REG - Avation PLC - Half-year Report
AVATION PLC
("Avation" or "the Company")
Financial Results and Interim Management Statement
for the SIX MONTHS ended 31 December 2018
Avation PLC (LSE: AVAP), the commercial passenger aircraft leasing company, announces reviewed financial results for the six months ended 31 December 2018.
Key Financial Results
· Total profit after tax increased by 102% year on year to $13.6 million;
· Earnings per share ("EPS") increased 97% to 21.6 cents;
· Lease rental revenue increased by 40% to a record $58.2 million;
· Total assets increased by 9% since 30 June 2018 to a record $1,256.1 million; and
· Weighted average cost of debt declined from 5.0% to 4.9%.
Operational Highlights
· Four aircraft acquired during the period;
· Sale of one narrowbody Airbus A321-200 aircraft;
· Growth confirmed through an order of four Airbus A220-300 aircraft to be delivered to airBaltic by 30 June 2019;
· Order placed for eight additional ATR72-600 aircraft to be delivered by 2022;
· Airline customers increased from thirteen to fourteen; and
· $50 million senior unsecured notes issued under the Global Medium Term Note programme.
Executive Chairman, Jeff Chatfield, said:
"Avation posted record revenue, profit and total assets for the period ended 31 December 2018. The Company generated a strong first half result with profit and EPS approximately double that of the comparable half year period.
"Avation acquired four aircraft during the period and is expected to deliver seven additional new aircraft into the fleet prior to 30 June 2019, including four Airbus A220-300 jets to be delivered to airBaltic.
"Avation sold one narrowbody Airbus A321-200 aircraft during the period at a price more than 10% above book value. Avation has a further seven Airbus A321-200 aircraft in the fleet and narrowbody aircraft represent almost half of the fleet by value. This confirms Avation's fleet is both liquid and supports management's view that the group's net realisable value exceeds the reported net asset value per share.
"The Company repaid all existing junior debt and selected senior debt resulting in the number of unencumbered aircraft at the end of the period increasing to nine.
"The Company's strong performance enabled the Board to declare and pay an interim dividend of 2.0 US cents per share for the period.
"Avation ends the financial period with a strong cash position and seven additional new aircraft expected to be delivered prior to 30 June 2019. The Company believes it has sufficient liquidity to fund further fleet growth and is currently assessing a number of assets for acquisition."
Financial Highlights
6 months ended
31 December 2018
US$ 000's6 months ended
31 December 2017
US$ 000's
Change
Total Revenue
58,232
52,385
11%
Operating profit (EBIT)
40,212
25,117
60%
Operating profit margin
69%
48%
Administrative expense
5,471
4,914
11%
Administrative expense/ Revenue
9.4%
9.4%
-
Profit before tax
14,216
7,273
95%
Total profit after tax
13,633
6,739
102%
EPS
21.6 cents
10.9 cents
97%
Dividend per share
2.0 cents
-
As at
31 December 2018
US$ 000'sAs at
30 June 2018
US$ 000's
Fleet assets(1)
1,064,000
1,038,649
2%
Total assets
1,256,147
1,152,205
9%
Cash and bank balances
163,207
91,102
79%
Net asset value per share (US$) (2)
$3.66
$3.64
1%
Net asset value per share (GBP) (3)
£2.88
£2.76
4%
1. Fleet assets are defined as property, plant and equipment plus assets held for sale plus finance lease receivables.
2. Net asset value per share is total equity divided by the total number of shares in issue at period end.
3. Based on GBP:USD exchange rate as at 31 December 2018 of 1.273 (30 June 2018 : 1.321).
Aircraft Fleet
Aircraft Type
31 December 2018
Boeing 777-300ER
1
Airbus A330-300
1
Airbus A321-200
7
Airbus A320-200
3
Airbus A220-300
2
Fokker 100
5
ATR 72-600
16
ATR 72-500
6
Total
41
As at 31 December 2018, Avation's fleet comprised 41 aircraft, including seven aircraft on finance lease. The weighted average age of the fleet (excluding finance leases) is 3.6 years (30 June 2018: 3.2 years) and the weighted average remaining lease term is 7.5 years (30 June 2018: 7.7 years).
Fleet assets increased 2% to $1,064.0 million (30 June 2018: $1,038.6 million). Four aircraft were added to the fleet in the period including three ATR72-600 aircraft and one Airbus A220-300. One narrowbody Airbus A321-200 aircraft was sold during the period. Narrowbody aircraft make up 42.6% of fleet assets as at 31 December 2018.
Avation is expected to add seven aircraft to the fleet prior to 30 June 2019 with four Airbus A220-300 and three ATR 72-600 turboprop aircraft on order for delivery.
In addition to this, Avation has ordered eight ATR 72-600 aircraft for delivery by 2022 and has purchase rights for a further 25 aircraft.
Debt summary
31 December 2018
US$000's30 June 2018
US$000'sLoans and borrowings
963,726
868,600
Unrestricted cash and bank balances
122,954
57,950
Net indebtedness
840,722
810,650
Net debt to equity (1)
3.6
3.6
Weighted average cost of secured debt(2)
4.1%
4.3%
Weighted average cost of total debt(3)
4.9%
5.0%
1. Net debt to equity is defined as net indebtedness divided by total equity.
2. Weighted average cost of secured debt is the weighted average interest rate for secured loans and borrowings as at the period end.
3. Weighted average cost of total debt is the weighted average interest rate for total loans and borrowings as at the period end.
The weighted average cost of total debt decreased to 4.9% as at 31 December 2018 (30 June 2018: 5.0%).
The weighted average cost of secured debt decreased to 4.1% at 31 December 2018 (30 June 2018: 4.3%) principally due to settlements of certain higher cost secured loans following the issuance of $300 million 6.5% Senior Notes due 2021 under the Company's Global Medium Term Note programme ("Notes") in May 2018. Avation completed a tap issue of an additional $50 million in Notes in November 2018.
At the end of the financial period, Avation's net debt to equity ratio was 3.6 (30 June 2018: 3.6). At 31 December 2018, 96.4% of total debt was at fixed or hedged interest rates (30 June 2018: 94.8%). The proportion of unsecured debt to total debt was 35.7% (30 June 2018: 33.8%).
Avation will continue to source secured and unsecured debt finance to fund fleet growth with the overriding objective of lowering the weighted average cost of finance.
Credit Rating
In November 2018, Standard & Poor's Global Ratings advised that Avation's issue rating for the Notes had been upgraded. The Company's current credit ratings are as follows:
Rating Agency
Corporate Credit Rating
Notes Rating
Standard and Poor's
B+ outlook positive
B+
Fitch Ratings
BB- outlook stable
BB-
Japan Credit Ratings Company
BB outlook stable
NR
Dividend Policy
In recognition of robust trading conditions, the Board declared and paid an interim dividend of 2.0 US cents per share in respect of the six months ended 31 December 2018.
The Company confirms its aim to maintain a progressive dividend policy.
Market Positioning
Avation's strategy is to target growth and diversification by adding new airline customers, while maintaining strong average aircraft age and remaining lease term metrics. Avation focuses on new and relatively new commercial passenger aircraft on long-term leases. Avation is able to own, manage and lease turboprop, 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 consideration of risk and revenue concentrations.
Interim Management Statement
The outlook for the second half of the 2019 financial year is for continued fleet growth with the expected delivery of seven ordered aircraft and the potential acquisition of further assets.
Management believes that the risks associated with its portfolio of assets have been reduced through growth and diversification of customers 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 a record financial result from its aircraft leasing business during this period of diversification and growth.
Results Conference CallAvation's senior management team will host a conference call on 21 February 2019, at 1pm GMT (UK) / 8am EST (US) / 9pm SGT (Singapore), to discuss the Company's financial results. Participants should dial: United Kingdom 020 3059 5868; United States +1 866 796 1566; Singapore +65 3157 6417; other locations +44 20 3059 5868 and quote "Avation Half Year 2019 Results" when prompted. The conference call will also be webcast live through the following link:
http://avation.emincote.com/results/2019halfyearresults
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.
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
FOR THE SIX MONTHS ENDED 31 DECEMBER 2018
Note
31 Dec
2018
31 Dec
2017
US$'000s
US$'000s
Continuing operations
Revenue
5
58,232
52,385
Other income
6
862
240
59,094
52,625
Depreciation
11
(19,835)
(14,555)
Gain on disposal of aircraft
17
6,534
-
Impairment loss on aircraft
11
-
(8,019)
Administrative expenses
(5,471)
(4,914)
Other expenses
7
(110)
(20)
Operating profit
40,212
25,117
Finance income
8
1,551
746
Finance expenses
9
(27,547)
(18,590)
Profit before taxation
14,216
7,273
Taxation
(583)
(534)
Profit from continuing operations
13,633
6,739
Profit attributable to:
Equity holders of the Company
13,632
6,732
Non-controlling interests
1
7
13,633
6,739
Earnings per share for profit
attributable to equity holders of the Company
Basic earnings per share
21.56 cents
10.94 cents
Diluted earnings per share
21.53 cents
10.81 cents
AVATION PLC
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 31 DECEMBER 2018
Note
31 Dec
2018
31 Dec
2017
US$'000s
US$'000s
Profit from continuing operations
13,633
6,739
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Currency translation differences arising on consolidation
-
(2)
Foreign currency gain on loans
1,254
-
Fair value (loss)/gain on derivative financial instruments
15
(4,369)
1,874
Other comprehensive income, net of tax
(3,115)
1,872
Total comprehensive income for the period
10,518
8,611
Total comprehensive income attributable to:
Equity holders of the Company
10,517
8,604
Non-controlling interests
1
7
10,518
8,611
AVATION PLC
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2018
Note
31 Dec
2018
30 June
2018
US$'000s
US$'000s
ASSETS:
Non-current assets
Property, plant and equipment
11
1,017,039
981,176
Trade and other receivables
12
12,328
6,790
Finance lease receivables
13
40,136
5,529
Goodwill
14
1,902
1,902
Derivative financial instruments
15
4,257
7,848
1,075,662
1,003,245
Current assets
Trade and other receivables
12
10,453
3,914
Finance lease receivables
13
6,825
3,199
Options held for trading
-
2,000
Cash and bank balances
16
163,207
91,102
180,485
100,215
Assets held for sale
17
-
48,745
180,485
148,960
Total assets
1,256,147
1,152,205
EQUITY AND LIABILITIES
Equity
Share capital
18
1,102
1,080
Share premium
56,508
53,083
Merger reserve
6,715
6,715
Asset revaluation reserve
27,847
27,847
Capital reserve
8,876
8,876
Other reserves
2,908
6,389
Retained earnings
131,942
124,119
Equity attributable to equity holders of the parent
235,898
228,109
Non-controlling interest
70
69
Total equity
235,968
228,178
Non-current liabilities
Loans and borrowings
19
885,693
796,896
Trade and other payables
13,496
12,397
Maintenance reserves
20
25,250
22,504
Deferred tax liabilities
3,163
2,988
927,602
834,785
Current liabilities
Loans and borrowings
19
78,033
71,704
Trade and other payables
13,316
13,390
Maintenance reserves
20
756
1,040
Income tax payables
472
2,608
92,577
88,742
Liabilities associated with assets held for sale
17
-
500
92,577
89,242
Total equity and liabilities
1,256,147
1,152,205
AVATION PLC
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 31 DECEMBER 2018
Attributable to shareholders of the parent
Note
Share capital
Share
premium
Merger reserve
Asset revaluation reserve
Capital reserve
Other
reserves
Retained earnings
Total
Non-controlling interest
Total
equity
US$'000s
US$'000s
US$'000s
US$'000s
US$'000s
US$'000s
US$'000s
US$'000s
US$'000s
US$'000s
Balance at 1 July 2018
1,080
53,083
6,715
27,847
8,876
6,389
124,119
228,109
69
228,178
Profit for the period
-
-
-
-
-
-
13,632
13,632
1
13,633
Other comprehensive income
-
-
-
-
-
(3,115)
-
(3,115)
-
(3,115)
Total comprehensive income
-
-
-
-
-
(3,115)
13,632
10,517
1
10,518
Dividend paid
-
-
-
-
-
-
(5,840)
(5,840)
-
(5,840)
Increase in issued share capital
18
22
3,425
-
-
-
(579)
-
2,868
-
2,868
Warrants expired
-
-
-
-
-
(31)
31
-
-
-
Warrants expense
-
-
-
-
-
244
-
244
-
244
Total transactions with owners, recognised directly in equity
22
3,425
-
-
-
(366)
(5,809)
(2,728)
-
(2,728)
Balance at 31 December 2018
1,102
56,508
6,715
27,847
8,876
2,908
131,942
235,898
70
235,968
Other reserves consist of capital redemption reserve, warrant reserve, fair value reserve and foreign currency translation reserve.
AVATION PLC
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 31 DECEMBER 2017
Attributable to shareholders of the parent
Note
Share capital
Share premium
Merger reserve
Asset revaluation reserve
Capital reserve
Other
reserves
Retained earnings
Total
Non-controlling interest
Total
equity
US$'000s
US$'000s
US$'000s
US$'000s
US$'000s
US$'000s
US$'000s
US$'000s
US$'000s
US$'000s
Balance at 1 July 2017
1,058
48,365
6,715
24,492
8,876
801
105,556
195,863
61
195,924
Profit for the period
-
-
-
-
-
-
6,732
6,732
7
6,739
Other comprehensive income
-
-
-
-
-
1,872
-
1,872
-
1,872
Total comprehensive income
-
-
-
-
-
1,872
6,732
8,604
7
8,611
Increase in issued share capital
18
17
2,756
-
-
-
(219)
-
2,554
-
2,554
Warrants expired
-
-
-
-
-
(18)
18
-
-
-
Warrants expense
-
1,099
-
-
-
432
(1,447)
84
-
84
Total transactions with owners, recognised directly in equity
17
3,855
-
-
-
195
(1,429)
2,638
-
2,638
Balance at 31 December 2017
1,075
52,220
6,715
24,492
8,876
2,868
110,859
207,105
68
207,173
AVATION PLC
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED 31 DECEMBER 2018
Note
31 Dec
2018
31 Dec
2017
US$'000s
US$'000s
Cash flows from operating activities:
Profit before taxation
14,216
7,273
Adjustments for:
Depreciation expense
11
19,835
14,555
Warrants expense
244
84
Impairment loss on aircraft
11
-
8,019
Gain on disposal of aircraft
(6,534)
-
Fair value gain on derivatives
6
(778)
(25)
Foreign exchange loss
68
-
Finance income
8
(1,551)
(746)
Maintenance reserves released
5
-
(10,491)
Finance expense
9
27,547
18,590
Operating cash flows before working capital changes
53,047
37,259
Movement in working capital:
Trade and other receivables and finance lease receivables
(2,824)
35,629
Trade and other payables
139
1,838
Maintenance reserves
2,462
6,749
Cash from operations
52,824
81,475
Interest income received
988
566
Interest expense paid
(23,743)
(17,633)
Income tax paid
(7,718)
(143)
Net cash from operating activities
22,351
64,265
Cash flows from investing activities:
Placement of restricted cash balances
(7,101)
(6,034)
Purchase of property, plant and equipment
(95,397)
(286,302)
Proceeds from disposal of aircraft
54,365
-
Net cash used in investing activities
(48,133)
(292,336)
Cash flows from financing activities:
Net proceeds from issuance of ordinary shares
2,868
2,554
Dividends paid to shareholders
23
(5,840)
(3,664)
Proceeds from loans and borrowings, net of transactions costs
152,418
277,393
Repayment of loans and borrowings
(58,660)
(59,126)
Net cash from financing activities
90,786
217,157
Effects of exchange rates on cash and cash equivalents
-
(2)
Net increase/(decrease) in cash and cash equivalents
65,004
(10,916)
Cash and cash equivalents at beginning of financial period
57,950
56,849
Cash and cash equivalents at end of financial period
16
122,954
45,933
AVATION PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 DECEMBER 2018
This interim condensed consolidated financial statements for Avation PLC for the six months ended 31 December 2018 were authorised for issue in accordance with a resolution of the Directors on 20 February 2019.
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 as a Standard Listing on the London Stock Exchange.
The Group's principal activity is aircraft leasing.
2 BASIS OF PREPARATION AND ACCOUNTING POLICIES
These 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 annual 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 2018 and considered together with any public announcements made by Avation PLC during the six months ended 31 December 2018.
The accounting policies and methods of computation are the same as those adopted in the annual report for the year ended 30 June 2018 except for the adoption of new accounting standards effective as of 1 July 2018.
The Group has applied IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments for the first time in these interim condensed consolidated financial statements. As required by IAS 34, the nature and effect of these changes are disclosed in Note 3b.
Several other amendments and interpretations which apply for the first time in the six months ended 31 December 2018 do not have an impact on the Group's interim condensed consolidated financial statements.
The preparation of the interim condensed consolidated financial statements requires 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 2018, 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 2018
(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 16 Leases 1 January 2019
IFRIC interpretation 23 Uncertainty over insurance tax treatment 1 January 2019
Amendments to IFRS 9 Prepayment feature of negative
compensation 1 January 2019
Amendments to IAS 19 Plan amendment, curtailment or
settlement 1 January 2019
Amendments to IAS 28 Long term interests in associates and
Joint ventures 1 January 2019
Annual improvements 2015-2017 cycle (issued in December 2017)1 January 2019
IFRS 17 Insurance contracts 1 January 2021
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.
3 NEW STANDARDS AND INTERPRETATIONS NOT APPLIED AND STANDARDS IN EFFECT IN 2018 (continued)
(b) Standard in effect in 2018
The Group has adopted all new standards that have come into effect during the six months ended 31 December 2018.
Changes in accounting policies
The Group adopted IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments on 1 July 2018. The changes in accounting policies are as follows:
IFRS 15 Revenue from Contracts with Customers
Under IFRS 15, revenue is recognised at an amount that reflects the consideration which an entity expects to be entitled to in exchange for transferring goods or services to a customer. IFRS 15 specifically states that lease contracts within the scope of IFRS 16 Leases are outside the scope of this standard. As the Group derives its revenue primarily from lease rentals under lease contracts within the scope of IFRS 16 Leases, the adoption of this standard did not have a material impact on the financial statements of the Group for the period ended 31 December 2018.
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments, which replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning or after 1 January 2018, brings together all three aspect of the accounting for financial instrument classification and measurement; impairment, and hedge accounting.
With the exception of hedge accounting which the Group applied prospectively, the Group has applied IFRS 9 retrospectively, with the initial application date of 1 July 2018.
The Group has not restated comparative information for prior periods as there is no material impact from the implementation of IFRS 9.
a) Classification and measurement
Except for certain trade receivables, under IFRS 9, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs.
Under IFRS 9, debt financial instruments are subsequently measured at fair value through profit and loss (FVPL), amortised cost, or fair value through other comprehensive income (FVOCI). The classification is based on two criteria: the Group's debt model for managing the assets; and whether the instruments' contractual cash flows represent 'solely payments of principal and interest' on the principal amount outstanding (the 'SPPI criterion').
The assessment of the Group's business models was made as of the date of initial application, 1 July 2018. The assessment of whether contractual cash flows on debt instruments solely comprised principal and interest was made based on the facts and circumstances as at the initial recognition of the assets.
3 NEW STANDARDS AND INTERPRETATIONS NOT APPLIED AND STANDARDS IN EFFECT IN 2018 (continued)
Trade and other receivables and finance lease receivables which were classified as loans and other receivables under IAS 39, are classified as financial assets measured at amortised cost under IFRS 9.
The accounting for the Group's financial liabilities remains largely the same as it was under IAS 39. Similar to the requirements of IAS 39, IFRS 9 requires contingent consideration liabilities to be treated as financial instruments measured at fair value, with the changes in fair value recognised in the statement of profit or loss.
The Group recognised a day-one gain of US$0.4m related to a current debt modification during this 6 month period. There is no material impact from historical debt modifications and no adjustments have been made to the comparative information for prior periods.
b) Impairment
The adoption of IFRS 9 has fundamentally changed the Group's accounting for impairment losses for financial assets by replacing IAS 39's incurred loss approach with a forward-looking expected credit loss (ECL) approach.
IFRS 9 requires the Group to record an allowance for ECLs for all loans and other debt financial assets not held at FVPL.
ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive. The shortfall is then discounted at an approximation to the asset's original effective interest rate.
For trade and other receivables, the Group has applied the standard's simplified approach and has calculated ECLs based on lifetime expected losses. The Group has established a provision matrix based on the Group's historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
The adoption of the ECL requirements of IFRS 9 did not result in a change in impairment allowances for the Group's debt financial assets in current and prior periods.
c) Hedge accounting
The Group applied the hedge accounting requirements of IFRS 9 prospectively. At the date of initial application all of the Group's existing hedging relationships were eligible to be treated as continuing hedge relationships. The change did not have a significant impact on the current hedging relationships entered into by the Group.
3 NEW STANDARDS AND INTERPRETATIONS NOT APPLIED AND STANDARDS IN EFFECT IN 2018 (continued)
Finance lease
A finance lease is a lease that the Group as the lessor uses to transfer substantially all the risks and rewards incidental to ownership of the leased asset to the lessee, At the commencement of the lease term, the Group recognises the minimum lease amounts receivable by the Group as a finance lease receivable and records the unguaranteed residual value as an asset within the same category. The difference between (a) the aggregate of the minimum lease amounts and the unguaranteed residual value and (b) their present value (presented in the statement of financial position as finance lease receivables-net) is recognised as unearned finance income. Minimum lease amounts are the payments over the lease term that the lessee is or can be required to make plus any residual value guaranteed to the lessor by the lessee, or a party unrelated to the lessor.
Unearned finance lease is allocated to each period during the lease term using the effective interest method that allocates each rental between finance income and repayment of capital in each accounting period in such a way that finance income is recognised as a constant periodic rate of return (implicit effective interest rate) on the lessor's net investment in the lease. Lease agreements for which the base rent is based on the floating interest rate existing are included in minimum lease payments based on the floating interest rate existing at the commencement of the lease; any increase or decrease in lease payments that result (from subsequent changes on floating interest rate is recorded as an increase or a decrease in finance lease income in the period of the interest rate change. The accounting policies for interest income from finance leases is detailed in the annual report for the year ended 30 June 2018.
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 2018
30 Jun 2018
Carrying amount
Fair value
Carrying amount
Fair value
US$'000s
US$'000s
US$'000s
US$'000s
Financial assets:
Finance lease receivables - non-current
40,136
34,347
5,529
5,197
Financial liabilities:
Deposits collected - non-current
11,705
10,675
10,338
10,119
Loans and borrowings other than unsecured note- non-current
541,884
533,961
503,374
505,916
Unsecured notes
343,809
352,887
293,522
301,899
The fair values (other than the unsecured notes) above are estimated by discounting expected future cash flows at market incremental leading rate for similar types of lending, borrowing or leasing arrangements at the end of the reporting period. The fair value of the unsecured notes is based on level 1 quoted prices (unadjusted) in active market that the Group can access at measurement date.
4 FAIR VALUE MEASUREMENT (continued)
Non-financial assets measured at fair value:
31 Dec
2018
30 Jun
2018
US$'000s
US$'000s
Fair value measurement using significant unobservable inputs
Aircraft
1,016,996
981,122
Aircraft were valued at 30 June 2018. Refer to Note 11 for the details on the valuation technique and significant inputs used in the valuation.
Classification of financial instruments:
A comparison by category of carrying amounts of all the Group's financial instruments that are carried in the financial statements which are considered to equate to fair value is set out below.
31 Dec
2018
30 Jun 2018
US$'000s
US$'000s
Financial assets measured at
amortised cost:
Cash and cash balances
163,207
91,102
Trade and other receivables
22,047
9,619
Finance lease receivables
46,961
8,728
232,215
109,449
Financial liabilities measured at amortised cost:
Trade and other payables
17,602
15,943
Loans and borrowings
963,726
868,600
981,328
884,853
Derivative used for hedging:
Derivative financial instruments - asset
4,257
7,848
Fair value through profit or loss:
Options held for trading
-
2,000
5 REVENUE
31 Dec
2018
31 Dec
2017
US$'000s
US$'000s
Lease rental revenue
58,232
41,707
Maintenance reserves released
-
10,491
End of lease return compensation
-
187
58,232
52,385
Geographical analysis
Europe
Asia Pacific
Total
US$'000s
US$'000s
US$'000s
31 Dec 2018
13,912
44,320
58,232
31 Dec 2017
22,288
30,097
52,385
6 OTHER INCOME
31 Dec
2018
31 Dec
2017
US$'000s
US$'000s
Fair value gain on derivatives
778
25
Sale of aircraft parts
-
198
Others
84
17
862
240
7 OTHER EXPENSES
31 Dec
2018
31 Dec
2017
US$'000s
US$'000s
Foreign currency exchange loss
110
20
110
20
8 FINANCE INCOME
31 Dec
2018
31 Dec
2017
US$'000s
US$'000s
Interest income
327
107
Finance lease interest income
499
443
Finance income from discounting non-current deposits to fair value
181
196
Interest rate swap break gain
174
-
Loan modification gain
370
-
1,551
746
9 FINANCE EXPENSES
31 Dec
2018
31 Dec
2017
US$'000s
US$'000s
Interest expense on borrowings
13,159
12,092
Interest expense on unsecured notes
10,445
4,752
Amortisation of loan transaction costs
2,032
1,429
Amortisation of interest expense on non-current deposits
186
191
Finance charges on early full repayment on borrowings
1,362
-
Others
363
126
27,547
18,590
10 RELATED PARTY TRANSACTIONS
Significant related party transactions:
31 Dec
2018
31 Dec
2017
US$'000s
US$'000s
Entities controlled by key management personnel
(including directors):
Rental expenses paid
(152)
(98)
Consulting fee paid
(417)
(166)
Interest expense on unsecured notes
-
(204)
Director
Interest expense on unsecured notes
-
(7)
11 PROPERTY, PLANT AND EQUIPMENT
Furniture and equipment
Jet
aircraft
Turboprop aircraft
Total
US$'000s
US$'000s
US$'000s
US$'000s
31 December 2018:
Cost or valuation:
At 1 July 2018
346
713,142
374,876
1,088,364
Additions
2
36,303
59,092
95,397
Disposals/written-off
-
(153)
-
(153)
Reclassified as held under finance leases
-
-
(39,631)
(39,631)
At 31 December 2018
348
749,292
394,337
1,143,977
Representing:
At cost
348
-
-
348
At valuation
-
749,292
394,337
1,143,629
348
749,292
394,337
1,143,977
Accumulated depreciation:
At 1 July 2018
292
51,341
55,555
107,188
Depreciation expense
13
13,355
6,467
19,835
Disposals/written-off
-
(85)
-
(85)
At 31 December 2018
305
64,611
62,022
126,938
Net book value:
At 1 July 2018
54
661,801
319,321
981,176
At 31 December 2018
43
684,681
332,315
1,017,039
11 PROPERTY, PLANT AND EQUIPMENT (continued)
Furniture and equipment
Jet
aircraft
Turboprop aircraft
Total
US$'000s
US$'000s
US$'000s
US$'000s
30 June 2018:
Cost or valuation:
At 1 July 2017
432
476,170
336,594
813,196
Additions
19
283,975
38,810
322,804
Disposals/written-off
(105)
-
-
(105)
Reclassified as assets held for sale
-
(51,281)
-
(51,281)
Revaluation recognised in equity
-
4,278
(528)
3,750
At 30 June 2018
346
713,142
374,876
1,088,364
Representing:
At cost
346
-
-
432
At valuation
-
713,142
374,876
1,088,364
346
713,142
374,876
1,088,364
Accumulated depreciation and impairment:
At 1 July 2017
325
25,088
43,052
68,465
Depreciation expense
72
21,709
12,503
34,284
Disposals/written-off
(105)
-
-
(105)
Reclassified as assets held for sale
-
(2,536)
-
(2,536)
Impairment loss
-
7,080
7,080
At 30 June 2018
292
51,341
55,555
107,188
Net book value:
At 1 July 2017
107
451,082
293,542
744,731
At 30 June 2018
54
661,801
319,321
981,176
11 PROPERTY, PLANT AND EQUIPMENT (continued)
Additions and Disposals
During the six months ended 31 December 2018, the Group acquired one narrow-body jet aircraft and three turboprop aircraft of which two turboprop aircraft were reclassified as held under finance leases.
Valuation
The Group's aircraft were valued in June 2018 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 turboprop aircraft. Different discount rates are considered appropriate for different aircraft based on their respective risk profiles.
Geographical analysis
31 Dec 2018
Europe
Asia Pacific
Total
US$'000s
US$'000s
US$'000s
Capital expenditure
75,847
19,550
95,397
Net book value - aircraft
293,093
723,903
1,016,996
30 Jun 2018
Europe
Asia Pacific
Total
US$'000s
US$'000s
US$'000s
Capital expenditure
36,544
286,260
322,804
Net book value - aircraft
242,772
738,350
981,122
12 TRADE AND OTHER RECEIVABLES
31 Dec
2018
30 Jun
2018
US$'000s
US$'000s
Current
Trade receivables
4,642
3,130
Less:
Impairment loss on trade receivables
(41)
(41)
4,601
3,089
Other receivables:
Related parties
-
5
Third parties
5,348
49
Interest receivables
12
-
Deposits
48
48
Prepaid expenses
444
723
10,453
3,914
Non-current
Deposits for aircraft
12,038
6,428
Prepaid expenses
290
362
12,328
6,790
During the six months ended 31 December 2018, the Group exercised the 2 options previously classified as options held for trading and reclassified the US$2 million to deposits for aircraft.
13 FINANCE LEASE RECEIVABLES
Future minimum lease payments receivable under finance leases are as follows:
31 Dec 2018
30 Jun 2018
Minimum lease payments
Present value of payments
Minimum lease payments
Present value of payments
US$'000s
US$'000s
US$'000s
US$'000s
Within one year
8,225
6,825
3,636
3,199
Later than one year but not more than five years
15,974
12,485
5,707
5,529
More than five years
28,135
27,651
-
-
Total minimum lease payments
52,334
46,961
9,343
8,728
Less: amounts representing interest income
(5,373)
-
(615)
-
Present value of minimum lease payments
46,961
46,961
8,728
8,728
14 GOODWILL
The Group performs its annual impairment test in June and when circumstances indicate the carrying value may be impaired. For the purpose of these financial statements there was no indication of impairment. The key assumptions used to determine the recoverable amount for the different cash generating units were disclosed in the annual consolidated financial statements for the year ended 30 June 2018.
15 DERIVATIVE FINANCIAL INSTRUMENTS
Contract/
notional amount
Fair value
31 Dec
2018
30 Jun
2018
31 Dec
2018
30 Jun
2018
US$'000s
US$'000s
US$'000s
US$'000s
Interest rate swaps - non-current asset
296,097
310,755
4,257
7,848
Hedge accounting has been applied for interest rate swap contracts which have been designated as cash flow hedges. The Group pays fixed rates of interest of 1.57% to 2.63% per annum and receives floating rate interest payments pegged to US$ LIBOR under the interest rate swap contracts. The swap contracts mature between 23 September 2021 and 22 December 2028.
Changes in the fair values of these interest rate swap contracts are recognised in the fair value reserve. The net fair value loss of US$4.37 million (31 December 2017: gain of US$1.87 million) on these derivative financial instruments was recognised in the fair value reserve for the six months ended 31 December 2018.
The fair value of the derivative financial instruments is determined by reference to marked-to-market values provided by counterparties. The fair value measurement of all derivative financial instruments for the Group is classified under Level 2 of the fair value hierarchy, for which inputs other than quoted prices that are observable for the asset or liability, either directly as prices or indirectly derived from prices are included as inputs for the determination of fair value.
16 CASH AND BANK BALANCES
31 Dec
2018
30 Jun
2018
US$'000s
US$'000s
Fixed deposits
92,900
20,000
Other cash and bank balances
70,307
71,102
Total cash and bank balances
163,207
91,102
Less: restricted
(40,253)
(33,152)
Cash and cash equivalents
122,954
57,950
The Group's restricted cash and bank balances have been pledged as security for certain loan obligations.
In the consolidated statement of cash flows, cash and cash equivalents comprises unrestricted cash and bank balances.
17 ASSETS HELD FOR SALE AND LIABILITIES DIRECTLY ASSOCIATED WITH ASSETS HELD FOR SALE
As at 31 December 2018, the Group's aircraft which met the criteria to be classified as assets held for sale and the associated liabilities were as follows:
31 Dec
2018
30 Jun
2018
US$'000s
US$'000s
Assets held for sale:
Property, plant and equipment - aircraft
At 1 July 2018/ 1 July 2017
48,745
-
Additions
-
48,745
Disposals
(48,745)
-
At 31 Dec/30 June
-
48,745
Liabilities directly associated with assets held for sale:
Deposits collected
-
500
During the six months ended 31 December 2018, the Group sold the aircraft held for sale.
The gain on disposal of aircraft of US$6.5 million substantially includes the gain on recognition of finance lease for two aircraft of US$0.9 million and a gain from aircraft held for sale of US$5.2 million.
18 SHARE CAPITAL AND TREASURY SHARES
(a) Share capital
31 Dec 2018
30 Jun 2018
No of shares
US$'000s
No of shares
US$'000s
Allotted, called up and fully paid
Ordinary shares of 1 penny each:
At 1 July 2018/ 1 July 2017
62,760,246
1,080
61,071,246
1,058
Issue of shares
1,721,690
22
1,689,000
22
At 31 Dec/30 June
64,481,936
1,102
62,760,246
1,080
During the six months period ended 31 December 2018, the Company issued 1,721,690 ordinary shares of 1 penny each at 130p following the exercise of warrants by warrant holders raising total gross proceeds of US$ 2.87m.
The holders of ordinary shares are entitled to receive dividends as and when declared by the Company. All ordinary shares carry one vote per share without restrictions.
As at 31 December 2018, there are nil shares held as treasury shares (30 June 2018: nil).
18 SHARE CAPITAL AND TREASURY SHARES (continued)
(b) Net asset value per share
31 Dec 2018
30 Jun
2018
Net asset value per share (US$)(1)
$3.66
$3.64
Net asset value per share (GBP) (2)
£2.88
£2.76
(1) Net asset value per share is total equity divided by the total number of shares in issue at period end.
(2) Based on GBP:US$ exchange rate as at 31 Dec 2018 of 1.273 (30 June 2018: 1.321).
19 LOANS AND BORROWINGS
31 Dec
2018
30 Jun
2018
US$'000s
US$'000s
Secured borrowings
619,917
555,787
Junior secured borrowings
-
19,291
Unsecured notes
343,809
293,522
Total loans and borrowings
963,726
868,600
Less: current portion of secured borrowings
(78,033)
(71,704)
Non-current loans and borrowings
885,693
796,896
Maturity
Weighted average interest rate per annum
31 Dec
2018
30 Jun 2018
31 Dec
2018
30 Jun 2018
US$'000s
US$'000s
%
%
Secured borrowings
2018-2028
2018-2028
4.1%
4.2%
Junior secured borrowings
-
2020-2023
-
6.7%
Unsecured notes
2021
2021
6.5%
6.5%
During the six months ended 31 December 2018, the Group issued US$ 50 million 6.5% Senior Notes due 2021 under the Group's Global Medium-Term Note Programme. The Notes are listed on the Singapore Exchange (SGX).
Secured borrowings are secured by first ranking mortgages over the relevant aircraft, security assignments of the Group's rights under leases and other contractual agreements relating to the aircraft, charges over bank accounts in which lease payments relating to the aircraft are received and charges over the issued share capital of certain subsidiaries.
Junior secured borrowings are secured by second ranking aircraft mortgages, security assignments and charges over bank accounts.
20 MAINTENANCE RESERVES
31 Dec
2018
30 Jun
2018
US$'000s
US$'000s
Current
756
1,040
Non-current
25,250
22,504
Total maintenance reserves
26,006
23,544
31 Dec
2018
30 Jun
2018
US$'000s
US$'000s
At 1 July 2018/ 1 July 2017
23,544
21,264
Contributions
8,880
13,193
Utilisations
(1,510)
(422)
Released to profit or loss
-
(10,491)
Transferred to buyer upon sale of aircraft
(4,908)
-
At 31 Dec/30 June
26,006
23,544
21 CAPITAL COMMITMENTS
Capital expenditure contracted for at the reporting date but not recognised in the financial statements is as follows:
31 Dec
2018
30 Jun
2018
US$'000s
US$'000s
Property, plant and equipment
345,461
115,013
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 2018, the Group has commitments to purchase eleven ATR 72-600 aircraft and four Airbus A220-300 aircraft from the manufacturers with expected delivery dates from March 2019 to September 2023.
22 CONTINGENT LIABILITIES
There were no material changes in contingent liabilities since 30 June 2018.
23 DIVIDENDS
31 Dec
2018
31 Dec
2017
US$'000s
US$'000s
Paid during the six months ended 31 December 2018
Dividends on ordinary shares
- First interim dividend for 7.25 US cents (31 Dec 2017: 6.00 US cents) per share
4,550
3,664
- Second interim dividend for 2.00 US cents (31 Dec 2017: Nil US cents) per share
1,290
-
No dividends have been declared subsequent to 31 December 2018.
24 SUBSEQUENT EVENTS
On 18 January 2019, the Group signed lease with a South-Asian airline for the supply of one new ATR 72-600 aircraft for a term of 8 years.
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 2018.
DIRECTORS
The directors of Avation PLC are listed in its Annual Report for the year ended 30 June 2018. 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, 20 February 2019
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.ENDIR MMGZZVMKGLZG
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