Gama Aviation Regulatory News (GMAA)

Date: 24 April 2019

Gama Aviation Plc (AIM: GMAA)

("Gama Aviation", "the Company" or "the Group")

2018 Full Year Results

Financial review

On 24 January 2019, the Group announced that the Board was conducting a thorough and full review of its financial reporting methodology and on 29 March 2019 the Group further announced that this work and further independent work undertaken by Deloitte LLP could affect the presentation of 2018 financial statements and 2017 comparatives. The Group confirms that its financial review is now complete and that the audited report and accounts presented here are in accordance with the improved reporting methodology and reflect the restatements to 2017 comparatives, which are discussed in detail in the Chief Financial Officer's review on page 11.

1. Adjusted EBIT is stated after removing impairment losses, share based payment charges; acquisition related and accelerated amortisation; and exceptional costs, which comprise: transaction costs; legal, integration and business re-organisation costs and contribution to associate.

Adjusted EBITDA is adjusted EBIT with share or results from equity accounting investments and remaining amortization and all the depreciation added back.

2. Change calculated at a constant foreign exchange rate of $1.34 to £1, being the cumulative average USD-GBP exchange rate for 2018.

3. The trading results for 2017 have been restated for:

a. an adjustment to reclassify $1,600,000 of Group charges from gross profit to administrative expenses to ensure that the Group income and costs eliminate on the same line of the income statement. This adjustment does not impact EBIT or cash.

b. the Group's Swiss operation was closed at the beginning of 2018, accordingly, in line with IFRS 5 the results for the comparative period have been restated to remove $460,000 of profit from continuing operations. This has been included within total discontinued operations loss of $1,952,000 shown within the income statement.

· Revenue increased 13.3% to $234.8m (2017: $207.4m), broadly flat excluding acquisitions.

· Ground revenues organically increased by 10% and Air increased by 17%, reflecting the contribution of the acquisition of the outstanding 50% of the joint venture interest of Gama Aviation Hutchison Holdings ("Hutchison Holdings") and some organic growth.

· Gross profit is broadly flat at $45.1m (2017: $45.6m).

· Gross profit margin at 19.2% was down from 22.0% in 2017.

· Adjusted EBIT declined by 38.3% to $11.3m (2017: $18.3m) reflecting the lower gross profit, operational costs associated with the organic investments in US Ground, the new Business Aviation Centre in the UAE and in strengthening the management team.

· Statutory loss before tax of $30.8m (2017: profit before tax $15.7m). The statutory loss includes the following non-cash costs: impairment charge of $27.7m; exceptional items of $11.9m; and a share-based payment charge of $0.7m.

· Net debt at the end of the year was $2.9m (2017: $18.0m).

· Refinancing completed in August 2018, providing a new $50.0m revolving credit facility.

· Recommended final dividend of 2 pence per share.

Outlook

The Board expects growth in the US to continue through 2019 but expects more challenging market conditions in Europe, particularly with the continuing uncertainties over Brexit and foreign exchange volatility. For the Middle East and Asia, absent of any acquisitions, the expectations are for very modest organic growth.

Given the mixed market conditions, the Board is taking a cautious approach to its 2019 outlook and accordingly expects the financial performance of the Group to deliver an Adjusted EBIT in the range of $10.5m to $11.5m.

Quote from Simon To, Chairman

"2018 has been a year of disappointments and of recognising legacy issues. Despite not meeting our financial expectations, the Company has a sound operational platform and in 2018 saw revenue growth in the US Ground and Asia Air Divisions and some modest growth in Europe.

Since becoming Chairman in April 2019, I have been working very closely with the Board and the executive team. 2019 will involve internal reforms and optimising processes to bring the Company to a level of corporate governance and financial disciplines that are practised by top-tier companies.

Longer term I remain convinced of the potential of Gama as a business capable of considerable, profitable growth and my aim is to realise this potential to the benefit of all shareholders."

Quote from Marwan Khalek, CEO

"While 2018 was a disappointing year in terms of financial performance, it was also a year of transition and change that provides Gama with a solid basis for the future. The fundamentals of our business remain strong and, as CEO, co-founder and major shareholder I am resolved to return to executing our strategic objective of delivering sustainable profitable growth."

-ENDS-

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

A presentation for sell-side analysts is being held today at 09:00am at the offices of Camarco, 107 Cheapside, London EC2V 6DN.

For further information please visit www.gamaaviation.com or contact:

Gama Aviation Plc +44 (0) 1252 553029

Marwan Khalek, Chief Executive Officer

David Stickland, Chief Financial Officer 

Camarco +44 (0) 20 3757 4992

Ginny Pulbrook

Geoffrey Pelham-Lane

Jefferies International +44 (0) 20 7029 8000

Simon Hardy

Will Soutar

Gama Aviation - Notes to Editors

Gama Aviation Plc (AIM:GMAA) is a global business aviation services group that specialises in providing support for individuals, corporations and government agencies; allowing them to deliver on the promises they make.

The Group's services are split into two core divisions: Air and Ground. Air services include aircraft management, special mission support and charter. Ground services cover aircraft maintenance services, aircraft modification design and installation, and Fixed Base Operations (FBO). Other products and services are included in the Global Services Division.

More details can be found at: http://www.gamaaviation.com/

Chief Executive Officer's Report

2018 was a disappointing year for the Company during which we fell short of delivering the financial performance expected of us and the execution of our strategy. As CEO, co-founder and major shareholder I am resolved to put things right and get the business back on track.

Although 2018 was a busy year and one of transition and change for the business, it remains clear that the fundamentals of our business are strong.

We have a sound operational platform, evidenced by the divisional gross profit performance. We operate a robust, profitable and largely cash generative business model, evidenced by the adjusted financial performance at divisional level. We offer a suite of services that are relevant to our customer needs, evidenced by our organic revenue growth in key markets and by the significant long-term special mission contracts secured in 2018. Additionally, through the equity placing in March 2018 and the new revolving credit facility secured in August 2018, we have a sound financial base and a healthy balance sheet.

With these strong fundamentals in place, together with improvements in systems and processes and with the passion, dedication and commitment of our people, I am confident that we will return to executing our strategic objective of delivering sustainable profitable growth.

2018 Performance

Excluding the effect of acquisitions, Group revenues grew slightly year-on-year. Strong revenue growth in our US Ground and Asia Air businesses, and modest growth in Europe, were offset by reductions in Middle East Air and Global Services.

Although we fell short of delivering the anticipated revenue growth, a continuing focus on good quality revenues and on operational efficiencies helped deliver a gross profit of $45.1m (2017; $45.6), down $0.5m on the prior year but still representing a healthy margin of just under 20% (2017; 22%). The decline in margin is due, in part, to a year-on-year change in the business mix.

As a result of the $0.5m drop in gross profit, together with a significant $6.5m increase in administrative costs, the overall Adjusted EBIT was down by $7.0m to $11.3m (2017; 18.3m). The increases in administrative costs are broadly attributable to the following factors; an increase in depreciation and amortisation charges of $0.8m, an increase in central and regional overheads of some $2.0m to enable the scaling up of the business, approximately $1.8m resulting from the consolidation of the Asia operation which is now a 100% owned subsidiary and approximately $2.0m as a result of certain changes in accounting judgments.

An overview of the performance of each of the divisions is provided in the Operational Performance Review that follows.

2018 Investment

· Organic Investments

Our organic investment plan remains on track and we continue to make investments into our divisions in line with our clearly defined strategy. This includes the investments into expanding our maintenance network in the US, the relocation of our UK ground business to Bournemouth, the development of the Business Aviation Centre in Sharjah, supporting a start-up operation in the Kingdom of Saudi Arabia which provides us with an operating license that allows us to access this lucrative market and the re-platforming of our software products.

· Investment in Systems, Processes and Internal Controls

As part of our continuous improvement strategy, we have made significant investments in a range of initiatives across our operational and finance functions, all of which are aimed at improving business processes and strengthening internal controls. This includes the appointment of KPMG to undertake the Internal Audit function across the Group.

· Investment in People

We have invested in the recruitment of high-quality people in a targeted manner with the objective of continuing to strengthen our leadership and organisational structure.

· Investment in Acquisitions

Our market remains highly fragmented and we continue to seek and evaluate acquisition opportunities. Our approach to acquisitions is very diligent and prudent and we will only execute on the opportunities that fit our strategic objectives both operationally and financially and we will continue to adopt this disciplined approach in our pursuit of future opportunities.

Accounting Review

On 29 March 2019, the company issued an RNS stating that the Board had commissioned Deloitte LLP to independently review the accounting treatment of the overpayments announced on 5 February 2019. The review concluded that it was necessary to re-classify certain balances within current liabilities in the December 2017 and June 2018 balance sheets. Full details are provided in the finance review section and in the disclosures to the consolidated financial statement.

The need for the re-classification and the errors associated with these payments are regrettable. The review also identified the causal factors and we have taken the necessary actions to ensure that such errors cannot occur again.

2019 Priorities

Our priorities for 2019 are clear and simple. First and foremost, we continue our focus on the core business and on implementing the range of systems and process improvements which will allow us to deliver the financial performance we expect from our operations. Secondly, we continue to assess and evaluate growth opportunities, both through organic or acquisition investments, in a disciplined, diligent and prudent way with a view to executing on those that meet our strategic objectives and enhance our investment proposition.

Strategy

Our strategy remains unchanged, save for the priorities set out above. The Group remains focused on building its depth of capabilities and expertise, broadening its geographical reach and range of service offerings, thus increasing the scale of its operations in its chosen markets and driving revenue growth and enhancing cross selling opportunities.

We will execute this through focused organic growth and investment and through targeted strategic acquisitions which will collectively allow us to increase our share in this highly fragmented market place.

Outlook

The Board expects growth in the US to continue through 2019 but expects more challenging market conditions in Europe, particularly with the continuing uncertainties over Brexit and foreign exchange volatility. For the Middle East and Asia, absent of any acquisitions, the expectations are for very modest organic growth.

Given the mixed market conditions, the Board is taking a cautious approach to its 2019 outlook and accordingly expects the financial performance of the Group to deliver an Adjusted EBIT in the range of $10.5m to $11.5m.

Marwan Khalek

Chief Executive Officer

Group Operational Performance

Revenue

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Adjusted EBIT

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Statutory EBIT

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The above Group results are explained in detail below. To improve transparency and understanding of the overall business model, the Group's airworthiness management services business and aviation software business have been re-segmented into a new Global Services Division.

Air Division

The Air Division provides global outsource services to customers using business aviation as an integral part of their mission, including corporations and public services such as air ambulance and aerial survey. It provides aircraft management, crewing, charter services, airworthiness and engineering oversight both to single aircraft operations and fleets, and delivers substantial special mission contracts for complex, time critical services.

The US Air associate result was previously incorporated in the Air Division, but this is now reported in the associate performance section and the 2017 comparisons below have been correspondingly restated.

The results of FlyerTech, the Group's airworthiness management services business, were previously reported within the Europe Air figures. The 2017 comparisons below have been correspondingly restated to remove FlyerTech, which is now reported in the Global Services Division.

Total Air Division revenue was $135.9m, representing growth of $20.4m (+18%) on last years $115.5m. This is largely driven by the consolidation of the full revenues for Asia for the first time (an increase of $21.2m, including circa $8m like-for-like organic growth). Europe revenues have now stabilised following the exit from difficult contracts.

Total EBIT decreased to $5.6m (2017: $8.5m), driven largely by the performance in Europe.

Adjusted

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Adjustments to EBIT

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* The effects of discontinued operations are shown on a single line on the face of the consolidated income statement. This effect is included already within the statutory result shown below and is split out in the table above to aid understanding.

Statutory

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US Air (Branding Fee Income)

· The US Air associate 'Gama Aviation Signature' is the largest aircraft management business in the US.

· The managed fleet (including Wheels Up) continues to grow with aircraft under management up 8% year-on-year.

· The US Air associate delivered its 2018 contracted $3.8m branding fee in cash in the year.

Europe Air

· Extension of the Scottish Ambulance Service contract by three years, worth £50m over that period.

· Won a new five-year contract to operate four UK special mission aircraft (worth £27.5m including modification and maintenance revenues for Europe Ground).

· Increased aircraft under management by 8% year-on-year, reversing the downward trend of previous years.

The Europe Air business reported revenue of $88.8m (2017: $86.9m), with the positive change attributable to a small increase in pass-through revenue. This represents a relatively stable position in difficult trading conditions across Europe. The business has worked hard to generate new high-quality business, resulting in an increase in aircraft under management and the win of a major new special mission contract. Together with the extension of the Scottish Ambulance Service contract, this new contract reflects the Group's ability to bring to bear a range of specialist services across its Air and Ground Divisions.

The order for three Airbus H145 helicopters in support of the extended Scottish Ambulance Service contract reflects the Group's strategic decision to apply its operational capability in the rotary market in addition to its traditional fixed wing aircraft. These will be funded through either finance or operating leases.

Included in the 2017 Adjusted EBIT of $2.3m are approximately $1.3m of accrual and provision releases, largely related to Hangar8. Excluding the benefit of these one-off items in the prior year, the Adjusted EBIT would be approximately $1.0m. The 2018 Adjusted EBIT of $0.2m is stated after recording $0.9m of non-recurring charges arising from the Group's review of accounting estimates.

Middle East Air

· Maintained size of fleet in UAE, despite geo-political challenges in the region during 2018.

· Supported a start-up operation in the Kingdom of Saudi Arabia which has secured an operating license and its first aircraft under management.

The Middle East Air business delivered revenue of $20.9m (2017: $23.5m), down by $2.6m (-11%) due to reduced pass-through revenues from a stable managed fleet. Efficiency gains have delivered an improved gross profit performance (3 percentage points higher at 11%).

The Group has supported the start-up operations in the Kingdom of Saudi Arabia under a loan and branding arrangement to complement the existing UAE business. The first aircraft under management has been secured and this business represents a major growth opportunity for the future.

Total EBIT was $0.2m (2017: $0.5m). Working capital was negatively impacted by delays in collection of a significant debt with one customer which the Board expects will be resolved in 2019.

Asia Air

· Doubled the size of the fleet to 6 aircraft under management and delivering profitable operations.

· Revenues and profits now fully consolidated.

Asia Air is now a wholly owned business following the acquisition of the outstanding 50% of the joint venture interest of Gama Aviation Hutchison Holdings ("Hutchison") on 2 March 2018. As such, 100% of its revenues and costs are now consolidated at a Group level.

The business has made encouraging progress, having achieved viable scale via new managed aircraft contracts, which it will build on in 2019 via sales activity in new territories in the region.

Ground Division

The Ground Division provides global support to the business aviation, air ambulance, law enforcement and military sectors, deploying a service mix that is designed to deliver new capability and maintain availability of the aircraft to the operator. With a global network and increasingly rare independence from manufacturer ownership, the Division maintains all the necessary approvals to maintain aircraft from Gulfstream, Dassault Falcon, Bombardier, Embraer and Textron, providing heavy, ad-hoc and emergency maintenance as well as modifications and refurbishments.

Europe Ground figures previously included MyAirOps Software, the Group's aviation software business, which is now reported under the Global Services Division. The 2017 comparisons below have been correspondingly restated.

The Ground Division grew revenues by 8.5% to $95.0m (2017: $87.5m), driven primarily by a strong growth in engineering hours. The Division achieved an EBIT of $8.1m (2017: $10.9m), which was impacted by the Sharjah ground lease of $0.6m for the new Business Aviation Centre under construction in the Middle East, reduced overhead capitalisation in US Ground ($0.6m down from 2017) and $1.0m of losses associated with the Oxford facility in Europe Ground, which has now been closed.

Adjusted

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Adjustments to EBIT

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Statutory

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US Ground

· Opened three new field service locations and two new base maintenance facilities, expanding overall capability and capacity - engineering hours +17% year-on-year.

· New paint and interior facility ("Paint Shop"), acquired in January 2019, enhances the overall offer with opportunity to cross-sell.

The US Ground business delivered strong revenue growth of 22%, up $6.7m to $37.5m. Although the level of growth was not as significant as originally anticipated, this strong performance still reflects the division's success in out-performing its competitors in a robust US market, and investment in new capacity via the organic growth strategy. Engineering hours are up 17% year-on-year and productivity in the core engineering workforce has improved through a focus on operational efficiency, resulting in the GP margin increasing from 20% to 22%. The new base maintenance facilities in Miami and Dallas are performing well and the acquisition of the Paint Shop announced in January 2019 further enhances the Group's capabilities going forwards.

However, overheads have also increased year-on-year, partly due to investment in the leadership team to enable sustainable growth. The net impact of these factors is a reduction in EBIT to $1.9m (2017: $2.3m).

Cash generation is positive, and the business is well set to further increase revenue and sustainable profit in 2019.

Europe Ground

· Won an eleven-year contract for support of eight government special mission aircraft, following on from an existing similar contract.

· Won a new contract with Europe Air for support of four special mission aircraft.

· New Bournemouth facility delivered and fully operational - removes operational inefficiencies and allows for scalable growth.

The Europe Ground business revenue was $52.3m (2017: $53.0m). The win of two major new contracts, which together are expected to deliver over $100m of Europe Ground revenues over the life of the contracts, provides long term stability and visibility of this core activity and demonstrates the strength and potential of our customer proposition.

During the second half of the year, the business opened its new maintenance facility at Bournemouth, consolidating jet and turboprop maintenance into a single large operation, providing significant new capacity for growth and efficiencies from increased scale and cross-utilisation of resources. The new facility has already delivered performance improvements in line with the business case, with the business's productivity increasing by over ten percentage points since the facility opened. The legacy Oxford jets maintenance facility has been closed.

After absorbing losses from both the Oxford and Fairoaks facilities, the business delivered an EBIT of $6.7m (2017: $8.4m). With the consolidation into Bournemouth completed and the facility performing well, the business is positioned for profitable growth in 2019.

Middle East Ground

· Total engineering hours +30% year-on-year.

· Development of key Sharjah asset remains on track.

The Middle East Ground business delivered revenues of $4.6m, up $0.8m (+21%) on last year (2017: $3.8m). Business aviation activity was affected by regional political effects which impacted aircraft movements through FBO facilities in the region, including Sharjah. However, engineering hours growth was nevertheless achieved and hangarage and parking facilities have been over-subscribed.

The development of the Business Aviation Centre in Sharjah continues as planned, with earthworks commenced and contracts for design awarded and now mostly complete. Funding the full construction project is a key priority for 2019. The business delivered a total EBIT of $(0.3)m (2017: $0.1m), largely due to the expensing of the ground lease for the Business Aviation Centre of $0.6m. Without this charge, the business would have improved profitability year-on-year.

Asia Ground

The joint-operation with China Aircraft Services Limited ("CASL") in Hong Kong is well positioned to capitalise on its clear growth potential. This has delivered initial revenues and gross profit from its first year of operations through its collaboration with CASL and good growth is expected in 2019.

Global Services Division

We are now reporting FlyerTech and MyAirOps Software in the Global Services Division, which were previously reported in Europe Air and Ground respectively. FlyerTech provides continuing airworthiness management (CAM) and airworthiness review certification (ARC) services for business aviation and commercial airline operators. MyAirOps Software has developed a suite of business aviation products deployed as "Software as a Service" (SaaS) and mobile app solutions for business aviation operators, FBOs and airports. FlyerTech has continued to deliver a robust financial performance, while MyAirOps Software has been through an investment phase in a major technology refresh and is now successfully securing sales to both existing and new clients on the new SaaS platform.

Adjusted

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Adjustments to EBIT

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Statutory

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The FlyerTech results were previously reported in Europe Air and the MyAirOps Software results were included within Europe Ground. The 2017 comparisons have been correspondingly restated in the respective Air and Ground results above.

Global Services revenues were down year-on-year at $3.9m (2017: $4.4m) because of the transition from on-premise software to "Software as a Service", with EBIT down at $1.3m (2017: $1.8m) largely due to the investment required for this transition.

Capex of $1.5m was also invested during the year to develop the "Software as a Service" platform.

Brexit is presenting a short-term risk to FlyerTech's activity within this division due to potential implications for certain regulatory approvals in the event of a so-called "hard Brexit", which have delayed some airworthiness management deals. Mitigation activities have been identified and will be implemented if necessary.

Associate Investments

In previous years the Group showed a "Total Division" result for the Air and Ground Divisions, which included the gross revenues of associates. The Group will now show only its share of results of associates as reported in the consolidated financial statements, which is included within the EBIT profit line, below gross margin.

Adjusted

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Adjustments to EBIT

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Statutory

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Overall, associate Adjusted EBIT has increased from $0.2m in 2017 to $0.6m in 2018. China Aircraft Services Limited (CASL) was newly acquired in 2018.

US Air Associate - Gama Aviation LLC

· The Group owns a 24.5% share in Gama Aviation LLC (the "US Air Associate").

· In addition to the branding fee included above in the Air Division, the Group has also consolidated $0.36m of profits from associates for the full year, which represents 24.5% of the net profit that the US Air Associate made in 2018.

· Whilst 2018 showed strong organic revenue growth, the business continues to invest in its sales and operational infrastructure to facilitate future growth and improve profitability in the future.

· No dividend has been declared, so the consolidated result will not be matched by cash inflow to the Group.

China Aircraft Services Limited (CASL)

· The Group purchased a 20% share in CASL in February 2018 for $16m.

· The business generated profits of $1m for the full year, with Gama's 20% share for the period of ownership returning $0.2m.

· Trading in 2018 was impacted by the loss of 2 key contracts and a challenging labour market.

· Through its representation on the Board, the Group is ensuring that CASL management are addressing their performance proactively.

· A dividend of $1.0m has been declared by the Board and Gama's share of $0.2m will be received in 2019. Cash will therefore broadly match profit for the 2018 financial year.

1. Adjusted EBIT is stated after removing impairment losses, share based payment charges; acquisition related and accelerated amortisation; and exceptional costs, which comprise: transaction costs; legal, integration and business re-organisation costs and contribution to associate.

Adjusted EBITDA is adjusted EBIT with share or results from equity accounting investments and remaining amortization and all the depreciation added back.

2. Change calculated at a constant foreign exchange rate of $1.34 to £1, being the cumulative average USD-GBP exchange rate for 2018.

3. The trading results for 2017 have been restated for:

a) an adjustment to reclassify $1,600,000 of Group charges from gross profit to administrative expenses to ensure that the Group income and costs eliminate on the same line of the income statement. This adjustment does not impact EBIT or cash.

b) the Group's Swiss operation was closed at the beginning of 2018, accordingly, in line with IFRS 5 the results for the comparative period have been restated to remove $460,000 of profit from continuing operations. This has been included within total discontinued operations loss of $1,952,000 shown within the income statement.

Revenue Bridge

· Air Division revenue fell by $0.9m, the single largest contributing factor being difficult trading in the Middle East causedby the well publicised political events during the year.

· Ground Division revenue growth was $7.0m in the year, mainly due to the expansion of the US Ground business, with the remainder coming from the Middle East.

· Global Services revenue fell by $0.4m.

Statutory EBIT Bridge

* The Group's Swiss operation was closed at the beginning of 2018, accordingly, in line with IFRS 5 the results for the comparative period have been restated to remove $460,000 of profit from continuing operations. This has been included within total discontinued operations loss of $1,952,000 shown within the income statement.

· The Group recorded a non-cash impairment loss of $20.4m against goodwill arising on the merger between Hangar8 plc and Gama Aviation in 2015. At the time the Goodwill was allocated evenly between the Air and Ground businesses. The impairment charge recorded in the current year reduces the Goodwill allocated to the Air business to nil. A further impairment charge of $7.3m was recorded against related acquired intangible assets, mainly of the Air business.

· Exceptional costs increased by $9.2m, mainly due to the contribution to associate ($3.6m); corporate finance costs relating to the acquisitions ($1.6m), one-off costs associated with the Europe Ground business move from Oxford to Bournemouth ($1.5m), legal fees associated with the closure of the Dryden litigation in mid-2018 ($1.5m) and changes in accounting estimates ($1.0m), arising from the financial review. The treatment of these items as exceptional by the Directors is identified as a critical accounting judgment because the treatment involves a subjective view of those costs that are incurred in the ordinary course of business and those that are not. This comment applies to the changes in accounting estimates, which represent costs recognised on a one-time basis following the reassessment of previous judgments concerning the recoverability of amounts in the balance sheet.

· Administration costs increased significantly in the period (see Adjusted EBIT bridge below).

· Gross profit fell by $(0.5)m as detailed in the operational review.

· Depreciation and amortisation have increased partly due to the effects of increased organic investment and growth in the US Ground business (+$0.8m of depreciation) as well as the Group's reassessment of the remaining useful life of two categories of intangible assets (commencing operations and part 145 approvals), both of which were previously assessed as having indefinite lives but are now determined to have remaining lives of one to two years (+$1.0m of amortisation).

Adjusted EBIT Bridge

* The Group's Swiss operation was closed at the beginning of 2018, accordingly, in line with IFRS 5 the results for the comparative period have been restated to remove $460,000 of profit from continuing operations. This has been included within total discontinued operations loss of $1,952,000 shown within the income statement.

· The gross profit impact of $(0.5)m discussed in the EBIT bridge falls straight through to the Adjusted EBIT result as there areno adjusting items at the gross profit level.

· As noted above, the step-acquisition of Gama Aviation Hutchison Holdings resulted in the gross revenues and costs of the company being consolidated in full in the Group accounts for the first time. In addition to the gross profit impact already mentioned, administrative costs of $1.6m were recorded, which represent the normal baseline operating cost for this business.

· US Ground administrative costs rose significantly as a direct result of the Group's strategy to expand operations in this key territory. The impact of this was to reduce overall Adjusted EBIT for US Ground by $0.5m year-on-year, offsetting the strong operational performance delivered by that business.

· Central costs increased by $1.4m, of which $0.3m resulted from lower overall Group cost recovery from the operating businesses. The remaining $1.1m of increase mainly comprised of travel costs ($0.2m), non-exceptional legal fees ($0.3m) and payroll related costs ($0.6m).

· The Group incurred ground and concession lease costs of $0.6m in the year in relation to its Sharjah Business Aviation Centre ("BAC") development. These costs relate to the non-cancellable Build-Operate-Transfer and Service Concession agreement entered by the Group in June 2017 with Sharjah Airport Authority, under which the Group is committed to construct a BAC at Sharjah Airport. The agreement runs from June 2017 until June 2042. Assets under construction in relation to the BAC, with a carrying value of $1,815,000 at 31 December 2018, are included within leasehold property. The total expected cost of the project is expected to be approximately $40m. The Directors' expectation is that the investment cost will ultimately be funded by an asset finance arrangement.

· Depreciation increased by $0.8m because of the Group's investments in FBO assets.

Adjustments (including exceptional costs)

· Integration and business re-organisation costs of $2.3m arose primarily on the Europe Ground move to Bournemouth ($1.5m); Oxford onerous lease provision ($0.3m); and legal entity restructuring costs ($0.2m).

· Legal costs of $2.3m arose primarily on resolution of the legacy Dryden litigation case ($1.5m) and abortive acquisition feesof $0.5m.

· Cash contribution to associate relates to the working capital payment as part of the BBA transaction.

· Acquisition related intangible amortisation relates to acquired intangible assets (customer lists, brands) recognised as part of the accounting for business combinations ($1.6m) and amortisation arising on internally generated intangible assets associated with organic investments, such as setting up new bases of operations in the US Ground business ($0.9m). In the current period the remaining useful lives of internally generated intangible assets, previously assessed as indefinite, were re-assessed as being between one and two years, resulting in amortisation of $0.9m. The remaining carrying value of these assets at the end of 2018is $0.3m.

· The profit arising on the step acquisition of $1.0m relates to the Group's acquisition of control over Gama Aviation Hutchison Holdings. The profit arises as a result of re-valuing the associate interest held at cost, to fair value, immediately prior to the transaction in which control was obtained.

· The impairment charge of $27.7m resulted from the Group's annual IAS 36 impairment review and comprises a $20.4m impairment against goodwill and $7.3m impairment against acquired intangibles. As a result of the impairment charge,goodwill allocated to the Europe Air CGU grouping has been reduced to nil. The impairment charge resulted primarily froman updated outlook for 2019 for the Europe Air business, which in turn was based on the full year results for 2018 which were below expectations.

Earnings per share (EPS) and adjusted earnings per share

On 2 March 2018, 19,591,837 new ordinary shares of one pence each in Gama Aviation plc were admitted for trading on AIM. The Company raised gross proceeds of £48,000,000 ($65,460,000) pursuant to the placing. Hutchison Whampoa (China) Limited ("Hutchison") subscribed for shares in the placing and held 21.17% of the issued share capital at 31 December 2018.

Taxation

There is a total tax charge for the period of $1.5m (2017: charge of $3.9m). The Group operates across a number of jurisdictions and the effective rate of tax reflects the blended rate of operating in different countries.

Net debt and cash flow movements

* The Group's Swiss operation was closed at the beginning of 2018, accordingly, in line with IFRS 5 the results for the comparative period have been restated to remove $460,000 of profit from continuing operations. This has been included within total discontinued operations loss of $1,952,000 shown within the income statement. Net debt has also been restated (see details below).

· The significant non-cash component of EBIT is the impairment cost of $27.7m.

· Working capital increased by $14.8m, excluding associates, with significant components being:

o Trade debtors increasing by $6.3m due to three significant outstanding trade debts, one each in the USA, Asia and Middle East.

o Trade creditors reducing by $6.8m as the prepaid amounts received from a significant customer in December 2017 unwound.

o Inventory increasing by $2.7m.

· A 20% equity investment was made in China Aircraft Services Limited ("CASL") in Hong Kong.

· Acquisition of the remaining 50% in Gama Aviation Hutchison Holdings was also completed in the year.

In 2018 outstanding borrowings under the previous RCF totaling $29.6m were repaid with proceeds from the equity fund raise. A further loan of $2.0m was also settled. At 31 December 2018, $10.0m of the new RCF was drawn resulting in a net reduction of RCF debt of $19.6m during the year. The reduction in RCF debt combined with a reduction in cash of $12.3m delivers net debt at the year-end of $2.9m.

Net Debt Restatement

In March 2019, the Board commissioned Deloitte LLP, as external advisors to the Company, in order to undertake a review of two separate cash transactions identified as potential overpayments of cash received from the Group's US Air Associate, Gama Aviation LLC, in December 2017 and June 2018. The review sought to establish the sequence of events that gave rise to the respective transactions to enable the Board to determine the nature and substance of these transactions and ensure that the correct identification of the transactions in the 2017 year end and 2018 half year balance sheets.

Following the completion of this review process, the Board has concluded that the cash receipt of $5.0m on 29 December 2017 (which was repaid on 2 January 2018) was in substance a short-term loan. The 2017 balance sheet has therefore been reclassified to remove the credit recorded in Trade Creditors and replace it with a credit in Short Term Borrowings. This increases net debt by $5.0m at the 2017 year end.

The Board has similarly concluded that $5.8m of cash received on 29 June 2018 (which was repaid on 2 July 2018) and reported in the Group's interim financial statements was also, in substance, a short-term loan. The 2018 half year balance sheet will therefore be reclassified to remove the credit recorded in Trade Creditors and replace it with a credit in Short Term Borrowings. This increases net debt by $5.8m at the half year 2018.

There was also a short-term borrowing cash transaction with the LLC of $5m at June 2017. There was no cash transaction at year end 2016, so a potential restatement of the opening balance sheet at 1 January 2017 is not necessary.

This reclassification has the effect of increasing debt at the balance sheet date but has no impact on the income statement or on earnings per share for the relevant periods.

Management have undertaken a review of internal controls in place to ensure the appropriate recording of transactions between the Group and its associates have improved and have implemented new processes accordingly, to both mitigate the risk of similar transactions occurring in future and to ensure associate accounting treatment is correct going forwards. Management is satisfied that the new processes implemented by management appropriately address the risks identified.

Line by line impact of restatement on operating cash flow and net debt:

Dividend

The directors are recommending a dividend for 2018 of 2.00 pence per share (2017: 2.75 pence per share), which subject to approval at the AGM in June 2019, will then be paid in July 2019. The directors confirm that the 2017 dividend, which was paid in June 2018, represented a lawful distribution as sufficient distributable reserves were available in the Company to declare and pay the dividend. The deficit in retained earnings in the Company at 31 December 2017 arose from the significant provision for impairment of investments in subsidiaries recorded in light of the Group's goodwill impairment exercise. This exercise was not completed until December 2018. The recommended dividend will be lawfully distributable as the Company is able to draw dividends from its subsidiaries to restore its distributable reserves to a positive position prior to payment of the dividend, which is planned for July 2019.

Litigation

Following the settlement of the disputes with Dustin Dryden (a former executive director of the Company who resigned in September 2015) and affiliated entities as reported at the half year, the remaining proceedings fall into two categories.

1. The first involves proceedings by the Company to recover long-standing trade receivables that amount to approximately $4.3m. The Company has made adequate provisions or holds security against these claims and as a result the Board does not expect any further provisions will be required. In addition, based on legal advice, the Board considers the proceedings to recover these receivables are likely to be successful, noting that the Company has already obtained summary judgments for a portion of these claims in the sum of $0.7m.

2. The second involves two proceedings brought against the Company in which the claimants seek to recover damages for alleged contractual breaches or alleged unpaid flight charges which amount to approximately $5.8m. Based on a detailed analysis of the claims and legal advice, the Board believes that these claims are speculative and/or overlapping and the Company continues to vigorously defend them.

David Stickland

Chief Financial Officer

Gama Aviation plc

Consolidated Financial Statements

For the year ended 31 December 2018

* The cash transaction restatement is detailed in Note 2

* The cash transaction restatement is detailed in Note 2

Gama Aviation Plc

Consolidated balance sheet

As at 31 December 2018

* The cash transaction restatement is detailed in Note 2

* The cash transaction restatement is detailed in Note 2

The financial statements were approved by the Board of directors and authorised for issue on 23 April 2019, and are signed on their behalf by:

David Stickland

Director

* The 2016 balance sheet was restated in the 2017 financial statements for a late revision to the original merger accounting, which had omitted a legacy liability acquired from Hangar8 plc at the time of the merger.

Gama Aviation Plc

Consolidated cash flow statement

For the year ended 31 December 2018

* The cash transaction restatement is detailed in Note 2

Cash and cash equivalents comprise cash and bank balances. The carrying amount of these assets is approximately equal to their fair value.

Gama Aviation Plc

Notes to the consolidated financial statements

For the year ended 31 December 2018

1. General information

Gama Aviation Plc is incorporated in the United Kingdom. The address of the registered office is the Business Aviation Centre, Farnborough Airport, Farnborough, Hampshire, GU14 6XA. The nature of the Group's operations and its principal activities are set out in the directors' report.

The Group financial statements consolidate the financial statements of Gama Aviation Plc and all its subsidiary undertakings drawn up to 31 December each year.

2. Accounting policies

Basis of accounting

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use in the European Union (EU) and therefore comply with Article 4 of the EU IAS legislation and with those parts of the Companies Act 2006 that are applicable to companies reporting under IFRS. The financial statements have also been prepared in accordance with IFRS and IFRS Interpretations Committee (IFRS IC) interpretations issued and effective at the time of preparing these accounts.

The principle Group accounting policies are explained below and have been applied consistently throughout the years ended 31 December 2017 and 31 December 2018 other than those noted below.

The Group accounts have been prepared under the historical cost convention.

Restatements

The balance sheet for 2017 has been restated for the following items:

To reflect the first-time adoption of IFRS 9 and IFRS 15, the Group has chosen to apply the modified retrospective restatement method permitted under transitional provisions in both new standards. See next section of note 2 for further details.

In addition, the Group's financial statements for the year ended 31 December 2017 included a cash receipt of $5.0m from the Group's US Air Associate, Gama Aviation LLC, which the Board has now determined is, in substance, a short-term loan. The cash, which was received on 29 December 2017 and repaid on 2 January 2018, was previously included in Trade and Other Payables but has now been reclassified to Borrowings in the comparative figures for 2017.

This has the effect of increasing borrowings and net debt by $5.0m at 31 December 2017 and reducing operating cashflows and increasing financing cashflows in the Cash Flow Statement for the year ended 31 December 2017. The 2017 opening balance sheet is unaffected by this transaction. This reclassification does not change the previously disclosed amounts for Current Liabilities or Net Assets, nor does it impact the Income Statement or Earning Per Share for the prior period.

There was also a short-term borrowing cash transaction with the LLC of $5.0m at June 2017. There was no cash transaction at year end 2016, so the 2017 opening balance sheet is also unaffected by the June 2017 transaction.

The results for 2017 have been restated for the following items:

· An adjustment to reclassify $1,600,000 of Group charges from cost of sales to administrative expenses to ensure that the Group income and costs eliminate on the same line of the income statement, which was properly determined to be below the gross profit line. This adjustment does not impact operating profit; and

· The effects of discontinuing an operation in the current year. Gama Aviation SA, the Group's Swiss operation was closed at the beginning of 2018, accordingly, in line with IFRS 5 the results for the comparative period have been restated to remove $460,000 of profit from continuing operations. This has been included within total discontinued operations loss of $1,952,000 shown within the income statement.

Adoption of new and revised standards

IFRS 9 'Financial Instruments'

For the Group, transition to IFRS 9 is effective from 1 January 2018. The Group has elected not to restate comparatives on initial application of IFRS 9, the opening impact of adoption of IFRS 9 will be recognised in reserves.

IFRS 9 provides a new expected losses impairment model for financial assets, including trade receivables, and includes amendments to classification and measurement of financial instruments. An accounting policy choice is available with regards to applying the new hedge accounting requirements or retaining IAS 39. The Group has elected to retain IAS 39.

Prior to adoption of IFRS 9 the Group has undertaken an impact assessment of this new standard on its financial statements. The Group's use of financial instruments is limited to short-term trading balances such as receivables and payables and therefore, the standard impacts the Group's classification of financial instruments and the measurement of impairment of short-term financial assets.

As part of the impact assessment, using the simplified approach allowed by the standard, the Group established an appropriate impairment model and accompanying processes to be applied to receivables by its companies and has required them to recalculate their provision for impairment at 31 December 2017 using this new methodology. The impact was the recognition of an increase in provision of $327,000 across the Group arising where certain companies have historically held lower provisions than the new impairment loss model implies is appropriate.

In accordance with IFRS 9, this adjustment has been reflected as an opening retained earnings adjustment in these consolidated financial statements.

IFRS 15 'Revenue from Contracts with Customers'

For the Group, transition to IFRS 15 is effective from 1 January 2018. The Group has chosen to retain prior period figures as reported under the previous standards, recognising the cumulative effect of applying IFRS 15 as an adjustment to the opening balance of equity as at the date of initial application (beginning of current reporting period).

IFRS 15 replaces existing revenue guidance including:

· IAS 18 Revenue

· IAS 11 Construction contracts

· IFRIC 13 Customer loyalty programmes

IFRS 15 sets out the requirements for recognising revenue from contracts with customers. The standard requires entities to apportion revenue earned from contracts to individual promises, or performance obligations, on a stand-alone selling price basis, based on a five-step model.

The Group has successfully completed its transition exercise in quantifying the full impact of this standard. Having performed an impact assessment in 2017, during 2018 the Group has worked through a comprehensive transition exercise at each of its subsidiaries. The autonomous nature of the Group means that each subsidiary sets its own terms and conditions and operating procedures and as such this was the appropriate level for the transition exercise. The transition exercise has involved scoping the Group's revenues to identify revenue streams with similar commercial terms and performing sample contract reviews to determine the appropriate revenue recognition under IFRS 15.

The following area of potential difference was identified from our initial impact assessment and was investigated as part of our transition exercise:

· Some of the companies have variable consideration arrangements with their customers. Having reviewed the details of these arrangements against IFRS 15 and current accounting practices, except for the specific transition adjustments noted below, which represent one-time adjustments, there is no change in the timing or quantum of revenue recognition.

Based on our work, most of our companies are unaffected, but have implemented process changes to comply with IFRS 15 now and in the future. A small number of our companies have individually material adjustments to their balance sheets through acceleration or deferral of revenue on the opening balance sheet.

Specific transition adjustments

The net impact to the opening balance sheet is a credit to accrued income of $1,534,000 with a corresponding debit to retained earnings. The credit of $1,534,000 comprises the following:

· A credit to accrued income of $475,000 relating to a new aircraft management contract in the US Air Division. The formal contract, including agreed payment terms, was established in 2018 and settled later in the year. Under IAS 18 the Group had previously concluded that substantial risks and rewards had been transferred to the customer;

· A credit to accrued income of $1,000,000 relating to a branding fee termination agreement with Merritt Property LLC (see note 37), which was determined to have been recognised prior to a formal contract being established as defined in IFRS 15. Under IAS 18 the Group had previously concluded that substantial risks and rewards had been transferred to the customer; and

· A net credit of $59k arising in the US Ground Division representing an immaterial adjustment to the 2017 opening and closing balance sheets resulting from adjustments to engineering labour hour revenue on work in progress. The adjustment arose as a result of process changes designed to ensure that outstanding performance obligations could be measured accurately for the purposes of disclosure under IFRS 15.

Line by line impact on loss for the year:

There was no change in cost of sales relating to any item disclosed above, because costs were determined to have been recorded in line with the revised revenue recognition treatment.

Line by line impact on assets, liabilities and equity at 1 January 2018:

Line by line impact on operating cash flow for the year:

Standards and Interpretations in issue but not yet effective

At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):

· IFRS 16 Leases

IFRS 16 'Leases'

For the Group, transition to IFRS 16 will take effect from 1 January 2019. The half year results for the period ending 30 June 2019 will be IFRS 16 compliant with the first Annual Report published in accordance with IFRS 16 being for the year ending 31 December 2019.

IFRS 16 replaces existing lease guidance including:

· IAS 17 Leases

· IFRIC 4 Determining whether an arrangement contains a lease

· SIC 15 Operating leases - Incentives

· SIC 27 evaluating the substance of transactions involving the legal form of a lease

IFRS 16 provides a single on-balance sheet accounting model for lessees which recognises a right of use asset, representing its right to use the underlying asset, and lease liability, representing its obligations to make payment in respect of the use of the underlying asset. The distinction between finance and operating leases for lessees is removed. Lessor accounting remains similar to the existing standard with no significant impact expected.

The Group will opt to apply the exemptions available in respect of leases which are less than 12 months long and those which have been classified as leases of low-value items. In addition, the Group will apply the practical expedient allowing for IFRS 16 to be applied to all contracts previously assessed as containing a lease under IAS 17 and IFRIC 4 without reassessing whether such contracts meet the definition of a lease under IFRS 16. The Group expects to apply the modified approach, which will be taken with optional practical expedients.

The most significant impact currently identified is that the Group's aircraft and hangar operating leases will be brought on to the balance sheet. Further assessment of other leases is currently ongoing. The actual impact of applying IFRS 16 is dependent on future economic conditions including:

· movements in the Group's borrowing rate to 31 December 2019;

· the composition of the Group's lease portfolio at transition date;

· the Group's view on whether renewal options will be exercised; and

· the Group's final decisions regarding the use of recognition exemptions and practical expedients for transition.

The Group's future lease commitments for aircraft and hangar operating leases at the balance sheet date, which provides an indicator of the value to be brought on to the balance sheet, is $55m.

In addition, the profile of expenses related to leasing arrangements will change. Straight line operating lease expenses will be replaced by the recognition of depreciation of the right-of-use asset and interest charges on lease liabilities.

No significant impacts are expected in relation to leases currently classified as finance leases in the Group financial statements.

Use of Alternative performance measures (APMs)

In the reporting of financial information, the Group refers to certain measures of performance that are not specified or required under IFRS, the Generally Accepted Accounting Principles (GAAP) applied in the preparation of the annual report and accounts. The directors believe that adjusted profit and earnings per share measures provide additional and more consistent measures of underlying performance to shareholders by removing certain trading and non-trading items that are not closely related to the Group's operating cash flows.

These and other alternative performance measures are used by the directors for internal performance analysis and incentive compensation arrangements for employees. The term 'adjusted' is not defined under IFRS and may therefore not be comparable with similarly titled measures reported by other companies. They are not intended to be a substitute for, or superior to, GAAP measures.

The principal items which are included in adjusting items are set out below in the Group's accounting policy and in note 6. The term 'adjusted' refers to the relevant measure being reported for continuing operations excluding adjusting items.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Operational Review and Chief Financial Officer's report which forms part of the strategic report. The strategic report also describes the financial risk management objectives of the Group and its exposure to credit risk and liquidity risk.

The directors have performed a detailed analysis of the cash flow projections for the Group as a whole covering the period through to the financial year ended 31 December 2019 and beyond. The key assumptions in this forecast include the profitable growth of the trading businesses and the knowledge that the Group has material headroom in its debt covenants after consideration of existing commitments.

The directors note that at the time of the approval of the financial statements the Group had access to a $50.0m revolving credit facility, of which $30.0m was undrawn at the time of signing of the accounts.

The directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the financial statements.

Business combinations

Business combinations are accounted for using the acquisition method. The consideration transferred in a business combination shall be measured at fair value, which shall be calculated as the total of the acquisition date fair values of the assets transferred by the Group, the liabilities incurred by the Group to former owners, the equity issued by the Group and the amount of any non-controlling interest in the acquiree either at fair value or at the proportional share of the acquiree's identifiable net assets. The consideration transferred also includes the fair value of any asset or liability resulting from a contingent consideration arrangement.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the minority's share of changes in equity since the date of the combination. Profit or loss and each component of other comprehensive income are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. A change in the ownership interest of a subsidiary, without a loss of control is accounted for as an equity transaction, being a disposal or acquisition of non-controlling interest.

Step-acquisition

For acquisitions achieved in stages the Group first assesses the fair value of the associate interest held immediately prior to the Group obtaining control and the associate becoming a subsidiary. The difference between the fair value measured and the carrying value of the associate interest is recognised as a step-acquisition gain or loss, which the Group excludes from its adjusted performance measures. Once the associate interest has been revalued to fair value, the transaction is accounted for using the acquisition method applicable to normal business combination transactions.

Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the amount of any non-controlling interests in the acquiree and the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment at least annually. Any impairment is recognised immediately in profit or loss and is not subsequently reversed.

For the purpose of impairment testing, goodwill is allocated to each of the Group's cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

On disposal of a subsidiary or associate, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Intangible assets

Internally generated intangible assets are recognised only if they satisfy the IAS 38 criteria in that a separately identifiable asset is created from which future economic benefits are expected to flow and the cost can be measured reliably. The life of each asset is assessed individually. Where the life is considered to be indefinite no amortisation is charged.

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Included in intangible assets acquired are part 145 approvals, licences and brand, customer relations, and computer software.

A summary of the policies applied to the Group's acquired intangible assets is as follows:

Property, plant and equipment

Items of property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.

Depreciation is recognised so as to write-off the cost of assets less their residual values over their useful lives, using the straight-line method, on the following bases:

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease.

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement.

Assets held for sale

The Group classifies assets as held for sale if their carrying value will be recovered principally through sale rather than through continuing use. Such assets are measured at the lower of their carrying amount and fair value less costs to sell. Costs to sell are the incremental costs directly attributable to the sale, excluding finance costs and income tax expense. The criteria for assets held for sale is regarded as only met when the sale is highly probable, and the asset is available for immediate sale in its present condition.

Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale.

Investments in associate and joint venture

An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control, through participation in the financial and operating policy decisions of the investee.

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

The considerations made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries.

The Group's investments in its associates and joint venture are accounted for using the equity method of accounting. The investment is carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group's share of the net assets of the investment, less any impairment in the value of the investment. Losses in excess of the Group's interest in the investment (which includes any long-term interests that, in substance, form part of the Group's net investment) are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the investment.

Where a Group company transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group's interest in the relevant associate. Losses may provide evidence of an impairment of the asset transferred in which case appropriate provision is made for impairment. The Group's share of the changes in the carrying value of the investments in associates is recognised in the income statement.

Inventories

Inventories are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition are accounted for as follows:

· Raw materials and consumables: purchase cost on a first in, first out basis

· Work in progress: cost of direct materials and labour and a proportion of manufacturing overheads based on the normal operating capacity, but excluding borrowing costs

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

Cash and cash equivalents

The Group's cash and cash equivalents in the statements of financial position comprise cash at bank and on hand and short-term deposits with a maturity of three months or less from inception, which are subject to an insignificant risk of changes in value.

For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and short-term deposits, as defined above, net of outstanding bank overdrafts as they are considered an integral part of the Group's cash management.

Financial instruments

Financial assets and financial liabilities are recognised in the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.

Financial assets

Trade receivables and other receivables are measured at amortised cost less provision for doubtful debts, determined as set out below in "impairment of financial assets". Any write-down of these assets is expensed to the income statement.

Impairment of financial assets

The impairment model under IFRS 9 reflects expected credit losses, as opposed to only incurred credit losses under IAS 39. Under the impairment approach in IFRS 9, it is not necessary for a credit event to have occurred before credit losses are recognised. Instead, the Group always accounts for expected credit losses and changes in those expected credit losses. The amount of expected credit losses are updated at each reporting date.

The new impairment model only applies to the Group's financial assets that are debt instruments measured at amortised costs or FVTOCI as well as the Group's finance lease receivables, contract assets and issued financial guarantee contracts. The Group has applied the simplified approach to recognise lifetime expected credit losses for its trade receivables, finance lease receivables and contracts assets as required or permitted by IFRS 9.

Expected credit losses are calculated with reference to average loss rates accurately incurred in the three most recent reporting periods to which a country risk premium is added, based on the location of each business. The combined loss rate represents the maximum expected credit default risk, which is expressed as a percentage. The Group average combined loss rate is approximately 1%.

This percentage rate is then applied to current receivable balances using a probability risk spread as follows:

· 80% of debt not yet due (i.e. the Group's average combined loss rate of 1% is discounted by 20%, meaning a 0.8% provision would be made to debt not yet due);

· 85% of debt that is

· 90% of debt that is 30-60 days overdue;

· 95% of debt that is 60-90 days overdue; and

· 100% of debt that is >90 days overdue.

Financial liabilities and equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.

Other financial liabilities

Other financial liabilities, including borrowings and payables, are initially measured at fair value and subsequently at amortised cost, net of transaction costs.

Derecognition of financial assets and financial liabilities

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. On derecognition of a financial asset measured at amortised cost, the difference between the asset's carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.

The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss.

Derivative financial instruments

The Group enters into derivative financial instruments from time to time in order to manage its exposure to foreign exchange rate, using foreign exchange forward contracts.

Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial liability.

Hedge accounting

Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges.

At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. In addition, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument is highly effective in offsetting changes in cash flows of the hedged item.

Cash flow hedges

The effective portion of changes in the fair value of the foreign currency contracts that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss.

Amount previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item is recognised in profit or loss, in the same line of the income statement as the recognized hedged item.

Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. Any gain or loss recognised in other comprehensive income at that time is accumulated in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognised immediately in profit or loss.

Provisions and contingent liabilities

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

A contingent liability is disclosed where the existence of the obligation will only be confirmed by future events, or where the amount of the obligation cannot be measured reliably.

Segmental reporting

An operating segment is a distinguishable component of the Group that is engaged in business activities from which it may earn revenues and incur expenses, and whose operating results are reviewed regularly by the Chief Operating Decision Maker (the Group Chief Executive) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

Reportable segments are operating segments that either meet the thresholds and conditions set out in IFRS 8 or are considered by the Board to be appropriately designated as reportable segments.

Exceptional items

These items are analysed under the following categories:

· Transaction costs - arising on acquisitions, debt refinancing and share issues.

· Integration and business reorganisation - legal and professional fees and non-recurring operating costs arising from significant acquisition integration or business reorganisation activities. Non-recurring operating costs means those costs that are related to a specific integration or reorganisation event that will not be repeated because they are unique to the event and which are not expected to follow a consistent level of expense from one accounting period to the next.

· Litigation - legal events may result in costs being incurred in more than one accounting period. These costs are treated as exceptional because they relate to specific commercial legal events that will not be repeated because they are unique to the event and which are not expected to follow a consistent level of expense from one accounting period to the next.

· Cash contribution to associate - where the Group provides cash or forgives of a loan to its associates and the contribution does not result in an increase in its ownership interest, this will be recognised as exceptional item of expense. This type of exceptional item is expected to occur very infrequently.

Supplier rebates

The Group has significant supplier contracts for the provision of training and insurance, which attract a rebate of cost based on the Group's expenditure with those suppliers. The anticipated rebate receivable is accrued throughout the year based on the agreement terms. Rebate credits are typically received and recorded prior to completion of the Group financial statements and so the estimation risk is deemed to be low.

Revenue recognition

In the current year the Group has applied IFRS 15 Revenue from contracts with customers (as amended in April 2016). IFRS 15 introduces a five-step approach to revenue recognition. The Group has applied the modified retrospective approach to the adoption of the standard in the year.

The Group recognises revenue from the following major sources:

· Managed aircraft contracts and specific air services

· Maintenance of aircraft

· Design and modification projects

Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. The Group recognises revenue when it transfers control of a product or service to a customer.

Managed aircraft contracts and specific air services

These activities are provided by the Group's Air Division. Services provided under managed aircraft contracts include flight training, cost management, flight planning and scheduling, crew management, maintenance oversight and regulatory compliance as separate performance obligations falling into one or more of the contract components identified below. The services are contract based with costs such as fuel, insurance, crew and maintenance being recharged to the client. Specific air services provided under this heading include a variety of specific contracts with customers where one or more elements of a fully managed services are provided.

The managed aircraft contracts have three components:

1. Pre-delivery services and services prior to aircraft's entry into service (if appropriate)

2. Management services

3. Variable fees based on flying hours and related rechargeable costs

Most specific services provided arise in components 1 and 3, whilst management services relate to overarching administrative services relating to ongoing regulatory compliance requirements, billed on a regular basis over the life of the contract. These components are distinct as the customer can benefit from the services on their own and the Group's promise to provide the service is separately identifiable from other promises in the contract. The three components are therefore deemed to be separate performance obligations. Revenue recognition associated with the above performance obligations is as follows:

1. Revenue is recognised once the service has been performed (at a point in time).

2. The customer simultaneously receives and consumes the benefits provided by the Group, therefore revenue is recognised over time.

3. Variable flying hours revenue is recognised monthly based upon actual flight information and other relevant information held on the internal billing system (at a point in time). Rechargeable costs are recognised gross, as revenue and related cost of salesand are recognised at a point in time (for example, monthly) based upon either actual rechargeable costs or estimated coststo be recharged.

The Group has considered whether it is acting as agent or principle in the context of its managed aircraft contracts and has concluded that it is the principle in relation to the entirety of these contracts. Rechargeable costs are recognised gross because the Group controls the services before they are transferred to customers and because they are linked to wider management services. For practical purposes management services and rechargeable costs (and other variable fees based on flying hours) are itemised separately in billing to customers, but for the purposes of revenue recognition there is an allocation of management fee revenue to rechargeable costs to reflect the standalone selling price of that revenue stream.

Maintenance of aircraft

These activities are provided by the Group's Ground Division. The Group provides both base and line maintenance services. Base maintenance relates to the planned maintenance that is required by the aircraft manufacturer or component supplier. This work is complex, highly regulated and location specific. Line maintenance covers irregular maintenance activities, component failure or simple wear and tear. Both types are services are provided on a fee or contract basis.

Maintenance revenue is recognised over time as the Group's performance of maintenance services do not create assets with an alternative use and the Group has an enforceable right to payment for performance completed to date. In most cases work is carried out and billed to the customer in the same accounting period. However, for work ongoing at the end of an accounting period an assessment of the extent to which contracted work is completed is made and a corresponding amount of revenue is accrued. This assessment is made using the input method of labour hours expended and costs incurred.

Design and modification projects

The Group undertakes certain equipment design and modification activities for some customers. These activities are provided by both Air and Ground Divisions of the Group. Revenue is recognised over time for design projects because the Group's performance of its contractual obligations creates or enhances an asset that the customer controls as the asset is created or enhanced. Work that is outstanding under design and modification contracts at the end of an accounting period is accrued and a work in progress asset (accrued income) is recognised on the balance sheet, based upon the input method of measuring progress (cost and labour hours expended to date).

Branding fees from associates

The Group receives a branding fee from its US Air Associate in addition to its equity accounted share of profit from associate. The branding fee is payable quarterly in arrears and the Group recognises revenue over time as the customer simultaneously receives and consumes the benefits provided by the Group.

Foreign currencies

The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in US Dollars, which is the presentation currency for the consolidated financial statements. These financial statements are presented in US Dollars because that is the currency of the primary economic environment in which the Group operates. The Company's functional currency is determined to be Pounds Sterling because this is the currency of the primary economic environment in which the Company operates.

In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency (foreign currencies) are recognised at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising are recognised in other comprehensive income and accumulated in equity. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate for each year end.

Retirement benefit costs

Payments to defined contribution retirement benefit schemes are charged as an expense when employees have rendered the service entitling them to the contributions. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the Group's obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme.

Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates and laws that have been enacted or substantively enacted by the balance sheet date.

Deferred tax

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates and laws that have been enacted or substantively enacted by the balance sheet date that are expected to apply in the period when the liability is settled, or the asset is realised.

Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

3. Critical accounting judgments and key sources of estimation uncertainty

In the application of the Group's accounting policies, which are described in note 2, the Directors are required to make judgments (other than those involving estimations) that have a significant impact on the amounts recognised and to make estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Critical judgments in applying the Group's accounting policies

The following are the critical judgments, apart from those involving estimations (which are dealt with separately below), that management have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in financial statements.

First time application of IFRS 15

In applying IFRS 15 for the first time, the Group has made judgments in determining the timing of satisfaction of performance obligations. The application of IFRS 15 had a material impact on transition but is not expected to have a material impact on future revenue recognition. Management have been required to assess in detail how the disclosure requirements should be applied and whether any existing revenue recognition policies required amendment.

Control over Gama International Saudi Arabia ("GISA")

In 2018 the Group has advanced a $1m loan to a start-up business operating in The Kingdom of Saudi Arabia using the Gama brand. The Group does not own any interest in this company. In February 2019 the Group entered into an arrangement with the sole shareholder and operator of GISA to secure the loan provided by obtaining a call option over the share capital of GISA. This was obtained via an agreement entered into by the Group with an Abu Dhabi registered company that is also solely owned by owner of GISA. Management judge that at 31 December 2018 the Group does not control GISA, which they believe operates on an arm's length basis. The results of GISA have therefore not been consolidated in these financial statements. Related party transactions with GISA are disclosed in note 37 to the accounts.

Classification of items of cost or income as "Exceptional" (exclusion of items from Adjusted EBIT)

Management consider exceptional costs to be those that do not contribute to the underlying performance of the Group. This requires judgment as the management and Group's view of what qualifies as an exceptional item may differ from similar judgments made by others. Exceptional items are treated as adjusting items to enable more relevant and reliable financial information to be presented. The exceptional items recorded in the income statement relate to transaction costs; business integration and re-organisation costs; legal costs arising primarily from historic Hangar 8 activity; and other non-recurring items that management judge to be exceptional.

Key sources of estimation uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting period, that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

Goodwill and acquired intangible asset impairment review

The goodwill and intangibles impairment reviews require the use of estimates related to future profitability and the cash generating ability of the related businesses. The estimates used may differ from the actual outcome. Details of the impairment review performed are set out in notes 14 and 15.

Impairment provision for trade receivables

The allowance for doubtful debts is calculated based on management's best estimate of the amounts which will be recovered from trade receivables. A proportion of the trade receivables balance is with individuals and overseas Groups, for whom it is more difficult to establish a credit rating. Management are in constant communication with all debtors and assess the likelihood of recoverability on a regular basis. The estimate of the allowance for doubtful debts may vary from the actual amounts recovered if an individual becomes unable to pay. An analysis of the trade receivables balance and indications of credit concentration are provided in note 20.

Expected outcome of litigation and claims

Management exercise judgment in measuring and recognising provisions and exposures to contingent liabilities related to pending litigation and outstanding claims. Judgment is necessary to assess the likelihood that a pending claim will succeed, or a liability will arise, and estimates are required to determine the possible range of any financial settlement. Due to the inherent uncertainty of such matters, the estimates used may differ from the actual outcome. Details of contingent liabilities are included in note 29.

Estimation of amounts owed and receivable in relation to long-term contracts - Europe Ground Division

Management exercise judgment in determining the costs to complete and the revenue recognised in relation to long-term contracts. Judgment is required specifically around the estimated outcome of commercial discussions at the time of contract conclusions and during renegotiation periods.

4. Segment information (restated)

The Group has eleven reportable segments (Air Division - four regional businesses; Ground Division - four regional businesses; Global Services Division - two businesses combined as one reportable segment; the Associates Division - two businesses; and Central Costs), which are defined by markets rather than product type. Each segment includes businesses with similar operating and marketing characteristics. These segments are consistent with the internal reporting reviewed each month by the Group Chief Executive.

Segment information has been restated for the following:

· Following the appointment of the new Chief Financial Officer in late 2018, the Group changed the way that information was presented to the Chief Operating Decision Maker (the Group Chief Executive). As required by IFRS 8 the segment information disclosed here has therefore been updated to reflect the internal change.

· As part of the Group's review of its financial reporting methodology, the operating segment disclosure has been enhanced to ensure that reconciliation between statutory and adjusted performance is clear.

· Discontinued operations have been restated in the applicable reportable segment in line with the adjustments presented in the consolidated income statement.

Group Operational Performance

Revenue

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Adjusted EBIT

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Statutory EBIT

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Air Divisional Performance$'000s

Adjusted

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