REG - Avation PLC - Half-year Report <Origin Href="QuoteRef">AVAP.L</Origin>

AvationAnnouncement

26/02/2018 07:21

RNS Number : 8529F
Avation PLC
24 February 2018
AVATION PLC
("Avation" or "the Company")
Financial Results and Interim Management Statement
for the SIX MONTHS ended 31 December 2017
Avation PLC (LSE: AVAP), the commercial passenger aircraft leasing company, announces reviewed financial results for the six months ending 31 December 2017.
Key Financial Metrics
 Fleet assets increased by 35% to $1.008 billion since 30 June 2017;
 Revenue increased by 16% year on year to $52.4 million;
 Weighted average cost of total debt declined to 4.8%;
 Total profit after tax decreased by 8% year on year to $6.7 million; and
 Earnings per share ("EPS") decreased 15% year on year to 10.9 cents.
Operational Highlights
 Record growth with over $286 million in aircraft acquired in December 2017;
 First twin-aisle aircraft delivered into the fleet;
 First Boeing aircraft delivered into the fleet;
 Airbus A320 transitioned from Air Berlin to easyJet; and
 Four new customers added taking total airline customers to twelve.
Executive Chairman, Jeff Chatfield, said:
"During the six months ended 31 December 2017 Avation focused on re-deploying net proceeds generated by the sale of six ATR aircraft in June 2017, adding new customers to further diversify our revenue base and concluding our first investments in twin-aisle aircraft.
"Avation is pleased to report record growth in the value of its fleet assets. The Company took delivery of its first twin-aisle aircraft in December, completing the transformation into a diversified full service aircraft leasing platform. We also welcome four new airline customers.
"Lease revenue and total profit for the financial period were slightly reduced year on year. This was due to starting the period with a reduced fleet following the sale of six ATR 72 aircraft in June 2017. The sale of these aircraft de-risked the portfolio by lowering airline concentration and released equity which facilitated the acquisition of four new aircraft in December 2017.
"Avation ends the financial period with a larger, more diversified fleet and an increased revenue base that will deliver long-term shareholder returns."


Financial Highlights

6 months ended
31 December 2017
US$ 000's
6 months ended
31 December 2016
US$ 000's
Change
Revenue
52,385
45,108
16%
Lease revenue
41,707
45,108
(8%)
Operating profit (EBIT)
25,117
27,628
(9%)
Operating profit margin
60%
61%
(1%)
Administrative expense
4,914
3,943
25%
Administrative expense/ Revenue
9%
9%
-
Profit before tax
7,273
8,388
(13%)
Total profit after tax
6,739
7,357
(8%)
EPS
10.9 cents
12.9 cents
(15%)




Operating cash flows
64,264
31,116
107%





As at
31 December 2017
US$ 000's
As at
30 June 2017
US$ 000's

Fleet assets(1)
1,008,459
744,731
35%
Total assets
1,119,970
895,927
25%
Cash and cash equivalents
82,810
87,692
(6%)




Book Value per Share (US$)(2)
$3.32
$3.21
4%
1. Fleet assets equal property, plant and equipment plus assets held for sale
2. Book Value per Share is the total equity divided by the total number of shares on issue at period end.
Aircraft Fleet
Aircraft Type
31 December 2017
Boeing 777-300ER
1
Airbus A330-300
1
Airbus A321-200
8
Airbus A320-200
3
Fokker 100
5
ATR 72-600
13
ATR 72-500
6
Total
37
As at 31 December 2017 Avation's fleet comprised 37 aircraft including five aircraft on finance lease. The weighted average age of the fleet (excluding finance leases) has reduced to 2.9 years (30 June 2017: 3.3 years) and the weighted average remaining lease term has increased to 7.9 years (30 June 2017: 7.5 years). As at 31 December 2017, all aircraft owned by the Company were fully utilised. Avation has three ATR 72 turboprop aircraft on order for placement during calendar year 2018 and three aircraft in calendar year 2019.
Fleet assets increased 35% to $1,008.5 million (30 June 2017: $744.7 million). Four aircraft were added to the fleet in the period including a Boeing 777-300ER delivered to Philippine Airlines, an Airbus A330-300 on lease to EVA Air and two ATR72-600 aircraft delivered to Mandarin Airlines.
During the period an Airbus A320 on lease to Air Berlin was transitioned to easyJet. This resulted in the release of maintenance reserves of $10.5 million into revenue and a corresponding impairment charge on the aircraft of $8.0 million.
Two older narrowbody aircraft with total book value of $38.4 million were re-classified as assets held for sale. Finance lease receivables totalled $10.3 million (30 June 2017: $45.4 million).
Debt summary
31 December 2017
US$000's
30 June 2017
US$000's
Loans and borrowings
862,411
643,605
Cash & cash equivalents
82,810
87,692
Net indebtedness
779,601
555,913
Total loan to value ratio (LTV) (1)
77%
72%
Weighted average cost of secured debt(2)
4.3%
4.5%
Weighted average cost of total debt(3)
4.8%
5.1%
1. Total Loan to Value Ratio is the total loans and borrowing divided by the total assets.
2. Weighted Average Cost of Secured Debt is the weighted average of the interest rate for the secured loans and borrowings as at the period end.
3. Weighted Average Cost of Total Debt is the weighted average of the interest rate for the total loans and borrowings as at the period end.
The weighted average cost of total debt decreased to 4.8% as at 31 December 2017 (30 June 2017: 5.1%). The weighted average cost of secured debt decreased to 4.3% at 31 December 2017 (30 June 2017: 4.5%).
At the end of the financial period, Avation's overall loan to value ratio was 77% (30 June 2017: 72%). At 31 December 2017, 95% of total debt was at fixed or hedged interest rates (30 June 2017: 95%).
Avation issued an additional $30.0 million Senior 7.5% Unsecured Guaranteed Notes due 2020 under its Global Medium Term Note programme at a premium to par value in November 2017.
Avation will continue to source competing forms of secured and unsecured debt finance to fund growth with the overriding objective of achieving the lowest cost of finance.
Credit Rating
The Company's current credit ratings are as follows:
Rating Agency
Corporate Credit Rating
Unsecured Notes Rating
Standard and Poor's
B+ outlook stable
B
Fitch Ratings
B+ outlook stable
B+
Egan Jones Ratings Company
BB
NR
Japan Credit Ratings Company
BB outlook stable
NR
Dividend Policy
The Company confirms its aim to maintain a progressive dividend policy.
Recognising that the Company's functional currency is US Dollars (USD) and to reduce exchange rate risk, shareholders are reminded that dividend payments are declared in USD. Shareholders who prefer to receive dividends in British Pounds (GBP) can elect to receive GBP by completing a form that can be downloaded at www.avation.net/dividends.html
Market Positioning
Avation's strategy is to target growth and diversification by adding new airline customers, while maintaining strong average aircraft age and lease term metrics. Avation focuses on new and relatively new commercial passenger aircraft on long-term leases. Avation is able to supply regional, narrowbody and twin-aisle aircraft to the airline industry.
The Company's business model involves rigorous investment criteria and has a history of delivering consistent profitability while seeking to mitigate the risks associated with the aircraft leasing sector. Avation will typically sell mid-life and older aircraft and redeploy capital to newer assets. This approach is intended to mitigate technology change risk, operational and financial risk, support sustained growth and deliver long-term shareholder value.
Avation is an active trader of aircraft and from time to time will consider the acquisition or sale of individual or smaller portfolios of aircraft, based on prevailing market opportunities and considerations of risk and revenue concentrations.
Outlook and Interim Management Statement
The outlook for the second half of the 2018 financial year is for materially increased lease revenue due to increased fleet size.
Management believes that the risks associated with its portfolio of assets have been reduced through the repositioning of the fleet, growth and diversification that has been achieved during the financial period. Avation has demonstrated that it has the capability to acquire, finance and deliver a number of aircraft in a short period of time when the opportunity presents itself and has a platform which supports future growth.
Management believes that it can attract airline customers, acquire aircraft and obtain the required funding for growth. In addition to operational cash flows, funding is traditionally sourced from capital markets, asset backed bank lending and disposal of selected aircraft. Access to acceptably priced funding is a risk, which is common to all capital-intensive businesses. Specific risks which are inherent to the aircraft leasing industry include, but are not limited to, the creditworthiness of customer airlines, over-production of new aircraft and market saturation, technology change, residual value risks, competition from other lessors and the risk of impairment of aircraft assets.
Avation's Board of Directors is pleased to deliver satisfactory financial results from its aircraft leasing business through this period of fleet repositioning, diversification and growth.

Results Conference Call
Avation's senior management team will host a conference call on 26 February 2018, at 1pm GMT (UK) / 8am EST (US) / 9pm SGT (Singapore), to discuss the Company's financial results. Participants should dial: United Kingdom 020 3936 2999; United States +1 845 709 8568; Singapore 31 634 602; other locations +44 20 3936 2999 and enter 609760 when prompted. The conference call will also be webcast live through the following link:
http://avation.emincote.com/results/2018firsthalf
To view the webcast investors will be invited to register their name and email address, participants can do this in advance or on the day. A replay of the webcast will be available on the Investor Relations page of the Avation website and a presentation, to support the conference call, will be available on the Avation website prior to the conference call.
Forward Looking Statements
This release contains certain "forward looking statements". Forward looking statements may be identified by words such as "expects," "intends," "anticipates," "plans," "believes," "seeks," "estimates," "will," or words of similar meaning and include, but are not limited to, statements regarding the outlook for Avation's future business and financial performance. Forward looking statements are based on management's current expectations and assumptions, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially due to global political, economic, business, competitive, market, regulatory and other factors and risks. Further information on the factors and risks that may affect Avation's business is included in Avation's regulatory announcements from time to time, including its Annual Report, Full Year Financial Results and Half Year Results announcements. Avation expressly disclaims any obligation to update or revise any of these forward looking statements, whether because of future events, new information, a change in its views or expectations, or otherwise.
- ENDS-
More information on Avation PLC can be found at: www.avation.net
Enquiries:
Avation PLC
Jeff Chatfield, Executive Chairman
T: +65 6252 2077


AVATION PLC
CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 31 DECEMBER 2017

Note
31 Dec
2017
31 Dec
2016


US$'000s
US$'000s
Continuing operations



Revenue
5
52,385
45,108
Other income
6
240
444


52,625
45,552




Depreciation
13
(14,555)
(15,930)
Gains on disposal of aircraft

-
1,979
Impairment loss on aircraft
13
(8,019)
-
Administrative expenses

(4,914)
(3,943)
Other expenses
7
(20)
(30)
Operating profit

25,117
27,628




Finance income
8
746
488
Finance expenses
9
(18,590)
(19,728)
Profit before taxation

7,273
8,388




Taxation

(534)
(1,031)
Total profit

6,739
7,357




Other comprehensive income:



Items that may be reclassified subsequently to profit or loss:



Currency translation differences arising on consolidation

(2)
(6)
Fair value gain on derivative financial instruments
17
1,874
4,024


1,872
4,018
Items that may not be reclassified subsequently to profit or loss:



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

-
(5,924)
Other comprehensive income, net of tax

1,872
(1,906)




Total comprehensive income for the period

8,611
5,451




Profit attributable to:



Equity holders of the Company

6,732
7,363
Non-controlling interests

7
(6)


6,739
7,357
Total comprehensive income attributable to:



Equity holders of the Company

8,604
5,468
Non-controlling interests

7
(17)


8,611
5,451




Basic earnings per share

10.94 cents
12.88 cents
Diluted earnings per share

10.81 cents
12.65 cents
AVATION PLC
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2017

Note
31 Dec
2017
30 June
2017


US$'000s
US$'000s
ASSETS:



Current assets:



Cash and cash equivalents

82,810
87,692
Trade and other receivables

5,647
5,031
Finance lease receivables
11
3,105
36,641
Options held for trading

3,640
3,640
Assets held for sale
12
38,372
-
Total current assets

133,574
133,004
Non-current assets:



Trade and other receivables

4,041
5,190
Finance lease receivables
11
7,152
8,728
Derivative financial instruments
17
3,214
2,372
Property, plant and equipment
13
970,087
744,731
Goodwill
14
1,902
1,902
Total non-current assets

986,396
762,923




Total assets

1,119,970
895,927




LIABILITIES AND EQUITY:



Current liabilities:



Trade and other payables

12,017
14,920
Provision for taxation

3,635
3,515
Loans and borrowings
15
87,527
93,044
Maintenance reserves
16
1,020
451
Liabilities associated with assets held for sale
12
500
-
Total current liabilities

104,699
111,930
Non-current liabilities:



Trade and other payables

12,279
11,480
Loans and borrowings
15
774,884
550,561
Derivative financial instruments
17
844
1,901
Deferred tax liabilities

3,589
3,318
Maintenance reserves
16
16,502
20,813
Total non-current liabilities

808,098
588,073




Equity attributable to shareholders:



Share capital
18
1,075
1,058
Treasury shares
18
-
-
Share premium

52,220
48,365
Merger reserve

6,715
6,715
Asset revaluation reserve

24,492
24,492
Capital reserve

8,876
8,876
Other reserves

2,868
801
Retained earnings

110,859
105,556


207,105
195,863
Non-controlling interest

68
61
Total equity

207,173
195,924




Total liabilities and equity

1,119,970
895,927








Attributable to shareholders of the parent



Note
Share capital
Treasury shares
Share premium
Merger reserve
Asset revaluation reserve
Capital reserve
Other
reserves
Retained earnings
Total
Non-controlling interest
Total
equity


US$'000s
US$'000s
US$'000s
US$'000s
US$'000s
US$'000s
US$'000s
US$'000s
US$'000s
US$'000s
US$'000s













Balance at 1 July 2017

1,058
-
48,365
6,715
24,492
8,876
801
105,556
195,863
61
195,924
Profit for the period

-
-
-
-
-
-
-
6,732
6,732
7
6,739
Other comprehensive income

-
-
-
-
-
-
1,872
-
1,872
-
1,872
Total comprehensive income

-
-
-
-
-
-
1,872
6,732
8,604
7
8,611













Increase in issued share capital
18
17
-
2,756
-
-
-
(219)
-
2,554
-
2,554
Warrants expired

-
-
-
-
-
-
(18)
18
-
-
-
Warrants expense

-
-
1,099
-
-
-
432
(1,447)
84
-
84
Total transactions with owners, recognised directly in equity

17
-
3,855
-
-
-
195
(1,429)
2,638
-
2,638













Balance at 31 December 2017

1,075
-
52,220
6,715
24,492
8,876
2,868
110,859
207,105
68
207,173













AVATION PLC
CONDENSEDCONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 31 DECEMBER 2017
Other reserves consist of capital redemption reserve, warrant reserve, fair value reserve and foreign currency translation reserve.


AVATION PLC
CONDENSEDCONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 31 DECEMBER 2016







Attributable to shareholders of the parent



Note
Share capital
Treasury shares
Share premium
Merger reserve
Asset revaluation reserve
Capital reserve
Other
reserves
Retained earnings
Total
Non-controlling interest
Total
equity


US$'000s
US$'000s
US$'000s
US$'000s
US$'000s
US$'000s
US$'000s
US$'000s
US$'000s
US$'000s
US$'000s













Balance at 1 July 2016

993
(1)
38,925
6,715
41,142
8,876
(1,814)
78,679
173,515
93
173,608
Profit for the period

-
-
-
-
-
-
-
7,363
7,363
(6)
7,357
Other comprehensive income

-
-
-
-
(5,913)
-
4,018
-
(1,895)
(11)
(1,906)
Total comprehensive income

-
-
-
-
(5,913)
-
4,018
7,363
5,468
(17)
5,451













Dividend paid
22
-
-
-
-
-
-
-
(1,820)
(1,820)
-
(1,820)
Increase in issued share capital
18
38
-
5,864
-
-
-
(43)
-
5,859
-
5,859
Fund raising expenses

-
-
(284)
-
-
-


(284)

(284)
Dividend paid to non-controlling interest of a subsidiary

-
-
-
-
-
-
-
-
-
(16)
(16)
Transfer of asset revaluation surplus

-
-
-
-
(4,053)
-
-
4,053
-
-
-
Warrants expense

-
-
-
-
-
-
100
-
100
-
100
Total transactions with owners, recognised directly in equity

38
-
5,580
-
(4,053)
-
57
2,233
3,855
(16)
3,839













Balance at 31 December 2016

1,031
(1)
44,505
6,715
31,176
8,876
2,261
88,275
182,838
60
182,898














AVATION PLC
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED 31 DECEMBER 2017

Note
31 Dec
2017
31 Dec
2016


US$'000s
US$'000s
Cash flows from operating activities:



Profit before taxation

7,273
8,388
Adjustments for:



 Depreciation expense
13
14,555
15,930
 Warrants expense

84
100
 Impairment loss on non-trade receivables
7
-
30
 Impairment loss on aircraft
13
8,019
-
 Amortisation of loan insurance premium
9
539
539
 Amortisation of interest expense on non-current deposits
9
191
217
 Gain on disposal of aircraft

-
(1,979)
 Fair value gain on derivatives
6
(25)
-
 Finance income from discounting non-current deposits to fair value
8
(196)
(227)
 Interest income
8
(550)
(261)
 Maintenance reserves released
5
(10,491)
-
 Interest expense
9
17,734
18,010
 Operating cash flows before working capital changes

37,133
40,747
Movement in working capital:



 Trade and other receivables and finance lease receivables

35,629
1,899
 Trade and other payables

1,838
1,888
 Maintenance reserves

6,749
3,682
 Cash from operations

81,349
48,216
Interest received

566
261
Interest paid

(17,507)
(17,232)
Income tax paid

(143)
(129)
Net cash from operating activities

64,265
31,116




Cash flows from investing activities:



Purchase of property, plant and equipment

(286,302)
(256,786)
Proceeds from disposal of aircraft

-
100,140
Net cash used in investing activities

(286,302)
(156,646)




Cash flows from financing activities:



Net proceeds from issuance of ordinary shares

2,554
5,575
Dividends paid to shareholders
22
(3,664)
(1,820)
Dividend paid to non-controlling interest of a subsidiary

-
(16)
Proceeds from loans and borrowings, net of transactions costs

277,393
216,332
Repayment of loans and borrowings

(59,126)
(94,872)
Net cash from financing activities

217,157
125,199
Effects of exchange rates on cash and cash equivalents

(2)
(5)
Net decrease in cash and cash equivalents

(4,882)
(336)
Cash and cash equivalents at beginning of financial period

87,692
48,267
Cash and cash equivalents at end of financial period

82,810
47,931

AVATION PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 DECEMBER 2017
This interim condensed consolidated financial statements for Avation PLC for the six months ended 31 December 2017 were authorised for issue in accordance with a resolution of the Directors on 26 February 2018.
1 CORPORATE INFORMATION
Avation PLC is a public limited company incorporated in England and Wales under the Companies Act 2006 (Registration Number 05872328) and is listed on the London Stock Exchange in the Standard Segment (LSE:AVAP).
The Group's principal activity is aircraft leasing.
2 BASIS OF PREPARATION AND ACCOUNTING POLICIES
This interim condensed consolidated financial statements have been prepared in accordance with the Disclosure and Transparency Rules (DTR) of the Financial Conduct Authority and in accordance with International Accounting Standard (IAS) 34 'Interim Reporting'.
The interim condensed consolidated financial statements do not include all the notes of the type normally included within the annual report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financial and investing activities of the consolidated entity as the full financial report.
It is recommended that the interim condensed consolidated financial statements be read in conjunction with the annual report for the year ended 30 June 2017 and considered together with any public announcements made by Avation PLC during the six months ended 31 December 2017.
The accounting policies and methods of computation are the same as those adopted in the annual report for the year ended 30 June 2017 except for the new category of revenue recognition policy as follows:
Maintenance reserve released - The maintenance reserves revenue is recognised in the profit or loss upon the recovery of maintenance reserve from an insolvent airline customer that defaulted on its lease agreements.
The preparation of the interim condensed consolidated financial statements require management to make estimates and assumptions that affect the reported income and expenses, assets and liabilities and disclosure of contingencies at the date of the Interim Report, actual results may differ from these estimates.
The statutory financial statements of Avation PLC for the year ended 30 June 2017, which carried an unqualified audit report, have been delivered to the Registrar of Companies and did not contain any statements under section 498 of the Companies Act 2006.
The interim condensed consolidated financial statements are unaudited and reviewed by the auditors.
The interim condensed consolidated financial statements do not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006.


3 NEW STANDARDS AND INTERPRETATIONS NOT APPLIED AND STANDARDS IN EFFECT IN 2017
(a) New standards and interpretations not applied
The IASB and IFRIC have issued the following standards and interpretations with an effective date after the date of these financial statements.
The Group intends to apply these standards and interpretations when they become effective.
International Accounting Standards (IAS/IFRS) Effective Date
 (accounting periods
 commencing after)
IFRS 15 Revenue from contracts with customers 1 January 2018
IFRS 9 Financial Instruments 1 January 2018
Amendments to IFRS 2 Classification and measurements of share-
Based payment transactions 1 January 2018
IFRS 16 Leases 1 January 2019
Amendments to IFRS 10 and IAS 28 Sale or contribution of assets
between an investor and its associates or joint venture To be determined
The Directors do not expect that the adoption of the Standards listed above will have a material impact on the Group in future periods. IFRS 16 does not substantially change the accounting for lessors whilst the Group's operating lease commitments are immaterial. IFRS 9 is not expected to change the accounting treatment for the financial instruments that the group holds. IFRS 15 is not expected to cause any material change to the Group financial statements as currently all of the Group's income is outside the scope of that standard. . It is anticipated that the other IFRS and IFRIC interpretations are not relevant for the Group's activities.
(b) Standards in effect in 2017
The Group has adopted all new standards that have come into effect during the six months.


4 FAIR VALUE MEASUREMENT
The fair value of a financial instrument is the amount at which the instrument could be exchanged or settled between knowledgeable and willing parties in an arm's length transaction, other than a forced or liquidation sale.
 The carrying amounts of cash and cash equivalents, trade and other receivables, finance lease receivables - current, trade and other payables - current and loans and borrowings - current are a reasonable approximation of fair value either due to their short-term nature or because the interest rate charged closely approximates market interest rates or that the financial instruments have been discounted to their fair value at a current pre-tax interest rate.

31 Dec 2017
30 Jun 2017

Carrying amount
Fair value
Carrying amount
Fair value

US$'000s
US$'000s
US$'000s
US$'000s





Financial assets:




Finance lease receivables - non-current
7,152
7,124
8,728
8,551





Financial liabilities:




Deposits collected - non-current
10,125
10,429
9,321
9,054
Loans and borrowings other than unsecured 7.5% note- non-current
626,463
645,463
432,672
423,169
Unsecured 7.5% note
148,421
150,567
117,889
121,328










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








31 Dec
2017
30 Jun
2017



US$'000s
US$'000s





Fair value measurement using significant unobservable inputs




Aircraft


970,032
744,624










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


4 FAIR VALUE MEASUREMENT (continued)
Classification of financial instruments:
A comparison by category of carrying amounts of all the Group's financial instruments that are carried in the financial statements which are considered to equate to fair value is set out below.











31 Dec
2017
30 Jun 2017



US$'000s
US$'000s





Loans and receivables:




Cash and cash equivalents


82,810
87,692
Trade and other receivables


8,041
9,261
Finance lease receivables


10,257
45,369



101,108
142,322





Financial liabilities measured at amortised cost:




Trade and other payables


15,021
17,938
Loans and borrowings


862,411
643,605
Maintenance reserves


17,522
21,264



894,954
682,807





Derivative used for hedging:




Derivative financial instruments- asset


3,214
2,372
Derivative financial instruments- (liability)


(844)
(1,901)





Fair value through profit or loss:




Options held for trading


3,640
3,640







5 REVENUE



31 Dec
2017
31 Dec
2016

US$'000s
US$'000s



Lease rental revenue
41,707
45,108
Maintenance reserves released
10,491
-
End of lease return compensation
187
-




52,385
45,108



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



31 Dec
2017
31 Dec
2016

US$'000s
US$'000s



Finance lease conversion fee
-
325
Fair value gain on derivatives
25
-
Foreign currency exchange gain
-
76
Sale of aircraft parts
198
-
Others
17
43




240
444



7 OTHER EXPENSES



31 Dec
2017
31 Dec
2016

US$'000s
US$'000s



Impairment loss on non-trade receivables
-
30
Foreign currency exchange loss
20
-




20
30





8 FINANCE INCOME



31 Dec
2017
31 Dec
2016

US$'000s
US$'000s



Interest income
550
261
Finance income from discounting non-current deposits to fair value
196
227




746
488



9 FINANCE EXPENSES



31 Dec
2017
31 Dec
2016

US$'000s
US$'000s



Interest expense on borrowings
12,644
13,882
Interest expense on unsecured 7.5% notes
5,090
4,128
Amortisation of loan insurance premium
539
539
Amortisation of interest expense on non-current deposits
191
217
Finance charges on early full repayment on borrowings
-
740
Others
126
222




18,590
19,728



10 RELATED PARTY TRANSACTIONS
Significant related party transactions:



31 Dec
2017
31 Dec
2016

US$'000s
US$'000s



Entities controlled by key management personnel
(including directors):


Rental expenses paid
(98)
(119)
Consulting fee paid
(166)
(81)
Interest expense
-
(15)
Interest expense on unsecured 7.5% notes
(204)
(204)






Director


Interest expense
-
(29)
Interest expense on unsecured 7.5% notes
(7)
(7)


11 FINANCE LEASE RECEIVABLES
Future minimum lease payments receivable under finance are as follows:

31 Dec 2017
30 Jun 2017

Minimum lease payments
Present value of payments
Minimum lease payments
Present value of payments

US$'000s
US$'000s
US$'000s
US$'000s





Within one year
3,636
3,105
37,386
36,641
Later than one year but not more than five years
7,525
7,152
9,344
8,728





Total minimum lease payments
11,161
10,257
46,730
45,369





Less: amounts representing interest income
(904)
-
(1,361)
-





Present value of minimum lease payments
10,257
10,257
45,369
45,369
12 ASSETS HELD FOR SALE AND LIABILITIES ASSOCIATED WITH ASSETS HELD FOR SALE
As at 31 December 2017, the Group's aircraft which met the criteria to be classified as assets held for sale and the associated liabilities were as follows:



31 Dec
2017
30 Jun
2017



US$'000s
US$'000s





Assets held for sale:




Property, plant and equipment - aircraft




At 1 July 2017/ 1 July 2016


-
-
Additions


38,372
-
At 31 Dec/30 June


38,372
-





Liabilities associated with assets held for sale:









Deposits collected


500
-







13 PROPERTY, PLANT AND EQUIPMENT

Furniture and equipment
Jet
aircraft
Turbo-prop aircraft
Total

US$'000s
US$'000s
US$'000s
US$'000s





31 December 2017:




Cost or valuation:




At 1 July 2017
432
476,170
336,594
813,196
Additions
7
247,498
38,797
286,302
Reclassified as assets held for sale
-
(53,379)
-
(53,379)





At 31 December 2017
439
670,289
375,391
1,046,119





Representing:




At cost
439
-
-
439
At valuation
-
670,289
375,391
1,045,680






439
670,289
375,391
1,046,119





Accumulated depreciation:




At 1 July 2017
325
25,088
43,052
68,465
Depreciation expense
59
8,813
5,683
14,555
Impairment loss
-
8,019
-
8,019
Reclassified as assets held for sale
-
(15,007)
-
(15,007)





At 31 December 2017
384
26,913
48,735
76,032





Net book value:




At 1 July 2017
107
451,082
293,542
744,731
At 31 December 2017
55
643,376
326,656
970,087






13 PROPERTY, PLANT AND EQUIPMENT (continued)

Furniture and equipment
Jet
aircraft
Turbo-prop aircraft
Total

US$'000s
US$'000s
US$'000s
US$'000s





30 June 2017:




Cost or valuation:




At 1 July 2016
388
382,565
435,215
818,168
Additions
47
256,791
18,827
275,665
Disposals/written-off
(3)
(126,916)
(117,448)
(244,367)
Reclassified as held under finance lease
-
(32,383)
-
(32,383)
Impairment recognised in equity
-
(3,887)
-
(3,887)





At 30 June 2017
432
476,170
336,594
813,196





Representing:




At cost
432
-
-
432
At valuation
-
476,170
336,594
812,764






432
476,170
336,594
813,196





Accumulated depreciation and impairment:




At 1 July 2016
206
55,845
37,135
93,186
Depreciation expense
122
17,008
15,170
32,300
Disposals/written-off
(3)
(27,609)
(9,253)
(36,865)
Reclassified as held under finance lease
-
(20,156)
-
(20,156)





At 30 June 2017
325
25,088
43,052
68,465





Net book value:




At 1 July 2016
182
326,720
398,080
724,982
At 30 June 2017
107
451,082
293,542
744,731





Additions and Disposals
During the six months ended 31 December 2017, the Group acquired 2 Jet aircraft and 2 Turbo-prop aircraft. Aircraft with a net book value of US$38.37 million were reclassified to assets held for sale.
Valuation
The Group's aircraft were valued in June 2017 by independent valuers on lease-encumbered basis ("LEV'). LEV takes into account the current lease arrangements for the aircraft and estimated residual values at the end of the lease. These amounts have been discounted to present value using discount rates of 6.5% per annum for Jet aircraft and 8.1% per annum for Turbo-prop aircraft. Different discount rates are considered appropriate for different aircraft based on their respective risk profiles.
During the six months ended 31 December 2017, an impairment loss of US$8.0 million was recognised to write down the book value of an aircraft. The aircraft was repossessed from an insolvent airline and leased to a new customer under a new lease with different terms and duration.


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



31 Dec
2017
30 Jun
2017



US$'000s
US$'000s





Secured borrowings


692,593
502,301
Junior secured borrowings


21,397
23,415
Unsecured 7.5% notes due 2020


148,421
117,889





Total loans and borrowings


862,411
643,605





Less: current portion of borrowings


(87,527)
(93,044)





Non-current loans and borrowings


774,884
550,561






Maturity
Weighted average interest rate per annum

31 Dec
2017
30 Jun 2017
31 Dec
2017
30 Jun 2017

US$'000s
US$'000s
%
%





Secured borrowings
2018-2028
2017-2028
4.2%
4.5%
Junior secured borrowings
2020-2023
2020-2023
6.7%
6.7%
Unsecured 7.5% notes due 2020
2020
2020
7.5%
7.5%





During the six months ended 31 December 2017, the Group issued US$ 30 million unsecured Notes with a fixed coupon rate of 7.5% and the tenor of 3 years repayable in May 2020 under the Programme. The Notes are listed on the Singapore Exchange (SGX).
Secured borrowings are secured by first ranking mortgages over the aircraft financed by the related borrowings, security assignments of the Group's rights under leases and other contractual agreements relating to the aircraft, charges over bank accounts in which lease payments relating to the aircraft are received, a charge over a fixed deposit and charges over the issued share capital of certain subsidiaries.
Junior secured borrowings are secured by second ranking aircraft mortgages, security assignments and charges over bank accounts.


16 MAINTENANCE RESERVES

31 Dec
2017
30 Jun
2017

US$'000s
US$'000s



Current
1,020
451
Non-current
16,502
20,813



Total maintenance reserves
17,522
21,264






31 Dec
2017
30 Jun
2017

US$'000s
US$'000s



At 1 July 2017/ 1 July 2016
21,264
10,763
Contributions
6,749
10,668
Utilisations
-
(167)
Release to profit or loss
(10,491)
-



At 31 Dec/30 June
17,522
21,264



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

Contract/
notional amount
Fair value

31 Dec
2017
30 Jun
2017
31 Dec
2017
30 Jun
2017

US$'000s
US$'000s
US$'000s
US$'000s





Interest rate swap - non-current asset
94,779
96,829
3,214
2,372
Interest rate swap - non-current liability
100,427
87,014
844
1,901










Hedge accounting has been applied for interest rate swap contracts and these interest rate swap contracts have been designated as cash flow hedges. The Group pays fixed rates of interest of 1.73% to 2.63% per annum and receives floating rate interest pegged to US$ LIBOR under the interest rate swap contracts. The swap contracts mature between 23 September 2021 and 22 December 2028.
The fair value changes of these interest rate swap contracts are recognised in the fair value reserve. The net fair value gain of US$1.87 million (31 December 2016: US$4.02 million) on these derivative financial instruments was recognised in the fair value reserve for the six months ended 31 December 2017.
The fair value of the derivative financial instruments is determined by reference to marked-to-market values provided by counterparties. The fair value measurement of all derivative financial instruments under the Group is classified under Level 2 of the fair value hierarchy, for which inputs other than quoted prices that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) are included as inputs for the determination of fair value.


18 SHARE CAPITAL AND TREASURY SHARES
(a) Share capital

31 Dec 2017
30 Jun 2017

No of shares
US$'000s
No of shares
US$'000s





Allotted, called up and fully paid
Ordinary shares of 1 penny each:




At 1 July 2017/ 1 July 2016
61,071,246
1,058
55,785,227
993
Issue of shares
1,306,000
17
5,286,019
65





At 31 Dec/30 June
62,377,246
1,075
61,071,246
1,058





During the six months period ended 31 December 2017, the Company issued 1,306,000 ordinary shares of 1 penny each at prices ranging from 130p to 153p following the exercise of warrants by warrant holders raising total gross proceeds of US$2.55m.
The holders of ordinary shares (except for treasury shares) are entitled to receive dividends as and when declared by the Company. All ordinary shares carry one vote per share without restrictions.
(b) Treasury shares

31 Dec 2017
30 Jun 2017

No of treasury shares
US$'000s
No of treasury shares
US$'000s





At 1 July 2017/1 July 2016
-
-
600
1
Re-issued during the financial period
-
-
(600)
(1)
At 31 Dec/30 June
-
-
-
-





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

31 Dec
2017
30 Jun
2017

US$'000s
US$'000s



Property, plant and equipment
115,013
147,890



Capital commitments represent amounts due under contracts entered into by the group to purchase aircraft. The company has paid deposits towards the cost of these aircraft which are included in trade and other receivables.
As at 31 December 2017, the Group has commitments to purchase six ATR 72-600 aircraft from the manufacturer with expected delivery dates over a 1.5 year period ending in June 2019.


20 SEGMENT INFORMATION (continued)
Management has determined the operating segments based on reports reviewed by the Executive Chairman ("Chief Operating Decision Maker" or "CODM") that are used to make strategic decisions.
The CODM considers the business from a business segment perspective. Management manages and monitors the business in 2 primary business areas: aircraft leasing and aircraft parts procurement.
(a) Segment reporting policy
A segment is a distinguishable component of the Group within a particular economic environment (geographical segment) and to a particular industry (business segment) which is subject to risks and rewards that are different from those of other segments.
Business segments are based on the Group's management and internal reporting structure. In presenting information on the basis of business segments, segment revenue and segment assets are based on the nature of the products or services provided by the Group while information for geographical segments is based on the geographical areas where customers are located.
Inter-segment pricing is determined on an arm's length basis. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items are mostly comprised of corporate assets and liabilities or profit or losses items that are not directly attributable to a segment or those that cannot be allocated on a reasonable basis. Common expenses were allocated based on revenue.
Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one year.
(b) Business segments
During the six months ended 31 December 2017, the Group was organised into two main business segments which are aircraft leasing and aircraft parts procurement.
Other Group operations mainly comprise investment holding which does not constitute a separate reportable segment. There are no inter-segment transactions recorded during the financial period.
The aircraft parts procurement segment does not meet the quantitative thresholds and is not separately disclosed. Consequently, the aircraft leasing segment is not disclosed as the financial statements substantially represent the results of this segment.


20 SEGMENT INFORMATION (continued)
(c) Geographical analysis
31 December 2017


Europe
Asia-Pacific
Total



US$'000s
US$'000s
US$'000s






Revenue from continuing activities


22,288
30,097
52,385
Net book value - aircraft


186,854
783,178
970,032
Total assets


248,162
876,477
1,124,639









Europe
Asia-Pacific
Total



US$'000s
US$'000s
US$'000s
31 December 2016





Revenue from continuing activities


16,482
28,626
45,108






30 June 2017











Net book value - aircraft


222,039
522,585
744,624
Total assets


358,580
542,555
901,135






21 CONTINGENT LIABILITIES
 There were no material changes in contingent liabilities since 30 June 2017.
22 DIVIDEND

31 Dec
2017
31 Dec
2016

US$'000s
US$'000s



Paid during the six months ended 31 December 2017


Dividends on ordinary shares


- Interim exempt (one-tier) dividend for 6.00 US cents (2017: 3.25 US cents) per share
3,664
1,820



No dividends have been declared subsequent to 31 December 2017.
23 SUBSEQUENT EVENTS
On 19 January 2018, the Company allotted 239,000 fully paid new ordinary shares of 1 penny each representing 0.38 percent of the enlarged share capital of the Company pursuant to the exercise of 2015 series employee share warrants at a price of 130 pence per share.


PRINCIPAL RISKS
The Group's risk management processes bring greater judgement to decision making as they allow management to make better, more informed and more consistent decisions based on a clear understanding of risk involved. We regularly review the risk assessment and monitoring process as part of our commitment to continually improve the quality of decision-making across the Group.
The principal risks and uncertainties which may affect the Group in the second half of the financial year will include the typical risks associated with the aviation business, including but not limited to any downturn in the global aviation industry, fuel costs, finance costs, war and terrorism and the like which may affect our airline customers' ability to fulfil their lease obligations.
The business also relies on its ability to source finance on favourable terms. Should this supply of finance contract, it would limit our fleet expansion and therefore growth.
GOING CONCERN
After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements. The financial risk management objectives and policies of the Group and the exposure of the Group to credit risk and liquidity risk are discussed in the annual report for the Group for the year ended 30 June 2017.
DIRECTORS
The directors of Avation PLC are listed in its Annual Report for the year ended 30 June 2017. A list of the current directors is maintained on the Avation PLC website: www.avation.net
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors confirm that, to the best of their knowledge, this condensed consolidated interim financial information have been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8 namely
 an indication of important events that have occurred during the first six months and their impact on the Interim Report, and a description required by the principal risks and uncertainties for the remaining six months of the financial year; and
 material related party transactions in the first six months and any material changes in the related party transactions described in the last annual report.
By order of the Board
Jeff Chatfield
Executive Chairman
Singapore, 26 February 2018

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