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DP Aircraft I is an Investment Trust

To obtain income returns and a capital return for its shareholders by acquiring, leasing and selling aircraft.

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Annual Financial Report

23 Mar 2015 07:00

RNS Number : 1089I
DP Aircraft I Limited
23 March 2015
 



D P AIRCRAFT I LIMITED

ANNUAL REPORT AND AUDITED CONSOLIDATED FINANCIAL STATEMENTS

from 5 July 2013 to 31 December 2014

 

COMPANY OVERVIEW

DP Aircraft I Limited (the 'Company') was incorporated with limited liability in Guernsey under The Companies (Guernsey) Law, 2008 as amended, on 5 July 2013 with registered number 56941.

The Company was established to invest in aircraft. The Company is a holding company, and makes its investment in aircraft through two wholly owned subsidiary entities, DP Aircraft Guernsey I Limited and DP Aircraft Guernsey II Limited (collectively and hereinafter, the 'Borrowers'), each being a Guernsey incorporated company limited by shares and an intermediate lessor (the 'Lessor'), an Irish incorporated private limited company. The Company and its subsidiaries (the Borrowers and the Lessor) comprise the Group.

Pursuant to the Company's Prospectus dated 27 September 2013, the Company offered 113,000,000 Ordinary Preference Shares (the 'Shares') of no par value in the capital of the Company at an issue price of US$1.00 per Share by means of a Placing. The Company's Shares were admitted to trading on the Official List of the Channel Islands Securities Exchange and to trading on the Specialist Fund Market of the London Stock Exchange on 4 October 2013.

INVESTMENT OBJECTIVE & POLICY

The Company's investment objective is to obtain income and capital returns for its Shareholders by acquiring, leasing and then, when the Board considers it appropriate, selling aircraft (the 'Asset' or 'Assets').

To pursue its investment objective, the Company intends to use the net proceeds of placings and other equity capital raisings, together with loans and borrowings facilities, to acquire aircraft which will be leased to one or more international airlines.

THE BOARD

The Board comprises three independent non-executive directors. The directors of the Board are responsible for managing the business affairs of the Company in accordance with the Articles of Incorporation and have overall responsibility for the Company's activities, including portfolio and risk management while the asset management of the Group is undertaken by DS Aviation GmBH & Co. KG (the 'Asset Manager').

THE ASSET MANAGER

The Asset Manager has undertaken to provide the asset management services to the Company under the terms of an asset management agreement but does not undertake any regulated activities for the purpose of the UK Financial Services and Markets Act 2000.

DISTRIBUTION POLICY

The Company aims to provide Shareholders with an attractive total return comprising income, from distributions through the period of the Company's ownership of the Assets, and capital, upon any sale of the Assets. The Company targets a quarterly distribution in February, May, August and November of each year. The target distribution is 2.25 cents per Share per quarter. Five quarterly distributions have been made at the date of this report, each meeting the 2.25 cents per Share target. The target dividends are targets only and should not be treated as an assurance or guarantee of performance or a profit forecast.

Investors should not place any reliance on such target dividends or assume that the Company will make any distributions at all.

 

 

Fact Sheet - DP Aircraft I Limited

Ticker

DPA

Company Number

56941

ISIN Number

GG00BBP6HP33

SEDOL Number

BBP6HP3

Traded

SFM

SFM Admission Date

4-Oct-13

Share Price

US$1.0725 as at 31-Dec-14

Listed

CISE

CISE Listing Date

4-Oct-13

Country of Incorporation

Guernsey

Current Shares in Issue

113,000,000

Administrator and Company Secretary

Dexion Capital (Guernsey) Limited

Asset Manager

DS Aviation GmbH & Co. KG

Auditor and Reporting Accountant

KPMG, Chartered Accountants

Corporate Broker

Canaccord Genuity Limited

Aircraft Registration

EI-LNA

EI-LNB

Aircraft Serial Number

35304

35305

Aircraft Type and Model

B787-8

Lessee

Norwegian Air Shuttle ASA

Website

www.dpaircraft.com

 

HIGHLIGHTS

INITIAL PUBLIC OFFERING AND ADMISSION TO LISTING AND TRADING

Pursuant to the Company's Prospectus dated 27 September 2013, the Company offered 113,000,000 Ordinary Preference Shares (the 'Shares') of no par value in the capital of the Company at an issue price of US$1.00 per Share by means of a Placing. The Company's Shares were admitted to trading on the Official List of the Channel Islands Securities Exchange and to trading on the Specialist Fund Market of the London Stock Exchange on 4 October 2013.

PROFIT BEFORE TAX

Profit Before Tax was reported as 9.022 cents per Share for the first full accounting period from 5 July 2013 to 31 December 2014, driven by the leasing of two Boeing 787-8 aircraft. No tax arises on the profit of the Company as it is Guernsey resident where the standard rate of income tax for companies is nil. Therefore the Profit Before and After tax is the same.

NET ASSET VALUE

The Directors believe that after time the swap liabilities will diminish and excluding that liability the Net Asset Value per Share ('NAV') (post the interim dividend) will be 93.575 cents per Share as at 31 December 2014. As at 31 December 2014, the Company's shares were trading at a premium of 14.6 per cent to NAV (excluding swap liability).

US Cents per Share

NAV including swap liabilities 0.9357

NAV excluding swap liabilities 0.9815

DIVIDENDS

4 interim dividends have been paid in the period under review each of 2.25 cents per Share. 1 interim dividend has been paid since the year-ended 31 December 2014 of 2.25 cents per Share.

 

CHAIRMAN'S STATEMENT

I am pleased to present Shareholders with the first Annual Report and Financial Statements for the period from incorporation on 5 July 2013 to 31 December 2014.

I and my fellow Directors, Didier Benaroya and Jeremy Thompson were delighted with the success of the IPO and subsequent Listing and Trading as described in the Company Overview introduction section of this report.

On 9 October 2013, we completed the acquisition of our first two aircraft, each a Boeing 787-8 or 'Dreamliner'. A Dreamliner is a twin-engine long range aircraft, distinguished by its entirely new aircraft design and variety of technical innovations.

Each aircraft was acquired by one of the Company's wholly owned subsidiaries, DP Aircraft Guernsey I Limited and DP Aircraft Guernsey II Limited. The Lessor and Trustee for each aircraft is DP Aircraft Ireland Limited. Each aircraft was purchased with the benefit of pre-negotiated leases with Norwegian Air Shuttle ASA ('Norwegian'), each with a term of twelve years from the respective commencement dates and are successfully producing income for our investors. I am pleased to report there are no issues to bring to the attention of Shareholders concerning the performance of the Lessee.

The Total Shareholder Return for this first accounting period of 9.022 cents per Share is as expected after providing for the initial IPO costs. It was very pleasing for the Company to meet its target dividends of 2.25 cents per Share for the quarter's ending January, April, July and October 2014. A fifth interim dividend was declared on 20 January 2015 and paid on 13 February 2015. The Net Asset Value per Share as at 31 December 2014 was 93.575 cents per share.

The outlook is described fully in the Asset Manager's Report that follows this report. The Asset Manager will advise the Directors of any further acquisition opportunities as they arise.

The Company's second annual general meeting ('AGM') is scheduled for 12 May 2015 to approve the first full set of audited financial statements.

I would like to thank our Investors for their continued support.

Jon BridelChairman20 March 2015

 

ASSET MANAGER'S REPORT

Overview and Development - The Aviation Market

2014 proved to be one of the most profitable years for airlines globally according to the International Air Transport Association (IATA). The organisation estimates a net profit of USD 19.9 billion in 2014 which is nearly double the net profit achieved in 2013 (USD 10.6 billion). Profits are expected to increase further in 2015 in all regions to a total of USD 25.0 billion, with air travel growing by 7 per cent. Taking a closer look at the European aviation market, net profit is expected to have increased in 2014 by 440 per cent. over the previous year according to IATA's December 2014 forecast. The passenger load factor for the Eurozone for the first eleven months of 2014 for international air traffic is the highest amongst the regions. In November, the 5.6 per cent. increase in Revenue Passenger Kilometres (RPK) for European airlines compared to the same month the previous year was above the global average.

Crude oil prices have decreased significantly during the second half of 2014; and while pre-existing hedging policies mean that this does not necessarily translate into decreased fuel costs for airlines immediately, it will have a positive impact on operating costs for airlines through 2015.

Lower operating costs, and consequently improved financial results, will allow airlines to invest in fleet growth and modernisation. Due to the factor of uncertainty in future oil prices, aircraft benefitting from the latest technology, such as the Dreamliner Boeing B787, will stay in strong demand.

The long-term outlook remains positive for both the aviation market and the levels of demand for new aircraft. According to their latest published market outlooks, Boeing (Current Market Outlook 2014-2033) and Airbus (Global Market Forecast 2014-2033) are of the opinion that passenger fleets will double by 2033. According to Boeing, 53 per cent. of aircraft deliveries over the next twenty years will be within the 200-300 seat category. On top of that, Airbus estimates annual growth rates of airline traffic (RPK) at 4.7 per cent on average over the next 20 years, while Boeing believes RPKs will increase by 5.0 per cent per annum. Both manufacturers have made their forecasts based upon the assumption of an average annual increase of 3.2 per cent in global GDP over the same period.

The aviation industry plays a key role in the global economy. According to IATA, city pairs served by commercial airlines have doubled in the last 20 years and 52 per cent. of tourists worldwide travel by air. Perishable and high value goods transported by air are of importance given the jobs they create globally; and for many of these goods there is no obvious substitute means of transport. Moreover, IATA expects that in 2015 about 1 per cent. of world GDP, totalling over USD 820 billion, will be spent on air transport. Furthermore, according to the latest Airline Business Confidence Index published in October 2014, airline CFOs and heads of cargo expect passenger services and cargo to grow as strongly as they did in 2010.

The Assets - Two Boeing Dreamliner B787-8s

The Boeing B787 Dreamliner still ranks alongside the Airbus A350 (which entered into commercial service on 15 January 2015) as the latest technological, mid-size wide-body aircraft available in the market. By December 2014, 228 Boeing B787s had been delivered to 23 different airlines and more than 233 million passengers had been commercially transported. In the last nine months 48 additional Dreamliners have been ordered by six airlines, four of whom are existing customers - this underlines the high level of customer satisfaction with the Dreamliner. With a backlog of over 840 aircraft orders in December 2014, and production fully sold out until 2019, it is clear that the aircraft remains in high demand.

 

Since DP Aircraft I Limited took title of both LNA and LNB last year, Norwegian has met all of its lease obligations in full. The carrier operates the aircraft in a two-class configuration seating 32 premium economy plus 259 economy passengers. In the first weeks of September this year both aircraftEI-LNA and EI-LNB were physically inspected at Stockholm Arlanda Airport. The inspection took place during Phase Check `P6`. Both aircraft have been maintained to a very high standard.

One of LNA´s engines, Engine Serial Number (ESN) 10119, as well as one of LNB's engines, ESN 10135, were removed during the course of last year to undergo an upgrade at Rolls Royce's Derby facilities. The upgrade extends the maintenance intervals for the engines and will soon be completed for all four engines. The upgrade of ESN 10135 was completed mid-August; ESN 10119 is expected to be returned by Rolls Royce in the next few weeks.

As mentioned in the Shareholder Report dated 10th July 2014, DS Skytech, the joint-venture company between DS Aviation and Skytech-AIC, will take over the technical asset management of both of the Company's aircraft in May 2015.

The Lessee - Norwegian Air Shuttle ASA

Norwegian Air Shuttle transported nearly 24 million passengers in 2014. Traffic figures for December 2014 show that passenger numbers increased by 2 per cent. and RPKs by 17 per cent., while Available Seat Kilometres (ASK) rose by 12 per cent. compared to the same period in the previous year. The carrier was therefore able to increase the passenger load factor by 3.3 per cent points to 81.3 per cent. Unit revenue (RASK: Revenue per Available Seat Kilometres) improved by 2 per cent. over the same period.

Norwegian is currently offering 17 non-stop routes between Europe and the U.S., as well as Thailand. In Spring 2015, the carrier will increase frequencies between Europe and the U.S. as well as introduce new routes connecting London-Gatwick and Copenhagen non-stop with Orlando. Norwegian is also upgrading its service for passengers with premium tickets, adding lounge access at various airports and a further enhanced in-flight service. The carrier won three prizes in 2014 at the prestigious Passenger Choice Awards in the categories "Best Airline in Europe", "Best Inflight Connectivity & Communications" and "Best Single Achievement in Passenger Experience for its moving map on the 787 Dreamliners".

In the third quarter of 2014, ASKs and RPKs increased by 36 per cent. and 41 per cent. respectively compared to the same period in the preceding year. The load factor increased by 3.2 per cent points to 84.6 per cent., EBITDAR (excluding other gains and losses) increased by 11 per cent and operating revenue grew by 30 per cent. Operating profit for the third quarter was NOK 532 million (USD 83 million). On top of that, the carrier increased its ancillary revenues calculated per passenger by 37 per cent. whereas total ancillary passenger revenues grew by 60.5 per cent. In addition, the carrier gained 47 to 48 per cent. of market growth at London-Gatwick and Oslo airports. These facts underline the point that Norwegian Air's growth strategy is progressing well.

At 30 September 2014 cash and cash equivalents amounted to NOK 1,431 million (USD 222 million). The amount of equity has slightly increased compared to the accounting date 31st December 2013. The equity ratio stood at 15.0 per cent at the end of the third quarter 2014.

 

Nevertheless, Norwegian's results are challenged by the weak Norwegian currency as well as the delayed US approval process leading to higher costs; with regard to the authorisation process the airline is supported by the European Commission, which is seeking to accelerate matters. In any event, Norwegian's current schedule is not dependent upon or affected by this approval procedure, and the carrier continues to expand its long-haul network as previously mentioned. Despite this the carrier was still successful in further decreasing unit costs, including fuel by 1 per cent. and unit costs excluding fuel by 3 per cent. in the third quarter of 2014 compared to the same quarter the previous year. As fuel accounts for 32 per cent. of Norwegian Air's operating costs, it can be assumed that the airline will profit from lower fuel prices in 2015.

Last but not least, Norwegian Air's Dreamliner fleet has reached a size where the company no longer needs to wet-lease additional aircraft in the course of normal operation. In 2015, the airline expects to grow ASKs on long-haul by up to 25 per cent. and is looking to profit from the maturity of its new base in London-Gatwick as well as its long-haul network and the increased utilisation of its B787 fleet which now consists of seven aircraft. The carrier took delivery of three B787-8s last year and plans to take delivery of one aircraft in early 2015 and four further aircraft in 2016 so that it is operating a fleet of twelve Boeing 787s by the end of next year.

 

 

DS Aviation GmbH & Co. KGMember of Dr. Peters GroupStockholmer Allee 5344269 Dortmund, Germany

 

DIRECTORS

The current Directors of the Company were appointed on 9 July 2013 and are as follows:

Jonathan (Jon) Bridel, Non- Executive Chairman (50)

Jon is a Guernsey resident and is currently a non-Executive Director of Alcentra European Floating Rate Income Fund Limited, Starwood European Real Estate Finance Limited, The Renewables Infrastructure Group Limited and Sequoia Economic Infrastructure Income Fund Limited which are listed on the Main Market of the London Stock Exchange. Other companies include Altus Global Gold Limited, Aurora Russia Limited and Fair Oaks Income Fund Limited. Jon was previously Managing Director of Royal Bank of Canada's investment businesses in the Channel Islands and served as a Director on other RBC companies including RBC Regent Fund Managers Limited. Prior to joining RBC, Jon served in a number of senior management positions in banking, specialising in credit and corporate finance and private businesses as Chief Financial Officer in London, Australia and Guernsey having previously worked at Price Waterhouse Corporate Finance in London.

Jon graduated from the University of Durham with a degree of Master of Business Administration, holds qualifications from the Institute of Chartered Accountants in England and Wales (1987) where he is a Fellow, the Chartered Institute of Marketing and the Australian Institute of Company Directors. Jon is a Chartered Marketer and a member of the Chartered Institute of Marketing and the Institute of Directors and a Chartered Fellow of the Chartered Institute for Securities and Investment.

Didier Benaroya, Non- Executive Director (64)

Having previously worked as the founder and senior partner of the Transportation Group and the managing director of Paine Webber, Didier has extensive experience in the transportation industry. He is currently resident in the UK and is the founder and a director of Numera Limited and Numera Services Limited, which has advised investors, lessors, banks, operating lease companies and airlines on aircraft and airline related transactions (including leasing, financing and restructuring) since 1995. Didier holds a BS in Economics, an MS in Mathematics and Applied Computer Science from the University of Paris, and an MBA from Northwestern University's Kellog School of Management.

Jeremy Thompson, Non- Executive Director (59)

Jeremy is a Guernsey resident with sector experience in finance, telecoms, aerospace & defence and oil & gas. Since 2009 Jeremy has been a consultant to a number of businesses which includes non-executive directorships of investment vehicles relating to the BT pension scheme. He is also a non-executive director of two private equity funds and of a London listed oil and gas technology fund. Between 2005 and 2009 he was a director of multiple businesses within a private equity group. This entailed an active participation in private, listed and SPV companies. Prior to that he was chief executive officer of four autonomous businesses within Cable & Wireless PLC (operating in both regulated and unregulated markets), and earlier held MD roles within the Dowty Group. Jeremy currently serves as chairman of the States of Guernsey Renewable Energy Team and is a commissioner within the Alderney Gambling Control Commission and is also a member of the Guernsey Tax Tribunal panel. Jeremy received a B.Sc. from Brunel University, London and was awarded an MBA from Cranfield University. He was an invited member to the UK's senior defence course (RCDS). Jeremy has been awarded the Institute of Directors' Certificate and Diploma in Company Direction and is a member of the Institute of Directors.

Carol Kilby was appointed as the sole director on formation of the Company on 5 July 2013 and resigned this appointment at the Company's launch meeting on 9 July 2013.

 

DIRECTORS' REPORT

The Directors present their report and audited financial statements for D P Aircraft I Limited for the period 5 July 2013 to 31 December 2014.

Principal Activity and Review of the Business

The Company's principal activity during the period under review was the purchase and lease of two Boeing 787-8 Aircraft (the 'Assets'). The Company wholly owns three subsidiaries, DP Aircraft Guernsey I Limited, DP Aircraft Guernsey II Limited and DP Ireland Aircraft Limited (together the 'Group').

The investment objective of the Group is to obtain income and capital returns for the Company's shareholders by acquiring, leasing and then, when the Board considers it appropriate, selling the Assets.

The Company has made its investments in the Assets through DP Aircraft Guernsey I Limited and DP Aircraft Guernsey II Limited. The Ordinary Shares of the Company are admitted to trading on the Official List of the Channel Islands Securities Exchange and to trading on the Specialist Fund Market of the London Stock Exchange.

On 22 December 2014, the Board of Directors of DP Aircraft I Limited announced that the Company is considering the acquisition of two further Boeing 787-8s, to be leased to a third party national airline on a twelve year lease. If the acquisition proceeds, it will be funded through a combination of equity and debt; and although funding terms are yet to be finalised, on the basis of current market conditions (including, inter alia, the cost of debt) it is expected that equity would be issued by the Company at or close to the current market price. Approval from shareholders is required before the Company can proceed with any new portfolio acquisition. Accordingly, the Company and its advisers will liaise with shareholders during 2015 in order to confirm that there is the requisite support from investors for the proposal.

These financial statements are prepared in accordance with the Companies (Guernsey) Law, 2008 and to conform to the requirements of the listing rules of the Specialist Fund Market of the London Stock Exchange and the Channel Islands Stock Exchange.

Results and Dividends

The profit before tax from 5 July 2013 to 31 December 2014 amounted to US$10.19m.

The Company aims to provide Shareholders with an attractive total return comprising income, from distributions through the period of the Company's ownership of the Assets, and capital, upon any sale of the Assets. The Company targets a quarterly distribution in February, May, August and November of each year. The target distribution is 2.25 cents per Share per quarter. Five quarterly distributions have been made at the date of this report, each meeting the 2.25 cents per Share target. The target dividends are targets only and should not be treated as an assurance or guarantee of performance or a profit forecast. The debt to equity ratio was 1.38 as at 31 December 2014.

Directors

The Directors of the Company, all of whom served throughout the period from 9 July 2013 are as shown within this report. As at the date of this report Mr Bridel, jointly with his wife, held 7,500 Ordinary Shares and Mr J Thompson held 15,000 Ordinary Shares each in the Company.

Principal Risks and Uncertainties

The Statement of Risks and Uncertainties are as described within this report.

Substantial Shareholdings

The directors note the following substantial interests in the Company's share capital as at 31 December 2014 (10% or more shareholding):

M&G Investment Management 25,000,000 - 22.12%

CCLA Investment Management 20,543,862 - 18.18%

As at the date of this report there have been no significant changes in the above list of substantial shareholdings.

AIFM Directive

In July 2013 the European Alternative Investment Fund Management Directive (AIFMD) came into effect with transitional provisions until July 2014. The Company has elected to be a 'self-managed' Guernsey AIF and as such will be treated as a non-EU AIFM for the purposes of the Directive. The Company has registered with the Financial Conduct Authority (and notified the Guernsey Financial Services Commission) under the AIFMD (Marketing) Rules, 2013.

The Board

The Board comprises three non-executive directors each of whom are independent.

The Board has a breadth of experience relevant to the Company and a balance of skills experience and age. The Board recognises the importance of diversity and will evaluate applicants to fill vacant positions regardless of gender and without prejudice. Applicants will be assessed on their broad range of skills, expertise and industry knowledge, and business and other expertise. In view of the long-term nature of the Company's investments, the Board believes that a stable board composition is fundamental to run the Company properly. The Board has not stipulated a maximum term of any directorship.

As the Company is not a FTSE 350 company, Directors are currently not subject to annual election by the shareholders nor for the requirement for the external audit contract to be put out to tender every 10 years. The Directors will offer themselves for re-election, in rotation, at each annual general meeting ('AGM'). At the first AGM of the Company held on 2 January 2015 and in accordance with the articles of the Company, all of the directors retired, offered themselves for re-election and were all duly re-elected.

The Directors are on a termination notice of three months.

Directors' Duties and Responsibilities

The Board of Directors has overall responsibility for the Company's affairs and is responsible for the determination of the investment policy of the Company, resolving conflicts and for monitoring the overall portfolio of investments of the Company. To assist the Board in the day-to-day operations of the Company, arrangements have been put in place to delegate authority for performing certain of the day-to-day operations of the Company to the third-party service providers, such as the Administrator and Company Secretary. The Board receives full details of the Company's assets, liabilities and other relevant information in advance of Board meetings.

 

The Board will undertake an annual evaluation of its own performance and the performance of its committee and individual Directors, under the regime published via the Channel Islands Securities Exchange, to ensure that they continue to act effectively and efficiently and to fulfil their respective duties, and to identify any training requirements. The results of the first evaluation have been reviewed by the Chairman and his fellow directors. No significant corporate governance issues arose from this review.

The Board will also undertake an annual review of the effectiveness of the Company's system of internal controls and the safeguarding of shareholders' investments and the Company's assets. At each quarterly meeting the Board will table and review a risk matrix. There is nothing to highlight from the reviews of these reports as at the date of this report.

Board Meetings

The Board meets at least four times a year to consider the business and affairs of the Company for the previous quarter. Between these quarterly meetings the Board keeps in contact by email and telephone as well as meeting to consider specific matters of a transactional nature. There is regular contact with the Secretary.

The Directors are kept fully informed of investment and financial controls and other matters that are relevant to the business of the Company. The Directors also have access, where necessary in the furtherance of their duties, to professional advice at the expense of the Company.

The Board considers agenda items laid out in the Notice and Agenda which are formally circulated to the Board in advance of any meeting as part of the board papers. Such items include but are not limited to; investment performance, share price performance, review of marketing and shareholder communication. The Directors may request any Agenda items to be added that they consider appropriate for Board discussion. In addition, each Director is required to inform the Board of any potential or actual conflict of interest prior to Board discussion. Board meetings are attended by representatives of the Asset Manager. The Company's corporate brokers also attend to assist the Directors in understanding the views of major shareholders about the Company.

Directors Remuneration

The remuneration of the non-executive directors is reviewed on an annual basis and compared with the level of remuneration for directorships of other similar funds. Messrs Bridel, Thompson and Benaroya receive an annual fee of £25,000, £20,000 and £20,000 respectively per annum plus each director receives an additional £10,000 for directorship duties on the Company's Guernsey subsidiaries. Mr Benaroya also receives £10,000 per annum for directorship duties on the board of DP Ireland Limited. There are no executive director service contracts in issue.

A review of the Director remuneration has been undertaken following the board self-appraisal by the Board. By no later than 1 July 2015 the Chairman's remuneration will increase by £2,500 per annum and the remuneration for the Audit Committee Chairman will also increase by £2,500 per annum with effect from the same date.

Upon the requirement to issue a new prospectus at any time, the Directors will be entitled to receive an additional £5,000 each, per prospectus.

Internal Controls and Risk Management Review

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

The Board carries out an annual review of internal controls. 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.

Administration and Secretarial duties for the Company are performed by Dexion Capital (Guernsey) Limited.

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 ongoing performance and contractual arrangements.

Dialogue with Shareholders

All holders of Shares in the Company have the right to receive notice of, and attend, all general meetings of the Company, during which the directors are available to discuss issues affecting the Company. The directors are available to enter into dialogue with shareholders and make themselves available for such purpose when reasonably required. The Company believes such communications to be important. Reports are provided to the Board of Directors on shareholders' views about the Company and any issues or concerns they might have.

Board Policy on Tenure and Independence

The Board has not yet formed a policy on tenure however, it does consider the independence of each Director on an annual basis during the performance evaluation process.

Disclosure of Information to Auditor

The directors who held office at the date of approval of this Directors' Report confirm 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

KPMG, Ireland, Statutory Auditors and Chartered Accountants have been appointed as first auditors to the Company. A resolution proposing their reappointment will be submitted at the Company's next annual general meeting.

Going Concern

The lease rental income has been set at an aggregate absolute income stream in excess of the Company's expenses, distributions and financing costs. The Directors are of the opinion that the affairs of the company are suitably structured to enable the Going Concern basis to be adopted in the preparation of these financial statements.

 

Subsequent Events

On 20 January 2015, the Company declared an interim dividend in respect of the period starting 1 October 2014 and ended 31 December 2014, of 2.25 cents per Share, to holders of Shares on the register as at 30 January 2015. The ex-dividend date was January 2015, with payment 13 February 2015.

REPORT OF THE AUDIT COMMITTEE

We present the Audit Committee (the 'Committee') Report for 2014, setting out the Committee's structure and composition, principal duties and key activities during the year. The Committee has reviewed the Company's financial reporting, the independence and effectiveness of the independent auditor (the 'auditor') and the internal control and risk management systems of service providers.

The Board is satisfied that for the period under review and thereafter the Committee has recent and relevant commercial and financial knowledge sufficient to satisfy the requirements of the Committee's remit.

Structure and Composition

The Committee is chaired by Mr Thompson and its other members are Messrs Bridel and Benaroya. The Committee operates within clearly defined terms of reference.

The Committee conducts formal meetings not less than three times a year. There were four meetings during the period under review. All Directors were present and forming part of the quorum. The auditor is invited to attend those meetings at which the annual and interim reports are considered.

Principal Duties

The role of the Committee includes:

· monitoring the integrity of the published financial statements of the Company;

· keeping under review the consistency and appropriateness of accounting policies on a year to year basis. Satisfying itself that the annual accounts, the interim statement of financial results and any other major financial statements issued by the Company follow International Financial Reporting Standards and give a true and fair view of the Company and any associated undertakings' affairs; matters raised by the external auditors about any aspect of the accounts or, of the Company's control and audit procedures, are appropriately considered and, if necessary, brought to the attention of the board, for resolution;

· monitoring and reviewing the quality and effectiveness of the auditors and their independence;

· considering and making recommendations to the Board on the appointment, reappointment, replacement and remuneration of the Company's auditor;

· monitoring and reviewing the internal control and risk management systems of the service providers; and

· considering at least once a year whether there is a need for an internal audit function.

The complete details of the Committee's formal duties and responsibilities are set out in the Committee's terms of reference, a copy of which can be obtained from the Secretary.

Independent Auditor

The Committee is also the forum through which the auditor reports to the Board of Directors. The Committee reviews the scope and results of the audit, its cost effectiveness and the independence and objectivity of the auditor, with particular regard to the terms under which it is appointed to

perform non audit services including fees. The Committee has established pre-approval policies and procedures for the engagement of KPMG, Ireland ('KPMG') to provide non-audit services. KPMG has been the independent auditor from the date of the initial listing on the Specialist Fund Market of the London Stock Exchange.

The audit fees proposed by the auditors each year will be reviewed by the Committee taking into account the Company's structure, operations and other requirements during the year and the Committee will make appropriate recommendations to the Board. The Committee considers KPMG to be independent of the Company. The Committee also met with the external auditors without the Asset Manager or Administrator being present so as to provide a forum to raise any matters of concern in confidence.

Evaluations or Assessments Made During the Year

The following sections discuss the assessments made by the Committee during the year:

Significant Areas of Focus for the Financial Statements

The Committee's review of the interim and annual financial statements focused on:

· Valuation of the Company's Assets

· Lease and Loan cash flows

The Company's investment in the two aircraft represents substantially all of the net assets of the Company and as such is the biggest factor in relation to the accuracy of the financial statements. The 31 December 2014 valuations of the two aircraft have been independently obtained from three independent expert valuers (all certified by the International Society of Transport Aircraft Trading 'ISTAT'). Two of the independent expert valuers included encumbered economic full-life valuations in excess of the encumbered depreciated value indicated within the Company's Statement of Financial Position. The Directors resolved to adhere to the straight-line depreciated value method as at 31 December 2014.

Effectiveness of the Audit

The Committee had formal meetings with KPMG during the period under review:

1) Before the start of the audit to discuss formal planning, discuss any potential issues and agree the scope that will be covered, and

2) After the audit work was concluded to discuss any significant matters such as those stated above.

The Board considered the effectiveness and independence of KPMG by using a number of measures, including but not limited to:

· the audit plan presented to them before the start of the audit;

· the audit results report;

· changes to audit personnel;

· the auditor's own internal procedures to identify threats to independence;

· feedback from both the Asset Manager and Administrator.

 

Internal Audit

There is no internal audit function. As all of the directors are non-executive and all of the Company's administration functions have been delegated to independent third parties, the Audit Committee considers that there is no need for the Company to have an internal audit function. However, this matter is reviewed periodically.

Conclusion and Recommendation

After reviewing various reports such as the operation and risk management framework and performance reports from management, liaising where necessary with KPMG, and assessing the significant areas of focus for the financial statements listed within this report, the Committee is satisfied that the financial statements appropriately address the critical judgements and key estimates (both in respect to the amounts reported and the disclosures). The Committee is also satisfied that the significant assumptions used for determining the value of assets and liabilities have been appropriately scrutinised, challenged and are sufficiently robust. The independent auditor reported to the Committee that no material misstatements were found in the course of its work. Furthermore, the Administrator confirmed to the Committee that they were not aware of any material misstatements including matters relating to presentation.

The Committee confirms that it is satisfied that the independent auditor has fulfilled its responsibilities with diligence and professional scepticism. Following the completion of the accounts review process on the effectiveness of the independent audit and the review of audit services, the Committee will consider recommending that KPMG be reappointed at the next Annual General Meeting. For any questions on the activities of the Committee not addressed in the foregoing, a member of the Committee remains available to attend each Annual General Meeting to respond to such questions.

Corporate Governance

The Company is not required to comply with any particular corporate governance codes in the UK or Guernsey (since it is not authorised or regulated by the FCA or GFSC) but the Directors take corporate governance seriously and will have regard to relevant corporate governance standards in determining the Company's governance policies including without limitation in relation to corporate reporting, risk management and internal control procedures.

The Directors intend to comply, and ensure that the Company complies, with any obligations under the Companies Laws and the Articles to treat shareholders fairly as between themselves.

Directors' Share Dealings

The Board has agreed to adopt and implement the Model Code for Directors' dealings contained in the Listing Rules of the FCA (the 'Model Code'). The Board will be responsible for taking all proper and reasonable steps to ensure compliance with the Model Code by the Board.

 

By order of the Board

Jon Bridel Jeremy Thompson

Director Director

20 March 2015

 

STATEMENT OF PRINCIPAL RISKS AND UNCERTAINTIES

Asset risk

The Company's Assets comprise of two Boeing 787-8 aircraft.

The Boeing 787-8 is a newly developed generation of aircraft; there is currently insufficient experience and data available to be able to give a complete assessment of the long-term use and operation of the aircraft; the Company is exposed to the used aircraft market of the 787-8, which is untested.

Market risk

The airline industry is particularly sensitive to changes in economic conditions and is highly competitive; risks affecting the airline industry generally could affect the ability of Norwegian Air Shuttle ASA ("Norwegian") (or any other lessee) to comply with its obligations under the Leases (or any subsequent lease).

There is no guarantee that, upon expiry of the Lease, the Asset could be sold for an amount that would enable Shareholders to realise a capital profit on their investment or to avoid a loss. Costs regarding any future re-leasing of the assets would depend upon various economic factors and would be determinable only upon an individual re-leasing event.

Key personnel risk

The ability of the Company to achieve its investment objective is significantly dependent upon the expertise of certain key personnel at DS Aviation; there is no guarantee that such personnel will be available to provide services to the Company for the scheduled term of the Lease or following the termination of the Lease. However, Key Man clauses within the Asset Management agreement do provide a base line level of protection against this risk.

Credit risk & Counterparty risk

Credit risk is the risk that a significant counterparty will default on its contractual obligations. The Group's most significant counterparties are Norwegian as lessee and provider of income and NordLB as provider of loans and borrowings, including the provision of the swap facility, cash and restricted cash (all held at NordLB). The Lessee does not maintain a credit rating. The credit rating of NordLB is Aa1. Norwegian's stated strategy of providing low-cost long haul flights is untested and may not be successful; failure of this strategy, or of any other material part of Norwegian's business, may adversely affect Norwegian's ability to comply with its obligations under the Lease.

Any failure by Norwegian to pay any amounts when due would have an adverse effect on the Company's ability to comply with its obligations under the loan agreement, could ultimately have an impact on the Company's ability to pay dividends and could result in the Lender enforcing their security and selling the relevant Asset on the market potentially negatively impacting the returns to investors. In mitigation, Norwegian is the second largest airline in Scandinavia and the third largest low-cost airline in Europe.

As disclosed in the Norwegian Financial Statements for 2013, all of Norwegian's markets enjoyed significant overall growth, with 81 new routes on offer. Capacity in terms of seat kilometers increased by 32 per cent, two thirds of which was in the Nordic core market. In the continental European market, growth was attributed to the new UK and Spanish bases. Starting in April, Londoners could choose from 20 new Norwegian routes to the Mediterranean and, in October, Warsaw, Munich, Hamburg, and Cologne became non-stop destinations from the Spanish bases.

 

The most significant milestone was the launch of the long-awaited flights to North America and Southeast Asia. The first flight departed from Oslo on 30 May bound for New York; Stockholm followed suit the day after. By year-end Norwegian operated flights from Scandinavia to New York, Fort Lauderdale, and Bangkok, and had begun the sale of tickets to Los Angeles, Orlando, and San Francisco.

Net profit was NOK 322 million, equivalent to a net profit margin of two per cent. Pre-tax profit came in at NOK 437 million compared to NOK 623 million the previous year. Revenues were influenced by planned capacity investment across the business and by increased competitive pressure in the Scandinavian market in the second half of 2013.

Liquidity risk

In order to finance the purchase of the Assets, the Group has entered into two separate Loan Agreements pursuant to which the Group has borrowed an amount of US$159,600,000 in total. Pursuant to the Loan Agreements, the Lenders are given first ranking security over the Assets. Under the provisions of each of the Loan Agreements, the Borrowers are required to comply with loan covenants and undertakings. A failure to comply with such covenants or undertakings may result in the relevant Lenders recalling the relevant Loan. In such circumstances, the Group may be required to sell the relevant Asset to repay the outstanding relevant Loan.

More detailed explanations of the above risks can be found within the Notes to the Audited Consolidated Financial Statements within this report.

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors, listed with their respective functions within this report, are responsible for preparing the Directors' Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare consolidated financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU. The financial statements are required by law to comply with the Companies (Guernsey) Law, 2008.

The Company is also responsible for ensuring its annual report and financial statements meet the requirements of the Channel Islands Securities Exchange and the UK's FCA Disclosure and Transparency Rules.

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:

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable and prudent;

· state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and to enable them to ensure that the financial statements comply with the Companies (Guernsey) Law, 2008. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

In accordance with the UK's FCA Disclosure and Transparency Rules, the Directors, confirm that they have complied with the above requirements in preparing the financial statements and that to the best of our knowledge and belief:

(a) The Directors' Report includes 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 the Group faces; and

(b) The financial statements, prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group.

 

Signed on behalf of the Board by

Jon Bridel Jeremy Thompson

Director Director

20 March 2015

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEfrom 5 July 2013 to 31 December 2014

 

5 July 2013 to

31 December 2014

Note

US$

Revenue

Lease rental income

4

36,169,050

Expenses

Asset management fees

5

(616,018)

General and administrative expenses

5

(1,529,973)

Depreciation and amortisation

6

(13,979,302)

(16,125,293)

Operating profit

20,043,757

Finance costs

9

(9,851,107)

Finance income

9

3,076

Net Finance Costs

(9,848,031)

Profit for the period

10,195,726

Other Comprehensive Income

Items that are or may be reclassified to profit or loss

Cash flow hedges - changes in fair value

14

(5,171,613)

Total Comprehensive Income for the period

5,024,113

US$

Earnings per Share for the period - Basic and diluted*

0.09022

In arriving at the Total Comprehensive Income for the period, all amounts above relate to continuing operations. There is no comparative information.

* The earnings per Share has been calculated based on the profit after tax of $10,195,726 divided by the 113m shares in issue since 4 October 2013 on the basis that the Group only commenced its operations from that date. The actual weighted average number of shares outstanding over the entire reporting period was 94,166,667.

 

The notes form an integral part of these financial statements.

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAs at 31 December

 

31 December 2014

Note

US$

NON-CURRENT ASSETS

Property, Plant and Equipment - Aircraft

6

225,586,091

Intangible Asset - Aircraft Lease Premium

6

28,035,907

253,621,998

CURRENT ASSETS

Cash and cash equivalents

8

5,046,920

Restricted cash

7

7,442,092

Trade and other receivables

11

29,933

Total Current Assets

12,518,945

TOTAL ASSETS

266,140,943

EQUITY

Share Capital

10

110,885,220

Hedging Reserve

14

(5,171,613)

Retained Earnings

25,726

Total Equity

105,739,333

NON-CURRENT LIABILITIES

Loans and Borrowings

12

135,629,715

Maintenance reserves

12

1,042,092

Security deposits

12

6,400,000

Derivative instrument liability

5,171,613

Total Non-Current Liabilities

148,243,420

CURRENT LIABILITIES

Loans and borrowings

13

10,533,014

Rent received in advance

13

1,122,764

Trade and other payables

13

502,412

Total Current Liabilities

12,158,190

TOTAL LIABILITIES

160,401,610

TOTAL EQUITY AND LIABILITIES

266,140,943

 

The financial statements were approved by the Board of Directors and were signed on its behalf on 20 March 2015 by Jon Bridel and Jeremy Thompson:

Jon Bridel Jeremy Thompson

Chairman Director

 

 

The notes form an integral part of these financial statements.

 

CONSOLIDATED STATEMENT OF CASH FLOWSfrom 5 July 2013 to 31 December 2014

 

As at 31 December

2014

US$

Profit for the year

10,195,726

Adjusted for:

Depreciation of Aircraft and amortisation of aircraft lease premium

13,979,302

Amortisation of deferred loans and borrowings

191,604

Finance Costs

9,659,503

Changes In

Increase in maintenance reserve

1,042,092

Increase in security deposit

6,400,000

Increase in rent received in advance

1,122,764

Increase in trade and other payables

169,345

(Increase) in receivables

(29,933)

NET CASH FLOW FROM OPERATING ACTIVITIES

42,730,403

INVESTING ACTIVITIES

Purchase of Aircraft

(267,601,300)

Restricted cash

(7,442,092)

NET CASH FLOW FROM INVESTING ACTIVITIES

(275,043,392)

FINANCING ACTIVITIES

Dividend paid

(10,170,000)

Share issue proceeds

113,000,000

Share issue costs

(2,114,781)

New Loans and Borrowings NordLB

159,600,000

Loan principal repaid NordLB

(11,789,489)

Financing Costs

(9,326,431)

Deferred loans and borrowings facility costs

(1,839,390)

NET CASH FLOW FROM FINANCING ACTIVITIES

237,359,909

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

-

Increase in cash and cash equivalents

5,046,920

CASH AND CASH EQUIVALENTS AT END OF PERIOD

5,046,920

 

The notes form an integral part of these financial statements.

 

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITYfrom 5 July 2013 to 31 December 2014

 

Retained

Hedging

Share capital

Earnings

Reserve

Total

US$

US$

US$

US$

Total comprehensive income for the period

Profit for the period

-

10,195,726

-

10,195,726

Other comprehensive Income

-

-

(5,171,613)

(5,171,613)

Total comprehensive income

-

10,195,726

(5,171,613)

5,024,113

Transactions with owners of the Company

Issue of ordinary shares

113,000,001

-

-

113,000,001

Share issue costs

(2,114,781)

-

-

(2,114,781)

Dividends*

-

(10,170,000)

-

(10,170,000)

Balance at 31 December 2014

110,885,220

25,726

(5,171,613)

105,739,333

There is no comparative information.

* On 16 January 2014, the Company declared an interim dividend, in respect of the period ended 31 December 2013, of 2.25 cents per Share, to holders of Shares on the register at 24 January 2014. The ex-dividend date was 22 January 2014, with payment made week commencing 3 February 2014.

* On 23 April 2014, the Company declared an interim dividend, in respect of the period starting 1 January 2014 and ended 31 March 2014, of 2.25 cents per Share, to holders of Shares on the register at 2 May 2014. The ex-dividend date was 30 April 2014, with payment made 16 May 2014.

* On 21 July 2014, the Company declared an interim dividend, in respect of the period starting 1 April 2014 and ended 30 June 2014, of 2.25 cents per Share, to holders of Shares on the register at 1 August 2014. The ex-dividend date was 30 July 2014, with payment made 15 August 2014.

* On 21 October 2014, the Company declared an interim dividend, in respect of the period starting 1 July 2014 and ended 30 September 2014, of 2.25 cents per Share, to holders of Shares on the register at 31 October 2014. The ex-dividend date was 30 October 2014, with payment made 14 November 2014.

 

The notes form an integral part of these financial statements.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfrom 5 July 2013 to 31 December 2014

1) GENERAL INFORMATION

The consolidated audited financial statements ('financial statements') incorporate the results of the Company and that of wholly owned subsidiary entities, DP Aircraft Guernsey I Limited and DP Aircraft Guernsey II Limited (collectively and hereinafter, the 'Borrowers'), each being a Guernsey Incorporated company limited by shares and an intermediate lessor DP Aircraft Ireland Limited (the 'Lessor'), an Irish incorporated private limited company.

DP Aircraft I Limited (the 'Company') was incorporated on 5 July 2013 with registered number 56941. The Company is listed on the Channel Islands Securities Exchange and admitted to trading on the Specialist Fund Market of the London Stock Exchange.

The Share Capital of the Company comprises 113,000,000 Ordinary Preference Shares of no par value and one Subordinated Administrative Share of no par value.

The Company's investment objective is to obtain income and capital returns for its Shareholders by acquiring, leasing and then, when the Board considers it appropriate, selling aircraft.

2) SIGNIFICANT ACCOUNTING POLICIES

a) Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the EU; issued by the International Accounting Standards Board ('IASB'), the Disclosure and Transparency Rules ('DTR's) of the UK's Financial Conduct Authority ('FCA') and applicable Channel Islands Securities Exchange and Guernsey law.

The Directors are of the opinion that the affairs of the Company are suitably structured to enable the Going Concern basis to be adopted in the preparation of these financial statements. A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2014 and have not been applied in preparing these financial statements. Those which may be relevant to the Company are set out below. The Company does not plan to adopt these standards early.

IFRS 9 Financial Instruments (2010), IFRS 9 Financial Instruments (2009)

The International Accounting Standards Board (IASB) recently completed the final element of its comprehensive response to the financial crisis by issuing IFRS 9 Financial Instruments. The package of improvements introduced by IFRS 9 includes a logical model for classification and measurement, a single, forward-looking 'expected loss' impairment model and a substantially-reformed approach to hedge accounting. The new Standard will come into effect on 1 January 2018 with early application permitted.

The adoption of these standards is expected to have an impact on the Company's financial assets, but no impact on the Company's financial liabilities.

b) Basis of Measurement

The financial statements have been prepared on the historical cost basis except for certain financial instruments that are measured at fair value through profit or loss.

The financial statements are prepared in United States Dollars (US$), rounded to the nearest Dollar, which is the functional currency of the Company and presentation currency of the Group.

In preparing these financial statements, the significant judgements made by the Directors in applying the Company's accounting policies and the key sources of estimation uncertainty are disclosed in note 3.

c) Basis of Consolidation

The financial statements include the results of the Company and that of its wholly owned subsidiaries, DP Aircraft Guernsey I Limited, DP Aircraft Guernsey II Limited and DP Aircraft Ireland Limited (the 'Group'). Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has a right to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, have been eliminated in preparing the financial statements.

d) Taxation

The Company is subject to income tax at the company standard rate in Guernsey, which is currently zero per cent. However, tax at rates greater than zero per cent will be payable on any income received by Guernsey Companies from the ownership of lands and buildings in Guernsey or from certain regulated activities. It is not intended that the Company make any such investments or engage in any of the regulated activities in question.

Shareholders of the Company, whether corporates or individuals, who are not resident in Guernsey for tax purposes, will not be subject to Guernsey income tax and will receive dividends without deduction for Guernsey income tax. Individual shareholders who are resident in Guernsey for tax purposes will be subject to tax at the individual standard rate of 20 per cent upon dividends.

DP Aircraft Ireland Limited is subject to resident taxes in Ireland.

e) Property, plant and equipment - Aircraft (the 'Asset')

Upon delivery, aircraft are initially recognised at cost plus initial direct costs which may be capitalised under IAS 16. In accounting for property, plant and equipment, the Company makes estimates about the expected useful lives, the fair value of attached leases and the estimated residual value of aircraft. In estimating useful lives, fair value of leases and residual value of aircraft, the Company relies upon actual industry experience, supported by estimates received from independent appraisers, with the same or similar aircraft types and considering our anticipated utilisation of the aircraft.

When we acquire an aircraft with a lease attached, we evaluate whether the lease is at fair market value by comparing the contractual lease rate to a range of current market lease rates for similar aircraft. A lease premium is recognised when it is determined that the acquired lease terms are above market value; lease discounts are recognised when it is determined that the acquired lease terms are below market value. Lease premiums are recognised as Aircraft Lase Premiums in Non Current Assets and are amortised to profit and loss on a straight line basis over the lease term. Lease discounts are recognised in other liabilities and accreted as additional rental revenue on a straight line basis over the lease life.

The Company's policy is to depreciate the Asset over its remaining lease life (given the intention to sell the Asset at the end of the lease) to an appraised residual value at the end of the lease. For the annual report, the directors determined a residual valuation at the end of the lease life based on 50 per cent of the purchase cost, supported by external valuations.

In accordance with IAS 16 - Property, Plant and Equipment, the Company's aircraft that are to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the aircraft may not be recoverable. An impairment review involves consideration as to whether the carrying value of an aircraft is not recoverable and is in excess of its fair value. In such circumstances a loss is recognised as a write down of the carrying value of the aircraft to the higher of value in use and fair value less cost to sell. The review for recoverability has a level of subjectivity and requires the use of judgement in the assessment of estimated future cash flows associated with the use of an item of property, plant and equipment and its eventual disposition. Future cash flows are assumed to occur under the prevailing market conditions and assume adequate time for a sale between a willing buyer and a willing seller. Expected future lease rates are based upon all relevant information available, including the existing lease, current contracted rates for similar aircraft, appraisal data and industry trends.

The future cash in-flows for the assets (excluding the assets residual value in the event of a sale) have been fixed at a set rate as agreed between the Company, NordLB, as loan provider, and the Lessee.

f) Financial Instruments

A financial instrument is recognised when the Company becomes a party to the contractual provisions of the instrument. Regular way purchases and sales of financial assets are accounted for at trade date, i.e., the date that the Company commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Company's obligations, specified in the contract, expire or are discharged or cancelled. Financial assets are derecognised if the Company's contractual rights to the cash flows from the financial assets expire, are extinguished, or if the Company transfers the financial assets to a third party and transfers all the risks and rewards of ownership of the asset, or if the Company does not retain control of the asset and transfers substantially all the risk and rewards of ownership of the asset.

Non-derivative financial instruments

Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, restricted cash, loans and borrowings, and trade and other payables. Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit and loss, any directly attributable transaction costs. Subsequent to initial recognition, non-derivative financial instruments are measured at amortised cost using the effective interest rate method, less any impairment losses in the case of financial assets.

Fair values of non-derivative financial instruments, which are determined for disclosure purposes, are calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date.

Derivative financial instruments

The Company invests in interest rate swaps in order to provide for fixed-rate interest to be payable in respect of the loans and borrowings, matching the timing of the scheduled fixed rental payments under the Lease, interest rate swaps have been entered into to provide for surety of cash flow and elimination of volatility.

On initial designation of the derivative as hedging instrument the Company formally documents the relationship between the hedging instrument and the hedged item, including the risk management objective and strategy in undertaking the hedge transaction and the hedged risk, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Company makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, of whether the hedging instruments are expected to be highly effective in offsetting the changes in the fair value of the respective hedged items attributable to the hedged risk, and whether the actual results of each hedge are within a range of 80% - 125%.

Fair value movements on the derivative instruments are recorded as Other comprehensive income in the Statement of Comprehensive Income, to the extent they are effective. The fair value of the derivative instruments are recorded as "derivative liability" or "derivative asset" in the Statement of Financial Position.

Hedging Reserve

The hedging reserve comprises the effective portion of the cumulative net change in the value of hedging instruments used in cash flow hedges pending subsequent recognition in profit or loss as the hedged cash flows affect profit or loss.

Cash and cash equivalents (Loans and Receivables under IAS 39.9)

Cash and cash equivalents comprise cash balances held for the purpose of meeting short term cash commitments and investments which are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Where investments are categorised as cash equivalents, the related balance has a maturity of three months or less from the date of acquisition. Cash and cash equivalents are carried at amortised cost.

Restricted cash (Loans and Receivables under IAS 39.9)

Restricted cash comprises cash held by the Company but which is ring-fenced or used as security for specific financing arrangements, and to which the Company does not have unfettered access. Restricted cash is measured at amortised cost.

Maintenance Reserve

Maintenance reserves are Lessee contributions to a retention account held by the Lessor which are calculated by reference to the budgeted cost of maintenance and overhaul events (the 'supplemental rentals'). They are intended to ensure that at all times the Lessor holds sufficient funds to cover the proportionate cost of maintenance and overhaul of the Asset relating to the life used on the airframe, engines and parts since new or since the last overhaul. During the term of the lease, all maintenance is required to be carried out at the cost of the Lessee, and maintenance reserves are required to be released only upon receipt of satisfactory evidence that the relevant qualifying maintenance or overhaul has been completed.

Maintenance reserves are recorded on the statement of financial position during the term of the lease. Reimbursements will be charged against this liability as qualifying maintenance work is performed. Maintenance reserves are restricted and not distributable until, at the end of the lease, the Company is released from the obligation to make any further reimbursements in relation to the aircraft, and the remaining balance of maintenance reserves, if any, is released through profit or loss.

Security Deposit

Lease contracts require the lessee to pay a security deposit, either in cash or in the form of a letter of credit. These deposits are refundable to the lessee upon expiration of the lease and, where such deposits are received in cash, they are recorded in the statement of financial position as a liability. The cash received related to security deposits is presented as restricted cash in the Statement of Financial Position.

Trade and other receivables

Trade and other receivables are recognised initially at fair value and are thereafter measured at amortised cost using the effective interest rate less any provision for impairment. Trade and other receivables are discounted when the time value of money is considered material. A provision for impairment of trade receivables is recognised when there is objective evidence the Company will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the loans and borrowings or, probability that the loans and borrowings or will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired.

Loans and borrowings

Loans and Borrowings are recognised initially at fair value, net of transaction costs incurred. Loans and Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised through profit or loss in the consolidated statement of comprehensive income over the period of borrowings using the effective interest rate method. Loans and Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least one year after the reporting date.

Trade and other payables

Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

g) Share capital

Shares are classified as equity. Incremental costs directly attributable to the issue of shares are recognised as a deduction from equity.

h) Share based payments

For cash settled share-based payment arrangements with the Asset Manager, which is classified as a non employee, the Company re-measures the goods or services from the non employee at each measurement date at their fair value. The cost of the share based payment exchanged for the goods or services is recorded in equal amount over the period the services are provided. (See note 19 Asset Management Agreement).

i) Lease rental income

Leases relating to the Aircraft are classified as operating leases where the terms of the lease do not transfer substantially all the risks and rewards of ownership to the lessee. Rental income from operating leases is recognised on a straight-line basis over the term of the lease.

The first Asset (for the purpose of this Note the 'First Lease') is a Boeing 787-8. The manufacturer's serial number is 35304. The First Lease consists of monthly lease rentals of US$1,240,501 per month for the lease term. Lease rentals are due in advance on the 15th day of each calendar month.

The second Asset (for the purpose of this Note the 'Second Lease') is a Boeing 787-8. The manufacturer's serial number is 35305. The Second Lease consists of monthly lease rentals of US$1,245,620 per month for the lease term. Lease rentals are due in advance on the 15th day of each calendar month.

j) Expenses

Expenses are accounted for on an accruals basis.

 

k) Finance costs - Interest payable - Loans

Interest on the Loan is payable in arrears on the last day of each interest period, which will be one month long (the 'Interest Period'). Interest on each Loan generally accrues at a floating rate of interest which is calculated using US LIBOR for the length of the Interest Period and a margin of 2.6 per cent per annum. If any amount is not paid by the Company when due, interest will accrue on such amount at the then current rate applicable to the Loan plus 2.0 per cent per annum. Interest is calculated on an effective interest rate basis. Hedging arrangements are in place for each loan in order to provide for fixed-rate interest to be payable, matching the timing of the scheduled fixed rental payments under the Leases.

l) Finance income

Interest income on cash and cash equivalents is accounted for on an effective interest rate basis.

m) Foreign currency translation

Transactions denominated in foreign currencies are translated into US$ 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 US$ at the rate of exchange ruling at the reporting date. Foreign exchange gains or losses arising on translation are recognised through profit or loss in the Consolidated Statement of Comprehensive Income.

n) Initial direct costs

Aircraft:

Initial direct costs incurred during the purchase of an aircraft which meet the capitalisation criteria of IAS16 are capitalised to the cost of the aircraft and depreciated in line with the depreciation policy.

Borrowings:

Initial direct costs related to loans and borrowings are capitalised, presented net against the loans and borrowings accrual and amortised to the Statement of Comprehensive Income over the period of the related loan.

Lease Costs:

Initial direct costs incurred when settling up a lease are capitalised to Property, Plant and Equipment and amortised over the lease term.

o) Segmental reporting

The Directors are of the opinion that the Company is engaged in a single segment of business, being acquiring, leasing and subsequent selling of Aircraft.

p) Distribution policy

Dividends will be accrued for when declared.

 

3) SIGNIFICANT JUDGEMENTS AND ESTIMATES

The preparation of financial statements in conformity with IFRS requires that the Directors make estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Such estimates and associated assumptions are generally based on historical experience and various other factors that are believed to be reasonable under the circumstances, and form the basis of making the judgements about attributing values of assets and liabilities that are not readily apparent from other sources.

As described in Note 2, the Company will depreciate the Assets (which are significant) on a straight line basis over the remaining lease life and taking into consideration the estimated residual value. In making a judgement regarding these estimates the Directors will consider previous sales of similar aircraft and other available aviation information. The Company will engage three Independent Expert Valuers each year, commencing December 2014 to provide a valuation of the Assets and will take into account the average of the three valuations provided. The Company expects that, in performing their valuations, the Independent Expert Valuers will have regard to factors such as the condition of the Assets, the prevailing market conditions (which may impact on the resale value of the Assets), the Leases (including the scheduled rental payments and remaining scheduled term of the Leases) and the creditworthiness of the Lessee. Accordingly, any early termination of the Leases may impact on the valuation of the Assets. The Assets residual value is based on appraised residual values.

4) LEASE RENTAL INCOME

 

5 July 2013 to

31 December

2014

US$

Lease rental income from First Asset ('LNA')

Earned and received

18,047,289

18,047,289

Lease rental income from Second Asset ('LNB')

18,121,761

Earned and received

18,121,761

Total lease rental income

36,169,050

All lease rental income is derived from a single customer in Norway.

OPERATING LEASES

As at 31 December 2014 the contracted cash lease rentals to be received under non-cancellable operating leases comprised:

 

Next 12

2 to 5 years

After 5 years

Total

months

31 December 2014

US$

US$

US$

US$

Boeing 787-8 Serial No: 35304

14,886,012

59,544,048

81,393,859

155,823,919

Boeing 787-8 Serial No: 35305

14,947,440

59,789,760

84,023,041

158,760,241

29,833,452

119,333,808

165,416,900

314,584,160

5) ASSET MANAGEMENT, GENERAL AND ADMINISTRATIVE EXPENSES

 

5 July 2013 to

31 December

2014

US$

Asset management fees

616,018

Administrative

1,525,337

General

4,636

Total operating expenses

2,145,991

6) PROPERTY, PLANT AND EQUIPMENT - AIRCRAFT AND INTANGIBLE ASSET - AIRCRAFT LEASE PREMIUM

 

Boeing 787-8

Total

Cost

US$

US$

As at 10 July 2013

-

-

Additions - October 2013 - Aircraft

238,020,000

238,020,000

Additions - October 2013 - Lease Premium

29,581,300

29,581,300

As at 31 December 2014

267,601,300

267,601,300

ACCUMULATED DEPRECIATION

As at 10 July 2013

-

-

Charge for the period - Aircraft

12,433,909

12,433,909

Charge for the period - Lease Premium

1,545,393

1,545,393

As at 31 December 2014

13,979,302

13,979,302

CARRYING AMOUNT

Aircraft

225,586,091

225,586,091

Lease Premium

28,035,907

28,035,907

As at 31 December 2014

253,621,998

253,621,998

 

The Boeing 787-8 is a newly developed generation of aircraft and the Company is exposed to the used aircraft market of the 787-8 which is untested. Due to the new type of design, in particular in respect of innovative materials and technology, there is currently insufficient experience and data available to be able to give a complete assessment of the long-term use and operation of the aircraft. There is a risk that the newly developed materials may be found to be less efficient or durable than expected and thereby may lead to higher maintenance and repair costs. Under the terms of the Leases, the cost of repair and maintenance of the Assets will be borne by Norwegian. However, upon expiry or termination of the Leases, the cost of repair and maintenance will fall upon the Group. Therefore upon expiry of the Leases, the Group may bear higher costs and the terms of any subsequent leasing arrangement (including terms for repair, maintenance and insurance costs relative to those agreed under the Leases) may be adversely affected, which could reduce the overall distributions paid to the Shareholders.

The estimated residual value of the Boeing 787-8 Assets as at the end of their respective leases in 2025 have been re-evaluated by independent experts for the first full financial accounting period ended on 31 December 2014. The Company's policy is to depreciate the Asset over its remaining lease life (given the intention to sell the Asset at the end of the lease) to an appraised residual value at the end of the lease. For the annual report, the directors determined a residual valuation at the end of the lease life based on 50 per cent of the purchase cost, supported by external valuations. Eventual residual value will depend upon a variety of factors including actual or anticipated fluctuations in the results of the airline industry, market perception of the airline industry, general economic and social and political development, changes in industry conditions, fuel prices or rates of inflation. The Loans entered into by the Company to complete the purchase of the aircrafts are cross collateralised. Each of the First Loan and the Second Loan are secured by way of security taken over each of the first aircraft and the second aircraft.

7) RESTRICTED CASH

 

As at

31 December 2014

US$

Security Deposit

6,400,000

NordLB - Maintenance reserve

622,031

NordLB - Maintenance reserve

420,061

7,442,092

8) CASH AND CASH EQUIVALENTS

 

As at

31 December 2014

US$

NordLB

755,199

NordLB

755,143

Royal Bank of Scotland International - Call

3,536,578

Total cash and cash equivalents

5,046,920

 

9) FINANCE INCOME AND EXPENSE

 

5 July 2013 to

31 December 2014

US$

Finance income

3,076

3,076

Loan interest paid & payable

(5,287,715)

Deferred loan and borrowings facility costs

(191,604)

Total interest at effective interest rate

(5,479,319)

Swap interest paid & payable

(4,371,788)

Total finance expense

(9,851,107)

10) SHARE CAPITAL

 

Subordinated

Ordinary

As at

Administrative

Preference

31 December 2014

Share

Shares

US$

US$

US$

Administrative share issued on incorporation July 2013

1

-

1

Shares issued pursuant to the Placing October 2013

-

113,000,000

113,000,000

Share issue costs

-

(2,114,781)

(2,114,781)

1

110,885,219

110,885,220

Subject to the applicable company law and the Company's Articles of Incorporation, the Company may issue an unlimited number of shares of par value and/or no par value or a combination of both. Notwithstanding this, a maximum number of 113,000,000 Shares were authorised, issued and fully paid-up pursuant to the Placing Agreement, dated 27 September 2013, between the Company, DS Aviation, JS Holding (DS Aviation and JS Holding together the 'Asset Manager Parties') and Canaccord Genuity (the Company's Corporate Broker) whereby Canaccord Genuity acted as agent for the Company, to procure subscribers for Shares under the initial Placing of shares at the Issue Price (the 'Placing'). Shares were issued at US1.00 per share.

The Subordinated Administrative Share is held by DS Aviation GmbH & Co. KG, (the Asset Manager).

Holders of Subordinated Administrative Shares are not entitled to participate in any dividends and other distributions of the Company. On a winding up of the Company the holders of the Subordinated Administrative Shares are entitled to an amount out of the surplus assets available for distribution equal to the amount paid up, or credited as paid up, on such shares after payment of an amount equal to the amount paid up, or credited as paid up, on the Ordinary Shares to the Shareholders. Holders of Subordinated Administrative Shares shall not have the right to receive notice of and have no right to attend, speak and vote at general meetings of the Company except if there are no Ordinary Shares in existence.

Without prejudice to the provisions of the applicable company law and without prejudice to any rights attached to any existing shares or class of shares, or the provisions of the Articles of Incorporation, any share may be issued with such preferred, deferred or other rights or restrictions, as the Company may be ordinary resolution direct or, subject to or in default of any such direction, as the Directors may determine.

Although not utilised in the reporting accounting period, the Directors were entitled to issue and allot Ordinary Shares as well as C Shares immediately following the Placing for cash or otherwise on a non pre-emptive basis.

The share issue costs include fees payable under the Placing Agreement, registration, listing and admission fees, settlement and escrow arrangements, printing, advertising and distribution costs, legal fees, reporting accountant fees and a commission of 1.5 per cent of the Placing Proceeds due to Canaccord Genuity, as Placing Agent.

11) TRADE AND OTHER RECEIVABLES

 

As at

31 December 2014

US$

Directors' and Officers' insurance pre-paid

22,148

Other

7,785

Total receivables and prepayments

29,933

 

 

12) NON-CURRENT LIABILITIES

 

As at

31 December 2014

US$

NordLB - Borrowings

68,450,386

NordLB - Borrowings

68,673,833

137,124,219

Deferred loans and borrowings facility fees

(1,494,504)

135,629,715

Security deposit refundable to Norwegian

6,400,000

Maintenance reserves

1,042,092

Total non-current liabilities (excluding derivatives)

143,071,807

Loans

The Company utilised the Placing Proceeds and the proceeds of two separate Loans, each of US$79,800,000, to fund the purchase of the two Boeing 787-8 aircraft.

The loans, each of US$79,800,000 will be fully amortised with monthly repayments in arrears over approximately twelve years (until the scheduled expiry of the Lease, as drawdown of the loans happened after the commencement of the First Lease). There are no defaults or breaches under the loan agreements.

Structure and term

The committed term of each Loan is from the drawdown date until the date falling twelve years from the Delivery Date of the relevant Asset. Each Loan will be amortised with repayments every month in arrears over the term in amounts as set out in a schedule agreed by the Company and the Lenders. Amortisation will be on an annuity-style (i.e. mortgage-style) basis.

Interest

Interest on each Loan is payable in arrears on the last day of each interest period, which is one month long (the 'Interest Period'). Interest on each Loan accrues at a floating rate of interest which is calculated using LIBOR for the length of the Interest Period and a margin of 2.6 per cent per annum (the 'Loan Margin') ('Loan Floating Rate'). For the purposes of calculating the Loan Floating Rate, if on the date when LIBOR is set prior to the beginning of an Interest Period it is not possible for LIBOR to be determined by reference to a screen rate at the time that LIBOR is to be set for that Interest Period (a 'Market Disruption Event'), the amount of interest payable to each affected Loan Lender during the Interest Period will be the aggregate of each Lender's cost of funds during that monthly period and the Loan Margin. If any amount is not paid by the Borrower when due under the Loan Transaction Documents, interest will accrue on such amount at the then current rate applicable to the Loan plus 2.0 per cent per annum. The Group has entered into ISDA-standard hedging arrangement with Norddeutsche Landesbank Girozentrale as hedging provider in connection with the Loans, in order to provide for a fixed interest rate of 5.06% and 5.08% to be payable in respect of the Loans throughout the whole term.

Cross Collateralisation

The Loans entered into by the Company to complete the purchase of the Assets are cross collateralised. Each of the First Loan and the Second Loan is secured by way of security taken over each of the First Asset and enforce security over both Assets. This means that a default on one Loan places both of the Assets at risk. Following the enforcement of security and sale of the aircraft, the remaining proceeds, if any, may be substantially lower than investors' initial investment in the Company.

13) AMOUNTS PAYABLE WITHIN ONE YEAR

The Company has commitments relating to future minimum lease payments under a non-cancellable operating lease as follows:

 

As at

31 December 2014

US$

NordLB loan payable

5,395,952

NordLB loan payable

5,290,344

Deferred loan costs

(153,282)

Total loans and borrowings

10,533,014

 

Rent received in advance

 

 

1,122,764

Interest Payable

333,067

Accruals and other payables

169,345

Total trade and other payables

502,412

12,158,190

14) FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The primary risks arising from the Company's financial instruments are Capital management, Credit risk, Market risk and Liquidity risk. The principal nature of such risks is summarised below. The Group's main financial instruments comprise two separate loan agreements and interest rate swaps.

Capital Management - Going Concern

The capital managed by the Company comprises the ordinary and subordinated administrative shares issued on the initial Placing of the Company. The Company is not subject to externally imposed capital requirements.

The lease rental income and supplemental rental income have been set by the Group at an aggregate absolute income stream in excess of the Group's expenses, distributions and financing costs. The Directors are of the opinion that the affairs of the Group are suitably structured to enable the Going Concern basis to be adopted in the preparation of these financial statements.

 

Income distributions are made quarterly, subject to compliance with Applicable Law and regulations, in February, May, August and November of each year. The Company aims to make a distribution to investors of 2.25 cents per Share per quarter (amounting to a yearly distribution of 9.0 per cent. based on the initial placing price of US$1.00 per Share). 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. Any distribution of dividend to Shareholders will be subject always to compliance with the Companies Laws.

Before recommending any dividend, the Board will consider the financial position of the Company and the impact on such position of paying the proposed dividend. Dividends are declared and paid in US Dollars.

Credit Risk

Credit risk is the risk that a significant counterparty will default on its contractual obligations.

The Group's most significant counterparties are Norwegian Air Shuttle ASA ("Norwegian") as Lessee and provider of income and NordLB as provider of loans and borrowings, cash and restricted cash (all held at NordLB). The Lessee does not maintain a credit rating. The credit rating of NordLB is Aa1.

During the term of the Leases, the returns on an investment in the Shares will depend in large part on the lease rentals received from Norwegian under the Leases. A failure by Norwegian to comply with its payment obligations under the Leases may lead to a reduction in distributions paid on the Shares and/or in the value of the Shares and have an adverse effect on the Company. In advance of the commencement of the Lease terms under the Leases, Norwegian have paid to the Group a security deposit in respect of each Asset. However, the security deposits do not cover the full value of the Group's obligations pursuant to the loan agreements in the event of termination of the Leases or default by Norwegian.

Financial assets

 

As at

31 December 2014

US$

Restricted cash

7,442,092

Trade and other receivables

29,933

Cash and cash equivalents

5,046,920

12,518,945

Financial liabilities

The Directors have in place a cash flow hedge in respect of the loans from NordLB. The Group has entered into ISDA-standard hedging arrangements with NordLB as hedging provider in connection with each loan, in order to provide for fixed-rate interest for 12 years to be payable in respect of each loan, funded by the fixed rental payments under the corresponding lease.

As at 31 December 2014, the fair value of the interest rate swaps was a loss of US$5,171,613 as calculated and presented by NordLB.

 

Market Risk

Interest Rate Risk

Interest rate risk arises on the Company's various interest bearing assets and liabilities from changes in the general economic conditions of the market from time to time. The Directors have sought to mitigate this risk by swapping the interest on each loan from a floating rate of interest which is calculated using LIBOR for the length of the interest period and a margin of 2.6 per cent per annum to a fixed rate of 5.06 per cent and 5.08 per cent for the duration of the loans. The Company has entered into ISDA-standard hedging arrangements with NordLB as hedging provider in order to provide for fixed-rate interest for 12 years to be payable in respect of the loan, funded by the fixed rental payments under the corresponding lease.

 

Fixed rate

Variable rate

Non-interest

Total

instruments

instruments

bearing

instruments

US$

US$

US$

US$

Restricted cash

-

-

7,442,092

7,442,092

Trade and other receivables

-

-

29,933

29,933

Cash & cash equivalents

-

5,046,920

-

5,046,920

-

5,046,920

7,472,025

12,518,945

Accrued expenses

-

-

(502,412)

(502,412)

Notional interest rate swap

(147,540,515)

147,540,515

-

-

NordLB loans

-

(147,657,233)

-

(147,657,233)

(147,540,515)

(116,718)

(502,412)

(148,159,645)

Total interest rate sensitivity gap

(147,540,515)

4,930,202

Foreign Currency Risk

The foreign currency risk to the Group is not significant as its cash flows are predominantly in US$ which is the functional reporting currency of each entity within the Group and the presentation currency of the Group. However there are expenses paid in Sterling and Euro.

Liquidity Risk Management

In the event that the Leases are terminated as a result of a default by Norwegian, there is a risk that the Company will not be able to remarket the Assets successfully within the remarketing period specified in the Loan Agreements and that (after using the security deposits and the Liquidity Reserve) the Company will not have sufficient liquidity to comply with its obligations under the Loan Agreements. This may lead to a suspension in distributions paid on the Shares and/or a reduction in the value of the Shares and have an adverse effect on the Company and could ultimately result in the Lenders enforcing their security and selling the relevant Asset or Assets on the market. There can be no guarantee that the Company will be able to re-lease the Asset on terms as favourable as the Leases, which may have an adverse effect on the Company and its ability to meet its investment objective and its dividend target. The price paid by the Company for the Assets partly reflects the terms of the Leases to which the Assets are subject. Accordingly, were either or both of the Assets to be re-leased on less favourable terms, this may have an adverse effect on the value of the Assets and therefore the Share price.

 

No right of redemption or repurchase

Shareholders will have no right to have their Shares redeemed or repurchased by the Company at any time. Shareholders wishing to realise their investment in the Company may be required to dispose of their Shares on the stock market. Accordingly, the ability of Shareholders to realise the Net Asset Value of, or any value in respect of, their Shares is mainly dependent on the existence of a liquid market in the Shares and the market price of such Shares.

Liquidity Reserve

In accordance with the Company's financial model, in addition to paying the proposed dividends to Shareholders, the Company intends to establish and to build up a liquidity reserve (the "Liquidity Reserve"). The Liquidity Reserve will be accumulated from surplus cash flow from the Leases after payment of the Group's costs and after allowing for proposed dividends. The Liquidity Reserve is intended to fund contingencies and to be available to the Company, in addition to the security deposits paid by Norwegian under the Leases, to aid the Company to meet its Loan Repayments in the event of a default by Norwegian and/or to meet costs incurred in connection with a subsequent remarketing of the Assets. In the event of a Loan Event of Default the accumulation of surplus Lease Rental by the Company in the Liquidity Reserve will be suspended. In the event of a re-lease of the Assets, the Company may maintain and/or accumulate a Liquidity Reserve in an amount which is considered appropriate by the Directors, having regard to the available security deposits and the other circumstances applicable at such time. Any unused Liquidity Reserve ultimately will be available for distribution to Shareholders following the disposal of the Assets and after all Loan obligations have been satisfied.

Liquidity Proposal

Although the Company does not have a fixed life, the Articles require that the Directors convene a Liquidity Proposal Meeting to be held no later than 31 March 2025 at which a Liquidity Proposal in the form of an ordinary resolution will be put forward proposing that the Company should proceed to an orderly wind-up at the end of the term of the Leases. In the event the Liquidity Proposal 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, or selling the Assets and reinvesting the capital received from the sale of the Assets in other aircraft.

 

Next

12 months

2-5 years

After 5 years

Total

US$

US$

US$

US$

Income

Operating lease income(refer Note 4)

29,833,452

119,333,808

165,416,900

314,584,160

Expenses

Nord LB loan borrowings and interest

(18,035,521)

(72,142,084)

(102,205,986)

(192,383,591)

Interest rate swaps

(3,347,370)

(10,705,549)

(6,240,160)

(20,293,079)

Maintenance Reserves

-

-

(1,042,092)

(1,042,092)

Security deposit

-

-

(6,400,000)

(6,400,000)

Trade and other payables

(502,412)

-

-

(502,412)

(21,885,303)

(82,847,633)

(115,888,238)

(220,621,174)

Excess liquidity prior to ongoing expenses and distributions

7,948,149

36,486,175

49,528,662

93,962,986

Other

In addition to the loans, the Company may from time to time use borrowings. To this end the Company may arrange an overdraft facility for efficient cash management. The Directors intend to restrict borrowings other than the Loans to an amount not exceeding 15 per cent. of the NAV of the Company at the time of drawdown. Borrowing facilities will only be drawn down with the approval of Directors on a case by case basis. The Directors may also draw down on the overdraft facility for extraordinary expenses determined by them, on the advice of DS Aviation, to be necessary to safeguard the overall investment objective. With the exception of the loans, the Directors have no intention, as at the date of this report, to use such borrowings for structural investment purposes.

15) FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

The fair value measurements for the loans and borrowings have been categorised as level 3 fair values based on the inputs to the valuation technique used (i.e. the inputs are not based on observable market data). The Directors have determined that the fair value of all of the other financial assets and liabilities not measured at fair value approximate their carrying value at the reporting date due to their short term nature and these are considered to be within level 2 of the fair value hierarchy.

A number of the Group's accounting policies and disclosures require the determination of fair value, for financial and non-financial assets and liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. Where applicable, further information about the assumptions made in determining fair values is disclosed in note 2.

 

The Company's derivative, the interest rate swap with NordLB, is valued by NordLB as calculation agent. The Directors have performed a fair value analysis of the interest rate swaps at period end and are satisifed that the valuation is accurate. Derivatives have been classified as level 2 investments. Loans from NordLB are at variable interest rates based on a repayment schedule as agreed between the Group and NordLB. The Directors confirm that the Lessee is meeting payment of lease rentals without impairment, enabling the Company to meet its loan repayment obligations and dividend distributions. Due to the fact that there has been no change to the Group's credit rating and the fact that the loan has a variable interest rate, the Directors believe the fair value of the loans and borrowings approximate their carrying value at the reporting date.

Cash Flow Hedging

A floating rate of interest applies to the loans as set out in each respective Loan Agreement. However, the Group has entered into ISDA-standard hedging arrangements with Nord LB as hedging provider in connection with the Loans, in order to provide for fixed-rate interest to be payable in respect of the Loans throughout the whole term. The rate of the interest rate swap was set at the time of the draw-down of the loans. The following table indicates the periods in which the cash flows associated with the cash flow hedges are expected to occur and impact profit or loss along with the carrying amounts of the related hedging instruments.

Principal Activity

 

Next12 months

2-5 years

After 5 years

Total

US$

US$

US$

US$

Interest rate swaps

(3,347,370)

(10,705,549)

(6,240,160)

(20,293,079)

16) INVESTMENT IN SUBSIDIARIES

The Company is the ultimate controlling party of the following companies, whose results are consolidated in these financial statements:

 

Company

Country of

Date of

%

Company

registration

incorporation

incorporation

Ownership

number

DP Aircraft Guernsey I Limited

56958

Guernsey

10-Jul-13

100

DP Aircraft Guernsey II Limited

56959

Guernsey

10-Jul-13

100

DP Aircraft Ireland Limited

529455

Ireland

27-Jun-13

100

17) OPERATING SEGMENT

The Company is engaged in one operating segment, being acquiring, leasing and subsequent selling of Aircraft. The geographical location of the Assets of the Group is Ireland, where the Assets are registered. The income arising from the lease of the Assets originates wholly from one lessee in Norway.

 

18) RELATED PARTY TRANSACTIONS

The key management personnel (deemed to be the non-executive Directors, Jon Bridel, Didier Benaroya and Jeremy Thompson), are remunerated for their services at a fee for each Director of £20,000 per annum (£25,000 for the Chairman) in relation to the Company plus £5,000 per annum for acting as director in relation to each of the Borrowers. In addition the two directors of the Lessor who are based in Ireland will receive a fee of €6,000 in aggregate per annum and the Director who sits on the board of the Lessor will receive a fee of £10,000 per annum. For the period from inception to 31 December 2014 the Directors' remuneration totalled US$251,026 with US$41,100 outstanding to be paid as at 31 December 2014. Expenses were refunded in the amount of US$6,132. As at the date of this report Mr Bridel, jointly with his wife, held 7,500 Ordinary Shares and Mr J Thompson held 15,000 Ordinary Shares.

(Please refer to the Directors' Report for future remuneration).

19) MATERIAL CONTRACTS

Asset Management Agreement

The Asset Management Agreement, dated 19 September 2013, between the Company and DS Aviation, whereby DS Aviation has agreed to:

(a) maintain ongoing communication with the lessee, the financing parties, the airframe and engine manufacturers and provide the Company with reports in relation thereto,

(b) undertake regular inspections of the Assets,

(c) monitor the lessee's performance of all the obligations specified in the relevant lease agreement (in particular, obligations as regards the insurance of the Assets) and provide information and advice in the event of default,

(d) support the Company in any sale or releasing activity in respect of the Assets and

(e) provide input into the Company's reports, announcements and shareholder communications.

The Asset Management Agreement shall continue until 31 October 2027, subject to earlier termination (i) by either party on immediate notice in certain circumstances including a material un-remedied breach by, or the insolvency of, the other party; (ii) by the Company in relation to any Asset on one month's prior written notice if a sale of the Asset has been completed or a Total Loss has occurred in relation to the Asset; and (iii) by the Company if DS Aviation is unable to comply with certain 'key person' provisions.

The Asset Management Agreement contains a 'key person' provision with the aim of ensuring the Company retains the benefit of the expertise of Christian Mailly or a suitable replacement for the duration of the agreement.

The Company will pay DS Aviation a management fee of US$250,000 per annum per Asset (inflating annually from 2014 onwards, at 2.5 per cent. per annum), payable monthly in arrears commencing from the acquisition of each relevant Asset.

 

Upon the sale of an Asset, the Company will pay DS Aviation a percentage of the sale proceeds. The percentage payable to DS Aviation will vary depending on the level of the total return per Share attributable to that Asset expressed as a percentage of the Issue Price and will range from nil (if the total return per Share attributable to the Asset is less than 200 per cent.) to 3 per cent if the total return per Share attributable to the Asset equals or exceeds 300 per cent.

The Disposal Fee will be adjusted in the event that an Asset is disposed of before the end of the scheduled term of the relevant Lease, in accordance with an agreed mechanism.

Administration Agreement - Dexion Capital (Guernsey) Limited (the 'Administrator')

The Administration Agreement, dated 19 September 2013, between the Company and the Administrator pursuant to which the Company has appointed the Administrator to act as administrator and secretary of the Company and its Guernsey incorporated subsidiaries. The Administration Agreement is for a minimum period of one year from Admission (unless terminated on notice on the occurrence of certain events) and thereafter may be terminated by either party on not less than 90 days' notice. The Administrator is entitled to fees as set out below. The Administrator is entitled to an establishment fee of £12,500 for the Company; a secretarial fee of £25,000 per annum assuming quarterly Board meetings, plus any committee meetings as described in the prospectus and an annual general meeting each year, plus an additional £1,640 for each ad hoc Board meeting held and a further £1,640 for each board meeting of each wholly-owned subsidiary that the Company incorporates (other than the Lessor); and a financial reporting fee for the Company on a group consolidated basis in respect of the preparation and approval of audited annual reports, half year reports and interim management statements, in the amount of £16,000 per annum and an initial set up fee of £1,000 in respect of the first set of accounts.

In addition to the above remuneration the Administrator is also entitled to an administration fee in the minimum amount of £1,250 per month and such other remuneration as shall be agreed between the Administrator and the Board from time to time, (including activity fees as previously agreed with the Company or time cost charges which shall be levied by the Administrator for any other matter not already included under the Administration Agreement). The Company has covenanted in the Administration Agreement to indemnify and keep indemnified the Administrator from and against all actions, proceedings, claims, demands, (including reasonable and properly incurred costs and expenses incidental thereto) whatsoever made against or incurred by the Administrator arising out of or in connection with the proper performance by the Administrator of its duties under the Administration Agreement save where any action, proceeding, claim, demand, cost or expense results from or arises out of a breach of the Administration Agreement (save where due to a force majeure event) or breach of applicable laws or the fraud, negligence, wilful default or bad faith of the Administrator.

 

Technical Services Agreement - GerMic Aviation Safety and Regulatory Consultants Ltd (the 'Technical Services Consultant')

The Technical Services Agreement dated 25 July 2013, between the Group and the Technical Services Consultant pursuant to which the Lessor has appointed the Technical Services Consultant to provide certain technical services in respect of the Assets, including:

(i) assistance with registration and certification of the Assets with the Irish Aviation Authority;

ii) attendance at the Irish Aviation Authority's inspection of the Assets; and

(iii) assistance with ongoing compliance responsibilities in respect of the Assets.

The Technical Services Agreement may be terminated by either the Group or the Technical Services Consultant giving to the other at any time 30 days' written notice. The Technical Services Consultant will be entitled to a fee of €600 per day in respect of services (i) and (ii) (as above) requested by the Group and separately a fee of €2,000 per month in respect of service (iii) as above, performed on the ongoing basis. Additional vehicle costs and fees payable to the Irish Aviation Authority will also be the responsibility of the Group.

Irish Corporate Services Agreement

The Irish Corporate Services Agreement dated 23 September 2013, between the Group and Alter Domus (Ireland) Limited ("Alter Domus") pursuant to which the Lessor has appointed Alter Domus to provide certain corporate and administrative services to the Lessor in Ireland. Alter Domus is entitled to a fee of €4,000 per annum in respect of services save for the first year of services for which it will receive a fee of €5,500. The agreement is terminable on 30 days' notice by either party or on immediate notice in certain circumstances, including insolvency or breach of agreement. By a separate deed of indemnity, the Company has agreed to indemnify Alter Domus to the extent permitted by law in respect of losses suffered by Alter Domus in the performance of its services. Such indemnity will not apply where Alter Domus has acted dishonestly or been guilty of fraud, gross negligence or wilful misconduct in the matter or issue in respect of which it seeks indemnity.

Directors' Service Agreement - DP Aircraft Ireland Limited

The Directors' Service Agreement in respect of DP Aircraft Ireland Limited, dated 23 September 2013, between Marching Star Limited (the "Agent") and the Group pursuant to which the Agent nominated Justin Walsh and Aileen McElroy (the "Irish Directors") to be appointed and provide their services as directors of the Lessor with effect from 8 July 2013. The Irish Directors are responsible for the management of the Lessor with all other directors of the Lessor, and the Agent is responsible for the permanent activity of the Irish Directors. In the event the Irish Directors are incapable of performing their duties for a period of 15 days, the Agent has the obligation to propose a new Irish Director to the Lessor and failure to propose such director will give the Lessor a right to terminate the agreement. The Agent will be entitled to a fee of €6,000 payable annually plus VAT and the Lessor will reimburse the reasonable travelling expenses and all other reasonable expenses incurred by the Irish Directors in the performance of their duties. For any time spent by the Irish Directors in excess of four standard board meetings per annum, the Lessor will be invoiced separately on a time-spent basis at an hourly rate of €200 per hour plus VAT and disbursements (which may vary from time to time) depending upon the level of qualification of the staff involved.

 

The Directors' Service Agreement may be terminated (a) by either party in the event of(i) un-remedied breach of the agreement or (ii) with immediate effect by written notification; or (b) automatically in the specific circumstances set out in the agreement, including (but not limited to) the resignation of the Irish Directors. By a separate deed of indemnity, the Company has agreed to indemnify the Irish Directors to the extent permitted by law in respect of losses suffered by them in the performance of their duties. Such indemnity will not apply where the relevant Irish Director has acted dishonestly or been guilty of fraud, gross negligence or wilful misconduct in the matter or issue in respect of which he seeks indemnity.

Placing Agreement

The Placing Agreement, dated 27 September 2013, between the Company, DS Aviation, JS Holding (DS Aviation and JS Holding together the "Asset Manager Parties") and Canaccord Genuity whereby Canaccord Genuity agreed, as agent for the Company, to use its reasonable endeavours to procure subscribers for Shares under the Placing at the Issue Price. Canaccord Genuity was not under an obligation to purchase Shares in the event that it was unable to procure subscribers for Shares. For its services in connection with the Placing, Canaccord Genuity was entitled to fees and a placing commission as described below. The Company reimbursed Canaccord Genuity for all costs and expenses incurred by it in connection with the Placing and paid Canaccord Genuity's reasonable legal fees. In consideration for Canaccord Genuity acting as placing agent in the Placing the Company agreed and paid Canaccord Genuity, as at Admission, a placing commission equal to 1.5 per cent. of the Placing Proceeds. All fees, expenses and commissions payable to Canaccord Genuity by the Company were paid to Canaccord Genuity together with any VAT payable in respect of such fees, expenses or commissions. Canaccord Genuity was also entitled to its share of the Arrangement Fee which, in the case of Canaccord Genuity, amounted to 0.3 per cent. of the Gross Proceeds.

20) SUBSEQUENT EVENTS

On 20 January 2015, the Company declared an interim dividend, in respect of the period starting 1 October 2014 and ended 31 December 2014, of 2.25 cents per Share, to holders of Shares on the register at 30 January 2015.

The ex-dividend date was 29 January 2015 , with payment on 13 February 2015.

21) APPROVAL OF THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS ('Financial Statements')

The Financial Statements were approved by the Board and authorised for release on 20 March 2015.

 

COMPANY INFORMATION

 

Registered Office

1 Le Truchot

St Peter Port

Guernsey

GY1 1WD

Channel Islands

Asset Manager

DS Aviation GmbH & Co. KG

Stockholmer Allee 53

44269 Dortmund

Germany

Solicitors to the Company

Norton Rose Fulbright LLP

(as to English law)

3 More London Riverside

London

SE1 2AQ

United Kingdom

Advocates to the Company

Ogier

(as to Guernsey law)

Ogier House

St Julian's Avenue St Peter Port

Guernsey

GY1 1WA

Channel Islands

Auditor

KPMG, Chartered Accountants

1 Harbourmaster Place

IFSC

Dublin 1

Administrator and Company Secretary

Dexion Capital (Guernsey) Limited

1 Le Truchot

St Peter Port

Guernsey

GY1 1WD

Channel Islands

Corporate Broker

Canaccord Genuity Limited

88 Wood Street

London

EC2V 7QR

 

This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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