Gama Aviation Regulatory News (GMAA)

28 November 2012

Hangar 8 plc

("Hangar8", "the Company" or "the Group")

Final results for the year ended 30 June 2012

Hangar8, one of Europe's largest operators of privately owned passenger jet aircraft, today announces its financial results for the year ended 30 June 2012. All of the comparative information shown below for 2011 represents the audited results for the 14 month period to 30 June 2011.

Financial highlights:

·; Gross profit up 32% to £4.9m (2011: £3.7m)

·; Gross margin percentage up 9% points to 29% (2011: 20%)

·; Earnings used in Adjusted EPS up 37% to £1.1m (2011: £0.8m)

·; Adjusted EPS up 21% to 16.9p (2011: 14.0p)

·; Operating profit up by £1.0m to £0.5m (2011: loss of £0.5m)

·; Basic and diluted EPS of 4.9p and 4.8p (2011: loss of 8.7p)

Operational highlights:

·; Contracted revenue up by 210% to £10.8m (2011: £3.5m)

·; Contracted revenues now 68% of total (2011: 22.5%)

·; Investment in overseas Air Operator's Certificates £0.7m (2011: NIL)

·; Number of heavy jets under management up by 5 to 13 (2011: 8)

·; Number of hours flown up 10% to 7,734 (2011: 7,055)

·; Part 145 maintenance developed into new territories such as Nigeria (Lagos and Abuja), Congo (Pointe Noir) and Kazakhstan (Almaty)

·; Joint venture with Maltese partner and acquisition of Star-Gate increasing our scale and global platform

Nigel Payne, Chairman, commented:

"It has been a year of significant progress at Hangar8, with the company materially advancing its position against each of its strategic priorities. We have increased the scale of our business by winning new aircraft management mandates, expanded the breadth of our geographic offering by establishing new, global operating bases and broadened the depth of our service provision by internalising previously outsourced core functions. While the results underscore the substantial progress we have made there is a real belief within the business that this is merely the start of our journey. We look to the future with confidence and optimism."

Dustin Dryden, Chief Executive, commented:

"As recently announced, we have enjoyed a very strong start to the new financial year with earnings before interest, tax, depreciation and amortisation for the three months ended 30 September 2012 up 331 per cent to £461,000 (Q1 2011: £107,000). This increase has been driven, in part, by improvements in our profit margins as a result of the significant increase in long-term contracted management and charter revenue that we have achieved.

"I continue to see a consistent level of growth in this business and anticipate that the results for the year ended 30 June 2013 will be materially above market expectations."

Enquiries

Hangar 8 plc +44 (0) 1865 372215

Dustin Dryden, Chief Executive

Philip Brady, Chief Financial Officer

Blythe Weigh Communications + 44 (0) 20 7138 3204

Paul Weigh +44 (0) 7989 129658

Natalie Raper +44 (0) 7710 333470

Robert Kellner +44 (0) 7800 554377

Seymour Pierce +44 (0) 20 7107 8000

Mark Percy/Julian Erleigh (Corporate Finance)

David Banks/Katie Ratner (Corporate Broking)

Introduction

I am pleased to report that Hangar8 has delivered a strong financial performance in the 12 months to 30 June 2012, a year that has seen significant progress and change for the business.

Against a backdrop of challenging macro-economic conditions, Hangar8 has performed well by maintaining a strong and clear focus on delivering the core strategic objectives the Board outlined at the time of Hangar8's admission to AIM in November 2010. We have focused on increased the scale of our business, we have expanded the breadth of our geographical offering, and we have broadened the depth of our services through internalising previously outsourced core functions.

Growth in scale: increased aircraft under management with specific focus on heavier jets and longer-term charter contracts, aimed at improving earnings visibility and profitability

The aviation industry is highly regulated, with the cost of compliance increasing disproportionately. This encourages consolidation and globalisation to gain economies of scale, increase competition, and broaden the product offering to clients. The Board considers scale critical to a healthy future for Hangar8, as these effects polarise the market more acutely over time. I am therefore pleased to report a growth of five aircraft under management in the heavy-jet class bringing the fleet total to 13 (2011: 8), where revenues and margins are traditionally stronger.

In addition to increasing the number of aircraft under management, we have sought to de-risk the business and increase the forward visibility and quality of our earnings through a deliberate focus on longer-term contracts, as opposed to spot market charter contracts. These longer term contracts, which can range from one year to five years in duration, not only provide Hangar8 with enhanced earnings visibility, enabling better long-term planning and cash management, but also yield superior margins. Together with contracted management fees, contracted revenues now account for approximately 68% (2011: 22%) of revenue for the business.

Increased breadth of the business: geographic expansion to capture growth opportunities and reduce dependence on any single market

Hangar8 has made impressive progress towards its goal of expanding its geographical footprint. Here, the Board has not only sought to offer its existing clients services across a wider geographic footprint, but also to capture growth opportunities presented in regions displaying demonstrable economic growth and an appetite for private aviation travel.

During the course of the year, as well as establishing six new operating bases in strategic locations around the world (now 12 in total), we have also acquired, Aircraft Operator's Certificates in Malta and South Africa. Strategically, these were important moves, as they provided us with bases and a physical and regulatory platform into the African, Central Asian and Middle Eastern markets. The Board believes that these markets, which display strong GDP growth and economic development characteristics, offer exciting growth potential for Hangar8.

Internalised maintenance function: reduces cost, improves service to our clients and provides a new revenue stream

During the course of the financial year we were awarded a Part 145 Approval from the European Aviation Safety Association (EASA), which allowed us to internalise our engineering and maintenance operations. Following this award, we have invested in expanding our maintenance capabilities in Oxford, where we can now maintain and service over 12 different type of aircraft for the major business jet manufacturers, and globally, with Hangar8 maintenance operations now open in Nigeria (Lagos and Abuja), Congo (Pointe Noir) and Kazakhstan (Almaty).

As a result, not only do we now offer a materially better localised service for our global client base but our engineering revenues increased by 80% to £0.9m (2011: 14 months £0.5m). In addition to the organic growth that internalising and expanding our maintenance offering brings, we also anticipate aircraft management opportunities from undertaking ad-hoc maintenance on non-client aircraft at our global maintenance bases.

Board and Management

The Board continues to place great emphasis on its management capabilities and seeks to develop a management team more than capable of supporting the business through its high growth phase.

During the year Hangar8 has continued to invest substantially in talent and infrastructure. We have strengthened our finance function, improving our financial systems and controls, and adding a strong Financial Controller to support our Finance Director. We have enhanced our treasury function in response to increased exposure to currency fluctuations stemming from international long-term contracts. Operationally we have also brought in a new Operations Director and we have recruited many engineers to support our maintenance offering and international expansion.

With regard to the plc Board, as previously announced, David Savile, the former Chief Executive of Air Partner, joined the Board on 6 February 2012. John Blower and Keiron Blay stood down from the Board on 24 October 2011. David Cowham stands down from the Board on 28 November 2012 and Michael Peagram is appointed to the Board on the same date.

Outlook and Future Prospects

Hangar8 has grown at a rapid pace since it commenced life as a public company in late 2010. So far, we have followed the exact path we set out at the time of our listing and delivered on all our objectives, within the most restrictive market conditions for decades.

There is a real belief within the business that this is merely the start of our journey. While macro-economic conditions remain challenging, there are tentative signs of improvement. We believe this, combined with the rapid progress we have made in recent times, has created a very exciting platform on which we can leverage the scale, breadth and depth of our business for the benefit of all stakeholders.

We have made an encouraging start to the current financial year and continue to explore the global market for the right opportunities to grow our business, whether organically or through acquisition. We have an experienced, committed and dynamic team at the helm, supported by a robust balance sheet, and believe that the enhancements we have made during the past financial year leave us well placed to meet future challenges and opportunities presented by the market.

We look to the future with confidence and optimism.

Nigel Payne

Chairman

28 November 2012

Chief Executive's Statement

Financial review

Total revenue for the year was £17.0m (2011: 14 months £18.2m), yielding a gross profit of £4.9m (2011: 14 months £3.8m). The quality and visibility of our revenue stream has been enhanced by focussing on long-term contracts as opposed to spot market charter transactions. Leveraging off the scale of the business, our long term contracts deliver robust margins and provide for a significant increase in visibility of our earnings.

Contracted revenues represented 68% of total revenues in the current financial year (2011: 22.5%).

Earnings used in Adjusted EPS increased 37% to £1.1m (2011: 14 months £0.8m).

Adjusted earnings per share was 16.9p (2011: 14 months 14.0p), an increase of 20% on the prior period.

While it is the Board's intention to initiate a progressive dividend policy in the medium-term, given the rapid growth the Group has achieved and the funding this has required, the Board feels that it is prudent to maintain a healthy balance sheet and as such has decided not to pay a dividend at the current time.

Review of Operations

Using a fast growing fleet of 31 business jets, Hangar8 is an asset management and logistics business managed through 21 bases around the world. In the current financial year Hangar8 flew to 402 different destinations across 66 different countries, an activity level considerably higher than many major airlines. As part of this global reach and footprint, Hangar8's bases in the UK, Malta, Nigeria, Kazakhstan and South Africa also now have in-house maintenance and crew training facilities which have significantly enhanced our overall service offering.

We entered into a joint venture in Malta during the year which has increased our profile amongst the fast growing North African market and also given us better access to the high net worth individuals who tend to populate this area of the world. Malta has historically had long standing links to the Central Asian region which is an area of interest to the Group given its current economic growth and demographics.

We also acquired Star-Gate during the year giving us access to a South African Air Operator's Certificate which consolidates our position on the African continent and enables us to operate in the region with increased confidence and credibility. This has proven to be a success and has enabled us to develop our business in Africa much more quickly than on our own.

Both of these acquisitions have been funded out of existing cash reserves, the issue of shares or deferred cash consideration.

An additional benefit of our international expansion is a natural de-risking of the business away from the economic cycle of any single individual market. Europe remains a strategically important market for our business and whilst conditions across the region remain stable, better growth opportunities are presently available elsewhere. Therefore, we will continue to look to grow our business in regions that offer exciting growth potential, while ensuring we maintain an exceptional customer offering in our 'home' markets.

Broadening our operational capabilities in this way during the year, however, has not simply been about increasing the financial rewards we earn. We have invested heavily in our infrastructure and have taken every effort to ensure that as we have expanded our operations, we have retained the highest standards of safety and customer service. Outstanding service is what we expect to deliver to our customers as standard at all times and we have focused on ensuring that this runs through the very fabric of the organisation. This mantra is designed to continuously improve the standards and enhance our position within the industry and this pervades everything we have done during the year.

The clear objectives we set ourselves when we were admitted to AIM of increasing the quantum and quality of our managed aircraft, focusing on better revenue opportunities in broader geographical areas and internalising our previously outsourced maintenance function, have continued to reap rewards during the year for Hangar8, its customers and its stakeholders.

Aircraft under management

Hangar8 currently has 31 aircraft in its managed fleet, 13 of which are heavy jets. During the year we have seen a significant shift in demand towards the heavier end of the market. The demands of large corporates in particular who today travel across continents or over large distances within a continent has fuelled this change. Hangar8's growth in the heavier, longer range aircraft numbers from eight to 13 jets in the financial year has therefore been a significant factor in securing additional long term contract revenues for the business together with assisting our overall aim of strategic expansion into wider geographical regions. As we further gain critical mass across the world and continue to internalise more functions and expertise, all stakeholders are benefitting through the enhanced scale of the business.

Today Hangar8 not only has experience in managing the largest Hawker fleet of private jet aircraft in Europe but also now of much larger-range heavier jets such as the Challenger 604. This additional string to the offering of the business has cemented our reputation in the market and the Board has every confidence that we will continue to see good growth in this area of our business.

Future

Hangar8 is now in a leading position in its marketplace and the Board is confident that it can leverage significant operational gearing over the forthcoming year to deliver better and more cost effective services for our customers as well as increased returns for our shareholders.

On behalf of the board

Dustin Dryden

Chief Executive Officer

28 November 2012

Consolidated statement of comprehensive income for the year ended 30 June 2012

Consolidated statement of financial position as at 30 June 2012

Consolidated statement of cash flows for the year ended 30 June 2012

Consolidated statement of changes in equity for the year ended 30 June 2012

Notes forming part of the financial results for the year ended 30 June 2012

Basis of preparation

The financial information set out in this release does not constitute the Company's full statutory accounts for the year ended 30 June 2012 for the purposes of section 435 of the Companies Act 2006, but it is derived from those accounts that have been audited. Statutory accounts for 2011 have been delivered to the Registrar of Companies and those for 2012 will be delivered after the forthcoming AGM. The auditors have reported on those accounts; their report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006 in either 2012 or 2011.

While the financial information included in this announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), this announcement does not itself contain sufficient information to comply with IFRS. The Company expects to publish full financial statements for the year ended 30 June 2012 that comply with IFRS in December 2012. 

The accounting policies set out below have been applied to all periods presented in these Group financial results and are in accordance with IFRS, as adopted by the European Union, and International Financial Reporting Interpretations Committee ("IFRIC") interpretations that were applicable for the year ended 30 June 2012.

The policies have been consistently applied to all the periods presented.

Changes in accounting policies

(a) New standards, amendments to published standards and interpretations to existing standards effective in 2012 adopted by the group

·; IAS24 Related Party Disclosures - Revised definition of related parties - effective from annual periods beginning on or after 1 January 2011 *

·; IFRS 7 Financial Instruments: Disclosures - Amendments enhancing disclosures about transfers of financial assets (November 2011) - 1 July 2011 *

The adoption of the above standards has not had a material impact on the financial results of the group.

(b) Standards, amendments and interpretations to published standards not yet effective

Certain new standards, amendments and interpretations to existing standards have been published that are not yet effective and which the group has decided not to adopt early. Those considered having a potential effect on the company are:

·; IAS 1 Presentation of Financial Statements - amendments to revise the way other comprehensive income is presented - 1 July 2012 *

·; IAS 12 Income Taxes - Limited scope amendment (recovery of underlying assets) (December 2010) - 1 January 2012

·; IAS 27 Consolidated and Separate Financial Statements - Reissued as IAS 27 Separate Financial Statements (as amended in May 2012) - 1 January 2013

·; IAS 28 Investments in Associates and Joint Ventures - 1 January 2013

·; IFRS 9 Financial Instruments - Classification and Measurement - 1 January 2015

·; IFRS 10 Consolidated Financial Statements - update to the definition of control - effective 1 January 2013

·; IFRS 11 Joint Arrangements - removal of option to use proportional consolidation - 1 January 2013

·; IFRS 12 Disclosure of Interests in Other Entities - 1 January 2013

·; IFRS 13 Fair Value Measurement - 1 January 2013

Although potentially applicable to Hangar 8 plc, management do not consider the above would have a material impact on the financial results if adopted early.

The IASB have also issued a variety of IFRIC amendments and interpretations that are considered to have no impact on the Group's reporting. * Standard endorsed by the EU - all others are yet to be confirmed.

Basis of consolidation

Where the company has the power, directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial results present the results of the company and its subsidiaries (the "Group") as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full.

The consolidated financial results in relation to the Group consist of the results of the following units:

* since date of acquisition 1 March 2012

** since date of incorporation

Joint ventures

Jointly controlled entities are included in the financial statements using the equity method of consolidation. The share of each of the jointly controlled entity's assets, liabilities, income and expenses are combined on a one-line basis on the statement of consolidated income and the statement of financial position of the Group. Where non-monetary contributions to a jointly controlled entity give rise to an unrealised gain or loss, it is eliminated against the carrying value of the investment and is only released once it becomes realised

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales-related taxes.

Revenue is recognised for major categories as follows:

·; Aircraft charter - on the provision of the service;

·; Contract fee income - over the period of the contract;

·; Minimum guaranteed hours - the higher of the hours used or the guaranteed hours;

·; Maintenance - on the provision of the service;

·; Insurance commissions - from the date that the group has fulfilled its obligations in full;

·; Miscellaneous - on the provision of the service.

Foreign currencies

The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial information, the results and financial position of each company are expressed in Sterling (£), which is the presentation currency for the consolidated financial information.

In preparing the financial statements of the individual entities, transactions in currencies other than the entity's functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date.

Exchange differences arising on settlement of foreign currency monetary items and on the retranslation of unsettled monetary assets and liabilities are recognised immediately in the statement of comprehensive income.

On consolidation, the results of overseas operations are translated into sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the reporting date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income and accumulated in the foreign exchange reserve.

Exchange differences recognising profit or loss in Group entities' separate financial statements on the translation of long-term monetary items forming part of the Group's net investment in the overseas operation concerned are reclassified to other comprehensive income and accumulated in the foreign exchange reserve on consolidation.

On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the consolidated statement of comprehensive income as part of the profit or loss on disposal.

Employee benefits

Defined contribution plans

The group provides retirement benefits to all employees and Directors. The assets of these schemes are held separately from those of the Group in independently administered funds. Contributions made by the Group are charged to the statement of comprehensive income in the period in which they become payable.

Share-based payment transactions

The Group operates an equity-settled, share-based compensation plan. Vesting conditions are service conditions and performance conditions only. Where share options are awarded to employees and others providing similar services, the fair value of the options at the date of grant is charged to statement of comprehensive income over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options when granted. As long as all other vesting conditions are satisfied, a change is made irrespective of whether the market vesting conditions are satisfied.

The cumulative charge is not adjusted for failure to achieve a market vesting condition. If market related terms and conditions of options are modified before they vest, the change in the fair value of the options, measured immediately before and after the modification, is also charged to the statement of comprehensive income over the remaining vesting period. If non-market related terms and conditions of options are modified before they vest, the number of instruments expected to vest at each balance sheet date and therefore the cumulative charge, is therefore amended accordingly. Where equity instruments are granted to persons other than employees and others providing similar services, the statement of comprehensive income is charged with the fair value of goods and services received.

Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision maker has been identified as the Board.

Financial instruments

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

Financial assets

Loans and receivables: These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the group will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net, such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. Trade receivables denominated in a foreign currency are translated into sterling using the exchange rate at the reporting date. Foreign exchange gains or losses are included in other comprehensive income.

From time to time, the Group elects to renegotiate the terms of trade receivables due from customers with which it has previously had a good trading history. Such renegotiations will lead to changes in the timing of payments rather than changes to the amounts, the effect of discounting is considered to be insignificant.

The Group's loans and receivables comprise trade and other receivables and cash and cash equivalents in the balance sheet.

Cash and cash equivalents include cash in hand and deposits held at call with banks.

Financial liabilities

Financial liabilities include the following:

Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.

Trade payables denominated in a foreign currency are translated into sterling using the exchange rate at the reporting date. Foreign exchange gains or losses are included in other comprehensive income.

Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership of the leased asset to the Group. All other leases are classified as operating leases. Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease.

Rights to assets held under finance leases are recognised as assets of the Group at the fair value of the leased property (or, if lower, the present value of the minimum lease payments) at the inception of the lease. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are deducted in measuring profit or loss. Assets held under finance leases are included in their own line in the statement of financial position.

Contracts with customers to lease assets are classified as finance leases if they transfer substantially all the risks and rewards of ownership of the asset to the customer; all other contracts with customers to lease assets are classified as operating leases.

To the extent that finance lease receivables are not matched by back to back finance lease payables, where cashflows arising are direct between, sub-lessee and head lessor, they are included in the balance sheet, at the amount of the net investment in the lease being the minimum lease payments and any unguaranteed residual value discounted at the interest rate implicit in the lease.

Impairment of non financial assets

Assets that are subject to amortisation and depreciation are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be fully recoverable. The impairment review comprises a comparison of the carrying values of the fixed asset with its recoverable amount, which is the higher of fair value less costs to sell and value in use.

Fair value less costs to sell is calculated by reference to the amount at which the asset could be disposed of. Value in use is calculated by discounting the expected future cash flows obtainable as a result of the assets continued use, including those resulting from its ultimate disposal, at a market based discount rate on a pre tax basis.

An impairment loss is recognised in the Statement of Comprehensive Income whenever the carrying amount of an asset exceeds its recoverable amount. The carrying amount will only be increased where an impairment loss recognised in the previous period for an asset either no longer exists or has decreased, up to the amount that it would have been had the original impairment not occurred.

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

Taxation

Income tax expense included in the consolidated statement of comprehensive income represents the sum of current tax and deferred tax.

Current tax

The tax charge/(credit) payable is based on taxable profit/(loss) for the year. Taxable profit differs from profit reported in the consolidated statement of comprehensive income because of items of income or expense that are taxable in other years and items that are never taxable or deductible. The Group's liability/asset for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred taxation

Deferred tax is recognised on temporary 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. Deferred tax liabilities are recognised for all temporary differences expected to increase taxable profit in the future. Deferred tax assets are recognised for all temporary differences that are expected to reduce taxable profit in the future, and unused tax losses or tax credits. Deferred tax assets are measured at the highest amount that, on the basis of current or estimated future taxable profit, is more likely than not to be recovered. The net carrying amount of deferred tax assets is reviewed at each reporting date and is adjusted to reflect the current assessment of future taxable profits.

Any adjustments are recognised in profit or loss. Deferred tax is calculated at the tax rates that are expected to apply to the taxable profit/(tax loss) of the periods in which it expects the deferred tax asset to be realised or the deferred tax liability to be settled, on the basis of tax rates that have been enacted or substantively enacted by the end of the reporting period.

Current and deferred tax for the year

Current and deferred tax are recognised as an expense or income in the statement of comprehensive income, except when they relate to items that are recognised outside profit or loss, in which case the tax is also recognised outside profit or loss.

Inventories

Inventories are stated at the lower cost and net realisable value. Cost is calculated as follows:

·; Raw materials - cost of purchase on first in, first out basis;

·; Consumables - all costs of purchase, costs of conversion and other costs incurred in bringing the consumables to their present location and condition;

·; Work in progress and finished goods - cost of raw materials and labour, together with attributable overheads based on the normal level of activity.

Net realisable value is based on estimated selling price less further costs to completion and disposal. A charge is made to the statement of comprehensive income for slow moving inventories. The charge is reviewed at each balance sheet date.

Externally acquired intangible assets

Externally acquired intangible assets are initially recognised at cost and subsequently amortised on a straight-line basis over their useful economic lives. Intangible assets are recognised on business combinations if they are separable from the acquired entity or give rise to other contractual/legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate valuation techniques (see section related to critical estimates and judgements below). The significant intangibles recognised by the Group, their useful economic lives and the methods used to determine the cost of intangibles acquired in a business combination are as follows:

Intangible asset Period

Intangible assets

Air Operator's Certificate ("AOC")

This is the certificate from the relevant country's aviation regulatory regime which allows an operator to operate third party passenger transport for reward in their air space. Without the AOC the operator cannot operate in that country. The Group has one AOC in the UK which is not capitalised. In addition the Group has one AOC in South Africa and is in investing significant resource into the application process for one in Nigeria. The South African AOC and the costs of application in respect of the Nigerian AOC have been capitalised as separately identifiable intangibles arising on acquisition.

The South African AOC which has been issued and is owned by Star-Gate is being amortised over 20 year to reflect the long term nature of the AOC. It has been amortised from the date of acquisition of Star-Gate being 2 March 2012.

Costs associated with the maintenance of the AOC, which are minimal, are recognised as an administrative expense as incurred.

Computer software

Computer software is recognised on the basis of the costs incurred to acquire and bring to use the specific software. Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that will generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Costs are amortised, once commissioned, over their estimated useful lives of four years on a straight line basis. Computer software is valued on an estimated replacement cost basis.

Costs associated with maintenance of computer software are recognised as an administrative expense as incurred.

Property, plant and equipment

Items of property, plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is charged so as to allocate the cost of assets less their residual values over their estimated useful lives, using the straight line method. The following annual rates are used for the depreciation of property, plant and equipment:

Plant, machinery & equipment Straight line over 3 - 8 years

Motor vehicles Straight line over 4 years

The Group makes estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that 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:

a) Revenue recognition

The Group incurs certain expenditure on behalf of owners that is recharged directly with no mark up. For such expenditure, management have determined that the Group is acting as an agent and as such it is set-off against the associated income and, therefore, neither income nor expense is shown in the Combined Statement of Comprehensive Income. Expenditure recharged in this manner is not recognised as revenue because the Group does not bear the ultimate risk of the transaction.

b) Bad debts

The Directors have assessed the recoverability of the Group's trade receivables at each period end based on the information available to them at the time. Consequently, judgements have been made in making a provision for doubtful debts. Accordingly, due to the size of trade receivables and related provisions, future results could be significantly impacted by subsequent events, such as the eventual recovery of previously impaired debts.

c) Useful lives of and property, plant and equipment, AOC's and software

Property, plant and equipment, AOCs and software are amortised or depreciated over their useful lives. Useful lives are based on the management's estimates of the period that the assets will generate revenue, which are periodically reviewed for continued appropriateness. Changes to estimates can result in significant variations in the carrying value and amounts charged to the combined statement of comprehensive income in specific periods. More details including carrying values are included in notes 12 and 13.

d) Deferred taxation

A deferred tax asset is recognised in relation to the tax losses carried forward when future taxable profits are anticipated. However, future trading may not allow for the utilisation of these losses and therefore the future tax charge may be increased.

e) Accruals

Flight costs vary according to where and when the flight takes place. As such, certain costs in relation to flights cannot be accurately determined in advance of those flights. Costs are accordingly accrued to a level which management considers appropriate, having taken into account the nature and destinations of these flights, based on the average flight costs over the period. The overall level of accruals in relation to these flights is considered globally, and has been assessed by management as adequate in relation to the revenues recognised at year end.

f) Impairment of intangible assets

The Group is required to test, on an annual basis, whether its intangibles have suffered any impairment. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the choice of a discount rate in order to calculate the present value of the cash flows. Actual outcomes may vary. More information including carrying values is included in the note 13.

g) Determination of fair values of intangible assets acquired in business combinations

The fair values of AOCs acquired in a business combination are based on the discounted estimated payments that would have been incurred to obtain the AOC. The fair value of other intangible assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the asset.

The group is exposed through its operations to the following financial risks:

·; Market risk

·; Foreign exchange risk

·; Credit risk

·; Liquidity risk

In common with all other businesses, the group is exposed to risks that arise from its use of financial instruments. This note describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial results.

A summary of the financial instruments held by category is provided below:

Fair values of material financial instruments

There are no material differences between the book and fair values of the Group's financial instruments.

Market risk

The Group has minimal exposure to interest rate risk as it has no borrowings. With regards to fuel price rises or other associated aviation costs then the Group is largely insulated as most of these variable costs are passed on to the aircraft owners.

The Group has little visibility over future bookings and as such has no commitments to fly at set rates that may move against the Group. It constantly checks the charter market to ensure its rates are set commercially and has no obligation to fly a charter beyond a modest amount of pre-booked blocks of hours.

Foreign exchange risk

The group is exposed to currency risk on purchases made from suppliers based around the world as well as through its investment in overseas subsidiaries. Purchases are made on a central basis and are offset where possible by sales invoices denominated in the same currency. During the year the rise in the level of minimum guaranteed hours contracts, which are denominated in Euros and US Dollars, has increased this exposure. The majority of overseas purchases are made using credit cards, and this effectively fixes the currency risk at the date of purchase. At the balance sheet date the Group had trade payables of £2,848k (2011: £2,136k) denominated in Euro and US Dollars.

Credit risk

Credit risk refers to the risk that a counter party will default on its contractual obligations resulting in a financial loss from defaults.

Charter Income

The Group has adopted a policy of receiving money in advance of undertaking the charter to mitigate the risk of default. Where a customer of the Group is unable to make the necessary payment in advance the Directors have the discretion to provide credit terms.

Management contract income

The Group manage the aircraft on behalf of its owners and charges a fee. The owners are entitled to a rental recharge for the use of the aircraft and inevitably the Group will owe more than it is due at the end of the accounting period. The risk of the customer therefore being in default is mitigated through the costs owed to the customer as well as through the deposits received from aircraft owners.

Further disclosures regarding trade and other receivables, which are neither past due nor impaired, are provided in note 17.

Liquidity risk

Ultimate responsibility for liquidity risk management rests with the board of Directors, which has established an appropriate liquidity risk management framework for the management of the Group's short, medium and long term funding and liquidity management requirements. The Group managed liquidity risk by maintaining adequate reserves, banking facilities and borrowing facilities.

The following table sets out the contractual maturities (representing undiscounted contractual cash-flows) of financial liabilities:

Capital disclosures

The capital structure of the Group consists of cash and cash equivalents, and equity attributable to equity holders of the parent, comprising issued capital, share premium and retained earnings as disclosed in note 22.

The Group is not exposed to any externally imposed capital requirements.

5 Other operating income

This amount represents the commission, net of legal fees, arising on the arrangement of the purchase and sale of an aircraft. The purchase and sale has been financed via back to back head and sub leases between a client upstream, Hangar8 and a client downstream. The nature of the leases are such that consideration is settled through a lump sum up front payment (including the commission payable to Hangar8), followed by a number of equal monthly instalments and a final option to purchase payment prior to ownership formally passing through to the sub-lessee. The final option to purchase fee is substantially below the anticipated market value of the plane at the time of payment. This results in the arrangements being classified as finance leases and as such the outstanding payments and receipts at the year end, which are identical, are disclosed on the statement of financial position as a finance lease receivable and finance lease payable. Due to the nature of the arrangement and the fact that the sub-lessee payments are made directly to the head lessor, the finance lease payments receivable and payable have been set off to show no net balance due/owed at the year end.

Further disclosure of the impact on the financial results of this arrangement is set out below:

Exceptional items represent non-recurring costs that are deemed by the Directors to be of a nature not typically incurred in carrying out the principal activities of the business.

The onerous contract charge in 2011 represents the close out of an aircraft management contract, the terms of which were substantially revised in September 2011. This contract expired in November 2011.

Legal costs were incurred in the prior period for the settlement of outstanding cases both for and against the Group which was an integral part of the reorganisation process.

IPO costs are that portion of float costs that relate to the listing of existing (as opposed to newly issued) shares. The balance of these costs (i.e. relating to the issue and listing of new shares), along with costs that related directly to the issue of new shares, were taken direct to Share Premium.

Restructuring costs in 2011 were incurred in reorganising the previously commonly controlled companies into a single group headed by the Company in anticipation of the flotation on AIM.

Restructuring costs in 2012 represent the cost, including redundancy, of re-aligning our crew roster and fleet with the new revenue stream of minimum guaranteed hours contracts and geographical spread of flying.

The Group started an employers' contribution pension scheme during the year.

Directors and key management personnel remuneration

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, including the Directors of the Company.

The average monthly number of employees (including Directors) during the year was made up as follows:

In accordance with IFRS 8, 'Operating Segments', the Group has derived the information for its operating segments using the information used by the Chief Operating Decision Maker. The Group has identified the Board of Directors of Hangar 8 plc ("the Board") as the Chief Operating Decision Makers as it is responsible for the allocation of resources to operating segments and assessing their performance. Operating segments are consistent with those used in internal management reporting and the profit measure used by the Board is the profit/(loss) before tax as set out below.

The Group considers operating segments as determined by reference to the markets in which they operate, which also follows the legal entity structure of the Group. Information in respect of the Group's three operating segments is as follows:

·; Charter - the chartering of aircraft to third parties;

·; Management - the insurance, operational support, crewing of aircraft and minimum guaranteed hours contracts; and

·; Engineering - the engineering, maintenance and airworthiness of aircraft.

No other form of segmental analysis has been presented, as no other form is used by management. Geographical analysis is not considered appropriate due to the fact that many flights are between geographical segments, and therefore geographical analysis is not a relevant measure of business performance.

The reasons for the difference between the actual tax charge for the year/period and the standard rate of corporation tax in the UK applied to the losses for the year/period are as follows: