DORIC NIMROD AIR THREE LIMITED (the "Company")
(Legal Entity Identifier: 213800BMYMCBKT5W8M49)
HALF-YEARLY FINANCIAL REPORT
The Board of the Company is pleased to announce its results for the period from 1 April 2019 to 30 September 2019.
To view the Company's half-yearly financial report please follow the link below:
http://www.rns-pdf.londonstockexchange.com/rns/4151U_1-2019-11-22.pdf
The half-yearly financial report will also shortly be available on the Company's website www.dnairthree.com.
In addition, to comply with DTR 6.3.5(1) please find below the full text of the half yearly financial report.
For further information, please contact:
For administrative and company information:
JTC Fund Solutions (Guernsey) Limited
+44 (0) 1481 702400
For shareholder information:
Nimrod Capital LLP
+44 (0) 20 7382 4565
END OF ANNOUNCEMENT
E&OE - in transmission
Doric Nimrod Air Three Limited
Half-Yearly Financial Report
For the period from 1 April 2019 to 30 September 2019
SUMMARY INFORMATION
|
Listing |
Specialist Fund Segment of the London Stock Exchange's Main Market |
|
Ticker |
DNA3 |
|
Share Price |
86.75 pence (as at 30 September 2019) |
|
Market Capitalisation |
GBP 187.0 million (as at 20 November 2019) |
|
Current/Future Anticipated Dividend |
Current dividends are 2.0625 pence per quarter per share (8.25 pence per annum) and it is anticipated this will continue until the aircraft leases begin to terminate in 2025 |
|
Dividend Payment Dates |
April, July, October, January |
|
Currency |
Sterling |
|
Launch Date/Price |
2 July 2013 / 100 pence |
|
Incorporation and Domicile |
Guernsey |
|
Aircraft Registration Number (Lease Expiry Dates including 2 year extension) |
A6-EEK (29 August 2025), A6-EEM (14 November 2025), |
|
Asset Manager |
Amedeo Management Limited |
|
Corporate and Shareholder Advisor |
Nimrod Capital LLP |
|
Administrator |
JTC Fund Solutions (Guernsey) Limited |
|
Auditor |
Deloitte LLP |
|
Market Makers |
finnCap Ltd, Investec Bank, Jefferies International Ltd, Numis Securities Ltd, Shore Capital Ltd, Winterflood Securities Ltd |
|
SEDOL, ISIN, LEI |
B92LHN5, GG00B92LHN58, 213800BMYMCBKT5W8M49 |
|
Year End |
31 March |
|
Stocks & Shares ISA |
Eligible |
|
Website |
www.dnairthree.com |
Please note that the Group has determined that the operating leases on the Assets are for 12 years based on an initial term of 10 years followed by an extension term of 2 years. Should the lessee choose to exit a lease at the end of the initial term of 10 years an early termination payment equal to the present value of the Sterling rent that would have been payable for the extension term of 2 years would be due. For the purpose of this report the leases are all referred to as 12 year leases.
COMPANY OVERVIEW
Doric Nimrod Air Three Limited (LSE Ticker: DNA3) ("DNA3" or the "Company") is a Guernsey company incorporated on 29 March 2012.
Pursuant to the Company's Prospectus dated 20 June 2013, the Company on 2 July 2013, offered its shares for issue by means of a placing and raised approximately £211 million by the issue of ordinary preference shares (the "Shares") at an issue price of 100 pence each. The Company's Shares were admitted to trading on the Specialist Fund Segment ("SFS") of the London Stock Exchange's Main Market on 2 July 2013.
As at 19 November 2019, the latest practicable date prior to publication of this report, the Company's total issued share capital consisted of 220,000,000 Shares and these Shares were trading at 85pence per Share.
Investment Objectives and Policy
The Company's investment objective is to obtain income returns and a capital return for its shareholders (the "Shareholders") by acquiring, leasing and then selling aircraft (each an "Asset" or "Assets" and together the "Assets" or "Aircraft"). To pursue its investment objective, the Company has used the net proceeds of an equity placing raising, together with debt facilities (or instruments), to initially acquire four Airbus A380 ("A380") which are leased to Emirates Airline ("Emirates"), the national carrier owned by The Investment Corporation of Dubai based in Dubai, United Arab Emirates.
DNA Alpha
The Company has one wholly owned subsidiary, DNA Alpha Limited ("DNA Alpha") which holds the Assets for the Company (together the Company and DNA Alpha are known as the "Group").
The first Asset was acquired by DNA Alpha on 29 August 2013 for a purchase price of $245 million. Upon delivery, DNA Alpha entered into an operating lease with Emirates, pursuant to which the first Asset has been leased to Emirates for an expected initial term of 10 years, ending August 2023, with an extension period of two years ending August 2025, in which rental payments reduce. The present value of the remaining rentals in the extension period at the end of the initial 10 year lease must be paid even if the option is not taken.
The second Asset was acquired by DNA Alpha on 29 October 2013 for a purchase price of $245 million. Upon delivery, DNA Alpha entered into an operating lease with Emirates, pursuant to which the second Asset has been leased to Emirates for an expected initial term of 10 years, with fixed lease rentals for the duration. The initial lease is for 10 years ending October 2023, with an extension period of two years ending October 2025, in which rental payments reduce. The present value of the remaining rentals in the extension period at the end of the initial 10 year lease term must be paid even if the option is not taken.
The third Asset was acquired by DNA Alpha on 14 November 2013 for a purchase price of $245 million. Upon delivery, DNA Alpha entered into an operating lease with Emirates, pursuant to which the third Asset has been leased to Emirates for an expected initial term of 10 years, with fixed lease rentals for the duration. The initial lease is for 10 years ending November 2023, with an extension period of two years ending November 2025, in which rental payments reduce. The present value of the remaining rentals in the extension period at the end of the initial 10 year lease term must be paid even if the option is not taken.
The fourth Asset was acquired by DNA Alpha on 27 November 2013 for a purchase price of $245 million. Upon delivery, DNA Alpha entered into an operating lease with Emirates, pursuant to which the fourth Asset has been leased to Emirates for an expected initial term of 10 years, with fixed lease rentals for the duration. The initial lease is for 10 years ending November 2023, with an extension period of two years ending November 2025, in which rental payments reduce. The present value of the remaining rentals in the extension period at the end of the initial 10 year lease term must be paid even if the option is not taken.
DNA Alpha acquired the Assets using a combination of a portion of the proceeds of the issue of the Shares by the Company together with the proceeds of the sale of Equipment Notes issued by DNA Alpha (the "Equipment Notes") and the initial rent payment pursuant to the relevant operating leases. The Equipment Notes were acquired by two separate pass through trusts using the proceeds of their issue of enhanced equipment trust certificates (the "Certificates" or "EETC") as detailed within the Offering Circular issued by DNA Alpha dated 10 July 2013.
Further information about the construction of these leases is available in note 3 of the Notes to the Consolidated Financial Statements.
The Certificates, with an aggregate face amount of approximately $630 million, are admitted to the official list of the Euronext Dublin and to trading on the Main Securities market thereof and will mature on 30 May 2025.
Emirates bears all costs (including maintenance, repair; and insurance) relating to the Aircraft during the lifetime of the leases.
Distribution Policy
The Company currently targets a distribution of 2.0625 pence per Share per quarter.
There can be no guarantee that dividends will be paid to Shareholders and, if dividends are paid, as to the timing and amount of any such dividend. There can also be no guarantee that the Company will, at all times, satisfy the solvency test required to be satisfied pursuant to section 304 of The Companies (Guernsey) Law, 2008, as amended (the "Law") enabling the Directors to effect the payment of dividends.
Performance Overview
All payments by Emirates have, to date, been made in accordance with the terms of the respective leases.
During the period under review and in accordance with the Distribution Policy the Company declared two interim dividends of 2.0625 pence per Share. One interim dividend of 2.0625 pence per Share was declared after the reporting period. Further details of dividend payments can be found on page 27.
Return of Capital
The Company intends to return to Shareholders the net capital proceeds if and when the Company is wound up (pursuant to a Shareholder resolution, including the Liquidation Resolution below), subject to compliance with the Company's Articles of Incorporation (the "Articles") and the applicable laws (including any applicable requirements of the solvency test contained therein).
Liquidation Resolution
Although the Group does not have a fixed life, the Articles require that the Directors convene a general meeting of the Company in November 2026 where an ordinary resolution will be proposed that the Company proceed to an orderly wind-up (the "Liquidation Resolution"). In the event that the Liquidation Resolution is not passed, the Directors will consider alternatives for the future of the Company, including re-leasing the Assets, or selling the Assets and reinvesting the capital received from the sale of the Assets in other aircraft.
CHAIRMAN'S STATEMENT
During the period from 1 April 2019 until 30 September 2019 (the "Period") Doric Nimrod Air Three Limited ("DNA3" or the "Company") has declared and paid two quarterly dividends of 2.0625 pence per share, as expected, equivalent to 8.25 pence per share per annum.
The Company's investment objective is to obtain income returns and a capital return for its shareholders (the "Shareholders") by acquiring, leasing and then selling aircraft. The Group owns four assets (the "Assets"). Upon the purchase of each aircraft (the "Aircraft"), the Company's subsidiary entered into a 12 year lease with Emirates Airline ("Emirates") with fixed lease rentals for the duration. The debt portion of the funding will be fully amortised over the term of each lease, which will leave the Aircraft unencumbered on the conclusion of the lease. Emirates bears all costs (including maintenance, repair and insurance) relating to the aircraft during the lifetime of the leases and all payments thus far by Emirates have been made in accordance with the terms of the leases.
Whilst I am mindful of the performance of the Company's share price, Shareholders should be reassured that the Group's Assets continue to be well utilised and that Emirates are meeting all financial obligations on time and in full. However, sentiment and recent news flow relating to the Airbus A380 appears to be persisting as a headwind. The Board is aware that the market is not currently balanced between buyers and sellers nor between ongoing users and those that are likely to or have announced that they will discontinue use of the aircraft. The situation is expected to continue to be fluid and will depend on a number of factors including the position of manufacturer deliveries of new widebody aircraft to airlines, including Emirates, and passenger traffic generally. The Board and its advisors continue to monitor the situation and as part of the lease arrangements are in regular contact with the airline. As reported in my statement accompanying the most recent annual financial report the announcement by Airbus of the cessation of production of new A380s has no direct impact on the Group's leases nor its ability to pay targeted distributions. Furthermore, the Group's debt structure is such that all loan liabilities will be fully paid off at the end of the lease (subject only to the continued solvency of Emirates) at which point the Aircraft will be unencumbered. Recent comments by Emirates with regard to the A380 continue to be supportive in many respects but, in the absence of concrete evidence, the Company and its Asset Manager, Amedeo Management Limited ("Amedeo"), are somewhat constrained in their ability to report more positive developments at this time. While the Group's first lease expiry does not fall due for almost six years (August 2025) Amedeo has been and will continue to be in regular dialogue with Emirates about their future fleet planning requirements. Further details on the A380 and Emirates can be found in the Asset Manager's Report.
Amedeo continues to monitor the leases, reports regularly to the Board and prepares the quarterly fact sheets. Nimrod Capital LLP ("Nimrod"), the Group's Corporate and Shareholder Advisor, continues to liaise between the Board and Shareholders, and also communicates with Shareholders regularly regarding relevant news flow and the Group's Consolidated Financial Statements.
In economic reality and in cash flow terms, the Group has performed well, and as expected. However, the Consolidated Financial Statements do not, in the Board's view, properly convey this economic reality due to the accounting treatments for foreign exchange, rental income and finance costs, as required by International Financial Reporting Standards ("IFRS").
IFRS, with which the Group is fully compliant, requires that transactions denominated in currencies other than the presentation currency, (including, most importantly, the cost of the aircraft) are translated into the presentation currency at the exchange rate ruling at the date
of the transaction whilst monetary items (principally the outstanding borrowings) are translated at the rate prevailing on the reporting date. The result is that the figures sometimes show very large mismatches which are reported as unrealised foreign exchange differences.
On an on-going basis and assuming the lease and debt payments are made as anticipated, such exchange differences do not reflect the commercial substance of the situation in the sense that the key transactions denominated in US dollars are in fact closely matched. Rental income received in US dollars is used to make debt repayments due which are likewise denominated in US dollars. Furthermore, the US dollar lease rentals and debt repayments are fixed at the outset of the Group's life and are very similar in amount and timing.
In addition to this, lease rental income receivable is credited evenly to the Statement of Comprehensive Income over the planned life of each lease. Conversely, the methodology for accounting for interest cost means that the proportion of the debt repayments which is treated as interest, and is debited to the Statement of Comprehensive Income, varies over the course of each debt instrument with a higher proportion of interest expense recognised in earlier periods, so that the differential between rental income and interest cost (as reported in the Statement of Comprehensive Income) reduces. In reality however, the amount of rental income is fixed so as to closely match the interest and principal components of each debt repayment instalment and allow for payments of operating costs and dividends.
Suzie Procter and Andreas Tautscher were appointed as independent, non-executive directors of the Company on 19 August 2019. The Board are pleased that both Suzie and Andreas have agreed to join the Board. Suzie and Andreas bring significant knowledge and expertise from their respective backgrounds in asset management and banking and from having served on investment company boards. Further, bringing diversity and new perspectives to the Board, and combining these with the continuity provided by its existing directors, should prove valuable to the Company and its shareholders.
The Board encourages Shareholders to read the Group's quarterly fact sheets which we believe provide a great deal of interesting information and we hope these regular reports, in addition to the communication you receive from Nimrod, are useful and informative. We welcome Shareholder engagement and feedback and encourage you to contact Nimrod to request a meeting or relay your feedback.
On behalf of the Board, I would like to thank our service providers for all their help and, most importantly, Shareholders for their continuing support of the Company. I look forward to keeping all Shareholders up to date with further progress.
Charles Wilkinson
Chairman
21 November 2019
ASSET MANAGER'S REPORT
At the request of the Directors of the Company, this commentary has been provided by the Asset Manager of the Company.
1. The Assets
The Company acquired four Airbus A380 aircraft by the end of November 2013. Since delivery, each of the four aircraft has been leased to Emirates Airline ("Emirates") - the national carrier owned by the Investment Corporation of Dubai, based in Dubai, United Arab Emirates - for an initial term of 12 years with fixed lease rentals for the duration. In order to complete the purchase of the aircraft, DNA Alpha Ltd ("DNA Alpha"), a wholly owned subsidiary of the Company, issued two tranches of enhanced equipment trust certificates ("the Certificates" or "EETC") - a form of debt security - in July 2013 in the aggregate face amount of USD 630 million. The Certificates are admitted to the official list of the Euronext Dublin and to trading on the Main Securities market thereof. DNA Alpha used the proceeds from both the Equity and the Certificates to finance the acquisition of the four new Airbus A380 aircraft.
The four Airbus A380 aircraft bearing manufacturer's serial numbers (MSN) 132, 133, 134 and 136 recently visited Amman, Athens, Auckland, Jeddah, New York, and Sydney.
Aircraft utilisation for the period from delivery of each Airbus A380 until the end of September 2019 was as follows:
|
MSN |
Delivery Date |
Flight Hours |
Flight Cycles |
Average Flight Duration |
|
132 |
29/08/2013 |
29,292 |
3,422 |
8 h 35 min |
|
133 |
27/11/2013 |
29,627 |
3,137 |
9 h 25 min |
|
134 |
14/11/2013 |
27,809 |
2,965 |
9 h 25 min |
|
136 |
29/10/2013 |
29,187 |
3,091 |
9 h 25 min |
Maintenance Status
Emirates maintains its A380 aircraft fleet based on a maintenance programme according to which minor maintenance checks are performed every 1,500 flight hours, and more significant maintenance checks ("C checks") at 36-month or 18,000-flight hour intervals, whichever occurs first.
Emirates bears all costs relating to the aircraft during the lifetime of the leases (including for maintenance, repairs and insurance).
Inspections
The latest physical inspections and records audits where performed for MSN 132 in November 2018 and for MSNs 133, 134, and 136 in January 2019. The records and physical condition of the aircraft were in compliance with the provisions of the respective lease agreements.
2. Market Overview
According to the International Air Transport Association (IATA), industry-wide passenger traffic, measured in global revenue passenger kilometres (RPKs), grew at a rate of 4.7% between January and July 2019 against the same period in the year before. Growth in RPK has been running below the long-term average rate of 5.5% and IATA expects an annual growth of 5.0% for this year, largely due to declining growth in the Asia Pacific region. IATA notes that this slower growth trend is likely to continue against the backdrop of weaker growth in several large economies and a pick-up in global risks.
Industry-wide capacity, measured in available seat kilometres (ASKs), increased by 4.1% between January and July 2019 versus the first seven months of the previous year, resulting in a 0.5 percentage point increase in the worldwide passenger load factor (PLF) to 82.6%. So far in 2019, all regions have recorded modest capacity growth and high load factors with July's PLF of 85.7%, a new all-time high for any month of the year.
Passenger traffic in the Middle East increased by 1.5% between January and July 2019 against the same period in the previous year. Capacity grew by 0.7%, which resulted in a 0.7 percentage point increase in PLF to 76.0%. IATA's seasonally-adjusted data show a clear levelling off in passenger traffic volumes since the first half of 2018. This is attributable to the weakness in global trade, volatile oil prices and heightened geopolitical tensions.
European-based operators continue to be the top performers in overall market demand so far in 2019, as RPKs increased by 5.6% compared to the same period in the previous year. Latin America ranked second once again with 5.2% followed closely by the Asia Pacific region with 5.1%. Africa experienced an increase of 4.9% while North America saw positive growth at 4.0%.
© IATA, 2019. Air Passenger Market Analysis July 2019. All Rights Reserved. Available on the IATA Economics page.
3. Lessee - Emirates Key Financials
In the 2018/19 financial year ending on 31 March 2019, Emirates increased revenue by 6% to AED 98 billion (USD 26.7 billion) compared to the previous financial year. However, as operating costs rose by 8%, Emirates' net profit fell nearly 70% compared to last year to AED 871 million (USD 237.3 million). The decrease in profit was attributed to higher fuel prices, strong competition, and unfavourable foreign exchange effects.
Emirates overall passenger traffic grew marginally during the 2018/19 financial year with the airline carrying 58.6 million passengers. Passenger traffic, measured in RPKs, increased by 2.7%, while capacity, measured in ASKs, grew by 3.6%. This resulted in a passenger load factor of 76.8% compared to last year's 77.5%.
The rise in total operating costs was largely due to increasing fuel prices, which grew 22% over the financial year. This came on top of the 15% increase in fuel prices during the previous year. Fuel continued to be the largest cost component, making up 32% of the airline's total operating costs. Additionally, Emirates saw an AED 572 million (USD 155.9 million) negative impact on its financial results due to the strengthening of the US Dollar against many revenue generating currencies.
As of 31 March 2019, Emirates' balance sheet amounted to AED 127.4 billion (USD 34.7 billion), largely flat compared to the end of the previous financial year. Total equity increased marginally by 1.9% to AED 37.7 billion (USD 10.3 billion). The equity ratio remained stable at 29.6%. The airline's cash balance amounted to AED 17.0 billion (USD 4.6 billion) at the end of the financial year, down by AED 3.4 billion (USD 921.8 million) compared to the end of the previous financial year.
In the 2018/19 financial year, Emirates received 13 new aircraft - seven A380s and six Boeing 777-300ERs - and retired 11 older aircraft, bringing its fleet total to 270 as of 31 March 2019, including 12 freighters. The fleet roll-over resulted in an average fleet age of 6.1 years. In February 2019, Emirates signed a heads of agreement with Airbus to order 40 A330neos and 30 A350-900s to be delivered from 2021 and 2024 respectively. At the same time it adjusted its A380 order book position and will receive 14 more A380s from 2019 until the end of 2021, taking the total number of A380s delivered to Emirates to 123 aircraft. Emirates' latest report, however, omitted the USD 15 billion agreement for 40 Boeing 787-10 from the 2017 Dubai Air Show, which had previously been included in its 2017/18 financial report.
Emirates' half-year results for 2019/20 are expected to be released in November 2019.
According to Tim Clark, the airline's president, uncertainty over the status of key widebody programmes is preventing Emirates from revamping its orders with Airbus and Boeing. Delays in Boeing's 777X programme with Emirates as launch customer have prevented the airline from entering into discussions around contract adjustments or introducing new aircraft to existing
deals. Additionally, Emirates has delayed the firming up of its deal for A330neos and A350s, both of which are exclusively powered by Rolls-Royce, due to concerns about the engines' ability to meet its specific performance requirements. Setbacks in Rolls-Royce's programmes have led Emirates to demand definitive guarantees for trouble-free performance "from day one" before the airline will commit to any further orders.
Weeks before Emirates concluded the first six months of its 2019/20 financial year ending on 30 September 2019 Tim Clark provided some guidance on the expected financial results: "I'm pleased with our performance to date." At the same time he sees "difficulties" on multiple fronts including demand issues in South America with the collapsing peso in Argentina, challenges in Asia with the unrest in Hong Kong and the Brexit discussions in Europe. Emirates had also to manage the closure of one of its two runways at the airline's Dubai hub due to maintenance for a period of six weeks. Clark was in particular pleased with the operation to London, Emirates strongest A380 destination outside its Dubai hub, reporting a 93% load factor on the nine daily A380 flights the airline runs out of London Heathrow and London Gatwick. The latter airport is serviced by A380s with a 615 seat high-density configuration.
Source: Bloomberg, Cirium
4. Aircraft - A380
As of mid-September 2019, Emirates operated a fleet of 108 A380s, which currently serve 52 destinations within its global network via its hub in Dubai. A380 destinations include: Amsterdam, Athens, Auckland, Bangkok, Barcelona, Beijing, Birmingham, Brisbane, Casablanca, Christchurch, Copenhagen, Dusseldorf, Frankfurt, Guangzhou, Hamburg, Hong Kong, Houston, Johannesburg, Kuala Lumpur, Kuwait, London Gatwick, London Heathrow, Los Angeles, Madrid, Manchester, Mauritius, Melbourne, Milan, Moscow, Mumbai, Munich, Muscat, New York JFK, Nice, Osaka, Paris, Perth, Prague, Riyadh, Rome, San Francisco, Sao Paulo, Seoul, Shanghai, Singapore, Sydney, Taipei, Tokyo Narita, Toronto, Vienna, Washington, and Zurich.
Also as of mid-September 2019, the global A380 fleet consisted of 231 planes in commercial service. The fourteen operators are Emirates (108), Singapore Airlines (19), Deutsche Lufthansa (14), Qantas (12), British Airways (12), Korean Air Lines (10), Etihad Airways (10), Air France (10), Qatar Airways (10), Malaysia Airlines (6), Thai Airways (6), Asiana Airlines (6), China Southern Airlines (5), All Nippon Airways (2) and Hi Fly (1). Another six aircraft are listed as in storage, including four from Emirates, which were parked at Dubai-World Central International airport.
During the period under review the first two A380 part-outs have been initiated by Dr Peters Group, which estimates USD 45 million in revenue per aircraft from component sales alone due to the demand for parts from existing A380 operators preparing for upcoming maintenance events. Dr Peters estimates a total revenue as high as USD 80 million per aircraft. The engines are currently leased to Rolls-Royce through 2020, after which Dr Peters intends to sell the engines. The aircraft owned by the Company have Engine Alliance (EA) manufactured engines. In the event that these aircraft are parted out, it is not certain that the engines can be leased and the parts will be subject to market prices at that time.
Since 1 July, Emirates has been operating its shortest A380 route at just 340km (184nm). Twice-daily flights between Dubai and Oman's capital Muscat with A380s replacing the Boeing 777-300ERs, which served the route before. The announcement came a month after the launch of A380s operations on another short route between Dubai and the Saudi Arabian capital Riyadh (870km, 470nm). Emirates' shortest regular route for the A380 was previously Dubai-Kuwait, which covers a distance of roughly 850km (460nm). Emirates stated, "The new A380 services to Muscat demonstrate the airline's agile approach to fleet deployment and its commitment to providing an enhanced on-board experience for its passengers".
In July, Air France announced that it intends to retire its entire Airbus A380 fleet by 2022 and is studying options to replace the double-deck type with twinjets. The airline had previously announced plans to retire at least three of its 10 A380s, but has now approved "in principle" the retirement of the remaining aircraft. Five of the aircraft are owned by Air France, while the rest are on operating leases.
At the end of July, Flynas announced that it operated its first Haj pilgrims flight on A380s wet-leased from Malaysia Airlines. The Saudi carrier anticipates transporting 200,000 pilgrims from 17 countries.
In September, the Portuguese wet-lease operator Hi Fly confirmed its plans to acquire additional second-hand A380 aircraft. Chief executive Paulo Mirpuri stated "as more A380s become available, we will be taking more aircraft", further adding that the market would "say how many". The operator's current A380 has mainly been used for transatlantic flights, but has also been deployed on routes to South America, Indian Ocean destinations and during Operation Matterhorn involving the repatriation of Thomas Cook holiday makers back to the UK.
Also in September, Emirates' president Tim Clark stated that the airline is conducting a review of its fleet and network structure as it plans to start a gradual retirement of the A380 from its fleet. Noting that "this aircraft will still be flying in Emirates in 2035" Clark expects Emirates' A380 fleet to peak shortly and then stabilize at around 115 aircraft, before declining to about 90-100 by the mid-2020s. Two Emirates-owned A380s are earmarked to be withdrawn from service shortly and will serve as a spares source to meet upcoming overhaul requirements for its operational fleet. According to Tim Clark, the A380 will remain a pillar of Emirates' fleet mix for the next 15 years. However, Emirates has dropped plans to install new first class suites on its A380 aircraft, but will introduce new premium economy seats on its A380s towards the end of next year.
Source: Bloomberg, Cirium, Gulf News
DIRECTORS
Charles Edmund Wilkinson - Chairman (Independent non-executive director)
Charles Wilkinson is a solicitor who retired from Lawrence Graham LLP in March 2005. While at Lawrence Graham he specialised in corporate finance and commercial law, latterly concentrating on investment trust and fund work.
Charles is Chairman of Doric Nimrod Air One Limited, a director of Doric Nimrod Air Two Limited and a director of Landore Resources Ltd, a Guernsey based mining exploration company. He is resident in Guernsey.
Geoffrey Alan Hall (Independent non-executive director)
Geoffrey Hall has extensive experience in asset management, having previously been Chief Investment Officer of Allianz Insurance plc, a major UK general insurance company and an investment manager at HSBC Asset Management, County Investment Management, and British Railways Pension Funds. Geoffrey is also Chairman of Doric Nimrod Air Two Limited and a director of Doric Nimrod Air One Limited.
Geoffrey earned his masters degree in Geography at the University of London. He is an associate of the CFA Society of the UK. He is resident in the United Kingdom.
John Le Prevost (Independent non-executive director)
John Le Prevost is the Chief Executive Officer of Anson Group Limited and Chairman of Anson Registrars Limited (the Company's Registrar). He has spent over 30 years working in offshore trusts and investment business during which time he was Managing Director of County NatWest Investment Management (Channel Islands) Limited, Royal Bank of Canada's mutual fund company in Guernsey and Republic National Bank of New York's international trust company. John is a director of Guaranteed Investment Products I PCC Limited, Guernsey's largest protected cell company. He is a director of a number of other companies associated with Anson Group's business as well as being a trustee of the Guernsey Sailing Trust.
John is also a director of Doric Nimrod Air One Limited, Doric Nimrod Air Two Limited and Amedeo Air Four Plus Limited. He is resident in Guernsey.
Suzanne Elaine Procter (Independent non-executive director - appointed 19 August 2019)
Suzie Procter brings over 37 years' experience in financial markets, with specific expertise in asset management. She was previously a non-executive director of TR Property Investment Trust plc, an investment company listed on the FTSE 250 index. Her executive roles included Partner and member of the Executive Management Committee at Cantillon Capital Management LLC, Managing Director of Lazard Asset Management, Head of Institutional Sales at INVESCO Asset Management, Director and Head of Fixed Income Business at Pictet International Management Ltd and Head of Fixed Income at Midland Montagu Asset Management.
Suzie is also a director of Doric Nimrod Air One Limited and Doric Nimrod Air Two Limited. She is resident in the United Kingdom.
Andreas Josef Tautscher (Independent non-executive director - appointed 19 August 2019)
Andreas Tautscher brings over 30 years' financial services experience. He serves as a non- executive director and member of the Audit Committee of BH Global Limited, a Guernsey closed-ended investment company whose shares are traded on the Main Market of the London Stock Exchange. He is also a director and CEO of Altair Group, a leading
independent director services business in the Channel Islands. From 1994 to 2018 Andreas held various roles at Deutsche Bank and was most recently CEO of the Channel Islands and Head of Financial Intermediaries for EMEA. He was previously a non-executive director of the Virgin Group. Andreas qualified as a Chartered Accountant in 1994.
Andreas is also a director of Doric Nimrod Air One Limited and Doric Nimrod Air Two Limited. He is resident in Guernsey.
INTERIM MANAGEMENT REPORT
A description of important events which have occurred during the period from 1 April 2019 until 30 September 2019 (the "Period"), their impact on the performance of the Group as shown in the Consolidated Financial Statements and a description of the principal risks and uncertainties facing the Group is given in the Chairman's Statement, Asset Manager's Report, and the Notes to the Consolidated Financial Statements contained on pages 18 to 40 and are incorporated here by reference.
There were no material related party transactions which took place in the Period, other than those disclosed at note 23 of the Notes to the Consolidated Financial Statements.
Principal Risks and Uncertainties
The principal risks and uncertainties faced by the Company for the remaining six months of the financial year are unchanged from those disclosed in the Company's Annual Financial Report for the year ended 31 March 2019.
Going Concern
The Group's principal activities are set out within the Company Overview on pages 2 to 3. The financial position of the Group is set out on page 15. In addition, note 20 of the Notes to the Consolidated Financial Statements includes the Group's objectives, policies and processes for managing its capital, its financial risk management objectives and its exposures to credit risk and liquidity risk.
The Equipment Note payments have been fixed and the fixed rental income under the relevant operating leases means that the rents should be sufficient to repay the debt and provide surplus income to pay for the Group's expenses and permit payment of dividends.
After making reasonable enquiries, and taking into account the cash flow characteristics as described above, the Directors have a reasonable expectation that the Group has adequate resources to continue in its operational existence to the first lease maturity in August 2025. Accordingly, they continue to adopt the going concern basis of accounting in preparing these Consolidated Financial Statements.
Responsibility Statement
The Directors jointly and severally confirm that to the best of their knowledge:
a) the Consolidated Financial Statements, prepared in accordance with International Financial Reporting Standards ("IFRS") give a fair, balanced and understandable view of the assets, liabilities, financial position and profits of the Group and performance of the Group; and
b) this Interim Management Report includes or incorporates by reference:
a. an indication of important events that have occurred during the Period, and their impact on the Consolidated Financial Statements;
b. a description of the principal risks and uncertainties for the remaining six months of the financial year; and
c. confirmation that there were no related party transactions in the Period that have materially affected the financial position or the performance of the Company during that Period.
Signed on behalf of the Board of Directors of the Company on 21 November 2019
Charles Wilkinson
Chairman
21 November 2019
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the period from 1 April 2019 to 30 September 2019
|
|
|
|
1 Apr 2019 to |
|
1 Apr 2018 to |
|
|
|
Notes |
30 Sep 2019 |
|
30 Sep 2018 |
|
|
|
|
GBP |
|
GBP |
|
INCOME |
|
|
|
|
|
|
A rent income |
|
4 |
28,613,535 |
|
26,543,509 |
|
B rent income |
|
4 |
10,264,236 |
|
10,236,192 |
|
Bank interest received |
|
|
51,857 |
|
38,961 |
|
|
|
|
|
|
|
|
|
|
|
38,929,628 |
|
36,818,662 |
|
|
|
|
|
|
|
|
EXPENSES |
|
|
|
|
|
|
Operating expenses |
|
5 |
(769,234) |
|
(764,491) |
|
Depreciation of Aircraft |
|
10 |
(12,544,775) |
|
(14,973,332) |
|
|
|
|
|
|
|
|
|
|
|
(13,314,009) |
|
(15,737,823) |
|
|
|
|
|
|
|
|
Net profit for the period before finance costs and foreign exchange losses |
|
|
25,615,619 |
|
21,080,839 |
|
|
|
|
|
|
|
|
Finance costs |
|
11 |
(5,839,978) |
|
(7,400,827) |
|
|
|
|
|
|
|
|
Net profit for the period after finance costs before foreign exchange losses |
|
|
19,775,641 |
|
13,680,012 |
|
|
|
|
|
|
|
|
Unrealised foreign exchange loss |
|
7 |
(18,794,754) |
|
(24,027,151) |
|
|
|
|
|
|
|
|
Profit / (Loss) for the period |
|
|
980,887 |
|
(10,347,139) |
|
|
|
|
|
|
|
|
Other Comprehensive Income |
|
|
- |
|
- |
|
|
|
|
|
|
|
|
Total Comprehensive Income / (Loss) for the period |
|
|
980,887 |
|
(10,347,139) |
|
|
|
|
|
|
|
|
|
|
|
Pence |
|
Pence |
|
Earnings / (Loss) per Share for the period - Basic and Diluted |
|
9 |
0.45 |
|
(4.70) |
In arriving at the results for the financial period, all amounts above relate to continuing operations.
The notes on pages 18 to 40 form an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 September 2019
|
|
|
Notes |
|
30 Sep 2019 |
|
31 Mar 2019 |
|
|
|
|
|
GBP |
|
GBP |
|
NON-CURRENT ASSETS |
|
|
|
|
|
|
|
Aircraft |
|
10 |
|
476,973,926 |
|
489,518,701 |
|
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
Receivables |
|
13 |
|
38,724 |
|
58,040 |
|
Cash and cash equivalents |
|
18 |
|
13,515,735 |
|
13,113,249 |
|
|
|
|
|
13,554,459 |
|
13,171,289 |
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
|
|
490,528,385 |
|
502,689,990 |
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
Borrowings |
|
15 |
|
55,142,341 |
|
63,341,248 |
|
Deferred income |
|
|
|
3,184,479 |
|
3,184,479 |
|
Rebates |
|
16 |
|
381,116 |
|
367,220 |
|
Payables - due within one year |
|
14 |
|
62,426 |
|
63,185 |
|
|
|
|
|
58,770,362 |
|
66,956,132 |
|
NON-CURRENT LIABILITIES |
|
|
|
|
|
|
|
Borrowings |
|
15 |
|
135,328,431 |
|
147,163,601 |
|
Deferred income |
|
|
|
136,393,331 |
|
120,337,113 |
|
Rebates |
|
16 |
|
1,143,346 |
|
1,249,649 |
|
|
|
|
|
272,865,108 |
|
268,750,363 |
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
|
|
331,635,470 |
|
335,706,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL NET ASSETS |
|
|
|
158,892,915 |
|
166,983,495 |
|
|
|
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
|
|
Share capital |
|
17 |
|
208,953,833 |
|
208,953,833 |
|
Retained earnings |
|
|
|
(50,064,451) |
|
(41,970,338) |
|
|
|
|
|
|
|
|
|
|
|
|
|
158,889,382 |
|
166,983,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pence |
|
Pence |
|
Net Asset Value per Share based on 220,000,000 (31 Mar 2019: 220,000,000) shares in issue |
|
|
|
72.22 |
|
75.90 |
The consolidated financial statements were approved by the Board of Directors and authorised for issue on 21 November 2019 and are signed on its behalf by:
Charles Wilkinson Geoffrey Hall
Director Director
The notes on pages 18 to 40 form an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS |
|
|
|
|
For the period from 1 April 2019 to 30 September 2019 |
Notes |
1 Apr 2019 to |
1 Apr 2018 to |
|
OPERATING ACTIVITIES |
|
30 Sep 2019 GBP |
30 Sep 2018 GBP |
|
Profit / (loss) for the period |
|
980,887 |
(10,347,139) |
|
Movement in deferred income |
|
9,106,918 |
9,305,279 |
|
Interest received |
|
(51,857) |
(38,961) |
|
Depreciation of Aircraft |
10 |
12,544,775 |
14,973,332 |
|
Loan interest payable |
11 |
5,645,778 |
7,206,627 |
|
Increase / (decrease) in payables |
|
2,774 |
(12,178) |
|
Decrease in receivables |
|
19,316 |
20,716 |
|
Foreign exchange movement |
7 |
18,794,754 |
24,027,151 |
|
Amortisation of debt arrangement costs |
11 |
194,200 |
194,200 |
|
|
|
|
|
|
NET CASH FROM OPERATING ACTIVITIES |
|
47,237,545 |
45,329,027 |
|
INVESTING ACTIVITIES Interest received |
|
51,857 |
38,961 |
|
|
|
|
|
|
NET CASH FROM INVESTING ACTIVITIES |
|
51,857 |
38,961 |
|
FINANCING ACTIVITIES |
|
|
|
|
Dividends paid |
8 |
(9,075,000) |
(9,075,000) |
|
Repayments of capital on borrowings |
21 |
(32,362,298) |
(28,985,009) |
|
Payments of interest on borrowings |
21 |
(5,571,628) |
(7,039,875) |
|
|
|
|
|
|
NET CASH USED IN FINANCING ACTIVITIES |
|
(47,008,926) |
(45,099,884) |
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
|
13,113,249 |
12,408,778 |
|
Increase in cash and cash equivalents |
|
280,476 |
268,104 |
|
Effects of foreign exchange rates |
|
122,010 |
164,673 |
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
18 |
13,515,735 |
12,841,555 |
The notes on pages 18 to 40 form an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY |
|
For the period from 1 April 2019 to 30 September 2019 |
|
|
Notes |
Share |
|
Retained |
|
Total |
|
|
|
Capital |
|
Earnings |
|
|
|
|
|
GBP |
|
GBP |
|
GBP |
|
|
|
|
|
|
|
|
|
Balance as at 1 April 2019 |
|
208,953,833 |
|
(41,970,338) |
|
166,983,495 |
|
|
|
|
|
|
|
|
|
Total Comprehensive Income for the period |
|
- |
|
980,887 |
|
980,887 |
|
Dividends paid |
8 |
- |
|
(9,075,000) |
|
(9,075,000) |
|
|
|
|
|
|
|
|
|
Balance as at 30 September 2019 |
|
208,953,833 |
|
(50,064,451) |
|
158,889,382 |
|
|
|
|
|
|
|
|
|
|
|
Share |
|
Retained |
|
Total |
|
|
|
Capital |
|
Earnings |
|
|
|
|
|
GBP |
|
GBP |
|
GBP |
|
|
|
|
|
|
|
|
|
Balance as at 1 April 2018 |
|
208,953,833 |
|
(33,720,748) |
|
175,233,085 |
|
|
|
|
|
|
|
|
|
Total Comprehensive Loss for the period |
|
- |
|
(10,347,139) |
|
(10,347,139) |
|
Dividends paid |
8 |
- |
|
(9,075,000) |
|
(9,075,000) |
|
|
|
|
|
|
|
|
|
Balance as at 30 September 2018 |
|
208,953,833 |
|
(53,142,887) |
|
155,810,946 |
The notes on pages 18 to 40 form an integral part of these consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the period from 1 April 2019 to 30 September 2019
1 GENERAL INFORMATION
The consolidated financial statements incorporate the results of Doric Nimrod Air Three Limited (the "Company") and DNA Alpha Limited (the "Subsidiary") (together known as the "Group").
The Company was incorporated in Guernsey on 29 March 2012 with registered number 54908. The address of the registered office is given on page 41. Its share capital consists of one class of ordinary preference shares ("Shares") and one class of subordinated administrative shares ("Administrative Shares"). The Company's Shares have been admitted to trading on the Specialist Fund Segment (the "SFS") of the London Stock Exchange's Main Market.
The Company's investment objective is to obtain income returns and a capital return for its Shareholders by acquiring, leasing and then selling aircraft. The principal activities of the Company are set out in the Chairman's Statement and Asset Manager's Report on pages 4 to 5 and 6 to 9 respectively.
2 ACCOUNTING POLICIES
The significant accounting policies adopted by the Group are as follows:
(a) Basis of Preparation
The consolidated financial statements have been prepared in conformity with the International Accounting Standard 34 Interim Financial Reporting as adopted by the European Union ("EU"), and applicable Guernsey law. The consolidated financial statements have been prepared on a historical cost basis.
This report is to be read in conjunction with the annual financial report for the year ended 31 March 2019 which is prepared in accordance with the International Financial Reporting Standards ("IFRS") as adopted by the EU and any public announcements made by the Group during the interim reporting period.
The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period, except for the adoption of new and amended standards as set out below:
(b) Adoption of new and revised Standards
New and amended IFRS Standards that are effective for the current period
The following Standard and Interpretation issued by the International Accounting Standards Board ("IASB") and International Financial Reporting Standards Interpretations Committee ("IFRIC") has been adopted in the current period. The adoption has not had any impact on the amounts reported in these financial statements and is not expected to have any impact on future financial periods:
· IFRS 16 Leases - The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16's approach to lessor accounting substantially unchanged from its predecessor, IAS 17. Accordingly, the Company is not required to make any adjustments on transition to IFRS 16 and accounts for its leases in accordance with IFRS 16 from the date of initial application.
New and Revised Standards in issue but not yet effective
At the date of approval of these financial statements there were no standards and interpretations in issue but not yet effective, which were considered to be material to the Company.
(c) Basis of Consolidation
The consolidated financial statements incorporate the results of the Company and its Subsidiary. The Company owns 100 per cent. of all the shares in the Subsidiary and has the power to govern the financial and operating policies of the Subsidiary so as to obtain benefits from its activities. Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.
(d) Taxation
The Company and its Subsidiary have been assessed for tax at the Guernsey standard rate of 0 per cent.
(e) Share Capital
Shares are classified as equity. Incremental costs directly attributable to the issue of Shares are recognised as a deduction from equity.
(f) Expenses
All expenses are accounted for on an accruals basis.
(g) Interest Income
Interest income is accounted for on an accruals basis.
(h) Foreign Currency Translation
The currency of the primary economic environment in which the Group operates (the functional currency) is Pounds Sterling ("£" or "Sterling"), which is also the presentation currency.
Transactions denominated in foreign currencies are translated into Sterling at the rate of exchange ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the Consolidated Statement of Comprehensive Income.
(i) Cash and Cash Equivalents
Cash at bank and short term deposits which are held to maturity are carried at cost.
Cash and cash equivalents are defined as call deposits, short term deposits with a term of no more than three months from the start of the deposit and highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value.
(j) Segmental Reporting
The Directors are of the opinion that the Group is engaged in a single segment of business, being acquiring, leasing and selling various Airbus A380-861 aircraft (together the "Assets" and each an "Asset").
(k) Going Concern
After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Directors believe the Group is well placed to manage its business risks successfully despite the current economic climate as the loans and Equipment Notes interest has been fixed and the fixed A and B rental income under the operating leases with Emirates (the "Leases") means that the rents should be sufficient to repay the debt and provide surplus income to pay for the Group's expenses and permit payment of dividends. Accordingly, the Directors have adopted the going concern basis in preparing the consolidated financial statements.
Management is not aware of any material uncertainty that may cast significant doubt upon the Group's ability to continue as a going concern.
(l) Leasing and Rental Income
The leases relating to the Assets have been classified as operating leases as the terms of the leases do not transfer substantially all the risks and rewards of ownership to the lessee. The Assets are shown as non-current assets in the Consolidated Statement of Financial Position. Further details of the leases are given in note 12.
Rental income and advance lease payments from operating leases are recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased Asset and amortised on a straight-line basis over the lease term.
(m) Property, Plant and Equipment - Aircraft
In line with IAS 16 Property Plant and Equipment, each Asset is initially recorded at the fair value of the consideration paid. The cost of the Asset is made up of the purchase price of the Assets plus any costs directly attributable to bringing it into working condition for its intended use. Costs incurred by the lessee in maintaining, repairing or enhancing the aircraft are not recognised as they do not form part of the costs to the Group. Accumulated depreciation and any recognised impairment losses are deducted from cost to calculate the carrying amount of the Asset.
Depreciation is recognised so as to write off the cost of each Asset less the estimated residual value over the estimated useful life of the Asset of 12 years, using the straight line method. The estimated residual value of the four planes ranges from £80.6 million to £81.7 million (2018: £71.5 million to £72.4 million). Residual values have been arrived at by taking the average amount of three independent external valuers and after taking into account disposition fees. The Directors consider that the use of forecast base values excluding inflation best approximates residual value as required by IAS 16 Property, Plant and Equipment.
The depreciation method reflects the pattern of benefit consumption. The residual value is reviewed annually and is an estimate of the fair amount the entity would receive today if the asset were already of the age and condition expected at the end of its useful life. Useful life is also reviewed annually and for the purposes of the financial statements represents the likely period of the Group's ownership of these Assets. Depreciation starts when the Assets are available for use.
At each audited Consolidated Statement of Financial Position date, the Group reviews the carrying amounts of its Aircraft to determine whether there is any indication that those Assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the Asset is estimated to determine the extent of the impairment loss (if any). Further details are given in note 3.
Recoverable amount is the higher of fair value less costs to sell and the value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the Asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an Asset is estimated to be less than its carrying amount, the carrying amount of the Asset is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.
Where an impairment loss subsequently reverses, the carrying amount of the Asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the Asset in prior periods. A reversal of an impairment loss is recognised immediately in profit or loss.
(n) Financial instruments
A financial instrument is recognised when the Group becomes a party to the contractual provisions of the instrument. Financial liabilities are derecognised if the Group's obligations, specified in the contract, expire or are discharged or cancelled. Financial assets are derecognised if the Group's contractual rights to the cash flows from the financial assets expire, are extinguished, or if the Group transfers the financial assets to a third party and transfers all the risks and rewards of ownership of the asset, or if the Group does not retain control of the asset and transfers substantially all the risk and rewards of ownership of the asset.
Under IFRS 9, on initial recognition, a financial asset is classified as measured at:
- Amortised cost;
- Fair value through other comprehensive income ("FVOCI"); or
- Fair value through profit or loss ("FVTPL").
The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. The Group only has financial assets that are classified as amortised cost.
i) Financial assets held at amortised cost
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:
- it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
- its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. These assets are subsequently measured at amortised cost using the effective interest method. The effective interest method calculates the amortised cost of financial instruments and allocates the interest over the period of the instrument.
The Group's financial assets held at amortised cost include trade and other receivables and cash and cash equivalents.
The Group assesses on a forward looking basis the expected credit losses associated with its financial assets held at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk.
ii) Financial liabilities held at amortised cost
Financial liabilities consist of payables and borrowings. The classification of financial liabilities at initial recognition depends on the purpose for which the financial liability was issued and its characteristics. All financial liabilities are initially measured at fair value, net of transaction costs. All financial liabilities are recorded on the date on which the Group becomes party to the contractual requirements of the financial liability.
Financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of the financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire.
3 SIGNIFICANT JUDGEMENTS AND ESTIMATES
In the application of the Group's accounting policies, which are described in note 2, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
The following are the critical judgements and estimates that the Directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the consolidated financial statements.
Estimates
Residual Value and Useful Life of Aircraft
As described in note 2 (m), the Group depreciates the Assets on a straight line basis over the estimated useful life of the Assets after taking into consideration the estimated residual value. IAS 16 Property, Plant and Equipment requires residual value to be determined as an estimate of the amount that the Group would currently obtain from the disposal of the Asset, after deducting the estimated costs of disposal, if the Asset were of the age and condition expected at the end of its useful life. However, there are currently no aircraft of a similar type of sufficient age for the Directors to make a direct market comparison in making this estimation. After consulting with the Company's Advisors, the Directors have concluded that forecast base values, excluding inflationary effects (determined annually) for the Aircraft at the end of its useful life (excluding inflationary effects) best represents residual value, as required by a strict interpretation of relevant accounting standards. In estimating residual values, the Directors refer to forecast base values (excluding inflationary effects) for the Asset obtained from three independent expert aircraft valuers.
The estimation of residual value remains subject to inherent uncertainty. If the estimate of residual value had decreased by 20 per cent. with effect from the beginning of this period, the net profit for the period and closing shareholders' equity would have decreased by approximately £4.3 million (30 September 2018: £3.3 million). An increase in residual value by 20 per cent. would have had an equal but opposite effect. This reflects the range of estimates of residual value that the Directors believe would be reasonable at this time. The useful life of each Asset, for the purpose of depreciation of the asset under IAS 16, is estimated based on the expected period for which the Group will own and lease the Aircraft. The Board of Directors expects that the Aircraft will have a working life far in excess of this period.
Judgements
Operating Lease Commitments - Group as Lessor
The Group has entered into operating leases on four (31 Mar 2019: four) Assets. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, that it retains all the significant risks and rewards of ownership of these Assets and accounts for the contracts as operating leases.
The Group has determined that the operating leases on the Assets are for 12 years based on an initial term of 10 years followed by an extension term of 2 years. Should the lessee choose to exit a lease at the end of the initial term of 10 years an early termination payment equal to the present value of the Sterling rent that would have been payable for the extension term of 2 years would be due.
Impairment
As described in note 2(m), an impairment loss exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value-in-use. The Directors review the carrying amount of its Assets at each audited Statement of Financial Position date and monitor the Assets for any indications of impairment as required by IAS 16 Property, Plant and Equipment and IAS 36 Impairment of Assets.
In assessing value-in-use, the estimated future cash flows expected to be generated by the assets (ie the income streams associated with the lease and the expected future market value of the Aircraft at the end of the lease) are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the Assets.
In determining fair value less costs of disposal, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. Such valuation reflects the highest and best use of the Assets given the fact that the Aircraft are held for use in a leasing business.
Factors that are considered important which could trigger an impairment review include, but are not limited to, significant decline in the market value beyond that which would be expected from the passage of time or normal use, significant changes in the technology and regulatory environments, evidence from internal reporting which indicates that the economic performance of the Assets are, or will be, worse than expected.
The Board together with the Asset Manager believed that it was prudent to conduct an impairment test at the 31 March 2019 year end as the below items may result in pricing changes for the current portfolio of Aircraft:
· As further Airbus A380 aircraft reach comparable 12 year ages and exit their first lease agreements further market data may become available to Amedeo and the asset valuers.
· Lack of publicly available secondary market data for the specific aircraft.
· Changing technologies, market innovation and changes to key production programs as well as the success and / or failure as well as the timing of new aircraft model launches.
· Information regarding airbus cancellation of the A380 programme, creating uncertainty as to the liquidity of the future market for sale or re-lease.
The assessment was performed by comparing the net book value of the Aircraft to the higher of its respective fair value less costs to sell and value-in-use. In determining the value-in-use, the gross value of future contractual cash flows including a residual value assumption was discounted to present value, using the Group's discount rate, as the cash flows are contractual. Any assumptions with regards to issues in counterparty credit risk would be reflected in the discount rate used to calculate the net present value of future contractual cash flows. There were no indications at the 2019 year end that Emirates will default or that any of the Aircraft will not be marketable post lease. In determining the fair value less costs to sell, the current market value of the Aircraft was used, less estimated costs to dispose of the Aircraft.
The Asset Manager considered that 6.5 per cent. was the most appropriate discount rate for the following reasons;
· the discount rate should be a rate commensurate with what a normal market participant would consider to be the risk inherent in the assets; and
· the Aircraft are with Emirates, who is considered to have a low credit risk profile.
Based on the impairment review performed, the Directors were of the opinion that no impairment loss was required to be recognised at the 2019 year end.
In addition, these values have been tested for their sensitivity to the discount rate and the residual value, the following being the two largest inputs into the calculation:
· discount rates at -1 per cent. and +1 per cent. intervals have been tested on either side of the Group discount rate (6.5 per cent.); and
· A reduction of the residual value used in the calculation by 10 per cent. and 20 per cent. respectively.
The sensitivity test exhibited that the recoverable amount was greater than the net book value at the 2019 financial year end for the Aircraft, except when using an 8.5 per cent. or higher discount rate and a 20 per cent. or higher reduction in residual value, a situation the Asset Manager considers highly unlikely. As such, no impairment was identified.
The Board has considered the carry book value of its Aircraft and discussed whether in light of recent announcements since 1 April 2019, whether an impairment review needs to be carried out again at this juncture. On the advice of its Asset Manager, the conclusion reached was that whilst it would be wise not to lay too great a reliance on the current carry book value as a measure of net asset value for investment purposes, there were still too few new data points available on which a new appraisal at this time can be justified. The Company will again be carrying out a full and thorough appraisal of residual values come the next March financial year end.
4 RENTAL INCOME
|
|
1 Apr 2019 to |
|
1 Apr 2018 to |
|
|
30 Sep 2019 |
|
30 Sep 2018 |
|
|
GBP |
|
GBP |
|
A rent income |
37,748,498 |
|
35,848,788 |
|
Revenue received but not yet earned |
(24,410,141) |
|
(23,760,621) |
|
Revenue earned but not received |
13,830,109 |
|
13,006,965 |
|
Amortisation of advance rental income |
1,596,602 |
|
1,592,239 |
|
Deduction of rebate monies |
(151,533) |
|
(143,862) |
|
|
28,613,535 |
|
26,543,509 |
|
|
|
|
|
|
B rent income |
10,236,192 |
|
10,236,192 |
|
Revenue received but not yet earned |
(14,022) |
|
(27,968) |
|
Revenue earned but not yet received |
42,066 |
|
27,968 |
|
|
10,264,236 |
|
10,236,192 |
|
|
|
|
|
|
Total rental income |
38,877,771 |
|
36,779,701 |
Rental income is derived from the leasing of the Assets. Rent is split into A rent, which is received in US dollars ("$") and B rent, which is received in Sterling ("£" or "GBP"). Rental income received in US dollars is translated into the functional currency (Sterling) at the date of the transaction.
A and B rental income receivable will decrease / increase respectively, 10 years from the start of each lease. An adjustment has been made to spread the actual total income receivable over the term of the lease on an annual basis. In addition, advance rentals received have also been spread over the full term of the leases.
|
5 OPERATING EXPENSES |
|
|
|
|
|
1 Apr 2019 to |
|
1 Apr 2018 to |
|
|
30 Sep 2019 |
|
30 Sep 2018 |
|
|
GBP |
|
GBP |
|
Corporate shareholder and advisor fee (note 23) |
231,938 |
|
226,282 |
|
Asset Management fee (note 23) |
313,120 |
|
305,480 |
|
Liaison agent fee (note 23) |
34,791 |
|
33,942 |
|
Administration fees |
60,568 |
|
59,460 |
|
Bank interest & charges |
9,458 |
|
21,909 |
|
Accountancy fees |
11,627 |
|
11,387 |
|
Registrar fees (note 23) |
8,539 |
|
7,494 |
|
Audit fees |
16,950 |
|
17,650 |
|
Directors' remuneration (note 6) |
46,408 |
|
37,500 |
|
Directors' and Officers' insurance |
13,604 |
|
13,225 |
|
Legal and professional expenses |
12,044 |
|
12,769 |
|
Annual fees |
5,249 |
|
5,138 |
|
Travel expenses |
505 |
|
2,279 |
|
Other operating expenses |
4,433 |
|
9,976 |
|
|
|
|
|
|
|
769,234 |
|
764,491 |
6 DIRECTORS' REMUNERATION
Under their terms of appointment, each Director is paid a fee of £23,000 per annum by the Group, except for the Chairman, who receives £29,000 per annum and the Chair of Audit, who receives £27,000 per annum.
7 UNREALISED FOREIGN EXCHANGE LOSSES
|
|
1 Apr 2019 to 30 Sep 2019 GBP |
|
1 Apr 2018 to 30 Sep 2018 GBP |
|
|
Cash at bank |
122,010 |
|
164,673 |
|
|
Deferred income |
(6,949,300) |
|
(5,866,291) |
|
|
Borrowings |
(11,874,443) |
|
(18,189,958) |
|
|
Rebates |
(93,021) |
|
(135,575) |
|
|
|
|
(18,794,754) |
|
(24,027,151) |
8 DIVIDENDS IN RESPECT OF EQUITY SHARES
|
Dividends in respect of Shares |
1 Apr 2019 to |
|
|
30 Sep 2019 |
|
|
|
|
GBP |
|
Pence per |
|
|
|
|
|
|
share |
|
First interim dividend |
|
|
4,537,500 |
|
2.06 |
|
Second interim dividend |
|
|
4,537,500 |
|
2.06 |
|
|
|
|
|
|
|
|
|
|
|
9,075,000 |
|
4.12 |
|
Dividends in respect of Shares |
1 Apr 2018 to |
|
|
30 Sep 2018 |
|
|
|
|
GBP |
|
Pence per |
|
|
|
|
|
|
share |
|
First interim dividend |
|
|
4,537,500 |
|
2.06 |
|
Second interim dividend |
|
|
4,537,500 |
|
2.06 |
|
|
|
|
|
|
|
|
|
|
|
9,075,000 |
|
4.12 |
9 EARNINGS / (LOSS) PER SHARE
Earnings / (Loss) per Share (''EPS'' / ''LPS''') is based on the net profit for the period attributable to holders of Shares of the Company ("Shareholders") of £984,420 (30 September 2018: loss for the period of £10,347,139) and 220,000,000 (30 September 2018: 220,000,000) Shares being the weighted average number of Shares in issue during the period.
There are no dilutive instruments and therefore basic and diluted EPS / LPS are identical.
|
10 PROPERTY, PLANT AND EQUIPMENT - AIRCRAFT |
||||
|
|
|
|
TOTAL |
|
|
|
|
|
GBP |
|
|
COST |
|
|
|
|
|
As at 1 Apr 2019 |
|
|
618,050,915 |
|
|
|
|
|
|
|
|
As at 30 Sep 2019 |
|
|
618,050,915 |
|
|
|
|
|
|
|
|
ACCUMULATED DEPRECIATION |
|
|
|
|
|
As at 1 Apr 2019 |
|
|
128,532,214 |
|
|
Depreciation charge for the period |
|
|
12,544,775 |
|
|
|
|
|
|
|
|
As at 30 Sep 2019 |
|
|
141,076,989 |
|
|
|
|
|
|
|
|
CARRYING AMOUNT |
|
|
|
|
|
As at 30 Sep 2019 |
|
|
476,973,926 |
|
|
|
|
|
|
|
|
As at 31 Mar 2019 |
|
|
489,518,701 |
|
The Company is depreciating its aircraft so as to ensure that the carrying value of its aircraft at the termination of its lease equals the uninflated residual dollar value determined at 31 March 2019 in accordance with methodology set out in note 3, translated into Sterling at the exchange rate prevailing at 31 March 2019.
The Group can sell the Assets during the term of the leases (with the lease attached and in accordance with the terms of the transfer provisions contained therein).
Under IAS 17 the direct costs attributed in negotiating and arranging the operating leases have been added to the carrying amount of the leased asset and therefore will be recognised as an expense over the lease term. The costs have been allocated to each Aircraft based on the proportional cost of the Asset.
11 FINANCE COSTS
|
|
|
|
|
30 Sep 2019 |
|
30 Sep 2018 |
|
|
|
|
|
GBP |
|
GBP |
|
Amortisation of debt arrangements costs |
|
|
|
194,200 |
|
194,200 |
|
Interest payable |
|
|
|
5,645,778 |
|
7,206,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
5,839,978 |
|
7,400,827 |
12 OPERATING LEASES
The amounts of minimum future lease receipts at the reporting date under non-cancellable operating leases are detailed below:
|
30 September 2019 |
Next 12 |
|
|
|
|
|
|
|
|
months |
|
1 to 5 years |
|
After 5 years |
|
Total |
|
|
GBP |
|
GBP |
|
GBP |
|
GBP |
|
|
|
|
|
|
|
|
|
|
Aircraft- A rental receipts |
63,498,797 |
|
148,642,620 |
|
- |
|
212,141,417 |
|
Aircraft- B rental receipts |
20,472,384 |
|
81,889,536 |
|
20,481,768 |
|
122,843,688 |
|
|
|
|
|
|
|
|
|
|
|
83,971,181 |
|
230,532,156 |
|
20,481,768 |
|
334,985,105 |
|
|
|
|
|
|
|
|
|
|
31 March 2019 |
Next 12 |
|
|
|
|
|
|
|
|
months |
|
1 to 5 years |
|
After 5 years |
|
Total |
|
|
GBP |
|
GBP |
|
GBP |
|
GBP |
|
|
|
|
|
|
|
|
|
|
Aircraft- A rental receipts |
73,207,831 |
|
163,828,882 |
|
- |
|
237,036,713 |
|
Aircraft- B rental receipts |
20,472,384 |
|
81,889,536 |
|
30,717,960 |
|
133,079,880 |
|
|
|
|
|
|
|
|
|
|
|
93,680,215 |
|
245,718,418 |
|
30,717,960 |
|
370,116,593 |
The operating leases are for four Airbus A380-861 aircraft. The terms of the leases are as follows:
MSN132 - term of the lease is for 12 years ending August 2025. The initial lease is for 10 years ending August 2023, with an extension period of two years ending August 2025, in which rental payments reduce. The present value of the remaining rentals in the extension period at the end of the initial 10 year lease must be paid even if the option is not taken.
MSN133 - term of the lease is for 12 years ending November 2025. The initial lease is for 10 years ending November 2023, with an extension period of two years ending November 2025, in which rental payments reduce. The present value of the remaining rentals in the extension period at the end of the initial 10 year lease term must be paid even if the option is not taken.
MSN134 - term of the lease is for 12 years ending November 2025. The initial lease is for 10 years ending November 2023, with an extension period of two years ending November 2025, in which rental payments reduce. The present value of the remaining rentals in the extension period at the end of the initial 10 year lease term must be paid even if the option is not taken.
MSN136 - term of the lease is for 12 years ending October 2025. The initial lease is for 10 years ending October 2023, with an extension period of two years ending October 2025, in which rental payments reduce. The present value of the remaining rentals in the extension period at the end of the initial 10 year lease term must be paid even if the option is not taken.
At the end of each lease the lessee has the right to exercise an option to purchase the Asset if the Group chooses to sell the Asset. If a purchase option event occurs the Group and the lessee will be required to arrange for a current market value appraisal of the Asset to be carried out by three independent appraisers. The purchase price will be equal to the average valuation of those three appraisals.
13 RECEIVABLES
|
|
|
30 Sep 2019 |
|
31 Mar 2019 |
|
|
|
GBP |
|
GBP |
|
Prepayments |
|
38,684 |
|
58,000 |
|
Sundry debtors |
|
40 |
|
40 |
|
|
|
|
|
|
|
|
|
38,724 |
|
58,040 |
The above carrying value of receivables is equivalent to fair value.
14 PAYABLES (amounts falling due within one year)
|
|
|
30 Sep 2019 |
|
31 Mar 2019 |
|
|
|
GBP |
|
GBP |
|
Accrued administration fees |
|
12,032 |
|
11,785 |
|
Accrued audit fee |
|
16,950 |
|
20,160 |
|
Accrued registrar fees (note 23) |
|
1,690 |
|
1,390 |
|
Other accrued expenses |
|
35,287 |
|
29,850 |
|
|
|
|
|
|
|
|
|
65,959 |
|
63,185 |
The above carrying value of payables is equivalent to the fair value.
15 BORROWINGS
|
|
|
|
|
|
30 Sep 2019 |
|
31 Mar 2019 |
|
|
|
|
|
|
GBP |
|
GBP |
|
Equipment Notes |
|
|
|
|
192,820,267 |
|
213,048,544 |
|
Associated costs |
|
|
|
|
(2,349,495) |
|
(2,543,695) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
190,470,772 |
|
210,504,849 |
|
Current portion |
|
|
|
|
55,142,341 |
|
63,341,248 |
|
|
|
|
|
|
|
|
|
|
Non-current portion |
|
|
|
|
135,328,431 |
|
147,163,601 |
Notwithstanding the fact that £32.4 million capital was repaid during the period, as per the Consolidated Statement of Cash Flow, the value of the borrowings has only decreased by £20.2 million due to the 5.7 per cent. decrease in the Sterling / US dollar exchange rate for the period from 1 April 2019 to 30 September 2019.
The amounts below detail the future contractual undiscounted cash flows in respect of the loans and equipment notes, including both the principal and interest payments, and will not agree directly to the amounts recognised in the Consolidated Statement of Financial Position:
|
|
|
|
|
|
30 Sep 2019 |
|
31 Mar 2019 |
|
|
|
|
|
|
GBP |
|
GBP |
|
Amount due for settlement within 12 months |
63,869,734 |
|
73,198,230 |
|
|
|
|
|
|
Amount due for settlement after 12 months |
148,612,082 |
|
163,790,499 |
In order to finance the acquisition of the Assets, the Subsidiary used the proceeds of the August 2013 offering of Pass Through Certificates (the "Certificates"). The Certificates have an aggregate face amount of approximately $630 million, made up of "Class A" certificates and "Class B" certificates. The Class A certificates in aggregate have a face amount of $462 million with an interest rate of 5.250 per cent. and a final expected distribution date of 30 May 2023. The Class B certificates in aggregate have a face amount of $168 million with an interest rate of 6.125 per cent. and a final expected distribution date of 30 November 2019. There is a separate trust for each class of Certificate. The trusts used the funds from the Certificates to acquire equipment notes. The equipment notes were issued to Wilmington Trust, National Association as pass through trustee in exchange of the consideration paid by the purchasers of the Certificates.
The equipment notes were issued by the Subsidiary and the proceeds from the sale of the equipment notes financed a portion of the purchase price of the four airbus A380-861 Aircraft, with the remaining portion being financed through contribution from the Group of the Share issue proceeds. The holders of the equipment notes issued for each aircraft have the benefit of a security interest in such aircraft.
In the Directors' opinion, the carrying values of the equipment notes are approximate to their fair value.
16 REBATES
Upon entering into the leases it was agreed that the lessee would pay to the Group such amount as estimated to be necessary to fund the payment by the Group of certain costs, fees and expenses associated with the transactions arising from the leases. Following payment of the costs, fees and expenses, it was agreed that such amount paid by the lessee exceeded the amount actually necessary. It was agreed that the Group would return the excess to the lessee over the remaining life of the leases in May and November of each year. Upon any termination of a lease prior to its end the Group shall pay the entire remaining unpaid excess relating to such Aircraft to such account as is directed by the lessee, but without any interest accrued thereon.
17 SHARE CAPITAL
The Share Capital of the Company is represented by an unlimited number of shares of no par value being issued or reclassified by the Company as Shares or Administrative Shares.
|
Issued |
Administrative |
|
Shares |
|
|
Shares |
|
|
|
Issued shares as at 30 September 2019 and as at 31 March 2019 |
2 |
|
220,000,000 |
|
Issued |
Administrative |
|
Shares |
|
|
|
|
Shares |
|
|
|
Total |
|
|
GBP |
|
GBP |
|
GBP |
|
Ordinary Shares |
|
|
|
|
|
|
Share Capital as at 30 September 2019 and as at 31 March 2019 |
- |
|
208,953,833 |
|
208,953,833 |
Members holding Shares are entitled to receive and participate in any dividends out of income attributable to the Shares; other distributions of the Group available for such purposes and resolved to be distributed in respect of any accounting period; or other income or right to participate therein.
Upon winding up, Shareholders are entitled to the surplus assets attributable to the Share class remaining after payment of all the creditors of the Group. Members have the right to receive notice of and to attend, speak and vote at general meetings of the Group.
The holders of Administrative Shares are not entitled to receive, and participate in, any dividends out of income; other distributions of the Group available for such purposes and resolved to be distributed in respect of any accounting period; or other income or right to participate therein. On a winding up, holders are entitled to a return of capital paid up on them after the Shares have received a return of their capital paid up but ahead of the return of all additional capital to the holders of Shares.
The holders of Administrative Shares shall not have the right to receive notice of and no right to attend, speak and vote at general meetings of the Group, except for the Liquidation Proposal Meeting (general meeting convened six months before the end term of the Lease where the Liquidation Resolution will be proposed) or if there are no Shares in existence.
18 CASH AND CASH EQUIVALENTS
|
|
|
|
|
30 Sep 2019 |
|
31 Mar 2019 |
|
|
|
|
|
GBP |
|
GBP |
|
Cash at bank |
|
|
|
13,515,735 |
|
13,113,247 |
|
Cash deposits |
|
|
|
- |
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
13,515,735 |
|
13,113,249 |
Cash and cash equivalents are highly liquid, readily convertible and are subject to insignificant risk of changes in value
19 FINANCIAL INSTRUMENTS
The Group's main financial instruments comprise:
|
(a) Cash and cash equivalents that arise directly from the Group's operations; and |
|
|
|
(b) Debt secured on non-current assets. |
20 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group's objective is to obtain income and returns and a capital return for its Shareholders by acquiring, leasing and then selling aircraft.
The following table details the categories of financial assets and liabilities held by the Group at the reporting date:
|
|
|
30 Sep 2019 |
|
31 Mar 2019 |
|
|
|
GBP |
|
GBP |
|
Financial assets |
|
|
|
|
|
Cash and cash equivalents |
|
13,515,735 |
|
13,113,249 |
|
Receivables (excluding prepayments) |
|
40 |
|
40 |
|
|
|
|
|
|
|
Financial assets measured at amortised cost |
|
13,515,775 |
|
13,113,289 |
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
Payables |
|
65,959 |
|
63,185 |
|
Borrowings |
|
190,470,772 |
|
210,504,849 |
|
|
|
|
|
|
|
Financial liabilities measured at amortised cost |
|
190,536,731 |
|
210,568,034 |
The main risks arising from the Group's financial instruments are capital management risk, foreign currency risk, credit risk, liquidity risk and interest rate risk. The Board regularly review and agree policies for managing each of these risks and these are summarised below:
(a) Capital Management
The Group manages its capital to ensure that the Group will be able to continue as a going concern while maximising the return to Shareholders through the optimisation of the debt and equity balance.
The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 15, cash and cash equivalents and equity attributable to equity holders, comprising issued capital and retained earnings.
The Group's Board of Directors reviews the capital structure on a bi-annual basis.
Equity includes all capital and reserves of the Group that are managed as capital.
No changes were made in the objectives, policies or processes for managing capital during the period from 1 April 2019 to 30 September 2019 (None for the period from 1 April 2018 to 30 September 2018).
(b) Foreign Currency Risk
The Group's accounting policy under IFRS requires the use of a Sterling historic cost of the Assets and the value of the US dollar debt as translated at the spot exchange rate on every reporting date. In addition US dollar operating lease receivables are not immediately recognised in the statement of financial position and are accrued over the period of the leases. The Directors consider that this introduces an artificial variance due to the movement over time of foreign exchange rates. In actuality, the US dollar operating lease should offset the US dollar payables on amortising debt. The foreign exchange exposure in relation to the Equipment Notes is thus almost entirely hedged.
Lease rentals (as detailed in notes 4 and 12) are received in US dollar and Sterling. Those lease rentals received in US dollars are used to pay the equipment note repayments due, also in US dollars (as detailed in note 15). Both US dollar lease rentals and equipment note repayments are fixed and are for similar sums and similar timings. The matching of lease rentals to settle equipment note repayments therefore minimise risks caused by foreign exchange fluctuations.
The carrying amounts of the Group's foreign currency denominated monetary assets and liabilities at the reporting date are as follows:
|
|
|
30 Sep 2019 |
|
31 Mar 2019 |
|
|
|
GBP |
|
GBP |
|
Debt (US dollar) - Liabilities |
|
(192,820,267) |
|
(213,048,544) |
|
Cash and cash equivalents (US dollar) - Asset |
|
2,056,830 |
|
2,080,256 |
The following table details the Group's sensitivity to a 25 per cent. (31 March 2019: 25 per cent.) appreciation in Sterling against US dollar. 25 per cent. (31 March 2019: 25 per cent.) represents the Directors' assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 25 per cent. (31 March 2019: 25 per cent.) change in foreign currency rates. A positive number below indicates an increase in profit and other equity where Sterling strengthens 25 per cent. (31 March 2019: 25 per cent.) against US dollar. For a 25 per cent. (31 March 2019: 25 per cent.) weakening of the Sterling against US dollar, there would be a comparable but opposite impact on the profit and other equity:
|
|
|
30 Sep 2019 |
|
31 Mar 2019 |
|
|
|
US Dollar impact |
|
US Dollar impact |
|
|
|
GBP |
|
GBP |
|
Profit or loss |
|
38,152,687 |
|
42,193,658 |
|
Assets |
|
(411,366) |
|
(416,051) |
|
Liabilities |
|
38,564,053 |
|
42,609,709 |
On the eventual sale of the Assets, the Group will be subject to foreign currency risk if the sale will be made in a currency other than Sterling. Transactions in similar assets are typically priced in US dollars.
(c) Credit Risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group.
The credit risk on cash transactions is mitigated by transacting with counterparties that are regulated entities subject to prudential supervision, or with high credit ratings assigned by international credit rating agencies.
The Group's financial assets exposed to credit risk are as follows:
|
|
|
|
|
30 Sep 2019 |
|
31 Mar 2019 |
|
|
|
|
|
GBP |
|
GBP |
|
Receivables (excluding prepayments) |
|
|
|
40 |
|
40 |
|
Cash and cash equivalents |
|
|
|
13,515,735 |
|
13,113,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
13,515,775 |
|
13,113,289 |
Surplus cash in the Company is held with RBSI. Surplus cash in the Subsidiary is held in accounts with RBSI and Wilmington Trust. The banks have credit ratings given by Moody's of Aa3 (positive) and A2 (stable) respectively. The banks are shown as having a stable rating.
There is a contractual credit risk arising from the possibility that the lessee may default on the lease payments. This risk is mitigated, as under the terms of the lease agreements between the lessee and the Group, any non payment of the lease rentals constitutes a Special Termination Event, under which the lease terminates and the Group may either choose to sell the asset or lease the Assets to another party.
At the inception of each lease, the Group selected a lessee with a strong balance sheet and financial outlook. The financial strength of Emirates is regularly reviewed by the Board and the Asset Manager.
(d) Liquidity Risk
Liquidity risk is the risk that the Group will encounter difficulty in realising assets or otherwise raising funds to meet financial commitments. The Group's main financial commitments are its ongoing operating expenses and payments on equipment notes.
Ultimate responsibility for liquidity risk management rests with the Board, which established an appropriate liquidity management framework at the incorporation of the Group, through the timings of lease rentals and debt repayments. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and borrowing facilities, by monitoring forecast and actual cash flows, and by matching profiles of financial assets and liabilities.
The table below details the residual contractual maturities of financial liabilities. The amounts below are contractual undiscounted cash flows, including both the principal and interest payments, and will not agree directly to the amounts recognised in the statement of financial position:
|
|
1-3 |
|
3-12 months |
|
1-2 |
|
2-5 |
|
over 5 |
|
30 Sep 2019 |
GBP |
|
GBP |
|
GBP |
|
GBP |
|
GBP |
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
Payables - due within one year |
65,959 |
|
- |
|
- |
|
- |
|
- |
|
Equipment Notes |
38,748,464 |
|
25,121,270 |
|
49,949,053 |
|
98,663,028 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
38,814,423 |
|
25,121,270 |
|
49,949,053 |
|
98,663,028 |
|
- |
|
|
1-3 |
|
3-12 |
|
1-2 |
|
2-5 |
|
over 5 years |
|
31 Mar 2019 |
GBP |
|
GBP |
|
GBP |
|
GBP |
|
GBP |
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
Payables - due within one year |
63,185 |
|
- |
|
- |
|
- |
|
- |
|
Equipment Notes |
36,667,361 |
|
36,530,869 |
|
47,275,570 |
|
116,514,929 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
36,730,546 |
|
36,530,869 |
|
47,275,570 |
|
116,514,929 |
|
- |
(e) Interest Rate Risk
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows. It is the risk that fluctuations in market interest rates will result in a reduction in deposit interest earned on bank deposits held by the Group.
The Group mitigates interest rate risk by fixing the interest rate on the equipment notes debt and the lease rentals.
The following table details the Group's exposure to interest rate risks:
|
30 Sep 2019 |
|
Variable |
|
Fixed |
|
Non-interest |
|
Total |
|
|
|
interest |
|
interest |
|
Bearing |
|
|
|
|
|
GBP |
|
GBP |
|
GBP |
|
GBP |
|
|
|
|
|
|
|
|
|
|
|
Financial Assets |
|
|
|
|
|
|
|
|
|
Receivables (excluding prepayments) |
|
- |
|
- |
|
40 |
|
40 |
|
Cash and cash equivalents |
|
13,515,735 |
|
- |
|
- |
|
13,515,735 |
|
Total Financial Assets |
|
13,515,735 |
|
- |
|
40 |
|
13,515,775 |
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities |
|
|
|
|
|
|
|
|
|
Payables |
|
- |
|
- |
|
65,959 |
|
65,959 |
|
Equipment Notes |
|
- |
|
192,820,267 |
|
- |
|
192,820,267 |
|
Total Financial Liabilities |
|
- |
|
192,820,267 |
|
65,959 |
|
192,886,226 |
|
|
|
|
|
|
|
|
|
|
|
Total interest sensitivity gap |
|
13,515,735 |
|
192,820,267 |
|
|
|
|
|
31 Mar 2019 |
|
Variable |
|
Fixed |
|
Non-interest |
|
Total |
|
|
|
interest |
|
interest |
|
Bearing |
|
|
|
|
|
GBP |
|
GBP |
|
GBP |
|
GBP |
|
|
|
|
|
|
|
|
|
|
|
Financial Assets |
|
|
|
|
|
|
|
|
|
Receivables (excluding prepayments |
|
- |
|
- |
|
40 |
|
40 |
|
Cash and cash equivalents |
|
13,113,249 |
|
- |
|
- |
|
13,113,249 |
|
Total Financial Assets |
|
13,113,249 |
|
- |
|
40 |
|
13,113,289 |
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities |
|
|
|
|
|
|
|
|
|
Payables |
|
- |
|
- |
|
63,185 |
|
63,185 |
|
Equipment Notes |
|
- |
|
213,048,544 |
|
- |
|
213,048,544 |
|
Total Financial Liabilities |
|
- |
|
213,048,544 |
|
63,185 |
|
213,111,729 |
|
|
|
|
|
|
|
|
|
|
|
Total interest sensitivity gap |
|
13,113,249 |
|
213,048,544 |
|
|
|
|
If interest rates had been 50 basis points higher throughout the period, and all other variables were held constant, the Group's net assets attributable to shareholders as at 30 September 2019 would have been £67,579 (31 March 2019: £65,566) greater due to an increase in the amount of interest receivable on the bank balances.
If interest rates had been 50 basis points lower throughout the period and all other variables were held constant, the Group's net assets attributable to shareholders as at 30 September 2019 would have been £67,579 (31 March 2019: £65,566) lower due to a decrease in the amount of interest receivable on the bank balances.
21 CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES
The following table discloses the effects of the amendments to IAS 7 Statement of Cash Flows which requires additional disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash flows.
|
|
|
|
|
30 Sep 2019 |
|
30 Sep 2018 |
|
|
|
|
|
|
GBP |
|
GBP |
|
|
|
|
|
|
|
|
|
|
|
Opening Balance |
|
|
|
213,048,544 |
|
254,060,656 |
|
|
Cash flows paid - capital |
|
|
|
(32,362,298) |
|
(28,985,009) |
|
|
Cash flows paid - interest |
|
|
|
(5,571,628) |
|
(7,039,875) |
|
|
|
|
|
|
|
|
|
|
|
- Interest accrued |
|
|
|
5,645,778 |
|
7,206,627 |
|
|
- Rebates movement |
|
|
|
92,407 |
|
40,523 |
|
|
- Effects of foreign exchange - Rebates |
|
|
|
93,021 |
|
135,575 |
|
|
- Effects of foreign exchange - Loans |
|
|
|
11,874,443 |
|
18,189,958 |
|
|
Closing Balance |
|
|
|
192,820,267 |
|
243,608,455 |
|
22 ULTIMATE CONTROLLING PARTY
In the opinion of the Directors, the Group has no ultimate controlling party.
23 RELATED PARTY TRANSACTIONS AND MATERIAL CONTRACTS
Amedeo Management Limited ("Amedeo") has been appointed as the Group's Asset Manager.
During the period, the Group incurred £347,911 (30 September 2018: £340,934) of expenses with Amedeo, of which £313,120 (30 September 2018: £305,480) related to asset management fees as shown in note 5, £34,791 (30 September 2018: £33,942) was liaison agent fees and £nil (30 September 2018: £1,512) was reimbursed expenses. As at 30 September 2019, £17,396 (31 March 2019: £52,187) was prepaid to this related party.
Nimrod Capital LLP ("Nimrod") is the Group's Corporate and Shareholder Advisor.
During the period, the Group incurred £231,938 (30 September 2018: £231,466) of expenses with Nimrod, of which £nil (30 September 2018: £5,184) was reimbursed expenses and £231,938 (30 September 2018: £226,282) related to corporate shareholder and advisor fees as shown in note 5. As at 30 September 2019, £nil (31 March 2019: £nil) was owing to this related party.
John Le Prevost is a director of Anson Registrars Limited ("Anson"), the Company's registrar, transfer agent and paying agent. During the period £8,539 (30 September 2018: £7,494) of costs were incurred with ARL, of which £1,690 (31 March 2019: £1,390) was outstanding as at 30 September 2019.
24 SUBSEQUENT EVENTS
On 10 October 2019, a dividend of 2.0625 pence per Ordinary Share was declared and this was paid on 31 October 2019.
ADVISORS AND CONTACT INFORMATION
KEY INFORMATION
|
Exchange: Specialist Fund Segment of the London Stock Exchange's Main Market |
|
|
Ticker: DNA3 |
|
|
Listing Date: 2 July 2013 |
|
|
Financial Year End: 31 March |
|
|
Base Currency: GBP |
|
|
ISIN: GG00B92LHN58 |
|
|
SEDOL: B92LHN5 |
|
|
LEI: 213800BMYMCBKT5W8M49 |
|
|
Country of Incorporation: Guernsey |
|
|
Registration number: 54908 |
|
|
|
|
|
MANAGEMENT AND ADMINISTRATION |
|
|
|
|
|
Registered Office |
Secretary and Administrator |
|
Doric Nimrod Air Three Limited |
JTC Fund Solutions (Guernsey) Limited |
|
Ground Floor |
Ground Floor |
|
Dorey Court |
Dorey Court |
|
Admiral Park |
Admiral Park |
|
St Peter Port |
St Peter Port |
|
Guernsey, GY1 2HT |
Guernsey, GY1 2HT |
|
|
|
|
Asset Manager |
Liaison Agent |
|
Amedeo Management Limited |
Amedeo Services (UK) Limited |
|
The Oval |
29-30 Cornhill |
|
Shelbourne Road |
London |
|
Ballsbridge |
England |
|
Dublin 4, Ireland |
EC3V 3NF |
|
|
|
|
Corporate and Shareholder Advisor |
Registrar |
|
Nimrod Capital LLP |
Anson Registrars Limited |
|
3 St Helen's Place |
Ground Floor, Dorey Court |
|
London |
Admiral Park |
|
England |
St Peter Port |
|
EC3A 6AB |
Guernsey, GY1 2HT |
|
|
|
|
Lease and Debt Arranger |
Advocates to the Company (as to Guernsey Law) |
|
Amedeo Management Limited |
Carey Olsen |
|
The Oval |
Carey House |
|
Shelbourne Road |
Les Banques |
|
Ballsbridge |
St Peter Port |
|
Dublin 4, Ireland |
Guernsey, GY1 4BZ |
|
|
|
|
Auditor |
Solicitors to the Company (as to English Law) |
|
Deloitte LLP |
Herbert Smith Freehills LLP |
|
Regency Court |
Exchange House |
|
Glategny Esplanade |
Primrose Street |
|
St Peter Port |
London |
|
Guernsey, GY1 3HW |
England, EC2A 2HS |
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.
