Doric Nimrod 2 Regulatory News (DNA2)

Doric Nimrod Air Two Limited

Doric Nimrod Air Two Limited (LSE: DNA2) ("DNA2" or the "Company") is a Guernsey company incorporated on 31 January 2011.

During the year under review the Company converted 100,250,000 Convertible Preference Shares (the "C Shares") into an additional 100,250,000 Ordinary Preference Shares. These new Ordinary Preference Shares were admitted to trading on the Specialist Fund Market of the London Stock Exchange ("LSE") and to listing on the Official List of the Channel Islands Stock Exchange ("CISX") on 6 March 2013 and rank pari passu with, and have the same right as, the existing Ordinary Preference Shares already in issue. As at 26 July 2013, the last practicable date prior to the publication of this report, the Company's total issued share capital consisted of 172,750,000 Ordinary Preference Shares (the "Shares").

Investment Objectives and Policy

The Company's investment objective is to obtain income returns and a capital return for its shareholders by acquiring, leasing and then selling Airbus A380-800 aircraft (each an "Asset"). The Company will receive income from the lease rentals paid by Emirates Airlines ("Emirates"), the national carrier owned by the Investment Corporation of Dubai, based in Dubai, United Arab Emirates, pursuant to the leases. It is anticipated that income distributions will be made quarterly.

Subsidiaries

The Company has four wholly-owned subsidiaries; MSN077 Limited, MSN090 Limited, MSN105 Limited and Doric Nimrod Air Finance Alpha Limited ("DNAFA") which each hold the Assets for the Company (together the Company and the Subsidiaries are known as the "Group").

The first Asset was acquired by MSN077 Limited on 14 October 2011, for a purchase price of US$234 million. Upon delivery, MSN077 Limited entered into the first operating lease with Emirates, pursuant to which the first Asset has been leased to Emirates for an expected initial term of 12 years, with fixed lease rentals for the duration. 

The second Asset was acquired by MSN090 Limited, on 2 December 2011 for a purchase price of US$234 million. MSN090 Limited has entered into the second operating lease with Emirates pursuant to which the second Asset has been leased to Emirates for an expected initial term of 12 years, with fixed lease rentals for the duration. 

The third Asset was acquired by MSN105 Limited on 1 October 2012 for a purchase price of US$234 million. MSN105 Limited has entered into the third operating lease with Emirates pursuant to which the third Asset has been leased to Emirates for an expected initial term of 12 years, with fixed lease rentals for the duration. 

In order to complete the purchase of the relative Assets, MSN077 Limited, MSN090 and MSN105 Limited entered into separate loan agreements, each of which will fully amortise with quarterly repayments in arrears over 12 years (together the "Loans"). A fixed rate of interest applies to the Loans. MSN077 Limited drew down US$151,047,509 under the terms of the first loan agreement to complete the purchase of the first Asset, MSN090 Limited drew down US$ 146,865,575 in accordance with the second loan agreement to finance the acquisition of the second Asset and MSN105 Limited drew down US$ 145,751,153 in accordance with the third loan agreement to finance the acquisition of the third Asset. The first loan agreement, second loan agreement and the third loan agreement are on materially the same terms.

The fourth, fifth, sixth and seventh Assets were acquired by DNAFA using the proceeds of the issue of the C Shares by the Company, which closed on 27 March 2012, together with the proceeds of the Equipment Notes issued by DNAFA. The Equipment Notes were acquired by two separate pass through trusts using the proceeds of their issue of enhanced equipment trust certificates (the "Certificates"). The Certificates, with an aggregate face amount of approximately $587.5 million were admitted to the official list of the UK Listing Authority and to the London Stock Exchange on 12 July 2012.These four Assets were also leased to Emirates for an expected initial term of 12 years, with fixed lease rentals for the duration.

Distribution Policy

The Company aims to provide Shareholders of the Company ("Shareholders") with an attractive total return comprising income, from distributions through the period of the Company's ownership of the Assets, and capital, upon the sale of the Assets.

The Company will receive income from the lease rentals paid by Emirates pursuant to the relevant leases. It is anticipated that income distributions will be made quarterly, subject to compliance with applicable laws and regulations. The Company currently targets a distribution of 4.5 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 (the "Guernsey Law") enabling the Directors to effect the payment of dividends.

Performance Overview

All payments by Emirates have to date been made in accordance with the terms of the respective Lease.

During the period from 1 April 2012 to date and in accordance with the Distribution Policy the Company declared dividends totalling £23,535,938. Further details of dividend payments can be found on page 22.

Future dividend payments are anticipated to continue to be declared and paid on a quarterly cycle on the basis specified above under Distribution Policy and subject to compliance with applicable laws and regulations.

Return of Capital

In respect of any Asset, following the sale of that Asset, the Directors may, as they deem appropriate at their absolute discretion, either (i) return to Shareholders the net capital proceeds, or (ii) re-invest such proceeds in accordance with the Company's investment policy.

Further, the Company intends to return to Shareholders net capital proceeds if and when the Company is wound-up (pursuant to a Shareholder resolution, including the Liquidation Resolution below), subject to compliance with the Company's Articles of Incorporation (the "Articles") and the applicable laws (including any applicable requirements of a solvency test contained therein).

Liquidation Resolution

Although the Company does not have a fixed life, the Articles require that the Directors convene a Liquidation Proposal Meeting in June 2025 where a Liquidation Resolution will be proposed that the Company proceed to an orderly wind-up. In the event that the Liquidation Resolution is not passed, the Directors will consider alternatives for the Company and shall propose such alternatives at a general meeting of the Shareholders, including re-leasing the Assets (to the extent the Assets have not already been disposed of in the market), or selling the Assets and applying the capital received from the sale of those Assets to: (i) if applicable, the repayment of outstanding debt; and (ii) reinvestment in other aircraft.

I am pleased to present shareholders with the Company's first consolidated financial report covering the period from 1 April 2012 until 31 March 2013.

Admission of 72,500,000 Ordinary Preference Shares of the Company to trading on the Specialist Fund Market of the London Stock Exchange and listing on the Channel Islands Stock Exchange took place on 14 July 2011(the "Placing"). The issue price under the Placing was 200 pence each. On 27 March 2012 the Company issued 100,250,000 Convertible Preference Shares (the "C - Share Placing"). The issue price under the C-Share placing was 200 pence each.

I am pleased to report that, notwithstanding the turbulence in the financial markets, the Company has performed well and has already declared quarterly dividends as targeted to the shareholders.

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 Company used the net proceeds of the initial Placing and three separate loans, each of approximately US$150 million, to fund the purchase of three Airbus A380-800 aircraft. The Company acquired the first, second and third aircraft, respectively through its wholly owned subsidiaries MSN077, MSN090 Limited and MSN105 Limited, on 14 October 2011, 2 December 2011 and 1 October 2012 each for the sum of US$234 million. Upon delivery the subsidiaries each also entered into an aircraft operating lease with Emirates Airlines. The aircraft have been leased to Emirates for an initial term of twelve years with fixed lease rentals for the duration. The debt portion of the funding will be fully amortise over the twelve years of the lease, leaving the aircraft unencumbered at the conclusion of the lease. All payments thus far by Emirates have been made in accordance with the term of the leases.

The Company used the net proceeds of the C - Share Placing together with debt of approximately US$600 million, issued in the debt security form of Enhanced Equipment Trust Certificates, to fund the purchase of four additional Airbus A380-800 aircraft, and to lease them to Emirates Airlines in the fourth quarter of 2012.

Once all seven aircraft were acquired, the C - Shares were converted into Ordinary Preference Shares at a conversion ratio of one Ordinary Preference Share for every one C - Share, and the Company now targets a distribution of 4.5p per Share per quarter, equating to 9 per cent per annum on the issue price of the Shares.

The lessee has performed well over the period. Despite the turmoil in the global economy, international passenger air traffic remained robust (though air freight traffic was more subdued). Emirates continue to report strong performance. This was greatly aided by the airline's ability to adjust flight schedules swiftly, and redeploy aircraft about the network, thus optimising revenue. The airline operates with a remarkably high passenger seat factor whilst at the same time increasing seat capacity.

The lease payments received by the Company from Emirates cover repayment of the debt as well as income to pay dividends to shareholders. Emirates bears all costs (including maintenance, repair and insurance) relating to the aircraft during the lifetime of the lease. The Company's Asset Manager, Doric GmbH, continues to monitor the lease performance and reports regularly to the Board. Nimrod Capital LLP, the Company's Placing and Corporate and Shareholder Advisory Agent, continues to liaise between the Board and Shareholders, which includes distribution of quarterly fact sheets and the interim management statements.

In economic reality, the Company has performed well. Four interim dividends were declared in the year and future dividends are anticipated to be declared and paid on a quarterly basis. However, the financial statements do not properly convey this economic reality due to several factors; foreign exchange, and the accounting treatments for rental income and finance costs.

Foreign exchange has influenced the financial statements as, under the requirements of International Financial Reporting Standards, the items in the Statement of Financial Position are translated into Sterling from US Dollars at varying foreign exchange rates, either the year end rate or historic transaction rate, which will inevitably produce foreign exchange differences (losses for the year ended 31 March 2013). ). In reality those lease rentals received in US Dollars are used to pay the loan repayments due, also in US Dollars. Both US Dollars lease rentals and loan repayments are fixed and are for similar sums and similar timings. The matching of lease rentals to settle loan repayments therefore mitigates risks caused by foreign exchange fluctuations.

In addition to this the rental income is spread evenly over the term of each of the leases, rather than the rentals being accounted for as actually received into the Company's bank account. Furthermore, interest on borrowings is recognised using the effective interest rate method, resulting in higher charges in earlier periods when the outstanding principal balances are greater. The loan repayments are, in reality, constant over much of the lease term, reducing in the final two years.

On behalf of the Board I would like to thank all Shareholders for their continued support of the company.

Norbert Bannon

Chairman

1. The Assets

In November 2012, the Company had completed the purchase of all seven Airbus A380 aircraft, bearing manufacturer's serial numbers (MSN) 077, 090, 105, 106, 107, 109 and 110. All seven aircraft are leased to Emirates for an initial term of 12 years from the point of delivery with fixed lease rentals for the duration.

The seven A380s owned by the Company recently visited Bangkok, Jeddah, New York JFK, Paris, Rome and Sydney.

Aircraft utilization for the period from delivery of each Airbus A380 until the end of May 2013 was:

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) every 24 months or 12,000 flight hours, whichever comes first. The first C check of MSN 077 is likely to occur in October 2013 and the first C check of MSN 090 in December 2013. The asset manager plans to inspect MSN 077 and MSN 090 later this year during the planned wing rib feet modification (see below). Emirates bears all costs (including maintenance, repair and insurance) relating to the aircraft during the lifetime of the lease.

Hairline Cracks

Since late 2011, hairline cracks have been detected in a small number of L-shaped metal brackets (known as wing rib feet) within the wing structure of some A380s. The aircraft remains fully airworthy and the hairline cracks pose no risk to flight safety as affirmed by the European Aviation Safety Agency (EASA) and Airbus.

As previously reported, Airbus has since developed a permanent fix to wing rib feet cracking. In March 2013 EASA certified the retrofit modification programme and confirmed that modified in-service A380 will preserve their full design service life without further repeat inspections of the wing rib feet. In May 2013 EASA released its latest Airworthiness Directive (AD) outlining which modifications need to be made and the respective compliance times. In addition to the retrofit solution Airbus has developed a modified wing for new aircraft. Delivery of the first aircraft with the reworked wing design is expected in early 2014.

The wing rib feet modification programme for Emirates' aircraft is essentially managed by Airbus. All modification activities will be covered by the applicable manufacturer's warranties. Emirates decided to embody all modifications in one step. Airbus is confident that the downtime required to incorporate the permanent fix might be reduced from the originally planned eight weeks to six weeks. The current schedule for the respective aircraft is as follows:

The portfolio's first A380 (MSN 090) due for modification arrived in Dresden (Germany) at Elbe Flugzeugwerke (EFW) on 19 May 2013. EFW - a subsidiary of Airbus' parent company EADS - was chosen to perform the wing rib feet modification for a number of aircraft. In addition to EFW Airbus selected another three maintenance, repair and overhaul organizations (MROs) around the world. Further modifications for Emirates' aircraft are taking place with Abu Dhabi Aircraft Technologies (ADAT) in Abu Dhabi, Ameco Beijing in China and Sabena technics in France.

2. Market Overview

During the first four months of the current year, passenger demand, measured in revenue passenger kilometres (RPKs), expanded by 4.1% compared to the same period in the previous year. Growth in air travel has been supported by a relatively better business environment over the past six months than what airlines experienced during the middle parts of 2012. Although business confidence has been broadly flat throughout 2013, levels remained above the lows registered in the third quarter of last year. The regional growth patterns continue to be uneven and similar to last year when the Middle East replaced Latin America as the world's fastest growing region. Between January and April 2013 the Middle East airlines increased their RPKs by 12.1% compared to the previous year's period. The slowest growth was observed in North America with an increase in RPKs of 1.5% compared to the same period in the previous year.

The International Air Transport Association (IATA) has reduced its 2013 estimate for worldwide RPK growth by 10 basis points to 5.3%. This number is still above the long-term growth rate although the Eurozone has fallen into the longest recession period since records began in 1995. From January to March 2013 the economic output contracted for the sixth consecutive quarter. In its latest 20-year forecast from June 2013 Boeing expects that passenger traffic and cargo traffic will grow by 5% annually over the next two decades until 2032. The airframe manufacturer is also projecting a more robust outlook for worldwide aircraft demand, predicting the fleet of in-service commercial aircraft will grow from 20,310 aircraft in 2012 to more than 41,000 by 2032.

After a slight recovery in air freight demand during the fourth quarter of 2012, global freight-tonne-kilometres (FTKs) were falling in February and March 2013. Between January and April 2013 FTKs decreased by 0.6% compared to the same period the year before. Notwithstanding the encouraging figures for April 2013, some market observers expect a decline in business confidence - which is closely correlated to air freight demand - in the second half of this year. Against the background of the uncertain outlook, IATA has revised its target for FTK growth during 2013 down to 1.5%. This would be nonetheless an improvement compared to 2012, when the air freight market contracted.

Expenses for jet fuel are expected to remain on a high level during 2013, with an average price of USD 127 per barrel, a slight relief compared to the previous forecast of USD 130 per barrel in March 2013. This would marginally reduce the share of fuel costs from 33% to 31% of airlines' total operating costs. A decade ago, the share was 14% and has more than doubled since then.

IATA released its latest industry outlook in June 2013 according to which global industry profits are expected to reach USD 12.7 billion this year. This is higher than IATA's March 2013 estimate of USD 10.6 billion and is based on the expectation that airlines' capacity reductions will result in record passenger loads for the full year 2013. IATA predicts airlines will carry more than three billion passengers for the first time, at an average seat occupancy of 80.3%.

Source: Aviation Today, Boeing, IATA, Reuters

3. Lessee - Emirates Key Financials and Outlook

Emirates has announced its 25th consecutive year of profit and company-wide growth for the financial year ending 31 March 2013, despite continuing high fuel prices and a weak global economic environment.

Revenue reached a record high of USD 19.9 billion, up by 17% compared to the previous financial year, and continues to be well balanced with no region contributing more than 30%. East Asia and Australasia remained the highest revenue contributing region with USD 5.7 billion, up 15% from 2011/2012. Europe (up 18% to USD 5.5 billion) and the Americas (up 24% to USD 2.3 billion) saw the most significant growth, reflecting new destinations as well as increased frequency and capacity to these regions.

The airline posted a net profit of USD 622 million, representing an increase of 52% over last year's results. Although Emirates' fuel bill increased by 15% to reach USD 7.6 billion, total operating costs showed a smaller increase (+16%) than revenue (+17%) in the financial year 2012/2013.

As of 31 March 2013 the balance sheet total amounted to USD 25.8 billion, an increase of 23% from the previous year. Total equity increased by 7.3% to USD 6.3 billion with an equity ratio of 24.3%. The current ratio was 1.12; therefore the airline would be able to meet its current liabilities by liquidating all of its current assets. Significant items on the liabilities side of the balance sheet included finance leases in the amount of USD 7.4 billion and revenues received in advance from passenger and freight sales (USD 2.9 billion). As of 31 March 2013 the carrier's cash balance reached USD 6.7 billion.

Emirates continued with its growth plan and during the financial year 2012/2013 saw the largest increase in capacity in the airline's history receiving 34 wide-body aircraft, including ten Airbus A380s and four freighters. As of 31 May 2013 Emirates has 200 aircraft in operation, with firm orders for another 195 aircraft, including 57 A380s, 63 Boeing 777-300ER and 50 Airbus A350-900 XWB. The airline operates the world's largest fleets of Airbus A380s and Boeing 777-300ER. Emirates raised USD 7.8 billion in new funding mainly to secure its on-going fleet expansion, a record amount for the airline. This included USD 587.5 million financing for additional A380s with a form of debt security (enhanced equipment trust certificates) that used the debt capital market in the US, a first for a non-US airline in years.

With its increased fleet and resources, Emirates launched 10 destinations during the last financial year. In June 2013 Emirates operated flights to 134 destinations in 77 countries on six continents. New routes launched so far this year include Warsaw, Algiers and Tokyo Haneda. Services to Stockholm begin on 4 September 2013, followed by Clark International Airport in the Philippines as of 1 October 2013.

Depending on the demand of the respective routes, the carrier is constantly adjusting its capacities to meet customer expectations and utilization targets. Bangkok, one of Emirates' earliest destinations in the Far East, will receive a second daily non-stop A380 service starting in October 2013. Also at the beginning of the fourth quarter 2013, Emirates will commence its first transatlantic flights from Europe. One out of three current daily flights from Dubai to Milan (Italy) will continue to New York's John F. Kennedy Airport (JFK). According to Tim Clark, Emirates' President, the airline has identified strong demand, which is currently underserved on this route. The service will be operated by a Boeing 777-300ER.

The rapidly expanding fleet allowed an almost 18% increase of available seat kilometres between April 2012 and March 2013, as compared to the prior financial year. Measured in RPKs passenger traffic grew by 17.6%, resulting in an average passenger load factor of nearly 80%. A record 39.4 million passengers flew with Emirates between April 2012 and March 2013 - an increase of 15.9% compared to the previous period.

On 1 April 2013 Emirates and Qantas started their global aviation partnership with two Qantas flights operated from Melbourne and Sydney to London Heathrow via Dubai, Emirates' home. Passengers from these two destinations save more than two hours on average to the top ten destinations in Europe, according to Alan Joyce, CEO of Qantas. In addition to the Australian Competition and Consumer Commission (ACCC), which already granted approval in March 2013, the New Zealand Minister of Transport gave his consent on trans-Tasman routes for passenger and cargo transport operations and related services. First results of the new partnership look encouraging for both airlines: Qantas has seen a sixfold increase in bookings to Europe during the first nine weeks of sales, compared to the same period last year. Emirates is benefiting from this feed for its European, African and Middle Eastern destinations. During the same period, the number of Emirates customers who booked flights on Qantas' domestic network, was almost seven times higher.

Source: Bloomberg, Emirates

4. Aircraft - A380

Emirates has a fleet of 33 A380s which currently serve 20 destinations worldwide: Amsterdam, Auckland, Bangkok, Beijing, Hong Kong, Jeddah, Kuala Lumpur, London Heathrow, Manchester, Melbourne, Moscow, Munich, New York JFK, Paris, Rome, Seoul, Shanghai, Singapore, Sydney and Toronto. Emirates announced an upgrade of service from Dubai to Los Angeles with the introduction of the A380 starting in December 2013. Brisbane and Zurich are scheduled to complement the list of A380 destinations in October 2013 and January 2014 respectively. As of May 2013 Emirates operated 46 different routes, more than any other A380 operator worldwide. The carrier is also the largest A380 operator in terms of aircraft number. Emirates has an additional 57 aircraft of this type on firm order for delivery through 2017; receiving one A380 delivery per month, on average. Together with its partner Qantas, the two airlines operate a combined fleet of 45 A380s, which is more than 40% of the world's current A380 capacity.

At the end of May 2013, the global A380 fleet consisted of 103 planes that were in service with nine operators: Emirates (33 A380 aircraft), Singapore Airlines (19), Qantas (12), Deutsche Lufthansa (10), Air France (8), Korean Airways (6), China Southern Airlines (5), Malaysia Airlines (6) and Thai Airways (4). British Airways is set to receive its first A380 in July 2013.

As of May 2013, 1,048 weekly A380 flights were scheduled worldwide, with lessee Emirates holding a share of nearly 40%. There are currently nine operators who employ the A380 fleet on 128 routes. With a distance of 1,202 km the shortest A380 route is operated by China Southern Airlines, between Guangzhou and Shanghai. Qantas operates the longest route, from Los Angeles to Melbourne (12,751 km). On average an A380 flight is 7,517 km. Dubai and Singapore, home of the two largest A380 operators Emirates and Singapore Airlines, are the most frequented destinations.

Source: Ascend, Centre for Aviation

Norbert Bannon - Chairman (Age 64)

Norbert Bannon is a director of the Irish and UK regulated subsidiaries of a major Canadian bank and is the Chairman of a £1 billion UK defined benefit pension scheme and also chairs one of the largest defined contribution pension schemes in Ireland. He is Chairman of the Audit Committees of Doric Nimrod Air One Limited and Doric Nimrod Air Three Limited. He is a director of and advisor to a number of other financial companies.

He has extensive experience in international finance having been CEO of banks in Singapore and New York. He was Managing Director of Ireland's largest venture capital company and was Finance Director and ChiefRisk Officer  of AIB Capital Markets plc. which he left in in 2002. He has worked as a consultant to a number of international companies.

He earned a degree in economics from Queen's University, studied at Stanford Graduate School of Business and is a Chartered Accountant.

Charles Edmund Wilkinson (Age 70)

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

Charles is currently Chairman of the Boards of Doric Nimrod Air Three Limited and Doric Nimrod Air One Limited, and a director of Premier Energy and Water Trust PLC (a listed investment trust), and of Landore Resources Ltd, a Guernsey based mining exploration company.

Geoffrey Alan Hall (Age 64)

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

Geoffrey earned his masters degree in Geography at University of London. He is an associate of the UK Society of Investment Professionals (CFA Institute of the UK).

Management and the Delegation of Functions

The Directors, whose details are set out in pages 15 to 16 are responsible for reviewing the business affairs of the Company in accordance with the Articles and the prospectus and have overall responsibility for the Company's activities including all business decisions, review of performance and authorisation of distributions. All of the Directors are independent and non-executive. The Company has delegated management of the Assets to Doric GmbH (the "Asset Manager" or "Doric"), which is a Company incorporated in Germany and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht as outlined below in more detail below. The Directors delegate secretarial and administrative functions to Anson Fund Managers Limited ("Anson" or the "Secretary & Administrator") which is a Company incorporated in Guernsey and licenced by the Guernsey Financial Services Commission.

Asset Manager and Lease and Debt Arranger

Doric has been appointed by the Company to provide asset management services to the Company. Pursuant to the Asset Management Agreement, Doric will: (i) monitor Emirates' and any subsequent lessees' performance of its obligations under the respective operating leases and any subsequent lease respectively (which shall include the obligations relating to the maintenance of insurance cover); (ii) provide the Company with information regarding alternatives with respect to any potential sale or re-lease of the Assets; (iii) carry out mid-lease inspections of the Assets; (iv) provide the Company with asset monitoring reports describing the state and any material changes to the state of the Assets; and (v) liaise, as and when necessary, with lenders, on all matters relating to the loans, as required. Doric has further undertaken that it will dedicate sufficient time and resources as the Company reasonably believes is required from time to time to fulfil any contractual arrangements it enters into with the Company.

Doric Asset Finance GmbH & Co KG ("Doric KG") has been appointed by the Company, pursuant to the Agency Agreement, to assist the Company, and act as the Company's agent, in relation to the arrangement, negotiation, review, approval, execution and management on behalf of the Company of the acquisition of the Assets, the borrowings of the Company relating to the acquisition of the Assets, and the operating leases. Doric KG is a subsidiary of Doric. Doric is the holding company of the Doric Group of Companies and provides for the fund administration and asset management services of the Doric Group.

Doric Partners LLP has been appointed by the Company, pursuant to the Liaison Services Agreement, to: (i) coordinate the provision of services by Doric and Doric KG to the Company under the Asset Management Agreement and the Agency Agreement, as relevant; and (ii) facilitate communication between the Company and Doric or Doric KG. Doric Partners LLP is a limited liability partnership incorporated in England and Wales.

The Doric Group is a leading provider of products and services for investors in the fields of aviation, shipping, renewable energy and real estate. The Doric Group has an international presence, with offices in Germany, the United States and the United Kingdom, and a multinational team which offers access to extensive relationship networks and expert asset knowledge. One of the firm's core competencies is its asset management expertise, which is an integrated part of all Doric transactions and a cornerstone of the business. The Doric KG team has a long track record of offering investment opportunities with positive long-term performance.

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

The aircraft portfolio currently managed by the Doric Group is valued at US$6 billion based on the original cost and consists of 35 aircraft under management. The Doric Group has 18 Airbus A380 aircraft currently under management and is therefore considered well positioned to perform the technical asset management of this aircraft type.

Corporate and Shareholder Adviser

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

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

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

Secretary & Administrator

Anson is a Guernsey incorporated privately owned company and provides administration and secretarial services to the Company pursuant to an Administration and Secretarial Agreement. In such capacity, Anson is responsible for the general secretarial functions required by the applicable laws and ensures that the Company complies with its continuing obligations as well as advising on the corporate governance requirements and recommendations as applicable to a company listed on the Channel Islands Stock Exchange and admitted to trading on the Specialist Fund Market of the London Stock Exchange. The Administrator is also responsible for the Company's general administrative functions such as the calculation of the net asset value of Shares and the maintenance of accounting and statutory records.

Anson specialises in providing a wide range of support services to companies and funds. Anson's clients include closed‑ended funds, unit trusts, investment companies and limited partnerships, many of which are listed on stock exchanges such as the LSE, CISX and Euronext Amsterdam.

Review

The Board keeps under review the performance of the Asset Manager, Doric KG, Doric Partners LLP, Nimrod and the Secretary & Administrator and the powers delegated to each service provider. In the opinion of the Board the continuing appointments of the Asset Manager, Doric KG, Doric Partners LLP, Nimrod and Secretary & Administrator on the terms agreed is in the interest of shareholders as a whole.

A description of important events which have occurred during the financial period, their impact on the performance of the Group as shown in the financial statements and a description of the principal risks and uncertainties facing the Group is given in the Chairman's Statement, Asset Manager's Report and the notes to the financial statements contained on pages 38 to 62 and is incorporated here by reference.

Going Concern

The Group's principal activities are set out within the Overview on pages 1 - 4. The financial position of the Group is set out on page 22. In addition, Note 17 to the 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 interest rate under each Loan has been fixed and the fixed rental income under the relevant Lease has been co-ordinated with the loan repayments therefore the rent income should be sufficient to repay the Loans and provide surplus income to pay for the Group's expenses and permit payment of dividends. There were no material related party transactions which took place in the financial period, other than those disclosed in the Directors' Report and at Note 20 to the financial statements.

After making reasonable enquiries, the Directors have a reasonable expectation that the Company and the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

Responsibility Statement

The Directors jointly and severally confirm that to the best of their knowledge:

(a) The financial statements, prepared in accordance with International Financial Reporting Standards, as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profits of the Group and performance of the Group; and

(b) This Management Report includes or incorporates by reference a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

Norbert Bannon Charles Wilkinson

Chairman Chairman of Audit Committee

The Directors present their report and financial statements of the Group for the period from 1 April 2012 to 31 March 2013 (the "Period").

Principal Activities and Business Review

The principal activity of the Group is to acquire, lease and then sell aircraft. The Directors do not envisage any change in these activities for the foreseeable future. A description of the activities of the Group in the period under review is given in the Asset Manager's Report on pages 8 to 14.

Status

The Company is a Guernsey domiciled company the Ordinary Preference Shares of which are admitted to the official list of the Channel Islands Stock Exchange and to trading on the Specialist Fund Market of the London Stock Exchange. Its registered number is 52985. The Company operates in accordance with the Guernsey Law.

Results and Dividends

The results of the Group for the Period are set out on pages 34 to 37.

The Company declared dividends during the period from 1 April 2012 to date as follows:

Ordinary Preference Shares

Convertible Preference Shares

The Company aims to continue to pay quarterly dividends in line with the Distribution Policy detailed on page 3. There is no guarantee that any future dividends will be paid.

Directors

The Directors in office are shown on pages 15 to 16 and all directors remain in office as at the date of signature of these financial statements. Further details of the Director's responsibilities are given on pages 25 to 31.

No Director has a contract of service with the Company, nor are any such contracts proposed.

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

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

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

Substantial Shareholdings

The Company has been notified of the following substantial interests, in accordance with Chapter 5 of the Disclosure and Transparency Rules, in the Company's share capital as at the date of this report.

Corporate Governance

Statement of Compliance with the UK Corporate Governance Code

The Guernsey Financial Services Commission ("GFSC") has issued a new Corporate Governance Code (the "GFSC Code") which came into effect on 1 January 2012. The Company is, however, not required by Guernsey law to comply with the GFSC Code, as it is not regulated by the GFSC.

The Company has, however, voluntarily committed to comply with the UK Corporate Governance Code. Companies which report against the UK Corporate Governance Code are also deemed to meet the requirements of the Code.

Save for departing from the requirements to: (i) have a chief executive (since the Company does not have any executive Directors); (ii) have a senior independent director (since the Company considers that each Director who is not Chairman can effectively fulfil this function); (iii) have a remuneration committee (given the small size of the exclusively non-executive and independent Board); (iv) have a nomination committee (given the small size of the exclusively non-executive and independent Board); (v) appoint the Directors for a term of six years (given the term of the Leases is twelve years) and (vi) have an internal audit function (as the Company has no executives or employees of its own), the Company is not presently aware of any departures from the UK Corporate Governance Code.

Board Responsibilities

The Board comprises three Directors, who meet quarterly to consider the affairs of the Company and the Group in a prescribed and structured manner. Biographies of the Directors appear on page 15 to 16 demonstrating the wide range of skills and experience they bring to the Board. All the Directors are non-executive and independent. The Board regularly reviews the balance, knowledge and effectiveness of the Board, to identify if any additional experience or skills are needed and to ensure that the current directors have sufficient available time to undertake the tasks required and remain independent. When considering the composition of the Board Directors will be mindful of diversity and meritocracy.

To date no director of the Company has resigned. However, Directors are able and encouraged to provide statements to the Board of their concerns and ensure that any items of concern are recorded in the Board minutes.

All Directors receive an annual fee and there are no share options or other performance related benefits available to them. All Directors are currently paid a fee of £48,000 per annum and the Chairman is paid an additional fee of £11,000 per annum. The Chairman of the Audit Committee is paid an additional £9,000 per annum.

Board meetings are held at least four times per year to consider the business and affairs of the Company and the Group for the previous quarter, at which meetings the Directors also consider and if thought suitable, approve the payment of a dividend in accordance with the Company's Distribution Policy. A further two regular meetings are held each year to consider and approve the Group's financial statements as well as to consider the business and affairs of the Group during the preceding financial period and going forward thereafter.

Between these regular meetings the Board keeps in contact by email and telephone as well as meeting to consider specific matters of a transactional nature. Additionally it holds strategy meetings with its relevant advisors as appropriate. The directors are kept fully informed by the Asset Manager and Secretary of all matters that are relevant to the business of the Group and should be brought to the attention of the Directors and/or Shareholders. All Directors have complete direct access to the Secretary who is responsible for ensuring that Board procedures are followed and that there are good information flows both within the Board and between the Committees and the Board.

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

During the Period the Board met thirteen times. Of those thirteen meetings seven were regular board meetings and six were ad hoc meetings in respect of the conversion of the C Shares or in respect of matters in connection with the acquisition of the Assets. The director's attendance is summarised below:-

Audit Committee

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

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

Auditor independence is maintained through limiting non-audit services to specific audit-related work that falls within defined categories, for example certain agreed upon procedures performed in respect of the Company's C share conversion, the provision of advice on the application of IFRS or formal reports for any Stock Exchange purposes.. All engagements with the auditor are subject to pre-approval from the Audit Committee and fully disclosed within the Annual Financial Report for the relevant period. A new lead audit partner is appointed every five years and the Audit Committee ensures the Auditor has appropriate internal mechanisms in place to ensure its independence. The Audit Committee has recommended to the board that the re-appointment of Deloitte LLP as the Company's external auditors be proposed to shareholders at the 2013 Annual General Meeting. The Audit Committee will consider arranging for the external audit contract to be tendered in 2022 (being 10 years from the initial appointment) with the aim of ensuring a high quality and effective audit.

The Audit Committee meets at least twice annually, shortly before the Board meets to consider the Company's half-yearly and annual financial reports, and reports to the Board with its deliberations and recommendations and also has an annual planning meeting with the auditor. The Audit Committee operates within clearly defined terms of reference based on the Institute of Chartered Secretaries and Administrators recommended terms and provides a forum through which the Company's external auditors report to the Board. The Audit Committee can request information from the Company's service providers with the majority of information being directly sourced from the Asset Manager, Secretary & Administrator and the external auditors. The terms of reference of the Audit Committee are available upon request.

Each year the Board examines the Audit Committee's performance and effectiveness, and ensures that its tasks and processes remain appropriate. Key areas covered included the clarity of the committee's role and responsibilities, the balance of skills among its members and the effectiveness of reporting its work to the board. The Board is satisfied that all members of the Committee have relevant financial experience and knowledge and ensure that such knowledge remains up to date. Regarding process, members noted that fulfilling the committee's remit had led to lengthy meetings, but at the same time they recognized a wish to extend in detail into specific topics.

Overall the Board considered the Audit Committee had the right composition in terms of expertise and has effectively undertaken its activities and reported them to the board during the year.

The Audit Committee has no significant issues which it wishes to report.

Internal Control and Financial Reporting

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

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

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

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

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

Bribery

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

·; The Board is committed to acting professionally, fairly and with integrity in all its business dealings and relationships.

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

·; The Group requires all its service providers and advisors to adopt equivalent or similar principles.

Dialogue with Shareholders

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

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

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Directors' Report and the financial statements in accordance with applicable law and regulations.

The Guernsey Law requires the Directors to prepare financial statements for each financial year. Under the Guernsey Law they have elected to prepare the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS") and applicable law.

The financial statements are required by law to give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period.

In preparing these financial statements, the Directors are required to:

·; properly select and apply accounting policies;

·; present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

·; provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and

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

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and Group and to enable them to ensure that the financial statements comply with the Guernsey Law. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and Group and to prevent and detect fraud and other irregularities.

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

Disclosure of information to the auditor

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

Auditor

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

Norbert Bannon Charles Wilkinson

Chairman Chairman of Audit Committee

Signed on behalf of the Board on 2013

Director

We have audited the consolidated financial statements of Doric Nimrod Air Two Limited for the year ended 31 March 2013 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Cash flows, the Consolidated Statement of Changes in Equity and the related notes 1 to 20. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

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

Respective responsibilities of directors and auditor

As explained more fully in the Statement of Directors' Responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion the financial statements:

·; give a true and fair view of the state of the Group's affairs as at 31 March 2012 and of its loss for the year then ended;

·; have been properly prepared in accordance with IFRSs as adopted by the European Union; and

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

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion:

·; proper accounting records have not been kept; or

·; the financial statements are not in agreement with the accounting records; or

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

John Clacy FCA

for and on behalf of Deloitte LLP

Chartered Accountants and Recognised Auditor

St Peter Port, Guernsey

Date..............................

The notes on pages 38 to 62 form an integral part of these financial statements