Consolidated Annual Financial Report
From 1 April 2021 to 31 March 2022
CONTENTS
Page
1 Definitions
4 Summary Information
5 Company Overview
7 Chair’s Statement
10 Asset Manager’s Report
16 Directors
17 Service Providers
19 Management Report
23 Directors’ Report
34 Environmental, Social and Governance Report
38 Audit and Risk Committee Report
48 Independent Auditor’s Report
58 Consolidated Statement of Comprehensive Income
59 Consolidated Statement of Financial Position
60 Consolidated Statement of Cash Flows
61 Consolidated Statement of Changes in Equity
62 Notes to the Consolidated Financial Statements
87 Key Advisers and Contact Information
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Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
Definitions
“Administrative Shares” Subordinated administrative shares
“AED” United Arab Emirates dirham
“AGM” Annual general meeting
“ANZ” The Australia and New Zealand Banking Group Limited
“AR Committee” Audit and Risk Committee
“Articles” Company’s Articles of Incorporation
“ASKs” Available seat kilometers
“Asset(s)” or the “Aircraft” Airbus A380 Aircraft
“ATAG” Air Transport Action Group
“BA” British Airways
“Board” Company’s Board of directors
“CDSs” Credit Default Swaps
“Certificates” DNAFA Pass Through Certificates issued in July 2012
“Chair” Chair of the Board
“Code” The UK Corporate Governance Code
“CORSIA” Carbon Offsetting and Reduction Scheme for International Aviation
“Deloitte” Deloitte LLP
“DTRs” Disclosure Guidance and Transparency Rules
“DNA2” or the “Company” Doric Nimrod Air Two Limited
“DNAFA” Doric Nimrod Air Finance Alpha Limited
“Doric LLP” Doric Partners LLP
“Doric” or the “Asset Manager” Doric GmbH
“DWC” Dubai World Central International Airport
“EETC” or “Certificates” Enhanced equipment trust certificates
“Emirates” or the “Lessee” Emirates Airlines
“EPS or LPS” Earnings / loss per Share
“Equity” C Share issue
“ESG” Environmental, Social and Governance
“EU” European Union
“EU ETS” European Union Emissions Trading System
“FCA” Financial Conduct Authority
“FRC” Financial Reporting Council
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Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
Definitions (continued)
“FVOCI” Fair value through other comprehensive income
“FVTPL” Fair value through profit or loss
“GBP”, “£” or “Sterling” Pound Sterling
“GT” Grant Thornton Limited
“GFSC” Guernsey Financial Services Commission
“GHG” Greenhouse gas
“Group” the Company and its subsidiaries
“IAS 1” International Accounting Standard 1 - Presentation of financial statements
“IAS 8” International Accounting Standard 8 - Accounting policies
“IAS 16” International Accounting Standard 16 - Property, Plant and Equipment
“IAS 36” International Accounting Standard 36 - Impairment of Assets
“IASB” International Accounting Standards Board
“IATA” International Air Transport Association
“ICAO” International Civil Aviation Organization
“IFRIC” International Financial Reporting Interpretations Committee
“IFRS” International Financial Reporting Standards
“IFRS 13” IFRS 13 - Fair value measurement
“IFRS 16” IFRS 16 - Leases
“IPCC” Intergovernmental Panel on Climate Change
“ISAE 3402” International Standard on Assurance Engagement 3402
“ISTAT” International Society of Transport Aircraft Trading
“JTC” or “Secretary” or
“Administrator”
JTC Fund Solutions (Guernsey) Limited
“Law” The Companies (Guernsey) Law, 2008, as amended
“Lease(s)” Lease of Aircraft to Emirates
“Loan(s)” Borrowings obtained by the Group to part-finance the acquisition of Aircraft
“LSE” London Stock Exchange
“NBV” Depreciated cost
“Nimrod” or “Corporate and
Shareholder Adviser”
Nimrod Capital LLP
“Pandemic” COVID-19 pandemic
“Period” 1 April 2021 until 31 March 2022
“PIEs” Public Interest Entities
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Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
Definitions (continued)
“PLF” Passenger Load Factor
“PPS” Profit per share
“Registrar” JTC Registrars Limited
“RPKs” Revenue passenger kilometers
“SAF” Sustainable Aviation Fuel
“SDGs” Sustainable Development Goals
“SFS” Specialist Fund Segment
“Shareholders” Shareholders of the Company
“Shares” Ordinary Preference Shares of the Company
“Share Capital” Share capital of the Company
“SID” Senior Independent Director
“Subsidiaries” MSN077 Limited, MSN090 Limited, MSN105 Limited and DNAFA
“UAE” United Arab Emirates
“UK” United Kingdom
“USD” or “$” US dollars
“VIU” Value-in-use
“WACC” Weighted average costs of capital
“Westpac” Westpac Banking Corporation
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Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
SUMMARY INFORMATION
Listing Specialist Fund Segment of the London Stock Exchange’s Main Market
Ticker DNA2
Share Price 72.50 pence (as at 31 March 2022)
92.00 pence (as at 22 July 2022)
Market Capitalisation GBP158.93 million (as at 22 July 2022)
Current / Future Anticipated Dividend Current dividends are 4.5 pence per quarter per Share (18 pence per
annum) and it is anticipated that this will continue until the aircraft
leases begin to terminate in 2023
Dividend Payment Dates April, July, October, January
Currency Sterling
Launch Date / Share Price 14 July 2011 / 200 pence
Incorporation and Domicile Guernsey
Aircraft Registration Numbers
(Lease Expiry Dates including the 2 year extension)
A6-EDP (14 October 2023)
A6-EDT (2 December 2023)
A6-EDX (1 October 2024)
A6-EDY (1 October 2024)
A6-EDZ (12 October 2024)
A6-EEB (9 November 2024)
A6-EEC (30 November 2024)
Asset Manager Doric GmbH
Corporate and Shareholder Adviser Nimrod Capital LLP
Administrator JTC Fund Solutions (Guernsey) Limited
Auditor Grant Thornton Limited
Market Makers finnCap Ltd
Investec Bank
Jefferies International Ltd
Numis Securities Ltd
Shore Capital Limited
Winterflood Securities Ltd
SEDOL, ISIN, LEI B3Z6252,GG00B3Z62522, 213800ENH57LLS7MEM48
Year End 31 March
Stocks & Shares ISA Eligible
Website www.dnairtwo.com
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Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
COMPANY OVERVIEW
DNA2 (the ‘’Company’’) is a Guernsey company incorporated on 31 January 2011.
Pursuant to the Company’s prospectus dated 30 June 2011, the Company, on 14 July 2011, raised approximately £136 million
by the issue of Shares at an issue price of £2 each. The Company’s Shares were admitted to trading on the SFS at 14 July 2011.
The Company raised a further £188.5 million from a C Share fundraising, which closed on 27 March 2012 with the admission of
100,250,000 convertible preference shares to trading on the SFS.
On 6 March 2013, the Company’s C Shares converted into an additional 100,250,000 Shares. These additional Shares were
admitted to trading on the SFS and rank pari passu with the Shares already in issue.
As at 22 July 2022, the last practicable date prior to the publication of this report, the Company’s total issued Share capital
consisted of the Administrative Shares and 172,750,000 Shares. The Shares were trading at 92.00 pence per Share.
Investment Objectives and Policy
The Company‘s investment objective is to obtain income returns and a capital return for its Shareholders by acquiring, leasing
and then selling aircraft. The Company receives income from the Lease rentals paid to it by Emirates, the national carrier owned
by The Investment Corporation of Dubai, based in Dubai, United Arab Emirates, pursuant to the Leases.
Subsidiaries
The Company has four wholly-owned subsidiaries: MSN077 Limited, MSN090 Limited, MSN105 Limited and DNAFA which
collectively hold the Assets for the Company.
The first Asset was acquired by MSN077 Limited on 14 October 2011 for a purchase price of $234 million and has been leased
to Emirates for an expected initial term of 10 years to October 2021, with an extension period of 2 years ending October 2023,
with fixed lease rentals for the duration. The loan terms for this aircraft were arranged to match the contractual rental received
during the initial lease term of 10 years including the final rental prepayment in the event that the extension was not utilised.
The second Asset was acquired by MSN090 Limited on 2 December 2011 for a purchase price of $234 million and has been leased
to Emirates for an expected initial term of 10 years to December 2021, with an extension period of 2 years ending December
2023, with fixed lease rentals for the duration. The loan terms for this aircraft were arranged to match the contractual rental
received during the initial lease term of 10 years including the final rental prepayment in the event that the extension was not
utilised.
The third Asset was acquired by MSN105 Limited on 1 October 2012 for a purchase price of $234 million and has been leased to
Emirates for an expected initial term of 10 years to October 2022, with an extension period of 2 years ending October 2024, in
which rental payments reduce. The loan terms for this aircraft were arranged to match the contractual rental received during the
initial lease term of 10 years including the final rental prepayment in the event that the extension was not utilised.
The fourth Asset, MSN 106, was acquired by DNAFA on 1 October 2012 for a purchase price of $234 million and has been leased
to Emirates for an expected initial term of 10 years ending October 2022, with an extension period of 2 years ending October
2024, in which rental payments reduce. The loan terms for this aircraft were arranged to match the contractual rental received
during the initial lease term of 10 years including the final rental prepayment in the event that the extension was not utilised.
The fifth Asset, MSN 107, was acquired by DNAFA on 12 October 2012 for a purchase price of $234 million and has been leased
to Emirates for an expected initial term of 10 years ending October 2022, with an extension period of 2 years ending October
2024, in which rental payments reduce. The loan terms for this aircraft were arranged to match the contractual rental received
during the initial lease term of 10 years including the final rental prepayment in the event that the extension was not utilised.
The sixth Asset, MSN 109, was acquired by DNAFA on 9 November 2012 for a purchase price of $234 million and has been leased
to Emirates for an expected initial term of 10 years ending November 2022, with an extension period of 2 years ending November
2024, in which rental payments reduce. The loan terms for this aircraft were arranged to match the contractual rental received
during the initial lease term of 10 years including the final rental prepayment in the event that the extension was not utilised.
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Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
COMPANY OVERVIEW (continued)
The seventh Asset, MSN 110, was acquired by DNAFA on 30 November 2012 for a purchase price of $234 million and has been
leased to Emirates for an expected initial term of 10 years ending November 2022, with an extension period of 2 years ending
November 2024, in which rental payments reduce. The loan terms for this aircraft were arranged to match the contractual rental
received during the initial lease term of 10 years including the final rental prepayment in the event that the extension was not
utilised.
The leases for all aircraft will run for the extended period of twelve years as the lessee has in all cases made use of the extension
options.
The fourth, fifth, sixth and seventh Assets were acquired by DNAFA using the proceeds of the issue of the C Shares, together with
the proceeds of equipment notes issued by DNAFA. The equipment notes were acquired by two separate pass through trusts using
the proceeds of their issue of EETCs. The EETCs, with an aggregate face amount of approximately $587.5 million were admitted
to the Official List of the UK Listing Authority and to the LSE on 12 July 2012. These four Assets were also leased to Emirates
for 12 years to the second half of 2024, with fixed lease rentals for the duration.
In order to complete the purchase of the related Assets, MSN077 Limited, MSN090 Limited and MSN105 Limited entered into
separate loan agreements with a number of banks (see note 15), each of which will be fully amortised with quarterly repayments
in arrears over 12 years. A fixed rate of interest applies to the Loans except for 50 percent of the Loan in MSN090 Limited which
has a related interest rate swap entered into to fix the interest rate. MSN077 Limited drew down $151,047,059 under the terms
of the first loan agreement to complete the purchase of the first Asset; MSN090 Limited drew down $146,865,575 in accordance
with the second loan agreement to finance the acquisition of the second Asset; and MSN105 Limited drew down $145,751,153
in accordance with the third loan agreement to finance the acquisition of the third Asset. The first loan agreement, the second
loan agreement and the third loan agreement are on materially the same terms.
Emirates bears all costs (including maintenance, repair, and insurance) relating to the Aircraft during the lifetime of the Leases.
Further information about the construction of these Leases is available in note 12 to the financial statements.
Distribution Policy
The Company currently targets a distribution of 4.50 pence per Share per quarter.
There can be no guarantee that dividends will be paid to Shareholders and, if dividends are paid, as to the timing and amount
of any such dividend. There can also be no guarantee that the Company will, at all times, satisfy the solvency test required to
be satisfied pursuant to section 304 of the Law, enabling the directors to effect the payment of dividends.
Performance Overview
All payments by Emirates have, to date, been made in accordance with the terms of the respective Leases.
During the financial year under review, and in accordance with the Distribution Policy, the Company declared four interim
dividends of 4.50 pence per Share. Two interim dividends of 4.50 pence per Share have been declared after the reporting period.
Further details of dividend payments can be found on page 23.
Return of Capital
The Company intends to return to Shareholders net capital proceeds if and when the Company is wound-up (pursuant to a
Shareholder resolution, including the liquidation resolution below), subject to compliance with the Articles and the applicable
laws (including any applicable requirements of the solvency test contained therein).
Liquidation Resolution
Although the Company does not have a fixed life, the Articles require that the directors convene a general meeting of the
Company in June 2025 where an ordinary resolution will be proposed that the Company proceed to an orderly wind-up. In
the event that the liquidation resolution is not passed, the directors will consider alternatives for the future of the Company,
including re-leasing the Assets, or selling the Assets and reinvesting the capital received from the sale of the Assets in other
aircraft.
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Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
CHAIR’S STATEMENT
During the Period the Company has declared and paid four quarterly dividends of 4.5 pence per Share each, a rate of dividend
payment equivalent to 18 pence per Share per annum.
The Company’s investment objective is to obtain income returns and a capital return for its Shareholders by acquiring, leasing
and then selling aircraft. The structures of the operating Leases relating to the Company’s seven Aircraft are described on pages
5 to 6.
The debt portion of the funding is designed to be fully amortised over the term of the Leases, which would leave the Aircraft
unencumbered on the conclusion of the ultimate Lease. Emirates bears all costs (including maintenance, repair and insurance)
relating to the Aircraft during the lifetime of the Leases. At 22 July 2022, the latest practicable date prior to this report, the
Company had outstanding debt associated with the Aircraft totalling USD 59 million (6% of the initial balance). At the time of
writing the share price is 92 pence, representing a market capitalisation of GBP 158.93 million based on the 172,750,000 Shares
in issue. The Company’s first Lease expiry falls due in October 2023.
All payments by Emirates during the period and throughout the Leases have been made in accordance with the respective terms
of the Leases. The Company’s Aircraft have been stored since 2020, currently at DWC.
Despite the war in Ukraine and COVID-19 related travel restrictions in China, global air travel has resumed its strong recovery
trend through April 2022, according to IATA. The recovery has been driven by a continuing rebound in international travel, as
previously travel-restricted Asian countries have new flexible conditions that allow more foreign travellers to come in. However,
inflation, high jet fuel prices and low consumer confidence are points of concern for the coming months, according to IATA.
International bookings still show a high willingness to travel abroad, and this trend is expected to last throughout this summer.
Although the relation between rising inflation and increase in cost of travel is not straightforward, it is expected to have an
impact on passenger decisions sooner or later.
In late February 2022 Emirates’ President, Sir Tim Clark, provided useful insight into the airline’s fleet operating considerations.
Following the retirement of Emirates’ first five A380s, Clark noted: “Cutting up the A380 fleet stops there, after these five are
retired, all the other aircraft remain. In fact, where we started to drop some, I just decided to bring them back into the program.”
With a looming aircraft shortage in Emirates’ fleet in 2024/25, Clark wants to extend aircraft lives: “Life extension will affect
about 120 aircraft, 80 of them A380s… The exact numbers haven’t been fixed, it’s a movable feast. Their life will be extended
by six to ten years each.” Clark reiterated this stance in late June, commenting Emirates would be: “retaining all the A380s now,
probably until the mid-30s, 118 of those.” In its annual report Emirates noted that the high seat factor on the A380 continues
to demonstrate the customer preference for the aircraft with the airline embarking on a major two-year retrofit programme from
November 2022, to equip 120 existing 777 and A380 aircraft with their latest Premium Economy cabin class, as well as refreshed
interiors, at a cost of over USD 1 billion. Clark also seems sceptical about the delivery timelines of the new aircraft types the
airline has ordered with Airbus and Boeing, stressing that the planes need to be “in the shape that the contract requires.”
Emirates results for the year to 31 March 2022 reported a 91% year-on-year increase in revenue and a much improved loss of
USD 1.1 billion (FY2021: USD 5.5 billion loss) with the target to return to profitability in the current financial year. Emirates
ended the financial year with a cash balance of USD 5.7 billion after receiving a further capital injection of USD 954 million from
their ultimate shareholder, the Government of Dubai.
Whilst Emirates do not have a formal credit rating, they have previously issued unsecured USD bonds with maturities in 2023,
2025 and 2028. As at 22 July 2022 these instruments are trading at approximately 99.9, 99.4 and 98.5 cents respectively,
equivalent to USD running yields in the range of roughly 3.9 to 4.6%. Further details on Emirates and the A380 can be found
in the Asset Manager’s report by Doric.
In line with the appraisals obtained last year your Board has elected to use ‘future soft values’ for the A380 with the published
figure based on the average of three independent appraisers all of which have remained the same since the Company’s launch.
These values are characterised by less favourable market conditions for the seller, including but not limited to an imbalance of
supply and demand in the aircraft type.
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Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
CHAIR’S STATEMENT (continued)
On a comparable basis to last year the appraisal value to the Company’s asset declined by approximately 16.1% on a USD basis.
The Company’s quarterly factsheet provides a useful sensitivity analysis of the potential returns to Shareholders, after Lease
expiry, under different scenarios for A380 appraisal values. Further details on residual values can be found in notes 2(n), 3 and
10 of the accounts.
The Company’s first Lease with Emirates expires in October 2023, approximately 15 months from now. In March and April two of
the Company’s subsidiaries received notice from Emirates that the lessee is exercising the option to enable it to redeliver the
respective Aircraft in the minimum condition equivalent to “half-life” together with a cash sum, as opposed to delivery in full-
life condition. In the event the Aircraft are returned to the lessor, Emirates will pay the sum of USD 12 million per Aircraft in
addition to the normal monetary compensation arrangements. Further, the Board note the announcement by Doric Nimrod Air
One Limited whereby it has agreed to sell an Airbus A380-861 (MSN 016) to Emirates for GBP 25.3 million. This outcome provides
some much needed transactional evidence for the A380 and appears to have been well received by shareholders in that company.
The opportunity for lease extension, sale or re-lease options for the respective Aircraft with Emirates or other counterparties
remains open. The redelivery procedure for a widebody aircraft is complex and highly technical and as we move closer to the
first Lease expiry your Board will provide more details on the high-level considerations and also the implications of the various
potential outcomes for Shareholders.
This report delivers the latest iteration of the Company’s Environmental, Social and Governance (ESG) Policy. This report
provides Shareholders with further detail on the Company’s business model and matters such as the environmental and social
considerations of the aviation industry and the importance of high standards of Corporate Governance. Your Board recognises
the importance of ESG matters in relation to shareholders’ investment considerations and has sought to address the topic in a
pragmatic fashion, as detailed in our ESG report on pages 34 to 37.
Doric continues to monitor the Leases and is in frequent contact with the Lessee and reports regularly to the Board. Nimrod
continues to liaise with Shareholders on behalf of the Board and has provided valuable feedback on the views of Shareholders
in the current climate.
Shareholders should note that although the underlying cash flows received and paid during the Period have been received
and paid as anticipated and in accordance with contractual obligations; it may not be obvious that this is so, because of the
application of the accounting treatments for foreign exchange, rental income and finance costs mandated by IFRS.
For instance, the entirety of the rental income that is receivable under the 12 year Leases (including advance rental received as
part of the initial acquisition of the Assets) is credited evenly over each of the 144 months of the Leases. However rental income
has been received in advance of this uniform pattern in order to match and fund the accelerated payment down of debt. Thus
as at 31 March 2022, some 94% of income receivable under the Leases has been received, which has funded the payment down
of 91% initial borrowings, whereas under the relevant accounting standard only some 82% may be recognised. This mismatch
in timing between the receipt and recognition of rental income results in a deferred income creditor of £129 million or some
75 pence per share in the 31 March 2022 balance sheet. This is an artificial accounting adjustment in the sense that it does
not represent a liability to pay £129 million to third parties. The faster that income is received and debt repaid the larger the
resultant creditor producing a reduction in reported net asset value.
Similarly, the relevant accounting standards require that transactions denominated in currencies other than the presentation
currency (including, most importantly, the cost of the Aircraft) are translated into the presentation currency at the exchange
rate ruling at the date of the transaction whilst monetary items (including also very significantly, the outstanding borrowings
and the deferred income creditor) are translated at the rate prevailing on the reporting date. The result is that the figures
sometimes show large mismatches which are reported as unrealised foreign exchange differences - although the distortive effect
becomes less pronounced over time as debt is paid down.
On an ongoing basis and assuming the Lease rental is received, and the loan payments are made as anticipated, such exchange
differences do not reflect the commercial substance of the situation in the sense that the key transactions denominated in USD
are in fact closely matched. Rental income received in USD is used to make loan repayments due which are likewise denominated
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Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
CHAIR’S STATEMENT (continued)
in USD. Furthermore, the USD Lease rentals and loan repayments are fixed at the inception of the respective Leases and are very
similar in amount and timing.
The Board encourages Shareholders to read the Company’s quarterly fact sheets which we believe provide a great deal of
interesting information. We hope these regular reports, in addition to the communication you receive from Nimrod, are useful
and informative. The directors welcome Shareholder engagement and feedback and encourage you to contact Nimrod to request
a meeting or to relay any feedback.
Finally, on behalf of the Board, I would like to thank our service providers for all their help and, most importantly, all Shareholders
for their continuing support. I look forward to keeping all Shareholders up to date with further progress.
Geoffrey Hall
Chair
29 July 2022
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Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
ASSET MANAGER’S REPORT
At the request of the Directors of the Company, this commentary has been provided by the Asset Manager of the Company. The
report reflects the information available at the end of March 2022 unless otherwise noted.
COVID-19
The Pandemic continues to impact private and economic life worldwide. The consequences of COVID-19 are far reaching
and changing at a significant pace. The impact of this Pandemic on the aviation sector has been significant. At the end of
January 2022 about 18% of the global commercial passenger aircraft fleet was still in storage. This is an improvement of
5 percentage points compared to the levels six month earlier, but still 11 percentage points higher than in January 2019.
This Asset Manager’s report is exclusively based on facts known at the time of writing and does not seek to draw on
any speculation about any possible future long-term impacts of the Pandemic on the aviation sector or the Company
specifically and should be read in such context.
1. The Assets
The Group acquired a total of seven Airbus A380-861 aircraft between October 2011 and November 2012. Each aircraft is leased
to Emirates Airline (“Emirates”) – the national carrier owned by the Investment Corporation of Dubai, based in Dubai, United
Arab Emirates – for a term of 12 years from the point of delivery, with fixed lease rentals for the duration. In order to complete
the purchase of the first three aircraft, MSN077 Limited, MSN090 Limited and MSN105 Limited entered into three separate loans,
each of which will be fully amortised with quarterly repayments in arrears over 12 years.
The net proceeds from the C Share issue (“the Equity”) were used to partially fund the purchase of four of the seven Airbus A380s.
In order to help fund the acquisition of these final four aircraft, DNAFA issued two tranches (Class A & Class B) of enhanced
equipment trust certificates (“the Certificates” or “EETC”) – a form of debt security – in June 2012 in the aggregate face value of
USD587.5 million. The Certificates are admitted to the official list of the Euronext Dublin and to trading on the Main Securities
market thereof. DNAFA used the proceeds from both the Equity and the Certificates to finance the acquisition of four new Airbus
A380 aircraft which were then leased to Emirates.
The seven Airbus A380 aircraft bear the manufacturer’s serial numbers (MSN) 077, 090, 105, 106, 107, 109, and 110.
Due to the effects of COVID-19, the Aircraft have been stored since 2020, currently at Dubai World Central International Airport
(DWC). The aircraft with MSN 106 has returned to passenger service in June 2022.
Maintenance Status
Emirates maintains its A380 aircraft fleet based on a maintenance programme according to which minor maintenance checks
are performed every 1,500 flight hours, and more significant maintenance checks (C checks) at 36-month or 18,000-flight hour
intervals, whichever occurs first.
Due to the continuing COVID-19 pandemic, Emirates has stored the aircraft owned by the Group in Dubai. The lessee has
“a comprehensive aircraft parking and reactivation programme in place, that strictly follows manufacturer’s guidelines and
maintenance manuals”. In addition, Emirates has enhanced standards and protocols of their own, to protect and preserve the
asset during the downtime. This includes the watertight sealing of all apertures and openings through which environmental
factors – sand, water, birds, and insects – can find their way inside an aircraft. During parking, maintenance teams complete
periodic checks at different intervals. Depending on the reactivation date of a specific aircraft, Emirates might defer due
maintenance checks, which are calendar-based, until that time. This would allow the airline to make use of the full maintenance
interval once the operation of a specific aircraft resumes. The aircraft of the Group (with the exception of MSN 106) are in deep
storage condition at this time and could be reactivated within weeks of any decision to do so.
Emirates bears all costs relating to the aircraft during the lifetime of the lease (including maintenance, repairs, and insurance).
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Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
ASSET MANAGER’S REPORT (continued)
Inspections
Doric, the asset manager, conducted physical inspections and records audits of the aircraft as per the below table. Due to the
storage of the aircraft and the protective measures associated with this, the inspections of the aircraft were limited to viewing
the outside of the aircraft from ground level. The condition of the aircraft – to the extent visible – and the records were in
compliance with the provisions of the respective lease agreements, taking into account that the aircraft were in storage at that
moment.
MSN Last Inspection MSN Last Inspection
077 09/2021 & 03/2022 107 09/2021 & 04/2022
090 03/2022 109 11/2021
105 06/2021 110 11/2021
106 09/2021
2. Market Overview
The impact of COVID-19 on the global economy has been severe, resulting in a contraction in global GDP of 3.4% for 2020,
followed by an expected recovery of 5.5% in 2021 and 4.1% in 2022, according to the World Bank. In its latest economic impact
analysis from March 2022, the International Civil Aviation Organization (ICAO) estimates that the full year 2021 experienced an
overall reduction in seats offered by airlines of 40% compared with pre-crisis 2019 levels. In the current year, the number of
seats offered by airlines is expected to be reduced by 20% to 23% from its 2019 levels. This translates into a 34% to 38% seat
reduction in the international passenger traffic segment, while domestic air passenger traffic is less affected from the Pandemic.
The International Air Transport Association (IATA) indicates an airline industry-wide net loss of USD51.8 billion for 2021,
after approximately USD137.7 billion in the previous year, according to its latest estimates from October 2021. For 2022, the
combined net loss of airlines worldwide is expected to reach USD11.6 billion. However, the estimate does not yet include
negative geopolitical impacts from the Russian invasion of Ukraine.
The rebound in global air passenger traffic has continued through calendar year-end 2021, supported by vaccine rollouts, improved
testing efficiency and a strong demand over the holiday season, which compensated for the Omicron-related disruptions towards
the end of the year. Overall, industry-wide RPKs rose to 41.6% of its 2019 pre-Pandemic levels, which is an improvement of 7.4
percentage points against 2020. Industry-wide capacity, measured in ASKs, recovered to 51.2% of pre-Pandemic levels in 2021.
The global PLF averaged at 67.2% last year, down by 15.4 percentage points from 2019. Global air travel had a soft start into
2022 as disruptions due to the Omicron variant have left their marks. While industry-wide RPKs rose by 82.3% year-on-year in
January 2022, this key performance indicator was 4.9% down compared to December 2021. The PLF averaged 64.5% during the
month of January 2022, an improvement of 10.8 percentage point compared to the same month a year ago.
With the number of new COVID-19 infections per week more than halved between mid-January and late-February 2022, IATA’s
outlook beyond Q1 2022 has become more optimistic. However, the war in Ukraine as well as rising inflationary pressure were
clearly identified as “downside risks to further recovery”. More and more countries have started to lift their international travel
restrictions, including some in the long time closed Asia Pacific region such as Australia, while the Chinese international market
remains shut. The war in Ukraine will likely disrupt air travel in this area and likely also beyond. With Russian airspace banned
for European and US carriers, IATA expects delays, expensive rerouting or complete cancellations of flights on some routes. The
spike in oil prices translating into a sharp increase in jet fuel prices will most likely result in higher fares on some routes. This
could particularly impact the more price-sensitive leisure travel segment.
Source: IATA, ICAO, World Bank
© International Air Transport Association, 2021. Air Passenger Market Analysis December 2021. Outlook for the Global Airline Industry December 2021.
All Rights Reserved. Available on the IATA Economics page.
© International Air Transport Association, 2021. Air Passenger Market Analysis January 2022. Outlook for the Global Airline Industry January 2022. All
Rights Reserved. Available on the IATA Economics page.
© International Civil Aviation Organization. Effects of Novel Coronavirus (COVID-19) on Civil Aviation: Economic Impact Analysis, 28 December 2021.
12
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
ASSET MANAGER’S REPORT (continued)
3. Lessee – Emirates
Network
In late January 2022 Emirates announced a resumption of passenger operations between Dubai and five African countries
including South Africa, Kenya, Ethiopia, Tanzania, and Zimbabwe by the end of the month. This includes twice daily services
from Johannesburg and daily services to Dubai from Cape Town and Durban respectively.
With the return of passenger services to and from Casablanca (Morocco) in February 2022, Emirates has fully restored its
pre-Pandemic African network with 21 destinations across the continent.
In March 2022 Emirates and Garuda Indonesia launched their codeshare partnership which gives customers of Emirates and
Indonesia’s national carrier seamless connectivity on 16 routes between Indonesia, the Middle East and Europe. Emirates
currently has codeshare cooperation agreements in place with 23 airline partners and two rail companies around the world.
From 1 April 2022 Emirates will re-instate its pre-Pandemic flight frequencies to the carrier’s nine destinations in India,
intending to operate 170 weekly flights from Dubai. Already since March 2022 the lessee has brought back its daily A380 service
between Dubai and Mumbai.
From 1 May 2022 Emirates will add a second daily A380 flight from Dubai to Melbourne in Australia, doubling the daily seat
capacity to more than 1,000. Demand for international travel is expected to increase following the re-opening of Australia’s
borders. Reportedly, Australia is the third-largest destination for Emirates’ A380. As of May Emirates will also operate A380
services twice daily to Sydney and a daily A380 service to Brisbane. In addition, the lessee will offer daily flights to Perth on a
Boeing 777-300ER.
Emirates has confirmed that it will be commencing daily services to Tel Aviv (Israel) from 23 June 2022 with its three-class
Boeing 777-300ER, adding another country to its global network. The flight schedules will allow passengers arriving in Dubai to
conveniently reach connecting flights to popular holiday destinations including Thailand, India, the Philippines, the Maldives,
Sri Lanka, and South Africa. In late March 2022 Emirates’ President, Sir Tim Clark, announced that the airline would continue
to fly to Russia “as long as the state, our owner, requires us to fly there” and continued: “We carry humanitarian goods in our
holds. We’ve got NGOs travelling in and out of Russia. We have got the diplomatic community going in and out … so all we’re
doing is being an enabler, facilitator, without taking a political position on this for the time being”.
Current flight schedules indicate that Emirates has deferred A380 services to the following destinations beyond 2022: Beijing,
Birmingham, Copenhagen, Hong Kong, Nice, Prague, Shanghai, and Tokyo. Earlier versions of the flight schedules showed that
the superjumbo would operate on these routes at some point this year. The adjustments are a result of “a routine review of our
operational requirements”, according to an Emirates spokesperson.
As of May 2022, Emirates will no longer operate lessor owned aircraft in Russia, due to restrictions imposed upon their insurance
policy, but they may continue to operate aircraft they own on Russian routes.
By 31 March 2022, Emirates was operating over 1,100 weekly passenger flights to 127 airports around the world.
13
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
ASSET MANAGER’S REPORT (continued)
Fleet
In late February 2022 Emirates’ President, Sir Tim Clark, provided insight into fleet operating considerations for his airline.
Reporting on recycling efforts of Emirates’ first five A380s recently retired, Clark pointed out that these efforts will not continue
with more A380s: “Cutting up the A380 fleet stops there, after these five are retired, all the other aircraft remain. In fact, where
we started to drop some, I just decided to bring them back into the program.” With a looming aircraft shortage in Emirates’ fleet
in 2024/25, Clark wants to extend aircraft lives: “Life extension will affect about 120 aircraft, 80 of them A380s, plus about 40
or 50 Boeing 777-300ERs. The exact numbers haven’t been fixed, it’s a movable feast. Their life will be extended by six to ten
years each.”
Clark is sceptical about the delivery timelines of the new aircraft types the airline has ordered with Airbus and Boeing. He also
stressed that the planes need to be “in the shape that the contract requires”:
Boeing 777X
Clark claims Boeing has already produced twelve Boeing 777-9 for Emirates which the manufacturer has put in storage without
their engines. But he cannot foresee when these aircraft could be delivered. Due to certification issues he considers it less likely
that Boeing will achieve certification in July 2023. At some point Emirates could even cancel the order: “If it goes beyond 2023
and it goes on for another year, we probably cancel the program.” But with Airbus A380 and Boeing 747 no longer available for
order, the Boeing 777X is the biggest in production aircraft and Clark still hopes to get it even with four years’ delay. Only weeks
later Boeing had to admit that its late-2023 target for the first 777X deliveries to airline customers is no longer achievable, now
aiming for a delivery date in early 2025.
Boeing 787
The aircraft are supposed to be delivered from May 2023. But Clark does not expect the 30 Boeing 787s to join his fleet anytime
soon: “Look at the huge backlog, they haven’t produced any aircraft lately, that’ll take them two or three years to go over that.
They [have] got production and quality control issues that they admit, and now after the [Boeing 737] MAX crisis with the
regulator saying ‘we want to have a good look at everything’, that is slowing the whole thing down.”
Airbus A350
Emirates has also ordered 50 Airbus A350-900 widebody aircraft with the first deliveries starting in 2023, according to data and
aviation analytics provider Cirium. But a legal dispute between manufacturer Airbus and A350 operator Qatar Airways (Qatar)
about deterioration of the aircraft’s paint and lightning protection issues is challenging this timeline. Upon instruction from its
civil aviation authority, Qatar had to ground a significant number of A350s and will not accept any new deliveries from Airbus
until the issues have been resolved. Addressing the manufacturer, Clark made clear that he would not accept any deliveries until
Airbus has developed a fix: “If we have the same problem on one of our aircraft, we won’t take them over.”
During the 2021/22 financial year Emirates reportedly extended the operating lease agreements for 12 aircraft, “most of which
were due to retire in the current year”, according to its annual report.
The table below details the passenger aircraft fleet activity as of 31 March 2022:
Passenger Aircraft Fleet Activity
Aircraft Type Grounded In Service
A380 50 71
777 0 124
Total 50 195
% 20% 80%
Source: Cirium as of 31 March 2022
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Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
ASSET MANAGER’S REPORT (continued)
Commenting on the number of A380 aircraft currently in service, Sir Tim Clark explained that returning more of them is
contingent on being able to hire more crew to operate the jets. Emirates intends to hire 8,000 to 10,000 crew members to fly
these A380s, but is constrained by how soon it can re-hire some of the pilots it let go, retrain staff and cope with the changes
in the labour market after the pandemic. He would be happy to utilize the additional capacity: “Today, if we had 118 [A380s]
they’d all be full,” he said.
Back in December 2021, Emirates received its 123rd Airbus A380, which also marked the end of production of the world’s largest
commercial aircraft. On this occasion, Emirates’ President, Tim Clark, confirmed that “the A380 will remain Emirates’ flagship
product for the coming years, and a vital pillar of our network plans”.
Key Financials
In the financial year ending 31 March 2022, Emirates recorded a net loss of AED 3.9 billion (USD 1.1 billion), the second in
more than 30 years. This is a significant improvement of the airline’s profitability, after the previous year’s net loss amounted
to AED 20.3 billion (USD 5.5 billion). Thanks to an expansion of its global capacity and reinstatement of more passenger flights,
the lessee was able to increase its revenue by 91% to AED 59.2 billion (USD 16.1 billion). The share of the cargo business to
Emirates’ overall revenue is 37%.
Pandemic-induced travel restrictions and safety measures in many regions around the globe were partially retracted and allowed
passenger air travel to recover from its Pandemic lows. During the 2021/22 financial year Emirates carried 19.6 million passengers,
almost a tripling from last year, but still two third below its pre-Pandemic levels. As more countries eased travel restrictions,
Emirates increased its capacity measured in ASKs, by 150%. At the same time its passenger traffic, measured in RPKs, increased
by 235%. This resulted in the average passenger seat load factor of 58.6%, an improvement of 14.3 percentage points compared
to last year. Emirates strives to return to 100% of its pre-Pandemic capacity, measured in available tonne kilometres, by the
2023/24 financial year.
Given the substantial increase in flight operations, Emirates’ operating costs increased by 29.8%. The carrier’s fuel cost more
than doubled compared to the same period last year, primarily due to a 66% higher fuel uplift in line with increasing flight
operations as well as a 75% increase in average fuel prices. Fuel, which had been the largest component of Emirates’ operating
cost prior to the Pandemic, accounted for 23% of operating costs. The increase in jet fuel prices was partially mitigated through
hedging. Depreciation, amortisation and impairment still remain the largest component of the carrier’s operating cost for the
second consecutive year with a share of 30%.
The recovery in Emirates’ operations during the 2021/22 financial year led to an improved EBITDA of AED 17.7 billion (USD 4.8
billion) compared to AED 4.6 billion (USD 1.3 billion) from last year. Demand for air freight also remained strong. The volume
of cargo uplifted increased by 14% to 2.1 million tonnes, restoring Emirates’ cargo operation to almost 90% of its pre-Pandemic
(2019) levels by volume handled. Robust demand for essential goods and medical supplies and global supply chain issues
making air cargo popular due to lower lead times were pushing overall air cargo demand from Emirates’ customers. To meet
overall demand in its passenger and cargo businesses the airline recalled employees on furlough or unpaid leave, rehired those
previously impacted by layoffs and launched recruitment drives. These measures resulted in an increase in employee numbers by
12.4% to 45,843 at the end of March 2022.
As of 31 March 2022, Emirates’ total liabilities decreased by 1.5% to AED 129.7 billion (USD 35.3 billion) compared to the end of
the previous financial year. Amongst other things, the airline repaid AED 4.5 billion (USD 1.2 billion) in debt out of the total of
AED 17.5 billion (USD 4.8 billion) raised since the beginning of the Pandemic. Total equity came in at an almost unchanged AED
20.3 billion (USD 5.5 billion). Emirates’ equity ratio stood at 13.5% and its cash position, including short term bank deposits,
amounted to AED 20.9 billion (USD 3.9 billion) at the end of March 2022. In comparison, the carrier had AED 15.1 billion (USD
4.1 billion) in cash assets and short term bank deposits at the end of the 2020/21 financial year. The cash flow from operating
activities came in at AED 24.4 billion (USD 6.7 billion) in 2021/22, the highest in the company’s history.
During the 2021/22 financial year, the carriers’ ultimate shareholder, the government of Dubai, continued to support the airline
and therefore injected equity of AED 3.5 billion (USD 0.95 billion). Sheikh Ahmed bin Saeed Al Maktoum, Chairman and Chief
15
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
ASSET MANAGER’S REPORT (continued)
Executive Emirates Airline and Group, the combined business of Emirates Airline and ground handler dnata, stated in the latest
annual report that “our business recovery picked up pace in 2021-22 as Pandemic-related restrictions lifted around the world,
particularly in the second half of our financial year”, and added “As a group we invested over AED 7.9 billion [USD 2.2 billion]
in new aircraft, engines, equipment, facilities and technologies … As travel restrictions around the world eased, we reinstated
services, added flights to dozens of cities, and ramped up our A380 deployment to efficiently serve pent-up customer demand”.
As at the end of March 2022, Emirates has outstanding US dollar debt issuances with maturities in 2023, 2025, and 2028.
These bonds were all trading at above par (100 cents) respectively and with running yields ranging from approximately 3.9%
to 4.4% in US dollars. There has also been no upward pressure on yields. This level of yields does not appear to indicate any
significant financial stress to the issuer. In its most recent annual financial report, the auditor PricewaterhouseCoopers issued
an unqualified audit report. And the management of Emirates Group (combined businesses of Emirates Airline and dnata) expects
to return to profitability in the 2022/23 financial year “while keeping a close watch on headwinds such as high fuel prices,
inflation, new COVID-19 variants, and political and economic uncertainty”. In the second half of the 2021/22 financial year
Emirates already generated a net profit of AED 1.9 billion (USD 0.5 billion), which helped to significantly improve profitability
in the 2021/22 financial year.
Source: Airline Ratings, Emirates, Reuters, The National
4. Aircraft – A380
As of the end of March 2022, the global A380 fleet consisted of 238 planes with 14 airline operators. Only 97 of these aircraft
were in service. The remainder of the fleet is currently parked due to COVID-19. The 14 operators are Emirates (121), Singapore
Airlines (17), Deutsche Lufthansa (14), Qantas (12), British Airways (12), Korean Air Lines (10), Etihad Airways (10), Qatar
Airways (10), Air France (8), Malaysia Airlines (6), Thai Airways (6), Asiana Airlines (6), China Southern Airlines (3), and All
Nippon Airways (3).
The A380 became the latest Airbus aircraft type to perform a test flight with one of its engines powered by 100% sustainable
aviation fuel (SAF). The particular SAF used for that flight performed by aircraft manufacturer Airbus consisted mainly of used
cooking oil as well as some other waste fats. An increasing use of SAF is the single most important measure to meet the aviation
industry’s target of net-zero carbon emissions by mid-century and could account for as much as 53% to 71% of carbon reductions
required to meet that target.
In January 2022 A380 operator Asiana Airlines dropped plans to redeploy its A380 on routes from Seoul to Frankfurt and Los
Angeles for the 2022 summer schedule. Flight schedules now indicate a return for the aviation winter season starting on
30 October 2022.
In February 2022 various sources reported that China Southern Airlines had decided to retire its fleet of five A380s by the end of
the year. China’s international borders continue to remain largely closed and the country has a quarantine requirement. Unlike
other countries, there is no indication of restrictions being lifted anytime soon.
In February 2022 Airbus announced that the first A380 ever built, with manufacturer’s serial number 1, has been picked to
become Airbus’ so-called ZEROe demonstrator, an important tool for Airbus’ aspirations to develop the world’s first zero-emission
commercial aircraft by 2035. The multi-year demonstrator programme is designed to test a variety of hydrogen technologies both
on the ground and in the air. “It will carry four liquid hydrogen tanks in a caudal position, as well as a hydrogen combustion
engine mounted along the rear fuselage”, according to an Airbus press release. Demonstrator aircraft are fundamental to
developing new aviation technology and primarily used to test and prove the viability of designs, processes, fuels, materials,
and equipment, both on the ground and in the air.
Source: Airbus, Cirium, Simple Flying
16
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
DIRECTORS
As at 31 March 2022 the Company had four directors all of whom were independent and non-executive.
Geoffrey Alan Hall - Chair of the Company and of the Nomination Committee
Geoffrey Hall has extensive experience in asset management, having previously been Chief Investment Officer of Allianz
Insurance plc, a major UK general insurance company and an investment manager at HSBC Asset Management, County Investment
Management, and British Railways Pension Funds. Geoffrey is also a director and Chair of the Audit and Risk Committee of Doric
Nimrod Air One Limited and of Doric Nimrod Air Three Limited.
Geoffrey earned his master’s degree in Geography at the University of London and is an associate of the CFA Society of the UK.
He is resident in the United Kingdom.
Charles Edmund Wilkinson
Charles Wilkinson is a solicitor who retired from Lawrence Graham LLP in March 2005. While at Lawrence Graham he specialised
in corporate finance and commercial law, latterly concentrating on investment trust and fund work.
Charles is Chair of Doric Nimrod Air One Limited and of Doric Nimrod Air Three Limited and is a director of Landore Resources
Ltd, a mining exploration company. He is resident in Guernsey.
Fiona Le Poidevin
Fiona Le Poidevin is a non-executive director with a particular focus on listed investment companies and private equity. Among
her appointments, Fiona is non-executive director and Audit Chair of ICG-Longbow Senior Secured UK Property Debt Investments
Limited, a premium listed company with shares admitted to trading on the Main Market of the LSE. She is also a director of Doric
Nimrod Air One Limited, Doric Nimrod Air Two Limited and Doric Nimrod Air Three Limited.
A Chartered Director, Fellow of the Institute of Directors and Chartered Accountant (FCA), Fiona has 25 years’ experience working
in financial services in both London and the Channel Islands across the accounting and tax professions with experience in
strategy, marketing, PR and the regulatory and listed company environments.
Until the end of July 2020, Fiona was Chief Executive Officer of The International Stock Exchange Group Limited where she was
responsible for the commercial aspects of the listed exchange group’s operation.
Previously Fiona was Chief Executive of Guernsey Finance, the promotional body for Guernsey’s finance industry internationally,
and prior to this she was an auditor and latterly tax adviser at PwC (London and Channel Islands) and KPMG (Channel Islands)
for over 13 years.
Fiona is a member of the AIC Channel Islands Committee and non-executive Chairman of a local Sea Scouts group.
Andreas Josef Tautscher – Chair of the AR Committee and the Management Engagement Committee
Andreas Tautscher brings over 33 years’ financial services experience. He serves as a non-executive director and member of
the Audit Committee of MJ Hudson PLC which is an AIM traded Financial Services Group. He is also a non-executive director
of Globalworth PLC which is an AIM listed Central European property Group. He is an independent director of Condor Ferries
Limited. Andreas is a director and Chair of Arolla Partners, a leading independent director services business in the Channel
Islands. From 1994 to 2018 Andreas held various roles at Deutsche Bank and was most recently CEO of the Channel Islands and
Head of Financial Intermediaries for EMEA. He was previously a non-executive director of the Virgin Group. Andreas qualified as
a Chartered Accountant in 1994.
Andreas is also Chair of the Management Engagement Committees of Doric Nimrod Air Two Limited and Doric Nimrod Air Three
Limited, and a director of Doric Nimrod Air One Limited and Doric Nimrod Air Three Limited. He is resident in Guernsey.
17
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
SERVICE PROVIDERS
Management and the Delegation of Functions
The directors, whose details are set out on page 16 are responsible for reviewing the business affairs of the Group in accordance
with the Articles and have overall responsibility for the Group’s activities including all business decisions, review of performance
and authorisation of distributions. The Company has delegated management of the Group’s Aircraft to Doric, which is a company
incorporated in Germany. Further details are outlined below under the heading Asset Manager. The directors delegate secretarial
and administrative functions to JTC which is a company incorporated in Guernsey and licensed by the GFSC for the provision of
administration services. The registrar function is delegated to the Registrar, which is licensed and regulated by the GFSC.
Asset Manager
Doric has been appointed by the Company to provide asset management services to the Group. Pursuant to the Asset Management
Agreement, Doric will: (i) monitor Emirates’ and any subsequent lessees’ performance of its obligations under the Leases and any
subsequent leases respectively (which shall include the obligations relating to the maintenance of insurance cover); (ii) provide
the Group with information regarding alternatives with respect to any potential sale or re-lease of the Assets; (iii) carry out
mid-lease inspections of the Assets; (iv) provide the Group with asset monitoring reports describing the state and any material
changes to the state of the Assets; and (v) liaise, as and when necessary, with lenders, on all matters relating to the loans and
EETCs, as required.
Doric has further undertaken that it will dedicate sufficient time and resources as it reasonably believes is required from time to
time to fulfil any contractual arrangements it enters into with the Company.
The Doric Group is also a member of ISTAT and is a leading provider of products and services for investors in the fields of
aviation, shipping, renewable energy and real estate. The Doric Group has an international presence, with offices in Germany,
Hong Kong, the United Kingdom, and the United States, and a multinational team which offers access to extensive relationship
networks and expert asset knowledge maintaining regulated financial institutions in Europe. One of the firm’s core competencies
is its asset management expertise, which is an integrated part of all Doric transactions and a cornerstone of the business. For
further information about the Doric Group, please visit www.doric.com.
The aircraft portfolio currently managed by the Doric Group is valued at $6 billion and consists of 33 aircraft and 5 engines under
management. These aircraft include commercial airliners ranging from ATR 72-500s and the Airbus A320 family, through the
Boeing 777, 787 and Airbus A330, up to the Airbus A380.
The Doric Group has 20 Airbus A380 aircraft currently under management and is therefore considered well positioned to perform
the technical asset management of this aircraft type.
Corporate and Shareholder Adviser
Nimrod, which is authorised by the FCA has been appointed as the Corporate and Shareholder Adviser by the Company.
Nimrod was founded in 2008 as an independent organisation which specialises in generating and sourcing interesting investment
funds, themes and solutions managed by experts in their fields for the professional investor marketplace. It has launched nine
listed investment companies since its formation and it also provides investment, marketing, distribution and advisory services
to investment companies and their boards and managers.
Nimrod, together with Doric and Emirates, was awarded the “Innovative Deal of the Year 2010 award” by the international
aviation magazine Airfinance Journal in recognition of the innovative financing of an Airbus A380 leased to Emirates by the first
stock market listed aircraft investment vehicle, Doric Nimrod Air One Limited.
Secretary & Administrator
JTC is an independent provider of institutional and private client services to clients in numerous jurisdictions and is a member
of the JTC Group. For further information about the JTC Group, please visit www.jtcgroup.com.
18
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
SERVICE PROVIDERS (continued)
JTC is a Guernsey incorporated company and provides administration and secretarial services to the Group pursuant to an
Administration and Secretarial Agreement. In such capacity, JTC is responsible for the general secretarial functions required by
the Law and assists the Group in its compliance with its continuing legal and regulatory obligations, as well as providing advice
on good corporate governance and best practice for a publicly traded company.
JTC is also responsible for the Group’s general administrative functions and for the preparation of unaudited half-yearly and
audited annual financial reports, subject to the direction and oversight of the Board.
Registrar
JTC Registrars is the Company’s CREST compliant registrar. The Registrar is responsible for the maintenance of the Company’s
Share register and for the processing of dividend payments and stock transfers. The Registrar is licensed and regulated by the
GFSC and further information about The Registrar may be obtained from their website at www.jtcgroup.com.
Review
The Board keeps under review the performance of the Asset Manager, Corporate and Shareholder Adviser, the Secretary,
Administrator and the Registrar and the powers delegated to each service provider. In the opinion of the Board, the continuing
appointments of the service providers on the terms agreed is in the best interest of the Company’s Shareholders as a whole.
A full list of the Company’s service providers is set out on page 87.
19
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
MANAGEMENT REPORT
A description of important events which have occurred during the financial year under review, their impact on the performance of
the Group as shown in the consolidated financial statements and a description of the principal risks and uncertainties facing the
Group are given in the Chair’s Statement, Asset Manager’s Report, Statement of Principal Risks and the notes to the consolidated
financial statements contained on pages 58 to 86 and are incorporated here by reference.
Principal Risks and Uncertainties
The Board has undertaken a robust assessment of the principal risks facing the Group and has undertaken a detailed review of the
effectiveness of its risk management and internal control systems. The Board is comfortable that the risks are being appropriately
monitored on a regular basis.
The risks set out below are those which are considered to be the material risks relating to an investment in the Shares but are not
the only risks relating to the Shares or the Group. Additional risks and uncertainties of which the Group is presently unaware or
that the Group currently believes are immaterial may also adversely affect its business, financial condition, results of operations
or the value of the Shares.
The principal risks associated with the Group are:
• Operational risk: The Board is ultimately responsible for all operational facets of performance including cash management,
asset management, regulatory and listing obligations. The Group has no employees and so enters into a series of contracts/
legal agreements with a series of service providers to ensure both operational performance and the regulatory obligations
are met. This risk has been mitigated by the Group using well established, reputable and experienced service providers and
assessing service providers’ continued appointment on at least an annual basis.
• Investment risk: There are a number of risks associated with the Group’s Assets in relation to the occurrence of technical
faults with the Assets or actions by third parties causing both damage to the Assets and also damaging the demand for
global air travel. This risk has been mitigated by the Lessee’s contractual responsibility to insure, repair and maintain the
Aircraft for the duration of the Leases.
• Borrowings and financing risk: There is a risk that the Group is exposed to fluctuations in market interest rates and foreign
exchange rates. This risk has been mitigated by ensuring that debt repayments are made from lease rental revenues received
in the matching currency and by fixing the interest rates on debt and lease rentals.
• Credit risk: Emirates is the sole lessee of the Assets and is headquartered in the Middle East. Should Emirates default on the
rental payments due to domestic events, events in the wider airline industry or other reasons it is unlikely the Company will
be able to meet its targeted dividends or, in the case of ongoing default, continue as a going concern. The risk of default
is potentially mitigated by the ability of the Group to sell or re-lease the Assets in the event of a single default. However,
this could be impacted by market conditions at the time.
• Secondary market risk: There is a risk that the Group would not be able to achieve the projected resale value of the Assets
due to i) changes in demand for second hand aircraft of the type owned by the Group, ii) the limited number of airlines
operating the aircraft type, and iii) an increasing trend for airlines to operate newer generation aircraft that produce lower
emissions. Therefore, the Board monitors, and revises the residual value of the Aircraft on an annual basis, from three
independent appraisers, who consider these market trends in the aircraft valuations.
• Aircraft preservation risk: In the case that the aircraft are returned and there are not yet secondary leases in place, there
is a risk that the Company would need to utilise financial resources to cover storage costs, preservation of the aircraft whilst
in storage, and maintain insurance on the aircraft though this would be a smaller cost as the aircraft would not be flying.
The risk is mitigated by ensuring proactive engagement with the Group’s lessee so that the end of lease situation is known
and planned for well in advance of expiry date. The Board also maintains a healthy cash position from rentals received which
is not paid out as regular dividend in order to facilitate end of lease planning.
20
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
MANAGEMENT REPORT (continued)
• Regulatory risk: The Group is required to comply with the DTRs of the FCA and the requirements imposed by the Law and any
other legislation and regulations as applicable. Any failure to comply could lead to criminal or civil proceedings. Although
responsibility ultimately lies with the Board, the Board is assisted by the Secretary which also monitors compliance with
regulatory requirements.
• Valuation risk: There is a risk that the useful life or residual value used in determining depreciation are not appropriate or
accurately calculated. The Board assess, based on the latest forecast valuations, particularly in light of the ongoing effects
of the Pandemic, whether the selected residual values remains as an appropriate basis of valuation and with consideration
to the range of estimates provided by the external valuers. The Group has a robust audit process to ensure that valuations
accurately reflect the requirements of IFRS.
• Global Pandemic: The emergence of a global pandemic has had a profound and negative impact on the operations and
performance of the Group and may directly or indirectly affect some of the other risks mentioned in this table. The Board
and its key service providers all act to the best of their abilities to protect the welfare of the various teams involved in the
affairs of the Group to ensure operations are maintained to the extent possible and to protect and support the Assets of the
Group for as long as is required. Please refer to the Chair’s Statement, the Asset Manager’s Report and the going concern
statement below for more information on how the Group is being affected by COVID-19.
Emerging Risks
The Board has developed and continues to maintain a risk matrix for the Company which is reviewed at each quarterly Board
meeting. The Board continually monitors emerging risk areas relevant to the performance of the Group including those that
would threaten its business model, future performance, solvency and liquidity on an ongoing basis. The board receives from the
Company’s Asset Manager bi-annual reporting confirming the Asset Manager’s obligations and highlighting key issues and risks
to be brought to the Company’s attention.
Additional risks and uncertainties of which the Board is presently unaware may also adversely affect its business, financial
condition, results of operations or the value of shares.
Data Protection
The Company has implemented measures designed to ensure its compliance with the EU General Data Protection Regulation (EU)
2016/679 and associated legislation in Guernsey. The Company has also issued a privacy notice explaining the data it holds, how
the data is used and its procedures for processing this data. This notice is available for review and download at the Company’s
website.
Going Concern
The Group’s principal activities are set out within the Company Overview on pages 5. The financial position of the Group is set
out on page 58. In addition, note 19 to the consolidated financial statements includes the Group’s objectives, policies and
processes for managing its capital, its financial risk management objectives and its exposures to credit risk and liquidity risk.
The Directors, in consultation with the Asset Manager, are monitoring the continuous effect of the Pandemic generally on the
aviation industry and specifically on the Group’s aircraft values and the financial wellbeing of its Lessee both now and in the
future. The Pandemic continues to have a pervasive impact on the global economy, and it remains possible that the Group’s
future performance could be impacted in this prolonged period of uncertainty. In some jurisdictions restrictions on the ability of
people to travel still adversely affect the airline sector, and by extension the aircraft leasing sector. The risk therefore remains
that some airlines may not be able to pay rent as it falls due. The impact of the Pandemic on the aviation industry has been
significant. Entering the third year of the Pandemic commercial operators worldwide still had 18% of their combined passenger
aircraft fleet stored at the end of January 2022. This compares to a pre-Pandemic level of 7% in January 2019. These factors,
together with wider economic uncertainty and disruption, have had an adverse impact on the future value of the Aircraft owned
by the Group since the beginning of the Pandemic, and could also negatively impact the sale, re-lease or other disposition of
the relevant Aircraft.
21
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
MANAGEMENT REPORT (continued)
Given the prolonged impact of the Pandemic, increased lessee counterparty credit risk remains in existence and there could
be requests for lease rental deferrals. However, notwithstanding the challenging business environment, Emirates was able to
substantially improve its financial position during the 2021-22 financial year, reducing its net loss by 81% to USD1.1 billion.
In the second half of the 2021/22 financial year Emirates generated a net profit of AED 1.9 billion (USD 0.5 billion). The
management of Emirates Group (combined businesses of Emirates Airline and dnata) expects to return to profitability in its
current financial year.
Reduced rents receivable under the Leases may not be sufficient to meet the debt interest and regular repayments of debt
scheduled during the life of each Loan and the EETC, and may not provide surplus income to pay for the Group’s expenses and
permit the declaration of dividends. However, this would only apply if the Lessee became unable to meet its debt repayment
obligations or insisted on a rent holiday, and the Lessee has given no indication of either scenario.
The Directors consider that the going concern basis of accounting remains appropriate. Based on current information the
Directors have reasonable expectation that the Group has sufficient financial resources, including cash and cash equivalents and
expected rent receipts to continue in operational existence for at least twelve months from the date of this report, although the
risk to this is higher compared to a pre-COVID-19 environment.
The Board will continue to actively monitor the financial impact on the Group from the evolving position with its Lessee and
debt providers whilst bearing in mind its fiduciary obligations and the requirements of Guernsey law which determine the ability
of the Group to make dividends and other distributions.
The Directors have considered Emirates’ ability to continue paying the lease rentals over the next 12 months and are satisfied
that the Group can meet its liabilities as they fall due over this period. Further detail regarding the assumptions adopted when
forming this conclusion can be found in the Viability Statement below.
Viability Statement
In accordance with Provision 31 of the Code, the directors of the Company have considered the prospects of the Group over the
period from present until the liquidation resolution is put to Shareholders in June 2025, a period of three years. In choosing
the period of viability for the Group the Board has considered the prospect of Emirates performing their obligations until the
end of their Leases.
The Board, in assessing the viability of the Group, has paid particular attention to the principal risks faced by the Group as
disclosed in the Management Report and the notes to the consolidated financial statements, reviewing on an ongoing basis the
risks faced and ensuring that any mitigation measures in place are functioning correctly.
The Directors, with the support of its Asset Manager, believe that it is reasonable to assume as of date of approval of the
Consolidated Financial Statements that Emirates will continue with the contracted lease rental payments due to the following:
— Emirates continues to be a going concern as at the date of the Lessee’s latest signed annual financial report for the financial
year ended on March 31, 2022.
— Challenged by the continued effects of the Pandemic on its business, the Lessee was able to quickly adapt its business
model, generating additional revenue by expanding its global capacity and reinstating more passenger flights: In its 2021-
22 financial year ended on March 31, 2022 the airline increased its revenue by 91% to USD16.1 billion. The net loss could
be reduced by 81% to USD1.1 billion.
— Although Emirates concluded its last financial year with the second net loss in more than 30 years, the carrier showed a
strong operating cash flow of USD6.7 billion, which contributed to an 38% increase in cash assets amounting to USD5.7
billion, compared to the previous financial year.
— The ultimate shareholder of Emirates Airline has injected another AED 3.5 billion (USD954 million) into Emirates Airline,
during the Period.
22
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
MANAGEMENT REPORT (continued)
— Emirates’ listed debt and CDSs are trading at non-distressed levels.
— As of the date of the Consolidated Financial Statements, the Board is not aware of a formal request to the Group for a lease
deferral or any other efforts that would result in the restructuring of the existing transaction.
— Emirates has paid all the lease rentals to the Group in a timely manner.
The Group retains sufficient cash to cover the forecast operating costs of the Group until the termination date of the final Leases
in 2024, assuming receipt of planned rental income.
The directors believe that their assessment of the viability of the Group over the period chosen was sufficiently robust and
encompassed the risks which would threaten the business model, future performance, solvency or liquidity of the Group.
As a result of their review, the directors of the Company have a reasonable expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due until the last Lease is due to terminate in 2024.
Responsibility Statement
The directors jointly and severally confirm that to the best of their knowledge:
(a) the financial statements, prepared in accordance with IFRS give a true and fair view of the assets, liabilities, financial
position and profits of the Group and performance of the Group;
(b) the Management Report includes or incorporates by reference a fair review of the development and performance of the
business and the position of the Group, together with a description of the principal risks and uncertainties that it faces; and
(c) the annual report taken as a whole is fair, balanced and understandable and provides the information necessary for the
Company’s Shareholders to assess the Company’s and the Group’s position, performance, business model and strategy.
Geoffrey Hall
Chair
Andreas Tautscher
Director
29 July 2022
23
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
DIRECTORS’ REPORT
The directors present their annual report and audited financial statements of the Group for the financial year ended 31 March
2022.
Principal Activities and Business Review
activities for the foreseeable future. A description of the activities of the Group in the year under review is given in the Chair’s
Statement and the Asset Manager’s Report respectively on pages 7 to 9 and 10 to 15.
Status
The Company is a Guernsey domiciled company, the Shares of which are admitted to trading on the SFS. Its registered number
is 52985. The Company operates in accordance with the Law.
Results and Dividends
The results of the Group for the financial year are set out on page [58].
The Company declared dividends during the financial year under review as follows:
Quarter End Announcement Date Payment Date
Dividend
per Share
(pence)
31 March 2021 15 April 2021 30 April 2021 4.50
30 June 2021 15 July 2021 31 July 2021 4.50
30 September 2021 14 October 2021 30 October 2021 4.50
31 December 2021 13 January 2022 29 January 2022 4.50
The Company declared the following dividends after the financial year end:
Announcement Date Payment Date
Dividend
per Share
(pence)
12 April 2022 30 April 2022 4.50
14 July 2022 29 July 2022
(expected payment
date)
4.50
The Company aims to continue to pay quarterly dividends of 4.50 pence per Share, in line with the Distribution Policy. There is
no guarantee that any future dividends will be paid.
Directors
The directors in office are shown on page 16 and all directors remain in office as at the date of signing of these financial
statements. Further details of the directors’ responsibilities are given on page 27.
No director has a contract of service with the Group, nor are any such contracts proposed.
24
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
DIRECTORS’ REPORT (continued)
The following interests in Shares of the Company are held by persons discharging directorial responsibility and their persons
closely associated:
Number of
Shares held
as at 31 March
2022
Number of
Shares held
as at 30 July
2022
Charles Wilkinson 75,000 75,000
Geoffrey Hall 75,000 75,000
Fiona Le Poidevin 0 0
Andreas Tautscher 6,489 6,489
Other than the above shareholdings, none of the directors nor any persons connected with them had a material interest in any of
the Company’s transactions, arrangements or agreements during the year and none of the directors has or has had any interest
in any transaction which is or was unusual in its nature or conditions or significant to the business of the Company, and which
was effected by the Company during the reporting year.
At the financial year end and as at the date of this report, there are no outstanding loans or guarantees between the Company
and any director.
There were no material related party transactions which took place in the financial year under review, other than those disclosed
in the Directors’ Report and at note 22 to the financial statements.
Substantial Controllers of Voting Rights
The Company has identified the following substantial controlling interests in voting rights attached to the Company’s issued
Share capital in accordance with Chapter 5 of the DTRs. These are based on notifications made to the Company since inception
and may differ substantially from positions recorded on the Company’s Share register.
There have been no material changes in the below list of substantial controlling interests between the end of the year under
review and 22 July 2022, being the latest practicable date prior to the date of approval of this report.
Name
% of Total
Voting Rights
Number of
Shares
Weiss Asset Management LP 11.34% 19,591,892
City of Bradford Metropolitan District Council 10.16% 17,550,000
Schroders plc 7.68% 13,267,887
FIL Limited 5.43% 9,388,030
Seneca IM Limited 5.10% 8,810,883
Quilter Cheviot Limited 5.00% 8,641,973
25
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
DIRECTORS’ REPORT (continued)
Corporate Governance
Statement of Compliance with the Code, as published in July 2018
As a Guernsey incorporated company and under the DTRs, the Company was not, for the year under review, required to comply
with the Code. The Company has, however, voluntarily committed to comply with the Code or explain any departure. A copy of
the Code is available for download from FRC’s website (www.frc.org.uk).
Having reviewed the Code, the Board considers that it has maintained procedures during the year to ensure that it has complied
with the Code, other than the following exceptions:
(i) Provision 2: The board should assess and monitor culture.
Provision 5: The board should understand the views of the company’s other key stakeholders and describe in the annual
report how their interests and the matters set out in section 172 of the Companies Act 2006 have been considered in
board discussions and decision-making. The board should keep engagement mechanisms under review so that they remain
effective.
For engagement with the workforce, one or a combination of the following methods should be used:
• a director appointed from the workforce;
• a formal workforce advisory panel;
• a designated non-executive director.
Provision 6: There should be a means for the workforce to raise concerns in confidence and – if they wish – anonymously.
Company Response: The Company does not have any employees and therefore does not assess and monitor culture (other
than the culture of the Board) or engage with the workforce.
(ii) Provision 10: The board should identify in the annual report each non-executive director it considers to be independent.
Circumstances which are likely to impair, or could appear to impair, a non-executive director’s independence include, but
are not limited to, whether a director:
• has, or has had within the last three years, a material business relationship with the company, either directly or as a partner,
shareholder, director or senior employee of a body that has such a relationship with the company;
• holds cross-directorships or has significant links with other directors through involvement in other companies or bodies;
• has served on the board for more than nine years from the date of their first appointment.
Where any of these or other relevant circumstances apply, and the board nonetheless considers that the non-executive
director is independent, a clear explanation should be provided.
Provision 19: The chair should not remain in post beyond nine years from the date of their first appointment to the board.
To facilitate effective succession planning and the development of a diverse board, this period can be extended for a limited
time, particularly in those cases where the chair was an existing non-executive director on appointment. A clear explanation
should be provided.
Company Response: The Board considers the directors to be independent. The directors of the Company are also directors
of other DNA Companies and therefore the Board has implemented measures to manage any conflicts which might arise
as a result of these appointments. The Chair and one director have been in situ since incorporation of the Company in
26
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
DIRECTORS’ REPORT (continued)
October 2010 which exceeds the nine year provision. The Group’s Assets each have a fixed Lease term of 12 years ending at
different times and as such the Board remain of the opinion that continuity is important in the final years of the Company’s
life. The Nomination Committee will meet in Q4 2022 to continue discussions around effective succession planning, mindful
of the tenure of Board members and the remaining life of the Company.
Provision 12: The Board should appoint one of the independent non-executive directors to be the senior independent
director to provide a sounding board for the chair and serve as an intermediary for the other directors and shareholders. Led
by the senior independent director, the non-executive directors should meet without the chair present at least annually to
appraise the chair’s performance, and on other occasions as necessary.
Company Response: The previously appointed senior independent director retired during the Period. The Board have formed
the view that it is not be necessary to appoint an immediate replacement and that such an appointment will be subject to
the ongoing consideration of the Board.
(iii) Provision 9: The chair should be independent on appointment when assessed against the circumstances set out in Provision
10. The roles of chair and chief executive should not be exercised by the same individual.
Company Response: There is no chief executive. However, the Nomination Committee will meet in Q4 2022 to continue
discussions around effective succession planning and board composition, mindful of the tenure of Board members and the
remaining life of the Company.
(iv) Provision 20: Open advertising and / or an external search consultancy should generally be used for the appointment of the
chair and non-executive directors. If an external search consultancy is engaged it should be identified in the annual report
alongside a statement about any other connection it has with the company or individual directors.
Company Response: Due to the specific nature of the Company, it has thus far used industry contacts to identify a list of
suitable candidates and undertakes a rigorous interview process.
(v) Provision 13: Non-executive directors have a prime role in appointing and removing executive directors. Non-executive
directors should scrutinise and hold to account the performance of management and individual executive directors against
agreed performance objectives. The chair should hold meetings with the non-executive directors without the executive
directors present.
Provision 32: The board should establish a remuneration committee of independent non-executive directors, with a minimum
membership of three, or in the case of smaller companies [i.e. not in the FTSE 350], two.
Provision 33: The remuneration committee should have delegated responsibility for determining the policy for executive
director remuneration and setting remuneration for the chair, executive directors and senior management.
Provision 35: Where a remuneration consultant is appointed, this should be the responsibility of the remuneration committee.
Provision 41: There should be a description of the work of the remuneration committee in the annual report.
Company Response: The Company has no executive directors, senior management or employees. It does not have a
remuneration committee given the small size of the exclusively non-executive and independent board. Remuneration
provision is set out in this Directors’ Report.
Board Evaluation
The Board is committed to ensuring that on an annual basis the strengths of the Board are recognised and any weaknesses are
addressed. Each director has undertaken to engage with the evaluation process and take appropriate action when development
needs have been identified. An external facilitation of the performance evaluation is considered by the Chair of the Nomination
Committee on an annual basis.
27
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
DIRECTORS’ REPORT (continued)
For the financial year under review, the Nomination Committee agreed that an external facilitation of the performance evaluation
required by provision 21 of the Code was not required and instead the evaluation was performed by the Nomination Committee.
Directors were asked to complete individual questionnaires on the performance of the Board and its committees on an anonymous
basis and the completed questionnaires were considered at a meeting of the Nomination Committee. At the conclusion of its
evaluation, the Nomination Committee made minor suggestions for improvements and also concluded that the Board generally
operated well given its compact size.
Board Responsibilities
The Board comprises four directors and their biographies appear on page 16 demonstrating the wide range of skills and experience
they each bring to the Board. All the directors are non-executive and independent, with Geoffrey Hall acting as Chair.
The Nomination Committee regularly reviews the balance, knowledge and effectiveness of the Board, to identify if any additional
experience or skills are needed and to ensure that the current directors have sufficient available time to undertake the tasks
required and remain independent. The directors are able and encouraged to provide statements to the Board of their concerns
and ensure that any items of concern are recorded in the Board minutes. When undertaking a search for a new director the Board
is mindful of diversity and meritocracy.
The other significant commitments of the current Chair are detailed in his biography on page 16. The Board was satisfied during
the year and remains satisfied that the Chair’s other commitments do not interfere with the day-to-day performance of his duties
to the Company and that he has the commitment and time to make himself available at short notice should the need arise.
In accordance with the Articles the directors shall determine the directors’ fees payable provided that the aggregate amount
of such fees paid in respect of services rendered to the Company shall not exceed £250,000 per annum. All directors receive an
annual fee and there are no share options or other performance related benefits available to them. All directors are paid a fee
of £48,000 per annum. The Chair is paid an additional fee of £11,000 per annum and the Chair of the AR Committee is paid an
additional £9,000 per annum. The terms and conditions of appointment of non-executive directors are available for inspection
at the Company’s registered office by prior arrangement with the Secretary.
The Board usually meets in Guernsey at least four times per year to consider the business and affairs of the Group, at which
meetings the directors review the Group’s Assets and all other important issues to ensure control is maintained. The directors
hold a Dividend Committee meeting in Guernsey each quarter to consider and if thought suitable, approve the payment of a
dividend in accordance with the Company’s distribution policy.
Between these regular meetings the Board keeps in contact by email and telephone as well as meeting to consider specific
matters of a transactional nature. Additionally, the directors may hold strategy meetings with its relevant advisors as appropriate.
The directors are kept fully informed by the Asset Manager and Secretary of all matters that are relevant to the business of the
Group and should be brought to the attention of the directors and/or the Shareholders. All directors have direct access to the
Secretary who is responsible for ensuring that Board procedures are followed and that there are effective information flows both
within the Board and between the committees and the Board.
The directors also have access to the advice and services of the Asset Manager and Corporate and Shareholder Adviser and may
also, in the furtherance of their duties, take independent professional advice at the Company’s expense.
28
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
DIRECTORS’ REPORT (continued)
During the year under review the number of full Board meetings and committee meetings attended by the Directors was as
follows:
Director Board Meetings
Audit and Risk
Committee
Meetings
Nomination
Committee
Meetings
Management
Engagement
Committee
Meetings
Dividend
Committee
Meetings***
Geoffrey Hall 5 of 5 N/A 3 of 3 1 of 1 4 of 4
Charles Wilkinson 5 of 5 5 of 6 3 of 3 1 of 1 3 of 4
Fiona Le Poidevin N/A N/A 1 of 1 N/A N/A
Andreas Tautscher 5 of 5 6 of 6 3 of 3 1 of 1 4 of 4
*** refer to page 29 for the composition and function of the Dividend Committee.
Audit and Risk Committee
Mr Tautscher, Mr Wilkinson and Mrs Le Poidevin are all members of the AR Committee, with Mr Tautscher acting as Chair. The AR
Committee has regard to the Guidance on Audit and Risk Committees published by the FRC in September 2012 and as updated in
April 2016. The AR Committee examines the effectiveness of the Group’s, and its service providers’ internal control systems as
appropriate, the annual and half-yearly reports and financial statements, the auditor’s remuneration and engagement, as well as
the auditor’s independence and any non-audit services provided by them.
The FRC published updated Ethical and Auditing Standards in December 2019, which further restrict the provision of non-audit
services by audit firms to their clients. The previous list of prohibited non-audit services list has been replaced with a short list
of permitted services. Auditors of PIEs can now only provide non-audit services which are closely linked to the audit itself or are
required by law or regulation. Also, whereas PIEs were previously limited to those entities incorporated in the EU, the FRC now
defines PIEs as all issuers whose transferable securities have been admitted to trading on a UK regulated market, which includes
the London Stock Exchange but not AIM. The Crown Dependency rules were also changed so that Market Traded Companies
incorporated in the Crown Dependencies are also included in this requirement.
The AR Committee considers the nature, scope and results of the auditor’s work and reviews it annually prior to providing a
recommendation to the Board on the re-appointment or removal of the auditor. When evaluating the external auditor the AR
Committee has regard to a variety of criteria including industry experience, independence, reasonableness of audit plan, ability
to deliver constructive criticism, effectiveness of communication with Board and the Group’s service providers, quality control
procedures, effectiveness of audit process and added value beyond assurance in audit opinion.
Auditor independence is maintained through limiting non-audit services to specific audit-related work that falls within defined
categories. All engagements with the auditor are subject to pre-approval from the AR Committee and fully disclosed within the
annual financial report for the relevant period. A new lead audit partner is appointed every five years and the AR Committee
ensures the auditor has appropriate internal mechanisms in place to ensure its independence.
The AR Committee usually meets in Guernsey at least twice per year, shortly before the Board meets to consider the Group’s half-
yearly and annual financial reports, and reports to the Board with its deliberations and recommendations and also has annual
planning and final meetings with the auditor. In addition the Board also meets during the audit process with the auditors to
discuss issues relating to the residual values of the Assets. The AR Committee operates within clearly defined terms of reference
based on The Chartered Governance Institute UK & Ireland recommended terms and provides a forum through which the Group’s
external auditor reports to the Board. The AR Committee can request information from the Group’s service providers with the
majority of information being directly sourced from the Asset Manager, the Secretary and Administrator and the external auditor.
The terms of reference of the AR Committee are available on the Company’s website and on request from the Secretary.
Each year the Board examines the AR Committee’s performance and effectiveness and ensures that its tasks and processes
remain appropriate. Key areas covered included the clarity of the AR Committee’s role and responsibilities, the balance of skills
29
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
DIRECTORS’ REPORT (continued)
among its members and the effectiveness of reporting its work to the Board. The Board is satisfied that all members of the
AR Committee have relevant financial experience and knowledge and ensure that such knowledge remains up to date. Overall,
the Board considers that the AR Committee has the right composition in terms of expertise and has effectively undertaken its
activities and reported them to the Board during the year under review.
During the financial year the AR Committee met six times. The AR Committee considered the annual financial report for the year
ended 31 March 2022 and the half-yearly financial report for the period ended 30 September 2022. The AR Committee also met
in February 2022, with the external auditor in attendance, to approve the 2022 audit plan. The AR Committee also undertook a
review of the Company’s auditor during the year.
Dividend Committee
The Dividend Committee consists of any one or more director, who has been given full power and authority to consider and, if
thought suitable, declare and approve the payment of a dividend in accordance with the Company’s distribution policy, provided
that all directors had been provided with prior notice of the proposal to declare each dividend and no director had raised any
objection to the declaration of each dividend.
Nomination Committee
The Nomination Committee consists of all directors of the Company, with Mr Hall acting as Chair of the committee, except when
the Nomination Committee considers any matter in relation to the chairmanship of the Company, in which case an alternative
chair would be appointed.
The functions of the Nomination Committee include to regularly review the structure, size and composition of the Board
(including the skills, knowledge, experience, diversity and how effectively members work together to achieve objectives) and
make recommendations to the Board with regard to any changes, and to perform a formal and rigorous performance evaluation
of the Board, its committees, the Chair and individual directors, including the consideration of having a regular externally
facilitated Board evaluation. Full description of the Board evaluation is included on page 26, above.
During the financial year the Nomination Committee met three times, to consider the appointment of a new non-executive
director, to consider whether a SID was still required and to undertake the annual performance evaluation of the Board and its
committees.
The Nomination Committee is responsible for identifying and nominating for the approval of the Board candidates to fill Board
vacancies as and when they arise. Prior to any appointment made by the Board, the Nomination Committee will evaluate the
balance of skills, knowledge, experience and diversity on the Board, and, in light of this evaluation, prepare a description of the
role and capabilities required for a particular appointment. In identifying suitable candidates the Nomination Committee shall:
• generally use open advertising or the services of external advisers to facilitate the search, unless there is a valid reason for
not doing so in which case justification for this decision would be disclosed;
• consider candidates from a wide range of backgrounds; and
• consider candidates on merit and against objective criteria and with due regard for the benefits of diversity on the Board,
including gender, taking care that appointees have enough time available to devote to the position.
The Nomination Committee prepares a job specification for the appointment of a director, including the time commitment
expected. A proposed director’s other significant commitments should be disclosed to the Board before their appointment and
any significant changes to the director’s commitments should be reported to the Board as they arise.
Prior to the appointment of a director, the Nomination Committee requires any proposed appointee to disclose any other
business interests that may result in a conflict of interest.
30
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
DIRECTORS’ REPORT (continued)
The Nomination Committee ensures that, on appointment to the Board, a new non-executive director receives a formal letter of
appointment, setting out clearly what is expected of them in terms of time commitment, committee service and involvement
outside Board meetings.
The Nomination Committee met during the period to discuss the appointment of a new non-executive director. Subject to the
above approach to board appointments, Fiona Le Poidevin was appointed to the Board on 1 March 2022.
Succession planning is performed based on the results of the Nomination Committee’s evaluation of the structure, size and
composition of the Board as well as the results of the Board evaluation. In giving full consideration to succession planning for
directors, the Nomination Committee takes into account the challenges and opportunities facing the Company and the skills
and expertise needed on the Board in the future. The Nomination Committee keeps under review the leadership needs of the
Company with a view to ensuring the continued ability of the Company to operate effectively in the marketplace. The Board has
a succession plan in place which commenced with the appointment of Andreas Tautscher in August 2019 and continued with the
appointment of Fiona Le Poidevin in March 2022. Both directors bring a diverse set of skills and knowledge to the Board from
their prior experience and Mrs Le Poidevin’s appointment demonstrates the Board’s commitment to gender diversity. A Board
Evaluation was carried out during the year. The Nomination Committee will meet in Q4 2022 to continue discussions around
effective succession planning, mindful of the tenure of Board members and the remaining life of the Company.
Management Engagement Committee
The Management Engagement Committee was established on 15 October 2020 and consists of all directors of the Company, with
Andreas Tautscher acting as Chair. The Management Engagement Committee meets at least once a year and the principal duties
of the Management Engagement Committee are to review the terms of the agreements between the Company and its key service
providers to ensure that they are competitive, fair and reasonable for Shareholders, to review and make recommendations on any
proposed amendment or material breach of those agreements and to monitor and evaluate the performance of the key service
providers including the ongoing suitability of the key service providers to provide advice to the Company.
During the financial year the Management Engagement Committee met once, to perform a review of the Company’s service
providers.
Internal Control and Financial Reporting
The Board is responsible for the Group’s system of internal control and for reviewing its effectiveness. The Board confirms that
there is an ongoing process for identifying, evaluating and monitoring the significant risks faced by the Group.
The internal control systems are designed to meet the Group’s particular needs and the risks to which it is exposed. Accordingly,
the internal control systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and
by their nature can only provide reasonable and not absolute assurance against misstatement and loss.
The Board reviews its risk matrix on a quarterly basis, which covers various areas of risk including corporate strategy, accuracy
of published information, compliance with laws and regulations, relationships with service providers and business activities.
Asset Management services are provided to the Company by Doric. Corporate and Shareholder advisory services are provided to
the Company by Nimrod. Administration and secretarial duties for the Group are performed by JTC.
The Board clearly defines the duties and responsibilities of their agents and advisors. The appointment of agents and advisers
is conducted by the Board after consideration of the quality of the parties involved and the Board monitors their ongoing
performance and contractual arrangements. The Board also specifies which matters are reserved for a decision by the Board and
which matters may be delegated to its agents and advisers.
31
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
DIRECTORS’ REPORT (continued)
Management of Conflicts of Interest
The Company has adopted a formal conflicts of interest policy and is committed to ensuring that all directors and service providers
facilitate the Group conducting its business in a manner that is consistent with its reputation, conducive to maintaining high
standard of integrity in all its business dealings, in the best interests of the Company’s Shareholders.
The Board considers the director’s conflicts of interest at each Board meeting by reviewing a schedule of each directors other
directorships and other interests held. Each director is required to notify the Secretary of any potential, or actual, conflict
situations that would need to be considered by the Board.
No director has a service contract with the Company, although directors are issued with letters of appointment nor did any
director have any interest in contracts with the Company during the financial year under review, or subsequently.
Anti Bribery Policy
The directors have undertaken to operate the business in an honest and ethical manner and accordingly take a zero-tolerance
approach to bribery and corruption. The key components of this approach are implemented as follows:
• The Board is committed to acting professionally, fairly and with integrity in all its business dealings and relationships.
• The Group has implemented and enforces effective procedures to counter bribery.
• The Group requires all its service providers and advisors to adopt equivalent or similar principles.
Dialogue with Shareholders
All holders of Shares in the Company have the right to receive notice of, and attend, the general meetings of the Company,
during which members of the Board will be available to discuss issues affecting the Group.
The primary responsibility for shareholder relations lies with the Company’s Corporate and Shareholder Adviser. The Corporate
and Shareholder Adviser regularly meets with Shareholders to discuss the Company and seek feedback. The views of Shareholders
are discussed by the Board at every Board meeting, and action would be taken to address any shareholder concerns. The Company
provides regular updates to Shareholders through the annual and half-yearly financial reports and quarterly factsheets.
In addition, the directors are available to enter into dialogue with Shareholders and the Chair is willing to meet Shareholders
as the Company believes such communication to be important. The Company’s directors can be contacted at the Company’s
registered office or via the Secretary.
Stakeholders and Section 172
The Code requires that the Company should understand the views of the Company’s key stakeholders and describe in the annual
report how their interests and the matters set out in section 172 of the UK’s Companies Act 2006 have been considered in Board
discussions and decision-making. Section 172 is not strictly applicable as this is a Guernsey company. However, its application
is being considered as part of the Code requirements.
The Company has no employees and all of the directors are non-executive, so the Board considers that its key stakeholders are
its Shareholders, its lessee, its service providers, society, the government and regulators.
As the Company’s sole lessee the Board recognises Emirates as an important stakeholder and maintains a regular dialogue with
Emirates through the Asset Manager. The activities of Emirates are more fully considered within the Asset Manager’s Report.
The Board’s engagement with Shareholders is described in the “Dialogue with Shareholders” section above. All Shareholders are
treated equally and no Shareholder receives preferential treatment. When making decisions of relevance to Shareholders, the
Board considers first and foremost the likely consequences of their decisions in light of their duty to act in the best interests of
32
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
DIRECTORS’ REPORT (continued)
the Company. The Board also considers what is likely to be in the best interests of Shareholders as a whole, but does not consider
individual Shareholders’ specific circumstances or desires when making its decisions.
In addition to the regular reporting provided by key service providers, the Management Engagement Committee undertakes a
review of the performance of these key service providers on an annual basis. The services provided by the key third party service
providers are critical to the ongoing operational performance of the Company. The Board believes that fostering constructive
and collaborative relationships with the Company’s service providers will assist in their promotion of the success of the Company
for the benefit of all Shareholders.
As described in detail in the Company’s Viability Statement, the Board considers the prospects of the Company for at least
the next three years whenever it considers the Company’s long-term sustainability. All strategic decisions are therefore taken
with the success of the Company in mind and the Board would take external advice whenever it considered that such would be
beneficial to its decision making process, primarily from its retained service providers (including legal counsel), but also from
other external consultants.
The Board recognises that responsible investment and the associated ESG considerations can have a significant impact on
investment activity in terms of raising funds, identifying investment opportunities and long-term value creation for Shareholders.
Please see more information regarding ESG in the report on pages 34 to 37.
The Board ascribes to the highest standards of business conduct and has policies in place to ensure compliance with all
applicable laws and regulations. In addition to the monitoring of the Company’s compliance with its own obligations, the Board
also monitors compliance by its service providers with their own obligations. The Board encourages openness and transparency
and promotes proactive compliance with new regulation.
Statement of Directors’ Responsibilities
The directors are responsible for preparing the annual report and the consolidated financial statements in accordance with
applicable Guernsey law and regulations. Under the Law the directors are required to prepare financial statements for each
financial year. The directors have chosen to prepare the Group’s financial statements in accordance with IFRS.
Under the Law the directors must not approve the accounts unless they are satisfied that they give a true and fair view of the
state of affairs of the Group and of the profit or loss of the Group for that period.
In preparing these financial statements, International Accounting Standard 1 requires that directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
• provide additional disclosures when compliance with the specific requirements in IFRS are insufficient to enable users to
understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial
performance; and
• make an assessment of the Group’s ability to continue as a going concern.
The directors are responsible for keeping proper accounting records that are sufficient to show and explain the Group’s
transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure
that the financial statements comply with the Law. They are also responsible for safeguarding the assets of the Group and for
taking reasonable steps for the prevention and detection of fraud and other irregularities.
33
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
DIRECTORS’ REPORT (continued)
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Company’s website. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Disclosure of Information to the Auditor
The directors who held office at the date of approval of this Directors’ Report confirm in accordance with the provisions of
Section 249 of the Law that, so far as they are each aware, there is no relevant audit information of which the Group’s auditor
is unaware; and each director has taken all the steps that they ought to have taken as a director to make themselves aware of
any relevant audit information and to establish that the Group’s auditor is aware of that information.
Auditor
During the period the AR Committee undertook an audit tender process as an exercise of good corporate governance procedures,
on the basis that Deloitte had been in situ as Auditors of the Group for 10 years. As a result, Deloitte retired and Grant Thornton
Limited was appointed as external auditor by the Board, both effect from 2 August 2021. Pursuant to section 199 of the Law,
the Shareholders of the Company approved the appointment of Grant Thornton at the annual general meeting of the Company
held on 9 December 2021.
Geoffrey Hall Andreas Tautscher
Chair Director
Signed on behalf of the Board
On 29 July 2022
34
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
ENVIRONMENTAL, SOCIAL AND
GOVERNANCE REPORT
The Board recognises that responsible investment and the associated ESG considerations can have a significant impact on
investment activity in terms of raising funds, identifying investment opportunities and long-term value creation for Shareholders.
This report sets out our policy and approach to ensuring that the level of engagement on ESG matters is commensurate to the
size, nature and complexity of the business.
This policy seeks to address ESG matters on two levels; firstly, with regard to the Company itself and secondly, in relation to the
Assets which the Group owns. The direct and practical management of the Company seeks to uphold ESG standards where possible
and applicable. This is greatly influenced by the nature of the Group’s activities and the legal structure of the associated Leases.
The Company
The Company is a self-managed Guernsey company incorporated on 31 January 2011. Its Shares were initially admitted to trading
on the SFS on 14 July 2011. Following the closing of a C Share fundraising on 27 March 2012, these C Shares were converted to
additional ordinary preference shares which were admitted to trading on the SFS on 6 March 2013.
The Company is under the control of its Board of directors on behalf of Shareholders. All directors are independent and non-
executive. The Board are responsible for reviewing the business affairs of the Company in accordance with the Articles and have
overall responsibility for the Company’s activities including all business decisions, review of performance and authorisation of
distributions.
The Company has delegated the following activities to its appointed service providers:
• Asset Management – Doric
• Corporate and Shareholder Adviser – Nimrod
• Secretary and Administrator – JTC
• Registrar – JTC Registrars Limited
The Company has no executive directors or employees and no physical office premises. The Company’s business is carried out in
a series of meetings held in the offices of its administrator JTC, in Guernsey, the Company’s place of incorporation.
Subject to any travel restrictions imposed, the directors are required to travel in the fulfilment of their duties. Where circumstances
allow, travel is kept to a minimum. The directors are required to travel to Guernsey on at least a quarterly basis for board and
other committee meetings, and to the UK to visit Shareholders and service providers as and when required. Regular dialogue with
the asset lessee is maintained via the Asset Manager.
The Company consequently has a limited physical footprint and therefore its environmental impact is considered to be low.
The Modern Slavery Act
Due to the nature of the Company’s business, being a company that does not offer goods or services to customers, the Board
considers there are no relevant disclosures with regard to modern slavery in relation to the Company’s own operations. The Board
considers the Company’s supply chains, dealing predominantly with professional advisers and service providers in the financial
services industry, to be low risk in this regard.
35
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
ENVIRONMENTAL, SOCIAL AND
GOVERNANCE REPORT (continued)
The Assets
The principal activity of the Company is to acquire, lease and then sell aircraft. The Company has four wholly-owned subsidiaries;
MSN077 Limited, MSN090 Limited, MSN105 Limited and DNAFA. The Group owns seven Airbus A380-861 aircraft which are leased
for twelve years to the Lessee, the national carrier owned by The Investment Corporation of Dubai based in Dubai, United Arab
Emirates.
The Group’s own operational influence in the fields of climate change, air quality, and resource efficiency is minimal. The nature
of the Leases with the Lessee means that control over the usage of the Assets rests with the Lessee. The Group has leased the
Assets for a term of twelve years, with fixed lease rentals for the duration, to the Lessee. The Lessee bears all costs (including
for maintenance, repairs and insurance) relating to the Aircraft during the lifetime of the Leases. This would include any
modifications or modernisations related to ESG requirements as mandated by regulatory agencies. However, in all other respects,
the influence of the Group over the Lessee with regard to voluntary ESG concerns is limited due to existing quiet enjoyment
arrangements between the Group and the Lessee.
The Airbus A380 is the world’s largest commercial passenger aircraft. It is the first and only aircraft with two full-length
passenger decks, giving it a maximum capacity of up to 853 passengers. In a typical three-class configuration (First, Business
and Economy Class), the Airbus A380 has capacity for approximately 525 passengers. Additionally, developments with respect
to the aircraft’s aerodynamics, control elements and flight systems, coupled with the use of advanced, lightweight composite
materials make the A380 an attractive and efficient aircraft. In comparison with other modern long-range passenger aircraft of
the same category (the so-called Very Large Aircraft segment), the Airbus A380 consumes less fuel per passenger, using approx.
three litres of kerosene per 100 passenger kilometers, when equipped with Engine Alliance engines. Furthermore, the A380 offers
an efficient way to capture traffic at the most concentrated airports and times by giving airlines the ability to consolidate routes,
thereby increasing seat capacity while creating economies of scale.
The most critical environmental issue related to aircraft operations is GHG emissions generated from fossil energy consumption.
Air transportation is one of the most energy and carbon dioxide intensive modes of transport, whether measured per passenger
kilometre or per hour in transit. According to Oxford University, the global aviation industry (including domestic and international;
passenger and freight) accounts for:
• 1.9% of GHG emissions (e.g. all greenhouse gases, not only CO2);
• 2.5% of carbon emissions; and
• 3.5% of ‘effective radiative forcing’ – a measure of impact on global warming.
The first figure refers to 2016, while the latter two refer to 2018, each being the latest year for which such data are available.
The Aviation Industry
Despite aviation’s important role in local and global economic development, the aviation industry faces the challenge of meeting
long term strong growth in passenger demand while simultaneously reducing its environmental impacts. In addition to GHG
emissions, these environmental impacts could also include noise and nuisance, as well as water pollution (due to aircraft de-
icing, cleaning, and other chemical-heavy aircraft operations).
To address these growing environmental concerns, the cross-industry ATAG developed the ‘Wayward 2025’ action plan in line
with the Paris Agreement on climate change. The blueprint builds on IATA’s 2009 commitment to (1) increase fuel efficiency
by 1.5% every year between 2010-20, (2) to cap carbon emissions (carbon neutral growth) from 2020, and (3) to achieve the
50% emissions reduction by the middle of the century, as the first two goals have already been accomplished. Annual fuel
efficiency gains have exceeded expectations with annual improvements greater than 2%. The mechanism for ensuring carbon
neutral growth, known as CORSIA, started as a pilot scheme in 2021 with approx. 100 countries participating and the remaining
scheduled to join by 2027.
36
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
ENVIRONMENTAL, SOCIAL AND
GOVERNANCE REPORT (continued)
In pursuit of the final goal, Wayward 2050 has identified three key technological developments to accelerate the reduction of
carbon emissions:
1. Improved aircraft and engine designs for lighter, more efficient aircraft;
2. Hydrogen and electric powered aircraft; and
3. SAF.
The analysis performed for Wayward 2050 revealed that SAF will play a key role, driving between 50% and 75% of the emissions’
reductions. SAFs, such as drop-in power fuels like biofuels that can be used in today’s aircraft and engines without modification,
are already commercially available and are expected to increase in prominence once initial costs can be reduced through scale.
Evolutionary concepts, such as the second-generation geared turbo fan engine, could become widely commercially available
in the medium-term. Revolutionary concepts such as hydrogen and electric powered aircraft, represent the greatest potential
improvements, but will most likely not be commercially available until the 2050s, based on current forecasts.
As these technological developments progress, the aviation industry is taking additional measures to curb its environmental
impact, while maintaining its commitment to local and global economic development. For example, alongside CORSIA, the
aviation industry is able to participate in other carbon dioxide emissions trading markets, such as the EU ETS.
Furthermore, a number of countries currently levy passenger taxes on air tickets over and above infrastructure charges and
there are a number of proposals for additional environmental taxes to be imposed on the aviation industry. However, as IATA
notes, the income generated from an environmental tax is usually seen as general revenue by governments, thus it can be used
to fund any variety of public sector programs and initiatives. As such, IATA takes the position that, while the overall goal of
an environmental tax is laudable, it has distortionary effects on jobs and the economy, while at the same time not effectively
incentivising the development or use of newer and greener technology. The effects of any newly introduced environmental
taxes on the aviation industry will have to be monitored. The aviation industry plays a critical role in local and global economic
development, contributing 4.1% to global gross GDP and supporting 87.7 million jobs worldwide.
The Wayward 2050 plan can be found here: https://aviationbenefits.org/media/167187/w2050_full.pdf
Further environmental information can be found on the IATA website: https://www.iata.org/en/policy/environment/.
ICAO have used the United Nations’ SDGs as a basis to identify the contributions the aviation industry is making to
sustainable development. For further information and the full working paper on aviation’s contributions towards the
United Nations’ 2030 agenda for sustainable development from ICAO’s 40th session please refer to the ICAO website:
https://www.icao.int/Meetings/A40/Documents/WP/wp_189_en.pdf
Concerning the role of aircraft in sustainable development, aircraft assets are likely to contribute to at least five of the SDGs.
Specifically, airlines are able to utilize aircraft in a manner consistent with the achievement of the following targets:
1. SDG 5: Aviation is working to achieve gender balance across the sector. In Europe, aviation is the most gender-balanced
of all transport modes with 41 percent female employees. More work is still needed to encourage balance in technical and
executive roles;
2. SDG 8.1: Devise and implement policies to promote sustainable tourism that creates jobs and promotes local culture and
products;
3. SDG 9.1: Develop quality, reliable, sustainable and resilient infrastructure, including regional and trans-border infrastructure,
to support economic development and human wellbeing, with a focus on affordable and equitable access for all;
4. SDG 12.2: Achieve sustainable management and efficient use of natural resources productions; and
37
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
ENVIRONMENTAL, SOCIAL AND
GOVERNANCE REPORT (continued)
5. SDG 13: Invest in the transition to net-zero carbon dioxide energy, energy efficiency and the reduction of GHG emissions
from transport operations.
Detailed information on the SDGs can be found on the United Nations website: https://sustainabledevelopment.un.org/.
Emirates, the Lessee, is committed to efforts to reduce resource consumption while also investing in wildlife conservation and
protection. This includes participation in CORSIA as well as internal initiatives.
For further information on Emirates’ environmental policy and initiatives, please visit the Emirates website where annual
environmental reports are also available: https://www.emirates.com/english/about-us/our-planet/
In the context of the Assets and the associated Leases, the Board are committed to responsible decision making throughout the
lifecycle of the Group. The Board is in continuous dialogue with its service providers and regularly reviews processes to guarantee
transparency and accountability. The Board will continue to monitor the sustainability efforts of the industry and the Lessee and
keep Shareholders abreast of developments.
38
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
AUDIT AND RISK COMMITTEE REPORT
Membership
Andreas Tautscher – Chair of the AR Committee
Charles Wilkinson – Non-executive Director
Fiona Le Poidevin – Non-executive Director
Key Objective
The provision of effective governance over (i) the appropriateness of the Group’s financial reporting including the adequacy
of related disclosures, (ii) the performance of the Group’s external auditor, (iii) monitoring of the systems of internal controls
operated by the Company and (iv) the Group’s principal service providers and the management of the Company’s regulatory
compliance activities.
Responsibilities
The key duties of the AR Committee are as follows:
• reviewing the Group’s financial results announcements and financial statements and monitoring compliance with relevant
statutory and listing requirements;
• reporting to the Board on the appropriateness of the Group’s accounting policies and practices including critical accounting
policies and practices;
• advising the Board on whether the annual report and accounts, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess the Group’s position, performance, business model and
strategy;
• overseeing the relationship with the external auditor and reviewing the effectiveness of the external audit process; and
• monitoring the systems of internal controls operated by the Group and by the Group’s principal service providers.
AR Committee Meetings
The AR Committee usually meets in Guernsey at least twice a year. The AR Committee reports to the Board as part of a separate
agenda item, on its activities and on matters of particular relevance to the Board in the conduct of its work. During the financial
year under review the AR Committee formally reported to the Board on three occasions.
Main Activities of the AR Committee during the Financial Year
The AR Committee assisted the Board in carrying out its responsibilities in relation to financial reporting requirements, compliance
and the assessment of internal controls. The AR Committee also managed the Group’s relationship with the external auditor and
undertook an audit tender process.
Fair, Balanced and Understandable
In order to comply with the Code, the Board requested that the AR Committee advises them on whether it believes the annual
financial report, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders
to assess the Group’s performance, business model and strategy.
The AR Committee engaged with the Group’s auditor and the Administrator in order to ensure that the financial statements were
fair, balanced and understandable.
Financial Reporting and Significant Issues
The AR Committee’s primary role in relation to financial reporting is to review, with its service providers and the external
auditor, the appropriateness of the half-year and annual financial statements, the significant financial reporting issues and
39
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
AUDIT AND RISK COMMITTEE REPORT (continued)
accounting policies and disclosures in the financial statements. The AR Committee has considered the key risks identified as
being significant to these accounts and the most appropriate treatment and disclosure of any new significant issues identified
during the audit and half-year reviews as well as any recommendations or observations made by the external auditor, Deloitte.
To aid its review the AR Committee considered reports prepared by external service providers, including Doric and Nimrod, and
reports from Deloitte on the outcome of their annual audit. The significant issues considered by the AR Committee in relation to
the 2022 accounts and how these were addressed are detailed below:
Significant issues for the year under review How the AR Committee addressed these significant issues
Residual value of aircraft assets
The non-current assets of the Group comprise of seven Airbus
A380 aircraft. An annual review is required of the residual
value of the Assets as per IAS 16, which defines residual value
as “the estimated amount that an entity would currently obtain
from disposal of the asset, after deducting the estimated costs
of disposal, if the asset were already of an age and in the
condition expected at the end of its useful life.”
The Group has engaged three internationally recognised expert
appraisers to provide the Group with third party consultancy
valuation services. In the absence of sales data for similar used
assets, appraisers are heavily reliant on databases containing
historical data points of aircraft sales relating to large
commercial aircraft. Interpretation of historical data is the
basis for the current market value and provides, together with
the expected developments in the future, the foundation for
their opinions on future values. Furthermore, the appraisers’
valuations take into account specific technical and economic
developments as well as general future trends in the aviation
industry and the macro-economic outlook.
In the aftermath of Airbus’ February 2019 decision to
discontinue the A380 production in 2021, a number of A380
operators disclosed plans to withdraw at least parts of their
A380 fleets earlier than originally anticipated. Furthermore, it
became obvious that A380s returned following the expiration
of operating lease agreements could not be placed with a new
operator within a reasonable period of time and owners were
forced to explore alternative scenarios for revenue generation
like engine lease. This also includes part-out activities for the
first few A380s returned from Singapore Airlines.
With the Pandemic and its consequences still impacting air
travel, the global passenger air traffic recovered during the
Period, but has not yet reached its pre-Pandemic levels.
About two years into the Pandemic, around 60% of all A380s
worldwide were still on the ground at the end of the first
quarter of 2022.
40
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
AUDIT AND RISK COMMITTEE REPORT (continued)
Significant issues for the year under review How the AR Committee addressed these significant issues
Due to the A380-specific developments over the last few years
and the generally dimmed market sentiment in the aviation
sector since the COVID-19 outbreak, which is not over yet,
there is an elevated risk that the underlying assumptions of
the Base Value concept might not be met at the time when the
Leases expire. For this reason, the Asset Manager recommended
to continue with making use of a more conservative approach
by deploying Future Soft Values instead of Base Values. Soft
Values are more conservative, also applicable under “abnormal
conditions” and do not necessarily require a balanced market
as the Base Value concept does.
The Group’s estimation technique is to make reference to
the most recently produced forecast soft values (excluding
inflation), not an estimate of the amount that would currently
be achieved and which therefore could be different, and so
this is not a direct application of the IAS 16 definition. This
approach has been taken because current market values in
today’s prices for comparable twelve year old A380s were not
available at the reporting date.
A decrease in USD terms in the residual values of the Aircraft
from the prior year, has resulted in an adjustment made to
depreciation in the current year, details of which have been
disclosed in note 10.
As updated valuations of all Assets as at the financial
year end were commissioned and received from third party
professional valuers and analysed by the Asset Manager and
the directors, the AR Committee believes that those valuations
are appropriate for use in preparing the financial statements.
Therefore, the average residual values excluding inflation
used in the accounts are based on these appraisals.
Upon review of the advice they have received from Doric and
the appraisers, the AR Committee is of the opinion that, the
latest estimate of the residual soft values excluding inflation
of the Assets is a reasonable approximation of the residual
value of the Aircraft within the IAS 16 definition.
Residual values remain exposed to estimation uncertainty.
This is disclosed in note 3 and has been highlighted by the
auditor in their key observations section of the valuation and
ownership of aircraft key audit matter.
41
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
AUDIT AND RISK COMMITTEE REPORT (continued)
Significant issues for the year under review How the AR Committee addressed these significant issues
Recording foreign exchange gains/losses
IFRS require that certain transactions denominated in
currencies other than the presentation currency (including,
most importantly, the cost of the Assets) be translated
into the presentation currency at the exchange rate ruling
transaction date whilst monetary balances (principally the
outstanding borrowings) are translated at the rate prevailing
on the reporting date. The resultant figures sometimes show
very large mismatches which are reported as unrealised foreign
exchange differences.
During the year under review the Group recorded a significant
foreign exchange rate profit due to the appreciation of
Sterling against US dollars and the consequent decrease in
the Sterling value of the US dollar denominated debt.
In assessing foreign exchange, the AR Committee has
considered the issue at length and is of the opinion that, on
an ongoing basis and assuming the lease and debt payments
are made as anticipated, such exchange differences do not
reflect the commercial substance of the situation in the sense
that the key transactions denominated in US dollars are in fact
closely matched. Rental income received in US dollars is used
to pay debt repayments due which are likewise denominated
in US dollars. Furthermore, US dollar lease rentals and debt
repayments are fixed at the outset of the Group’s life and are
very similar in amount and timing.
The AR Committee concluded that the matching of the lease
rentals to settle debt repayments therefore mitigates risks of
foreign exchange fluctuations.
The AR Committee carefully considered the disclosure in note
19(b) to the Consolidated Financial Statements to ensure that
the reality of the Group’s foreign exchange risk exposure is
properly explained
42
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
AUDIT AND RISK COMMITTEE REPORT (continued)
Significant issues for the year under review How the AR Committee addressed these significant issues
Going concern risk
Emirates are the sole lessee of the Assets. Should Emirates
default on the rental payments, it will result in the Group
failing to service debt and it is unlikely the Group will be able
to meeting its targeted dividend or, in the case of ongoing
default, continue as a going concern.
The AR Committee received quarterly reports from Doric during
the year which comment on the performance of Emirates.
In the financial year ending 31 March 2022, Emirates recorded
a net loss of AED 3.9 billion (USD 1.1 billion), the second
in more than 30 years. This is a significant improvement of
the airline’s profitability, after the previous year’s net loss
amounted to AED 20.3 billion (USD 5.5 billion). In the second
half of the 2021/22 financial year Emirates even generated a
net profit of AED 1.9 billion (USD 0.5 billion), which helped
to significantly improve profitability in the 2021/22 financial
year. Pandemic-induced travel restrictions and safety measures
in many regions around the globe were partially retracted and
allowed passenger air travel to recover from its Pandemic lows.
Thanks to an expansion of its global capacity and reinstatement
of more passenger flights, the lessee was able to increase
its revenue by 91% to AED 59.2 billion (USD 16.1 billion).
The recovery in Emirates’ operations during the 2021/22
financial year led to an improved EBITDA of AED 17.7 billion
(USD 4.8 billion) compared to AED 4.6 billion (USD 1.3 billion)
from last year. Demand for air freight also remained strong.
The airline repaid AED 4.5 billion (USD 1.2 billion) in debt
out of the total of AED 17.5 billion (USD 4.8 billion) raised
since the beginning of the Pandemic. The carrier’s cash
position, including short-term bank deposits, amounted
to AED 20.9 billion (USD 5.7 billion) at the end of March
2022. In comparison, the carrier had AED 15.1 billion (USD
4.1 billion) in cash assets and short-term bank deposits at
the end of the 2020/21 financial year. The cash flow from
operating activities came in at AED 24.4 billion (USD 6.7
billion) in 2021/22, the highest in the company’s history.
The management of the airline came to the conclusion
that the company is a going concern. The auditors PwC
did not raise a material uncertainty on going concern in
its unqualified audit report, which is dated 9 May 2022.
During the 2021/22 financial year, the carriers’ ultimate
shareholder, the government of Dubai, continued to support
the airline and therefore injected equity of AED 3.5 billion
(USD 0.95 billion). Sheikh Ahmed bin Saeed Al Maktoum,
Chairman and Chief Executive Emirates Airline and Group, the
43
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
AUDIT AND RISK COMMITTEE REPORT (continued)
Significant issues for the year under review How the AR Committee addressed these significant issues
combined business of Emirates Airline and ground handler
dnata, stated in the latest annual report that “our business
recovery picked up pace in 2021-22 as Pandemic-related
restrictions lifted around the world, particularly in the second
half of our financial year”, and added “As a group we invested
over AED 7.9 billion [USD 2.2 billion] in new aircraft, engines,
equipment, facilities and technologies … As travel restrictions
around the world eased, we reinstated services, added flights
to dozens of cities, and ramped up our A380 deployment to
efficiently serve pent-up customer demand”.
For the first half of Emirates’ 2022/23 financial year, President
Tim Clark is encouraged by the demand: “Demand is strong
and sustained, we are looking at our booking from July to
September and Christmas, they are soaring above 2019 levels,
even at the prices we are now having to charge due to the fuel
price. The question is how long this is going to last before the
global economy starts to tip with interest rates going up and
inflation rising and fuel prices at these ridiculous levels.
The Asset Manager is not aware of a formal request addressed
to the Group for a lease deferral or any other efforts that
would result in the restructuring of the existing transactions
and could potentially have an impact on the committed future
lease rental receipts.
Emirates is owned by the Investment Corporation of Dubai, a
state-owned holding company that can be characterized as a
sovereign wealth fund owned by the Government of Dubai. It
is neither listed nor carry its bond issuances an issuer rating.
However, Emirates’ senior unsecured USD bonds with maturities
in 2023, 2025 and 2028 are trading and the markets’ pricing
for such instruments provide proxies for the credit risk of the
Lessee. As the operating lease agreements between Emirates
and the Group include a hell or highwater clause, the lease
rental stream and any other contractual payment primarily
depends to Emirates’ ability to meet its financial obligations
whenever they fall due. As at the end of June 2022, Emirates
has outstanding US dollar debt issuances with maturities in
2023, 2025 and 2028. These bonds were all trading close to
par and with running yields ranging from approximately 3.9%
to 4.6% in US dollars. There has also been no upward pressure
on yields. This level of yields does not appear to indicate
any significant financial stress to the issuer. The management
of Emirates Group (combined businesses of Emirates Airline
and dnata) expects to return to profitability in the 2022/23
financial year “while keeping a close watch on headwinds
such as high fuel prices, inflation, new COVID-19 variants,
and political and economic uncertainty”.
44
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
AUDIT AND RISK COMMITTEE REPORT (continued)
Significant issues for the year under review How the AR Committee addressed these significant issues
The AR Committee concluded that it would continue to receive
regular updates from Doric on the performance of Emirates
and would continue to monitor Emirates’ overall performance.
The AR Committee carefully considered the disclosure in note
19(c) to the consolidated financial statements to ensure that
this concentration of credit risk is properly reflected.
Consideration of any triggers for impairment
IAS 36 Impairment of Assets requires that a review for
impairment be carried out by the Company when there is an
indication of impairment of an asset and if events or changes
in circumstances indicate that the carrying amount of an asset
may not be recoverable. The review will compare the carrying
amount of the Asset with its recoverable amount, since it
was not possible to measure fair value less costs of disposal
because there is no basis for making a reliable estimate of the
price at which an orderly transaction to sell the asset would
take place between market participants at the measurement
date under current market conditions hence, the entity used
the asset’s value in use as it recoverable amount.
The AR Committee has considered the issue at length and
accordingly an impairment review has been undertaken as at
31 March 2022. Refer to note 3 for further detail on the factors
triggering the review and the sensitivity analysis performed
on the discount rates and residual value inputs. As a result of
the current year review, an impairment loss of £39,850,734
was booked in the accounts as disclosed in note 3.
Contributing factors, which triggered the AR Committee’s
decision to perform an impairment review, included the
Pandemic and its consequences. It was also necessary as the
Group continued to adhere to the concept of Future Soft Values
for measuring the residual value of the Aircraft.
Global Pandemic Risk
The emergence of a global Pandemic may have a profound and
negative impact on the operations and performance of the
Group and may directly or indirectly affect some of the other
risks mentioned in this table.
The COVID-19 pandemic continues with rising numbers of
infections in many countries around the world. Restrictions on
people socialising and travelling have begun to ease in some
countries but remain in a significant number of others and
this continues to have a significant effect on many industries
and in particular the airline industry.
Due to restriction on travel imposed by many countries, a
significant share of passenger aircraft remain grounded. The
consequent lack of income for airlines may cause bankruptcy
and, in a worse case, repossession of aircraft which would need
to be stored pending remarketing when restrictions are eased.
The Board and its key service providers have all acted to the
best of their abilities to protect the welfare of the various
teams involved in the affairs of the Group to ensure operations
are maintained to the extent possible and to protect and
support the Assets of the Group for as long as is required.
The impact of COVID-19 on financial reporting has been
considered in respect of other risks such as residual value,
impairment and going concern.
More information of COVID-19 is set out in the Chair’s
Statement on pages 7 to 9 and the Asset Manager Report on
pages 10 to 15.
45
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
AUDIT AND RISK COMMITTEE REPORT (continued)
We note that the auditor also considers the recognition of rental income within their key audit matters. This item has been
considered by the AR Committee in the current year, but, as there have been no changes in respect of this risk, it has not been
a primary area of focus of the AR Committee in the current year.
Going Concern
The directors in consultation with the Asset Manager are monitoring the continuous effect of the Pandemic generally on the
aviation industry and specifically on the Group’s Aircraft value and the financial wellbeing of its Lessee both now and in the
future. The Pandemic continues to have a pervasive impact on the global economy and it remains possible that the Group’s future
performance could be impacted in this prolonged period of uncertainty. In some jurisdictions restrictions on the ability of people
to travel still adversely affect the airline sector, and by extension the aircraft leasing sector. The risk therefore remains that some
airlines may not be able to pay rent as it falls due. The impact of the Pandemic on the aviation industry has been significant.
Entering the third year of the Pandemic commercial operators worldwide still had 18% of their combined passenger aircraft fleet
stored at the end of January 2022. This compares to a pre-Pandemic level of 7% in January 2019. These factors, together with
wider economic uncertainty and disruption, have had an adverse impact on the future value of the Aircraft owned by the Group
since the beginning of the Pandemic, and could also negatively impact the sale, re-lease or other disposition of the Aircraft.
Given the prolonged impact of the Pandemic, increased Lessee counterparty credit risk remains in existence and there could
be requests for Lease rental deferrals. However, notwithstanding the challenging business environment, Emirates was able to
substantially improve its financial position during the 2021-22 financial year, reducing its net loss by 81% to USD 1.1 billion.
And the management of Emirates Group (combined businesses of Emirates Airline and dnata) expects to return to profitability
in its current financial year.
Reduced rents receivable under the Leases may end up not be sufficient to meet the fixed loan interest and regular repayments
of debt scheduled during the life of each Loan and may not provide surplus income to pay for the Group’s expenses and permit
the declaration of dividends.
The option to remarket the Aircraft following a potential event of default by the Lessee has not been taken into account. The
period of time necessary to successfully complete such a process is beyond the twelve months forecasting horizon of the going
concern considerations. This applies in particular in times of COVID-19, as various restrictions are still in place to contain the
Pandemic.
The Directors consider that the going concern basis of accounting remains appropriate. Based on current information the
directors have a reasonable expectation that the Group has sufficient financial resources, including cash and cash equivalents
and expected rent receipts to continue in operational existence for at least twelve months from the date of this report, although
the risk to this is clearly higher compared to a pre-COVID-19 environment.
Whilst there is some uncertainty as to the airline industry in general, and specifically Emirates’ financial position and credit risk
profile, on the basis that (i) Emirates has shown no intention of failing to meet its obligations (ii) Emirates has the financial
backing to continue paying these rentals, the directors believe that it is appropriate to prepare these financial statements under
the going concern basis of preparation.
Internal Controls
The AR Committee has made due enquiry of the internal controls of the Administrator. The AR Committee is satisfied with the
controls currently implemented by the Administrator. However, it has requested that the Administrator keeps the Company
informed of any developments and improved internal control procedures.
The most recent report on the internal control of JTC’s administration services, prepared in accordance with the ISAE 3402, for
the period from 1 April 2021 to 31 March 2022, has been provided.
46
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
AUDIT AND RISK COMMITTEE REPORT (continued)
Internal Audit
The Group has no employees and operates no systems of its own, relying instead on the employees and systems of its external
service providers. Following a recommendation from the AR Committee, the Board has therefore taken the decision that it would
be of insufficient benefit for the Group to engage an internal auditor.
External Audit
The effectiveness of the external audit process is dependent on appropriate audit risk identification at the start of the audit
cycle. The AR Committee received from Grant Thornton a detailed audit plan identifying their assessment of the key risks. For
the financial year under review, the primary risks identified were in respect of valuation of the Group’s Assets, the recognition
of Lease rental income and the presumed risk on management override of controls.
Using its collective skills, the AR Committee evaluates the effectiveness of the audit process in addressing the matters raised
through the reporting it received from Grant Thornton at the conclusion of the audit. In particular the AR Committee formally
appraise Grant Thornton against the following criteria:
• Independence
• Ethics and conflicts
• Knowledge and experience
• Challenge
• Promptness
• Cost
• Overall quality of service
In addition the AR Committee also seeks feedback from the Administrator on the effectiveness of the audit process.
For the financial year under review, the AR Committee was satisfied that there had been appropriate focus on the primary areas
of audit risk and assessed the quality of the audit process to be good.
The AR Committee holds meetings with the external auditor to provide additional opportunity for open dialogue and feedback
from the auditor. Should it be necessary, the AR Committee members meet with the external auditor without the Administrator
and Asset Manager being present. Matters typically discussed include the auditor’s assessment of business risks and management
activity thereon, the transparency and openness of interactions with the Administrator, confirmation that there has been no
restriction in scope placed on them by the Administrator on the independence of their audit and how they have exercised
professional scepticism.
Appointment and Independence
Grant Thornton provided audit services to the Company for the financial year under review. This has been the first audit of the
Company carried out by Grant Thornton, following its appointment on 2 August 2021. Deloitte had been the Company’s external
auditor since October 2012, with the first audit being carried out for the year ended 31 March 2012.
The AR Committee considered Grant Thornton Limited, the Company’s new auditor, to be independent of the Company. The AR
Committee has provided the Board with its recommendation to Shareholders on the ratification of the appointment of Grant
Thornton Limited as external auditor for the year ending 31 March 2022 at the forthcoming AGM.
47
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
AUDIT AND RISK COMMITTEE REPORT (continued)
Non-Audit Services
To further safeguard the objectivity and independence of the external auditor from becoming compromised, the AR Committee
has a formal policy governing the engagement of the external auditor to provide non-audit services. No changes have been
made to this policy during the year. This policy specifies that the external auditor should only be engaged for non-audit services
where there is considered to be a very low threat to auditor independence. No non-audit services had been provided by Grant
Thornton during the year.
The external auditor is prohibited from providing any other services without the AR Committee’s prior approval. In reaching such
a determination the AR Committee will take into consideration whether it is in the best interests of the Group that such services
should be supplied by the Group’s external auditor (rather than another service provider) and, if so whether any safeguards
regarding auditor objectivity and independence in the conduct of the audit should be put in place, whether these would be
effective and how such safeguards should be disclosed.
Committee Evaluation
The AR Committee’s activities formed part of the review of Board effectiveness performed in the year under review.
An internal evaluation of the AR Committee’s effectiveness will be carried out in 2022.
Andreas Tautscher
Chair of the Audit and Risk Committee
29 July 2022
48
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
DORIC NIMROD AIR TWO LIMITED
Opinion
We have audited the consolidated financial statements of Doric Nimrod Air Two Limited (the ‘Company’) and its subsidiary
(the ‘Group’) for the year ended 31 March 2022 which comprise the Consolidated Statement of Comprehensive Income, the
Consolidated Statement of Financial Position, the Consolidated Statement of Cash Flows, the Consolidated Statement of Changes
in Equity and notes to the consolidated financial statements, including a summary of significant accounting policies. The
financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union.
In our opinion, the consolidated financial statements:
• give a true and fair view of the state of the Group affairs as at 31 March 2022 and of the Group’s loss for the year then ended;
• are in accordance with IFRSs as adopted by the European Union; and
• comply with the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the ‘Auditor’s responsibilities for the audit of the consolidated
financial statements’ section of our report. We are independent of the Group in accordance with the ethical requirements that
are relevant to our audit of the consolidated financial statements in Guernsey, including the FRC’s Ethical Standard as applied
to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that
the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We are responsible for concluding on the appropriateness of the directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast
significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our report to the related disclosures in the consolidated financial statements or, if such disclosures
are inadequate, to modify the auditor’s opinion. Our conclusions are based on the audit evidence obtained up to the date of our
report. However, future events or conditions may cause the Group to cease to continue as a going concern.
Our evaluation of the directors’ assessment of the Group’s ability to continue to adopt the going concern basis of accounting
included:
• Challenging the assumptions used in management’s base case cash flow forecasts and considering their reasonableness
based on other evidence obtained during the audit;
• Performing our own scenario analysis to assess the reasonableness of management’s assessment; and
• Considering potential mitigating actions that management could take in response to possible future liquidity risks.
In our evaluation of the directors’ conclusions, we considered the inherent risks associated with the Group’s business model
including effects arising from macro-economic uncertainties such as Brexit, Covid-19 and Russia’s invasion of Ukraine, we
assessed and challenged the reasonableness of estimates made by the directors and the related disclosures and analysed how
those risks might affect the Group’s financial resources or ability to continue operations over the going concern period.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Group’s ability to continue as a going concern for a period of at
least twelve months from when the consolidated financial statements are authorised for issue.
49
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
DORIC NIMROD AIR TWO LIMITED (continued)
In auditing the consolidated financial statements, we have concluded that the directors’ use of the going concern basis of
accounting in the preparation of the consolidated financial statements is appropriate.
The responsibilities of the directors with respect to going concern are described in the ‘Responsibilities of directors for the
consolidated financial statements’ section of this report.
Our approach to the audit
Key audit
matters
Scoping
Materiality
Overview of our audit approach
Overall materiality: £4,694,000, which represents approximately 3% of the
Group’s net assets value (“NAV”) as at 31 March 2022 determined at the
fieldwork stage of the audit.
Key audit matters were identified as:
• Valuation of aircraft (same as last year)
The predecessor auditor’s report for the year ended 31 March 2021 included two (2)
key audit matters that have not been reported as key audit matters in our current
year’s report. These relates to recognition of lease rental income and the impact of
COVID-19 on the going concern assumption. Lease rental income, although remains
as a significant risk, does not include significant judgment. Whilst, as a result of
COVID-19, there are still some uncertainties in the travel industry, the Groups’
lessee proved to be resilient during the most difficult times.
Our audit approach was a risk-based substantive audit.
Key audit matters
Key audit matters are those matters that, in our professional judgement,
were of most significance in our audit of the consolidated financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to fraud)
that we identified. These matters included those that had the greatest
effect on: the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters
were addressed in the context of our audit of the consolidated financial
statements as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters.
Description
Audit
response
Disclosures
Our results
KAM
50
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
DORIC NIMROD AIR TWO LIMITED (continued)
In the graph below, we have presented the key audit matters, significant risks and other risks relevant to the audit.
Key audit matter Significant risk Other risk
High
Low
Potential
financial
statement
impact
High
Low
Extent of management judgement
A
ircraft –
O
wnership
an
d
existence
Borrowings
Going concern
Revenue
recognition
Valuation of
aircraft
Regulatory and
compliance
M
anagement
override of
control
51
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
DORIC NIMROD AIR TWO LIMITED (continued)
Key Audit Matter How our scope addressed the matter
Valuation of aircraft
We identified the valuation of aircraft as one of
the most significant assessed risks of material
misstatement due to error.
Included in the Group’s statement of financial position
as at 31 March 2022 is an aircraft asset with a balance
of £331,705,622 (2021: £446,259,788) as disclosed in
Note 10 to the consolidated financial statements.
As explained in Note 2(m), the Group’s accounting
policy is to measure its aircraft asset at depreciated
historic cost less impairment. The asset is being
depreciated on a straight-line basis over the term of
the lease to an estimated residual value at the end of
that period.
As stated in Note 3, estimation of the aircraft’s residual
value is a significant source of estimation uncertainty.
The Group uses external appraisers who provide an
estimate of the residual value which is based on
significant judgement and assumptions about current
and future market conditions.
Note 3 further describes that the Group’s future
performance can potentially be impacted should
COVID-19 have a pervasive and prolonged impact on
the aviation industry and on the business of its lessee
and also affect the residual value of the aircraft it owns.
This together with the wider economic uncertainty and
disruption, are likely to have an adverse impact on the
future value of the aircraft asset owned by the Group,
as well as on the sale, re-lease, or other disposition of
the relevant aircraft.
As disclosed in Note 3, if the assumptions used in the
determining the valuations prove to be false, actual
results of operations and the realisation of the Group’s
aircraft asset differ from estimates set forth in the
consolidated financial statements, the difference in
the valuation could be material.
In responding to the key audit matter, we performed the following
audit procedures:
• We have assessed that the Group’s accounting policies regarding
the valuation of aircraft is in accordance with International
Accounting Standard (IAS) 16 – Property, Plant and Equipment;
• We held detailed discussions with management, including
directors and obtained an understanding of the processes and
controls in place regarding the valuation of aircraft. We have
also obtained understanding of the supporting documentation
or papers prepared and approved by management;
• We have obtained and assessed detailed supporting
documentation from management for key inputs, assumptions
and methodology used from which the valuation of aircraft are
derived;
• We have assessed and documented the competence, capability
and objectivity of the external appraisers that management
have engaged in the process;
• We have assessed all information provided including all
appraiser’s report, lease agreement, amendment to such
agreement, redelivery condition side letter and valuation report
from asset manager. We have challenged management on their
method selection and why alternative methods, assumptions
and data that could have been used were not (i.e. use of half-
life rather than full-life);
• We have engaged our internal aircraft asset valuation specialists
to assist us in performing the testing of the valuation of aircraft
which included the following:
•• Assisted in determining whether the valuation
methodologies used to estimate the residual values of the
aircraft are consistent with methods usually used by similar
companies;
•• Used their knowledge of the market to assess and
corroborate valuation inputs by reference to comparable
transactions, and independently compiled databases/
indices;
•• Assisted in determining whether the appraisers were
appropriate, qualified and independent. and
• We have assessed the sufficiency of related disclosures in the
consolidated financial statements.
Our results
We have not identified any matters after completing our procedures
as indicated above in relation to the valuation of aircraft.
52
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
DORIC NIMROD AIR TWO LIMITED (continued)
Our application of materiality
We apply the concept of materiality both in planning and performing the audit, and in evaluating the effect of identified
misstatements on the audit and of uncorrected misstatements, if any, on the consolidated financial statements and in forming
the opinion in the auditor’s report.
Materiality was determined as follows:
Materiality measure Group
Materiality for consolidated financial
statements as a whole
We define materiality as the magnitude of misstatement in the consolidated financial
statements that, individually or in the aggregate, could reasonably be expected
to influence the economic decisions of the users of these consolidated financial
statements. We use materiality in determining the nature, timing and extent of our
audit work.
Materiality threshold
£4,694,000, which represents approximately 3% of the Group’s NAV as of 31 March
2022 determined at the fieldwork stage of the audit.
Significant judgements made by
auditor in determining the materiality
In determining materiality, we made the following significant judgements:
• NAV is the most appropriate benchmark considering the following:
– Although the Group does not have a fixed life, the Group has one operation
- i.e. leasing (then selling) its sole aircraft. The lease term is for 12 years
ending in 2023. The shareholders (primary users of consolidated financial
statements) focus is on the NAV after the Lease end as they are concerned
as to how much return they would get for their shares.
– The lenders secondary focus (main focus being profit before tax/rental
income considering this is the means for them to be repaid by the Group),
is the value of the aircraft asset considering that the lease is secured by
the said asset.
• We have updated the materiality to 31 March 2022 NAV as the materiality
determined at planning stage is higher and based on our professional judgment
it is appropriate to use the updated materiality for audit purposes; and
• Our materiality threshold was set at the lower end of our acceptable range due
to the Group being a listed entity and in line with our methodology.
Performance materiality used to
drive the extent of our testing
We set performance materiality at an amount less than materiality for the
consolidated financial statements as a whole to reduce to an appropriately low level
the probability that the aggregate of uncorrected and undetected misstatements
exceeds materiality for the consolidated financial statements as a whole.
Performance materiality threshold £3,051,000 which is 65% of consolidated financial statement materiality.
53
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
DORIC NIMROD AIR TWO LIMITED (continued)
Materiality measure Group
Significant judgements made by
auditor in determining the performance
materiality
In determining performance materiality, we made the following significant
judgements:
• Performance materiality be set at 65% of consolidated financial statement
materiality, as the probability that the aggregate of uncorrected and undetected
misstatements that exceed materiality was assessed as low; and
• Our determination is based on the fact that no misstatements were identified
in the prior year audit and our assessment of the control environment which
concluded there were effective controls around business processes and financial
reporting activities.
Specific materiality
We have not determined a lower level of specific materiality.
Communication of misstatements to
the Audit and Risk committee
We determine a threshold for reporting unadjusted differences to the Audit and Risk
Committee.
Threshold for communication £235,000, which is approximately 5% of the consolidated financial statement
materiality, and misstatements below that threshold that, in our view, warrant
reporting on qualitative grounds.
The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential
uncorrected misstatements.
Overall materiality
Preliminary Net
Asset Value 31 03
2022
£156,463,741
PM
£3,051,000, 65%
TFPUM
£235,000, 5%
FSM
£4,694,000, 3%
FSM: Financial
statements
materiality
PM: Performance
materiality
TFPUM: Tolerance
for potential
uncorrected
misstatements
54
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
DORIC NIMROD AIR TWO LIMITED (continued)
An overview of the scope of our audit
We performed a risk-based audit that requires an understanding of the Group’s business and in particular matters related to:
• Assessment of audit risk, our evaluation of materiality and our allocation of performance materiality to determine our audit
scope for the Group. We took into account size, risk profile, the organisation of the Group and effectiveness of controls,
including controls and changes in the business environment when assessing the level of work to be performed;
• The day-to-day management of the Group and the maintenance of the Group’s accounting records are being outsourced
to third-party service providers. Accordingly, our audit work is focused on obtaining an understanding of, and evaluating,
internal controls at the Group and the third-party service providers, and inspecting records and documents held by these
third-party service providers;
• We performed test of operating effectiveness of control and substantive testing on significant risk accounts – i.e. the
revenue occurrence considering the lease rental income is based on the schedule of rental payments stated in the lease
agreements;
• We undertook substantive testing on significant transactions, balances and disclosures, the extent of which was based on
various factors such as our overall assessment of the control environment, the effectiveness of controls over individual
systems and the management of specific risks; and
• For highly subjective estimates made by management, the valuation of aircraft asset, we engaged an external expert to
confirm the reasonableness of the valuation methodology used with consideration to industry valuation benchmarks used
by market participants.
Other information
The directors are responsible for the other information. The other information comprises the information included in the
consolidated annual financial report, other than the consolidated financial statements and our auditor’s report thereon. Our
opinion on the consolidated financial statements does not cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our
knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies
or apparent material misstatements, we are required to determine whether there is a material misstatement of the consolidated
financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Corporate governance statement
We have reviewed the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate
Governance Statement relating to the Group’s voluntary compliance with the provisions of the UK Corporate Governance Code.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the consolidated financial statements and our knowledge obtained during
the audit:
• the directors’ statement in the consolidated financial statements about whether the directors considered it appropriate
to adopt the going concern basis of accounting in preparing the consolidated financial statements and the directors’
identification of any material uncertainties to the Group’s ability to continue to do so over a period of at least twelve months
from the date of approval of the consolidated financial statements;
55
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
DORIC NIMROD AIR TWO LIMITED (continued)
• the directors’ explanation in the consolidated annual report as to how they have assessed the prospects of the Group, over
what period they have done so and why they consider that period to be appropriate, and their statement as to whether they
have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due
over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or
assumptions;
• the directors’ statement that they consider the consolidated annual report and consolidated financial statements taken as
a whole is fair, balanced and understandable and provides the information necessary for members to assess the Group’s
performance, business model and strategy;
• the directors’ confirmation in the annual report that they have carried out a robust assessment of the principal and emerging
risks facing the Group including the impact of Covid-19 and the disclosures in the annual report that describe the principal
risks, procedures to identify emerging risks and an explanation of how they are being managed or mitigated including the
impact of Covid-19;
• the section of the annual report that describes the review of the effectiveness of the Group’s risk management and internal
control systems, covering all material controls, including financial, operational and compliance controls; and
• the section of the annual report describing the work of the audit and risk committee, including significant issues that the
audit and risk committee considered relating to the consolidated financial statements and how these issues were addressed.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies (Guernsey) Law, 2008 requires
us to report to you if, in our opinion:
• proper accounting records have not been kept by the Company; or
• the Company’s financial statements are not in agreement with the accounting records; or
• we have not obtained all the information and explanations, which to the best of our knowledge and belief, are necessary
for the purposes of our audit.
Responsibilities of directors for the consolidated financial statements
As explained more fully in the Statement of Director’s Responsibilities as set out on page 37 to 38 the directors are responsible
for the preparation of the consolidated financial statements and for being satisfied that they give a true and fair view, and for
such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that
are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the directors are responsible for assessing the Group’s ability to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error and to issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always
detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
56
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
DORIC NIMROD AIR TWO LIMITED (continued)
Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities outlined above to detect material misstatements regarding irregularities, including fraud. Owing to the inherent
limitations of an audit, there is an unavoidable risk that material misstatements in the consolidated financial statements may
not be detected, even though the audit is properly planned and performed in accordance with the ISAs (UK).
A further description of our responsibilities for the audit of the consolidated financial statements is located on the Financial
Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:
• We obtained an understanding of the legal and regulatory frameworks applicable to the Group and the industry in which it
operates. We determined that the following laws and regulations were most significant: IFRSs, the Companies (Guernsey)
Law, 2008, the UK Corporate Governance Code, the Financial Conduct Authority’s Disclosure Guidance and Transparency
Rules, and the relevant tax compliance regulations in the jurisdictions in which the Group operates. In addition, we
concluded that there are certain significant laws and regulations that may have an effect on the determination of the
amounts and disclosures in the consolidated financial statements, and those laws and regulations relating to bribery and
corruption practices;
• We obtained an understanding of how the Group is complying with those legal and regulatory frameworks by making
inquiries of management and those responsible for legal and compliance procedures. We corroborated our inquiries through
our review of board minutes and papers provided to the audit and risk committee;
• We enquired of management and the Board of Directors whether they were aware of any instances of non-compliance with
laws and regulations and whether they had any knowledge of actual, suspected or alleged fraud;
• We assessed the susceptibility of the Group’s consolidated financial statements to material misstatement, including how
fraud might occur. We considered the possibility of fraud through management override and, based on our understanding
we designed and incorporated the following audit procedures into our audit strategy to identify instances of fraud and non-
compliance with such laws and regulations:
– identifying and assessing the design and implementation of controls management has put in place to prevent and
detect fraud;
– challenging assumptions and judgements made by management in its significant accounting estimates;
– utilising a valuation specialist to check external valuation reports;
– identifying and testing journal entries, in particular, any journal entries posted for which we have not identified and/
or tested the relevant control; and
– obtaining an understanding of the nature of the journal entries as mentioned above and checking whether such journals
are in line with our understanding of the business of the Group and, as necessary, obtaining supporting documentation
for such journals.
• These audit procedures were designed to provide reasonable assurance that the consolidated financial statements were free
from fraud or error. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one
resulting from error and detecting irregularities that result from fraud is inherently more difficult than detecting those that
result from error, as fraud may involve collusion, deliberate concealment, forgery or intentional misrepresentations. Also,
the further removed non-compliance with laws and regulations from events and transactions reflected in the consolidated
financial statements, the less likely we would become aware of it.
57
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
DORIC NIMROD AIR TWO LIMITED (continued)
• Assessment of the appropriateness of the collective competence and capabilities of the engagement team included
consideration of the engagement team’s understanding of, and practical experience with, audit engagements of a similar
nature and complexity, through appropriate training and participation;
• Relevant laws and regulations and potential fraud risks were communicated to all engagement team members. We remained
alert to any indication of fraud or non-compliance with laws and regulations throughout the audit.
Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Section 262 of the Companies (Guernsey)
Law, 2008. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company’s members as a body, for our audit work, for this report, or for the
opinions we have formed.
Cyril Swale
For and on behalf of Grant Thornton Limited
Chartered Accountants
St Peter Port
Guernsey
Date: 29 July 2022
58
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2022
Notes
Year ended
31 Mar 2022
GBP
Year ended
31 Mar 2021
Restated
GBP
INCOME
A rent income 4 89,736,446 94,053,630
B rent income 4 37 ,69 1, 1 48 36,359, 139
Bank interest received 63,680 8,542
EXPENSES
Operating expenses 5 (3,846, 163 ) (3,754,436 )
Depreciation of Aircraft 10 (7 4,603,433 ) (85,7 40,072 )
Impairment of Aircraft 10 (39,850,734 ) (65,060,280 )
(11 8,300,330 ) (154,554,788 )
Net profit/(loss) for the year before finance costs and foreign exchange
profit/losses 9, 1 90,944 (24, 133,477 )
Finance costs 11 (6,27 1,400 ) (10,664,875 )
Net profit/(loss) for the year after finance costs and before foreign
exchange profit/ (losses) 2,91 9,544 (34,798,352 )
Unrealised foreign exchange (loss)/gain 7 (3,224,055 ) 1 7 ,5 1 0,686
Loss for the year (304,5 11 ) (1 7, 287 ,666 )
Total Comprehensive Losses for the year
(304,5 11 ) (1 7, 287 ,666 )
Pence Pence
Earnings per Share for the year – Basic and Diluted
9 (0.18 ) (1 0.00 )
In arriving at the results for the financial year, all amounts above relate to continuing operations.
The notes on pages 62 to 86 form an integral part of these consolidated financial statements.
59
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 March 2022
Notes
31 Mar 2022
GBP
31 Mar 2021
(As restated)*
GBP
31 Mar 2020
(As restated)*
GBP
NON-CURRENT ASSETS
Property, Plant and Equipment – Aircraft 10 33 1,705,62 1 446, 159,788 596,960, 1 40
CURRENT ASSETS
Accrued income 7 ,01 6,693 5,646,3 16 4,940,07 4
Receivables 13 1 1 6,540 121,312 53,262
Cash and cash equivalents 17 28,328, 157 29,926,638 30,01 6,771
TOTAL ASSETS 367 , 1 67 ,01 1 481 ,854,054 631 ,970,247
CURRENT LIABILITIES
Borrowings 15 62,995,731 7 6,027 ,801 85,703,367
Deferred income
Payables – due within one year 14 88,470 96,7 45 72,928
NON-CURRENT LIABILITIES
Borrowings 15 8,7 66,531 67 ,277 ,093 158,380,240
Financial liabilities at fair value through profit and loss 19 989 12 1,420 255,930
Deferred income 1 01 ,957 ,7 14 132,935,4 18 134,4 1 3,452
TOTAL LIABILITIES 200,7 65,281 284,052,8 13 385,786,340
TOTAL NET ASSETS 1 66,401 ,730 197 ,801,24 1 246, 183,907
EQUITY
Share capital 16 3 19,836,770 31 9,836,770 31 9,836,770
Retained loss (153,435,040 ) (1 22,035,529 ) (73,652,863 )
Pence Pence Pence
Net Asset Value per Ordinary Share based on 172,750,000
(31 March 2021: 172,750,000) Shares in issue
The consolidated financial statements were approved by the Board of directors and authorised for issue on 29 July 2022 and are
signed on its behalf by:
Geoffrey Hall Andreas Tautscher
Director Director
The notes on pages 62 to 86 form an integral part of these consolidated financial statements.
*Refer to note 2(c) for details
60
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 March 2022
Notes
Year ended
31 Mar 2022
GBP
Year ended
31 Mar 2021
(As restated)
GBP
OPERATING ACTIVITIES
Loss for the year (304,5 11 ) (1 7 ,287 ,666 )
Movement in accrued and deferred income (12,986,572 ) (1 ,550,363 )
Interest received (63,680 ) (8,542 )
Accrued interest – –
Depreciation of Aircraft 10 74 , 603,433 85,7 40,072
Impairment of Aircraft 10 39,850,734 65,060,280
Loan interest payable 11 5,372,283 9,779,836
Movement in interest rate swap 11 (120,432 ) (134,5 10 )
Decrease/Increase in payables 14 (8,272 ) 23,81 8
Decrease/Increase in receivables 13 4,7 67 (68,050 )
Foreign exchange movement 7 3,224,055 (1 7 ,5 1 0,686 )
Amortisation of debt arrangement costs 11 1 ,01 9,549 1 ,019,549
NET CASH FROM OPERATING ACTIVITIES 1 1 0,591 ,354 125,063,738
INVESTING ACTIVITIES
Interest received 63,680 8,542
NET CASH FROM INVESTING ACTIVITIES 63,680 8,542
FINANCING ACTIVITIES
Dividends paid 8 (31 ,095,000 ) (31 ,095,000 )
Repayments of capital on borrowings 20 (7 6,255, 138 ) (83,075,662 )
Interest on borrowings 20 (5,270,898 ) (1 0,084,86 1 )
NET CASH USED IN FINANCING ACTIVITIES (1 12,62 1,036 ) (1 24,255,523 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 29,926,638 30,01 6,77 1
Increase in cash and cash equivalents (1 ,966,001 ) 81 6,757
Effects of foreign exchange rates 367 ,520 (906,890 )
CASH AND CASH EQUIVALENTS AT END OF YEAR 17 28,328, 157 29,926,638
The notes on pages 62 to 86 form an integral part of these consolidated financial statements.
61
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2022
Notes
Share
Capital
GBP
Retained
Loss
GBP
Total
GBP
Balance as at 1 April 2021 (As previously reported) 3 19,836,770 (126,596,035 ) 1 93,240,735
Restatement – 4,560,506 4,560,506
Balance as at 1 April 2021 (As restated) 3 19,836,770 (122,035,529 ) 197 ,801 ,24 1
Total Comprehensive Loss for the year – (304,5 11 ) (304,5 11 )
Dividends paid 8 – (31 ,095,000 ) (31 ,095,000 )
Balance as at 31 March 2022 3 19,836,770 (15 3,435,040 ) 166,401,730
Share
Capital
GBP
Retained
Loss
GBP
Total
GBP
Balance as at 1 April 2020 (As previously reported) 3 1 9,836,770 (91 ,534,081 ) 228,302,689
Restatement – 1 7 ,881 ,218 1 7 ,881 ,218
Balance as at 1 April 2020 (As restated) 3 1 9,836,770 (73,652,863 ) 246, 183,907
Total Comprehensive Losses for the year – (1 7 ,287 ,666 )
(17,287,666 )
Dividends paid 8 – (31 ,095,000 ) (31 ,095,000 )
Balance as at 31 March 2021 3 19,836,770 (122,035,529 ) 197 ,801 ,24 1
The notes on pages 62 to 86 form an integral part of these consolidated financial statements.
62
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2022
1 GENERAL INFORMATION
The consolidated financial statements incorporate the results of the Subsidiaries.
The Company was incorporated in Guernsey on 31 January 2011 with registered number 52985. The address of the registered
office is given on page 87. Its Share Capital consists Shares and Administrative Shares. The Company’s Shares have been
admitted to trading on the SFS of the LSE Main Market.
The Company’s investment objective is to obtain income returns and a capital return for its Shareholders by acquiring,
leasing and then selling of the Aircraft. The principal activities of the Group are set out in the Chair’s Statement and
Management Report on pages 7 to 9 and pages 19 to 22 respectively.
2 ACCOUNTING POLICIES
The significant accounting policies adopted by the Group are as follows:
(a) Basis of Preparation
The financial statements have been prepared in conformity with EU IFRS, which comprise standards and interpretations
approved by the IASB and IFRIC and applicable Guernsey law. The financial statements have been prepared on a going
concern basis under the historical cost convention.
The accounting policies adopted are consistent with those of the previous financial year, except for the adoption of the new
and amended standards set out below.
(b) Adoption of new and revised Standards
New and amended IFRS Standards that are effective for current year
The following Standard and Interpretations have been adopted in the current year. Their adoption has not had a material
impact on the amounts reported in these financial statements and is not expected to have any impact on future financial
periods except where stated otherwise:
Property, Plant and Equipment — Proceeds before Intended Use (Amendments to IAS 16) . The amendments amend IAS 16
to prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced
while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended
by management. Instead, an entity recognises the proceeds from selling such items, and the cost of producing those items,
in profit or loss. The effective date is for annual periods beginning on or after 1 January 2022. The standard is not expected
to have a material impact on the financial statements or performance of the Group.
New and Revised Standards in issue but not yet effective
IAS 1 ‘Presentation of financial statements’ Classification of Liabilities as Current or Non-current – The IASB issued
amendments to paragraphs 69 to 76 of IAS 1 to specify the requirements for classifying liabilities as current or non-current.
This standard is effective for annual periods beginning on or after 1 January 2023 deferred until accounting periods starting
not earlier than 1 January 2024. The new standard does not have a significant impact on the Group’s financial position,
performance or disclosures in its financial statements.
Amendments to IAS 1 ‘Presentation of financial statements’ and IAS 8 ‘Accounting policies, changes in accounting estimates
and error’ on definition of material. The effective date is for annual periods beginning on or after 1 January 2023. These
amendments to IAS 1, IAS 8 and consequential amendments to other IFRSs:
— use a consistent definition of materiality throughout IFRSs and the Conceptual Framework for Financial Reporting;
— clarify the explanation of the definition of material; and
63
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the year ended 31 March 2022
2 ACCOUNTING POLICIES (continued)
(b) Adoption of new and revised Standards (continued)
New and Revised Standards in issue but not yet effective (continued)
— incorporate some of the guidance in IAS 1 about immateriality information.
Annual Improvements 2018-2020 Cycle. Makes amendments to the following standards:
— IFRS 1 First-time Adoption of International Financial Reporting Standards – Subsidiary as a first-time adopter. The
amendment permits a subsidiary that applies paragraph D16(a) of IFRS 1 to measure cumulative translation differences
using the amounts reported by its parent, based on the parent’s date of transition to IFRSs.
— IFRS 9 Financial Instruments – Fees in the ‘10 percent’ test for derecognition of financial liabilities. The amendment
clarifies which fees an entity includes when it applies the ‘10 percent’ test in paragraph B3.3.6 of IFRS 9 in assessing
whether to derecognise a financial liability. An entity includes only fees paid or received between the entity (the
borrower) and the lender, including fees paid or received by either the entity or the lender on the other’s behalf.
— IFRS 16 Leases – Lease incentives. The amendment to Illustrative Example 13 accompanying IFRS 16 removes from the
example the illustration of the reimbursement of leasehold improvements by the lessor in order to resolve any potential
confusion regarding the treatment of lease incentives that might arise because of how lease incentives are illustrated
in that example.
— IAS 41 Agriculture – Taxation in fair value measurements. The amendment removes the requirement in paragraph 22 of
IAS 41 for entities to exclude taxation cash flows when measuring the fair value of a biological asset using a present
value technique. This will ensure consistency with the requirements in IFRS 13.
The amendments to IFRS 1, IFRS 9, and IAS 41 are all effective for annual periods beginning on or after 1 January 2022. The
standard is not expected to have a material impact on the financial statements or performance of the Group.
( c ) Prior period statement
A prior year adjustment of £4,560,506 has been recognised to the opening retained earnings. This is as a result of the prior
year adjustment in respect of the unrealised foreign exchange profit/loss on the deferred income liability. This has since
been classified as a non-monetary item. As a consequence, the deferred income liability and the related unrealised foreign
exchange was overstated/understated.
The following table summarises the impact on the Group’s consolidated financial statements:
2021
(as previously
stated)
GBP
Correction
GBP
2021
(As restated)
GBP
Unrealised foreign exchange profit 30,831,398 (13,320,712) 17,510,686
Loss for the financial year (3,966,954) (13,320,712) (17,287,666)
Deferred income liability 145,090,260 (4,560,506) 140,529,754
Retained loss (126,596,035) 4,560,506 (122,035,529)
Earnings per share (pence) (2.30) (7.70) (10.00)
64
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the year ended 31 March 2022
2 ACCOUNTING POLICIES (continued)
(d) Basis of Consolidation
The consolidated financial information incorporates the results of the Company and the Subsidiaries. The Company owns
100% of all the shares in the Subsidiaries which grants it exposure to variable returns from the entities and the power to
affect those returns, granting it control in accordance with IFRS 10.
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are
eliminated in preparing the consolidated financial information.
(e) Taxation
The Company and its Subsidiaries have been assessed for tax at the Guernsey standard rate of 0 percent.
(f) Share Capital
Shares are classified as equity. Incremental costs directly attributable to the issue of Shares are recognised as a deduction
from equity.
(g) Expenses
All expenses are accounted for on an accruals basis.
(h) Interest Income
Interest income is accounted for on an accruals basis.
(i) Foreign Currency Translation
The currency of the primary economic environment in which the Group operates (the “functional currency”) is GBP, £ or
Sterling, which is also the presentation currency.
Transactions denominated in foreign currencies are translated into Sterling at the rate of exchange ruling at the date of
the transaction.
Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional
currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised
in the Consolidated Statement of Comprehensive Income.
(j) Cash and Cash Equivalents
Cash at bank and short term deposits which are held to maturity are recognised at initial recognition at its fair value
plus transaction costs and are subsequently at measured at amortised cost. Cash and cash equivalents are defined as call
deposits, short term deposits with a term of no more than three months from the start of the deposit and highly liquid
investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value.
(k) Segmental Reporting
The directors are of the opinion that the Group is engaged in a single segment of business, being acquiring, leasing and
then selling of the Aircraft.
As the lessee is based in the Middle East, rental income as well as the net book value of aircraft held by the Group is all
considered to be from the Middle East. Revenue from the Group’s country of domicile, Guernsey, was £Nil (2021: £Nil) .
65
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the year ended 31 March 2022
2 ACCOUNTING POLICIES (continued)
(l) Going Concern
The Group’s principal activities are set out within note 1. The financial position of the Group is set out on page 59. In
addition, note 19 to the consolidated financial statements includes the Group’s objectives, policies and processes for
managing its capital, its financial risk management objectives and its exposures to credit risk and liquidity risk.
The Directors, with the support of its Asset Manager, believe that it is reasonable to assume as at the date of approval of
the Consolidated Financial Statements that Emirates will continue with the contracted lease rental payments due to the
following:
— Emirates continues to be a going concern as at the date of the Lessee’s latest signed annual financial report for the
financial year ended 31 March 2022.
— Challenged by the continued effects of the Pandemic on its business, the Lessee was able to quickly adapt its business
model, generating additional revenue by expanding its global capacity and reinstating more passenger flights: In its
2021-22 financial year ended on 31 March 2022 the airline reported an increase in revenue by 91% to USD 16.1 billion.
Net losses have also been reported to be significantly reduced by 81% which translates to USD 1.1 billion compared to
prior year reported net loss of USD 5.5 billion.
— Although Emirates concluded its last financial year with the second net loss in more than 30 years, the carrier showed
a strong operating cash flow of USD 6.7 billion, which contributed to an 38% increase in cash assets amounting to USD
5.7 billion, compared to the previous financial year.
— The ultimate shareholder of Emirates Airline has injected another USD 954 million into Emirates Airline, during their
financial year-end.
— Emirates’ listed debt and CDSs are trading at non-distressed levels.
— As at the date of the Consolidated Financial Statements, the Board is not aware of a formal request to the Group for a
lease deferral or any other efforts that would result in the restructuring of the existing transaction.
— Emirates has paid all lease rentals due to the Group in a timely manner.
The Directors have considered Emirates' ability to continue paying the lease rentals until the end of the current lease
agreement in December and are satisfied that the Company can meet its liabilities as they fall due over the next twelve
months from the date of approval the Annual Financial Report. Refer to note 12 for expiry dates of the Leases.
The Directors consider that the going concern basis of accounting remains appropriate. Based on current information the
Directors have reasonable expectation that the Group has adequate resources to continue in operational existence for the
foreseeable future, although the risk to this is higher compared to a pre-COVID-19 environment.
The Board will continue to actively monitor the financial impact on the Group from the evolving position with its Lessee and
debt providers whilst bearing in mind its fiduciary obligations and the requirements of Guernsey law which determine the
ability of the Group to make dividends and other distributions.
66
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the year ended 31 March 2022
2 ACCOUNTING POLICIES (continued)
(m) Leasing and Rental Income
The Leases relating to the Assets have been classified as operating leases as the terms of the Leases do not transfer
substantially all the risks and rewards of ownership to the Lessee. The Assets are shown as non-current assets in the
Consolidated Statement of Financial Position. Further details of the Leases are given in note 12.
Rental income and advance lease payments from operating leases are recognised on a straight-line basis over the term of
the relevant Lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying
amount of the leased Asset and amortised on a straight-line basis over the lease term.
The deferred and accrued income represents the difference between actual payments received in respect of the lease income
(including some received in full upfront) and the amount to be accounted for in the accounting records on a straight line
basis over the lease terms. This liability will reduce over time as the leases continue and approach the end if the lease terms.
(n) Property, Plant and Equipment – Aircraft
In line with IAS 16, each Asset is initially recorded at the fair value of the consideration paid. The cost of the Asset is
made up of the purchase price of the Asset plus any costs directly attributable to bringing it into working condition for its
intended use. Costs incurred by the Lessee in maintaining, repairing or enhancing the Aircraft are not recognised as they do
not form part of the cost to the Group. Property, plant and equipment are subsequently measured at cost less accumulated
depreciation and impairment losses. Accumulated depreciation and any recognised impairment losses are deducted from cost
to calculate the carrying amount of the Asset.
Subsequently, depreciation is recognised so as to write off the cost of the each Asset less the estimated residual value
over the estimated useful life of the Asset of 12 years, using the straight line method. As at 31 March 2022, the estimated
residual value of the seven planes ranges from £28 million to £29.9 million (31 March 2021: £32.0 million to £34.1 million) .
Residual values have been arrived at by taking the average amount of three independent external valuers and after taking
into account disposition fees where applicable The residual values of the A380 Aircraft were determined using soft values
excluding inflation, which best approximates residual value as required by IAS 16.
The combined effect of translating residual values at the Sterling / US Dollar exchange rate prevailing at 31 March 2022
of 1.3138 (31 March 2021: 1.3783) and a 16.1 percent decrease in average appraised residual values in US Dollar terms,
resulted in a £9,273,511 increase in the annual depreciation charge for the current year as compared to the charge which
would have been made if based on the 31 March 2021 residual value and foreign exchange rates.
The depreciation method reflects the pattern of benefit consumption. The residual value is reviewed annually and is an
estimate of the fair amount the entity would receive today. Useful life is also reviewed annually and for the purposes of
the financial statements represents the likely period of the Group's ownership of these Assets. Depreciation starts when the
Asset is available for use.
At each audited Consolidated Statement of Financial Position date, the Group reviews the carrying amounts of its Aircraft
to determine whether there is any indication that those Assets have suffered an impairment loss. If any such indication
exists, the recoverable amount of the Asset is estimated to determine the extent of the impairment loss (if any) . Further
details are given in note 3.
Recoverable amount is the higher of fair value less costs to sell and the VIU. In assessing VIU, the estimated future cash
flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the Asset for which the estimates of future cash flows have not been adjusted.
67
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the year ended 31 March 2022
2 ACCOUNTING POLICIES (continued)
(o) Financial instruments
A financial instrument is recognised when the Group becomes a party to the contractual provisions of the instrument.
Financial assets are derecognised if the Group’s contractual rights to the cash flows from the financial assets expire,
are extinguished, or if the Group transfers the financial assets to a third party and transfers all the risks and rewards of
ownership of the Asset, or if the Group does not retain control of the Asset and transfers substantially all the risk and
rewards of ownership of the Asset.
Under IFRS 9, on initial recognition, a financial asset is classified as measured at:
— Amortised cost;
— FVOCI; or
— FVTPL.
The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is
managed and its contractual cash flow characteristics. The Group only has financial assets that are classified as amortised
cost.
i) Financial assets held at amortised cost
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at
FVTPL:
— it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
— its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding.
Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal
and interest are measured at amortised cost.
These assets are subsequently measured at amortised cost using the effective interest method. The effective interest method
calculates the amortised cost of financial instruments and allocates the interest over the period of the instrument.
The Group’s financial assets held at amortised cost include trade and other receivables and cash and cash equivalents.
The Group assesses on a forward looking basis the expected credit losses associated with its financial assets held at amortised
cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk.
ii) Financial liabilities held at amortised cost
Financial liabilities consist of payables and borrowings. The classification of financial liabilities at initial recognition
depends on the purpose for which the financial liability was issued and its characteristics. All financial liabilities are initially
measured at fair value, net of transaction costs. All financial liabilities are recorded on the date on which the Group becomes
party to the contractual requirements of the financial liability. Financial liabilities are subsequently measured at amortised
cost using the effective interest method, with interest expense recognised on an effective yield basis.
68
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the year ended 31 March 2022
2 ACCOUNTING POLICIES (continued)
(o) Financial instruments (continued)
The effective interest method is a method of calculating the amortised cost of the financial liability and of allocating
interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash
payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying
amount on initial recognition.
The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they
expire.
iii) Financial assets and financial liabilities at fair value through profit or loss
(a) Classification
The Group classifies its derivative i.e. the interest rate swap, as financial assets or financial liabilities at fair value through
profit or loss. These financial assets and financial liabilities are designated by the Board of directors at fair value through
profit or loss. The Group does not classify any derivatives as hedges in a hedging relationship.
(b) Recognition/derecognition
Financial assets or liabilities are recognised on the trade date – the date on which the Group commits to enter into the
transactions. Financial assets or liabilities are derecognised when the rights to receive cash flows from the investments have
expired or the Group has transferred substantially all risks and rewards of ownership.
(c) Measurement
Financial assets and financial liabilities at FVTPL are initially recognised at fair value. Transaction costs are expensed in
the Statement of Comprehensive Income. Subsequent to initial recognition, all financial assets and financial liabilities at
FVTPL are measured at fair value. Gains and losses arising from changes in the fair value of the 'financial assets or financial
liabilities at fair value through profit or loss' category are presented in the Statement of Comprehensive Income in the year
in which they arise.
(p) Dividend policy
Dividends are accounted for in the period which they are declared and approved by the Board of Directors.
3 SIGNIFICANT JUDGEMENTS AND ESTIMATES
In the application of the Group's accounting policies, which are described in note 2, the directors are required to make
judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent
from other sources. The estimates and associated assumptions are based on historical experience and other factors that are
considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the
revision and future periods if the revision affects both current and future periods.
The Following are the critical judgements and estimates that the directors have made in the process of applying the Group's
accounting policies and that have the most significant effect on the amounts recognised in the consolidated financial
statements.
69
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the year ended 31 March 2022
3 SIGNIFICANT JUDGEMENTS AND ESTIMATES (continued)
Estimates
Residual Value, Impairment and Useful Life of Aircraft
As described in note 2 (n) , the Group depreciates the Assets on a straight line basis over the estimated useful life of the
Assets after taking into consideration the estimated residual value. IAS 16 requires residual value to be determined as an
estimate of the amount that the Group would currently obtain from disposal of the Asset, after deducting the estimated
costs of disposal, if the Asset were of the age and condition expected at the end of its useful life. However, there are
currently no data for aircraft of a similar type of sufficient age for the directors available to make a direct market comparison
in making this estimation. The residual values of the A380 Aircraft are determined using soft values excluding inflation since
directors consider this best approximates to residual value as required by IAS 16.
In estimating residual value for the year, the directors refer to future soft values (excluding inflationary effects) for the
Asset obtained from three independent expert aircraft valuers. This has resulted in a further reduction in the anticipated
residual value of the Aircraft since the prior financial year. Details of which have been disclosed in note 10.
The Group’s future performance can potentially be impacted should the Pandemic have a pervasive and prolonged impact
on the aviation industry and on the business of its lessee and also affect the residual values of the aircraft it owns. This
together with the wider economic uncertainty, disruption and illiquid market for the A380, are likely to have an adverse
impact on the future value of the aircraft assets owned by the Group, as well as on the sale, re-lease, or other disposition of
the relevant aircraft. Therefore the estimation of residual value remains subject to material uncertainty.
If the estimate of uninflated residual value for use in calculating depreciation had been decreased by 30 percent with
effect from the beginning of this period, the depreciation charge for the period would have increased by approximately
£18.6 million (31 March 2021: £16.3 million) . However because residual value is a component of the VIU calculation that
forms part of the impairment loss calculation, the overall impact on profit for the period would be £54.04 million.
An increase in residual value by 30 percent would have had an equal but opposite effect. This reflects the range of estimates
of residual value that the directors believe would be reasonable at this time. The useful life of each Asset, for the purpose
of depreciation of the Asset under IAS 16, is estimated based on the expected period for which the Group will own and lease
the Aircraft. The Board of directors expects that the Aircraft will have a working life in excess of this year.
The impairment assessment was performed by comparing the depreciated cost of the Aircraft with VIU (since it was not
possible to measure fair value less costs of disposal because there is no basis for making a reliable estimate of the price at
which an orderly transaction to sell the asset would take place between market participants at the measurement date under
current market conditions hence, the entity used the asset's value in use as it recoverable amount) . Rental cash flows, to
the end of the contracts, have been used in the calculation of VIU as the cash flows are contractual. Any assumptions with
regards to issues in counterparty credit risk would be reflected in the discount rate used to calculate the net present value
of future cash flows. In determining the VIU, the gross value of future contractual cash flows including a residual value
assumption was discounted to present value using the companies WACC (6.5 percent) . The present value of the cash flows
was lower than depreciated cost which therefore gave rise to an impairment loss.
Residual values for the purpose of the impairment test are determined to be the soft values (at an inflation rate of 1.5
percent at the end of the Aircraft’s useful life) , being considered the most appropriate. A soft market is considered where
the world's principal traffic generating regions are in the middle of a recession or a period of economic stagnation,
which historically have a negative impact on aircraft values. This is when airlines experience low growth or even traffic
reductions, make losses, cut their fleets and staff or reduce fleet growth plans. The market becomes imbalanced, with
supply outstripping demand, resulting in more parked aircraft and lower utilisation rates, which in turn, increase aircraft
availability. The prevailing conditions, the lack of transactional data and the limited second hand market for A380 aircraft
that currently exists means that the independent expert aircraft valuers have attributed a more significant weighting to
a part out value when determining their soft value point estimate. It is also assumed that a market will exist under each
scenario contemplated when determining those valuations. If the assumptions prove to be false, actual results of operations
and realisation of the Company’s Aircraft asset could differ from the estimates set forth in these financial statements, and
the difference could be material.
70
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the year ended 31 March 2022
3 SIGNIFICANT JUDGEMENTS AND ESTIMATES (continued)
Estimates (continued)
Residual Value, Impairment and Useful Life of Aircraft (continued)
Additionally, these values have been tested with regards its sensitivity to the discount rates. Discount rates at a – 0.5
percent and +0.5 percent interval have been tested on either side of the WACC (6.5 percent) initially, with – 1 percent and
+1 percent intervals used for the analysis thereafter.
The Asset Manager considers that the inflated future soft value is the most appropriate measures to use for the residual
value for the following reasons:
• The residual value is discounted at the WACC which would include a return for the time value of money (inflation) . The
inflated values (1.5 percent p.a. inflation assumed) are therefore used to avoid double counting when producing the
discounted future cash flow value.
• The calculation of cash flow is an assumption on the Group’s best estimation of a) contracted cash flows and b) residual.
Pricing increases of 1.5 percent p.a. is considered to be the best estimation as to what the Group would receive for
residual value in future years on a like for like basis, taking the current economic climate into account.
Rental cash flows to the end of the contract has been used in the calculation of the future cash flow as the cash flows are
contractual. Any assumptions with regards issues in counterparty credit risk would be reflected in the discount rate used to
calculate the net present value of future cash flows. The directors, with the support of its Asset Manager believe that for the
Group it is reasonable to assume as of date of approval of annual financial statements that Emirates will continue with the
contracted lease rental payments and there is no evidence at this time that either Emirates will default. The marketability
of the aircraft post Lease will depend on how demand for air travel will bounce back in a post COVID-19-crisis environment.
The directors on the advice of the Asset Manager considers that 6.5 percent is the most appropriate WACC for the following
reasons:
• The discount rate should be a rate commensurate with what a normal market participant would consider to be the risk
inherent in the assets.
• The risk profile of Emirates. Emirates unsecured USD bonds indicate a running USD yield of 3.8 percent to 4.4 percent,
depending on the maturity.
• By using soft values to approximate residual values (and 1.5 percent p.a. inflation) , the discount rate is considered
appropriate to avoid double counting of risk.
Based on the impairment review performed, an impairment loss of £39,850,734 was recognised in the current year (31 March
2021: £65,060,280) , which resulted in an updated carrying value of the Aircraft in total to £331,705,623 at year end
(31 March 2021: £446,159,788) , as reflected in note 10.
If the discount rates had been decreased by 0.5 percentage points with effect from the beginning of this year, the net profit
for the year and closing Shareholders’ equity would have been increased by approximately £2.5 million. An increase in the
discount rates by 0.5 percentage points would have had an equal but opposite effect.
If the latest residual value estimates had been decreased by 30 percent, the impairment loss would have increased by
£35.4 million. This together with the decreased depreciation charge of £18.6 million (see page 58) means that the overall
impact of a 30 percent fall in residual values would be to reduce net profit for the year and closing Shareholders equity by
54.04 million. An increase in residual value estimates would have an equal and opposite effect.
71
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the year ended 31 March 2022
3 SIGNIFICANT JUDGEMENTS AND ESTIMATES (continued)
Estimates (continued)
Residual Value, Impairment and Useful Life of Aircraft (continued)
As described in note 2(n) , an impairment loss exists when the carrying value of an asset or cash generating unit exceeds its
recoverable amount, since it was not possible to measure fair value less costs of disposal because there is no basis for making
a reliable estimate of the price at which an orderly transaction to sell the asset would take place between market participants
at the measurement date under current market conditions hence the Group used the asset's VIU as it recoverable amount.
The directors review the carrying amount of its Assets at each audited Statement of Financial Position date and monitor the
Assets for any indications of impairment as required by IAS 16 and IAS 36.
In assessing VIU, the estimated future cash flows expected to be generated by the Assets (i.e. the income streams associated
with the Lease and the expected future soft value of the Aircraft at the end of the Lease) are discounted to their present
value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific
to the Assets and the credit risk profile of the Lessee.
In determining fair value less costs of disposal, recent market transactions are taken into account, if available. If no such
transactions can be identified, an appropriate valuation model is used. Such valuation reflects the current use given the fact
that the Aircraft are held for use in a leasing business.
Factors that are considered important which could trigger an impairment review include, but are not limited to, significant
decline in the market value beyond that which would be expected from the passage of time or normal use, significant
changes in the technology and regulatory environments, evidence from internal reporting which indicates that the economic
performance of the Assets are, or will be, worse than expected.
The Board together with the Asset Manager have conducted an impairment review in the current year as the below item may
result in pricing changes for the Aircraft:
• The ongoing impact of the Pandemic on the business of airlines and indirectly aircraft values, as well as on the credit
risk profile of the Company’s Lessee could indicate the need for impairment.
Judgements
Operating Lease Commitments – Group as Lessor
The Group has entered into operating leases on seven (31 March 2021: seven) Assets. The Group has determined, based on
an evaluation of the terms and conditions of the arrangements, including consideration of the useful life versus the useful
economic life of the aircraft, that it retains all the significant risks and rewards of ownership as well as assume the entirety
of the residual value risk, of these Assets and accounts for the contracts as operating leases.
Functional Currency
Considering the primary indicators as per IAS 21, it is unclear what the functional currency is. However after taking into
consideration the secondary indicators which are as follows, the Directors are of the opinion that the functional currency
is GBP
• the Company’s share capital was issued in GBP;
• its dividends are paid to Shareholders in GBP, and that certain of the Group’s significant operating expenses as well as
portion of the Groups’ rental income are incurred/earned in GBP.
• Lease rentals that are received in USD (as per note 4 and 12) are used to pay the USD loan payments on the USD
denominated debt.
• In addition, the set-up of the leasing structures was designed to offer a GBP return to GBP investors.
72
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the year ended 31 March 2022
4 RENTAL INCOME
Year ended
31 Mar 2022
GBP
Year ended
31 Mar 2021
GBP
A rent income 78,156,548 93,199,282
Adjustment to spread total income receivable over the term of the lease 3,609,362 (6,970,301)
Amortisation of advance rental income 7,970,536 7,824,649
89,736,446 94,053,630
B rent income 36,284,474 35,663,124
Adjustment to spread total income receivable over the term of the lease 1,406,674 696,016
37,691,148 36,359,139
Total rental income 127,427,594 130,412,769
Rental income is derived from the leasing of the Assets. Rent is split into A rent, which is received in $ and B rent, which
is received in Sterling. Rental income received in US dollars is translated into the functional currency (Sterling) at the date
of the transaction.
5 OPERATING EXPENSES
Year ended
31 Mar 2022
GBP
Year ended
31 Mar 2021
GBP
Corporate shareholder and advisor fee (note 22) 889,186 869,620
Asset management fee (note 22) 2,150,027 2,102,717
Liaison agency fee (note 22) 7,925 11,941
Administration fees (note 22) 152,630 171,051
Bank interest and charges 1,596 1,224
Accountancy fees (note 22) 34,898 33,197
Registrars fee (note 22) 14,799 15,054
Audit fee 46,900 52,650
Directors' remuneration (note 6) 202,390 212,000
Directors' and officers' insurance* 276,731 204,092
Legal and professional expenses 52,652 45,845
Annual fees 2,500 16,178
Other operating expenses 13,929 18,867
3,846,163 3,754,436
*Due to market conditions at renewal, the directors’ and officers’ insurance premium was subject to a large increase.
73
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the year ended 31 March 2022
6 DIRECTORS' REMUNERATION
Under their terms of appointment, each director is paid a fee for their services as a director of the Company at a fee of
£48,000 per annum, except for the Chair, who receives £59,000 per annum and the Chair of Audit committee, who received
£57,000 per annum. The rate of remuneration per director has remained unchanged.
7 UNREALISED FOREIGN EXCHANGE GAINS/(LOSSES)
Year ended
31 Mar 2022
GBP
Year ended
31 Mar 2021
(As restated)
GBP
Cash at bank 367,520 (906,891)
Borrowings (3,591,575) 18,417,577
(3,224,055) 17,510,686
The foreign exchange gain in the year reflects the 4.91 percent movement in the Sterling/US dollar exchange rate from
1.3138 as at 31 March 2022 to 1.3783 as at 31 March 2021.
8 DIVIDENDS IN RESPECT OF EQUITY SHARES
Year ended 31 Mar 2022
GBP
Pence per
share
First interim dividend 7,773,750 4.50
Second interim dividend 7,773,750 4.50
Third interim dividend 7,773,750 4.50
Fourth interim dividend 7,773,750 4.50
31,095,000 18.00
Year ended 31 Mar 2021
GBP
Pence per
share
First interim dividend 7,773,750 4.50
Second interim dividend 7,773,750 4.50
Third interim dividend 7,773,750 4.50
Fourth interim dividend 7,773,750 4.50
31,095,000 18.00
Refer to the Subsequent Events in note 23 in relation to dividends declared after year end.
74
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the year ended 31 March 2022
9 EARNINGS PER SHARE
Earnings per share is based on the net loss for the year, attributable to holders of Shares of the Company of £304,511
(31 March 2021 restated: net loss £17,287,666) and 172,750,000 (31 March 2021: 172,750,000) Shares being the weighted
average number of Shares in issue during the year.
There are no dilutive instruments and therefore basic and diluted loss per share are identical.
10 PROPERTY, PLANT AND EQUIPMENT – AIRCRAFT
Aircraft
31 Mar 2022
GBP
Aircraft
31 Mar 2021
GBP
COST
As at 31 March 1,039,148,193 1,039,148,193
ACCUMULATED DEPRECIATION AND IMPAIRMENT
As at 1 April 592,988,405 442,188,053
Depreciation charge based on previous residual values 65,329,921 76,184,493
Adjustment due to change in US dollar residual values 12,186,058 3,596,911
Adjustment due to FX movements on residual values (2,912,547) 5,958,668
Depreciation charge for the year 74,603,433 85,740,072
Adjustment due to impairment 39,850,734 65,060,280
As at 31 March 707,442,572 592,988,405
CARRYING AMOUNT
As at 31 March 331,705,621 446,159,788
The Group used forecast soft values excluding inflation which best approximates residual value as required per IAS 16 (refer
to note 3) . The combined effect of translating residual values at the Sterling / US Dollar exchange rate prevailing at 31
March 2022 of 1.3138 (31 March 2021: 1.3783) and a 16.1 percent decrease in average appraised residual values in US Dollar
terms, resulted in a £9,273,511 increase in the annual depreciation charge for the current year as compared to the charge
which would have been made if based on the 31 March 2021 residual value and foreign exchange rates.
The Group can sell the Assets during the term of the Leases (with the Lease attached and in accordance with the terms of
the transfer provisions contained therein) .
Under IFRS 16 the direct costs attributed in negotiating and arranging the operating leases have been added to the carrying
amount of the leased Asset and therefore are being recognised as an expense over the lease term. The costs have been
allocated to each Aircraft based on the proportional cost of the Asset.
Refer to note 3 for details on the impairment review, sensitivities conducted and residual value assumptions and estimates.
75
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the year ended 31 March 2022
11 FINANCE COSTS
Year ended
31 Mar 2022
GBP
Year ended
31 Mar 2022
GBP
Amortisation of debt arrangements costs 1,019,549 1,019,549
Loan interest 5,372,283 9,779,836
Fair value adjustment on financial assets at fair value through profit and loss (120,432) (134,510)
6,271,400 10,664,875
12 OPERATING LEASES
The amounts of minimum future lease receipts at the reporting date under non-cancellable operating leases are detailed
below:
31 March 2022
Next
12 months
GBP
1 to 5
years
GBP
After
5 years
GBP
Total
GBP
Aircraft – A rental receipts 63,898,609 8,119,394 – 72,018,003
Aircraft – B rental receipts 38,919,484 51,908,198 – 90,827,682
102,818,093 60,027,592 – 162,845,685
31 March 2021
Next
12 months
GBP
1 to 5
years
GBP
After
5 years
GBP
Total
GBP
Aircraft – A rental receipts 78,011,587 68,647,792 – 146,659,379
Aircraft – B rental receipts 36,041,010 89,610,362 – 125,651,372
114,052,597 158,258,154 – 272,310,751
The operating leases are for seven Airbus A380-861 aircraft. The terms of the leases are as follows:
MSN077 – term of the lease is for 12 years ending October 2023. The initial lease is for 10 years ending October 2021,
with an extension period of 2 years ending October 2023, in which rental payments reduce. The lease extension option was
confirmed on 17 October 2019 and therefore extended by 2 years to the expiry date of October 2023.
MSN090 – term of the lease is for 12 years ending December 2023. The initial lease was for 10 years ending December
2021, with an extension period of 2 years, in which rental payments reduce. The lease extension option was confirmed on
5 December 2019 and therefore extended by 2 years to the expiry date of December 2023.
MSN105 – term of the lease is for 12 years ending October 2024. The initial lease is for 10 years ending October 2022,
with an extension period of 2 years ending October 2024, in which rental payments reduce. The lease extension option was
confirmed on 16 January 2020 and therefore extended by 2 years to the expiry date of October 2024.
MSN106 – term of the lease is for 12 years ending October 2024. The initial lease is for 10 years ending October 2022,
with an extension period of 2 years ending October 2024, in which rental payments reduce. The lease extension option was
confirmed on 16 January 2020 and therefore extended by 2 years to the expiry date of October 2024.
76
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the year ended 31 March 2022
12 OPERATING LEASES (continued)
MSN107 – term of the lease is for 12 years ending October 2024. The initial lease is for 10 years ending October 2022,
with an extension period of 2 years ending October 2024, in which rental payments reduce. The lease extension option was
confirmed on 16 January 2020 and therefore extended by 2 years to the expiry date of October 2024.
MSN109 – term of the lease is for 12 years ending November 2024. The initial lease is for 10 years ending November 2022,
with an extension period of 2 years ending November 2024, in which rental payments reduce. The lease extension option
was confirmed on 16 January 2020 and therefore extended by 2 years to the expiry date of November 2024.
MSN110 – term of the lease is for 12 years ending November 2024. The initial lease is for 10 years ending November 2022,
with an extension period of 2 years ending November 2024, in which rental payments reduce. The lease extension option
was confirmed on 16 January 2020 and therefore extended by 2 years to the expiry date of November 2024.
At the end of each lease the Lessee has the right to exercise an option to purchase the Asset if the Group chooses to sell
the Asset. If a purchase option event occurs the Group and the Lessee will be required to arrange for a current market value
appraisal of the Asset to be carried out by three independent appraisers. The purchase price will be equal to the average
valuation of those three appraisals.
13 RECEIVABLES
31 Mar 2022
GBP
31 Mar 2021
GBP
Prepayments 77,249 82,182
Sundry debtors 39,291 39,130
116,540 121,312
The above carrying value of receivables is its reasonable approximation of value.
14 PAYABLES (due within one year)
31 Mar 2022
GBP
31 Mar 2021
GBP
Accrued administration fees 14,817 16,158
Accrued audit fee 46,900 51,200
Other accrued expenses 26,753 29,387
88,470 96,745
The above carrying value of payables is its reasonable approximation of value.
77
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the year ended 31 March 2022
15 BORROWINGS
31 Mar 2022
GBP
31 Mar 2021
GBP
Bank loans 25,849,194 57,025,093
Equipment Notes 48,249,386 89,635,668
74,098,580 146,660,761
Associated costs (2,336,318) (3,355,867)
71,762,262 143,304,894
Current portion 62,995,731 76,027,801
Non-current portion
8,766,531 67,277,093
Notwithstanding the fact that £76.3 million (31 March 2021: £83.1 million) debt was repaid during the year, as per the
Consolidated Statement of Cash Flows, the value of the borrowings has decreased by £71.5 million (31 March 2021: £100.8
million) due to the 4.91 percent movement in the Sterling / US dollar exchange rate for the year from 1.3783 at 31 March
2022 to 1.3138 at 31 March 2021. See note 19.
The amounts below detail the future contractual undiscounted cash flows in respect of the Loans and equipment notes,
including both the principal and interest payments, and will not agree directly to the amounts recognised in the Consolidated
Statement of Financial Position:
31 Mar 2022
GBP
31 Mar 2021
GBP
Amount due for settlement within 12 months 66,405,834 81,296,113
Amount due for settlement after 12 months 9,789,108 72,631,218
The loan to MSN077 Limited was arranged with Westpac for $151,047,509 and runs for 12 years until October 2023 and has
an effective interest rate of 4.590 percent.
The loan to MSN090 Limited was arranged with ANZ for $146,865,575 and runs for 12 years until December 2023 and has an
effective interest rate of 4.558 percent.
The loan to MSN105 Limited was arranged with ICBC, BoC and Commerzbank for $145,751,153 and runs for 12 years until
October 2024 and has an effective interest rate of 4.780 percent.
Each Loan is secured on one Asset. No significant breaches or defaults occurred in the year. The Loans are either fixed rate
over the term of the Loan or have an associated interest rate swap contract issued by the lender in effect fixing the loan
interest over the term of the Loan. Transaction costs of arranging the Loans have been deducted from the carrying amount
of the loans and will be amortised over their respective lives.
78
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the year ended 31 March 2022
15 BORROWINGS (continued)
In order to finance the acquisition of the fourth, fifth, sixth and seventh Assets, DNAFA used the Certificates. The Certificates
have an aggregate face amount of approximately $587.5 million, made up of "Class A" certificates and "Class B" certificates.
The Class A certificates in aggregate have a face amount of $433,772,000 with an interest rate of 5.125 percent and
a final expected distribution date of 30 November 2022. The Class B certificates in aggregate had a face amount of
$153,728,000 with an interest rate of 6.5 percent and were repaid on 30 May 2019. There is a separate trust for each class
of Certificate. The trusts used the funds from the Certificates to acquire equipment notes. The equipment notes were issued
to Wilmington Trust, National Association as pass through trustee in exchange for the consideration paid by the purchasers
of the Certificates. The equipment notes were issued by DNAFA and the proceeds from the sale of the equipment notes
financed a portion of the purchase price of the four Airbus A380-861 aircraft, with the remaining portion being financed
through contribution from the Company of the C Share issue proceeds. The holders of the equipment notes issued for each
aircraft will have the benefit of a security interest in such aircraft. The remaining balance is being repaid by continuing to
amortise borrowings that pays both principal and interest through periodic payments.
In the directors' opinion and with reference to the terms mentioned, the above carrying values of the bank and equipment
notes are approximate to their fair value.
16 SHARE CAPITAL
The Share Capital of the Group is represented by an unlimited number of shares.
Issued
Administrative
Shares Shares C Shares
Total
Shares
Issued shares as at 31 March 2022 and 31 March
2021 2 172,750,000 – 172,750,002
Issued Shares
Administrative
Shares
GBP
Shares
GBP
C Shares
GBP
Total
GBP
Total Share Capital as at 31 March 2022 and as at
31 March 2021 – 319,836,770 – 319,836,770
Members holding Shares are entitled to receive and participate in any dividends out of income attributable to the Shares;
other distributions of the Group available for such purposes and resolved to be distributed in respect of any accounting
period; or other income or right to participate therein.
Upon winding up, Shareholders are entitled to the surplus assets attributable to the share class remaining after payment of
all the creditors of the Group. Members have the right to receive notice of and to attend, speak and vote at general meetings
of the Group.
On 6 March 2013, 100,250,000 C Shares were converted into Shares with a conversion of 1:1.
The holders of Administrative Shares are not entitled to receive, and participate in, any dividends out of income; other
distributions of the Group available for such purposes and resolved to be distributed in respect of any accounting period;
or other income or right to participate therein. On a winding up, holders are entitled to a return of capital paid up on them
after the Shares have received a return of their capital paid up but ahead of the return of all additional capital to the holders
of Shares.
The holders of Administrative Shares shall not have the right to receive notice of and no right to attend, speak and vote at
general meetings of the Group, except for the Liquidation Proposal Meeting (general meeting convened six months before
the end term of the Leases where the Liquidation Resolution will be proposed) or if there are no Shares in existence.
79
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the year ended 31 March 2022
17 CASH AND CASH EQUIVALENTS
31 Mar 2022
GBP
31 Mar 2021
GBP
Cash at bank 15,380,457 29,926,638
Cash deposits 12,947,700 –
28,328,157 29,926,638
Cash and cash equivalents are highly liquid, readily convertible and are subject to insignificant risk of changes in value.
18 FINANCIAL INSTRUMENTS
The Group’s main financial instruments comprise:
(a) Cash and cash equivalents that arise directly from the Group's operations;
(b) The Loans secured on non-current assets; and
(c) Interest rate swap
19 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group's objective is to obtain income returns and a capital return for its Shareholders by acquiring, leasing and then
selling aircraft.
The following table details the categories of financial assets and liabilities held by the Group at the reporting date:
31 Mar 2022
GBP
31 Mar 2021
GBP
Financial assets
Cash and cash equivalents 28,328,157 29,926,638
Receivables (excluding prepayments) 39,288 39,130
Financial assets at amortised cost 28,367,445 29,965,768
Financial liabilities
Interest rate swap 989 121,420
Financial liabilities at fair value through profit or loss 989 121,420
Payables – 96,745
Borrowings 71,762,263 143,304,894
Financial liabilities measured at amortised cost 71,850,733 143,401,639
In accordance with IFRS 13 this standard requires the Group to price its financial assets and liabilities using the price in the
bid-ask spread that is most representative of fair value for both financial assets and financial liabilities. An active market is
a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing
information on an ongoing basis.
The level of the fair value hierarchy of an instrument is determined considering the inputs that are significant to the entire
measurement of such instrument and the level of the fair value hierarchy within those inputs are categorised.
80
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the year ended 31 March 2022
19 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
The hierarchy is broken down into three levels based on the observability of inputs as follows:
Level 1: Quoted price (unadjusted) in an active market for an identical instrument.
Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from
prices) .
Level 3: Valuation techniques using significant unobservable inputs.
The interest rate swap is considered to be level 2 in the Fair Value Hierarchy.
The following tables show the Group’s financial assets and liabilities as at 31 March 2022 and 31 March 2021 based on
hierarchy set out in IFRS:
31 March 2022
Level 1
GBP
Level 2
GBP
Level 3
GBP
Total
GBP
Financial liabilities at fair value through profit
and loss
Interest rate swap – 989 – 989
31 March 2021
Level 1
GBP
Level 2
GBP
Level 3
GBP
Total
GBP
Financial liabilities at fair value through profit
and loss
Interest rate swap – 121,420 – 121,420
Derivative financial instruments
The following tables show the Group’s derivative position as at 31 March 2022 and 31 March 2021:
31 March 2022
Interest Rate Swap
Financial
liability at
fair value
GBP
Notional
amount
US dollar Maturity
MSN090 Loan 989 3,296,254 4 Dec 2023
31 March 2021
Interest Rate Swap
Financial
liability at
fair value
GBP
Notional
amount
US dollar Maturity
MSN090 Loan 121,420 10,154,511 4 Dec 2023
81
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the year ended 31 March 2022
19 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
The main risks arising from the Group’s financial instruments are capital management risk, foreign currency risk, credit risk,
liquidity risk and interest rate risk. The Board regularly reviews and agrees policies for managing each of these risks and
these are summarised below:
(a) Capital Management
The Group manages its capital to ensure that the Group will be able to continue as a going concern while maximising the
return to Shareholders through the optimisation of the debt and equity balance.
The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 15, cash and cash
equivalents disclosed in note 17 and equity attributable to equity holders, comprising issued capital and retained earnings.
The Group's Board reviews the capital structure on a bi-annual basis.
Equity includes all capital and reserves of the Group that are managed as capital.
No changes were made in the objectives, policies or processes for managing capital during the years ended 31 March 2022
and 2021.
(b) Foreign Currency Risk
The Group's accounting policy under IFRS requires the use of a Sterling historic cost of the assets and the value of the US
dollar debt as translated at the spot exchange rate on every Statement of Financial Position date. In addition US dollar
operating lease receivables are not immediately recognised in the Consolidated Statement of Financial Position and are
accrued over the period of the Leases. The directors consider that this introduces an artificial variance due to the movement
over time of foreign exchange rates. In actuality, the US dollar operating leases should offset the US dollar payables on
the amortising debt. The foreign exchange exposure in relation to the Loans and equipment notes is thus almost entirely
hedged.
Lease rentals (as detailed in notes 4 and 12) are received in US dollar and Sterling. Those lease rentals received in US dollar
are used to pay the debt repayments due, also in US dollar (as detailed in note 15) . Both US dollar lease rentals and debt
repayments are fixed and are for similar sums and similar timings. The matching of lease rentals to settle debt repayments
therefore minimises risks caused by foreign exchange fluctuations.
The amounts of the Group's foreign currency denominated monetary assets and liabilities at the reporting date are as follows:
31 Mar 2022
GBP
31 Mar 2021
GBP
Debt (US dollar) – Liabilities (74,098,581) (146,660,761)
Financial (liabilities at fair value through profit and loss) (989) (121,420)
Cash and cash equivalents (US dollar) – Asset 6,305,946 9,324,381
82
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the year ended 31 March 2022
19 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
(b) Foreign Currency Risk (continued)
The following table details the Group's sensitivity to a 15 percent (31 March 2021: 25 percent) appreciation of the US dollar
relative to the pound. This represents the directors' assessment of the reasonably possible change in foreign exchange rates.
The sensitivity analysis includes only outstanding foreign currency denominated monetary items. The table below shows
that profit and other equity fall where the US dollar strengthens 15 percent because the net dollar liabilities increase in
pound terms. For a 15 percent (31 March 2021: 25 percent. weakening of the US dollar against the pound, there would be
a comparable but opposite impact on the profit and other equity
31 Mar 2022
US dollar Impact
GBP
31 Mar 2021
US dollar Impact
GBP
Profit or Loss (10,169,191) 27,491,560
Net asset value (10,169,191) 27,491,560
On the eventual sale of the Assets, the Group may be subject to foreign currency risk if settled in a currency other than
Sterling. Transactions in similar assets are typically priced in US dollars.
(c) Credit Risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the
Group.
Refer to the going concern section on pages 64 to 66 where an assessment of Emirates is made.
The credit risk on cash transactions are mitigated by transacting with counterparties that are regulated entities subject to
prudential supervision, or with high credit ratings assigned by international credit rating agencies.
The Group's financial assets exposed to credit risk are as follows:
31 Mar 2022
GBP
31 Mar 2021
GBP
Receivables (excluding prepayments) 39,291 39,130
Cash and cash equivalents 28,328,157 29,926,638
28,367,448 29,965,768
Surplus cash in the Company is held in Barclays. Surplus cash in the Subsidiaries is held in accounts with Barclays, Westpac
and ANZ, which have credit ratings given by Moody's of A1, Aa2 and Aa3 respectively. Moody's considers the outlook of the
banks current ratings to be stable.
There is a contractual credit risk arising from the possibility that the Lessee may default on the lease payments. This risk
is mitigated, as under the terms of the lease agreements between the Lessee and the Group, any non-payment of the lease
rentals constitutes a “Special Termination Event”, under which the Lease terminates and the Group may either choose to sell
the Asset or lease the Assets to another party.
At inception of the Lease, the Group selected a Lessee with a strong statement of financial position and financial outlook.
The financial strength of Emirates is regularly reviewed by the Board and the Asset Manager.
83
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the year ended 31 March 2022
19 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
(d) Liquidity Risk
Liquidity risk is the risk that the Group will encounter difficulty in realising assets or otherwise raising funds to meet
financial commitments. The Group’s main financial commitments are its ongoing operating expenses, loan repayments to
Westpac, ANZ, ICBC, BoC and Commerzbank, and repayments on equipment Notes.
Ultimate responsibility for liquidity risk management rests with the Board of directors, which established an appropriate
liquidity management framework at the incorporation of the Group, through the timings of lease rentals and debt repayments.
The Group manages liquidity risk by maintaining adequate reserves, banking facilities and borrowing facilities, by monitoring
forecast and actual cash flows, and by matching profiles of financial assets and liabilities.
The table below details the residual contractual maturities of financial liabilities, including estimated interest payments.
The amounts below are contractual undiscounted cash flows, including both the principal and interest payments, and will
not agree directly to the amounts recognised in the consolidated statement of financial position:
31 Mar 2022
1-3
months
GBP
3-12
months
GBP
1-2 years
GBP
2-5 years
GBP
Over
5 years
GBP
Financial liabilities
Payables – due within one year – – – – –
Interest rate swap – – – 989 –
Bank loans 4,925,184 12,122,202 7,549,680 2,239,427 –
Equipment Notes 24,693,762 24,664,686 – – –
29,618,946 36,786,888 7,549,680 2,240,416 –
31 Mar 2021
1-3
months
GBP
3-12
months
GBP
1-2 years
GBP
2-5 years
GBP
Over
5 years
GBP
Financial liabilities
Payables – due within one year 96,745 – – – –
Interest rate swap – – – 121,420 –
Bank loans 9,814,220 24,325,091 16,251,577 9,331,009 –
Equipment Notes 23,591,591 23,565,212 47,048,632 – –
33,502,556 47,890,303 63,300,209 9,452,429 –
(e) Interest Rate Risk
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows. It is the risk that
fluctuations in market interest rates will result in a reduction in deposit interest earned on bank deposits held by the Group.
The MSN090 loan which is at a variable rate, has an associated interest rate swap contract issued by the lender in effect
fixing the loan interest over the term of the Loan.
The Group mitigates interest rate risk by fixing the interest rate on its debts with the exception of MSN090, which has an
associated interest rate swap as mentioned above. The lease rentals are also fixed.
84
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the year ended 31 March 2022
19 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
(e) Interest Rate Risk (continued)
The following table details the Group's exposure to interest rate risks:
31 Mar 2022
Variable
interest
GBP
Fixed
interest
GBP
Non-interest
Bearing
GBP
Total
GBP
Financial assets
Receivables (excluding prepayments) – – 39,291 39,291
Cash and cash equivalents 28,328,157 – – 28,328,157
Total Financial Assets 28,328,157 – 39,291 28,367,448
Financial liabilities
Interest rate swap 989 – – 989
Payables – – 88,470 88,470
Bank loans – 25,849,194 – 25,849,194
Equipment Notes – 48,249,386 – 48,249,386
Total Financial Liabilities 989 74,098,580 88,470 74,188,039
Total interest sensitivity gap 28,329,146 74,098,580
31 Mar 2021
Variable
interest
GBP
Fixed
interest
GBP
Non-interest
Bearing
GBP
Total
GBP
Financial assets
Receivables (excluding prepayments) – – 39,130 39,130
Cash and cash equivalents 29,926,638 – – 29,926,638
Total Financial Assets 29,926,638 – 39,130 29,965,768
Financial liabilities
Interest rate swap 121,420 – – 121,420
Payables – – 96,745 96,745
Bank loans – 57,025,093 – 57,025,093
Equipment Notes – 89,635,668 – 89,635,668
Total Financial Liabilities 121,420 146,660,761 96,745 146,878,927
Total interest sensitivity gap 29,805,218 146,660,761
If interest rates had been 250 basis points (31 March 2021: 50 basis points) higher throughout the period and all other
variables were held constant, the Group's net assets attributable to Shareholders as at 31 March 2022 would have been
£748,166 (31 March 2021: £149,026) greater due to an increase in the amount of interest receivable on the bank balances.
If interest rates had been 250 basis points (31 March 2021: 50 basis points) lower throughout the period and all other
variables were held constant, the Group's net assets attributable to Shareholders as at 31 March 2022 would have been
£748,166 (31 March 2021: £149,026) lower due to a decrease in the amount of interest receivable on the bank balances.
85
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the year ended 31 March 2022
20 CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES
The following table discloses the effects of the amendments to IAS 7 Statement of Cash Flows which requires additional
disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities,
including both changes arising from cash flows and non-cash flows. The table below excludes non-cash flows arising from
the amortisation of associated costs (see note 15) .
31 Mar 2022
GBP
31 Mar 2021
GBP
Opening Balance 146,660,761 248,459,026
Cash flows paid – capital (76,255,138) (83,075,662)
Cash flows paid – interest (5,270,898) (10,084,861)
Non-cash flows
– Interest accrued 5,372,283 9,779,836
– Effects of foreign exchange 3,591,572 (18,417,578)
Closing Balance 74,098,580 146,660,761
21 ULTIMATE CONTROLLING PARTY
In the opinion of the directors, the Group has no ultimate controlling party.
22 RELATED PARTY TRANSACTIONS AND MATERIAL CONTRACTS
Significant contracts who provide key management personnel to the reporting entity
Doric is the Group's Asset Manager.
During the year, the Group incurred £2,150,027 (31 March 2021: £2,103,349) of expenses with Doric of which £2,150,027
(31 March 2021: £2,102,717) related to asset management fees as shown in note 5, and £nil (31 March 2021: £632) was
reimbursed expenses. At 31 March 2022, £nil (31 March 2020: £nil) was owing to this related party.
Amedeo Services (UK) Limited was the liaison agent.
During the year, the Group incurred £7,925 (31 March 2021: £11,941) of expenses with Amedeo Services (UK) Limited which
related to liaison agent fees as shown in note 5. At 31 March 2022, £nil (31 March 2021: £7,908) was prepaid to this related
party. The Group terminated the agreement with the liaison agent with immediate effect on 21 April 2021.
Nimrod is the Group's Corporate and Shareholder Advisor.
During the year, the Group incurred £889,186 (31 March 2021: £880,925) of expenses with Nimrod. As at 31 March 2022,
£nil (31 March 2021: £ nil) was owing to this related party.
JTC Registrars Limited is the Group’s registrar, transfer agent and paying agent.
During the year, the Group incurred £14,799 (31 March 2021: £15,054) of expenses with JTC Registrars as shown in note 5.
As at 31 March 2022, £979 (31 March 2021: £1,092) was owing to this related party.
Significant contracts
JTC Fund Solutions (Guernsey) Limited is the Group’s Company Secretary and Administrator.
86
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
For the year ended 31 March 2022
22 RELATED PARTY TRANSACTIONS AND MATERIAL CONTRACTS (continued)
Significant contracts (continued)
During the year, the Group incurred administration fees with JTC Fund Services (Guernsey) Limited of £152,630 (31 March
2021: £171,051) with JTC Fund Solutions (Guernsey) Limited as shown in note 5. In addition, the Group incurred accounting
fees of £34,898 (31 March 2021: £33,197) with this related party. As at 31 March 2022, £14,817 (31 March 2021: £16,158)
was owing to this related party.
Related parties
The Board are considered to be key management personnel. For details regarding the directors’ remuneration please refer to
note 6. Shares held by them are disclosed on page 29 in the directors’ report.
23 SUBSEQUENT EVENTS
On 12 April 2022, a further dividend of 2.25 pence per Share was declared and this was paid on 30 April 2022.
On 14 July 2022, a further dividend of 4.50 pence per Share was declared and this will be paid on 29 July 2022.
No further subsequent events to note.
87
Doric Nimrod Air Two Limited (the “Company”) Consolidated Annual Financial Report
KEY ADVISERS AND CONTACT INFORMATION
KEY INFORMATION
Exchange: Specialist Fund Segment of the London Stock Exchange’s Main Market
Ticker:
Listing Date:
Financial Year End:
Base Currency:
ISIN:
SEDOL:
LEI:
Country of Incorporation:
Registration number:
DNA2
14 July 2011
31 March
Pound Sterling
GG00B3Z62522
B3Z6252
213800ENH57LLS7MEM48
Guernsey
52985
MANAGEMENT AND ADMINISTRATION
Registered Office
Doric Nimrod Air Two Limited
Company Secretary and Administrator
JTC Fund Solutions (Guernsey) Limited
Ground Floor
Dorey Court
Admiral Park
St Peter Port
Guernsey GY1 2HT
Asset Manager
Doric GmbH
Berliner Strasse 114
63065 Offenbach am Main
Germany
Lease and Debt Arranger
Doric Asset Finance GmbH & Co. KG
Berliner Strasse 114
63065 Offenbach am Main
Germany
Corporate and Shareholder Advisor
Nimrod Capital LLP
1-3 Norton Folgate
London
E1 6DB
Advocates to the Company (as to Guernsey Law)
Carey Olsen
Carey House
Les Banques
St Peter Port
Guernsey, GY1 4BZ
Solicitors to the Company (as to English Law)
Herbert Smith Freehills LLP
Exchange House
Primrose Street
London, England
EC2A 2EG
Auditor
Grant Thornton Limited
P O Box 313
Lefebvre House
Lefebvre Street
St Peter Port
Guernsey
GY1 3TF
Registrar
JTC Registrars Limited
Ground Floor
Dorey Court
Admiral Park
St Peter Port
Guernsey GY1 2HT
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