Gama Aviation Regulatory News (GMAA)

22 November 2013

Hangar 8 plc

("Hangar 8", "the Company" or "the Group")

Final results for the year ended 30 June 2013

Hangar 8, one of Europe's largest operators of privately owned passenger jet aircraft, today announces its financial results for the year ended 30 June 2013. All of the comparative information shown below for 2012 represents the audited results for the year ended 30 June 2012.

Financial highlights:

· Revenues up 39% to £23.6m (2012: £17.0m)

· Gross profit up 69% to £8.3m (2012: £4.9m)

· Gross margin percentage up 21% to 35% (2012: 29%)

· Adjusted EBITDA up 169% to £2.02m (2012: £0.75m)*

· Operating profit up 140% to £1.2m (2012: £0.5m)

· Cash balances ended the year at £3.83m (2012: £0.79m)

· Earnings used in Adjusted EPS up 217% to £1.55m (2012: £0.5m) (see note 11)**

· Adjusted basic EPS up 148% to 19.1p (2012: 7.7p) (see note 11)

· Basic and diluted EPS of 9.7p and 9.5p (2012: 4.9p and 4.8p) (see note 11)

Operational highlights:

· Contracted revenue up by 78% to £19.3m (2012: £10.8m)

· Contracted revenue now 82% of total (2012: 64%)

· Successful acquisition of International Jet Club Limited on 1 December 2012 (see note 25)

· Number of heavy jets under management up by 11 to 24 (2012: 13) of which 12 are deemed super heavy i.e. greater than 20 tonnes

Post Balance Sheet date highlights

· Aero-Medical is a new venture for the Group and is based in Africa, providing sophisticated medical air lift services in fully equipped aircraft with trained paramedics.

· Acquisition of 100% of Oasis Flight Malta Limited, a Maltese aviation company and holder of an Air Operators Certificate.

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

** Earnings used in the adjusted EPS calculation is the profit after taxation adjusted for exceptional items and amortisation

Dustin Dryden, Hangar 8 Chief Executive said:

"This has been another powerful year of growth for Hangar 8. The team can be proud of the quantum growth rates they have achieved across all our major indices, as we continue to position the company as a global player of substance in a very fragmented marketplace. Our decision to focus growth both inside of and particularly outside of Europe continues to benefit us against our immediate competitors who have been affected by the weak economies at home in the UK and across Europe during the reported period. This strategy has both strengthened and protected the quality and longevity of our earnings, as we continue to focus on annual contracts rather than ad hoc spot-market revenues. With 82% of our revenues now under contract and organic growth still in good shape, we are encouraged by the opportunities open to us as we continue to renew existing, and win new business in all our major markets.

Current trading in the first quarter of the new financial year has enjoyed a strong start, and is in line with our expectations with further new aircraft in the process of being introduced.

Most importantly, I am particularly grateful to my global aviation team for all the hard work expended again this year as we continue to raise the bar in our sector."

Enquiries

Hangar 8 plc +44 (0) 1865 372215

Dustin Dryden, Chief Executive Officer

Kevin Callan, Chief Financial Officer

Citigate Dewe Rogerson + 44 (0) 20 7638 9571

Chris Jarvis, Associate Director +44 (0) 7720 084307

chris.jarvis@citigatedr.co.uk

Jonathan Smith, Director +44 (0)7595 106 280

jonathan.smith@citigatedr.co.uk

Cantor Fitzgerald Europe +44 (0) 20 7894 7000

Mark Percy / Catherine Leftley (Corporate Finance)

David Banks / Paul Jewell (Corporate Broking)

Chairman's statement

Introduction

2013 has been another strong year for the Group. Faced with an improving, but still challenging economic environment, the Board adopted a controlled growth strategy which focused both on diversifying the services we offer whilst at the same time expanding the geographical reach we offer those services into. As we strive to become the leading supplier of private aviation services to the European, Middle East and African regions, Hangar 8 now offers more services to our clients than ever before, with established businesses in the aircraft management, charter, long-term contract, aero-medical, engineering and training sectors of the industry. Hangar 8 now has an established presence and Air Operator Certificates in the UK, Malta and Africa.

Organic growth has been consistent and strong throughout the year. Whilst organic growth will always be a focus area, the Board recognises that strategic growth by acquisition can also be appropriate where a suitable opportunity arises. To this end, in December 2012 we completed the acquisition of International Jet Club Limited ("IJC" or "IJC Group"). This acquisition effected a step change in the scale of Hangar 8's business, adding nine long-range, heavy jets to the fleet, strengthening the management team and ultimately enhancing our already strong aircraft management and charter operations. We have been delighted by the quality of the IJC business and the acquisition has been a great success. We have now completed the integration of the two businesses and we are reaping the benefits of being part of a stronger plc for the benefit of all our stakeholders.

As part of the controlled expansion of our service portfolio, we sought and obtained a Part 145 Certification in September 2011 which allowed us to provide in-house engineering and maintenance services to aircraft from our base in Oxford. Subsequent to our accreditation, we have invested heavily in our engineering capabilities: we have increased our team size from 10 to 22 and we have put our engineers through a rigorous training programme in order to ensure that they have the necessary skills and expertise to maintain every aircraft within our fleet plus a range of other aircraft types. As we look to the future, we anticipate that this area of the business will grow significantly as we take advantage of our own economies of scale as well as introducing an external commercial service.

The economic difficulties we have faced during the year have put pressure on margins within the spot private charter market. Whilst trading conditions in this sector have improved over recent months, the Board has successfully avoided any significant financial exposure to this downturn by re-aligning the business away from the short-term spot market and towards the longer-term fixed contract market with industries such as oil, mineral and gas. This change has proven to be highly successful with only 9% of the Group's gross margin now derived from short term spot charter revenues and 32% from longer-term contracts.  Our continued and developing success in the long term contract market standsthe business in very good steadgoing forward.

On 20 September 2013 Hangar 8 acquired 100% ownership of Oasis Flight Malta Limited for a nominal consideration. This acquisition enhances our foothold across Europe and provides the basis to further expand our operations for the future.

Strengthening the Board

The Board continues to place a great deal of emphasis on the strength of its executive and non-executive management.

In November 2012, David Cowham, non-executive director stood down from the Board and Michael Peagram was appointed. Following the completion of the IJC acquisition, Murray Law joined the Board as non-executive Vice-Chairman on 13 December 2012. In March 2013 the Board appointed Kevin Callan as Finance Director, replacing Philip Brady, who stepped down after indicating that he wished to pursue new challenges. In July 2013 we strengthened the Board further still when Greg Martin joined Hangar 8 as its Chief Operating Officer, bringing with him a wealth of industry knowledge and expertise.

The Board is now considerably stronger than it has been before, and we believe that we now have the right balance of executive and non-executive members to provide Hangar 8 with the best possible management and direction for the future.

Outlook

This has been a year focused predominantly on implementing changeand developing our business model to accommodate the organic and acquisition growth we have achieved. Hangar 8 has developed well and we now have a solid platform from which to build our services still further. The Board looks forward to the future with confidence.

Nigel Payne

Chairman

22 November 2013

Chief Executive's statement

I'm delighted to announce a strong set of results for the year to June 2013, a year that has seen our business successfully evolve and adapt to both industry and economic changes. Notwithstanding some challenging market conditions, we have and we continue to grow the business profitably, whilst successfully realigning and refocusing the business to become more self-sufficient and inevitably to increase shareholder value.

Financial review

Total revenue for the year was £23.6m (2012: £17.0m), an increase of 39%, yielding a gross profit of £8.3m (2012: £4.9m), an increase of 69%. Adjusted EBITDA generated was up an impressive 169% to £2.02m (2012: £0.75m), which was before exceptional costs of £295k (2012: £100k), details of which are included in note 7, and also before depreciation and amortisation of £567k (2012: £127k). Depreciation and amortisation in 2013 includes £329k amortisation on the newly acquired intangibles of IJC. These results generated an improved operating profit up £0.7m to £1.2m (2012: £0.5m).

Overhead costs of £6.5m (2012: £4.5m) reflect the inclusion of IJC for a seven month period as well as the investment in a strengthened management team.

Cash increased to £3.8m (2012: £0.8m) and the net assets of the Group amounted to £6.5m (2012: £0.6m).

Earnings used in the calculation of EPS, have increased 151% to £782k (2012: £311k). EPS was 9.7p (2012: 4.9p), an increase of 98% on the prior year.

The recently established services, including Aero-Medical, Engineering and Training have provided us with sustainable and profitable additional revenue streams. These, together with our focus on long-term contracts as opposed to the spot charter market transactions we have relied upon in the past, have combined to increase not only the absolute level of profit but also the quality of our earnings and the forward visibility of revenues. Contracted revenue now represents 82% of total (2012: 64%). We now have a very well defined and robust portfolio of services.

Review of operations

Since its very early days, the Group has tended to show its strength in the private charter market, offering a bespoke service to the high-net worth clientele. As national economies have weakened, so we have been quick to realise that private charters alone would not be able to sustain our profit and growth aspirations. Therefore our efforts were turned to broadening and diversifying our service offerings, ensuring that we spread our earnings across a series of different, yet complementary services all within the private aviation industry.

We now derive our revenues from six core services being Aircraft Management; spot-Charter; long-term Contracts; Engineering; Training and Aero-Medical. Presently the Group's revenue streams are accounted for within four business segments. As a consequence, however, of the ongoing expansion of the Group's Aero-Medical and Training services, these latter two services will henceforth be reported as individual segments. With established businesses and profitable revenue streams in each of these six sectors of the private aviation industry, Hangar 8 is well placed to offer its clients a full turn-key service whilst at the same time generating strong returns for its shareholders.

Internalised engineering

In 2012 we were awarded a Part 145 Certificate enabling us to provide engineering and maintenance services to our fleet of aircraft. Over the course of the year we have invested heavily in this service, recognising it as a future source of strong income and an excellent marketing tool for our business. We have invested heavily in training our engineers to enable them to work on multiple types of aircraft allowing one employee to support the majority of our fleet types at any one location. We now have highly qualified engineers based at the major London airports as well as in Nigeria and in the Congo, allowing us to respond immediately at reduced cost.

Bringing this service in-house has increased overall revenue, reduced costs and increased our flexibility. In the 12 months to June 2013, we generated revenues of £3.2m (2012: £0.9m) from our in-house engineering service. I am delighted to see this continuing to grow; engineering is a particularly interesting and exciting service for the company to offer, given its current success based purely on internally owned and managed aircraft. I am keen to see how this business can expand further as we look to commercialise our offering, providing services to external operations across the industry. We are one of the few facilities in the world that offer maintenance support to European and African registered aircraft in Africa.

Training

Training and Safety have always been our highest priorities for Hangar 8, especially as clients in the Oil and Gas business are continually pushing the frontier of safety management systems. Recent changes in European Aviation have increased the number of required recurrent simulator training events for flight crew and we have been able to incorporate this additional activity in-house. Our growth has allowed us to significantly increase our buying power for external training events which in turn has seen a reduction in costs to our clients and an increase in margin to our third party customers. We also have a Part 121 approval to provide ground-based training; this has improved the flexibility and availability of crew members allowing less down time and a training program tailor-made for our clients' aircraft operations. Our expertise in training is yielding excellent rewards for the business and its customers and accordingly we see this as a strong business opportunity, both financially and structurally.

Manage bigger, manage better

The management of aircraft for private owners has been the foundation service for the company since it began. As the business has grown, however, and we have met ever more complex demands from our clients, it became clear to us that our focus needed to move away from smaller aircraft and towards long-range, heavy aircraft. Along with solid organic growth in this area, the acquisition of IJC further enhanced our capabilities in the super heavy aircraft market. Whilst we have not forgotten our owners of smaller aircraft, we recognise that long-range jets provide greater margins and opportunities for the business; the current focus and immediate strategy will be predominantly focussed on sustaining a heavier fleet.

Consolidate for future growth

On 1 December 2012 we announced the acquisition of IJC for a total consideration of £5.011m which comprised £1.025m of equity, £1.100m of cash, and £2.886m of further consideration which was settled in full before the year end. This move saw a step change in the Hangar 8 business as the scale of the business grew with the addition of nine long-range, heavy aircraft and a highly desirable clientele. This strategic move enabled us to target a previously unapproachable clientele, and spread our geographical reach much further.

The opportunities for consolidation in our industry have always been high on our agenda. Whilst our organic growth has been strong and remains so, strategic growth by acquisition is a key part of our strategy and continues to provide a fast and effective means of enhancing our business model, stabilising our position in the market and internalising as much of our supply chain as possible. It is worth highlighting that the strength of our African operation is predominantly a result of acquisitions and joint ventures carried out in previous years. Acquisition is not, however, the only means for growth in our business, and we have been very proactive in generating organic growth across all areas of our business. This can be seen clearly through the internalisation of our engineering service, as already mentioned.

Long-term Contracts

It is our focus on securing long-term contracts, as opposed to spot charter transactions that has seen the largest organic growth for Hangar 8 this year. Spot charter now represents just 18% of total revenue, whereas longer-term contracts provide a more impressive 42% of total revenue, and this figure is set to increase still further. Contracts provide us with greater forward visibility of our revenue, enabling us to plan better for the future. The nature of each contract is bespoke to each client, but the similar types of aircraft and operating logistics enables us to benefit from economies of scale as more contracts are secured. Multiple contracts in any one region further allow us to leverage the infrastructure we already have, making us increasingly competitive when tendering.

The growth in developing economies, funded by the developed world, has increased the need for businesses to use efficient travel to access international clients and bases. The use of a private aircraft under a long-term contract with Hangar 8 to transport senior directors, specialist staff or essential machine parts into regions where there is no other viable means of travel is invaluable and we now have the capability of long range aircraft to assist. Our in-depth support of the oil, gas and minerals sectors has gone from strength to strength, aided by our impeccable European standards and safety. Securing long-term contracts is a complicated business and requires a team of experts, not just in financial transactions but in the full understanding of aviation requirements and capabilities to ensure each of our clients receives the best service on offer. This is why, whilst the financial benefits of each part of our business is of primary focus, we have been quick to invest in our people and our infrastructure to ensure we have the best possible systems and expertise ready to enable the smooth operation of these bespoke services.

Outlook - building on our foundations

In the year to June 2013 we have seen our business grow, mature and exceed our expectations. Our size, competency and geographical spread combine to now make Hangar 8 a significant player in a valuable and growing market place. Our expertise, infrastructure and experience make us an extremely difficult company to compete against in an economy that has plagued many of our competitors with bad luck and adversity.

Our size and structure means that we are now rarely reliant on third parties for supply allowing us to provide a speed and flexibility of response that smaller companies cannot match.

The Hangar 8 business goes from strength to strength and I believe this will continue for the coming financial year. Our results during the first three months of the new financial year are encouraging and reinforce the quality of our strategy and business. I look forward to the coming year with confidence as we build upon the now cemented foundations, review further opportunities and continue to position Hangar 8 as a leader in private aviation services.

On behalf of the board

Dustin Dryden

Chief Executive Officer

22 November 2013

Consolidated statement of cash flows for the year ended 30 June 2013

Consolidated statement of changes in equity for the year ended 30 June 2013

Notes forming part of the financial results for the year ended 30 June 2013

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 2013 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 2012 have been delivered to the Registrar of Companies and those for 2013 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 2013 or 2012.

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 results for the year ended 30 June 2013 that comply with IFRS in November 2013. 

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 2013.

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 2013 adopted by the Group

· 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

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 Group are:

· IAS 27 Consolidated and Separate Financial Statements - Reissued as IAS 27 Separate Financial Statements (as amended in May 2012) - 1 January 2014*

· IAS 28 Investments in Associates and Joint Ventures - 1 January 2014*

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

· IFRS 10 Consolidated Financial Statements - update to the definition of control - effective 1 January 2014*

· IFRS 11 Joint Arrangements - removal of option to use proportional consolidation - 1 January 2014*

· IFRS 12 Disclosure of Interests in Other Entities - 1 January 2014*

· IFRS 13 Fair Value Measurement - 1 January 2013

· IAS 32 Financial instruments: Presentation - clarify requirements for offsetting financial assets and financial liabilities on the balance sheet - 1 January 2014

· IFRS 9 Financial instruments - establish two primary measurement categories for financial assets: amortised cost and fair value - open, not before 1 January 2015

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, either 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 incorporate the results of business combinations using the purchase method. In the statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the date control ceases.

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

* since date of acquisition 1 December 2012

Goodwill

Goodwill represents the excess of the cost of a business combination over the total acquisition date fair value of the identifiable assets, liabilities and contingent liabilities acquired.

Cost comprises the fair value of assets given, liabilities assumed and equity instruments issued, plus the amount of any non-controlling interests in the acquiree plus, if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree. Contingent consideration is included in cost at its acquisition date fair value and, in the case of contingent consideration classified as a financial liability, re-measured subsequently through profit or loss. Direct costs of acquisition are recognised immediately as an expense.

Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated statement of comprehensive income. Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidated statement of comprehensive income on the acquisition date. 

Joint ventures

Jointly controlled entities are included in the financial results 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 - in respect of premiums payable, these are recognised over the period of the premium.

Foreign currencies

The individual financial results 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 results 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 recognised in profit or loss in Group entities' separate financial results 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. Back to back leases are disclosed on a net basis where the risks of the finance lease arrangements do not reside within the Group.

Impairment of non financial assets

Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial year end. 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.

Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the smallest Group of assets to which it belongs for which there are separately identifiable cash flows; its cash generating units ('CGUs'). Goodwill is allocated on initial recognition to each of the Group's CGUs that are expected to benefit from the synergies of the combination giving rise to the goodwill.

Impairment charges are included in profit or loss, except to the extent they reverse gains previously recognised in other comprehensive income. An impairment loss recognised for goodwill is not reversed.

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.

Share capital

Financial instruments issued by the Group are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset.

The Group's ordinary shares are classified as equity instruments.

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 results 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 & Rotables - all costs of purchase, costs of conversion or overhaul, and other costs incurred in bringing the aircraft spares to their present location and condition;

· Work in progress - cost of raw materials and labour fitted or allocated to an aircraft, prior to completion.

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 through administrative expenses. 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 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 two AOCs in the UK which are not capitalised. In addition the Group has one AOC in South Africa and one in Nigeria. The South African AOC arising on acquisition and the costs of application in respect of the Nigerian AOC have been capitalised as separately identifiable intangibles.

Costs associated with the maintenance of an 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.

Brand

This is in relation to the brand name "Jet Club" and was separately identified as part of the acquisition of International Jet Club Limited. The fair value of this has been calculated based upon additional revenue that this brand name is expected to bring to the Group. This brand name will define the high-end sector of the private jet elite and is expected to bring larger long range aircraft into the management and charter sectors of the Group which previously the Group did not have access to.

Customer relationships

The fair value of the customer contracts has been calculated based on the expected discounted cash flows from contractual agreements IJC had in place with its customers at the date of acquisition.

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:

The Group makes certain 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 year 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 property, plant and equipment, AOC's, software, brand and customer relationships

Property, plant and equipment, AOCs, software, brand and customer relationships 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 note 13.

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

The fair values of identifiable intangible assets are valued on a basis appropriate to the asset. Acquired AOC's are based on the discounted cash flows associated with the acquisition and maintenance of an AOC. The fair value of the acquired brand is based on the discounted cash flows expected to be derived from the use of the asset. Customer relationships represent the discounted value expected to be derived by the contracts.

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 charter 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 £8,789k (2012: £2,848k) 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. If applicable, the owners are entitled to a rental recharge for the use of the aircraft, which depending upon rental utilisation, will reduce the debt owing to the Group, or may even result in the Group owing 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. In the case of minimum guaranteed hours contracts, the monthly minimum hours charge is payable in advance of the operation.

Engineering income

The Group is entitled, in the event of non-payment, to an Engineering Lien claim over the value of the work carried out, which may be exercised in the event of non-payment, and where the Group also has possession of the critical aircraft records

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 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.

In the prior year, this amount represented 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, Hangar 8 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 Hangar 8), 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.

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.

Acquisition costs in 2013 represent the consultancy, legal fees and other contractual amounts required to be paid following the acquisition of International Jet Club Limited during the year. Furthermore, a bonus was paid to IJC staff following the acquisition.

Restructuring costs in 2013 represent the cost, including redundancy, of re-organising the group management accounting department.

Included within the Wages and salaries is an amount of £664k which is recharged on at cost and consequently is shown net within cost of sales in accordance with Group policy.

The Group started an employers' defined contribution pension scheme during 2012.  

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.

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.

· Unallocated - this includes training, commissions and Plc related activities

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.