Information  X 
Enter a valid email address

Doric Nimrod Air One (DNA)

  Print      Mail a friend

Wednesday 11 July, 2018

Doric Nimrod Air One

Annual Financial Report

RNS Number : 3718U
Doric Nimrod Air One Limited
11 July 2018
 

 

 

 

 

 

 

 

 

11 July, 2018

 

DORIC NIMROD AIR ONE LIMITED (the "Company")

 

ANNUAL FINANCIAL REPORT

 

The Board of the Company is pleased to announce its results for the year ended 31 March, 2018

To view the Company's Annual Financial Report please follow the link below:

http://www.rns-pdf.londonstockexchange.com/rns/3718U_1-2018-7-11.pdf

In addition, to comply with DTR 4.1 please find below the full text of the annual financial report.  The report will also shortly be available on the Company's website, http://www.dnairone.com.

For further information, please contact:

 

Administrative Enquiries:

 

JTC Fund Solutions (Guernsey) Limited

+44 (0) 1481 702 400

 

 

 

 

 

 

Doric Nimrod Air One Limited

 

Annual Financial Report

 

From 1 April 2017 to

31 March 2018

 

 

SUMMARY INFORMATION

Listing

Specialist Fund Segment of the London Stock Exchange's Main Market

Ticker

DNA

Share Price

102.0 pence (as at 31 March 2018)
100.5 pence (as at 10 July 2018)

Market Capitalisation

GBP 42.7 million (as at 10 July 2018)

Aircraft Registration Number

A6-EDC

Current / Future Anticipated Dividend

Current dividends are 2.25 pence per quarter per share (9 pence per annum) and it is anticipated this will continue until the aircraft lease terminates in 2022.

Dividend Payment Dates

April, July, October, January

Currency

Sterling

Launch Date / Share Price

13 December 2010 / 100 pence

Incorporation and Domicile

Guernsey

Aircraft Registration Number (Lease Expiry Date)

A6-EDC (16 December 2022)

Asset Manager

Doric GmbH

Corporate and Shareholder Advisor

Nimrod Capital LLP

Administrator

JTC Fund Solutions (Guernsey) Limited

Auditor

Deloitte LLP

Market Makers

Canaccord Genuity Ltd,

finnCap Ltd,

Jefferies International Ltd,

Numis Securities Ltd,

Shore Capital Limited,

Winterflood Securities Ltd

SEDOL, ISIN

B4MF389, GG00B4MF3899

Year End

31 March

Stocks & Shares ISA

Eligible

Website

www.dnairone.com

 

COMPANY OVERVIEW

 

Doric Nimrod Air One Limited (LSE Ticker: DNA) ("DNA" or the "Company") is a Guernsey company incorporated on 8 October 2010. Its shares were admitted to trading on the Specialist Fund Segment of the London Stock Exchange's Main Market (the "SFS") on 13 December 2010.

 

The Company's total issued share capital currently consists of 42,450,000 Ordinary Preference Shares (the "Shares") which were admitted to trading at an issue price of 100 pence per Share. As at 10 July 2018, the latest practicable date prior to publication of this report, these shares were trading at 100.5 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 a single aircraft. The Company purchased one Airbus A380-861 aircraft, manufacturers' serial number 016 (the "Asset" or the "Aircraft") in December 2010 for $179 million, which it leased (the "Lease") for twelve years to Emirates Airline ("Emirates"), the national carrier owned by The Investment Corporation of Dubai based in Dubai, United Arab Emirates.

 

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 Asset, and capital, upon the sale of the Asset.

 

The Company receives income from the lease rentals paid by Emirates pursuant to the Lease. 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 2.25 pence per Share per quarter. Emirates bears all costs (including maintenance, repair and insurance) relating to the Aircraft during the lifetime of the Lease.

 

There can be no guarantee that dividends will be paid to Shareholders and, if dividends are paid, as to the timing and amount of any such dividend. There can also be no guarantee that the Company will, at all times, satisfy the solvency test required to be satisfied pursuant to section 304 of the Companies (Guernsey) Law, 2008 (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 Lease.

 

During the year under review (the "Period") and in accordance with the Distribution Policy the Company declared four interim dividends of 2.25 pence per Share. One interim dividend of 2.25 pence per Share was declared after the reporting period. Further details of dividend payments can be found on page 18.

 

Return of Capital

If and when the Company is wound up (pursuant to a shareholder resolution, including the liquidation resolution) the Company intends to return to Shareholders the net capital proceeds upon the eventual sale of the Asset subject to compliance with the Company's Articles of Incorporation (the "Articles") and the applicable laws (including any applicable requirements of the solvency test contained therein).

 

 

Liquidation Resolution

Although the Company does not have a fixed life, the Articles require that the Directors convene a General Meeting of the Company six months before the end of the term of the Lease where an ordinary resolution will be proposed that the Company proceed to an orderly wind-up at the end of the term of the Lease and the Directors will consider (and if necessary, propose to Shareholders) alternatives for the future of the Company, including re-leasing the Asset, or selling the Asset and reinvesting the capital received from the sale of the Asset in another aircraft.

 

CHAIRMAN'S STATEMENT

 

I am pleased to present the Company's shareholders ("Shareholders") with the Company's seventh Annual Financial Report covering the period from 1 April 2017 until 31 March 2018.

 

The Company's investment objective is to obtain income returns and a capital return for its Shareholders by acquiring, leasing and then selling a single aircraft.  The Company purchased one asset, an Airbus A380-861, in December 2010 which it leased to Emirates.  A senior secured finance facility provided by Westpac, in the amount of $122 million made up the monies along with the placing proceeds for the acquisition of the asset.  Upon the purchase of the aircraft, the Company entered into a lease with Emirates for an initial term of twelve years, with fixed lease rentals for the duration.  The debt portion of the funding will be fully amortised over the 12-year term of the lease, with the aim of leaving the aircraft unencumbered on the conclusion of the lease.

 

The Company has been targeting a distribution of 2.25 pence per Share per quarter, equating to 9 pence per Share per annum.

 

The lease payments received by the Company from Emirates cover repayment of the debt as well as income to pay operating expenses and dividends to Shareholders.  Emirates bears all costs (including maintenance, repair and insurance) relating to the Company's Airbus A380-861 aircraft (the "Asset") during the lifetime of the lease.

 

The Company's Asset Manager, Doric GmbH ("Doric"), continues to monitor the lease and to report regularly to the Board.  Nimrod Capital LLP ("Nimrod"), the Company's Corporate and Shareholder Adviser, continues to liaise between the Board and Shareholders, and also communicates with Shareholders regularly regarding relevant news flow and the Company's quarterly fact sheets.

 

News flow relating to the Airbus A380, the sole asset of the Company, has been widespread over the period and the Board keeps a close eye on such developments, receiving regular market updates from Doric and Nimrod.  Whilst there has been much negative coverage, the confirmation of a new order from Emirates in February 2018 was accompanied by a public commitment by Airbus to produce the A380 at least for another ten years.  This order underlines the importance of the A380 to Emirates business model.  With 102 A380s now flying as part of the Emirates fleet, it is a key aircraft and likely is to be so for many years to come.  Airbus has also stated that it is confident of further orders for the A380 now that production certainty has been achieved.  More recently, news that two A380's owned by German Funds managed by Dr Peters Group are to be sold for parts is disappointing. Whilst providing a positive result for investors, according to Dr Peters, it is noted that this outcome is the product of unique circumstances that are unlikely to be repeated.  More positively, news that a European wet lease specialist, Hi Fly, is planning to start operating at least one second hand A380 represents an important milestone in the model's lifecycle.  Wet leasing typically refers to the provision of aircraft, crew, maintenance and insurance (also known as ACMI) to an aircraft operator.  The Company's remaining lease period, some four years, offers a suitable time horizon in which to assess such market developments.

 

Emirates posted another year of profitability in the 2017/18 financial year, growing its route network to 157 destinations and adding 17 new aircraft to its fleet - including 8 A380s.  Emirates' global passenger load factor rose by 0.4 of a percentage point in 2017 to 77.5 per cent. All regions except the Middle East experienced an increase in load factor in 2017. Further detail on Emirates financial and operational performance as well as global passenger traffic conditions can be found in the Asset Manager's Report that follows.  

 

The Board recognises Emirates is the sole lessee of the asset, and in the event that Emirates defaults on the rental payments it is unlikely the Company will be able to meet its targeted dividends or, in the case of ongoing default, continue as a going concern, instead being required to

 

 

sell its aircraft and distribute the proceeds to investors.  We do not believe such a default is likely at

 

this moment in time given the current and historical performance of Emirates and its current financial position.

 

In economic reality, the Company has performed well.  Four interim dividends were declared in the period and future dividends are targeted to be declared and paid on a quarterly basis.  However, the financial statements do not, in the Board's view, properly convey this economic reality due to the accounting treatments for foreign exchange, rental income and finance costs, as required by International Financial Reporting Standards ("IFRS").

 

IFRS require that transactions denominated in currencies other than the presentation currency, (including, most importantly, the cost of the aircraft) are translated into the presentation currency at the exchange rate ruling at the date of the transaction whilst monetary items (principally the outstanding borrowings) are translated at the rate prevailing on the reporting date.  The result is that the figures sometimes show very large mismatches which are reported as unrealised foreign exchange differences.

 

On an on-going basis and assuming the lease and 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 loan repayments due which are likewise denominated in US dollars.  US dollar lease rentals and loan repayments are furthermore fixed at the outset of the Company's life and are very similar in amount and timing.

 

In addition to this, lease rental income receivable is credited evenly to the Statement of Comprehensive Income over the planned life of the lease.  Conversely, the methodology for accounting for interest cost means that the proportion of the loan repayments which is treated as interest, and is debited to the Statement of Comprehensive Income, varies over the course of the loan with a higher proportion of interest expense recognised in earlier periods, so that the differential between rental income and interest cost (as reported in the Statement of Comprehensive Income) reduces.  In reality however, the amount of rental income is fixed so as to closely match the interest and principal components of each loan repayment instalment and allow for payments of operating costs and dividends.

 

The Board conducts an annual review of the estimated residual value of the Asset at the end of the 12-year lease to Emirates for the purpose of validating the depreciation charge.  The Board also assesses if an indicator of impairment of aircraft value has arisen which might require the value of the aircraft to be written down.  In conducting these reviews, the Board engages three internationally recognised expert appraisers, who provide current and future valuations, and takes the advice of Doric, the Company's Asset Manager.

 

Historically, the residual value of the Aircraft has been determined using values including inflationary effects.  However, for the year ended 31 March 2018, after consulting with the auditor and the Company's advisors, the Directors have concluded that the use of forecast values excluding inflation best represents residual value in accordance with a strict interpretation of IAS 16 Property, Plant and Equipment. This has resulted in a reduction in the anticipated residual values of the aircraft and an increase in the related depreciation as disclosed in the Statement of Comprehensive Income.  Further information about the residual value of the asset may be found in the Audit Committee report on pages 25 to 30 and in Note 9 to the Financial Statements.

 

Further, the Board has considered the impairment triggers as set out under IAS 36 Impairment of Assets, in the context of the Company and determined that there is no indication of impairment loss for the year ended 31 March 2018.  Further details can be found in Note 3.

 

The Board also recognises that the Asset was purchased on the basis of being leased to Emirates for a 12 year term at attractive rates.  The Board is conscious that the independent appraisals of the current market value do not reflect the lease, which is an intrinsic part of the value of the Company's Asset.  In addition, upon review of the professional advice they have received, the Board is of the opinion that, the current estimate of the residual value of the Asset is a reasonable approximation of the residual value within the IAS 16 definition of residual value given a comparable asset is not available.

 

Finally, regulatory change has continued apace during the period and the Board continues to monitor and respond to these changes.  In particular, the turn of the year saw the introduction of the Markets in Financial Instruments Directive and the Packaged Retail Insurance and Investment Products Regulation ("PRIIPS"). The PRIIPS EU regulation required the Company to prepare a Key Information Document ("KID") which is available on our website.  Investors should note that the procedures for calculating the costs, risks and potential returns are prescribed by this regulation, and the figures in the KID may not reflect the results investors will experience in the future.  As a result, it is recommended that the KID is not considered in isolation but is read in conjunction with the Company's financial statements and quarterly reports. Further, the Board is conscious of its obligations under the UK Corporate Governance Code and reviews such matters regularly.   Further information regarding this can be found in the Directors' Report on pages 18 to 24.

 

The Board encourages Shareholders to read the Company's quarterly Fact Sheets which we believe provide a great deal of interesting information and we hope these regular reports, in addition to the communication you receive from Nimrod, the Company's Corporate and Shareholder Adviser, are useful and informative.  We welcome Shareholder feedback and encourage you to contact Nimrod to request a meeting. 

 

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 and we look forward to keeping all Shareholders up to date with further progress.

 

Finally, I wish to express my recognition for and appreciation of all the hard work of former Director Norbert Bannon.  Norbert brought great commercial insight to the Company during his tenure, and he leaves with our thanks and good wishes.

 

Charles Wilkinson

Chairman

 

11 July 2018

 

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 Doric Nimrod Air One Airbus A380

 

The Airbus A380 is registered in the United Arab Emirates under the registration mark A6-EDC. For the period from original delivery of the aircraft to Emirates in November 2008 until the end of March 2018, a total of 4,985 flight cycles were logged.  Total flight hours were 41,501.  This equates to an average flight duration of eight hours and 20 minutes.

Maintenance Status

Emirates maintains its A380 aircraft fleet based on a maintenance programme according to which minor maintenance checks are performed every 1,500 flight hours, and more significant maintenance checks (C checks) at 36 month or 18,000 flight hour intervals, whichever occurs first. The 12 month increased C check interval allows for a higher aircraft availability due to lower downtime.

Emirates bears all costs (including for maintenance, repairs and insurance) relating to the aircraft during the lifetime of the lease.

Inspections

The asset manager performed an inspection of the aircraft in October 2017.  The physical condition of the aircraft was in compliance with the provisions of the lease agreement.

 

2. Market Overview

 

2017 saw global revenue passenger kilometres ("RPKs") grow by 7.6 per cent. compared to the previous year.  As a result, 2017 was another year of above-trend passenger growth, surpassing the ten-year average pace of 5.5 per cent.  This momentum in global passenger traffic has continued into 2018, assisted by positive economic conditions.  Nevertheless, the International Air Transport Association ("IATA") anticipates a moderate slowdown in full-year growth as the stimulus to demand from lower airfares has been fading.  RPK growth in 2018 is forecast to be 6.0 per cent., mainly due to the increase in input costs such as fuel prices and labour costs.

In 2017, industry-wide available seat kilometres increased by 6.4 per cent. compared to 2016.  As a result of the RPK growth exceeding this, the global passenger load factor ("PLF") rose by 1.0 percentage points to 81.5 per cent. compared to the previous year, achieving a record high for a calendar year.  All regions except the Middle East experienced an increase in PLF in 2017.

The market share of Middle Eastern airlines fell in 2017 for the first time since 1997.  It was the only region to experience a slowdown in its full-year international RPK growth rate (down from 11.8 per cent. in 2016 to 6.4 per cent. in 2017) following a challenging first half of the year, which included the now-lifted ban on personal electronic devices on flights and the proposed travel bans to the US.  The seasonally adjusted passenger traffic numbers did however recover somewhat during the second half of the year.  IATA's January 2018 Air Passenger Market Analysis report showed passenger traffic was trending upwards at an annualized pace of 1 per cent.

In 2017, Asia/Pacific-based operators recorded the highest RPK growth rate with 10.2 per cent.  Europe experienced the second highest growth rate with 8.2 per cent., followed by Latin America with 7.0 per cent.  The Middle East and Africa achieved growth rates of 6.4 per cent. each, while North America saw a growth rate of 4.2 per cent.

For 2018, IATA forecasts an industry-wide net profit of $38.4 billion, the highest nominal net profit on record.  This comes despite rising unit costs, which are partially offset by the rise in achieved load factors.  Fuel prices, the single largest operating cost for airlines, are expected to increase to $73.8 per barrel and represent 20.5 per cent. of average operating costs in 2018, an increase of 1.8 percentage points compared to the previous year.

© International Air Transport Association, 2018. Air Passenger Market Analysis December 2017, Economic Performance of the Airline Industry 2017 End-year report, Air Passenger Market Analysis January 2018. All Rights Reserved. Available on the IATA Economics page.

 

3. Lessee - Emirates Key Financials

 

In the 2017/18 financial year ending on 31 March 2018, Emirates recorded its 30th consecutive year of profit with a net result of AED 2.8 billion ($762 million), an improvement of 124% compared to the previous financial year, leading to a profit margin of 3.0 per cent. Despite continuing political challenges impacting traveller demand and fare adjustments due to a highly competitive business environment, Emirates increased its revenue to AED 92.3 billion ($25.2 billion). This was aided by the decline of the US dollar against currencies in most of Emirates' key markets, which had an AED 661 million ($180 million) positive impact on the airline's bottom line.

Emirates' overall passenger traffic continued to grow during the 2017/18 financial year. The airline carried a record 58.5 million passengers (a 4 per cent. increase over last financial year) and achieved a passenger load factor of 77.5 per cent. compared to last year's 75.1 per cent. The increase in the passenger load factor was the result of capacity management in response to political uncertainty and strong competition in many markets despite a moderate 2 per cent. increase in seat capacity. 

Total operating costs increased by 7 per cent. over the previous financial year, largely due to the 15 per cent. increase in the average price of jet fuel during the financial year. Including a 3 per cent. uplift in line with capacity expansion, the airline's fuel bill increased by 18 per cent. to AED 24.7 billion ($6.7 billion) compared to the previous financial year. Fuel now accounts for 28 per cent. of operating costs, compared to 25 per cent. in the 2016/17 financial year, and it remains the largest cost category for the airline.

As of 31 March 2018, Emirates' balance sheet amounted to AED 127.6 billion (US$ 34.8 billion), an increase of 5 per cent. compared to the previous financial year. Total equity increased by 5.6 per cent. to AED 37.0 billion ($10.1 billion) due to higher profit which was partially offset by dividend payments to the owners amounting to AED 1.0 billion ($272 million). The equity ratio remained stable at nearly 29 per cent. The airline's cash balance amounted to AED 20.4 billion (US$ 5.6 billion) at the end of the period, up by AED 4.7 billion ($1.3 billion) compared to the previous financial year. Proceeds from the Sukuk financing of AED 2.2 billion ($600 million) issued in the last quarter of the financial year have been invested in short term bank deposits and will be used to finance aircraft deliveries in 2018/19.The current ratio stood at 0.84, meaning the airline would be able to meet over 80 per cent. of its current liabilities by liquidating all its current assets. Changes on the liabilities' side of the balance sheet included the financing of seven new aircraft and the Sukuk issue, which were offset by repayments of finance lease liabilities, bonds and term loans.

In April 2018 Tim Clark, president of Emirates, told journalists that Emirates could operate its A380s until the end of their service life, despite the airline's previous record of phasing out aircraft at an earlier stage.  Emirates received 17 new aircraft, comprising of eight A380s and nine Boeing 777-300ERs. During this time, eight older aircraft were phased out, leading to a total fleet count of 268 at the end of March. This fleet roll-over resulted in an average fleet age of 5.7 years. Due to the more moderate fleet renewal pace compared to the previous year, the

figure increased by around 6 months. Funding has come from the Japanese structured finance market in conjunction with debt from a wide-ranging group of institutions in China, France, the United Kingdom, and Japan. Emirates raised over AED 3.7 billion ($1 billion)

during the year from this source. Emirates has also refinanced a commercial bridge facility (due to non-availability of ECA cover) of AED 3.8 billion ($1.0 billion) using a finance lease structure for five A380 aircraft, accessing an institutional investor and bank market base from Korea, Germany, the United Kingdom, and the Middle East. In total, Emirates raised AED 17.9 billion ($4.9 billion) using a variety of financing structures, including the 600 million US dollar Sukuk in March.

In the 2017/18 financial year, Emirates launched two new passenger services (Phnom Penh in Cambodia and Zagreb in Croatia) and added capacity on 15 existing routes. Additionally, Emirates entered into strategic partnerships with flydubai and Cargolux, increasing its global connectivity and expanding the choice of air services on offer to passenger and cargo customers respectively. Emirates also received authorisation to extend its partnership with Qantas until 2023. Its global route network spanned 155 destinations in 83 countries by fiscal year end.

Source: ch-aviation, CNN, Emirates, FlightGlobal

 

4. Aircraft - A380

 

With the addition of Tokyo-Narita, Casablanca, Sao Paulo, Johannesburg and Nice the airline grew its A380 network by five new destinations during the course of 2017.  As of the end of March 2018, Emirates operated a fleet of 102 A380s, which currently serve 46 destinations within its global network via its hub in Dubai.  A380 destinations include: Amsterdam, Auckland, Bangkok, Barcelona, Beijing, Birmingham, Brisbane, Casablanca, Christchurch, Copenhagen, 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 the end of March 2018, the global A380 fleet consisted of 219 commercially operated planes in service.  The 13 operators are Emirates (102), Singapore Airlines (17), Deutsche Lufthansa (14), Qantas (12), British Airways (12), Korean Air Lines (10), Etihad Airways (10), Air France (10), Qatar Airways (9), Malaysia Airlines (6), Thai Airways (6), Asiana Airlines (6), and China Southern Airlines (5).  Another four were temporarily parked: two for lease return preparations and two were returned to their lessor. Following its redelivery from Singapore Airlines (SIA) earlier in 2018, the second A380 to come off lease has been placed into temporary storage in France whilst its engines are reportedly on short term leases to Rolls Royce.  The number of undelivered A380 orders stood at 108 and no longer includes a six aircraft order from Virgin Atlantic, which has been cancelled after the delivery was postponed multiple times.

Speaking during the Aviation Festival event in London on 7 September 2017, 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 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 able to offer additional enhancements.

Emirates, the most important customer of the A380 program, has tied its business model to the capacity offered by the superjumbo more closely than any other A380 operator and currently serves nearly 50 destinations with the aircraft.  According to an analysis conducted by CAPA - Centre for Aviation (an independent market commentator), if earlier A380s were to be replaced with Boeing 777-9s, of which Emirates currently has 115 on order, it would lead to a 25-32 per cent. loss in capacity.  In order to maintain the current capacity levels on the route between London Heathrow and Dubai alone, Emirates would need to deploy up to three additional flights daily and

acquire the landing rights for each additional flight.  However, this would prove difficult as Emirates already faces challenges from limited slots, hub congestion and traffic rights.

In February 2018, Emirates confirmed an order for an additional 20 Airbus A380 plus an option for another 16 aircraft with deliveries starting from early 2020 onwards.  Emirates, which is currently

using both Engine Alliance and Rolls-Royce engines, is evaluating the engine options for this order.  HH Sheikh Ahmed bin Saeed Al Maktoum explained: "Our customers love it, and we've been able to deploy it on different missions across our network, giving us flexibility in terms of range and passenger mix."

Airbus also announced that it intends to reduce the A380 output to six per year from 2020 onwards in order to sustain the programme and keep losses from the production of this aircraft compressed. The production rate, which is planned at 12 A380s to be delivered this year, will follow with a decrease to eight by 2019 and six by 2020.  Tom Enders, Airbus' departing chief executive, explained that he anticipates further A380 orders in the future from existing or new operators, specifically in Asia and, particularly, China. Enders states that the A380 is currently being under-represented in China, but would ideally suit such a market.

Source: CAPA, Emirates, FlightGlobal

DIRECTORS

 

Charles Edmund Wilkinson - Chairman (Age 75) (Independent non-executive director)

Charles Wilkinson is a solicitor who retired from Lawrence Graham LLP in March 2005.  While at Lawrence Graham he specialised in corporate finance and commercial law, latterly concentrating on investment trust and fund work. 

 

Charles is currently Chairman of Doric Nimrod Air Three Limited, Chairman of the Audit Committee of Doric Nimrod Air Two Limited, and a director of Landore Resources Ltd, a Guernsey based mining exploration company.  He is resident in Guernsey.

 

Geoffrey Alan Hall (Age 69) (Independent non-executive director)

Geoffrey Hall has extensive experience in asset management, having previously been Chief Investment Officer of Allianz Insurance plc, a major UK general insurance company and an investment manager at HSBC Asset Management, County Investment Management, and British Railways Pension Funds. Geoffrey is also currently a Director of Doric Nimrod Air Two 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) (Independent non-executive director)

John Le Prevost is the Chief Executive Officer of Anson Group Limited and Chairman of Anson Registrars Limited (the Company's Registrar). He has spent over 30 years working in offshore trusts and investment business during which time he was Managing Director of County NatWest Investment Management (Channel Islands) Limited, Royal Bank of Canada's mutual fund company in Guernsey and Republic National Bank of New York's international trust company. 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 Two Limited, Doric Nimrod Air Three Limited and Amedeo Air Four Plus Limited. He is resident in Guernsey.

 

SERVICE PROVIDERS

 

Management and the Delegation of Functions

The Directors, whose details are set out on page 11 are responsible for reviewing the business affairs of the Company in accordance with the Articles and the Prospectus and have overall responsibility for the Company's activities including all business decisions, review of performance and authorisation of distributions.  All of the Directors are independent and non-executive.  The Company has delegated management of the Company's Airbus A380-861 aircraft (the "Asset") to Doric GmbH ("Doric"), which is a company incorporated in Germany. Further details are outlined below under the heading Asset Manager. The Directors delegate secretarial and administrative functions to JTC Fund Solutions (Guernsey) Limited ("JTC" or the "Secretary & Administrator") which is a company incorporated in Guernsey and licensed by the Guernsey Financial Services Commission (the "GFSC") for the provision of administration services. The registrar function is delegated to Anson Registrars Limited ("Anson") which is licensed and regulated by the GFSC.

 

Asset Manager

Doric has been appointed by the Company to provide asset management services to the Company. Pursuant to the Asset Management Agreement, Doric will: (i) monitor Emirates' and any subsequent lessees' performance of its obligations under the lease and any subsequent leases respectively (which shall include the obligations relating to the maintenance of insurance cover); (ii) provide the Company with information regarding alternatives with respect to any potential sale or re-lease of the Asset; (iii) carry out mid-lease inspections of the Asset; (iv) provide the Company with asset monitoring reports describing the state and any material changes to the state of the Asset; and (v) liaise, as and when necessary, with lenders, on all matters relating to the Loan, as required.

 

Doric has further undertaken that it will dedicate sufficient time and resources as it reasonably believes is required from time to time to fulfil any contractual arrangements it enters into with the Company.

 

Doric Partners LLP ("Doric LLP"), a limited liability partnership incorporated in England and Wales and Amedeo Services (UK) Limited ("Amedeo") have been appointed by the Company, pursuant to the Amended Liaison Services Agreement to act as Liaison agents. Doric LLP has been appointed to (i) coordinate the provision of services by Doric to the Company under the Asset Management Agreement; and (ii) facilitate communication between the Company and Doric.

 

The Doric Group is also a member of ISTAT, the International Society of Transport Aircraft Trading.

 

The Doric Group is a leading provider of products and services for investors in the fields of aviation, shipping, renewable energy and real estate. The Doric Group has an international presence, with offices in Germany, Hong Kong, the United Kingdom, and the United States, and a multinational team which offers access to extensive relationship networks and expert asset knowledge maintaining regulated financial institutions in the United States and Europe. One of the firm's core competencies is its asset management expertise, which is an integrated part of all Doric transactions and a cornerstone of the business. For further information about the Doric Group, please visit www.doric.com.

 

The aircraft portfolio currently managed by the Doric Group is valued at $7 billion and consists of 45 aircraft under management. These aircraft include commercial airliners ranging from ATR 72-500s and the Airbus A320 family, through the Boeing 737, 777, 787 and Airbus A330/A340 family, up to the Boeing 747-8F and Airbus A380.

 

The Doric Group has 22 Airbus A380 aircraft currently under management and is therefore considered well positioned to perform the technical asset management of this aircraft type.

 

Liaison Agent

Amedeo Services (UK) Limited has been appointed by the Company, pursuant to the Liaison Services Agreement, to, when requested by the Board, participate in Board meetings, assist in the review of all asset management matters and provide advice in all asset management related matters. Amedeo Services (UK) Limited is authorised by the Financial Conduct Authority and is part of the Amedeo group of companies.

 

The Amedeo group is primarily involved in the operating lease and management of widebody aircraft. The aircraft portfolio currently managed by the Amedeo Group is valued at over $8 billion and consists of 50 aircraft under management. These aircraft include commercial airliners including Airbus A380, A350, A330, A321 and Boeing 777, 787 and 747-8F. Amedeo is a member of ISTAT, the International Society of Transport Aircraft Trading, and is a Strategic Partner of IATA, the International Air Transport Association.

 

Corporate and Shareholder Adviser

Nimrod Capital LLP ("Nimrod"), which is authorised by the Financial Conduct Authority, has been appointed as the Corporate and Shareholder adviser by the Company.

 

Nimrod was founded in 2008 as an entirely independent organisation which specialises in generating and sourcing interesting investment funds, themes and solutions managed by experts in their fields for the professional investor marketplace. It has launched nine listed investment companies since its formation and it also provides investment, marketing, distribution and advisory services to investment companies and their Board and managers.

 

Nimrod, together with Doric and Emirates, was awarded the "Innovative Deal of the Year 2010" by the international aviation magazine Airfinance Journal in recognition of the innovative financing of an Airbus A380 leased to Emirates by the Company, which was the first stock market listed aircraft investment vehicle. 

 

Secretary & Administrator

JTC plc is a multijurisdictional, independent provider of institutional and private client services admitted to trading on the Main Market of the London Stock Exchange. Founded in 1987, JTC plc has significant global experience and over £63 billion ($85 billion) assets under administration. For further information about JTC plc, please visit www.jtcgroup.com.

 

JTC Fund Solutions (Guernsey) Limited (the "Secretary & Administrator") is a Guernsey incorporated company and provides administration and secretarial services to the Company pursuant to an Administration and Secretarial Agreement.  In such capacity, JTC is responsible for the general secretarial functions required by the Law and ensures that the Company complies with its continuing obligations as well as advising on the corporate governance requirements and recommendations as applicable to a company admitted to trading on the Specialist Fund Segment of the London Stock Exchange's Main Market.

 

JTC is also responsible for the Company's general administrative functions such as the calculation of the net asset value of Shares, the maintenance of accounting and statutory records and any reporting required under the Foreign Account Tax Compliance Act of the United States of America and the OECD's Common Reporting Standards.

 

Registrar

Anson Registrars Limited ("Anson") is the Company's CREST compliant registrar.  The Company's registrar is responsible for the maintenance of the Company's share register and for the processing of dividend payments and stock transfers.  Anson is licensed and regulated by the Guernsey Financial Services Commission and further information about Anson may be found at

 

www.anson-group.com.

 

Review

The Board keeps under review the performance of the Asset Manager, Liaison Agent, Corporate and Shareholder Adviser the Secretary & Administrator and the Registrar and the powers delegated to each service provider. In the opinion of the Board, the continuing appointments of the service providers on the terms agreed is in the best interests of The Company's shareholders as a whole.

 

MANAGEMENT REPORT

 

A description of important events which have occurred during the year under review, their impact on the performance of the Company as shown in the Financial Statements and a description of the principal risks and uncertainties facing the Company are given in the Chairman's Statement, Asset Managers Report, Statement of Principal Risks and the Notes to the Financial Statements contained on pages 38 to 63 and are incorporated here by reference.

 

Principal Risks and Uncertainties

The Board has undertaken a robust assessment of the principal risks facing the Company and has undertaken a detailed review of the effectiveness of the risk management and internal control systems. The Board is comfortable that the risks are being appropriately monitored on a regular basis.

 

The risks set out below are those which are considered to be the material risks relating to an investment in the Ordinary Shares but are not the only risks relating to the Ordinary Shares or the Company.  Additional risks and uncertainties of which the Company is presently unaware or that the Company currently believes are immaterial may also adversely affect its business, financial condition, results of operations or the value of the Ordinary Shares.

 

The principal risks associated with the Company are:

 

Operational risk: the Board is ultimately responsible for all operational facets of performance including cash management, asset management, regulatory and listing obligations. The Company has no employees and so enters into a series of contracts/legal agreements with a series of service providers to ensure both operational performance and the regulatory obligations are met. This risk has been mitigated by the Company using well established, reputable and experienced service providers and assessing service providers' continued appointment on at least an annual basis.

 

Investment risk: there are a number of risks associated with the Company's Airbus A380-861 aircraft (the "Asset")  in relation to the occurrence of technical faults with the Asset or actions by third parties causing both damage to the Asset and also damaging the demand for global air travel.  This risk has been mitigated by the lessee's contractual responsibility to insure, repair and maintain the aircraft for the duration of the lease between the Company and Emirates Airline (the "Lease").

 

Borrowings and financing risk: there is a risk that the Company is exposed to fluctuations in market interest rates and foreign exchange rates.  This risk has been mitigated by ensuring that loan repayments are made from lease rental revenues received in the matching currency and by fixing the interest rates on loan and lease rentals.

 

Emirates is the sole lessee of the Asset and is headquartered in the Middle East. Should Emirates default on the rental payments due to domestic events, events in the wider airline industry or other reasons it is unlikely the Company will be able to meet its targeted dividends or, in the case of ongoing default, continue as a going concern. The risk of default is mitigated by the ability of the Company to sell or re-lease the Asset in the event of a single default.

 

Secondary market risk: there is a risk that the Company would not be able to achieve the projected resale value of the asset due to changes in demand for second hand aircraft of the type owned by the Company.  The Board monitors, and revises the residual value of the aircraft on an annual basis.

 

Regulatory risk: the Company is required to comply with the disclosure guidance and transparency rules of the Financial Conduct Authority and the requirements imposed by the Law and the Guernsey Financial Services Commission. Any failure to comply could lead to criminal or

 

 

civil proceedings. Although responsibility ultimately lies with the Board, the Company's secretary also monitors compliance with regulatory requirements.

 

Data Protection

 

The Company has implemented measures designed to ensure its compliance with the EU General Data Protection Regulation (EU) 2016/679 and associated legislation in Guernsey. The Company has also issued a privacy notice explaining the data it holds, how the data is processed and its procedures for processing this data.  This notice is available for review and download at the Company's website.

 

Going Concern

 

The Company's principal activities are set out within the Company Overview on pages 2 to 3. The financial position of the Company is set out on page 38. In addition, Note 18 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 loan interest rate has been fixed and the fixed rental income under the lease means that the rent should be sufficient to repay the Loan and provide surplus income to pay for the Company's expenses and permit payment of dividends.

 

After making reasonable enquiries, and as described above the Directors have a reasonable expectation that the Company 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 these annual Financial Statements.

 

Viability Statement

 

In accordance with provision C.2.2 of the UK Corporate Governance Code, the Directors of the Company have considered the prospects of the Company over the period from present until the liquidation resolution is put to shareholders six months before the Lease is due to terminate in 2022, a period of approximately four years. In choosing the period of viability for the Company the Board has considered the prospect of Emirates choosing to exercise its option to purchase the Asset not less than 19 months before the expiration of the Lease or the possibility of the Asset being re-leased.

 

The Board, in assessing the viability of the Company, has paid particular attention to the principal risks faced by the Company as disclosed in the Chairman's Statement, Asset Manager's Report and the Notes to the Financial Statements, reviewing on an annual basis the risks faced and ensuring that any mitigation measures in place are functioning correctly.

 

In addition, the Board has considered a detailed cashflow projection for the running costs of the Company and has assumed that Emirates is a going concern. The Company retains sufficient cash to cover the forecast operating costs of the Company until the termination date of the Lease in 2022, assuming receipt of planned rental income.

 

The Directors believe that their assessment of the viability of the Company over the period chosen was sufficiently robust and encompassed the risks which would threaten the business model, future performance, solvency or liquidity of the Company considering a variety of severe but plausible scenarios.

 

As a result of their review, the Directors of the Company have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due until the

 

 

termination date of the Lease in 2022.

 

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 Management Report includes or incorporates by reference a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces;

(c)  The Annual Report taken as a whole is fair, balanced and understandable and provides the information necessary for the Company's shareholders to assess the Company's position, performance, business model and strategy; and

(d)  The Annual Report and Financial Statements includes information required by the LSE and for ensuring the Company complies with the relevant provisions of the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority.

 

Charles Wilkinson                                        John Le Prevost                  

Chairman                                                       Director

 

11 July 2018

\

DIRECTORS' REPORT

 

The Directors present their report and Financial Statements of the Company for the period from 1 April 2017 to 31 March 2018 (the "Period").

 

Principal Activities and Business Review

The principal activity of the Company is to acquire, lease and then sell a single aircraft. The Directors do not envisage any change in these activities for the foreseeable future. A description of the activities of the Company in the period under review is given in the Chairman's Statement and the Asset Manager's Report respectively on pages 4 to 6 and 7 to 10.

 

Status

The Company is a Guernsey domiciled company the Shares of which are admitted to trading on the Specialist Fund Segment of the London Stock Exchange's Main Market. Its registered number is 52484. The Company operates in accordance with the Law.

 

Results and Dividends

The results of the Company for the Period are set out on pages 38 to 41.

 

The Company declared the following dividends during the period from 1 April 2017 to date as follows:

 

Quarter End

Announcement Date

 

Payment Date

 

Dividend per Share (pence)

 

31 March 2017

 

11 April 2017

 

28 April 2017

 

2.25

 

30 June 2017

 

12 July 2017

 

28 July 2017

 

2.25

 

30 September 2017

11 October 2017

27 October 2017

2.25

 

31 December 2017

11 January 2018

31 January 2018

2.25

 

31 March 2018

12 April 2018

30 April 2018

2.25

 

The Company aims to continue to pay quarterly dividends of 2.25 pence per share, in line with the Distribution Policy. There is no guarantee that any future dividends will be paid.

 

Directors

The Directors in office are shown on page 11 and all Directors remain in office as at the date of signing of these Financial Statements.  Shortly before the end of the year, on 27 March 2018, Mr Norbert Bannon resigned as a director of the Company. Further details of the Directors' responsibilities are given on page 20.

 

Anson Registrars Limited ("Anson") is the Company's Registrar, Transfer Agent and Paying Agent. John Le Prevost is a director and controlling shareholder of Anson Group Limited, the holding company of Anson Registrars Limited. 

 

Other than the above no Director has a contract of service with the Company, nor are any such contracts proposed.

 

 

The following interests in Ordinary Shares of the Company are held by Directors and their connected persons:

 

Number of Ordinary Shares

Charles Wilkinson

 

100,000

Geoffrey Hall

 

45,000

 

Other than the above shareholdings and Mr Le Prevost's interest in Anson, none of the Directors nor any persons connected with them had a material interest in any of the Company's transactions, arrangements or agreements during the period and none of the Directors has or has had any interest in any transaction which is or was unusual in its nature or conditions or significant to the business of the Company, and which was effected by the Company during the reporting period.

 

At the date of this report, there are no outstanding loans or guarantees between the Company and any Director.

 

There were no material related party transactions which took place in the financial period, other than those disclosed in the Directors' Report and at Note 21 to the Financial Statements.

 

Substantial Controllers of Voting Rights

 

The Company has identified the following substantial controlling interests in voting rights attached to the Company's issued share capital in accordance with Chapter 5 of the DGTRs. These are based on notifications made to the Company since inception and may differ substantially from positions recorded on the Company's share register.

 

There have been no material changes in the below list of substantial controlling interests between the end of the year under review and 11 July 2018, being the latest practicable date prior to the date of approval of this report.

 

Registered Holder

% of Total Voting Rights

Number  of Ordinary Shares

 

Notification Date

City of Bradford Metropolitan District Council

10.60%

4,500,000

30 September 2013

Baring Asset Management Limited

6.07%

2,577,500

26 January 2018

Nestle Capital Management Limited

9.42%

4,000,000

21 December 2010

East Riding of Yorkshire Council

10.60%

4,500,000

13 January 2011

Insight Investment Management (Global) Limited

11.78%

5,000,000

4 May 2011

 

Corporate Governance

 

Statement of Compliance with the UK Corporate Governance Code

As a Guernsey company with shares admitted to the SFS, the Company is not obliged to adopt the UK Corporate Governance Code (the "Code"). The Company has, however, voluntarily committed to comply with the Code or explain any departures. A copy of the Code is available for download from the Financial Reporting Council's website (www.frc.org.uk). Companies which report against the Code are also deemed to meet the requirements of the Guernsey Financial Services Commission Code of Corporate Governance.

 

 

Save for departing from the requirements to: (i) have a chief executive (since the Company does not have any Executive Directors); (ii) have a senior independent director (since the Company considers that each Director who is not Chairman can effectively fulfil this function); (iii) have a remuneration committee (given the small size of the exclusively non-executive and independent Board); (iv) have a nomination committee (given the small size of the exclusively non-executive and independent Board); (v) appoint the Directors for a fixed term (given the term of the lease between the Company and Emirates (the "Lease") is twelve years, the Board considers that the defined life of the Company means that the Directors should be appointed to serve until the Lease ends and the Company is liquidated, subject to re-election every three years by the Company's shareholders) and (vi) have an internal audit function (as the Company has no executives or employees of its own), the Company is not presently aware of any departures from the Code.

 

Board Responsibilities

The Board comprised four then three Directors following the resignation of Mr Norbert Bannon on 27 March 2018, who meet at least twice per year to consider the affairs of the Company in a prescribed and structured manner. Biographies of the Directors appear on page 11 demonstrating the wide range of skills and experience they bring to the Board.  All the Directors are non-executive and independent. The Board regularly reviews the balance, knowledge and effectiveness of the Board, to identify if any additional experience or skills are needed and to ensure that the current Directors have sufficient available time to undertake the tasks required and remain independent and Directors are able and encouraged to provide statements to the Board of their concerns and ensure that any items of concern are recorded in the Board minutes. When undertaking a search for a new director the Board is mindful of diversity and meritocracy.

 

Following the resignation of Mr Norbert Bannon as a Director of the Company on 27 March 2018, a structured search and selection process incorporating recommendations from advisors independent of the Board is currently taking place for a new director.

 

In accordance with the Company's Articles the Directors shall determine the fees payable provided that the aggregate amount of such fees paid in respect of services rendered to the Company shall not exceed £150,000 per annum. All Directors receive an annual fee and there are no share options or other performance related benefits available to them. All Directors are paid a fee of £15,000 per annum and the Chairman is paid an additional fee of £5,000 per annum. The Chairman of the Audit Committee is paid an additional £3,000 per annum. The terms and conditions of appointment of non-executive directors are available for inspection at the Company's registered office by prior arrangement with the Company's Secretary & Administrator (JTC Fund Solutions (Guernsey) Limited).

 

Board meetings are held at least twice per year to consider the business and affairs of the Company together with such further Board meetings as may be required. The Board hold either a Board meeting or special dividend committee meeting each quarter to consider and if thought suitable, approve the payment of a dividend in accordance with the Company's Distribution Policy.

 

Between these regular meetings the Board keeps in contact by email and telephone as well as meeting to consider specific matters of a transactional nature.  Additionally the Directors may hold strategy meetings with its relevant advisors in attendance as appropriate.

 

The Directors are kept fully informed by the Asset Manager and Secretary & Administrator of all matters that are relevant to the business of the Company and should be brought to the attention of the Directors and/or the Company's shareholders ("Shareholders"). All Directors have direct access to the Secretary & Administrator who is responsible for ensuring that Board procedures are followed and that there are effective information flows both within the Board and between Committees and the Board.

 

 

 

The Directors also have access to the advice and services of the Asset Manager and Corporate and Shareholder Advisory Agent and may also, in the furtherance of their duties, take independent professional advice at the Company's expense.   

 

In addition to the scheduled meetings held to consider the declaration of dividends, during the Period the Board met three times, the Directors' attendance is summarised below:-

 

Director

Board Meetings during the Period

Charles Wilkinson

3 of 3

Geoffrey Hall

3 of 3

John Le Prevost

3 of 3

Norbert Bannon (resigned 27 March 2018)

3 of 3

 

Audit Committee

The Directors are all members of the Audit Committee. The Audit Committee has regard to the Guidance on Audit Committees published by the Financial Reporting Council in September 2012 and most recently updated in April 2016. The Audit Committee examines the effectiveness of the Company's and service providers' internal control systems as appropriate, the annual and half-yearly reports and financial statements, the auditor's remuneration and engagement, as well as the auditor's independence and any non-audit services provided by them. 

 

The Audit Committee considers the nature, scope and results of the auditor's work and reviews annually prior to providing a recommendation to the Board on the re-appointment or removal of the auditor. When evaluating the external auditor the Audit Committee has regard to a variety of criteria including industry experience, independence, reasonableness of audit plan, ability to deliver constructive criticism, effectiveness of communication with the Board and the Company's service providers, quality control procedures, effectiveness of audit process and added value beyond assurance in audit opinion. 

 

Auditor independence is maintained through limiting non-audit services to specific audit-related work that falls within defined categories; for example, the provision of advice on the application of International IFRS or formal reports for any stock exchange purposes. All engagements with the auditor are subject to pre-approval from the Audit Committee and fully disclosed within the Annual Financial Report for the relevant period. A new lead audit partner is appointed every five years and the Audit Committee ensures the auditor has appropriate internal mechanisms in place to ensure its independence. The Audit Committee has recommended to the Board that the re-appointment of Deloitte LLP as the Company's external auditor be proposed to Shareholders at the 2018 Annual General Meeting. The Audit Committee will consider arranging for the external audit contract to be tendered in 2022 (being 10 years from the initial appointment) with the aim of ensuring a high quality and effective audit.

 

The Audit Committee meets at least twice per year, shortly before the Board meets to consider the Company's Half-yearly and Annual Financial Reports, and reports to the Board with its deliberations and recommendations and also holds an annual planning meeting with the auditor. The Audit Committee operates within clearly defined terms of reference based on the Institute of Chartered Secretaries and Administrators recommended terms and provides a forum through which the Company's external auditor reports to the Board.  The Audit Committee can request information from the Company's service providers with the majority of information being directly sourced from the Asset Manager, JTC Fund Solutions (Guernsey) Limited (the "Secretary & Administrator" or "JTC") and the external auditor. The terms of reference of the Audit Committee are available upon request. 

 

 

Each year the Board examines the Audit Committee's performance and effectiveness, and ensures that its tasks and processes remain appropriate. Key areas covered included the clarity of the Committee's role and responsibilities, the balance of skills among its members and the effectiveness of reporting its work to the Board. The Board is satisfied that all members of the Committee have relevant financial experience and knowledge and ensure that such knowledge remains up to date.

 

Overall the Board considers that the Audit Committee has the right composition in terms of expertise and has effectively undertaken its activities and reported them to the Board during the Period.

 

Internal Control and Financial Reporting

The Board is responsible for the Company's system of internal control and for reviewing its effectiveness. The Board confirms that there is an on-going process for identifying, evaluating and monitoring the significant risks faced by the Company

 

The internal control systems are designed to meet the Company's particular needs and the risks to which it is exposed. Accordingly, the internal control systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and by their nature can only provide reasonable and not absolute assurance against misstatement and loss.

 

The Board on an annual basis conducts a full review of the Company's risk management systems including consideration of a risk matrix which covers various areas of risk including corporate strategy, accuracy of published information, compliance with laws and regulations, relationships with service providers and business activities.

 

Asset Management services are provided by Doric GmbH. Administration and Secretarial duties for the Company are performed by JTC. 

 

The Directors of the Company clearly define the duties and responsibilities of their agents and advisors.  The appointment of agents and advisers is conducted by the Board after consideration of the quality of the parties involved and the Board monitors their on-going performance and contractual arrangements.  The Board also specifies which matters are reserved for a decision by the Board and which matters may be delegated to its agents and advisers.

 

Anti Bribery Policy

The Directors have undertaken to operate the business in an honest and ethical manner and accordingly take a zero-tolerance approach to bribery and corruption. The key components of this approach are implemented as follows:

 

·     The Board is committed to acting professionally, fairly and with integrity in all its

business dealings and relationships.

·     The Company will implement and enforce effective procedures to counter bribery.

·     The Company requires all its service providers and advisors to adopt equivalent or

similar principles.

 

Dialogue with Shareholders

All holders of Ordinary Shares in the Company have the right to receive notice of, and attend, the general meetings of the Company, during which members of the Board will be available to discuss issues affecting the Company.

 

 

The primary responsibility for Shareholder relations lies with the Company's Corporate and Shareholder Advisory Agent.  In addition, the Directors are always available to enter into dialogue with Shareholders and the Chairman is always willing to meet Shareholders as the Company believes such communication to be important. The Company's Directors can be contacted at the Company's registered office or via the Company's secretary.     

 

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable Guernsey law and regulations.

 

Under the Law the Directors are required to prepare financial statements for each financial year. The Directors have chosen to prepare the Company's financial statements in accordance with IFRS.

 

Under the Law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

 

In preparing these financial statements, International Accounting Standard 1 requires that Directors:

 

·      properly select and apply accounting policies;

·      present information, including accounting policies, in a manner that provides relevant,

reliable, comparable and understandable information;

·      provide additional disclosures when compliance with the specific requirements in

IFRSs are insufficient to enable users to understand the impact of particular

transactions, other events and conditions on the entity's financial position and

financial performance; and

·      make an assessment of the Company's ability to continue as a going concern.

 

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Law.  They are also responsible for safeguarding the assets of the Company and for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

Disclosure of Information to the Auditor

The Directors who held office at the date of approval of this Directors' Report confirm in accordance with the provisions of Section 249 of the Law that, so far as they are each aware, there is no relevant audit information of which the Company's auditor is unaware; and each Director has taken all the steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

 

 

Auditor

Deloitte LLP have expressed their willingness to continue in office as auditor and the Audit Committee has recommended their reappointment. A resolution proposing their reappointment will be submitted at the Company's forthcoming General Meeting to be held pursuant to section 199 of the Law.

 

Charles Wilkinson                                        John Le Prevost       

Chairman of the Board                                Director

 

Signed on behalf of the Board on 11 July 2018.

 

AUDIT COMMITTEE REPORT

 

Membership

Charles Wilkinson - Chairman of the Board

Geoffrey Hall - Director

John Le Prevost - Director

Norbert Bannon - Chairman of the Audit Committee until 27 March 2018

 

Key Objective

The provision of effective governance over (i) the appropriateness of the Company's financial reporting including the adequacy of related disclosures, (ii) the performance of the Company's external auditor, (iii) monitoring of the systems of internal controls operated by the Company and (iv) the Company's principal service providers and the management of the Company's regulatory compliance activities.

 

Responsibilities

The key duties of the Audit committee (the "Committee") are as follows:

·     reviewing the Company's financial results announcements and financial statements

and monitoring compliance with relevant statutory and listing requirements;

·     reporting to the Board on the appropriateness of the Company's accounting policies

and practices including critical accounting policies and practices;

·     advising the Board on whether the annual report and accounts, taken as a whole, is

fair, balanced and understandable and provides the information necessary for

shareholders to assess the Company's position, performance, business model and strategy;

·     overseeing the relationship with the external auditor and reviewing the effectiveness

of the external audit process; and

·     monitoring the systems of internal controls operated by the Company and by the

Company's principal service providers.

 

Committee Meetings

The Committee meet at least twice a year. The Committee reports to the Board as part of a separate agenda item, on its activities and on matters of particular relevance to the Board in the conduct of its work. During the year under review (the "Period") the Committee formally reported to the Board on two occasions.

 

Main Activities of the Committee during the Period

The Committee assisted the Board in carrying out its responsibilities in relation to financial reporting requirements, compliance and the assessment of internal controls. The Committee also managed the Company's relationship with the external auditor.

 

Fair, Balanced and Understandable

In order to comply with the UK Corporate Governance Code, the Board requested that the Committee advises them on whether it believes the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

 

The Committee engaged with the Company's auditor and the Company's administrator in order to ensure that the financial statements were fair, balanced and understandable. 

 

 

Financial Reporting and Significant Issues

The Committee's primary role in relation to financial reporting is to review, with its service providers and the external auditor, the appropriateness of the half-year and annual financial statements, the significant financial reporting issues and accounting policies and disclosures in the financial statements. The Committee has considered the key risks identified as being significant to these accounts and the most appropriate treatment and disclosure of any new significant issues identified during the audit and half-year reviews as well as any recommendations or observations made by the external auditor. To aid its review the Committee considered reports prepared by external service providers, including Doric GmbH ("Doric") and Nimrod Capital LLP ("Nimrod"), and reports from the external auditor on the outcome of their annual audit. The significant issues considered by the Committee in relation to the 2018 accounts and how these were addressed are detailed below:

 

Significant issues for the Period

How the Committee addressed these significant issues

Residual value of aircraft asset

 

The non-current asset of the Company comprises a single Airbus A380 aircraft ("the Asset"). An annual review is required of the residual value of the Asset as per IAS 16 Property, Plant and Equipment, which defines residual value as "the estimated amount that an entity would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of an age and in the condition expected at the end of its useful life."

 

The Company's estimation technique is to make reference to the most recently produced forecast value (excluding inflation), not an estimate of the amount that would currently be achieved, and so this is not a direct application of the IAS 16 definition. This approach has been taken because a current market value in today's prices for a twelve year old A380 does not exist at the reporting date.

 

The Company has engaged three internationally recognised expert appraisers to provide the Company with third party consultancy valuation services. In the absence of sales data for similar used assets, appraisers are heavily reliant on databases containing historical data points of aircraft sales relating to large commercial aircraft. Interpretation of historical data is the basis for the current market value and provides, together with the expected developments in the future, the foundation for their opinions on future values. Furthermore, the appraisers' valuations take into account specific technical and economic developments as well as general future trends in the aviation industry and the macro-economic outlook. The Company has historically used the average forecast values of the independent appraisers, inclusive of inflationary effects as a guide to determine the residual value.  However, following discussions between the Directors and the auditor for the year ended 31 March 2018, it was determined that the strict application of IAS 16 be applied to the assets of the Company and that the use of forecast values excluding inflation best approximates residual value as required by IAS 16 Property, Plant and Equipment. This, together with the effect of foreign exchange fluctuations on the residual values, has resulted in an adjustment made to depreciation, details of which have been disclosed in Note 9.

 

As of 31 March 2018 the Company's Airbus A380-861 aircraft's (the "Aircraft") current market value is 129.4 million US dollars as per the average of the latest opinion of three internationally recognised expert appraisers - this is 5.9 per cent. below the book value at this point in time in US dollar terms. The Committee notes that Sterling has depreciated significantly against the US dollar since the asset was acquired.

 

 

 

Significant issues for the Period

How the Committee addressed these significant issues

 

Apart from the aforementioned, the Asset Manager has confirmed in the year ending 31 March 2018 that there were no other required changes to the methodology used to determine the residual values.

 

As updated investment valuations of the Asset as at the year end were commissioned and received from third party professional valuers and analysed by the Asset Manager and the directors, the Committee believes that those valuations are appropriate for use in preparing the financial statements. Therefore, the residual values used in the accounts are based on these appraisals.

 

Upon review of the advice they have received from Doric  and the appraisers, the Committee is of the opinion that, the current estimate of the residual valuation of the Asset is a reasonable approximation of the residual value within the IAS 16 definition.

Recording foreign exchange gains/losses

 

IFRS require that certain transactions denominated in currencies other than the presentation currency (including, most importantly, the cost of the Asset) be translated into presentation currency at the exchange rate ruling transaction date whilst monetary balances (principally the outstanding borrowings) are translated at the rate prevailing on the reporting date. The resultant figures sometimes show very large mismatches which are reported as unrealised foreign exchange differences.

 

In assessing foreign exchange, the Committee has considered the issue at length and are of the opinion that, 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 loan repayments due which are likewise denominated in US dollars. US dollar lease rentals and loan repayments are furthermore fixed at the outset of the Company's life and are very similar in amount and timing.

 

The Committee concluded that the matching of the lease rentals to settle loan repayments therefore mitigates risks of foreign exchange fluctuations. 

During the Period the Company  recorded a significant foreign exchange rate gain due to the appreciation of Sterling against US dollars and the consequent decrease in the Sterling value of the US dollar denominated debt.

The Committee has carefully considered the disclosure in Note 18 (b) to the Financial Statements to ensure that the reality of the Company's foreign exchange risk exposure is properly explained.

 

 

Significant issues for the Period

How the Committee addressed these significant issues

Risk of default by the Lessee on lease rentals receivable

 

Emirates are the sole lessee of the Asset. Should Emirates default on the rental payments, it is unlikely the Company will be able to meet its targeted dividends or, in the case of ongoing default, continue as a going concern.

 

The Committee received quarterly reports from Doric during the year which comment on the performance of Emirates. Doric have advised that Emirates has continued to perform well, flying more passengers than ever before. Passenger load factors remain high.

 

The Committee concluded that it would continue to receive quarterly reports from Doric on the performance of Emirates and would continue to monitor Emirate's overall performance.

 

The Committee carefully considered the disclosure in Note 18 (c) to the Financial Statements to ensure that this concentration of credit risk is properly reflected.

Consideration of any triggers for impairment

 

IAS 36 Impairment of Assets requires that a review for impairment be carried out by the Company when there is an indication of impairment of an asset and if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The review will compare the carrying amount of the asset with its recoverable amount, which is the higher of its value if sold (if known) and its value in use.

The Committee has considered the issue at length and are of the opinion that, there is no indication of an impairment loss for the current year. Accordingly, no impairment review has been undertaken.

 

As detailed in Note 3, the Committee has considered various factors such as: a lack of conclusive comparable current market data for the A380 aircraft, the nature of the operations of the Company being aircraft leasing as opposed to an airline operating business, as well as other mitigating factors such as the close monitoring by the Company of Emirates' usage of the Aircraft and their compliance with agreed maintenance schedules.

 

We note that the auditors also consider the recognition of rental income and the accounting for debt within their key audit matters.  These items have been considered by the Audit Committee in the current year, but, as there have been no changes in respect of these risks they have not been a primary area of focus of the Committee in the current year.

 

Going Concern

After making enquiries, the Committee has a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. The Committee believe the Company is well placed to manage its business risks successfully as the interest on the Company's Loan has been fixed and the fixed rental income under the operating lease means that the rentals should be sufficient to repay the Loan and provide surplus income to pay for the Company's expenses and permit payment of dividends. Accordingly, the Committee has adopted the going concern basis in preparing the financial information.

 

Internal Controls

The Committee has made due enquiry of the internal controls of the Administrator. The Committee is satisfied with the controls currently implemented by the Secretary & Administrator; however it has requested that the Secretary & Administrator keep the Company informed of any developments and improved internal control procedures. The most recent report on the internal control of JTC's administration services, prepared in accordance with the International Standard on

 

 

Assurance Engagement 3402 ("ISAE 3402") for the period from 1 February 2017 to 31 January 2018, together with a bridging letter to 9 April 2018, has been provided to the Committee.

 

Internal Audit

The Company has no employees and operates no systems of its own, relying instead on the employees and systems of its external service providers. Following a recommendation from the Committee, the Board has therefore taken the decision that it would be of insufficient benefit for the Company to engage an internal auditor.

 

External Audit

The effectiveness of the external audit process is dependent on appropriate audit risk identification at the start of the audit cycle. The Committee receives from the auditor, Deloitte LLP ("Deloitte") a detailed audit plan, identifying their assessment of the key risks. During the Period, the primary risks identified were in respect of valuation and ownership of the Company's Airbus A380-861 aircraft, the recording of lease rental income, and accounting for fixed rate debt using the effective interest rate method.  

 

Using its collective skills, the Committee evaluates the effectiveness of the audit process in addressing the matters raised through the reporting it received from Deloitte at the year-end. In particular the Committee formally appraise Deloitte against the following criteria:

 

·     Independence

·     Ethics and Conflicts

·     Knowledge and Experience

·     Challenge

·     Promptness

·     Cost

·     Overall Quality of Service

 

In addition the Committee also seeks feedback from the Administrator on the effectiveness of the audit process.

 

For the Period, the Committee was satisfied that there had been appropriate focus on the primary areas of audit risk and assessed the quality of the audit process to be good. The Committee discussed their findings with Deloitte and agreed how future external audits could be improved.

 

The Committee hold meetings with the external auditor to provide additional opportunity for open dialogue and feedback from the auditor. Should it be necessary, Committee members may meet with the external auditor without the Secretary & Administrator and Asset Manager being present. Matters typically discussed include the auditor's assessment of business risks and management activity thereon, the transparency and openness of interactions with the Secretary & Administrator, confirmation that there has been no restriction in scope placed on them by the Secretary &  Administrator on the independence of their audit and how they have exercised professional scepticism.

 

 

Appointment and Independence

The Committee considers the reappointment of the external auditor, including the rotation of the audit partner, each year and also evaluates their independence on an ongoing basis.

 

The external auditor is required to rotate the audit partner responsible for the audit every five years. The current lead audit partner has been in place since August 2016.

 

Deloitte has been the Company's external auditor since October 2012. The Committee has provided the Board with its recommendation to the Company's shareholders on the reappointment of Deloitte as external auditor for the year ending 31 March 2019.  Accordingly a resolution proposing the reappointment of Deloitte as the Company's auditor will be put to the Company's shareholders at the 2018 annual general meeting.

 

There are no contractual obligations restricting the Committee's choice of external auditor. The Committee continues to consider the audit tendering provisions outlined in the revised UK Corporate Governance Code, of which it is very supportive. The Committee will consider arranging for the external audit contract to be tendered in 2022 (being 10 years from the date of initial appointment of Deloitte with the aim of ensuring a high quality and effective audit).

 

Non-Audit Services

To further safeguard the objectivity and independence of the external auditor from becoming compromised, the Committee has a formal policy governing the engagement of the external auditor to provide non-audit services. No changes have been made to this policy during the year. This policy specifies that Deloitte should only be engaged for non-audit services where there is considered to be a very low threat to auditor independence.  

 

Deloitte is prohibited from providing any other services without the Committee's prior approval. In reaching such a determination the Committee will take into consideration whether it is in the best interests of the Company that such services should be supplied by the Company's external auditor (rather than another service provider) and, if so whether any safeguards regarding auditor objectivity and independence in the conduct of the audit should be put in place, whether these would be effective and how such safeguards should be disclosed.

 

Committee Evaluation 

The Committee's activities formed part of the review of Board effectiveness performed in the year under review.

 

An internal evaluation of the Committee's effectiveness was carried out in November 2017.

 

Yours faithfully

 

Geoff Hall

Director

 

On behalf of the Audit Committee

 

11 July 2018

 

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF DORIC NIMROD AIR ONE LIMITED

 

Opinion on financial statements of Doric Nimrod Air One Limited

In our opinion the financial statements:

·    give a true and fair view of the state of the Company's affairs as at 31 March 2018 and of its profit for the year then ended;

·    have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; and

·    have been prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.

 

We have audited the financial statements of Doric Nimrod Air One Limited (the 'Company') which comprise:

·    the Statement of Comprehensive Income;

·    the Statement of Financial Position;

·    the Statement of Cash Flows;

·    the Statement of Changes in Equity; and

·    the related notes 1 to 22.

 

The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor's responsibilities for the audit of the financial statements section of our report.

 

We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the Financial Reporting Council's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the non-audit services prohibited by the Financial Reporting Council's Ethical Standard were not provided to the Company.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

 

Summary of our audit approach

Key audit matters

 

The key audit matters that we identified in the current year were:

Valuation and ownership of aircraft;

Recognition of lease rental income ; and

Accounting for debt using the effective interest method.

 

All key audit matters are consistent with the prior year.

Materiality

The materiality we used in the current year was £1,013,000 which was determined on the basis of 2% of the forecasted shareholders' equity. This is consistent with the prior year.

Scoping

 

All audit work for the Company was performed directly by the audit engagement team.

Significant changes in our approach

There has been no significant changes in our approach from prior year.

 

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF DORIC NIMROD AIR ONE LIMITED (continued)

Going concern and the Directors' assessment of the principal risks that would threaten the solvency or liquidity of the Company

Going concern

We have reviewed the directors' statement in note 2(i) to the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them and their identification of any material uncertainties to the Company's ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements.

 

Principal risks and viability statement

Based solely on reading the directors' statements and considering whether they were consistent with the knowledge we obtained in the course of the audit, including the knowledge obtained in the evaluation of the directors' assessment of the Company's ability to continue as a going concern, we are required to state whether we have anything material to add or draw attention to in relation to:

•              the disclosures on pages 15-16 that describe the principal risks and explain how they are being managed or mitigated;

•              the directors' confirmation on page 15 that they have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity; or

•              the directors' explanation on page 16 as to how they have assessed the prospects of the Company, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

 

We also report on whether the directors' statement relating to the prospects of the Company as set out in Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.

 

We confirm that we have nothing material to report, add or draw attention to in respect of these matters.

 

 

 

 

 

 

We confirm that we have nothing material to report, add or draw attention to in respect of these matters.

 

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team.

 

These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

 

Valuation and ownership of aircraft

Key audit matter description

Included on the Company's statement of financial position as at 31 March 2018 is an aircraft asset of £87.1 million (2017: £92.2 million) as disclosed in Note 9 to the financial statements. As explained in Note 2(k), the Company's accounting policy is to measure its aircraft asset at depreciated historic cost less impairment. The asset is being depreciated on a straight-line basis over the terms of the lease to an estimated residual value at the end of that period. As stated in Note 3, estimation of aircraft residual value is a source of uncertainty and is a key determinant in preparing the financial statements. Refer to the considerations by the audit committee on residual value as discussed on pages 26-27.

 

Our key audit matter relates to the following areas as there are risks that:

·      the selected useful life or residual value used in determining depreciation are not appropriate as the estimation of aircraft useful life and residual value is a key judgement; 

·      an indicator of impairment of the asset might arise in which case an impairment review should be performed and the value of the asset written down to recoverable amount if less than carrying value; and

·      the asset does not belong to the Company.   

How the scope of our audit responded to the key audit matter

 

Our procedures included:

·      critically assessing the conclusions reached by the Board on the appropriateness of the selected residual values and evaluating their consistency with available market information, including forecast valuations obtained by the Company from expert aircraft valuers and the terms of the aircraft lease agreements. We have considered the qualifications and experience of the valuers engaged by management. We have also considered the adequacy of the disclosure related to this estimation uncertainty set out in Note 3;

·      engaging our internal aircraft valuation specialists in reviewing the Board and Asset Manager's conclusions on the assessments made on residual values used at year end;

·      reviewing and challenging the Board's conclusion on asset impairment assessment by reviewing for both internal and external factors which might be indicators of impairment; and

·      reviewing the original purchase agreements for consistency with the asset owned and obtaining certificate of registration directly from 'The International Registry for International Interests in Mobile Equipment' to confirm ownership.

Key observations

 

Having carried out the procedures, we conclude that  the useful life selected, residual values used and the Board's assessment that no impairment review is required were appropriate.

 

We also concluded that the asset recorded in the financial statements is owned by the Company.

 

Recognition of lease rental income

Key audit matter description

 

 

 

The Company's lease has been classified as an operating lease and as such rental income which amounts to £14.7 million (2017: £14.9 million) should be recognised on a straight-line basis over the lease term, which differs from the profile of actual rental payments.  As set out in Note 4 of the financial statements, a significant portion of these lease rentals are receivable in US Dollars and must be appropriately translated into the Sterling functional and presentation currency.  The recognition of revenue also requires consideration of all terms of the signed lease contracts. As stated in Note 3, classification of leases as operating lease is a key source of uncertainty in preparing the financial statements.The risk is that revenue is not properly recorded in accordance with these requirements and the related deferred or accrued income in not correctly calculated.

 

How the scope of our audit responded to the key audit matter

Our procedures included:

·      consideration on whether the classification of the leases as operating is appropriate with reference to the lease terms and the nature of the asset and the requirements of IAS 17: Leases;

·      developing independent expectations of lease income for the year based on total lease rentals receivable, the lease term and the applicable foreign exchange rates during the year.

·      recalculating deferred and accrued rental income recognised in the Statement of Financial Position and testing accuracy of related translation differences; and

·      tracing all rental income receipts to bank statements.

Key observations

 

 

Having performed the procedures above, we concluded that the classification of the lease is appropriate and  that revenue recognition is in line with the terms of the signed lease contract and is in line with IAS17:Leases.

 

We also concluded that deferred and accrued income balances recorded were appropriate as these were not materially different from results of our recalculations. 

Accounting for debt using the effective interest method

Key audit matter description

 

 

 

In order to part-finance the acquisition of the asset the Company has obtained a fixed rate debt. As at 31 March 2018 the value of the total debt held by the Company was £32.7 million (2017: £46.4 million) as disclosed in Note 14 to the financial statements. The debt is amortising over the lease term. As set out in Note 2(l) to the financial statements, the debt instrument is carried at amortised cost with interest expense recognised at the effective interest rate. The risk exists that the debt is not properly accounted for using the effective interest rate method or that adequate disclosure is not made in the financial statements.

How the scope of our audit responded to the key audit matter

Our procedures included:

·      reviewing the debt amortisation schedules prepared by management to recalculate the effective interest rates on the loans and checked whether they are consistent with the repayment schedules;

·      obtaining direct confirmation of the principal balance outstanding and recalculating accrued interest using the effective interest rate; and

·      developing an expectation of the interest charges for the period using the average outstanding principal balances during the period and the effective interest rates.

Key observations

 

 

Having carried out the procedures, we concluded that the debt was appropriately valued in line withthe effective interest rate method and related interest calculations were within our expectation.

 

Our application of materiality

 

We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work.

 

 

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

 

 

Materiality

 

£1,013,000 (2017: £748,800)

 

Basis for determining materiality

 

2% (2017: 2%) of forecasted shareholders' equity. The determined materiality represents 2.1% of the shareholder's equity at 31 March 2018.

Rationale for the benchmark applied

Our materiality is based on shareholders' equity of the Company. Comprehensive income is significantly influenced by fluctuations in exchange rates, hence it will not be a stable benchmark to use in our determination of materiality. We consider shareholders' equity to be the most important balance on which the shareholders would judge the performance of the Company.

 

 

 

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £50,650 (2017: £14,900), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. The change in the reporting threshold has been made following our reassessment of what matters require communicating. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.

 

 

 

An overview of the scope of our audit

Our audit was scoped by obtaining an understanding of the entity and its environment, including internal control, and assessing the risks of material misstatement.  Audit work to respond to the risks of material misstatement was performed directly by the audit engagement team.

 

The Company is administered by a third party Guernsey regulated service provider, as part of our audit we assessed the design, implementation and operating effectiveness of controls established at the service provider for the purposes of our audit.

 

This is a standalone entity and the audit of the Company's financial statements has been performed by a single audit team with no involvement of other auditors.

 

Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon.

 

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

 

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

 

If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

 

In this context, matters that we are specifically required to report to you as uncorrected material misstatements of the other information include where we conclude that:

Fair, balanced and understandable - the statement given by the directors that they consider the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or

Audit committee reporting - the section describing the work of the audit committee does not appropriately address matters communicated by us to the audit committee; or

Directors' statement of compliance with the UK Corporate Governance Code - the parts of the directors' statement relating to the Company's compliance with the UK Corporate Governance Code containing provisions that for premium listed entities are specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code.

We have nothing to report in respect of these matters.

 

Responsibilities of directors

As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the financial statements, the directors are responsible for assessing the Company's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

 

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

 

Report on other legal and regulatory requirements

 

Matters on which we are required to report by exception

Adequacy of explanations received and accounting records

Under the Companies (Guernsey) Law, 2008 we are required to report to you if, in our opinion:

·      we have not received all the information and explanations we require for our audit; or

·      proper accounting records have not been kept; or

·      the financial statements are not in agreement with the accounting records.

 

We have nothing to report in respect of these matters.

 

Use of our report

This report is made solely to the Company's members, as a body, in accordance with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

 

Nicola Sarah Paul FCA

For and on behalf of Deloitte LLP

Recognised Auditor

St Peter Port, Guernsey

11 July 2018

 

 

STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 March 2018

 

 

 

 

 

Year ended

 

Year ended

 

 

Notes

 

31 Mar 2018

 

31 Mar 2017

 

 

 

 

GBP

 

GBP

 

 

 

 

 

 

 

INCOME

 

 

 

 

 

 

A rent income

 

4

 

10,176,487

 

10,409,811

B rent income

 

4

 

4,508,388

 

4,508,388

 

 

 

 

14,684,875

 

14,918,199

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

Operating expenses

 

5

 

(627,798)

 

(601,466)

Depreciation of Asset

 

9

 

(5,106,696)

 

(2,075,698)

 

 

 

 

(5,734,494)

 

(2,677,164)

 

 

 

 

 

 

 

Net profit for the period before finance costs and foreign exchange losses

 

 

 

8,950,381

 

12,241,035

 

 

 

 

 

 

 

Finance costs

 

10

 

(2,291,148)

 

(2,911,154)

 

 

 

 

 

 

 

Net profit for the year after finance costs before foreign exchange gains/(losses)

 

 

 

6,659,233

 

9,329,881

 

 

 

 

 

 

 

Unrealised foreign exchange gain/(loss)

 

18b

 

5,384,191

 

(7,593,215)

 

 

 

 

 

 

 

Profit for the year

 

 

 

12,043,424

 

1,736,666

 

 

 

 

 

 

 

Other Comprehensive Income

 

 

 

-

 

-

 

 

 

 

 

 

 

Total Comprehensive Income for the year

 

 

 

12,043,424

 

1,736,666

 

 

 

 

 

 

 

 

 

 

 

Pence

 

Pence

Earnings per Ordinary Share for the year  - Basic and Diluted

 

8

 

28.37

 

4.09

 

In arriving at the results for the financial year, all amounts above relate to continuing operations.

The notes on pages 42 to 63 form an integral part of these Financial Statements.

 

STATEMENT OF FINANCIAL POSITION

As at 31 March 2018

 

 

 

 

 

 

 

 

31 Mar 2018

 

 

31 Mar 2017

 

 

Notes

GBP

 

                   GBP

 

 

NON-CURRENT ASSETS

 

 

 

 

 

Aircraft

9

87,080,499

 

92,187,195

 

CURRENT ASSETS

 

 

 

 

Accrued income

 

468,114

 

281,357

Cash and cash equivalents

16

3,984,293

 

4,376,502

Receivables

12

12,743

 

12,684

 

 

4,465,150

 

4,670,543

 

TOTAL ASSETS

 

91,545,649

 

96,857,738

 

CURRENT LIABILITIES

 

 

 

 

Borrowings

14

9,328,715

 

9,856,765

Deferred income

 

11,027,679

 

10,973,695

Payables - due within one year

13

127,972

 

57,406

 

 

20,484,366

 

20,887,866

 

NON-CURRENT LIABILITIES

 

 

 

 

Borrowings

14

23,414,245

 

36,545,758

 

 

23,414,245

 

36,545,758

 

TOTAL LIABILITIES

 

43,898,611

 

57,433,624

 

TOTAL NET ASSETS

 

47,647,038

 

39,424,114

 

EQUITY

 

 

 

 

Share capital

15

39,016,728

 

39,016,728

Retained earnings

 

8,630,310

 

407,386

 

 

47,647,038

 

39,424,114

 

 

 

Pence

 

 

Pence

Net asset value per Ordinary Share based

on 42,450,000 (Mar 2017: 42,450,000) shares in issue

 

112.24

 

 

92.87

 

The financial statements were approved by the Board of Directors and authorised for issue on

11  July 2018 and are signed on its behalf by:

 

Charles Wilkinson                                                     John Le Prevost

Director                                                                      Director

 

The notes on pages 42 to 63 form an integral part of these Financial Statements.

STATEMENT OF CASH FLOWS

For the year ended 31 March 2018

 

 

 

 

 

Year ended

 

 

Year ended

 

 

31 Mar 2018

 

31 Mar 2017

 

Notes

GBP

 

GBP

OPERATING ACTIVITIES

 

 

 

 

Profit for the year

 

12,043,424

 

1,736,666

Movement in accrued and deferred income

 

1,063,354

 

1,132,705

Depreciation of Asset

9

5,106,696

 

2,075,698

Loan interest

10

2,230,594

 

2,850,600

Increase in payables

 

70,566

 

1,374

Increase in receivables

 

(59)

 

(205)

Amortisation of debt arrangement costs

10

60,554

 

60,554

Foreign exchange movement

18b

(5,384,191)

 

7,593,215

 

NET CASH FROM OPERATING ACTIVITIES

 

15,190,938

 

15,450,607

 

FINANCING ACTIVITIES

 

 

 

 

Dividends paid

7

(3,820,500)

 

(3,820,500)

Repayments of capital on borrowings

19

(9,216,397)

 

(9,030,865)

Repayments of interest on borrowings

19

(2,231,299)

 

(2,804,349)

 

NET CASH USED IN FINANCING ACTIVITIES

 

(15,268,196)

 

(15,655,714)

 

CASH AND CASH EQUIVALENTS AT BBEGINNINGBEGINNING

 

 

 

 

BEGINNING OF YEAR

 

4,376,502

 

4,213,957

Decrease in cash and cash equivalents

 

(77,258)

 

(205,107)

Exchange rate adjustment

 

(314,951)

 

367,652

CASH AND CASH EQUIVALENTS AT END OF

 

 

 

 

YEAR

16

3,984,293

 

4,376,502

 

The notes on pages 42 to 63 form an integral part of these Financial Statements.

 

STATEMENT OF CHANGES IN EQUITY

For the year ended 31 March 2018

 

 

 

Notes

 

Share

 

Retained

 

Total

 

 

 

 

Capital

 

Earnings

 

 

 

 

 

 

GBP

 

GBP

 

GBP

 

 

 

 

 

 

 

 

 

Balance as at 1 April 2017

 

 

 

 39,016,728

 

          407,386

 

     39,424,114

 

 

 

 

 

 

 

 

 

Total Comprehensive Income for the year

 

 

 

-

 

12,043,424

 

12,043,424

 

Dividends paid

 

7

 

-

 

(3,820,500)

 

(3,820,500)

 

Balance as at 31 March 2018

 

 

 

 39,016,728

 

8,630,310

 

47,647,038

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes

 

Share

 

Retained

 

Total

 

 

 

 

Capital

 

Earnings

 

 

 

 

 

 

GBP

 

GBP

 

GBP

 

 

 

 

 

 

 

 

 

Balance as at 1 April 2016

 

 

 

 39,016,728

 

         2,491,220

 

    41,507,948

 

 

 

 

 

 

 

 

 

 

Total Comprehensive Income for the year

 

 

 

-

 

1,736,666

 

1,736,666

Dividends paid

 

7

 

                 -

 

(3,820,500)

 

(3,820,500)

Balance as at 31 March 2017

 

 

 

 39,016,728

 

407,386

 

39,424,114

 

The notes on pages 42 to 63 form an integral part of these Financial Statements.

 

 

1     GENERAL INFORMATION

 

Doric Nimrod Air One Limited (the "Company") was incorporated in Guernsey on 8 October 2010 with registered number 52484. The address of the registered office is given on page 64.

Its share capital consists of one class of Ordinary Preference Shares ("Ordinary Shares") and one class of Subordinated Administrative Shares ("Administrative Shares"). The Company's Ordinary Preference Shares have been admitted to trading on the Specialist Fund Segment("SFS") of the London Stock Exchange's Main Market (the "LSE"). 

 

The Company's investment objective is to obtain income returns and a capital return for its shareholders by acquiring, leasing and then selling a single aircraft. The principal activities of the Company are set out in the Chairman's Statement and Management Report on pages 4 and 15 respectively.

 

2     ACCOUNTING POLICIES

 

The significant accounting policies adopted by the Company are as follows:

 

(a)     Basis of Preparation

The financial statements have been prepared in conformity with IFRS, as adopted by the European Union ("EU"), which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB") and International Financial Reporting Interpretations Committee ("IFRIC") as adopted by the EU and applicable Guernsey law. The financial statements have been prepared on a historical cost basis.

 

Changes in accounting policies and disclosure

The following Standards or Interpretations have been adopted in the current year. Their adoption has not had any impact on the amounts reported in these financial statements and is not expected to have any impact on future financial years:

 

·      IAS 7 Statement of Cash Flows - amendments resulting from the disclosure initiative effective for annual periods beginning on or after 1 January 2017 and is endorsed by the EU. The amendments require entities to provide disclosure of 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). The Company has provided the information for both the current and the comparative year in Note 19.

 

The following Standards or Interpretations that are expected to affect the Company have been issued but not yet adopted by the Company. Other Standards or Interpretations issued by the IASB and IFRIC are not expected to affect the Company.

 

·      IFRS 9, 'Financial Instruments - Classification and Measurement'.  Effective for accounting periods commencing on or after 1 January 2018 and is endorsed by the EU. The Company intends to adopt the standard once it becomes mandatory.

 

 

 

 

2  

 

 (a)   Basis of Preparation (continued)

 

IFRS 9 contains three principal classification categories for financial assets and liabilities: measured at amortised cost, fair value through other comprehensive income ("FVOCI") and fair value through profit or loss ("FVTPL"). IFRS 9 classification is generally based on the business model in which a financial asset is managed and its contractual cash flows.

 

Based on the Company's initial assessment, this standard is not expected to have a material impact on the classification of financial assets and financial liabilities of the Company. This is because:

- No financial instruments are currently measured at FVTPL; and

- Financial instruments currently measured at amortised cost are receivables, borrowings and payables which will continue to be measured at amortised cost under IFRS 9.

 

·      Amendments to IFRS 9 'Prepayment Features with Negative Compensation and modifications of financial liabilities' - Amendments to IFRS 9 have been issued to enable companies to measure at amortised cost some prepayable financial assets with negative compensation. The assets affected, that include some loans and debt securities, would otherwise have been measured at FVTPL. The amendment is effective for annual periods beginning on or after 1 January 2019, that is, one year later than the effective date of IFRS 9 and is endorsed by the EU. Early adoption is permitted. This will enable companies to adopt the amendment when they first apply IFRS 9.

 

·      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' and IAS 11 'Construction contracts', related interpretations and is endorsed by the EU. The standard is effective for a period beginning on or after 1 January 2018.  The only contractual receipts which the Company currently has is rental income from Emirates leasing its Airbus A380-361 aircraft (the "Aircraft"). Rental income is currently recognised in accordance with IAS 17 (which will be replaced by IFRS 16 (see below)) which is specifically excluded from IFRS 15. The standard will thus not materially impact the financial statements.

 

·      Amendments to IFRS 15, 'Revenue from contracts with customers'.  Effective for accounting periods commencing on or after 1 January 2018 and is endorsed by the EU.

 

 

 

 

 (a)   Basis of Preparation (continued)

 

·      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. The standard is effective for annual periods beginning on or after 1 January 2019 and is endorsed by the EU. The Company intends to adopt the standard once it becomes mandatory. Although rental income will be recognised in accordance with the new standard, it will not materially impact the financial statements as lessors will continue to classify leases as operating or finance, with IFRS 16's approach to lessor accounting substantially unchanged from its predecessor, IAS 17.

 

·      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 and is endorsed by the EU.

 

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 Company'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 year for which they are required.

 

(b)  Taxation

The Company has been assessed for tax at the Guernsey standard rate of 0 per cent.

 

(c)  Share Capital

Ordinary Preference Shares (the "Shares") are classified as equity. Incremental costs directly attributable to the issue of Shares are recognised as a deduction from equity.

 

(d)  Expenses

All expenses are accounted for on an accruals basis.

 

(e)  Interest Income

Interest income is accounted for on an accruals basis.

 

 

 

(f)   Foreign Currency Translation

The currency of the primary economic environment in which the Company operates (the functional currency) is Pounds Sterling ("£" or "Sterling"), which is also the presentation currency.

 

Transactions denominated in foreign currencies are translated into Sterling at the rate of exchange ruling at the date of the transaction.

 

Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the Statement of Comprehensive Income.

 

(g)  Cash and Cash Equivalents

Cash at bank and short term deposits which are held to maturity are carried at cost. Cash and cash equivalents are defined as call deposits, short term deposits with a term of no more than three months from the start of the deposit and highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value.

 

(h)  Segmental Reporting

The Directors are of the opinion that the Company is engaged in a single segment of business, being acquiring, leasing and selling of one Airbus A380-861 aircraft (the "Asset").

 

 (i)  Going Concern

After making enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. The Directors believe the Company is well placed to manage its business risks successfully despite the current economic climate as the interest on the Company's Loan has been fixed and the fixed rental income under the operating lease means that the rents should be sufficient to repay the Loan and provide surplus income to pay for the Company's expenses and permit payment of dividends. Accordingly, the Directors have adopted the going concern basis in preparing the financial information. The Board is not aware of any material uncertainty that may cast significant doubt upon the Company's ability to continue as a going concern.

 

(j)   Leasing and Rental Income

The lease relating to the Asset has been classified as an operating lease as the terms of the lease do not transfer substantially all the risks and rewards of ownership to the lessee. The Asset is shown as a non-current asset in the Statement of Financial Position. Further details of the lease are given in Note 11.

 

Rental income and advance lease payments from the operating lease are recognised on a straight line basis over the term of the lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised in profit or loss on a straight-line basis over the lease term.

 

 

 

(k)  Property, Plant and Equipment - Aircraft

In line with IAS 16 Property Plant and Equipment, the 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 costs to the Company. Accumulated depreciation and any recognised impairment loss are deducted from cost to calculate the carrying amount of the Asset.

 

Depreciation is recognised so as to write off the cost of the Asset less the estimated residual value of £63.1 million (2017: £80.4 million) over the estimated useful life of the Asset of 12 years, using the straight line method. 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 the amount the Company would receive currently if the asset were already of the age and condition expected at the end of its useful life. Useful life is also reviewed annually and, for the purposes of the financial statements, represents the likely period of the Company's ownership of the Asset. Depreciation starts when the Asset is available for use.

 

In the prior year, the residual values of the A380 aircraft was determined using values including inflationary effects. However, following discussions between the Directors, auditor and the Company's advisors for the year ended 31 March 2018, it was determined that the strict application of IAS 16 be applied to the assets of the Company and that the use of forecast values excluding inflation best approximates residual value as required by IAS 16 Property, Plant and Equipment. This has resulted in a reduction in USD terms in the anticipated residual values of the aircraft since the prior financial year.

 

At each Statement of Financial Position date, the Company reviews the carrying amounts of the Asset to determine whether there is any indication that the Asset has suffered any 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 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 the 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. Further details are given in note 3.

 

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 years. A reversal of an impairment loss is recognised immediately in profit or loss.

 

(l)   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 Company 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.

 

 

 

(l)   Financial Liabilities (continued)

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 Company derecognises financial liabilities when, and only when, the Company's obligations are discharged, cancelled or they expire.

 

2   SIGNIFICANT JUDGEMENTS AND ESTIMATES

 

In the application of the Company'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 Company's accounting policies and that have the most significant effect on the amounts recognised in financial statements.

 

Estimates

Residual Value and Useful Life of the Asset

As described in Note 2 (k), the Company depreciates the Asset on a straight line basis over the estimated useful life of the Asset and 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 Company would currently obtain from the disposal of the Asset, after deducting the estimated costs of disposal, if the Asset were of the age and condition expected at the end of its useful life. However, there are currently no aircraft of a similar type of sufficient age for the Directors to make a direct market comparison in making this estimation. After consulting with the auditor and the Company's Advisors, the Directors have concluded that an uninflated value for the Aircraft at the end of its useful life best represents residual value as required by a strict interpretation of relevant accounting standards. In estimating residual value for the 2017/18 year, the Directors have made reference to uninflated values for the Aircraft obtained from three independent expert aircraft valuers and determined that the residual value (using uninflated values as the basis) of the Asset was £63.1 million at the year end (2017: £80.4 million, including inflation and taking into account the associated costs of disposal). The residual value has been changed to reflect the most recent average appraised value of the aircraft, excluding the effect of inflation. This has been disclosed in Note 9.

 

3   SIGNIFICANT JUDGEMENTS AND ESTIMATES (continued)

 

In the prior year, the residual value of the Aircraft was determined using the appraised base value including inflationary effects. However, following discussions between the Directors, the auditor and the Company's Advisors for the year ended 31 March 2018, it was determined that the strict application of IAS 16 be applied to the assets of the Company and that the use of forecast values excluding inflation best represents residual value as required by IAS 16 Property, Plant and Equipment. This, together with the effect of foreign exchange fluctuations on the residual value, has resulted in a reduction in the anticipated residual values of the aircraft since the prior financial year details of which have been disclosed in Note 9.

 

Apart from the aforementioned, the Asset Manager has confirmed in the year ending 31 March 2018 that there were no other required changes to the methodology used to determine the residual value in the current year and they believe that the value of the Aircraft is, absent the two factors explained above, not substantially different from those of the Aircraft as appraised at 31 March 2017.

 

The estimation of residual value remains subject to inherent uncertainty. If the estimate of residual value had been decreased by 20 per cent. with effect from the beginning of this year, the net profit for the year and closing shareholders' equity would have been decreased by approximately £2.2 million. An increase in residual value by 20 per cent. would have been 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 estimated useful life of the Asset is based on the expected period for which the Company will own and lease the Aircraft.

 

Judgements

Operating Lease Commitments - Company as Lessor

The Company has entered into a lease on the Asset. The Company 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 this asset and accounts for the contract as an operating lease.

The Company has determined that the operating lease on the Asset is for 12 years without an extension option.

 

       Impairment

As described in Note 2(k), 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 monitor the Asset for any indications of impairment as required by IAS 16 Property, Plant and Equipment and IAS 36 Intangible Assets.

 

Factors that are considered important which could trigger an impairment review include, but are not limited to, significant decline in the market value beyond that which would be expected from the passage of time or normal use, significant changes in the technology and regulatory environments, evidence from internal reporting which indicates that the economic performance of the asset is, or will be, worse than expected.

 

The Company has determined that there is no indication of an impairment loss for the 1 April 2017 to 31 March 2018 year (none for the 1 April 2016 to 31 March 2017 year). This is due to various factors such as the following: a lack of conclusive comparable current market data for the Aircraft, the nature of the operations of the Company being aircraft leasing as opposed to an airline operating business, as well as other mitigating factors such as the close monitoring by the Company of the airline's usage of aircraft and their compliance with agreed maintenance schedules. Accordingly, no impairment review has been undertaken.

 

 

4   RENTAL INCOME

 

 

 

 

 

Year ended

 

Year ended

 

 

 

 

31 Mar 2018

 

31 Mar 2017

 

 

 

 

GBP

 

GBP

A rent income

 

 

 

11,426,597

 

11,729,272

 

Revenue received but not yet earned

 

 

 

(1,250,110)

 

(1,319,461)

 

 

 

 

10,176,487

 

10,409,811

 

 

 

 

 

 

 

B rent income

 

 

 

4,321,632

 

      4,321,632

 

Revenue earned but not yet received

 

 

 

186,756

 

186,756

 

 

 

 

 

4,508,388

 

      4,508,388

 

 

 

 

 

 

 

 

 

Total rental income

 

 

 

14,684,875

 

    14,918,199

 

 

Rental income is derived from the leasing of the Asset. Rent is split into A rent, which is received in US dollars ("$") and B rent, which is received in Sterling. Rental income received in US dollars is translated into the functional currency (Sterling) at the date of the transaction.

A and B rental income receivable will decrease / increase respectively, 10 years from the start of the lease between the Company and Emirates (the "Lease"). An adjustment has been made to spread the actual total income receivable evenly over the term of the Lease.

 

5

OPERATING EXPENSES

 

 

 

 

Corporate shareholder and adviser fee

 

 

Year ended

31 Mar 2018

GBP

114,284

 

 

Year ended

31 Mar 2017

GBP

112,397

 

Asset Management fee

 

296,515

 

291,870

 

Administration fees

 

61,775

 

60,604

 

Accountancy fees

 

10,931

 

10,690

 

Registrars fee

 

9,884

 

9,791

 

Audit fee

 

21,000

 

21,200

 

Directors' remuneration (note 6)

 

67,800

 

68,000

 

Directors' and Officers' insurance

 

8,031

 

8,010

 

Legal and professional expenses

 

16,200

 

1,438

 

Annual fees

 

7,304

 

5,400

 

Other operating expenses

 

14,074

 

12,066

 

 

 

 

627,798

 

 

601,466

 

 

 

 

 

6   DIRECTORS' REMUNERATION

 

Under their terms of appointment, each Director is paid a fee of £15,000 per annum by the Company, except for the Chairman, who receives £20,000 per annum. Where an individual has been appointed to the position, the Chairman of the audit committee is entitled to receive an additional £3,000 per annum.

 

7   DIVIDENDS IN RESPECT OF EQUITY SHARES

Dividends in respect of Ordinary Shares

 

Year ended
31 Mar 2018

 

 

 

 GBP

 

 Pence per

 

 

 

 

 share

First interim dividend

 

            955,125

 

               2.25

Second interim dividend

 

955,125

 

2.25

Third interim dividend

 

955,125

 

2.25

Fourth interim dividend

 

955,125

 

               2.25

 

 

 

 

 

 

 

         3,820,500

 

               9.00

 

 

 

 

 

 

Dividends in respect of Ordinary Shares

 

Year ended
31 Mar 2017

 

 

 

 GBP

 

 Pence per

 

 

 

 

 Ordinary Share

First interim dividend

 

            955,125

 

               2.25

Second interim dividend

 

955,125

 

2.25

Third interim dividend

 

955,125

 

2.25

Fourth interim dividend

 

        955,125

 

               2.25

 

 

 

 

 

 

 

         3,820,500

 

               9.00

 

8   EARNINGS PER SHARE

 

Earnings per Share (''EPS'') is based on the net profit for the year attributable to holders of Ordinary Shares in the Company ("Shareholders") of £12,043,424 (31 March 2017: £1,736,666) and 42,450,000 Shares (31 March 2017: 42,450,000) being the weighted average number of Ordinary Shares in issue during the year. There are no dilutive instruments and therefore basic and diluted Earnings per Share are identical.

 

 

 

9

PROPERTY, PLANT AND EQUIPMENT - AIRCRAFT

 

COST

As at 1 Apr 2017

 

 

Aircraft

GBP

114,532,547

 

 

As at 31 Mar 2018

 

114,532,547

 

 

ACCUMULATED DEPRECIATION

As at 1 Apr 2017

 

 

 

22,345,352

 

2,075,698

 

Adjustment due to change in US dollar residual values

1,736,071

 

1,294,927

 

Net depreciation charge for the year

5,106,696

 

 

As at 31 Mar 2018

 

27,452,048

 

 

CARRYING AMOUNT

As at 31 Mar 2018

 

 

 

87,080,499

 

 

As at 31 Mar 2017

 

92,187,195

 

 

 

The cost in US dollars and the exchange rates at acquisition for the Aircraft was as follows:

 

 

Cost in USD

 

178,549,805

 

GBP/US dollars exchange rate

1.5502

 

 

Following review of the Aircraft's projected residual value, as is required by IFRS on an annual basis, using the valuers and methodology set out in Note 3, the underlying US dollar residual value of the Aircraft has been updated to reflect the uninflated values. This has resulted in a $12,800,000 decrease in the US dollar residual value. The Sterling value converted at the year end Sterling/US dollar exchange rate (of 1.4018 $/£) has decreased by £17,272,533 (2017: increased by £13,272,539). The combined effect of translating residual values at the Sterling / US dollar exchange rate prevailing at 31 March 2018 of 1.4018 (31 March 2017: 1.255) and a 12.31 per cent. reduction in average appraised residual values in dollar terms (when comparing uninflated residual values at March 2018 with inflated values at March 2017) resulted in a £3,030,998 increase in the annual depreciation charge for the current year.

 

The Company may dispose of the Asset during the term of the Lease, but is required to meet certain conditions and needs Emirates' consent (such consent not to be unreasonably withheld). If at the end of the Lease the Company makes the choice to sell the Asset rather than leasing it out again, Emirates will be given first refusal to purchase the Asset at an independently appraised value.

 

Under IAS 17 Leases the direct costs attributed in negotiating and arranging the Lease have been added to the carrying amount of the Asset and will be recognised as an expense over the lease term.

 

 

 

10  FINANCE COSTS

 

 

Year ended

31 Mar 2018

 

Year ended

31 Mar 2017

 

 

GBP

 

GBP

 

 

 

 

 

Amortisation of debt arrangement costs

 

60,554

 

60,554

Loan interest

 

2,230,594

 

2,850,600

 

 

 

 

 

 

 

2,291,148

 

2,911,154

 

11    OPERATING LEASES

 

The amounts of minimum future lease receipts at the reporting date under non cancellable operating leases are detailed below:

 

31 Mar 2018

Next 12

 

1 to 5

 

After 5 years

 

 Total 

 

months

 

years

 

 

 

 

 

GBP

 

GBP

 

GBP

 

 GBP

 

 

 

 

 

 

 

 

Aircraft - A rental payments

10,890,292

 

23,757,639

 

-

 

34,647,931

Aircraft - B rental payments

4,321,632

 

17,403,840

 

-

 

21,725,472

 

 

 

 

 

 

 

 

 

15,211,924

 

41,161,479

 

-

 

56,373,403

 

 

 

 

 

 

 

 

31 Mar 2017

Next 12

 

1 to 5 years

 

After 5 years

 

 Total 

 

months

 

 

 

 

 

 

 

GBP

 

GBP

 

GBP

 

 GBP

 

 

 

 

 

 

 

 

Aircraft- A rental payments

12,164,199

 

36,628,190

 

2,072,583

 

50,864,972

Aircraft - B rental payments

4,321,632

 

18,995,124

 

2,730,348

 

26,047,104

 

 

 

 

 

 

 

 

 

16,485,831

 

55,623,314

 

4,802,931

 

76,912,076

 

 

 

 

11  OPERATING LEASES (continued)

 

The operating lease is for an Airbus A380-861 aircraft. The term of the lease is for 12 years ending December 2022 with reduced rental payments in the last two years and no extension option.

At the end of the lease term the lessee has the right to exercise an option to purchase the Asset if the Company chooses to sell the Asset. If a purchase option event occurs the Company 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

 

 

 

 

 

31 Mar 2018

 

31 Mar 2017

 

 

 

 

GBP

 

GBP

Prepayments

 

 

 

12,732

 

12,673

Sundry debtors

 

 

 

11

 

11

 

 

 

 

 

 

 

 

 

 

 

12,743

 

12,684

 

The above carrying value of receivables is equivalent to its fair value.

 

 

13 PAYABLES (amounts falling due within one year)

 

 

 

 

 

31 Mar 2018

 

31 Mar 2017

 

 

 

 

GBP

 

GBP

Accrued administration fees

 

 

 

6,011

 

5,918

Accrued audit fee

 

 

 

12,960

 

13,700

Accrued asset manager and corporate and shareholder adviser fees

 

 

 

99,998

 

28,571

Other accrued expenses

 

 

 

9,003

 

9,217

 

 

 

 

 

 

 

 

 

 

 

127,972

 

57,406

 

The above carrying value of payables is equivalent to its fair value.

 

 

 

14 BORROWINGS

 

 

 

 

 

 

 

 

 

 

 

31 Mar 2018

 

31 Mar 2017

 

 

 

 

GBP

 

GBP

 

 

 

 

 

 

 

Bank loan

 

 

 

33,027,979

 

46,748,096

Transaction costs

 

 

 

(285,019)

 

(345,573)

 

 

 

 

32,742,960

 

46,402,523

 

 

 

 

 

 

 

Current portion

 

 

 

9,328,715

 

9,856,765

 

 

 

 

 

 

 

Non-current portion

 

 

 

23,414,245

 

36,545,758

 

In addition to the £9.2 million of capital that was repaid during the year, as per the Statement of Cash Flows, the value of the borrowings has decreased by a further £4.5 million due to the 11.7 per cent. increase in the Sterling / US dollar exchange rate for the year ended 31 March 2018. See note 19.

 

The amounts below detail the future contractual undiscounted cashflows in respect of the Loan, including both the principal and interest payments, and will not agree directly to the amounts recognised in the Statement of Financial Position:

 

Amount due for settlement within 12 months

10,955,849

 

12,237,378

 

Amount due for settlement after 12 months

25,622,181

 

40,856,639

 

The loan was arranged with Westpac Banking Corporation ("Westpac") for $122,000,000, runs for 12 years until December 2022 and has an effective interest rate of 5.4950 per cent., which is the same as the contractual fixed interest rate. The Loan is secured on the Asset. No breaches or defaults occurred in the year. Transaction costs of arranging the Loan have been deducted from the carrying amount of the Loan and are being amortised over its life.

 

In the Directors' opinion, the above carrying value of the bank loan is approximate to its fair value.

 

 

15 SHARE CAPITAL

 

The Share Capital of the Company is represented by an unlimited number of shares of no par value being issued or reclassified by the Company as Ordinary Shares or Administrative Shares.

 

Issued

Subordinated

 

Ordinary

 

Administrative

 

Preference

 

Shares

 

Shares

 

 

 

 

Shares issued at incorporation

                       -

 

1

Shares issued 11 October 2010

                       -

 

      4,000,000

Shares issued 1 December 2010

                       -

 

      1,000,000

Shares redeemed 1 December 2010

                       -

 

     (2,175,001)

Shares issued 6 December 2010

                       2

 

                     -

Shares issued in Placing

                       -

 

    39,625,000

 

 

 

 

Issued shares as at 31 March 2018 and as at 31 March 2017

                       2

 

    42,450,000

 

 

 

GBP

Ordinary Share Capital

 

Shares issued prior to Placing - Fair value

           91,260

Shares issued prior to Placing - Fair value

         250,010

Shares issued in Placing

    39,625,000

Share issue costs

        (949,544)

 

 

Issued Share Capital as at 31 March 2018 and 31 March 2017

    39,016,726

 

 

Subordinated Administrative Shares

 

Shares issued 6 December 2010

                    2

 

 

 Total Share Capital as at 31 March 2018 and as at 31 March 2017

    39,016,728

 

Members holding Ordinary Preference Shares are entitled to receive and participate in any dividends out of income; other distributions of the Company 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, members are entitled to the surplus assets remaining after payment of all the creditors of the Company. Members have the right to receive notice of and to attend, speak and vote at general meetings of the Company.

 

 

 

 

The holders of Subordinated Administrative Shares are not entitled to receive, and participate in, any dividends out of income; other distributions of the Company 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. Holders of Administrative Shares shall not have the right to receive notice of and shall have no right to attend, speak and vote at general meetings of the Company, except for the Liquidation Proposal Meeting (general meeting convened six months before the end term of the Lease where the Liquidation Resolution will be proposed) or if there are no Ordinary Shares in existence.

 

The Ordinary Shares are not puttable instruments as the holder does not have the right to put the Shares back to the Company for cash or another financial instrument.

 

15 CASH AND CASH EQUIVALENTS

 

 

 

 

 

 

31 Mar 2018

 

31 Mar 2017

 

 

 

 

 

GBP

 

GBP

 

Cash at bank

 

 

        3,984,293

 

        4,376,502

 

Cash and cash equivalents are highly liquid, readily convertible and are subject to insignificant risk of changes in value.

 

16  FINANCIAL INSTRUMENTS

 

The Company's main financial instruments comprise:

 

(a) Cash and cash equivalents that arise directly from the Company's operations; and

 

(b) Loan secured on non-current asset.

 

 

 

17  FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

 

The Company's objective is to obtain income returns and a capital return for its Shareholders by acquiring, leasing and then selling a single aircraft.

 

The following table details the categories of financial assets and liabilities held by the Company at the reporting date:

 

 

31 Mar 2018

 

31 Mar 2017

 

GBP

 

GBP

Financial assets

 

 

 

Cash and cash equivalents

3,984,293

 

4,376,502

Receivables (excluding prepayments)

11

 

11

 

 

 

 

Financial assets at amortised cost

3,984,304

 

4,376,513

 

 

 

 

Financial liabilities

 

 

 

Payables

127,972

 

57,406

Loans payable

32,742,960

 

46,402,523

 

 

 

 

Financial liabilities measured at amortised cost

32,870,932

 

46,459,929

 

The main risks arising from the Company'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 Company manages its capital to ensure that the Company 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 Company is not subject to any externally imposed capital requirements.

 

The capital structure of the Company consists of debt, which includes the borrowings disclosed in Note 14, cash and cash equivalents disclosed in Note 16 and equity attributable to equity holders, comprising issued capital and retained earnings.

 

The Company's Board reviews the capital structure on a bi-annual basis.

 

Equity includes all capital and reserves of the Company that are managed as capital.

 

No changes were made in the objectives, policies or processes for managing capital during the years ended 31 March 2018 and 2017.

 

 

 

(b)  Foreign Currency Risk

The Company's accounting policy under IFRS requires the use of a Sterling historic cost of the Asset and the value of the US dollar loan as translated at the spot exchange rate on every statement of financial position date. In addition, US dollar operating lease receivables are not immediately recognised in the statement of financial position and are accrued over the period of the Lease. The Directors consider that this introduces artificial variance due to the movement over time of foreign exchange rates. In actuality, the US dollar operating lease receivables should offset the US dollar payables on amortising loans. The foreign exchange exposure in relation to the Loan is thus largely naturally hedged.

Lease rentals (as detailed in Notes 4 and 11) are received in US dollars and Sterling. Those lease rentals received in US dollars are used to pay the loan repayments due, also in US dollars. Both US dollar lease rentals and loan repayments are fixed and are for similar sums and similar timings. The matching of lease rentals to settle loan repayments therefore mitigates risks caused by foreign exchange fluctuations.

The carrying amounts of the Company's foreign currency denominated monetary assets and liabilities at the reporting date are as follows:

 

 

31 Mar 2018

 

31 Mar 2017

 

GBP

 

GBP

 

 

 

 

Bank loan (USD) - liabilities

(33,027,979)

 

(46,748,096)

Cash and cash equivalents (USD) - assets

2,247,268

 

2,583,362

 

The following table details the Company's sensitivity to a 25 per cent (31 March 2017: 25 per cent) appreciation of Sterling against the US dollar. 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 year 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 equity where Sterling strengthens 25 per cent. (31 March 2017: 25 per cent.) against US dollar. For a 25 per cent. (31 March 2017: 25 per cent.) weakening of Sterling against the US dollar, there would be a comparable but opposite impact on the profit and equity.

 

 

31 Mar 2018

 

31 Mar 2017

 

USD impact

 

USD impact

 

GBP

 

GBP

Profit or loss

       6,156,142

 

      8,832,947

Assets

        (449,454)

 

        (516,672)

Liabilities

       6,605,596  

 

      9,349,619

 

 

 

(b)  Foreign Currency Risk (continued)

On the eventual sale of the Asset, the Company may be subject to foreign currency risk if the sale was made in a currency other than Sterling. Transactions in similar assets are typically priced in US dollars.

 

(c)   Credit Risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company.

 

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 Company's financial assets exposed to credit risk are as follows:

 

 

 

 

 

31 Mar 2018

 

31 Mar 2017

 

 

 

 

GBP

 

GBP

 

 

 

 

 

 

 

Receivables (excluding prepayments)

 

 

 

11

 

11

Cash and cash equivalents

 

 

 

3,984,293

 

4,376,502

 

 

 

 

 

 

 

 

 

 

 

3,984,304

 

4,376,513

 

Surplus cash is held in accounts with Barclays and Westpac Banking Corporation, which have credit ratings given by Moody's of A2 (stable) and Aa3 (stable) respectively.

 

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 agreement between the lessee and the Company, any non-payment of the lease rentals constitutes a Special Termination Event, under which the lease terminates and the Company may either choose to sell the Asset or lease it to another party.

 

At the inception of the Lease, the Company 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 Company will encounter difficulty in realising assets or otherwise raising funds to meet financial commitments. The Company's main financial commitments are its ongoing operating expenses and loan repayments to Westpac.

 

Ultimate responsibility for liquidity risk management rests with the Board of Directors, which established an appropriate liquidity management framework at the incorporation of the Company, through the timings of lease rentals and loan repayments. The Company 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 principal and interest payments, and will not agree directly to the amounts recognised in the statement of financial position.

 

31 Mar 2018

1-3 months

 

3-12 months

 

1-2 years

 

2-5 years

 

Over 5 years

 

GBP

 

GBP

 

GBP

 

GBP

 

GBP

Financial liabilities

 

 

 

 

 

 

 

 

 

Payables - due within one year

127,972

 

-

 

-

 

-

 

-

Loans payable

2,738,962

 

8,216,887

 

10,955,849

 

14,666,332

 

-

 

 

 

 

 

 

 

 

 

 

 

2,866,934

 

8,216,887

 

10,955,849

 

14,666,332

 

-

 

 

 

 

 

 

 

 

 

 

31 Mar 2017

1-3 months

 

3-12 months

 

1-2 years

 

2-5 years

 

Over 5 years

 

GBP

 

GBP

 

GBP

 

GBP

 

GBP

Financial liabilities

 

 

 

 

 

 

 

 

 

Payables - due within one year

57,406

 

-

 

 

-

 

-

Loans payable

3,059,344

 

9,178,033

 

12,237,378

 

25,917,818

 

2,701,444

 

 

 

 

 

 

 

 

 

 

 

3,116,750

 

9,178,033

 

12,237,378

 

25,917,818

 

2,701,444

 

 

18   

 

(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 Company.

 

The Company mitigates interest rate risk by fixing the interest rate on the Loan and the lease rentals.

 

The following table details the Company's exposure to interest rate risks, by interest rate refinancing period:

 

31 Mar 2018

Variable interest

 

Fixed interest

 

 

Non-interest

Bearing

 

Total

 

 

 

GBP

GBP

 

GBP

GBP

 

Financial assets

Receivables

-

-

 

12,743

12,743

Cash and cash equivalents

3,984,293

-

 

-

3,984,293

 

Total financial assets

3,984,293

-

 

12,743

3,997,036

 

Financial liabilities

Payables

-

-

 

127,972

127,972

Loans payable

-

33,027,979

 

-

33,027,979

Total financial liabilities

-

33,027,979

 

127,972

33,155,951

 

Total interest sensitivity gap

3,984,293

33,027,979

 

 

 

 

 

31 Mar 2017

Variable interest

 

Fixed interest

 

 

Non-interest

Bearing

 

Total

 

 

 

GBP

GBP

 

GBP

GBP

Financial assets

Receivables

-

-

 

12,684

12,684

Cash and cash equivalents

4,376,502

-

 

-

4,376,502

 

Total financial assets

4,376,502

-

 

12,684

4,389,186

 

Financial liabilities

Payables

-

-

 

57,406

57,406

Loans payable

-

46,748,096

 

-

46,748,096

Total financial liabilities

-

46,748,096

 

57,406

46,805,502

 

Total interest sensitivity gap

4,376,502

46,748,096

 

 

 

 

 

 

 

If interest rates had been 50 basis points higher throughout the year and all other variables were held constant, the Company's profit for the year and net assets attributable to Shareholders as at 31 March 2018 would have been £19,921 (31 March 2017: £21,883) greater due to an increase in the amount of interest receivable on the bank balances.

 

If interest rates had been 50 basis points lower and all other variables were held constant, the Company's profit for the year and net assets attributable to Shareholders as at 31 March 2018 would have been £19,921 (31 March 2017: £21,883) lower due to an decrease in the amount of interest receivable on the bank balances.

 

19    CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES

The following table discloses the effects of the amendments to IAS 7 Statement of Cash Flows which requires additional disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash flows.

 

 

 

 

 

31 Mar 2018

 

31 Mar 2017

 

 

 

 

GBP

 

GBP

 

 

 

 

 

 

 

Opening Balance

 

 

     46,748,096

 

      49,010,119

Cash flows paid - capital

 

 

  (9,216,397)

 

    (9,030,865)

Cash flows paid - interest

 

 

  (2,231,299)

 

    (2,804,349)

Non-cash flows

 

 

 

 

 

 - Interest accrued

 

 

     2,230,594

 

      2,850,600

 - Effects of foreign exchange

 

 

   (4,503,015)

 

      6,722,591

 

 

 

 

 

 

 

Closing Balance

 

 

     33,027,979

 

      46,748,096

 

20    ULTIMATE CONTROLLING PARTY

 

In the opinion of the Directors, the Company has no ultimate controlling party.

 

21    RELATED PARTIES AND MATERIAL CONTRACTS

 

Nimrod Capital LLP ("Nimrod") is the Company's Corporate and Shareholder Adviser. The Company pays to Nimrod for its services as Corporate and Shareholder Adviser a fee of £100,000 per annum (adjusted annually for inflation from 2012 onwards at 2.25 per cent. per annum) payable quarterly in arrears.

 

 

During the year, the Company incurred £114,284 (31 March 2017: £112,397) of fees and expenses with Nimrod, of which £28,571 (31 March 2017: £28,571) was outstanding to this related party at 31 March 2018.

 

Doric GmbH ("Doric") is the Company's Asset Manager. The Company pays Doric a management and advisory fee of £250,000 per annum (adjusted annually for inflation from 2012 onwards, at 2.25 per cent. per annum), payable quarterly in arrears. Doric will also receive a fee for its sales and remarketing services upon disposition of the Asset and subsequent winding up of the Company ("the Disposition Fee"). This will be payable by the Company out of the proceeds of sale and will follow an incentivised structure. Doric will not be entitled to the Disposition Fee (but for the avoidance of doubt will be entitled to reimbursement for properly incurred costs and expenses) if Shareholders do not recover 100 pence per share net of all costs, fees and expenses upon the winding up of the Company. If Shareholders receive between 100 pence per Share and 150 pence per Share (inclusive) (in each case net of all cost, fees and expense) upon the winding up of the Company, Doric will be entitled to receive a Disposition Fee of two per cent. of the realised value of the Asset. If Shareholders receive more than 150 pence per Share (net of all costs, fees and expenses) Doric will be entitled to receive three per cent. of the Realised Value of the Asset.

 

During the year, the Company incurred £296,515 (31 March 2017: £291,870) of fees and expenses with Doric which consisted of asset management fees of £285,706 (31 March 2017: £280,991) and liaison agency fees of £10,809 (31 March 2017: £10,879).  At 31 March 2018 £nil (31 March 2017: £242) was outstanding to this related party.

 

John Le Prevost is a director of Anson Registrars Limited (''Anson''), the Company's registrar, transfer agent and paying agent. During the year £9,884 (31 March 2017: £9,791) of costs were incurred with Anson, of which £585 (31 March 2017: £560) was outstanding as at 31 March 2018.

 

21  SUBSEQUENT EVENTS

 

On 12 April 2018, a further dividend of 2.25 pence per Ordinary Preference Share was declared and this was paid on 30 April 2018.

 

ADVISERS AND CONTACT INFORMATION

KEY INFORMATION

 

 

Exchange:  Specialist Fund Segment of the London Stock Exchange's Main Market                    

Ticker:  DNA1

 

Listing Date:  13 December 2010

 

Financial Year End:  31 March

 

Base Currency:  Pound Sterling

 

ISIN:  GG00B4MF3899

 

SEDOL:  B4MF389

 

Country of Incorporation:  Guernsey

 

Registration number: 52484

 

 

 

MANAGEMENT AND ADMINISTRATION

 

 

 

Registered Office

Company Secretary and Administrator

Doric Nimrod Air One 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

 

 

Placing and Corporate and Shareholder

 

Advisory Agent

Lease and Debt Arranger

Nimrod Capital LLP

Doric Asset Finance GmbH & Co. KG

3 St Helen's Place

Berliner Strasse 114

London, England

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

Carey Olsen

Exchange House

Carey House

Primrose Street

Les Banques

London, England,

St Peter Port

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 news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
END
 
 
ACSSFAFMFFASEFW

a d v e r t i s e m e n t