OASIS INTERNATIONAL LEASING 2004 Consolidated...

OASIS INTERNATIONAL LEASING COMPANY P.J.S.C.

2004 Consolidated Financial Statements


2004 Consolidated Financial Statements

Contents Page

Company Information 1

Directors’ Report 2-3

Chief Executive’s Report 4-5

Independent Auditors’ Report 6

Consolidated Income Statement 7

Consolidated Balance Sheet 8

Consolidated Statement of Changes in Equity 9

Consolidated Statement of Cash Flows 10

Notes to the Consolidated Financial Statements 11-27


Page 1

Board of Directors

Chairman Mr. Mohammed Saif Al-Mazrouei

Vice Chairman Mr. Khalifa Mohammed Al Kindi

Directors Mr. Abdulhamid Saeed ** Mr. Hamad Mohammed Bin Brook Mr. Hussain Al-Nowais ** Mr. John MacBeath *** Mr. Khaled Al-Mass ** Mr. Khaldoon Al-Mubarak ** Mr. Richard Lapthorne Mr. William Anthony Rice Mr. Hamad Al Hurr Al Suwaidi * Mr. Hamed Bin Ahmed Al Hamed *

* Retired 19 April 2004 ** Joined 19 April 2004 *** Joined 31 October 2004

Chief Executive Officer Mr. Gordon Dixon

Head Office P O Box 28922 The ADNIC Building Khalifa Street Abu Dhabi UAE

Auditors KPMG P O Box 7613 16th Floor, Falcon Tower Al Nasr Street Abu Dhabi UAE


Page 2

Directors’ Report

As I stated in my Interim Report, 2004 has seen an improvement in the operating environment after two very difficult years. There has been a material increase in global airline passenger traffic and in spite of intense competition most operators around the globe are starting to see improved returns. North America is lagging but, even there, the general outlook is looking more positive as carriers look to improve efficiency and productivity to help bring a return to profitability.

This rising confidence is reflected in a strong level of orders for new aircraft in the books of the major manufacturers. It is coupled with a reduced number of passenger jet aircraft that are out of service and an increased demand for aircraft. This is carrying through to improved lease rates and increasing aircraft values.

The Group’s strategy of signing up to shorter term leases in the depressed markets of 2002 and 2003 has meant that Oasis has been able to take advantage of the improved opportunities as leases have come due in an improved market. The Group has managed to negotiate lease extensions or carry out a successful remarketing of all aircraft due to reach the end of their lease in 2005. This has placed the Group in a strong position to be able to focus on new business in the coming year.

There were a number of key highlights in 2004. In the first half of the year the sale of the dry bulk vessel was completed demonstrating Oasis’ ability to profitably trade assets. In the second half of the year there was a successful outcome to the Group’s claim in the Air Canada administration and the Rights Issue was successfully completed in the last quarter of the year.

The net profit before taxation for the year of AED 10.7m has continued the Group’s good record of performing well in a difficult market. Leasing is not a short term business and it has always been the objective of Oasis to build a portfolio which will enhance shareholder value in the longer term. This will involve a diversification in asset type and geography over a period in time and the Group is actively looking at a number of opportunities to help achieve this.

Leasing is also a capital intensive business. Unfortunately the Group was constrained by a lack of capital in 2004 and unable to expand the portfolio. The proceeds from the Rights Issue were received by the Group after the allotment process in December. This combined with the lead time on most large leasing transactions meant that the Group was not able to utilize the funds in adding to the portfolio prior to the year end.

In January 2005 Oasis signed a Letter of Intent with Etihad Airways PJSC the national carrier of the United Arab Emirates. The LOI is for the purchase and financing of eight A330 Airbus aircraft. It is anticipated that the transaction will be formalized in the first half of 2005. Etihad Airways is a key project in the ongoing growth and development of Abu Dhabi and this is an exciting milestone, not only for Oasis Leasing and our shareholders but also for the future growth of the airline.

The transaction has a total value of approximately AED 3Bn. In order to finance the investment in the deal Oasis will be required to raise additional equity. At a meeting of the Board of Directors held on 30th January 2005 it was resolved that the Group would approach its members with the intention of obtaining approval to increase the authorized share capital by way of a Rights Issue by AED800,000,000 to AED1,500,000,000. Details of the offer and the timetable for the Extraordinary General Meeting will be made public when they are finalised.


Page 4

Chief Executive’s Report Dear Shareholders,

2004 has been a very busy year for Oasis with the successful Rights Issue at the end of the year being one of the highlights. The busy period has continued for the Group with the signing of a Letter of Intent with Etihad Airways. This will be the largest single financing arrangement concluded by Oasis. The deal is confirmation of the growing local and regional interest in leasing as a financing option. The Group has been working for a number of months with a syndicate of banks to put together a solution tailored for Etihad. Further information will be made available in due course.

The Chairman has already commented on the fact that Oasis made a conscious decision to try to shorten the effects of the depressed aviation market by avoiding longer term leases when negotiating renewals post the events of September 11, 2001, SARS and the war in Iraq. This has meant that there has been a lot of activity during the year relating to the renegotiation and remarketing of parts of our portfolio. The very heartening news is that as a result of those negotiations we are seeing tangible signs of an improvement in the industry as lease rates improve and aircraft values increase.

The financial result for the year, a profit before taxation of AED 10.7m (2003: AED 4.7m), is pleasing as this year the Profit and Loss account saw the full year effect of lease renewals negotiated in the depressed market of 2002 and 2003. That combined with the sale of the vessel early in the year was reflected in the reduced revenue AED 177m (2003: AED 200.6m). It is a significant achievement for the Group that it has been able to return a profit in both 2003 and 2004.

The Balance Sheet is in a good position to take advantage of improving market conditions. The proceeds from the Rights Issue, which became available in December, have resulted in the gearing reducing to 62% (2003: 74%). The lack of capital earlier in 2004 resulted in the Group not being in a position where it could expand the portfolio. The proceeds of the Rights Issue together with available financing facilities gives Oasis some room for growth in the short term but leasing is a capital intensive business. It requires the portfolio to reach a critical mass in order to be able to generate growth from purely ongoing operations. The Etihad transaction will move the Group a long way towards having the critical mass required but the full effects of the deal will not be seen until 2008 as the last aircraft is not due for delivery until mid 2007. To finance this transaction and in order to diversify the portfolio into other asset types Oasis will continue to require fresh equity funding in the short term.

I have stated in the past that the Group uses a measure called RALB (Risk Adjusted Lease Book) as an indicator of future potential. This represents the value of our future contracted leases but excludes the value that we can derive from the assets remaining life beyond the current leases, and their residual value. Risk adjusting the contract value also focuses management on the quality of business as well as the quantity. At December 2003 RALB stood at AED714m. In 2004 we have added a further AED57m although natural amortization reduced this by AED155m. RALB at December 2004 amounted to AED616m. With the inflow of funds in December from the Rights Issue it is anticipated that this anomaly will be corrected in 2005 as the portfolio is able to grow again.


Page 9

Consolidated Statement of Changes in Equity for the year ended 31 December 2004

Share capital

Other

reserves

Statutory

reserve

Hedging

reserve

Available-for-sale

equity reserve

Retained earnings

Total

(AED ’000)

(AED ’000)

(AED ’000)

(AED ’000)

(AED ’000)

(AED ’000)

(AED ’000)

At 1 January 2003 500,000

-

8,222

(16,136)

(3,351)

35,464

524,199

Fair value adjustments (Refer to Notes 22 and 24)

-

-

-

(1,299)

2,236

-

937

Transferred to the income statement (Refer to Notes 22 and 24)

-

-

-

12,304

-

-

12,304

Dividends (Refer to Note 27) -

-

-

-

-

(10,000)

(10,000)

Net profit for the year -

-

-

-

-

4,532

4,532

Transfer to statutory reserve -

-

453

-

-

(453)

-

At 31 December 2003 500,000

-

8,675

(5,131)

(1,115)

29,543

531,972

At 1 January 2004 500,000

-

8,675

(5,131)

(1,115)

29,543

531,972

Fair value adjustments (Refer to Notes 22 and 24)

-

-

-

593

13,107

-

13,700

Transferred to the income statement (Refer to Notes 22 and 24)

-

-

-

3,519

(4,486)

-

(967)

Issue of share capital (Refer to Note 20)

200,000

3,000

-

-

-

-

203,000

Share issue transaction costs (Refer to Note 20)

-

(2,412)

-

-

-

-

(2,412)

Net profit for the year -

-

-

-

-

8,787

8,787

Transfer to statutory reserve -

-

879

-

-

(879)

-

At 31 December 2004 700,000

588

9,554

(1,019)

7,506

37,451

754,080

The notes numbered 1 to 31 form an integral part of these Consolidated Financial Statements. The Independent Auditors’ Report is set out on page 6.


Page 10

Consolidated Statement of Cash Flows for the year ended 31 December 2004

2004

2003

(AED '000)

(AED '000)

Net profit before taxation

10,724

4,685

Adjustments for:

Depreciation

121,292

117,489

Interest on term loans

50,001

58,781

Interest on bank deposits

(1,570)

(776)

Amortisation of project costs

5,573

4,772

Gain on sale of operating lease assets

(11,188)

-

Gain on recognition of investments available-for-sale

(10,218)

-

Gain on sale of investments available-for-sale

(4,486)

(417)

Interest income from investments

(66)

(1,169)

Changes in working capital:

Decrease / (increase) in trade and other receivables

3,362

(1,622)

(Decrease) / increase in trade and other payables

(3,322)

10,986

Principal payments received under finance leases

-

(168)

Principal payments received from originated loans

8,446

7,448

Interest paid on term loans

(49,977)

(58,298)

Taxes paid

(337)

-

Cash flows from operating activities

118,234

141,711

Purchase of operating lease assets

(5,751)

(43,042)

Investment in finance leases

-

(121,374)

Purchase of investments held-to-maturity

(6,609)

-

Purchase of investments available-for-sale

(1,858)

(2,467)

Project costs incurred

(3,457)

(5,523)

Purchase of other fixed assets

(82)

(134)

Proceeds on sale of operating lease assets

74,628

-

Proceeds from sale of investments available-for-sale

18,117

3,367

Increase in cash-encumbered

(18,961)

(2,274)

Interest received

1,417

957

Cash flows from investing activities

57,444

(170,490)

Proceeds from the issue of share capital

203,000

-

Share issue transaction costs

(1,344)

(312)

Term loans obtained

198,060

349,922

Term loans repaid

(508,492)

(369,338)

Dividends paid

-

(10,000)

Cash flows from financing activities

(108,776)

(29,728)

Net increase / (decrease) in cash and cash equivalents

66,902

(58,507)

Cash and cash equivalents at beginning of the year

17,720

76,227

Cash and cash equivalents at end of the year (Refer to Note 19)

84,622

17,720

The notes numbered 1 to 31 form an integral part of these Consolidated Financial Statements. The Independent Auditors’ Report is set out on page 6.


Page 11

Notes to the 2004 Consolidated Financial Statements

1 Establishment and Operations

Oasis International Leasing Company P.J.S.C. (“the Company”) is a public joint stock company with limited liability formed in the Emirate of Abu Dhabi, United Arab Emirates, by Emiri Decree No 10 dated 20 May 1997 and was incorporated on 12 July 1997.

These consolidated financial statements for the year ended 31 December 2004 comprise the Company and its Subsidiaries (collectively referred to as “the Group”) and the Group’s interest in jointly controlled entities.

The Group is engaged in owning, selling, leasing and investing in all types of fixed and movable assets worldwide.

2 Significant accounting policies

(a) Statement of compliance The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) promulgated by the International Accounting Standards Board and the requirements of the UAE Federal Law No. 8 of 1984 (as amended).

(b) Basis of preparation The consolidated financial statements are presented in UAE Dirhams ("AED") rounded to the nearest thousand and are prepared on a historical cost basis. Derivative financial instruments and investments available-for-sale are stated at fair value. Other financial assets and liabilities are stated at amortised cost or historical cost.

The accounting policies have been consistently applied by the Group and are consistent with those applied in the previous year, except as detailed in Note 12.

(c) Basis of consolidation i) Subsidiaries

Subsidiaries are enterprises controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The financial statements of the Subsidiaries are included in the consolidated financial statements from the date that control commences and until the date that control ceases.

ii) Jointly controlled entities

Jointly controlled entities are those enterprises over whose activities the Group has joint control, established by contractual agreement. The consolidated financial statements include the Group’s proportionate share of the enterprises’ assets, liabilities, revenue and expenses consolidated with the Group’s items of a similar nature on a line by line basis, from the date that joint control commences and until the date that joint control ceases.


Page 12

2 Significant accounting policies (continued)

iii) Transactions eliminated on consolidation

Intra-group transactions and balances, and any unrealised gains arising from intra-group transactions have been eliminated on consolidation. Unrealised gains arising from transactions with jointly controlled entities are eliminated to the extent of the Group’s interest in the enterprise.

(d) Revenue Recognition i) Operating Leases

Operating Leases are generally for periods less than the economic useful life of the asset wherein the risks and rewards of ownership remain with the Group until the asset is sold.

Revenue represents the lease rental income from operating leases recognised on a straight-line basis over the lease term.

ii) Finance Leases

Finance Leases are generally for periods longer than Operating Leases wherein the Group transfers substantially the risks and rewards incidental to ownership to the lessee. Title may or may not eventually transfer to the lessee.

Revenue represents the amortisation of the Unearned Finance Income over the lease term based on a pattern reflecting a constant periodic rate of return on the Net Investment outstanding.

Unearned Finance Income is the difference between the Gross Investment and the present value of the Gross Investment, specifically:

A. the aggregate of future Minimum Lease Payments and Unguaranteed Residual Value of the leased asset at the end of the lease, collectively the “Gross Investment” and

B. the present value of the Gross Investment discounted at a rate, which at inception of the lease, causes the present value of the Gross Investment to be equal to the fair value of the leased asset. This is defined as the Net Investment.

Minimum Lease Payments are the payments that the lessee is required to make over the lease term, including any residual value of the asset guaranteed by the lessee and any purchase option exercisable by the lessee, which is at a level significantly lower than the forecast fair value of the asset at the date at which the option is to be exercised.

Unguaranteed Residual Value is that portion of the residual value of the leased asset, realisation of which is not assured to the lessor (the Group).

iii) Interest income

Interest income on originated loans, investments held-to-maturity and investments available-for-sale is recognised in the income statement using the Effective Interest Rate method. The Effective Interest Rate is the rate that exactly discounts the expected stream of future cash flows to the net carrying amount at acquisition.

(e) Interest on term loans Interest on term loans is charged to the income statement at the floating rates prevailing during the course of the loans. Where the Group enters into Interest Rate Swaps (IRS), interest is adjusted to reflect the cost of the hedge.


Page 13


(f) Taxation Income tax on the profit or loss for the year comprises current and deferred tax. Current tax is recognised in the Income Statement, on the taxable income for the year using tax rates applicable at the balance sheet date. Deferred taxation is provided for using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

(g) Operating assets Operating assets represents the carrying amount of the revenue generating assets of the Group. These are further classified as follows:

(i) Operating Lease assets

Operating lease assets are stated at cost less accumulated depreciation and impairment losses, if any.

The economic useful life, from the date of manufacture of these assets, is determined on the basis of conservative industry standards of 20 years for ships and 25 years for commercial aircraft. The cost of these assets is depreciated from the date of acquisition on a straight-line basis, over their remaining economic useful life, which was in the range of 16 to 25 years at acquisition.

Subsequent investments made by the Group in respect of existing assets are analysed and where appropriate are capitalised and amortised over the useful remaining leasing life of the asset. To the extent that there is investment during the life of the asset on major replacement parts then any remaining life of the part replaced shall be written off in the year of its replacement.

(ii) Investment in finance leases

This represents the present value of the aggregate of future Minimum Lease Payments and Unguaranteed Residual Value of the asset at the end of the lease.

(iii) Originated loans

The Group makes originated loans by lending money without the intention of selling these in the short term. These are measured at Amortised Cost using the Effective Interest Rate. The Effective Interest Rate is the rate that exactly discounts the expected stream of future cash flows to the net carrying amount at acquisition. Amortised Cost is the loan amount including initial direct expenses and fees at which the asset was recognised, adjusted for any principal repayments, cumulative amortisation of any initial premiums and discounts and impairment losses, if any.

(iv) Investments held-to-maturity

Investments that the Group has the intent and ability to hold to maturity are classified as Investments held-to-maturity.

Investments held-to-maturity are measured at Amortised Cost using the Effective Interest Rate. Amortised Cost is the initial amount, including initial direct expenses and fees at which the asset was recognised adjusted for any principal repayments, cumulative amortisation of any initial premiums and discounts and impairment losses, if any.

(h) Project costs Project costs represent the initial direct expenses such as legal, technical and funding fees incurred incidental to acquisition or financing of operating assets. The costs relating to successful projects are amortised over the lease or loan tenure, as applicable. In the period in which it is recognised that a project has not been successful or the operating asset sold, accumulated costs are immediately expensed.


Page 14


(i) Investments available-for-sale The investments classified as “available-for-sale” are recognised at fair value. Any gain or loss arising from a change in fair value of such investments is recognised directly in equity unless the financial asset is sold or is impaired, at which time the cumulative gain or loss previously recognised in equity is transferred to the income statement. The fair value of investments available-for-sale is their quoted price at the balance sheet date.

(j) Staff terminal benefits The provision for staff terminal benefits, included in trade and other payables, is calculated in accordance with the UAE Federal Labour Law.

(k) Foreign currency Foreign currency transactions are translated into AED at the rate prevailing on the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated into AED at rates prevailing at the balance sheet date. Realised and unrealised gains and losses are recognised in the income statement.

For consolidation purposes the assets and liabilities of the Subsidiaries and the Group’s interest in jointly controlled entities are translated into AED at the rates prevailing at the balance sheet date. Income statements of the Subsidiaries and the Group’s interest in jointly controlled entities are translated at the average rate of exchange during the year.

(l) Cash and cash equivalents Cash and cash equivalents include cash and bank balances and bank deposits with maturity of three months or less.

(m) Cash-encumbered Cash-encumbered includes security deposits and maintenance reserves received from lessees and any minimum cash balances held by the Group as required under loan agreements.

(n) Term loans Term loans are stated at amortised cost.

(o) Derivative financial instruments Where appropriate, the Group uses interest rate swaps (“IRS”) to hedge its exposure to fluctuations in future interest rates. The IRS are classified as “cash flow hedges” and accordingly are initially recognised at cost and subsequently restated at fair value as adjustments to equity (“Hedging reserve”).

The fair value of IRS is the estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date taking into account current market conditions and the current credit worthiness of the counter parties.

(p) Impairment The carrying amounts of the Group's assets are reviewed at each balance sheet date to determine whether there is a reasonable indication of impairment. If any such indication exists, the asset's recoverable amount is estimated at the greater of the asset’s estimated current selling price or value in use. Value in use is represented by the present value of estimated future cash flows arising from the assets.

An impairment loss is recognised in the income statement whenever the carrying amount of an asset exceeds its recoverable amount.


Page 15


(q) Long term incentive plan Compensation payable under the long term incentive plan is recognised in the period in which the Participants are entitled to the benefits granted under the plan.

(r) Segment reporting A segment is a distinguishable component of the Group that is engaged in providing leases within a particular economic environment (geographic segments), which is subject to risks and rewards that are different from other segments.

3 Consolidation

Subsidiaries The financial statements of the following companies (“the Subsidiaries”) have been consolidated in these financial statements. These Subsidiaries are wholly owned by the Company.

Subsidiaries Country of incorporation Second Waha Lease Limited Isle of Man Third Waha Lease Limited Isle of Man Fourth Waha Lease Limited Isle of Man Fifth Waha Lease Limited Isle of Man Sixth Waha Lease Limited Isle of Man Seventh Waha Lease Limited Isle of Man Eighth Waha Lease Limited Isle of Man Ninth Waha Lease Limited Isle of Man Tenth Waha Lease Limited Isle of Man Eleventh Waha Lease Limited Isle of Man Twelfth Waha Lease Limited Isle of Man Fourteenth Waha Lease Limited Isle of Man Fifteenth Waha Lease Limited Isle of Man Sixteenth Waha Lease Limited Isle of Man Oasis International Leasing (USA) Inc. United States of America Ovenstone Limited * Republic of Ireland Prunalia Trading Limited * Republic of Cyprus Waha Lease (Labuan) Limited * Federal Territory of Labuan, Malaysia Sixteenth Waha Lease (Labuan) Limited * Federal Territory of Labuan, Malaysia Charlie Fifteenth Lease Limited * Cayman Islands November RJ Lease Limited Cayman Islands Oscar RJ Lease Limited Cayman Islands Victor Lease Limited Cayman Islands Clearjet Lease Limited * Republic of Ireland Fastjet Lease Limited * France Turbo 1 LLC * United States of America Alfa Fifteenth Waha Lease Limited Isle of Man Bravo Fifteenth Waha Lease Limited Isle of Man

* Indirectly held through Subsidiaries.


Page 16

3 Consolidation (continued)

Jointly controlled entities The Group has a 50% interest in a joint venture, Cape II Investment Inc. incorporated in Liberia.

4 Segment reporting

Segment information is presented in respect of the Group’s geographical segments. In presenting this information, segment revenue is based on the primary geographical location of the customers’ business operation.

2004 - (AED '000) Europe

America

Middle East and Asia Pacific

Others

Total

Revenue 37,332

48,006

91,190

465

176,993

2003 - (AED '000) Europe

America

Middle East and Asia Pacific

Others

Total

Revenue 54,107

35,339

103,577

7,672

200,695

5 Revenue

2004

2003

(AED '000)

(AED '000)

Operating leases 174,668

191,485

Finance leases -

6,037

Interest income from originated loans 598

1,607

Interest income from investments held-to-maturity 1,727

1,566

176,993

200,695

6 Operating costs

2004

2003

(AED '000)

(AED '000)

Interest on term loans 50,001

58,781

Depreciation on operating lease assets 121,094

117,185

Amortisation of project costs 5,573

4,772

Irrecoverable project costs 354

(219)

Asset management expenses 2,685

6,064

179,707

186,583


Page 17

7 Other operating income

2004

2003

(AED '000)

(AED '000)

Gain on sale of operating lease assets 11,188

-

Gain on sale of investments available-for-sale 218

417

Gain on recognition of certain investments * 10,218

-

Gain on sale of certain investments * 3,496

-

25,120

417

* These represent income in respect of a settlement of the Group’s claim in the bankruptcy protection proceedings of one of its lessee’s, Air Canada. The Group was allocated 138,784 shares in Ace Aviation Holdings Inc. The Group’s claim was for loss of income on 4 aircraft, which were earlier placed on finance leases for periods ranging between 7 to 10 years and then restructured during 2003 as operating leases for periods ranging between 5 to 9 years. Gain on recognition is net of expenses incurred as part of claim proceedings. The shares were sold giving rise to a further gain of AED (‘000s) 3,496.

8 Administrative and other expenses

2004

2003

(AED '000)

(AED '000)

Staff costs 7,913

5,136

Legal and company secretarial expenses 1,640

1,661

Travel expenses 1,014

748

Depreciation on other fixed assets 198

304

Other administrative expenses 3,449

3,131

14,214

10,980

As at the Balance Sheet date, the Group employed 13 staff [2003: 13].

9 Other income

2004

2003

(AED '000)

(AED '000)

Interest on bank deposits 1,570

776

Gain on sale of investments available-for-sale 772

-

Miscellaneous income 190

360

2,532

1,136


Page 18

10 Taxation

2004

2003

(AED '000)

(AED '000)

Current tax 2,289

153

Deferred tax (352)

-

Total income tax expense in income statement 1,937

153

Taxation relates to certain Subsidiaries, which are subject to taxation on their profits. Deferred tax has been recognised in respect of certain items, which are expected to reverse in future years. In view of the number of tax jurisdictions the Group operates in, providing information on effective tax rates is not considered meaningful.

11 Earnings per share

The calculation of basic earnings per share at 31 December 2004 is based on the net profit attributable to ordinary shareholders of AED (‘000s) 10,540 (2003: AED (‘000) 4,532) and a weighted average number of ordinary shares outstanding during the year ended 31 December 2004 of 58,750,000 (2003: 56,500,000), calculated as follows:

2004

2003

Net profit after taxation (AED ‘000)

8,787

4,532

Ordinary shares as at 1 January

50,000,000

50,000,000

Effect of ordinary shares issued on 02 November 2004 8,750,000

6,500,000

Weighted average number of ordinary shares at

31 December

58,750,000

56,500,000

Earnings per share (AED)

0.150

0.080 *

* 2003 restated for the effect of the rights shares issued on 02 November 2004

12 Operating lease assets (AED '000)

Cost

At 1 January 2004

2,381,107

Additions

5,751

Disposals

(73,652)

At 31 December 2004

2,313,206

Depreciation

At 1 January 2004

446,389

Charge for the year

121,094

Disposals

(10,212)

At 31 December 2004

557,271

Net book value

At 31 December 2004

1,755,935

At 31 December 2003

1,934,718


Page 19

12 Operating lease assets (continued)

In accordance with the Group’s accounting policies and IAS 36, it regularly assesses the current and future market for its leased assets and estimates the present value of future cash flows that can be generated over their remaining economic life, referred to as the asset’s “value in use”. In doing so, the Group takes into account the current lease contracts and the market potential for each asset type, seeking the views of independent third parties alongside of its own. The Group reviews the value in use of its assets and compares this with the carrying value of its assets, in order to assess whether any impairment adjustments are required on an asset class basis.

As at 31 December 2004, the Group concludes that the value in use of its leased assets approximates to at least their book value, and accordingly there is no impairment to the carrying value of the Group’s operating lease assets. While the current market value of certain assets is lower than the carrying value, the Group concludes that the value in use is the most appropriate measure of the inherent long term value of its assets.

However, whilst the Group’s portfolio of assets continues to have broad utility in a worldwide market place, unknown future events may affect this conclusion and therefore, the Group continues to monitor the situation on an ongoing basis.

During the year, the Group has revisited the treatment of operating lease assets in respect of investments subsequent to initial purchase. The previous policy required these to be capitalised and amortised over their expected life cycle. The revised policy has been more specifically defined to amortise such investments over their remaining useful leasing life, where appropriate. Accordingly investments made in previous years with a carrying value of AED (‘000s) 14,757 as at 1 January 2004 have been reassessed. The effect of this change in estimate on the depreciation charge of the current year has been a decrease of AED (‘000s) 5,284.

13 Originated Loans

Originated loans are non-recourse investment loans made by the Group and are secured by first priority mortgages over relevant assets and assignment of the relevant leases. These loans carry a fixed interest rate and mature in 2005.

Loan repayments due:

2004

2003

(AED '000)

(AED '000)

Within one year 743

8,446

Between one year and five years -

743

743

9,189

14 Investments held-to-maturity

Investments held-to-maturity represents investments in Enhanced Equipment Trust Certificates (EETC’s), which are issued against an underlying pool of leased aircraft. These EETC’s carry a fixed coupon rate and mature over a period of eleven months to three years from the balance sheet date.


Page 20

14 Investments held-to-maturity (continued)

Repayment Schedule:

2004

2003

(AED '000)

(AED '000)

Within one year 10,046

838

Between one year and five years 485

3,238

10,531

4,076

15 Project costs

2004

2003

(AED '000)

(AED '000)

Balance brought forward

17,801

16,738

Project costs incurred 4,801

5,835

Set off against share issue transaction costs (2,412)

-

Amortised (5,573)

(4,772)

Balance carried forward

14,617

17,801

16 Investments available-for-sale

At the balance sheet date, these represent funds invested in equity securities and managed independently by a fund manager. During the year, these included investments in Enhanced Equipment Trust Certificates (EETC’s) issued against an underlying pool of leased aircraft and the shares allocated to the Group in the bankruptcy proceedings of one of its lessee’s (Refer to Note 7).

17 Trade and other receivables

2004

2003

(AED '000)

(AED '000)

Trade receivables 4,443

7,344

Prepayments 399

458

Interest receivable 201

48

Other receivables 124

526

5,167

8,376


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18 Cash-encumbered

2004

2003

(AED '000)

(AED '000)

Lessee maintenance reserves and security deposits (Refer to Note 24)

31,417

26,815

Minimum cash balances as per loan agreements 23,771

24,104

Proceeds from sale of investments available-for-sale*

14,308

-

Amounts set aside for prior year dividends and rights issue refund

3,882

3,498

73,378

54,417

* During the year the Group sold shares in Ace Aviation Holdings Inc., the proceeds of which are required to pay down the underlying loans on these aircraft (Refer to Note 7)

19 Cash and cash equivalents 2004

2003

(AED '000)

(AED '000)

Cash and bank 7,626

13,720

Deposits 76,996

4,000

84,622

17,720

Deposits represent highly liquid institutional funds receiving daily interest at prevailing market rates.

20 Share capital and other reserves

2004

2003

(AED '000)

(AED '000)

Authorised Capital, Issued and fully paid up:

70,000,000 shares of AED 10 each

(2003: 50,000,000 shares of AED 10 each)

700,000

500,000

During the year, the Group’s authorised, issued and paid up share capital was increased by AED (‘000s) 200,000 by issue of 20,000,000 ordinary shares issued at AED 10 each. The Company also collected AED 0.15 per share towards share issue costs. These shares were offered to existing shareholders in the proportion of two new shares for every five existing shares held. The newly issued shares rank pari-passu with the pre-existing shares.

Other reserves represent AED 0.15 per share collected towards share issue costs net of actual expenses incurred.


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21 Statutory reserve

In accordance with the Federal Law No 8 of 1984 (as amended) and the Company's Articles of Association, 10% of the net profit is transferred to a non-distributable Statutory reserve. Such transfers are required to be made until the balance of the Statutory reserve equals one half of the Company's paid up share capital.

22 Derivative financial instruments

IAS 39 intends to provide shareholders with more information regarding the effect and value of financial derivative contracts entered into by an enterprise.

The Group does not speculate with respect to future interest rate movements and therefore all of its identified exposures are measured in terms of materiality and risk and hedged where appropriate. The Management follow this policy to ensure that the Group is not exposed to interest rate fluctuations and can therefore manage profitability with less uncertainty.

The leasing revenues of the Group are primarily generated from rental payments that are either fixed or floating with respect to interest rates. Similarly the loans arranged to acquire the related assets are on a fixed or floating interest rate basis. The Group is able to categorise its exposures as follows:

In cases where both the loan and rental payments are on a fixed rate basis there is no exposure. For agreements where both the borrowing and rental payments are on a floating rate basis there is a natural hedge against interest rate fluctuations. Where the rentals are fixed but the underlying loan financing is on a floating rate basis the resulting interest exposure is measured for materiality and risk and where appropriate, hedged by means of interest rate swaps that match the amortisation schedule of the loan and effectively convert the variable interest into a fixed interest rate. The cost of the swap is determined when the rental agreement and loan agreement are established thereby enabling the Group to price the rental accordingly and effectively fix the future operating margin on a particular transaction for its full term at an acceptable level.

IAS 39 requires enterprises to recognise changes to the fair value of all financial instruments including derivatives such as swaps, options and forward contracts. Changes in the fair value of these instruments will normally be reflected in the income statement of the enterprise unless it can be demonstrated that the instruments act as a hedge against future cash flows whereby changes in fair value are reflected in the equity statement, as is the case for the Group.

These adjustments should not be seen as a permanent change in the Group’s value. The interest charge in the income statement as a result of these swaps remains as originally intended and no part of any adjustment to fair value will affect future profitability unless the Group should deliberately choose to unwind a particular swap ahead of its contracted term. Credit risk inherent in the swaps is managed by dealing with investment graded financial institutions.

IAS 39 does not alter the underlying profitability of the lease contracts, which were priced, at inception considering the then prevalent cost of interest rate swaps.


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22 Derivative financial instruments (continued)

During the year, AED (‘000s) 3,519 [2003: A ED (‘000s) 12,304] was transferred to the income statement being the difference between fixed and floating rate of interest on loan repayments. The movement in prevailing interest rates, reduced loan periods and loan amounts outstanding has improved the current fair value of the swaps by AED (‘000s) 593 [2003: reduction of AED (‘000s) 1,299].

The current fair value or ‘mark-to-market’ value of the swaps is calculated at prevailing interest rates and represents the net cost or profit should each swap be crystallised at the balance sheet date. This is not something that the Group views as a likely event in the ordinary course of business.

The current fair value adjustment of AED (‘000s) 1,019 reverts to zero over the term of the swaps as interest is paid at the swap rate and the loans are repaid by periodic instalments. Future changes in market interest rates will affect the quantum of the fair value adjustment but not the timeframe of its ultimate reduction to zero nor the future costs transferred to the income statement.

23 Term loans

2004

2003

(AED '000)

(AED '000)

Secured loans 1,072,126

1,388,869

Unsecured loans 72,515

66,204

1,144,641

1,455,073

Secured loans These represent commercial loans obtained for acquisition of operating assets and general corporate purposes. These loans are denominated in US Dollars and are repayable by periodic instalments.

Commercial loans are generally secured by a first priority mortgage over the leased assets, first assignment of insurance, assignment of lease rentals, a charge over the Subsidiaries’ and the jointly controlled entity’s bank accounts, a charge over the maintenance reserve and security deposit accounts and a pledge over the shares of the Subsidiaries. There is generally no recourse to the assets of the Company in respect of the loans and limited recourse in respect of certain transactions where the Company is obliged to provide re-marketing support to the lenders for a specified period of time.

Loans mature over a period of two years to seven years from the balance sheet date. Certain loans are extendable, at the option of the Group, for further periods of 1 year to 2 years.

The Group borrows both on fixed and floating interest rate bases. Loans bearing floating rates of interest are at market rates prevailing during the course of the loans. Certain Subsidiaries and the jointly controlled entity have entered into swap agreements in order to hedge against interest rate fluctuations related to floating rate loans. The fixed rate loans and floating rate loans with IRS carry an effective rate of interest (including lenders margin) of 4.08% to 7.97% per annum (Refer to Notes 22 and 29). Floating rate loans, without any IRS carry an effective rate of interest (including lenders margin) of 2.39% to 4.52% per annum.


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23 Term loans (continued)

Secured loans repayments due:

2004

2003

(AED '000)

(AED '000)


233,044

Between one year and five years 574,948

677,691

More than five years 393,898

478,134

1,072,126

1,388,869

Loan repayments due within one year as at 31 December 2004 represents regular loan instalments funded by lease revenue.

Unsecured loans These represent commercial loans and other banking facilities obtained by the Group. These loans are denominated in US Dollars and are repayable at maturity. These loans bear floating rates of interest at market rates prevailing during the course of the loans. The effective rate of interest (including lenders margin) of these loans was in the range of 1.92% to 5.70% per annum. Loans mature over a period of nine years from the balance sheet date. During 2004, certain unsecured lenders have converted part of their loans into equity (Refer to Note 26).

As at the balance sheet date the Group had AED (‘000s) 253,111 of undrawn banking facilities.

2004

2003

(AED '000)

(AED '000)

Balance brought forward 66,204

209,646

Loans obtained during the year * 36,780

-

Loans repaid during the year * (30,469)

(143,442)

Balance carried forward 72,515

66,204

* Refer to Note 26

Unsecured loans repayments due:

2004

2003

(AED '000)

(AED '000)


66,204


-

72,515

66,204


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24 Trade and other payables

2004

2003

(AED '000)

(AED '000)

Trade payables 4,031

3,696

Lease revenue received in advance 12,263

13,717

Interest accrued on term loans 5,812

5,788

Lessee maintenance reserves and security deposits 29,256

26,367

Fair value adjustments to hedging instruments (Refer to Note 22)

1,019

5,131

Amounts due to related parties (Refer to Note 26) 1,000

800

Other accruals 7,451

12,743

60,832

68,242

Certain Subsidiaries hold cash deposits made by lessees as security against future rentals and maintenance obligations. These will either be returned to the lessees at the end of the lease or used to perform the maintenance obligations and are therefore shown as a liability.

25 Non-cancellable operating lease revenue

The Group currently owns 20 aircraft placed on operating leases with 10 customers. Whilst the lessees retain use of these assets during the period of the lease, the Group retains the legal and economic interest over the life of these assets.

The Group has entered into irrevocable fixed term operating leases with periodic rental payments.

2004

2003

(AED '000)

(AED '000)


171,466


442,039


139,464

691,676

752,969

Note: Non-cancellable operating lease revenue is calculated at contracted lease rates and where appropriate, assuming the continuation of interest rates as at 31 December 2004. Prior year numbers have been adjusted to reflect current interest rates.


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26 Related party transactions

These represent transactions with related parties (major shareholders of the Group, directors or officers of the Group, enterprises that exercise significant influence over the Group or those enterprises over which the Group can exercise significant influence). Such transactions are at terms agreed by management and are in the ordinary course of business.

Significant transactions with related parties during the year include: Consultancy fees to directors for additional services, AED (‘000s) 1,000 [2003: A ED (‘000s) 800]; and Unsecured loan obtained by the Group amounted to AED (‘000s) 36,780 [2003: AED (‘000s) Nil]. The Group obtained this loan from one of it’s major shareholders. A portion of the loan was repaid during the year and the shareholder participated in the Rights Issue. Balance repayable as at 31 December 2004 (included in long term loans) is AED (‘000s) 72,515 [2003: AED (‘000s) 66,204].

27 Dividend

During 2003, the Company declared and paid a dividend of AED 0.20 per ordinary share in respect of the year 2002.

28 Contingent liabilities and capital commitments

Long Term Incentive Plan

The Group operates long term incentive plans, which are intended to provide long term incentive to executives (“the Participants”) and to further align their interests with those of the shareholders.

Participants can be entitled to benefits under this plan based on their individual performance, continuing service, the performance of the Group or changes in the share price of the Company. The Company has taken appropriate measures to hedge the contingent liability and considers the hedge to be effective.

Others

Where applicable, the Group has contingent liabilities in the ordinary course of business in respect of lease maintenance contributions. The Group believes no material liability to arise there from.

There were no significant capital commitments as at 31 December 2004 [2003: Nil].

29 Financial instruments

The financial assets of the Group include originated loans, investments held-to-maturity, investments available-for-sale, receivables, cash encumbered and cash and cash equivalents. The financial liabilities of the Group include amounts payable and term loans.

Financial Risk Management

The Group’s activities expose it to a variety of market risks, including the effects of changes in foreign currency exchange rates and interest rates. The Group’s overall risk management program focuses on minimising the adverse effects that these risks present to the financial performance of the Group. The Corporate Governance Manual, as approved by the Board, provides principles for overall risk management, as well as policies covering specific areas, such as interest rate risk, credit risk, use of derivative financial instruments and investing excessive liquidity.


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29 Financial instruments (continued)

Interest rate and cash flow risk

In the normal course of business, the Group has entered into fixed IRS, where appropriate, to hedge against the variable interest rate exposure of their borrowings (Refer to Notes 22 and 23) except where matching lease rentals also vary in line with the changes in interest rates, thereby creating a hedge or where the risk of the interest rate exposure is deemed to be immaterial or acceptable in relation to the cost of entering into a hedge.

Credit risk

The Group has established various policies and procedures to manage credit exposure, including initial financial assessment and appraisal, collateral and guarantee requirements and continual credit monitoring.

Cash is placed with commercial banks and financial institutions that have a credit rating acceptable to the Group.

Foreign exchange risk

The functional currency of the Group's operations is US Dollars. The exchange rate of AED has been maintained at the same level against the US Dollar since 1980.

Fair value

The Group’s financial statements are prepared on a fair value basis for derivative financial instruments and available-for-sale instruments. Other financial assets and liabilities are stated at amortised cost or historical cost.

The fair value of the Group’s financial assets and liabilities is not materially different from the carrying value at 31 December 2004.

30 Events subsequent to the Balance Sheet date

On January 26th 2005 the Group signed a Letter of Intent with Etihad Airways PJSC for the purchase and financing of eight Airbus A330-200 aircraft. The aircraft will be delivered new to Etihad in the period from January 2006 to May 2007. It is anticipated that the transaction will be formalized in the first half of 2005.

31 Comparative information

Certain comparative figures have been reclassified, where necessary, to conform to the presentation adopted in these consolidated financial statements.

OASIS INTERNATIONAL LEASING 2004 Consolidated...

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