircraft purchase rights The Group values aircraft purchase rights using the Black Scholes pricing model. Critical assumptions made in determining the fair value of the aircraft purchase rights include the assumed volatility of market prices. The carrying amount of aircraft purchase rights at the end of the reporting period is disclosed in Note 24. (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 assets and liabilities for temporary differences that are expected to be 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 to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits. 83 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued) (f) Consolidation of special purpose entity (“SPE”) – Avation Airframe Holding Pte. Ltd. Although the ultimate shareholder of the SPE is a trust, the Directors of Avation PLC consider that they have the power to, and in practice, control the day to day activities of the SPE. Furthermore, Avation PLC is entitled to the benefits and is exposed to the risks of the activities of the SPE, which are consistent with the operations of the Group, and are conducted on behalf of the Group according to the Group’s specific business needs. Accordingly the SPE is consolidated as a subsidiary in these financial statements. The Group would cease to control the SPE in the event of a “Relevant Event” as defined in the financing agreement, for example, a delay in payment of interest. Were this to occur consolidation would cease at that point although the Group has no intention, or anticipation, that any such event will occur. 5 NEW 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 2023. The adoption of these standards did not have any material effect on the financial performance or position of the Group and the Company. (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 Effective date (period beginning) Amendment to IAS 8 – Definition of Accounting Estimates 1 January 2023 Amendment to IAS 1 and IFRS Practise statement 2 - Disclosure of accounting policies Amendment to IAS 12 -Deferred tax related to assets and liabilities arising from single transaction 1 January 2023 1 January 2023 Amendments to IFRS 16 - Lease liability in a Sale and Leaseback 1 January 2024 Amendments to IAS 7 and IFRS 7 – Disclosures : Supplier Finance Arrangements Amendments to IAS 1: Classification of Liabilities as Current or Non-current Non-current liabilities with Covenants Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or joint venture 1 January 2024 1 January 2024 Postponed indefinitely 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. 84 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 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 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 maintenance reserves is not disclosed in the table below as the timing and cost of the settlement of maintenance reserves cannot be determined with certainty in advance and hence the fair value of maintenance reserves cannot be accurately measured. Group 2023 2022 Carrying amount US$’000s Fair value US$’000s Carrying amount US$’000s Fair value US$’000s Financial assets: Finance lease receivables – non-current Derivative financial assets Investment in equity, fair value through profit or loss Financial liabilities: Deposits collected – non-current Loans and borrowings other than unsecured notes – non-current Unsecured notes Share warrants 41,213 13,496 38,555 13,496 55,208 5,920 53,979 5,920 11,235 11,235 3,715 3,715 15,907 13,502 13,692 12,893 391,110 303,465 1,632 360,055 300,539 1,632 468,030 296,200 1,055 436,864 275,893 1,055 85 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 6 FAIR VALUE MEASUREMENT (continued) Company 2023 2022 Carrying amount US$’000s Fair value US$’000s Carrying amount US$’000s Fair value US$’000s Financial assets: Derivative financial assets Investment in debt instrument Financial liabilities: Loans and borrowings - non-current Share warrants 3,399 - 3,399 - 1,281 5,925 1,281 5,925 59,535 1,632 56,738 1,632 113,086 1,055 105,161 1,055 The fair values (other than for unsecured notes, investment in debt instrument, fair value through profit and loss) above are estimated by discounting expected future cash flows at market incremental lending rate for similar types of lending, borrowing or leasing arrangements at the end of the reporting period, which is classified under level 2 of the fair value hierarchy. The fair value of the unsecured notes and share warrants are based on level 1 quoted prices (unadjusted) in an active market that the Group can access at the measurement date. The fair value of the derivative financial instruments is determined by reference to marked-to- market values provided by counterparties. The fair value measurement of all derivative financial instruments is classified under level 2 of the fair value hierarchy, for which inputs other than quoted prices that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) are included as inputs for the determination of fair value. Assets measured at fair value classified under level 3: Group Company 2023 2022 US$’000s US$’000s 2023 US$’000s 2022 US$’000s 845,455 85,820 813,885 65,280 - 85,820 - 65,280 Fair value measurement using significant unobservable inputs: Aircraft Aircraft purchase rights Investment in equity, fair value through profit or loss 11,235 3,715 - - Aircraft were revalued at 30 June 2023 and 30 June 2022. Refer to Note 18 for the details on the valuation technique and significant inputs used in the valuation. 86 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 6 FAIR VALUE MEASUREMENT (continued) Information about significant unobservable measurements. inputs used in level 3 fair value The following table provides the information about the fair value measurements using unobservable inputs (level 3): Sensitivity of the input to fair value Jet 5% (2022 : 5%) increase in the discount rates will results in a decrease in fair value by US$7.4 million (2022 : decrease of US$8.6 million) 5% (2022 : 5%) increase in the inflation rate will result in an increase in fair value by US$2.0 million (2022 : increase of US$2.7 million) Turboprops 5% (2022 : 5%) increase in the discount rates will result in a decrease in fair value by US$2.5 million (2022 : decrease of US$2.8 million) 5% (2022 : 5%) increase in the inflation rate will result in an increase in fair value by US$0.7 million (2022 : increase of US$0.8 million) 5% (2022 : 5%) increase in the volatility rates will result in no change to the fair value (2022: increase of US$0.1 million) Description Valuation techniques Unobservable inputs Aircraft Lease- encumbered basis Discount rates Range (weighted average) 2023 5.50% to 7.00% for Jets (6.08%) Range (weighted average) 2022 5.50% to 7.00% for Jets (6.04%) 5.50% to 9.00% for Turboprops (6.32%) 5.50% to 8.00% for Turboprops (6.31%) Aircraft purchase rights Black Scholes model Volatility rates 2.72% 2.91% 87 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 6 FAIR VALUE MEASUREMENT (continued) Information about significant unobservable measurements. (continued) inputs used in level 3 fair value Description Valuation techniques Unobservable inputs Investment in equity, fair value through profit or loss Market approach Discount for lack of marketability Range (weighted average) 2023 6.00% Range (weighted average) 2022 25.00% Sensitivity of the input to fair value 5% (2022 : 5%) increase in the discount for lack of marketability will result in a decrease in fair value by US$0.04 million (2022:US$0.06 million) A reconciliation of liabilities arising from financing activities is as follows: Group Loans and borrowings: Current Non-current Unsecured notes: Non-current Group Loans and borrowings: Current Non-current Unsecured notes: Non-current 1 July 2022 US$’000s Cash flows US$’000s Non-cash/ other US$’000s 30 June 2023 US$’000s 63,900 468,030 (64,863) (17,863) 62,364 (59,057) 61,401 391,110 296,200 828,130 (9,431) (92,157) 16,696 20,003 303,465 755,976 1 July 2021 US$’000s Cash flows * US$’000s Non-cash/ other US$’000s 30 June 2022 US$’000s 442,622 221,765 (97,292) (26,044) (281,430) 272,309 63,900 468,030 283,253 947,640 - (123,336) 12,947 3,826 296,200 828,130 * includes the transaction costs for modification of unsecured notes 88 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 6 FAIR VALUE MEASUREMENT (continued) Company 1 July 2022 Cash flows Non-cash/ other 30 June 2023 US$’000s US$’000s US$’000s US$’000s Loans and borrowings (Note 33): Current Non-current 16,353 113,086 (16,287) (36,404) 13,141 (17,147) 13,207 59,535 Trade and other payables (Note 34): Interest bearing payable due to subsidiaries 34,250 22,419 - 56,669 Company Loans and borrowings (Note 33): Current Non-current Trade and other payables (Note 34): Interest bearing payable due to 163,689 (30,272) (4,006) 129,411 1 July 2021 US$’000s Cash flows US$’000s Non-cash/ other US$’000s 30 June 2022 US$’000s 143,600 - (11,918) - (115,329) 113,086 16,353 113,086 subsidiaries 28,147 6,103 - 34,250 171,747 (5,815) (2,243) 163,689 The ‘other’ column includes the amortisation of transaction costs 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 the 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 events for each aircraft. 89 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 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. See Note 34. 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 2023 US$’000s 2022 US$’000s 2023 US$’000s 2022 US$’000s 15,977 26 16,003 3,663 13 3,676 151 18 169 18 4 22 For trade receivables, the Group has applied the simplified approach and has calculated ECLs based on lifetime expected losses. The Group has established a credit risk matrix based on the Group’s historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. The ECL calculations are based on probability of defaults and loss given default rates of each customer. The Group uses judgements in making these assumptions based on past events, current conditions and forecasts of economic conditions. There are no trade receivables that are neither past due nor impaired (2022: US$0.2 million). 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 receivables. An allowance for expected credit losses of US$10.5 million (2022: US$8.7 million) has been provided in relation to trade receivables past due and impaired of US$24.7 million (2022: US$9.9 million). An allowance for expected credit losses of US$1.4 million (2022: US$2.8 million) has been provided in relation to interest bearing receivables. 90 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 7 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (b) Credit risk (continued) The age analysis of trade receivables past due but not impaired is as follows: Past due less than 3 months Past due 3 to 6 months Past due over 6 months Group 2023 US$’000s 2022 US$’000s 1,163 29 670 1,503 594 237 1,862 2,334 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 third parties which comprise interest bearing customer loans are subject to credit risks similar to trade receivables. Expected credit losses on other receivables are calculated using the same methodology as for trade receivables. Other receivables from subsidiaries are low in default credit risk as these subsidiaries are financially sound and with good payment track records. 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 reduce carrying amounts 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 reversed a loss allowance of US$0.1 million in respect of its finance lease receivables during the year ended 30 June 2023 (2022: recognised a loss allowance of US$1.9 million). (c) Interest rate risk The Group is exposed to interest rate risk through the impact of interest rate changes on floating rate interest bearing liabilities and assets. The Group seeks to reduce its exposure to interest rate risk by fixing interest rates on the majority of its loans and borrowings. As at 30 June 2023, 95.8% (2022: 90.0%) of the Group’s loans and borrowings are at fixed or hedged interest rates. Interest rate risk is not material and therefore no sensitivity analysis presented. Interest rates and repayment terms for financial assets and financial liabilities are disclosed in the respective notes to the financial statements as of 30 June 2023. 91 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 7 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (d) Foreign currency risk Foreign currency risk arises from transactions and cash balances that are not denominated in the Group’s functional currency. The Group’s foreign currency exposures arose mainly from movements in the exchange rate for Singapore Dollars and Euros against the United States Dollar. The Group aims to mitigate foreign currency risk by holding the majority of its cash balances in United States Dollars. From time to time the Group utilises forward foreign currency contracts to hedge its exposure to specific currency risks. The Group’s foreign currency exposure is as follows: Group 2023: Pound sterling Australian dollar Euro Singapore dollar 2022: Pound sterling Australian dollar Euro Singapore dollar Company 2023: Pound sterling Australian dollar Euro Singapore dollar 2022: Pound sterling Australian dollar Euro Singapore dollar Cash and bank balances US$’000s Other financial assets US$’000s Other financial liabilities US$’000s Net currency exposure US$’000s 141 102 7,446 364 20 11 19,699 79 (66) (1,194) (62,138) (604) 95 (1,081) (34,993) (161) 8,053 19,809 (64,002) (36,140) 150 12 6,298 278 20 132 21,657 126 (208) (1,059) (37,581) (570) (38) (915) (9,626) (166) 6,738 21,935 (39,418) (10,745) Cash and bank balances US$’000s Other financial assets US$’000s Other financial liabilities US$’000s Net currency exposure US$’000s 81 - - 171 252 97 - - 47 20 2 - 39 61 20 2 43,210 53 (48) (16) (288) (24) 53 (14) (288) 186 (376) (63) (159) (7) (43,124) (20) (42) (5) 86 80 119 144 43,285 (43,310) 92 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 7 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (d) Foreign currency risk (continued) The table below illustrates the effect on total profit and total equity that would result from a strengthening of foreign currencies against the United States Dollar by 10% (2022: 10%) with all other variables including tax rate being held constant: Foreign currency: Pound sterling Australian dollar Euro Singapore dollar Group Company 2023 US$’000s 2022 US$’000s 2023 US$’000s 2022 US$’000s 10 (108) (3,499) (16) (4) (92) (963) (17) 5 (1) (29) 19 (4) (1) 9 8 A weakening of the respective currencies by 10% against the United States Dollar would have an equal and opposite effect. The Group entered into Euro denominated lease agreements for aircraft and subsequently arranged Euro denominated financing and cross-currency swap contracts in order to hedge exposure to foreign exchange risk associated with Euro denominated lease revenue by offsetting Euro cash inflows and outflows over the lease term. See note 23. (e) Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting financial obligations due to shortage of funds. The Group’s exposure to liquidity risk arises primarily from mismatches of the maturities of financial assets and liabilities. The Group monitors and maintains a level of cash and cash equivalents that management deems adequate to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. Short-term funding is obtained from loan facilities. 93 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 7 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (e) Liquidity risk (continued) Analysis of financial liabilities by remaining contractual maturities The table below summarises the maturity profile of the Group’s financial liabilities at the end of the reporting period based on contractual undiscounted repayment obligations: Group 2023: Financial liabilities: Trade and other payables Loans and borrowings* Maintenance reserves 2022: Financial liabilities: Trade and other payables Loans and borrowings* Maintenance reserves One year or One to five Over five years Total less US$’000s years US$’000s US$’000s US$’000s 4,115 104,338 61,456 6,639 787,791 54,587 13,555 92,216 - 24,309 984,345 116,043 169,909 849,017 105,771 1,124,697 3,814 107,263 10,156 3,163 862,571 75,131 14,752 136,867 - 21,729 1,106,701 85,287 121,233 940,865 151,619 1,213,717 * The maturity profile on loans and borrowings include maturity analysis of derivative financial liabilities. 94 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 7 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (e) Liquidity risk (continued) Analysis of financial liabilities by remaining contractual maturities The table below summarises the maturity profile of the Company’s financial liabilities at the end of the reporting period based on contractual undiscounted repayment obligations: Company 2023: Financial liabilities: Trade and other payables Loans and borrowings* 2022: Financial liabilities: Trade and other payables Loans and borrowings* One year or less US$’000s One to five years US$’000s Over five years US$’000s Total US$’000s 14,804 17,168 65,887 65,592 31,972 131,479 20,786 21,340 41,677 124,472 42,126 166,149 - - - - - - 80,691 82,760 163,451 62,463 145,812 208,275 * The maturity profile on loans and borrowings include maturity analysis of derivative financial liabilities. 95 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 7 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (f) Capital risk For the purpose of the Group’s capital management, capital includes debt and equity items such as issued capital, share premium and all other equity reserves attributable to the equity holders of the parent. The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern and to maintain a suitable capital structure so as to fund growth and maximise shareholder value. In order to maintain or achieve an optimal capital structure, the Group may adjust the amount of dividend payments, return capital to shareholders, issue new shares, buy back issued shares, incur new borrowings or sell assets to reduce borrowings. Management monitors capital based on a gearing ratio. The gearing ratio is calculated as net indebtedness divided by total assets. Net indebtedness is calculated as loans and borrowings less unrestricted cash and bank balances. The Group calculates its gearing ratio on the basis of net indebtedness divided by total assets. Group Company 2023 US$’000s 2022 US$’000s 2023 US$’000s 2022 US$’000s Net indebtedness Total assets 731,160 1,179,596 792,863 1,217,020 72,071 309,560 119,730 331,252 Gearing ratio: 61.2% 65.1% 23.3% 36.1% 96 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 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. Group and Company key management personnel short-term employee benefits includes $0.9 million (2022: $1.2 million) and $0.9 million (2022: $0.4 million) respectively for share warrants expense. Key management remuneration is as follows: Group Company 2023 US$’000s 2022 US$’000s 2023 US$’000s 2022 US$’000s Key management: Short-term employee benefits 3,494 4,172 1,735 1,074 The amount above includes remuneration in respect of the highest paid Director as follows: Group 2023 2022 US$’000s US$’000s Aggregate emoluments 1,151 1,224 The Directors do not receive any pension contribution from the Company. Refer to Directors’ remuneration report for details. 97 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 8 RELATED PARTY TRANSACTIONS (continued) (b) Significant related party transactions: Group Company 2023 2022 2023 2022 US$’000s US$’000s US$’000s US$’000s Entities controlled by key management personnel (including Directors): Lease liability paid Consulting fee expense Maintenance services Interest expense Service fee income (335) (362) (7) (374) 76 (290) (223) (376) - 106 (99) (361) - - - (97) (223) - - - During the year, a director of the company sold his US$0.2 million in aggregate nominal value of Avation Capital S.A. 8.25% senior notes due 2026 issued under the global medium term note programme. (c) Significant transactions between the Company and its subsidiaries: Dividend income Interest income Gain on receivables modification Management fee income Sale of notes Return of capital Interest expense Company 2023 US$’000s 2022 US$’000s - 2,832 - 1,789 10,088 - (3,193) 8,941 8,210 3,517 1,457 - 10,819 (3,060) 98 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 9 REVENUE Lease rental revenue Less: amortisation of lease incentive asset Interest income on finance leases Maintenance reserves revenue End of lease return compensation revenue Group 2023 US$’000s 2022 US$’000s 85,936 (1,368) 84,568 2,230 5,063 - 93,352 (1,383) 91,969 2,918 13,207 4,138 91,861 112,232 Maintenance reserves revenue relates to the recovery of maintenance reserve from airline customers and upon sale of aircraft. See Notes 29 and 35. End of lease return compensation was recognised as set out in the Leases- Group as a lessor accounting policy. Geographical analysis Europe Asia Pacific Group 2023 US$’000s 2022 US$’000s 23,941 67,920 35,341 76,891 91,861 112,232 During the year ended 30 June 2023, five customers individually represented more than 5% of the Group’s total revenue (2022: five) of which four are based in Asia-Pacific (2022: four) and one is based in Europe (2022: one). The largest customer, who is based in Asia-Pacific, accounts for US$25.5 million or 27.7% of the Group’s total revenue (2022: US$25.4 million or 22.6%). 99 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 10 OTHER INCOME Aircraft late delivery compensation Deposit released Fees for late payment Foreign currency exchange gain Recovery of claims from customer Others Group 2023 US$’000s 2022 US$’000s - - 966 3,154 3,137 132 540 200 1,940 1,018 - 454 7,389 4,152 During the year, the claims recovery recognised in other income is the balance of a distribution paid to creditors of Virgin Australia in excess of amounts allocated to trade receivables. During the previous year, the Group recognised US$0.2 million of deposit released due to forfeiture of reservation deposits for aircraft lease as other income. 11 ADMINISTRATIVE EXPENSES Staff costs (note 14) Other administrative expenses 12 FINANCE INCOME Interest income from financial institutions Interest income from non-financial institutions Fair value gain on financial derivatives Finance income from discounting non-current deposits to fair value Gain on repurchases of unsecured note Gain on early full repayment of borrowings Group 2023 US$’000s 2022 US$’000s 5,587 3,173 6,771 2,694 8,760 9,465 Group 2023 US$’000s 2022 US$’000s 1,951 1,178 1 611 508 1,657 - 281 2,492 571 - - 5,906 3,344 A gain on early full repayment of borrowings arose when two loans were refinanced during the year. During the year, the gain on repurchases of unsecured note arose when the Group repurchased its unsecured notes through the market at 75.25 cents and through tender offer at 86.0 cents 100 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 13 FINANCE EXPENSES Interest expense on borrowings Interest expense on borrowings from related parties Interest expense on unsecured notes Amortisation of loan transaction cost Amortisation of IFRS 9 gain on debt modification of the unsecured notes Amortisation of interest expense on non-current deposits Fair value loss on financial derivatives Finance charges on early full repayment of borrowings Others Group 2023 US$’000s 2022 US$’000s 21,170 271 30,976 1,057 8,711 571 577 - 206 24,062 - 29,913 2,226 8,805 539 - 731 1,205 63,539 67,481 Amortisation of IFRS 9 gain on debt modification of unsecured notes of US$8.7 million (2022: US$8.8 million) relates to the gain on debt modification of the unsecured notes in 2022 which was amortised as part of the effective interest rate method. 14 STAFF COSTS Salaries and fees Bonuses Defined contribution plans Benefits Warrants expense Group 2023 US$’000s 2022 US$’000s 4,220 35 117 73 1,142 4,320 814 144 70 1,423 5,587 6,771 The average number of Directors of the Company for the year is 5 (2022: 4). The average number of other employees for the year is 18 (2022: 19) and in the following departments: Group 2023 2022 3 4 5 3 3 3 4 5 4 3 18 19 Administrative Commercial Finance Legal Technical 101 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 15 PROFIT BEFORE TAXATION Profit before taxation for the year is stated after charging/(crediting) the following: Group 2023 US$’000s 2022 US$’000s 38,566 (3,154) 39,304 (1,018) 303 312 615 - - - 281 285 566 - - - Group 2023 US$’000s 2022 US$’000s 158 243 79 (7) - 892 (3) (287) 2,912 (2,655) 7,985 (2,805) (19) 97 (435) 28 808 5,375 Depreciation of property, plant and equipment Foreign currency exchange (gain) Audit fees: Fees payable to the Company’s auditor and their associates for the audit of the Company’s annual accounts Fees payable to the Company’s auditor and their associates for audits of the Company’s subsidiaries’ annual accounts Total audit fees Auditors’ remuneration for non-audit services: - Tax compliance services - All other assurance services Total fees for non-audit services 16 TAXATION From continuing operations Current tax expense: - Singapore - Overseas Under/(over) provision in prior years current tax expense: - Singapore - Overseas Deferred tax expense/(benefit): - Singapore - Overseas (Over)/under provision in prior years deferred tax expense: - Singapore - Overseas Income tax expense 102 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 16 TAXATION (Continued) Income tax differs from the amount of income tax expense determined by applying the Singapore tax rate of 17% to profit before income tax as a result of the following differences: Profit before income tax Tax calculated at 17% (2022: 17%) Effects of: Under/(over) provision in prior years current tax expense - Singapore - Overseas Under/(over) provision in prior years deferred tax expense: - Singapore - Overseas Non-deductible items Income not subject to tax Different tax rates of other countries Deferred tax asset not recognised Utilisation of deferred tax asset not recognised Effect of concessionary tax rate at 8% Others Group 2023 US$’000s 2022 US$’000s 13,000 22,502 2,210 3,825 79 (7) (19) 97 2,137 (2,400) 586 1,433 (2,714) (115) (479) (3) (287) (435) 28 3,818 (2,214) 1,603 1,081 (1,033) (968) (40) Income tax expense 808 5,375 The Group has unutilised tax losses of approximately US$43.9 million (2022: US$15.6 million) and unabsorbed capital allowances of approximately US$89.3 million (2022: US$114.6 million) that are available for offset against future taxable profits, for which no deferred tax asset is recognised due to uncertainty of its recoverability. The use of these unutilised losses and capital allowances is subject to the agreement of tax authorities and compliance with certain provisions of tax legislation of the countries in which the Group operates. 103 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 17 EARNINGS PER SHARE (a) Basic earnings per share (“EPS”) EPS is calculated by dividing total profit attributable to shareholders of Avation PLC by the weighted average number of ordinary shares in issue during the year. Company 2023 US$’000s 2022 US$’000s Net profit attributable to shareholders of Avation PLC 12,191 17,126 Weighted average number of ordinary shares (‘000s) 69,952 69,488 Basic earnings per share (US cents) 17.43 24.65 (b) Diluted earnings per share For the purpose of calculating diluted earnings per share, total profit attributable to shareholders of Avation PLC and the weighted average number of ordinary shares outstanding are adjusted for the effects of all dilutive potential ordinary shares. The Company has one category of dilutive potential ordinary shares, being warrants. For warrants, the weighted average number of shares on issue has been adjusted as if all dilutive share options were exercised. The number of shares that could have been issued upon the exercise of all dilutive share option less the number of shares that could have been issued at fair value (determined as the Company’s average share price for the year) for the same total proceeds is added to the denominator as the number of shares issued for no consideration. Diluted earnings per share attributable to shareholders of Avation PLC is calculated as follows: Company 2023 US$’000s 2022 US$’000s Net profit attributable to shareholders of Avation PLC 12,191 17,126 Weighted average number of ordinary shares (‘000s) Adjustment for warrants (‘000s) 69,952 178 69,488 - Weighted average number of ordinary shares (‘000s) 70,130 69,488 Diluted earnings per share (US cents) 17.38 24.65 The warrants were anti-dilutive for the year ended 30 June 2022. 104 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 18 PROPERTY, PLANT AND EQUIPMENT Group Furniture and equipment US$’000s Aircraft engine US$’000 Jet aircraft US$’000s Turboprop aircraft US$’000s Total US$’000s - - - - - - - - - - - - - - - - - - 771,859 305,923 1,077,873 - - - 6 16,166 16,166 106,124 (28,034) - (9,354) 106,124 (37,388) 1,486 (2,566) (1,080) 851,435 310,169 1,161,701 - - 97 851,435 310,169 1,161,604 851,435 310,169 1,161,701 182,815 28,615 81,082 9,938 263,965 38,566 28,124 (9,784) - (1,354) 28,124 (11,138) 1,013 (4,300) (3,287) 230,783 85,366 316,230 589,044 224,841 813,908 620,652 224,803 845,471 2023: Cost or valuation: At beginning of year Additions Reclassified from held under finance lease Reclassified from asset held for sale Reclassified as asset held for sale Revaluation recognised in equity At end of year Representing: At cost At valuation Accumulated depreciation and impairment: At beginning of year Depreciation expense Reclassified from asset held for sale Reclassified as asset held for sale (Reversal of)/impairment loss At end of year Net book value: At beginning of year At end of year 91 6 - - - - 97 97 - 97 68 13 - - - 81 23 16 105 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 18 PROPERTY, PLANT AND EQUIPMENT (continued) Group 2022: Cost or valuation: At beginning of year Additions Disposal Reclassified as held under finance lease Reclassified as asset held for sale Revaluation recognised in equity At end of year Representing: At cost At valuation Accumulated depreciation and impairment: At beginning of year Depreciation expense Disposal Reclassified as held under finance lease Reclassified as asset held for sale Impairment loss At end of year Net book value: At beginning of year At end of year Furniture and equipment US$’000s Aircraft engine US$’000 Jet aircraft US$’000s Turboprop aircraft US$’000s Total US$’000s 74 17 - - - - 91 91 - 91 56 12 - - - - 68 18 23 1,940 - (1,940) 868,253 - - 390,322 - - 1,260,589 17 (1,940) - - - - - - - - (106,124) 9,730 (53,344) (38,874) 7,819 (53,344) (144,998) 17,549 771,859 305,923 1,077,873 - 771,859 - 305,923 91 1,077,782 771,859 305,923 1,077,873 128 85 (213) 179,219 28,956 - 117,882 10,251 - 297,285 39,304 (213) - - - - - (33,071) (33,071) (28,124) 2,764 (16,374) 2,394 (44,498) 5,158 182,815 81,082 263,965 1,812 689,034 272,440 963,304 - 589,044 224,841 813,908 106 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 18 PROPERTY, PLANT AND EQUIPMENT (continued) Assets pledged as security The Group’s aircraft and aircraft held under asset for sale with carrying values of US$838.5 million (2022: US$879.5 million) are mortgaged to secure the Group’s borrowings (Note 33). Additions and Disposals During the year, the Group sold two turboprop aircraft and one jet aircraft. Two turboprop aircraft sold were classified as held for sale as of 30 June 2022. During the previous year, the Group sold one aircraft engine, three turboprop aircraft and two jet aircraft. A loss of US$1.0 million (2022: US$1.4 million) on the sale of aircraft was recorded included within the loss on disposal of aircraft of aircraft and aircraft engine for the year ended 30 June 2023. During the previous year, three turboprop aircraft were reclassified to assets held under finance leases. A loss on transfer of the aircraft to finance leases of US$1.0 million was recorded and included within the loss on disposal of aircraft and aircraft engine. During the year, the Group transferred in two jet aircraft from assets held for sale and one turboprop aircraft from finance leases to property, plant and equipment. A gain on derecognition of finance lease of US$2.8 million was recorded and included within the gain on derecognition of finance lease. During the year, one turboprop aircraft and 1 jet aircraft were reclassified as held for sale. During the previous year, two turboprop aircraft and two jet aircraft were reclassified as held for sale. Valuation The Group’s aircraft were valued in June 2023 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 7.00% (2022: 5.5% to 7.0%) per annum for jet aircraft and 5.50% to 9.00% (2022: 5.5% to 8.0%) per annum for turboprop aircraft. Different discount rates are considered appropriate for different aircraft based on their respective risk profiles. Significant airline customer failures and uncertainty created by the pandemic followed by rapid recovery in global air travel and improvements in airline credit worthiness have led to impairment losses and its reversals during the years ended 30 June 2022 and 30 June 2023 respectively. During the year, a reversal of impairment losses of US$0.8 million was recognised to adjust the book values of one turboprop aircraft and one jet aircraft to their fair value prior to reclassification as held for sale. 107 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 18 PROPERTY, PLANT AND EQUIPMENT (continued) During the previous year, a reversal of impairment losses of US$2.0 million was recognised to adjust the book values of two turboprop aircraft and two jet aircraft to their fair value prior to reclassification as held for sale. During the year, a downward revaluation of US$1.1 million to equity and a reversal of impairment loss of US$2.0 million were recognised in the statement of profit or loss in relation to aircraft which remain part of the fleet. During the previous year, an upward revaluation of US$17.5 million was recorded in equity and impairment losses of US$7.2 million were recognised in the statement of profit or loss in relation to aircraft which remain part of the fleet. If the aircraft were measured using the cost model, carrying amounts would be as follows: Group 2023 2022 Jets US$’000s Turbo props US$’000s Jets US$’000s Turbo props US$’000s Cost Accumulated depreciation and impairment 801,559 (216,316) 293,795 (83,657) 723,469 (170,115) 286,983 (78,974) Net book value 585,243 210,138 553,354 208,009 Geographical analysis 2023 Capital expenditure Net book value – aircraft 2022 Europe US$’000s Asia Pacific US$’000s Total US$’000s - 241,508 6 603,947 6 845,455 Europe US$’000s Asia Pacific US$’000s Total US$’000s Capital expenditure Net book value – aircraft and aircraft engines - 250,659 17 563,226 17 813,885 108 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 19 TRADE AND OTHER RECEIVABLES Current: Trade receivables Less: Allowance for expected credit losses Accrued revenue Less: Allowance for expected credit losses Other receivables: – subsidiaries – third parties Less: Allowance for expected credit losses Interest receivables: – subsidiaries – third parties Less: Allowance for expected credit losses Deposits Prepaid expenses Non-current: Other receivables: – subsidiaries - third parties Deposits for aircraft Right of use assets Group Company 2023 US$’000s 2022 US$’000s 2023 US$’000s 2022 US$’000s 26,545 12,354 829 628 (10,542) 16,003 (8,678) 3,676 (660) 169 (606) 22 3,375 3,491 (8) 3,367 - 12,012 (1,358) 10,654 - 752 (44) 708 48 255 (374) 3,117 - 6,335 (910) 5,425 - 1,759 (1,373) 386 48 550 - - - - - - 160,749 1,009 142,453 1,440 (758) (815) 161,000 143,078 118 28 (28) 118 25 151 2,228 29 (25) 2,232 25 134 31,035 13,202 161,463 145,491 - 5,487 5,487 8,139 632 - 11,343 11,343 7,749 296 46,530 - 46,530 8,139 210 92,389 - 92,389 7,749 100 14,258 19,388 54,879 100,238 109 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 19 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$71.3 million (2022: US$127.5 million). Current receivables from subsidiaries are unsecured and repayable upon demand. Interest is charged at 4.0% to 6.0% (2022: 4.0% to 6.0%) per annum. Other receivables from third parties include interest bearing receivables of US$16.3 million (2022: US$16.3 million). Interest is charged at 5.0% to 6.0% (2022: 5.0% to 6.0%) per annum. The average credit period generally granted to customers is 30 to 60 days. Rent for leased aircraft is due in advance in accordance with the leases. The movement in allowance for expected losses are set out below: Group Company 2023 US$’000s 2022 US$’000s 2023 US$’000s 2022 US$’000s 11,335 25,911 1,446 1,092 672 (1,920) (3,742) (10,788) 1,819 46 11,952 - (46) - - - - 354 - - - 11,335 1,446 1,446 At beginning of year Provision for/(reversal of) expected credit losses Written off Reclassified from financial lease receivables Reclassified from/(to) assets held for sale At end of year During the year, the Group has written off US$1.9 million of receivables mainly due to the finalisation of the liquidation process of an insolvent customer. During the previous year, the Group has written off US$10.8 million of receivables mainly due to reaching agreements with customers on debt restructuring plans. Trade and other receivables denominated in foreign currencies are as follows: Pound sterling Australian dollar Euro Singapore dollar Group Company 2023 US$’000s 2022 US$’000s 2023 US$’000s 2022 US$’000s 20 11 43 79 20 132 356 126 20 2 - 39 20 2 43,210 53 110 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 20 FINANCE LEASE RECEIVABLES Finance lease receivables do not include any contingent rents or residual value guarantees. Future minimum lease payments receivable under finance lease are as follows: Group Within one year Less: Allowance for expected credit losses One to two years Two to three years Three to four years Four to five years Later than five years 2023 2022 Minimum lease payments US$’000s Present value of payments US$’000s Minimum lease payments US$’000s Present value of payments US$’000s 5,675 3,952 11,729 7,476 (20) (20) (1,852) (1,852) 5,655 30,041 2,430 11,358 - - 3,932 28,491 1,627 11,095 - - 9,877 7,695 31,565 10,615 11,357 - 5,624 5,306 29,044 9,763 11,095 - Total minimum lease payments 49,484 45,145 71,109 60,832 Less: amounts representing interest income Present value of minimum lease (4,339) - (10,277) - payments 45,145 45,145 60,832 60,832 The movement in finance lease receivables are set out below: At beginning of year Additions Principal receipts Reclassified to property, plant and equipment Reclassified to trade receivables Interest receivable Foreign currency translation Reversal of/(provision for) expected credit losses Reclassified provision to trade and other receivables Group 2023 US$’000s 2022 US$’000s 60,832 - (4,310) (12,522) (1,819) 339 793 13 1,819 49,990 19,267 (3,960) - - 327 (3,030) (1,762) - At end of year 45,145 60,832 111 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 20 FINANCE LEASE RECEIVABLES (continued) The movement in allowance for expected losses are set out below: At beginning of year (Reversal of)/provision for expected credit losses Reclassified to trade and other receivables Group 2023 US$’000s 2022 US$’000s 1,852 (13) (1,819) 90 1,762 - 20 1,852 Finance lease receivables denominated in foreign currencies are as follows: Euro Group 2023 US$’000s 2022 US$’000s 19,656 21,301 112 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 21 GOODWILL Cost: At beginning and end of year Allowance for impairment: At beginning and end of year Net carrying amount: At beginning and end of year Impairment test of goodwill Group 2023 US$’000s 2022 US$’000s 2,384 2,384 482 482 1,902 1,902 Goodwill is allocated to the cash generating unit ("CGU") of the Group which is 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 five-year period. Key assumptions used for value-in-use calculations: Average cash flow growth rate Terminal growth rate Discount rate 2023 % 2022 % 2.0 2.0 6.0 2.0 2.0 6.0 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$211.4 million (2022: US$207.2 million). Management believes that no reasonably possible change in any of the above key assumptions would cause the carrying value of the CGU to materially exceed its recoverable amount. 113 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 22 INVESTMENT IN SUBSIDIARIES Unquoted equity shares, at cost At beginning of year Return of capital At end of year Company 2023 US$’000s 2022 US$’000s 3,328 - 14,147 (10,819) 3,328 3,328 During the previous year, the Company’s subsidiary, Capital Lease Aviation Limited, distributed a dividend and returned US$10.8 million to the Company. Details of subsidiaries are as follows: Name of entity Country of incorporation Principal activities Ownership interest 2023 % 2022 % Held directly by the Company: Avation Capital S.A. Capital Lease Aviation 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 Capital MSN 4033 II Limited Luxembourg Financing United Kingdom Aircraft leasing Aircraft leasing Aircraft leasing Aircraft leasing Aircraft leasing Aircraft leasing Aircraft leasing Singapore Ireland Ireland Ireland Ireland Ireland 100.00 99.68 100.00 100.00 100.00 100.00 100.00 100.00 100.00 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 (a) Held by Avation Eastern Fleet Pte. Ltd.: Airframe Leasing (S) Pte. Ltd. Airframe Leasing (S) II Pte. Ltd. (b) 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 Aircraft leasing Aircraft leasing 99.68 99.68 99.68 99.68 Singapore Singapore Aircraft leasing Aircraft leasing 100.00 100.00 100.00 100.00 Singapore Aircraft leasing 100.00 100.00 Singapore Aircraft leasing 100.00 100.00 114 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 22 INVESTMENT IN SUBSIDIARIES (continued) Name of entity Country of incorporation Principal activities Ownership interest 2023 2022 % % 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 Pacific Leasing Pte. Ltd. Avation Pacific Leasing II 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) 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. 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 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 (a) In the process of being struck off (b) During the previous year, Airframe Leasing (S) II Pte. Ltd. issued shares to Avation Eastern Fleet Pte. Ltd. The share issuance resulted in Avation Eastern Fleet Pte. Ltd. becoming the immediate holding company. All companies as at 30 June 2023 are audited by member firms of Ernst & Young except for the following: (a) Audited by Moore, Malta 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 – 15, Level 2 Corporate Suites, Naxxar, Birkirkara, BKR 9048, Malta. Singapore - 65 Kampong Bahru Road, Singapore 169370. United Kingdom - 5 Fleet Place, London EC4M 7RD, United Kingdom. For all non-controlling interests, voting rights not controlled by the group are equivalent to ownership interests. 115 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 23 DERIVATIVE FINANCIAL ASSETS/LIABILITIES AND HEDGING Group Contract/ notional amount Fair value 2023 US$’000s 2022 US$’000s 2023 US$’000s 2022 US$’000s Derivative financial assets -current Interest rate swap – current 3,531 - 54 - Derivative financial assets -non- current Interest rate swap Cross-currency interest rate swap 220,110 4,000 248,384 4,000 224,110 252,384 12,847 595 13,442 5,470 450 5,920 Derivative financial liabilities Warrants - - 1,632 1,055 Company Derivative financial assets – non- current Interest rate swap Derivative financial liabilities Share warrants Contract/ notional amount Fair value 2023 US$’000s 2022 US$’000s 2023 US$’000s 2022 US$’000s 64,250 70,750 3,399 1,281 - - 1,632 1,055 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 determines the economic relationship between the finance lease income, loans and borrowings and the derivative by matching the critical terms of the hedging instrument with the terms of the hedged item. The hedge ratio (the ratio between notional amount of the derivative financial instrument to the amount of the finance lease income and loans and borrowings being hedged) is determined to be 1:1. There were no expected sources of ineffectiveness on the Group’s hedges as the critical terms of the derivative match exactly with the terms of the hedged item. 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 or 1-month SOFR or 3-month EURIBOR 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. 116 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 23 DERIVATIVE FINANCIAL ASSETS/LIABILITIES AND HEDGING (continued) The swap contracts mature between 27 December 2023 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 gain net of tax of US$6.8 million (2022: gain of US$20.5 million) on these derivative financial instruments was recognised in the fair value reserve for the year. 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 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 entered into Euro denominated lease agreements which create exposure to variability in cash flows due movements in the EUR:USD exchange rate. To hedge its exposure to variable cash flows resulting from changes in EUR:USD spot rates, the Group has arranged Euro denominated financing which reduces overall exposure to variable cash flows to the extent that lease receipts and debt service cashflows are matched. The Group is making use of a non-derivative hedging instrument and has designated the cash flows with respect to the loan interest and principal repayment (hedging instrument) against a specific portion of the lease receivable (hedged item). 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: (cid:120) Differences in the pricing dates between the swaps and the borrowings (cid:120) Differences in the timing of the cash flows of the hedged items and the hedging requirements (cid:120) The counterparties’ credit risk differently impacting the fair value movements of the hedging instruments and the hedged items (cid:120) Changes to the forecasted amount of cash flows of hedged items and hedging instruments 117 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 23 DERIVATIVE FINANCIAL ASSETS/LIABILITIES AND HEDGING (continued) During the year 30 June 2023, 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, net of tax US$’000s Amount reclassified from OCI to profit or (loss) US$’000s Line item in the statement of profit or loss 6,649 144 (6,383) Finance expense Finance expense 2,995 (147) 6,281 Other income 410 9,129 During the year 30 June 2022, the effect of the cash flow hedge in the consolidated statement of profit or loss and consolidated statement of other comprehensive income was as follows: Group Interest rate swap Cross currency swap Foreign currency hedge Total hedging gain/(loss) recognised in OCI, net of tax US$’000s Amount reclassified from OCI to profit or (loss) US$’000s Line item in the statement of profit or loss 19,804 691 14,892 (5,371) (159) Finance expense Finance expense 140 Other income 35,387 (5,390) The share warrants consist of 5,857,408 (2022: 5,857,408) share warrants granted to the holder of the unsecured notes to subscribe for ordinary shares of the Company exercisable to 31 October 2026 at a price of 114.5 pence per share (including cashless exercise option). The share warrants were valued based on level 1 quoted prices (unadjusted) in an active market for the year ended 30 June 2023. The share warrants were valued using a binomial option pricing model for the year ended 30 June 2022. Expected volatility is based on the historical share price volatility over the previous twelve months. The share warrants were listed on the London Stock Exchange on 24 June 2022 and are valued based on the quoted prices as of 30 June 2023. 118 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 24 AIRCRAFT PURCHASE RIGHTS Aircraft purchase rights, at fair value: At beginning of year Unrealised gain At end of year Group and Company 2022 2023 US$’000s US$’000s 65,280 20,540 85,820 26,960 38,320 65,280 The Group holds 28 purchase rights to acquire additional ATR 72-600 aircraft from the manufacturer. The purchase rights are available for aircraft to be delivered on or before the end of June 2027. The Group has determined that it would seek to dispose of excess aircraft purchase rights over and above its requirement to acquire additional aircraft for its fleet. The Group accounts for aircraft purchase rights at fair value through profit or loss. Disclosures about the fair value measurement of aircraft purchase rights at fair value are included in Note 6. 25 INVESTMENT IN EQUITY, FAIR VALUE THROUGH PROFIT OR LOSS Non-listed equity, at fair value At beginning of year Additions Unrealised gain At end of year Group 2023 US$’000s 2022 US$’000s 3,715 - 7,520 11,235 - 3,715 - 3,715 During the previous year, the Group received 8,014,602 ordinary shares from an airline customer as part of the airline’s restructuring plan. The Group entered into an agreement to exchange 8,014,602 ordinary shares in Philippine Airlines, Inc. with 124,787,353 ordinary shares in PAL Holdings, Inc. during the year. The exchange of shares is expected to be completed in the first quarter of 2024. 119 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 26 INVESTMENT IN DEBT INSTRUMENT, FAIR VALUE THROUGH PROFIT OR LOSS Listed debt instrument, at fair value At beginning of year Additions Disposal Fair value gain/(loss) At end of year Company 2023 US$’000s 2022 US$’000s 5,925 3,305 (10,088) 858 - 6,089 - - (164) 5,925 As of 30 June 2023, the Company did not hold any unit of its subsidiary, Avation Capital SA’s 8.25% unsecured notes (2022: 7,475,842 units). 27 LEASE INCENTIVE ASSETS Current Non-current At beginning of year Additions Transfer from/(to)asset held for sale Amortisation to profit or loss At end of year Group 2023 2022 US$’000s US$’000s 1,643 4,686 6,329 447 1,042 6,208 (1,368) 6,329 137 310 447 8,038 - (6,208) (1,383) 447 120 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 28 CASH AND BANK BALANCES Group Company 2023 US$’000s 2022 US$’000s 2023 US$’000s 2022 US$’000s Fixed term deposits Other cash and bank balances Total cash bank balances Less : restricted Less : investment in fixed term deposits Cash and cash equivalents 62,306 54,599 116,905 (90,864) (1,225) 24,816 - 119,171 119,171 (83,904) - 35,267 - 671 671 - - - 9,709 9,709 - - 671 9,709 The Group’s restricted cash and bank balances have been pledged as security for certain loan obligations. The rate of interest for cash on interest earning accounts is approximately 0.20% to 5.46% (2022: 0.01% to 0.25%) per annum. Cash and bank balances denominated in foreign currencies are as follows: Pound sterling Australian dollar Euro Singapore dollar Group Company 2023 US$’000s 2022 US$’000s 2023 US$’000s 2022 US$’000s 141 102 7,446 364 150 12 6,298 278 81 - - 171 97 - - 47 121 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 29 ASSETS HELD FOR SALE AND LIABILITIES DIRECTLY ASSOCIATED WITH ASSETS HELD FOR SALE The Group’s aircraft which met the criteria to be classified as assets held for sale and the associated liabilities were as follows: Assets held for sale: Property, plant and equipment - aircraft At beginning of year Additions Impairment loss Disposal Transfer to property, plant and equipment At end of year Other receivables Lease incentive asset Liabilities directly associated with assets held for sale: Deposit collected Lessor maintenance contribution Maintenance reserves Group 2023 US$’000 2022 US$’000s 100,500 26,250 - (40,750) (78,000) 66,300 100,500 (1,000) (65,300) - 8,000 100,500 - - - - - - - 6,547 6,208 113,255 935 8,769 5,442 15,146 During the year, two jet aircraft were transferred to property plant and equipment when the proposed sale of the aircraft was cancelled. During the year, the board of directors decided to sell one turboprop aircraft. The sale of aircraft is expected to be completed within a year from reporting date. The aircraft was measured at fair value less cost to sell at the date of transfer to assets held for sale. During the year, the Group sold two turboprop aircraft and one jet aircraft. During the previous year, an impairment loss of US$1.0 million was recognised to write down the book value of 3 turboprop aircraft classified as held for sale in year ended 30 June 2021 to current market value prior to the sale. During the year, maintenance reserves of US$3.1 million (2022: US$1.8 million) were released to profit or loss as revenue following the sale of the aircraft. Other receivables of US$6.5 million was interest bearing as of 30 June 2022. Interest was charged at 5.5% per annum. 122 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 30 SHARE CAPITAL AND TREASURY SHARES (a) Share capital 2023 2022 No of shares US$’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 Cancellation 71,698,124 1,495,000 (2,310,000) 1,203 18 (39) 71,698,124 - - 1,203 - - At end of the year 70,883,124 1,182 71,698,124 1,203 During the year, the Company issued 1,495,000 ordinary shares of 1 penny each at 101.25 pence following the exercise of warrants by warrant holders raising total gross proceeds of US$1.9 million. The holders of ordinary shares (except for treasury shares) are entitled to receive dividends as and when declared by the Company. All ordinary shares carry one vote per share without restrictions. (b) Treasury shares 2023 2022 No of shares US$’000s No of shares US$’000s At beginning of the year Acquired during the year Cancellation 2,210,000 100,000 (2,310,000) 7,811 2,210,000 7,811 94 (7,905) - - - - At end of the year - - 2,210,000 7,811 During the year, the Company bought 100,000 treasury shares at a market price of 77.2 pence per share and subsequently cancelled 2,310,000 treasury shares. (c) Net asset value per share Net asset value per share (US$)(1) Net asset value per share (GBP) (2) 2023 2022 $3.41 £2.69 $3.27 £2.68 (1) Net asset value per share is total equity divided by the total number of shares in issue excluding treasury shares at period end. (2) Based on GBP:US$ exchange rate as at 30 June 2023 of 1.27 (30 June 2022 : 1.22) 123 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 31 ASSET REVALUATION RESERVE At beginning of year Revaluation (loss)/gain Deferred tax credit/(charge) Release of revaluation reserve upon sale of aircraft At end of year 32 OTHER RESERVES Group 2023 US$’000s 2022 US$’000s 51,730 (1,080) 114 - 37,602 17,549 (1,340) (2,081) 50,764 51,730 Group Company 2023 US$’000s 2022 US$’000s 2023 US$’000s 2022 US$’000s Capital redemption reserve Warrant reserve Fair value reserve Foreign currency hedge reserve 51 2,835 9,734 2,449 12 2,389 2,941 8,832 51 2,835 447 - 12 2,389 (1,312) - 15,069 14,174 3,333 1,089 Capital redemption reserve comprises of the par value of the cancelled treasury shares. Warrant reserve comprises the cumulative value of services received from employees recorded on grant of equity-settled share warrants. The expense for service received is recognised over the vesting period. Fair value reserve represents the portion of the fair value changes (net of tax) on derivative financial instruments designated as hedging instruments in cash flow hedges that is determined to be an effective hedge. Foreign currency hedge reserve represents the unrealised foreign exchange gains and losses arising on Euro denominated loans designated as cash flow hedges. 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. 124 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 32 OTHER RESERVES (continued) Movements in other reserves are as follows: Capital redemption reserve: At beginning the year Cancellation of treasury shares At end of the year Warrant reserve: At beginning the year Employee share warrant scheme: - Value of employee services - Issue of shares - Expired Group Company 2023 2022 2023 2022 US$’000s US$’000s US$’000s US$’000s 12 39 51 12 - 12 12 39 51 12 - 12 2,389 2,220 2,389 2,220 1,142 (506) (190) 1,423 - (1,254) 1,142 (506) (190) 1,423 - (1,254) At end of the year 2,835 2,389 2,835 2,389 Fair value reserve: At beginning the year Effective portion of changes in fair value Net change in fair value reclassified to profit or loss 2,941 9,641 (17,554) 14,965 (1,312) 2,634 (6,282) 3,380 (2,848) 5,530 (875) 1,590 At end of the year 9,734 2,941 447 (1,312) Foreign currency hedge reserve: At beginning the year Effective portion of changes in fair value Net change in fair value reclassified to profit or loss 8,832 (102) (6,060) 15,032 (6,281) (140) At end of the year 2,449 8,832 - - - - - - - - 125 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 33 LOANS AND BORROWINGS Group Company 2023 US$’000s 2022 US$’000s 2023 US$’000s 2022 US$’000s Secured borrowings Unsecured notes (a) 452,511 303,465 531,930 296,200 72,742 129,439 - - Less: current portion of borrowings (61,401) (63,900) (13,207) (16,353) 755,976 828,130 72,742 129,439 694,575 764,230 59,535 113,086 Maturity interest rate per annum Weighted average 2023 2022 2023 % Secured borrowings Unsecured notes (a) 2024-2031 2026 2023-2031 2026 4.52% 8.25% 2022 % 4.0% 8.25% 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. The Group incurred transaction costs and upfront fees of US$0.7 million during the year (2022: US$0.4 million) that are capitalised into loans and borrowings. During the year, the Group increased its secured borrowings by US$43.0 million (2022: US$17.1 million) to fund its business operations. During the year, the Group repaid its secured borrowings and repurchased its unsecured notes amounting to US$135.1 million (2022: US$140.4 million). During the previous year, the Group extended the maturity date of the loans due on August 2022 to September 2026. A loss on debt modification of US$3.5 million was recognised in the statement of profit or loss during the previous year. 126 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 33 LOANS AND BORROWINGS (continued) Secured loans and borrowings denominated in foreign currencies are as follows: Group Company 2023 US$’000s 2022 US$’000s 2023 US$’000s 2022 US$’000s Euro 113,961 136,469 - 42,854 (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 Company repurchased US$4.4 million unsecured notes through the market at a price of 75.25 US cents and US$7.1 million through a tender offer at a price of 86.0 US cents. During the year ended 30 June 2021, the Company reached agreement with the holders of its unsecured notes for a maturity extension and the following are the key terms of the extension: (cid:120) Maturity extension of the notes from 15 May 2021 to 31 October 2026; (cid:120) Cash coupon of 6.5% with, at the Company’s option, an additional 2.5% payment in kind coupon or an additional 1.75% cash coupon; Early bird consent fee of up to 75bps; late consent fee of 25bps (cid:120) (cid:120) Bondholders receive 6,000,000 warrants to subscribe for ordinary shares exercisable to 31 October 2026 at a price of 114.5 pence per share (including cashless exercise option); The notes are callable at any time during their 5.5 year remaining duration, with the call premium decreasing to par during year 5; and (cid:120) (cid:120) A general strengthening of the Notes’ covenants and the granting of additional guarantees and security. The maturity extension of the unsecured note resulted in a gain on debt modification of US$50.3 million during the year ended 30 June 2021. 127 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 34 TRADE AND OTHER PAYABLES Current: Trade payables Other payables: - subsidiaries - third parties Deposits collected Deferred lease income Lease liability Revenue received in advance Accrued expenses Non-current: Other payables: - subsidiaries Deposits collected Deferred lease income Lease liability Accrued expenses Group Company 2023 US$’000s 2022 US$’000s 2023 US$’000s 2022 US$’000s 734 - 137 864 621 280 6,310 8,221 2,218 444 191 - 276 1,120 607 284 4,584 6,851 9,054 91 316 - 93 - 405 17,354 251 120 - 94 - 281 17,167 15,940 10,403 18,291 - 15,907 3,179 399 700 - 13,692 3,776 106 700 54,919 - - 130 700 32,329 - - 32 700 20,185 18,274 55,749 33,061 Other payables due to subsidiaries includes interest bearing payables of US$56.7 million (2022: US$34.3 million) which are unsecured, with fixed repayment terms, and bear interest at 5.8% to 8.2% (2022: 5.8% to 8.2%) per annum. Amounts due to subsidiaries without fixed repayment terms are payable on demand. The average credit period taken to settle non-related party trade payables is approximately 30 to 60 days. Deposits collected are security deposits collected from customers in respect of aircraft lease commitments, and have been discounted to present value at a current pre-tax rate that reflect the risks specific to these deposits. Deposits will be refunded at the end of the respective lease term. Trade and other payables denominated in foreign currencies are as follows: Pound sterling Australian dollar Euro Singapore dollar Group Company 2023 US$’000s 2022 US$’000s 2023 US$’000s 2022 US$’000s 66 1,194 3,725 604 208 1,059 3,621 570 48 16 288 24 159 7 270 20 128 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 35 MAINTENANCE RESERVES Current: Maintenance reserves Non-current: Maintenance reserves Maintenance lease contribution Group 2023 US$’000s 2022 US$’000s 61,456 10,156 44,193 10,394 54,587 72,607 2,524 75,131 Total maintenance reserves 116,043 85,287 At beginning of year Contributions Utilisations Released to profit or loss Transfer from liabilities directly associated with assets held for sale Transfer to liabilities directly associated with assets held for sale Group 2023 US$’000s 2022 US$’000s 85,287 29,152 (7,544) (1,943) 11,091 - 101,481 13,109 (3,730) (11,362) - (14,211) At end of the year 116,043 85,287 During the year, maintenance reserves of US$1.9 million (2022: US$11.4 million) were released to profit or loss as revenue following recovery from airline customers. Maintenance lease contribution represents the contractual obligations of the Group to contribute to the lessee’s costs for aircraft maintenance. The Group also holds letters of credit for US$12.0 million (2022: US$13.7 million) as security for lessees’ obligations under operating leases for the maintenance of aircraft. 129 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 36 DEFERRED TAX LIABILITIES Recognised deferred tax liabilities are attributable to the following: Group Company 2023 US$’000s 2022 US$’000s 2023 US$’000s 2022 US$’000s Property, plant and equipment Aircraft purchase rights Gain on debt modification Cash flow hedge 5,986 13,010 6,597 847 5,926 9,948 9,498 65 - 13,010 - 92 - 9,948 - (268) 26,440 25,437 13,102 9,680 Movements in temporary differences are as follows: Group 2023 At beginning of the year Recognised in profit or loss Recognised in equity Property, plant and equipment US$’000s Aircraft purchase rights US$’000s Gain on debt modification US$’000s Cash flow hedge US$’000s Total US$’000s 5,926 174 (114) 9,948 3,062 - 9,498 (2,901) - 65 - 782 25,437 335 668 At end of the year 5,986 13,010 6,597 847 26,440 2022 At beginning of the year Recognised in profit or loss Recognised in equity 2,750 1,836 1,340 4,006 5,942 - 12,503 (3,005) - (2,121) - 2,186 17,138 4,773 3,526 At end of the year 5,926 9,948 9,498 65 25,437 Company 2023 At beginning of the year - Recognised in profit or loss - Recognised in equity Aircraft purchase rights US$’000s Cash flow hedge US$’000s Total US$’000s 9,948 3,062 - (268) - 360 9,680 3,062 360 At end of the year 13,010 92 13,102 2022 At beginning of the year - Recognised in profit or loss - Recognised in equity 4,006 5,942 - (1,286) - 1,018 2,720 5,942 1,018 At end of the year 9,948 (268) 9,680 130 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 37 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; (cid:120) (cid:120) (cid:120) Reliable and high quality financial reporting; (cid:120) Growth in asset value and profits; and (cid:120) Growth in dividends. Movement in warrants during the year The following table illustrates the number (No.) and weighted average exercise prices in GBP pence (WAEP) of, and movements in, warrants during the year: 2023 2022 No. WAEP No. WAEP Outstanding at beginning of the year - Granted - Exercised - Expired 5,480,000 3,450,000 (1,495,000) (385,000) 120.8p* 107.0p 101.3p 110.6p 8,086,665 - - (2,606,665) 179.4p - - 177.3p Outstanding at end of the year 7,050,000 118.7p 5,480,000 180.4p Exercisable at end of the year 2,400,003 130.0p 2,411,677 206.4p *The beginning WAEP for the outstanding warrants is re-adjusted due to re-pricing of warrants on 14 October 2022 for warrants granted on 21 September 2019 and 21 November 2019 from exercise price of 296 pence and 274.5 pence respectively to 101.25 pence. The weighted average fair value of warrants granted during the year was 33.5 pence (2022: Nil pence). The charge recognised in profit or loss in respect of share based payments is US$1.1 million (2022: US$1.4 million). During the year, 1,495,000 warrants were exercised (2022: Nil). Warrants outstanding at the end of the year have the following expiry date and exercise price: Warrant series granted on 20 September 2019 21 November 2019 23 December 2020 29 September 2022 2 March 2023 Exercise price (re-priced) Number of warrants 2022 2023 296.0p (101.25p) 274.5p (101.25) 130.0p 102.0p 126.0p - - 3,600,000 2,735,000 715,000 1,053,000 702,000 3,725,000 - - Expiry date (extended expiry date) 21 Oct 2022 (21 Jan 2023) 22 Dec 2022 (22 Mar 2023) 23 Jan 2024 29 Nov 2025 2 May 2026 131 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 37 SHARE BASED PAYMENTS (continued) Warrants granted 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 The exercise price for the warrants granted on 20 September 2019 was re-priced on 14 October 2022 from 296.0 pence to 101.25 pence. The warrant expiry date extended to 21 January 2023. Warrants granted 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 exercise price for the warrants granted on 21 November 2019 was re-priced on 14 October 2022 from 274.5 pence to 101.25 pence. The warrant expiry date extended to 22 March 2023. Warrants granted on 23 December 2020 have a 3-year vesting schedule with details as follows: Vesting period Proportion of total share options that are exercisable Before 23 December 2021 On 23 December 2021 and before 23 December 2022 Up to 33 per cent of the grant On 23 December 2022 and before 23 December 2023 Up to 33 per cent of the grant or up to 66 per 0 per cent On 23 December 2023 to 23 January 2024 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 132 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 37 SHARE-BASED PAYMENTS (continued) Warrants granted on 29 September 2022 have a 3-year vesting schedule with details as follows: Vesting period Proportion of total share options that are exercisable Before 29 September 2023 On 29 September 2023 and before 29 September 2024 Up to 33 per cent of the grant On 29 September 2024 and before 29 September 2025 Up to 33 per cent of the grant or up to 66 per 0 per cent On 29 September 2025 to 29 November 2025 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 on 2 March 2023 have a 3-year vesting schedule with details as follows: Vesting period Before 2 March 2024 On 2 March 2024 and before 2 March 2025 On 2 March 2025 and before 2 March 2026 On 2 March 2026 to 2 May 2026 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 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. 133 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 37 SHARE-BASED PAYMENTS (continued) Warrant series granted on 2 March 2023 Warrant series granted on 29 September 2022 Warrant series granted on 23 December 2020 Inputs into the model: Grant date share price Exercise price Expected volatility Warrant life Dividend yield Risk free interest rate 126.0 pence 126.0 pence 45.11% 3 years 0.00% 3.70% to 3.73% 102.0 pence 102.0 pence 42.96% 3 years 0.00% 4.36% to 4.44% 132.5 pence 130.0 pence 77% 3 years 0.90% -0.08% to -0.06% Inputs into the model: Grant date share price Re-priced date share price Exercise price Expected volatility Warrant life Dividend yield Risk free interest rate Warrant series Warrant series granted on 21 November 2019 (Repriced on 14 October 2022) granted on 20 September 2019 (Repriced on 14 October 2022) 274.5 pence 97.5 pence 101.25 pence 44.27% 0.43 years 0.00% 2.83% to 3.02% 296.0 pence 97.5 pence 101.25 pence 44.27% 0.26 years 0.00% 2.48% 38 CAPITAL COMMITMENTS Capital expenditure contracted for at the reporting date but not recognised in the financial statements is as follows: Group and Company 2022 2023 US$’000s US$’000s Property, plant and equipment 32,761 31,230 Capital commitments represent amounts due under contracts entered into by the Group to purchase aircraft. The company has paid deposits towards the cost of these aircraft which are included in trade and other receivables. As at the year end, the Group has commitments to purchase two ATR 72-600 aircraft from the manufacturer with expected delivery dates in 2024. 134 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 39 OPERATING LEASE COMMITMENTS The Group leases out aircraft under operating leases. The future minimum undiscounted lease payments under non-cancellable leases are as follows: Within one year One to two years Two to three years Three to four years Four to five years Later than five years Group 2023 US$’000s 2022 US$’000s 92,461 88,630 79,315 65,948 52,466 63,977 86,929 88,669 86,070 77,313 64,371 112,713 442,797 516,065 The Group holds cash deposits of US$20.1 million (2022: US$19.9 million) and letters of credit for US$3.5 million (2022: US$3.0 million) as security for lessees’ obligations under operating leases. 40 CONTINGENT LIABILITIES Company 2023 2022 US$’000s US$’000s Guarantees 800,448 881,256 The maximum estimated amount that the Company could become liable for under guarantees for loans and borrowings is as shown above. 135 AVATION PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 41 ULTIMATE HOLDING COMPANY No party controls the Company. 42 SUBSEQUENT EVENTS On 5 October 2023 the Company terminated a lease agreement for a 12-year old ATR 72-500 aircraft by agreement with the lessee. On 9 October 2023 the Company entered into an agreement to sell the aircraft referred to above. 43 APPROVAL OF FINANCIAL STATEMENTS The financial statements of the Company and the consolidated financial statements of the Group for the year ended 30 June 2023 were authorised for issue by the Board of Directors on 26 October 2023. 136 AnnuAl RepoRt AnnuAl RepoRt 2023 65 Kampong Bahru Road Singapore 169370 www.avation.net Reuters/BBG Index: lSe AVAp.ln AVAp FtSe Sector: Industrial transportation FtSe Sub Sector: transportation Services 2023
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