TIDMAA4
RNS Number : 3532V
Amedeo Air Four Plus Limited
20 July 2018
20 July 2018
AMEDEO AIR FOUR PLUS LIMITED (the "Company")
Consolidated Annual Financial Report
The Board of the Company is pleased to announce its results for
the year ended 31 March 2018.
To view the Company's Consolidated Annual Financial Report
please follow the link below:
http://www.rns-pdf.londonstockexchange.com/rns/3532V_1-2018-7-20.pdf
In addition, to comply with DTR 4.1 please find below the full
text of the Consolidated Annual Financial Report. The report will
also shortly be available on the Company's website,
http://www.aa4plus.com/category/news/.
For further information, please contact:
Administrative Enquiries:
JTC Fund Solutions (Guernsey) Limited
Tel: +44 (0) 1481 702400
Amedeo Air Four Plus Limited
Consolidated
Annual Financial
Report (audited)
For the year ended 31 March 2018
Summary Information
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Trading The Specialist Fund Segment of the
London Stock Exchange's Main Market
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Ticker AA4
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SEDOL BWC53H4
ISIN GG00BWC53H48
LEI 21380056PDNOTWERG107
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Reporting Currency Sterling
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Launch Date / Share Price 13 May 2015 / 100p
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Share Price 107p (as at 31 March 2018)
107p (as at 16 July 2018)
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Market Capitalisation GBP687 million (as at 31 March 2018)
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Target Dividend Current dividends are 2.0625p per
Share per quarter (8.25p per annum)
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Dividend Payment Dates January, April, July, October
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Year End 31 March
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Stocks & Shares ISA Eligible
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Aircraft Registration Numbers A6-EEY, A6-EOB, A6-EOM, A6-EOQ, A6-EOV,
A6-EOX, A6-EPO, A6-EPQ, A6-API, A6-APJ,
HS-THF, HS-THG, HS-THH, HS-THJ
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Website www.aa4plus.com
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COMPANY OVERVIEW
Amedeo Air Four Plus Limited ("AA4" or the "Company") is a
Guernsey company incorporated on 16 January 2015. The Company
operates under The Companies (Guernsey) Law, 2008, as amended (the
"Law") and the Disclosure Guidance and Transparency Rules (the
"DGTRs") of the UK's Financial Conduct Authority (the "FCA").
The Company's shares were first admitted to trading on the
Specialist Fund Segment ("SFS") of the London Stock Exchange's Main
Market on 13 May 2015 upon the admission of 202,000,000 redeemable
ordinary shares ("Shares") at an issue price of 100 pence per
Share. Subsequently, the Company has conducted six additional
placings, resulting in the issue and admission to trading on the
SFS of an additional 440,250,000 Shares at issue prices in the
range of 100 pence to 104 pence. The latter two placings were
undertaken in the year under review.
On 5 June 2017 shareholder approval was obtained for the
acquisition of four Airbus A350-900 aircraft leased to Thai
Airways. On 13 June 2017 the Company published its latest
prospectus to launch a further one year placing programme intended
to raise additional equity for investment by the issue of up to a
maximum of 500,000,000 Shares. The initial placing under this
latest programme closed on 20 June 2017 with the issue and
admission to trading on the SFS of an additional 134,650,000 Shares
at an issue price of 104 pence to fund the purchase of three
A350-900 aircraft leased to Thai Airways. On 1 November 2017 the
Company announced the launch of the Second Placing to acquire a
fourth Airbus A350-900 leased to Thai Airways. The Second Placing
closed on 27 November 2017 with the issue and admission to trading
on the SFS of an additional 40,350,000 Shares at an issue price of
104 pence.
As at 16 July 2018, the last practicable date prior to the
publication of this report, the Company's total issued share
capital was 642,250,000 Shares trading at 107 pence per Share.
Investment Objectives and Policy
The Company's investment objective is to obtain income returns
and a capital return for its shareholders by acquiring, leasing and
then selling aircraft (each an "Asset" and together "Assets").
To pursue its investment objective, the Company seeks to use the
net proceeds of placings and/or other equity capital raisings,
together with debt facilities (or instruments), to acquire aircraft
which will be leased to one or more major airlines.
The Company's Articles of Incorporation (the "Articles") provide
that the Company may only acquire further aircraft with the
approval of the Company's shareholders by ordinary resolution in
relation to each proposed acquisition. Where such approval for a
new acquisition is obtained, it is the current intention of the
Board of directors of the Company (the "Board") to offer
shareholders the opportunity to participate in any equity financing
of such further acquisitions on a broadly pre-emptive basis,
although other approaches to the equity financing may also be
considered and pursued if the Board consider it appropriate to do
so in order to diversify the funding sources of the Company.
In accordance with the investment policy, it is the Board's
intention that, subject to finding suitable deals and obtaining
subsequent shareholder approval, the Company be grown into a larger
vehicle owning a range of aircraft leased to more airlines. The aim
of such a strategy is to diversify the risk profile of the
Company's portfolio of Assets and lease credits whilst maintaining
its target investor returns of a quarterly dividend of 2.0625 pence
per share and a double digit total return.
The Board, in discussions with its advisors, Amedeo Limited
("Amedeo" or the "Asset Manager") and Nimrod Capital LLP
("Nimrod"), is considering further acquisitions to be completed
over the next 12 months.
Investment Portfolio
As at the financial reporting date the Company had sixteen
wholly-owned subsidiaries, see Note 1 for further details. Together
the Company and its subsidiaries are known as the "Group".
The table below details the Assets held by the Group at the
reporting date:
Manufacturer Aircraft Manufacturer's Date of Acquisition Lessee* Initial Lease
Type Serial Number / Lease Duration
("MSN") and
Registration
Airbus A380-800 157 - A6-EEY 19-May-15 Emirates 12 years
---------- --------------- -------------------- --------- --------------
Airbus A380-800 164 - A6-EOB 19-May-15 Emirates 12 years
---------- --------------- -------------------- --------- --------------
Airbus A380-800 187 - A6-EOM 03-Aug-15 Emirates 12 years
---------- --------------- -------------------- --------- --------------
Airbus A380-800 201 - A6-EOQ 27-Nov-15 Emirates 12 years
---------- --------------- -------------------- --------- --------------
Airbus A380-800 206 - A6-EOV 19-Feb-16 Emirates 12 years
---------- --------------- -------------------- --------- --------------
Airbus A380-800 208 - A6-EOX 13-Apr-16 Emirates 12 years
---------- --------------- -------------------- --------- --------------
Boeing 777-300ER 42334 - A6-EPO 28-Jul-16 Emirates 12 years
---------- --------------- -------------------- --------- --------------
Boeing 777-300ER 42336 - A6-EPQ 19-Aug-16 Emirates 12 years
---------- --------------- -------------------- --------- --------------
Airbus A380-800 233 - A6-API 24-Mar-17 Etihad 12 years
---------- --------------- -------------------- --------- --------------
Airbus A380-800 237 - A6-APJ 24-May-17 Etihad 12 years
---------- --------------- -------------------- --------- --------------
Airbus A350-900 123 - HS-THF 13-Jul-17 Thai 12 years
---------- --------------- -------------------- --------- --------------
Airbus A350-900 130 - HS-THG 31-Aug-17 Thai 12 years
---------- --------------- -------------------- --------- --------------
Airbus A350-900 142 - HS-THH 22-Sep-17 Thai 12 years
---------- --------------- -------------------- --------- --------------
Airbus A350-900 177 - HS-THJ 26-Jan-18 Thai 12 years
---------- --------------- -------------------- --------- --------------
* "Emirates" means Emirates Airline;
"Etihad" means Etihad Airways PJSC;
"Thai" means Thai Airways International Public Company
Limited.
Distribution Policy
The Company aims to provide shareholders with an attractive
total return comprising income from distributions through the
period of the Company's ownership of the Assets and a capital gain
upon the sale, or other disposition of the Assets.
The Company receives income in the form of lease payments.
Income distributions are made to shareholders quarterly, subject to
compliance with applicable laws and regulations. The Company
currently targets and has achieved to date a distribution to
shareholders of 2.0625 pence per Share per quarter.
There can be no guarantee that dividends will be paid to
shareholders and, if dividends are paid, as to the timing and
amount of any such dividend. There can also be no guarantee that
the Company will, at all times, satisfy the statutory solvency test
(the "Solvency Test") required to be satisfied pursuant to section
304 of the Law prior to any declaration of a dividend by the
Board.
In the event that the Company is wound-up pursuant to a
shareholders' resolution, shareholders may also receive a capital
return from the net proceeds of a sale of the Assets.
Performance Overview
All payments by the Lessees have to date been made in accordance
with the terms of the respective leases.
In accordance with the Distribution Policy, the Company declared
four dividends of 2.0625 pence per Share during the year under
review and one dividend of 2.0625 pence per Share was declared
after the end of the reporting period. Further details of dividends
declared and paid can be found on page 21.
Return of Capital
Following the sale of an Asset the Board may, as it deems
appropriate at its absolute discretion, either return to
shareholders all or part of the net capital proceeds of such sale
(subject to satisfaction of the Solvency Test), or re-invest the
proceeds in accordance with the Company's investment policy.
The Asset Manager regularly monitors the market valuations of
the Assets and, subject to any lease obligations, will consider the
most appropriate time for the sale of any one or more of the
Assets. The Board will consider any recommendation from the Asset
Manager as to the sale of any Asset and proceed as the Board
considers appropriate.
Liquidation Resolution
Although the Company does not have a fixed life, the Articles
require that the Board convenes a Liquidation Proposal Meeting in
2029 or such other date as shareholders may approve by ordinary
resolution.
CHAIRMAN'S STATEMENT
I am pleased to present shareholders with the Group's full year
financial report covering the period from 1 April 2017 to 31 March
2018.
It has again been a very busy period for your Company with
further activity raising new monies, acquiring more aircraft and
diversifying the portfolio. On 20 June 2017 we announced the
completion of the initial placing under the new placing programme,
which was significantly oversubscribed, issuing 134,650,000 shares
at 104 pence to acquire the first three of four Airbus A350-900
aircraft leased to Thai Airways International Public Company
Limited ("Thai"), each for a period of twelve years from delivery.
Deliveries of the three A350-900 aircraft occurred on 13 July, 31
August and 22 September 2017, fully deploying the initial placing
proceeds ahead of target. A second placing of 40,350,000 shares at
104 pence occurred on 27 November 2017 to fund the delivery of the
fourth A350-900 leased to Thai also for a lease term of twelve
years and the aircraft was delivered on 26 January 2018.
The Company has now acquired eight Airbus A380 aircraft, six on
lease to Emirates Airline ("Emirates") and two to Etihad Airways
PJSC ("Etihad"), two Boeing 777-300ER aircraft leased to Emirates
and four Airbus A350-900 aircraft leased to Thai. At the time of
writing the Company has a market capitalisation in excess of GBP687
million based on 642,250,000 shares in issue. The increase in the
overall market capitalisation of the Company following the
acquisition of the latest aircraft has increased the attractiveness
of the Company's shares to a wider investor base.
The Company's Asset Manager, Amedeo, continues to monitor the
leases and reports regularly to the Board. Nimrod, the Company's
Corporate and Shareholder Adviser, continues to liaise between the
Board and shareholders.
During the year the Company has continued to declare quarterly
dividends of 2.0625 pence per share, representing a yearly
distribution of 8.25 pence per share and your Board are hopeful of
continuing to pay such dividends for the foreseeable future.
Since its inception, in accordance with its investment policy,
it has been the intention that the Company should be grown into a
larger vehicle, owning a range of wide-body and other aircraft
which are leased to a number of different airline counterparties.
The aim of this strategy is to diversify the risk profile of the
Company's portfolio of assets as well as to potentially increase
its target annualised total return. Since its launch some three
years ago we believe the Company has and continues to achieve its
objectives in this regard and the Board are pleased to have reached
these milestones.
The Board will also consider further acquisitions of aircraft
for leasing to a variety of major airlines over the next 12 months
and beyond. If, in the view of the Board, it is in the interests of
the Company to acquire such further aircraft (taking into account
the maintenance of the Company's target income distributions,
opportunities for capital growth, and the diversification of the
Company's portfolio), the Board will continue to seek shareholders'
approval of those proposed acquisitions. Over the course of the
year lease rate factors have fallen as capital continued to flow
into the asset class, and the Board actively considers such
movement in the context of assessing new investments.
IATA forecast 2018 to be another year of strong passenger growth
with passenger volumes currently moving upwards at rates between
5.0% and 5.6% per annum. Despite the slower start to the year in
January, February's figures show a rebound to the start of the
year's performance. Strong economic drivers, favourable business
confidence indictors and continued capacity expansion are likely to
encourage passenger growth over the course of the next year.
Notwithstanding oil prices up 16% year--on--year in February 2018,
airlines are indicating strong earnings with EBITDA profit margin
results at 8.6% of revenues for the third quarter of 2017, with
particularly strong results from Asia Pacific and Latin American
carriers.
News flow relating to the Airbus A380, which forms a large part
of your Company's portfolio, has been widespread over the period
and the Board keeps a close eye on such developments, receiving
regular market updates from the Company's Asset Manager. The
confirmation of a new order from Emirates in January 2018 was
accompanied by a public commitment by Airbus to produce the A380 at
least for another ten years. This order underlines the importance
of the A380 to Emirates business model. With 102 A380s now flying
as part of the Emirates fleet, it is a key aircraft and likely is
to be so for many years to come. Airbus have also stated that they
are confident of further orders for the A380 now that production
certainty has been achieved. More recently, news that two A380's
owned by German funds managed by Dr Peters Group are to be sold for
parts is disappointing. Whilst providing a positive result for
investors, according to Dr Peters, it is noted that this outcome is
the product of unique circumstances which are unlikely to be
repeated. More positively, Hi Fly, is planning to start operating
at least one second hand A380, which represents an important
milestone in the model's lifecycle. The Company's existing long
lease periods offer some stability and a suitable time horizon in
which to assess such market developments.
Emirates, Etihad and Thai continue to perform well and are fully
servicing their obligations. Further details on each operator can
be found in the Company's quarterly report for Q1 2018 as well as
their respective websites: www.emirates.com, www.etihad.com and
www.thaiairways.com.
Regulatory change has continued apace during the period and the
Board continues to monitor and respond to these changes. In
particular, the turn of the year saw the introduction of MiFID II
and PRIIPS. This EU regulation requires the Company to prepare a
Key Information Document ('KID') which is available on our website.
Investors should note that the procedures for calculating the
costs, risks and potential returns are prescribed by this
regulation, and the figures in the KID may not reflect the results
investors will experience in the future. As a result, it is
recommended that the KID is not considered in isolation but is read
in conjunction with the Company's financial statements and
quarterly reports.
I encourage shareholders to view the Company's quarterly reports
which now provide a breakdown of the implied future total return of
the Company through both dividends and a potential return of
capital based on the latest appraised portfolio residual value. I
hope these regular reports, in addition to the communication you
receive from the Company's Corporate and Shareholder Adviser, are
useful and informative and I welcome shareholders feedback.
Our underlying leases with respect to Emirates and Etihad
include monthly lease rentals paid in US Dollars (matched in
currency and amount to interest and regular principal loan
repayments) and Sterling (to cover operating costs and dividend
payments). In the case of Thai, the entire monthly lease rental is
denominated in US Dollars.
The financial statements do not in the Board's view properly
convey the economic reality due to the accounting treatment for
foreign exchange, rental income, finance costs and residual debt.
International Financial Reporting Standards require that
transactions denominated in US Dollars (including, most
importantly, the cost of the aircraft) are translated into Sterling
at the exchange rate ruling at the date of the transaction whilst
monetary items (principally the outstanding borrowings) are
translated at the rate prevailing on the reporting date. The
resultant variations may sometimes produce very large mismatches
and these are reported in the Consolidated Statement of
Comprehensive Income as foreign exchange gains of GBP184,771,192
(2017: losses of GBP118,664,321). When viewed on a per Share basis
this equates to a 28.8 pence gain (2017: 25.4 pence loss) resulting
in a reported NAV per Share of 109.58 pence per Share (2017:73.48
pence per Share).
On an on-going basis and assuming the lease and loan payments
are made as anticipated, such exchange differences will not reflect
the commercial substance of the situation in the sense that the key
transactions denominated in US Dollars are in fact fairly matched.
Rental income received in US Dollars is used to pay loan interest
and regular capital repayments of debt (but excluding any bullet or
balloon repayment of principal), which are likewise denominated in
US Dollars. US Dollar lease rentals and loan repayments, with the
exception of the four Thai aircraft which incorporate floating rate
lease rentals - matched to floating rate loan repayments, are
furthermore fixed at the outset of the each lease's life and are
very similar in amount and timing save for the repayment of bullet
repayments of principal due on the final maturity of a loan.
In addition to this, rental income receivable is credited evenly
to the Consolidated Statement of Comprehensive Income over the
planned life of each lease. Conversely, the methodology for
accounting for interest costs means that the proportion of the loan
repayments which is treated as interest and is debited to the
Consolidated Statement of Comprehensive Income varies over the
course of the loan - so that the differential between rental income
and interest cost (as reported in the Consolidated Statement of
Comprehensive Income) reduces over the course of each twelve year
lease. In reality however, the amount of rental income is fixed,
except from the four Thai aircraft where floating lease rental
payments are matched to floating rate loan repayments, so as to
closely match the loan interest and capital repayments, save for
the repayment of any bullet payment of principal due on the final
maturity of a loan.
Furthermore, we have for this reporting period and the future
altered our approach to calculating the book value/carry cost of
each asset so as to more accurately reflect IAS 16 and as a
consequence of doing so will now only disclose the net aggregated
figures for all assets rather than, as previous, disclose these
figures on an aircraft by aircraft basis. Such detailed disclosure
is not required by the relevant Accounting Standard and your Board
consider it not commercially prudent to be so transparent when
there is no need to be so. Further, your Asset Manager has asked
that we keep such knowledge confidential so as not to impair their
ability to successfully negotiate the disposal of any aircraft when
the time is deemed right so to do.
Finally, the Board is always keen to meet shareholders, as was
the case last year, and we welcome the opportunity to meet more
shareholders in this coming year as your Board very much welcomes
an open dialogue. Please do not hesitate to contact the Board or
Nimrod to request a meeting.
On behalf of the Board, I would like to thank our service
providers for all their help and all shareholders for their
continuing support of the Company and I look forward to keeping all
shareholders up to date with further progress.
Robin Hallam
Chairman
Date: 20 July 2018
Asset Manager's Report
On the invitation of the Directors of the Company, the following
commentary has been provided by Amedeo as Asset Manager of the
Company and is provided without any warranty as to its accuracy
and without any liability incurred on the part of the Company,
its Directors and officers and service providers. The commentary
is not intended to constitute, and should not be construed as,
investment advice. Potential investors in the Company should
seek their own independent financial advice and may not rely
on this communication in evaluating the merits of an investment
in the Company. The commentary is provided as a source of information
for shareholders of the Company but is not attributable to the
Company.
THE ASSETS
Lessee Model MSN REG Delivery Lease Flight Flight Last Upcoming
Date Expiry Hours Cycles Inspection Inspection
Date
----------- ------ ------- ----------- ----------- ----------- ----------- -----------
Emirates A380-800 157 A6-EEY 19/05/2015 04/09/2026 16,073 2,577 19/11/2017 19/02/2019
A380-800 164 A6-EOB 19/05/2015 03/11/2026 15,049 2,403 18/03/2018 18/03/2019
A380-800 187 A6-EOM 03/08/2015 03/08/2027 14,156 1,309 19/11/2017 19/02/2019
A380-800 201 A6-EOQ 27/11/2015 27/11/2027 9,984 1,577 19/11/2017 19/02/2019
A380-800 206 A6-EOV 19/02/2016 19/02/2028 9,736 1,549 18/03/2018 18/03/2019
A380-800 208 A6-EOX 13/04/2016 13/04/2028 8,649 1,344 18/03/2018 18/03/2019
777-300ER 42334 A6-EPO 28/07/2016 28/07/2028 7,361 1,861 - 18/06/2018
777-300ER 42336 A6-EPQ 19/08/2016 19/08/2028 7,482 1,668 - 18/06/2018
---------------------- ------ ------- ----------- ----------- ----------- ----------- ----------- -----------
Etihad A380-800 233 A6-API 24/03/2017 24/03/2029 5,636 576 - 18/06/2018
A380-800 237 A6-APJ 24/05/2017 24/05/2029 4,757 476 - 18/06/2018
---------------------- ------ ------- ----------- ----------- ----------- ----------- ----------- -----------
Thai A350-900 123 HS-THF 13/07/2017 13/07/2029 3,531 548 13/07/2018 01/10/2018
A350-900 130 HS-THG 31/08/2017 31/08/2029 2,895 419 31/08/2017 01/10/2018
A350-900 142 HS-THH 22/09/2017 22/09/2029 2,585 363 22/09/2017 01/10/2018
A350-900 177 HS-THJ 26/01/2018 26/01/2030 808 124 26/01/2018 01/10/2018
---------------------- ------ ------- ----------- ----------- ----------- ----------- ----------- -----------
As of 31st March 2018
During the lifetime of each lease, the respective airline bears
all costs of the aircraft including maintenance, repair and
insurance.
During Q1 2018, Amedeo performed a records and physical survey
inspection as per the underlying lease agreements on three of the
aircraft in the portfolio. The aircraft were made available for
physical inspection during a day stop while access to records was
provided in electronic format. The aircraft were found in good
physical condition and maintained to a very high commercial
standard.
IATA ECONOMIC ANALYSIS
Ø The strong growth in global passenger traffic for 2017
continues into 2018 as RPK's (revenue passenger kilometres) grew by
7.6% year-on-year in February. Up from a growth rate of 4.6% for
January, the difference in passenger volumes for the first two
months of 2018 occurred due to the late timing of the Lunar New
Year resulting in the surge in passenger demand to fall in
February.
Ø Industry wide passenger capacity increased by 6.3%
year-on-year in February 2018. Whilst capacity outpaced passenger
demand for January, figures for February show passenger load
factors to have increased to 80.4%.
Ø Most notably from February's performance, South American
carriers posted the highest rate of international RPK traffic
growth for the month at 9.8%. At the same time, India's
year-on-year passenger demand growth (RPKs) was 22.9% for February
making this the 42nd month in a row of double digit growth for the
country.
Ø 2018 is forecast to be a year of strong growth with passenger
volumes currently moving upwards at rates between 5.0% and 5.6% per
annum. Despite the slower start to the year, February's figures
show a rebound to the initial year's performance. Strong economic
drivers, favourable business confidence indicators and continued
capacity expansion are likely to encourage passenger growth over
the course of 2018.
Ø Despite oil prices up 16% year-on-year for February 2018,
airlines are indicating strong earnings with EBIT profit margin
results at 8.6% of revenues for the third quarter of 2017, with
particularly strong results from Asia Pacific and Latin American
carriers.
Source: IATA (International Air Transport Association).
AIRLINE MARKET DEVELOPMENTS
Air travel has developed considerably over the past few decades.
Most noticeably, air fares have become more and more affordable.
Continuous technological improvements are being implemented in new
aircraft and the adoption of supportive government policies has
allowed air travel to become a significant economic driver in a
growing number of countries. As a result, air travel has become
ever more accessible to consumers in developing regions, whilst
other countries have established themselves as the 'super
connectors' in international travel. Overall, the landscape of
commercial air travel is not the same as it was almost two decades
ago when air traffic growth was once led by Europe and North
America. Today, it is being driven by the rapid growth in the Asia
Pacific, Middle East and South American markets that are forecast
to continue to grow.
In 2017, the United States, China and Japan, retained top
positions for the world's busiest airline markets in terms of
seats. While the US has stayed at the top of the podium with
Hartfield-Jackson Atlanta being the only airport to carry over 100
million passengers a year, China's Beijing Capital International
Airport has set another record high in terms of passengers carried
(95.8 million passengers in 2017). Traffic between Beijing and
Shanghai is now the eighth busiest route in the world and is only
superseded by other city pairs within the Asia Pacific region.
China continues to close the gap to overtake the US and with
Beijing's new airport opening in 2019, the capital will gain some
of the additional infrastructure needed to support the forecast
rise in traffic expected in the region. Beijing's growth emulates
that of the wider Chinese market for which IATA has revised its
latest growth forecasts and predicts China to displace the US as
the world's largest market by 2022, a full two years ahead of the
original forecast.
Busiest Markets in 2017 Fastest Market Growth Between
2010-2017
United States 1,070,100,055 1 Vietnam 171%
China 712,989,906 2 Turkey 142%
Japan 212,469,385 3 Thailand 123%
India 182,584,269 4 Indonesia 123%
United Kingdom 174,299,976 5 Saudi Arabia 118%
Indonesia 159,317,716 6 Qatar 108%
Germany 152,400,212 7 India 96%
Spain 142,203,047 8 China 95%
Brazil 128,594,126 9 Peru 94%
France 108,931,307 10 United Arab Emirates 85%
--------------- ------------- -------------------- ------------
As measured by market seat Source: Diio
capacity
In terms of market potential, the majority of the world's
fastest growing markets in the past eight years can be located
within Asia and the Middle East. Countries such as India and
Indonesia are experiencing rapid levels of growth, whilst also
being listed as some of the biggest markets in the world. To
compare, India has overtaken the UK as the fourth busiest market in
terms of seat capacity. Whilst London Heathrow's passenger numbers
grew by 1.7% in 2017 (year-on-year), Delhi saw a 15.1% increase
during the same period. India's lead on the UK is only set to
continue as Delhi's airport is to expand existing terminals and
build a new runway, whilst London Heathrow has only recently been
able to secure government approval for a vital third runway.
Infrastructure constraints are a global issue. With the forecast
rise in passenger traffic, the industry must plan for future
capacity and whilst some areas such as China, Singapore and India
are able to expand their airports and traffic capacity accordingly,
other regions of the world need additional government support and
investment in order to facilitate future growth. Regions such as
the Americas, where facilities can be up to fifty years old,
require planning that can accommodate the next 25 years of
passenger travel. For the Latin American aviation industry, this is
a necessity as it continues to grow with above average passenger
traffic growth of 6.1% (RPK's) for January 2018. It is estimated
that US$100bn of investment is required in North America alone, to
modernise existing facilities. With insufficient investment to
date, some markets are constrained in their own operations.
As forecast by IATA, the Asia Pacific region is expected to be
the origin of more than half of the world's new passengers within
the next 20 years. With the world's number of city pairs now
exceeding 20,000, where nearly 45% of the increased connectivity in
the past year came from new routes within Asia, it is certain that
the Asia Pacific region is becoming the epicentre of air traffic
demand. What's more, the rising levels of connectivity between
cities makes markets more open in terms of tourism, trade and
investment.
As Asia's network expands, it is expected the region will need
between fourteen to sixteen thousand new aircraft in order to
support regional growth through trade and tourism over the coming
decades. By today's standards, where 48% of the world's aircraft in
service are leased, Asia will rely on the leasing industry to fund
almost half of the new aircraft to be delivered over the next 20
years.
Source: Airbus, Airports Council International, Ascend, Boeing,
CAPA, Diio, IATA, Routes (UBM UK).
EMIRATES GROUP
Ø As of March 2018, the airline had 268 aircraft in its fleet
with a combined average age of 5.7 years. Emirates operates two
passenger aircraft types and has additional A380 and B777-300ER
aircraft on order as well as an agreement to purchase forty B787-10
aircraft delivering from 2022.
Ø Emirates total passenger and cargo capacity for the year was
61.4 billion available tonne kilometres, making Emirates the
world's largest international carrier. The flag carrier posted a
record of 58.5 million passengers carried (up 4% year-on-year), and
achieved an average passenger load factor of 77.5% (up 0.4%
year-on- year). During the year, Emirates launched two new
passenger destinations to Cambodia and Croatia, as well as
increasing its capacity on 15 existing destinations.
Ø For 2018-19, Emirates has announced new routes to London
Stansted, Santiago, Edinburgh and an additional flight between
Dubai and Auckland via Bali, aside from capacity increases across
existing destinations.
Ø Emirates also grew its global connectivity and customer
proposition through strategic partnerships. During 2017-18,
Emirates entered into significant partnerships with flydubai and
Cargolux, expanding the choice of air services on offer to
passenger and cargo customers respectively. Emirates also received
authorisation to extend its partnership with Qantas until 2023.
Ø The airline posted revenue of AED 92.3 billion (USD 25.2
billion) for the financial year ending March 2018. Revenue
generated from across Emirates' six regions continues to be well
balanced, with no region contributing more than 30% of overall
revenues. Europe was the highest revenue contributing region with
AED 26.7 billion (USD 7.3 billion), up 12% from 2016-17.
Ø The Carrier's operating costs increased by 7% in comparison to
the previous year, with the implications of rising oil prices being
a significant driver of this increase. Fuel accounted for 28% of
the airline's operating costs, compared with 25% in 2016-17, and
remains the biggest cost component for Emirates.
Ø Despite the political challenges in the region, intense
competition in the form of airfare pricing and rising fuel costs,
Emirates posted a net profit of AED 2.8 billion (USD 762 million).
With a net profit increase of 124% year-on-year, and with a profit
margin of 3.0%, the airline has displayed the ability to
successfully manage strong competitive pressures across all
markets.
Source: Emirates, Ascend.
ETIHAD AIRWAYS
Ø As of March 2018, the airline had 113 aircraft in its fleet
comprising a mix of narrow and wide-body aircraft with an average
age of 6.9 years. The airline operates 4 passenger aircraft types
and has A350, B787, B777 and A320 neo aircraft on order. During the
quarter the carrier reduced its in service fleet from 122 aircraft
at the start of the year due to management's decision to withdraw
from its cargo operations and scale back capacity on its North
America routes over the next year.
Ø The airline boasts an extensive international network of 83
destinations across 51 countries with its three largest markets
currently being India, the UK, and Saudi Arabia in terms of
seats.
Ø Etihad posted an annual loss of US$ 1.87bn for the financial
year ending March 2017 as it dealt with the impact of terrorism in
the EU and the implications of low oil prices on the region's
economy. A total of US$ 808m of the annual loss was attributed to a
write down in the value of its investment in Air Berlin and
Alitalia. The Gulf carrier remains 100% owned by the Abu Dhabi
government and therefore we anticipate no impact on the receipt of
AA4's lease rental payments or compliance with the terms of the
leases.
Ø Reports have been published in 2018 as to a potential US$
1.2bn bond default linked to Etihad. Issued by EA Partners, a
bankruptcy remote special purpose company created to issue the
bond, in 2015, the proceeds were used to enter into debt
obligations with Alitalia, Air Berlin and Etihad. Following the
insolvency of Air Berlin and Alitalia, liquidity facilities have
been exercised to ensure bond holders are being repaid. Whilst
Etihad is yet to comment on the matter, a recent report has
announced that EA Partners are to auction their claims on the two
insolvent airlines. A covenant within the bond documents triggers a
'remarketing event' when the liquidity pool falls below 75% of the
initial reserves whereby only claims on the insolvent airlines are
to be auctioned.
Source: Etihad, Ascend, CAPA, Reuters, Financial Times, Gulf
Times
THAI AIRWAYS INTERNATIONAL
Ø For 2017 Thai Airways' total revenue grew by 5.01%
year-on-year to THB 190,535m (USD 5,868m) due to increased demand
across the company's passenger, freight and ancillary services.
Ø The group's operating performance improved year-on-year with a
10.3% increase in the number of passengers carried to 24.56m,
whilst demand (RPK's at 71,634m) increased more than Thai's
capacity (ASK's at 90,498m) resulting in a load factor increase of
5.8% to 79.2% for the year.
Ø During the period, the group expanded its operations
throughout Asia and Europe and launched a direct route to Vienna.
In total Thai Airways currently serves 64 destinations within
Asian, Europe and the Middle East.
Ø At the end of 2017 the group's in-service fleet stood at 100
aircraft and fleet replacement continued with the addition of 7 new
aircraft during the year. Comprising five Airbus A350-900 XWBs and
two Boeing 787-9s all under lease, these next generation technology
aircraft are to be operated on the group's intercontinental and
regional routes such as Bangkok - Rome, Bangkok - Brussels, Bangkok
- Auckland, and Bangkok - Singapore.
Ø Operating expenses for the year increased by 5.8% to THB
193,430m. An increase in fuel expenses can be attributed to a rise
in jet fuel prices during 2017, however this was marginally offset
by an appreciating THB against the USD. At the same time lease
rental expenses also increased year-on-year due to the airline's
fleet replacement program.
Ø The group posted an operating loss of THB 2,895m (USD 89m) and
net loss of THB 1,555m (USD 49m) for the year due to increased
operating expenses and extraordinary losses from the impairment of
older assets and the revaluation of foreign currency liabilities
due to FX movements.
Source: Thai Airways International Public Company Limited,
Ascend. N.B.: USD/THB = 32.58 FX rate as of 31/12/17.
A380 MARKET UPDATE
Ø Hi Fly, a charter operator, has announced plans to introduce
an A380 aircraft into its fleet by mid -- 2018. The Portuguese
company will become the first wet lease operator of the A380 and
enable other airlines and governments to employ the aircraft
through short term leases. Hi Fly's unprecedented move to begin wet
lease operations using an A380 will enable operators whose business
models may not suit longer term leases or cannot bear the cost of
ownership to take advantage of the aircraft's size, technology and
consumer appeal with minimal operational risk.
Ø In other news, Airbus reported that the main sections for the
first A380 to be delivered to Japan's All Nippon Airways ("ANA")
had arrived in the manufacturer's Toulouse facility for final
assembly. Due for delivery in early 2019, ANA's first of three
ordered A380s will be operated on the airline's Tokyo to Honolulu
route. Once delivered, ANA will become the fifteenth operator of
the A380, which includes Hi Fly.
Ø It has been reported that a German lessor, Dr Peters Group,
will part out two A380s returned from Singapore Airlines. There
were a number of unique circumstances that came together to force
this outcome and it is not expected that this outcome will be
repeated.
A350 MARKET UPDATE
Ø Airbus delivered a total of 78 A350-900 aircraft in 2017,
surpassing its target of 75 deliveries.
Ø The A350-900 entered service in early 2015 and Airbus has
delivered over 160 of the aircraft as of Q2 2018, including eight
to Delta Airlines, making it the first North American A350
operator.
Ø A primary supporter of the new technology aircraft, Singapore
Airlines will introduce a Regional variant of the A350-900 in late
2018 to complement its 787-10, but "will be configured in a manner
that will allow us to stretch the distance a little longer than the
787-10", says the chief executive Goh Choon Phong.
Ø In addition, Airbus is to modify the current -900 to introduce
a ULR (Ultra Long Range) version. Currently in flight-testing and
delivering in late 2018 to Singapore Airlines as the launch
customer for seven -900ULRs, the aircraft will enable the carrier
to operate 19 hour journeys such as Singapore to New York
non-stop.
B777-300ER MARKET UPDATE
Ø The B777-300ER continues to be the bestselling widebody
variant to date in the Boeing 777 family with over 800 sold and 70
still on backlog as of Q2 2018.
Ø The Boeing 777-300ER is the core long-haul type worldwide and
is especially popular in Asia Pacific and Middle East.
Ø In addition to its passenger operations, airlines see the
cargo benefit of the 777-300ERs belly-hold capacity. By operating
passenger and cargo operations across services, many carriers have
pivoted focus from dedicated cargo operations to belly capacity on
passenger routes to streamline costs and enhance efficiency.
Source: Airbus, Ascend, AirFinance Journal, CAPA (Centre for
Aviation), Hi Fly, Independent Digital News & Media
Disclaimer
The Asset Manager has not made and does not make any express or
implied representation or warranty as to the accuracy or
completeness of the information provided by it and, to the extent
permitted by law neither the Company nor the Asset Manager nor
their Directors or officers shall be liable for any loss or damage
that anyone may suffer in reliance on such information.
DIRECTORS
Robin Hallam (age 64) (Chairman) (independent non-executive)
Until 31 December 2015, Robin Hallam was a partner and co-head
of Asset Finance at international law firm Hogan Lovells LLP, where
he was a partner since 1995 specialising in aircraft finance,
particularly leasing, export credit and structured financing.
Between January and December 2016, Robin was a consultant at Hogan
Lovells LLP. He is currently a consultant at Bird & Bird LLP in
their aviation finance team. He has represented financial
institutions, operating lessors, investors, airlines and export
credit agencies. Robin holds a degree in law from Trinity College,
Cambridge, is a member of International Society of Transport
Aircraft Trading ("ISTAT") and is currently ranked Band 1 for Asset
Finance in Chambers UK 2015.
David Gelber (age 70) (independent non-executive)
David Gelber began his career with Citibank in London in 1974.
Over the course of the next twenty years he held a variety of
trading roles in foreign exchange, fixed income and derivatives at
Citibank, Chemical Bank and HSBC where he was Chief Operating
Officer of HSBC Global Markets. In 1994 he joined ICAP, an
inter-dealer broker, as COO and oversaw two mergers and a number of
acquisitions. He is currently the non-executive Chairman of Walker
Crips PLC, a stock broker and wealth manager; and a non-executive
director of IPGL, a holding company with investments in a number of
companies. In addition he is a non-executive director of DDCAP Ltd,
a leading arranger of Islamic compliant financial transactions,
Exotix LLP, an investment banking boutique specialising in frontier
markets and SAXO Bank Capital Markets, a provider of a multi-asset
trading platform. David holds a BSc in Statistics and Law from the
University of Jerusalem and an MSc in Computer Science from the
University of London.
John Le Prevost (age 66) (independent non-executive)
John Le Prevost is the Chief Executive Officer of Anson Group
Limited and Chairman of Anson Registrars Limited (the Company's
Registrar). He has spent over forty years working in offshore fund,
trust and investment businesses during which time he has been a
managing director of subsidiaries in Guernsey for County NatWest
Investment Management, The Royal Bank of Canada and for Republic
National Bank of New York. He is a Full Member of the Society of
Trust and Estate Practitioners. He is a director of a number of
other companies associated with Anson Group's business as well as
being a trustee of the Guernsey Sailing Trust. John is currently
also a non-executive director of Doric Nimrod Air One Limited,
Doric Nimrod Air Two Limited and Doric Nimrod Air Three Limited
(each of which is an aircraft leasing investment vehicle). He is
resident in Guernsey.
Laurence Barron (age 66) (independent non-executive)
Having begun his career as a commercial lawyer in Paris and then
in Tokyo, where he first became involved in aircraft financing
transactions, Laurence joined Airbus in 1982 as an in-house lawyer
specialising in aircraft finance. He subsequently moved to the
business side when, in 1984, he was appointed Sales Finance
Director North America, becoming Head of Sales Finance in 1985, and
then, in 1987, Vice President of Customer Finance. In 1994, he was
asked to set up the Asset Management Organisation within Airbus and
that year became Vice President and Head of Asset Management.
Airbus Asset Management has full responsibility for all used
aircraft transactions at Airbus and acts as an in-house leasing
company for the used Airbus aircraft owned or controlled by the
Airbus group of companies. In 2001 he was promoted to Senior Vice
President of Airbus before assuming the role of President of Airbus
China in 2004, with responsibility for Airbus' overall activities
in the People's Republic of China. In January, 2013, Laurence was
appointed Chairman of EADS China, now rebranded Airbus China.
Laurence retired from salaried Airbus employment at the end of
April 2016 and was non-executive Chairman of Airbus China until the
end of 2017. He holds an LLB from Bristol University Law
Faculty.
MANAGEMENT AND THE DELEGATION OF FUNCTIONS
The Directors, whose details are set out on page 17, are
responsible for managing the business affairs of the Group in
accordance with the Articles and have overall responsibility for
the Group's activities, including investment activity and
performance. Each of the Directors is a non-executive director and
is independent. The Group has delegated management of the Assets to
Amedeo, which is a company incorporated in Ireland. The Directors
delegate secretarial and administrative functions to JTC Fund
Solutions (Guernsey) Limited ("JTCFSL" or the "Secretary" or the
"Administrator") which is a company incorporated in Guernsey and
licensed by the Guernsey Financial Services Commission for the
provision of administration services. The Company has appointed
Nimrod as the Company's Corporate and Shareholder adviser and Anson
Registrars Limited ("Anson") as the Company's Registrar, Transfer
Agent and Payment Agent.
Asset Manager, Agency Services and Liaison Agent
Amedeo has been appointed by the Company to provide asset
management services to the Group. Pursuant to the Asset Management
Agreement dated 30 April 2015, Amedeo will: (i) monitor and, to the
extent required pursuant to the terms and conditions set out in
each lease, administer each relevant lessee's performance of its
obligations under the relevant lease (including such lessee's
obligations relating to the insurance of the Assets); (ii) as the
Group's exclusive remarketing agent in respect of the Assets, use
all reasonable endeavours to solicit offers to lease or sell each
of the Assets on the best terms reasonably obtainable having due
regard to the then current market conditions (including current
industry and market practice); (iii) carry out mid-lease
inspections of the Assets; (iv) provide the Group with information
and analysis with respect to each Asset, including a quarterly
asset monitoring report which will include recent developments and
a forward looking statement including inspection results, events,
any material information, significant changes, decisions which have
been or need to be made, events affecting distributions, and other
major or pending events, issues or outcomes as far as known to
Amedeo; and (v) if requested by the Group, acting reasonably,
provide a financial model that would allow the Board to prepare or
re-assess target distributions based on the Asset Manager's view of
projected cash flows and liabilities.
Amedeo has further undertaken that it will dedicate sufficient
time and resources as they reasonably believe is sufficient from
time to time to fulfil any contractual arrangements it enters into
with the Group.
Amedeo has also been appointed as Agency Services provider by
the Company, pursuant to the Agency Agreement dated 30 April 2015,
to assist the Group, and act as the Group's agent, in relation to
the arrangement, negotiation, review, and, following the approval
and execution by the Group, the management of the acquisition of
Assets, the borrowings of the Group relating to the acquisition of
the Assets (including any Financing Documentation), each lease and
ensuring that Material Agreements are consistent with market
practice in the aviation industry.
Amedeo Services (UK) Limited has been appointed as Liaison and
Administration Oversight Agent by the Company, pursuant to the
Liaison and Administration Oversight Agreement dated 30 April 2015,
to: (i) co-ordinate the provision of services by service providers
to the Group under the Asset Management Agreement, the Agency
Agreement and the Administration Agreement; (ii) facilitate
communication between the Group and its service providers in
relation to the services provided under the Administration
Agreement, Asset Management Agreement and Agency Agreement; (iii)
in relation to the acquisition of any Asset, monitor and review the
timing or payments and any currency exchanges to be effected in
order to ensure payments are made in a timely maker; (iv) monitor
the on-going budget of the Group and the payment of recurring and
certain non-recurring costs, fees and expenses, and (v) assist the
Administrator in monitoring the balances in the bank accounts of
the Group and, where appropriate, provide the Administrator with
any assistance it might reasonably require with respect to making
payments, transferring balances or entering into currency exchanges
as appropriate. Amedeo Services (UK) Limited is authorised and
regulated by the Financial Conduct Authority.
The Amedeo group is primarily involved in the operating lease
and management of wide-body aircraft. The aircraft portfolio
currently managed by the Amedeo group is valued at over USD8
billion and consists of 50 aircraft under management. These
aircraft include commercial airliners including A380, A350, A330,
A321 and Boeing 777, 787 and 747-F. Amedeo is a member of ISTAT,
the International Society of Transport Aircraft Trading, and is a
Strategic Partner of the International Air Transport Association
("IATA").
Corporate and Shareholder Adviser
Nimrod, which is authorised by the Financial Conduct Authority,
has been appointed as the Corporate and Shareholder adviser by the
Company pursuant to the Corporate and Shareholder Advisory
Agreement dated 30 April 2015. In such a capacity Nimrod maintains
a regular dialogue with shareholders as and when they deem it
appropriate to do so in order to ensure that any significant
developments in relation to the Group are communicated
appropriately to shareholders.
Nimrod was founded in 2008 as an entirely independent
organisation which specialises in generating and sourcing
interesting investment funds, themes and solutions managed by
experts in their fields for the professional investor marketplace.
Nimrod has launched nine listed investment companies since its
formation and it also provides investment, marketing, distribution
and advisory services to investment companies and their board of
directors and managers.
Secretary and Administrator
JTCFSL is an independent provider of institutional and private
client services to clients in numerous jurisdictions and is a
member of the JTC Group. See the JTC Group's website at
www.jtcgroup.com.
JTCFSL is a Guernsey incorporated company, which is licensed by
the Guernsey Financial Services Commission. JTCFSL provides
administration and secretarial services to the Group pursuant to
the Administration Agreement dated 30 April 2015, as amended. In
such capacity, JTCFSL is responsible for the general secretarial
functions required by the Law and assists the Group in its
compliance with its continuing legal and regulatory obligations, as
well as providing advice on good corporate governance and best
practice for a publicly traded company.
The Administrator is also responsible for the Group's general
administrative functions and for the preparation of unaudited
half-yearly and audited annual financial reports, subject to the
direction and oversight of the Company's Board of directors.
Registrar
Anson has been appointed as registrar, transfer agent and paying
agent by the Company pursuant to a Registrar's Agreement dated 30
April 2015. Anson performs all the usual duties of a registrar,
transfer agent and paying agent in relation to the Shares and the
maintenance of the Company's Share register.
Review
The Board keeps under review the performance of the Asset
Manager, Corporate and Shareholder Adviser, the Secretary and
Administrator and the Registrar and the powers delegated to each
service provider. In the opinion of the Board the continuing
appointments of the current service providers on the terms agreed
is in the interest of the Company and its shareholders as a
whole.
A full list of the Group's service providers is set out on pages
4 and 5.
MANAGEMENT REPORT
A description of important events that have occurred during the
financial year, their impact on the financial statements and a
description of the principal risks and uncertainties facing the
Group, together with an indication of important events that have
occurred since the end of the financial year and are likely to
affect the Group's likely future development are included in the
Company Overview, the Chairman's Statement, Asset Manager's Report,
Statement of Principal Risks and Uncertainties, Audit Committee
Report and the notes to the consolidated financial statements
contained on pages 50 to 81 and are incorporated herein by
reference.
There were no events or changes in the related parties during
the financial year which had or could have had a material impact on
the financial position of the Group, other than those disclosed in
this consolidated annual financial report.
Responsibility Statement
The Directors jointly and severally confirm that to the best of
their knowledge:
(a) the consolidated financial statements, prepared in
accordance with International Financial Reporting Standards, as
adopted by the European Union, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the
Group; and
(b) this management report (including the information
incorporated by reference) includes a fair review of the
development and performance of the business and the position of the
Group, together with a description of the principal risks and
uncertainties that the Group faces.
John Le Prevost
Director
DIRECTORS' REPORT
The Directors present their consolidated annual financial report
of the Group for the financial year ended 31 March 2018.
Principal Activities and Business Review
The principal activity of the Group is to acquire, lease and
then sell aircraft. The Directors do not envisage any change in
these activities for the foreseeable future. A description of the
activities of the Group in the year under review is given in the
Chairman's Statement on pages 9 to 11.
Status
The Company is a Guernsey domiciled company with registered
number 59675, the shares of which have been admitted to trading on
the Specialist Fund Segment of the London Stock Exchange's Main
Market.
Results and Dividends
The financial results of the Group for the financial year are
set out on pages 46 to 49.
The Company declared and paid the following dividends during the
financial year:
Announcement Payment Date Dividend per
Date Share (pence)
11 April 2017 28 April 2017 2.0625
12 July 2017 28 July 2017 2.0625
11 October 2017 27 October 2017 2.0625
11 January 2018 31 January 2018 2.0625
The Company declared and paid the following dividend after the
financial year end:
Announcement Payment Date Dividend per
Date Share (pence)
12 April 2018 30 April 2018 2.0625
The Company aims to continue for the time being to pay quarterly
dividends of 2.0625 pence per Share in accordance with the
distribution policy subject on each occasion to the Company's
satisfaction of the statutory solvency test. There is no guarantee
that any future dividends will be paid.
Directors
The Directors in office are shown on page 17 and all Directors
remain in office as at the date of approval of this consolidated
annual financial report. Further details of the Directors'
responsibilities are given on pages 23 to 24.
At each annual general meeting of the Company, all the directors
who held office at the two preceding annual general meetings and
did not retire shall be eligible for re-election at the same
meeting.
Anson is the Company's Registrar, Transfer Agent and Paying
Agent. John Le Prevost is a director and controlling shareholder of
Anson Group Limited, the holding company of Anson.
Other than the above, no Director has a contract of service with
the Group, nor are any such contracts proposed.
The interests in Shares of the Company held by persons
discharging managerial responsibility and their persons closely
associated are shown below:
Number of Shares held Number of Shares
as at 31 March 2018 held as at the date
of this report
Robin Hallam 44,669 44,669
Amanda Hallam 44,669 44,669
John Le Prevost 50,000 50,000
David Gelber 316,518 316,518
Vivienne Gelber 33,945 33,945
Laurence Barron - -
Other than the above shareholdings and Mr Le Prevost's interest
in Anson, none of the Directors nor any persons connected with them
had a material interest in any of the Company's transactions,
arrangements or agreements during the year and none of the
Directors has or has had any interest in any transaction which is
or was unusual in its nature or conditions or significant to the
business of the Group and which was effected by the Group during
the reporting year.
As at the year end and as at the date of this report, there were
no outstanding loans or guarantees between the Group and any
Director.
There were no material related party transactions which took
place in the year, other than those disclosed in this Directors'
Report and in Note 24 to this consolidated annual financial
report.
As Amedeo was operating as principal in the Thai transaction as
well as advisor to the Company, Amedeo notified the Board of the
potential conflict of interest. The Board carefully considered the
acquisitions with this issue in mind. The Board took into account
independent appraisals from BK Associates, IBA and MBA as to the
current value of the aircraft and the future value of the aircraft,
after expiry of the leases. It also engaged a firm of accountants
and MBA separately to provide analytical assistance and, with the
assistance of Nimrod, conducted its own analysis of the cash flows
relating to the new assets. The Board believes that the
acquisitions will be accretive to the Company's earnings.
Accordingly, the Board considers the acquisitions and the estimated
purchase price, of the new assets to be fair and reasonable so far
as the Shareholders of the Company are concerned.
Substantial Shareholdings
As of the date of this report, the following shareholders had
notified the Company that they held or controlled 5% or more of the
total voting rights of the Company in issue:
Holder % Total Voting Rights Number of Shares
Legal & General Investment
Management Limited 5.01% 32,200,000
Newton Investments Management
Limited 6.21% 39,909,866
Corporate Governance
Statement of Compliance with The UK Corporate Governance Code
April 2016, as published in June 2016 (the "Code")
The Company is committed to complying with the corporate
governance obligations which apply to Guernsey registered
companies. As a Guernsey incorporated company and under the DGTRs,
the Company was not, for the year under review, required to comply
with the Code. However, the Directors place a high degree of
importance on ensuring that high standards of corporate governance
are maintained and have therefore chosen voluntarily to comply with
the provisions of the Code to the extent that they are considered
relevant to the Group.
Having reviewed the Code the Board considers that it has
maintained procedures during the year to ensure that it has
complied with the Code, other than the following exceptions:
-- There is no chief executive position within the Company,
which is not in accordance with provision A.1.2 of the Code. The
Company has no requirement for a chief executive as all directors
are non-executive and each share responsibilities in running the
business of the Group.
-- There is no senior independent director, which "position" is
recommended in provision A.4.1 of the Code. Taking into account the
nature of the Company and the fact that all directors are
non-executive and independent this position is not seen as
necessary.
-- There is no remuneration committee, which is not in
accordance with provision D.2.1 of the Code. The Company has no
requirement for a remuneration committee given the small size of
the exclusively non-executive and independent Board, and instead,
the full Board performs this function.
-- There is no nomination committee, which is not in accordance
with provision B.2.1 of the Code. The Company has no requirement
for a nomination committee given the small size of the exclusively
non-executive and independent Board, and instead, the full Board
performs this function.
-- There is no internal audit function within the Group. Under
provision C.3.6 of the Code the Audit Committee considers that, as
all of the Group's administrative functions have been delegated to
independent third parties, there is no need for the Group to have
an internal audit facility.
Subject to the areas of non-compliance explained above, the
Company complied with the other recommendations of the Code during
the year. The Code is available on the UK Financial Reporting
Council's website: www.frc.org.uk
Board Evaluation
The Board has conducted a performance evaluation of itself, its
committees and each of the Directors, as required by Provision
B.6.1 of the Code. The process was led by the Board and consisted
of each Director completing questionnaires regarding the
performance of the Board as a whole, the Chairman and the
committees. Each Director also completed a self assessment
questionnaire.
The completed questionnaires were sent to, reviewed and
discussed by the entire Board, which agreed that the Board was
effectively constituted and that each committee and individual
Director was contributing effectively to the Group's ongoing
operations and governance, such that no changes to the Board's
composition or that of any of its committees was considered
necessary or desirable at this juncture.
Board Responsibilities
The Board comprises four Directors and their biographies appear
on page 17 demonstrating the wide range of skills and experience
they each bring to the Board. All the Directors are non-executive
and independent, with Robin Hallam acting as Chairman. To date no
director of the Company has resigned. Directors are able and
encouraged to provide statements to the Board of their concerns and
ensure that any items of concern are recorded in the Board
minutes.
All Directors receive an annual fee, payable quarterly in
arrears, and there are no share options or other performance
related benefits available to them. During the financial year the
Board performed a review of their remuneration and it was concluded
that the remuneration of the Chairman and the Chairman of the Audit
Committee should be revised with effect from 1 January 2018.
Until 31 December 2017, the Chairman was paid GBP65,000 per
annum, the Chairman of the Audit Committee was paid GBP64,000 per
annum and each of the other two Directors was paid a fee of
GBP60,000 per annum. With effect from 1 January 2018, the
Chairman's fee was increased to GBP75,000 per annum and the
Chairman of the Audit Committee's fee was increased to GBP67,500
per annum and each of the three Directors was paid a fee of
GBP60,000 per annum.
The Board meets at least four times per year to consider the
business and affairs of the Group for the previous quarter and the
outlook for the coming quarter and beyond, at which meetings the
Directors review the Company's Assets and all other important
issues to ensure control is maintained. At two of these meetings
the Board considers and, if deemed appropriate, approves the
Group's financial statements.
In the past financial year the Directors held 13 board meetings
and 2 Audit Committee meetings in order to carry out their duties.
As the Company's portfolio increases in size and diversity, it is
likely that the Directors will need to devote more time to the
Company's affairs.
Between these regular meetings the Board keeps in contact by
email and telephone as well as meeting to consider specific matters
of a transactional nature. Additionally, the Directors hold
strategy meetings with relevant advisors as appropriate.
The Directors are kept fully informed by the Asset Manager of
all matters concerning the Assets and their financial arrangements
and by the Secretary of all matters that are relevant to the
business of the Group and which should be brought to the attention
of the Directors and/or shareholders. All Directors have direct
access to the Secretary who is responsible for ensuring that Board
procedures are followed and that there are effective information
flows both within the Board and between the Board and its Asset
Manager.
The Directors also have access to the advice and services of the
Corporate and Shareholder Adviser as required. The Directors may
also, in the furtherance of their duties, take independent
professional advice at the Group's expense.
The other significant commitments of the current Chairman are
detailed in his biography on page 17. The Board was satisfied
during the year and remains satisfied that the Chairman's other
commitments do not interfere with his day-to-day performance of his
duties to the Group and that he had the commitment and time to make
himself available at short notice should the need arise.
During the year the number of full Board meetings and committee
meetings attended by the Directors were as follows:
Director Full Board Meetings Audit Committee Dividend Committee
Robin Hallam 11 of 13 2 of 2 0 of 5
David Gelber 12 of 13 2 of 2 0 of 5
John Le Prevost 13 of 13 2 of 2 5 of 5
Laurence Barron 13 of 13 2 of 2 0 of 5
Board Committees:
Audit Committee
All Directors are members of the Audit Committee, with John Le
Prevost acting as Chairman. The Audit Committee has regard to the
Guidance on Audit Committees published by the Financial Reporting
Council in September 2012. The Audit Committee examines the
effectiveness of the Group's and its service providers' internal
control systems as appropriate, the annual and half-yearly reports
and financial statements, the auditor's remuneration and
engagement, as well as the auditor's independence and any non-audit
services provided by them.
The Audit Committee considers the nature, scope and results of
the auditor's work and reviews it annually prior to providing a
recommendation to the Board on the reappointment or removal of the
auditor. When evaluating the external auditor, the Audit Committee
has regard to a variety of criteria including industry experience,
independence, reasonableness of audit plan, ability to deliver
constructive criticism, effectiveness of communication with Board
and the Group 's service providers, quality control procedures,
effectiveness of audit process and added value beyond assurance in
audit opinion.
Auditor independence is maintained through limiting non-audit
services to specific audit-related work that falls within defined
categories; for example, the provision of advice on the application
of International Financial Reporting Standards or formal reports
for any Stock Exchange purposes. All engagements with the auditor
are subject to pre-approval from the Audit Committee and fully
disclosed within the consolidated annual financial report for the
relevant period. A new lead audit partner will be appointed every
five years and the Audit Committee ensures the auditor has
appropriate internal mechanisms in place to ensure its
independence.
The Audit Committee will, if appropriate, consider arranging for
the external audit contract to be tendered in 2025 (being 10 years
from the initial appointment) with the aim of ensuring a high
quality and effective audit.
The Audit Committee meets at least twice a year, shortly before
the Board meets to consider the Group's half-yearly and annual
financial reports, and reports to the Board with its deliberations
and recommendations and also holds an annual audit planning
discussion with the auditor. The ultimate responsibility for
reviewing and approving the half-yearly and the annual financial
report remains with the Board.
The Audit Committee also operates within clearly defined terms
of reference based on the Institute of Chartered Secretaries and
Administrators recommended terms and provides a forum through which
the Group's external auditor reports to the Board. The Audit
Committee can request information from the Company's service
providers with the majority of information being directly sourced
from the Asset Manager, Secretary and Administrator and the
external auditor. The terms of reference of the Audit Committee are
available on the Company's website and on request from the
Secretary.
Each year, the Board examines the Audit Committee's performance
and effectiveness, and ensures that its tasks and processes remain
appropriate. Key areas covered include the clarity of the
committee's role and responsibilities, the balance of skills among
its members and the effectiveness of reporting its work to the
Board. The Board is satisfied that all members of the Audit
Committee have relevant financial experience and knowledge and
ensure that such knowledge remains up to date. Overall the Board
considers that the Audit Committee has the right composition in
terms of expertise and has effectively undertaken its activities
and reported them to the Board during the year.
During the financial year the Audit Committee met to consider
the annual financial report for the year ended 31 March 2017 and
the half-yearly financial report for the period ended 30 September
2017.
Dividend Committee
The Dividend Committee consists of any one Director, who has
been given full power and authority to consider and, if thought
suitable, declare and approve the payment of a dividend in
accordance with the Company's Distribution Policy.
Internal Control and Financial Reporting
The Board is responsible for establishing and maintaining the
Group's system of risk management and internal controls, which is
reviewed fully for effectiveness on an annual basis. Internal
controls are designed to meet the particular needs of the Group and
the risks to which it is exposed. Accordingly, the internal control
systems are designed to manage rather than eliminate the risk of
failure to achieve business objectives and by their nature can only
provide reasonable and not absolute assurance against misstatement
and loss.
The key procedures which have been established to provide
effective internal controls are as follows:
-- The Board is responsible for the Group's systems of risk
management and internal controls and for reviewing their
effectiveness. The Board confirms that there is an on-going process
for identifying, evaluating and monitoring the significant risks
faced by the Group. The internal controls are designed to meet the
Group's particular needs and the risks to which it is exposed.
-- The Board clearly defines the duties and responsibilities of
their service providers. The appointment of agents and advisers is
conducted by the Board after consideration of the quality of the
parties involved and the Board monitors their on-going performance
and contractual arrangements.
-- The Board regularly reviews the performance of and
contractual arrangements with the Group's agents and advisers.
-- Asset management services are provided to the Group by Amedeo.
-- Corporate and shareholder advisory services are provided to the Group by Nimrod.
-- Administration and secretarial services are provided to the Group by JTCFSL.
-- The duties of asset management, accounting and custody of
assets are segregated. The procedures of the individual parties are
designed to complement one another.
-- Investment transactions and expense payments are approved by
the Board in accordance with delegated authorities approved in
advance by the Board.
-- The Board reviews financial information produced by the Administrator on a regular basis.
-- The Board also specifies which matters are reserved for a
decision by the Board and which matters may be delegated to its
service providers.
Bribery
The Directors have undertaken to operate the business in an
honest and ethical manner and accordingly take a zero-tolerance
approach to bribery and corruption. The key components of this
approach are implemented as follows:
-- the Board is committed to acting professionally, fairly and
with integrity in all its business dealings and relationships;
-- the Group will implement and enforce effective procedures to counter bribery; and
-- the Group requires all its service providers and advisors to
adopt equivalent or similar principles.
Data Protection
The Group has implemented measures designed to ensure its
compliance with the EU General Data Protection Regulation (EU)
2016/679 and associated legislation in Guernsey and in other
jurisdictions. The Company has also issued a privacy notice
explaining the data it holds, how the data is processed and its
procedures etcetera. This notice is available for review and
download at the Company's website.
Dialogue with Shareholders
All shareholders have the right to receive notice of, and
attend, general meetings of the Company, at which one or more
members of the Board will be available to discuss issues affecting
the Group.
The primary responsibility for shareholder relations lies with
the Company's Corporate and Shareholder Adviser. In addition, the
Directors are always available to enter into dialogue with
shareholders and the Chairman is always willing to meet
shareholders, as the Company believes such communication to be
important. Shareholders also have the opportunity to address
questions to the Chairman and the Committees of the Board at the
Company's annual general meeting. The Directors can be contacted
via correspondence sent to the Group's registered office or via the
Secretary.
Going Concern
The Group's principal activities are set out within the Company
Overview on pages 6 to 8. The financial position of the Group is
set out on page 47. In addition, Note 17 to the consolidated
financial statements includes the Group's objectives, policies and
processes for managing its capital, its financial risk management
objectives and its exposures to credit risk and liquidity risk.
The fixed rental income under the relevant operating leases
means that the rents received should be sufficient to repay the
senior debts and provide surplus income to pay for the Group's
expenses and permit payment of dividends. The bullet repayment of
junior debt is expected to be financed out of the disposal proceeds
of the relevant aircraft. The declaration of dividends may need to
be suspended if the Board considers that the Company will not be
able to repay the junior debt through the sale, refinancing or
other disposition of the Assets.
After making reasonable enquiries, and as described above the
Directors have a reasonable expectation that the Group has adequate
resources to continue in its operational existence for the
foreseeable future. Accordingly, they continue to adopt the going
concern basis of accounting in preparing the consolidated financial
statements.
Viability Statement
As required by provision C.2.1 of the Code, the Directors
confirm that they have carried out a robust assessment of the
principal risks facing the Group, including those that would
threaten its business model, future performance, solvency or
liquidity, and that are reported elsewhere in the consolidated
annual financial report.
Provision C.2.2 of the Code recommends that companies publish a
viability statement and this statement is intended to meet that
requirement.
The Directors regularly consider the viability of the Company
and the Group and are required by the Law to do so on every
occasion that any distribution is to be declared. Under the Law,
there is no limit on the period of time for which the Directors are
required to consider the Company's future solvency and the
directors consider future cash flows for at least the next quarter
following the date of declaration of each dividend and any
contingent liabilities on the assumption that lease income will
continue to flow. However, for the purposes of this annual
financial report, the Directors have considered the prospects of
the Company and the Group over a three year period to March
2021.
The Directors, in assessing the viability of the Group, have
paid particular attention to the principal risks faced by the Group
as disclosed in the Audit Committee Report, the Statement of
Principal Risks and Uncertainties and the notes to the consolidated
financial statements, reviewing the risks faced and ensuring that
any mitigation measures in place are functioning correctly.
In addition, the Directors have considered a detailed cash flow
forecast for the running costs of the Group, which is updated
regularly, and have assumed that Emirates, Etihad and Thai are each
a going concern and will continue to remain going concerns for the
foreseeable future. Based on all financial and other information
available, including the cash flow forecast, the Directors believe
that unencumbered cash held and forecast cash receipts will be
sufficient to cover all forecast operating costs of the Group for
the period up to at least March 2021 and that the Group will
therefore be able to meet its debts as they fall due during that
period.
The Directors believe that their assessment of the viability of
the Group over the period chosen was sufficiently robust and as a
result of their review, the Directors have a reasonable expectation
that the Group will be able to continue in operation and meet its
liabilities as they fall due over the period of their
assessment.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Directors'
Report and the financial statements in accordance with applicable
law and regulations. The Law requires Directors to prepare
financial statements for each financial year. Under the Law, they
have elected to prepare the Group's financial statements in
accordance with International Financial Reporting Standards
("IFRS") as adopted by the European Union.
The financial statements are required by Law to give a true and
fair view of the state of affairs of the Group and of the profit or
loss of the Group for that period.
In preparing these financial statements, International
Accounting Standard 1 requires that Directors:
-- properly select and apply accounting policies;
-- 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 IFRS are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the entity's financial position and financial
performance; and
-- make an assessment of the Group's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group's
transactions and disclose with reasonable accuracy at any time the
financial position of the Group and enable them to ensure that the
financial statements comply with the Law. They are also responsible
for safeguarding the assets of the Company and Group and 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 Guernsey governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
The Directors confirm that to the best of their knowledge:
-- the financial statements, prepared in accordance with IFRS,
give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Group and the undertakings
included in the consolidation taken as a whole; and
-- the consolidated annual financial report, taken as a whole,
is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group's performance,
business model and strategy.
Disclosure of information to the auditor
The Directors who held office at the date of approval of this
Directors' Report confirm in accordance with the provisions of
Section 249 of the Law that, so far as they are each aware, there
is no relevant audit information of which the Group's auditor is
unaware; and each Director has taken all the steps that he ought to
have taken as a Director to make himself aware of any relevant
audit information and to establish that the Company's auditor is
aware of that information.
Signed on behalf of the Board on 20 July 2018
John Le Prevost
Director
STATEMENT OF PRINCIPAL RISKS AND UNCERTAINTIES
Summary
The Board has undertaken a robust assessment of the principal
risks facing the Group and has undertaken a detailed review of the
effectiveness of the risk management and internal control systems.
The Board is comfortable that the risks are being appropriately
monitored and the documentation to support these processes
undergoes review and enhancement with each new acquisition.
The risks set out below are those which are considered by the
Board to be the material risks relating to the Company and the
Group. Additional risks and uncertainties of which the Group is
presently unaware or that the Group currently believes are
immaterial may also adversely affect its business, financial
condition, results of operations or the value of Shares.
Risk Explanation/Mitigation
Operational risk There is a risk that the Group will not achieve
its investment objective and that the value
of a shareholder's investment could decline
substantially or entirely as a consequence.
The Board is ultimately responsible for all
operational aspects of performance, including
cash management, asset management and legal
and regulatory obligations.
The Group has no employees and so the Company
enters into legal agreements with service
providers to ensure that all operational
functions are fulfilled. Failure by any service
provider to carry out its obligations to
the Company in accordance with the terms
of its appointment could have a materially
detrimental impact on the operation of the
Group and could adversely affect the ability
of the Company to meet its investment objective.
This risk has been mitigated by the Company
using well established, reputable and experienced
service providers. The Board assess service
providers' continued performance on an annual
basis.
Key Personnel at The ability of the Company to achieve its
Asset Manager investment objective is significantly dependent
upon the expertise of certain key personnel
at Amedeo. The exact impact of the departure
of a key individual from Amedeo on the ability
of the Company to achieve its investment
objective cannot be determined and may depend
on the ability of Amedeo to recruit a new
individual of a similar level of experience
and calibre. There can be no guarantee that
Amedeo would be able to do so and this could
adversely affect the ability of the Company
to meet its investment objective.
The service provision agreements in place
seek to ensure that the level of service
remains continuous.
Investment risk The Group will only enter into leases on
terms which stipulate that the cost of repair
and maintenance of the Assets will be borne
by the lessee. However, upon expiry or termination
of leases, the cost of repair and maintenance
will fall upon the Group. Upon expiry of
leases, the Company may therefore bear higher
costs and the terms of any subsequent leasing
arrangements may be adversely affected, which
may reduce the distributions paid to the
shareholders from such point. Repair and
maintenance issues may adversely affect the
price of the Assets upon sale. Further, if
the Company were to dispose of the Assets
at the end of the lease terms, there is a
risk that indicative values may not be realised
on disposal. This could affect the ability
of the Company to meet its investment objective.
Insurance risks The lease for each Asset requires that the
Lessee insures the Asset. However, inflation,
changes in ordinances, environmental consideration
and other factors may make the insurance
proceeds insufficient to repair or replace
the Assets if they are damaged or destroyed.
If the insurance proceeds are insufficient
to repair or replace the Assets if they are
damaged or destroyed, this may affect the
ability of the Company to meet its investment
objective. If a lease is terminated, the
Group will have to insure the relevant Asset
directly which will cause additional expenses
to be incurred.
Return of the Assets At the end of each of the leases, the relevant
at the end of the Asset must, subject to certain conditions,
Leases be redelivered in full-life physical condition
to the Group by the lessee or alternatively
by a combination of a specified minimum physical
condition, as set out in the relevant lease,
plus a cash compensation (payable by the
lessee) which together with the Asset sale
proceeds amounts to the appraised (forecast)
asset value in full-life condition.
Any redelivery of an Asset in a condition
other than contracted condition may impact
upon the amount that can be realised upon
any subsequent sale or re-lease of such Asset,
including that it may create additional,
unforeseen expenses, such as re-fitting,
storage and insurance costs, for the Group
at that time.
The Asset Manager performs regular checks
of the Assets and updates the Board of any
material developments.
Airline industry The airline industry is particularly sensitive
related risks to changes in economic conditions. Unfavourable
economic conditions can also impact the ability
of airlines to raise fares to counteract
increase in fuel, labour and other costs.
The airline industry is also subject to other
risks including competition between airlines,
dependency on rapidly evolving technology,
inability to obtain additional equipment
or support for aircraft and engine suppliers,
availability and price of fuel, staff and
employee related issued (including employee
strikes), security concerns and the threat
of terrorism, airport capacity constraints,
air traffic control inefficiencies, changes
in or additional governmental regulations
relating to air travel and acts of God (including
adverse weather and natural disasters).
There is also a risk that the behaviour of
airline competitors could restrict the lessees
activities in certain jurisdictions. Any
of these risks could materially affect the
ability of the lessees to comply with payment
obligations. Furthermore, a general downturn
in the airline industry would have an impact
on attainable leasing rates in the event
of any termination or at expiry of the leases
as well as on attainable sales revenue for
the Assets.
Valuation of Assets The Group's net asset value for accounting
purposes is calculated in accordance with
IFRS and may not properly reflect the actual
realisable value of the Assets at any particular
point of time.
Valuations of the Assets by Independent Expert
Valuers ("IEV") will be considered in any
valuation of the Group's Assets. The Board
will consider these valuations and shall,
if there are indicators that would suggest
a permanent diminution in book value of one
or more of the Assets, determined in consultation
with the Administrator, the auditor and the
Asset Manager, there will be an appropriate
adjustment for accounting purposes to the
Net Asset Value and Net Asset Value per Share
of the Group.
Valuations (including valuations provided
by any IEV), and in particular valuations
of assets for which market quotations are
not readily available, are inherently uncertain.
Valuations may therefore fluctuate over short
periods of time and may be based on estimates.
Valuations of an Asset (including valuations
provided by any IEV) will not constitute
a guarantee of value and may not necessarily
reflect the prices at which that Asset could
be, or could have been, purchased or sold
at any given time, which may be subject to
significant volatility and uncertainty, and
depend on various factors beyond the control
of the Group, Amedeo and the IEV. Therefore,
there can be no guarantee that the Assets
could ultimately be realised at the Group's
valuation.
The Group has a robust audit process to ensure
that valuations accurately reflect the requirements
of IFRS. The IEV will be engaged to report
on fair value on an annual basis.
Borrowings and There is a risk that the Group is exposed
financing risk to fluctuations in market interest rates
and foreign exchange rates.
This risk has been partially mitigated by
ensuring that loan repayments are made from
lease rental revenues received in the matching
currency and by fixing the interest rate
on loans and lease rentals. In the case of
the four Thai aircraft, the floating rate
lease rentals are well matched to floating
rate loan repayments.
Should the lessees default on the rental
payments it is unlikely the Group will be
able to meet it targeted dividends or, in
the case of ongoing default, continue as
a going concern. Should an Asset not be sold
at the end of the lease, steps would need
to be taken to refinance the Asset or the
Company.
The Asset Manager provides the Board with
a report on the performance of the lessees
and of the Assets which is considered by
the Board on a quarterly basis.
An expense budget is also reviewed on a quarterly
basis to ensure that adequate reserves are
maintained to meet operational expenses.
Lessee risk The Group's airline lessees are responsible
for all maintenance and safety checks. The
requirement for each airline lessee to service
and maintain the aircraft are set out in
the lease agreements. There is a risk that
airlines may not properly maintain aircraft
which may lead to an impairment of the aircraft's
value. In order to mitigate against this
risk the Group closely monitors each airline's
usage of aircraft and their compliance with
agreed maintenance schedules.
In certain cases, the Group requires lessees
to pay maintenance reserve payments in order
to ensure that there is adequate funding
at all times for proper maintenance of the
aircraft.
The credit quality and risk of lease transactions
with counterparty airlines is evaluated upon
conception of the transaction. In addition,
ongoing updates as to the operational and
financial stability of the airlines are provided
by the Company's Asset Manager in its quarterly
reports to the Company. Given the full or
partial sovereign ownership status of all
underlying lessees, the credit quality of
these airlines would be regarded as some
of the highest ranked in the world. Downturns
in the aviation industry on a systemic level
could weaken the financial stability of the
Company's lessees and result in the increased
risk that they could default on lease obligations.
If a significant number of lessees are not
able to meet their obligations to the Company,
our cash flows and financial results could
be adversely affected.
Regulatory risk The Group is required to comply with the
Law, LSE the DGTRs and various European Union
regulations and directives. Any failure to
comply with applicable laws and regulations
or to respond in a timely manner to changes
could lead to criminal or civil proceedings.
The Group is also a member of The Association
of Investment Companies (the "AIC") which
is the trade body for closed-ended investment
companies. Amongst other things, the AIC
keeps its member companies up-to-date with
legal and regulatory changes and provides
guidance and advice on how to comply with
them.
The Board receives periodic updates from
the Company's external auditor, legal advisers
and other professionals.
Although responsibility ultimately lies with
the Board, the Secretary also monitors and
assists the Board with compliance with its
legal and regulatory obligations.
AUDIT COMMITTEE REPORT
Membership
John Le Prevost - Chairman of the Audit Committee
Robin Hallam - Chairman of the Board
David Gelber - Non-executive Director
Laurence Barron - Non-executive Director
Key Duties
The Audit Committee's key duties are as follows:
-- reviewing and monitoring the integrity of the Group's
financial statements and financial results announcements and
monitoring compliance with relevant statutory and listing
requirements;
-- reporting to the Board on the appropriateness of the Group's
accounting policies and practices including critical accounting
policies and practices;
-- advising the Board on whether the annual report and accounts,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group's
performance, business model and strategy;
-- overseeing the relationship with the external auditor and
reviewing the effectiveness of the external audit process;
-- make recommendations to the Board, for it to put to the
shareholders for their approval in general meeting, in relation to
the appointment, reappointment and removal of the external auditor
and to approve the remuneration and terms of engagement of the
external auditor;
-- monitoring the systems of internal controls and risk
management operated by the Group and by the Group's principal
service providers;
-- monitoring and reviewing the effectiveness of the Group's internal audit function;
-- developing and implementing policy on the engagement of the
external auditor to supply non-audit services, taking into account
relevant ethical guidance regarding the provision of non-audit
services by the external auditor; and to report to the Board,
identifying any matters in respect of which it considers that
action or improvement is needed and making recommendations as to
the steps to be taken; and
-- reporting to the Board on how it has discharged its responsibilities.
Audit Committee Meetings
The Audit Committee (the "Committee") meets at least twice a
year. The Committee reports to the Board on its activities and on
matters of particular relevance to the Board in the conduct of its
work.
Main Activities of the Committee during the Year
The Committee assisted the Board in carrying out its
responsibilities in relation to financial reporting requirements,
compliance and the assessment of internal controls. The Committee
also managed the Group's relationship with the external
auditor.
Fair, Balanced and Understandable
In order to comply with the Code, the Board has requested that
the Committee advise them on whether it believes that the Group's
annual financial report, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Group's performance, business model and
strategy.
Financial Reporting and Significant Issues
The Committee's primary role in relation to financial reporting
is to review, with its service providers and the external auditor,
the appropriateness of the half-yearly and annual financial
reports, the significant financial reporting issues and accounting
policies and disclosures in the financial statements. The Committee
has considered the key risks identified as being significant to
this consolidated annual financial report and the most appropriate
treatment and disclosure of any new significant issues identified
during the audit, as well as any recommendations or observations
made by the external auditor, Deloitte LLP ("Deloitte"). To aid its
review, the Committee considered reports prepared by external
service providers and reports from Deloitte on the outcome of their
annual audit.
The significant issues considered by the Committee in relation
to this consolidated annual financial report and how these were
addressed were as follows:
Significant issues for How the Committee addressed these significant
the year issues
Residual value of aircraft At the time of purchase of each Asset,
Assets the Group engaged three internationally
The Assets of the Group recognised expert appraisers to provide
comprise eight Airbus the Group with third party consultancy
A380-800 aircraft, two valuation services. All appraisers have
Boeing 777-300ER aircraft used similar methodologies to derive
and four Airbus A350-900 their opinions on the current market
aircraft (the "Assets"). values and future values. In the absence
An annual review is required of used sales data for similar assets,
of the residual value appraisers are heavily reliant on databases
of the Assets as per containing historical data points of
IAS 16 Property, Plant aircraft sales relating to large commercial
and Equipment, which aircraft. Interpretation of historical
defines residual value data is the basis for the current market
as "the estimated amount value and provides, together with the
that an entity would expected developments in the future,
currently obtain from the foundation for their opinions on
disposal of the asset, future values. Furthermore, the appraisers'
after deducting the estimated valuations take into account specific
costs of disposal, if technical and economic developments
the asset were already as well as general future trends in
of an age and in the the aviation industry and the macro-economic
condition expected at outlook. The Group has hitherto used
the end of its useful the average of the three future values
life". The Group's estimation with inflation provided by the three
technique is to make appraisers as a guide to determine the
reference to the current residual value.
forecast market value
(excluding inflation) However, following discussions between
which the Group believes the Directors and the Auditors for the
is a reasonable application year ended 31 March 2018, it was determined
of the IAS 16 definition. that the strict application of IAS 16
This approach has been be applied to the assets of the Company
taken because current and that the use of forecast market
market values in today's values excluding inflation best approximates
prices for twelve year residual value as required per IAS 16
old A380 and A350's do Property, Plant and Equipment. This
not exist at the reporting has resulted in a reduction in USD terms
date. It should be noted in the anticipated residual values of
that in relation to B777-300 the aircraft since the prior financial
ERs residual values, year or when they were acquired. This
there is minimal to no together with the effect of foreign
public secondary market exchange fluctuations on the residual
trading data available. values has resulted in an adjustment
As such the Group has made to depreciation, details of which
made reference to current have been disclosed in Note 9. Apart
forecast market values from the aforementioned, the Asset Manager
(excluding inflation) has confirmed in the year ending 31
in determining residual March 2018 that there were no other
values for the B777-ERs. required changes to the methodology
used to determine the residual values.
As updated investment valuations of
all Assets as at the year end were commissioned
and received from third party professional
valuers and analysed by Amedeo and the
directors, the Committee believes that
those valuations are appropriate for
use in preparing the financial statements.
Therefore, the aggregate residual value
excluding inflation used in the accounts
is based on these appraisals.
Upon review of the advice they have
received from Amedeo and the appraisers,
the Committee is of the opinion that,
the current estimates of the residual
values excluding inflation of the Assets
are reasonable approximations of the
residual values of the aircraft within
the IAS 16 definition.
Recording foreign exchange In assessing foreign exchange, the Committee
gains/losses has considered the issue at length and
are of the opinion that, on an on-going
IFRS require that certain basis and assuming the lease and loan
transactions denominated payments are made as anticipated, such
in US Dollars (including, exchange differences do not reflect
most importantly, the the commercial substance of the situation
cost of the Assets) are in the sense that the key transactions
translated into Sterling denominated in US Dollars are in fact
at the exchange rate closely matched save for junior debt
ruling at the date of bullet repayments. Rental income received
the transaction whilst in US Dollars is used to pay senior
monetary items (principally loan repayments due and junior loan
the outstanding borrowings) interest, which are likewise denominated
are translated at the in US Dollars. US Dollar lease rentals,
rate prevailing on the senior loan repayments and junior interest
reporting date. The resultant payments are furthermore fixed at the
figures sometimes show outset of each Lease period and are
very large mismatches very similar in amount and timing.
which are reported as
unrealised foreign exchange The Committee concluded that the matching
differences. of the lease rentals to settle senior
loan repayments and junior interest
payments, therefore partially mitigates
During the year the Group risks by foreign exchange fluctuations.
has recorded significant
foreign exchange rate The Committee has carefully considered
gains due to the appreciation the disclosure in Note 17(b) to the
of Sterling against US financial statements to ensure that
Dollars from 1.255 to the reality of the Group's foreign exchange
1.4018 and the consequent risk exposure is properly explained.
decrease in the Sterling
value of the US Dollar
denominated debt.
Risk of default by Lessee The Committee receives quarterly reports
on lease rentals receivable from Amedeo which comment on the economic
performance of the Lessees. Amedeo have
Should the Lessees default advised that economically, Emirates,
on the rental payments, Etihad and Thai have continued to perform
it is unlikely the Group well, flying more passengers than ever
will be able to meet before. Passenger load factors remain
its targeted dividends high.
or, in the case of ongoing
default, continue as The Committee concluded that it wishes
a going concern. to continue to receive quarterly reports
from Amedeo on the performance of the
Lessees and would continue to monitor
the Lessees' overall performance.
The Committee has carefully considered
the disclosure in Note 17(c) to the
financial statements to ensure that
this concentration of credit risk is
properly reflected.
Consideration of any The Committee has considered the issue
triggers for impairment at length and are of the opinion that,
IAS 36 Impairment of that there is no indication of an impairment
Assets requires that loss for the current year. Accordingly,
a review for impairment no impairment review has been undertaken.
be carried out by the
Group when there is an As detailed in note 3, the Committee
indication of impairment has considered various factors such
of an asset and if events as: a lack of conclusive comparable
or changes in circumstances current market data for the A380 and
indicate that the carrying A350 aircraft, the lack of publically
amount of an asset may available secondary market data for
not be recoverable. The the Boeing 777-300ER aircraft, the nature
review will compare the of the operations of the Group being
carrying amount of the aircraft leasing as opposed to an airline
asset with its recoverable operating business, as well as other
amount, which is the mitigating factors such as the close
higher of its value if monitoring by the Group of each airline's
sold (if known) and its usage of aircraft and their compliance
value in use. with agreed maintenance schedules.
Recognition of the derivative In assessing the accounting recognition
financial instruments of the interest rate swaps entered into
in respect of the interest during the year, the Committee has considered
rate swaps the issue at length and are of the opinion
that, on an on-going basis, the variable
IAS 39 Financial Instruments: loan and corresponding interest rate
Recognition and Measurement swap will gives rise to cash flows which,
requires that separately in combination will match the lease
identifiable derivative income.
financial instruments
such as interest rate The fair value of the interest rate
swaps are carried at swaps on a mark-to-market basis represents
fair value at the reporting the net present value of the estimated
date and are accounted differential between the fixed and variable
for separately in the interest rates that will arise given
financial statements. the market "assessment" of interest
These derivative financial rates over the balance of the interest
instruments are recorded rate swap contracts. This financial
at mark-to-market fair instrument will have a zero value at
values as either a financial the end of the swap contracts.
asset or a financial
liability.
We note that the auditor also considers the recognition of lease
rental income and accounting for debt within the key audit matters
section. These items have been considered by the Committee in the
current year but, as there have been no significant changes in
respect of these risks, they have not been a primary focus area of
the Committee in the current year.
Going Concern
After making enquiries, the Committee has a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future, being the next
three financial years. The Committee believes the Group is well
placed to manage its business risks successfully as the interest on
the Group's loans has been fixed, and the fixed rental income under
the operating leases ensures rents should be sufficient to repay
the senior loans, but not the junior loans, and provide surplus
income to pay for the Group's expenses and permit payment of
dividends.
Accordingly, the Committee has adopted the going concern basis
in preparing the financial information. As regards the US$18.5
million to US$40 million of junior debt per aircraft to be bullet
repaid, the Board is comfortable for the time being that the
residual disposable value of each aircraft will be sufficient to
cover such debt.
Internal Controls
The Committee has made due enquiry of the internal controls of
the Administrator. The Committee is satisfied with the controls
currently implemented by the Administrator and will continue to
review them regularly. The Committee has also requested the
Secretary keeps the Group informed of any in-house developments and
improved internal control procedures effected.
Internal audit
The Group has no employees and operates no systems of its own,
relying instead on the employees and systems of its external
service providers. The Board has therefore taken the decision that
it would not be of any material benefit for the Group to appoint an
internal auditor.
External Audit
The effectiveness of the external audit process is dependent on
appropriate audit risk identification at the start of the audit
cycle. The Committee received from Deloitte, a detailed audit plan,
identifying their assessment of the key risks. For the year the
primary risks identified were in respect of valuation and ownership
of the aircraft Assets; the recognition of lease rental income; the
accuracy and disclosure of asset management and advisory fees;
accounting for fixed rate debt using the effective interest rate
method and management override of controls.
Using its collective skills, the Committee evaluated the
effectiveness of the audit process in addressing the matters raised
through the reporting it received from Deloitte at the conclusion
of the audit.
In particular the Committee formally appraise Deloitte against
the following criteria:
-- Independence
-- Ethics and Conflicts
-- Knowledge and Experience
-- Challenge
-- Promptness
-- Cost
-- Overall quality of service
In addition the Committee sought feedback from the Administrator
on the effectiveness of the audit process.
For the year, the Committee were satisfied that there had been
appropriate focus on the primary areas of audit risk and assessed
the quality of the audit process to be good. The Committee
discussed their findings with Deloitte and will consider how future
external audits could be improved.
The Committee holds meetings with the external auditor to
provide additional opportunity for open dialogue and feedback from
the auditor. If felt necessary, Committee members meet with the
external auditor without the Administrator and Asset Manager being
present. Matters typically discussed include the residual valuation
of aircraft, the auditor's assessment of business risks and
management activity thereon, the transparency and openness of
interactions with the Administrator, confirmation that there has
been no obstruction of the auditor by the Administrator or undue
influence on the independence of their audit and how they have
exercised professional scepticism.
Appointment and Independence
The Committee considers the reappointment of the external
auditor, including the rotation of the audit partner, each year and
also evaluate their independence on an on-going basis.
The external auditor is required to rotate the audit partner
responsible for the audit every five years. The current lead audit
partner has been in place since January 2015.
Deloitte has been the Group's external auditor since January
2015. The Committee met during the year under review and
recommended to the Board the reappointment of Deloitte as external
auditor for the year ended 31 March 2018, which was subsequently
approved at the Company's annual general meeting held on 4 October
2017. The Committee is currently considering the reappointment of
Deloitte and will in advance of the Company's 2018 annual general
meeting put a recommendation to the Board.
There are no contractual obligations restricting the Committee's
choice of external auditor. The Committee continues to consider the
audit tendering provisions outlined in the Code, of which it is
supportive.
Non-Audit Services
To further safeguard the objectivity and independence of the
external auditor, the Committee has a formal policy governing the
engagement of the external auditor to provide non-audit services.
No changes have been made to this policy during the year. This
policy specifies that Deloitte should only be engaged for non-audit
services where there is considered to be no material threat to the
auditor's independence.
Deloitte is prohibited from providing non-audit services without
the Committee's prior approval. In considering the proposed
provision by Deloitte of any such services the Committee will take
into consideration whether it is in the best interests of the Group
that such services should be supplied by the Group's external
auditor (rather than another service provider) and, if so whether
any safeguards regarding auditor objectivity and independence in
the conduct of the audit should be put in place, whether these
would be effective and how such safeguards should be disclosed.
Committee Evaluation
Our activities formed part of the review of Board effectiveness
performed in January 2018.
An internal evaluation of our effectiveness will be carried out
in 2018.
John Le Prevost
Chairman of the Audit Committee
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF AMEDEO AIR FOUR PLUS
LIMITED
Report on the audit of the financial statements
Opinion
==================================================================
In our opinion the financial statements:
* give a true and fair view of the state of the Group's
affairs as at 31 March 2018 and of the Group's profit
for the year then ended;
* have been properly prepared in accordance with
International Financial Reporting Standards (IFRSs)
as adopted by the European Union; and
* have been prepared in accordance with the
requirements of the Companies (Guernsey) Law, 2008.
We have audited the financial statements of Amedeo Air Four
Plus Limited (the 'Company') and its subsidiaries ( the 'Group')
which comprise:
* the Consolidated Statement of Comprehensive Income;
* the Consolidated Statement of Financial Position;
* the Consolidated Statement of Cash Flows;
* the Consolidated Statement of Changes in Equity; and
* the related notes 1 to 24.
The financial reporting framework that has been applied in
their preparation is applicable law and IFRSs as adopted by
the European Union.
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.
We are independent of the Group in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in the UK, including the Financial Reporting Council's
Ethical Standard as applied to listed 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.
Summary of our audit approach
--------------------------------------------------------------------------------------
Key audit matters The key audit matters that we identified in
the current year were:
* Valuation and ownership of aircraft;
* Recognition of lease rental income; and
* Accounting for debt using the effective interest
method.
All key audit matters are consistent with the
prior year.
------------------------------------------------------------------
Materiality The materiality we used in the current year
was GBP14,752,000 which was determined on the
basis of 2% of the forecasted shareholders'
equity. This is consistent with the prior year.
------------------------------------------------------------------
Scoping The Consolidated Financial Statements of the
Group incorporate:
* its special purpose subsidiaries through which
aircraft are held and through which debt finance has
been obtained; and
* its leasing-in leasing-out subsidiaries through which
lease rental income is received from lessees and paid
over to four special purpose subsidiaries.
Whilst statutory audits of the financial statements
of each of these subsidiaries are not required,
they are included within the scope of our audit
of the Consolidated Financial Statements. Audit
work to respond to the risks of material misstatement
was performed by the same audit engagement team.
------------------------------------------------------------------
Significant There has been no significant changes in our
changes in our approach from prior year.
approach
------------------------------------------------------------------
Conclusions relating to going concern, principal risks and
viability statement
Going concern
We have reviewed the directors' statement We confirm that we
in note 2(j) to the financial statements have nothing material
about whether they considered it appropriate to report, add or
to adopt the going concern basis of accounting draw attention to
in preparing them and their identification in respect of these
of any material uncertainties to the Group's matters.
ability to continue to do so over a period
of at least twelve months from the date
of approval of the financial statements.
Principal risks and viability statement We confirm that we
Based solely on reading the directors' statements have nothing material
and considering whether they were consistent to report, add or
with the knowledge we obtained in the course draw attention to
of the audit, including the knowledge obtained in respect of these
in the evaluation of the directors' assessment matters.
of the Group's ability to continue as a
going concern, we are required to state
whether we have anything material to add
or draw attention to in relation to:
-- the disclosures on pages 29-32 that describe
the principal risks and explain how they
are being managed or mitigated;
-- the directors' confirmation on page 27
that they have carried out a robust assessment
of the principal risks facing the Group,
including those that would threaten its
business model, future performance, solvency
or liquidity; or
-- the directors' explanation on pages 26
and 27 as to how they have assessed the
prospects of the Group, over what period
they have done so and why they consider
that period to be appropriate, and their
statement as to whether they have a reasonable
expectation that the Group will be able
to continue in operation and meet its liabilities
as they fall due over the period of their
assessment, including any related disclosures
drawing attention to any necessary qualifications
or assumptions.
We also report on whether the directors'
statement relating to the prospects of the
Group as set out in Listing Rule 9.8.6R(3)
is materially inconsistent with our knowledge
obtained in the audit.
Key audit matters
====================================================================================================================================
Key audit matters are those matters that, in our professional
judgement, 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 consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion
on these matters.
Valuation and ownership of aircraft
Key audit matter Included on the Group's consolidated statement
description of financial position as at 31 March 2018 are
aircraft assets of GBP2.24 billion (2017: GBP1.57
billion) as disclosed in Note 9 to the consolidated
financial statements. As explained in Note 2(n),
the Group's accounting policy is to measure its
aircraft assets at depreciated historic cost
less impairment. The assets are being depreciated
on a straight-line basis over the terms of the
lease to an estimated residual value at the end
of that period. As stated in Note 3, estimation
of aircraft residual value is a source of uncertainty
and is a key determinant in preparing the consolidated
financial statements. Refer to the considerations
by the audit committee on residual value as discussed
on page 34.
Our key audit matter relates to the following
areas as there are risks that:
* the selected useful life or residual values used in
determining depreciation are not appropriate as the
estimation of aircraft useful life and residual
values is a key judgement;
* an indicator of impairment of the assets might arise
in which case an impairment review should be
performed and the value of the assets written down to
recoverable amount if less than carrying value; and
* the assets do not belong to the Group.
-------------------------------------------------------------------------
How the scope Our procedures included:
of our audit * critically assessing the conclusions reached by the
responded to Board on the appropriateness of selected residual
the key audit values and evaluating their consistency with
matter available market information, including forecast
valuations obtained by the Group from expert aircraft
valuers and the terms of the aircraft lease
agreements. We have considered the qualifications and
experience of the valuers engaged by management. We
have also considered the adequacy of the disclosure
related to this estimation uncertainty set out in
Note 3;
* engaging our internal aircraft valuation specialists
in reviewing the Board and Asset Manager's
conclusions on the assessments made on residual
values used at year end;
* reviewing and challenging the Board's conclusion on
asset impairment assessment by reviewing for both
internal and external factors which might be
indicators of impairment;
* tracing amounts capitalised in respect of the
acquisitions to relevant purchase documentation and
challenging the appropriateness of other capitalised
costs in line with evidence from our inspection of
purchase documentation;
* reviewing the original purchase agreements for
consistency with assets owned and obtaining
certificates of registration directly from 'The
International Registry for International Interests in
Mobile Equipment' to confirm ownership. In addition,
we also assessed the economic substance of an asset
acquired by way of an Ijarah transaction.
-------------------------------------------------------------------------
Key observations Having carried out the procedures, we conclude
that the useful life selected, residual values
used and the Board's assessment that no impairment
review is required were appropriate.
We conclude that the assets recorded in the consolidated
financial statements are owned by the Group either
legally or through the economic substance of
transactions. Costs incurred in bringing the
aircraft to intended operating conditions were
appropriately capitalised.
-------------------------------------------------------------------------
Recognition of lease rental income
Key audit matter The Group's leases have been classified as operating
description leases and as such rental income which amount
to GBP191 million (2017: GBP141 million) should
be recognised on a straight-line basis over the
lease term, which differs from the profile of
actual rental payments. In addition rental income
which amount to GBP28million (2017:GBPnil) is
variable rent and should be recognised when earned.
As set out in Note 4 of the financial statements,
a significant portion of these lease rentals
are receivable in US Dollars and must be appropriately
translated into the Sterling functional and presentation
currency. The recognition of revenue also requires
consideration of all terms of the signed lease
contracts. As stated in Note 3, classification
of leases as operating leases is a key source
of uncertainty in preparing the financial statements.
The risk is that revenue is not properly recorded
in accordance with these requirements and the
related deferred or accrued income in not correctly
calculated.
-------------------------------------------------------------------------
How the scope Our procedures included:
of our audit * consideration on whether the classification of the
responded to leases as operating is appropriate with reference to
the key audit the lease terms, the nature of assets and the
matter requirements of IAS 17: Leases;
* developing independent expectations of lease income
for the year based on total lease rentals receivable,
the lease term and the applicable foreign exchange
rates during the year. We also traced a sample of
rental income receipts to bank statements;
* recalculating deferred and accrued rental income
recognised in the Consolidated Statement of Financial
Position and testing accuracy of related translation
differences; and
* tracing a sample of rental income receipts to bank
statements.
-------------------------------------------------------------------------
Key observations Having performed the procedures above, we conclude
that the classification of the leases is appropriate
and that revenue recognition is in line with
the terms of the signed lease contracts and is
in line with IAS17:Leases.
We also conclude that deferred and accrued income
balances recorded were appropriate.
-------------------------------------------------------------------------
Accounting for debt using the effective interest method
Key audit matter In order to part-finance the acquisition of assets,
description the Group has obtained fixed and floating rate
debt. As at 31 March 2018 the value of the total
debt held by the Group was GBP1.57 billion (2017:
GBP1.29 billion) as disclosed in Note 14 to the
Consolidated Financial Statements. Part of the
debt is made up of senior loans which are amortising
over the loan repayment period and junior loans
which are interest only, with the actual loan
balances being payable at the end of the loan
period. As set out in Note 2(n) to the Consolidated
Financial Statements, the debt instruments are
carried at amortised cost with interest expense
recognised at the effective interest rate. The
risk exists that the debt is not properly accounted
for using the effective interest rate method
or that adequate disclosure is not made in the
Consolidated Financial Statements. Floating rate
debt have related swaps entered into to hedge
the cash flow interest rate risk. There is risk
that related swaps are not properly carried out
at fair vaue in the Consolidated Financial Statements.
An additional risk is in relation to the inappropriate
classification of an asset acquired by way of
an Ijarah transaction.
-------------------------------------------------------------------------
How the scope Our procedures included:
of our audit * reviewing the debt amortisation schedules prepared by
responded to management to recalculate the effective interest
the key audit rates on the loans and checked whether they are
matter consistent with the repayment schedules;
* obtaining direct confirmation from the lead arranger
of each loan facility of the principal balance
outstanding and recalculating accrued interest using
the effective interest rate;
* developing an expectation of the interest charges for
the period using the average outstanding principal
balances during the period and the effective interest
rates;
* utilising internal valuation specialists to perform
independent valuations on swaps on the floating rate
debt to determine if management's valuations fell
within a reasonable range; and
* assessing the accounting treatment of an asset
acquired by way of an Ijarah transaction, through
evaluation of the economic substance of the whole
transaction involving the legal form of a lease.
-------------------------------------------------------------------------
Key observations Having carried out the procedures, we conclude
that the debt was appropriately valued in line
with the effective interest rate method and related
interest calculations were within our expectation.
We conclude that the asset acquired by way of
an Ijarah transaction was appropriately recognised
and the corresponding Ijarah finance was appropriately
classified as a borrowing, in line with the requirements
of SIC27:Evaluating the economic substance of
a transaction involving the legal form of a lease.
We also conclude that the valuation of swaps
was within our expectation.
-------------------------------------------------------------------------
Our application of materiality
===============================================================================
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed
or influenced. We use materiality both in planning the scope
of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Materiality GBP14,752,000 (2017: GBP6,364,000)
Basis for determining 2% (2017: 2%) of forecasted shareholders' equity.
materiality The determined materiality represents [2.09%]
of the shareholder's equity at 31 March 2018.
-----------------------------------------------------
Rationale for Our materiality is based on shareholders' equity
the benchmark of the Group. Comprehensive income is significantly
applied influenced by fluctuations in exchange rates,
hence it will not be a stable benchmark to
use in our determination of materiality. We
consider shareholders' equity to be the most
important balance on which the shareholders
would judge the performance of the Group.
-----------------------------------------------------
We agreed with the Audit Committee that we would report to the
Committee all audit differences in excess of GBP737,600 (2017:
GBP127,000), as well as differences below that threshold that,
in our view, warranted reporting on qualitative grounds. The
change in the reporting threshold has been made following our
reassessment of what matters require communicating. We also
report to the Audit Committee on disclosure matters that we
identified when assessing the overall presentation of the financial
statements.
An overview of the scope of our audit
==========================================================================
Our audit was scoped by obtaining an understanding of the Group
and its environment, including internal control, and assessing
the risks of material misstatement. Audit work to respond to
the risks of material misstatement was performed directly by
the audit engagement team.
The Group is administered by a third party Guernsey regulated
service provider, as part of our audit we assessed the design,
implementation and operating effectiveness of controls established
at the service provider for the purposes of our audit.
Whilst statutory audits of the financial statements of each
of the subsidiaries are not required, they are included within
the scope of our audit of the Consolidated Financial Statements.
Audit work to respond to the risks of material misstatement
was performed by the same audit engagement team.
Other information
==========================================================================
The directors are responsible for the other We have nothing to
information. The other information comprises report in respect
the information included in the annual report, of these matters.
other than the financial statements and
our auditor's report thereon.
Our opinion on the financial statements
does not cover the other information and
we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial
statements, our responsibility is to read
the other information and, in doing so,
consider whether the other information is
materially inconsistent with the financial
statements or our knowledge obtained in
the audit or otherwise appears to be materially
misstated.
If we identify such material inconsistencies
or apparent material misstatements, we are
required to determine whether there is a
material misstatement in the financial statements
or a material misstatement of the other
information. If, based on the work we have
performed, we conclude that there is a material
misstatement of this other information,
we are required to report that fact.
In this context, matters that we are specifically
required to report to you as uncorrected
material misstatements of the other information
include where we conclude that:
Fair, balanced and understandable - the
statement given by the directors that they
consider the annual report and financial
statements taken as a whole is fair, balanced
and understandable and provides the information
necessary for shareholders to assess the
Group's position and performance, business
model and strategy, is materially inconsistent
with our knowledge obtained in the audit;
or
Audit committee reporting - the section
describing the work of the audit committee
does not appropriately address matters communicated
by us to the audit committee; or
Directors' statement of compliance with
the UK Corporate Governance Code - the parts
of the directors' statement relating to
the Company's compliance with the UK Corporate
Governance Code containing provisions that
for premium listed entities are specified
for review by the auditor in accordance
with Listing Rule 9.8.10R(2) do not properly
disclose a departure from a relevant provision
of the UK Corporate Governance Code.
Responsibilities of directors
=========================================================================
As explained more fully in the statement of directors' responsibilities,
the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and
fair view, and for such internal control as the directors determine
is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud
or error.
In preparing the financial statements, the directors are responsible
for assessing the Group'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 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.
A further description of our responsibilities for the audit
of the financial statements is located on the Financial Reporting
Council's website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor's report.
Report on other legal and regulatory requirements
Matters on which we are required to report by exception
======================================================================================
Adequacy of explanations received and accounting
records We have nothing to
Under the Companies (Guernsey) Law, 2008 report in respect
we are required to report to you if, in of these matters.
our opinion:
* we have not received all the information and
explanations we require for our audit; or
* proper accounting records have not been kept; or
* the financial statements are not in agreement with
the accounting records.
Use of our report
======================================================================================
This report is made solely to the company's members, as a body,
in accordance with Section 262 of the Companies (Guernsey)
Law, 2008. Our audit work has been undertaken so that we might
state to the company's members those matters we are required
to state to them in an auditor's report and for no other purpose.
To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company and
the company's members as a body, for our audit work, for this
report, or for the opinions we have formed.
John Clacy FCA
For and on behalf of Deloitte LLP
Recognised Auditor
St Peter Port, Guernsey
20 July 2018
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2018
1 Apr 2017 to 1 Apr 2016 to
31 Mar 2018 31 Mar 2017
Notes GBP GBP
Income
US Dollar based rent income 4 174,262,912 108,015,779
British Pound based rent
income 4 44,622,657 33,147,270
Bank interest received 310,754 156,915
-------------- --------------
219,196,323 141,319,964
Expenses
Operating expenses 5 (6,409,953) (4,773,159)
Depreciation of Aircraft 9 (118,829,217) (48,507,678)
-------------- --------------
(125,239,170) (53,280,837)
Net profit for the period before
finance costs
and foreign exchange gains/
(losses) 93,957,153 88,039,127
Finance costs
Finance costs 10 (50,222,982) (26,810,657)
Unrealised foreign exchange
gain/ (loss) 17b 184,771,192 (118,664,321)
Income tax expense 22 (35,959) -
Gain/ (loss) for the year 228,469,404 (57,435,851)
-------------- --------------
Other Comprehensive Income
Translation adjustment on (96,119) -
foreign operations
Total Comprehensive income/
(loss) for the year 228,373,285 (57,435,851)
============== ==============
Pence Pence
Earnings/(loss) per Share
for the year - Basic and
Diluted 8 39.08 (16.09)
-------------- --------------
In arriving at the results for the financial year, all amounts
above relate to continuing operations.
The notes on pages 50 to 81 form an integral part of these
consolidated financial statements
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 March 2018
Notes 31 Mar 2018 31 Mar 2017
GBP GBP
NON-CURRENT ASSETS
Aircraft 9 2,236,341,901 1,567,884,368
Financial assets at fair value
through profit and loss 16 26,913,163 15,255,000
-------------- --------------
2,263,255,064 1,583,139,368
CURRENT ASSETS
Accrued income 15,746,823 15,610,085
Receivables 12 165,648 1,099,945
Cash and cash equivalents 19 58,848,615 82,685,031
-------------- --------------
74,761,086 99,395,061
TOTAL ASSETS 2,338,016,150 1,682,534,429
============== ==============
CURRENT LIABILITIES
Payables 13 182,424 310,615
Deferred income 35,309,651 19,772,871
Borrowings and Ijarah Financing 14 107,044,378 81,539,286
-------------- --------------
142,536,453 101,622,772
NON-CURRENT LIABILITIES
Security deposits and maintenance
reserves 20 21,104,285 -
Borrowings and Ijarah Financing 14 1,461,065,080 1,212,569,894
Deferred income 9,562,608 25,005,030
-------------- --------------
1,491,731,973 1,237,574,924
TOTAL LIABILITIES 1,634,268,426 1,339,197,696
============== ==============
TOTAL NET ASSETS 703,747,724 343,336,733
-------------- --------------
EQUITY
Share Capital 15 647,638,697 467,889,180
Foreign Currency Translation
Reserve (96,119) -
Retained Earnings 56,205,146 (124,552,447)
-------------- --------------
703,747,724 343,336,733
============== ==============
Pence Pence
-------------- --------------
Net Asset Value Per Share based
on 109.58 73.48
-------------- --------------
642,250,000 (2017:467,250,000)
shares in issue
The financial statements were approved by the Board of Directors
and authorised for issue on 20 July 2018 and are signed on its
behalf by:
_____________________________
John Le Prevost, Director
The notes on pages 50 to 81 form an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period from 1 April 2017 to 31 March 2018
1 Apr 2017 1 Apr 2016
to to
Notes 31 Mar 2018 31 Mar 2017
GBP GBP
OPERATING ACTIVITIES
Gain / (loss) for the period 228,469,404 (57,435,851)
Decrease in accrued and deferred income (1,334,965) (10,586,990)
Interest received (310,754) (156,915)
Depreciation of Aircraft 9 118,829,217 48,507,678
Taxation expense 22 35,959 -
Loan and Ijarah financing interest
payable and fair value adjustments
on financial assets 10 48,655,936 25,887,544
Decrease in payables (1,115,376) (9,986)
Security deposits received 13,712,719 -
Maintenance reserves received 8,378,751 -
Decrease / (increase) in receivables 934,297 (1,061,676)
Foreign exchange movement (184,771,192) 118,664,321
Amortisation of debt arrangement costs 10 1,567,046 923,113
NET CASH FROM OPERATING ACTIVITIES 233,051,042 124,731,238
-------------- --------------
INVESTING ACTIVITIES
Purchase of Aircraft 9 (787,286,750) (722,570,222)
Interest received 310,754 156,915
NET CASH USED IN INVESTING ACTIVITIES (786,975,996) (722,413,307)
-------------- --------------
FINANCING ACTIVITIES
Advanced rental received - 16,936,059
Dividends paid 7 (47,711,811) (29,983,594)
Repayments of capital on senior loans
and Ijarah financing 21 (93,189,603) (57,069,855)
Payments of interest on senior loans
and Ijarah financing 21 (47,516,327) (28,625,741)
Payments of interest on junior loans 21 (11,216,557) (9,695,870)
Security trustee and agency fees (232,591) (108,243)
Share issue proceeds 15 182,000,000 171,055,000
Share issue costs 15 (2,250,483) (2,205,393)
New debt raised on senior loans and
Ijarah financing 21 559,385,492 457,851,281
New debt raised on junior loans 21 - 102,448,422
Costs associated with debt issued (7,713,807) (6,409,759)
NET CASH FROM FINANCING ACTIVITIES 531,554,313 614,192,307
-------------- --------------
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 82,685,031 64,625,569
(Decrease) / increase in cash and
cash equivalents (22,370,641) 16,510,238
Exchange rate adjustment (1,465,775) 1,549,224
CASH AND CASH EQUIVALENTS AT OF
YEAR 19 58,848,615 82,685,031
-------------- --------------
The notes on pages 50 to 81 form an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2018
Notes Share Capital Retained Foreign Total
Earnings Currency
Translation
Reserve
GBP GBP GBP GBP
Balance as at 1
April 2017 467,889,180 (124,552,447) - 343,336,733
Total Comprehensive
Income for the
year - 228,469,404 (96,119) 228,373,285
Share issue proceeds 15 182,000,000 - - 182,000,000
Share issue costs 15 (2,250,483) - - (2,250,483)
Dividends paid 7 - (47,711,811) - (47,711,811)
-------------- -------------- ------------- -------------
Balance as at 31
March 2018 647,638,697 56,205,146 (96,119) 703,747,724
-------------- -------------- ------------- -------------
Notes Share Capital Retained Foreign Total
Earnings Currency
Translation
Reserve
GBP GBP GBP GBP
Balance as at 1
April 2016 299,039,573 (37,133,002) - 261,906,571
Total Comprehensive
Loss for the year - (57,435,851) - (57,435,851)
Share issue proceeds 15 171,055,000 - - 171,055,000
Share issue costs 15 (2,205,393) - - (2,205,393)
Dividends paid 7 - (29,983,594) - (29,983,594)
-------------- -------------- ------------- -------------
Balance as at 31
March 2017 467,889,180 (124,552,447) - 343,336,733
-------------- -------------- ------------- -------------
The notes on pages 50 to 81 form an integral part of these
consolidated financial statements.
Notes to the Consolidated Financial Statements
For the year ended 31 March 2018
1. GENERAL INFORMATION
The consolidated financial information incorporates the results
of Amedeo Air Four Plus Limited (the "Company"), AA4P Alpha
Limited, AA4P Beta Limited, AA4P Gamma Limited, AA4P Delta Limited,
AA4P Epsilon Limited, AA4P Zeta Limited, AA4P Eta Limited, AA4P
Theta Limited, AA4P Iota Limited, AA4P Kappa Limited, AA4P Lambda
Limited, AA4P Mu Limited, AA4P Nu Limited, AA4P Leasing Ireland
Limited, AA4P Leasing Ireland 2 Limited and AA4P Xi Limited (each a
"Subsidiary" and together the "Subsidiaries") (together the Company
and the Subsidiaries are known as the "Group").
The Company was incorporated in Guernsey on 16 January 2015 with
registered number 59675. Its share capital consists of one class of
Redeemable Ordinary Shares ("Shares"). The Shares are admitted to
trading on the Specialist Fund Segment ("SFS") of the London Stock
Exchange's Main Market.
The Company's investment objective is to obtain income returns
and a capital return for its Shareholders by acquiring, leasing and
then selling aircraft.
Since the completion of its initial public offering on 13 May
2015, the Company has acquired eight Airbus A380, two Boeing
777-300ER and four Airbus A350-900 aircraft. Eight of these
aircraft are leased to Emirates, two aircraft are leased to Etihad
and four aircraft are leased to Thai Airways. All aircraft are
leased for a period of 12 years from each respective delivery date.
In order to complete the purchase of these aircraft, subsidiaries
of the Company entered into debt financing arrangements which
together with the equity proceeds were used to finance the
acquisition of the fourteen aircraft.
In the current year, the Company acquired its eighth A380
aircraft on 24 May 2017 which was leased to Etihad Airways on a 12
year lease. On 13 July 2017, 31 August 2017, 22 September 2017 and
26 January 2018 the Company acquired its first four A350-900
aircraft which were leased to Thai Airways on 12 year leases (see
note 9).
The Company Overview on pages 6 to 8 and note 15 Share Capital
provides information in relation to the issue of Shares during the
year to raise proceeds for the acquisition of the initial three
A350-900 aircraft, as well as information in relation to the
placing of new shares on 27 November 2017 to raise proceeds for the
acquisition of the fourth Airbus A350-900 aircraft. The Company
used the equity proceeds, in addition to the finance agreements, to
finance the acquisition of these aircraft.
Rental income received in US Dollars is used to pay loan
interest and regular capital repayments of debt (but excluding any
bullet or balloon repayment of principal), which are likewise
denominated in US Dollars. US Dollar lease rentals and loan
repayments, with the exception of the four Thai aircraft which
incorporate floating rate lease rentals, are furthermore fixed at
the outset of the Company's acquisition of an aircraft and are very
similar in amount and timing save for the repayment of bullet and
balloon repayments of principal due on the final maturity of a loan
to be paid out of the proceeds of the sale, re-lease, refinancing
or other disposition of the relevant aircraft.
2. ACCOUNTING POLICIES
The significant accounting policies adopted by the Group are as
follows:
(a) Basis of preparation
The consolidated financial information has been prepared in
conformity with IFRS as adopted by the European Union, which
comprise standards and interpretations approved by the
International Accounting Standards Board ("IASB") and International
Financial Reporting Interpretations Committee ("IFRIC") and
applicable Guernsey law. The financial information has been
prepared on a historical cost basis.
The accounting policies adopted are consistent with those of the
previous financial year, except for the new accounting policy in
respect of Ijarah financing (note 2(p)), the change in the residual
values (note 9) and the adoption of new and amended standards as
set out below and overleaf.
Changes in accounting policies and disclosure
The following Standards or Interpretations have been adopted in
the current period. Their adoption has not had any impact on the
amounts reported in these consolidated financial statements and is
not expected to have any impact on future financial periods.
Disclosure Initiative (Amendments to IAS 7 'Statement of Cash
Flows') requires entities to provide disclosure of changes in their
liabilities arising from financing activities, including both
changes arising from cash flows and non-cash changes (such as
unrealised foreign exchange gains or losses). The Group has
provided the information for both current and comparative period in
note 21.
The following Standards or Interpretations that are expected to
affect the Group have been issued but not yet adopted by the Group
as shown below. Other Standards or Interpretations issued by the
IASB and IFRIC are not expected to affect the Group.
IFRS 9 Financial Instruments - finalised version, incorporating
requirements for classification and measurement, impairment,
general hedge accounting and derecognition. There is no mandatory
effective date, however the IASB has tentatively proposed that this
will be effective for accounting periods commencing on or after 1
January 2018 and has been endorsed by the EU.
The Group has assessed the impact of the standard and conclude
there will be no material impact on its financial position or
performance after adoption of the standard and it is expected that
the Group will continue to classify its derivative financial assets
at fair value and its financial liabilities at amortised cost. The
majority of financial assets are cash, as well as derivatives which
provide cash flows that do not represent payments of principal and
interest on the principal outstanding and will therefore continue
to be classified as fair value through profit or loss under IFRS 9.
The Group will retrospectively apply IFRS 9 from 1 April 2018 in
entirety.
The Group's financial assets and liabilities comprise of trade
and other receivables, cash and cash equivalents, trade and other
payables, borrowings and interest rate swaps.
Under IFRS 9, trade and other receivables, cash and cash
equivalents, trade and other payables and borrowings would be
classified and measured at amortised cost. This is in line with the
current accounting policies already adopted for these financial
instruments. Accordingly, no adjustments are expected with regards
to the measure and classification of these financial
instruments.
IFRS 15 Revenue from contracts with customers - deals with
revenue recognition and establishes principles for reporting useful
information to users of financial statements about the nature,
amount, timing and uncertainty of revenue and cash flows arising
from an entity's contracts with customers. Revenue is recognised
when a customer obtains control of a good or service and thus has
the ability to direct the use and obtain the benefits from the good
or service. The standard replaces IAS 18 'Revenue' and IAS 11
'Construction contracts' and related interpretations (and has been
endorsed by the EU) and is effective for a period beginning on or
after 1 January 2018.
As the majority of income is from leasing (which falls under
IFRS 16- see below) the Directors are of the opinion that the above
Standard is not expected to have an impact on the Group's financial
information.
IFRS 16 Leases - specifies how an IFRS reporter will recognise,
measure, present and disclose leases. The standard provides a
single lessee accounting model, requiring lessees to recognise
assets and liabilities for all leases unless the lease term is 12
months or less or the underlying asset has a low value. Lessors
continue to classify leases as operating or finance, with IFRS 16's
approach to lessor accounting substantially unchanged from its
predecessor, IAS 17 (and has been endorsed by the EU) and is
effective for annual periods beginning on or after 1 January 2019.
As a result, it is not anticipated that this standard will result
in restatement in the current period once the standard is adopted
and becomes effective.
The Group does not consider the adoption of any new Standards or
amendments, other than those noted above to be applicable to the
Group.
(b) Basis of consolidation
The consolidated financial information incorporates the results
of the Company and the Subsidiaries. The Company owns 100% of all
the shares in the Subsidiaries and has the power to govern the
financial and operating policies of the Subsidiaries so as to
obtain benefits from their activities.
Intra-group balances and transactions, and any unrealised income
and expenses arising from intra-group transactions, are eliminated
in preparing the consolidated financial information.
(c) Taxation
The Company and the Guernsey Subsidiaries have been assessed for
tax at the Guernsey standard rate of 0%. Since AA4P Leasing Ireland
Limited and AA4P Leasing Ireland 2 Limited are Irish tax resident
trading Companies, they will not be subject to Guernsey tax, but
their net lease rental income earned (after tax deductible
expenditure) will be taxable as trading income at 12.5% under Irish
tax regulations. Please refer to note 22 for more information.
(d) Share capital
Shares are classified as equity. Incremental costs directly
attributable to the issue of Shares are recognised as a deduction
from equity.
(e) Expenses
All expenses are accounted for on an accruals basis.
(f) Interest Income
Interest income is accounted for on an accruals basis.
(g) Foreign currency translation
The currency of the primary economic environment in which the
Group operates (the functional currency) is Great British Pounds
("GBP") which is also the presentation currency.
Transactions denominated in foreign currencies are translated
into GBP at the rate of exchange ruling at the date of the
transaction.
Monetary assets and liabilities denominated in foreign
currencies at the reporting date are translated into the functional
currency at the foreign exchange rate ruling at that date. Foreign
exchange differences arising on translation are recognised in the
Consolidated Statement of Comprehensive Income.
The financial statements of each consolidated Group company are
prepared in its functional currency. The functional currency is the
currency of the principal economic environment in which it
operates, and is generally the local currency.
At the 31 March 2018 year end, the Group had two foreign
subsidiaries, being AA4P Leasing Ireland Limited and AA4P Leasing
Ireland 2 Limited, each with a functional currency of US Dollars
("USD").
The financial statements of foreign subsidiaries whose
functional currency is not GBP are translated into GBP as follows:
statement of financial position items are translated into GBP at
the period end exchange rate; statement of income items are
translated into GBP at the exchange rates applicable at the
transaction dates, as long as this is not rendered inappropriate as
a basis for translation by major fluctuations in the exchange rate
during the period; unrealized gains and losses arising from the
translation of the financial statements of foreign subsidiaries are
recorded under "Translation adjustment" in other comprehensive
income to be recycled to income.
(h) Cash and cash equivalents
Cash at bank and short term deposits which are held to maturity
are carried at cost. Cash and cash equivalents are defined as call
deposits, short term deposits with a term of no more than three
months from the start of the deposit and highly liquid investments
readily convertible to known amounts of cash and subject to
insignificant risk of changes in value.
(i) Segmental reporting
The Directors are of the opinion that the Group is engaged in a
single segment of business, being acquiring, leasing and selling
aircraft (together the "Assets" and each an "Asset").
(j) 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. The Directors
believe the Group is well placed to manage its business risks
successfully despite the current economic climate as the loans have
been fixed and the fixed rental income under the operating leases
means that the rents should be sufficient to repay the debt and
provide surplus income to pay for the Group's expenses and permit
payment of dividends. Accordingly, the Directors have adopted the
going concern basis in preparing the consolidated financial
information. The Board is not aware of any material uncertainty
that may cast significant doubt upon the Company's ability to
continue as a going concern.
(k) Leasing and rental income
The leases relating to the Assets have been classified as
operating leases as the terms of the leases do not transfer
substantially all the risks and rewards of ownership to the lessee.
The Assets are shown as non-current assets in the Consolidated
Statement of Financial Position. Further details of the leases are
given in note 11.
Rental income and advance lease payments from operating leases
are recognised on a straight-line basis over the term of the
relevant lease. Initial direct costs incurred in negotiating and
arranging an operating lease are added to the carrying amount of
the leased Asset and amortised on a straight-line basis over the
lease term. The four A350-900 aircraft have variable lease rentals
which are treated as contingent rent. Contingent rent is recognised
in the period in which it is earned.
The deferred income liability represents the difference between
actual payments received in respect of the lease income (including
some received in full upfront) and the amount to be accounted for
in the accounting records on a straight line basis over the lease
terms. This liability will reduce over time as the leases continue
and approach the end of the lease terms. In addition to the timing
of receipt of the various rental income streams, the liability is
impacted by the USD/GBP exchange rate at the period end and any new
leases entered into from new aircraft acquisitions during the
period.
(l) Maintenance reserve and security deposits liabilities
The maintenance reserve represents payments made by the lessee
for usage of the aircraft and is offset against actual maintenance
expenses as and when incurred on the aircraft. At the time of
disposal of aircraft, the remaining balance of maintenance reserve
is recognised as income in the consolidated statement of
comprehensive income. Further details are given in note 20.
Security deposits represent amounts paid by the lessee as
security in accordance with the lease agreements. The deposits are
repayable to the lessees on the expiration of the lease agreements
subject to satisfactory compliance of the lease agreements by the
lessees. Further details are given in note 20.
(m) Property, plant and equipment - Aircraft
In line with IAS 16 Property Plant and Equipment, the Assets are
initially recorded at the fair value of the consideration paid. The
cost of the Asset is made up of the purchase price of the Assets
plus any costs directly attributable to bringing it into working
condition for its intended use. Costs incurred by the lessee in
maintaining, repairing or enhancing the aircraft are not recognised
as they do not form part of the cost to the Company. Accumulated
depreciation and any recognised impairment losses are deducted from
cost to calculate the carrying amount of the Assets.
Depreciation is recognised so as to write off the cost of each
Asset less the estimated residual value over the lease term of the
Asset of twelve years, using the straight line method. As at 31
March 2018, the estimated residual value of the fourteen Assets
range from GBP37.9 million to GBP76.6 million. Residual values have
been arrived at by taking the average amount of three independent
external valuers and after taking into account disposition fees.
Further, for the year ended 31 March 2018, it was determined that
the use of forecast market values excluding inflation best
approximates residual value as required by IAS 16 Property, Plant
and Equipment. This has resulted in a reduction in USD terms in the
anticipated residual values of the aircraft since the prior
financial year or when they were acquired .
The depreciation method reflects the pattern of benefit
consumption. The residual value is reviewed annually in March and
is an estimate of the fair amount the entity would receive today if
the Asset were already of the age and condition they will be in at
the end of the lease.
Depreciation starts when the Asset is available for use. At each
audited Consolidated Statement of Financial Position date, the
Group reviews the carrying amounts of its Assets to determine
whether there is any indication that those Assets have suffered an
impairment loss. If any such indication exists, the recoverable
amount of the Asset is estimated to determine the extent of the
impairment loss (if any). Further details are given in note 3.
Recoverable amount is the higher of fair value less costs to
sell and the value in use. In assessing value in use, the estimated
future cash flows 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 for
which the estimates of future cash flows have not been
adjusted.
If the recoverable amount of an Asset is estimated to be less
than its carrying amount, the carrying amount of the Asset is
reduced to its recoverable amount. An impairment loss is recognised
immediately in profit or loss. Where an impairment loss
subsequently reverses, the carrying amount of the Asset is
increased to the revised estimate of its recoverable amount, but so
that the increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment loss been
recognised for the Asset in prior years. A reversal of an
impairment loss is recognised immediately in profit or loss.
(n) Financial assets and financial liabilities at fair value
through profit or loss
(a) Classification
The Group classifies its derivatives i.e. the interest rate
swaps, as financial assets or financial liabilities at fair value
through profit or loss. These financial assets and financial
liabilities are designated by the Board at fair value through
profit or loss at inception. The Group does not classify any
derivatives as hedges in a hedging relationship.
(b) Recognition/derecognition
Financial assets or liabilities are recognised on the trade date
- the date on which the Group commits to enter into the
transactions. Financial assets or liabilities are derecognised when
the rights to receive cash flows from the investments have expired
or the Group has transferred substantially all risks and rewards of
ownership.
(c) Measurement
Financial assets and financial liabilities at fair value through
profit or loss are initially recognised at fair value. Transaction
costs are expensed in the Consolidated Statement of Comprehensive
Income. Subsequent to initial recognition, all financial assets and
financial liabilities at fair value through profit or loss are
measured at fair value. Gains and losses arising from changes in
the fair value of the 'financial assets or financial liabilities at
fair value through profit or loss' category are presented in the
Consolidated Statement of Comprehensive Income in the period in
which they arise.
(o) Financial liabilities
Financial liabilities consist of payables and borrowings. The
classification of financial liabilities at initial recognition
depends on the purpose for which the financial liability was issued
and its characteristics. All financial liabilities are initially
measured at fair value, net of transaction costs. All financial
liabilities are recorded on the date on which the Group becomes
party to the contractual requirements of the financial liability.
Financial liabilities are subsequently measured at amortised cost
using the effective interest method, with interest expense
recognised on an effective yield basis.
The effective interest method is a method of calculating the
amortised cost of the financial liability and of allocating
interest expense over the relevant period. The effective interest
rate is the rate that exactly discounts estimated future cash
payments through the expected life of the financial liability or
where appropriate, a shorter period, to the net carrying amount on
initial recognition.
Associated costs are subsequently amortised on a straight line
basis over the life of the lease.
The Group derecognises financial liabilities when, and only
when, the Group's obligations are discharged, cancelled or they
expire.
(p) Ijarah financing
Ijarah financing, a type of Islamic finance, where the Group has
substantially all the risks and rewards of ownership, are included
within Borrowings and Ijarah financing (notes 14 and 21). The
Ijarah finance is capitalised at inception at the fair value of the
aircraft or, if lower, the present value of the minimum payments.
The corresponding rental obligations, net of finance charges, are
included in short-term and long-term borrowings and Ijarah
financing. Each payment is allocated between the liability and
finance cost. The finance cost is charged to the profit or loss
over the period so as to produce a constant periodic rate of
interest on the remaining balance of the liability for each period.
The Asset acquired under Ijarah financing is depreciated over the
Asset's useful life or over the shorter of the Asset's useful life
and the term if there is no reasonable certainty that the Group
will obtain ownership at the end of the finance term.
(q) Net Asset Value
In circumstances where the Directors are of the opinion that the
net asset value ("NAV") or NAV per Share, as calculated under
prevailing accounting standards, is not appropriate or could give
rise to a misleading calculation, the Directors, in consultation
with the Administrator may determine, at their discretion, an
alternative method for calculating the value of the Group and
shares in the capital of the Company, which they consider more
accurately reflects the value of the Group. Please refer to the
Chairman's Statement on pages 9 to 11 for more information.
3. SIGNIFICANT JUDGEMENTS AND ESTIMATES
In the application of the Group's accounting policies, which are
described in note 2, the Directors are required to make judgements,
estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period or in the period of the revision and future
periods if the revision affects both current and future
periods.
Critical judgements in applying the Group's accounting
policies
The following are the critical judgements and estimates that the
Directors have made in the process of applying the Group's
accounting policies and that have the most significant effect on
the amounts recognised in the financial information.
Residual value of Aircraft
As described in note 2 (m), the Group depreciates the Assets on
a straight line basis over the term of the lease after taking into
consideration the estimated residual value. IAS 16 Property, Plant
and Equipment requires residual value to be determined as an
estimate of the amount that the Group would currently obtain from
disposal of the Asset, after deducting the estimated costs of
disposal, if it were of the age and condition expected at the end
of the lease.
There are currently no A380 or A350 aircraft of a similar type
of sufficient age for the Directors to make a direct market
comparison in making this estimation. After consulting with the
Asset Manager, the Directors have concluded that a forecast market
value (determined annually) for the A380 and A350 aircraft at the
end of the lease (excluding inflationary effects) best approximates
residual value. In relation to the Boeing 777-300ER aircraft
residual values, there is minimum to no public secondary market
trading data available. In estimating residual value at the 31
March 2018 audited annual year end, the Directors have made
reference to forecast market values (excluding inflationary
effects) for the aircraft obtained from three independent expert
aircraft valuers.
In the prior year, the residual values of the A380 and Boeing
777-300ER aircraft were determined using market values including
inflationary effects. However, following discussions between the
Directors and the Auditors for the year ended 31 March 2018, it was
determined that the strict application of IAS 16 be applied to the
assets of the Company and that the use of forecast market values
excluding inflation best approximates residual value as required by
IAS 16 Property, Plant and Equipment. This has resulted in a
reduction in USD terms in the anticipated residual values of the
aircraft since the prior financial year or when they were acquired.
This, together with the effect of foreign exchange fluctuations on
the residual values, has resulted in an adjustment made to
depreciation, details of which have been disclosed in Note 9. Apart
from the aforementioned, the Asset Manager has confirmed in the
year ending 31 March 2018 that there were no other required changes
to the methodology used to determine the residual value in the
current year and they believe that the values of the aircraft are,
absent the two factors explained above, do not differ substantially
from those of the aircraft as appraised at 31 March 2017.
The estimation of residual value remains subject to uncertainty.
If the estimate of residual value had been decreased by 20% with
effect from the beginning of this year, the net profit for the
period and closing shareholders' equity would have been decreased
by approximately GBP13.08 million (31 March 2017: GBP12.5 million).
An increase in residual value by 20% would have had an equal but
opposite effect. This reflects the range of estimates of residual
value that the Directors believe would be reasonable at this
time.
CRITICAL ACCOUNTING JUDGEMENTS
Operating lease commitments - Group as lessor
The Group had entered into operating leases on fourteen Assets
as at the year end (see note 11). The Group has determined, based
on an evaluation of the terms and conditions of the arrangements,
that it retains all the significant risks and rewards of ownership
of these Assets and accounts for the contracts as operating
leases.
The Group has determined that the operating leases on the Assets
are for 12 years.
Impairment
As described in note 2(m), an impairment loss exists when the
carrying value of an asset or cash generating unit exceeds its
recoverable amount, which is the higher of its fair value less
costs to sell and its value in use. The Directors review the
carrying amounts of the Assets at each audited Consolidated
Statement of Financial Position date and monitor the Assets for any
indications of impairment as required by IAS 16 Property, Plant and
Equipment and IAS 36 Impairment of Assets.
CRITICAL ACCOUNTING JUDGEMENTS
Factors that are considered important which could trigger an
impairment review include, but are not limited to, significant
decline in the market value beyond that which would be expected
from the passage of time or normal use, significant changes in the
technology and regulatory environments, evidence from internal
reporting which indicates that the economic performance of the
asset is, or will be, worse than expected.
The Group has considered the impairment triggers as set out
under IAS 36 Impairment of Assets, in the context of the Company
and determined that there is no indication of an impairment loss
for the 1 April 2017 to 31 March 2018 year (none for the 1 April
2016 to 31 March 2017 year). This is due to various factors such as
the following: a lack of conclusive comparable current market data
for the A380 and A350 aircraft, the lack of publically available
secondary market data for the Boeing 777-300ER aircraft, the nature
of the operations of the Group being aircraft leasing as opposed to
an airline operating business, as well as other mitigating factors
such as the close monitoring by the Group of each airline's usage
of aircraft and their compliance with agreed maintenance schedules.
Accordingly, no impairment review has been undertaken.
4. RENTAL INCOME
1 Apr 2017 1 Apr 2016
to to
31 Mar 2018 31 Mar 2017
GBP GBP
US Dollar based rent income 172,527,166 96,551,660
Revenue earned but not yet received 3,651,430 9,726,542
Revenue received but not yet earned (5,669,398) (1,814,758)
------------ ------------
170,509,198 104,463,444
Amortisation of advance rental income
(US Dollar) 3,753,714 3,552,335
------------ ------------
174,262,912 108,015,779
British Pound based rent income 45,023,438 34,024,400
Revenue earned but not yet received 150,004 103,736
Revenue received but not yet earned (550,785) (980,866)
------------ ------------
44,622,657 33,147,270
Total rental income 218,885,569 141,163,049
------------ ------------
Rental income is derived from the leasing of the Assets. US
Dollar based rent represents rent received in USD and British Pound
based rent represents rent received in "GBP". Rental income
received in USD is translated into the functional currency (GBP) at
the date of the transaction.
An adjustment has been made to spread the actual total income
receivable over the term of the lease on an annual basis. In
addition, advance rentals received have also been spread over the
full term of the leases.
5. OPERATING EXPENSES
1 April
1 April 2017 2016
to to
31 Mar 2018 31 Mar 2017
GBP GBP
Corporate and shareholder adviser
fee 2,156,442 1,659,137
Asset management fee 3,122,102 2,269,026
Administration fees 322,909 220,618
Bank interest and charges 8,568 7,005
Accountancy fees 39,325 31,994
Registrar's fee 20,407 18,346
Audit fee 122,252 47,000
Directors' remuneration 252,375 239,217
Directors' and Officers' insurance 46,470 19,105
Public offering insurance - 1,539
Legal and professional expenses 225,449 50,619
Travel costs (251) 4,855
Sundry costs 77,106 188,848
Other operating expenses 16,799 15,850
6,409,953 4,773,159
============= ============
6. DIRECTORS' REMUNERATION
Under their terms of appointment, each Director is paid a fee of
GBP60,000 per annum (2017: GBP60,000 per annum) by the Company.
Until 31 December 2017, the Chairman was paid GBP65,000 per annum,
the Chairman of the Audit Committee was paid GBP64,000 per annum
and each of the other two Directors was paid a fee of GBP60,000 per
annum.
With effect from 1 January 2018, the Chairman's fee was
increased to GBP75,000 per annum (2017: GBP65,000) and the Chairman
of the Audit Committee's fee was increased to GBP67,500 per annum
(2017: GBP64,000).
7. DIVIDS IN RESPECT OF SHARES
1 Apr 2017 to
31 Mar 2018
GBP Pence per
Share
First interim dividend 9,637,030 2.0625
Second interim dividend 12,414,188 2.0625
Third interim dividend 12,414,188 2.0625
Fourth interim dividend 13,246,405 2.0625
----------- ----------
47,711,811 8.2500
=========== ==========
1 Apr 2016 to
31 Mar 2017
GBP Pence per
Share
First interim dividend 6,228,750 2.0625
Second interim dividend 7,058,906 2.0625
Third interim dividend 7,058,906 2.0625
Fourth interim dividend 9,637,032 2.0625
----------- ----------
29,983,594 8.2500
=========== ==========
8. EARNINGS/(LOSS) PER SHARE
Earnings/(Loss) per Share ("EPS") is based on the gain/ (loss)
for the year of GBP228,469,404 (2017: loss of GBP57,435,851) and
584,620,000 shares (2017: 356,936,126 shares) being the weighted
average number of Shares in issue during the period.
There are no dilutive instruments and therefore basic and
diluted Earnings per Share are identical.
9. PROPERTY, PLANT AND EQUIPMENT - AIRCRAFT
Aircraft
GBP
COST
Aircraft purchases as at 1 April 2017 1,631,681,713
Acquisition costs as at 1 April 2017 6,165,652
Additions- aircraft 783,186,597
Additions- acquisition costs 4,100,153
Cost as at 31 March 2018 2,425,134,115
--------------
Aircraft
GBP
ACCUMULATED DEPRECIATION AND AMORTISATION
As at 1 April 2017 69,962,997
Depreciation for the current year
based on previous residual values 66,213,155
Adjustment due to movement in USD
residual values* 19,373,723
Adjustment due to FX movement on residual
values* 6,338,456
--------------
Net depreciation charge on aircraft
held at 1 April 2017 91,925,334
Depreciation charge for the year on
aircraft acquired 26,699,478
Amortisation of acquisition costs
on aircraft acquired 204,405
--------------
Net depreciation charge on all aircraft
for the year 118,829,217
Accumulated depreciation as at 31
March 2018 188,792,214
--------------
Carrying amount as at 31 March 2017 1,567,884,368
==============
Carrying amount as at 31 March 2018 2,236,341,901
==============
* Following review of the aircraft's projected residual value,
using the values and methodology set out in note 2(m), for the year
ended 31 March 2018, it was determined that the strict application
of IAS 16 be applied to the assets of the Company and that the use
of forecast market values excluding inflation best approximates
residual value as required by IAS 16 Property, Plant and Equipment.
This has resulted in a reduction in USD terms in the anticipated
residual values of the aircraft since the prior financial year or
when they were acquired. The combined effect of translating
residual values at the Sterling / US Dollar exchange rate
prevailing at 31 March 2018 of 1.4018 (31 March 2017: 1.255) and a
24 per cent. reduction in average appraised residual values in USD
terms (when comparing uninflated residual values at March 2018 with
inflated values at March 2017) resulted in a GBP25,712,179 increase
in the annual depreciation charge for the current year.
The Group acquired its eighth Airbus A380 on 24 May 2017 (being
MSN 237 under Ijarah financing as detailed in note 14) and four
A350-900 aircraft on 13 July 2017, 31 August 2017, 22 September
2017 and 26 January 2018.
In order to complete purchases of the aircraft, subsidiaries of
the Company have entered into debt financing agreements with a
senior fully amortising loan (see note 14). The Company used the
equity proceeds (see note 15) in addition to the finance agreements
to finance the acquisition of the aircraft. Subject to the below,
rentals under each lease are sufficient to pay the senior loan
payment (being capital and interest including the Kappa Ijarah
finance as detailed in note 14) and junior loan payments due (being
interest only), also in USD. Exceptions to the above include senior
loans with an outstanding balance of GBP330,670,423 at year end,
which have balloon capital payments on maturity, and a junior loan,
with a balance of GBP20,130,387at year end which has capital and
interest. Any junior loan principal and senior loan capital due at
maturity, will be repaid at lease expiry out of the proceeds of the
sale, re-lease, refinancing or other disposition of the relevant
Asset.
The Group can sell the Assets during the term of the leases
(with the lease attached and in accordance with the terms of the
transfer provisions contained therein).
Under IAS 17 the direct costs attributed in negotiating and
arranging the operating leases have been added to the carrying
amount of the leased Asset and recognised as an expense over the
lease term.
10. FINANCE COSTS
1 April 1 April
2017 to 2016 to
31 Mar 2018 31 Mar 2017
GBP GBP
Amortisation of debt arrangements
costs 1,567,046 923,113
Interest payable on loan and costs
of Ijarah financing 60,081,508 41,034,301
Security trustee and agency fees 232,591 108,243
Fair value adjustment on financial
assets at fair value through profit
and loss (see note 16) (11,658,163) (15,255,000)
50,222,982 26,810,657
------------- -------------
11. OPERATING LEASES
The amounts of minimum lease receipts at the reporting date
under non cancellable operating leases are detailed below:
31 March 2018 Next 12 2 to 5 After 5
Months Years Years Total
GBP GBP GBP GBP
US Dollar
based rent
income 187,802,884 749,640,959 926,544,212 1,863,988,055
British Pound
based rent
income 29,633,466 132,748,452 160,278,898 322,660,816
------------ ------------ -------------- --------------
217,436,350 882,389,411 1,086,823,110 2,186,648,871
------------ ------------ -------------- --------------
31 March 2017 Next 12 2 to 5 After 5
Months Years Years Total
GBP GBP GBP GBP
US Dollar
based rent
income 118,811,361 475,378,289 596,212,057 1,190,401,707
British Pound
based rent
income 33,522,919 132,706,604 235,245,077 401,474,600
------------ ------------ ------------ --------------
152,334,280 608,084,893 831,457,134 1,591,876,307
------------ ------------ ------------ --------------
The first nine assets all had a lease term of twelve years with
lease end dates ranging from September 2026 to March 2029.
New leases entered into during the current year:
The tenth to fourteenth assets acquired during the current year
all had a lease term of twelve years with lease end dates ranging
from May 2029 to January 2030.
At the end of each lease the lessee has the right to exercise an
option to purchase the Asset if the Company chooses to sell the
Asset. If a purchase option event occurs the Company and the lessee
will be required to arrange for a current market value appraisal of
the Asset to be carried out by three independent appraisers. The
purchase price will be equal to the average valuation of those
three appraisals.
12. RECEIVABLES
31 Mar 2018 31 Mar 2017
GBP GBP
Prepayments 158,167 1,017,207
Accrued interest - 82,738
Vat receivable 7,481 -
============ ============
165,648 1,099,945
============ ============
The above carrying value of receivables is equivalent to the
fair value.
13. PAYABLES
31 Mar 2018 31 Mar 2017
GBP GBP
Accrued administration
fees 31,525 30,093
Accrued audit fee 77,000 27,000
Accrued directors' remuneration - 597
Accrued legal fees - 250,060
Accrued registrar fee 762 800
Other accrued expenses 38,479 2,065
Taxation payable 34,658 -
182,424 310,615
============ ============
The above carrying value of payables is equivalent to the fair
value.
14. BORROWINGS AND IJARAH FINANCING
31 Mar 2018 31 Mar 2017
Borrowings GBP GBP
Bank loans 1,432,888,319 1,306,909,182
Associated
costs (17,385,834) (12,800,002)
-------------- --------------
1,415,502,485 1,294,109,180
============== ==============
Ijarah financing
Finance liability 154,422,796 -
Associated costs (1,815,823) -
152,606,973 -
Total borrowings and Ijarah
financing 1,587,311,115 1,306,909,182
Total associated costs (19,201,657) (12,800,002)
-------------- --------------
1,568,109,458 1,294,109,180
============== ==============
31 Mar 2018 31 Mar 2017
GBP GBP
Consisting
of:
Senior loans ($1,666,818,905
at 31 March 2018, $1,303,562,712
at 31 March 2017 ) 1,189,056,145 1,038,695,387
Ijarah finance ($213,924,455
at 31 March 2018, $ nil
at 31 March 2017 ) 152,606,973 -
Junior loans ($317,432,479
at 31 March 2018, $320,544,310
at 31 March 2017) 226,446,340 225,413,793
1,568,109,458 1,294,109,180
============== ==============
Borrowings
Non-current portion 1,319,371,167 1,212,569,894
Current portion (senior
loans only) 96,131,318 81,539,286
-------------- --------------
1,415,502,485 1,294,109,180
============== ==============
Ijarah financing
Non-current portion 141,693,913 -
Current portion (senior
loans only) 10,913,060 -
-------------- --------------
152,606,973 -
============== ==============
Total Borrowings and Ijarah
financing
Non-current portion 1,461,065,080 1,212,569,894
Current portion (senior
loans only) 107,044,378 81,539,286
-------------- --------------
1,568,109,458 1,294,109,180
============== ==============
The tables below detail the future contractual undiscounted cash
flows in respect of the senior and junior loans and the Ijarah
financing, including both the principal and interest payments, and
will not agree directly to the amounts recognised in the
Consolidated Statement of Financial Position.
31 Mar 2018 31 Mar 2017
GBP GBP
Borrowings: Amount due for
settlement within 12 months 152,183,645 132,487,846
Ijarah finance: Amount due
for settlement within 12 months 17,601,124 -
-------------- --------------
169,784,769 132,487,846
============== ==============
31 Mar 2018 31 Mar 2017
GBP GBP
Consisting
of:
Senior loans covered by lease rental
receipts (capital
and interest) 138,738,044 117,448,578
Ijarah finance covered by lease rental
receipts (capital
and interest) 17,601,124 -
Repayments of junior debt covered
by lease
rental receipts (interest only except
for B1 Junior loan) 13,445,601 15,039,268
---------------- --------------
169,784,769 132,487,846
================ ==============
Borrowings: Amount due for settlement
after 12 months and before 60 months 609,470,306 529,971,904
Ijarah finance: Amount due for settlement
after 12 months and before 60 months 70,404,495 -
---------------- --------------
679,874,801 529,971,904
================ ==============
Consisting of:
Senior loans covered by lease rental
receipts (capital and interest) 555,567,118 469,794,314
Ijarah finance covered by lease rental
receipts (capital and interest) before
60 months 70,404,495 -
Repayments of junior debt covered
by lease
rental receipts (interest only except
for B1 Junior loan) 53,903,188 60,177,590
---------------- --------------
679,874,801 529,971,904
================ ==============
Borrowings: Amount due for settlement
after 60 months 1,052,687,506 777,499,907
Ijarah finance: Amount due for settlement
after 60 months 108,540,263 -
-------------------- --------------
1,161,227,769 777,499,907
==================== ==============
Consisting
of:
Senior loans covered by lease rental
receipts (capital and interest) and
uncovered senior loans (for balloon
payment at maturity) 779,609,577 687,310,825
Ijarah finance covered by lease rental
receipts (capital and interest) 108,540,263 -
Repayments of junior debt covered
by lease rental receipts (interest
only except for one of the junior
loans) and
uncovered (capital repaid at maturity) 273,077,929 90,189,082
--------------------
1,161,227,769 777,499,907
==================== ==============
New Ijarah financing entered into during the current year:
The Ijarah finance to Kappa was arranged with Dubai Islamic Bank
(DIB) under an Ijarah structure for USD 228,500,000. The Ijarah
facility will run for 12 years until May 2029. The loan is secured
by a letter of credit from Standard Chartered and is valid until 24
May 2019.
Under the Ijarah structure, an Ijarah finance structure is used
under which Amedeo A380 AOE 3 Limited (the "Owner"), an exempted
company set up by DIB with limited liability and existing under the
applicable laws of the Cayman Islands, purchased the Asset (being
MSN 237) and holds legal title for the term of the financing. A
head-lease was entered into with Kappa (the "Lessor") under which
Kappa will pay rent over 144 months from the commencement date
(being immediately after delivery of the Asset to the Lessor on 24
May 2017) to the Owner according to the rental schedule in the
head-lease. These rental payments will be the equivalent of the
principal and interest payable under the MSN 237 senior facility
from DIB.
As a result of the Shari'a compliant Ijarah, the Lessor is
responsible for insurance and major structural maintenance of the
Asset, with the Owner appointing the Lessor as its servicing agent
to perform and/or pay for such obligations. At the end of the term,
title will then pass to Kappa for a nominal sum. Separate
standalone purchase and sale undertakings will be required in order
to allow for the Asset to be transferred by the Owner to the Lessor
on the final maturity date or in an acceleration scenario, in each
case, in exchange for a cash payment equal to any amounts due under
the senior financing. In addition, the aircraft mortgage has been
provided by the Owner rather than Kappa, with an additional
security assignment from Kappa to the Owner, which has been
on-assigned to DIB as security trustee. Furthermore, the Owner's
rights in the servicing agency agreement have been assigned to the
security trustee, with a share pledge over the shares of the Owner
(as well as Kappa).
No breaches or defaults occurred in the year. Loans with an
outstanding balance of GBP1,237,439,035 have fixed interest rates
over the term of the loans. Loans with an outstanding balance of
GBP629,400,541, although having variable rate interest, also have
associated interest rate hedging contracts issued by the lenders in
effect fixing the loan interest over the terms of the loans. Loans
with an outstanding amount of GBP330,670,423 at year end are
variable rate with no associated hedge of the interest exposure,
although the related lease rentals are also floating rate to match,
and each senior loan has a USD 15,000,000 balloon capital payment
on maturity. Senior loans have both interest and capital repayments
whereas junior loans only have interest repayments with the capital
to be repaid on maturity (except for a junior loan with a balance
of GBP20,130,387 at year end that has both interest and capital
repayments).
Transaction costs of arranging the loans have been deducted from
the carrying amount of the loans and will be amortised over their
respective lives. In the Directors' opinion, the above carrying
values of the bank loans are approximate to their fair value.
15. SHARE CAPITAL
The Share Capital of the Company is represented by an unlimited
number of redeemable ordinary shares of no par value.
31 March
Issued 31 March 2018 2017
Ordinary Ordinary
Shares Shares
Shares issued at incorporation 1 1
Shares issued at placing 13 May
2015 201,999,999 201,999,999
Shares issued at placing 15 December
2015 47,000,000 47,000,000
Shares issued at placing 11 March
2016 53,000,000 53,000,000
Shares issued at placing 7 July
2016 40,250,000 40,250,000
Shares issued at placing 16 January
2017 125,000,000 125,000,000
Shares issued at placing 20 June
2017 134,650,000 -
Shares issued at placing 27 November
2017 40,350,000 -
Total number of shares as at 31
March 2018 642,250,000 467,250,000
============== ============
Issued
Ordinary Ordinary
Shares Shares
GBP GBP
Ordinary Shares
Shares issued at incorporation - -
Shares issued at placing 13 May
2015 202,000,000 202,000,000
Shares issued at placing 15 December
2015 47,000,000 47,000,000
Shares issued at placing 11 March
2016 53,530,000 53,530,000
Shares issued at placing 7 July
2016 41,055,000 41,055,000
Shares issued at placing 16 January
2017 130,000,000 130,000,000
Shares issued at placing 20 June
2017 140,036,000 -
Shares issued at placing 27 November
2017 41,964,000 -
Share issue costs (7,946,303) (5,695,820)
Total share capital as at 31 March
2018 647,638,697 467,889,180
============ ============
On 20 June 2017 the Company issued an additional 134,650,000
redeemable ordinary shares of no par value at an issue price of 104
pence per new share.
Pursuant to the Supplementary Prospectus issued on 17 November
2017, the Company issued 40,350,000 new shares on 27 November 2017
under the Second Placing at an issue price of 104 pence per Share.
Following this transaction, the Company's total issued Share
capital at 31 March 2018 was 642,250,000 Shares, none of which were
held in treasury.
Therefore the total number of voting rights in issue was
642,250,000.
Members holding Shares are entitled to receive, and participate
in the following: any dividends out of income attributable to the
Shares; other distributions of the Company available for such
purposes and resolved to be distributed in respect of any
accounting period; or other income or right to participate
therein.
On winding up of the Company, shareholders are entitled to the
surplus assets attributable to the Share class remaining after
payment of all the creditors of the Company.
16. FINANCIAL INSTRUMENTS
The Group's main financial instruments comprise:
(a) Cash and cash equivalents that arise directly from the Group's operations; and
(b) Debt secured on non-current assets.
The Group's objective is to obtain income returns and a capital
return for its Shareholders by acquiring, leasing and then selling
aircraft.
The following table details the categories of financial assets
and liabilities (and the Ijarah financing included in note 14) held
by the Group at the reporting date:
31 Mar 2018 31 Mar 2017
GBP GBP
Financial assets
Cash and cash equivalents 58,848,615 82,685,031
Financial assets at fair
value through profit and
loss 26,913,163 15,255,000
85,761,778 97,940,031
============== ==============
Financial liabilities
Payables, security deposits
and
maintenance reserves 21,286,709 310,615
Debt payable (including
Ijarah financing) 1,587,311,115 1,306,909,182
1,608,597,824 1,307,219,797
============== ==============
Fair value of financial instruments
The Company has adopted IFRS 13, 'Fair value measurement' and
this standard requires the Company to price its financial assets
and liabilities using the price in the bid-ask spread that is most
representative of fair value for both financial assets and
financial liabilities. An active market is a market in which
transactions for the asset or liability take place with sufficient
frequency and volume to provide pricing information on an ongoing
basis.
The level of the fair value hierarchy of an instrument is
determined considering the inputs that are significant to the
entire measurement of such instrument and the level of the fair
value hierarchy within those inputs are categorised.
The hierarchy is broken down into three levels based on the
observability of inputs as follows:
Level 1: Quoted price (unadjusted) in an active market for an
identical instrument.
Level 2: Valuation techniques based on observable inputs, either
directly (i.e. as prices) or indirectly (i.e. derived from
prices).
Level 3: Valuation techniques using significant unobservable
inputs.
The interest rate swaps are considered to be level 2 in the Fair
Value Hierarchy. The following tables show the Company's financial
assets and liabilities as at 31 March 2018 based on the hierarchy
set out in IFRS:
31 March 2018 Quoted Prices Significant
in active unobservable
markets for Significant inputs
identical other observable
assets inputs
(Level 1) (Level 2) (Level 3) Total
2018 2018 2018 2018
Assets GBP GBP GBP GBP
Financial assets at
fair value through
profit and loss
Interest rate swaps - 26,913,163 - 26,913,163
=============== ================== ============== =============
31 March 2017 Quoted Prices Significant
in active unobservable
markets for Significant inputs
identical other observable
assets inputs
(Level 1) (Level 2) (Level 3) Total
2017 2017 2017 2017
Assets GBP GBP GBP GBP
Financial assets at
fair value through
profit and loss
Interest rate swaps - 15,255,000 - 15,255,000
Derivative financial instruments
The following table shows the Company's derivative position as
at 31 March 2018 with a comparative table as at 31 March 2017:
31 March 2018 31 March 2017
Financial assets at fair
value (GBP) 26,913,163 15,255,000
Notional amount (USD) 875,953,879 698,500,000
The maturity dates range from 13 April 2028 to 24 May 2029 (31
March 2017:13 April 2028 to 26 March 2029).
The movement in the fair value of the Interest Rate Swaps for
the year of GBP11,658,163 (31 March 2017: GBP15,255,000) is
reflected in Finance Costs in note 10.
17. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The main risks arising from the Group's financial instruments
are capital management risk, foreign currency risk, credit risk,
liquidity risk and interest rate risk. The Board regularly review
and agrees policies for managing each of these risks and these are
summarised below:
(a) Capital management
The Group manages its capital to ensure ability to continue as a
going concern while maximising return to Shareholders through the
optimisation of debt and equity balances.
The capital structure of the Group consists of debt, which
includes borrowings disclosed in note 14, cash and cash equivalents
and equity attributable to equity holders, comprising issued
capital and retained earnings.
The Group's Board of Directors reviews the capital structure on
a bi-annual basis.
Equity includes all capital and reserves of the Company that are
managed as capital
(b) Foreign currency risk
The Group's accounting policy under IFRS requires the use of a
GBP historic cost of the Assets and the value of the US dollar debt
as translated at the spot exchange rate on every Consolidated
Statement of Financial Position date. In addition USD operating
lease receivables are not immediately recognised in the
Consolidated Statement of Financial Position and are accrued over
the period of the leases. The Directors consider that this
introduces an artificial variance due to the movement over time of
foreign exchange rates. In actuality, the USD lease rentals should
offset the USD payables on amortising debt on the loans (including
the Kappa Ijarah finance), apart from the loans with an outstanding
balance of GBP330,670,423 as at year end which have balloon capital
payments on maturity (refer to note 14). The foreign exchange
exposure in relation to the bank loans (capital and interest) and
the Kappa Ijarah finance is thus largely hedged, apart from the
foreign exchange exposure unhedged in respect of the balloon
capital portion of the loans with an outstanding balance of
GBP330,670,423 as at year end and the principal bullet repayment of
the junior loans at maturity.
The potential future value or the potential sale proceeds of the
aircraft upon maturity of the junior loans and senior loans with an
outstanding balance of GBP330,670,423 as at year end (all of which
are in USD), should, however, reduce this foreign exchange
risk.
Lease rentals (as detailed in notes 4 and 11) are received in
USD and GBP. Rental income received in USD is used to pay loan
interest and regular capital repayments of debt (but excluding any
bullet or balloon repayment of principal), which are likewise
denominated in US Dollars. USD lease rentals and loan repayments
are furthermore fixed at the outset of the Company's life and are
very similar in amount and timing save for the repayment of bullet
and balloon repayments of principal due on the final maturity of a
loan to be paid out of the proceeds of the sale, re-lease,
refinancing or other disposition of the relevant aircraft.
The matching of lease rentals to settle these loan repayments
therefore mitigates risks caused by foreign exchange
fluctuations.
The carrying amounts of the Group's foreign currency denominated
monetary assets and liabilities at the reporting date are as
follows:
31 Mar 2018 31 Mar 2017
GBP GBP
Debt (USD) - Liabilities (1,608,415,400) (1,306,909,182)
Financial assets at fair value
through profit and loss 26,913,163 15,255,000
Cash and cash equivalents (USD)
- Asset 33,979,203 81,092,144
================ ================
The following table details the Group's sensitivity to a 25 %
(31 March 2017: 25 per cent) appreciation in GBP against the US
dollar. 25 % (31 March 2017:25 per cent) represents the Directors'
assessment of the reasonably possible change in foreign exchange
rates. The sensitivity analysis includes only outstanding foreign
currency denominated monetary items and adjusts their translation
at the period end for a 25 % (31 March 2017: 25 %) change in
foreign currency rates. A positive number below indicates an
increase in profit and other equity where GBP strengthens 25 % (31
March 2017: 25 %) against the USD. For a 25 % weakening of the GBP
against the USD, there would be a comparable but opposite impact on
the profit and other equity;
31 Mar 2018 31 Mar 2017
GBP GBP
Profit or loss 309,504,607 242,112,408
Change in value of assets (12,178,473) (19,269,429)
Change in value of liabilities 321,683,080 261,381,837
============= =============
Excluding junior loans:
Profit or loss 266,163,602 194,788,919
Change in value of assets (10,230,210) (15,466,289)
Change in value of liabilities 276,393,812 210,255,208
============= =============
On the eventual sale of the Assets, the Group may be subject to
foreign currency risk if the sale was made in a currency other than
sterling. Transactions in similar assets are typically priced in
USD.
(c) Credit Risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Group.
The credit risk on cash transactions are mitigated by
transacting with counterparties that are regulated entities subject
to prudential supervision, or with high credit ratings assigned by
international credit rating agencies.
The Group's financial assets exposed to credit risk are as
follows:
31 Mar 2018 31 Mar 2017
GBP GBP
Cash and cash equivalents 58,848,615 82,685,031
Financial assets at fair
value through profit and
loss 26,913,163 15,255,000
85,761,778 97,940,031
============ ------------
Surplus cash in the Group is held with Barclays, HSBC, Lloyds,
RBSI and Bank of Ireland, which have credit ratings given by
Moody's of A1, Aa2, A1, Ba1 and A3 respectively. Surplus cash in
the Subsidiaries is held in accounts with RBSI and Westpac, which
have credit ratings given by Moody's of Ba1 and Aa2
respectively.
There is a potential credit risk arising from the possibility
that the lessee may default on the lease payments. This risk is
mitigated, as under the terms of the lease agreements between the
lessee and the Group, any non payment of the lease rentals
constitutes a Special Termination Event, under which the lease
terminates and the Company may either choose to sell the Asset or
lease the Asset to another party.
At the inception of each lease, the Company selected a lessee
with a strong Statement of Financial Position and financial
outlook. The financial strength of Emirates, Etihad and Thai
Airways is regularly reviewed by the Directors and the Asset
Manager.
(d) Liquidity Risk
Liquidity risk is the risk that the Group will encounter
difficulty in realising assets or otherwise raising funds to meet
financial commitments such as capital repayments of junior debt at
the end of the lease. The Group's main financial commitments are
its ongoing operating expenses and repayments on loans.
The fixed rental income under the relevant leases means that the
rents received should be sufficient to meet the loan interest and
regular capital repayments of debt scheduled during the life of
each loan and provide surplus income to pay for the Group's
expenses and finance payments of dividends. Where balloon and
bullet repayments of debt exist, these are expected to be financed
out of the disposal proceeds of the relevant aircraft. Declarations
of dividends may need to be suspended if the Board considers that
the Company will not be able to repay any balloon and bullet
repayments of debt falling due through the sale, refinancing or
other disposition of an Asset.
Ultimate responsibility for liquidity risk management rests with
the Board of Directors.
The Group manages liquidity risk through the timings of lease
rentals and debt repayments, by maintaining adequate reserves,
banking facilities and borrowing facilities, by monitoring forecast
and actual cash flows, and by matching profiles of financial assets
and liabilities.
The table below details the residual contractual maturities of
financial liabilities (and the Ijarah financing included in note
14). The amounts below are contractual undiscounted cash flows,
including both the principal and interest payments, and will not
agree directly to the amounts recognised in the Statement of
Financial Position:
1-3 3-12 1-2 2-5 Over 5 Total
31 March
2018 Months Months Years Years Years
GBP GBP GBP GBP GBP
Financial
liabilities
Payables 182,424 - - - - 182,424
Security
deposit
liability - - - - 12,537,207 12,537,207
Maintenance
reserve
liability - - - 7,053,367 1,513,711 8,567,078
Borrowings
and Ijarah
financing 42,426,235 127,358,534 169,855,723 510,019,078 1,161,227,769 2,010,887,339
----------- ------------ ------------ ------------ -------------- ----------------
42,608,659 127,358,534 169,855,723 517,072,445 1,175,278,687 2,032,174,048
=========== ============ ============ ============ ============== ================
1-3 3-12 1-2 2-5 Over 5 Total
31 March
2017 Months Months Years Years Years
GBP GBP GBP GBP GBP
Financial
liabilities
Payables 310,615 - - - - 310,615
Borrowings
and Ijarah
financing 33,066,796 99,421,050 132,466,939 397,504,965 777,499,907 1,439,959,657
=========== =========== ============ ============ ============ ================
33,377,411 99,421,050 132,466,939 397,504,965 777,499,907 1,440,270,272
=========== =========== ============ ============ ============ ================
(e) Interest Rate Risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows. It is the risk that
fluctuations in market interest rates will result in a variation in
deposit interest earned on bank deposits held by the Group.
The loans with an outstanding balance of GBP330,670,423 as at
year end entered into in the current year are variable rate (with
no associated interest rate swap contract issued by the lender to
fix the loan interest over the term of the loans) although the
related rentals are also floating rate to match.
With the exception of loans with an outstanding balance of
GBP330,670,423 as at year end, as mentioned above, the Group
mitigates interest rate risk by fixing the interest rate on the
bank loans (as well as in respect of loans with an outstanding
balance of GBP629,400,541 as at year end, which have an associated
interest rate swap to fix the loan interest). The lease rentals are
also fixed.
The following table details the Group's exposure to interest
rate risks:
31 March 2018 Variable Fixed Non-interest Total
interest interest Bearing
GBP GBP GBP GBP
Financial Assets
Receivables - - 165,648 165,648
Cash and cash
equivalents 58,848,615 - - 58,848,615
-------------- -------------- ------------- --------------
Total Financial
Assets 58,848,615 - 165,648 59,014,263
============== ============== ============= ==============
Financial Liabilities
Accrued expenses
and reserves - - 182,424 182,424
Security deposit
liability and
maintenance
reserve liability - - 21,104,285 21,104,285
Borrowings
and Ijarah
financing 405,438,134 1,162,671,324 - 1,568,109,458
-------------- -------------- ------------- --------------
Total Financial
Liabilities 405,438,134 1,162,671,324 21,286,709 1,589,396,167
============== ============== ============= ==============
Total interest
sensitivity
gap (346,589,519) 1,162,671,324
============== ==============
31 March 2017 Variable Fixed Non-interest Total
interest interest Bearing
GBP GBP GBP GBP
Financial Assets
Receivables - - 1,099,945 1,099,945
Cash and cash
equivalents 82,685,031 - - 82,685,031
-------------- -------------- ------------- --------------
Total Financial
Assets 82,685,031 - 1,099,945 83,784,976
============== ============== ============= ==============
31 March 2017 Variable Fixed Non-interest Total
interest interest Bearing
GBP GBP GBP GBP
Financial Liabilities
Accrued expenses - - 310,615 310,615
Bank loans - 1,294,109,180 - 1,294,109,180
----------- -------------- ------------- --------------
Total Financial
Liabilities - 1,294,109,180 310,615 1,294,419,795
=========== ============== ============= ==============
Total interest
sensitivity
gap 82,685,031 1,294,109,180
=========== ==============
If interest rates had been 25 basis points higher throughout the
period and all other variables were held constant, the Group's net
assets attributable to shareholders as at 31 March 2018 would have
been GBP147,122 (31 March 2017: GBP206,713) greater due to a
increase in the amount of interest receivable on the bank
balances.
If interest rates had been 25 basis points lower throughout the
period and all other variables were held constant, the Group's net
assets attributable to shareholders as at 31 March 2018 would have
been GBP147,122 (31 March 2017: GBP206,713) lower due to a decrease
in the amount of interest receivable on the bank balances.
Since the capital repayments are unchanged in respect of the
variable interest loans with an outstanding balance of
GBP330,670,423 as at year end (only the interest payments vary)
when there is a change in rates, there would be no change to net
assets as a result. This will however affect future cash flows as
explained above.
18. ULTIMATE CONTROLLING PARTY
In the opinion of the Directors, the Company has no ultimate
controlling party.
19. CASH AND CASH EQUIVALENTS
31 March 2018 31 March 2017
GBP GBP
Bank balances 58,848,615 12,538,659
Short term deposits - 70,146,372
-------------- --------------
58,848,615 82,685,031
============== ==============
Included in the cash and cash equivalents are cash deposits in
respect of maintenance reserves. Refer to note 20 for more
information on maintenance reserve liabilities.
20. SECURITY DEPOSITS AND MAINTENANCE RESERVES
31 Mar 2018 31 Mar 2017
GBP GBP
Security deposit liability 12,537,207 -
Maintenance reserve liability 8,567,078 -
21,104,285 -
============ ============
The above carrying value of payables is equivalent to the fair
value.
The Security deposit and Maintenance reserve liabilities are
held in relation to funds received at the period end for the timely
and faithful performance of the lessees' obligations under the
lease agreements for the four A350-900 aircraft. Security deposits
are contractually bound to be repaid if not utilised. Amounts
accumulated in the maintenance reserve will be repaid only as
re-imbursements for actual maintenance expenses incurred by the
lessee. Refer to note 2(l) for accounting policies adopted on the
maintenance reserves and security deposits.
21. CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES
Borrowings and Ijarah
31 March 2018 finance
GBP
Balance at 1 April 2017 1,294,109,180
Cash flows (151,922,487)
Add back payments of interest on loans
and Ijarah financing 58,732,884
New debt raised on loans and Ijarah
financing 559,385,492
Interest accruals 6,866,775
Foreign exchange (199,062,386)
----------------------
Balance at 31 March 2018 1,568,109,458
======================
Borrowings and Ijarah
31 March 2017 finance
GBP
Balance at 1 April 2016 673,675,910
Cash flows (95,391,466)
Add back payments of interest on loans
and Ijarah financing 38,321,611
New debt raised on loans 560,299,703
Interest accruals 5,685,685
Foreign exchange 111,517,737
----------------------
Balance at 31 March 2017 1,294,109,180
======================
22. TAX
31 March 2018 31 March 2017
USD USD
Profit before tax 389,003 -
-------------- --------------
Irish tax at 12.5% 48,625 -
============== ==============
GBP GBP
Tax expense (converted into GBP) 35,959 -
============== ==============
Irish tax is charged at 12.5% on each of the AA4P Leasing
Ireland Limited and AA4P Leasing Ireland 2 Limited subsidiaries.
The Company and the Guernsey Subsidiaries have been assessed for
tax at the Guernsey standard rate of 0%. Since AA4P Leasing Ireland
Limited and AA4P Leasing Ireland 2 Limited are Irish tax resident
trading Companies, they will not be subject to Guernsey tax, but
their net lease rental income earned (after tax deductible
expenditure) will be taxable as trading income at 12.5% under Irish
tax regulations.
23. SUBSEQUENT EVENTS
On 12 April 2018 the Directors of the Company declared an
interim dividend of 2.0625 pence per Share in respect of the 31
March 2019 financial year. This dividend was paid on 30 April 2018
to holders on record 20 April 2018.
On 11 July 2018 the Directors of the Company declared a second
interim dividend of 2.0625 pence per Share in respect of the 31
March 2019 financial year. This dividend is payable on 31 July 2018
to holders on record 20 July 2018.
24. RELATED PARTY TRANSACTIONS
Amedeo Limited ("Amedeo") has been appointed as the Group's
Asset Manager and Agent (the agent is appointed to assist with the
purchase of the aircraft, the arrangement of suitable equity and
debt finance and the negotiation and documentation of the lease and
financing contracts).
During the current period, the Group paid Amedeo GBP6,505,102 in
total (31 March 2017: GBP4,661,544), split as follows:
(i) an upfront lease and debt arrangement fee of GBP3,383,000
(31 March 2017: GBP2,238,000) (the "Upfront Fee") for the assets
purchased during the period. These fees have been capitalised to
the aircraft as acquisition costs and will be depreciated over the
life of the leases.
In consideration for providing the services pursuant to the
Agency Agreement, the Company (itself and on behalf of each
Lessor), upon each "Admission" (being the admission to trading on
the SFS becoming effective in accordance with the LSE Admission
Standard), paid to Amedeo during the period an upfront lease and
debt arrangement fee of GBP845,000 for the tenth asset and
GBP634,500 each for the eleventh, twelfth, thirteenth and
fourteenth assets (2017: GBP 609,600 for the sixth asset and
GBP391,700 each for the seventh and eight assets and GBP845,000 for
the ninth asset).
(ii) In addition, Amedeo receives, in consideration for
providing services to the Group, a management and advisory fee
(included under "asset management fee" in note 5). Included in the
fees are the following for the aircraft purchased in the current
year:
GBP247,500 per annum for each of the first four assets (adjusted
annually for inflation commencing from 1January 2016 onwards at 2.5
%per annum),
- GBP250,000 per annum for each of the fifth and sixth assets
(adjusted annually for inflation commencing from 1 January 2016
onwards at 2.5% per annum),
- GBP279,082 for the first six months and GBP170,727 per annum
thereafter for each of the seventh and eighth assets (adjusted
annually for inflation commencing from 1 January 2018 onwards at
2.5 % per annum),
- GBP266,500 per annum for each of the ninth and tenth assets
(adjusted annually for inflation commencing from 1 January 2018
onwards at 2.5 % per annum).
- $256,250 per annum for each of the eleventh, twelfth and
thirteenth assets (adjusted annually for inflation commencing from
1 January 2018 onwards at the lower of RPI and 2.5 %. per
annum).
-$262,656 per annum for the fourteenth asset (adjusted annually
for inflation commencing from 1 January 2019 onwards at the lower
of RPI and 2.5 % per annum).
All fees are payable monthly in arrears (the "Annual Fee") and
accrue from the date of admission.
Following the disposal of the "IPO Assets" (being collectively
the first four assets purchased), the Company shall pay to Amedeo
disposition fees calculated as detailed in the prospectus, which
can be found on the Group's website. These are fees in the range of
2.5 to 4% of sale value. The fee for the further aircrafts
purchased is 3%.
During the year, the Group incurred GBP6,505,102 (31 March 2017:
GBP4,661,544) of expenses with Amedeo, of which GBP Nil (31 March
2017: GBPNil) was outstanding to this related party at 31 March
2018. GBP3,383,000 (31 March 2017: GBP2,238,000 of expenses have
been added to the plane costs and will be depreciated over the life
of the leases).
During the year the Group acquired four aircraft for
$695,062,790 in total from Amedeo which were leased to Thai
Airways
(iii) Amedeo Services (UK) Limited ("Amedeo Services") has been
appointed as Liaison and Administration Oversight Agent to the
Group. In consideration for this service, the Group pays Amedeo
Services GBP10,250 per annum (31 March 2017: GBP10,000 per annum)
adjusted annually for inflation from 2017 onwards, at 2.5 % per
annum, payable annually in advance. As at 31 March 2018 year end
GBPNil (31 March 2017: GBPNil) was outstanding. This fee is under
"asset management fee" in note 5.
Nimrod Capital LLP ("Nimrod") is the Company's Placing Agent and
Corporate and Shareholder Adviser.
In consideration for Nimrod acting as placing agent in the
Initial Placing Programme in June 2017 (the proceeds of which were
used to fund the equity portion of the acquisition costs of the
eleventh, twelfth and the thirteenth assets respectively), the
Company agreed to pay Nimrod a placing commission of GBP1,336,500
(being equal to 0.95 % of the IPO Placing Proceeds).
In consideration for Nimrod acting as placing agent in the
Subsequent Placing in November 2017 (the proceeds of which were
used to fund the equity portion of the acquisition costs of the
fourteenth asset), the Company agreed to pay Nimrod a placing
commission of GBP445,500 (being equal to 0.95 % of the Subsequent
Placing Proceeds).
During the year, the Group incurred GBP3,938,442 (31 March 2017:
GBP3,395,137) of fees due to Nimrod. GBP1,782,000 (31 March 2017:
GBP1,736,000) of these expenses (as referred above) have been
deducted from equity. GBP2,156,442 (31 March 2017: GBP1,659,137) of
these expenses related to corporate and shareholder advisory fees
as shown in Note 5. GBPNil (31 March 2017: GBPNil) was outstanding
to this related party at 31 March 2018.
Included in these fees are the following for the aircraft
purchased in the current year:
- GBP702,128 per annum, for the first four Assets (adjusted
annually for inflation from 2016 onwards, at 2.5 % per annum),
- GBP175,532 per annum for the fifth and sixth Assets (adjusted
annually for inflation from 2016 onwards, at 2.5 % per annum),
- GBP391,947 for the first two quarters, and then GBP 245,737
per annum for the seventh and eighth Assets, (adjusted annually for
inflation from 2018 onwards, at 2.5 % per
annum),
- GBP365,106 per annum for the ninth and tenth Assets (adjusted
annually for inflation from 2018 onwards, at 2.5 % per annum).
- $550,995 per annum for eleventh, twelfth and the thirteenth
assets (adjusted annually for inflation from 2018 onwards, at 2.5 %
per annum).
- $184,418 per annum for the fourteenth asset (adjusted annually
for inflation from 2019 onwards, at 2.5 % per annum).
John Le Prevost is a director of Anson Registrars Limited
("ARL"), the Company's registrar, transfer agent and paying agent.
During the year the Group incurred GBP20,407 (31 March 2017:
GBP18,346) of costs with ARL, of which GBP762 (31 March 2017:
GBP800) was outstanding as at 31 March 2018.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR LLFLEDSIIFIT
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