Gama Aviation Regulatory News (GMAA)

Date: 31st July 2020

This announcement contains inside information for the purposes of article 7 of the Market Abuse Regulation (EU) No 596/2014

Gama Aviation Plc (AIM: GMAA)

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

Unaudited preliminary results for the year ended 31 December 2019

Financial Highlights (2019 on a pre IFRS 16 basis, comparatives restated)

· Revenue $246.8m (2018: $234.9m), up 5%, at constant currency up 8%1.

· Gross Profit $39.3m (2018: $44.5m), down 12%, at constant currency down by 9%1.

· Gross Profit Margin 15.9% (2018:18.9%), down 3.0ppts, at constant currency down by 3.1ppts1.

· Adjusted EBIT $3.3m (2018: $8.4m), down 61%, at constant currency down by 61%1.

· Net Debt, stated on a pre IFRS 16 basis, increased to $37.8m (post IFRS 16 $98.0m) from $2.5m at 31 December 2018.

· No dividend recommended in view of COVID-19 uncertainties (2018: 2 pence per share).

Financial Summary

Notes:

1 To aid comparability 2018 results have also been calculated on a constant currency basis. This has been calculated using a constant foreign exchange rate of $1.28 to £1, being the cumulative average USD-GBP exchange rate for 2019 instead of the reported exchange rate of $1.34 to £1 for 2018. On a constant currency basis, 2018 Revenue is $227.9m, Gross Profit is $43.2m, Gross Profit percentage is 19.0% and Adjusted EBIT is $8.3m.

2 The Alternative Performance Measures (APMs) Adjusted Earnings before interest and tax (Adjusted EBIT), Organic Revenue and Net Debt are defined in Note 2 of the notes to the financial statements and reconciled to the nearest IFRS measure in Note 6 and Note 28 to the financial statements.

3 The Group adopted IFRS 16 from 1 January 2019 and the 2018 comparatives are not restated for IFRS 16. To achieve year on year comparability of the results, Adjusted EBIT, Gross Profit, Profit / (loss) before Tax and earning per share have been presented on a pre IFRS 16 basis for 2019 (consistent with the presentation for 2018) as well as on a post IFRS 16 basis. The impact of IFRS 16 on the 2019 results were to increase Gross Profit by $0.2m, increase Adjusted EBIT by $2.3m, decrease Adjusted Profit before Tax by $0.7m and reduce Earnings per Share by 1.1 cents per share.

4 Restatements are detailed in Note 2 of the notes to the financial statements

Operational Highlights

· Air Division stable with solid performance in special mission contracts.

· Revenue growth in Ground Division offset by increased costs.

· Special mission contract performance remained strong with contractual KPIs achieved on all major contracts.

· Middle East and Asia regions continue to be challenging.

· Myairops delivering software sales growth however FlyerTech impacted by reduced revenues partly due to Brexit concerns.

· Executive team strengthened by the appointment of new CFO Daniel Ruback in December 2019.

Outlook

As was most recently communicated on 23rd June, activity levels in certain parts of the Group have been impacted by the COVID-19 pandemic. Underlying trading in Q2 has progressed in line with management's revised assumptions on cost containment, cash preservation measures and maintaining contracted revenue streams. An exception to this is the performance of the Group's Hong Kong based associate, China Aircraft Services Limited, in which the Group owns a 20% equity stake, which has suffered significant losses in 2020 as a direct result of COVID-19 related reduced volumes. The Group continues to make use of all available government sponsored assistance measures in all regions, including the $5.75m forgivable loan received under the US Paycheck Protection Program (part of the CARES Act).

Given the continuing operational and financial uncertainties resulting from the COVID-19 pandemic, the Group's financial guidance for the year ending 31st December 2020 remains suspended.

Meanwhile, the Group's liquidity position remains strong with c$17m of cash and c$29m of its $50m revolving credit facilities available to draw down.

Marwan Khalek, Chief Executive Officer said:

"While we achieved solid organic revenue growth in 2019, profit margins were adversely affected by a highly competitive market environment and by continuing challenges within our finance function. With the onset of the Coronavirus pandemic at the start of this year and the ensuing global lockdowns significantly curtailing the demand for air travel, our 2020 performance has also been impacted.

The Group benefits from operating to a resilient and robust business model which includes recurring revenues from long standing government and other contracts providing the Group with mitigation against the impact of the downturn in activity levels by maintaining critical revenue flows. These, together with strong levels of liquidity, stand the Group in good stead. Meanwhile, we have not been standing still. In December, we appointed a new CFO, Daniel Ruback, with a clear mandate to strengthen and transform the Group's finance function which he is diligently implementing. We continue to attract new business into our maintenance facilities, and we have secured a number of new special mission contracts.

Clearly, at this stage, with the uncertainties surrounding this evolving pandemic it is difficult to predict how soon the demand for air travel will resume. However, when it does, the business aviation sector is expected to benefit disproportionately from a drift to this more secure and private form of air travel. The Group is well positioned to weather this COVID-19 induced economic downturn, to capture the resulting opportunities and to emerge stronger from it."

-ENDS-

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

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

Gama Aviation - Notes to Editors

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

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

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

Chief Executive Officer's Report

The market environment throughout 2019 was very challenging and highly competitive across all of our operating divisions and regions. By maintaining focus on our core business and continuing to provide a suite of services that are relevant to our customers' needs, we delivered solid revenue growth. This was driven largely by organic growth in our US Ground division and by Special Mission contract wins. However, overall, the conversion of this solid top line revenue performance into Adjusted EBIT has been disappointing.

Growth opportunities through strategic and value enhancing acquisitions have been limited by the quality and pricing of available targets. This has frustrated our plans to scale up our operations across some divisions leaving us with a sub-optimal cost base, both regionally and centrally, with the corresponding adverse impact on margins and Adjusted EBIT.

Our efforts to strengthen and improve the effectiveness of the finance function and control environment were hampered by the absence, for an eight-month period between May and December, of a Group CFO to lead the required transformation. This was compounded by further churn in the senior finance team and the relocation of our HQ in the USA. Consequently, the business was deprived of direction from the finance leadership that is essential to optimise operational and financial performance. As a result, the Group was slow in identifying and implementing necessary cost reductions to mitigate margin erosion.

Following the appointment of Daniel Ruback as CFO in December 2019, together with a new Group Financial Controller and other senior finance staff in 2020, the Group's finance team now has the skills, experience and leadership necessary to deliver the transformation program and to provide much needed partnering and support to the business. I am confident that Daniel and his team will bring the necessary focus, stability, financial disciplines and controls that will help ensure the Group's financial performance again reflects the strong fundamentals of the business.

Strategy

The Group is currently undertaking a strategic review in the light of our performance and developments in the marketplace in recent years. Following a dispassionate assessment of our achievements and of the challenges we have experienced in executing the existing strategy (of increasing depth, breadth and scale), we are now developing an updated strategy to underpin our business planning for the next three years. The revised strategy will be finalised and communicated in the coming months, and will include a sharper focus on the opportunities with the greatest potential for value creation, where the Group has established capability and competitive advantage in the largest business aviation markets. Alongside defined growth imperatives will be a sustained emphasis on controlling and leveraging costs and investments globally, supported by increasingly robust business systems and processes.

COVID-19 Response

The Company continues to monitor this evolving pandemic carefully to ensure its response remains effective. Our prime concern will always be the health and well-being of our global workforce and the clients we serve, and we continue to adhere strictly to all national government guidelines. The Group's Global Leadership Team holds regular calls to review the latest developments and update its policies, procedures and controls in response to the evolving pandemic.

All our divisions remain operational, as they have been throughout this pandemic, delivering services in support of our clients' missions, particularly for those delivering critical services such as NHS Scotland, the Ministry of Defence and other government agencies.

During this period, the Group has maintained a strong focus on preserving cash in particular by eliminating discretionary spend where possible and increasing our focus on the close management of accounts receivable balances.

Outlook

As was most recently communicated on 23rd June, activity levels in certain parts of the Group have been impacted by the COVID-19 pandemic. Underlying trading in Q2 has progressed in line with management's revised assumptions on cost containment and cash preservation measures and maintaining contracted revenue streams. An exception to this is the performance of the Group's Hong Kong based associate, China Aircraft Services Limited, in which the Group owns a 20% equity stake, which has suffered significant losses in 2020 as a direct result of COVID-19 related reduced volumes. The Group continues to make use of all available government sponsored assistance measures in all regions, including the $5.75m forgivable loan received under the US Paycheck Protection Program (part of the CARES Act).

Given the continuing operational and financial uncertainties resulting from the COVID-19 pandemic, the Group's financial guidance for the year ending 31st December 2020 remains suspended.

Meanwhile, the Group's liquidity position remains strong with c$17m of cash and c$29m of its $50m revolving credit facilities available to draw down.

The Group benefits from operating to a resilient and robust business model whereby recurring revenues are derived from long standing contracts. This, together with diligent management and operation of the business, will allow the Group to maintain its strong liquidity position through this crisis.

Therefore, the Board believes that the Group is well positioned to capture new opportunities, such as the recent wins of the Jersey and Guernsey Air Ambulance contracts, to emerge out of this crisis in a stronger position.

Marwan Khalek

Chief Executive Officer

Group Operational Performance

Revenue

USD'000s

Gross Profit

USD'000s

Adjusted EBIT

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Statutory EBIT

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*Restatements are detailed in Note 2 of the notes to the financial statements

Operational Performance Review

Air Division

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

Adjusted EBIT - pre IFRS 16

USD'000s

*Restatements are detailed in Note 2 of the notes to the financial statements

Total Air Division revenue was $140.6m, representing growth of $5.2m (+4%) on last years $135.4m. This was mainly driven by a strong top-line performance in Europe Air, which increased by $10.3m partly due to a new UK special mission contract won in 2018, offset by weaker revenues in the other regions, particularly Middle East which fell by $4.2m due to reduced flight activity impacted by political challenges in the region. In addition, US revenues fell by $(0.9)m due to a one-off impact in the prior year relating to a branding fee termination agreement. US revenue includes $3.8m (2018: $3.8m) of licensing revenue and a $0.3m (2018: nil) modification gain in relation to a branding agreement.

Total Air Division Gross Profit was impacted by increases in direct costs (offset by overhead savings) and the impact from the prior year branding fee in the US. Total Air Division Adjusted EBIT was flat, with increased profit in Europe and reduced losses in the Middle East offset by profit reductions in the US (down by $(1.0)m) and Asia (down by $(0.2)m). The profit improvement in Europe by $0.4m to $0.6m was supported by a reduced loss allowance for doubtful debts and tighter management of costs. Losses in the Middle East reduced from $(1.4)m to $(0.6)m due to lower levels of funding of the start-up business in Saudi Arabia.

Special mission contract performance remained strong with contractual KPIs achieved on all major contracts, including the new five-year UK special mission contract won in late 2018, which commenced live operations on time in H2 2019. In addition, the in-sourcing by Europe Air of the helicopter emergency medical services (HEMS) for the Scottish Ambulance Service progressed according to plan, leading to the successful go-live of this operation on 1st June 2020.

Adjustments to EBIT

USD'000s

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

Statutory EBIT

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*Restatements are detailed in Note 2 of the notes to the financial statements

Air Division Statutory EBIT increased from a loss of $28.2m in 2018 to a profit of $2.3m in 2019. In addition to the movements discussed above, the key items impacting profit in 2018 were impairments of $24.9m in Europe and $3.5m in Asia in 2018 that did not recur in 2019; a decrease in exceptional items from $4.5m in 2018 to $2.2m in 2019, most significantly in the US; and a profit on the step acquisition of Gama Aviation Hutchison Holdings Ltd of $1.0m in Asia in 2018 that did not recur in 2019.

Ground Division

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

Adjusted EBIT - pre IFRS 16

USD'000s

The Ground Division grew revenues by 8% to $103.0m (2018: $95.5m), resulting from continued organic growth in the US (30% growth to $48.9m) and Asia (35% growth to $1.5m) offset by reductions in Europe (8% down to $48.2m, or 3% down on a constant currency basis) and Middle East (6% down to $4.4m). In the US, the revenue growth was driven by major fleet customers including a new 'service hub' contract for a major private jet operator along with strong retail sales at our network of line maintenance stations. In Asia, growth was achieved through the Business Jet Maintenance Collaboration (BJMC) agreement with China Aircraft Services Limited (CASL) as expected. In the Middle East, FBO movements slightly reduced from 2018 with a knock-on effect on MRO revenues, while parking and hangarage remained close to capacity.

Adjusted EBIT fell by 34% to $5.0m, primarily due to an Adjusted EBIT loss in the US of $(0.3)m (2018: profit of $1.9m) as a result of start-up losses and poor gross margin performance at the Florida Paint Shop, a loss allowance for doubtful debt with a fleet operator no longer trading, growth in operational management costs, and revenue shortfalls associated with the separation and divestment of the US Air business. These factors were exacerbated by financial reporting deficiencies following a major transition of the US finance team, resulting in the business being slow to identify adjustments required to the cost base. In Europe Gross Profit was maintained, supported by increased productivity associated with the new Bournemouth facility. The Middle East and Asia businesses were impacted by increased overheads, principally ground rent on the Business Aviation Centre in Sharjah and additional overheads in Asia as a result of increased rent for a new office and a strengthened management team.

Adjustments to EBIT

USD'000s

Statutory EBIT

USD'000s

*Restatements are detailed in Note 2 of the notes to the financial statements

Ground division Statutory EBIT fell from a profit of $3.6m in 2018 to a profit of $0.7m in 2019. In addition to the movements discussed above, the key items impacting profit in 2019 were an increase in exceptional costs in Europe from $2.6m in 2018 to $4.9m in 2019; impairment charges in the US in 2019 of $0.5m for which there was no equivalent cost in 2018; and an increase in statutory EBIT of $1.9m in 2019 as a result of the impact of the adoption of IFRS 16.

Global Services

The Global Services Division comprises two businesses, FlyerTech and myairops. FlyerTech provides continuing airworthiness management (CAM) and airworthiness review certification (ARC) services for business aviation and commercial airline operators. Myairops has developed a suite of business aviation products deployed as "Software as a Service" (SaaS) and mobile app solutions for business aviation operators, flight support companies, FBOs and regional airports.

Adjusted EBIT - pre IFRS 16

USD'000s

After a relatively weak first half year, overall divisional performance in the second half year has improved significantly over the first half, resulting in full year revenues of $3.2m (2018: $3.9m) and EBIT of $0.7m (2018: $1.3m).

FlyerTech continues to generate healthy profit margins but results were impacted by the loss of CAM and ARC revenues from airline customers who ceased operations and by the loss of CAM work partly in relation to Brexit-related concerns from existing and prospective European customers in relation to European Aviation Safety Agency (EASA) accreditations.

Myairops revenues and gross profits have grown significantly as sales of the new SaaS products have outstripped the phasing out of enhancement and support work on legacy "on premise" installations. Amortisation of product development investment has also increased significantly as new products have been launched, but EBIT has nevertheless improved. Market interest in the new products remains high with the true cloud capability of myairops offering strong differentiation.

Adjustments to EBIT

USD'000s

Statutory EBIT

USD'000s

Global services Statutory EBIT fell from a profit of $1.1m in 2018 to a profit of $0.3m in 2019. In addition to the movements discussed above, statutory EBIT in 2019 also included amortisation of $0.3m in respect of software for which there was no equivalent amount in 2018.

Associate Investments

The US Air associate was sold after the end of the reporting period, see note 34 of the notes to the financial statements for further details.

Overall, associate Adjusted EBIT increased from $0.6m in 2018 to $0.9m in 2019, with improvements in both China Aircraft Services Limited (CASL) and the US Air Associate.

Adjusted and Statutory EBIT

USD'000s

Chief Financial Officer Report

The 2019 year end process has been challenging, being significantly disrupted by COVID-19 and the related adjustments required to the normal ways of working. In addition, the effect of a significant amount of change in the finance function, primarily in respect of people, processes and systems, has caused additional challenge. Furthermore, in 2019 the Group changed auditors from Grant Thornton UK LLP to PricewaterhouseCoopers LLP.

As was disclosed in a recent market update, following my arrival in December 2019 a number of initiatives had been planned to strengthen and enhance the finance function and the Group's accounting and financial reporting systems and processes. Unfortunately, these were significantly impeded and delayed by the impact of COVID-19. However, I am pleased to say that over the past weeks progress has been made in enhancing the strength of the finance team with several new appointments already in place and making a positive impact.

Progress in strengthening the financial processes, procedures and controls has also now started to accelerate. As an example, an enhanced governance and reporting framework has been implemented in parts of the Group to better manage customer collections, an area of challenge in certain areas of the business in recent years. In addition, system enhancements have been made, and continue to be made, to increase automation and reduce the quantum of manual intervention and reconciliations required between operational and financial systems. This should improve the timeliness and accuracy of management information.

The remainder of 2020 and beyond into 2021 will continue to see the Group working diligently through an improvement plan, focusing on reviewing, reassessing and revising processes, procedures and controls to position the Group with a strong platform to take advantage of its future growth and operational efficiency aspirations.

Strengthening the financial processes, procedures and controls remains a key priority for the Board. This will support and enhance the solid financing platform now available to the Group. In November a new $50m revolving credit facility was secured with HSBC and more recently in February a £20m loan was secured with HSBC to provide financing for three new Airbus H145 helicopters, purchased to strengthen the Group's position in the Helicopter Emergency Medical Service market.

Notes:

1 The Alternative Performance Measures (APMs) Adjusted Earnings before interest and tax (Adjusted EBIT), Organic Revenue and Net Debt are defined in Note 2 of the notes to the financial statements and reconciled to the nearest IFRS measure in Note 6 and Note 28 to the financial statements.

2 The Group adopted IFRS 16 from 1 January 2019 and the 2018 comparatives are not restated for IFRS 16. To achieve year on year comparability of the results, Adjusted EBIT, Gross Profit, Profit / (loss) before Tax and earning per share have been presented on a pre IFRS 16 basis for 2019 (consistent with the presentation for 2018) as well as on a post IFRS 16 basis. The impact of IFRS 16 on the 2019 results were to increase Gross Profit by $0.2m, increase Adjusted EBIT by $2.3m, decrease Adjusted Profit before Tax by $0.7m and reduce Earnings per Share by 1.1 cents per share.

3 Restatements are detailed in Note 2 of the notes to the financial statements

Revenue Bridge

Notes:

1 The Alternative Performance Measures ('APMs) are defined in Note 2 of the notes to the financial statements and reconciled to the nearest IFRS measure in Note 6. Constant currency calculations using a constant foreign exchange rate of $1.28 to £1, being the cumulative average USD-GBP exchange rate for 2019 instead of the reported exchange rate of $1.34 to £1 for 2018. On a constant currency basis, 2018 Revenue is $227.9m, Gross Profit is $43.2m, Gross Profit percentage is 19.0% and Adjusted EBIT is $8.3m.

2Restatements are detailed in Note 2 of the notes to the financial statements

· Air Division was mainly driven by a strong performance in Europe Air, which increased partly as a result of the new UK special mission contract won in 2018, offset by weaker revenues in the other regions, particularly Middle East which fell by $4.2m due to reduced flight activity impacted by political challenges in the region.

· The Ground Division grew revenues by 8% to $103.0m (2018: $95.5m), resulting from continued growth in the US (30% growth to $48.9m) and Asia (35% growth to $1.5m) offset by reductions in Europe (8% down to $48.2m, or 3% down on a constant currency basis) and Middle East (6% down to $4.4m).

· Global Services revenue fell by $0.6m following a weak first half.

Adjusted EBIT Bridge

1Restatements are detailed in Note 2 of the notes to the financial statements.

· The impact of the application of IFRS 16 is set out in further detail in Note 23 of the notes to the financial statements. The Adjusted EBIT bridge is pre-IFRS 16 and excludes the impact of IFRS 16 on adjusted gross profit of $0.2m, on administrative expenses of $2.1m and on EBIT of $2.3m.

· Gross profit is down by ($5.2m) because of a fall of $3.1m in Air, $1.8m in Ground and $0.3m in Global Services. Further detail is provided in the operational review.

· The loss allowance for impairment of financial assets decreased by $0.4m to $0.4m (2018: $0.8m).

· Depreciation and amortisation of $3.5m is up by ($0.9m) from the $2.6m reported in the prior year. This includes increased depreciation of $0.3m on fixtures, fittings and equipment related to office moves and $0.4m increased amortisation of software on internally developed software costs arising in myairops as well as purchased software, relating to operational and financial systems.

· Inventory obsolescence increased due to $1.4m write-down in Europe Ground in line with the accounting policy set out in Note 2 of the financial statements, $0.4m write-down in US Ground to measure inventories at the lower of cost or net realisable value and $1.1m write-back in the prior year.

· Associates are up following increased profit in both China Aircraft Services Limited (CASL) and Gama Aviation LLC year on year.

Statutory EBIT Bridge

1Restatements are detailed in Note 2 of the notes to the financial statements.

· The fall in exceptional costs is largely due to significant transaction costs of $3.5m in the prior year, partially offset by $2.4m impairment of the right of use asset associated with the Fairoaks lease. Note 6 of the notes to the financial statements provides further detail on other movements in exceptional items year on year.

· Share based payment is up following reduced forfeitures year on year.

· Amortisation of acquired intangibles is $1.5m lower following changes in useful lives in the prior year and as well as significant impairment of acquired intangibles in the prior year.

· The prior year impairment of goodwill and acquired intangibles of $28.4m comprises $18.3m of goodwill in Europe Air, $2.8m goodwill on Gama Aviation Hutchison Holdings Ltd (GAHH) in Asia Air and $7.3m impairment of acquired customer relationship intangibles comprising $2.8m on GAHH in Asia Air and $4.5m in Europe Air. In the current year $0.5m of acquired intangibles relating to the acquisition of the Florida Paint-Shop have been impaired.

Interest

There is a net interest charge for the period of $4.0m (2018: charge of $0.2m). The increase in the charge is as a result of $3.1m discounting on lease liabilities following the application of IFRS 16 and $0.6m of loan arrangement fees upon refinancing. Interest on borrowings remains in line with prior year at $1.0m.

Taxation

There is a total tax charge for the period of $0.5m (2018: charge of $0.5m). The Group operates across a number

of jurisdictions and the effective rate of tax reflects the blended rate of operating in different countries.

Earnings per share (EPS) and adjusted earnings per share

While shares in issue remain unchanged year on year, the weighted average number of shares in issue has increased from 60.3m to 63.6m shares due to the share issue on 2 March 2018 weighting more heavily on 2019 than the prior year.

The fall in adjusted EPS from 11.3c to 0.7c includes the reduction in adjusted EBIT referred to earlier (7.8c), the adverse impact of shares in issue referred to above (0.3c), increased finance costs as a result of the write-off of existing arrangement fees on refinancing (0.6c) and the application of IFRS 16 (1.1c).

The loss per share improved from 57.5c to 18.2c, primarily due to the impairment of goodwill and intangibles impacting prior year EPS by 43.1c.

Net debt and cash flow movements

1Restatements are detailed in Note 2 of the notes to the financial statements

· Refinancing completed on 14 November 2019, providing a new $50.0m revolving credit facility.

· Operating cash outflow pre-IFRS 16 decreased from $20.4m to $12.3m, due to improvement in working capital with the exception of collections on receivables, which is being actively addressed.

· Capex of $18.2m comprises, $8.4m down payment on helicopters, $3.1m on software predominately in myairops, $2.3m investment in Sharjah, $2.3m Furniture, Fittings & Equipment, $1.1m Aircraft & hull refurbishment and $0.8m leasehold improvement.

· On 10 January 2019, the Group acquired a paint and interior completion business previously operated by Lotus Aviation Group at Fort Lauderdale Executive Airport ("Paint-Shop") for $1.3m.

· $14.0m of lease payments include $5.5m for helicopters, which will end in 2020 following the insourcing and purchase of helicopters, $1.9m on aircraft in Europe Air, $2.6m in Europe Ground on hangars and facilities, and $3.7m in US Ground on facilities.

· Net Debt increased by $35.3m, as a result of increased Borrowings, including the initial funding for the three Helicopters for helicopter emergency medical services (HEMS) to support the Scottish Ambulance Service. In addition, on application of IFRS 16 obligation under leases of $60.2m have been included in net debt.

Dividend

Given the desirability of conserving cash during the ongoing COVID-19 pandemic, the Board does not recommend a dividend for 2019 (2018: 2.0 pence per share).

Litigation

The Group was previously involved in legal proceedings relating to historic Hangar 8 trading activity prior to the merger in January 2015 and relating to disputes with SPC Aviation Limited. The Company reached an agreement with SPC Aviation Limited to settle the legal proceedings between the parties on 9 December 2019 under the terms of a settlement agreement which was in full and final settlement of the court proceedings between the parties.

Following the settlement of the disputes with SPC Aviation Limited, the remaining proceedings in which the Company and a number of its subsidiaries are parties relate to disputes where the Company and its subsidiaries are claimants.

The Company has issued proceedings to recover long-standing trade receivables that amount to approximately $3m. The Company has made adequate provisions against these claims and as a result the Board does not expect any further provisions will be required.

Daniel Ruback

Chief Financial Officer

Gama Aviation PlcUnaudited Consolidated income statementFor the year ended 31 December 2019

*Restatements are detailed in Note 2 of the notes to the financial statements

Gama Aviation PlcUnaudited Consolidated statement of comprehensive incomeFor the year ended 31 December 2019

*Restatements are detailed in Note 2 of the notes to the financial statements 

Gama Aviation PlcUnaudited Consolidated balance sheetAs at 31 December 2019

*Restatements are detailed in Note 2 of the notes to the financial statements

Gama Aviation PlcUnaudited Consolidated statement of changes in equityFor the year ended 31 December 2019

*Restatements are detailed in Note 2 of the notes to the financial statements

Gama Aviation PlcUnaudited Consolidated cash flow statementFor the year ended 31 December 2019

*Restatements are detailed in Note 2 of the notes to the financial statements 

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

Gama Aviation PlcUnaudited notes to the consolidated financial statementsFor the year ended 31 December 2019

1. General information

Gama Aviation Plc is a public company limited by shares, incorporated in the United Kingdom. The address of the registered office has changed from "Business Aviation Centre, Farnborough Airport, Hampshire, GU14 6XA" to "1st Floor, 25 Templer Avenue, Farnborough, Hampshire, England, GU14 6FE" in the first half of 2020. The nature of the Group's operations and its principal activities are set out in the directors' report.

Basis of preparation

The unaudited preliminary results (referred to as the 'preliminary results') include the results of the Company and its subsidiaries (together referred to as the 'Group'). The preliminary results of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use in the European Union (EU) and with the Companies Act 2006 applicable to companies reporting under IFRS.

The information for the year ended 31 December 2019 does not constitute statutory accounts for the purposes of section 435 of the Companies Act 2006. A copy of the accounts for the year ended 31 December 2018 was delivered to the Registrar of Companies. The auditors' report on those accounts was not qualified and did not contain statements under section 498(2) or 498(3) of the Companies Act 2006. The audit of the statutory accounts for the year ended 31 December 2019 is not yet complete. These accounts will be finalised on the basis of the financial information presented by the Directors in this 'preliminary results' and will be delivered to the Registrar of Companies following the Company's annual general meeting.

The preliminary results are prepared under the historical cost convention. The same accounting policies, presentation and methods of computation are followed in the 'preliminary results' as were applied in the Group's 2018 annual audited financial statements, with the exception of any changes arising from new IFRS standards and amendments and IFRS IC interpretations as adopted by the European Union effective from 1 January 2019 and related presentational changes, and the change in accounting policy to present foreign exchange gains and losses on borrowings within finance income / expense. The comparative amounts for the year ended 31 December 2018 have been restated for a number of items which are discussed in more detail in note 2 below.

2. Accounting policies

Restatements

The financial statements for 2018 have been restated for several items. The impact of restatements on the loss for the year and net assets is tabulated below:

Further details on the restatements are as follows:

i. As communicated in the interim results for the six months to 30 June 2019, the results of Gama International Saudi Arabia ('GISA'), following the correction of an accounting assessment under IFRS 10, have been consolidated. There has been no change to the legal status or ownership of that entity. The impact on the income statement is a charge of $1,511k, comprised of $27k on cost of sales, $1,506k on administrative expenses and partially offset by $22k credit on revenue. The impact on the balance sheet comprises, $1,568k reduction in trade and other receivables, $83k reduction in trade and other creditors, $25k increase in cash and $114k reduction in opening retained earnings. In addition, headcount has been restated for the four employees in GISA and staff costs of $662k. A full 2017 balance sheet is not practicable to present however the impact of consolidating GISA at 1 January 2018 was a decrease in net assets of $114k.

ii. Errors in inventory recognition and measurement resulting in a charge of $580k to cost of sales and an equivalent reduction in inventory.

iii. Errors in the parent company and consolidated financial statements on accruing for administrative expenses, resulting in a charge to administrative expenses of $274k and an equivalent increase in accruals. In addition there was a $349k write-off of a receivable from an employee benefit trust, partially offset by a $32k credit on the share based payment charge shown in exceptionals.

iv. Following a review of mapping to financial statement line items in the current year and prior year, balance sheet reclassifications on accrued income ($2,852k increase), inventory ($2,852k decrease), accounts payable ($1,896k decrease), deferred revenue ($1,896k increase), assets under the course of construction ($1,815k increase), leasehold properties ($1,815k decrease), finance lease liability ($3,056k decrease) and borrowings ($3,056k increase) have been reflected.

v. The $28,401k impairment of goodwill and intangibles in the prior year has been reclassified against the merger reserve rather than retained earnings. This restatement is consistent with the equivalent restatement made in the parent company. In addition, Loan arrangement fees of $384k have been capitalised against borrowings and reclassified out of prepayments.

vi. Change in accounting policy to reflect foreign currency fluctuations on borrowings out of administrative expenses and into finance income, resulting in a $201k charge to administrative expenses and equivalent increase in finance income.

vii. A restatement on step acquisition of the remaining 50% in Gama Aviation Hutchison Holdings Ltd (GAHH) has been made to reflect deferred tax liabilities of $693k on the acquired intangibles at acquisition date, which results in an equivalent increase in Goodwill. As previously reported, the goodwill of $2,063k was impaired at 31 December 2018. As a result, the impairment charge has been increased on recognition of acquired deferred tax liabilities of $693k.

viii. The opening balance of the non-controlling interest in Note 26 and the Statement of Changes in Equity has been restated by $882k, with an equivalent adjustment to retained earnings. This arises following a recalculation of the sole non-controlling interest's share of net assets at that point in time.

ix. Tax disclosure errors have been restated in note 11, for a reclassification of $2,918k between the origination of tax losses and effect of tax rates in different jurisdictions. In addition, in Note 22 Deferred tax, a reclassification of $1,363k has been made between fixed asset temporary differences and tax losses.

x. Asia Ground and Asia Air have been restated for an incorrect allocation of revenues and costs between these divisions in the second half of 2018. The impact of the restatement on profit or loss for Asia Ground is as follows; $586k increase in revenue, $583k increase in gross profit and $61k increase in EBIT in the second half of 2018. There is an equal and opposite impact on Asia Air.

xi. In Note 27, unrealised foreign exchange movements have been restated and moved into cash flows from working capital movements. Within working capital movements, the change in inventory obsolescence and loss allowance for receivables have been presented separately from the movement in gross inventories and gross receivables respectively. In addition, interest paid of $954k has been restated from operating cash flows to financing cash flows.

Adoption of new and revised standards

New and amended standards adopted by the Group.

The group has applied the following standards and amendments for the first time for their annual reporting period commencing 1 January 2019:

· IFRS 16 Leases

· Interpretation 23 Uncertainty over Income Tax Treatments.

· Prepayment Features with Negative Compensation - Amendments to IFRS 9

· Long-term Interests in Associates and Joint Ventures - Amendments to IAS 28

· Annual Improvements to IFRS Standards 2015 - 2017 Cycle - Amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23

· Plan Amendment, Curtailment or Settlement - Amendments to IAS 19

The group also elected to adopt the following amendments early:

· Definition of Material - Amendments to IAS 1 and IAS 8.

Other than IFRS 16, which is described in further detail in note 23, the amendments listed above did not have any impact on the amounts recognised in the current or prior periods, nor are expected to significantly affect future periods.

IFRS 16 'Leases'

The Group initially applied IFRS 16 Leases from 1 January 2019. The Group applied IFRS 16 using the modified retrospective approach, where the right-of-use asset equals the lease liability at 1 January 2019. Accordingly, the comparative information presented for 2018 is not restated - i.e. it is presented, as previously reported, under IAS 17 and related interpretations. The details of the changes in accounting policies are disclosed below. Additionally, the disclosure requirements in IFRS 16 have not generally been applied to comparative information.

A. Definition of a lease

At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group assesses whether:

· the contract involves the use of an identified asset - this may be specified explicitly or implicitly, and should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified;

· the Group has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and

· the Group has the right to direct the use of the asset. The Group has this right when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where the decision about how and for what purpose the asset is used is predetermined, the Group has the right to direct the use of the asset if either:

o the Group has the right to operate the asset; or

o the Group designed the asset in a way that predetermines how and for what purpose it will be used.

This policy is applied to contracts entered into, or changed, on or after 1 January 2019. The practical expedient not to reassess whether contracts contain a lease has been used.

At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices . However, for the leases of land and buildings in which it is a lessee, the Group has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component.

B. As a lessee

As a lessee, the Group leases many assets including aircraft, hangars, property, cars and IT equipment. The Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred significantly all of the risks and rewards incidental to ownership of the underlying asset to the Group. Under IFRS 16, the Group recognises right-of-use assets and lease liabilities for most of these leases - i.e. these leases are on-balance sheet.

i. Leases classified as operating leases under IAS 17

Previously, the Group classified leases as operating leases under IAS 17. For the comparative, 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.

On transition to IFRS 16, for these leases, lease liabilities were measured at the present value of the remaining lease payments, and discounted at the respective incremental borrowing rates as at 1 January 2019.

Right-of-use assets are measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments.

The Group has tested its right-of-use assets for impairment on the date of transition and has concluded that there is no indication that the right-of-use assets are impaired. Subsequent to transition the right-of-use asset associated with the Fairoaks lease was impaired, see note 23.

The Group used a number of practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17. In particular, the Group:

· did not recognise right-of-use assets and liabilities for leases for which the lease term ends within 12 months of the date of initial application;

· did not recognise right-of-use assets and liabilities for leases of low value assets (e.g. IT equipment);

· excluded initial direct costs from the measurement of the right-of-use asset at the date of initial application; and

· used hindsight when determining the lease term.

ii. Leases classified as finance leases under IAS 17

The 2018 balance sheet included finance leases with a carrying value of $3m which has been reclassified to borrowings as the Group has deemed the nature of these financing arrangements to be synonymous with loan financing. See note 21.

At 31 December 2018 the value of leases classified as finance leases under IAS 17 is nil.

The Group depreciates right-of-use assets over the life of the lease.

C. As a lessor

The Group leases out property included within its right-of-use assets. The Group has classified these leases as operating leases.

The Group is not required to make any adjustments on transition to IFRS 16 for leases in which it acts as a lessor, except for a sub-lease.

The Group sub-leases some of its properties. Under IAS 17, the head lease and sub-lease contracts were classified as operating leases. On transition to IFRS 16, the right-of-use assets recognised from the head leases are presented in leasehold property and depreciated over the life of the lease. The Group assessed the classification of the sub-lease contracts with reference to the right-of-use asset rather than the underlying asset, and concluded that they are operating leases under IFRS 16.

D. Impact on transition

The impact on transition is set out in note 23.

Standards and Interpretations in issue but not yet effective

Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2019 reporting periods and have not been early adopted by the group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

Use of Alternative performance measures (APMs)

The performance of the Group is assessed and discussed on an 'adjusted' basis, using a variety of APMs, including Adjusted Earnings before interest and tax (EBIT), Organic Revenue Growth and Net Debt. The term 'adjusted' refers to the relevant measure being reported for continuing operations excluding 'adjusting items'.

The directors believe that adjusted profit and earnings per share measures provide additional and more consistent measures of underlying performance to shareholders by removing certain trading and non-trading items that are either not closely related to the Group's operating cash flows or non-recurring in nature. These and other APMs are used by the directors for internal performance analysis and incentive compensation arrangements for employees. The term 'adjusted' is not defined under IFRS and may therefore not be comparable with similarly titled measures reported by other companies. They are not intended to be a substitute for, or superior to, GAAP measures. Where applicable, divisional measures are calculated in accordance with Group measures.

APMs have been defined and reconciled to the nearest IFRS measure in note 6 and below, along with the rationale behind using the measures.

Adjusting items

The Group's Income Statement and segmental analysis separately identify trading results before Adjusting items. The directors believe that presentation of the Group's results in this way is relevant to an understanding of the Group's financial performance, as adjusting items are identified by virtue of their size, nature or incidence. This presentation is consistent with the way that financial performance is measured by management and reported to the Board and assists in providing a meaningful analysis of the trading results of the Group. In determining whether an event or transaction is treated as an Adjusting item, management considers quantitative as well as qualitative factors such as the frequency or predictability of occurrence.

The income statement items that are excluded from the Statutory results are referred to as Adjusting items. Adjusting items include exceptional items, amortisation of acquired intangibles, share-based payment charges and tax related to adjusting items. These items are defined and explained in more detail as follows:

Exceptional items

Exceptional items are recorded in accordance with the policy set out below:

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

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

· Litigation - legal costs (which may be incurred in more than one accounting period) are treated as exceptional if they relate to specific commercial legal events that are not in the normal course of trading activity in respect of one-off or related series of cases and are not expected to follow a consistent level of expense from one accounting period to the next.

· Impairment losses - arising from significant non-recurring impairment reviews.

· Other items - other significant non-recurring items.

Amortisation of acquired intangible assets

Exclusion of amortisation of acquired intangibles accounted for under IFRS 3 from the Group's results assists with the comparability of the Group's profitability with peer companies. In addition, charges for amortisation of acquired intangibles arise from the purchase consideration of a number of separate acquisitions. These acquisitions are portfolio investment decisions that took place at different times over several years, and so the associated amortisation does not reflect current operational performance.

Share-based payments

The Group treat share-based payments as an adjusted item because share-based payments are a significant non-cash charge driven by a valuation model that references Gama's share price and so is subject to volatility rather than referencing operational activity.

Tax related to adjusted items

The elements of the overall Group tax charge relating to the above Adjusting items are also treated as Adjusting. These elements of the tax charge are calculated with reference to the specific tax treatment of each individual Adjusting item, taking into account its tax deductibility, the tax jurisdiction concerned, and any previously recognised tax assets or liabilities

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Operational Review and Chief Financial Officer's report.

The emergence of Covid-19 during 2020 has increased uncertainty surrounding the future trading environment for the Group, and performance in FY20 to date has been adversely impacted compared to the Directors original expectations of performance. To support their assessment of Going Concern the directors have performed a detailed analysis of cash flow projections for the Group as a whole covering the period through to 31 December 2021, taking account of the $50.0m committed revolving credit facility (of which c$29m is currently undrawn) and a $20.0m term loan which was agreed and drawn in full since the year end. These facilities have no substantive covenants and fall due for repayment after 31 December 2021. The key assumption in these projections relates to revenue performance and the directors have included what they consider to be a cautious recovery in revenue performance from the second half of FY20. Downside sensitivities have also been assessed, which reflect no further recovery in revenues and a continuation of the trading performance in Q2 FY20, which was the period most impacted by Covid-19. In both Management's base case forecasts and downside scenarios the group maintains significant headroom against its cash and available facilities.

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

Business combinations

Business combinations are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is 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 and the equity issued by the Group. 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. Adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

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

Step-acquisition

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

Goodwill

Goodwill arising on consolidation represents the excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and acquisition date fair value of any previous equity interest in the acquiree over the fair value of the net identifiable assets acquired. 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, the attributable amount of goodwill is included in the determination of the profitor loss on disposal.

Intangible assets

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

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

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

· Part 145 approvals: 20% per annum, straight line method

· Licences: 10% per annum, straight line method

· Brand: 10% per annum, straight line method

· Customer relations: 10% per annum, straight line method

· Software: 20%-33% per annum, straight line method

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 improvements: Life of lease

· Right-of-use assets: 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.

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

Assets held for sale

The Group classifies assets as held for sale if their carrying value will be recovered principally through sale rather than through continuing use. Such assets are measured at the lower of their carrying amount and fair value less costs to sell. Costs to sell are the incremental costs directly attributable to the sale, excluding finance costs and income tax expense.

The criteria for assets held for sale is regarded as only met when the sale is highly probable, and the asset is available for immediate sale in its present condition.

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

Investments in associate and joint venture

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

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

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

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

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

Inventories

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

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

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

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

Inventories include Rotable stock. Rotable stock are inventory items that can be repeatedly and economically restored to their fully serviced condition, in which an already-repaired equipment is exchanged for defective equipment, which in turn is repaired and kept for future exchange. These items have extensive life expectancy through repetitive overhaul process.

The rotable parts could either be recognised as property, plant and equipment ("PPE") or inventory. Following specialist advice and consistent with industry practice, the Group policy recognises Rotables as inventory. In addition, the cost of any refurbishment of Rotables is recognised in inventory.

The Group policy on recognising inventory at the lower of cost and net realisable value does this by providing for rotables on a sliding scale over the preceding four years. As a result, inventory older than four years is written off in full. A nuance to the provisioning policy is however made for the "non-core" which represents the exchange value of the part in the market. On the basis that there is an exchange value and market, the provision is only made for the "core" component.

Cash and cash equivalents

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

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

Financial instruments

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

Financial assets

Trade receivables and other receivables are measured at amortised cost less an expected credit loss allowance, 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

It is not necessary for a credit event to have occurred before credit losses are recognised. Instead, the Group accounts for expected credit losses and changes in those expected credit losses. The amount of expected credit losses are updated at each reporting date.

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

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

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

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

· 85% of debt that is

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

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

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

Financial liabilities and equity

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

Equity instruments

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

Other financial liabilities

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

Derecognition of financial assets and financial liabilities

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

On derecognition of a financial asset measured at amortised cost, the difference between the asset's carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.

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

Provisions and contingent liabilities

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

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

Segmental reporting

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

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

Supplier volume rebates

The Group has supplier contracts for the provision of certain services, which attract volume rebates, the credit for which is recognised centrally. The anticipated rebate receivable is accrued throughout the year based on the agreement terms.

Revenue recognition

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

Sale of business aviation services revenue from the following major sources:

· Managed aircraft contracts and specific air services

· Maintenance of aircraft

· Design and modification projects

· Fixed base operations ('FBO')

Managed aircraft contracts and specific air services

These activities are provided by the Group's Air Division. Services provided under managed aircraft contracts include flight training, cost management, flight planning and scheduling, crew management, maintenance oversight and regulatory compliance as separate performance obligations falling into one or more of the contract components identified below.

The services are contract based with costs such as fuel, insurance, crew and maintenance being recharged to the client. Specific air services provided under this heading include a variety of specific contracts with customers where one or more elements of fully managed services are provided.

The managed aircraft contracts have three components:

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

· Management services

· Variable fees based on flying hours and related rechargeable costs

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

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

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

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

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

Maintenance of aircraft

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

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

This assessment is made using the input method of labour hours expended and costs incurred.

Design and modification projects

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

Branding fees from associates

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

Fixed Base Operation

The Group also provides fixed base operation activities in Jersey, Scotland and Middle East through the Ground Division. This includes hangar parking and apron parking space to customers. Revenue is recognized as the service is provided over time.

Foreign currencies

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

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

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

Retirement benefit costs

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

Taxation

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

Current tax

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

Deferred tax

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

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

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

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

Deferred tax is charged or credited in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

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

3. Critical accounting judgments and key sources of estimation uncertainty

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

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

Critical judgments in applying the Group's accounting policies

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

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

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

Control over Gama International Saudi Arabia ("GISA")

Management previously judged that at 31 December 2018 the Group did not control GISA, which management believe operates on an arm's length basis. As communicated in the interim results for the six months to 30 June 2019, the results of GISA, following the correction of an accounting assessment under IFRS 10, have been consolidated. There has been no change to the legal status or ownership of that entity.

IFRS 16 leases

Management exercised judgement in the choice of transition method. The modified retrospective approach was adopted, where the right-of-use asset equals the lease liability at 1 January 2019. Accordingly, the comparative information presented for 2018 is not restated. In addition, there is judgement in the determination of the lease term.

Key sources of estimation uncertainty

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

Impairment review

The goodwill, intangibles, investment in associates and assets under construction require the use of estimates related to future profitability and the cash generating ability of the related businesses. The estimates used may differ from the actual outcome. Details of the impairment review performed are set out in notes 14, 15, 16 and 18.

Loss allowances on financial assets

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

Valuation of inventories

Management exercise judgment in measuring inventory at the lower of cost and net realisable values. The estimate of the net realisable value represents management's best estimate and it may vary from the actual realisation, notwithstanding the regular review and monitoring.

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

Management exercise judgment in determining the costs to complete and the revenue recognised in relation to long-term contracts. Judgment is required specifically around the estimated outcome of commercial discussions at the time of contract conclusions and during renegotiation periods. Some contracts enable customer to conduct a retrospective review of costs incurred which could result in revision to the estimates made at this point in time.

4. Segment information

The Group has eleven reportable segments (Air Division - four regional businesses; Ground Division - four regional businesses; Global Services Division - also comprising two businesses combined as one reportable segment; the Associates Division - two businesses; and Central Costs), which are defined by markets rather than product type. Each segment includes businesses with similar operating and marketing characteristics. These segments are consistent with the internal reporting reviewed each month by the Group Chief Executive. Reportable segments are operating segments that either meet the thresholds and conditions set out in IFRS 8 for separate reporting or are considered by the Board to be appropriately aggregated into reportable segments under IFRS 8.

The Chief Operating Decision maker reviews the results on a pre-IFRS 16 basis. The tables below reconcile the pre-IFRS 16 results to the equivalent statutory result, with the exception of gross profit. The total difference between statutory gross profit and pre-IFRS 16 gross profit is $191k and shown in Note 23.

Air Divisional Performance

$'000s

Adjusted EBIT