Avation PLC

Good afternoon ladies and gentlemen and welcome to Evasion PLC full year results call. At this time all participants are in listen only mode. Later we will conduct a question and answer session. Participants may submit written questions using the ask a question button on the Spark Live webcast page. I would like to remind all participants that this call is being recorded. I will now hand over to Duncan Scott, Group Legal Counsel, to read out the legal disclaimers. Please go ahead, Duncan.

Thanks. Today, on the 1st of October, Evasion published its audited financial results for the financially ended 30 June 2025. A copy of our earnings release is available on our website at www.evasion.net. This call is being webcast and recorded, and the webcast will be available for replay on our website. Please note that certain statements in this call, including 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. These statements and any projections as to the company's future performance represent management's estimates of future results and speak only as of today, 1st October 2025. 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 Evasion's business are included in Evasion's regulatory announcements from time to time, including its annual report and half-year results announcements. Evasion 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. I'll now hand over to our executive chairman, Jeff Chatfield.

Thank you, Duncan. If we go to the snapshot of ovation, which is slide four, we note that it's the 2nd of October, not the 1st. So the snapshot of ovation at 30th of June is as follows. We had 33 aircraft, 16 airline customers in 14 countries, a mixture of wide-body, narrow-body, and turboprop, with the majority, 57%, being narrow-body commercial aircraft. We have new credit ratings of B1 from Moody's, B from Fitch, and B- from S&P, which is an upgrade from previously. We have 8.5 years weighted average aircraft age, 3.9 years weighted average remaining lease terms, $1.1 billion in total assets, 361 million in unearned contracted lease receivables. So the portfolio, which is page five, we have, as I said before, we have 13 ATR 72s with 10 on order and 24 purchase rights. So we have a good growth. platform and an order book that we can develop over the next few years. We have numerous Airbus narrow-body aircraft. So we have six A321-200s on lease and a number of others. And two twin-aisle aircraft, two wide-body aircraft. This is at June 30, one with Philippine Airlines and one with EVA, although we've now sold the Twin Isle aircraft that was with Philippine Airlines. Next slide. So if we look at our customer base, we've been very much focused on diversification over the last few years. So we have dramatically increased the number of clients and spread it around a lot. So notably, we've recently acquired an aircraft with Etihad Airways, which is a very high quality client. and over time and click obviously, which is another one in Columbia that recently. So we're gradually diversifying and making sure that our risk customer concentration risk is reduced. Next slide to do with the results. So page eight, the highlights. So we acquired two ATR 72 aircraft from the order book and sold them. Our business is leasing aircraft, not really just taking new ones and selling them, but it was opportunistic and a way of financing the order book and demand was there. So we took a conservative approach and sold them. As I said earlier, we've acquired an A320-200 on lease to Etihad. We've Sold the Boeing 777-300ER, which was on lease to PAL. The reason for that is it's an out of production aircraft, big amount of money, and the bid price was quite high. So economically and from a risk management perspective, it was sort of the right decision to let it go. We've extended a couple of leases. We've extended the lease to EasyJet. We're in negotiation with other airlines to extend leases. We have a new six-year lease with Qlik. We have another, we've got obviously 12-year leases signed in Korea and Cambodia for two of the ATR order books, which will extend our lease term once they're in place. Further highlights, page nine, We have 10 ATR 72 600s to be delivered between Q4 25 and Q2 of 28. And we have 24 additional purchase rights. So we have a pipeline of orders that we can deliver over the next few years. Very important for us to be able to place those aircraft and develop the fleet assets, but also diversify around and get as many clients as possible. We have improved our credit ratings significantly. Moody's has given us a B1 with a stable outlook. Fitch has given us a rating of B with a stable outlook. And we've also managed to extend the Singapore aircraft leasing scheme and we've obtained a five-year extension to our ALS tax incentive, which gives an 8% corporate tax rate on operating leases and related activities for the Singapore entities. So that incentive runs until April, 2029. So FY25 summary, total income was $112.5 million, EBITDA was $107 million, And the net indebtedness reduced from 651 million to 604 million. We've paid a lot of debt off. The NAV in US dollar terms per share increased to 366. The cash at 30 June was 130 million US dollars. And in the results announcement, there's a September figure, which is much higher than that as well. So the business is operating cash flow positive. and generating cash. And what I'd like to do now to explain things further is hand to Ian Court to continue the presentation from slide 11.

Thanks, Jeff. So we just provided some explanatory notes on the four year results. noting that operating profit and profit before tax are both impacted by substantial non-cash accounting entries. So operating profit is after deducting $21.6 million, which is an unrealized loss on the revaluation of aircraft purchase rights and deposits paid. And profit before tax is after deducting the revaluation loss and also $13.9 million, which is a non-cash amortization charge of a prior year gain on a debt modification, which is related to the extension of the company's unsecured notes issue. Obviously, you know, if you consider the non-cash impacts of those entries, it indicates that underlying performance has been quite strong. Can I have the next slide, please? Turning to the debt stack, as noted, innovation has continued to de-lever. We've achieved a 7.3% reduction in net debt in the full year and a reduction to 54.8% in net debt divided by total assets. The weighted average cost of debt has trended upwards slightly due to refinancing some older low-cost loans in the current higher interest rate environment. And the proportion of fixed rate debt has reduced to 84.2%, which reflects our expectation that interest rates are likely to reduce in the near term. And we do note the recent 25 basis point reduction in US base rates, which was enacted last month. We've obtained new credit ratings for Moody's and Fitch, which we believe reflect the company's improved financial performance and credit standing. Next slide, please. So this slide shows the maturity profile of our debt, which is dominated by the maturity of our unsecured debt issue in October 2026. Regarding that unsecured note issue, we have repurchased $21.6 million of the notes in the 2025 financial year. and a further 12 million has been repurchased since the year end, which reduces the outstanding principal value to $298 million today. The warehouse loan you can see on that slide has been substantially repaid following the sale of the Boeing 777 aircraft last month. Next slide, please. Turning to key operating ratios, lease yield is now above 11%. and admin expenses as a proportion of revenue has been reduced to just under 8%. This improved performance is reflected in the increase in EBITDA divided by interest expense to 2.4 times and the reduction in net debt divided by EBITDA to 5.6 times. The debt to equity ratio remains low, bearing in mind that this ratio was above six times in the 2021 financial year. Next slide, please. Cash generation and liquidity have been strong, with increased operating cash flow and year-end total cash balances, including a $24.5 million increase in unrestricted cash. Total cash balances were $148.5 million at the 26th of September following the sale of the Boeing 777 aircraft. We currently hold six unencumbered aircraft, which may be refinanced in future, providing additional financial flexibility. Other aircraft currently financed at low loan to value ratios may also be refinanced on a secured loan basis to provide additional liquidity if required. We also know that $5.7 million, sorry, 5.7 million outstanding share warrants issued to bondholders in 2021 are now well in the money and may provide an additional source of liquidity in the coming year. I'll now hand you back to Geoff for the outlook and strategy section. Thank you.

Thank you, Ian. If we go to page 17, which is the FY26, financial year 26 focus so at some stage of fy 26 between um sort of november of this year and october of 26 we will look to um do something with our outstanding 298 million dollar bond whether that's refinance with banks or issue a new bond or other things um we're investigating that And we'll come up with a sort of an optimum financial solution in due course. We're well on the way to transitioning for ATRs from old leases to new customers at lease expiry. So there's a process underway to, you know, those aircraft who can't go through a transition process with MROs and they'll go to new clients in due course. We'll take delivery of two to three new ATRs from our order book. Clearly we'd like to do more, but ATR are somewhat production constrained and therefore there are limits to how many we can get in the very near term. We're looking at opportunities to grow the narrow body fleet because the bulk of liquidity in our business is in the narrow body sector. And we see a lot of opportunities there however aircraft prices are very high so we're very selective on what we on what we acquire page 18 which gives sort of detail on on transitions so um which is probably beyond the scope of this call but it's there for your information so for example a um atr 72 um which will be delivered from mandarin will go to some air for 12 years you know november december this year um and so on i mean there's a lot of detail on that slide which is an ordinary course of business stuff uh the next slide talks to the atr order book globally um which is made up there's a lot of them need to be replaced so Something like 1,100 aircraft need to replace the current operational fleet, plus 880 need to provide for growth. So there is a lot of demand for those aircraft in theory over the next 20 years. Clearly, it's a gigantic market and ATR effectively got a monopoly on it. We're one of the major lessors in it. We have sort of a fairly pedestrian order book at this point in terms of 10 orders and purchase rights for further 24. But clearly, it's a big market. And those 24 run over 10 years. So we'll see a lot of that demand coming through. So page 20, in summary, we're a very strong liquidity position, probably the most cash, certainly the most cash we've ever seen. Our credit ratings have improved. We'll look at opportunities to repay, refinance, deal with that bond once it's callable at par. We have a number of lease transitions proceeding. We tend to announce leases when they're signed and a commitment's made. So you'll see activity on that front as and when it occurs. And we've got an order book. So we've got fleet growth. So what can happen is we will grow, the business will grow, and we intend to acquire some narrowbody aircraft in the secondary market so that we can get more clients. So I'll move now to the Q&A session.

Ladies and gentlemen, we will now begin the question and answer session. Participants may submit written questions using the ask a question button on the Spark Live webcast page. I will now hand back to Geoff to read out the questions.

Thank you. I'm just, they're coming in. I'm refreshing them. So, in order, there's a lot of questions. All right, let's start at the top. So a question for Soren. What lease yield are you targeting? Soren's not there. Well, the answer is probably 11% to 12%.

Yeah. Can you hear me?

Now we can, yep. Okay.

So for older aircraft, we would be targeting a monthly yield of about 1%. When we are looking at younger aircraft, if it's speculative aircraft from the ATR or the book, we're probably around 0.85. And if we're looking at SLBs, selling these back on brand new single-air aircraft, it depends on the credit, but you'll be closer to 0.7 per month.

So blended, that means 11 to 12% across the whole fleet. Next question is, how has the market, this is from Imperial Capital, how has the market developed in terms of lease rates and aircraft values? Well, I'll deal with that one. So clearly there's a massive demand for aircraft and so aircraft prices have gone up. which tends to drag up lease rents, but the lease rate factor may not be dragged up proportionally. So you can buy a very expensive aircraft regrettably at a rent that the airline can pay. Therefore, the apparent yield looks lower, which is sort of one of the reasons that we When we account for aircraft, we look at the total cash that the aircraft will produce over its life. It's called a lease income at valuation because the rent is very, very important. The higher the rent, the better, obviously. Our next question is from an individual investor, Mr. Afran. The market value of the aircraft is higher compared with book value, which makes your break up a lot higher. What can we do to close the gap? Would it not make sense for another strategic review? What can you do better in your regular trading to narrow this gap? Won't a larger lessor be able to unlock this value better? Well, a lot of it's to do with the market you're in and the share market you're in because investors will pay the price they pay. We review from time to time the share market we're in. There has been a lot of M&A activity in our sector and presumably people will look at our company in due course and the issues you've got in the UK market at the moment may lead somewhere. What we do is we have investor calls like this to communicate with investors. We buyback shares when opportunistically at the right time, you know, consistently we've bought back shares. All we can probably do is communicate, you know, our transparently communicate buyback shares when we can and move forward. We're not, the board has made no decision to contemplate a strategic review and it's not something we're considering. Another question. The volatility in ATF purchase options make it hard to rely on your NAV figure. What are you doing in month-to-month options? Any chance of converting these options to a firm one? Yeah, so the answer to that question is there's been a lot of volatility in interest rates, inflation, all that sort of stuff that impact the value of options, which has created volatility. But that massive amount of volatility can't, continue, you know, as the aircraft turn into orders, they're monetized one way or another. So clearly, you know, we're incentivized to turn options into orders and lease the aircraft. And that solidifies in that figure because you've turned it into an actual physical asset. We don't expect that degree of volatility to continue to occur going forward. And, you know, in fact, it's numerically impossible for it to continue going forward. And, you know, we were quite, you know, you could argue strongly that we've been too prudent, but it is what it is. We move forward. Another question from an individual investor, recent mega deals such as Air Lease, Air Cap, Avalon, CIT, suggest larger platforms capture the best economics. How does it, of Asian views, position a small lessor? Are there plans to pursue partnerships to remain competitive? We have a similar cost of funds as larger lessors. So larger lessors who are investment grade can issue bonds at sort of the same price as we can issue bank debt. So we're Our cost of funds is somewhat similar. It might be within a percent of investment grade, you know, within around, say, a percent of investment grade, because we use a mixture of bank debt and bonds. So we are competitive. And I'm not sure that larger platforms do capture the best investment economics any better than a small one. You know, scale's important in that it gives you a better credit rating. You know, credit rating agencies seem to love scale. And so to grow the business, you can acquire aircraft or, you know, we've got an order book or look at strategic opportunities. But, you know, the easiest way to grow it is buy aircraft in the secondary market and place aircraft from an order book. The next question is, ATR is trying to push in the U.S. Is the market a place you can enter? Soren, our commercial gentleman, would like to answer this.

Yeah, I mean, traditionally, the U.S. has not been a turboprop market, but this seems to be changing. There are a few interesting parties now looking at ATRs in special cabin configurations. So we are actually in discussion with those parties. We're still trying to assess whether You know, the U.S. is a very competitive market. Whether the yields we can secure are good enough for us, plus the fact that since the U.S. market would be focused on very specific cabins with very low density seating, there would be a very big impact on moving the asset to another LSE. But one market which is very promising and which is one of the largest markets for ATRs is actually Canada. where there is a massive fleet of bombarded aircraft, which is, you know, which needs to be replaced. So that's also a good vector for opportunities for us.

Thank you. The next question is, would we look at the new Dornier 328? We tend to look at aircraft that are in production in substantial numbers. So we wouldn't touch that until it was in production and until there's a lot of them out there. The next question is about ATR's capacity, production capacity. I think Soren can also answer this, given he talks to ATR a lot.

Yeah, well, I think ATR production is constrained and will be constrained for the foreseeable future. They have actually attempted at increasing their pollution slightly above 45 this year, and they are failing, so they are down to 36. And my understanding is that they will be at 36 next year as well. So that's quite good, because that means that for the first time in a long time, ATR is actually sold out in the coming years, which gives us, with our open positions, good opportunities, especially as currently there are quite a few airlines who are looking to upgrade their fleet of ATRs from the previous generations to the new one. So we are monitoring those ones. If we can secure one or two of those, they are very good credits.

Next question is a technical one about whether you want to maintain a full London Stock Exchange listing versus a US listing. I think Duncan Scott's been looking at this and can advise. Sure.

And then the follow on part of the question was in relation to OTC markets, which we have looked at in the last 12 months and considered on the OTC ones that they don't really offer much benefit for the additional risks associated. In relation to a full move from the LSE to a US listing, this is something that we have looked at in the past. And I believe the board would like to have this put back on the agenda for the near term to consider. in the context of offering best value for shareholders. So yes, that is something that the board will consider.

The next question is on Ishka data on values rising and lease rentals declining. I don't know that lease rentals are declining, but Ishka is sort of Ashley's area. Do you want to talk about this one?

Yeah, sure, Jeff. So, I mean, values and lease rates, you know, do tend to be affected predominantly by sort of market supply and demand and then also interest rates. I think you've touched on the fact that the supply is pretty constrained and limited at the moment and the demand for aircraft is still pretty high. Interest rates rose and then are now on the way back down again. But the effect of the interest rates tend to have a lag on the lease rates. So we have seen the lease rates being relatively firm. As interest rates come down, it will have a sort of downward effect on the lease rates, but it tends to be a lot dependent on the market and the supply and demand getting aircraft.

Thank you. The next one's about a lease of an aircraft to Mandarin. I mean, Ian can talk to this.

Yeah, hi. So I mean, the Mandarin leases were signed in 2017. And when we did the analysis, we obviously had a residual value assumption. And recent valuations of those aircraft have basically borne out our original assumption on residual value. So certainly on residual value, performance has met expectations. And on the leases themselves, I mean, you know, Mandarin has been a very good client of ours. I've always paid rent on time. We've collected all the rent that's due under those leases. So in terms of, you know, meeting the original kind of forecast for how those leases would perform, I would say, yes, we've done that.

Thank you. Next question is on, hopefully, so ATR operations allow ATRs a patient approve its margins or capture additional revenue through services, parts leasing, engine leasing, et cetera. We do lease an engine. We don't talk about it very much, but we do actually own an ATR 72 engine that's on lease to Click at the moment. And that'll sort of move around. And engine leasing is not our key core business, but it's sort of a, for strategic reasons, And it's a similar sort of yield to leasing aircraft. The main thing that size drives is credit rating. So the bigger the company, then the lower your cost of funds. So clearly growth is valuable. The next question is on customer concentration risk. We're not really interested to sell too much aircraft at the moment. We're more interested to buy aircraft. um clearly we we want to grow and um it's more valuable to grow and own aircraft and generate revenue than sell everything next question is on an individual client on uh which we don't really want to uh comment too much on i mean if atr we do receive compensation when contractually we receive compensation when A plane's late being delivered from the manufacturers. We do. The next question is to do with anticipated future maintenance reserves. Well, we don't make forecasts on that sort of stuff. Ian, do you want to take this?

Sure, yeah, we don't make forecasts. I mean, if you are interested in forecasts on the company, I mean, we've got excellent broker coverage and both Canaccord and Zeus have put out revised forecasts today in their coverage notes. And on the subject of the maintenance reserve revenue, I mean, we put some guidance in our results announcement on that. There is a sort of a positive variance included in this year's results. due to sort of re-forecasting certain maintenance events. And we would expect in future that the maintenance reserve revenue element of total revenue would kind of normalize it at a lower level.

The next question is, can you clarify what customer incentives are? Soren, do you want to take this?

Yeah, well, customer incentive is basically the fact that each time we deliver a new plane to a customer, attached to that plane, there are some provisions of goods and services that we can allocate to the customer, which the customer can use to purchase spare parts or provide training for his pilots or get a technical representative to help him with the entry into service.

Thank you. The next question, would refinancing the unsecured notes in the large annual amortization of the prior non-cash IFRS 9 expense? The short answer is yes. From the day we deal with those bonds, that very large non-cash expense disappears. The next question is management noted an intention to seek financial partner for a joint venture. The answer to that is we're not really interested. We'd rather own the aircraft and generate the revenue and get all the benefits. Next question is about reporting. Given management's close monitoring of finances, are there plans to accelerate reporting? Ian?

Yeah, I mean... We have accelerated the production of the audited financial statements. So we published our annual report today. I mean, it was signed off yesterday and published on the website today. Last year, I think we published the annual report on the 25th of October. So we've accelerated by 23 days, which I think is quite an achievement.

Next question is, why are we holding Philippine Airlines shares? Well, we're gradually selling them. There's not a lot of liquidity in that market. The next question is on an individual shareholder. The correct answer is we can't really comment on individual shareholders, but we have from time to time bought in shares through the market, regardless of who owns them, and within reason will continue to do so. The next question is recent cyber incidents that companies like Land Rover and Marks and Spencer, does Ovation carry dedicated cyber insurance and how confident are we it would mitigate financial and operating risks? The answer is the board is considering the risks. There is a risk meeting coming up on that subject in next month. So it is in our heads. The next question is, please update investors with the progress on the company's required 2026 debt refinancing. Well, we've spoken about that. We will deal with it one way or another in due course once it's callable at par, we'll work out the solution. I mean, we have reduced the bond down to 298 million. So we've actually been organically killing it off in due course anyway. Is that it for questions? That's all that appears on our screen. Are there any more? There's more. Okay, the next one is about the bond. Well, I've spoken about that a lot. The next one is why wait to refinance the bond? Well, it costs us four and a half percent times around a million to refinance them today, which is, we can't really do that until they're callable at par. Another question from Damien Brewer from Canaccord. Ian can answer this. Indeed, EBITDA is trending quite low. As you start compounding business and NAV growth, would we look at lease acquisitions of new narrow-body orders? We would, actually. We would look at selling leasebacks for new aircraft as well as secondary market transactions. I believe that's all the questions. Is that right? Moderator.

If that concludes the Q&A session, if you'd like to do some closing remarks before we wrap up the call.

Yes. So look, thank you for your attention. We are available. We do answer questions that are emailed to the company through the normal panel. We do get back to people the shareholders own the business and we're very respectful of that and want to treat them super well and we thank you for your support over the years. Clearly the company's got a long history and the COVID era was pretty traumatic but we're coming out of that and we are we've never been in a stronger financial position. There's been a lot of talk on these things about the bonds and all the rest of it. We consider that to be ordinary course of business stuff. We are sitting here today with $145 million in cash and a business generating cash and banks trying to lend us money. So, you know, we're well positioned. We look to grow and thank you very much for your support.