Half year report

AVATION PLC CONSOLIDATED UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2010 Avation PLC, the aircraft leasing company, presents its interim results for the six months to 31 December 2010. The highlights presented in the results are: * The consolidated net profit after tax attributable to shareholders of Avation PLC increased by 98% to £1,584,826 for the 6 month period * Revenues increased by 10% to £8,282,327 * An 87% increase in basic earnings per share to 5.86 pence per share * A major business endeavour with Virgin Blue Airlines Pty Ltd has been established * A move from PLUS to a standard listing on the main market of the London Stock Exchange ENQUIRES: Avation PLC Jeff Chatfield, Chairman +44 7783 942 553 W H IRELAND Harry Ansell, Stockbroker +44 20 7220 1670 Financial Public Relations Bishopsgate Communications +44 207 562 3350 Laura Stevens/Giang Nguyen Websites www.avation.net AVATION PLC (the "Company") REGISTERED NUMBER: 05872328 (ENGLAND & WALES) UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2010 CHAIRMAN'S STATEMENT AND INTERIM MANAGEMENT REPORT The highlights in the results are: * Consolidated net profit after tax attributable to shareholders of Avation PLC increased by 98% to £1,584,826 for the 6 month period * Revenues increased by 10% to £8,282,327 * An 87% increase in basic earnings per share to 5.86 pence per share * A major business endeavour with Virgin Blue Airlines Pty Ltd has been established * A move from PLUS to a standard listing on the main market of the London Stock Exchange I am pleased to present the Company's interim results for the six months ended 31 December 2010 (the "Period"). The total consolidated revenue for the six month period was £8.3 million which is an increase of 10 per cent on the comparative period (31 Dec 2009: £7.6 million) as a result of higher lease rental income received during this period derived from the leasing of an additional Airbus A320-200 aircraft from April 2010. The Avation Group net profit after income tax attributable to the shareholders was recorded as £1.6 million, a 98 per cent increase on the comparative period (31 Dec 2009: £0.8 million). In line with an expansion of the scale of the Group's operations, profits have increased. Basic earnings per share for the Period were 5.86 pence, an increase of 87 per cent (31 Dec 2009: 3.14 pence). Net cash inflow from operating activities was £5.2 million (31 December 2009: £4.8 million). There was no major material capital expenditure during this six month period. Other operating expenses were reduced by £0.4 million mainly due to a reduction in claims on maintenance reserves. In October 2010, the Company moved from the PLUS-quoted market to the Main Market of the London Stock Exchange ("LSE") as a standard listing, to facilitate growth and raise the profile of Avation. On 10 January 2011, the Company entered into an agreement with Skywest Airlines (Australia) Pty Ltd ("Skywest") and Virgin Blue Airlines Pty Ltd ("Virgin Blue") to provide a fleet of up to 18 new aircraft which will operate primarily across the East Coast of Australia. Skywest proposes to provide "wet-lease" services to Virgin Blue. Some financial impact of this contract may be enjoyed in the period which ends June 30th 2011, however, it is anticipated that the first 8 aircraft will, in practice, commence service during the 2011-2012 financial year. Each aircraft will be operated under wet lease by Skywest on behalf of Virgin Blue for a fixed period of 10 years. Following the introduction of the first 8 aircraft, a further 10 or more aircraft may be deployed under option at Virgin Blue's request. The aircraft will be owned by, and leased by the Company to Virgin Blue on 10 year operating leases with other commercial terms as typically entered into by the Company and its lessee customers. The arrangements with Virgin Blue are subject to final negotiation. The Directors believe that given the calibre of the lessee and the wet- lessee, the length of the fixed terms and the fact the aircraft will be new, the Company is well placed to utilise Government-backed Export Credit Agency style Financing ("ECA Financing"). The Company intends to make an application for ECA Financing forthwith. Current trading conditions are satisfactory with the cost of finance being reduced and the Avation group successfully reducing or repaying higher cost debt facilities. Approximately £5m in long term debt was repaid during the period. The Company anticipates that the operations of the second half period of the 2010-2011 financial year will be in line with the first half, albeit that in terms of current trading the financial impact of the Virgin Blue leases will commence in the second half period to 30th June 2011 The Group is subject to the typical risks associated with the aviation business, including but not limited to any downturn in the global aviation industry, fuel costs, finance costs, war and terrorism and the like which may affect our airline customers' ability to fulfil their lease obligations. The business also relies on its ability to source for finance on favourable terms. Should this supply of finance contract, it would limit our fleet expansion and therefore growth. I would like to take this opportunity of thanking you, the owners of this enterprise, for your support over this busy period and look forward to updating you on the progress of the Virgin Blue initiative. Jeff Chatfield, Chairman Singapore 1 Feb 2011 AVATION PLC REGISTERED NUMBER: 05872328 (ENGLAND & WALES) CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) FOR THE SIX MONTHS ENDED 31 DECEMBER 2010 6 months to 6 months to 31 December 31 December Note 2010 2009 Continuing operations £ £ Revenue 4 8,282,327 7,556,268 Cost of sales (362,361) (593,826) Gross profit 7,919,966 6,962,442 Other income 5 67,582 2,686 Other operating expenses 6 (3,049,001) (3,419,063) Expenses - Administrative expenses (601,387) (408,296) - Finance expenses 7 (1,548,472) (1,607,074) Profit before taxation 2,788,688 1,530,695 Taxation (531,147) (187,155) Profit from continuing operations for the year 2,257,541 1,343,540 Other comprehensive income Currency translation differences arising on consolidation (874,418) 2,339,896 Revaluation gains on property, plant and equipment, net of tax - 339,982 Other comprehensive income for the year (net of tax) (874,418) 2,679,878 Total comprehensive income 1,383,123 4,023,418 Profit attributable to: Equity holders of the parent 1,584,826 801,941 Non-controlling interest 672,715 541,599 2,257,541 1,343,540 Total comprehensive income attributable to: Equity holders of the parent 1,033,096 2,458,990 Non-controlling interest 350,027 1,564,428 1,383,123 4,023,418 Earnings per share - Basic - continuing and total operations 5.86 pence 3.14 pence - Fully Diluted - continuing and total operations 5.69 pence 2.78 pence AVATION PLC REGISTERED NUMBER: 05872328 (ENGLAND & WALES) CONSOLIDATED BALANCE SHEET (UNAUDITED) AS AT 31 DECEMBER 2010 31 December 30 June Note 2010 2010 £ £ ASSETS Current assets: Cash and cash equivalents 3,054,403 1,227,881 Trade and other receivables 1,332,490 1,195,859 Inventories 1,109 707 Total current assets 4,388,002 2,424,447 Non-current assets: Property, plant and equipment 8 87,841,992 92,520,577 Goodwill 1,324,541 1,324,541 Total non-current assets 89,166,533 93,845,118 Total assets 93,554,535 96,269,565 LIABILITIES AND EQUITY Current liabilities: Trade and other payables 4,002,778 3,818,692 Provision for taxation 369,176 18,368 Loans and borrowings 9,841,422 9,602,462 Short-term provisions 2,524,884 2,047,185 Total current liabilities 16,738,260 15,486,707 Non-current liabilities: Trade and other payables 973,183 1,379,641 Loans and borrowings 34,283,291 39,123,267 Deferred tax liabilities 4,215,945 4,248,024 Total non-current liabilities 39,472,419 44,750,932 Equity attributable to shareholders: Share capital 9 285,322 262,190 Share premium 1,326,126 1,249,258 Assets revaluation reserve 6,760,372 6,760,372 Capital redemption reserve 7,000 7,000 Foreign currency translation reserve 3,011,629 3,563,359 Retained earnings 12,847,859 11,434,226 Parent interests 24,238,308 23,276,405 Non-controlling interests 13,105,548 12,755,521 37,343,856 36,031,926 Total liabilities and equity 93,554,535 96,269,565 AVATION PLC REGISTERED NUMBER: 05872328 (ENGLAND & WALES) STATEMENT OF CHANGES IN EQUITY (UNAUDITED) FOR THE SIX MONTHS ENDED 31 DECEMBER 2010 Foreign Assets Capital currency Share Non- Share Share revaluation Redemption translation option Retained Controlling Total capital premium reserve reserve reserve reserve earnings Total Interest Equity £ £ £ £ £ £ £ £ £ £ Group Balance at 1 July 2010 262,190 1,249,258 6,760,372 7,000 3,563,359 - 11,434,226 23,276,405 12,755,521 36,031,926 Profit for the year - - - - - - 1,584,826 1,584,826 672,715 2,257,541 Other comprehensive income - - - - (551,730) - - (551,730) (322,688) (874,418) Total comprehensive income - - - - (551,730) - 1,584,826 1,033,096 350,027 1,383,123 Dividend related to 2010 paid - - - - - - (171,193) (171,193) - (171,193) Increase in issued share capital 23,132 76,868 - - - - - 100,000 - 100,000 Balance at 31 December 2010 285,322 1,326,126 6,760,372 7,000 3,011,629 - 12,847,859 24,238,308 13,105,548 37,343,856 Balance at 1 July 2009 255,555 1,216,336 6,760,372 7,000 1,148,240 12,788 9,897,773 19,298,064 9,928,515 29,226,579 Profit for the year - - - - - - 801,941 801,941 541,599 1,343,540 Other comprehensive income - - 339,982 - 1,317,067 - - 1,657,049 1,022,829 2,679,878 Total comprehensive income - - 339,982 - 1,317,067 - 801,941 2,458,990 1,564,428 4,023,418 Increase in issued share capital 635 14,922 - - - - - 15,557 21,800 37,357 Balance at 31 December 2009 256,190 1,231,258 7,100,354 7,000 2,465,307 12,788 10,699,714 21,772,611 11,514,743 33,287,354 AVATION PLC REGISTERED NUMBER: 05872328 (ENGLAND & WALES) CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED 31 DECEMBER 2010 31 December 31 December 2010 2009 £ £ Cash flows from operating activities: Profit before taxation 2,788,688 1,530,695 Adjustments for: Depreciation expense 2,387,116 2,244,704 Claim on maintenance reserve 661,885 1,053,876 Interest expense 1,468,697 1,498,315 Interest income (1,242) (2,686) Operating profit before working capital changes 7,305,144 6,324,904 Movement in working capital: Trade and other receivables (136,631) (115,208) Inventories (402) (19) Trade and other payables (222,372) 776,927 Short-term provisions (137,248) (501,976) Cash from operations 6,808,491 6,484,628 Interest paid (1,468,697) (1,498,315) Interest received 1,242 2,686 Corporation tax paid (96,776) (130,155) Net cash from operating activities 5,244,260 4,858,844 Cash flows used in investing activities: Purchase of property, plant and equipment (17,504) (1,171) Net cash used in investing activities (17,504) (1,171) Cash flows from financing activities: Net proceeds from issuance of ordinary shares 100,000 15,557 Net proceeds from issuance of subsidiary's shares to minority - 21,800 Dividends paid (171,193) - Proceeds from borrowings 1,278,100 - Repayment of borrowings (4,028,934) (4,195,171) Capital element of finance lease repayments (665,090) - Net cash used in financing activities (3,487,117) (4,157,814) Effects of exchange rates on cash & cash equivalents 86,883 (2,079) Net increase in cash and cash equivalents 1,826,522 697,780 Cash and cash equivalents at beginning of financial period 1,227,881 1,039,321 Cash and cash equivalents at end of financial period 3,054,403 1,737,101 AVATION PLC REGISTERED NUMBER: 05872328 (ENGLAND & WALES) NOTES TO THE FINANCIAL INFORMATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2010 The Interim Report for Avation PLC for the six months ended 31 December 2010 was approved by the Directors on 1 February 2011. 1 CORPORATE INFORMATION Avation PLC (the Company) is a public limited company incorporated in England and Wales under the Companies Act 2006 (Registration Number 05872328). 2 BASIS OF PREPARATION AND ACCOUNTING POLICIES This Interim Report has been prepared in accordance with the Disclosure and Transparency Rules (DTR) of the Financial Services Authority and in accordance with International Accounting Standard (IAS) 34 'Interim Reporting'. The Interim Report does not include all the notes of the type normally included within the annual report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financial and investing activities of the consolidated entity as the full financial report. It is recommended that the Interim Report be read in conjunction with the annual report for the year ended 30 June 2010 and considered together with any public announcements made by Avation PLC during the six months ended 31 December 2010. The accounting policies and methods of computation are the same as those adopted in the annual report for the year ended 30 June 2010. The preparation of the Interim Report requires management to make estimates and assumptions that affect the reported income and expense, assets and liabilities and disclosure of contingencies at the date of the interim Report, actual results may differ from these estimates. The statutory financial statements of Avation PLC for the year ended 30 June 2010, which carried an unqualified audit report, have been delivered to the Registrar of Companies and did not contain a statement under section 498 of the Companies Act 2006. The Interim Report is unaudited and not reviewed by the auditors. The Interim Report does not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006. 3 SEGMENT INFORMATION a) Segment reporting policy A segment is a distinguishable component of the Group within a particular economic environment (geographical segment) and to a particular industry (business segment) which is subject to risks and rewards that are different from those of other segments. The primary format, business segments, is based on the Group's management and internal reporting structure. In presenting information on the basis of business segments, segment revenue and segment assets are based on the nature of the products or services provided by the Group, information for geographical segments is based on the geographical areas where the customers are located. Inter-segment pricing is determined on an arm's length basis. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly of corporate assets and liabilities or profit or losses items that are not directly attributable to a segment or those that cannot be allocated on a reasonable basis. Common expenses were allocated based on revenue from the Group. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one year. b) Primary reporting segment - business segments During the six months ended 31 December 2010, the Group was organised into two main business segments which are aircraft leasing and business procurement. Other operations of the Group mainly comprise investment holding which does not constitute a separate reportable segment. There are no inter-segment transactions recorded during the financial period. Aircraft Business leasing procurement Total 31 December 2010 £ £ £ Revenue & other income - External sales 8,586,668 424,176 9,010,844 - Other income 69,931 Total of all segments 9,080,775 Less: elimination (730,866) Consolidated revenue & other income 8,349,909 Aircraft Business leasing procurement Total 31 December 2010 £ £ £ Results Segment results 4,349,853 (13,935) 4,335,918 Finance income 1,242 Finance expense (1,548,472) Unallocated corporate expenses - Profit before taxation 2,788,688 Taxation (531,147) Profit after taxation 2,257,541 Other segment items Capital expenditure & valuation movement - property, plant and equipment 13,566 3,938 17,504 Depreciation 2,386,739 378 2,387,117 Aircraft Business 31 December 2010 leasing procurement Total £ £ £ Segment assets 93,324,495 230,040 93,554,535 Unallocated assets - Consolidated total assets 93,554,535 Segment liabilities Trade and other payables 4,698,266 277,695 4,975,961 Provisions of taxation 363,461 5,715 369,176 Short term provisions 2,524,884 - 2,524,884 Loans and borrowings 44,124,713 - 44,124,713 Deferred tax liabilities 4,215,945 - 4,215,945 Unallocated liabilities - Consolidated total liabilities 55,927,269 283,410 56,210,679 Aircraft Business leasing procurement Total 31 December 2009 £ £ £ Revenue & other income - External sales 7,109,469 660,931 7,770,400 - Other income 49,547 Total of all segments 7,819,947 Less: elimination (260,993) Consolidated revenue & other income 7,558,954 Aircraft Business leasing procurement Total £ £ £ 31 December 2009 Results Segment results 3,139,248 (4,165) 3,135,083 Finance income 2,686 Finance expense (1,607,074) Unallocated corporate expenses - Profit before taxation 1,530,695 Taxation (187,155) Profit after taxation 1,343,540 Other segment items Capital expenditure & valuation movement - property, plant and equipment 341,153 - 341,153 Depreciation 2,244,551 153 2,244,704 Aircraft Business 30 June 2010 Leasing procurement Total £ £ £ Segment assets 96,009,739 259,826 96,269,565 Unallocated assets - Consolidated total assets 96,269,565 Segment liabilities Trade and other payables 4,902,278 296,055 5,198,333 Provisions of taxation 14,532 3,836 18,368 Short term provisions 2,047,185 - 2,047,185 Loans and borrowings 48,725,729 - 48,725,729 Deferred tax liabilities 4,248,024 - 4,248,024 Unallocated liabilities - Consolidated total liabilities 59,937,748 299,891 60,237,639 c) Second reporting segment - geographical segments The following table provides an analysis of the revenues by geographical market, irrespective of the origin of the goods: 31 December 31 December 2010 2009 Revenue £ £ Australia 4,671,720 4,067,553 United States 709,346 678,332 Denmark 2,875,725 2,749,995 Nigeria 14,288 23,876 Other 11,248 36,512 8,282,327 7,556,268 Total Net Book Value assets Aircraft 31 December 2010 £ £ Australia 38,995,810 35,462,871 United States 7,241,434 7,241,434 Denmark 45,137,687 45,137,687 Nigeria 8,111 - Malta 523,309 - United Kingdom 168,869 - Other 1,479,715 - 93,554,935 87,841,992 Total Net Book Value assets Aircraft 30 June 2010 £ £ Australia 40,119,752 37,503,127 United States 7,649,047 7,649,047 Denmark 47,368,403 47,368,403 Malta 534,235 - United Kingdom 338,302 - Other 259,826 - 96,269,565 92,520,577 4 REVENUE 31 December 31 December 2010 2009 £ £ Rental income 7,149,482 6,151,577 Maintenance rent revenue 708,669 743,760 Management and service income 45,755 560,282 Sales of finished goods 378,421 100,649 8,282,327 7,556,268 5 OTHER INCOME 31 December 31 December 2010 2009 £ £ Interest income 1,242 2,686 Foreign currency exchange adjustment gain 66,340 - 67,582 2,686 6 OTHER OPERATING EXPENSES 31 December 31 December 2010 2009 £ £ Claim on maintenance reserve expense 661,885 1,053,876 Depreciation of property, plant and equipment 2,387,116 2,244,704 Foreign currency exchange adjustment loss - 120,483 3,049,001 3,419,063 7 FINANCE EXPENSES 31 December 31 December 2010 2009 £ £ Interest expense on secured borrowings 1,468,697 1,498,315 Guarantee and commitment fee 79,775 108,749 1,548,472 1,607,064 8 PROPERTY, PLANT AND EQUIPMENT Furniture and equipment Aircraft Total 31 December 2010 £ £ £ Cost or valuation: At 1 July 2010 995 103,942,004 103,942,999 Additions 3,938 13,566 17,504 Currency realignment 20 (2,577,032) (2,577,012) At 31 December 2010 4,953 101,378,538 101,383,491 Representing: Cost 4,953 5,014,813 5,019,766 Valuation - 96,363,725 96,363,725 4,953 101,378,538 101,383,491 Accumulated depreciation: At 1 July 2010 995 11,421,427 11,422,422 Depreciation for the period 378 2,386,739 2,387,117 Currency realignment (23) (268,017) (268,040) At 31 December 2010 1,350 13,540,149 13,541,499 Net book value: At 1 July 2010 - 92,520,577 92,520,577 At 31 December 2010 3,603 87,838,389 87,841,992 Furniture and equipment Aircraft Total 30 June 2010 £ £ £ Cost or valuation: At 1 July 2009 4,367 88,883,092 88,887,459 Additions - 5,016,050 5,016,050 Disposal/written off (3,620) - (3,620) Currency realignment 248 10,042,862 10,043,110 At 30 June 2010 995 103,942,004 103,942,999 Representing: Cost 995 5,014,813 5,015,808 Valuation - 98,927,191 98,927,191 995 103,942,004 103,942,999 Accumulated depreciation: At 1 July 2009 4,140 5,829,393 5,833,533 Depreciation for the year 238 4,704,566 4,704,804 Disposal/written off (3,620) - (3,620) Currency realignment 237 887,468 887,705 At 30 June 2010 995 11,421,427 11,422,422 Net book value: At 1 July 2009 227 83,053,699 83,053,926 At 30 June 2010 - 92,520,577 92,520,577 9 SHARE CAPITAL 31 December 30 June 2010 2010 £ £ Authorised: 100,000,000 ordinary shares of 1 penny each 1,000,000 1,000,000 Allotted, called up and fully paid: 28,532,220 (30 June 2010: 26,219,010) ordinary shares of 1 penny each 285,322 262,190 On 26 October 2010, the Company issued 2,313,210 ordinary shares of 1 penny each following the exercise of warrants by the warrant holders for £100,000. 10 DIVIDENDS PAID 31 December 31 December 2010 2009 £ £ Dividend paid during the 6 months ended 31 December: Final dividend of 0.6p (2009: NIL) 171,193 - No dividends have been declared subsequent to 31 December 2010. 11 EARNINGS PER SHARE (a) Basic earnings per share ("EPS") EPS is calculated by dividing the net profit attributable to members of the Company by the weighted average number of ordinary shares in issue during the financial year. 31 December 31 December 2010 2009 £ £ Net profit attributable to equity holders of the Company 1,584,826 801,941 Weighted average number of ordinary shares 27,061,320 25,565,173 Basic earnings per share 5.86 pence 3.14 pence (b) Diluted earnings per share For the purpose of calculating diluted earnings per share, profit attributable to equity holders of the Company and the weighted average number of ordinary shares outstanding are adjusted for the effects of all dilutive potential ordinary shares. The Company has one category of dilutive potential ordinary shares; warrants. For warrants, the weighted average number of shares on issue has been adjusted as if all dilutive share options were exercised. The number of shares that could have been issued upon the exercise of all dilutive share option less the number of shares that could have been issued at fair value (determined as the Company's average share price for the financial year) for the same total proceeds is added to the denominator as the number of shares issued for no consideration. No adjustment is made to the net profit. Diluted earnings per share attributable to equity holders of the Company is calculated as follows: 31 December 31 December 2010 2009 £ £ Net profit attributable to equity holders of the Company 1,584,826 801,941 Weighted average number of ordinary shares 27,061,320 25,565,173 Adjustment for: - Warrants 787,348 3,304,827 27,848,668 28,870,000 Diluted earnings per share 5.69 pence 2.78 pence 12 CONTINGENT LIABILITIES There were no material changes in contingent liabilities since 30 June 2010. 13 TRANSACTIONS WITH RELATED PARTIES Significant related party transactions: 31 December 31 December 2010 2009 £ £ Sales of goods to a related party(1) 306,428 54,542 Services rendered to a related party(2) 43,344 541,638 Guarantee and commitment fee paid to a related party(3) 79,775 108,749 Maintenance rent received from a related party(4) 708,669 743,760 Rental income received from a related party(5) 3,569,349 2,723,250 1 - Sales of goods to Skywest Airlines (Australia) Pty Ltd in which a director of the Company is also a director of Skywest Airlines (Australia) Pty Ltd. 2 - Services rendered to Skywest Airlines (Australia) Pty Ltd in which a director of the Company is also a director of Skywest Airlines (Australia) Pty Ltd. 3.- Paid to CaptiveVision Capital Ltd in which a director of the Company is a director of CaptiveVision Capital Ltd. 4 - Received from Skywest Airlines (Australia) Pty Ltd in which a director of the Company is also a director of Skywest Airlines (Australia) Pty Ltd. 5 - Received from Skywest Airlines (Australia) Pty Ltd in which a director of the Company is also a director of Skywest Airlines (Australia) Pty Ltd. The nature and contractual terms of key management compensation and inter-company transactions during the period are consistent with the disclosures in the Annual Report for the year ended 30 June 2010. 14 EVENTS AFTER THE BALANCE SHEET DATE On 10 January 2011, the Company entered into an agreement with Skywest Airlines Pty Ltd ("Skywest") and Virgin Blue Airlines Pty Ltd ("Virgin Blue") to provide a fleet of up to 18 new aircraft which will operate in Australia. Each aircraft will be operated by Skywest under wet lease to Virgin Blue for a fixed period of 10 years. The 2 airlines and the Company are making arrangements to take delivery of new aircraft during 2011 and 2012. The aircraft will be owned by, and leased by the Company on 10 year operating leases with other commercial terms in line with those typically entered into by the Company and its lessee customers. The Directors believe that given the quality of the lessee, the fixed term and the fact the aircraft are new, the Company is well placed to utilise Government-backed Export Credit Agency Financing ("ECA Financing"). The Company intends to make an application for ECA Financing forthwith. PRINCIPAL RISKS The Group's risk management processes bring greater judgement to decision making as they allow management to make better, more informed and more consistent decisions based on a clear understanding of risks involved. We regularly review the risk assessment and monitoring process as part of our commitment to continually improve the quality of decision-making across the Group. The Group's principal risks and uncertainties are consistent with those set put in the Prospectus submitted to the London Stock Exchange. The principal risks and uncertainties which may affect the Group in the second half of the financial year will include the typical risks associated with the aviation business, including but not limited to any downturn in the global aviation industry, fuel costs, finance costs, war and terrorism and the like which may affect our airline customers' ability to fulfil their lease obligations. The business also relies on its ability to source for finance on favourable terms. Should this supply of finance contract, it would limit our fleet expansion and therefore growth. GOING CONCERN After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements. The financial risk management objectives and policies of the Group and the exposure of the Group to credit risk and liquidity risk are discussed in the annual report for the Group for the year ended 30 June 2010. DIRECTORS The directors of Avation PLC are listed in its Annual Report for the year ended 30 June 2010. A list of the current directors is maintained on the Avation PLC website: www.avation.net. STATEMENT OF DIRECTORS' RESPONSIBILITIES The Directors confirm that, to the best of their knowledge, this condensed consolidated interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8 namely * an indication of important events that have occurred during the first six months and their impact on the Interim Report, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and * material related party transactions in the first six months and any material changes in the related party transactions described in the last annual report. By order of the Board of Directors, Jeff Chatfield Chairman Singapore, 2 Feb 2011 Avation plc

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