DP AIRCRAFT I LIMITED ANNUAL REPORT AND AUDITED CONSOLIDATED FINANCIAL STATEMENTS
from 5 July 2013 to 31 December 2014
D P AIRCRAFT I LIMITED 2014 ANNUAL REPORT AND AUDITED CONSOLIDATED FINANCIAL STATEMENTS from 5 July 2013 to 31 December 2014 COMPANY OVERVIEW
DP Aircraft I Limited (the 'Company') was incorporated with limited liability in Guernsey under The
Companies (Guernsey) Law, 2008 as amended, on 5 July 2013 with registered number 56941.
The Company was established to invest in aircraft. The Company is a holding company, and makes its investment in aircraft through two wholly owned subsidiary entities, DP Aircraft Guernsey I Limited and DP Aircraft Guernsey II Limited (collectively and hereinafter, the 'Borrowers'), each being a Guernsey incorporated company limited by shares and an intermediate lessor (the 'Lessor'), an Irish incorporated private limited company. The Company and its subsidiaries (the Borrowers and the Lessor) comprise the Group.
Pursuant to the Company's Prospectus dated 27 September 2013, the Company offered 113,000,000
Ordinary Preference Shares (the 'Shares') of no par value in the capital of the Company at an issue price of US$1.00 per Share by means of a Placing. The Company's Shares were admitted to trading on the Official List of the Channel Islands Securities Exchange and to trading on the Specialist Fund Market of the London Stock Exchange on 4 October 2013.
The Company's investment objective is to obtain income and capital returns for its Shareholders by
acquiring, leasing and then, when the Board considers it appropriate, selling aircraft (the 'Asset' or
'Assets').
To pursue its investment objective, the Company intends to use the net proceeds of placings and other equity capital raisings, together with loans and borrowings facilities, to acquire aircraft which will be leased to one or more international airlines.
The Board comprises three independent non-executive directors. The directors of the Board are responsible for managing the business affairs of the Company in accordance with the Articles of Incorporation and have overall responsibility for the Company's activities, including portfolio and risk management while the asset management of the Group is undertaken by DS Aviation GmBH & Co. KG (the 'Asset Manager').
THE ASSET MANAGERThe Asset Manager has undertaken to provide the asset management services to the Company under the terms of an asset management agreement but does not undertake any regulated activities for the purpose of the UK Financial Services and Markets Act 2000.
DISTRIBUTION POLICY
The Company aims to provide Shareholders with an attractive total return comprising income, from
distributions through the period of the Company's ownership of the Assets, and capital, upon any sale of the Assets. The Company targets a quarterly distribution in February, May, August and November of each year. The target distribution is 2.25 cents per Share per quarter. Five quarterly distributions have been made at the date of this report, each meeting the 2.25 cents per Share target. The target dividends are targets only and should not be treated as an assurance or guarantee of performance or a profit forecast.
Investors should not place any reliance on such target dividends or assume that the Company will make any distributions at all.
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CONTENTS | |
4 | Fact Sheet |
5 | Highlights |
6 | Chairman's Statement |
7 | Asset Manager's Report |
10 | Directors |
11 | Directors' Report |
19 | Statement of Principal Risks and Uncertainties |
21 | Statement of Directors' Responsibilities |
22 | Independent Auditor's Report to DP Aircraft I Limited |
24 | Consolidated Financial Statements - Primary Statements |
28 | Related Notes to the Consolidated Financial Statements |
51 | Company Information |
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Ticker | DPA |
Company Number | 56941 |
ISIN Number | GG00BBP6HP33 |
SEDOL Number | BBP6HP3 |
Traded | SFM |
SFM Admission Date | 4-Oct-13 |
Share Price | US$1.0725 as at 31-Dec-14 |
Listed | CISE |
CISE Listing Date | 4-Oct-13 |
Country of Incorporation | Guernsey |
Current Shares in Issue | 113,000,000 |
Administrator and Company Secretary | Dexion Capital (Guernsey) Limited |
Asset Manager | DS Aviation GmbH & Co. KG |
Auditor and Reporting Accountant | KPMG, Chartered Accountants |
Corporate Broker | Canaccord Genuity Limited |
Aircraft Registration | EI-LNA |
EI-LNB | |
Aircraft Serial Number | 35304 |
35305 | |
Aircraft Type and Model | B787-8 |
Lessee | Norwegian Air Shuttle ASA |
Website | www.dpaircraft.com |
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D P AIRCRAFT I LIMITED 2014 ANNUAL REPORT AND AUDITED CONSOLIDATED FINANCIAL STATEMENTS from 5 July 2013 to 31 December 2014HIGHLIGHTS
INITIAL PUBLIC OFFERING AND ADMISSION TO LISTING AND TRADING
Pursuant to the Company's Prospectus dated 27 September 2013, the Company offered 113,000,000
Ordinary Preference Shares (the 'Shares') of no par value in the capital of the Company at an issue price of US$1.00 per Share by means of a Placing. The Company's Shares were admitted to trading on the Official List of the Channel Islands Securities Exchange and to trading on the Specialist Fund Market of the London Stock Exchange on 4 October 2013.
Profit Before Tax was reported as 9.022 cents per Share for the first full accounting period from
5 July 2013 to 31 December 2014, driven by the leasing of two Boeing 787-8 aircraft. No tax arises on
the profit of the Company as it is Guernsey resident where the standard rate of income tax for companies is nil. Therefore the Profit Before and After tax is the same.
The Directors believe that after time the swap liabilities will diminish and excluding that liability the
Net Asset Value per Share ('NAV') (post the interim dividend) will be 93.575 cents per Share as at
31 December 2014. As at 31 December 2014, the Company's shares were trading at a premium of
14.6 per cent to NAV (excluding swap liability).
US Cents per Share
NAV including swap liabilities 0.9357
NAV excluding swap liabilities 0.9815
4 interim dividends have been paid in the period under review each of 2.25 cents per Share.
1 interim dividend has been paid since the year-ended 31 December 2014 of 2.25 cents per Share.
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CHAIRMAN'S STATEMENT
I am pleased to present Shareholders with the first Annual Report and Financial Statements for the period from incorporation on 5 July 2013 to 31 December 2014.
I and my fellow Directors, Didier Benaroya and Jeremy Thompson were delighted with the success of the IPO and subsequent Listing and Trading as described in the Company Overview introduction on page 2 of this report.
On 9 October 2013, we completed the acquisition of our first two aircraft, each a Boeing 787-8 or
'Dreamliner'. A Dreamliner is a twin-engine long range aircraft, distinguished by its entirely new
aircraft design and variety of technical innovations.
Each aircraft was acquired by one of the Company's wholly owned subsidiaries, DP Aircraft Guernsey I Limited and DP Aircraft Guernsey II Limited. The Lessor and Trustee for each aircraft is DP Aircraft Ireland Limited. Each aircraft was purchased with the benefit of pre-negotiated leases with Norwegian Air Shuttle ASA ('Norwegian'), each with a term of twelve years from the respective commencement dates and are successfully producing income for our investors. I am pleased to report there are no issues to bring to the attention of Shareholders concerning the performance of the Lessee.
The Total Shareholder Return for this first accounting period of 9.022 cents per Share is as expected after providing for the initial IPO costs. It was very pleasing for the Company to meet its target dividends of 2.25 cents per Share for the quarter's ending January, April, July and October 2014. A fifth interim dividend was declared on 20 January 2015 and paid on 13 February 2015. The Net Asset Value per Share as at 31 December 2014 was 93.575 cents per share.
The outlook is described fully in the Asset Manager's Report that follows on page 7 of this report. The Asset Manager will advise the Directors of any further acquisition opportunities as they arise.
The Company's second annual general meeting ('AGM') is scheduled for 12 May 2015 to approve the first full set of audited financial statements.
I would like to thank our Investors for their continued support.
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D P AIRCRAFT I LIMITED 2014 ANNUAL REPORT AND AUDITED CONSOLIDATED FINANCIAL STATEMENTS from 5 July 2013 to 31 December 2014 ASSET MANAGER'S REPORT Overview and Development - The Aviation Market
2014 proved to be one of the most profitable years for airlines globally according to the International Air Transport Association (IATA). The organisation estimates a net profit of USD 19.9 billion in 2014 which is nearly double the net profit achieved in 2013 (USD 10.6 billion). Profits are expected to increase further in 2015 in all regions to a total of USD 25.0 billion, with air travel growing by 7 per cent. Taking a closer look at the European aviation market, net profit is expected to have increased in 2014 by 440 per cent. over the previous year according to IATA's December 2014 forecast. The passenger load factor for the Eurozone for the first eleven months of
2014 for international air traffic is the highest amongst the regions. In November, the 5.6 per cent. increase in Revenue Passenger Kilometres (RPK) for European airlines compared to the same month the previous year was above the global average.
Crude oil prices have decreased significantly during the second half of 2014; and while pre-existing hedging policies mean that this does not necessarily translate into decreased fuel costs for airlines immediately, it will have a positive impact on operating costs for airlines through 2015.
Lower operating costs, and consequently improved financial results, will allow airlines to invest in fleet growth and modernisation. Due to the factor of uncertainty in future oil prices, aircraft benefitting from the latest technology, such as the Dreamliner Boeing B787, will stay in strong demand.
The long-term outlook remains positive for both the aviation market and the levels of demand for new aircraft. According to their latest published market outlooks, Boeing (Current Market Outlook
2014-2033) and Airbus (Global Market Forecast 2014-2033) are of the opinion that passenger fleets will double by 2033. According to Boeing, 53 per cent. of aircraft deliveries over the next twenty years will be within the 200-300 seat category. On top of that, Airbus estimates annual growth rates of airline traffic (RPK) at 4.7 per cent on average over the next 20 years, while Boeing believes RPKs will increase by 5.0 per cent per annum. Both manufacturers have made their forecasts based upon the assumption of an average annual increase of 3.2 per cent in global GDP over the same period.
The aviation industry plays a key role in the global economy. According to IATA, city pairs served by commercial airlines have doubled in the last 20 years and 52 per cent. of tourists worldwide travel by air. Perishable and high value goods transported by air are of importance given the jobs they create globally; and for many of these goods there is no obvious substitute means of transport. Moreover, IATA expects that in 2015 about 1 per cent. of world GDP, totalling over USD 820 billion, will be spent on air transport. Furthermore, according to the latest Airline Business Confidence Index published in October 2014, airline CFOs and heads of cargo expect passenger services and cargo to grow as strongly as they did in 2010.
The Boeing B787 Dreamliner still ranks alongside the Airbus A350 (which entered into commercial service on 15 January 2015) as the latest technological, mid-size wide-body aircraft available in the market. By December 2014, 228 Boeing B787s had been delivered to 23 different airlines and more than 233 million passengers had been commercially transported. In the last nine months
48 additional Dreamliners have been ordered by six airlines, four of whom are existing customers - this underlines the high level of customer satisfaction with the Dreamliner. With a backlog of over
840 aircraft orders in December 2014, and production fully sold out until 2019, it is clear that the aircraft remains in high demand.
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Since DP Aircraft I Limited took title of both LNA and LNB last year, Norwegian has met all of its lease
obligations in full. The carrier operates the aircraft in a two-class configuration seating 32 premium economy plus 259 economy passengers. In the first weeks of September this year both aircraft EI-LNA and EI-LNB were physically inspected at Stockholm Arlanda Airport. The inspection took place during Phase Check `P6`. Both aircraft have been maintained to a very high standard.
One of LNA´s engines, Engine Serial Number (ESN) 10119, as well as one of LNB's engines, ESN
10135, were removed during the course of last year to undergo an upgrade at Rolls Royce's Derby
facilities. The upgrade extends the maintenance intervals for the engines and will soon be completed for all four engines. The upgrade of ESN 10135 was completed mid-August; ESN 10119 is expected to be returned by Rolls Royce in the next few weeks.
As mentioned in the Shareholder Report dated 10th July 2014, DS Skytech, the joint-venture company between DS Aviation and Skytech-AIC, will take over the technical asset management of both of the Company's aircraft in May 2015.
Norwegian Air Shuttle transported nearly 24 million passengers in 2014. Traffic figures for December
2014 show that passenger numbers increased by 2 per cent. and RPKs by 17 per cent., while Available Seat Kilometres (ASK) rose by 12 per cent. compared to the same period in the previous year. The carrier was therefore able to increase the passenger load factor by 3.3 per cent points to
81.3 per cent. Unit revenue (RASK: Revenue per Available Seat Kilometres) improved by 2 per cent. over the same period.
Norwegian is currently offering 17 non-stop routes between Europe and the U.S., as well as Thailand. In Spring 2015, the carrier will increase frequencies between Europe and the U.S. as well as introduce new routes connecting London-Gatwick and Copenhagen non-stop with Orlando. Norwegian is also upgrading its service for passengers with premium tickets, adding lounge access at various airports and a further enhanced in-flight service. The carrier won three prizes in 2014 at the prestigious Passenger Choice Awards in the categories "Best Airline in Europe", "Best Inflight Connectivity & Communications" and "Best Single Achievement in Passenger Experience for its moving map on the 787 Dreamliners".
In the third quarter of 2014, ASKs and RPKs increased by 36 per cent. and 41 per cent. respectively compared to the same period in the preceding year. The load factor increased by 3.2 per cent points to 84.6 per cent., EBITDAR (excluding other gains and losses) increased by 11 per cent and operating revenue grew by 30 per cent. Operating profit for the third quarter was NOK 532 million (USD 83 million). On top of that, the carrier increased its ancillary revenues calculated per passenger by 37 per cent. whereas total ancillary passenger revenues grew by 60.5 per cent. In addition, the carrier gained 47 to 48 per cent. of market growth at London-Gatwick and Oslo airports. These facts underline the point that Norwegian Air's growth strategy is progressing well.
At 30 September 2014 cash and cash equivalents amounted to NOK 1,431 million (USD 222 million). The amount of equity has slightly increased compared to the accounting date 31st December 2013. The equity ratio stood at 15.0 per cent at the end of the third quarter 2014.
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Nevertheless, Norwegian's results are challenged by the weak Norwegian currency as well as the
delayed US approval process leading to higher costs; with regard to the authorisation process the airline is supported by the European Commission, which is seeking to accelerate matters. In any event, Norwegian's current schedule is not dependent upon or affected by this approval procedure, and the carrier continues to expand its long-haul network as previously mentioned. Despite this the carrier was still successful in further decreasing unit costs, including fuel by 1 per cent. and unit costs excluding fuel by 3 per cent. in the third quarter of 2014 compared to the same quarter the previous year. As fuel accounts for 32 per cent. of Norwegian Air's operating costs, it can be assumed that the airline will profit from lower fuel prices in 2015.
Last but not least, Norwegian Air's Dreamliner fleet has reached a size where the company no longer needs to wet-lease additional aircraft in the course of normal operation. In 2015, the airline expects to grow ASKs on long-haul by up to 25 per cent. and is looking to profit from the maturity of its new base in London-Gatwick as well as its long-haul network and the increased utilisation of its B787 fleet which now consists of seven aircraft. The carrier took delivery of three B787-8s last year and plans to take delivery of one aircraft in early 2015 and four further aircraft in 2016 so that it is operating a fleet of twelve Boeing 787s by the end of next year.
DS Aviation GmbH & Co. KG Member of Dr. Peters Group Stockholmer Allee 53
44269 Dortmund, Germany
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D P AIRCRAFT I LIMITED 2014 ANNUAL REPORT AND AUDITED CONSOLIDATED FINANCIAL STATEMENTS from 5 July 2013 to 31 December 2014 DIRECTORSThe current Directors of the Company were appointed on 9 July 2013 and are as follows:
Jonathan (Jon) Bridel, Non- Executive Chairman (50)
Jon is a Guernsey resident and is currently a non-Executive Director of Alcentra European Floating Rate Income Fund Limited, Starwood European Real Estate Finance Limited, The Renewables Infrastructure Group Limited and Sequoia Economic Infrastructure Income Fund Limited which are listed on the Main Market of the London Stock Exchange. Other companies include Altus Global Gold Limited, Aurora Russia Limited and Fair Oaks Income Fund Limited. Jon was previously Managing Director of Royal Bank of Canada's investment businesses in the Channel Islands and served as a Director on other RBC companies including RBC Regent Fund Managers Limited. Prior to joining RBC, Jon served in a number of senior management positions in banking, specialising in credit and corporate finance and private businesses as Chief Financial Officer in London, Australia and Guernsey having previously worked at Price Waterhouse Corporate Finance in London.
Jon graduated from the University of Durham with a degree of Master of Business Administration, holds qualifications from the Institute of Chartered Accountants in England and Wales (1987) where he is a Fellow, the Chartered Institute of Marketing and the Australian Institute of Company Directors. Jon is a Chartered Marketer and a member of the Chartered Institute of Marketing and the Institute of Directors and a Chartered Fellow of the Chartered Institute for Securities and Investment.
Didier Benaroya, Non- Executive Director (64)
Having previously worked as the founder and senior partner of the Transportation Group and the
managing director of Paine Webber, Didier has extensive experience in the transportation industry. He is currently resident in the UK and is the founder and a director of Numera Limited and Numera Services Limited, which has advised investors, lessors, banks, operating lease companies and airlines on aircraft and airline related transactions (including leasing, financing and restructuring) since 1995. Didier holds a BS in Economics, an MS in Mathematics and Applied Computer Science from the University of Paris, and an MBA from Northwestern University's Kellog School of Management.
Jeremy Thompson, Non- Executive Director (59)
Jeremy is a Guernsey resident with sector experience in finance, telecoms, aerospace & defence and
oil & gas. Since 2009 Jeremy has been a consultant to a number of businesses which includes non- executive directorships of investment vehicles relating to the BT pension scheme. He is also a non- executive director of two private equity funds and of a London listed oil and gas technology fund. Between 2005 and 2009 he was a director of multiple businesses within a private equity group. This entailed an active participation in private, listed and SPV companies. Prior to that he was chief executive officer of four autonomous businesses within Cable & Wireless PLC (operating in both regulated and unregulated markets), and earlier held MD roles within the Dowty Group. Jeremy currently serves as chairman of the States of Guernsey Renewable Energy Team and is a commissioner within the Alderney Gambling Control Commission and is also a member of the Guernsey Tax Tribunal panel. Jeremy received a B.Sc. from Brunel University, London and was awarded an MBA from Cranfield University. He was an invited member to the UK's senior defence course (RCDS). Jeremy has been awarded the Institute of Directors' Certificate and Diploma in Company Direction and is a member of the Institute of Directors.
Carol Kilby was appointed as the sole director on formation of the Company on 5 July 2013 and resigned this appointment at the Company's launch meeting on 9 July 2013.
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D P AIRCRAFT I LIMITED 2014 ANNUAL REPORT AND AUDITED CONSOLIDATED FINANCIAL STATEMENTS from 5 July 2013 to 31 December 2014 DIRECTORS' REPORTThe Directors present their report and audited financial statements for D P Aircraft I Limited for the period 5 July 2013 to 31 December 2014.
Principal Activity and Review of the Business
The Company's principal activity during the period under review was the purchase and lease of two Boeing 787-8 Aircraft (the 'Assets'). The Company wholly owns three subsidiaries, DP Aircraft Guernsey I Limited, DP Aircraft Guernsey II Limited and DP Ireland Aircraft Limited (together the
'Group').
The investment objective of the Group is to obtain income and capital returns for the Company's shareholders by acquiring, leasing and then, when the Board considers it appropriate, selling the Assets.
The Company has made its investments in the Assets through DP Aircraft Guernsey I Limited and DP Aircraft Guernsey II Limited. The Ordinary Shares of the Company are admitted to trading on the Official List of the Channel Islands Securities Exchange and to trading on the Specialist Fund Market of the London Stock Exchange.
On 22 December 2014, the Board of Directors of DP Aircraft I Limited announced that the Company is considering the acquisition of two further Boeing 787-8s, to be leased to a third party national airline on a twelve year lease. If the acquisition proceeds, it will be funded through a combination of equity and debt; and although funding terms are yet to be finalised, on the basis of current market conditions (including, inter alia, the cost of debt) it is expected that equity would be issued by the Company at or close to the current market price. Approval from shareholders is required before the Company can proceed with any new portfolio acquisition. Accordingly, the Company and its advisers will liaise with shareholders during 2015 in order to confirm that there is the requisite support from investors for the proposal.
These financial statements are prepared in accordance with the Companies (Guernsey) Law, 2008 and to conform to the requirements of the listing rules of the Specialist Fund Market of the London Stock Exchange and the Channel Islands Stock Exchange.
Results and Dividends
The profit before tax from 5 July 2013 to 31 December 2014 amounted to US$10.19m.
The Company aims to provide Shareholders with an attractive total return comprising income, from distributions through the period of the Company's ownership of the Assets, and capital, upon any sale of the Assets. The Company targets a quarterly distribution in February, May, August and November of each year. The target distribution is 2.25 cents per Share per quarter. Five quarterly distributions have been made at the date of this report, each meeting the 2.25 cents per Share target. The target dividends are targets only and should not be treated as an assurance or guarantee of performance or a profit forecast. The debt to equity ratio was 1.38 as at 31 December 2014.
Directors
The Directors of the Company, all of whom served throughout the period from 9 July 2013 are as
shown on page 10. As at the date of this report Mr Bridel, jointly with his wife, held 7,500 Ordinary
Shares and Mr J Thompson held 15,000 Ordinary Shares each in the Company.
Principal Risks and Uncertainties
The Statement of Risks and Uncertainties are as described on page 19.
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