TIDMDNA3
RNS Number : 2971I
Doric Nimrod Air Three Limited
10 December 2020
DORIC NIMROD AIR THREE LIMITED (the "Company")
(Legal Entity Identifier: 213800BMYMCBKT5W8M49)
HALF-YEARLY FINANCIAL REPORT
The Board of the Company is pleased to announce its results for
the period from 1 April 2020 to 30 September 2020.
To view the Company's half-yearly financial report please follow
the link below:
http://www.rns-pdf.londonstockexchange.com/rns/2971I_1-2020-12-10.pdf
In addition, to comply with DTR 6.3.5(1) please find below the
full text of the half yearly financial report.
The half-yearly financial report will also shortly be available
on the Company's website www.dnairthree.com .
For further information, please contact:
For administrative and company information:
JTC Fund Solutions (Guernsey) Limited
+44 (0) 1481 702400
For shareholder information:
Nimrod Capital LLP
+44 (0) 20 7382 4565
OF ANNOUNCEMENT
E&OE - in transmission
Doric Nimrod Air Three Limited
Half-Yearly Financial Report
For the period from 1 April 2020 to 30 September 2020
SU MM A RY I NF O R M A T ION
Listing Specialist Fund Segment of the London
Stock Exchange's Main Market
Ticker DNA3
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Share Price 33.5 pence (as at 30 September 2020)
46.0 pence (as at 4 December 2020)
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Market Capitalisation GBP 73.7 million (as at 30 September
2020)
GBP 101.2 million (as at 4 December
2020)
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Current and Targeted Dividend 2.0625 pence per quarter per share (8.25
pence per annum)
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Dividend Payment Dates January, April, July, October
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Currency Sterling
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Launch Date/Price 2 July 2013 / 100 pence
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Incorporation and Domicile Guernsey
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Aircraft Registration Number A6 - EEK (29 August 2025),
(Lease Expiry Dates including A6 - EEO (29 October 2025),
2 year extension) A6 - EEM (14 November 2025),
A6 - EEL (27 November 2025)
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Asset Manager Amedeo Management Limited
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Corporate and Shareholder Nimrod Capital LLP
Advisor
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Administrator JTC Fund Solutions (Guernsey) Limited
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Auditor Deloitte LLP
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Market Makers finnCap Ltd,
Investec Bank,
Jefferies International Ltd,
Numis Securities Ltd,
Shore Capital Ltd,
Winterflood Securities Ltd
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SEDOL, ISIN, LEI B92LHN5, GG00B92LHN58, 213800BMYMCBKT5W8M49
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Year End 31 March
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Stocks & Shares ISA Eligible
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Website www.dnairthree.com
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Please note that the Group has determined that the operating
leases on the Assets are for 12 years based on an initial term of
10 years followed by an extension term of 2 years. Should the
lessee choose to exit a lease at the end of the initial term of 10
years an early termination payment equal to the present value of
the Sterling rent that would have been payable for the extension
term of 2 years would be due. For the purpose of this report the
leases are all referred to as 12 year leases.
COMPANY OVERVIEW
Doric Nimrod Air Three Limited ("DNA3" or the "Company") is a
Guernsey company incorporated on 29 March 2012.
Pursuant to the Company's Prospectus dated 20 June 2013, the
Company, on 2 July 2013, offered its shares for issue by means of a
placing and raised approximately GBP211 million by the issue of
ordinary preference shares (the "Shares") at an issue price of 100
pence each (the "Placing"). The Company's Shares were admitted to
trading on the Specialist Fund Segment ("SFS") of the London Stock
Exchange's Main Market on 2 July 2013.
As at 4 December 2020, the last practicable date prior to the
publication of this report, the Company's total issued share
capital consisted of 220,000,000 Shares and these Shares were
trading at 46.0 pence per Share.
Investment Objectives and Policy
The Company's investment objective is to obtain income returns
and a capital return for its shareholders (the "Shareholders") by
acquiring, leasing and then selling aircraft (each an "Asset" or
"Assets" and together the "Assets or "Aircraft""). To pursue its
investment objective, the Company has used the net proceeds of
placings and other equity capital raisings, together with debt
facilities (or instruments), to initially acquire four Airbus A380
Aircraft which are leased to Emirates, the national carrier owned
by The Investment Corporation of Dubai based in Dubai, United Arab
Emirates.
DNA Alpha
The Company has one wholly-owned subsidiary: DNA Alpha Limited
("DNA Alpha") which holds the Assets for the Company. Together the
Company and DNA Alpha are known as the "Group".
The first Asset was acquired by DNA Alpha on 29 August 2013 for
a purchase price of $245 million. Upon delivery, DNA Alpha entered
into an operating lease with Emirates, pursuant to which the first
Asset has been leased to Emirates for an expected initial term of
10 years, ending August 2023, with an extension period of two years
ending August 2025, in which rental payments reduce. The present
value of the remaining rentals in the extension period at the end
of the initial 10 year lease must be paid even if the option is not
taken.
The second Asset was acquired by DNA Alpha on 29 October 2013
for a purchase price of $245 million. Upon delivery, DNA Alpha
entered into an operating lease with Emirates, pursuant to which
the second Asset has been leased to Emirates for an expected
initial term of twelve years, with fixed lease rentals for the
duration. The initial lease is for 10 years ending October 2023,
with an extension period of two years ending October 2025, in which
rental payments reduce. The present value of the remaining rentals
in the extension period at the end of the initial 10 year lease
term must be paid even if the option is not taken.
The third Asset was acquired by DNA Alpha on 14 November 2013
for a purchase price of $245 million. Upon delivery, DNA Alpha
entered into an operating lease with Emirates, pursuant to which
the third Asset has been leased to Emirates for an expected initial
term of twelve years, with fixed lease rentals for the duration.
The initial lease is for 10 years ending November 2023, with an
extension period of two years ending November 2025, in which rental
payments reduce. The present value of the remaining rentals in the
extension period at the end of the initial 10 year lease term must
be paid even if the option is not taken.
The fourth Asset was acquired by DNA Alpha on 27 November 2013
for a purchase price of $245 million. Upon delivery, DNA Alpha
entered into an operating lease with Emirates, pursu ant to which
the fourth Asset has been leased to Emirates for an expected
initial term of twelve years, with fixed lease rentals for the
duration. The initial lease is for 10 years ending November 2023,
with an extension period of two years ending November 2025, in
which rental payments reduce. The present value of the remaining
rentals in the extension period at the end of the initial 10 year
lease term must be paid even if the option is not taken.
For the purpose of this report the leases are all referred to as
12-year leases.
DNA Alpha acquired the Assets, using a combination of a portion
of the proceeds of the issue of the Ordinary Shares by the Company
together with the proceeds of the sale of Equipment Notes issued by
DNA Alpha (the "Equipment Notes") and the initial rent payment
pursuant to the relevant operating leases. The Equipment Notes were
acquired by two separate pass through trusts using the proceeds of
their issue of enhanced equipment trust certificates (the "EETCs")
as detailed within the Offering Circular issued by DNA Alpha dated
10 July 2013.
Further information about the construction of these leases is
available in note 12 to the financial statements.
The EETCs, with an aggregate face amount of approximately $630
million, were admitted to the official list of the Euronext Dublin
and to trading on the Main Securities market thereof and will
mature on 30 May 2025.
Emirates bears all costs (including maintenance, repair; and
insurance) relating to the Aircraft during the lifetime of the
lease
Distribution Policy
The Company currently targets a distribution of 2.0625 pence per
Share per quarter.
There can be no guarantee that dividends will be paid to
Shareholders and, if dividends are paid, as to the timing and
amount of any such dividend. There can also be no guarantee that
the Company will, at all times, satisfy the solvency test required
to be satisfied pursuant to section 304 of The Companies (Guernsey)
Law, 2008, as amended (the "Law") enabling the Board of Directors
("the Directors") to effect the payment of dividends.
Performance Overview
All payments by Emirates have, to date, been made in accordance
with the terms of the respective leases.
During the period under review and in accordance with the
Distribution Policy the Company declared two interim dividends of
2.0625 pence per Share. One interim dividend of 2.0625 pence per
Share was declared after the reporting period. Further details of
dividend payments can be found on page 31.
Return of Capital
The Company intends to return to Shareholders the net capital
proceeds if and when the Company is wound up (pursuant to a
Shareholder resolution, including the Liquidation Resolution
below), subject to compliance with the Company's Articles of
Incorporation (the "Articles") and the applicable laws (including
any applicable requirements of the solvency test contained
therein).
Liquidation Resolution
Although the Company does not have a fixed life, the Articles
require that the Directors convene a general meeting of the Company
in November 2026 where an ordinary resolution will be proposed that
the Company proceed to an orderly wind-up at the end of the term of
the leases (the "Liquidation Resolution"). In the event that the
Liquidation Resolution is not passed, the Directors will consider
alternatives for the future of the Company, including re-leasing
the Assets, or selling the Assets and reinvesting the capital
received from the sale of the Assets in other aircraft.
CHAIR'S STATEMENT
During the period from 1 April 2020 until 30 September 2020 (the
"Period") the Company has declared and paid two quarterly dividends
of 2.0625 pence per share each, a rate of dividend payment
equivalent to 8.25 pence per share per annum.
The Company's investment objective is to obtain income returns
and a capital return for its Shareholders by acquiring, leasing and
then selling aircraft. The structures of the operating leases
relating to the Company's four Assets are described on pages 2 and
3.
The debt portion of the funding is designed to be fully
amortised over the term of the leases, which would leave the
Aircraft unencumbered on the conclusion of the ultimate lease.
Emirates bears all costs (including maintenance, repair and
insurance) relating to the Aircraft during the lifetime of the
leases. At 4 December 2020, the latest practical date prior to this
report, the Company had outstanding debt associated with the
aircraft totalling USD 140.1 million (30% of the initial balance)
as well as unencumbered cash resources of GBP 12.4 million. At the
time of writing the share price is 46.0 pence, representing a
market capitalisation of GBP 101.2 million based on the 220,000,000
shares in issue. The Company's first lease expiry falls due in
August 2025.
All payments by Emirates during the Period and throughout the
lease have been made in accordance with the terms of the lease.
Emirates, the sole lessee of the Company, has undertaken a
number of measures since the onset of COVID-19 to support its
business. These measures included the difficult decisions to cut
jobs, reduce staff wages and offer voluntary unpaid leave in order
to help reduce costs. The airline was also bolstered by its cargo
operations in response to increased demand. Further, as a means to
contain the outflow of cash, Emirates adopted the policy that no
operation is allowed to go below the cash operating cost.
Reassuringly, and according to Emirates's president Tim Clark, the
Airbus A380 has proven economically viable in this regard, as solid
load factors have led to profitable operations - although this is
in the context of only 14 of Emirates's 115 A380s currently being
in service at the time of writing. The Company's Aircraft are
stored at Dubai International Airport ("DXB") and Dubai World
Central International Airport ("DWC"). Perhaps the key development
during the period is that Emirates had received 7.3 billion dirhams
(USD 2 billion) from the government of Dubai. The Government of
Dubai sold USD 2 billion of dual tranche bonds in early September
with the USD 1 billion 30-year conventional bond pricing at a yield
of 4% according to Reuters. Emirates reportedly reinstated the full
salaries of its employees from the beginning of October.
In its recent half-year results Emirates Airline reported that
revenue fell by 75% resulting in a loss of USD 3.4 billion. Despite
the significant drop in operations during the six months, Emirates'
EBITDA was still positive at US 79 million with strong cargo
business supporting revenue. Emirates reported a cash position of
USD 4.25 billion as at 30 September 2020. His Highness Sheikh Ahmed
bin Saeed Al Maktoum, Chairman and Chief Executive, Emirates noted
"No one can predict the future, but we expect a steep recovery in
travel demand once a COVID-19 vaccine is available, and we are
readying ourselves to serve that rebound."
Whilst Emirates do not have a formal credit rating they have
previously issued unsecured USD bonds with maturities in 2023, 2025
and 2028, at the time of writing these respective instruments are
trading at approximately par (100 cents , equivalent to USD running
yields in the range of roughly 3.9% to 4.5%. Further details on
Emirates and the A380 can be found in the Asset Manager's report by
Amedeo Management Limited ("Amedeo").
Since my statement accompanying the Annual Report the
International Air Transport Association ("IATA") has forecast an
airline industry-wide net loss of USD 84.3 billion for this year.
Revenue passenger kilometres contracted by 73 per cent in the year
to September 2020. The liquidity and creditworthiness of airlines,
both large and small, continues to be in focus while a significant
part of the global aircraft fleet remains grounded. IATA continues
to see a recovery to 2019 levels of passenger traffic by 2024.
Amedeo continues to monitor the leases and is in frequent
contact with the lessee, and reports regularly to the Board. Nimrod
Capital LLP ("Nimrod" or the "Corporate and Shareholder Adviser")
continues to liaise with Shareholders on behalf of the Board and
has provided valuable feedback on the views of Shareholders in the
current climate.
Shareholders should note that while the underlying cash flows
received during the Period have been as anticipated, 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").
For instance, the entirety of the rental income that is
receivable under a 12 year lease is credited evenly over each of
the 144 months of the lease. However rental income is not received
in this uniform pattern, although it does closely match the
similarly uneven pattern of debt servicing and other payments. The
mismatch in timing between the receipt and recognition of rental
income results in large deferred income or accrued income balances
in the balance sheet.
Similarly, the relevant accounting standards 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
(including also very significantly, the outstanding borrowings) are
translated at the rate prevailing on the reporting date. The result
is that the figures sometimes show large mismatches which are
reported as unrealised foreign exchange differences - although the
distortive effect becomes less pronounced over time as debt is paid
down and as a result of the impairment adjustment.
On an on-going basis and assuming the lease rental is received,
and the 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 make loan repayments due which are likewise
denominated in US dollars. Furthermore, the US dollar lease rentals
and loan repayments are fixed at the inception of the respective
leases and are very similar in amount and timing.
The Board encourages Shareholders to read the Company's
quarterly fact sheets which we believe provide a great deal of
interesting information including a sensitivity analysis of the
potential returns to Shareholders, after lease expiry, under
different scenarios for A380 appraisal values. We hope these
regular reports, in addition to the communication you receive from
Nimrod, are useful and informative. The Directors welcome
Shareholder engagement and feedback and encourage you to contact
Nimrod to request a meeting or to relay any feedback.
Finally, on behalf of the Board, I would like to thank our
service providers for all their help and, most importantly, all
Shareholders for their continuing support of the Company during
these difficult times. I look forward to keeping all Shareholders
up to date with further progress.
Charles Wilkinson
Chair
10 December 2020
ASSET MANAGER'S REPORT
At the request of the Directors of the Company, this commentary
has been provided by the Asset Manager of the Company.
1. The Assets
The Company acquired four Airbus A380 aircraft by the end of
November 2013. Since delivery, each of the four aircraft has been
leased to Emirates Airline ("Emirates") - the national carrier
owned by the Investment Corporation of Dubai, based in Dubai,
United Arab Emirates - for a term of 12 years with fixed lease
rentals for the duration. In order to complete the purchase of the
aircraft, DNA Alpha Ltd ("DNA Alpha"), a wholly owned subsidiary of
the Company, issued two tranches (Class A & Class B) of
enhanced equipment trust certificates ("the Certificates" or
"EETC") - a form of debt security - in July 2013 in the aggregate
face amount of USD 630 million. The Certificates are admitted to
the official list of the Euronext Dublin and to trading on the Main
Securities market thereof. DNA Alpha used the proceeds from both
the Equity and the Certificates to finance the acquisition of the
four new Airbus A380 aircraft.
Due to the effects of COVID-19, the Aircraft have been stored
since March 2020 and are currently at Dubai International Airport
("DXB") and Dubai World Central International Airport ("DWC").
Please note that the asset manager has not included the
utilisation table included in previous financial statements as the
aircraft were not in service during the period under review.
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.
Due to the continuing COVID-19 pandemic, Emirates has stored the
aircraft owned by the Group in Dubai. The lessee has "a
comprehensive aircraft parking and reactivation programme [in
place], that strictly follows manufacturer's guidelines and
maintenance manuals". In addition, Emirates has enhanced standards
and protocols of their own, to protect and preserve the asset
during the downtime. This includes the watertight sealing of all
apertures and openings through which environmental factors - sand,
water, birds, and insects - can find their way inside an aircraft.
During parking, maintenance teams complete periodic checks at
different intervals. Depending on the reactivation date of a
specific aircraft, the lessee might defer due maintenance checks,
which are calendar-based, until that time. This would allow the
lessee to make use of the full maintenance interval once the
operation of a specific aircraft resumes.
Emirates bears all costs relating to the aircraft during the
lifetime of the leases (including for maintenance, repairs and
insurance).
2. Market Overview
The impact of COVID-19 on the global economy has been severe and
is expected to result in a 4.9% to 5.2% contraction in global GDP
for 2020, according to the International Monetary Fund and the
World Bank. In its latest economic impact analysis, the
International Civil Aviation Organization ("ICAO") estimated that
the full year 2020 will see a reduction in seats offered by
airlines of 48% to 51% compared with the previous baseline forecast
for the year. Furthermore, ICAO anticipates this trend to continue
into the first quarter of 2021 with airlines reducing seats offered
by 23% to 43%. However, the actual impact of COVID-19 on the
airline industry will depend on a number of factors, including the
duration and magnitude of the outbreak and containment measures,
the degree of consumer confidence in air travel as well as general
economic conditions. The International Air Transport Association
("IATA") has forecast an airline industry-wide net loss of USD 84.3
billion for this year.
As of September 2020, air passenger demand has continued its
gradual recovery from the low-point in April, with i ndustry-wide
revenue passenger kilometres (" RPKs ") contracting by 73%
year-on-year in September vs. an 75% fall in August. The load
factor of 60.1% was the lowest in history for September. Modest
demand improvements were primarily being driven by some domestic
markets including Russia and China, while there was no clear
recovery in international traffic in September. I n the first nine
months of 2020, RPKs were down 65 % against the previous year.
Similarly, i ndustry-wide capacity, measured in available seat
kilometres ("ASKs"), also decreased by 56% between January and
September 2020 against the same period in 2019 . This resulted in a
16.1 percentage point decrease in the worldwide passenger load
factor ("PLF") to 66.7%.
In the first nine months of 2020, passenger traffic in the
Middle East was down 69 % against the previous year . Capacity also
fell by 62%, resulting in a 13.7 percentage point decrease in PLF
to 63.0%. Latest available data for September indicate an RPK
contraction of 89% against the same month in the previous year,
with ASKs 77% below its September 2019 levels. The PLF amounts to
about 37%, a decline of 38.5 percentage points. IATA anticipates
the losses of Middle Eastern airlines to rise to USD 4.8 billion in
2020 (from a loss of USD 1. 5 billion in 2019 ).
Source: IATA, ICAO
(c) International Air Transport Association, 2020. Air Passenger
Market Analysis September 2020. Economic Performance of the Airline
Industry, Mid-Year Report June 2020 . All Rights Reserved.
Available on the IATA Economics page .
(c) International Civil Aviation Organization, Effects of Novel
Coronavirus (COVID-19) on Civil Aviation: Economic Impact Analysis,
9 September 2020.
3. Lessee - Emirates
Network
As of mid-August, over 150 destinations in Emirates' global
network remained subject to COVID-19-related travel restrictions.
Daily flights were around 230 - approximately 40% of pre-pandemic
levels, with half of the frequencies operating as cargo-only
services. As a means to contain the outflow of cash, Emirates has
adopted the policy that no operation is allowed to go below the
cash operating costs. According to Emirates' president Tim Clark,
the Airbus A380 has proven economically viable in this regard, as
solid load factors have led to profitable operations. The airline
resumed its A380 services on 15 July with flights to London
Heathrow and Paris.
In order to rebuild confidence in air travel, Emirates became
the first airline to offer free COVID-19 insurance for all
passengers on its own flights and those of its codeshare partners.
The programme covers medical expenses of up to EUR 150,000 and
quarantine costs of EUR 100 per day for 14 days, should passengers
be diagnosed with COVID-19 during their travel. The programme is
set to end on 31 December.
At the beginning of September, Emirates and flydubai announced
that they have renewed their partnership, allowing customers to
travel on codeshare flights to over 30 destinations on flydubai and
over 70 destinations on Emirates. Both airlines have implemented
safety measures, including enhanced sanitation of all touchpoints
and advanced High Efficiency Particulate Air ("HEPA") filters
fitted in aircraft cabins. Passengers on Emirates flights are also
provided with a complimentary hygiene kit containing masks, gloves,
hand sanitiser and anti-bacterial wipes.
Up until the end of September, Emirates' A380 fleet has resumed
flights to six destinations, including Cairo, Guangzhou, London
Heathrow, Moscow, Paris, and Toronto.
At the end of September, Emirates was operating passenger and
cargo flights to 104 cities.
Fleet
While Emirates' operations had remained mainly cargo-only
services through mid-August, the carrier has since announced plans
to gradually increase its passenger network and plans to service 99
destinations in November. Prior to this, the vast majority of
Emirates' 141 passenger Boeing 777 aircraft had returned to
service, but many had been operating cargo-only flights. In fact,
Emirates performed a partial retrofit on 14 Boeing 777-300ER
passenger aircraft to transport freight in the cabin. At the same
time, 13 of Emirates' 115 Airbus A380 aircraft have been returned
to service.
The table below details the passenger fleet activity as of 30
September 2020, reflecting Emirates' recently increased
operations:
Aircraft Type Grounded In Service
A380 102 13
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777 4 137
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Total 106 150
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% 41% 59%
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Source: Cirium as of 30 September 2020
In July, Boeing disclosed that the 777X programme was being
delayed again, with deliveries now scheduled to begin in 2022. In
response, Emirates, as the launch customer of the Boeing 777-9, is
seeking additional clarity on the certification process as it
negotiates a revised schedule for its Boeing 777-9 aircraft.
However, Tim Clark noted that the delivery delay probably benefits
Emirates in the short-term due to the ongoing global pandemic.
In November, Emirates announced that it had started to utilise
the A380 on select cargo charter operations as a dedicated
"Emirates A380 'mini-freighter'". As a first step it has optimised
the cargo capacity "to safely transport around 50 tonnes of cargo
per flight in the bellyhold of the aircraft". Emirates SkyCargo is
working on further optimisations of the capacity through measures
such as seat loading of cargo. Emirates SkyCargo has scheduled more
dedicated A380 cargo flights for the month of November in response
to the surge in demand for air cargo capacity, required for the
urgent transportation of critical goods, including medical supplies
for combatting COVID-19.
Key Financials
In the first half of the financial year ending 31 March 2021,
Emirates recorded its first half-year loss in over 30 years.
Revenues fell 75% to AED 13.7 billion (USD 3.7 billion) due to
pandemic-related travel restrictions, including an eight-week
suspension of scheduled passenger flights during April and May.
These measures resulted in a net loss of AED 12.6 billion (USD 3.4
billion) compared to a profit of AED 863 million (USD 235 million)
in the first half of the previous financial year.
Emirates reduced its ASKs by 91% in the first half of the
2020/21 financial year, while RPKS were down by 96%. During this
period, Emirates' average PLF fell to 38.6%, compared to last
year's pre-pandemic figure of 81.1%.
Emirates' operating costs decreased by 52%. Fuel, which had
previously been the largest cost category for the airline, only
accounted for 11% of total operating costs (compared to 32% in the
first half of the previous financial year). Contributing factors
were a 49% decrease in oil prices and a 76% lower fuel uplift from
reduced flight operations. Despite this significant reduction in
operations, Emirates' EBITDA remained positive at AED 290 million
(USD 79 million).
While the number of passengers Emirates carried between 1 April
and 30 September 2020 was down 95% to 1.5 million passengers
compared to the same period last year, airfreight demand rose
strongly. The volume of cargo uplifted decreased by 35% to 0.8
million tonnes during this period, but the yield more than doubled.
This development reflects the extraordinary market situation during
the global COVID-19 pandemic.
As a part of its cost-saving measures, Emirates Group reduced
its combined employee base of Emirates Airline and air services
provider Dnata by 24% during the first half of the current
financial year.
As of 30 September, Emirates' total liabilities decreased by
8.3% to AED 136.1 billion (USD 37.1 billion USD) compared to the
end of the previous financial year. Total equity decreased by 10.6%
to AED 21.1 billion (USD 5.75 billion) with an equity ratio of
13.4%. Emirates' cash position amounted to AED 15.6 billion (USD
4.25 billion) at the end of the first half of the 2020/21 financial
year. This compares to AED 20.2 billion (USD 5.5 billion) in cash
assets as of 31 March 2020.
On the ongoing financial position of Emirates in light of the
global COVID-19 pandemic, HH Sheikh Ahmed bin Saeed Al Maktoum,
chairman and chief executive of Emirates Airline, stated: "We have
been able to tap on our own strong cash reserves, and through our
shareholder and the broader financial community, we continue to
ensure we have access to sufficient funding to sustain the business
and see us through this challenging period. In the first half of
2020-21, our shareholder injected USD 2 billion into Emirates by
way of an equity investment and they will support us on our
recovery path."
As at the end of September Emirates has outstanding US dollar
debt issuances with maturities in 2023, 2025, and 2028. These
respective bonds were trading at approximately par (100 cents) each
and with running yields ranging from approximately 3.9% to 4.5% in
US dollars there has also been no upward pressure on yields. This
level of yields does not appear to indicate any significant
financial stress to the issuer.
In August 2020 rating agency Moody's Investor Service (Moody's)
downgraded its rating assigned to the Class A EETC issued by DNA
Alpha from Ba1 to Ba3 with a negative outlook. Moody's stated that
the rating action "reflect[s] the adverse impacts of the
coronavirus on the demand for and secondary market values of the
Airbus A380 aircraft and Emirates' financial performance. The
negative outlook reflects the uncertainty of the coronavirus'
lasting impact on global demand for air travel and Emirates
Airline's operations and financial position." The press release
stresses that "Moody's believes the A380 will remain relevant to
Emirates' fleet strategy". Irrespective of the challenges the
coronavirus means for the airline and the Company, the rating
agency continues to expect timely payments of interest and
scheduled principal on the Certificates. For its rating
considerations Moody's assumed a part-out value for the A380 of
about 50 million USD per aircraft. The rating action resolves the
review for downgrade of the issuance initiated back in March.
Source: Cirium, Emirates
4. Aircraft - A380
As at the end of September 2020, the global A380 fleet consisted
of 237 planes with airline operators. Only 19 of these aircraft
were in service, the remainder of the fleet is parked due to
COVID-19. The fourteen operators are Emirates (115), Singapore
Airlines (19), Deutsche Lufthansa (14), Qantas (12), British
Airways (12), Korean Air Lines (10), Etihad Airways (10), Qatar
Airways (10), Air France (9), Malaysia Airlines (6), Thai Airways
(6), Asiana Airlines (6), China Southern Airlines (5), All Nippon
Airways (2), and Hi Fly (1). Another three temporarily stored
aircraft are lease returns.
Due to the COVID-19 pandemic, most A380 operators temporarily
parked the aircraft type from March, with the number of parked
A380s peaking at nearly the entire fleet. In fact, only China
Southern and Hi Fly operated their A380s continuously. However,
Emirates began to gradually restore A380 services in mid-July. In
contrast, other A380 operators, such as Singapore Airlines, Qantas
and Qatar Airways, are reviewing their fleets and have indicated
that there will be no early return of A380 services. Air France
does not plan a return to service for any of its remaining
A380s.
Tim Clark expects the Airbus A380 to continue to play an
important role once the travel demand begins recovering from the
post-coronavirus crisis, provided a vaccine is available: "[It]
would be folly to exclude large wide-bodied aircraft in the future.
The A380 has proven to be a hugely successful aircraft and if fuel
prices were forever to stay at today's levels, this aircraft is
hugely potent." Clark also added that the first A380 aircraft
equipped with Emirates' new premium-economy cabin has finished
assembly in Toulouse, although he did not provide any further
update as to the status of the airline's last eight A380s, which
were scheduled to be delivered over the next year.
In spring 2020 Lufthansa disclosed that it intends to
permanently decommission six A380s with immediate effect. They were
originally earmarked to depart the fleet in 2022. In September the
airline announced that the remaining eight aircraft, "which were
previously intended for flight service, will be transferred to
storage and removed from planning". "These aircraft will only be
reactivated in the event of an unexpectedly rapid market recovery",
according to a press release. Lufthansa no longer expects to
achieve 50% of its pre-COVID-19 ASK levels by the end of 2021 and
released a new estimate of 20-30%. The German airline group stated
that the outlook for international air transport "has significantly
worsened" in recent weeks.
Paul Griffiths, the chief executive of Dubai Airports, which
owns and manages the operation and development of both Dubai's
airports, has expressed confidence in the concept of international
hubs in a post-COVID world, despite the trend towards more
point-to-point traffic. With many countries facing an economic
crisis Paul believes that "the efficiency of hubs and aggregation
power of bringing together city pairs around the world, which will
never likely have enough traffic to be justified to have a
point-to-point service, will continue to be served and aggregated
very efficiently through global hubs". Against this background he
assumes that "777 and A380 are pretty well placed for several years
to come as actually serving that role very well". Another
COVID-related development could also help large airport hubs: He
thinks that "it's going to be very difficult to persuade the
environmental groups and general public actually to support airport
expansions in the future". Due to COVID-19 lockdowns and the
associated slowdown in industrial production, pollution was
temporarily avoided in many regions around the world, resulting in
clear skies.
Source: Cirium, Simple Flying
DIRECTORS
As at 30 September 2020 the Company had four directors all of
whom were independent and non-executive.
Charles Edmund Wilkinson - Chair of the Company and of the
Nomination Committee
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 Chair of Doric Nimrod Air One Limited and a director
of Doric Nimrod Air Two Limited. Charles is also a director of
Landore Resources Ltd, a Guernsey based mining exploration company.
He is resident in Guernsey.
Geoffrey Alan Hall - Chair of the Audit Committee
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 a
director and Chair of the Audit Committee of Doric Nimrod Air One
Limited and Chair of Doric Nimrod Air Two Limited.
Geoffrey earned his master's degree in Geography at the
University of London and is an associate of the CFA Society of the
UK. He is resident in the United Kingdom.
Suzanne Elaine Procter - Senior Independent Director ("SID")
Suzanne Procter brings over 38 years' experience in financial
markets, with specific expertise in asset management. She was
previously a non-executive director of TR Property Investment Trust
plc, an investment company listed on the FTSE 250 index. Her
executive roles included Partner and member of the Executive
Management Committee at Cantillon Capital Management LLC, Managing
Director of Lazard Asset Management, Head of Institutional Sales at
INVESCO Asset Management, Director and Head of Fixed Income
Business at Pictet International Management Ltd and Head of Fixed
Income at Midland Montagu Asset Management.
Suzanne is also the SID of Doric Nimrod Air One Limited and
Doric Nimrod Air Two Limited. She is resident in the United
Kingdom.
Andreas Josef Tautscher
Andreas Tautscher brings over 31 years' financial services
experience. He serves as a non-executive director and member of the
Audit Committee of BH Global Limited, a Guernsey closed-ended
investment company whose shares are traded on the Main Market of
the London Stock Exchange, and as a non-executive director of MJ
Hudson Group plc, a Jersey company whose shares are traded on the
AIM Market of the London Stock Exchange. He is also a director and
CEO of Altair Group, an independent director services business in
the Channel Islands. From 1994 to 2018 Andreas held various roles
at Deutsche Bank and was most recently CEO of the Channel Islands
and Head of Financial Intermediaries for EMEA. He was previously a
non-executive director of the Virgin Group. Andreas qualified as a
Chartered Accountant in 1994.
Andreas is also a director of Doric Nimrod Air One Limited and a
director and Chair of the Audit Committee of Doric Nimrod Air Two
Limited. He is resident in Guernsey.
I N T ER IM M A N A GEMENT REPORT
A description of important events which have occurred during the
period from 1 April 2020 until 30 September 2020 (the "Period"),
their impact on the performance of the Group as shown in the
Consolidated Financial Statements and a description of the
principal risks and uncertainties facing the Group is given in the
Chair's Statement, Asset Manager's Report, and the Notes to the
Consolidated Financial Statements contained on pages 20 to 44 and
are incorporated here by reference.
There were no material related party transactions which took
place in the Period, other than those disclosed at note 23 of the
Notes to the Consolidated Financial Statements.
P ri nc i p al R i sks and U n certa i nti es
The principal risks and uncertainties faced by the Company for
the remaining six months of the financial year are unchanged from
those disclosed in the Company's Annual Financial Report for the
year ended 31 March 2020.
G o i n g Concern
The Group's principal activities are set out within the Company
Overview on pages 2 to 3. The financial position of the Group is
set out on page 17. In addition, note 20 of the Notes to the
Consolidated Financial Statements includes the Group's objectives,
policies and processes for managing its capital, its financial risk
management objectives and its exposures to credit risk and
liquidity risk.
The Directors in consultation with the Asset Manager are closely
monitoring the effect of the COVID-19 pandemic generally on the
aviation industry and specifically on the Group's aircraft values
and the financial wellbeing of its lessee both now and in the
future. The impact of the COVID-19 pandemic on the aviation sector
has been significant with about a third of the global passenger
aircraft fleet still grounded. The Group's future performance could
potentially be impacted should this pandemic have a pervasive and
prolonged impact on the economy. There have prevailed widespread
restrictions on the ability of people to travel which has had a
material negative effect on the airline sector, and by extension
the aircraft leasing sector. This may lead to the inability of
airlines to pay rent as they fall due. These factors, together with
wider economic uncertainty and disruption, are likely to have an
adverse impact on the future value of the aircraft assets owned by
the Group, as well as on the sale, re-lease, refinancing or other
disposition of the relevant aircraft.
The Directors consider that the going concern basis of
accounting remains appropriate. Based on current information the
Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable
future, although the risk to this is clearly higher.
The Board will continue to actively monitor the financial impact
on the Group resultant from the evolving position with its aircraft
lessee and lenders whilst bearing in mind its fiduciary obligations
and the requirements of Guernsey law which determine the ability of
the Group to make dividends and other distributions.
The Directors, with the support of its Asset Manager, believe
that it is reasonable to assume as of date of approval of the half
yearly financial statements that Emirates will continue with the
contracted lease rental payments due to the following:
- Dubai's government has injected US$2 billion into Emirates so
far since the COVID-19 pandemic brought global air travel to a near
halt in March and is prepared to send more help to its flagship
airline.
- Emirates' listed debt and Credit Default Swaps (CDS's) are trading at non-distressed levels.
- The airline resumed its A380 services on 15 July 2020 with
flights to a limited number of destinations.
- As at 4 December 2020, the Asset Manager was not aware of a
formal request addressed to the Group for a lease deferral or any
other efforts that would result in the restructuring of the
existing transactions and which could potentially have an impact on
the committed future lease rental receipts.
- Emirates has paid all lease rentals in a timely manner.
Whilst there is some uncertainty as to the airline industry in
general, and specifically Emirates' financial position and credit
risk profile, on the basis that (i) Emirates has shown no intention
of failing to meet its obligations to the Group (ii) Emirates is
presumed to have the financial backing to continue paying these
rentals, the Directors believe that it is appropriate to prepare
these financial statements under the going concern basis of
preparation.
Respons i b i l i ty Stateme nt
T h e D irect ors j oin t ly and se v eral ly co n f irm t h at
to t he best of t he ir k no w ledge:
a) the Consolidated Financial Statements, prepared in accordance
with International Financial Reporting Standards ("IFRS") give a
fair, balanced and understandable view of the assets, liabilities,
financial position and profits of the Company and performance of
the Company; and
b) this Interim Management Report includes or incorporates by reference:
i. an indication of important events that have occurred during
the Period and their impact on the Consolidated Financial
Statements;
ii. a description of the principal risks and uncertainties for
the remaining six months of the financial year; and
iii. confirmation that there were no related party transactions
in the Period that have materially affected the financial position
or the performance of the Company during that Period.
Si g ne d on beha lf of t he Board of Dire c t ors of t he
Company.
Charles Wilkinson Geoffrey Hall
Chair Director
10 December 2020
CONSOLIDA T ED S T A T E M ENT OF COM PREHENSIVE INCOME
For the period from 1 April 2020 to 30 September 2020
1 Apr 2020 to 1 Apr 2019 to
Notes 30 Sep 2020 30 Sep 2019
GBP GBP
INCOME
A rent income 4 28,629,339 28,613,535
B rent income 4 10,264,236 10,264,236
Bank interest received 7,144 51,857
-------------- --------------
38,900,719 38,929,628
EXPENSES
Operating expenses 5 (831,248) (769,234)
Depreciation of Aircraft 10 (18,685,018) (12,544,775)
-------------- --------------
(19,516,266) (13,314,009)
Net profit for the period before finance costs and foreign exchange
gains/(losses) 19,384,453 25,615,619
Finance costs 11 (4,095,314) (5,839,978)
-------------- --------------
Net profit for the period after finance costs before foreign exchange
gains/(losses) 15,289,139 19,775,641
Unrealised foreign exchange gain/(loss) 7 10,117,880 (18,794,754)
-------------- --------------
Profit for the period 25,407,019 980,887
Other Comprehensive Income - -
-------------- --------------
Total Comprehensive Income for the period 25,407,019 980,887
-------------- --------------
Pence Pence
Earnings per Share for the period
- Basic and Diluted 9 11.55 0.45
In arr i v ing at the results for the f inancial period, all
amounts above relate to continuing operation s.
T he notes on pages 20 to 44 form an integral part of these con
sol idated f inancial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
A s at 30 September 2020
Notes 30 Sep 2020 31 Mar 2020
GBP GBP
NON-CURRENT ASSETS
Aircraft 10 367,159,680 385,844,698
------------- --------------
CURRENT ASSETS
Receivables 13 207,252 60,243
Cash and cash equivalents 18 13,644,757 13,719,497
------------- --------------
13,852,009 13,779,740
TOTAL ASSETS 381,011,689 399,624,438
============= ==============
CURRENT LIABILITIES
Borrowings 15 41,626,942 42,306,341
Deferred income 3,184,479 3,184,479
Rebates 16 362,502 381,116
Payables - due within one year 14 66,072 75,897
------------- --------------
45,239,995 45,947,833
NON-CURRENT LIABILITIES
Borrowings 15 87,365,835 112,658,700
Deferred income 136,052,686 144,783,039
Rebates 16 725,005 938,717
-------------
224,143,526 258,380,456
TOTAL LIABILITIES 269,383,521 304,328,289
============= ==============
TOTAL NET ASSETS 111,628,168 95,296,149
------------- --------------
EQUITY
Share capital 17 208,953,833 208,953,833
Retained earnings (97,325,665) (113,657,684)
------------- --------------
111,628,168 95,296,149
------------- --------------
Pence Pence
Net Asset Value per Share based
on 220,000,000 (31 Mar 2020:
220,000,000) shares in issue 50.74 43.32
The consolidated financial statements were approved by the Board
of Directors and authorised for issue on 10 December 2020 and are
signed on its behalf by:
Charles W il k inson Chair Geoffrey Hall
Director
T he notes on pages 20 to 44 form an integral part of these con
sol idated f inancial statements.
CONSOLIDA T ED S T A T E M ENT OF
CA SH FLOWS
For the period from 1 April 2020
to 30 September 2020 Notes 1 Apr 2020 1 Apr 2019
to to
30 Sep 2020 30 Sep 2019
GBP GBP
OPERA TING ACTIVITIES
Profit for the period 25,407,019 980,887
Mo vement in deferred income (3,286,568) 9,106,918
Interest received (7,144) (51,857)
Deprec iation of Aircraft 10 18,685,018 12,544,775
Loan interest payable 11 3,901,114 5,645,778
(Decrease)/ increase in payables (9,825) 2,774
(Increase)/de crea se in receivables (147,009) 19,316
Foreign exchange movement 7 (10,117,880) 18,794,754
A m orti sation of debt arrange ment
costs 11 194,200 194,200
-------------------------- --------------------------
NET CA SH FROM OPERA TING ACTIVITIES 34,618,925 47,237,545
-------------------------- --------------------------
INVES TING ACTIVITIES
Interest received 7,144 51,857
-------------------------- --------------------------
NET CA SH FROM INVES TING ACTIVITIES 7,144 51,857
-------------------------- --------------------------
FINANCING ACTIVITIES
Di v idends paid 8 (9,075,000) (9,075,000)
Repa y ments of capital on borrow
ings 21 (21,508,144) (32,362,298)
P ay ments of interest on borrow
ings 21 (4,052,392) (5,571,628)
-------------------------- --------------------------
NET CA SH USED IN FINANCING ACTIVITIES (34,635,536) (47,008,926)
-------------------------- --------------------------
CA SH AND CA SH EQUIV ALENTS AT BEGINNING
OF PERIOD 13,719,497 13,113,249
(Decrease)/increa se in cash and
cash equi valents (9,467) 280,476
E ff ects of foreign exchange rates 7 (65,273) 122,010
-------------------------- --------------------------
CA SH AND CA SH EQUIV ALENTS AT
OF PERIOD 18 13,644,757 13,515,735
-------------------------- --------------------------
T he notes on pages 20 to 44 form an integral part of these con
sol idated f inancial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period from 1 April 2020 to 30 September 2020
Notes Share Retained Total
Capital Earnings
GBP GBP GBP
Balance as at 1 April
2020 208,953,833 (113,657,684) 95,296,149
Total Comprehensive Income
for the period - 25,407,019 25,407,019
Dividends paid 8 - (9,075,000) (9,075,000)
----------------------- -------------- -------------
Balance as at 30 September
2020 208,953,833 (97,325,665) 111,628,168
----------------------- -------------- -------------
Share Retained Total
Capital Earnings
GBP GBP GBP
Balance as at 1 April
2019 208,953,833 (41,970,338) 166,983,495
Total Comprehensive Income
for the period - 980,887 980,887
Dividends paid 8 - (9,075,000) (9,075,000)
----------------------- -------------- -------------
Balance as at 30 September
2019 208,953,833 (50,064,451) 158,889,382
----------------------- -------------- -------------
T he notes on pages 20 to 44 f orm an integral part of these
consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the period from 1 April 2020 to 30 September 2020
1 GENERAL INFORMATION
T he con sol idated f inancial statements incorporate the
results of Doric Ni mrod Air Three Li m ited (the " Company ") and
DNA Alpha Li m ited (the " Sub s idiary ") (together kno wn as the
" Group ").
The Company was incorporated in Guernsey on 29 March 2012 with
registered number 54908. The address of the registered office is
given on page 45. Its share capital consists of one class of
ordinary preference shares ("Shares") and one class of subordinated
administrative shares ("Administrative Shares"). The Company's
Shares have been admitted to trading on the Specialist Fund Segment
(the "SFS") of the London Stock Exchange's Main Market.
The Company's investment objective is to obtain income returns
and a capital return for its Shareholders by acquiring, leasing and
then selling aircraft. The principal activities of the Company are
set out in the Chair's Statement and Asset Manager's Report on
pages 4 to 5 and 6 to 11 respectively.
2 ACCOUNTING POLICIES
The significant accounting policies adopted by the Group are as
follows:
(a) Basis of Preparation
The consolidated financial statements have been prepared in
conformity with the International Accounting Standard 34 Interim
Financial Reporting as adopted by the European Union ("EU"), and
applicable Guernsey law. The consolidated financial statements have
been prepared on a historical cost basis.
This report is to be read in conjunction with the annual
financial report for the year ended 31 March 2020 which is prepared
in accordance with the International Financial Reporting Standards
("IFRS") as adopted by the EU and any public announcements made by
the Group during the interim reporting period from 1 April 2020 to
30 September 2020 (the "Period").
The accounting policies adopted are consistent with those of the
previous financial year and corresponding interim reporting period,
except for the adoption of new and amended standards as set out
below:
(b) Adoption of new and revised Standards
New and amended IFRS Standards that are effective for the
current period
The following Standard and Interpretation issued by the
International Accounting Standards Board ("IASB") and International
Financial Reporting Standards Interpretations Committee ("IFRIC")
has been adopted in the current period. The adoption has not had
any impact on the amounts reported in these financial statements
and is not expected to have any impact on future financial
periods:
-- IAS 1'Presentation of financial statements' and IAS 8
'Accounting policies, changes in accounting estimates and error' on
definition of material - These amendments to IAS 1, IAS 8 and
consequential amendments to other IFRSs: use a consistent
definition of materiality throughout IFRSs and the Conceptual
Framework for Financial Reporting; clarify the explanation of the
definition of material; and incorporate some of the guidance in IAS
1 about immateriality information. The effective date is for annual
periods beginning on or after 1 January 2020. The standard has not
had a material impact on the financial statements or performance of
the Company.
New and Revised Standards in issue but not yet effective
IFRS 16 'Leases' - Covid-19 related rent concessions. As a
result of the coronavirus (COVID-19) pandemic, rent concessions
have been granted to lessees. Such concessions might take a variety
of forms, including payment holidays and deferral of lease
payments. Lessees can elect to account for such rent concessions in
the same way as they would if they were not lease modifications. In
many cases, this will result in accounting for the concession as
variable lease payments in the period(s) in which the event or
condition that triggers the reduced payment occurs. The standard is
not expected to have a material impact on the financial statements
or performance of the Group as it is applicable to lessees. The
effective date is for annual periods beginning on or after June
2020. The standard is not expected to have a material impact on the
financial statements or performance of the Group and is not
endorsed by the EU.
IAS 1 'Presentation of financial statements' Classification of
Liabilities as Current or Non-current. The IASB issued amendments
to paragraphs 69 to 76 of IAS 1 to specify the requirements for
classifying liabilities as current or non-current. The effective
date is for annual periods beginning on or after 1 January 2023.
The standard is not expected to have a material impact on the
financial statements or performance of the Group and is not
endorsed by the EU.
(c) Basis of Consolidation
The consolidated financial statements incorporate the results of
the Company and its Subsidiary. The Company owns 100 per cent. of
all the shares in the Subsidiary and has the power to govern the
financial and operating policies of the Subsidiary so as to obtain
benefits from its activities. Intra-group balances and
transactions, and any unrealised income and expenses arising from
intra-group transactions, are eliminated in preparing the
consolidated financial statements.
(d) Taxation
T he Company and its Sub s idiary ha ve been assessed for tax at
the Guernsey standard rate of 0 per cent.
(e) S hare Capital
Shares are classified as equity. Incremental costs directly
attributable to the issue of Shares are recognised as a deduction
from equity.
(f) Expenses
Al l expenses are accounted for on an a ccruals ba s i s.
(g) Interest Income
Interest income is accounted for on an a ccruals ba s i s.
(h) Foreign Currency T ranslation
The currency of the primary economic environment in which the
Group operates (the functional currency) is Pounds Sterling ("GBP",
"GBP" or "Sterling"), which is also the presentation currency.
Transactions denominated in foreign currencies are translated
into Sterling at the rate of exchange ruling at the date of the
transaction.
Monetary assets and liabilities denominated in foreign
currencies at the reporting date are translated into the functional
currency at the foreign exchange rate ruling at that date. Foreign
exchange differences arising on translation are recognised in the
Consolidated Statement of Comprehensive Income.
(i) Cash and Cash Equivalents
Cash at bank and short term deposits which are held to maturity
are carried at cost. Cash and cash equivalents are defined as call
deposits, short term deposits with a term of no more than three
months from the start of the deposit and highly liquid investments
readily convertible to known amounts of cash and subject to
insignificant risk of changes in value.
(j) S egmental Repo rting
The Directors are of the opinion that the Group is engaged in a
single segment of business, being acquiring, leasing and selling
various Airbus A380-861 aircraft (together the "Assets" and each an
"Asset").
(k) Going Concern
The Directors have prepared these half yearly financial
statements for the period ended 30 September 2020 on the going
concern basis.
The Directors in consultation with the Asset Manager are closely
monitoring the effect of the COVID-19 pandemic generally on the
aviation industry and specifically on the Group's aircraft values
and financial wellbeing of its lessees both now and in the future.
The impact of the COVID-19 pandemic on the aviation sector has been
significant with about a third of the global passenger aircraft
fleet still grounded. The Group's future performance can
potentially be impacted should this pandemic have a pervasive and
prolonged impact on the economy. There has prevailed widespread
restrictions on the ability of people to travel and this has had a
material negative effect on the airline sector, and by extension
the aircraft leasing sector. This may lead to the inability of the
airlines to pay rent as it falls due. These factors, together with
wider economic uncertainty and disruption, are likely to have an
adverse impact on the future value of the aircraft Assets owned by
the Group, as well as on the sale, re-lease, refinancing or other
disposition of the relevant aircraft.
The Directors consider that the going concern basis of
accounting remains appropriate. Based on current information the
Directors have reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable
future, although the risk to this is clearly higher.
The Board will continue to actively monitor the financial impact
on the Company and its Group resultant from the evolving position
with its aircraft lessee and lenders whilst bearing in mind its
fiduciary obligations and the requirements of Guernsey law which
determine the ability of the Company to pay dividends and make
other distributions.
Note 15 ('Borrowings') describes the borrowings obtained by the
Group to part-finance the acquisition of its aircraft. The Group
has obligations under the loans to make scheduled repayments of
principal and interest, which are serviced by the receipt of lease
payments from Emirates. The loans have been largely fixed and the
fixed rental income under the operating leases means that the rents
should be sufficient to repay the debt and provide surplus income
to pay for the Group's expenses and permit payment of
dividends.
The Group's aircraft with carrying values of GBP367,159,680 are
pledged as security for the Group's borrowings (see note 15).
The Group is currently in a net asset position and generates
strong positive operating cash flows.
The Directors, with the support of its Asset Manager, believe
that it is reasonable to assume as of date of approval of the half
yearly financial statements that Emirates will continue with the
contracted lease rental payments due to the following:
- Dubai's government has injected US$2 billion into Emirates so
far since the COVID-19 pandemic brought global air travel to a near
halt in March and is prepared to send more help to its flagship
airline.
- Emirates' listed debt and Credit Default Swaps ("CDS's") are trading at non-distressed levels.
- The airline resumed its A380 services on 15 July 2020 with
flights to a limited number of destinations.
- As at 4 December 2020, the Asset Manager was not aware of a
formal request addressed to the Group for a lease deferral or any
other efforts that would result in the restructuring of the
existing transactions and which could potentially have an impact on
the committed future lease rental receipts.
- Emirates has paid all the lease rentals in a timely manner.
Whilst there is some uncertainty as to the airline industry in
general, and specifically Emirates' financial position and credit
risk profile, on the basis that (i) Emirates has shown no intention
of failing to meet its obligations to the Group (ii) Emirates is
presumed to have the financial backing to continue paying these
rentals, the Directors believe that it is appropriate to prepare
these half yearly financial statements under the going concern
basis of preparation.
(l) Leasing and Rental Income
The leases relating to the Assets have been classified as
operating leases as the terms of the leases do not transfer
substantially all the risks and rewards of ownership to the lessee.
The Assets are shown as non-current assets in the Consolidated
Statement of Financial Position. Further details of the leases are
given in note 12.
Rental income and advance lease payments from operating leases
are recognised on a straight-line basis over the term of the
relevant lease. Initial direct costs incurred in negotiating and
arranging an operating lease are added to the carrying amount of
the leased Asset and amortised on a straight-line basis over the
lease term.
(m) Property, Plant and Equipment - Aircraft
In line with IAS 16 Property Plant and Equipment, each Asset is
initially recorded at the fair value of the consideration paid. The
cost of the Asset is made up of the purchase price of the Assets
plus any costs directly attributable to bringing it into working
condition for its intended use. Costs incurred by the lessee in
maintaining, repairing or enhancing the aircraft are not recognised
as they do not form part of the costs to the Group. Accumulated
depreciation and any recognised impairment losses are deducted from
cost to calculate the carrying amount of the Asset.
Depreciation is recognised so as to write off the cost of each
Asset less the estimated residual value over the estimated useful
life of the Asset of 12 years, using the straight line method. The
estimated residual value of the four planes ranges from GBP44.4
million to GBP45.1 million (2019: GBP80.6 million to GBP81.7
million). Residual values have been arrived at by taking the
average amount of three independent external valuers and after
taking into account disposition fees where applicable. During the
annual financial report for the year ended 31 March 2020, it was
determined that the use of soft values excluding inflation best
approximates residual value as required by IAS 16 Property, Plant
and Equipment.
Due to the A380-specific developments during the last financial
year of the Group and the generally dimmed market sentiment in the
aviation sector since the COVID-19 outbreak, which is not over yet,
there is an increasing risk that the underlying assumptions of the
Base Value concept might not be met at the time of the leases
expire. For this reason the Asset Manager recommended the use of a
more conservative approach in deploying future Soft Values instead
of Base Values. Soft Values are more conservative, also applicable
under "abnormal conditions" and do not necessarily require a
balanced market as the Base Value concept does.
This has resulted in a significant reduction in the residual
value of the Aircraft since 31 March 2019 when residual values were
based on Base Values.
The depreciation method reflects the pattern of benefit
consumption. The residual value is reviewed annually and is an
estimate of the fair amount the entity would receive today if the
Asset were already of the age and condition expected at the end of
its useful life. Useful life is also reviewed annually and for the
purposes of the financial statements represents the likely period
of the Group's ownership of these Assets. Depreciation starts when
the Assets are available for use.
At each audited Consolidated Statement of Financial Position
date, the Group reviews the carrying amounts of its Aircraft to
determine whether there is any indication that those Assets have
suffered an impairment loss. If any such indication exists, the
recoverable amount of the Asset is estimated to determine the
extent of the impairment loss (if any). Further details are given
in note 3.
Recoverable amount is the higher of fair value less costs to
sell and the value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the Asset for
which the estimates of future cash flows have not been
adjusted.
If the recoverable amount of an Asset is estimated to be less
than its carrying amount, the carrying amount of the Asset is
reduced to its recoverable amount. An impairment loss is recognised
immediately in profit or loss.
Where an impairment loss subsequently reverses, the carrying
amount of the Asset is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does
not exceed the carrying amount that would have been determined had
no impairment loss been recognised for the Asset in prior periods.
A reversal of an impairment loss is recognised immediately in
profit or loss.
(n) Financial instruments
A financial instrument is recognised when the Group becomes a
party to the contractual provisions of the instrument. Financial
liabilities are derecognised if the Group's obligations, specified
in the contract, expire or are discharged or cancelled. Financial
assets are derecognised if the Group's contractual rights to the
cash flows from the financial assets expire, are extinguished, or
if the Group transfers the financial assets to a third party and
transfers all the risks and rewards of ownership of the Asset, or
if the Group does not retain control of the Asset and transfers
substantially all the risk and rewards of ownership of the
Asset.
Under IFRS 9, on initial recognition, a financial asset is
classified as measured at:
- Amortised cost;
- Fair value through other comprehensive income ("FVOCI"); or
- Fair value through profit or loss ("FVTPL").
The classification of financial assets under IFRS 9 is generally
based on the business model in which a financial asset is managed
and its contractual cash flow characteristics. The Group only has
financial assets that are classified as amortised cost.
i) Financial assets held at amortised cost
A financial asset is measured at amortised cost if it meets both
of the following conditions and is not designated as at FVTPL:
- it is held within a business model whose objective is to hold
Assets to collect contractual cash flows; and
- its contractual terms give rise on specified dates to cash
flows that are solely payments of principal and interest on the
principal amount outstanding.
Assets that are held for collection of contractual cash flows
where those cash flows represent solely payments of principal and
interest are measured at amortised cost. These Assets are
subsequently measured at amortised cost using the effective
interest method. The effective interest method calculates the
amortised cost of financial instruments and allocates the interest
over the period of the instrument.
The Group's financial assets held at amortised cost include
trade and other receivables and cash and cash equivalents.
The Group assesses on a forward looking basis the expected
credit losses associated with its financial assets held at
amortised cost. The impairment methodology applied depends on
whether there has been a significant increase in credit risk.
ii) Financial liabilities held at amortised cost
Financial liabilities consist of payables and borrowings. The
classification of financial liabilities at initial recognition
depends on the purpose for which the financial liability was issued
and its characteristics. All financial liabilities are initially
measured at fair value, net of transaction costs. All financial
liabilities are recorded on the date on which the Group becomes
party to the contractual requirements of the financial
liability.
Financial liabilities are subsequently measured at amortised
cost using the effective interest method, with interest expense
recognised on an effective yield basis. The effective interest
method is a method of calculating the amortised cost of the
financial liability and of allocating interest expense over the
relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash payments through the
expected life of the financial liability, or, where appropriate, a
shorter period, to the net carrying amount on initial
recognition.
The Group derecognises financial liabilities when, and only
when, the Group's obligations are discharged, cancelled or they
expire.
3 S IGNIFICANT JUDGE M ENTS AND ES TIM A T ES
In the application of the Group's accounting policies, which are
described in note 2, the Directors are required to make judgements,
estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period or in the period of the revision and future
periods if the revision affects both current and future
periods.
The following are the critical judgements and estimates that the
Directors have made in the process of applying the Group's
accounting policies and that have the most significant effect on
the amounts recognised in the consolidated financial
statements.
Estimates
Residual Value and Useful Life of Aircraft
As described in note 2 (m), the Group depreciates the Assets on
a straight line basis over the estimated useful life of the Assets
after taking into consideration the estimated residual value. IAS
16 Property, Plant and Equipment requires residual value to be
determined as an estimate of the amount that the Group would
currently obtain from the disposal of the Asset, after deducting
the estimated costs of disposal, if the Asset were of the age and
condition expected at the end of its useful life. However, there
are currently no aircraft of a similar type of sufficient age for
the Directors to make a direct market comparison in making this
estimation. During the annual financial report for the year ended
31 March 2020, it was determined that the use of soft values
excluding inflation best approximates residual value as required by
IAS 16 Property, Plant and Equipment.
Due to the A380-specific developments during the 2 financial
year of the Group and the generally dimmed market sentiment in the
aviation sector since the COVID-19 outbreak, which is not over yet,
there is an increasing risk that the underlying assumptions of the
Base Value concept might not be met at the time of the leases
expiry. For this reason the Asset Manager recommended to make use
of a more conservative approach in deploying future Soft Values
instead of Base Values.
Soft Values are more conservative, also applicable under
"abnormal conditions" and do not necessarily require a balanced
market as the Base Value concept does. There is additional
uncertainty caused by COVID-19 (the Directors have described their
response to this uncertainty in note 2(k), refer to going concern
section on pages 22 to 23) which has resulted in the use of Soft
Values in determining the residual value of the Asset. This was
reflected as a change in the estimation basis in the annual
financial report.
In estimating residual value for the year, the Directors
referred to future soft values (excluding inflationary effects) for
the Asset obtained from three independent expert aircraft valuers.
This has resulted in a significant reduction in the residual value
of the Aircraft since 31 March 2019 when residual values were based
on Base Values; details of which have been disclosed in note
10.
The estimation of residual value remains subject to inherent
uncertainty. If the estimate of residual value used in the
calculation of depreciation had decreased by 20 per cent. with
effect from the beginning of this period, the net profit for the
period and closing shareholders' equity would have decreased by
approximately GBP3.2 million (30 September 2019: GBP4.3 million).
An increase in residual value by 20 per cent. would have had an
equal but opposite effect. This reflects the range of estimates of
residual value that the Directors believe would be reasonable at
this time. The useful life of each Asset, for the purpose of
depreciation of the Asset under IAS 16, is estimated based on the
expected period for which the Group will own and lease the
Aircraft.
Judgements
Operating Lease Commitments - G roup as Lessor
The Group has entered into operating leases on four (31 Mar
2020: four) Assets. The Group has determined, based on an
evaluation of the terms and conditions of the arrangements, that it
retains all the significant risks and rewards of ownership of these
Assets and accounts for the contracts as operating leases.
The Group has determined that the operating leases on the Assets
are for 12 years based on an initial term of 10 years followed by
an extension term of 2 years. Should the lessee choose to exit a
lease at the end of the initial term of 10 years an early
termination payment equal to the present value of the Sterling rent
that would have been payable for the extension term of 2 years
would be due.
Functional Currency
The currency of the primary economic environment in which the
Group operates (the functional currency) is GBP, which is also the
presentation currency.
This judgement is made on the basis that this is representative
of the operations of the Group due to the following:
-- the Company's share capital was issued in GBP;
-- its dividends are paid to Shareholders in GBP, and that
certain of the Group's significant operating expenses as well as
portion of the Groups' rental income are incurred/earned in
GBP.
In addition, the set-up of the leasing structures was designed
to offer a GBP return to GBP investors.
Impairment
As described in note 2(m), an impairment loss exists when the
carrying value of an asset or cash generating unit exceeds its
recoverable amount, which is the higher of its current fair value
less costs to sell and its value-in-use. The Directors review the
carrying amount of its Assets at each audited Statement of
Financial Position date and monitor the Assets for any indications
of impairment as required by IAS 16 Property, Plant and Equipment
and IAS 36 Impairment of Assets.
The Directors review the carrying amount of its Assets at each
audited Statement of Financial Position date and monitor the Assets
for any indications of impairment as required by IAS 16 Property,
Plant and Equipment and IAS 36 Impairment of Assets.
The Board together with the Asset Manager have conducted an
impairment review in the31 March 2020 year as the below items
resulted in pricing changes for the Aircraft:
-- As further Airbus A380 aircraft reached the expiry of their
first lease agreements further market data will be available to
Amedeo and the appraiser community.
-- The announcement to discontinue the A380 program in 2021 may
impact prices in the secondary market.
-- The impact of COVID-19 on the business of airlines and
indirectly aircraft values, as well as on the credit risk profile
of the Company's lessee.
Based on the impairment review performed, an impairment loss of
GBP56,167,300 was recognised in the 31 March 2020 year, with the
impairment test resulting in an updated carrying value of the
Aircraft in total to GBP385,844,698 at that year end, as reflected
in note 10.
For the current period 1 April 2020 to 30 September 2020, the
Board has considered if there are any further impairment triggers
as set out under IAS 36 Impairment of Assets and concluded that an
interim impairment review at the 30 September 2020 period end was
not practicable. The Company will again be carrying out a full and
thorough appraisal of residual values come the next March financial
year end.
4. RENT AL INCOME
1 Apr 2020 1 Apr 2019
to to
30 Sep 2020 30 Sep 2019
GBP GBP
A rent income 25,370,815 37,748,498
Revenue received but not yet earned (11,343,224) (24,410,141)
Revenue earned but not received 13,154,661 13,830,109
A m orti sation of ad van ce rental income 1,596,602 1,596,602
Dedu ction of rebate monies (149,515) (151,533)
------------------ ------------------
28,629,339 28,613,535
------------------ ------------------
B rent income 10,236,192 10,236,192
Revenue received but not yet earned (14,022) (14,022)
Revenue earned but not yet received 42,066 42,066
------------------ ------------------
10,264,236 10,264,236
------------------ ------------------
T otal rental income 38,893,575 38,877,771
------------------ ------------------
Rental income is derived from the leasing of the Assets. Rent is
split into A rent, which is received in US dollars ("$") and B
rent, which is received in Sterling. Rental income received in US
dollars is translated into the functional currency (Sterling) at
the date of the transaction.
An adjustment has been made to spread the actual total income
receivable over the term of the lease on an annual basis. In
addition, advance rentals received have also been spread over the
full term of the leases.
5. OPERA TING EXPENSES
1 Apr 2020 1 Apr 2019
to to
30 Sep 2020 30 Sep 2019
GBP GBP
Corporate shareholder and advisor fee
(note 23) 237,736 231,938
A ss et Management fee (note 23) 321,005 313,120
Liaison agent fee (note 23) 35,661 34,791
A dm ini stration fees 42,995 60,568
B ank interest & charges 2,567 9,458
A cc ountancy fees 10,740 11,627
Regi strar fees (note 23) 8,991 8,539
A udit fees 16,950 16,950
Directors' remuneration (note 6) 51,000 46,408
Directors' and off i cers' insurance 63,252* 13,604
Legal and profess ional expenses 11,291 12,044
A nnual fees 3,892 5,249
T ravel expenses - 505
Marketing expenses (note 23) 6,460 -
Other operating expenses 18,708** 4,433
------------------ ------------------
831,248 769,234
------------------ ------------------
* Due to market conditions at renewal, the Directors' and
officers' insurance premium was subject to a large increase.
** Expenses have been incurred by Amedeo Management Limited to
the amount of GBP13,653 which is in relation to marketing and board
meeting expenses and have been reimbursed during the current
period. The remaining balance in other operating expenses consist
mainly of printing and stationery and also a small amount of
operational sundry expenses.
6 DIRECTORS' REMUNERA TION
Under their terms of appointment, each Director is paid a fee of
GBP23,000 per annum by the Group, except for the Chair, who
receives GBP29,000 per annum and the Chair of Audit, who receives
GBP27,000 per annum. The rate of remuneration per director has
remained unchanged.
7 UNREALISED FOREIGN EXCHANGE GAINS/(LOSSES)
1 Apr 2020 1 Apr 2019
to to
3 0 Sep 2020 3 0 Sep 2019
G BP G BP
Cash at bank (65,273) 122,010
Deferred income 5,443,785 (6,949,300)
Borrowings 4,696,763 (11,874,443)
Rebates 42,605 (93,021)
10,117,880 (18,794,754)
------------- --------------
The foreign exchange gain in the Period reflects the 4.0 per
cent. movement in the Sterling/US dollar exchange rate from 1.242
as at 31 March 2020 to 1.292 as at 30 September 2020.
8 DIVIDS IN RESPECT OF EQUITY SHARES
Dividends in respect of Shares 1 Apr 2020 to
30 Sep 2020
GBP Pence per
Share
First interim dividend 4,537,500 2.06
Second interim dividend 4,537,500 2.06
---------- -----------------
9,075,000 4.12
---------- -----------------
Dividends in respect of Shares 1 Apr 2019 to
30 Sep 2019
GBP Pence per
Share
First interim dividend 4,537,500 2.06
Second interim dividend 4,537,500 2.06
---------- -----------------
9,075,000 4.12
---------- -----------------
Refer to Subsequent Events in note 24 in relation to dividends
declared in October 2020.
9 E A RNINGS PER SHA RE
Earnings per Share ("EPS"') is based on the net profit for the
Period attributable to holders of Shares of the Company
("Shareholders") of GBP25,407,019 (30 September 2019: profit for
the Period of GBP980,887) and 220,000,000 (30 September 2019:
220,000,000) Shares being the weighted average number of Shares in
issue during the Period.
There are no dilutive instruments and therefore basic and
diluted EPS are identical.
10 PROPERTY, PLANT AND EQUIPMENT - AIRCRAFT
TOTAL
GBP
COST
As at 1 Apr 2020 618,050,915
------------
As at 30 Sep 2020 618,050,915
------------
ACCUMULATED DEPRECIATION
As at 1 Apr 2020 176,038,917
Depreciation charge for the period 18,685,018
------------
As at 30 Sep 2020 194,723,935
------------
ACCUMULATED IMPAIRMENT
As at 1 Apr 2020 56,167,300
Impairment loss for the period -
------------
As at 30 Sep 2020 56,167,300
------------
CARRYING AMOUNT
As at 30 Sep 2020 367,159,680
------------
As at 31 Mar 2020 385,844,698
------------
The Group is depreciating its Aircraft so as to ensure that the
carrying value of its Aircraft at the termination of its lease
equals the uninflated residual dollar value determined at 31 March
2020 in accordance with methodology set out in note 3, translated
into Sterling at the exchange rate prevailing at 31 March 2020.
The Group can sell the Assets during the term of the leases
(with the lease attached and in accordance with the terms of the
transfer provisions contained therein).
Under IFRS 16 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.
Refer to note 3 for details on the impairment review conducted
by the Company as at the 31 March 2020 year end.
11 FINANCE CO S TS
30 Sep 2020 30 Sep 2019
GBP GBP
Amortisation of debt arrangements
costs 194,200 194,200
Interest payable 3,901,114 5,645,778
------------ ------------
4,095,314 5,839,978
------------ ------------
12 OPERA TING LEA SES
T he amounts of m ini mum future lea se receipts at the
reporting date under non-can cel lable operating lea ses are detai
led below:
30 September 2020 Next 12
months 1 to 5 years After 5 years Total
GBP GBP GBP GBP
Aircraft- A rental receipts 47,519,272 93,863,789 - 141,383,061
Aircraft- B rental receipts 20,472,384 80,615,877 1,283,043 102,371,304
----------- ------------- -------------- ------------
67,991,656 174,479,666 1,283,043 243,754,365
----------- ------------- -------------- ------------
31 March 2020 Next 12
months 1 to 5 years After 5 years Total
GBP GBP GBP GBP
Aircraft- A rental receipts 49,626,580 122,314,602 - 171,941,182
Aircraft- B rental receipts 20,472,384 81,889,536 10,245,576 112,607,496
----------- ------------- -------------- ------------
70,098,964 204,204,138 10,245,576 284,548,678
----------- ------------- -------------- ------------
T he operating lea ses are for four Airbus A380-861 aircraft.
The terms of the lea ses are as fol low s:
MSN132 - term of the lease is for 12 years ending August 2025.
The initial lease is for 10 years ending August 2023, with an
extension period of two years ending August 2025, in which rental
payments reduce. The present value of the remaining rentals in the
extension period at the end of the initial 10 year lease must be
paid even if the option is not taken.
MSN133 - term of the lease is for 12 years ending November 2025.
The initial lease is for 10 years ending November 2023, with an
extension period of two years ending November 2025, in which rental
payments reduce. The present value of the remaining rentals in the
extension period at the end of the initial 10 year lease term must
be paid even if the option is not taken.
MSN134 - term of the lease is for 12 years ending November 2025.
The initial lease is for 10 years ending November 2023, with an
extension period of two years ending November 2025, in which rental
payments reduce. The present value of the remaining rentals in the
extension period at the end of the initial 10 year lease term must
be paid even if the option is not taken.
MSN136 - term of the lease is for 12 years ending October 2025.
The initial lease is for 10 years ending October 2023, with an
extension period of two years ending October 2025, in which rental
payments reduce. The present value of the remaining rentals in the
extension period at the end of the initial 10 year lease term must
be paid even if the option is not taken.
At the end of each lease the lessee has the right to exercise an
option to purchase the Asset if the Group chooses to sell the
Asset. If a purchase option event occurs the Group and the lessee
will be required to arrange for a current market value appraisal of
the Asset to be carried out by three independent appraisers. The
purchase price will be equal to the average valuation of those
three appraisals.
13 RECEIV ABLES
30 Sep 2020 31 Mar 2020
GBP GBP
Prepayments 207,212 60,203
Sundry debtors 40 40
------------ ------------
207,252 60,243
------------ ------------
T he above carr y ing value of receivables is equivalent to fair
value.
14 P A Y A BLES (amounts falling due within one year)
30 Sep 2020 31 Mar 2020
GBP GBP
Accrued administration fees 10,074 12,032
Accrued audit fee 16,250 20,460
Accrued registrar fees (note 23) 2,209 3,881
Other accrued expenses 37,539 39,524
------------ ------------
66,072 75,897
------------ ------------
T he above carr y ing value of pa yables is equivalent to the
fair value.
15 BORROWINGS
30 Sep 2020 31 Mar 2020
GBP GBP
Equipment Notes 130,953,873 157,120,337
Associated costs (1,961,096) (2,155,296)
------------ ------------
128,992,777 154,965,041
------------ ------------
Current portion 41,626,942 42,306,341
=========== =============
Non-current portion 87,365,835 112,658,700
=========== =============
Notwithstanding the fact that GBP21.5 million capital was repaid
during the Period, as per the Consolidated Statement of Cash Flow,
the closing value of the borrowings decreased by GBP26.0 million
due to the 4.0 per cent. movement in the Sterling / US dollar
exchange rate for the Period from1.242 as at 31 March 2020 to 1.292
at 30 September 2020.
The amounts below detail the future contractual undiscounted
cash flows in respect of the loans and Equipment Notes, including
both the principal and interest payments, and will not agree
directly to the amounts recognised in the Consolidated Statement of
Financial Position:
30 Sep 2020 31 Mar 2020
GBP GBP
A m ount due for settlement w ithin 12 months 47,509,591 49,616,510
========== ===========
A m ount due for settlement a fter 12 months 93,844,424 122,284,388
========== ===========
In order to finance the acquisition of the Assets, the
Subsidiary used the proceeds of the August 2013 offering of Pass
Through Certificates (the "Certificates"). The Certificates have an
aggregate face amount of approximately $630 million, made up of
"Class A" certificates and "Class B" certificates. The Class A
certificates in aggregate have a face amount of $462 million with
an interest rate of 5.250 per cent. and a final expected
distribution date of 30 May 2023. The Class B certificates in
aggregate have a face amount of $168 million with an interest rate
of 6.125 per cent. and a final expected distribution date of 30
November 2019. There is a separate trust for each class of
Certificate. The trusts used the funds from the Certificates to
acquire Equipment Notes. The Equipment Notes were issued to
Wilmington Trust, National Association as pass through trustee in
exchange of the consideration paid by the purchasers of the
Certificates.
The Equipment Notes were issued by the Subsidiary and the
proceeds from the sale of the Equipment Notes financed a portion of
the purchase price of the four airbus A380-861 Aircraft, with the
remaining portion being financed through contribution from the
Group of the Share issue proceeds. The holders of the Equipment
Notes issued for each aircraft have the benefit of a security
interest in such aircraft.
I n the Directors' opinion, the carr y ing values of the
Equipment Notes are approx i mate to their fair value.
16 REBA T ES
Upon entering into the leases it was agreed that the lessee
would pay to the Group such amount as estimated to be necessary to
fund the payment by the Group of certain costs, fees and expenses
associated with the transactions arising from the leases. Following
payment of the costs, fees and expenses, it was agreed that such
amount paid by the lessee exceeded the amount actually necessary.
It was agreed that the Group would return the excess to the lessee
over the remaining life of the leases in May and November of each
year. Upon any termination of a lease prior to its end the Group
shall pay the entire remaining unpaid excess relating to such
Aircraft to such account as is directed by the lessee, but without
any interest accrued thereon.
17 SHARE CAPITAL
T he Share Capital of the Company is represented by an unli m
ited nu mber of shares of no par value being i ssued or reclass i f
ied by the Company as Shares or Adm ini strative Shares (together
the "Share Capital").
Issued Administrative Shares
Shares
Issued shares as at 30 September
2020 and as at 31 March 2020 2 220,000,000
--------------------------- -------------------
Issued Administrative Shares
Shares Total
GBP GBP GBP
Ordinary Shares
Share Capital as at 30 September
2020 and as at 31 March 2020 - 208,953,833 208,953,833
----------------------------- ------------ -------------------
Members holding Shares are entitled to receive and participate
in any dividends out of income attributable to the Shares; other
distributions of the Group available for such purposes and resolved
to be distributed in respect of any accounting period; or other
income or right to participate therein.
Upon winding up, Shareholders are entitled to the surplus assets
attributable to the Share class remaining after payment of all the
creditors of the Group. Members have the right to receive notice of
and to attend, speak and vote at general meetings of the Group.
However the Board has considered the potential impact of the
COVID-19 pandemic (the "Pandemic") on the arrangements for the AGM.
The Company is required by The Companies (Guernsey) Law, 2008, as
amended, to hold an AGM. Measures taken by the States of Guernsey
in response to the Pandemic mean that attendance at the AGM by
shareholders who are not residents of Guernsey is not reasonably
practicable. Of those measures, the most relevant to the AGM is the
legal requirement that anyone arriving in Guernsey from anywhere in
the world including, for the avoidance of doubt, the United
Kingdom, will be required to self-isolate for up to 14 days upon
their arrival.
Due to the Pandemic there will be no opportunity to interact
with the directors. However, the Board considers it important that
all shareholders have the opportunity to make their views known and
to exercise their voting rights at the AGM. The Group has therefore
strongly encouraged all shareholders to exercise their votes in
respect of the meeting in advance and to submit any questions they
may have to either the Secretary or the Corporate and Shareholder
Adviser.
The holders of Administrative Shares are not entitled to
receive, and participate in, any dividends out of income; other
distributions of the Group available for such purposes and resolved
to be distributed in respect of any accounting period; or other
income or right to participate therein. On a winding up, holders
are entitled to a return of capital paid up on them after the
Shares have received a return of their capital paid up but ahead of
the return of all additional capital to the holders of Shares.
The holders of Administrative Shares shall not have the right to
receive notice of and no right to attend, speak and vote at general
meetings of the Group, except for the Liquidation Proposal Meeting
(general meeting convened six months before the end term of the
lease where the Liquidation Resolution will be proposed) or if
there are no Shares in existence.
18 CASH AND CASH EQUIVALENTS
30 Sep 2020 31 Mar 2020
GBP GBP
Cash at bank 13,644,757 13,719,497
13,644,757 13,719,497
------------- -----------------
Cash and cash equivalents are highly liquid, readily convertible
and are subject to insignificant risk of changes in value
19 FINANCIAL INS TRUM ENTS
The Group's main financial instruments comprise:
(a) Cash and cash equivalents that arise directly from the
Group's operations; and
(b) Debt secured on non-current assets.
20 FINANCIAL RISK M ANAGE M ENT OBJECTIVES AND POLICIES
The Group's objective is to obtain income and returns and a
capital return for its Shareholders by acquiring, leasing and then
selling aircraft.
T he fol low ing table detai ls the categories of f inancial
assets and liabilities held by the Group at the reporting date:
30 Sep 2020 31 Mar 2020
GBP GBP
Financial assets
Cash and cash equivalents 13,644,757 13,719,497
Receivables (excluding prepayments) 40 40
------------ ------------
Financial assets measured at amortised cost 13,644,797 13,719,537
------------ ------------
Financial liabilities
Payables 66,072 75,897
Borrowings 128,992,777 154,965,041
------------ ------------
Financial liabilities measured at amortised cost 129,058,849 210,568,034
------------ ------------
The main risks arising from the Group's financial instruments
are capital management risk, foreign currency risk, credit risk,
liquidity risk and interest rate risk. The Board regularly reviews
and agrees policies for managing each of these risks and these are
summarised below:
(a) Capital Management
The Group manages its capital to ensure that the Group will be
able to continue as a going concern while maximising the return to
Shareholders through the optimisation of the debt and equity
balance.
The capital structure of the Group consists of debt, which
includes the borrowings disclosed in note 15, cash and cash
equivalents and equity attributable to equity holders, comprising
issued capital and retained earnings.
T he Group's Board of Directors rev iews the capital structure
on a bi-annual ba s i s.
E quity includes all capital and reserves of the Group that are
managed as capital.
No changes were made in the objectives, policies or processes
for managing capital during the period from 1 April 2020 to 30
September 2020 (None for the period from 1 April 2019 to 30
September 2019).
(b) Foreign Currency Risk
The Group's accounting policy under IFRS requires the use of a
Sterling historic cost of the Assets and the value of the US dollar
debt as translated at the spot exchange rate on every reporting
date. In addition US dollar operating lease receivables are not
immediately recognised in the statement of financial position and
are accrued over the period of the leases. The Directors consider
that this introduces an artificial variance due to the movement
over time of foreign exchange rates. In actuality, the US dollar
operating lease should offset the US dollar payables on amortising
debt. The foreign exchange exposure in relation to the Equipment
Notes is thus almost entirely hedged.
Lease rentals (as detailed in notes 4 and 12) are received in US
dollar and Sterling. Those lease rentals received in US dollars are
used to pay the Equipment Note repayments due, also in US dollars
(as detailed in note 15). Both US dollar lease rentals and
Equipment Note repayments are fixed and are for similar sums and
similar timings. The matching of lease rentals to settle Equipment
Note repayments therefore minimise risks caused by foreign exchange
fluctuations.
T he carr y ing amounts of the Group's foreign curren cy deno m
inated monetary assets and liabilities at the reporting date are as
fol low s:
30 Sep 2020 31 Mar 2020
GBP GBP
Debt (US dollar) - Liabilities (130,953,873) (157,120,337)
Cash and cash equivalents (US dollar) - Asset 1,636,934 1,893,324
-------------- --------------
The following table details the Group's sensitivity to a 25 per
cent. (31 March 2020: 25 per cent.) appreciation in Sterling
against US dollar. 25 per cent. (31 March 2020: 25 per cent.)
represents the Directors' assessment of the reasonably possible
change in foreign exchange rates. The sensitivity analysis includes
only outstanding foreign currency denominated monetary items and
adjusts their translation at the period end for a 25 per cent. (31
March 2020: 25 per cent.) change in foreign currency rates. A
positive number below indicates an increase in profit and other
equity where Sterling strengthens 25 per cent. (31 March 2020: 25
per cent.) against US dollar. For a 25 per cent. (31 March 2020: 25
per cent.) weakening of the Sterling against US dollar, there would
be a comparable but opposite impact on the profit and other
equity:
30 Sep 2020 31 Mar 2020
US Dollar impact US Dollar impact
GBP GBP
Profit or loss 25,863,388 31,045,402
Assets (327,387) (378,665)
Liabilities 26,190,775 31,424,067
----------------- -----------------
O n the eventual sale of the A ssets, the Group will be subject
to foreign currency risk if settled in a currency other than
Sterling. Transactions in similar assets are typically priced in US
dollars.
(c) Credit Risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Group.
Refer to the going concern section on pages 22 to 23 where an
assessment of Emirates is made.
The credit risk on cash transactions is mitigated by transacting
with counterparties that are regulated entities subject to
prudential supervision, or with high credit ratings assigned by
international credit rating agencies.
T he Group's f inancial assets expo sed to credit risk are as
fol low s:
30 Sep 2020 31 Mar 2020
GBP GBP
Receivables (excluding prepayments) 40 40
Cash and cash equivalents 13,644,757 13,719,497
------------ ------------
13,644,797 13,719,537
------------ ------------
S urplus cash in the Company is held with RBSI. S urplus cash in
the Sub s idiary is held in accounts w ith RBSI and Wilmington
Trust. The banks ha ve credit ratings given by Mood y's of P-1 and
P-1 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 agreements between the
lessee and the Group, any non payment of the lease rentals
constitutes a "Special Termination Event", under which the lease
terminates and the Group may either choose to sell the Asset or
lease the Assets to another party.
At the inception of each lease, the Group selected a lessee with
a strong balance sheet and financial outlook. The financial
strength of Emirates is regularly reviewed by the Board and the
Asset Manager.
(d) Liquidity Risk
Liquidity risk is the risk that the Group will encounter
difficulty in realising Assets or otherwise raising funds to meet
financial commitments. The Group's main financial commitments are
its ongoing operating expenses and payments on Equipment Notes.
Ultimate responsibility for liquidity risk management rests with
the Board, which established an appropriate liquidity management
framework at the incorporation of the Group, through the timings of
lease rentals and debt repayments. The Group manages liquidity risk
by maintaining adequate reserves by monitoring forecast and actual
cash flows, and by matching profiles of financial assets and
liabilities.
The table below details the residual contractual maturities of
financial liabilities. The amounts below are contractual
undiscounted cash flows, including both the principal and interest
payments, and will not agree directly to the amounts recognised in
the statement of financial position:
1-3 1-2 2-5 over 5
months 3-12 months years years years
30 Sep 2020 GBP GBP GBP GBP GBP
Financial
liabilities
Payables -
due within
one year 66,072 - - - -
Equipment
Notes 23,801,995 23,707,596 47,123,695 46,720,729 -
----------- ------------------- --------------------- ---------------------- ----------------------
23,868,067 23,707,596 47,123,695 46,720,729 -
----------- ------------------- --------------------- ---------------------- ----------------------
1-3 3-12 1-2 2-5
months months years years over 5 years
31 Mar 2020 GBP GBP GBP GBP GBP
Financial
liabilities
Payables -
due within
one year 75,897 - - - -
Equipment
Notes 24,856,303 24,760,207 49,223,671 73,060,717 -
----------------- ------------------- --------------------- ---------------------- ----------------------
24,932,200 24,760,207 49,223,671 73,060,717 -
----------------- ------------------- --------------------- ---------------------- ----------------------
(e) Interest Rate Risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows. It is the risk that
fluctuations in market interest rates will result in a reduction in
deposit interest earned on bank deposits held by the Group.
The Group mitigates interest rate risk by fixing the interest
rate on the Equipment Notes debt and the lease rentals.
T he fol low ing table details the Group's expo sure to interest
rate ri s k s:
30 Sep 2020 Variable Fixed Non-interest Total
interest interest bearing
GBP GBP GBP GBP
Financial Assets
Receivables (excluding
prepayments) - - 40 40
Cash and cash equivalents 13,644,757 - - 13,644,757
----------------- ------------------- ------------------- ------------
Total Financial Assets 13,644,757 - 40 13,644,797
----------------- ------------------- ------------------- ------------
Financial Liabilities
Payables - - 66,072 66,072
Equipment Notes - 130,953,873 - 130,953,873
----------------- ------------------- ------------------- ------------
Total Financial Liabilities - 130,953,873 66,072 131,019,945
----------------- ------------------- ------------------- ------------
Total interest sensitivity gap 13,644,757 130,953,873
----------------- -------------------
31 Mar 2020 Variable Fixed Non-interest Total
interest interest bearing
GBP GBP GBP GBP
Financial Assets
Receivables (excluding prepayments - - 40 40
Cash and cash equivalents 13,719,497 - - 13,719,497
----------------- ------------------- ------------- ------------
Total Financial Assets 13,719,497 - 40 13,719,537
----------------- ------------------- ------------- ------------
Financial Liabilities
Payables - - 75,897 75,897
Equipment Notes - 157,120,337 - 157,120,337
----------------- ------------------- ------------- ------------
Total Financial Liabilities - 157,120,337 75,897 157,196,234
----------------- ------------------- ------------- ------------
Total interest sensitivity gap 13,719,497 157,120,337
----------------- -------------------
If interest rates had been 50 basis points higher throughout the
Period, and all other variables were held constant, the Group's net
assets attributable to shareholders as at 30 September 2020 would
have been GBP68,224(31 March 2020: GBP68,597) greater due to an
increase in the amount of interest receivable on the bank
balances.
If interest rates had been 50 basis points lower throughout the
Period and all other variables were held constant, the Group's net
assets attributable to shareholders as at 30 September 2020 would
have been GBP68,224 (31 March 2020: GBP68,597) lower due to a
decrease in the amount of interest receivable on the bank
balances.
21 CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES
The following table discloses the effects of the amendments to
IAS 7 Statement of Cash Flows which requires additional disclosures
that enable users of financial statements to evaluate changes in
liabilities arising from financing activities, including both
changes arising from cash flows and non-cash flows.
The table below excludes non-cash flows arising from the
amortisation of associated costs (see note 15).
30 Sep 2020 30 Sep 2019
GBP GBP
Opening Balance 157,120,337 213,048,544
Cash flows paid - capital (21,508,144) (32,362,298)
Cash flows paid - interest (4,052,392) (5,571,628)
Non-cash flows:
- Interest accrued 3,901,114 5,645,778
- Rebates movement 232,327 92,407
- Effects of foreign exchange
- Rebates (42,605) 93,021
- Effects of foreign exchange
- Loans (4,696,763) 11,874,443
------------- -----------------
Closing Balance 130,953,873 192,820,267
------------- -------------
22 ULTIM A TE CONTROLLING P ARTY
I n the op i n i on of the Directors, the Group has no u l ti m
ate contro l ling part y.
23 RELA T ED P ARTY TRANS ACTIONS AND MATERIAL CONTRACTS
Amedeo Management Limited ("Amedeo") has been appointed as the
Group's Asset Manager.
During the Period, the Group incurred GBP356,666 (30 September
2019: GBP347,911) of expenses with Amedeo, of which GBP321,005 (30
September 2019: GBP313,120) related to asset management fees as
shown in note 5, GBP35,661 (30 September 2019: GBP34,791) was
liaison agent fees. As at 30 September 2020, GBP17,831 (31 March
2020: GBP52,187) was prepaid to this related party.
Nimrod Capital LLP ("Nimrod") is the Group's Corporate and
Shareholder Advisor.
During the Period, the Group incurred GBP244,196 (30 September
2019: GBP231,938) of expenses with Nimrod, of which GBPnil (31
March 2020: GBP3,881) was outstanding to this related party at 30
September 2020. GBP237,736 (30 September 2019: GBP231,938) related
to corporate shareholder and advisor fees as shown in note 5 and
GBP6,460 (30 September 2019: GBPnil) have been incurred as
cancellation costs in relation to the Farnborough Airshow.
JTC Registrars Limited ("JTC Registrars") is the Group's
registrar, transfer agent and paying agent. During the Period, the
Group incurred GBP35,661 (30 September 2019: GBP34,791) of expenses
with JTC Registrars as shown in note 5. As at 30 September 2020
GBP2,209 (31 March 2020: GBP3,881) was owing to this related
party.
24 S UBSEQUENT EVENTS
O n 15 October 2020, a div idend of 2.0625 pence per Ordinary
Share was de c lared and this was paid on 30 October 2020.
A D V I S O R S A ND C O N T A CT I N F O R M A T ION
K E Y I N F O R M A T ION
E x chan ge: Special ist Fund S e gme nt of t he London S t o ck
E xchan g e's M a in M ark et
T i c k e r: DNA3
Li st ing Da te: 2 July 2013
Financial Year End: 31 M arch
Ba se Curre ncy: GBP
I S I N: GG00B92LHN58
SED O L: B92LHN5
LEI: 213800BMYMCBKT5W8M49
Coun t ry of I ncorpora t ion:
Guernsey
Registration number: 54908
M A N A G E ME NT A ND A DMI
N I S T R A T ION
Reg i s tered Off i ce Sec retary a nd A dmi n i s trator
D o ric Nimrod A ir T hree JTC Fund Solutions ( G uernse y) Limi
L imi t ed t ed
G round Floor G round Floor
Do rey Court Do rey Court
Ad miral Pa rk Ad miral Pa rk
S t Pe t er P ort S t Pe t er P ort
G ue rnse y, G Y1 2 HT G ue rnse y, G Y1 2 HT
A s se t Manager L i a i so n A gent
A medeo M ana g eme nt Limi A medeo Serv ices (UK) L imi t ed
t ed
T h e O v al 29 -30 Cornhill
Shelbou rne Road London
Ba ll sbri d ge E C 3 V 3 NF
D ub li n 4, Ireland
Corporate and Shareholder Advisor Reg i s trar
Ni mrod Capi t al LLP JTC Re g i s trars L imi t ed
New Derwent House Ground Floor, Dorey Court
69-73 Theobalds Road Admiral Park
London S t Pe t er P ort
WC1X 8TA G ue rnse y, G Y 1 2HT
A d voca tes to the Co m pa ny (as
Lease and Debt Arranger to G u ernsey L a w)
A medeo M ana g eme nt Limi Ca rey O lsen
t ed
The Oval Ca rey House
Shelbourne Road Le s Ba n q ues
Ballsbridge S t Pe t er P ort
Dubli n 4, Ireland G ue rnse y, G Y1 4BZ
So li c i tors to the Comp a ny (as
A u d i tor to Eng l i sh L a w)
Deloi tt e LLP He rbert Smi th Freehills LLP
Re g en cy Cou rt E x chan ge House
G la t e g n y Esplanade P rimrose S treet
S t Pe t er P ort Londo n
G ue rnse y, G Y1 3 HW C 2 A 2 HS
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END
IR FLFFDFLLILII
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