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Avation PLC RNS Release

Half-year Report


RNS Number : 8529F
Avation PLC
24 February 2018
 

AVATION PLC

("Avation" or "the Company")

 

Financial Results and Interim Management Statement
for the SIX MONTHS ended 31 December 2017

 

Avation PLC (LSE: AVAP), the commercial passenger aircraft leasing company, announces reviewed financial results for the six months ending 31 December 2017.

Key Financial Metrics

·   Fleet assets increased by 35% to $1.008 billion since 30 June 2017;

·   Revenue increased by 16% year on year to $52.4 million;

·   Weighted average cost of total debt declined to 4.8%;

·   Total profit after tax decreased by 8% year on year to $6.7 million; and

·   Earnings per share ("EPS") decreased 15% year on year to 10.9 cents.

Operational Highlights

·   Record growth with over $286 million in aircraft acquired in December 2017;

·   First twin-aisle aircraft delivered into the fleet;

·   First Boeing aircraft delivered into the fleet;

·   Airbus A320 transitioned from Air Berlin to easyJet; and

·   Four new customers added taking total airline customers to twelve.

Executive Chairman, Jeff Chatfield, said:

" During the six months ended 31 December 2017 Avation focused on re-deploying net proceeds generated by the sale of six ATR aircraft in June 2017, adding new customers to further diversify our revenue base and concluding our first investments in twin-aisle aircraft.

 

"Avation is pleased to report record growth in the value of its fleet assets.  The Company took delivery of its first twin-aisle aircraft in December, completing the transformation into a diversified full service aircraft leasing platform.  We also welcome four new airline customers .

"Lease revenue and total profit for the financial period were slightly reduced year on year. This was due to starting the period with a reduced fleet following the sale of six ATR 72 aircraft in June 2017. The sale of these aircraft de-risked the portfolio by lowering airline concentration and released equity which facilitated the acquisition of four new aircraft in December 2017.

"Avation ends the financial period with a larger, more diversified fleet and an increased revenue base that will deliver long-term shareholder returns."



Financial Highlights


6 months ended
31 December 2017
US$ 000's

6 months ended
31 December 2016
US$ 000's

Change

 

Revenue

52,385

45,108

16%

Lease revenue

41,707

45,108

(8%)

Operating profit (EBIT)

25,117

27,628

(9%)

Operating profit margin

60%

61%

(1%)

Administrative expense

4,914

3,943

25%

Administrative expense/ Revenue

9%

9%

-

Profit before tax

7,273

8,388

(13%)

Total profit after tax

6,739

7,357

(8%)

EPS

10.9 cents

12.9 cents

(15%)





Operating cash flows

64,264

31,116

107%






As at
31 December 2017
US$ 000's

As at
30 June 2017
US$ 000's


Fleet assets(1)

1,008,459

744,731

35%

Total assets

1,119,970

895,927

25%

Cash and cash equivalents

82,810

87,692

(6%)





Book Value per Share (US$)(2)

$3.32

$3.21

4%

               

1.     Fleet assets equal property, plant and equipment plus assets held for sale

2.     Book Value per Share is the total equity divided by the total number of shares on issue at period end.

Aircraft Fleet

Aircraft Type

31 December 2017

Boeing 777-300ER

1

Airbus A330-300

1

Airbus A321-200

8

Airbus A320-200

3

Fokker 100

5

ATR 72-600

13

ATR 72-500

6

Total

37

As at 31 December 2017 Avation's fleet comprised 37 aircraft including five aircraft on finance lease. The weighted average age of the fleet (excluding finance leases) has reduced to 2.9 years (30 June 2017: 3.3 years) and the weighted average remaining lease term has increased to 7.9 years (30 June 2017: 7.5 years). As at 31 December 2017, all aircraft owned by the Company were fully utilised. Avation has three ATR 72 turboprop aircraft on order for placement during calendar year 2018 and three aircraft in calendar year 2019.

Fleet assets increased 35% to $1,008.5 million (30 June 2017: $744.7 million). Four aircraft were added to the fleet in the period including a Boeing 777-300ER delivered to Philippine Airlines, an Airbus A330-300 on lease to EVA Air and two ATR72-600 aircraft delivered to Mandarin Airlines.

During the period an Airbus A320 on lease to Air Berlin was transitioned to easyJet. This resulted in the release of maintenance reserves of $10.5 million into revenue and a corresponding impairment charge on the aircraft of $8.0 million.

Two older narrowbody aircraft with total book value of $38.4 million were re-classified as assets held for sale. Finance lease receivables totalled $10.3 million (30 June 2017: $45.4 million).

 

Debt summary

31 December 2017
US$000's

30 June 2017
US$000's

Loans and borrowings

862,411

643,605

Cash & cash equivalents

82,810

87,692

Net indebtedness

779,601

555,913

Total loan to value ratio (LTV) (1)

77%

72%

Weighted average cost of secured debt(2)

4.3%

4.5%

Weighted average cost of total debt(3)

4.8%

5.1%

 

1. Total Loan to Value Ratio is the total loans and borrowing divided by the total assets.

2. Weighted Average Cost of Secured Debt is the weighted average of the interest rate for the secured loans and borrowings as at the period end.

3. Weighted Average Cost of Total Debt is the weighted average of the interest rate for the total loans and borrowings as at the period end.

The weighted average cost of total debt decreased to 4.8% as at 31 December 2017 (30 June 2017: 5.1%). The weighted average cost of secured debt decreased to 4.3% at 31 December 2017 (30 June 2017: 4.5%).

At the end of the financial period, Avation's overall loan to value ratio was 77% (30 June 2017: 72%). At 31 December 2017, 95% of total debt was at fixed or hedged interest rates (30 June 2017: 95%).

Avation issued an additional $30.0 million Senior 7.5% Unsecured Guaranteed Notes due 2020 under its Global Medium Term Note programme at a premium to par value in November 2017.

Avation will continue to source competing forms of secured and unsecured debt finance to fund growth with the overriding objective of achieving the lowest cost of finance.

 

Credit Rating

The Company's current credit ratings are as follows:

Rating Agency

Corporate Credit Rating

Unsecured Notes Rating

Standard and Poor's

B+ outlook stable

B

Fitch Ratings

B+ outlook stable

B+

Egan Jones Ratings Company

BB

NR

Japan Credit Ratings Company

BB outlook stable

NR

 

 

Dividend Policy

The Company confirms its aim to maintain a progressive dividend policy.

Recognising that the Company's functional currency is US Dollars (USD) and to reduce exchange rate risk, shareholders are reminded that dividend payments are declared in USD. Shareholders who prefer to receive dividends in British Pounds (GBP) can elect to receive GBP by completing a form that can be downloaded at www.avation.net/dividends.html

 

Market Positioning

Avation's strategy is to target growth and diversification by adding new airline customers, while maintaining strong average aircraft age and lease term metrics. Avation focuses on new and relatively new commercial passenger aircraft on long-term leases. Avation is able to supply regional, narrowbody and twin-aisle aircraft to the airline industry.

The Company's business model involves rigorous investment criteria and has a history of delivering consistent profitability while seeking to mitigate the risks associated with the aircraft leasing sector. Avation will typically sell mid-life and older aircraft and redeploy capital to newer assets. This approach is intended to mitigate technology change risk, operational and financial risk, support sustained growth and deliver long-term shareholder value.

Avation is an active trader of aircraft and from time to time will consider the acquisition or sale of individual or smaller portfolios of aircraft, based on prevailing market opportunities and considerations of risk and revenue concentrations.

 

Outlook and Interim Management Statement

The outlook for the second half of the 2018 financial year is for materially increased lease revenue due to increased fleet size.

Management believes that the risks associated with its portfolio of assets have been reduced through the repositioning of the fleet, growth and diversification that has been achieved during the financial period. Avation has demonstrated that it has the capability to acquire, finance and deliver a number of aircraft in a short period of time when the opportunity presents itself and has a platform which supports future growth.

Management believes that it can attract airline customers, acquire aircraft and obtain the required funding for growth. In addition to operational cash flows, funding is traditionally sourced from capital markets, asset backed bank lending and disposal of selected aircraft. Access to acceptably priced funding is a risk, which is common to all capital-intensive businesses. Specific risks which are inherent to the aircraft leasing industry include, but are not limited to, the creditworthiness of customer airlines, over-production of new aircraft and market saturation, technology change, residual value risks, competition from other lessors and the risk of impairment of aircraft assets.    

Avation's Board of Directors is pleased to deliver satisfactory financial results from its aircraft leasing business through this period of fleet repositioning, diversification and growth.


Results Conference Call

Avation's senior management team will host a conference call on 26 February 2018, at 1pm GMT (UK) / 8am EST (US) / 9pm SGT (Singapore), to discuss the Company's financial results. Participants should dial: United Kingdom 020 3936 2999; United States +1 845 709 8568; Singapore 31 634 602; other locations +44 20 3936 2999 and enter 609760 when prompted. The conference call will also be webcast live through the following link:

http://avation.emincote.com/results/2018firsthalf

To view the webcast investors will be invited to register their name and email address, participants can do this in advance or on the day. A replay of the webcast will be available on the Investor Relations page of the Avation website and a presentation, to support the conference call, will be available on the Avation website prior to the conference call.

 

Forward Looking Statements

This release contains certain "forward looking statements". Forward looking statements may be identified by words such as "expects," "intends," "anticipates," "plans," "believes," "seeks," "estimates," "will," or words of similar meaning and include, but are not limited to, statements regarding the outlook for Avation's future business and financial performance. Forward looking statements are based on management's current expectations and assumptions, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially due to global political, economic, business, competitive, market, regulatory and other factors and risks. Further information on the factors and risks that may affect Avation's business is included in Avation's regulatory announcements from time to time, including its Annual Report, Full Year Financial Results and Half Year Results announcements. Avation expressly disclaims any obligation to update or revise any of these forward looking statements, whether because of future events, new information, a change in its views or expectations, or otherwise.

 

- ENDS-

 

More information on Avation PLC can be found at: www.avation.net

 

Enquiries:

Avation PLC

Jeff Chatfield, Executive Chairman

T: +65 6252 2077

 



AVATION PLC

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER

COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 31 DECEMBER 2017


Note

31 Dec

2017

31 Dec

2016



US$'000s

US$'000s

Continuing operations




Revenue

5

52,385

45,108

Other income

6

240

444



52,625

45,552





Depreciation

13

(14,555)

(15,930)

Gains on disposal of aircraft


-

1,979

Impairment loss on aircraft

13

(8,019)

-

Administrative expenses


(4,914)

(3,943)

Other expenses

7

(20)

(30)

Operating profit


25,117

27,628





Finance income

8

746

488

Finance expenses

9

(18,590)

(19,728)

Profit before taxation


7,273

8,388





Taxation


(534)

(1,031)

Total profit


6,739

7,357





Other comprehensive income:




Items that may be reclassified subsequently to profit or loss:




Currency translation differences arising on consolidation


(2)

(6)

Fair value gain on derivative financial instruments

17

1,874

4,024



1,872

4,018

Items that may not be reclassified subsequently to profit or loss:




Revaluation loss on property, plant and equipment, net of tax


-

(5,924)

Other comprehensive income, net of tax


1,872

(1,906)





Total comprehensive income for the period


8,611

5,451





Profit attributable to:




Equity holders of the Company


6,732

7,363

Non-controlling interests


7

(6)



6,739

7,357

Total comprehensive income attributable to:




Equity holders of the Company


8,604

5,468

Non-controlling interests


7

(17)



8,611

5,451





Basic earnings per share


10.94 cents

12.88 cents

Diluted earnings per share


10.81 cents

12.65 cents

 

 

 

 

 

 

 

 

 

AVATION PLC

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2017


Note

31 Dec

2017

30 June

2017



US$'000s

US$'000s

ASSETS:




Current assets:




Cash and cash equivalents


82,810

87,692

Trade and other receivables


5,647

5,031

Finance lease receivables

11

3,105

36,641

Options held for trading


3,640

3,640

Assets held for sale

12

38,372

-

Total current assets


133,574

133,004

Non-current assets:




Trade and other receivables


4,041

5,190

Finance lease receivables

11

7,152

8,728

Derivative financial instruments

17

3,214

2,372

Property, plant and equipment

13

970,087

744,731

Goodwill

14

1,902

1,902

Total non-current assets


986,396

762,923





Total assets


1,119,970

895,927





LIABILITIES AND EQUITY:




Current liabilities:




Trade and other payables


12,017

14,920

Provision for taxation


3,635

3,515

Loans and borrowings

15

87,527

93,044

Maintenance reserves

16

1,020

451

Liabilities associated with assets held for sale

12

500

-

Total current liabilities


104,699

111,930

Non-current liabilities:




Trade and other payables


12,279

11,480

Loans and borrowings

15

774,884

550,561

Derivative financial instruments

17

844

1,901

Deferred tax liabilities


3,589

3,318

Maintenance reserves

16

16,502

20,813

Total non-current liabilities


808,098

588,073





Equity attributable to shareholders:




Share capital

18

1,075

1,058

Treasury shares

18

-

-

Share premium


52,220

48,365

Merger reserve


6,715

6,715

Asset revaluation reserve


24,492

24,492

Capital reserve


8,876

8,876

Other reserves


2,868

801

Retained earnings


110,859

105,556



207,105

195,863

Non-controlling interest


68

61

Total equity


207,173

195,924





Total liabilities and equity


1,119,970

895,927

 

 









Attributable to shareholders of the parent




Note

Share capital

Treasury shares

Share premium

Merger reserve

Asset revaluation reserve

Capital reserve

Other

reserves

Retained earnings

Total

Non-controlling interest

Total

equity



US$'000s

US$'000s

US$'000s

US$'000s

US$'000s

US$'000s

US$'000s

US$'000s

US$'000s

US$'000s

US$'000s














Balance at 1 July 2017


1,058

-

48,365

6,715

24,492

8,876

801

105,556

195,863

61

195,924

Profit for the period


-

-

-

-

-

-

-

6,732

6,732

7

6,739

Other comprehensive income


-

-

-

-

-

-

1,872

-

1,872

-

1,872

Total comprehensive income


-

-

-

-

-

-

1,872

6,732

8,604

7

8,611














Increase in issued share capital

18

17

-

2,756

-

-

-

(219)

-

2,554

-

2,554

Warrants expired


-

-

-

-

-

-

(18)

18

-

-

-

Warrants expense


-

-

1,099

-

-

-

432

(1,447)

84

-

84

Total transactions with owners, recognised directly in equity


 

17

 

-

 

3,855

 

-

 

-

 

-

 

195

 

(1,429)

 

2,638

 

-

 

2,638














Balance at 31 December 2017


1,075

-

52,220

6,715

24,492

8,876

2,868

110,859

207,105

68

207,173














AVATION PLC

CONDENSED   CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 31 DECEMBER 2017

 

Other reserves consist of capital redemption reserve, warrant reserve, fair value reserve and foreign currency translation reserve.

 



AVATION PLC

CONDENSED   CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 31 DECEMBER 2016








Attributable to shareholders of the parent




Note

Share capital

Treasury shares

Share premium

Merger reserve

Asset revaluation reserve

Capital reserve

Other

reserves

Retained earnings

Total

Non-controlling interest

Total

equity



US$'000s

US$'000s

US$'000s

US$'000s

US$'000s

US$'000s

US$'000s

US$'000s

US$'000s

US$'000s

US$'000s














Balance at 1 July 2016


993

(1)

38,925

6,715

41,142

8,876

(1,814)

78,679

173,515

93

173,608

Profit for the period


-

-

-

-

-

-

-

7,363

7,363

(6)

7,357

Other comprehensive income


-

-

-

-

(5,913)

-

4,018

-

(1,895)

(11)

(1,906)

Total comprehensive income


-

-

-

-

(5,913)

-

4,018

7,363

5,468

(17)

5,451














Dividend paid

22

-

-

-

-

-

-

-

(1,820)

(1,820)

-

(1,820)

Increase in issued share capital

18

38

-

5,864

-

-

-

(43)

-

5,859

-

5,859

Fund raising expenses


-

-

(284)

-

-

-



(284)


(284)

Dividend paid to non-controlling interest of a subsidiary


-

-

-

-

-

-

-

-

-

(16)

(16)

Transfer of asset revaluation surplus


-

-

-

-

(4,053)

-

-

4,053

 

-

-

-

Warrants expense


-

-

-

-

-

-

100

-

100

-

100

Total transactions with owners, recognised directly in equity


 

38

 

-

 

5,580

 

-

 

(4,053)

 

-

 

57

 

2,233

 

3,855

 

(16)

 

3,839














Balance at 31 December 2016


1,031

(1)

44,505

6,715

31,176

8,876

2,261

88,275

182,838

60

182,898














 

 

 

 


AVATION PLC

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 31 DECEMBER 2017


Note

31 Dec

2017

31 Dec

2016



US$'000s

US$'000s

Cash flows from operating activities:




Profit before taxation


7,273

8,388

Adjustments for:




    Depreciation expense

13

14,555

15,930

    Warrants expense


84

100

    Impairment loss on non-trade receivables

7

-

30

    Impairment loss on aircraft

13

8,019

-

    Amortisation of loan insurance premium

9

539

539

    Amortisation of interest expense on non-current deposits

9

191

217

    Gain on disposal of aircraft


-

(1,979)

    Fair value gain on derivatives

6

(25)

-

    Finance income from discounting non-current deposits to fair value

8

(196)

(227)

    Interest income

8

(550)

(261)

    Maintenance reserves released

5

(10,491)

-

    Interest expense

9

17,734

18,010

    Operating cash flows before working capital changes


37,133

40,747

Movement in working capital:




    Trade and other receivables and finance lease receivables


35,629

1,899

    Trade and other payables


1,838

1,888

    Maintenance reserves


6,749

3,682

    Cash from operations


81,349

48,216

Interest received


566

261

Interest paid


(17,507)

(17,232)

Income tax paid


(143)

(129)

Net cash from operating activities


64,265

31,116





Cash flows from investing activities:




Purchase of property, plant and equipment


(286,302)

(256,786)

Proceeds from disposal of aircraft


-

100,140

Net cash used in investing activities


(286,302)

(156,646)





Cash flows from financing activities:




Net proceeds from issuance of ordinary shares


2,554

5,575

Dividends paid to shareholders

22

(3,664)

(1,820)

Dividend paid to non-controlling interest of a subsidiary


-

(16)

Proceeds from loans and borrowings, net of transactions costs


277,393

216,332

Repayment of loans and borrowings


(59,126)

(94,872)

Net cash from financing activities


217,157

125,199

Effects of exchange rates on cash and cash equivalents


(2)

(5)

Net decrease in cash and cash equivalents


(4,882)

(336)

Cash and cash equivalents at beginning of financial period


87,692

48,267

Cash and cash equivalents at end of financial period


82,810

47,931

 

 

 


AVATION PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 31 DECEMBER 2017

 

This interim condensed consolidated financial statements for Avation PLC for the six months ended 31 December 2017 were authorised for issue in accordance with a resolution of the Directors on 26 February 2018.

 

1          CORPORATE INFORMATION

 

Avation PLC is a public limited company incorporated in England and Wales under the Companies Act 2006 (Registration Number 05872328) and is listed on the London Stock Exchange in the Standard Segment (LSE:AVAP).

 

The Group's principal activity is aircraft leasing. 

 

 

2          BASIS OF PREPARATION AND ACCOUNTING POLICIES

 

This interim condensed consolidated financial statements have been prepared in accordance with the Disclosure and Transparency Rules (DTR) of the Financial Conduct Authority and in accordance with International Accounting Standard (IAS) 34 'Interim Reporting'.

 

The interim condensed consolidated financial statements do not include all the notes of the type normally included within the annual report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financial and investing activities of the consolidated entity as the full financial report.

 

It is recommended that the interim condensed consolidated financial statements be read in conjunction with the annual report for the year ended 30 June 2017 and considered together with any public announcements made by Avation PLC during the six months ended 31 December 2017.

 

The accounting policies and methods of computation are the same as those adopted in the annual report for the year ended 30 June 2017 except for the new category of revenue recognition policy as follows:

 

Maintenance reserve released - The maintenance reserves revenue is recognised in the profit or loss upon the recovery of maintenance reserve from an insolvent airline customer that defaulted on its lease agreements.

 

The preparation of the interim condensed consolidated financial statements require management to make estimates and assumptions that affect the reported income and expenses, assets and liabilities and disclosure of contingencies at the date of the Interim Report, actual results may differ from these estimates.

 

The statutory financial statements of Avation PLC for the year ended 30 June 2017, which carried an unqualified audit report, have been delivered to the Registrar of Companies and did not contain any statements under section 498 of the Companies Act 2006.

 

The interim condensed consolidated financial statements are unaudited and reviewed by the auditors.

 

The interim condensed consolidated financial statements do not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006.

 

 

 



 

3           NEW STANDARDS AND INTERPRETATIONS NOT APPLIED AND STANDARDS IN EFFECT IN 2017

 

(a)     New standards and interpretations not applied

 

The IASB and IFRIC have issued the following standards and interpretations with an effective date after the date of these financial statements.

 

The Group intends to apply these standards and interpretations when they become effective.

 

International Accounting Standards (IAS/IFRS)                     Effective Date

                                                                                                                         (accounting periods

                                                                                                                      commencing after)

 

IFRS 15 Revenue from contracts with customers                        1 January 2018

 

IFRS 9 Financial Instruments                                                       1 January 2018

 

Amendments to IFRS 2 Classification and measurements of share-

Based payment transactions                                                      1 January 2018

 

IFRS 16 Leases                                                                           1 January 2019

 

Amendments to IFRS 10 and IAS 28 Sale or contribution of assets

between an investor and its associates or joint venture            To be determined

 

The Directors do not expect that the adoption of the Standards listed above will have a material impact on the Group in future periods. IFRS 16 does not substantially change the accounting for lessors whilst the Group's operating lease commitments are immaterial. IFRS 9 is not expected to change the accounting treatment for the financial instruments that the group holds. IFRS 15 is not expected to cause any material change to the Group financial statements as currently all of the Group's income is outside the scope of that standard.  . It is anticipated that the other IFRS and IFRIC interpretations are not relevant for the Group's activities.

 

(b)     Standards in effect in 2017

 

The Group has adopted all new standards that have come into effect during the six months.



 

4          FAIR VALUE MEASUREMENT

 

The fair value of a financial instrument is the amount at which the instrument could be exchanged or settled between knowledgeable and willing parties in an arm's length transaction, other than a forced or liquidation sale.

 

            The carrying amounts of cash and cash equivalents, trade and other receivables, finance lease receivables - current, trade and other payables - current and loans and borrowings - current are a reasonable approximation of fair value either due to their short-term nature or because the interest rate charged closely approximates market interest rates or that the financial instruments have been discounted to their fair value at a current pre-tax interest rate.

 


31 Dec 2017

30 Jun 2017


Carrying amount

Fair value

Carrying amount

Fair value


US$'000s

US$'000s

US$'000s

US$'000s






Financial assets:





Finance lease receivables - non-current

7,152

7,124

8,728

8,551






Financial liabilities:





Deposits collected - non-current

10,125

10,429

9,321

9,054

Loans and borrowings other than unsecured 7.5% note- non-current

626,463

645,463

432,672

423,169

Unsecured 7.5% note

148,421

150,567

117,889

121,328











The fair values (other than the unsecured 7.5% note) above are estimated by discounting expected future cash flows at market incremental leading rate for similar types of lending, borrowing or leasing arrangements at the end of the reporting period.  The fair value of the unsecured 7.5% note is based on level 1 quoted prices (unadjusted) in active market that the Group can access at measurement date.

 

            Non-financial assets measured at fair value:









31 Dec

2017

30 Jun

2017




US$'000s

US$'000s






Fair value measurement using significant unobservable inputs





Aircraft



970,032

744,624











Aircraft were valued at 30 June 2017. Refer to Note 13 for the details on the valuation technique and significant inputs used in the valuation.



 

4          FAIR VALUE MEASUREMENT (continued)

 

Classification of financial instruments:

A comparison by category of carrying amounts of all the Group's financial instruments that are carried in the financial statements which are considered to equate to fair value is set out below.












31 Dec

2017

30 Jun 2017




US$'000s

US$'000s






Loans and receivables:





Cash and cash equivalents



82,810

87,692

Trade and other receivables



8,041

9,261

Finance lease receivables



10,257

45,369




101,108

142,322






Financial liabilities measured at amortised cost:





Trade and other payables



15,021

17,938

Loans and borrowings



862,411

643,605

Maintenance reserves



17,522

21,264




894,954

682,807






Derivative used for hedging:





Derivative financial instruments- asset



3,214

2,372

Derivative financial instruments- (liability)



(844)

(1,901)






Fair value through profit or loss:





Options held for trading



3,640

3,640








 

5          REVENUE

 




31 Dec

2017

31 Dec

2016


US$'000s

US$'000s




Lease rental revenue

41,707

45,108

Maintenance reserves released

10,491

-

End of lease return compensation

187

-





52,385

45,108




The maintenance reserves revenue relates to the recovery of maintenance reserve from an insolvent airline customer that defaulted on its lease payments. See Note 16.

 

6          OTHER INCOME

 




31 Dec

2017

31 Dec

2016


US$'000s

US$'000s




Finance lease conversion fee

-

325

Fair value gain on derivatives

25

-

Foreign currency exchange gain

-

76

Sale of aircraft parts

198

-

Others

17

43





240

444




 

7          OTHER EXPENSES

 




31 Dec

2017

31 Dec

2016


US$'000s

US$'000s




Impairment loss on non-trade receivables

-

30

Foreign currency exchange loss

20

-





20

30




 



 

8          FINANCE INCOME

 




31 Dec

2017

31 Dec

2016


US$'000s

US$'000s




Interest income

550

261

Finance income from discounting non-current deposits to fair value

196

227





746

488




 

9          FINANCE EXPENSES

 




31 Dec

2017

31 Dec

2016


US$'000s

US$'000s




Interest expense on borrowings

12,644

13,882

Interest expense on unsecured 7.5% notes

5,090

4,128

Amortisation of loan insurance premium

539

539

Amortisation of interest expense on non-current deposits

191

217

Finance charges on early full repayment on borrowings

-

740

Others

126

222





18,590

19,728




 

10        RELATED PARTY TRANSACTIONS

 

Significant related party transactions:

 




31 Dec

2017

31 Dec

2016


US$'000s

US$'000s




Entities controlled by key management personnel

(including directors):



Rental expenses paid

(98)

(119)

Consulting fee paid

(166)

(81)

Interest expense

-

(15)

Interest expense on unsecured 7.5% notes

(204)

(204)







Director



Interest expense

-

(29)

Interest expense on unsecured 7.5% notes

(7)

(7)

 



 

11       FINANCE LEASE RECEIVABLES

 

Future minimum lease payments receivable under finance are as follows:

 


31 Dec 2017

30 Jun 2017


Minimum lease payments

Present value of payments

Minimum lease payments

Present value of payments


US$'000s

US$'000s

US$'000s

US$'000s






Within one year

3,636

3,105

37,386

36,641

Later than one year but not more than five years

7,525

7,152

9,344

8,728






Total minimum lease payments

11,161

10,257

46,730

45,369






Less: amounts representing interest income

(904)

-

(1,361)

-






Present value of minimum lease payments

10,257

10,257

45,369

45,369

 

 

12       ASSETS HELD FOR SALE AND LIABILITIES ASSOCIATED WITH ASSETS HELD FOR SALE

 

As at 31 December 2017, the Group's aircraft which met the criteria to be classified as assets held for sale and the associated liabilities were as follows:

 




31 Dec

2017

30 Jun

2017




US$'000s

US$'000s






Assets held for sale:





Property, plant and equipment -  aircraft





At 1 July 2017/ 1 July 2016



-

-

Additions



38,372

-

At 31 Dec/30 June



38,372

-






 

Liabilities associated with assets held for sale:










Deposits collected



500

-






 



 

13       PROPERTY, PLANT AND EQUIPMENT

 


Furniture and equipment

Jet

aircraft

Turbo-prop aircraft

Total


US$'000s

US$'000s

US$'000s

US$'000s






31 December 2017:





Cost or valuation:





At 1 July 2017

432

476,170

336,594

813,196

Additions

7

247,498

38,797

286,302

Reclassified as assets held for sale

-

(53,379)

-

(53,379)






At 31 December 2017

439

670,289

375,391

1,046,119






Representing:





At cost

439

-

-

439

At valuation

-

670,289

375,391

1,045,680







439

670,289

375,391

1,046,119






Accumulated depreciation:





At 1 July 2017

325

25,088

43,052

68,465

Depreciation expense

59

8,813

5,683

14,555

Impairment loss

-

8,019

-

8,019

Reclassified as assets held for sale

-

(15,007)

-

(15,007)






At 31 December 2017

384

26,913

48,735

76,032






Net book value:





At 1 July 2017

107

451,082

293,542

744,731

At 31 December 2017

55

643,376

326,656

970,087

 

 

 







 

13        PROPERTY, PLANT AND EQUIPMENT (continued)

 


Furniture and equipment

Jet

aircraft

Turbo-prop aircraft

Total


US$'000s

US$'000s

US$'000s

US$'000s






30 June 2017:





Cost or valuation:





At 1 July 2016

388

382,565

435,215

818,168

Additions

47

256,791

18,827

275,665

Disposals/written-off

(3)

(126,916)

(117,448)

(244,367)

Reclassified as held under finance lease

-

(32,383)

-

(32,383)

Impairment recognised in equity

-

(3,887)

-

(3,887)






At 30 June 2017

432

476,170

336,594

813,196






Representing:





At cost

432

-

-

432

At valuation

-

476,170

336,594

812,764







432

476,170

336,594

813,196






Accumulated depreciation and impairment:





At 1 July 2016

206

55,845

37,135

93,186

Depreciation expense

122

17,008

15,170

32,300

Disposals/written-off

(3)

(27,609)

(9,253)

(36,865)

Reclassified as held under finance lease

-

(20,156)

-

(20,156)






At 30 June 2017

325

25,088

43,052

68,465






Net book value:





At 1 July 2016

182

326,720

398,080

724,982

At 30 June 2017

107

451,082

293,542

744,731






 

Additions and Disposals

 

During the six months ended 31 December 2017, the Group acquired 2 Jet aircraft and 2 Turbo-prop aircraft.  Aircraft with a net book value of US$38.37 million were reclassified to assets held for sale.

 

Valuation

 

The Group's aircraft were valued in June 2017 by independent valuers on lease-encumbered basis ("LEV').  LEV takes into account the current lease arrangements for the aircraft and estimated residual values at the end of the lease. These amounts have been discounted to present value using discount rates of 6.5% per annum for Jet aircraft and 8.1% per annum for Turbo-prop aircraft.  Different discount rates are considered appropriate for different aircraft based on their respective risk profiles.

 

During the six months ended 31 December 2017, an impairment loss of US$8.0 million was recognised to write down the book value of an aircraft. The aircraft was repossessed from an insolvent airline and leased to a new customer under a new lease with different terms and duration.

 



 

14       GOODWILL

 

The Group performed its annual impairment test in June and when circumstances indicate the carrying value may be impaired. For the purpose of these financial statements there was no indication of impairment. The key assumptions used to determine the recoverable amount for the different cash generating units were disclosed in the annual consolidated financial statements for the year ended 30 June 2017.

 

 

15       LOANS AND BORROWINGS

 




31 Dec

2017

30 Jun

2017




US$'000s

US$'000s






Secured borrowings



692,593

502,301

Junior secured borrowings



21,397

23,415

Unsecured 7.5% notes due 2020



148,421

117,889






Total loans and borrowings



862,411

643,605






Less: current portion of borrowings



(87,527)

(93,044)






Non-current loans and borrowings



774,884

550,561






 


Maturity

Weighted average interest rate per annum


31 Dec

2017

30 Jun 2017

31 Dec

2017

30 Jun 2017


US$'000s

US$'000s

%

%






Secured borrowings

2018-2028

2017-2028

4.2%

4.5%

Junior secured borrowings

2020-2023

2020-2023

6.7%

6.7%

Unsecured 7.5% notes due 2020

2020

2020

7.5%

7.5%






 

During the six months ended 31 December 2017, the Group issued US$ 30 million unsecured Notes with a fixed coupon rate of 7.5% and the tenor of 3 years repayable in May 2020 under the Programme. The Notes are listed on the Singapore Exchange (SGX).

 

Secured borrowings are secured by first ranking mortgages over the aircraft financed by the related borrowings, security assignments of the Group's rights under leases and other contractual agreements relating to the aircraft, charges over bank accounts in which lease payments relating to the aircraft are received, a charge over a fixed deposit and charges over the issued share capital of certain subsidiaries.

 

Junior secured borrowings are secured by second ranking aircraft mortgages, security assignments and charges over bank accounts.

 



 

16       MAINTENANCE RESERVES

 


31 Dec

2017

30 Jun

2017


US$'000s

US$'000s




Current

1,020

451

Non-current

16,502

20,813




Total maintenance reserves

17,522

21,264







31 Dec

2017

30 Jun

2017


US$'000s

US$'000s




At 1 July 2017/ 1 July 2016

21,264

10,763

Contributions

6,749

10,668

Utilisations

-

(167)

Release to profit or loss

(10,491)

-




At 31 Dec/30 June

17,522

21,264




During the six months ended 31 December 2017, the maintenance reserves amount of US$10.49 million was released to the profit or loss as revenue due to the recovery of maintenance reserve from an insolvent airline customer that defaulted on its lease payments. See Note 5.

 

 

17       DERIVATIVE FINANCIAL INSTRUMENTS

 


Contract/

notional amount

Fair value


31 Dec

2017

30 Jun

2017

31 Dec

2017

30 Jun

2017


US$'000s

US$'000s

US$'000s

US$'000s






Interest rate swap - non-current asset

94,779

96,829

3,214

2,372

Interest rate swap - non-current liability

100,427

87,014

844

1,901











Hedge accounting has been applied for interest rate swap contracts and these interest rate swap contracts have been designated as cash flow hedges. The Group pays fixed rates of interest of 1.73% to 2.63% per annum and receives floating rate interest pegged to US$ LIBOR under the interest rate swap contracts.  The swap contracts mature between 23 September 2021 and 22 December 2028.

 

The fair value changes of these interest rate swap contracts are recognised in the fair value reserve. The net fair value gain of US$1.87 million (31 December 2016: US$4.02 million) on these derivative financial instruments was recognised in the fair value reserve for the six months ended 31 December 2017.

 

The fair value of the derivative financial instruments is determined by reference to marked-to-market values provided by counterparties.  The fair value measurement of all derivative financial instruments under the Group is classified under Level 2 of the fair value hierarchy, for which inputs other than quoted prices that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) are included as inputs for the determination of fair value.



 

18       SHARE CAPITAL AND TREASURY SHARES

 

(a)     Share capital

 


31 Dec 2017

30 Jun 2017


No of shares

US$'000s

No of shares

US$'000s






Allotted, called up and fully paid

Ordinary shares of 1 penny each:





At 1 July 2017/ 1 July 2016

61,071,246

1,058

55,785,227

993

Issue of shares

1,306,000

17

5,286,019

65






At 31 Dec/30 June

62,377,246

1,075

61,071,246

1,058






 

During the six months period ended 31 December 2017, the Company issued 1,306,000 ordinary shares of 1 penny each at prices ranging from 130p to 153p following the exercise of warrants by warrant holders raising total gross proceeds of US$2.55m.

 

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

 


31 Dec 2017

30 Jun 2017


No of treasury shares

US$'000s

No of treasury shares

US$'000s






At 1 July 2017/1 July 2016

-

-

600

1

Re-issued during the financial period

-

-

(600)

(1)

At 31 Dec/30 June

-

-

-

-






 

19       CAPITAL COMMITMENTS

 

            Capital expenditure contracted for at the reporting date but not recognised in the financial statements is as follows:

 


31 Dec

2017

30 Jun

2017


US$'000s

US$'000s




Property, plant and equipment

115,013

147,890




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 31 December 2017, the Group has commitments to purchase six ATR 72-600 aircraft from the manufacturer with expected delivery dates over a 1.5 year period ending in June 2019. 

 



 

20       SEGMENT INFORMATION (continued)

 

Management has determined the operating segments based on reports reviewed by the Executive Chairman ("Chief Operating Decision Maker" or "CODM") that are used to make strategic decisions.

 

The CODM considers the business from a business segment perspective.  Management manages and monitors the business in 2 primary business areas: aircraft leasing and aircraft parts procurement.

 

(a)     Segment reporting policy

 

A segment is a distinguishable component of the Group within a particular economic environment (geographical segment) and to a particular industry (business segment) which is subject to risks and rewards that are different from those of other segments.

 

Business segments are based on the Group's management and internal reporting structure. In presenting information on the basis of business segments, segment revenue and segment assets are based on the nature of the products or services provided by the Group while information for geographical segments is based on the geographical areas where customers are located.

 

Inter-segment pricing is determined on an arm's length basis. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items are mostly comprised of corporate assets and liabilities or profit or losses items that are not directly attributable to a segment or those that cannot be allocated on a reasonable basis. Common expenses were allocated based on revenue.

 

Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one year.

 

(b)     Business segments

 

During the six months ended 31 December 2017, the Group was organised into two main business segments which are aircraft leasing and aircraft parts procurement.

 

Other Group operations mainly comprise investment holding which does not constitute a separate reportable segment. There are no inter-segment transactions recorded during the financial period.

 

The aircraft parts procurement segment does not meet the quantitative thresholds and is not separately disclosed. Consequently, the aircraft leasing segment is not disclosed as the financial statements substantially represent the results of this segment.

 



 

20        SEGMENT INFORMATION (continued)

 

(c)      Geographical analysis

        

31 December 2017



Europe

Asia-Pacific

Total




US$'000s

US$'000s

US$'000s







Revenue from continuing activities



22,288

30,097

52,385

Net book value - aircraft



186,854

783,178

970,032

Total assets



248,162

876,477

1,124,639







 




Europe

Asia-Pacific

Total




US$'000s

US$'000s

US$'000s

31 December 2016






 

Revenue from continuing activities



16,482

28,626

45,108







30 June 2017












Net book value - aircraft



222,039

522,585

744,624

Total assets



358,580

542,555

901,135







 

21       CONTINGENT LIABILITIES

 

            There were no material changes in contingent liabilities since 30 June 2017.

 

 

22       DIVIDEND

 


31 Dec

2017

31 Dec

2016


US$'000s

US$'000s




Paid during the six months ended 31 December 2017



Dividends on ordinary shares



- Interim exempt (one-tier) dividend for 6.00 US cents (2017: 3.25 US cents) per share

3,664

1,820




 

No dividends have been declared subsequent to 31 December 2017. 

 

 

23        SUBSEQUENT EVENTS

 

On 19 January 2018, the Company allotted 239,000 fully paid new ordinary shares of 1 penny each representing 0.38 percent of the enlarged share capital of the Company pursuant to the exercise of 2015 series employee share warrants at a price of 130 pence per share.

 


  


PRINCIPAL RISKS       

 

The Group's risk management processes bring greater judgement to decision making as they allow management to make better, more informed and more consistent decisions based on a clear understanding of risk involved.  We regularly review the risk assessment and monitoring process as part of our commitment to continually improve the quality of decision-making across the Group.

 

The principal risks and uncertainties which may affect the Group in the second half of the financial year will include the typical risks associated with the aviation business, including but not limited to any downturn in the global aviation industry, fuel costs, finance costs, war and terrorism and the like which may affect our airline customers' ability to fulfil their lease obligations.

 

The business also relies on its ability to source finance on favourable terms.  Should this supply of finance contract, it would limit our fleet expansion and therefore growth.

 

 

GOING CONCERN

 

After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  For this reason they continue to adopt the going concern basis in preparing the financial statements.  The financial risk management objectives and policies of the Group and the exposure of the Group to credit risk and liquidity risk are discussed in the annual report for the Group for the year ended 30 June 2017.

 

 

DIRECTORS

 

The directors of Avation PLC are listed in its Annual Report for the year ended 30 June 2017.  A list of the current directors is maintained on the Avation PLC website: www.avation.net

 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

           

The Directors confirm that, to the best of their knowledge, this condensed consolidated interim financial information have been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8 namely

 

·      an indication of important events that have occurred during the first six months and their impact on the Interim Report, and a description required by the principal risks and uncertainties for the remaining six months of the financial year; and

 

·      material related party transactions in the first six months and any material changes in the related party transactions described in the last annual report.

 

 

 

By order of the Board

 

 

 

 

 

 

Jeff Chatfield

Executive Chairman

Singapore, 26 February 2018

 

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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