Gama Aviation Regulatory News (GMAA)

Gama Aviation plc (AIM: GMAA)

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

Final results for the year ended 31 December 2015

Gama Aviation Plc, one of the world's largest business aviation service providers is pleased to report its maiden financial results for the 12 months ended 31 December 2015 following the completion of the reverse takeover of Hangar8 Plc on 5 January 2015.

Financial Highlights

1 - Calculated using the Hangar 8 figures for the twelve months ended 31 December 2014 and the Gama figures for the twelve months ended 31 December 2014.

2 - Including 100% of the results of Gama Aviation's Associate in the US and Joint Venture in Hong Kong.

3 - Adjusted EBITDA is arrived at by taking operating profit before depreciation, amortisation, and exceptional items.

4 - Adjusted Profit before tax is arrived at before exceptional items.

5 - Earnings used in the Adjusted EPS calculation are the profit attributable to ordinary shareholders adjusted for exceptional items and amortisation.

All results above are for continuing operations and calculated at a constant foreign exchange rate of $1.6 to £1.

The results below are the Gama Aviation Plc statutory numbers and therefore the revenue and gross profit figures exclude the results of Gama Aviation's associate in the US and the joint venture in Hong Kong and are not calculated on a constant currency basis.

Operational Highlights

· Merger integration complete and cost synergies delivered in line with expectations

· Optimisation initiative under way and progressing well

· Continued focus on driving efficiencies and margin improvements

· Strong revenue and margin growth in our US operations

· Sharjah hangar project launched following airport approval of our proposed development

· Strategic acquisition opportunities identified for execution in 2016

Marwan Khalek, Chief Executive Officer commented:

"I'm very pleased with our overall operational performance which not only underpins our financial performance but also our client service delivery performance. We will continue to fine tune and optimise our operational and business platform to support our sustainable growth strategy."

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

Notes:

The reverse takeover of Hangar8 Plc was completed on 5 January 2015. The results of the Group for the period ended 31 December 2015 therefore comprise the results of Hangar8 Plc for the period from 5 January 2015 to 31 December 2015 and those of Gama Aviation Holdings (Jersey) Limited from 1 January 2015 to 31 December 2015. Except where stated otherwise, the comparative figures for the Group are those of Gama Aviation Holdings (Jersey) Limited for the year ended 31 December 2014.

Chairman's statement

Throughout my career in aviation, the sector has always been dynamic, with the forces of competition, technology and economic change driving the need to excel. It is a responsibility of the Board to ensure that the company is fit to succeed in this challenging environment.

In 2015 we successfully integrated the Hangar 8 business following a complex reverse takeover whilst continuing to run the existing business. I congratulate our CEO Marwan Khalek and his team for achieving this. In the year, we continued to deliver our organic growth promises whilst also successfully establishing a business aviation joint venture with Hutchison Whampoa to capitalise on the growth opportunities we see in the Asian market.

As we build further scale, breadth and depth into our business, we will maintain our disciplined approach to optimising the growth opportunities we see for the company whilst keeping our focus on meeting the diverse needs of our client base.

With the Board I believe we have the Leadership and Management team to be able to achieve this.

Finally it would be remiss of me not to pay tribute to my fellow Board Directors for their continued insight, engagement and contribution to the business.

The Board is pleased to propose a final dividend of 2.5p per share, subject to shareholder approval at the Annual General Meeting and proposes the approval of a capital reduction as explained in more detail in the financial review.

Sir Ralph Robins

Chairman

CEO statement

Throughout our thirty two year history we have had many a defining year, none more so than 2015; a transformational year that has seen Gama Aviation make the transition from private to public ownership. It was a year in which we continued to deliver on our growth strategy, setting ourselves some strong growth targets and delivering against them.

I am very pleased to see growth delivered across all regions in a sustainable way, building on our well-established, resilient and balanced business model, thirty two years in the making. Our US business continues to mature whilst enjoying rapid expansion in both the Air and Ground operations. In our mature European business, the reverse takeover of Hangar 8 has allowed us to deliver some growth in our ground operations whilst the backdrop in our European air operations remains very challenging in a slow and flat market. Our Middle East business is making steady progress and our joint venture with Hutchison Whampoa provided the catalyst for the launch of our Asia Pacific operations.

We also delivered on our challenging targets, successfully integrating the Hangar 8 business within 6 months and achieving the anticipated cost synergies in the process. For this to have been done in parallel with delivering our growth and profit targets is particularly pleasing and is a testament to the strength of our senior management team, and I'm grateful to them for their efforts.

Optimisation Initiative

With the integration of Hangar 8 complete, the focus has shifted to fine tuning and optimising our operational platform so as to drive efficiencies and enhance margins as we continue to scale up and grow our business.

We are also continuing to simplify and optimise our organisational structure so as to ensure that our leadership team continues to have the skills, expertise and bandwidth necessary to drive our growth ambitions in 2016 allowing us to deliver our strategy and vision.

Growth Strategy

As part of our well established growth strategy we will continue to pursue both organic and acquisitive growth opportunities.

Organic growth will result from our investment in increased capability and service offering and from rolling this out over a larger geographical footprint in a way that is both profitable and sustainable in the long term.

We have long positioned ourselves as a consolidator in a highly fragmented industry where consolidation is inevitable as evidenced by the increasing levels of M&A activity. With the financial platform we now have to complement our strong operational and business platform, sustainable growth will result from us not only continuing to expand organically but also continuing to make sensible strategic acquisitions that are both value accretive and earnings enhancing.

In 2015, the acquisitive growth was achieved through the reverse takeover of Hangar 8 which saw Gama Aviation's revenues grow by some 20%. The combined business then enjoyed a further 15% of organic growth. Whilst the focus on organic growth will continue into 2016, we expect to see more acquisition opportunity and activity across all regions. These may range from small 'bolt on' acquisitions to larger and more transformational ones. To this end, post year end we were delighted to announce and complete the acquisition of Aviation Beauport which provided us with a strong presence in the Channel Islands. This acquisition not only complemented our existing geographical footprint but also provided us with significant access to the high net worth local residents and aircraft owning business domiciled in Jersey both in respect of aircraft management and charter activities.

CEO statement (continued)

Outlook

In 2016 we will inevitably see differing challenges and opportunities for our business across the wide geographical footprint that we operate in.

In the US, the outlook is positive with both our Air and Ground operations trading and growing strongly. Our US Air operation continues to gain organic market share through new aircraft additions both in the core management fleet as well as through the Wheels Up contract. Our US Ground business is also set to expand the number of line maintenance locations that we operate from.

However, in Europe the outlook is very different. We expect the gradual softening of the market which has been evident over the past twelve months to continue well into 2016. With a cautious economic outlook and the various political uncertainties, the trading environment remains challenging and consequently organic growth within our European operations will be at a premium, particularly in our Air operations. This may however be compensated by attractive acquisition opportunities and we will continue to actively pursue these. In the meantime, we are focused on yielding cost efficiencies and margin improvement from our existing business.

Our Middle East operations continue to make steady but slow progress. The recent approval by Sharjah airport of our proposed development of a dedicated Business Aviation facility will, in time, deliver the additional scale that is currently lacking in this area.

In the Asia Pacific region, our operation is very much a start-up that continues to develop and perform in line with management expectations.

Overall we believe that 2016 will be a year with both significant opportunities for Gama Aviation but also one which presents certain challenges. We will seek to maximise the opportunities that our developing and growing markets present whilst being acutely aware of the challenges we face in Europe.

Marwan Khalek

Chief Executive Officer

Chief Financial Officer's review

Financial review

Total revenue for the year was $413m (2014: $359m on a pro-forma basis) an increase of 15%, yielding a gross profit of $62m (2014: $49m on a pro-forma basis) at a gross profit margin up 11% to 15% (2014: 14%).

Adjusted EBITDA for 2015 was up over 100% to $20.9m (2014: $9.8m on a pro-forma and constant currency basis).

The revenue and gross profit figures above include 100% of the results of our associate company and our joint venture which are, in accordance with accounting convention, removed for statutory purposes. We have chosen to set out the full, consolidated revenues and gross profit of the Group as the Board believes this gives a more informed view of the underlying global Gama Aviation business. The basis of the EBITDA described above is the EBITDA derived from statutory profit, adjusted for constant currency.

Constant Currency

Gama Aviation's reported results are impacted by converting transactions from their natural currency to the Group's reporting currency of US Dollars. The Group's performance is impacted to the greatest extent by the fluctuation of the Pound Sterling and the US Dollar exchange rate.

In order to provide all stakeholders of the business with consistency the Board has included commentary both on its statutory results for the 12 months ended 31 December 2015 together with that derived from applying a constant currency, the latter of which allows the Board to illustrate the underlying performance on a consistent basis outside of exchange rate volatility. A constant currency exchange rate of $1.6 to £1 has been used which reflects the rate of exchange used in the documentation at the time of the admission to AIM.

Statutory

On a statutory basis, the revenue is down 17% to $236m (2014: $286m) due to a restructuring of the US region and a transfer of that revenue into the associate. However, the conversion to gross profit on this revenue in 2015 has significantly improved to $51.6m (2014: $46.4m), an increase of 11%.

Adjusted EBITDA generated was up over 100% to $20.4m (2014: $5.9m).

Adjusted PBT increased significantly to $14m, (2014: $3.2m) leading to a substantially improved adjusted EPS which was up over 100% to $39.19c (2014: $5.72c). Reported Profit before tax from continuing operations was $6.9m (2014: $27.1m loss).

Exceptional costs

Adjusted EBITDA is stated before exceptional costs of $7.1m, details of which are included within note 4. Of the total of $7.1m exceptional costs, half, $3.5m are transaction costs that were incurred in the first week of the 2015 financial period on the successful transaction with Hangar 8, with the remainder being the one-off costs associated with the integration of Hangar 8 and business re-organisation costs.

Discontinued operations

The operating losses incurred on the Group's owned aircraft that are deployed on ad-hoc charter are also separated from the underlying EBITDA as this is a legacy element of the business model that the Group has classified as discontinued. The discontinued operations loss for the year was $1.1m.

During the course of 2015 the Group exited 3 of the 5 owned aircraft that were reclassified as held for sale with a $nil profit/(loss) on sale (2014: $nil). The two remaining aircraft are actively being marketed for sale and have a carrying value in the Balance sheet of $3.1m, details of which can be found in note 4.

Overheads and synergies

The Group continues to focus on its cost base and on a consolidated pro-forma basis, the underlying overheads, once the exceptional costs, depreciation and amortisation have been stripped out have decreased by 1% to $39m (2014: $40m). Against this, gross profit on a consolidated basis pro forma basis has risen 38%.

The Group has realised the anticipated synergies from the acquisition of Hangar 8 that were expected to flow through in the second half of 2015.

Chief Financial Officer's review (continued)

Financial review (continued)

Cash

The cash position at the year-end is up 70% at $8.5m (2014: $5m). As disclosed in the half year numbers, the Directors have undertaken a review of the legacy Hangar 8 trade receivables on acquisition and made appropriate provisions according to our assessment of their recoverability and fair value. Based on a review of their payment history a provision for doubtful debts was made for $6.1m taken as fair value adjustments. No further impairments have been made in respect of trade receivables in the second half of the year. This impairment has had an impact on the Group's cash balance.

The Group had anticipated the sale of the two remaining assets held for sale in the second half of 2015 which should realise net $3m. We are expecting these sales to take place in the coming months.

Dividend

The Group retains its desire to maintain a progressive dividend policy and is in the process of a capital reduction exercise in conjunction with its advisers so as to enable the Group to be in a position to pay a dividend. The payment of dividends in the future will be determined by the Group's performance, the net cash balance, and investment plans for the development of the Group.

Shareholder approval will be sought at the next AGM on June 2, 2016. Subject to gaining the necessary approval from the shareholders and the Court, the directors recommend paying a dividend of 2.5p per share (For the year ending 30 June 2014, Hangar8 Plc paid a dividend of 2.3p per share on 19 January 2015).

Kevin Godley

Chief Financial Officer

Regional performance

All of the regional performance information is shown on a constant currency basis and the numbers in brackets are reflective of their respective gross profit and EBITDA margins.

United States (US)

Significant organic growth based on a proven, scalable platform.

Total United States performance

Air

US Air enjoyed remarkable growth with the continued success of the core management business and the Wheels Up program and underlying market optimism for business aviation. Importantly this growth has been delivered whilst maintaining service delivery that our US customers have come to expect from the brand. New fleet additions on high-volume charter routes further enhanced the Division's performance and contributed to an overall year-on-year margin improvement.

Services

· Aircraft management

· Charter

Ground

The Ground business continued to exploit a niche through its mobile team operating from seven fixed bases. In total the team flew and drove 1.5 million miles, fixing existing client and third party aircraft. Backed by two five-year contracts for providing this service, it is a stable platform for further growth that fulfils a gap in the market left by the Original Equipment Manufacturers (OEM).

Services

· Maintenance services

· FBO operations

1the US ground business generated revenue of $20.7m in the full year 2015. $9.9m of this revenue is removed on consolidation as this relates to intercompany trading between the US Air and Ground operations.

Regional performance (continued)

Europe & Africa

A positive overall performance despite challenges in the Air Division.

Total Europe and Africa performance

Air

EU Air was the one most affected by the integration of the Hangar 8 business which created a demanding operating environment although this division was also the beneficiary of the integration synergies in the latter part of the year. A robust review was carried out in late 2015 to reduce the number of underperforming inherited contracts and also to optimise the departmental structure within Europe Air. The market remains challenging.

Services

· Aircraft management

· Charter

· Special mission

· Logistics

Ground

EU Ground performed strongly, with little impact from the integration, having consolidated the UK engineering businesses the year before. Additional capabilities created from the acquisition utilising the Oxford maintenance base enhanced the services offered and our ability to increase earnings from contracts held elsewhere in the business.

Services

· IT & Airops software

· Design and modification

· Maintenance services

· FBO operations

Regional performance (continued)

MENA

Well placed to scale up and drive towards profitable growth.

Total MENA performance

Air

MENA Air remains in the scaling phase and has yet to reach maturity. However the indications are positive with a healthy pipeline developed for 2016. Charter traffic remains cyclical and there is a need to encourage more aircraft on to the AOC. There are also opportunities for special mission services (particularly aero-medical) given the socio-economics and geopolitics of the region.

Services

· Aircraft management

· Charter

Ground

Although in the start-up phase, the Ground division provided signs of potential growth. An upgrade of the hangar facilities will provide the capability to capitalise fully on the opportunity.

Services

· Maintenance services

· FBO operations

Regional performance (continued)

ASIA Pacific & China

A great start enhancing our brand; attracting prospective clients

Total ASIA Pacific & China performance

Air

A strong start from the Air Division as three aircraft were bought into the managed fleet within six months. This success required a focus on the operational side of the business; however a strong pipeline remains.

Services

· Aircraft management

· Charter

Ground

The Ground division is still at the exploratory stage with various opportunities under consideration. The Group expects the division to be revenue generative towards the end of 2016.

Consolidated income statement for the year ended 31 December 2015

Consolidated statement of comprehensive income as at 31 December 2015

Consolidated balance sheet as at 31 December 2015

The financial statements were approved and authorised for issue on 20 April 2016 on behalf of the Board of Directors by:

K Godley

Director

Consolidated cash flow statement for the year ended 31 December 2015

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

1. General information

Gama Aviation Plc (previously Hangar8 Plc) is incorporated in the United Kingdom. The address of the registered office is the Business Aviation Centre, Farnborough Airport, 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. On 5 January 2015 the Company became the legal parent company of Gama Aviation Holdings (Jersey) Limited in a share for share transaction. The substance of the combination was that Hangar8 Plc acquired Gama Aviation Holdings (Jersey) Limited in a reverse takeover. Gama Aviation Holdings (Jersey) Limited was the accounting acquirer. As a consequence of applying reverse takeover accounting, the accounts have been presented in the name of Hangar8 Plc as the legal acquirer, but prepared as if they are continuation of the financial statements of the Gama Aviation Holdings (Jersey) Limited (the accounting acquirer). This means the results of the Group for the period ended 31 December 2015 comprise the results of Hangar8 Plc for the period from 5 January 2015 to 31 December 2015 and those of Gama Aviation Holdings (Jersey) Limited from 1 January 2015 to 31 December 2015. The comparative figures for the Group are those of Gama Aviation Holdings (Jersey) Limited for the year ended 31 December 2014. Subsequent to the transaction, Hangar8 Plc changed its name to Gama Aviation Plc.

2. Significant accounting policies

Non statutory financial statements

The financial information set out in this preliminary results announcement does not constitute the Group's statutory financial statements for the year ended 31 December 2015 or 2014 but is derived from those financial statements. Statutory financial statements for 2014 have been delivered to the Registrar of Companies. Those for 2015 will be delivered following the Company's Annual General Meeting, which will be convened on 2 June 2016. The auditors have reported on those accounts: their reports on those financial statements were unqualified and did not contain statements under Section 498 of the Companies Act 2006.

The financial statements, and this preliminary statement, of the Group for the year ended 31 December 2015 were authorised for issue by the board of Directors on 20 April 2016 and the balance sheet was signed on behalf of the Board by Kevin Godley, Director.

Basis of accounting

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the E.U.

The financial statements have been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for the assets acquired. The principal accounting policies adopted are set out below.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved when the Group is exposed, or has rights to, variable returns from its involvement in the entity and has the ability to affect those returns through its power over the entity.

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.

2. Significant accounting policies (continued)

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 Business Review 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 2016 and beyond. The key assumptions in this forecast include the profitable growth of the trading businesses and the knowledge that the group has benefitted from a significant reduction in risk after settling its corporate debt with M&G at the beginning of 2015.

The directors are therefore of the opinion that in all reasonably foreseeable circumstances the company will remain a going concern for at least twelve months from the date on which these financial statements have been approved. Accordingly, the going concern basis has been adopted in the preparation of these financial statements.

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.

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.

Business combinations

On 5 January 2015 Hangar8 Plc (now Gama Aviation Plc) became the legal parent of Gama Aviation Holdings (Jersey) Limited via a share-for-share exchange transaction. To acquire 100% of Gama Aviation Holdings (Jersey) Limited 's issued share capital, Hangar8 Plc (now Gama Aviation Plc) issued 27,341,960 shares in exchange for each ordinary shares of Gama Aviation Holdings (Jersey) Limited. The newly combined entity is now owned by shareholders of Gama Aviation Holdings (Jersey) Limited and Hangar8 Plc (now Gama Aviation Plc), with each ordinary share holding equal share of the profits and returns from the newly combined entity. However, due to the relative values of the companies, the shareholders of Gama Aviation Holdings (Jersey) Limited became the majority shareholder with 60% of the combined share capital following the share for share transaction. The allocation of the key roles and the Board composition has been driven by Gama Aviation Holdings (Jersey) Limited and the majority of the company's continuing operations and executive management are those of Gama Aviation Holdings (Jersey) Limited. It was therefore concluded that Gama Aviation Holdings (Jersey) Limited obtained control of Gama Aviation Plc. Accordingly, the transaction has been accounted for in accordance with IFRS 3 as a reverse takeover. The consolidated financial statements present the substance of the transaction with Hangar8 Plc as the legal parent but Gama Aviation Holdings (Jersey) Limited as the accounting acquirer. The comparative results to 31 December 2014 represent the consolidated position of Gama Aviation Holdings (Jersey) Limited prior to the reverse takeover.

2. Significant accounting policies (continued)

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 associate 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.

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.

2. Significant accounting policies (continued)

Revenue recognition

The Group measures revenue as the fair value of consideration received or receivable and represents amounts received for goods and services provided in the normal course of business, net of discounts, estimated customer returns, VAT and other sales-related taxes.

Revenue is recognised when the amount can be reliably estimated, collection is probable, the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control of the goods sold, and the inherent risks and rewards of ownership of the goods have been transferred to the other party.

Where contracts include provisions for adjustments, including yearly increases based on external benchmarks, these are not taken into consideration until they are known.

Rendering of services

Revenue from services is primarily derived from the management or provision of aircraft which includes the revenues generated by special mission support, logistics support and charter. These services are referred to within the group as "Air". Revenue includes fixed contract fees and variable fees such as revenue earned with reference to flying hours. Revenue also includes the recharges for costs incurred relating to the management or provision of the aircraft. We record revenue relating to services rendered using an accrual method and in accordance with the terms of the contracts pursuant to which such services are rendered. Revenue from aircraft services is recognised based on contractual rates as the related services are performed.

"Ground" Revenues are materially associated with engineering activity which represents amounts derived from the provision of services to customers during the year, including aircraft maintenance and overhauls. The amount of profit attributable to the stage of completion of an engine and maintenance overhaul contract is recognised when the outcome of the contract can be foreseen with reasonable certainty. Revenue for such contracts is stated at the cost appropriate to the stage of completion plus attributable profits, less amounts recognised in previous years. The stage of completion is measured by reference to costs (mainly hours and materials) incurred to date as a percentage of total estimated costs for each contract. Provision is made for any losses as soon as they are foreseen. Other services within "ground" include design and modification work with revenue recognised on the same basis as that of the engineering and FBO operations and software. Revenues for FBO operations and software are recognised at the point of service delivery.

Sale of goods

Revenues associated with the sale of goods represent amounts derived from sales activity whereby the Group procures aircraft, parts or components on behalf of customers for their use. Revenue is recognised when all the following conditions are satisfied:

· the Group has transferred to the buyer the significant risks and rewards of ownership of the goods;

· the amount of revenue can be measured reliably;

· it is probable that the economic benefits associated with the transaction will flow to the entity;

· the costs incurred or to be in incurred in respect of the transaction can be measured reliably; and

· the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold.

Interest revenue

Interest income is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount on initial recognition.

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability.

Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis.

2. Significant accounting policies (continued)

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 functional currency of the Company, and 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.

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.

Operating profit/(loss)

Operating profit/(loss) is stated after the share of results of associates but before investment income and finance costs.

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.

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. Included in intangible assets are internally generated assets relating to the costs incurred to commence operations in the United Arab Emirates in the process of gaining an AOC (Air Operators Certificate). The certificate has an indefinite life and without the certificate the operation cannot perform legally and as such amortisation is not 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 workforce, and computer software.

· Part 145 Approvals - These relate to the recognised regulatory approvals required by a business to perform maintenance in the EU Ground business.

· Brand - The acquired brands of Hangar 8 and International JetClub.

· Customer relations - the acquired existing customer relationships of Hangar 8 and International JetClub.

· Software - the acquired software of Hangar 8

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

Part 145 approvals indefinite useful life, no amortisation charged, annual impairment review

Licences 10% per annum, straight line method

Brand amortised over 18 months, straight line method

Customer relations 10% per annum, straight line method

Software 33% per annum, straight line method

2. Significant accounting policies (continued)

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.

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:

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

b) 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.

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:

Leasehold property Life of lease

Aircraft hull and refurbishments Remaining life of the aircraft, various rates between 5% and 20% per annum

Furniture, fixtures and equipment 20% per annum

Motor vehicles 20% per annum

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.

2. Significant accounting policies (continued)

Impairment of tangible and intangible assets excluding goodwill

At each balance sheet date the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment at least annually and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.

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

Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group's past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the financial asset's original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.

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. 

2. Significant accounting policies (continued)

Financial instruments (continued)

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.

Provisions

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.

3. Segment information

For management purposes, the Group is organised into business units, based on line of business and geographical location.

Statutory

An analysis of the Group's revenue, gross profit and adjusted EBITDA for the year ended 31 December 2015 is as follows:

3. Segment information (continued)

Statutory

An analysis of the Group's revenue, gross profit and adjusted EBITDA for the year ended 31 December 2014 is as follows:

3. Segment information (continued)

Pro-forma basis

An analysis of the Group's revenue, gross profit and adjusted EBITDA including the results of Gama Aviation Plc's associate in the US and joint venture in Hong Kong for the year ended 31 December 2015 is as follows:

An analysis of the Group's revenue, gross profit and adjusted EBITDA including the results of Gama Aviation Plc's associate in the US and joint venture in Hong Kong for the year ended 31 December 2014 is as follows:

3. Segment information (continued)

An analysis of the Group's assets and liabilities by segment is as follows:

An analysis of the Group's revenue is as follows:

Geographic information

Non-current assets for this purpose consist of property, plant and equipment.

4. Exceptional items and discontinued operations

Operating profit/ (loss) is stated after exceptional items and discontinued operations.

Discontinued operations relate to the losses generated by the owned aircraft within the group that are held for sale as part of the group strategy to exit the business model of owned aircraft that are deployed solely for the purposes of ad-hoc charter. Three aircraft that were held for sale at 31 December 2014 were sold at no gain/ (loss) during the course of 2015. There are only two aircraft within the group that are now classified as held for sale. The results of these discontinued operations are presented below: