TIDMDNA2
RNS Number : 2947Z
Doric Nimrod Air Two Limited
14 December 2017
DORIC NIMROD AIR TWO LIMITED (the "Company")
HALF YEARLY FINANCIAL REPORT
The Board of the Company is pleased to announce its results for
the period from 1 April 2017 to 30 September 2017.
To view the Company's half yearly financial report please visit
the Company's website, http://www.dnairtwo.com.
In addition, to comply with DTR 6.3.5(1) please find below the
full text of the half yearly financial report.
Enquiries:
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
Richard Bolchover
Marc Gordon
+44 (0) 20 7382 4565
E&OE - in transmission
SUMMARY INFORMATION
Listing Specialist Fund Segment of the London
Stock
Exchange's Main Market
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Ticker DNA2
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Share Price 225.13p (as at 30 September 2017)
205.25p (as at 11 December 2017)
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Market Capitalisation GBP 388.9 million (as at 30 September
2017)
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Aircraft Registration A6-EDP, A6-EDT, A6-EDX, A6-EDY, A6-EDZ,
Numbers A6-EEB,
A6-EEC
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Current/Future Anticipated Current dividends are 4.5p per quarter
Dividend per share (18p
per annum) and it is anticipated that
this will continue until the aircraft
leases begin to terminate in 2023.
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Dividend Payment Dates April, July, October, January
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Currency Sterling
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Launch Date/Price 14 July 2011 / 200p
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Incorporation and Domicile Guernsey
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Asset Manager Doric GmbH
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Corporate and Shareholder Nimrod Capital LLP
Advisor
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Administrator JTC Fund Solutions (Guernsey) Limited
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Auditor Deloitte LLP
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Market Makers Canaccord Genuity Limited
Jefferies International Limited
Numis Securities Limited
Shore Capital Limited
Winterflood Securities Limited
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SEDOL, ISIN B3Z6252, GG00B3Z62522
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Year End 31 March
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Stocks & Shares ISA Eligible
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Website www.dnairtwo.com
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COMPANY OVERVIEW
Doric Nimrod Air Two Limited (LSE Ticker: DNA2) ("DNA2" or the
"Company") is a Guernsey company incorporated on 31 January 2011.
Its Ordinary Shares were admitted to trading on the Specialist Fund
Segment ("SFS") of the London Stock Exchange's Main Market ("LSE")
on 14 July 2011.
The Company's total issued share capital consists of 172,750,000
Ordinary Shares (the "Shares"). As at 11 December 2017, the latest
practicable date prior to publication of this report, the Shares
were trading at 205.25 pence 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
"Aircraft" and together the "Assets" or "Aircraft"). The Company
receives income from the lease rentals paid to it by Emirates
Airline ("Emirates"), the national carrier owned by the Investment
Corporation of Dubai, based in Dubai, United Arab Emirates,
pursuant to the leases.
Subsidiaries
The Company has four wholly-owned subsidiaries; MSN077 Limited,
MSN090 Limited, MSN105 Limited and Doric Nimrod Air Finance Alpha
Limited ("DNAFA") which collectively hold the Assets for the
Company (together the Company and the subsidiaries are known as the
"Group").
The first Asset was acquired by MSN077 Limited on 14 October
2011 for a purchase price of USD 234 million and has been leased to
Emirates for an initial term of 12 years to October 2023, with
fixed lease rentals for the duration.
The second Asset was acquired by MSN090 Limited on 2 December
2011 for a purchase price of USD 234 million and has been leased to
Emirates for an initial term of 12 years to December 2023, with
fixed lease rentals for the duration.
The third Asset was acquired by MSN105 Limited on 1 October 2012
for a purchase price of USD 234 million and has been leased to
Emirates for an initial term of 12 years to October 2024.
In order to complete the purchase of the related Assets, MSN077
Limited, MSN090 and MSN105 Limited entered into separate loan
agreements with a number of banks (see Note 14), each of which will
be fully amortised with quarterly repayments in arrears over 12
years (each of them a "Loan", together the "Loans"). A fixed rate
of interest applies to the Loans except for 50% of the loan in
MSN090 which has a related interest rate swap entered into to fix
the interest rate. MSN077 Limited drew down USD 151,047,509 under
the terms of the first loan agreement to complete the purchase of
the first Asset; MSN090 Limited drew down USD 146,865,575 in
accordance with the second loan agreement to finance the
acquisition of the second Asset; and MSN105 Limited drew down USD
145,751,153 in accordance with the third loan agreement to finance
the acquisition of the third Asset. The first loan agreement, the
second loan agreement and the third loan agreement are on
materially the same terms.
The fourth, fifth, sixth and seventh Assets were acquired by
DNAFA using the proceeds of the issue of the C Shares, together
with the proceeds of Equipment Notes (the "Equipment Notes") issued
by DNAFA. The Equipment Notes were acquired by two separate pass
through trusts using the proceeds of their issue of enhanced
equipment trust certificates (the "Certificates"). The
Certificates, with an aggregate face amount of approximately USD
587.5 million were admitted to the Official List of the UK Listing
Authority and to the London Stock Exchange on
12 July 2012. These four Assets were also leased to Emirates for
an expected initial term of 12 years to the second half of 2024,
with fixed lease rentals for the duration.
Distribution Policy
The Company aims to provide its Shareholders with an attractive
total return comprising income from distributions through the
period of the Company's ownership of the Assets and capital upon
the sale of the Assets.
The Group receives income from the lease rentals paid by
Emirates pursuant to the relevant leases. It is anticipated that
income distributions will be made quarterly, subject to compliance
with applicable laws and regulations. The Company currently targets
a distribution of 4.50 pence per Share per quarter. Emirates bears
all costs (including maintenance, repair and insurance) relating to
the Aircraft during the lifetime of the leases.
There is no guarantee that dividends will be paid to
Shareholders, nor is there a guarantee of the timing or amount of
any such dividend. There is also no guarantee that the Company
will, at all times, satisfy the solvency test required by section
304 of 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
4.50 pence per Share. One interim dividend of 4.50 pence per Share
was declared after the reporting period. Further details of these
dividend payments can be found on page 26.
Return of Capital
In respect of any Asset, following the sale of that Asset, the
Directors may, either (i) return to Shareholders the net capital
proceeds, or (ii) re-invest such proceeds in accordance with the
Company's investment policy.
The Company intends to return to Shareholders 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 a solvency test contained
therein).
Liquidation Resolution
Although the Company does not have a fixed life, the Articles
require that the Directors convene a Liquidation Proposal Meeting
six months prior to the end of the last lease, where a Liquidation
Resolution will be proposed that the Company proceed to an orderly
wind-up. In the event that the Liquidation Resolution is not
passed, the Directors will consider alternatives for the Company
and shall propose such alternatives at a General Meeting of the
Shareholders, including re-leasing the Assets (to the extent the
Assets have not already been disposed of in the market), or selling
the Assets and applying the capital received from the sale of those
Assets to: (i) if applicable, the repayment of outstanding debt;
and (ii) reinvestment in other aircraft.
CHAIRMAN'S STATEMENT
I am very pleased to present Shareholders with the Company's
half-yearly consolidated financial report covering the period from
1 April 2017 until 30 September 2017 (the "Period").
I am glad to report that during the Period the Company has
performed as anticipated and has declared and paid quarterly
dividends of 4.5p per share as expected, representing 18p per share
annually.
The Group owns seven planes, funded in part by two equity
issues, a note issue and bank debt.
The Company's Asset Manager, Doric GmbH, continues to monitor
the lease performance and reports regularly to the Board. Nimrod
Capital LLP, the Company's Corporate and Shareholder Advisor,
continues to liaise between the Board and Shareholders, and to
distribute quarterly fact sheets.
According to the International Air Transport Association
("IATA"), 2017 is on course to be another year of strong traffic
growth with data for the month of August (measured in total revenue
passenger kilometers or RPKs) showing demand climbed 7.9% during
the year to date while the load factor climbed 1.1 percentage
points to 81.7%. During the first half of 2017, premium passenger
demand growth was stronger than economy seat demand in a number of
markets, particularly across the Pacific and within Asia. This is
consistent with the recent pick-up in global trade conditions,
which tends to correlate well with premium travel demand. By
contrast, premium demand lagged behind its economy counterpart in a
number of cases, notably between Europe and the Middle East.
Over the past year Middle Eastern carriers have faced a
multitude of challenges, including geo-political turbulence in
various parts of the world, heightened concern about immigration on
an international scale and enhanced security procedures impacting
operations to the US. Fortunately, in the latter case, some of
these headwinds are starting to ease during the period with the US
laptop ban being lifted fully during July.
In July, Emirates announced that it is entering a broad
partnership with low-cost operator Flydubai, which will include a
codeshare and optimisation of the airlines' networks. Both carriers
are government-owned, and the move aims to reduce unnecessary
competition, enabling Emirates to benefit from Flydubai's
single-aisle operations. Between them, the airlines operate routes
to 216 cities with networks that overlap to an extent. However,
they expect to be serving 240 destinations as a combined operation
by 2022, with a total fleet of 380 aircraft.
The Board took note of a number of A380-related information and
events, which became available or took place after September 30,
2017. This includes the return of the first A380, previously
operated by Singapore Airlines, to its lessor. The aircraft is
temporarily stored in Southern France, with the four engines leased
to manufacturer Rolls-Royce. Furthermore, it was noted that
Emirates did not commit to purchase additional A380 aircraft so
far. It was widely expected that Emirates would sign a
corresponding agreement at the Dubai Air Show in November this
year. The Board and its Asset Manager continue to monitor these
developments carefully.
In economic reality, the Company has also performed well. Two
interim dividends were declared in the half-year and future
dividends are targeted to be declared and paid on a quarterly
basis. However, as required by International Financial Reporting
Standards ("IFRS"), the financial statements do not in the Board's
view properly convey this economic reality due to the accounting
treatment for foreign exchange, rental income and finance
costs.
IFRS require that transactions denominated in US Dollars
(including, most importantly, the cost of the aircraft) are
translated into Sterling at the exchange rate ruling at the date of
the transaction whilst monetary items (principally the outstanding
borrowings) are translated at the rate prevailing on the reporting
date. The result is that the figures sometimes show very large
mismatches which are reported as unrealised foreign exchange
differences. When the lease matures and the debt is repaid these
foreign exchange differences will disappear.
On an on-going basis and assuming the lease and loan 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 pay debt repayments
due which are likewise denominated in US Dollars. US Dollar lease
rentals and debt repayments are furthermore fixed at the outset of
the Company's life and are very similar in amount and timing.
In addition to this, rental income receivable is credited evenly
to the Consolidated Statement of Comprehensive Income over the
planned life of the Company. 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
Consolidated Statement of Comprehensive Income, varies over the
term of the debt 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 Consolidated
Statement of Comprehensive Income) reduces over the course of 12
years. 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.
The Company produces a fact sheet on a quarterly basis which is
available on its website and which I encourage all shareholders to
view. On behalf of the Board, I would like to thank our service
providers for all their help and all Shareholders for their
continuing support of the Company.
Norbert Bannon
Chairman
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 a total of seven Airbus A380-861 aircraft
between October 2011 and November 2012. Each aircraft is 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 from the point of
delivery, with fixed lease rentals for the duration. In order to
complete the purchase of the first three aircraft, MSN077 Limited,
MSN090 Limited and MSN105 Limited entered into three separate
loans, each of which will be fully amortised with quarterly
repayments in arrear over 12 years.
The net proceeds from the C Share issue ("the Equity") were used
to partially fund the purchase of four of the seven Airbus A380s.
In order to help fund the acquisition of these final four aircraft,
DNAFA issued two tranches of enhanced equipment trust certificates
("the Certificates" or "EETC") - a form of debt security - in June
2012 in the aggregate face value of USD 587.5 million. DNAFA used
the proceeds from both the Equity and the Certificates to finance
the acquisition of four new Airbus A380 aircraft leased to
Emirates.
The seven Airbus A380 aircraft bearing manufacturer's serial
numbers (MSN) 077, 090, 105, 106, 107, 109 and 110.
The seven A380s owned by the Company recently visited Abu Dhabi,
Amsterdam, Auckland, Bangkok, Barcelona, Bangkok, Beijing,
Brisbane, Casablanca, Dublin, Frankfurt, Guangzhou, Hong Kong,
Jeddah, Kuala Lumpur, Kuwait City, London Heathrow, Madrid,
Melbourne, Milan, Moscow, Munich, New York JFK, Paris, Perth, Port
Louis, Rome, Seoul, Shanghai, Sydney, Tokyo, Washington and
Zurich.
Aircraft utilisation for the period from delivery of each Airbus
A380 until the end of September 2017 was as follows:
MSN Delivery Date Flight Hours Flight Cycles Average Flight Duration
---- -------------- ------------- -------------- ------------------------
077 14/10/2011 27,578 3,257 8 h 30 min
---- -------------- ------------- -------------- ------------------------
090 02/12/2011 24,617 4,070 6 h 5 min
---- -------------- ------------- -------------- ------------------------
105 01/10/2012 22,074 3,567 6 h 10 min
---- -------------- ------------- -------------- ------------------------
106 01/10/2012 24,361 2,825 8 h 40 min
---- -------------- ------------- -------------- ------------------------
107 12/10/2012 23,989 2,808 8 h 35 min
---- -------------- ------------- -------------- ------------------------
109 09/11/2012 21,038 3,377 6 h 15 min
---- -------------- ------------- -------------- ------------------------
110 30/11/2012 21,383 3,546 6 h
---- -------------- ------------- -------------- ------------------------
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 24 month or 12,000 flight hour
intervals, whichever occurs first. Emirates bears all costs
relating to the aircraft during the lifetime of the lease
(including maintenance, repairs and insurance).
Inspections
Doric, the asset manager, performed inspections of MSN 106 in
April 2017 and MSN 077 in May 2017. The physical condition of each
aircraft was in compliance with the provisions of the respective
lease agreements.
Doric performed record audits for MSNs 105, 106 and 107 in
September 2017. The lessee was again very helpful in the responses
given to the asset manager's technical staff, and the technical
documentation was found to be in good order. Also in September
2017, the asset manager performed an inspection of MSN 109. The
physical condition of the aircraft was in compliance with the
provisions of the lease agreement.
2. Market Overview
In the first seven months of 2017, global revenue passenger
kilometres (RPKs) grew by 7.7% compared to the same period in the
previous year. The robust end to 2016 provided for a favourable
start for RPK growth rates in 2017. However, IATA notes that the
upward trend in seasonally-adjusted (SA) passenger traffic has
slowed since the end of 2016. While industry-wide RPKs were growing
at an annualized rate of more than 12% coming into 2017, that
growth has begun to slow to around 6% over the past three months.
This annualized growth rate is between its five-year and ten-year
averages (6.4% and 5.5%, respectively).
During the first seven months of this year, industry-wide
available seat kilometres (ASKs) increased by 6.1%. As ASKs and
RPKs have trended upward at similar rates, the global passenger
load factor (PLF) rose by 1.2 percentage points in the first seven
months of 2017, resulting in a PLF of 81.3%. All regions, except
for the Middle East, recorded increases in PLF in the first seven
months of 2017 compared to the same period in 2016. PLF in the
Middle East decreased by 0.2 percentage points to 74.7% during this
period.
International RPKs flown by Middle Eastern airlines have grown
by 7.0% in the first seven months of 2017, compared with the
five-year average of 11.2%. Adjusting for the later timing of Eid
this year, a Muslim holiday at the end of Ramadan, SA traffic
volumes are still level with where they started this year. In
particular, the Middle East to North America market continues to
feel the effects of a combination of factors, including the
(recently-lifted) ban on personal electronic devices (PED) as well
as the proposed travel bans to the US. Traffic growth on the
segment was already slowing in early-2017, in line with the slowing
growth rate of non-stop services flown by the largest Middle
Eastern airlines. However, in June, RPKs on these routes between
the Middle East and North America fell for the fourth consecutive
month in year-on-year terms (-6.8%).
With an RPK growth of 10.2% until July 2017 Asia/Pacific-based
operators outperformed the overall market demand this year. Europe
ranked second with 8.6% and Africa third with 7.7%, ahead of Latin
America (6.8%). With a combined domestic and international RPK
growth of 6.7% the Middle East reached the second-last place, with
North America achieving 3.9%.
For 2017, IATA forecasts that the airlines fuel bill will rise
to USD 129 billion and represent 18.8% of average operating costs.
As jet fuel prices have begun to rise with oil prices, IATA expects
an average price of USD 64 per barrel of jet fuel during 2017.
(c) International Air Transport Association, 2017. Air Passenger
Market Analysis July 2017, Air Passenger Market Analysis June 2017,
Economic Performance of the Airline Industry, 2017 Mid-Year Report.
All Rights Reserved. Available on the IATA Economics page.
3. Lessee - Emirates Key Financials
In the 2016/17 financial year ending on 31 March 2017, Emirates
recorded the 29(th) consecutive year of profit with a net result of
USD 340 million (AED 1,250 million), down 82% compared to the
previous financial year. The net profit margin was 1.5%, down by 7
percentage points. Revenue for the period remained unchanged at USD
23.2 billion (AED 85.1 billion). However, lower results were to be
expected as Emirates' president Tim Clark hinted earlier in March
2017 that the increased volatility in the market had affected
Emirates' performance. His Highness Sheikh Ahmed bin Saeed Al
Maktoum, Chairman and Chief Executive of Emirates, listed a number
of destabilizing events, which impacted travel demand during the
year: the Brexit vote, Europe's immigration challenges and terror
attacks, new policies impacting air travel into the US, and
currency devaluation. He deemed the past fiscal year as "one of our
most challenging years to date".
In the face of these challenges, Emirates increased its
passenger numbers, RPKs and cargo carried during the 2016/17
financial year. Emirates carried a record 56.1 million passengers
(8.1% more than in the previous fiscal year), increased capacity
for passengers (measured in ASK) by 10.3% and increased RPKs by
8.4%. As a result, the passenger seat factor dropped by 1.4
percentage points to 75.1%. In the 2016/17 annual report it was
noted that seat factor on the Emirates' A380 fleet was high - and a
testament of the customer preference for this aircraft. The share
of passengers carried by Emirates A380 aircraft increased by 5
percentage points to 37%.
The costs resulting from the ongoing efforts to expand capacity
contributed to a 7.7% increase in operating costs. While fuel
prices fell by 2%, an 8% uplift in line with the capacity increase
led the airline's fuel bill to increase 6%. Fuel costs as a
percentage of operating costs only slightly decreased from 25.7% to
25.4% during the reporting period, remaining the biggest cost
component for the airline, followed by personnel costs. The overall
increase in operating costs is marginally higher than the capacity
growth of 7.2%.
As of 31 March 2017, the balance sheet totalled USD 33.1 billion
(AED 121.6 billion), an increase of 2% compared to the previous
financial year. Total equity increased by 8.3% to USD 9.6 billion
(AED 35.1 billion) with an equity ratio of nearly 29%. The carrier
had a cash balance of USD 4.3 billion (AED 15.7 billion) at the end
of the period, down by USD 1.2 billion (AED 4.3 billion) compared
to the previous financial year. This included the repayment in the
amount of USD 1.1 billion. The current ratio stood at 0.73, meaning
the airline would be able to meet nearly three-quarters of its
current liabilities by liquidating all its current assets.
Significant items on the liabilities' side of the balance sheet
included current and non-current borrowings and lease liabilities
in the amount of USD 13.9 billion - an increase of 1.8% against the
previous financial year.
In line with its strategy to increase capacity through a young
and efficient fleet, Emirates received a record number of 35
wide-body aircraft, consisting of 19 Airbus A380 and 16 Boeing
777-300ER, during the 2016/2017 financial year. At the same time,
the airline also retired 27 older aircraft, bringing the average
fleet age of six years two months down to five years three months,
which is well below the industry average of nearly 12 years. To
fund its fleet growth, Emirates raised USD 7.9 billion (AED 29.1
billion) during the financial year through finance and operating
leases as well as term loans. Over the last ten years, the operator
raised more than USD 47.3 billion (AED 173.7 billion) for aircraft
financing.
In the 2016/17 financial year, Emirates launched services to six
new passenger points (Yinchuan and Zhengzhou in China, Yangon in
Myanmar, Hanoi in Vietnam, Fort Lauderdale and Newark in the US).
These new destinations add to Emirates' well-balanced regional
distribution, whereby no region represents more than 30 percent of
overall revenues. In line with increased demand, the operator added
frequencies and increased capacity to several existing destinations
of its global route network, which spanned 156 destinations in 83
countries by fiscal year end.
In June, the airline won the World's Best Inflight Entertainment
award for a record 13(th) year at this year's Skytrax World Airline
Awards, which are considered a global benchmark of airline
excellence. Nearly 20 million passengers reviewed over 320
airlines.
In July, Emirates announced that it is entering a broad
partnership with low-cost operator Flydubai, which will include a
codeshare and optimization of the airlines' networks. Both carriers
are government-owned, and the move aims to reduce unnecessary
competition, enabling Emirates to benefit from Flydubai's
single-aisle operations. Between them, the airlines operate routes
to 216 cities with networks that overlap to an extent. However,
they expect to be serving 240 destinations as a combined operation
by 2022, with a total fleet of 380 aircraft.
In August 2017 Moody's Investors Service (Moody's) downgraded
its Class A rating assigned to the Certificates issued by DNAFA, a
subsidiary of the Company, to Baa1 from A3. The Class B rating
remains unchanged and the rating outlook is stable. According to
Moody's, the downgrade reflects that the market for the A380 has
weakened since the transaction was first rated in 2012, which
increases market risk and potentially, the sufficiency of
collateral coverage under a certificate default scenario. It was
further confirmed, that Moody's long-term view on the credit
quality of the airline remains unchanged from the time the EETC
rating was assigned. Moody's also used delivery date values that
were approximately 20% (USD 45 million per aircraft) below the
lower of mean or median values of the transaction appraisers when
rating these transactions. Moody's expects improvements in the
equity cushions with upcoming amortization payments and the rating
agency expects that the A380 will remain integral part to the
carrier's network
strategy.
Market data from Reuters indicate that the downgrade by one
notch did not result in an increased risk perception of potential
investors in the EETC issuance of the Company. The spread in the
market over the interbank swap rate for the corresponding weighted
average life has actually narrowed for both the Class A and Class B
Certificates post the rating downgrade.
Source: ch-aviation, CNN, Emirates, FlightGlobal, Moody's
Investors Service, Reuters.
4. Aircraft - A380
By mid-September 2017, Emirates operated a fleet of 97 A380s,
which currently serve 47 destinations within its global network via
its hub in Dubai. A380 destinations include: Amsterdam, Auckland,
Bangkok, Barcelona, Beijing, Birmingham, Brisbane, Casablanca,
Christchurch, Copenhagen, Doha, Dusseldorf, Frankfurt, Guangzhou,
Hong Kong, Johannesburg, Kuala Lumpur, Kuwait, London Gatwick,
London Heathrow, Los Angeles, Madrid, Manchester, Mauritius,
Melbourne, Milan, Moscow, Mumbai, Munich, New York JFK, Nice,
Paris, Perth, Prague, Rome, San Francisco, Sao Paulo, Seoul,
Shanghai, Singapore, Sydney, Taipei, Tokyo, Toronto, Vienna,
Washington, and Zurich.
As of mid-September 2017, the global A380 fleet consisted of 215
commercially operated planes in service. The 13 operators are
Emirates (97), Singapore Airlines (19), Deutsche Lufthansa (14),
Qantas (12), British Airways (12), Air France (ten), Korean Air
Lines (ten), Etihad Airways (ten) Malaysia Airlines (six), Qatar
Airways (eight), Thai Airways (six), China Southern Airlines
(five), and Asiana Airlines (six). The number of undelivered A380
orders stood at 102.
Singapore Airlines are taking delivery of five new A380s, three
by March 2018 and two during the remainder of 2018. However,
Singapore Airlines confirmed that it will phase out four of its
oldest A380 superjumbo jets by the end of March 2018. These
aircraft, which were leased for a period of ten years, will be one
of the first to test the second hand market for this type.
Qantas is planning on moving two A380s onto Asian routes in the
next year, once its Boeing 787-9s take over the services between
Melbourne and London in March 2018. The chief executive officer of
Qantas International, Gareth Evans, stated that the carrier plans
on using the additional capacity from the A380s during periods of
higher demand on its Asian network. The nominated destinations,
with high peak periods, include Singapore and Hong Kong.
At the sidelines of the Paris Air Show, Malaysia Airlines (MAS)
provided an update regarding the charter business with religious
pilgrimage flights which MAS intends to run in a subsidiary with a
separate Malaysian air operator certificate: "We've already signed
contracts in the last couple of weeks with operators to do a
significant amount of work", said Peter Bellew, the then CEO of
MAS. Furthermore, he was very positive about the future of the A380
in general. "The airframes are spotless. I think these A380s are
going to be flying still in 40 years' time, a bit like the 707s
that are still flying in America, nearly 55-60 years later. I think
the A380 will end up being like that.". An aircraft like the A380
makes "incredible financial sense" from his point of view, "because
the fuel is not going to be the blocker in the utilization of these
aircraft".
Emirates expects the delivery of its 100(th) A380 later this
year. The increasing number of superjumbos allows the airline to
increase the number of A380 destinations as well as frequency on
existing routes: From March 2018, the carrier will add a fourth
daily A380 service from Dubai to Sydney, which will increase the
capacity for Emirates' Australian services by more than 7%. Also
from March 2018, the carrier will upgrade its third daily flight
between Dubai and Melbourne from a Boeing 777-300ER to an A380.
From October this year, Emirates will make its second daily flight
to Moscow an A380 service. On 29 October 2017, Emirates launched a
second daily A380 service between Dubai and Birmingham. The
decision was based on the high demand from passengers wanting to
travel with the iconic aircraft. A total of 300,000 passengers have
already flown on the aircraft between the two cities since 27 March
2016. Additionally, due to the high customer demand, Emirates
replaced the current Boeing 777-300ER operations with two more
superjumbos to Beijing and Shanghai on 1 July 2017. This move
increased the capacity and opportunity for passengers heading to
either destination. In August 2017, Emirates commenced Hajj
services. The airline operated 45 additional flights to Jeddah and
12 additional flights to Medina between 17 August 2017 and 11
September 2017, in addition to its regular three time daily Jeddah
and twice daily Medina frequencies. The A380 was used to support
the increased demand to Medina during this time. Emirates
anticipated a total of 2 million pilgrims traveling to Mecca,
20,000 of which would fly with Emirates from destinations such as
Yangon, Manchester, Mauritius, Jakarta, Karachi, Lagos and
Nairobi.
Speaking during the Aviation Festival event in London on 7
September, Emirates president Tim Clark stated that the airline
will capitalize on its flexibility in order to compete with
long-haul, low-cost operators. Clark noted that Emirates' fleet of
97 A380s would enable the airline to "compartmentalise" by offering
"three or four economy classes" on the main deck alone. This would
allow Emirates to match long-haul, low-cost operators in their base
price while still being to offer additional enhancements.
This summer, Airbus presented a development study for an
enhanced A380, called "A380plus". It includes aerodynamic
improvements like large winglets. An optimised cabin layout would
allow up to 80 additional seats.
As a result of weak sales, Airbus announced that it will cut
A380 deliveries in 2019 to eight aircraft. The production rate for
2018 remains at 12 aircraft. Airbus is expecting only a relatively
small impact from the cut in production rate, as a result of its
continuing effort to bring down fixed costs associated with the
programme.
Source: Ascend, Aviation Week, Bloomberg, CAPA, Emirates,
FlightGlobal, iflyA380, MarketWatch, Reuters.
Disclaimer:
This document is issued by Doric Nimrod Air Two Limited (the
"Company") to and for the information of its existing shareholders
and does not in any jurisdiction constitute investment advice or an
invitation to invest in the shares of the Company. The Company has
used reasonable care to ensure that the information included in
this document is accurate at the date of its issue but does not
undertake to update or revise the information, including any
information provided by the Asset Manager, or guarantee the
accuracy of such information.
To the extent permitted by law neither the Company nor the Asset
Manager nor their directors or officers shall be liable for any
loss or damage that anyone may suffer in reliance on such
information. Past performance cannot be relied on as a guide to
future performance. The value of an investment may go down as well
as up and some or all of the total amount invested may be lost.
DIRECTORS
Norbert Bannon - Chairman (Age 68)
Norbert Bannon is chairman of a large UK DB pension fund, a
major Irish DC pension scheme and is a director of and advisor to a
number of other financial companies. He is Chairman of the Audit
Committees of Doric Nimrod Air One Limited and Doric Nimrod Air
Three Limited. He has extensive experience in international finance
having been CEO of banks in Singapore and New York. He was CEO of
Ireland's largest venture capital company and was finance director
and Chief Risk Officer at a leading investment bank in Ireland. He
has worked as a consultant on risk issues internationally.
He earned a degree in economics from Queen's University, studied
at Stanford Graduate School of Business and is a Chartered
Accountant.
Charles Edmund Wilkinson (Age 74)
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 currently Chairman of the Boards of Doric Nimrod Air
One Limited and Doric Nimrod Air Three Limited and a Director of
Landore Resources Ltd, a Guernsey based mining exploration company.
He is resident in Guernsey.
Geoffrey Alan Hall (Age 69)
Geoffrey Hall has extensive experience in investment 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
currently a director of Doric Nimrod Air One Limited and Doric
Nimrod Air Three Limited.
Geoffrey earned his masters degree in Geography at the
University of London. He is an associate of the CFA Society of the
UK.
John Le Prevost (Age 66)
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 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
currently a director of Doric Nimrod Air One Limited, Doric Nimrod
Air Three Limited and Amedeo Air Four Plus Limited. He is resident
in Guernsey.
INTERIM MANAGEMENT REPORT
A description of important events which have occurred during the
Period, their impact on the performance of the Group as shown in
the 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 Financial
Statements contained on pages 19 to 42 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 21 of the
Notes to the Financial Statements.
Principal Risks and Uncertainties
The principal risks and uncertainties faced by the Company are
unchanged from those disclosed in the Company's annual financial
report for the year ended 31 March 2017.
Going Concern
The Company's principal activities are set out within the
Company Overview on pages 2 to
4. The financial position of the Group is set out on page 15 to
42. In addition, Note 19 to the financial statements includes the
Company's objectives, policies and processes for
managing its capital; its financial risk management objectives
and its exposures to credit risk
and liquidity risk.
The interest rate under each Loan or Equipment Note issue has
been fixed and the fixed rental income under the relevant Lease has
been coordinated with the loan repayments therefore the rent income
should be sufficient to repay the Loans and Equipment Notes and
provide surplus income to pay for the Group's expenses and permit
payment of dividends.
After making reasonable enquiries, and as described above, the
Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable
future. Accordingly, they continue to adopt the going concern basis
of accounting in preparing the annual financial statements.
Responsibility Statement
The Directors jointly and severally confirm that to the best of
their knowledge:
(a) The financial statements, prepared in accordance with IFRS
give a fair, balanced and understandable view of the assets,
liabilities, financial position and profits of the Company and
performance of the Company;
(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 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 13
December 2017.
John Le Prevost
Director
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the period from 1 April 2017 to 30 September 2017
1 Apr 2017 1 Apr 2016
to to
Notes 30 Sep 2017 30 Sep 2016
GBP GBP
INCOME
A rent income 4 46,597,804 42,809,579
B rent income 4 18,266,978 18,217,070
Bank interest received 38,368 -
------------- -------------
64,903,150 61,026,649
EXPENSES
Operating expenses 5 (1,697,962) (1,835,578)
Depreciation of Aircraft 9 (15,733,300) (21,126,114)
------------- -------------
(17,431,262) (22,961,692)
Net profit for the Period before
finance costs and foreign exchange
gains / (losses) 47,471,888 38,064,957
Finance costs 10 (12,107,548) (14,136,352)
Net profit for the Period after
finance costs and before foreign
exchange gains / (losses) 35,364,340 23,928,605
Unrealised foreign exchange gain
/ (loss) 19b 35,231,904 (55,078,091)
------------- -------------
Profit / (Loss) for the Period 70,596,244 (31,149,486)
Other Comprehensive Income - -
------------- -------------
Total Comprehensive Income /
(Loss) for the Period 70,596,244 (31,149,486)
------------- -------------
Pence Pence
Earnings / (Loss) per Ordinary
Preference Share for the Period
- Basic and Diluted 8 40.87 (18.03)
In arriving at the results for the financial period, all amounts
above relate to continuing operations.
The notes on pages 19 to 42 form an integral part of these
Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 September 2017
30 Sep 2017 31 Mar 2017
Notes GBP GBP
NON-CURRENT ASSETS
Aircraft 9 840,756,732 856,490,032
--------------------- ---------------------
CURRENT ASSETS
Accrued income 2,990,864 2,562,252
Receivables 12 69.899 269,299
Short-term investments 16 2,423,265 3,720,301
Cash and cash equivalents 17 23,672,537 22,095,157
29,156,565 28,647,009
TOTAL ASSETS 869,913,297 885,137,041
===================== =====================
CURRENT LIABILITIES
Borrowings 14 74,770,280 77,714,247
Deferred income 9,329,752 9,960,159
Payables - due within one
year 13 260,274 266,726
--------------------- ---------------------
84,360,306 87,941,132
NON-CURRENT LIABILITIES
Borrowings 14 340,506,476 403,892,049
Deferred income 134,193,209 137,499,298
--------------------- ---------------------
474,699,685 541,391,347
TOTAL LIABILITIES 559,059,991 629,332,479
===================== =====================
TOTAL NET ASSETS 310,853,306 255,804,562
--------------------- ---------------------
EQUITY
Share capital 15 319,836,770 319,836,770
Retained earnings (8,983,464) (64,032,208)
--------------------- ---------------------
310,853,306 255,804,562
--------------------- ---------------------
Pence Pence
Net Asset Value per Ordinary
Preference Share based on
172,750,000 (Mar 2017: 172,750,000)
shares in issue 179.94 148.08
The Consolidated Financial Statements were approved by the Board
of Directors and authorised for issue on 13 December 2017 and are
signed on its behalf by:
John Le Prevost
Director
The notes on pages 19 to 42 form an integral part of these
Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period from 1 April 2017 to 30 September 2017
1 Apr 2017 1 Apr 2016
to to
30 Sep 2017 30 Sep 2016
Notes GBP GBP
OPERATING ACTIVITIES
(Loss) / profit for the period 70,596,244 (31,149,486)
Movement in deferred income 2,142,628 7,353,674
Interest received (38,368) -
Depreciation of Aircraft 9 15,733,300 21,126,114
Loan interest payable 10 11,596,377 13,625,180
Decrease in payables (6,452) (2,428)
Decrease / (Increase) in receivables 199,400 (17,919)
Foreign exchange movement 19b (35,231,904) 55,078,091
Amortisation of debt arrangement
costs 10 511,171 511,172
NET CASH FROM OPERATING ACTIVITIES 65,502,396 66,524,398
------------- -------------
INVESTING ACTIVITIES
Interest received 38,368 -
Increase in short-term investments 1,297,036 -
------------- -------------
NET CASH FROM INVESTING ACTIVITIES 1,335,404 -
------------- -------------
FINANCING ACTIVITIES
Dividends paid 7 (15,547,500) (15,547,500)
Repayments of capital on borrowings (37,326,226) (37,868,081)
Repayments of interest on borrowings (11,868,518) (12,666,484)
NET CASH USED IN FINANCING ACTIVITIES (64,742,244) (66,082,065)
------------- -------------
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 22,095,157 23,231,712
Increase in cash and cash equivalents 2,095,555 442,333
Effects of foreign exchange rates (518,175) 896,363
CASH AND CASH EQUIVALENTS AT
OF PERIOD 17 23,672,537 24,570,408
------------- -------------
The notes on pages 19 to 42 form an integral part of these
Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period from 1 April 2017 to 30 September 2017
Notes Share Retained Total
Capital Earnings
GBP GBP GBP
Balance as at 1 April
2017 319,836,770 (64,032,208) 255,804,562
Total Comprehensive
Income for the period - 70,596,244 70,596,244
Dividends paid 7 - (15,547,500) (15,547,500)
----------------------- -------------- -------------
Balance as at 30 September
2017 319,836,770 (8,983,464) 310,853,306
----------------------- -------------- -------------
Share Retained Total
Capital Earnings
GBP GBP GBP
Balance as at 1 April
2016 319,836,770 (23,226,870) 296,609,900
Total Comprehensive
Loss for the period - (31,149,486) (31,149,486)
Dividends paid 7 - (15,547,500) (15,547,500)
----------------------- -------------- -------------
Balance as at 30 September
2016 319,836,770 (23,226,870) 296,609,900
----------------------- -------------- -------------
The notes on pages 19 to 42 form an integral part of these
Consolidated Financial Statements.
Notes to the Consolidated Financial Statements
For the period from 1 April 2017 to 30 September 2017
1 GENERAL INFORMATION
The Consolidated Financial Statements incorporate the results
of Doric Nimrod Air Two Limited (the "Company"), MSN077 Limited,
MSN090 Limited, MSN105 Limited and Doric Nimrod Air Finance
Alpha Limited (together "Subsidiaries") (together the Company
and the Subsidiaries are known as the "Group").
The Company was incorporated in Guernsey on 31 January 2011
with registered number 52985. The address of the registered
office is given on page 43. Its share capital consists of one
class of Ordinary Preference Shares ("Ordinary Shares" or "Shares")
and one class of Subordinated Administrative Shares ("Admin
Shares"). The Company's Ordinary Shares have been admitted to
trading on the Specialist Fund Segment ("SFS") of the London
Stock Exchange ("LSE").
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 Group
are set out in the Chairman's Statement on pages 4 and Management
Report on pages 13 - 14.
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, and applicable
Guernsey law. The Financial statements have been prepared on
a historical cost basis.
This report is to be read in conjunction with the annual report
for the year ended 31 March 2017 which is prepared in accordance
with the International Financial Reporting Standards adopted
by the European Union 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:
Changes in accounting policies and disclosure
The following Standards or Interpretations have been adopted
in the current period. Their adoption has not had any impact
on the amounts reported in these Consolidated Financial Statements
and is not expected to have any impact on future financial periods:
IAS 7 Statement of Cash Flows - amendments resulting from the
disclosure initiative effective for annual periods beginning
on or after 1 January 2017 (and was endorsement by the EU in
November 2017). The amendments require entities to provide disclosures
about changes in their liabilities arising from financing activities,
including both changes arising from cash flows and non-cash
changes (such as foreign exchange gains or losses). On initial
application of the amendment, entities are not required to provide
comparative information for preceding periods. The Group is
not required to provide additional disclosures in its consolidated
half yearly financial statements, but will disclose additional
information in its annual consolidated financial statements
for the year ended 31 March 2018.
--
The following Standards or Interpretations that are expected
to affect the Group have been issued but not yet adopted by
the Group. Other Standards or Interpretations issued by the
IASB and IFRIC are not expected to affect the Group.
* IFRS 9 Financial Instruments - finalised version,
incorporating requirements for classification and
measurement, impairment, general hedge accounting and
derecognition. There is no mandatory effective date,
however the IASB has tentatively proposed that this
will be effective for annual periods commencing on or
after 1 January 2018 and is endorsed in the EU.
* IFRS 15 Revenue from contracts with customers - deals
with revenue recognition and establishes principles
for reporting useful information to users of
financial statements about the nature, amount, timing
and uncertainty of revenue and cash flows arising
from an entity's contracts with customers. Revenue is
recognised when a customer obtains control of a good
or service and thus has the ability to direct the use
and obtain the benefits from the good or service. The
standard replaces IAS 18 'Revenue', IAS 11
'Construction contracts' and related interpretations
and is endorsed by the EU. This standard is effective
for annual periods beginning on or after 1 January
2018.
* IFRS 16 Leases - specifies how an IFRS reporter will
recognise, measure, present and disclose leases. The
standard provides a single lessee accounting model,
requiring lessees to recognise assets and liabilities
for all leases unless the lease term is 12 months or
less or the underlying asset has a low value. Lessors
continue to classify leases as operating or finance,
with IFRS 16's approach to lessor accounting
substantially unchanged from its predecessor, IAS 17
(EU endorsement is outstanding) and is effective for
annual periods beginning on or after 1 January 2019.
* IFRIC 22 'Foreign currency transactions and advance
consideration' - this IFRIC addresses foreign
currency transactions or parts of transactions where
there is consideration that is denominated or priced
in a foreign currency. The interpretation provides
guidance for when a single payment/receipt is made as
well as for situations where multiple
payments/receipts are made. The guidance aims to
reduce diversity in practice and is effective for
annual periods beginning on or after 1 January 2018
(EU endorsement is outstanding).
The Directors have considered the above and are of the opinion
that the above Standards and Interpretations are not expected
to have an impact on the Group's financial statements except
for the presentation of additional disclosures and changes to
the presentation of components of the financial statements.
These items will be applied in the first financial period for
which they are required.
(b) Basis of Consolidation
The Consolidated Financial Statements incorporate the results
of the Company and its Subsidiaries. The Company owns 100% of
all the shares in the Subsidiaries, and has the power to govern
the financial and operating policies of the Subsidiaries so
as to obtain benefits from their activities. Intra-group balances
and transactions, and any unrealised income and expenses arising
from intra-group transactions, are eliminated in preparing the
Consolidated Financial Statements.
(c) Taxation
The Company and its Subsidiaries have been assessed for tax
at the Guernsey standard rate of 0%.
(d) Share Capital
Ordinary Preference Shares are classified as equity. Incremental
costs directly attributable to the issue of Shares are recognised
as a deduction from equity.
(e) Expenses
All expenses are accounted for on an accruals basis.
(f) Interest Income
Interest income is accounted for on an accruals basis.
(g) Foreign Currency Translation
The currency of the primary economic environment in which the
Group operates (the functional currency) is Great British Pounds
("GBP" or "GBP") which is also the presentation currency.
Transactions denominated in foreign currencies are translated
into GBP at the rate of exchange ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies
at the reporting date are translated into the functional currency
at the foreign exchange rate ruling at that date. Foreign exchange
differences arising on translation are recognised in the Consolidated
Statement of Comprehensive Income.
(h) Cash and Cash Equivalents
Cash at bank and short term deposits which are held to maturity
are carried at cost. Cash and cash equivalents are defined as
call deposits, short term deposits with a term of no more than
3 months from the start of the deposit and highly liquid investments
readily convertible to known amounts of cash and subject to
insignificant risk of changes in value.
(i) Short-term Investments
Short-term investments which are held to maturity are carried
at cost. Short-term investments are defined as call deposits,
short term deposits with a term of more than 3 months, but less
than 12 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.
(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
as the loan and Equipment Notes interest has been fixed and
the fixed rental income under the operating leases means that
the rents should be sufficient to repay the debt and provide
surplus income to pay for the Group's expenses and permit payment
of dividends. Accordingly, the Directors have adopted the going
concern basis in preparing the Consolidated Financial 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 11.
Rental income and advance lease payments from operating leases
are recognised on a straight-line basis over the term of the
relevant lease. Initial direct costs incurred in negotiating
and arranging an operating lease are added to the carrying amount
of the leased asset and amortised on a straight-line basis over
the lease term.
(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 Asset plus any costs directly attributable to bringing
it into working condition for its intended use. Costs incurred
by the lessee in maintaining, repairing or enhancing the Aircraft
are not recognised as they do not form part of the cost to the
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 the
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 seven planes ranges
from GBP88.4 million to GBP91.3 million. Residual values have
been arrived at by taking into account disposition fees. 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 currently if the Assets
were already of the age and condition expected at the end of
their 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 Asset is available for use.
At each audited 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).
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 Liabilities
Financial liabilities consist of payables and borrowings. The
classification of financial liabilities at initial recognition
depends on the purpose for which the financial liability was
issued and its characteristics. All financial liabilities are
initially measured at fair value, net of transaction costs.
All financial liabilities are recorded on the date on which
the Group becomes party to the contractual requirements of the
financial liability. Financial liabilities are subsequently
measured at amortised cost using the effective interest method,
with interest expense recognised on an effective yield basis.
The effective interest method is a method of calculating the
amortised cost of the financial liability and of allocating
interest expense over the relevant period. The effective interest
rate is the rate that exactly discounts estimated future cash
payments through the expected life of the financial liability,
or, where appropriate, a shorter period, to the net carrying
amount on initial recognition.
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.
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 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 Asset Manager, the
Directors have concluded that a forecast market value for the
Aircraft at the end of its useful life (including inflationary
effects) best approximates residual value. In estimating residual
value, the Directors have made reference to forecast market values
for the Aircraft obtained from 3 independent expert aircraft valuers
and determined that the residual value of the Assets was USD 812
million at the 2017 financial year end (2016: USD 882 million,
as determined per the initial appraisal at inception).
The estimation of residual value remains subject to uncertainty.
If the estimate of residual value had decreased by 20% with effect
from the beginning of this period, the net profit for the period
and closing shareholders' equity would have decreased by approximately
GBP8.5 million (30 Sep 2016: GBP5.8 million). An increase in residual
value by 20% would have had an equal but opposite effect. This
reflects the range of estimates of residual value that the Directors
believe would be reasonable at this time. 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.
Operating Lease Commitments - Group as Lessor
The Group has entered into operating leases on seven (30 Sep 2016:
seven) 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 a penalty equal
to the remaining 2 years would be due.
Impairment
As described in Note 2 (m), an impairment exists when the carrying
value of an asset or cash generating unit exceeds its recoverable
amount, which is the higher of its fair value less costs to sell
and its value in use. The Directors review the carrying amounts
of its Assets at each audited Consolidated Statement of Financial
Position date and monitor the Assets for any indications of impairment
as required by IAS 16 Property, Plant and Equipment and IAS 36
Impairment of Assets.
At the 31 March 2017 year end the Directors reviewed the carrying
values of the Assets and concluded that there was no indication
of any impairments.
4 RENTAL INCOME
1 Apr 2017 1 Apr 2016
to to
30 Sep 2017 30 Sep 2016
GBP GBP
A rent income 49,175,849 50,548,761
Revenue received but not yet
earned (18,559,889) (24,072,023)
Revenue earned but not yet received 12,050,708 12,412,446
Amortisation of advance rental
income 3,931,135 3,920,395
------------- -------------
46,597,804 42,809,579
B rent income 17,831,560 17,831,562
Revenue earned but not yet received 438,821 392,295
Revenue received but not yet
earned (3,403) (6,787)
------------- -------------
18,266,978 18,217,070
Total rental income 64,864,782 61,026,649
------------- -------------
Rental income is derived from the leasing of the Assets. Rent
is split into A rent, which is received in US Dollars ("USD"
or "$") and B rent, which is received in GBP. Rental income received
in USD is translated into the functional currency (GBP) 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 2017 1 Apr 2016
to to
30 Sep 2017 30 Sep 2016
GBP GBP
Corporate shareholder and advisor
fee 404,458 399,910
Asset Management fee 983,517 981,853
Administration fees 107,341 101,807
Bank interest & charges 873 1,244
Accountancy fees 12,479 15,267
Registrars fee 8,076 10,316
Audit fee 22,850 20,960
Directors' remuneration 106,000 106,000
Directors' and Officers' insurance 17,679 18,025
Legal & professional expenses 18,506 169,760
Annual fees 6,133 7,390
Travel costs 1,877 5,888
Sundry costs 1,446 8,816
Other operating expenses 6,727 8,342
------------ ------------
1,697,962 1,835,578
------------ ------------
6 DIRECTORS' REMUNERATION
Under their terms of appointment, each Director is paid a fee
for their services as a director of the Company at a fee of GBP23,000
per annum, except for the Chairman, who receives GBP25,000 per
annum. The chairman of the audit committee of the Company receives
an additional GBP4,000 for his services in this role.
In respect of their capacity as directors of DNAFA each director
receives a fee of GBP25,000 per annum (GBP30,000 for the Chairman)
payable by or on behalf of DNAFA. The chairman of the audit committee
of DNAFA receives an additional GBP5,000 for his services in
this role.
7 DIVIDS IN RESPECT OF EQUITY SHARES
Dividends in respect of Ordinary Shares 1 Apr 2017 to
30 Sep 2017
GBP Pence per
share
First interim dividend 7,773,750 4.50
Second interim dividend 7,773,750 4.50
15,547,500 9.00
----------------- ---------------
Dividends in respect of Ordinary Shares 1 Apr 2016 to
30 Sep 2016
GBP Pence per
share
First interim dividend 7,773,750 4.50
Second interim dividend 7,773,750 4.50
15,547,500 9.00
----------------- ---------------
8 EARNINGS / (LOSS) PER SHARE
Earnings / (Loss) per Share ("EPS" / "LPS") is based on the
net profit for the period of GBP70,596,244 (30 Sep 2016: net
loss for the period of GBP31,149,486) and 172,750,000 (30 Sep
2016: 172,750,000) Ordinary Shares being the weighted average
number of Shares in issue during the period.
There are no dilutive instruments and therefore basic and diluted
earnings / (loss) per Share are identical.
9 PROPERTY, PLANT AND EQUIPMENT - AIRCRAFT
MSN077 MSN090 MSN105 MSN106 MSN107 MSN109 MSN110 TOTAL
GBP GBP GBP GBP GBP GBP GBP GBP
COST
As at
1 Apr
2017 149,423,436 151,310,256 146,958,203 146,626,809 147,668,555 149,126,548 148,034,384 1,039,148,191
------------ ------------ ------------ ------------ ------------ ------------ ------------ --------------
As at
30
Sep
2017 149,423,436 151,310,256 146,958,203 146,626,809 147,668,555 149,126,548 148,034,384 1,039,148,191
============ ============ ============ ============ ============ ============ ============ ==============
ACCUMULATED DEPRECIATION
As at 1 Apr
2017 30,265,468 30,598,893 24,156,351 24,394,212 24,465,601 24,678,343 24,099,291 182,658,159
Depreciation
charge
for the
period 2,223,889 2,429,566 2,242,708 2,070,348 2,125,355 2,345,171 2,296,263 15,733,300
----------- ----------- ----------- ----------- ----------- ----------- ----------- ------------
As at 30 Sep
2017 32,489,357 33,028,459 26,399,059 26,464,560 26,590,956 27,023,514 26,395,554 198,391,459
=========== =========== =========== =========== =========== =========== =========== ============
CARRYING AMOUNT
As at
30
Sep
2017 116,934,079 118,281,797 120,559,144 120,162,249 121,077,599 122,103,034 121,638,830 840,756,732
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
As at
31
Mar
2017 119,157,968 120,711,363 122,801,852 122,232,597 123,202,954 124,448,205 123,935,093 856,490,032
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
The cost in USD and the exchange rates at acquisition for the
Aircraft was as follows:
Cost 234,000,000 234,000,000 234,000,000 234,000,000 234,000,000 234,000,000 234,000,000
GBP/USD
exchange
rate 1.5820 1.5623 1.6089 1.6167 1.6053 1.5896 1.6013
The cost in USD and the exchange rates at acquisition for the
Aircraft was as follows:
Following review of the aircrafts' projected residual value, as is required by IFRS on an annual basis,
using the valuers and methodology set out in Note 3, whilst the underlying USD residual values of the
A380 aircraft have stayed at similar levels, the GBP values converted at the 2017 year end GBP exchange
rates were increased significantly by GBP95,711,816. The directors already adjusted the residual values
for this movement at the 2017 year end. The adjusted residual value has resulted in a decrease of GBP5,392,814
in the depreciation charge at 30 September 2017 from the comparative period as shown in the Consolidated
Statement of Comprehensive Income.
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.
10 FINANCE COSTS
1 Apr 2017 1 Apr 2016
to 30 Sep to 30 Sep
2017 2016
GBP GBP
Amortisation of debt arrangements
costs 511,171 511,172
Loan interest 11,596,377 13,625,180
12,107,548 14,136,352
----------- -----------
11 OPERATING LEASES
The amounts of minimum future lease receipts at the reporting
date under non-cancellable operating leases are detailed below:
30 September
2017 Next 12 1 to 5 years After 5 years Total
months
GBP GBP GBP GBP
Aircraft - A
rental receipts 94,694,057 342,631,823 36,655,996 473,981,876
Aircraft - B
rental receipts 35,663,124 143,408,268 71,400,914 250,472,306
------------ ------------- -------------- ------------
130,357,181 486,040,091 108,056,910 724,454,182
------------ ------------- -------------- ------------
30 September
2016 Next 12 1 to 5 years After 5 years Total
months
GBP GBP GBP GBP
Aircraft - A
rental receipts 97,849,855 379,723,371 109,824,053 587,397,279
Aircraft - B
rental receipts 35,663,124 142,652,496 107,819,810 286,135,430
------------ ------------- -------------- ------------
133,512,979 473,250,589 217,643,863 873,532,709
------------ ------------- -------------- ------------
The operating leases are for seven Airbus A380-861 aircraft.
The terms of the leases are as follows:
MSN077 - term of the lease is for 12 years ending October 2023.
The initial lease is for 10 years ending October 2021, with
an extension period of 2 years ending October 2023, 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.
MSN090 - term of the lease is for 12 years ending December
2023. The initial lease is for 10 years ending December 2021,
with an extension period of 2 years ending December 2023, 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.
MSN105 - term of the lease is for 12 years ending October 2024.
The initial lease is for 10 years ending October 2022, with
an extension period of 2 years ending October 2024, 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.
MSN106 - term of the lease is for 12 years ending October 2024.
The initial lease is for 10 years ending October 2022, with
an extension period of 2 years ending October 2024, 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.
MSN107 - term of the lease is for 12 years ending October 2024.
The initial lease is for 10 years ending October 2022, with
an extension period of 2 years ending October 2024, 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.
MSN109 - term of the lease is for 12 years ending November
2024. The initial lease is for 10 years ending November 2022,
with an extension period of 2 years ending November 2024, 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.
MSN110 - term of the lease is for 12 years ending October 2024.
The initial lease is for 10 years ending October 2022, with
an extension period of 2 years ending October 2024, in which
rental payments reduce. The present value of the remaining
rentals in the extension period at the end of the initial 10
period 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.
12 RECEIVABLES
30 Sep 2017 31 Mar 2017
GBP GBP
Prepayments 33,987 15,937
Sundry debtors 35,912 253,362
69,899 269,299
------------ ------------
The above carrying value of receivables is equivalent to fair
value.
13 PAYABLES (amounts falling due within one year)
30 Sep 2017 31 Mar 2017
GBP GBP
Accrued administration
fees 19,273 19,058
Accrued audit fee 22,350 26,500
Accrued corporate shareholder
and advisor fee 202,229 202,229
Other accrued expenses 16,422 18,939
260,274 266,726
------------ ------------
The above carrying value of payables is equivalent to the fair
value.
14 BORROWINGS
30 Sep 2017 31 Mar 2017
GBP GBP
Bank loans 180,355,505 209,398,932
Equipment Notes 241,846,938 279,644,221
Associated costs (6,925,687) (7,436,857)
------------ ------------
415,276,756 481,606,296
------------ ------------
Current portion 74,770,280 77,714,247
============ ============
Non-current portion 340,506,476 403,892,049
============ ============
Notwithstanding the fact that GBP37 million capital was repaid
during the period, as per the Cash Flow Statement, the value
of the borrowings has decreased by GBP66 million due to the
6% increase in the GBP/USD exchange rate for the period from
1 April 2017 to 30 September 2017.
The amounts below detail the future contractual undiscounted
cashflows 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 Statement of Financial
Position:
30 Sep 2017 31 Mar 2017
GBP GBP
Amount due for settlement within
12 months 94,542,249 93,886,409
------------------ -------------
Amount due for settlement after
12 months 380,504,146 492,832,760
------------------ -------------
The loan to MSN077 Limited was arranged with Westpac Banking
Corporation ("Westpac") for USD 151,047,059 and runs for 12 years
until October 2023 and has an effective interest rate of 4.590%.
The loan to MSN090 Limited was arranged with The Australia and
New Zealand Banking Group Limited ("ANZ") for USD 146,865,575
and runs for 12 years until December 2023 and has an effective
interest rate of 4.558%.
The loan to MSN105 Limited was arranged with ICBC, BoC and Commerzbank
for USD 145,751,153 and runs for 12 years until October 2024
and has an effective interest rate of 4.780%.
Each loan is secured on one Asset. No significant breaches or
defaults occurred in the period. The loans are either fixed rate
over the term of the loan or have an associated interest rate
swap contract issued by the lender in effect fixing the loan
interest over the term of the loan. Transaction costs of arranging
the loans have been deducted from the carrying amount of the
loans and will be amortised over their respective lives.
In order to finance the acquisition of the fourth, fifth, sixth
and seventh Assets, Doric Nimrod Air Finance Alpha Limited ("DNAFA")
used the proceeds of the May 2012 offering of Pass Through Certificates
("the Certificates"). The Certificates have an aggregate face
amount of approximately $587.5 million, made up of "Class A"
certificates and "Class B" certificates. The Class A certificates
in aggregate have a face amount of $433,772,000 with an interest
rate of 5.125% and a final expected distribution date of 30 November
2022. The Class B certificates in aggregate have a face amount
of $153,728,000 with an interest rate of 6.5% and a final expected
distribution date of 30 May 2019. There is a separate trust for
each class of Certificates. 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 for the consideration paid by the
purchasers of the Certificates. The equipment notes were issued
by DNAFA 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 Company of the C Share issue proceeds. The holders of
the equipment notes issued for each aircraft will have the benefit
of a security interest in such aircraft.
In the Directors' opinion and with reference to the terms mentioned,
the above carrying values of the bank loans and equipment notes
are approximate to their fair value.
15 SHARE CAPITAL
The Share Capital of the Group is represented by an unlimited
number of shares of no par value being issued or reclassified
by the Group as Ordinary Preference Shares, C Shares or Administrative
Shares.
Issued Administrative Ordinary
Shares Shares C Shares
Shares issued at incorporation - 2 -
Shares issued 8 February
2011 - 3,999,998 -
Shares repurchased and
cancelled 10 May 2011 - (1,000,000) -
Bonus issue 22 June 2011 - 1,500,000 -
Shares issued 30 June
2011 2 - -
Shares issued in Placing
July 2011 - 68,000,000 -
Shares issued 7 February
2012 - - 6,000,000
Shares issued in Placing
March 2012 - - 94,250,000
C Share Conversion March
2013 - 100,250,000 (100,250,000)
Issued shares as at 30
Sep 2017 and 31 Mar 2017 2 172,750,000 -
------------------- ------------------- ----------------------
Administrative Ordinary
Shares Shares C Shares Total
Issued GBP GBP GBP GBP
Ordinary Share
Capital
Shares issued
at
incorporation - 2 - 2
3,999,998
Shares
issued 8
February
2011 - 18 - 18
Shares issued
30
June 2011 - - - -
68,000,000
Shares
Issued in
Placing
July 2011 - 136,000,000 - 136,000,000
Shares issued
in
Placing March
2012 - - 188,500,000 188,500,000
C Share
Conversion
March 2013 - 188,500,000 (188,500,000) -
Share issue
costs - (4,663,250) - (4,663,250)
--------------------- ------------------- ------------------------- ----------------------
Total Share
Capital
as at 30 Sep
2017
and as at 31
Mar
2017 - 319,836,770 - 319,836,770
--------------------- ------------------- ------------------------- ----------------------
Members holding Ordinary Shares are entitled to receive and
participate in any dividends out of income attributable to
the Ordinary 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, Ordinary Shareholders are entitled to the
surplus assets attributable to the Ordinary Shares 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.
On 6 March 2013, 100,250,000 C Shares were converted into Ordinary
Shares with a conversion of 1:1.
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 Ordinary
Shares have received a return of their capital paid up but
ahead of the return of all additional capital to the holders
of Ordinary 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 Leases where the Liquidation Resolution
will be proposed) or if there are no Ordinary Shares in existence.
16 SHORT-TERM INVESTMENTS
30 Sep 2017 31 Mar 2017
GBP GBP
Short-term investments 2,423,265 3,720,301
------------- -----------------
2,423,265 3,720,301
------------- -----------------
The Group has entered into short-term investments with Royal
London Asset Management (RLAM), which consists of call deposits
with a term of more than 3 months, but less than 12 months
from the start of the deposit. Short-term investments are
highly liquid, readily convertible and are subject to insignificant
risk of changes in value.
17 CASH AND CASH EQUIVALENTS
30 Sep 2017 31 Mar 2017
GBP GBP
Cash at bank 13,456,184 13,030,707
Cash deposits 10,216,353 9,064,450
------------- -------------------
23,672,537 22,095,157
------------- -------------------
Cash and cash equivalents are highly liquid, readily convertible
and are subject to insignificant risk of changes in value.
18 FINANCIAL INSTRUMENTS
The Group's main financial instruments comprise:
Cash and cash equivalents that arise directly from the Group's
(a) operations; and
(b) Loans secured on non-current assets.
19 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 2017 31 Mar 2017
GBP GBP
Financial assets
Cash and cash equivalents 23,672,537 22,095,157
Short-term investments 2,423,265 3,720,301
Receivables (excluding prepayments) 35,912 253,362
------------ ------------
Financial assets at amortised cost 26,131,714 26,068,820
------------ ------------
Financial liabilities
Payables 260,274 266,726
Debt payable 422,202,443 489,043,153
------------ ------------
Financial liabilities measured at
amortised cost 422,462,717 489,309,879
------------ ------------
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
reviews and agrees 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 14, cash and cash
equivalents and equity attributable to equity holders, comprising
issued capital and retained earnings.
The Group's Board of Directors reviews the capital structure
on a bi-annual basis.
Equity includes all capital and reserves of the 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 2017 to
30 September 2017 (None for the period from 1 April 2016 to
30 September 2016).
(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
USD debt as translated at the spot exchange rate on every Statement
of Financial Position date. In addition USD 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 USD operating leases should offset
the USD payables on amortising loans. The foreign exchange
exposure in relation to the loans is thus largely hedged.
Lease rentals (as detailed in Notes 4 and 11) are received
in USD and GBP. Those lease rentals received in USD are used
to pay the debt repayments due, also in USD (as detailed in
Note 14). Both USD lease rentals and debt repayments are fixed
and are for similar sums and similar timings. The matching
of lease rentals to settle debt repayments therefore mitigates
risks caused by foreign exchange fluctuations.
The carrying amounts of the Group's foreign currency denominated
monetary assets and liabilities at the reporting date are as
follows:
30 Sep 2017 31 Mar 2017
GBP GBP
Debt (USD) - Liabilities (422,202,443) (489,043,153)
Short-term investments (USD)
- Asset 1,419,294 1,515,123
Cash and cash equivalents (USD)
- Asset 11,602,734 7,852,760
---------------- ----------------
The following table details the Group's sensitivity to a 25
per cent (31 March 2017: 25 per cent) appreciation and depreciation
in GBP against USD. 25 per cent (31 March 2017: 25 per cent)
represents the Directors' assessment of the reasonably possible
change in foreign exchange rates. The sensitivity analysis
includes only outstanding foreign currency denominated monetary
items and adjusts their translation at the period end for a
25 per cent (31 March 2017: 25 per cent) change in foreign
currency rates. A positive number below indicates an increase
in profit and other equity where GBP strengthens 25 per cent
(31 March 2017: 25 per cent) against USD. For a 25 per cent
(31 March 2017: 25 per cent) weakening of the GBP against USD,
there would be a comparable but opposite impact on the profit
and other equity:
30 Sep 2017 31 Mar 2017
GBP GBP
Profit or
loss 81,836,083 96,489,842
Assets (2,604,406) (1,873,577)
Liabilities 84,440,489 97,808,631
------------ -------------
On the eventual sale of the Assets, the Company may be subject
to foreign currency risk if the sale was made in a currency
other than GBP. Transactions in similar assets are typically
priced in USD.
(c) Credit Risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss
to the Group.
The credit risk on cash transactions are mitigated by transacting
with counterparties that are regulated entities subject to
prudential supervision, or with high credit ratings assigned
by international credit rating agencies.
The Group's financial assets exposed to credit risk are as
follows:
30 Sep 2017 31 Mar 2017
GBP GBP
Receivables (excluding prepayments) 35,912 253,362
Short-term investments 2,423,265 3,720,301
Cash and cash equivalents 23,672,537 22,095,157
26,131,714 26,068,820
------------ ------------
Surplus cash in the Company is held in Barclays. Surplus cash
in the Subsidiaries is held in accounts with Barclays, Westpac
and ANZ, which have credit ratings given by Moody's of A2 ,
Aa2 and Aa2 respectively. The banks are shown as having a negative
rating, as the ratings are currently under review by Moody's,
with the near term possibility of a downgrade.
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, loan repayments to Westpac, ANZ,
ICBC, BoC and Commerzbank, and repayments on equipment notes.
Ultimate responsibility for liquidity risk management rests
with the Board of Directors, 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, including estimated interest payments.
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:
30 Sep 2017 1-3 3-12 1-2 years 2-5 years Over 5
months months years
GBP GBP GBP GBP GBP
Financial liabilities
Payables
- due within
one period 260,274 - - - -
Bank loans 10,096,236 30,288,707 40,384,943 121,154,829 41,245,569
Equipment
Notes 27,106,419 27,095,470 54,157,306 151,345,453 72,642,977
----------- ----------- ----------- ------------ ------------
37,462,929 57,384,178 94,542,249 272,500,282 113,888,546
----------- ----------- ----------- ------------ ------------
31 Mar 2017 1-3 3-12 1-2 years 2-5 years Over 5
months months years
GBP GBP GBP GBP GBP
Financial liabilities
Payables
- due within
one period 266,726 - - - -
Bank loans 10,778,436 32,335,307 43,113,742 123,720,879 28,095,998
Equipment
Notes 28,926,304 28,914,405 57,792,265 158,562,276 51,671,019
----------- ----------- ------------ ------------ -----------
39,971,466 61,249,712 100,906,007 282,283,155 79,767,017
----------- ----------- ------------ ------------ -----------
(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 its debts and the lease rentals.
The following table details the Group's exposure to interest
rate risks:
Variable Fixed Non-interest
interest interest bearing Total
GBP GBP GBP GBP
30 Sep 2017
Financial assets
Receivables - - 69,899 69,899
Short-term investments 2,423,265 - - 2,423,265
Cash and cash
equivalents 23,672,537 - - 23,672,537
Total Financial
Assets 26,095,802 - 69,899 26,165,701
----------- ------------ ------------- ------------
Financial liabilities
Payables - - 260,274 260,274
Bank loans - 173,429,818 - 173,429,818
Equipment Notes - 241,846,938 - 241,846,938
Total Financial
Liabilities - 415,276,756 260,274 415,537,030
----------- ------------ ------------- ------------
Total interest
sensitivity gap 26,095,802 415,276,756
----------- ------------
Variable Fixed Non-interest
interest interest bearing Total
GBP GBP GBP GBP
31 Mar 2017
Financial Assets
Receivables - - 269,299 269,299
Short-term investments 3,720,301 - - 3,720,301
Cash and cash
equivalents 22,095,157 - - 25,815,458
Total Financial
Assets 25,815,458 - 269,299 29,805,058
------------------- ----------------- ---------------------- ------------
Financial liabilities
Payables - - 266,726 266,726
Bank loans - 209,398,932 - 209,398,932
Equipment notes - 279,644,221 - 279,644,221
Total Financial
Liabilities - 489,043,153 266,726 489,309,879
------------------- ----------------- ---------------------- ------------
Total interest
sensitivity gap 25,815,458 489,043,153
------------------- -----------------
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
2017 would have been GBP118,363 (31 March 2017: GBP129,077)
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
2017 would have been GBP118,363 (31 March 2017: GBP129,077)
lower due to a decrease in the amount of interest receivable
on the bank balances.
20 ULTIMATE CONTROLLING PARTY
In the opinion of the Directors, the Group has no ultimate
controlling party.
21 RELATED PARTY TRANSACTIONS
Under the Asset Management Agreement, the Company will pay
Doric a management and advisory fee of GBP250,000 per annum
per Asset (adjusted annually for inflation from 2013 onwards,
at 2.25 per cent per annum), payable quarterly in arrears
(the "Annual Fee"), save that Doric shall only become entitled
to such Annual Fee in relation to each Asset following the
acquisition of such Asset by the Company. The Annual Fee for
each Asset shall be calculated from the date of acquisition
of the Asset.
During the period, the Group incurred GBP983,517 (30 September
2016: GBP981,853) of expenses with Doric, of which GBPnil
(31 March 2017: GBP1,696) was outstanding to this related
party at 30 September 2017.
The Group shall pay to Nimrod for its services as Corporate
and Shareholder Advisor a fee GBP200,000 per annum (adjusted
annually for inflation from 2013 onwards, at 2.25 per cent
per annum) payable quarterly in arrears. From the date the
Group acquired the Third Asset, the Group shall pay Nimrod
an additional fee of GBP100,000 per annum (adjusted annually
for inflation from 2013 onwards, at 2.25 per cent per annum)
payable quarterly in arrears. Furthermore, the Group paid
to Nimrod from the date of the C Share Placing an additional
annual fee of 0.03714 per cent of the placing proceeds (adjusted
annually for inflation from 2013 onwards at 2.25 per cent.
per annum) in respect of the issue of C Shares for the acquisition
of the fourth to seventh assets. Such fee will be increased
to an annual fee of 0.2248 per cent. of the C Share Placing
Proceeds (adjusted annually for inflation from 2013 onwards
at 2.25 per cent. per annum) from the date the Group acquired
the fourth Asset and shall be payable quarterly in arrears.
During the period, the Group incurred GBP404,458 (30 September
2016: GBP399.910) of expenses with Nimrod, of which GBP202,229
(31 March 2017: GBP202,229) was outstanding to this related
party at 30 September 2017. GBP404,458 (30 September 2016:
GBP399,910) of expenses related to management fees as shown
in Note 5.
John Le Prevost is a director of Anson Registrars Limited
("ARL"), the Group's registrar, transfer agent and paying
agent. During the period, the Group incurred GBP8,076 (30
September 2016: GBP10,316) with ARL, of which GBPnil (31 March
2017: GBP1,300) was outstanding as at 30 September 2017.
ADVISERS AND CONTACT INFORMATION
KEY INFORMATION
Exchange Specialist Fund Segment of the London Stock Exchange's
Main Market
Ticker DNA2
Listing Date 14 July 2011
Fiscal Year End 31 March
Base Currency GBP
ISIN GG00B3Z62522
SEDOL B3Z6252
Country of Incorporation Guernsey - Registration number
52985
MANAGEMENT AND ADMINISTRATION
Registered Office Company Secretary and Administrator
Doric Nimrod Air Two 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
Doric GmbH Amedeo Services (UK) Limited
Berliner Strasse 114 29-30 Cornhill
63065 Offenbach am Main London, England
Germany EC3V 3NF
Corporate and Shareholder Advisor Lease and Debt Arranger
Nimrod Capital LLP Doric Asset Finance GmbH & Co. KG
3 St Helen's Place Berliner Strasse 114
London 63065 Offenbach am Main
EC3A 6AB Germany
Solicitors to the Company (as to English Law) Advocates to the
Company (as to Guernsey Law)
Herbert Smith Freehills LLP Mourant Ozannes
Exchange House 1 Le Marchant Street
Primrose Street St Peter Port
London EC2A 2EG Guernsey GY1 4HP
Registrar Auditor
Anson Registrars Limited Deloitte LLP
PO Box 426 Regency Court
Anson House Glategny Esplanade
Havilland Street St Peter Port
St Peter Port Guernsey GY1 3HW
Guernsey GY1 3WX
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR BIBDDRBBBGRX
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