Avation (LSE:AVAP) — Annual General Meeting

0:00 Good morning, ladies and gentlemen. Welcome to the AVATION Annual General Meeting. Throughout this recorded meeting, attendees online will be in listen only mode. Questions are encouraged, they can be submitted at any time just using the Q and A tab situated on the right hand corner of your screen. I'd now like to hand over to Executive Chairman, Geoff Chatfield. Good morning. Good morning, ladies and gentlemen. I'm Geoff Chatfield, the Executive Chairman of the company. On behalf of the Board of Directors, I welcome you to our nineteenth annual general meeting. I'm joined in Singapore this afternoon by board

0:31 members, Rod Mahoney, Steven Fisher, Derek Sharples, and Mark Shelton. Also in attendance in London are Duncan Scott, the company secretary, and our executive team. We welcome Singapore and London shareholders to the meeting. I'll now hand you their company secretary for some announcements. Good morning, ladies and gentlemen. This meeting is being held at the company's offices in Singapore with a video link to the offices of Charles Russell's speech leads in London and with remote viewing via the Investor Meet platform.

1:02 Unless any members in attendance wish to change their proxy vote, there will be no in person voting at the meeting with all votes to be put to a poll based on votes cast by proxy. The proxy votes have been tallied by the company's registrar Computershare investor services, and a copy of their report has been tabled to the meeting. I can confirm that a quorum is present.

1:25 Thank you. As a quorum is present, I declare the nineteenth Annual General Meeting of AVATION PLC open. The resolutions considered today are set out on the notice of meeting published on the 11/18/2024. Rather than reading the whole resolution, each resolution aloud, I'd like to propose that we take each resolution as read as set out in the notice. Before we proceed with the formal business of the meeting, I would ask shareholders who wanna speak or ask questions during the meeting to wait until we've dealt with the resolutions, after which I'll be making a statement and taking questions. Those viewing remotely via the investor meet platform will be able to submit questions as well, which we'll address during the q and a.

2:14 With regard to voting, all resolutions proposed this morning will be put to a poll based on the proxy votes in order for views of all shareholders to be properly represented. I confirm that we've received proxy votes in respect of approximately 58% of the entire issued share capital in the company. So proceeding, the first item of business is to receive the company's accounts and reports for the year ended 06/30/2024. The second item in business is to approve the director's remuneration report for the year 2024. The third is to reelect Robert Jeffries Chatfield as the director of the company. The fourth is to reelect Roderick Douglas Mahoney as the director of the company. The fifth is to reappoint Ernst and Young as auditors of the company until the conclusion of the next annual general meeting.

3:05 The sixth item is to authorize the directors to determine the remuneration of the auditors. The seventh item is to authorize directors to allot shares. The eighth item is to approve the payment of a final dividend of 0.5p per ordinary share for the financial year ended 06/30/2024.

3:26 The ninth item is to empower the directors to allot shares with with statutory preemption rights to supply. The tenth item is to authorize the directors to make market purchase of the company's own shares. The last is the disapplication of statutory preemption rights of the on the sale of shares held in treasury. I will now ask the company secretary to confirm the consolidated roll results of the polls for the resolutions. Yes, Mr. Chairman. Here are the results. We have received proxy votes in respect to 43,281,607 shares, representing 58% of the issued share capital in the company.

4:12 All resolutions have been passed, and I can confirm the voting results for each resolution as follows. Resolution one passed with 99% of votes in favor.

4:22 Resolution two passed with 99% of votes in favor. Resolution three passed with 99% of votes in favor. Resolution four passed with 99% of votes in favor. Resolution five passed with 99% of votes in favor. Resolution six passed with 99% of votes in favor. Resolution seven passed with 86% of votes in favor. Resolution eight passed with 100% of votes in favor. Resolution nine passed with 85% of votes in favor. Resolution 10 passed with 99% of votes in favor, and Resolution 11 passed with 86% of votes in favor.

5:10 Very good. As no notice has been received of any other business that can be transacted at an AGM, I'll now conclude the formal business of the company's nineteenth annual general meeting and declare the formal shareholder meeting closed. Now that we've dealt with the formal business and we're pleased to report that all resolutions have been passed, I would like to make an interim management statement and give a trading update for the business. However, first, I hand over the company to the company secretary for an important notice. Please note that certain statements in this meeting, including certain answers to your questions, are forward looking statements, including, without limitation, statements regarding our future operations and performance, revenues, operating expenses, other income and expense items.

5:55 These statements

5:57 and any projection as to the company's future performance represent management's estimates of future results and speak only as of today, 12/19/2024. These estimates involve risks and uncertainties that could cause actual results to differ materially from expectations. Further information on the factors and risks that may affect AVATION's business are included in AVATION's regulatory announcements from time to time, including its annual report and half year results announcements. AVATION assumes no obligation to update any forward looking statements or information in light of new information or future events. Unauthorized recording of this transmission is not permitted. Thank you very much. So I'll now read the Chairman's AGM statement concerning the market.

6:43 AVA's most recent air passenger market analysis reported continued strength in air travel with revenue passenger kilometers increasing 7.1% in the year to October 24, surpassing historical highs. Market values and lease rates for commercial aircraft continue to be supported by constrained deliveries of new aircraft due to the continuing supply chain issues. AVATION believes that values of popular new narrow body aircraft types have increased by around 5% over the last year. A fleet update. In August 24, AVATION sold two six year old ATR 72 aircraft to their lessee, releasing around $10,000,000 in net cash after repayment of associated bank loans.

7:31 In 10/02/2024, AVATION agreed a lease extension for a fifteen year old Airbus a three twenty at a lease rate that exceeds the previous rental for the aircraft. In November 24, the company sold an a t r a new ATR seventy two six hundred on delivery from the manufacturer, generating net cash proceeds of around $5,000,000 The net proceeds from the sale have been deployed to fund predelivery payments on AVATION's order book for additional ATR aircraft. As of the 12/19/2024, AVATION owns a fleet of 32 commercial aircraft leased to 15 airlines in 13 countries. The average age of the fleet is seven point eight years, and the average remaining lease term is three point eight years.

8:18 The company has three leased aircraft being returned in 2025. All three aircraft have been placed with three new lessee airline lessees for subsequent operation. There are no further leased aircraft being returned until 2026. The company has two new ATR seventy two six hundred aircraft being delivered in 2025. For the first aircraft, the company signed a twelve year lease agreement with a Japanese airline. The aircraft is currently scheduled for delivery from the manufacturer in October 25. The second aircraft has been placed within Airline Korea. Both of the two new aircraft have been placed with two new airline customers. The next available new aircraft scheduled for delivery is 2026.

9:06 With all returning aircraft and new aircraft placed for 2025, the company will consider opportunistically acquiring additional aircraft in the secondary market to further expand the fleet in 2025. Financial update.

9:24 AVATION has continued to make progress in collections of COVID area related airline arrears. Total arrears have been reduced by around $6,400,000 since 06/30/2024. The management team remains highly focused on collections of remaining arrears. The company recently issued 3.692262 fully paid ordinary shares for sure to the exercise of employee and bondholder share warrants, providing total proceeds of £4,800,000. AVATION currently has $336,000,000 secured bank bank loans outstanding, which bear interest rates at an average rate of 4.86%.

10:12 AVATION also has 331,600,000 outstanding, 9%, eight and a quarter percent senior peak total notes, which have a maturity of October 26. Total cash and bank balances increased by $18,600,000 since 06/30/2024 to US136.5 million dollars as at the 12/13/2024. The company repurchased on the 12/17/2024 a total of 7,800,000 shares, representing 10.45% of the outstanding shares for £1.50 each. These repurchased shares will be held in treasury. The company had a view that the most undervalued securities was the ordinary shares and that this repurchase was the most value accretive.

11:03 My statement to the in the market. Commercial aviation market continues to perform well, underpinned by strong demand for air passenger travel and continued supply chain issues restricting the supply of new aircraft. AVATION is working to improve shareholder value by repurchasing shares and reinstating dividends. AVATION is well placed to benefit from supportive industry dynamics, both in terms of growth by the placement of 10 new ATR aircraft, which we had ordered for delivery between 2025 and 2028 and by remarketing existing aircraft when their current leases expire. Therefore, therefore, AVATION is therefore confident in its ability to place the remaining aircraft in its audible as lease rates which would generate value for shareholders.

11:55 That's the end of of my statement. Jeff, we have a a shareholder here in London. Can I let you you had a question to ask, did you? Yes. Yeah. I have. Yeah. Yes. Hello. Hello. What impact oh, what type of activities were you participating for 2025? That's a good question. So 2025, we have basically placed all of our existing aircraft. So we'll be looking at opportunistic purchases in the secondary market if they're available at a reasonable price, but also corporate finance activities. So in 2026, we have a bond maturing, and so we plan for that and get ready for that during 2025.

12:56 So we'll look at all the different market debt markets in the world. We'll look at secured finance as well as bonds in different jurisdictions because our goal would be to improve our position in the under unsecured market to help shareholders go forward. Right. Have you ordered any new aircraft for next year? We have, but regret we've we've ordered 10, but they're very slow in delivery. So the 10 we've ordered, everything in the next year, we've got placed. So we've got customers for. We only have two that are coming in, and they are placed there and two new customers, which is fantastic.

13:43 But our deliveries occur between next year and 2028, so it's not very fast, unfortunately, and that's due to the ability of manufacturers to make aircraft. It's it's it's very slow at the moment, and everything's light. Every sort of new aircraft is behind schedule. Would that have an impact on the recovery of the share prices?

14:11 Can't speculate too much on share price other than that we are giving it attention, and we recognize the share price has been undervalued, and therefore, we're taking steps to create shareholder value. That means, you know, we've reinstated a dividend, which will get paid. We have bought in 10% of the company in the last week, which was very value accretive because 10% of the company at a 45% discount to NAV is extremely accretive on a per share basis. So we've demonstrated that we are

14:48 very, very interested in ensuring our shareholders do well. So if you can meet the demand, yeah, when people wanting aircraft and you haven't got them on in your hands, will there be any penalties? No. We won't face any financial penalties. It's an industry thing. There's there's people are flying. At at the beginning of the statement, we advise that, you know, travel's at an all time high, but aircraft supply is not at an all time high. So aircraft around the world are extremely full, and airlines are not getting what they want, especially with big aircraft, actually. Probably the the worst, outlook for if you're an airline in terms of getting, aircraft is very big aircraft, long haul aircraft.

15:44 So if you wanna travel, buy a ticket soon.

15:48 Thank you. We've got questions. We have lots of questions. Okay. Number one, do we know who sold the shares the company bought back this week? And do we intend to cancel them rather than leave them in treasury? We have no we've received no formal advice yet on who sold the shares, but there was only a few shareholders with enough shares to sell. So we have a view. Do we intend to cancel them? Or it's something we can consider. At the moment, in treasury, they're harmless. They just help the the other remaining shareholders. And in due course, we can cancel them or we can sell them. But in historically, we have tended to cancel shares, but there's no guarantees.

16:43 Charles s asked, how and when do you plan to address your 2026 bond maturity?

16:51 Well, we can't I mean, it's a tough one because at the moment, if we re if we refinanced our bond, we have to pay a 4% penalty. So it's better to not pay a 4% penalty, and deal with it when within a year of maturity. But we are certainly I mean, obviously, it's something we thought about

17:16 in early twenty five, calendar twenty five, you know, January 25 next month onwards. We'll be looking at every sort of financing and and weighing them up and comparing them because, clearly, you know, there's a lot of financial products out there. There's a lot of solutions to that problem. We need to form a view on, when we actually when we actually do it. But I I would have thought, and I'm speculating now, that it it's something that we need to deal with in calendar twenty five rather than waiting for, 2026.

17:58 The next one, please help me understand why you think it was in best interest company buyback 7,800,000 shares at $1.50. Why did directors sell 1,200,000 shares? Blah blah blah. Why did the shift don't many shares come from given there's no tier one? Okay. There's a lot of questions there. So if we go through it, the things happen in the ordinary course of business. So what we dealt with a few weeks ago was the exercise of warrants, and the warrant the directors and employees were what there's a warrant exercise, and they that was dealt in the ordinary course course of this that had to occur because they're expiring.

18:58 Now this opportunity to take these shares has arisen, and clearly, you know, the market price for that volume, if someone was a willing seller, was $1.50. Hence, it was in that volume, $1.50 was, in our view, the right price, which was a very low price. There's been no tier one. I would expect one to come technically today or tomorrow, I would have thought or I guess. By the twentieth. By the twentieth, is someone saying? Next question, why are we holding treasury? Well, we may cancel we put them in treasury first, and we may cancel them later. The may I guess the main question that the shareholder's asking is why buy so many shares all in one go? And and the answer to that is if we buy little small amounts of shares, all it does is makes the share price go up, but we pay more money. You know, we'd we'd much prefer to deal with big batches in one go and get the get a good price for shareholders rather than just chase the price up with little little purchases. Some some companies, you know, like to purchase five, ten thousand, 20,000 every week, and that does drive the price up.

20:24 But that's all it does. It makes everyone feel good, whereas, you know, we're dealing, in our business with bigger amounts of money. Next question is on the bond, if you had to refinance today, do you think rates would be better? The answer to that question is, I've we believe so. Clearly, yeah, we can do we've got a variety of financing tools and secured lending. You know, the point in this in the statement, we set out secured lending is, what are we paying out, 4.40.8%. So the the right answer to your question is we should do the maximum secured lending we can and the minimum unsecured, and then you get the best financial outcome.

21:18 And the good thing is our overall leverage is now something like 58%, 57%. So it's we've paid off a lot of debt. And so the you know, there are secured solutions which would be dramatically better than the bond coupon. But we'll evaluate. As I said earlier, you know, January 2025 is when we when we start, and we will be widely canvassing the market and jurisdictions. You know, we'll be looking at the world in terms of finance. Can you provide an indication of how the total income from 2025 will change given the base value? Ian, would you like to address this one?

22:04 This is a good question on yield. Yeah. I mean, most of the aircraft that are coming off coming off lease later this year and in 2026, they're sort of roughly six year old ATRs. So they'll be going on to their second second lease. And, you know, the rates that we're we're seeing for those aircraft are stronger than we've been seeing previously. So just as an example, you know, we've we've got an aircraft which will be releasing at the same rate that it is on at the at the current time. But, obviously, you know, the aircraft is a lot older than when we arranged it previously. So in terms of comparison of, you know, similar age aircraft, the market is is proving to be quite strong.

23:03 The next one is how is the estimated change in narrow body value split between jets and ATR? We actually have an executive in the room who did a market analysis of do you wanna join the meeting? So this this gentleman's an expert on pricing and yield. And the the shareholder's asking about our estimate of of values. So joining the meeting's shareholder and executive, mister Summit. Hello. Hello, everyone. On the valuations for older fleet, older aircraft, we have actually seen the values actually go up in recent time. It's primarily because of the manufacturers being slow in delivering the aircraft, whether it's an Airbus, Boeing, as you know, there there have been issues in the supply chain as well, or ATR aircraft, which we have an order book off. So the new planes coming in, are more valuable.

24:02 In the secondary market as well because there are planes being delivered a bit later, so the older planes that are there have also become a bit more valuable. So we see the valuations for aircraft actually taking up than whether it's a newer plane that we're delivering or getting from the manufacturer or it's an older plane that's in our fleet. You did a study, and you got a 12% uplift in valuation. They're both. Yes. So the question is, is it 5% overall, or is it 12% on specific aircraft? How does how do you reconcile the numbers? 12% is actually on the newer plans. For the older plan, it's more like five to 7% that we said. So it's an age related thing? Yes. Okay.

24:50 Thank you. That answers your question. So he did a he did a study on that. And so the view on for new aircraft, it's up 12, and older aircraft, it's up five. It's an age thing. Azure. Well, we You never. We don't know. We we it's difficult. There's a lot of rumors in this business. There are consolidation activities going on. One of our big competitors is being dealt with at the moment, so we don't know. Any comment on speculation? Well, we didn't leak any we didn't leak it because we didn't know about it. What is your target LTV versus the current level of fifty seven fifty eight?

25:40 Ian, do you wanna take that one? Yeah. Sorry. I think a reasonable target level for LTV for for our fleet of aircraft would be 75%, which would translate to a slightly lower LTV at the corporate level because we've we've obviously got cash and and other other assets that that we don't finance. But, yeah, 75% for the aircraft. Good. Is that all for questions? Is that it? Yes, Jeff. You've taken all the questions from investors. So thank you, Jeff. Thank you. Thank you very much. Jeff, that concludes the Annual General Meeting. So thank you to everybody for engagement. I will now redirect investors online to provide you with their feedback. If I could ask investors not to close this session.

26:34 And that concludes today's Annual General Meeting. Thank you.