FEBRUARY 16TH, 2017
Avation: Financial Results And Interim Management Statement For The Six Months Ended 31 December 2016
Avation PLC (LSE: AVAP), the commercial passenger aircraft leasing company, today announces its unaudited financial results for the six months ending 31 December 2016.
Lease revenue increased by 43% to $45.1 million;
Earnings before interest and tax (“EBIT” or “Operating Profit”) grew 54% to $27.6 million;
Profit before taxation increased by 51% to $8.4 million;
Total profit after tax increased 54% to $7.4 million;
Operating cash flows increased 65% to $31.1 million; and
Earnings per share (“EPS”) increased 46% to 12.9 cents.
Executive Chairman, Jeff Chatfield, said:
“Avation is pleased to report significant year on year increases in revenue, profit and operating cashflow in the half year to 31 December 2016.
“Fleet metrics have continued to improve as the fleet has grown, with the weighted average age of the aircraft decreasing to 2.8 years and the weighted average remaining lease term increasing to 7.8 years. Avation’s strategy seeks to maintain a low average age of the fleet, lowering risk by maximising the long term earning potential of fleet assets. As at 31 December 2016 the value of the Company’s jet fleet now exceeds that of the turboprop fleet.
“In addition to these satisfactory financial results Avation has grown the aircraft fleet, managed overhead costs and improved fleet metrics to position the Company well for the second half of the financial year.”
As at 31 December 2016 Avation’s fleet comprised 40 aircraft including seven aircraft on finance lease. The weighted average age of the fleet owned by the Company (excluding finance leases) is 2.8 years (2015: 5.2 years) and the weighted average remaining lease term was 7.8 years (2015: 5.7 years). As at 31 December 2016, all aircraft owned by the Company were fully utilised. Avation has 3 ATR 72 turboprop aircraft on order for placement during calendar year 2017.
Fleet Asset Summary
Fleet assets increased 64% to $850.4 million (2015: $518.3 million). Five Fokker 100 leases were converted to finance leases resulting in fleet assets totalling $12.2 million being transferred to finance lease receivables. Finance lease receivables totalled $48.2 million (2015: nil).
Update on Potential Sale of Turboprop Portfolio
In October 2016 Avation announced that it had received an expression of interest for 22 ATR 72 turboprop aircraft. As a consequence, Avation, through an appointed adviser, sought competing proposals from the market and received eight offers from a range of investors and lessors.
The bids received support a valuation of the portfolio at a premium to book value. The Company is still in discussion with a number of the bidders and best and final offers have yet to be received. At the current stage there is no certainty that any definitive agreement will be entered into nor that any transaction will materialise from the various discussions. The Board reiterates its position that any transaction would need to deliver shareholders a significant premium above book value.
Avation is an active trader of aircraft and from time to time will also consider the sale of individual or smaller portfolios of aircraft based on prevailing market opportunities.
The weighted average cost of total debt remained at 4.9% as at 31 December 2016 (2015: 4.9%). The weighted average cost of secured debt facilities increased to 4.5% as at 31 December 2016 (2015: 4.2%) due to junior debt issued to fund acquisition of VietJet aircraft.
At the end of the financial period, Avation’s overall loan to value ratio was 76.0% (2015: 75.8%). At 31 December 2016, 95.7% of total debt was at fixed interest rates (2015: 85.9%). At the end of the financial period, there was no related party debt other than pursuant to participation in notes issued under the Global Medium Term Note Programme.
Upgrade to Credit Rating
In December 2016, Standard & Poor’s Global Ratings advised Avation’s corporate credit rating was upgraded to ‘B+’ from ‘B’, Outlook Stable; the Senior Unsecured Notes rating was raised to ‘B’ from ‘B-’.
Fitch Ratings corporate credit rating for Avation is ‘B+’, Outlook Stable; the Senior Unsecured Notes rating is ‘B+’.
Appointment to Board of Directors
Avation announced the appointment of Mr Derek Sharples as independent non-executive Director to the Board in November 2016.
Avation focuses on narrowbody commercial jet and turboprop aircraft on long term leases. Avation’s strategy focuses on new and relatively new aircraft. The Company’s business model has a history of delivering consistent profitability while seeking to mitigate some of the risks associated with the aircraft leasing sector.
Avation seeks to maintain a fleet of aircraft assets with a low average age and long average remaining lease term. Avation will typically sell mid-life and older aircraft to redeploy capital to new assets. This approach is intended to mitigate technology change risk, operational and financial risk, support sustained growth and deliver long term shareholder value.
Outlook and Interim Management Statement
Fleet size and lease revenue has continued to increase during the half year. New aircraft have been acquired since the commencement of the 2017 financial year while some older aircraft have been sold or converted to finance leases. This has resulted in improved fleet age and average lease term metrics.
Avation’s strategy involves the acquisition of new aircraft, maintain a low average fleet age, increased scale and customer diversification. Avation is an active trader of aircraft and will consider the sale of aircraft based on current market opportunities.A 3.25 US cents per share dividend for the year ended 30 June 2016 was paid 13 October 2016.
Shareholders are reminded that future dividend payments will be made by default in US Dollars (USD). The Company’s functional currency is USD and its assets, liabilities and revenues are denominated in USD. Recognising that the Company’s business is USD denominated and to reduce exchange rate volatility risk to shareholders, future dividends will be declared and paid in USD. Shareholders who prefer to receive dividends in British Pounds (GBP) can elect to receive GBP by completing a form that can be downloaded at www.avation.net/dividends
Management believes that it can attract airline customers or acquire leased aircraft and obtain the required funding for growth. In addition to operational cash flows, funding is traditionally sourced from capital markets, asset backed bank lending and disposal of selected aircraft. Access to acceptably priced funding remains a risk, which is common to all capital-intensive businesses. Specific risks which are inherent in the aircraft leasing industry include, but are not limited to, the creditworthiness of client airlines, over-production of new aircraft and market saturation, technology change in engines and aircraft, residual value risks, competition from other lessors and the general risk of impairment of aircraft assets.
Avation’s Board of Directors is pleased to deliver satisfactory financial results from the aircraft leasing business while executing a strategy of fleet growth and risk mitigation. Avation is committed to delivering further growth and diversification to the business.