TIDMDPA
RNS Number : 1089I
DP Aircraft I Limited
23 March 2015
D P AIRCRAFT I LIMITED
ANNUAL REPORT AND AUDITED CONSOLIDATED FINANCIAL STATEMENTS
from 5 July 2013 to 31 December 2014
COMPANY OVERVIEW
DP Aircraft I Limited (the 'Company') was incorporated with
limited liability in Guernsey under The Companies (Guernsey) Law,
2008 as amended, on 5 July 2013 with registered number 56941.
The Company was established to invest in aircraft. The Company
is a holding company, and makes its investment in aircraft through
two wholly owned subsidiary entities, DP Aircraft Guernsey I
Limited and DP Aircraft Guernsey II Limited (collectively and
hereinafter, the 'Borrowers'), each being a Guernsey incorporated
company limited by shares and an intermediate lessor (the
'Lessor'), an Irish incorporated private limited company. The
Company and its subsidiaries (the Borrowers and the Lessor)
comprise the Group.
Pursuant to the Company's Prospectus dated 27 September 2013,
the Company offered 113,000,000 Ordinary Preference Shares (the
'Shares') of no par value in the capital of the Company at an issue
price of US$1.00 per Share by means of a Placing. The Company's
Shares were admitted to trading on the Official List of the Channel
Islands Securities Exchange and to trading on the Specialist Fund
Market of the London Stock Exchange on 4 October 2013.
INVESTMENT OBJECTIVE & POLICY
The Company's investment objective is to obtain income and
capital returns for its Shareholders by acquiring, leasing and
then, when the Board considers it appropriate, selling aircraft
(the 'Asset' or 'Assets').
To pursue its investment objective, the Company intends to use
the net proceeds of placings and other equity capital raisings,
together with loans and borrowings facilities, to acquire aircraft
which will be leased to one or more international airlines.
THE BOARD
The Board comprises three independent non-executive directors.
The directors of the Board are responsible for managing the
business affairs of the Company in accordance with the Articles of
Incorporation and have overall responsibility for the Company's
activities, including portfolio and risk management while the asset
management of the Group is undertaken by DS Aviation GmBH & Co.
KG (the 'Asset Manager').
THE ASSET MANAGER
The Asset Manager has undertaken to provide the asset management
services to the Company under the terms of an asset management
agreement but does not undertake any regulated activities for the
purpose of the UK Financial Services and Markets Act 2000.
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 capital, upon
any sale of the Assets. The Company targets a quarterly
distribution in February, May, August and November of each year.
The target distribution is 2.25 cents per Share per quarter. Five
quarterly distributions have been made at the date of this report,
each meeting the 2.25 cents per Share target. The target dividends
are targets only and should not be treated as an assurance or
guarantee of performance or a profit forecast.
Investors should not place any reliance on such target dividends
or assume that the Company will make any distributions at all.
Fact Sheet - DP Aircraft I Limited
Ticker DPA
Company Number 56941
ISIN Number GG00BBP6HP33
SEDOL Number BBP6HP3
Traded SFM
SFM Admission Date 4-Oct-13
Share Price US$1.0725 as at 31-Dec-14
Listed CISE
CISE Listing Date 4-Oct-13
Country of Incorporation Guernsey
Current Shares in Issue 113,000,000
Administrator and Company Secretary Dexion Capital (Guernsey) Limited
Asset Manager DS Aviation GmbH & Co. KG
Auditor and Reporting Accountant KPMG, Chartered Accountants
Corporate Broker Canaccord Genuity Limited
Aircraft Registration EI-LNA
EI-LNB
Aircraft Serial Number 35304
35305
Aircraft Type and Model B787-8
Lessee Norwegian Air Shuttle ASA
Website www.dpaircraft.com
HIGHLIGHTS
INITIAL PUBLIC OFFERING AND ADMISSION TO LISTING AND TRADING
Pursuant to the Company's Prospectus dated 27 September 2013,
the Company offered 113,000,000 Ordinary Preference Shares (the
'Shares') of no par value in the capital of the Company at an issue
price of US$1.00 per Share by means of a Placing. The Company's
Shares were admitted to trading on the Official List of the Channel
Islands Securities Exchange and to trading on the Specialist Fund
Market of the London Stock Exchange on 4 October 2013.
PROFIT BEFORE TAX
Profit Before Tax was reported as 9.022 cents per Share for the
first full accounting period from 5 July 2013 to 31 December 2014,
driven by the leasing of two Boeing 787-8 aircraft. No tax arises
on the profit of the Company as it is Guernsey resident where the
standard rate of income tax for companies is nil. Therefore the
Profit Before and After tax is the same.
NET ASSET VALUE
The Directors believe that after time the swap liabilities will
diminish and excluding that liability the Net Asset Value per Share
('NAV') (post the interim dividend) will be 93.575 cents per Share
as at 31 December 2014. As at 31 December 2014, the Company's
shares were trading at a premium of 14.6 per cent to NAV (excluding
swap liability).
US Cents per Share
NAV including swap liabilities 0.9357
NAV excluding swap liabilities 0.9815
DIVIDENDS
4 interim dividends have been paid in the period under review
each of 2.25 cents per Share. 1 interim dividend has been paid
since the year-ended 31 December 2014 of 2.25 cents per Share.
CHAIRMAN'S STATEMENT
I am pleased to present Shareholders with the first Annual
Report and Financial Statements for the period from incorporation
on 5 July 2013 to 31 December 2014.
I and my fellow Directors, Didier Benaroya and Jeremy Thompson
were delighted with the success of the IPO and subsequent Listing
and Trading as described in the Company Overview introduction
section of this report.
On 9 October 2013, we completed the acquisition of our first two
aircraft, each a Boeing 787-8 or 'Dreamliner'. A Dreamliner is a
twin-engine long range aircraft, distinguished by its entirely new
aircraft design and variety of technical innovations.
Each aircraft was acquired by one of the Company's wholly owned
subsidiaries, DP Aircraft Guernsey I Limited and DP Aircraft
Guernsey II Limited. The Lessor and Trustee for each aircraft is DP
Aircraft Ireland Limited. Each aircraft was purchased with the
benefit of pre-negotiated leases with Norwegian Air Shuttle ASA
('Norwegian'), each with a term of twelve years from the respective
commencement dates and are successfully producing income for our
investors. I am pleased to report there are no issues to bring to
the attention of Shareholders concerning the performance of the
Lessee.
The Total Shareholder Return for this first accounting period of
9.022 cents per Share is as expected after providing for the
initial IPO costs. It was very pleasing for the Company to meet its
target dividends of 2.25 cents per Share for the quarter's ending
January, April, July and October 2014. A fifth interim dividend was
declared on 20 January 2015 and paid on 13 February 2015. The Net
Asset Value per Share as at 31 December 2014 was 93.575 cents per
share.
The outlook is described fully in the Asset Manager's Report
that follows this report. The Asset Manager will advise the
Directors of any further acquisition opportunities as they
arise.
The Company's second annual general meeting ('AGM') is scheduled
for 12 May 2015 to approve the first full set of audited financial
statements.
I would like to thank our Investors for their continued
support.
Jon Bridel
Chairman
20 March 2015
ASSET MANAGER'S REPORT
Overview and Development - The Aviation Market
2014 proved to be one of the most profitable years for airlines
globally according to the International Air Transport Association
(IATA). The organisation estimates a net profit of USD 19.9 billion
in 2014 which is nearly double the net profit achieved in 2013 (USD
10.6 billion). Profits are expected to increase further in 2015 in
all regions to a total of USD 25.0 billion, with air travel growing
by 7 per cent. Taking a closer look at the European aviation
market, net profit is expected to have increased in 2014 by 440 per
cent. over the previous year according to IATA's December 2014
forecast. The passenger load factor for the Eurozone for the first
eleven months of 2014 for international air traffic is the highest
amongst the regions. In November, the 5.6 per cent. increase in
Revenue Passenger Kilometres (RPK) for European airlines compared
to the same month the previous year was above the global
average.
Crude oil prices have decreased significantly during the second
half of 2014; and while pre-existing hedging policies mean that
this does not necessarily translate into decreased fuel costs for
airlines immediately, it will have a positive impact on operating
costs for airlines through 2015.
Lower operating costs, and consequently improved financial
results, will allow airlines to invest in fleet growth and
modernisation. Due to the factor of uncertainty in future oil
prices, aircraft benefitting from the latest technology, such as
the Dreamliner Boeing B787, will stay in strong demand.
The long-term outlook remains positive for both the aviation
market and the levels of demand for new aircraft. According to
their latest published market outlooks, Boeing (Current Market
Outlook 2014-2033) and Airbus (Global Market Forecast 2014-2033)
are of the opinion that passenger fleets will double by 2033.
According to Boeing, 53 per cent. of aircraft deliveries over the
next twenty years will be within the 200-300 seat category. On top
of that, Airbus estimates annual growth rates of airline traffic
(RPK) at 4.7 per cent on average over the next 20 years, while
Boeing believes RPKs will increase by 5.0 per cent per annum. Both
manufacturers have made their forecasts based upon the assumption
of an average annual increase of 3.2 per cent in global GDP over
the same period.
The aviation industry plays a key role in the global economy.
According to IATA, city pairs served by commercial airlines have
doubled in the last 20 years and 52 per cent. of tourists worldwide
travel by air. Perishable and high value goods transported by air
are of importance given the jobs they create globally; and for many
of these goods there is no obvious substitute means of transport.
Moreover, IATA expects that in 2015 about 1 per cent. of world GDP,
totalling over USD 820 billion, will be spent on air transport.
Furthermore, according to the latest Airline Business Confidence
Index published in October 2014, airline CFOs and heads of cargo
expect passenger services and cargo to grow as strongly as they did
in 2010.
The Assets - Two Boeing Dreamliner B787-8s
The Boeing B787 Dreamliner still ranks alongside the Airbus A350
(which entered into commercial service on 15 January 2015) as the
latest technological, mid-size wide-body aircraft available in the
market. By December 2014, 228 Boeing B787s had been delivered to 23
different airlines and more than 233 million passengers had been
commercially transported. In the last nine months 48 additional
Dreamliners have been ordered by six airlines, four of whom are
existing customers - this underlines the high level of customer
satisfaction with the Dreamliner. With a backlog of over 840
aircraft orders in December 2014, and production fully sold out
until 2019, it is clear that the aircraft remains in high
demand.
Since DP Aircraft I Limited took title of both LNA and LNB last
year, Norwegian has met all of its lease obligations in full. The
carrier operates the aircraft in a two-class configuration seating
32 premium economy plus 259 economy passengers. In the first weeks
of September this year both aircraft
EI-LNA and EI-LNB were physically inspected at Stockholm Arlanda
Airport. The inspection took place during Phase Check `P6`. Both
aircraft have been maintained to a very high standard.
One of LNA's engines, Engine Serial Number (ESN) 10119, as well
as one of LNB's engines, ESN 10135, were removed during the course
of last year to undergo an upgrade at Rolls Royce's Derby
facilities. The upgrade extends the maintenance intervals for the
engines and will soon be completed for all four engines. The
upgrade of ESN 10135 was completed mid-August; ESN 10119 is
expected to be returned by Rolls Royce in the next few weeks.
As mentioned in the Shareholder Report dated 10th July 2014, DS
Skytech, the joint-venture company between DS Aviation and
Skytech-AIC, will take over the technical asset management of both
of the Company's aircraft in May 2015.
The Lessee - Norwegian Air Shuttle ASA
Norwegian Air Shuttle transported nearly 24 million passengers
in 2014. Traffic figures for December 2014 show that passenger
numbers increased by 2 per cent. and RPKs by 17 per cent., while
Available Seat Kilometres (ASK) rose by 12 per cent. compared to
the same period in the previous year. The carrier was therefore
able to increase the passenger load factor by 3.3 per cent points
to 81.3 per cent. Unit revenue (RASK: Revenue per Available Seat
Kilometres) improved by 2 per cent. over the same period.
Norwegian is currently offering 17 non-stop routes between
Europe and the U.S., as well as Thailand. In Spring 2015, the
carrier will increase frequencies between Europe and the U.S. as
well as introduce new routes connecting London-Gatwick and
Copenhagen non-stop with Orlando. Norwegian is also upgrading its
service for passengers with premium tickets, adding lounge access
at various airports and a further enhanced in-flight service. The
carrier won three prizes in 2014 at the prestigious Passenger
Choice Awards in the categories "Best Airline in Europe", "Best
Inflight Connectivity & Communications" and "Best Single
Achievement in Passenger Experience for its moving map on the 787
Dreamliners".
In the third quarter of 2014, ASKs and RPKs increased by 36 per
cent. and 41 per cent. respectively compared to the same period in
the preceding year. The load factor increased by 3.2 per cent
points to 84.6 per cent., EBITDAR (excluding other gains and
losses) increased by 11 per cent and operating revenue grew by 30
per cent. Operating profit for the third quarter was NOK 532
million (USD 83 million). On top of that, the carrier increased its
ancillary revenues calculated per passenger by 37 per cent. whereas
total ancillary passenger revenues grew by 60.5 per cent. In
addition, the carrier gained 47 to 48 per cent. of market growth at
London-Gatwick and Oslo airports. These facts underline the point
that Norwegian Air's growth strategy is progressing well.
At 30 September 2014 cash and cash equivalents amounted to NOK
1,431 million (USD 222 million). The amount of equity has slightly
increased compared to the accounting date 31st December 2013. The
equity ratio stood at 15.0 per cent at the end of the third quarter
2014.
Nevertheless, Norwegian's results are challenged by the weak
Norwegian currency as well as the delayed US approval process
leading to higher costs; with regard to the authorisation process
the airline is supported by the European Commission, which is
seeking to accelerate matters. In any event, Norwegian's current
schedule is not dependent upon or affected by this approval
procedure, and the carrier continues to expand its long-haul
network as previously mentioned. Despite this the carrier was still
successful in further decreasing unit costs, including fuel by 1
per cent. and unit costs excluding fuel by 3 per cent. in the third
quarter of 2014 compared to the same quarter the previous year. As
fuel accounts for 32 per cent. of Norwegian Air's operating costs,
it can be assumed that the airline will profit from lower fuel
prices in 2015.
Last but not least, Norwegian Air's Dreamliner fleet has reached
a size where the company no longer needs to wet-lease additional
aircraft in the course of normal operation. In 2015, the airline
expects to grow ASKs on long-haul by up to 25 per cent. and is
looking to profit from the maturity of its new base in
London-Gatwick as well as its long-haul network and the increased
utilisation of its B787 fleet which now consists of seven aircraft.
The carrier took delivery of three B787-8s last year and plans to
take delivery of one aircraft in early 2015 and four further
aircraft in 2016 so that it is operating a fleet of twelve Boeing
787s by the end of next year.
DS Aviation GmbH & Co. KG
Member of Dr. Peters Group
Stockholmer Allee 53
44269 Dortmund, Germany
DIRECTORS
The current Directors of the Company were appointed on 9 July
2013 and are as follows:
Jonathan (Jon) Bridel, Non- Executive Chairman (50)
Jon is a Guernsey resident and is currently a non-Executive
Director of Alcentra European Floating Rate Income Fund Limited,
Starwood European Real Estate Finance Limited, The Renewables
Infrastructure Group Limited and Sequoia Economic Infrastructure
Income Fund Limited which are listed on the Main Market of the
London Stock Exchange. Other companies include Altus Global Gold
Limited, Aurora Russia Limited and Fair Oaks Income Fund Limited.
Jon was previously Managing Director of Royal Bank of Canada's
investment businesses in the Channel Islands and served as a
Director on other RBC companies including RBC Regent Fund Managers
Limited. Prior to joining RBC, Jon served in a number of senior
management positions in banking, specialising in credit and
corporate finance and private businesses as Chief Financial Officer
in London, Australia and Guernsey having previously worked at Price
Waterhouse Corporate Finance in London.
Jon graduated from the University of Durham with a degree of
Master of Business Administration, holds qualifications from the
Institute of Chartered Accountants in England and Wales (1987)
where he is a Fellow, the Chartered Institute of Marketing and the
Australian Institute of Company Directors. Jon is a Chartered
Marketer and a member of the Chartered Institute of Marketing and
the Institute of Directors and a Chartered Fellow of the Chartered
Institute for Securities and Investment.
Didier Benaroya, Non- Executive Director (64)
Having previously worked as the founder and senior partner of
the Transportation Group and the managing director of Paine Webber,
Didier has extensive experience in the transportation industry. He
is currently resident in the UK and is the founder and a director
of Numera Limited and Numera Services Limited, which has advised
investors, lessors, banks, operating lease companies and airlines
on aircraft and airline related transactions (including leasing,
financing and restructuring) since 1995. Didier holds a BS in
Economics, an MS in Mathematics and Applied Computer Science from
the University of Paris, and an MBA from Northwestern University's
Kellog School of Management.
Jeremy Thompson, Non- Executive Director (59)
Jeremy is a Guernsey resident with sector experience in finance,
telecoms, aerospace & defence and oil & gas. Since 2009
Jeremy has been a consultant to a number of businesses which
includes non-executive directorships of investment vehicles
relating to the BT pension scheme. He is also a non-executive
director of two private equity funds and of a London listed oil and
gas technology fund. Between 2005 and 2009 he was a director of
multiple businesses within a private equity group. This entailed an
active participation in private, listed and SPV companies. Prior to
that he was chief executive officer of four autonomous businesses
within Cable & Wireless PLC (operating in both regulated and
unregulated markets), and earlier held MD roles within the Dowty
Group. Jeremy currently serves as chairman of the States of
Guernsey Renewable Energy Team and is a commissioner within the
Alderney Gambling Control Commission and is also a member of the
Guernsey Tax Tribunal panel. Jeremy received a B.Sc. from Brunel
University, London and was awarded an MBA from Cranfield
University. He was an invited member to the UK's senior defence
course (RCDS). Jeremy has been awarded the Institute of Directors'
Certificate and Diploma in Company Direction and is a member of the
Institute of Directors.
Carol Kilby was appointed as the sole director on formation of
the Company on 5 July 2013 and resigned this appointment at the
Company's launch meeting on 9 July 2013.
DIRECTORS' REPORT
The Directors present their report and audited financial
statements for D P Aircraft I Limited for the period 5 July 2013 to
31 December 2014.
Principal Activity and Review of the Business
The Company's principal activity during the period under review
was the purchase and lease of two Boeing 787-8 Aircraft (the
'Assets'). The Company wholly owns three subsidiaries, DP Aircraft
Guernsey I Limited, DP Aircraft Guernsey II Limited and DP Ireland
Aircraft Limited (together the 'Group').
The investment objective of the Group is to obtain income and
capital returns for the Company's shareholders by acquiring,
leasing and then, when the Board considers it appropriate, selling
the Assets.
The Company has made its investments in the Assets through DP
Aircraft Guernsey I Limited and DP Aircraft Guernsey II Limited.
The Ordinary Shares of the Company are admitted to trading on the
Official List of the Channel Islands Securities Exchange and to
trading on the Specialist Fund Market of the London Stock
Exchange.
On 22 December 2014, the Board of Directors of DP Aircraft I
Limited announced that the Company is considering the acquisition
of two further Boeing 787-8s, to be leased to a third party
national airline on a twelve year lease. If the acquisition
proceeds, it will be funded through a combination of equity and
debt; and although funding terms are yet to be finalised, on the
basis of current market conditions (including, inter alia, the cost
of debt) it is expected that equity would be issued by the Company
at or close to the current market price. Approval from shareholders
is required before the Company can proceed with any new portfolio
acquisition. Accordingly, the Company and its advisers will liaise
with shareholders during 2015 in order to confirm that there is the
requisite support from investors for the proposal.
These financial statements are prepared in accordance with the
Companies (Guernsey) Law, 2008 and to conform to the requirements
of the listing rules of the Specialist Fund Market of the London
Stock Exchange and the Channel Islands Stock Exchange.
Results and Dividends
The profit before tax from 5 July 2013 to 31 December 2014
amounted to US$10.19m.
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 capital, upon
any sale of the Assets. The Company targets a quarterly
distribution in February, May, August and November of each year.
The target distribution is 2.25 cents per Share per quarter. Five
quarterly distributions have been made at the date of this report,
each meeting the 2.25 cents per Share target. The target dividends
are targets only and should not be treated as an assurance or
guarantee of performance or a profit forecast. The debt to equity
ratio was 1.38 as at 31 December 2014.
Directors
The Directors of the Company, all of whom served throughout the
period from 9 July 2013 are as shown within this report. As at the
date of this report Mr Bridel, jointly with his wife, held 7,500
Ordinary Shares and Mr J Thompson held 15,000 Ordinary Shares each
in the Company.
Principal Risks and Uncertainties
The Statement of Risks and Uncertainties are as described within
this report.
Substantial Shareholdings
The directors note the following substantial interests in the
Company's share capital as at 31 December 2014 (10% or more
shareholding):
M&G Investment Management 25,000,000 - 22.12%
CCLA Investment Management 20,543,862 - 18.18%
As at the date of this report there have been no significant
changes in the above list of substantial shareholdings.
AIFM Directive
In July 2013 the European Alternative Investment Fund Management
Directive (AIFMD) came into effect with transitional provisions
until July 2014. The Company has elected to be a 'self-managed'
Guernsey AIF and as such will be treated as a non-EU AIFM for the
purposes of the Directive. The Company has registered with the
Financial Conduct Authority (and notified the Guernsey Financial
Services Commission) under the AIFMD (Marketing) Rules, 2013.
The Board
The Board comprises three non-executive directors each of whom
are independent.
The Board has a breadth of experience relevant to the Company
and a balance of skills experience and age. The Board recognises
the importance of diversity and will evaluate applicants to fill
vacant positions regardless of gender and without prejudice.
Applicants will be assessed on their broad range of skills,
expertise and industry knowledge, and business and other expertise.
In view of the long-term nature of the Company's investments, the
Board believes that a stable board composition is fundamental to
run the Company properly. The Board has not stipulated a maximum
term of any directorship.
As the Company is not a FTSE 350 company, Directors are
currently not subject to annual election by the shareholders nor
for the requirement for the external audit contract to be put out
to tender every 10 years. The Directors will offer themselves for
re-election, in rotation, at each annual general meeting ('AGM').
At the first AGM of the Company held on 2 January 2015 and in
accordance with the articles of the Company, all of the directors
retired, offered themselves for re-election and were all duly
re-elected.
The Directors are on a termination notice of three months.
Directors' Duties and Responsibilities
The Board of Directors has overall responsibility for the
Company's affairs and is responsible for the determination of the
investment policy of the Company, resolving conflicts and for
monitoring the overall portfolio of investments of the Company. To
assist the Board in the day-to-day operations of the Company,
arrangements have been put in place to delegate authority for
performing certain of the day-to-day operations of the Company to
the third-party service providers, such as the Administrator and
Company Secretary. The Board receives full details of the Company's
assets, liabilities and other relevant information in advance of
Board meetings.
The Board will undertake an annual evaluation of its own
performance and the performance of its committee and individual
Directors, under the regime published via the Channel Islands
Securities Exchange, to ensure that they continue to act
effectively and efficiently and to fulfil their respective duties,
and to identify any training requirements. The results of the first
evaluation have been reviewed by the Chairman and his fellow
directors. No significant corporate governance issues arose from
this review.
The Board will also undertake an annual review of the
effectiveness of the Company's system of internal controls and the
safeguarding of shareholders' investments and the Company's assets.
At each quarterly meeting the Board will table and review a risk
matrix. There is nothing to highlight from the reviews of these
reports as at the date of this report.
Board Meetings
The Board meets at least four times a year to consider the
business and affairs of the Company for the previous quarter.
Between these quarterly meetings the Board keeps in contact by
email and telephone as well as meeting to consider specific matters
of a transactional nature. There is regular contact with the
Secretary.
The Directors are kept fully informed of investment and
financial controls and other matters that are relevant to the
business of the Company. The Directors also have access, where
necessary in the furtherance of their duties, to professional
advice at the expense of the Company.
The Board considers agenda items laid out in the Notice and
Agenda which are formally circulated to the Board in advance of any
meeting as part of the board papers. Such items include but are not
limited to; investment performance, share price performance, review
of marketing and shareholder communication. The Directors may
request any Agenda items to be added that they consider appropriate
for Board discussion. In addition, each Director is required to
inform the Board of any potential or actual conflict of interest
prior to Board discussion. Board meetings are attended by
representatives of the Asset Manager. The Company's corporate
brokers also attend to assist the Directors in understanding the
views of major shareholders about the Company.
Directors Remuneration
The remuneration of the non-executive directors is reviewed on
an annual basis and compared with the level of remuneration for
directorships of other similar funds. Messrs Bridel, Thompson and
Benaroya receive an annual fee of GBP25,000, GBP20,000 and
GBP20,000 respectively per annum plus each director receives an
additional GBP10,000 for directorship duties on the Company's
Guernsey subsidiaries. Mr Benaroya also receives GBP10,000 per
annum for directorship duties on the board of DP Ireland Limited.
There are no executive director service contracts in issue.
A review of the Director remuneration has been undertaken
following the board self-appraisal by the Board. By no later than 1
July 2015 the Chairman's remuneration will increase by GBP2,500 per
annum and the remuneration for the Audit Committee Chairman will
also increase by GBP2,500 per annum with effect from the same
date.
Upon the requirement to issue a new prospectus at any time, the
Directors will be entitled to receive an additional GBP5,000 each,
per prospectus.
Internal Controls and Risk Management Review
The Board is responsible for the Company's system of internal
control and for reviewing its effectiveness. The Board confirms
that there is an ongoing process for identifying, evaluating and
monitoring the significant risks faced by the Company.
The Board carries out an annual review of internal controls. The
internal control systems are designed to meet the Company's
particular needs 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.
Administration and Secretarial duties for the Company are
performed by Dexion Capital (Guernsey) Limited.
The Directors of the Company clearly define the duties and
responsibilities of their agents and advisors. 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
ongoing performance and contractual arrangements.
Dialogue with Shareholders
All holders of Shares in the Company have the right to receive
notice of, and attend, all general meetings of the Company, during
which the directors are available to discuss issues affecting the
Company. The directors are available to enter into dialogue with
shareholders and make themselves available for such purpose when
reasonably required. The Company believes such communications to be
important. Reports are provided to the Board of Directors on
shareholders' views about the Company and any issues or concerns
they might have.
Board Policy on Tenure and Independence
The Board has not yet formed a policy on tenure however, it does
consider the independence of each Director on an annual basis
during the performance evaluation process.
Disclosure of Information to Auditor
The directors who held office at the date of approval of this
Directors' Report confirm that, so far as they are each aware,
there is no relevant audit information of which the Company'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.
Auditor
KPMG, Ireland, Statutory Auditors and Chartered Accountants have
been appointed as first auditors to the Company. A resolution
proposing their reappointment will be submitted at the Company's
next annual general meeting.
Going Concern
The lease rental income has been set at an aggregate absolute
income stream in excess of the Company's expenses, distributions
and financing costs. The Directors are of the opinion that the
affairs of the company are suitably structured to enable the Going
Concern basis to be adopted in the preparation of these financial
statements.
Subsequent Events
On 20 January 2015, the Company declared an interim dividend in
respect of the period starting 1 October 2014 and ended 31 December
2014, of 2.25 cents per Share, to holders of Shares on the register
as at 30 January 2015. The ex-dividend date was January 2015, with
payment 13 February 2015.
REPORT OF THE AUDIT COMMITTEE
We present the Audit Committee (the 'Committee') Report for
2014, setting out the Committee's structure and composition,
principal duties and key activities during the year. The Committee
has reviewed the Company's financial reporting, the independence
and effectiveness of the independent auditor (the 'auditor') and
the internal control and risk management systems of service
providers.
The Board is satisfied that for the period under review and
thereafter the Committee has recent and relevant commercial and
financial knowledge sufficient to satisfy the requirements of the
Committee's remit.
Structure and Composition
The Committee is chaired by Mr Thompson and its other members
are Messrs Bridel and Benaroya. The Committee operates within
clearly defined terms of reference.
The Committee conducts formal meetings not less than three times
a year. There were four meetings during the period under review.
All Directors were present and forming part of the quorum. The
auditor is invited to attend those meetings at which the annual and
interim reports are considered.
Principal Duties
The role of the Committee includes:
-- monitoring the integrity of the published financial statements of the Company;
-- keeping under review the consistency and appropriateness of
accounting policies on a year to year basis. Satisfying itself that
the annual accounts, the interim statement of financial results and
any other major financial statements issued by the Company follow
International Financial Reporting Standards and give a true and
fair view of the Company and any associated undertakings' affairs;
matters raised by the external auditors about any aspect of the
accounts or, of the Company's control and audit procedures, are
appropriately considered and, if necessary, brought to the
attention of the board, for resolution;
-- monitoring and reviewing the quality and effectiveness of the
auditors and their independence;
-- considering and making recommendations to the Board on the
appointment, reappointment, replacement and remuneration of the
Company's auditor;
-- monitoring and reviewing the internal control and risk
management systems of the service providers; and
-- considering at least once a year whether there is a need for
an internal audit function.
The complete details of the Committee's formal duties and
responsibilities are set out in the Committee's terms of reference,
a copy of which can be obtained from the Secretary.
Independent Auditor
The Committee is also the forum through which the auditor
reports to the Board of Directors. The Committee reviews the scope
and results of the audit, its cost effectiveness and the
independence and objectivity of the auditor, with particular regard
to the terms under which it is appointed to
perform non audit services including fees. The Committee has
established pre-approval policies and procedures for the engagement
of KPMG, Ireland ('KPMG') to provide non-audit services. KPMG has
been the independent auditor from the date of the initial listing
on the Specialist Fund Market of the London Stock Exchange.
The audit fees proposed by the auditors each year will be
reviewed by the Committee taking into account the Company's
structure, operations and other requirements during the year and
the Committee will make appropriate recommendations to the Board.
The Committee considers KPMG to be independent of the Company. The
Committee also met with the external auditors without the Asset
Manager or Administrator being present so as to provide a forum to
raise any matters of concern in confidence.
Evaluations or Assessments Made During the Year
The following sections discuss the assessments made by the
Committee during the year:
Significant Areas of Focus for the Financial Statements
The Committee's review of the interim and annual financial
statements focused on:
-- Valuation of the Company's Assets
-- Lease and Loan cash flows
The Company's investment in the two aircraft represents
substantially all of the net assets of the Company and as such is
the biggest factor in relation to the accuracy of the financial
statements. The 31 December 2014 valuations of the two aircraft
have been independently obtained from three independent expert
valuers (all certified by the International Society of Transport
Aircraft Trading 'ISTAT'). Two of the independent expert valuers
included encumbered economic full-life valuations in excess of the
encumbered depreciated value indicated within the Company's
Statement of Financial Position. The Directors resolved to adhere
to the straight-line depreciated value method as at 31 December
2014.
Effectiveness of the Audit
The Committee had formal meetings with KPMG during the period
under review:
1) Before the start of the audit to discuss formal planning,
discuss any potential issues and agree the scope that will be
covered, and
2) After the audit work was concluded to discuss any significant
matters such as those stated above.
The Board considered the effectiveness and independence of KPMG
by using a number of measures, including but not limited to:
-- the audit plan presented to them before the start of the audit;
-- the audit results report;
-- changes to audit personnel;
-- the auditor's own internal procedures to identify threats to independence;
-- feedback from both the Asset Manager and Administrator.
Internal Audit
There is no internal audit function. As all of the directors are
non-executive and all of the Company's administration functions
have been delegated to independent third parties, the Audit
Committee considers that there is no need for the Company to have
an internal audit function. However, this matter is reviewed
periodically.
Conclusion and Recommendation
After reviewing various reports such as the operation and risk
management framework and performance reports from management,
liaising where necessary with KPMG, and assessing the significant
areas of focus for the financial statements listed within this
report, the Committee is satisfied that the financial statements
appropriately address the critical judgements and key estimates
(both in respect to the amounts reported and the disclosures). The
Committee is also satisfied that the significant assumptions used
for determining the value of assets and liabilities have been
appropriately scrutinised, challenged and are sufficiently robust.
The independent auditor reported to the Committee that no material
misstatements were found in the course of its work. Furthermore,
the Administrator confirmed to the Committee that they were not
aware of any material misstatements including matters relating to
presentation.
The Committee confirms that it is satisfied that the independent
auditor has fulfilled its responsibilities with diligence and
professional scepticism. Following the completion of the accounts
review process on the effectiveness of the independent audit and
the review of audit services, the Committee will consider
recommending that KPMG be reappointed at the next Annual General
Meeting. For any questions on the activities of the Committee not
addressed in the foregoing, a member of the Committee remains
available to attend each Annual General Meeting to respond to such
questions.
Corporate Governance
The Company is not required to comply with any particular
corporate governance codes in the UK or Guernsey (since it is not
authorised or regulated by the FCA or GFSC) but the Directors take
corporate governance seriously and will have regard to relevant
corporate governance standards in determining the Company's
governance policies including without limitation in relation to
corporate reporting, risk management and internal control
procedures.
The Directors intend to comply, and ensure that the Company
complies, with any obligations under the Companies Laws and the
Articles to treat shareholders fairly as between themselves.
Directors' Share Dealings
The Board has agreed to adopt and implement the Model Code for
Directors' dealings contained in the Listing Rules of the FCA (the
'Model Code'). The Board will be responsible for taking all proper
and reasonable steps to ensure compliance with the Model Code by
the Board.
By order of the Board
Jon Bridel Jeremy Thompson
Director Director
20 March 2015
STATEMENT OF PRINCIPAL RISKS AND UNCERTAINTIES
Asset risk
The Company's Assets comprise of two Boeing 787-8 aircraft.
The Boeing 787-8 is a newly developed generation of aircraft;
there is currently insufficient experience and data available to be
able to give a complete assessment of the long-term use and
operation of the aircraft; the Company is exposed to the used
aircraft market of the 787-8, which is untested.
Market risk
The airline industry is particularly sensitive to changes in
economic conditions and is highly competitive; risks affecting the
airline industry generally could affect the ability of Norwegian
Air Shuttle ASA ("Norwegian") (or any other lessee) to comply with
its obligations under the Leases (or any subsequent lease).
There is no guarantee that, upon expiry of the Lease, the Asset
could be sold for an amount that would enable Shareholders to
realise a capital profit on their investment or to avoid a loss.
Costs regarding any future re-leasing of the assets would depend
upon various economic factors and would be determinable only upon
an individual re-leasing event.
Key personnel risk
The ability of the Company to achieve its investment objective
is significantly dependent upon the expertise of certain key
personnel at DS Aviation; there is no guarantee that such personnel
will be available to provide services to the Company for the
scheduled term of the Lease or following the termination of the
Lease. However, Key Man clauses within the Asset Management
agreement do provide a base line level of protection against this
risk.
Credit risk & Counterparty risk
Credit risk is the risk that a significant counterparty will
default on its contractual obligations. The Group's most
significant counterparties are Norwegian as lessee and provider of
income and NordLB as provider of loans and borrowings, including
the provision of the swap facility, cash and restricted cash (all
held at NordLB). The Lessee does not maintain a credit rating. The
credit rating of NordLB is Aa1. Norwegian's stated strategy of
providing low-cost long haul flights is untested and may not be
successful; failure of this strategy, or of any other material part
of Norwegian's business, may adversely affect Norwegian's ability
to comply with its obligations under the Lease.
Any failure by Norwegian to pay any amounts when due would have
an adverse effect on the Company's ability to comply with its
obligations under the loan agreement, could ultimately have an
impact on the Company's ability to pay dividends and could result
in the Lender enforcing their security and selling the relevant
Asset on the market potentially negatively impacting the returns to
investors. In mitigation, Norwegian is the second largest airline
in Scandinavia and the third largest low-cost airline in
Europe.
As disclosed in the Norwegian Financial Statements for 2013, all
of Norwegian's markets enjoyed significant overall growth, with 81
new routes on offer. Capacity in terms of seat kilometers increased
by 32 per cent, two thirds of which was in the Nordic core market.
In the continental European market, growth was attributed to the
new UK and Spanish bases. Starting in April, Londoners could choose
from 20 new Norwegian routes to the Mediterranean and, in October,
Warsaw, Munich, Hamburg, and Cologne became non-stop destinations
from the Spanish bases.
The most significant milestone was the launch of the
long-awaited flights to North America and Southeast Asia. The first
flight departed from Oslo on 30 May bound for New York; Stockholm
followed suit the day after. By year-end Norwegian operated flights
from Scandinavia to New York, Fort Lauderdale, and Bangkok, and had
begun the sale of tickets to Los Angeles, Orlando, and San
Francisco.
Net profit was NOK 322 million, equivalent to a net profit
margin of two per cent. Pre-tax profit came in at NOK 437 million
compared to NOK 623 million the previous year. Revenues were
influenced by planned capacity investment across the business and
by increased competitive pressure in the Scandinavian market in the
second half of 2013.
Liquidity risk
In order to finance the purchase of the Assets, the Group has
entered into two separate Loan Agreements pursuant to which the
Group has borrowed an amount of US$159,600,000 in total. Pursuant
to the Loan Agreements, the Lenders are given first ranking
security over the Assets. Under the provisions of each of the Loan
Agreements, the Borrowers are required to comply with loan
covenants and undertakings. A failure to comply with such covenants
or undertakings may result in the relevant Lenders recalling the
relevant Loan. In such circumstances, the Group may be required to
sell the relevant Asset to repay the outstanding relevant Loan.
More detailed explanations of the above risks can be found
within the Notes to the Audited Consolidated Financial Statements
within this report.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors, listed with their respective functions within
this report, are responsible for preparing the Directors' Report
and the Financial Statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare consolidated
financial statements for each financial year. Under that law they
have elected to prepare the financial statements in accordance with
International Financial Reporting Standards ("IFRS") as adopted by
the EU. The financial statements are required by law to comply with
the Companies (Guernsey) Law, 2008.
The Company is also responsible for ensuring its annual report
and financial statements meet the requirements of the Channel
Islands Securities Exchange and the UK's FCA Disclosure and
Transparency Rules.
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, the Directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Group and to enable them to ensure that
the financial statements comply with the Companies (Guernsey) Law,
2008. They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company and
to prevent and detect fraud and other irregularities.
In accordance with the UK's FCA Disclosure and Transparency
Rules, the Directors, confirm that they have complied with the
above requirements in preparing the financial statements and that
to the best of our knowledge and belief:
(a) The Directors' Report 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; and
(b) The financial statements, prepared in accordance with IFRS
as adopted by the EU, give a true and fair view of the assets,
liabilities, financial position and profit of the Group.
Signed on behalf of the Board by
Jon Bridel Jeremy Thompson
Director Director
20 March 2015
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
from 5 July 2013 to 31 December 2014
5 July 2013 to
31 December 2014
Note US$
Revenue
Lease rental income 4 36,169,050
Expenses
Asset management fees 5 (616,018)
General and administrative expenses 5 (1,529,973)
Depreciation and amortisation 6 (13,979,302)
------------------------------------------ ---- ----------------
(16,125,293)
Operating profit 20,043,757
Finance costs 9 (9,851,107)
Finance income 9 3,076
------------------------------------------ ---- ----------------
Net Finance Costs (9,848,031)
Profit for the period 10,195,726
------------------------------------------ ---- ----------------
Other Comprehensive Income
Items that are or may be reclassified
to profit or loss
Cash flow hedges - changes in fair value 14 (5,171,613)
------------------------------------------ ---- ----------------
Total Comprehensive Income for the period 5,024,113
------------------------------------------ ---- ----------------
US$
Earnings per Share for the period - Basic
and diluted* 0.09022
------------------------------------------ ---- ----------------
In arriving at the Total Comprehensive Income for the period,
all amounts above relate to continuing operations. There is no
comparative information.
* The earnings per Share has been calculated based on the profit
after tax of $10,195,726 divided by the 113m shares in issue since
4 October 2013 on the basis that the Group only commenced its
operations from that date. The actual weighted average number of
shares outstanding over the entire reporting period was
94,166,667.
The notes form an integral part of these financial
statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December
31 December 2014
Note US$
NON-CURRENT ASSETS
Property, Plant and Equipment - Aircraft 6 225,586,091
Intangible Asset - Aircraft Lease Premium 6 28,035,907
------------------------------------------ ---- ----------------
253,621,998
CURRENT ASSETS
Cash and cash equivalents 8 5,046,920
Restricted cash 7 7,442,092
Trade and other receivables 11 29,933
------------------------------------------ ---- ----------------
Total Current Assets 12,518,945
TOTAL ASSETS 266,140,943
------------------------------------------ ---- ----------------
EQUITY
Share Capital 10 110,885,220
Hedging Reserve 14 (5,171,613)
Retained Earnings 25,726
------------------------------------------ ---- ----------------
Total Equity 105,739,333
NON-CURRENT LIABILITIES
Loans and Borrowings 12 135,629,715
Maintenance reserves 12 1,042,092
Security deposits 12 6,400,000
Derivative instrument liability 5,171,613
------------------------------------------ ---- ----------------
Total Non-Current Liabilities 148,243,420
CURRENT LIABILITIES
Loans and borrowings 13 10,533,014
Rent received in advance 13 1,122,764
Trade and other payables 13 502,412
------------------------------------------ ---- ----------------
Total Current Liabilities 12,158,190
TOTAL LIABILITIES 160,401,610
------------------------------------------ ---- ----------------
TOTAL EQUITY AND LIABILITIES 266,140,943
------------------------------------------ ---- ----------------
The financial statements were approved by the Board of Directors
and were signed on its behalf on 20 March 2015 by Jon Bridel and
Jeremy Thompson:
Jon Bridel Jeremy Thompson
Chairman Director
The notes form an integral part of these financial
statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
from 5 July 2013 to 31 December 2014
As at 31 December
2014
US$
Profit for the year 10,195,726
Adjusted for:
Depreciation of Aircraft and amortisation of aircraft
lease premium 13,979,302
Amortisation of deferred loans and borrowings 191,604
Finance Costs 9,659,503
Changes In
Increase in maintenance reserve 1,042,092
Increase in security deposit 6,400,000
Increase in rent received in advance 1,122,764
Increase in trade and other payables 169,345
(Increase) in receivables (29,933)
------------------------------------------------------ -----------------
NET CASH FLOW FROM OPERATING ACTIVITIES 42,730,403
------------------------------------------------------ -----------------
INVESTING ACTIVITIES
Purchase of Aircraft (267,601,300)
Restricted cash (7,442,092)
------------------------------------------------------ -----------------
NET CASH FLOW FROM INVESTING ACTIVITIES (275,043,392)
------------------------------------------------------ -----------------
FINANCING ACTIVITIES
Dividend paid (10,170,000)
Share issue proceeds 113,000,000
Share issue costs (2,114,781)
New Loans and Borrowings NordLB 159,600,000
Loan principal repaid NordLB (11,789,489)
Financing Costs (9,326,431)
Deferred loans and borrowings facility costs (1,839,390)
------------------------------------------------------ -----------------
NET CASH FLOW FROM FINANCING ACTIVITIES 237,359,909
------------------------------------------------------ -----------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD -
Increase in cash and cash equivalents 5,046,920
CASH AND CASH EQUIVALENTS AT END OF PERIOD 5,046,920
------------------------------------------------------ -----------------
The notes form an integral part of these financial
statements.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
from 5 July 2013 to 31 December 2014
Retained Hedging
Share capital Earnings Reserve Total
US$ US$ US$ US$
Total comprehensive income
for the period
Profit for the period - 10,195,726 - 10,195,726
Other comprehensive Income - - (5,171,613) (5,171,613)
--------------------------- ------------- ------------ ----------- ------------
Total comprehensive income - 10,195,726 (5,171,613) 5,024,113
--------------------------- ------------- ------------ ----------- ------------
Transactions with owners
of the Company
Issue of ordinary shares 113,000,001 - - 113,000,001
Share issue costs (2,114,781) - - (2,114,781)
Dividends* - (10,170,000) - (10,170,000)
--------------------------- ------------- ------------ ----------- ------------
Balance at 31 December
2014 110,885,220 25,726 (5,171,613) 105,739,333
--------------------------- ------------- ------------ ----------- ------------
There is no comparative information.
* On 16 January 2014, the Company declared an interim dividend,
in respect of the period ended 31 December 2013, of 2.25 cents per
Share, to holders of Shares on the register at 24 January 2014. The
ex-dividend date was 22 January 2014, with payment made week
commencing 3 February 2014.
* On 23 April 2014, the Company declared an interim dividend, in
respect of the period starting 1 January 2014 and ended 31 March
2014, of 2.25 cents per Share, to holders of Shares on the register
at 2 May 2014. The ex-dividend date was 30 April 2014, with payment
made 16 May 2014.
* On 21 July 2014, the Company declared an interim dividend, in
respect of the period starting 1 April 2014 and ended 30 June 2014,
of 2.25 cents per Share, to holders of Shares on the register at 1
August 2014. The ex-dividend date was 30 July 2014, with payment
made 15 August 2014.
* On 21 October 2014, the Company declared an interim dividend,
in respect of the period starting 1 July 2014 and ended 30
September 2014, of 2.25 cents per Share, to holders of Shares on
the register at 31 October 2014. The ex-dividend date was 30
October 2014, with payment made 14 November 2014.
The notes form an integral part of these financial
statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
from 5 July 2013 to 31 December 2014
1) GENERAL INFORMATION
The consolidated audited financial statements ('financial
statements') incorporate the results of the Company and that of
wholly owned subsidiary entities, DP Aircraft Guernsey I Limited
and DP Aircraft Guernsey II Limited (collectively and hereinafter,
the 'Borrowers'), each being a Guernsey Incorporated company
limited by shares and an intermediate lessor DP Aircraft Ireland
Limited (the 'Lessor'), an Irish incorporated private limited
company.
DP Aircraft I Limited (the 'Company') was incorporated on 5 July
2013 with registered number 56941. The Company is listed on the
Channel Islands Securities Exchange and admitted to trading on the
Specialist Fund Market of the London Stock Exchange.
The Share Capital of the Company comprises 113,000,000 Ordinary
Preference Shares of no par value and one Subordinated
Administrative Share of no par value.
The Company's investment objective is to obtain income and
capital returns for its Shareholders by acquiring, leasing and
then, when the Board considers it appropriate, selling
aircraft.
2) SIGNIFICANT ACCOUNTING POLICIES
a) Basis of preparation
These financial statements have been prepared in accordance with
International Financial Reporting Standards ('IFRS') as adopted by
the EU; issued by the International Accounting Standards Board
('IASB'), the Disclosure and Transparency Rules ('DTR's) of the
UK's Financial Conduct Authority ('FCA') and applicable Channel
Islands Securities Exchange and Guernsey law.
The Directors are of the opinion that the affairs of the Company
are suitably structured to enable the Going Concern basis to be
adopted in the preparation of these financial statements. A number
of new standards, amendments to standards and interpretations are
effective for annual periods beginning after 1 January 2014 and
have not been applied in preparing these financial statements.
Those which may be relevant to the Company are set out below. The
Company does not plan to adopt these standards early.
IFRS 9 Financial Instruments (2010), IFRS 9 Financial
Instruments (2009)
The International Accounting Standards Board (IASB) recently
completed the final element of its comprehensive response to the
financial crisis by issuing IFRS 9 Financial Instruments. The
package of improvements introduced by IFRS 9 includes a logical
model for classification and measurement, a single, forward-looking
'expected loss' impairment model and a substantially-reformed
approach to hedge accounting. The new Standard will come into
effect on 1 January 2018 with early application permitted.
The adoption of these standards is expected to have an impact on
the Company's financial assets, but no impact on the Company's
financial liabilities.
b) Basis of Measurement
The financial statements have been prepared on the historical
cost basis except for certain financial instruments that are
measured at fair value through profit or loss.
The financial statements are prepared in United States Dollars
(US$), rounded to the nearest Dollar, which is the functional
currency of the Company and presentation currency of the Group.
In preparing these financial statements, the significant
judgements made by the Directors in applying the Company's
accounting policies and the key sources of estimation uncertainty
are disclosed in note 3.
c) Basis of Consolidation
The financial statements include the results of the Company and
that of its wholly owned subsidiaries, DP Aircraft Guernsey I
Limited, DP Aircraft Guernsey II Limited and DP Aircraft Ireland
Limited (the 'Group'). Subsidiaries are entities controlled by the
Group. The Group controls an entity when it is exposed to, or has a
right to, variable returns from its involvement with the entity and
has the ability to affect those returns through its power over the
entity. The financial statements of subsidiaries are included in
the consolidated financial statements from the date on which
control commences until the date on which control ceases.
Intra-group balances and transactions, and any unrealised income
and expenses arising from intra-group transactions, have been
eliminated in preparing the financial statements.
d) Taxation
The Company is subject to income tax at the company standard
rate in Guernsey, which is currently zero per cent. However, tax at
rates greater than zero per cent will be payable on any income
received by Guernsey Companies from the ownership of lands and
buildings in Guernsey or from certain regulated activities. It is
not intended that the Company make any such investments or engage
in any of the regulated activities in question.
Shareholders of the Company, whether corporates or individuals,
who are not resident in Guernsey for tax purposes, will not be
subject to Guernsey income tax and will receive dividends without
deduction for Guernsey income tax. Individual shareholders who are
resident in Guernsey for tax purposes will be subject to tax at the
individual standard rate of 20 per cent upon dividends.
DP Aircraft Ireland Limited is subject to resident taxes in
Ireland.
e) Property, plant and equipment - Aircraft (the 'Asset')
Upon delivery, aircraft are initially recognised at cost plus
initial direct costs which may be capitalised under IAS 16. In
accounting for property, plant and equipment, the Company makes
estimates about the expected useful lives, the fair value of
attached leases and the estimated residual value of aircraft. In
estimating useful lives, fair value of leases and residual value of
aircraft, the Company relies upon actual industry experience,
supported by estimates received from independent appraisers, with
the same or similar aircraft types and considering our anticipated
utilisation of the aircraft.
When we acquire an aircraft with a lease attached, we evaluate
whether the lease is at fair market value by comparing the
contractual lease rate to a range of current market lease rates for
similar aircraft. A lease premium is recognised when it is
determined that the acquired lease terms are above market value;
lease discounts are recognised when it is determined that the
acquired lease terms are below market value. Lease premiums are
recognised as Aircraft Lase Premiums in Non Current Assets and are
amortised to profit and loss on a straight line basis over the
lease term. Lease discounts are recognised in other liabilities and
accreted as additional rental revenue on a straight line basis over
the lease life.
The Company's policy is to depreciate the Asset over its
remaining lease life (given the intention to sell the Asset at the
end of the lease) to an appraised residual value at the end of the
lease. For the annual report, the directors determined a residual
valuation at the end of the lease life based on 50 per cent of the
purchase cost, supported by external valuations.
In accordance with IAS 16 - Property, Plant and Equipment, the
Company's aircraft that are to be held and used are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying value of the aircraft may not be recoverable. An
impairment review involves consideration as to whether the carrying
value of an aircraft is not recoverable and is in excess of its
fair value. In such circumstances a loss is recognised as a write
down of the carrying value of the aircraft to the higher of value
in use and fair value less cost to sell. The review for
recoverability has a level of subjectivity and requires the use of
judgement in the assessment of estimated future cash flows
associated with the use of an item of property, plant and equipment
and its eventual disposition. Future cash flows are assumed to
occur under the prevailing market conditions and assume adequate
time for a sale between a willing buyer and a willing seller.
Expected future lease rates are based upon all relevant information
available, including the existing lease, current contracted rates
for similar aircraft, appraisal data and industry trends.
The future cash in-flows for the assets (excluding the assets
residual value in the event of a sale) have been fixed at a set
rate as agreed between the Company, NordLB, as loan provider, and
the Lessee.
f) Financial Instruments
A financial instrument is recognised when the Company becomes a
party to the contractual provisions of the instrument. Regular way
purchases and sales of financial assets are accounted for at trade
date, i.e., the date that the Company commits itself to purchase or
sell the asset. Financial liabilities are derecognised if the
Company's obligations, specified in the contract, expire or are
discharged or cancelled. Financial assets are derecognised if the
Company's contractual rights to the cash flows from the financial
assets expire, are extinguished, or if the Company transfers the
financial assets to a third party and transfers all the risks and
rewards of ownership of the asset, or if the Company does not
retain control of the asset and transfers substantially all the
risk and rewards of ownership of the asset.
Non-derivative financial instruments
Non-derivative financial instruments comprise trade and other
receivables, cash and cash equivalents, restricted cash, loans and
borrowings, and trade and other payables. Non-derivative financial
instruments are recognised initially at fair value plus, for
instruments not at fair value through profit and loss, any directly
attributable transaction costs. Subsequent to initial recognition,
non-derivative financial instruments are measured at amortised cost
using the effective interest rate method, less any impairment
losses in the case of financial assets.
Fair values of non-derivative financial instruments, which are
determined for disclosure purposes, are calculated based on the
present value of future principal and interest cash flows,
discounted at the market rate of interest at the reporting
date.
Derivative financial instruments
The Company invests in interest rate swaps in order to provide
for fixed-rate interest to be payable in respect of the loans and
borrowings, matching the timing of the scheduled fixed rental
payments under the Lease, interest rate swaps have been entered
into to provide for surety of cash flow and elimination of
volatility.
On initial designation of the derivative as hedging instrument
the Company formally documents the relationship between the hedging
instrument and the hedged item, including the risk management
objective and strategy in undertaking the hedge transaction and the
hedged risk, together with the methods that will be used to assess
the effectiveness of the hedging relationship. The Company makes an
assessment, both at the inception of the hedge relationship as well
as on an ongoing basis, of whether the hedging instruments are
expected to be highly effective in offsetting the changes in the
fair value of the respective hedged items attributable to the
hedged risk, and whether the actual results of each hedge are
within a range of 80% - 125%.
Fair value movements on the derivative instruments are recorded
as Other comprehensive income in the Statement of Comprehensive
Income, to the extent they are effective. The fair value of the
derivative instruments are recorded as "derivative liability" or
"derivative asset" in the Statement of Financial Position.
Hedging Reserve
The hedging reserve comprises the effective portion of the
cumulative net change in the value of hedging instruments used in
cash flow hedges pending subsequent recognition in profit or loss
as the hedged cash flows affect profit or loss.
Cash and cash equivalents (Loans and Receivables under IAS
39.9)
Cash and cash equivalents comprise cash balances held for the
purpose of meeting short term cash commitments and investments
which are readily convertible to a known amount of cash and are
subject to an insignificant risk of changes in value. Where
investments are categorised as cash equivalents, the related
balance has a maturity of three months or less from the date of
acquisition. Cash and cash equivalents are carried at amortised
cost.
Restricted cash (Loans and Receivables under IAS 39.9)
Restricted cash comprises cash held by the Company but which is
ring-fenced or used as security for specific financing
arrangements, and to which the Company does not have unfettered
access. Restricted cash is measured at amortised cost.
Maintenance Reserve
Maintenance reserves are Lessee contributions to a retention
account held by the Lessor which are calculated by reference to the
budgeted cost of maintenance and overhaul events (the 'supplemental
rentals'). They are intended to ensure that at all times the Lessor
holds sufficient funds to cover the proportionate cost of
maintenance and overhaul of the Asset relating to the life used on
the airframe, engines and parts since new or since the last
overhaul. During the term of the lease, all maintenance is required
to be carried out at the cost of the Lessee, and maintenance
reserves are required to be released only upon receipt of
satisfactory evidence that the relevant qualifying maintenance or
overhaul has been completed.
Maintenance reserves are recorded on the statement of financial
position during the term of the lease. Reimbursements will be
charged against this liability as qualifying maintenance work is
performed. Maintenance reserves are restricted and not
distributable until, at the end of the lease, the Company is
released from the obligation to make any further reimbursements in
relation to the aircraft, and the remaining balance of maintenance
reserves, if any, is released through profit or loss.
Security Deposit
Lease contracts require the lessee to pay a security deposit,
either in cash or in the form of a letter of credit. These deposits
are refundable to the lessee upon expiration of the lease and,
where such deposits are received in cash, they are recorded in the
statement of financial position as a liability. The cash received
related to security deposits is presented as restricted cash in the
Statement of Financial Position.
Trade and other receivables
Trade and other receivables are recognised initially at fair
value and are thereafter measured at amortised cost using the
effective interest rate less any provision for impairment. Trade
and other receivables are discounted when the time value of money
is considered material. A provision for impairment of trade
receivables is recognised when there is objective evidence the
Company will not be able to collect all amounts due according to
the original terms of the receivables. Significant financial
difficulties of the loans and borrowings or, probability that the
loans and borrowings or will enter bankruptcy or financial
reorganisation, and default or delinquency in payments are
considered indicators that the trade receivable is impaired.
Loans and borrowings
Loans and Borrowings are recognised initially at fair value, net
of transaction costs incurred. Loans and Borrowings are
subsequently stated at amortised cost; any difference between the
proceeds (net of transaction costs) and the redemption value is
recognised through profit or loss in the consolidated statement of
comprehensive income over the period of borrowings using the
effective interest rate method. Loans and Borrowings are classified
as current liabilities unless the Company has an unconditional
right to defer settlement of the liability for at least one year
after the reporting date.
Trade and other payables
Trade and other payables are recognised initially at fair value
and subsequently measured at amortised cost using the effective
interest method.
g) Share capital
Shares are classified as equity. Incremental costs directly
attributable to the issue of shares are recognised as a deduction
from equity.
h) Share based payments
For cash settled share-based payment arrangements with the Asset
Manager, which is classified as a non employee, the Company
re-measures the goods or services from the non employee at each
measurement date at their fair value. The cost of the share based
payment exchanged for the goods or services is recorded in equal
amount over the period the services are provided. (See note 19
Asset Management Agreement).
i) Lease rental income
Leases relating to the Aircraft are classified as operating
leases where the terms of the lease do not transfer substantially
all the risks and rewards of ownership to the lessee. Rental income
from operating leases is recognised on a straight-line basis over
the term of the lease.
The first Asset (for the purpose of this Note the 'First Lease')
is a Boeing 787-8. The manufacturer's serial number is 35304. The
First Lease consists of monthly lease rentals of US$1,240,501 per
month for the lease term. Lease rentals are due in advance on the
15th day of each calendar month.
The second Asset (for the purpose of this Note the 'Second
Lease') is a Boeing 787-8. The manufacturer's serial number is
35305. The Second Lease consists of monthly lease rentals of
US$1,245,620 per month for the lease term. Lease rentals are due in
advance on the 15th day of each calendar month.
j) Expenses
Expenses are accounted for on an accruals basis.
k) Finance costs - Interest payable - Loans
Interest on the Loan is payable in arrears on the last day of
each interest period, which will be one month long (the 'Interest
Period'). Interest on each Loan generally accrues at a floating
rate of interest which is calculated using US LIBOR for the length
of the Interest Period and a margin of 2.6 per cent per annum. If
any amount is not paid by the Company when due, interest will
accrue on such amount at the then current rate applicable to the
Loan plus 2.0 per cent per annum. Interest is calculated on an
effective interest rate basis. Hedging arrangements are in place
for each loan in order to provide for fixed-rate interest to be
payable, matching the timing of the scheduled fixed rental payments
under the Leases.
l) Finance income
Interest income on cash and cash equivalents is accounted for on
an effective interest rate basis.
m) Foreign currency translation
Transactions denominated in foreign currencies are translated
into US$ 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 US$ at the
rate of exchange ruling at the reporting date. Foreign exchange
gains or losses arising on translation are recognised through
profit or loss in the Consolidated Statement of Comprehensive
Income.
n) Initial direct costs
Aircraft:
Initial direct costs incurred during the purchase of an aircraft
which meet the capitalisation criteria of IAS16 are capitalised to
the cost of the aircraft and depreciated in line with the
depreciation policy.
Borrowings:
Initial direct costs related to loans and borrowings are
capitalised, presented net against the loans and borrowings accrual
and amortised to the Statement of Comprehensive Income over the
period of the related loan.
Lease Costs:
Initial direct costs incurred when settling up a lease are
capitalised to Property, Plant and Equipment and amortised over the
lease term.
o) Segmental reporting
The Directors are of the opinion that the Company is engaged in
a single segment of business, being acquiring, leasing and
subsequent selling of Aircraft.
p) Distribution policy
Dividends will be accrued for when declared.
3) SIGNIFICANT JUDGEMENTS AND ESTIMATES
The preparation of financial statements in conformity with IFRS
requires that the Directors make estimates and assumptions that
affect the application of policies and reported amounts of assets
and liabilities, income and expenses. Such estimates and associated
assumptions are generally based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, and form the basis of making the judgements about
attributing values of assets and liabilities that are not readily
apparent from other sources.
As described in Note 2, the Company will depreciate the Assets
(which are significant) on a straight line basis over the remaining
lease life and taking into consideration the estimated residual
value. In making a judgement regarding these estimates the
Directors will consider previous sales of similar aircraft and
other available aviation information. The Company will engage three
Independent Expert Valuers each year, commencing December 2014 to
provide a valuation of the Assets and will take into account the
average of the three valuations provided. The Company expects that,
in performing their valuations, the Independent Expert Valuers will
have regard to factors such as the condition of the Assets, the
prevailing market conditions (which may impact on the resale value
of the Assets), the Leases (including the scheduled rental payments
and remaining scheduled term of the Leases) and the
creditworthiness of the Lessee. Accordingly, any early termination
of the Leases may impact on the valuation of the Assets. The Assets
residual value is based on appraised residual values.
4) LEASE RENTAL INCOME
5 July 2013
to
31 December
2014
US$
Lease rental income from First Asset ('LNA')
Earned and received 18,047,289
---------------------------------------------- -----------
18,047,289
---------------------------------------------- -----------
Lease rental income from Second Asset ('LNB') 18,121,761
---------------------------------------------- -----------
Earned and received 18,121,761
---------------------------------------------- -----------
Total lease rental income 36,169,050
---------------------------------------------- -----------
All lease rental income is derived from a single customer in
Norway.
OPERATING LEASES
As at 31 December 2014 the contracted cash lease rentals to be
received under non-cancellable operating leases comprised:
Next 12 2 to 5 years After 5 years Total
months
31 December 2014 US$ US$ US$ US$
Boeing 787-8 Serial No: 35304 14,886,012 59,544,048 81,393,859 155,823,919
Boeing 787-8 Serial No: 35305 14,947,440 59,789,760 84,023,041 158,760,241
------------------------------ ---------- ------------ ------------- -----------
29,833,452 119,333,808 165,416,900 314,584,160
------------------------------ ---------- ------------ ------------- -----------
5) ASSET MANAGEMENT, GENERAL AND ADMINISTRATIVE EXPENSES
5 July 2013 to
31 December
2014
US$
Asset management fees 616,018
Administrative 1,525,337
General 4,636
-------------------------- --------------
Total operating expenses 2,145,991
-------------------------- --------------
6) PROPERTY, PLANT AND EQUIPMENT - AIRCRAFT AND INTANGIBLE ASSET - AIRCRAFT LEASE PREMIUM
Boeing 787-8 Total
Cost US$ US$
As at 10 July 2013 - -
Additions - October 2013 - Aircraft 238,020,000 238,020,000
Additions - October 2013 - Lease Premium 29,581,300 29,581,300
----------------------------------------- ------------ -----------
As at 31 December 2014 267,601,300 267,601,300
----------------------------------------- ------------ -----------
ACCUMULATED DEPRECIATION
As at 10 July 2013 - -
Charge for the period - Aircraft 12,433,909 12,433,909
Charge for the period - Lease Premium 1,545,393 1,545,393
----------------------------------------- ------------ -----------
As at 31 December 2014 13,979,302 13,979,302
----------------------------------------- ------------ -----------
CARRYING AMOUNT
Aircraft 225,586,091 225,586,091
Lease Premium 28,035,907 28,035,907
----------------------------------------- ------------ -----------
As at 31 December 2014 253,621,998 253,621,998
----------------------------------------- ------------ -----------
The Boeing 787-8 is a newly developed generation of aircraft and
the Company is exposed to the used aircraft market of the 787-8
which is untested. Due to the new type of design, in particular in
respect of innovative materials and technology, there is currently
insufficient experience and data available to be able to give a
complete assessment of the long-term use and operation of the
aircraft. There is a risk that the newly developed materials may be
found to be less efficient or durable than expected and thereby may
lead to higher maintenance and repair costs. Under the terms of the
Leases, the cost of repair and maintenance of the Assets will be
borne by Norwegian. However, upon expiry or termination of the
Leases, the cost of repair and maintenance will fall upon the
Group. Therefore upon expiry of the Leases, the Group may bear
higher costs and the terms of any subsequent leasing arrangement
(including terms for repair, maintenance and insurance costs
relative to those agreed under the Leases) may be adversely
affected, which could reduce the overall distributions paid to the
Shareholders.
The estimated residual value of the Boeing 787-8 Assets as at
the end of their respective leases in 2025 have been re-evaluated
by independent experts for the first full financial accounting
period ended on 31 December 2014. The Company's policy is to
depreciate the Asset over its remaining lease life (given the
intention to sell the Asset at the end of the lease) to an
appraised residual value at the end of the lease. For the annual
report, the directors determined a residual valuation at the end of
the lease life based on 50 per cent of the purchase cost, supported
by external valuations. Eventual residual value will depend upon a
variety of factors including actual or anticipated fluctuations in
the results of the airline industry, market perception of the
airline industry, general economic and social and political
development, changes in industry conditions, fuel prices or rates
of inflation. The Loans entered into by the Company to complete the
purchase of the aircrafts are cross collateralised. Each of the
First Loan and the Second Loan are secured by way of security taken
over each of the first aircraft and the second aircraft.
7) RESTRICTED CASH
As at
31 December 2014
US$
Security Deposit 6,400,000
NordLB - Maintenance reserve 622,031
NordLB - Maintenance reserve 420,061
----------------------------- ----------------
7,442,092
----------------------------- ----------------
8) CASH AND CASH EQUIVALENTS
As at
31 December 2014
US$
NordLB 755,199
NordLB 755,143
Royal Bank of Scotland International - Call 3,536,578
-------------------------------------------- ----------------
Total cash and cash equivalents 5,046,920
-------------------------------------------- ----------------
9) FINANCE INCOME AND EXPENSE
5 July 2013 to
31 December 2014
US$
Finance income 3,076
---------------------------------------------- ----------------
3,076
-------------------------------------------- ----------------
Loan interest paid & payable (5,287,715)
Deferred loan and borrowings facility costs (191,604)
---------------------------------------------- ----------------
Total interest at effective interest rate (5,479,319)
Swap interest paid & payable (4,371,788)
---------------------------------------------- ----------------
Total finance expense (9,851,107)
---------------------------------------------- ----------------
10) SHARE CAPITAL
Subordinated Ordinary As at
Administrative Preference 31 December 2014
Share Shares
US$ US$ US$
Administrative share issued on incorporation July 2013 1 - 1
Shares issued pursuant to the Placing October 2013 - 113,000,000 113,000,000
Share issue costs - (2,114,781) (2,114,781)
------------------------------------------------------- -------------- ----------- ----------------
1 110,885,219 110,885,220
------------------------------------------------------- -------------- ----------- ----------------
Subject to the applicable company law and the Company's Articles
of Incorporation, the Company may issue an unlimited number of
shares of par value and/or no par value or a combination of both.
Notwithstanding this, a maximum number of 113,000,000 Shares were
authorised, issued and fully paid-up pursuant to the Placing
Agreement, dated 27 September 2013, between the Company, DS
Aviation, JS Holding (DS Aviation and JS Holding together the
'Asset Manager Parties') and Canaccord Genuity (the Company's
Corporate Broker) whereby Canaccord Genuity acted as agent for the
Company, to procure subscribers for Shares under the initial
Placing of shares at the Issue Price (the 'Placing'). Shares were
issued at US1.00 per share.
The Subordinated Administrative Share is held by DS Aviation
GmbH & Co. KG, (the Asset Manager).
Holders of Subordinated Administrative Shares are not entitled
to participate in any dividends and other distributions of the
Company. On a winding up of the Company the holders of the
Subordinated Administrative Shares are entitled to an amount out of
the surplus assets available for distribution equal to the amount
paid up, or credited as paid up, on such shares after payment of an
amount equal to the amount paid up, or credited as paid up, on the
Ordinary Shares to the Shareholders. Holders of Subordinated
Administrative Shares shall not have the right to receive notice of
and have no right to attend, speak and vote at general meetings of
the Company except if there are no Ordinary Shares in
existence.
Without prejudice to the provisions of the applicable company
law and without prejudice to any rights attached to any existing
shares or class of shares, or the provisions of the Articles of
Incorporation, any share may be issued with such preferred,
deferred or other rights or restrictions, as the Company may be
ordinary resolution direct or, subject to or in default of any such
direction, as the Directors may determine.
Although not utilised in the reporting accounting period, the
Directors were entitled to issue and allot Ordinary Shares as well
as C Shares immediately following the Placing for cash or otherwise
on a non pre-emptive basis.
The share issue costs include fees payable under the Placing
Agreement, registration, listing and admission fees, settlement and
escrow arrangements, printing, advertising and distribution costs,
legal fees, reporting accountant fees and a commission of 1.5 per
cent of the Placing Proceeds due to Canaccord Genuity, as Placing
Agent.
11) TRADE AND OTHER RECEIVABLES
As at
31 December 2014
US$
Directors' and Officers' insurance pre-paid 22,148
Other 7,785
-------------------------------------------- ----------------
Total receivables and prepayments 29,933
-------------------------------------------- ----------------
12) NON-CURRENT LIABILITIES
As at
31 December 2014
US$
NordLB - Borrowings 68,450,386
NordLB - Borrowings 68,673,833
------------------------------------------------------ ----------------
137,124,219
Deferred loans and borrowings facility fees (1,494,504)
------------------------------------------------------ ----------------
135,629,715
Security deposit refundable to Norwegian 6,400,000
Maintenance reserves 1,042,092
------------------------------------------------------ ----------------
Total non-current liabilities (excluding derivatives) 143,071,807
------------------------------------------------------ ----------------
Loans
The Company utilised the Placing Proceeds and the proceeds of
two separate Loans, each of US$79,800,000, to fund the purchase of
the two Boeing 787-8 aircraft.
The loans, each of US$79,800,000 will be fully amortised with
monthly repayments in arrears over approximately twelve years
(until the scheduled expiry of the Lease, as drawdown of the loans
happened after the commencement of the First Lease). There are no
defaults or breaches under the loan agreements.
Structure and term
The committed term of each Loan is from the drawdown date until
the date falling twelve years from the Delivery Date of the
relevant Asset. Each Loan will be amortised with repayments every
month in arrears over the term in amounts as set out in a schedule
agreed by the Company and the Lenders. Amortisation will be on an
annuity-style (i.e. mortgage-style) basis.
Interest
Interest on each Loan is payable in arrears on the last day of
each interest period, which is one month long (the 'Interest
Period'). Interest on each Loan accrues at a floating rate of
interest which is calculated using LIBOR for the length of the
Interest Period and a margin of 2.6 per cent per annum (the 'Loan
Margin') ('Loan Floating Rate'). For the purposes of calculating
the Loan Floating Rate, if on the date when LIBOR is set prior to
the beginning of an Interest Period it is not possible for LIBOR to
be determined by reference to a screen rate at the time that LIBOR
is to be set for that Interest Period (a 'Market Disruption
Event'), the amount of interest payable to each affected Loan
Lender during the Interest Period will be the aggregate of each
Lender's cost of funds during that monthly period and the Loan
Margin. If any amount is not paid by the Borrower when due under
the Loan Transaction Documents, interest will accrue on such amount
at the then current rate applicable to the Loan plus 2.0 per cent
per annum. The Group has entered into ISDA-standard hedging
arrangement with Norddeutsche Landesbank Girozentrale as hedging
provider in connection with the Loans, in order to provide for a
fixed interest rate of 5.06% and 5.08% to be payable in respect of
the Loans throughout the whole term.
Cross Collateralisation
The Loans entered into by the Company to complete the purchase
of the Assets are cross collateralised. Each of the First Loan and
the Second Loan is secured by way of security taken over each of
the First Asset and enforce security over both Assets. This means
that a default on one Loan places both of the Assets at risk.
Following the enforcement of security and sale of the aircraft, the
remaining proceeds, if any, may be substantially lower than
investors' initial investment in the Company.
13) AMOUNTS PAYABLE WITHIN ONE YEAR
The Company has commitments relating to future minimum lease
payments under a non-cancellable operating lease as follows:
As at
31 December 2014
US$
NordLB loan payable 5,395,952
NordLB loan payable 5,290,344
Deferred loan costs (153,282)
------------------------------- ----------------
Total loans and borrowings 10,533,014
Rent received in advance 1,122,764
Interest Payable 333,067
Accruals and other payables 169,345
------------------------------- ----------------
Total trade and other payables 502,412
------------------------------- ----------------
12,158,190
------------------------------- ----------------
14) FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The primary risks arising from the Company's financial
instruments are Capital management, Credit risk, Market risk and
Liquidity risk. The principal nature of such risks is summarised
below. The Group's main financial instruments comprise two separate
loan agreements and interest rate swaps.
Capital Management - Going Concern
The capital managed by the Company comprises the ordinary and
subordinated administrative shares issued on the initial Placing of
the Company. The Company is not subject to externally imposed
capital requirements.
The lease rental income and supplemental rental income have been
set by the Group at an aggregate absolute income stream in excess
of the Group's expenses, distributions and financing costs. The
Directors are of the opinion that the affairs of the Group are
suitably structured to enable the Going Concern basis to be adopted
in the preparation of these financial statements.
Income distributions are made quarterly, subject to compliance
with Applicable Law and regulations, in February, May, August and
November of each year. The Company aims to make a distribution to
investors of 2.25 cents per Share per quarter (amounting to a
yearly distribution of 9.0 per cent. based on the initial placing
price of US$1.00 per Share). There can be no guarantee that
dividends will be paid to Shareholders and, if dividends are paid,
as to the timing and amount of any such dividend. Any distribution
of dividend to Shareholders will be subject always to compliance
with the Companies Laws.
Before recommending any dividend, the Board will consider the
financial position of the Company and the impact on such position
of paying the proposed dividend. Dividends are declared and paid in
US Dollars.
Credit Risk
Credit risk is the risk that a significant counterparty will
default on its contractual obligations.
The Group's most significant counterparties are Norwegian Air
Shuttle ASA ("Norwegian") as Lessee and provider of income and
NordLB as provider of loans and borrowings, cash and restricted
cash (all held at NordLB). The Lessee does not maintain a credit
rating. The credit rating of NordLB is Aa1.
During the term of the Leases, the returns on an investment in
the Shares will depend in large part on the lease rentals received
from Norwegian under the Leases. A failure by Norwegian to comply
with its payment obligations under the Leases may lead to a
reduction in distributions paid on the Shares and/or in the value
of the Shares and have an adverse effect on the Company. In advance
of the commencement of the Lease terms under the Leases, Norwegian
have paid to the Group a security deposit in respect of each Asset.
However, the security deposits do not cover the full value of the
Group's obligations pursuant to the loan agreements in the event of
termination of the Leases or default by Norwegian.
Financial assets
As at
31 December
2014
US$
Restricted cash 7,442,092
Trade and other receivables 29,933
Cash and cash equivalents 5,046,920
---------------------------- -----------
12,518,945
---------------------------- -----------
Financial liabilities
The Directors have in place a cash flow hedge in respect of the
loans from NordLB. The Group has entered into ISDA-standard hedging
arrangements with NordLB as hedging provider in connection with
each loan, in order to provide for fixed-rate interest for 12 years
to be payable in respect of each loan, funded by the fixed rental
payments under the corresponding lease.
As at 31 December 2014, the fair value of the interest rate
swaps was a loss of US$5,171,613 as calculated and presented by
NordLB.
Market Risk
Interest Rate Risk
Interest rate risk arises on the Company's various interest
bearing assets and liabilities from changes in the general economic
conditions of the market from time to time. The Directors have
sought to mitigate this risk by swapping the interest on each loan
from a floating rate of interest which is calculated using LIBOR
for the length of the interest period and a margin of 2.6 per cent
per annum to a fixed rate of 5.06 per cent and 5.08 per cent for
the duration of the loans. The Company has entered into
ISDA-standard hedging arrangements with NordLB as hedging provider
in order to provide for fixed-rate interest for 12 years to be
payable in respect of the loan, funded by the fixed rental payments
under the corresponding lease.
Fixed rate Variable rate Non-interest Total
instruments instruments bearing
instruments
US$ US$ US$ US$
Restricted cash - - 7,442,092 7,442,092
Trade and other receivables - - 29,933 29,933
Cash & cash equivalents - 5,046,920 - 5,046,920
------------------------------------ ------------- ------------- ------------ -------------
- 5,046,920 7,472,025 12,518,945
------------------------------------ ------------- ------------- ------------ -------------
Accrued expenses - - (502,412) (502,412)
Notional interest rate swap (147,540,515) 147,540,515 - -
NordLB loans - (147,657,233) - (147,657,233)
------------------------------------ ------------- ------------- ------------ -------------
(147,540,515) (116,718) (502,412) (148,159,645)
------------------------------------ ------------- ------------- ------------ -------------
Total interest rate sensitivity gap (147,540,515) 4,930,202
------------------------------------ ------------- -------------
Foreign Currency Risk
The foreign currency risk to the Group is not significant as its
cash flows are predominantly in US$ which is the functional
reporting currency of each entity within the Group and the
presentation currency of the Group. However there are expenses paid
in Sterling and Euro.
Liquidity Risk Management
In the event that the Leases are terminated as a result of a
default by Norwegian, there is a risk that the Company will not be
able to remarket the Assets successfully within the remarketing
period specified in the Loan Agreements and that (after using the
security deposits and the Liquidity Reserve) the Company will not
have sufficient liquidity to comply with its obligations under the
Loan Agreements. This may lead to a suspension in distributions
paid on the Shares and/or a reduction in the value of the Shares
and have an adverse effect on the Company and could ultimately
result in the Lenders enforcing their security and selling the
relevant Asset or Assets on the market. There can be no guarantee
that the Company will be able to re-lease the Asset on terms as
favourable as the Leases, which may have an adverse effect on the
Company and its ability to meet its investment objective and its
dividend target. The price paid by the Company for the Assets
partly reflects the terms of the Leases to which the Assets are
subject. Accordingly, were either or both of the Assets to be
re-leased on less favourable terms, this may have an adverse effect
on the value of the Assets and therefore the Share price.
No right of redemption or repurchase
Shareholders will have no right to have their Shares redeemed or
repurchased by the Company at any time. Shareholders wishing to
realise their investment in the Company may be required to dispose
of their Shares on the stock market. Accordingly, the ability of
Shareholders to realise the Net Asset Value of, or any value in
respect of, their Shares is mainly dependent on the existence of a
liquid market in the Shares and the market price of such
Shares.
Liquidity Reserve
In accordance with the Company's financial model, in addition to
paying the proposed dividends to Shareholders, the Company intends
to establish and to build up a liquidity reserve (the "Liquidity
Reserve"). The Liquidity Reserve will be accumulated from surplus
cash flow from the Leases after payment of the Group's costs and
after allowing for proposed dividends. The Liquidity Reserve is
intended to fund contingencies and to be available to the Company,
in addition to the security deposits paid by Norwegian under the
Leases, to aid the Company to meet its Loan Repayments in the event
of a default by Norwegian and/or to meet costs incurred in
connection with a subsequent remarketing of the Assets. In the
event of a Loan Event of Default the accumulation of surplus Lease
Rental by the Company in the Liquidity Reserve will be suspended.
In the event of a re-lease of the Assets, the Company may maintain
and/or accumulate a Liquidity Reserve in an amount which is
considered appropriate by the Directors, having regard to the
available security deposits and the other circumstances applicable
at such time. Any unused Liquidity Reserve ultimately will be
available for distribution to Shareholders following the disposal
of the Assets and after all Loan obligations have been
satisfied.
Liquidity Proposal
Although the Company does not have a fixed life, the Articles
require that the Directors convene a Liquidity Proposal Meeting to
be held no later than 31 March 2025 at which a Liquidity Proposal
in the form of an ordinary resolution will be put forward proposing
that the Company should proceed to an orderly wind-up at the end of
the term of the Leases. In the event the Liquidity Proposal is not
passed, the Directors will consider alternatives for the Company
and shall propose such alternatives at a general meeting of the
Shareholders, including re-leasing the Assets, or selling the
Assets and reinvesting the capital received from the sale of the
Assets in other aircraft.
Next
12 months 2-5 years After 5 years Total
US$ US$ US$ US$
Income
Operating lease income
(refer Note 4) 29,833,452 119,333,808 165,416,900 314,584,160
------------------------------------------------------------ ------------ ------------ ------------- -------------
Expenses
Nord LB loan borrowings and interest (18,035,521) (72,142,084) (102,205,986) (192,383,591)
Interest rate swaps (3,347,370) (10,705,549) (6,240,160) (20,293,079)
Maintenance Reserves - - (1,042,092) (1,042,092)
Security deposit - - (6,400,000) (6,400,000)
Trade and other payables (502,412) - - (502,412)
------------------------------------------------------------ ------------ ------------ ------------- -------------
(21,885,303) (82,847,633) (115,888,238) (220,621,174)
------------------------------------------------------------ ------------ ------------ ------------- -------------
Excess liquidity prior to ongoing expenses and distributions 7,948,149 36,486,175 49,528,662 93,962,986
------------------------------------------------------------ ------------ ------------ ------------- -------------
Other
In addition to the loans, the Company may from time to time use
borrowings. To this end the Company may arrange an overdraft
facility for efficient cash management. The Directors intend to
restrict borrowings other than the Loans to an amount not exceeding
15 per cent. of the NAV of the Company at the time of drawdown.
Borrowing facilities will only be drawn down with the approval of
Directors on a case by case basis. The Directors may also draw down
on the overdraft facility for extraordinary expenses determined by
them, on the advice of DS Aviation, to be necessary to safeguard
the overall investment objective. With the exception of the loans,
the Directors have no intention, as at the date of this report, to
use such borrowings for structural investment purposes.
15) FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
The fair value measurements for the loans and borrowings have
been categorised as level 3 fair values based on the inputs to the
valuation technique used (i.e. the inputs are not based on
observable market data). The Directors have determined that the
fair value of all of the other financial assets and liabilities not
measured at fair value approximate their carrying value at the
reporting date due to their short term nature and these are
considered to be within level 2 of the fair value hierarchy.
A number of the Group's accounting policies and disclosures
require the determination of fair value, for financial and
non-financial assets and liabilities. Fair value is the price that
would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the
measurement date. Fair values have been determined for measurement
and/or disclosure purposes based on the following methods. Where
applicable, further information about the assumptions made in
determining fair values is disclosed in note 2.
The Company's derivative, the interest rate swap with NordLB, is
valued by NordLB as calculation agent. The Directors have performed
a fair value analysis of the interest rate swaps at period end and
are satisifed that the valuation is accurate. Derivatives have been
classified as level 2 investments. Loans from NordLB are at
variable interest rates based on a repayment schedule as agreed
between the Group and NordLB. The Directors confirm that the Lessee
is meeting payment of lease rentals without impairment, enabling
the Company to meet its loan repayment obligations and dividend
distributions. Due to the fact that there has been no change to the
Group's credit rating and the fact that the loan has a variable
interest rate, the Directors believe the fair value of the loans
and borrowings approximate their carrying value at the reporting
date.
Cash Flow Hedging
A floating rate of interest applies to the loans as set out in
each respective Loan Agreement. However, the Group has entered into
ISDA-standard hedging arrangements with Nord LB as hedging provider
in connection with the Loans, in order to provide for fixed-rate
interest to be payable in respect of the Loans throughout the whole
term. The rate of the interest rate swap was set at the time of the
draw-down of the loans. The following table indicates the periods
in which the cash flows associated with the cash flow hedges are
expected to occur and impact profit or loss along with the carrying
amounts of the related hedging instruments.
Principal Activity
Next
12 months 2-5 years After 5 years Total
US$ US$ US$ US$
-------------------- ----------- ------------ ------------- ------------
Interest rate swaps (3,347,370) (10,705,549) (6,240,160) (20,293,079)
-------------------- ----------- ------------ ------------- ------------
16) INVESTMENT IN SUBSIDIARIES
The Company is the ultimate controlling party of the following
companies, whose results are consolidated in these financial
statements:
Company Country of Date of %
Company registration incorporation incorporation Ownership
number
DP Aircraft Guernsey
I Limited 56958 Guernsey 10-Jul-13 100
DP Aircraft Guernsey
II Limited 56959 Guernsey 10-Jul-13 100
DP Aircraft Ireland
Limited 529455 Ireland 27-Jun-13 100
17) OPERATING SEGMENT
The Company is engaged in one operating segment, being
acquiring, leasing and subsequent selling of Aircraft. The
geographical location of the Assets of the Group is Ireland, where
the Assets are registered. The income arising from the lease of the
Assets originates wholly from one lessee in Norway.
18) RELATED PARTY TRANSACTIONS
The key management personnel (deemed to be the non-executive
Directors, Jon Bridel, Didier Benaroya and Jeremy Thompson), are
remunerated for their services at a fee for each Director of
GBP20,000 per annum (GBP25,000 for the Chairman) in relation to the
Company plus GBP5,000 per annum for acting as director in relation
to each of the Borrowers. In addition the two directors of the
Lessor who are based in Ireland will receive a fee of EUR6,000 in
aggregate per annum and the Director who sits on the board of the
Lessor will receive a fee of GBP10,000 per annum. For the period
from inception to 31 December 2014 the Directors' remuneration
totalled US$251,026 with US$41,100 outstanding to be paid as at 31
December 2014. Expenses were refunded in the amount of US$6,132. As
at the date of this report Mr Bridel, jointly with his wife, held
7,500 Ordinary Shares and Mr J Thompson held 15,000 Ordinary
Shares.
(Please refer to the Directors' Report for future
remuneration).
19) MATERIAL CONTRACTS
Asset Management Agreement
The Asset Management Agreement, dated 19 September 2013, between
the Company and DS Aviation, whereby DS Aviation has agreed to:
(a) maintain ongoing communication with the lessee, the
financing parties, the airframe and engine manufacturers and
provide the Company with reports in relation thereto,
(b) undertake regular inspections of the Assets,
(c) monitor the lessee's performance of all the obligations
specified in the relevant lease agreement (in particular,
obligations as regards the insurance of the Assets) and provide
information and advice in the event of default,
(d) support the Company in any sale or releasing activity in respect of the Assets and
(e) provide input into the Company's reports, announcements and shareholder communications.
The Asset Management Agreement shall continue until 31 October
2027, subject to earlier termination (i) by either party on
immediate notice in certain circumstances including a material
un-remedied breach by, or the insolvency of, the other party; (ii)
by the Company in relation to any Asset on one month's prior
written notice if a sale of the Asset has been completed or a Total
Loss has occurred in relation to the Asset; and (iii) by the
Company if DS Aviation is unable to comply with certain 'key
person' provisions.
The Asset Management Agreement contains a 'key person' provision
with the aim of ensuring the Company retains the benefit of the
expertise of Christian Mailly or a suitable replacement for the
duration of the agreement.
The Company will pay DS Aviation a management fee of US$250,000
per annum per Asset (inflating annually from 2014 onwards, at 2.5
per cent. per annum), payable monthly in arrears commencing from
the acquisition of each relevant Asset.
Upon the sale of an Asset, the Company will pay DS Aviation a
percentage of the sale proceeds. The percentage payable to DS
Aviation will vary depending on the level of the total return per
Share attributable to that Asset expressed as a percentage of the
Issue Price and will range from nil (if the total return per Share
attributable to the Asset is less than 200 per cent.) to 3 per cent
if the total return per Share attributable to the Asset equals or
exceeds 300 per cent.
The Disposal Fee will be adjusted in the event that an Asset is
disposed of before the end of the scheduled term of the relevant
Lease, in accordance with an agreed mechanism.
Administration Agreement - Dexion Capital (Guernsey) Limited
(the 'Administrator')
The Administration Agreement, dated 19 September 2013, between
the Company and the Administrator pursuant to which the Company has
appointed the Administrator to act as administrator and secretary
of the Company and its Guernsey incorporated subsidiaries. The
Administration Agreement is for a minimum period of one year from
Admission (unless terminated on notice on the occurrence of certain
events) and thereafter may be terminated by either party on not
less than 90 days' notice. The Administrator is entitled to fees as
set out below. The Administrator is entitled to an establishment
fee of GBP12,500 for the Company; a secretarial fee of GBP25,000
per annum assuming quarterly Board meetings, plus any committee
meetings as described in the prospectus and an annual general
meeting each year, plus an additional GBP1,640 for each ad hoc
Board meeting held and a further GBP1,640 for each board meeting of
each wholly-owned subsidiary that the Company incorporates (other
than the Lessor); and a financial reporting fee for the Company on
a group consolidated basis in respect of the preparation and
approval of audited annual reports, half year reports and interim
management statements, in the amount of GBP16,000 per annum and an
initial set up fee of GBP1,000 in respect of the first set of
accounts.
In addition to the above remuneration the Administrator is also
entitled to an administration fee in the minimum amount of GBP1,250
per month and such other remuneration as shall be agreed between
the Administrator and the Board from time to time, (including
activity fees as previously agreed with the Company or time cost
charges which shall be levied by the Administrator for any other
matter not already included under the Administration Agreement).
The Company has covenanted in the Administration Agreement to
indemnify and keep indemnified the Administrator from and against
all actions, proceedings, claims, demands, (including reasonable
and properly incurred costs and expenses incidental thereto)
whatsoever made against or incurred by the Administrator arising
out of or in connection with the proper performance by the
Administrator of its duties under the Administration Agreement save
where any action, proceeding, claim, demand, cost or expense
results from or arises out of a breach of the Administration
Agreement (save where due to a force majeure event) or breach of
applicable laws or the fraud, negligence, wilful default or bad
faith of the Administrator.
Technical Services Agreement - GerMic Aviation Safety and
Regulatory Consultants Ltd (the 'Technical Services
Consultant')
The Technical Services Agreement dated 25 July 2013, between the
Group and the Technical Services Consultant pursuant to which the
Lessor has appointed the Technical Services Consultant to provide
certain technical services in respect of the Assets, including:
(i) assistance with registration and certification of the Assets
with the Irish Aviation Authority;
ii) attendance at the Irish Aviation Authority's inspection of the Assets; and
(iii) assistance with ongoing compliance responsibilities in respect of the Assets.
The Technical Services Agreement may be terminated by either the
Group or the Technical Services Consultant giving to the other at
any time 30 days' written notice. The Technical Services Consultant
will be entitled to a fee of EUR600 per day in respect of services
(i) and (ii) (as above) requested by the Group and separately a fee
of EUR2,000 per month in respect of service (iii) as above,
performed on the ongoing basis. Additional vehicle costs and fees
payable to the Irish Aviation Authority will also be the
responsibility of the Group.
Irish Corporate Services Agreement
The Irish Corporate Services Agreement dated 23 September 2013,
between the Group and Alter Domus (Ireland) Limited ("Alter Domus")
pursuant to which the Lessor has appointed Alter Domus to provide
certain corporate and administrative services to the Lessor in
Ireland. Alter Domus is entitled to a fee of EUR4,000 per annum in
respect of services save for the first year of services for which
it will receive a fee of EUR5,500. The agreement is terminable on
30 days' notice by either party or on immediate notice in certain
circumstances, including insolvency or breach of agreement. By a
separate deed of indemnity, the Company has agreed to indemnify
Alter Domus to the extent permitted by law in respect of losses
suffered by Alter Domus in the performance of its services. Such
indemnity will not apply where Alter Domus has acted dishonestly or
been guilty of fraud, gross negligence or wilful misconduct in the
matter or issue in respect of which it seeks indemnity.
Directors' Service Agreement - DP Aircraft Ireland Limited
The Directors' Service Agreement in respect of DP Aircraft
Ireland Limited, dated 23 September 2013, between Marching Star
Limited (the "Agent") and the Group pursuant to which the Agent
nominated Justin Walsh and Aileen McElroy (the "Irish Directors")
to be appointed and provide their services as directors of the
Lessor with effect from 8 July 2013. The Irish Directors are
responsible for the management of the Lessor with all other
directors of the Lessor, and the Agent is responsible for the
permanent activity of the Irish Directors. In the event the Irish
Directors are incapable of performing their duties for a period of
15 days, the Agent has the obligation to propose a new Irish
Director to the Lessor and failure to propose such director will
give the Lessor a right to terminate the agreement. The Agent will
be entitled to a fee of EUR6,000 payable annually plus VAT and the
Lessor will reimburse the reasonable travelling expenses and all
other reasonable expenses incurred by the Irish Directors in the
performance of their duties. For any time spent by the Irish
Directors in excess of four standard board meetings per annum, the
Lessor will be invoiced separately on a time-spent basis at an
hourly rate of EUR200 per hour plus VAT and disbursements (which
may vary from time to time) depending upon the level of
qualification of the staff involved.
The Directors' Service Agreement may be terminated (a) by either
party in the event of
(i) un-remedied breach of the agreement or (ii) with immediate
effect by written notification; or (b) automatically in the
specific circumstances set out in the agreement, including (but not
limited to) the resignation of the Irish Directors. By a separate
deed of indemnity, the Company has agreed to indemnify the Irish
Directors to the extent permitted by law in respect of losses
suffered by them in the performance of their duties. Such indemnity
will not apply where the relevant Irish Director has acted
dishonestly or been guilty of fraud, gross negligence or wilful
misconduct in the matter or issue in respect of which he seeks
indemnity.
Placing Agreement
The Placing Agreement, dated 27 September 2013, between the
Company, DS Aviation, JS Holding (DS Aviation and JS Holding
together the "Asset Manager Parties") and Canaccord Genuity whereby
Canaccord Genuity agreed, as agent for the Company, to use its
reasonable endeavours to procure subscribers for Shares under the
Placing at the Issue Price. Canaccord Genuity was not under an
obligation to purchase Shares in the event that it was unable to
procure subscribers for Shares. For its services in connection with
the Placing, Canaccord Genuity was entitled to fees and a placing
commission as described below. The Company reimbursed Canaccord
Genuity for all costs and expenses incurred by it in connection
with the Placing and paid Canaccord Genuity's reasonable legal
fees. In consideration for Canaccord Genuity acting as placing
agent in the Placing the Company agreed and paid Canaccord Genuity,
as at Admission, a placing commission equal to 1.5 per cent. of the
Placing Proceeds. All fees, expenses and commissions payable to
Canaccord Genuity by the Company were paid to Canaccord
Genuity together with any VAT payable in respect of such fees,
expenses or commissions. Canaccord Genuity was also entitled to its
share of the Arrangement Fee which, in the case of Canaccord
Genuity, amounted to 0.3 per cent. of the Gross Proceeds.
20) SUBSEQUENT EVENTS
On 20 January 2015, the Company declared an interim dividend, in
respect of the period starting 1 October 2014 and ended 31 December
2014, of 2.25 cents per Share, to holders of Shares on the register
at 30 January 2015.
The ex-dividend date was 29 January 2015 , with payment on 13
February 2015.
21) APPROVAL OF THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS ('Financial Statements')
The Financial Statements were approved by the Board and
authorised for release on 20 March 2015.
COMPANY INFORMATION
Registered Office 1 Le Truchot
St Peter Port
Guernsey
GY1 1WD
Channel Islands
Asset Manager DS Aviation GmbH & Co. KG
Stockholmer Allee 53
44269 Dortmund
Germany
Solicitors to the Company Norton Rose Fulbright LLP
(as to English law) 3 More London Riverside
London
SE1 2AQ
United Kingdom
Advocates to the Company Ogier
(as to Guernsey law) Ogier House
St Julian's Avenue St Peter Port
Guernsey
GY1 1WA
Channel Islands
Auditor KPMG, Chartered Accountants
1 Harbourmaster Place
IFSC
Dublin 1
Administrator and Company Secretary Dexion Capital (Guernsey) Limited
1 Le Truchot
St Peter Port
Guernsey
GY1 1WD
Channel Islands
Corporate Broker Canaccord Genuity Limited
88 Wood Street
London
EC2V 7QR
This information is provided by RNS
The company news service from the London Stock Exchange
END
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