01-26 Annual Report.Indd

kjölur Avion Group

Aviation Services

Annual Report 2005 Himinn og haf / SÍA / Gutenberg / SÍA / haf og Himinn

ANNUAL REPORT 2005 www.aviongroup.com/www.aviongroup.is

Charter & Leisure

Shipping & Logistics

Leaders in Transportation Solutions

Avion House • Hlidasmari 3 • 201 Kopavogur • Iceland Tel. +354 515 7700 • Fax +354 515 7701 ÍSLENSK SÓKN UM ALLAN HEIM

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Tromsø Murmansk Hammerfest Tromsø Kirkenes Murmansk Sortland

Bodø

Reykjavík Ísafjordur

Neskaupstadur Anchorage Narsuaq Eskifjordur St. Petersburg Reykjavik

Vestmannaeyjar Kristiansund Edinburgh Aalesund Alaska: Copenhagen Torshavn Maaløy Dutch Harbor Belfast Kustanay Amsterdam London St. Anthony Brussels Lerwick St. Petersburg Lux. Karaganda Paris Russia: Fredrikstad Stockholm Tallinn Harbour Grace Vladivostok Scrabster Seattle Argentia S-Korea: Egersund Portland Montreal Pusan Bayside Novorossiysk Peterhead Toronto Halifax Japan: Ventspils Portland Shelburne Hirtshals Riga Shiogama Gothenberg Boston/Everett Tokyo Glasgow Edinburgh Aarhus Klaipeda New York Madrid Osaka Copenhagen Philadelphia Newcastle Federicia Killybegs Belfast Newport News Dalian Kaliningrad Oakland Humberside Immingham Manchester Norfolk Grimsby Bremerhaven Szczecin Qingdao East Midlands Hamburg Los Angeles Birmingham Velsen Long Beach Charleston Amsterdam Stansted Rotterdam Cardiff Bristol Düsseldorf Shanghai Westbury GatwickFlushing Antwerp Exeter Lille Brussels Houston New Orleans Orlando, Sanford Le Havre Luxembourg Frankfurt Paris Miami Bahrain Dubai Taipei Stuttgart San Salvador Abu Dhabi Varadero Havana Nantes Jeddah Hong Kong Cancun Ho-Chi-Minh Geneva Puerto Plata Lyon Chambéry Odessa Veracruz Kingston Punta Cana La Romana Genoa Novorossiysk Bilbao Constanta Split ’ Dakar Manila Vigo Bastia Barbados Bangkok Pristina Cap Skirring Caracas Barcelona Aveiro Madrid Brindisi Thessaloniki Panama Mahón Lemnos Corfu Skiathos Valencia Palma Cagliari Lesbos Lagos Male Penang Alicante Gioia Tauro Preveza Araxos Abidjan Kefalonia Athens Izmir Port Harcourt Murcia Zante Almeria Catania Mykonos Samos Kuala Lumpur Faro Jerez Malaga Kalamata Bodrum Antalya Singapore Kos Monastir Santorini Dalaman Tetuan Malta Chania Rhodes Iraklion Funchal Guayaquil Paphos Larnaca Casablanca Djerba Banjarmasin Limassol Beirut Haifa Jakarta Marrakech Port Said Tel Aviv Agadir Arrecife Tenerife South Callao Lima Fuerteventura Taba Eilat Salvador de Bahia Las Palmas Sharm el Sheikh Hurghada Pôrto Seguro Luxor Marsa Alam Australia: Argentina: Fremantle Rio de Janeiro Buenos Aires Adelaide Santos Mar del Plata Melbourne Puerto Madryn Brisbane Chile: Puerto Deseado S-Africa: New Zealand: Valparaiso Ushuaia Cape Town Wellington

Rio Grande Dakar 2

Avion House in Kópavogur, Iceland Annual Report 2005

Contents 3

4 KEY FACTS & FIGURES

5 FINANCIAL OVERVIEW OF 2005

6 MAJOR DEVELOPMENTS IN 2005

8 STATEMENT FROM THE EXECUTIVE CHAIRMAN

10 CORPORATE GOVERNANCE

11 SHAREHOLDER INFORMATION

14 AVION GROUP – LEADERS IN TRANSPORTATION SOLUTIONS

16 AVIATION SERVICES

20 CHARTER & LEISURE

24 SHIPPING & LOGISTICS

27 FINANCIAL STATEMENTS 2005

70 REVIEW IN ICELANDIC - ÍSLENSKUR ÚTDRÁTTUR ��

�� other ��

Aviation Services Charter & Leisure Shipping & Logistics

Key Figures in 2005

10m 2005 2004

Equity ratio ...... 30.2% 12.1% Current ratio ...... 0.73 0.65 Return on equity ...... 17.0% 44.4% Working capital provided by operating activities . . . . . 71,535 18,852 EBIT ...... 61,352 881 EBIT / revenue ...... 4.4% 0.2% EBITDA ...... 115,194 24,368 EBITDA / revenue ...... 8.2% 4.9% Total block hours flown ...... 178,940 120,987 Number of passangers (thousands) ...... 6,174 2,965 Total ocean freight transported (tonn) ...... 992,800 -

2005 2004 1.1–31.10 1.1–31.12 Operating revenue Net sales ...... 1,379,537 479,211 Other income ...... 21,954 17,563 Total operating revenue 1,401,491 496,774

Operating expenses Aviation Services ...... (367,017) (444,894) Charter & Leisure ...... (783,329) (50,999) Shipping & Logistics ...... (189,793) 0 Total operating expenses (1,340,139) (495,893)

Operating profit ...... 61,352 881

Effects of associated companies ...... (203) 18,071 Financial income (expenses) ...... (1,965) (9,643) Net financial income (expenses) (2,168) 8,428

Profit before taxes ...... 59,184 9,309 Income tax ...... (16,517) 6,080

Net profit for the period ...... 42,667 15,389

All amounts in thousands of USD ��

�� other ��

Dividends Financial Overview of 2005 The Board of Directors will rec- ■ 182% growth in total operating revenues ommend at the Group’s Annual General Meeting in February 2006 ■ Pre-tax profits $59 million that no dividends be paid out for ■ EBITDA $115 million - EBIT $61 million the year 2005. Avion Group and its ■ Net income amounted to $43 million predecessor Air Atlanta Icelandic, ■ Total asset increase 219% to $1,519 million did not pay dividends for the years 2002, 2003 and 2004. Avion Group ■ Working capital from operating activities $72 million intends to pay dividends to its ■ Total equity at October 31 $461 million – equity ratio 30% shareholders in future. Decisions ■ Current ratio 0.73 regarding dividend payments and the amount of dividend to be paid ■ Total block hours flown 178,940 – increase by 48% is taken at the Annual General ■ Number of passangers increase 108% to 6.2 million Meeting (AGM) and will be based ■ 993 thousand tonnes ocean freight transported on the Company´s financial position at that time. Operating revenue amounted At year end the Group held cash to $1,401 million and increased available amounting to $150 mil- Listing by 182% compared to 2004. lion and has unused committed Trading in shares of Avion Group Operating expenses were credit lines in excess of $90 million. commenced on ICEX 20 January $1,340 million and increased by 2006. The listing of Avion Group 170% compared to last year. Cash flow, main figures was the largest new equity list- The Group’s pre-tax profit was $59 The Group’s working capital from ing ever on ICEX, as the compa- million for the year and increased operations was $72 milllion for the ny’s market cap on listing was by 536%. Net profit for the period period. Cash flow from operating ISK 69 billion. The total number amounted to $43 million for the activities was $1 million. Capital of shares in Avion Group Plc. is Group. expenditure amounted to $210 1,793,599,135. million compared with $103 mil- Balance sheet lion last year which represents Future prospects During the year, Avion Group’s more than a 100% increase. Avion Group's budget for next year balance sheet changed consider- The Group’s cash position is strong forecasts an improvement in the ably, mostly because of significant and amounted to $150 million at profitability in the operations of acqusitions. the end of the period. all three profit divisions (Aviation Services, Charter & Leisure and Total assets have increased from Shareholders Shipping & Logistics). $477 million since last year to Shareholders in Avion Group were $1,519 million and equity increased 20 at October 31 2005, compared Group operations are subject to from $67 million to $461 million to 11 at the beginning of the year. considerable seasonal fluctuation. during the year. The equity ratio Three shareholders owned more As a rule, profit is generated in the was 30% at the end of the period than 10% of total shares in the latter half of the financial year, and and return on equity was 17%. company at the end of the period. a loss can be expected in the first Earnings per share were $ 0.04 dur- half. ing the year. Current ratio is 0.73 but was 0.65 at year end 2004. Second fastest growing

Major developments in 2005

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�� Second fastest growing company in Europe

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�� Statement from the Executive Chairman

I am delighted to report net profit of USD42.67 million for our placed more strategic emphasis on first period of trading for the ten months ended 31 October 2005 the Group’s maintenance activi- and the successful listing of Avion Group on the Main List of the ties with the objective of servicing Iceland Stock Exchange (ICEX) on 20 January 2006. group requirements as well as being a strong third-party provider; Avion Group started trading on by the Group and 993 thousand 1 January 2005 and now employs tonnes of ocean freight was ■ Acquisition of Eimskip to trans- approximately 4,500 people at transported. Growth in passen- form the Group into a leading air 85 operational bases worldwide ger numbers and freight tonnes and sea transport solutions pro- through our three business divi- transported is expected to increase vider. This acquisition extends the sions: Aviation Services, Charter & significantly in the year ending 31 Group’s capability into transporta- Leisure and Shipping & Logistics. October 2006 as a result of a full tion services for frozen and chilled Our growth, which is the sec- year’s contribution from prior year commodities, coldstore services ond fastest amongst the top 500 acquisitions. in key locations and reefer for- European companies for job crea- warding services with worldwide tion is evidence of the tremendous Earnings before interest and distribution; talent, teamwork and effort from tax amounted to USD61 million our dedicated employees in the and net income for the period ■ Acquisition of Travel City Group. amounted to USD43 million. Holdings, which operates leading brand Travel City Direct, amongst Our ambition is to be the leading Earnings per share were USD0.04. others. Travel City is a British tour global provider of air, land and No dividend is payable in respect operator focusing on the US mar- sea transportation solutions and of 2005 but we intend to pay ket. This acquisition has provided although we are a young com- dividends to shareholders in the greater critical mass in the Charter pany, our foundations are from future. and Leisure division with improved companies that are long standing synergies and better aircraft utili- in Iceland and are strong in the Business Development sation through deployment of the international arena. In our quest Our strategy is to invest in and Group’s aircraft fleet; to reach our ambitions, we are build up profitable companies, focused on the careful analysis of driven by organic growth and ■ Acquisition of a 19% interest in companies in the transportation complementary acquisitions to charter airline Xtra Airways sector, their acquisition at the maximise shareholder value. Our (formerly Casino Express) to right price and integration into the progress was underpinned by the develop a partnership and Group to maximise synergies. It is following: improve aircraft fleet utilisation for our extensive knowledge of the charter projects within the USA; sector that has contributed to our ■ Avia Technical Services (ATS) success so far. was formed as the parent com- ■ Acquisition of a 70% interest in pany for the maintenance activi- Technical and Logistics Services to Financial Results ties of the Group. ATS acquired add maintenance management, In the ten months ended 31 Air Atlanta Aero Engineering in inventory management, training October 2005, total operating early 2005 and the ownership of and consultancy services capabili- revenue was USD1.4 billion. Aviaservices was also transferred ties to ATS. 6.2 million passengers were flown to ATS. This transformation has Avion Group started trading on 1 January 2005 and employs approximately 4,500 people at 85 operational bases worldwide 9

Fleet Renewal Future prospects Since the end of the period under Avion Group’s budget for the cur- review, Avion Group has embarked rent financial year is forecasting an upon an aggressive fleet renewal improvement in the profitability plan. This includes: in the Aviation Services, Charter & Leisure and Shipping & Logistics ■ The purchase of eight Boeing divisions. As reported in our finan- 777 Freighter aircraft to be oper- cial results announcement on 27 ated by Air Atlanta Icelandic, the January 2006, Group revenue is Group’s Aviation services division. forecast to increase from USD1.4 The new cargo planes are the billion to USD2.1 billion and earn- world’s largest and most capable ings before interest and tax is twin-engine freighters. The com- forecast to increase from USD61 bined Boeing list price of the eight million to USD102 million. B777 Freighters ordered is $2 billion. The first aircraft is scheduled Employees for delivery in February 2009; Our people are our most valuable asset. Their dedication and enthu- ■ The purchase of three Airbus siasm are second to none and I A300-600 passenger aircraft that would like to thank all our employ- will be converted into Freighters ees for a job well done. In recogni- by Elbe Flugzeugwerke GmbH, a tion of their hard work, all eligible subsidiary of EADS. employees have been gifted shares in Avion Group to a value Private Offering of ISK 50,000. The total number of Institutional investors submit- shares that were allocated to 3,051 ted non-binding subscriptions employees under this scheme in Avion Group’s offering on 22 amounted to 3.9 million. December 2005. Institutional investors subscribed for approximately ISK100 billion making the offering oversubscribed 16 times. As a result, the shares offered for sale was increased by ISK 4 billion to ISK 10 billion. Magnus Thorsteinsson Listing Chairman Trading in Avion Group shares commenced on ICEX on 20 January 2006. The listing of Avion Group was the largest new equity listing ever on ICEX, as the market capitalisation on listing was ISK69 billion. Corporate Governance

Avion Group in its efforts to strive for the highest standards of are followed and makes deci- corporate governance has adopted the following corporate sions regarding reports on the governance guidelines. In deriving these guidelines the Company Company’s credit, major under- has considered in particular the corporate governance guidelines takings, important guarantees, introduced by The Chamber of Commerce, the Confederation of finance, cash flow, special risk factors and other matters. Icelandic Employers and the Iceland Stock Exchange. ■ The Board determines how The Board of Directors Executive Chairman often the Management submits of the Company Mr. Magnus Thorsteinsson (1) interim accounts. The members of the Board are Directors elected at the Annual General Mr. Arngrimur Johannsson (2) ■ The Board is responsible for Meeting for shareholders in Mr. Eggert Magnusson (3) compliance with provisions of accordance with our Articles of Mr. Gunnar Bjorgvinsson (4) law and regulations in respect of Association and the Company Act Mr. Eamonn Mullaney (5) annual accounts and bookkeeping. no. 2/1995. The Board members will total no more than five and Responsibilities of the ■ The annual accounts for each no fewer than three. When a new Board of Directors year shall include a report from Board is elected, it determines The Board is responsible for the the Board, containing information whether an elected Director is business affairs of the Company on important factors which do “independent” as defined in the in accordance with Icelandic law not appear in the balance sheet or Guidelines. If the majority of and the Articles of Association by profit and loss account or the notes elected Directors is not independ- performing the following tasks: but that are nonetheless material in ent, the finding will be stated in assessing the Company’s financial the annual report, together with ■ The Board represents the status and performance during the an explanation. company externally, for instance in financial year. The Board is responsible for pro- courts of law and vis-a-vis govern- tecting the interests of all share- ment authorities Management Responsibilities holders, with due consideration The Chairman of the Company for all other stakeholders, and it ■ The Board hires the CEOs of appoints the members of performs a supervisory role. The the Company and decides his/her Executive Board. The main respon- Board oversees the Company’s salaries and benefits. sibility of the Executive Board is to affairs and shall see to it that the make strategic decisions in accord- Company’s organization and activ- ■ The Board monitors the work ance with the corporate vision and ities be at all times in correct and of the Management and has the mission; align strategy and plan- proper order. The Board, together power to dismiss Managers. ning and ensure that the Company with the Managers handles the and the operating subsidiaries management of the Company’s ■ The Board monitors the opera- have the appropriate resources business. The current Board of tions of the Company and shall to execute its strategy and plans; Directors consists of five people: acquire such information it deems ensure that the Company’s budget necessary to perform its tasks. and forecasts are properly pre- 4 2 1 3 5 pared and targets are met. and ■ The Board monitors that the generally manage and develop the operational and financial plans business within the overall budget. Shareholder Information

Quarter Period Published on ICEX 1Q 1 Nov–31 Jan 20–24 March 2Q 1 Nov–30 Apr 19–23 June 3Q 1 Nov–31 July 18–22 Sept 4Q 1 Nov–31 Oct 8–12 Jan ‘07 11

Currently Avion Group has 24,407 shareholders which is one of Key Management shareholding the largest shareholder groups of any company, listed on ICEX. At the end of January, together The number of shareholders has been significantly boosted by the Hafthor Hafsteinsson CEO and special dividend payment (in the form of Avion Group shares) that Hannes Hilmarsson COO and went to more than 22,000 Straumur – Burdaras shareholders as Magnus Stephensen VP, (all part of the key Management team), the Eimskip deal was completed. Also Avion is pleased to report controled in total 43,768 thousand that following a gift from the Board to all employees, that there shares owned by related parties. are now over 3,000 employee shareholders. Together Baldur Gudnason At the time of listing, Avion Group Avion Group now has one of the CEO and Steingrimur Petursson did not meet ICEX’s requirements largest shareholder groups of any VP, (also both part of the key on ownership distribution and company listed on ICEX. Management team), controled minimum number of shareholders. in total 50,788 thousand shares The Board of ICEX granted Avion Largest Shareholders owned by related parties. Group a temporary exemption Frontline Holding S.A. is fully from this requirement due to pro- owned by Avion’s Executive Together Philip Wyatt CEO and visions in an agreement between Chairman, Magnús Þorsteinsson. Steven Tomlinson COO (also part Straumur-Burðarás Investment Eamon Mullaney and Philip Wyatt of the key Management team), Bank and Avion Group. Straumur- each own 12% in Basalt holding controled in total 96,680 thousand Burðarás’ shares in Avion Group, which owns 61 million shares in shares owned by related parties. equivalent to the market value Avion Group. They also own shares of ISK five billion, was paid as in Fidecs trust which owns a Avion Group’s key management dividend to Straumur-Burðarás’s further 32 million shares. and financially related parties con- shareholders. troled in total 191,237 thousand shares in Avion Group or approx- mately 10% of total shares at the end of January.

Avion’s Ten Largest Shareholders – 31 October 2005 Avion’s Ten Largest Shareholders – 20 March 2006

Name No. of shares Share Name No. of shares Share Frontline Holding S.A. 622,725,097 40.98% Frontline Holding S.A. 622,725,097 34.72% Straumur Burðarás hf. 276,623,120 18.20% Landsbanki Luxembourg S.A. 189,901,129 10.59% Pilot Investors Ltd. 198,969,680 13.09% Pilot Investors Ltd. 187,324,139 10.44% Basalt Investment Ltd. 83,598,038 5.50% Straumur – Burðarás Fjárfesting 118,525,457 6.61% Arngrímur Jóhannsson 78,768,160 5.18% Philip Wyatt 60,798,573 3.39% Philip Wyatt 60,798,573 4.00% Íslandsbanki hf. 53,282,398 2.97% Craqueville Inc. 48,570,031 3.20% Arion safnreikningur 45,845,082 2.56% Fidecs Trust Company 38,711,249 2.55% Avion Group 43,440,294 2.42% Blue Sky Transport S.A. 32,592,937 2.14% Arngrímur Jóhannsson 35,000,000 1.95% Libra Holiday Group Ltd. 31,029,958 2.04% Landsbanki Íslands hf. aðalstöðvar 31.903.500,00 1.78% Ten largest shareholders 1,472,386,843 96,90% Ten largest shareholders 1,388,745,669 77.43% Total Shares 1,519,491,124 100,00% Total Shares 1,793,599,135 100.00% 12 Leaders in Transportation Solutions

13 Avion Group – Leaders in Transportation Solutions

Avion Group is a leading investment company, focused on global management and implementation air, land and sea transportation solutions worldwide. Avion Group of all transportation logistics and is currently formed of three business divisions: Aviation Services, door-to-door services. Eimskip’s Charter & Leisure, and Shipping & Logistics. Aviation Services main transportation services is represented by Air Atlanta Icelandic, Avia Technical Services, include ocean transport to and from Iceland, domestic transpor- Avion Aircraft Trading and SouthAir. Charter & Leisure is repre- tation within Iceland and freight sented by Excel Airways Group and Star Airlines. The Shipping & forwarding between foreign ports. Logistics division is represented by Eimskip. The services offered extend to inventory and distribution serv- Avion Group was founded January and enhance the value chain. ices, delivery, air freight, customs 1 2005 and the group consists of Avion Group uses the skills of its documentation, agency services, various long standing and inde- management team to improve customs warehousing, loading and pendent companies in the trans- the performance of its underly- landing of fishing vessels and pas- portation industry, each having a ing businesses through organic senger transport. different history and culture. and acquisition-led growth, and to implement corporate strategy Charter & Leisure Avion Group’s vision is to be a that maximises the shareholders’ The Charter and Leisure divi- leading investment company returns. sion is provided by Excel Airways focusing on air, land and sea trans- Group and the newly acquired Star portation solutions worldwide. Aviation Services Airlines. Excel Airways Group is Avion Group’s primary objective The main operation of Aviation divided into two operational divi- is to maximise total shareholder Services is provided by the Aircraft, sions, the Airline and Aviation divi- returns through financial strength Crew, Maintenance, Insurance sion and Tour Operating division. and management skills. (ACMI) or wetleasing operator Air Atlanta Icelandic and maintenance The Airline division of Excel Avion Group’s strategy is to invest and engineering operator Avia Airways Group consists of Excel in and build profitable compa- Technical Services (ATS). The newly Airways, Air Atlanta Europe and nies. Core to this strategy is the founded Avion Aircraft Trading Excel Aviation. The Tour operat- development of profitable ACMI, and the airport handling provider ing division consists of Travel leisure and charter operations, and SouthAir also are a part of Aviation City, Freedom Flights and Excel shipping and logistics activities Services. Holidays. by identifying investments that are complementary to the value Shipping & Logistics chain. As the subsidiaries in all The Eimskip group of companies three divisions become integrated form Avion´s operations focused and supported within the Group, on shipping, logistic and supply synergies are realised in areas such chain management. Eimskip has as joint purchasing, fuel and insur- developed from a shipping line ance as well as in functions such into a comprehensive transporta- as marketing, IT and finance. As tion and logistics solutions pro- each subsidiary develops within its vider with a specialisation in tem- division, further opportunities are perature-controlled food storage. identified to complement, extend The services provided include the ��

2,500,000 10.0 % �� Revenues[USD] 2,000,000 �� 7.5 % EBIT[%] �� 1,500,000 EBITDA[%] �� 5.0 % �� 1,000,000 �� 2.5 % 500,000 ��

� 2003 2004 2004/05 2005/06 ��

Avion Group – a world leader The size and scope of Avion Group, approximately seven million pas- Avion Group was ranked the operating approximately 60 air- sengers on an annual basis. second fastest growing business in craft and 30 vessels, plus the capa- the top 500 European companies bility of its personnel enable the Excel Airways, which forms part of in November 2005. “Europe 500“ company to successfully advance Avion Group’s Charter & Leisure is published by the Associaton for worldwide. division has leased two Next- Dynamic Entrepreneurs, formerly Generation Boeing 737-900ER known as GrowthPlus to research Currently Avion Group is a world (Extended Range) aircraft being and promote high growth compa- leader in Air & Ocean transpor- marketed by Boeing in 2007 nies. tation solutions; with over two and two Boeing 737-800s with billion US dollars in forcasted a delivery in the second quarter Magnús Þorsteinsson, Executive turnover annually. in 2007. In addition four Boeing Chairman on receiving the awards 737-800s will be added to Excel stated: “This is a great achieve- Current operating divisions include Airways’ fleet in the first six ment for Avion, highlighting the the following: A world leader in months of 2007. This is a part of drive evident in the Company’s ACMI aviation represented by the Group’s aircraft fleet renewal recent acquisition success in the Air Atlanta Icelandic, the world’s plan. run up to flotation on the Icelandic best charter airline two years in a Stock Exchange. European recog- row represented by Excel Airways Avion Group announced recently nition provides further motivation and a market leader in the North that it is in the final discussions to our staff and momentum to the Atlantic in temperature controlled on establishing an aircraft operat- Group’s goal of world class excel- transports represented by Eimskip. ing certificate in Germany. This lence.” will strengthen the Charter & Remarkably fast growth Leisure division of Avion Group Avion Group’s vision is to be a – Subsequent events outside the UK. Process is due leading investment company Avion Group recently purchased to be finalised by end of March. focusing on air, land and sea trans- the French charter airline Star The Charter & Leisure division’s portation solutions worldwide. Airlines, the second largest charter oper ations involve charter flights, Avion Group’s primary objective airline in the French market. Star seat provision and general travel is to maximise total shareholder Airline will be a part of the Charter services. Operating an AOC in returns through financial strength & Leisure division of Avion Group Germany will provide greater criti- and management skills. and will strengthen the division. cal mass with improved synergies Star Airlines operates charter and more diversified utilization Avion Group is one of the largest flights mainly to destinations in of the Group’s aircraft fleet. Two companies in Iceland and the Africa, The Middle East, and the Airbus 320 aircraft are planned to fourth biggest company in the Mediterranean. Star Airlines also be in operation in the region in Icelandic Stock Exchange. operates scheduled flights, in Summer 2006, with plans for addi- Operating in 85 locations around addition to charter services to the tional aircraft over time. Planned the world in six continents, Avion Lebanon, Mali and Mexico. destin ations will be Eastern and Group has a global reach. It has Southern Europe and the Middle 4,500 employees, whose exper- Star Airlines carried approximately East. tise and experience is among the 900,000 passengers in 2005. On company’s most valuable assets. completion of this acquisition Avion Group is expected to carry Aviation Services

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The main operation of Aviation Services is provided by the Aircraft, trained pilots and cabin personnel Crew, Maintenance, Insurance (ACMI) or wet leasing operator Air who usually dress in the custom- Atlanta Icelandic and maintenance and engineering operator Avia er’s uniforms. Air Atlanta Icelandic Technical Services (ATS). The newly founded Avion Aircraft Trading has access to a pool of talented, and the airport handling provider SouthAir are also a part of Aviation experienced, non-union airline crews and pilots, many of whom Services. have worked on a project basis for Air Atlanta Icelandic for a number ACMI cessful in developing long-term of years. Air Atlanta Icelandic provides relationships with its customers reliable, fast and comprehensive and many have chosen to renew Maintenance. Wet leasing of aircraft ACMI services to the air passenger their contracts year after year. requires an in-depth understand- and cargo markets in Europe, Major cargo customers include, ing of the maintenance needs of Africa, Asia and the Middle East. Air among others: Malaysian Cargo, different aircraft and their opera- Atlanta Icelandic operates a fleet Lufthansa Cargo, Cathay Pacific, tions scheduling. Internal planning, of 42 aircraft comprising 22 cargo Cargolux, Etihad, Air Hong Kong, operating know-how and experi- and 20 passenger aircraft. The fleet Channel Express and Air France. ence are critical to streamlining consists of 36 Boeing aircraft and Major passenger customers maintenance operations. There are 6 Airbuses that are available on a include Iberia, Cubana, Channel different levels of maintenance, and lease basis. Express, Excel Airways, Avijet and operators must decide which types Blueline. Typically Air Atlanta of maintenance will be performed Air Atlanta Icelandic has approxi- Icelandic supplies ACMI services. in-house and which types will be mately 1,500 employees and outsourced. contractors at peak times. Flight Aircraft. Air Atlanta Icelandic has deck and cabin crew form the obtained its fleet of aircraft either Insurance. The ability to provide largest group of employees, by purchase, finance lease with an insurance at attractive rates is a with engineers and operations option to buy, or operating lease. function of the ACMI operators’ experts making up the majority Air Atlanta Icelandic’s ability to safety record. Air Atlanta Icelandic of ground staff. Administration obtain aircraft at favourable rates procures its insurance from Lloyd’s is kept as efficient as possible is a competitive advantage. For of London and is able to obtain at headquarters in Iceland. Air years, Air Atlanta Icelandic has favourable rates due to its safety Atlanta Icelandic has developed a obtained aircraft in the secondary record and long-term relationships core of experienced people who market and therefore possesses a with insurers. Air Atlanta Icelandic can act flexibly and quickly set working knowledge of this market, provides its customers with all up an operation at short notice the key players and the pricing elements of insurance, except the anywhere in the world. Air Atlanta structures. largest insurance component, pas- Icelandic’s employees are required senger liability, which is normally to work within the airline cus- Crew. It is important for ACMI the responsibility of the customer. tomer’s working environment operators to provide a quality, Air Atlanta Icelandic typically offers and national culture, adapting behind-the-scenes service that clients a bundled service at a flat procedures and techniques to the does not diminish the consumers´ rate based on block hours flown customer’s needs. perception of the customer’s (the hours that elapse from the brand. Air Atlanta Icelandic pro- moment the chocks are removed Air Atlanta Icelandic has been suc- vides flight crews that include from the wheels of the aircraft ��

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Air Atlanta Icelandic – Aircraft fleet

Type Passenger Cargo Boeing 737-300 – 4 Boeing 737-400 6 – Boeing 747-200 2 13 Boeing 747-300 6 – �� Boeing 747-400 3 – Boeing 767-300 2 – Airbus 300-600 – 4 Airbus 310-300 1 1 Total 20 22 17

until they are next returned to the Yearly assignments for a limited reduce fixed operating costs and wheels) or on a flat monthly fee. time. Many customers are in need capital expenditure and increase Air Atlanta Icelandic believes its of ACMI services during specific flexibility. value-added is derived from its periods every year. Accordingly, ability to deliver all elements of a ACMI operators provide repeat Competitive position contract in a reliable and cost- service for certain customers year The ACMI market can be divided effective manner. Aircraft can be after year. into four segments based on painted in any livery, crews can aircraft size (wide-body vs. narrow operate in any uniform and cabins Unusual circumstances. An airline body) and aircraft load (passenger can be configured to anything may have a few routes that do and cargo). from full economy to completely not fit well with its aircraft fleet. first class. Instead of acquiring suitable ACMI contracts for passenger aircraft with trained crews and full flights can be separated into three ACMI services continue to gain maintenance services, the airline key categories: acceptance as air carriers seek may find it more economical to to outsource a portion of their outsource the operation of these 1. Scheduled Airlines. As defined operations in order to control high flights. by Air Atlanta Icelandic, a long- cost structures, add operational term assignment with a scheduled flexibility, and focus resources on New routes. When experimenting airline customer can either be a their core competencies of sales with a new route, an airline may contract for continuous opera- and marketing. The total size of find it feasible to start by outsourc- tion over a period longer than six the ACMI market is not easily ing the aircraft operations, thus months or a contract for a short- quantified, since market data are allowing the airline to minimise its term service to be performed not officially available. Also, there investment until the new route has annually over a number of years. is a grey area between a pure ‘dry proven profitable. In general, long-term contracts are lease’ (i.e., leasing only the aircraft) obtained as a result of one or more and a pure ‘wet lease’ that can be Ad-hoc assignments. When an successful short-term contracts. difficult to categorise. However, airline has an aircraft out of service certain characteristics within the and does not have a replacement 2. Hajj. The Hajj market is stable. ACMI market make it economically aircraft available, ACMI provides a The infrastructure in Saudi Arabia logical for scheduled and charter flexible, short-term solution. limits the number of pilgrims that airlines and tour operators to use Saudi Arabia can accept and there- ACMI services. Some of the main Economics and flexibility. Many fore, the Saudi government places drivers for increased utilisation of major airlines have changed their a quota on how many pilgrims ACMI services are outlined below: priorities in response to their need each Muslim country can send for flexibility and for a clear focus to Mecca. Currently, the demand Peak demand. The scheduled on core competencies. Airlines are for ACMI services to operate Hajj airline industry is highly seasonal. increasingly defining their core flights is high. As pressure for financial efficiency competencies as being sales and increases, the outsourcing of capac- marketing, resulting in recourse 3. Charter. Some of the leading ity in peak seasons becomes more to more outsourced services. High tour operators currently own their feasible. During peak demand, air- fixed costs make it more difficult own airline. These captive lines and tour operators often need for airlines to react to market fluc- extra capacity for a limited time. tuations. ACMI enables airlines to airlines generally only serve their brand name and suitable aircraft ers, especially the 747 and 777 parent company. ACMI represents enable ACMI operators to sell at a models, for efficiency and range. an attractive alternative for tour higher margin that can make the The share of wide body freighters operators that do not possess their difference in a cost driven market. is expected to increase to 64% of own capacity and cannot meet Air Atlanta Icelandic has estab- the world freighter fleet, compared growing demand. lished a strong presence in its core to 47% currently. About 60% of the market segment, which translates freighters that will be added to the The cargo ACMI customer base into brand recognition among its fleet will be wide-body aircraft. is similar to the passenger ACMI customers. Air Atlanta Icelandic customer base; however, the cargo has relatively easy access to quality Maintenance and Engineering 18 ACMI market typically includes aircraft, and has good relations Services longer-term contracts relative with many of the leading air leas- Avia Technical Services is a mainte- to passenger ACMI. Cargo ACMI ing companies. Its solid reputa- nance, repair and overhaul company customers are primarily sched- tion for supplying quality services that performs maintenance services uled airlines. The cargo business is built on extensive experience on Avion Group’s aircraft and third- volume peaks in opposite quarters acquired throughout many years party aircraft. ATS is composed of to the passenger business volume in the airline industry. three strategic business units in the (i.e. the second and fourth quarters UK and Ireland that offer a unique for cargo, as opposed to first and Market outlook blend of services. Its divisions are: third quarters for passengers). In recent years, passenger and component repair and overhaul, cargo traffic have been showing airframe maintenance and value Air Atlanta Icelandic is one of the improving trends both in volume added services such as technical world’s largest ACMI companies, and in profitability. The year 2004 records and planning, purchasing, considering its number of aircraft. marked a period of recovery for spares trading and warehousing The size of the ACMI market is the industry with a clear firming and logistics. ATS has approximately unknow, whereas many of the of operating lease rentals, despite 300 employees. ACMI airline are operating under the fact that fuel prices remained the customer flight number and a significant drag on airline profits. The airframe maintenance divi- therefore not discernible. Boeing Over the long term, the bulk of air sion of ATS is provided by Air estimates the size of the ACMI traffic growth will be a function of Atlanta Aero Engineering, based market to be approximately 8% of economic growth. at Shannon Airport, Ireland. It the total cargo market. provides a comprehensive range Since 1990, traffic carried by ACMI of heavy maintenance to Avion A few players dominate the ACMI wide-bodied carriers has grown by Group and third parties. Air Atlanta market for wide-body aircraft. Atlas 18% per annum and ACMI carri- Aero Engineering is approved by Air, Corsair, Evergreen, Airstream ers will continue to be required the Federal Aviation Administration and World Airways are Air Atlanta to assist traditional carriers in (FAA) and the European Aviation Icelandic’s main competitors. meeting overall demand for cargo Safety Agency (EASA) to perform C and passenger aircraft. According and D checks on B737, B757, B767, The complementary seasonal pat- to forecasts by Boeing and Airbus, and B727 aircraft. tern of cargo and passenger air world passenger traffic will more transportation provides a further than double over the next 20 The component repair and over- competitive advantage to Air years, with estimated annual pas- haul division of ATS is provided Atlanta Icelandic. By operating both senger growth up by 4.8%. by Aviaservices, located at Kent cargo and passenger aircraft, Air International Airport in Manston. Atlanta Icelandic can use its man- The Boeing Company also fore- Its facility is strategically located power more effectively through the casts that the global air cargo in close proximity to the major transfer of personnel from passen- market will triple over the next two London airports and to the cross- ger to cargo aircraft (and vice versa) decades, based on current esti- channel ports. Technical and during seasonal lows. mates of a 6.2% annual increase Logistics Services is a part of ATS’s New entrants to the wide-body measured in freight tonnes. For value-added division. It offers a market are few except for sched- the last 10 years, the increase in air range of complementary technical uled airlines attempting to tempo- cargo traffic has been 6.1% annu- and logistics management services rarily utilise excess capacity. Due ally and currently shows significant to the aviation industry, providing to cost sensitivity, ACMI operators strength through a flurry of new its customers with cost-effective need to be cost efficient in order to freighter orders. Carriers are look- and efficient solutions. succeed. Good reputation, strong ing increasingly to large freight- Air Atlanta Icelandic is the world’s largest ACMI service provider

19 Charter & Leisure

The Charter & Leisure division is provided by Excel Airways investment in marketing and sup- Group. It is divided into two operational divisions, the Airline port is being provided to ensure and Aviation division and Tour Operating division. Excel further growth in market share in Airways Group is registered and headquartered in the UK with the UK and against other holiday and travel providers. Up to 30,000 approximately 1,600 employees in its operations. customers visit XL.com daily.

The Airline division consists of Excel Freedom Flights is a “seat only” Competitive position Airways, Air Atlanta Europe and operator selling seats on char- Excel Airways has a larger aircraft Excel Aviation. The Tour operat- ter aircraft, generally through fleet than its direct competitors, ing division consists of Travel City, UK travel agents. It is the largest Astraeus and Monarch, with 26 Freedom Flights and Excel Holidays. charter seat broker in the UK and aircraft flying 42 routes during the Air Atlanta Europe and Travel City the majority of its seats sold are on Summer 2005 season compared to are in the process of being merged Excel Airways. 21 aircraft flying for Monarch to 58 into Excel Airways Group. destinations and 11 aircraft flying The tour operating division of to 60 destinations for Astraeus. Excel Airways is a leading UK char- Excel Airways Group comprises ter airline providing services to four brands, Travel City Direct, The internet has made pricing 47 charter destinations in Europe, Excel Holidays, XL.com and Aspire more transparent, encouraging the Middle East, Asia and North Holidays. the customer to shop around for America from 12 airports in the UK. the best deals. Travel purchasing Excel Airways currently operates Travel City Direct is the UK’s larg- online is driven by convenience a core fleet of 8 Boeing 737–800s, est independent direct booking and price. Excel Airways Group 3 Boeing 767-300s, 2 Boeing Florida specialist offering Boeing is positioned to benefit from this 767-200s and 4 Boeing 757-200s 747 charter flights to Sanford, trend in online bookings through with additional aircraft leased on Florida from the UK. In 2005 over XL.com and Excel Holidays. an ACMI basis during the peak 200,000 UK travellers travelled summer months to meet seasonal with Travel City Direct mainly to Brand awareness is a key differenti- demand. In summer 2005, the fleet Florida, but also to destinations ator for success in the online travel increased to 26 aircraft. in the Mediterranean and Canary market. Excel Airways has raised Islands. Aspire Holidays offers brand awareness by promoting Capacity is utilised through Excel tailor-made holidays to the most XL.com as a new entrant into the Aviation and Freedom Flights as stylish locations across the globe. online travel market. well as through Excel’s website XL.com direct to consumers. XL.com was launched in January Mergers and acquisitions in the 2005 and sells seats and holidays travel sector have recently been Excel Aviation provides seat capac- on Excel and other airlines. The concentrated in the online sector, ity, in bulk, to independent tour site is designed for simplicity driven by a need to build brand and operators (ITOs) and long-standing for customers to view and book scale rapidly. Corporate activity is broking clients, including some flights and holidays online. XL.com being driven by the market need of the largest holiday companies has established itself strongly in for self-packaging holidays and in the UK. Approximately three the marketplace behind longer the move away from integrated million passengers will have flown established competitors such operators, reinforcing Excel Airways’ with Excel Airways during 2005. as Monarch Airlines. Continued online and seat business model. The world’s best charter airline two years in a row

Currently, Excel Airways Group fleet reductions, and some have passed by some ”no frills” airlines together with Travel City consti- become insolvent. One of the con- that direct bookings to their own tute the 8th largest bonded travel sequences of these reductions was web sites, thus cutting out com- provider in the UK and the 10th an increased availability of take-off mission to intermediaries. On-line largest charter airline in the world. and landing slots, cheaper aircraft purchases continue to grow signif- Excel Airways was voted the best leasing costs and a larger pool of icantly compared with those made charter airline in the UK and the pilots and ground crew. through traditional travel agents. best charter airline in the world in These new distribution channels both 2004 and 2005. Generally, tour operators produce are expected to grow significantly package holidays distributed in the future in line with increas- Leisure and Charter industry through their own and other ing discretionary spending power Airlines operating in the UK pas- travel agencies on various sales and the demographic growth of senger market fall into the follow- commission deals. The creation computer-literate consumers. ing broad categories: of any package holiday involves the constraints of long-term Avion Group’s charter and leisure ■ Charter airlines hotel capacity contracts, overseas services provide chartered airline ■ No frills scheduled airlines representatives and tour staff. and seat broking services. The ■ Full-service scheduled airlines Excel’s management believes that charter services are highly flex- consumers are demanding increas- ible in terms of capacity 2004 saw Excel Airways Group believes that ing flexibility and often wish to only 36% seat supply provided by growth in the travel sector reflects purchase traditional components own aircraft with the remaining a general trend towards greater separately rather than as part of 64% provided via seasonal lease. emphasis on and participation in a more restrictive package holi- The bulk of the capacity is sold via leisure pursuits and a correspond- day. Today’s leisure travellers are the Group’s extensive distribu- ing demand for cost-effective becoming increasingly less reliant tion network taking maximum access to discretionary travel to on the provision of a total holiday potential benefit from the advance facilitate this trend. package. Mass travel means that of the new distribution channels consumers now feel comfortable described above. Both UK-related and global air about by-passing the middleman, travel have expanded over the buying flights from one company Market outlook past 20 years, driven by economic and hotels from another or even Leisure airline travel is closely growth, falling real prices of air directly from the hotel itself. linked to economic conditions travel and an increase in both and in particular, personal dis- international business activity and Another development is the posable income. Growth in the leisure time. An exception to this Internet. Passengers can compare UK outbound leisure market has trend occurred in 1991, when fears prices and availability and shop continued since 11 September of incidents related to the Gulf War around far more easily, thanks to 2001. Overseas holidays increased led to a temporary downturn in easier access to travel informa- from 36.7 million to 43.4 million activity across the world. Following tion and the availability of on-line between 2000 and 2004, a com- the terrorist attacks in September booking. Excel Airways Group pound annual growth rate (CAGR) 2001, a number of airlines management considers that this, announced new plans or acceler- potentially, puts much more pres- ated existing plans for business sure on retail travel agents in the cutbacks, route withdrawals and UK. Travel agencies are being by- Excel Airways is a leading UK charter airline providing services to approximately 50 charter destinations in Europe, Middle East, Asia and North America from 12 airports in the UK.

Excel Airways Group – Aircraft fleet

Type Passenger Boeing 737-800 8 Boeing 767-300 3 Boeing 767-200 2 Boeing 757-200 4 Total no. of aircraft 17 22

of 4.3%. According to Mintel, this The “seats only” market is Northern European cities also have is expected to increase further expected to grow as the trend for a substantial “charter” segment from 43.4 million to 56.8 million self-packaging continues, mov- flying to Mediterranean resorts. between 2004 and 2009, with a ing away from traditional package However, in recent years competi- CAGR of 5.5%. holidays provided by the inte- tion has intensified between tradi- grated operators. tional charter airlines and low cost The growth in “no-frill” carriers that One of the drivers of growth in carriers that have launched many largely compete with traditional overseas holidays is the availabil- routes to popular holiday destina- flag carriers has stimulated overall ity of new destinations within the tions. The major tour companies market demand by offering new short/medium-haul sector. Excel have reacted by offering some travel options. While this trend is operating to some new destina- scheduled capacity themselves, has limited growth in the leisure tions that are growing and this either setting up their own low- charter sector, passenger numbers offers additional opportunities for cost airlines or operating regularly carried by charter operators have the future. timed flights themselves. been maintained. The impact of this limitation on growth has been The market within Europe is Much of this increased choice has felt primarily in traditional short- increasingly seeing segmentation been linked to Internet usage for haul destinations. However, Excel’s of route networks, such as the split price comparison and flight book- focus on medium-haul destina- of business and leisure routes as ing. Low-cost airlines typically are tions such as Greece and Turkey well as routes that feed main city receiving over 85% of their book- has limited its exposure. hubs versus routes that by-pass ings online, and many of their pas- them. For example, regional jet sengers to leisure destinations are Overseas holiday market growth routes continue to be launched, also booking accommodation and has also been driven by an linking medium-sized business car hire over the Internet, instead increase in international flights markets, with low-cost airlines of a full package via a travel agent. from regional airports. Excel has concentrating either on high fre- benefited from this trend and has quency, large volume markets or Increased competition has extended its operations so that lower frequency leisure routes. The undoubtedly boosted demand, it serves seven of the top ten UK mainline fleets of network carriers both through lower fares as well as regional airports. Excel’s strat- are increasingly being concen- increased opportunity for travel. egy is to drive growth by adding trated on linking their major hubs, new departure points at key UK hence offering routes into their regional airports. long-haul networks. ��

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23 Shipping & Logistics

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Eimskip

Container vessels 10 Bulk carriers 4 LCL/multi-purpose vessels 10 Reefer vessels 7 Total 31 24

The Eimskip group of companies form Avion´s operations that Eimskip Domestic are focused on shipping, logistic and supply chain management. Eimskip Domestic provides mainly Eimskip has developed from a shipping line into a comprehensive domestic supply chain manage- transportation and logistics solutions provider with a specialisa- ment solution and is responsible for goods distribution and inven- tion in temperature-controlled food storage. The services pro- tory management in Iceland. vided include the management and implementation of all trans- Scheduled trucking services, portation logistics and door-to-door services. Eimskip’s container trucking network, the Warehouse centre and Eimskip’s main transportation Eimskip Shipping and Logistics many service points throughout services include ocean transport Eimskip Shipping and Logistics Iceland now form one integrated to and from Iceland, domestic handles large cargo transporta- overland transportation system transportation within Iceland tion, Eimskip’s scheduled sailings offering importers and exporters, and freight forwarding between for Iceland's national imports and individuals and corporate custom- foreign ports. The services offered exports and logistics services. The ers, daily scheduled and depend- extend to inventory and distribu- cargo shipping transportation forms able distribution services in all tion services, delivery, air freight, the basis of Eimskip’s activities and areas of Iceland. Eimskip Domestic customs documentation, agency offers all required services to import- specialises in refrigerated and services, customs warehousing, ers and exporters. Utilising both its frozen transport for seafood and loading and landing of fishing ves- proprietary transportation network other food producers in Iceland. sels and passenger transport. and networks of associated partners, This supply chain management Eimskip offers varied cost-efficient system means that Eimskip is the Eimskip’s service network consists shipping solutions that are tailored largest logistics service provider of 55 offices in Europe, North and to the needs of both individual and in Iceland. Following on from this South America and Asia, approxi- corporate clients. strong position in the domestic mately 30 cargo vessels and 15 transportation market Eimskip cold-storage facilities in Europe, Although Eimskip’s principal has also successfully developed North America and Asia, in addi- emphasis has traditionally been a similar supply chain manage- tion to a range of subsidiaries and on scheduled services to and from ment system solution in the Faroe partners. Eimskip employs approxi- Iceland, Eimskip is also active in Islands. mately 1,300 people. other areas. Eimskip is the leader in scheduled vessel services, with Eimskip offers total services to The Eimskip fleet is capable of a market share of around 60% of importers and exporters, utilising transporting over 108,000 tonnes transported tonnes of sea freight both its proprietary transportation of freight, together with 170 trucks to and from Iceland. The stra- as well as those of associated and for land-based deliveries. Reefer tegic bias has been to maintain partner companies. Eimskip is the (refrigerated) containers are a this strong position in scheduled leading transportation services pre-requisite for the cold stor- transport, while at the same time provider for scheduled groupage age facilities and are transported substantially increasing large services, part-load and full-truck- on specially adapted and built cargo transport, overland trans- load transportation in Iceland. refrigerated container ships. The port, warehousing, air freight, Eimskip’s domestic transport majority of vessels in the fleet han- landing services for trawlers and network transports over 800,000 dle bulk and palletised cargo. as fishing vessels and general freight tonnes per year in and around demonstrated in the table above. forwarding abroad. Iceland. Eimskip is well positioned to exploit the strong trade volumes in its home markets of the North Atlantic

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The Warehouse centre is a logis- warehousing and inventory con- Developments in 2005 tical distribution centre that trol, distribution, IT solutions and As mentioned earlier, the expan- provides a wide range of services various other value-added services. sion of Eimskip´s international to customers, including receiv- This enables customers to increase activities has been rapid over the ing, storing, delivery registration, the cost-efficiency and flexibility of recent past. The most noteworthy and distribution of goods. Stocks their own operations while leaving highlights are detailed below: can be stored in either customs- them free to concentrate on their cleared areas, bonded areas or as core activities. ■ Eimskip–CTG in Norway a Free Zone area. The Warehouse received a new reefer vessel, centre can store up to 25,000 pal- Eimskip has been very active in Svartfoss, in November 2005, lets and has over 20,000 storage building up its reefer services to which was the first construction shelves for smaller quantities of develop a strong system on a reefer vessel this size (2,500 gross goods. worldwide scale. Many of Eimskip´s tonnes) constructed in the world customers in the seafood sector since 1990. Three additional reefer Eimskip International based around the North Atlantic vessels are being built currently Eimskip International provides have expanded their operations. and these new reefer vessels will international transportation and Fishing takes place in distant add substantially to Eimskip–CTG’s cold storage services (mainly sup- waters and fish processing has capacity. The first of these three porting the seafood sector), as well partly been transferred to low-cost vessels will be joining the fleet in as supporting Eimskip’s scheduled areas whereas seafood trading is August 2006 and the other two in shipping services. International now truly international. Following 2007. Currently Eimskip-CTG has transportation is the leading growth these developments, Eimskip a market share of around 15% in area in Eimskip’s operations and provides its clients with a compre- reefer logistics in Norway. in-line with the growth strategy, hensive international transporta- these international activities have tion and logistics services solution ■ Eimskip Reefer Logistics BV. undergone recent expansion via the in the most active areas, including (ERL) was established in August acquisition of foreign companies the Far East. These services are 2004. ERL is the umbrella for the and the strategic establishment of provided by a network of offices international reefer services and offices globally. and coldstores in various parts of is responsible for coordination the world and are co-ordinated between the various offices offer- Logistics are a vital part of the by Eimskip’s subsidiary, Eimskip ing these reefer services. international network, including Reefer Logistics BV., in Rotterdam. forwarding and warehouse man- ■ Eimskip China in Qingdao was agement services. The objective is Eimskip’s aim is to be the leading established in November 2004. to provide customers with services player in transportation services Eimskip China is a marketing and that encompass as much of the for frozen and chilled commodi- operations office mainly engaged value chain as possible and that ties with the best transportation assist in managing product flow systems solution in the North from origin to delivery. Eimskip’s Atlantic, both in containers and services are integrated so as to reefer vessels. The development of offer a “one-stop” transportation cold-storage services and facilities solutions facility, including air is therefore an important compo- freight, ocean transport, courier nent in achieving this aim. services, customs documentation, ��

500,000 15 % Revenues[USD] 400,000 12 % EBIT[%] 300,000 9 % EBITDA[%]

200,000 6 %

100,000 3 %

0 0 % 2003 2004 2004/05 2005/06

in receiving and shipping tempera- Competitive position seafood products worldwide. The ture-controlled cargo. As such it Eimskip is well positioned to estimated volume for Eimskip is a very important link in the ERL exploit the strong trade volumes Reefer Logistics in 2006 is 35.000 network. in its home markets of the North TEU outside Eimskip's liner sys- Atlantic. Eimskip now transports tem. Eimskip is also a 49% owner ■ Acquisition of Faroe Ship AS in close to two million tonnes world- in the Canadian shipping com- November in 2004. Faroe Ship AS wide, of which 1.4 million tonnes pany Halship. Halship operates is the leading shipping company is within Europe. Eimskip is also one 518 TEU vessel, which sails in the Faroe Islands and various actively participating in the strong between Halifax and Boston as operational synergies expected trade between China, the Far East well as between Newfoundland 26 from this acquisition. Work here and Europe through its NVOCC and Boston. This ownership allows has already begun with the coor- (Non Vessel Operating Common Eimskip to offer weekly sailings dination of the sailing schedules Carrier) and forwarding services. between Canada and the US, and the integration of the offices Eimskip moves 245 thousand whereas sailings were previously in Denmark. tonnes between Europe and Asia on a fortnightly basis. Eimskip's and continued fast growth is operation in Norway will be ■ The purchase rights of all expected in this area. The various merged under the name Eimskip- shares in the land transportation value-added services provided by CTG in beginning of 2006. Eimskip- company P/F Heri Thomsen in the Eimskip will help to enhance the CTG has 12–14 refeer vessels Faroe Islands. revenue generated from its freight sailing in the North Atlantic and services. between the Baltic Sea. Eimskip ■ Eimskip purchased 49% of owns 50% share in Euro Container the share capital of Halship Inc in Eimskip has approximately 60% Line which operates 3 container Canada, July 2005. Eimskip has market share in liner import/ vessels between west coast of the option to acquire 2% of the export to and from Iceland and Norway and Germany. share capital. The option expires the Faroe Islands, but Eimskip took on 30 June 2006. Halship runs a the leading position in the Faroe Globally Eimskip provides world container feeder service between Islands market through a merger wide door-to-door transportation Canada and the US, which con- with Faroe Ship and acquisition of services of containerised and LCL nects with the regular Eimskip Heri Thomsen. The exported goods (less than container load). services and creates other oppor- are mainly frozen, salted and fresh Eimskip has a 30% market share of tunities for growth in the area. fish along with aluminium. The all domestic transportation, logis- main competitors in importing and tics and deliveries requirements. ■ Eimskip Seattle was established exporting to and from Iceland are Many small players compete in March 2005. This office is strate- Samskip and Atlantsskip. in the domestic transportation gically located on the Pacific coast, market but the major players are in order to serve the important Newfoundland, Canada, Eimskip and Samskip. The same seafood sector in the Seattle and Greenland and northern Norway applies to the warehousing, but Alaska area. are also a part of the North Atlantic there are fewer direct competitors. market. While there are many Domestic transportation moves ■ Eimskip Spain was established players competing for a market 800 thousand tonnes annually. in September 2005 with an office share and the exact market size is Warehousing handles 1.2 million located in Vigo, which is the main unidentifed, it is clear that with its pallets. The total size of these fishing port in Spain and one of strong integral production system markets is not fully known but the main trading points for sea- and well suitable own vessels Eimskip’s market share is esti- food in Europe. along with 90 years of experience mated at approximately 30%. and the capacity to expand with Eimskip is planning to set up addi- its customers into other areas In reefer logistics, Eimskip has few tional office in Dalian, China. Also of transportation and logistics, competitors because of the high an office in St. Petersburg, Russia, Eimskip has a market leading posi- tech vessels and storage needed is in preparation and a feasibility tion in the North Atlantic market. for a holistic network. Major players study is underway for building a besides Eimskip are Mærsk and coldstore in St. Petersburg. Further Eimskip's production system in other deep sea lines. Growth in that activities and projects are also the North Atlantic market consists market is expected to remain high. under evaluation in Seattle and i.e. of Eimskip Refeer Logistics Alaska. Bv that offers freight-forwarding services for frozen and chilled Financial Statements 1 January to 31 October 2005 Endorsement by the Board of Directors and the CEOs’

The consolidated financial statements are prepared and presented in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. The financial statements are stated in thousands of US Dollar’s and include the consolidated financial statements of Avion Group hf. and its subsidiaries (the “Group”).

Avion Group hf. is an international transportation solutions Group. The Group provides services in most transportation solutions. The Avion Group hf. consists of 6 subsidiaries, Excel Airways Group, Travel City Holding, Air Atlanta Icelandic, Eimskipafelag Islands, Avia Technical Services and Avion Aircraft Trading. With new subsidiaries joining the Group in 2005, services provided by the Group expanded to shipping and logistics operation and tour operation.

The Company has moved forward to its objectives of being a leading and innovative force in the transportation industry. To be a Global Transportation Partner, offering efficient and flexible solutions with reliable transport operations as the cornerstone, to pursue steady growth through well managed organic growth and a proactive external business acquisitions and to become an attractive investment option, recognized for excellent value creation. 28 In September 2005 Avion Group hf, through its subsidiary Avion Aircraft Trading hf, became the second launch customer with Boeing of the B777 Freighter program by signing and confirming the order of 4 B777-200 Freighters, for delivery in 2009. Agreement for additonal 4 aircraft was signed early in November and confirmed in December. In addition 3 Airbus A300-600 have been bought and freigther conversion slots in 2006 - 2007 already confirmed. Total commitment due to these agreements is in excess of USD 1,200 million. In addition Excel Airways Group has signed a lease agreement for 6 new Boeing 737-800, 2 for delivery spring 2006 and 4 for spring 2007.

In 2005 Avion Group hf purchased all outstanding shares in Eimskipafelag Islands ehf. The Group will as a result of this purchase provide air, sea and land transport solutions for its customers requiring logistical product support worldwide. The subsidiary is included in the consolidation from 1 June.

In June 2005 the Group acquired all outstanding shares of Travel City Holding Plc. The company was formed in May 1995 and operates leading brands: Travel City Direct, Transatlantic Vacations and Carshop. Travel City Direct is a tour operator selling direct to the public through its two call centres in Blackpool and Swansea. Its head office is based in Gatwick. The subsidiary is included in the consolidation from 1 July.

In 2005 the Group acquired additional 28.4% of outstanding share capital in Excel Airways Group and currently owns 99,9% of the share capital.

In December 2005 Avion Group hf. sold 261,096,605 new shares to institutional investors at a share price of ISK 38.3 with a total sales price of approximetly USD 160 million.

Avion Group hf., was listed on the Iceland Stock Exchange (ICEX) main list on 20 January 2006. The total number of Avion Group shares issued is 1,793,599,135 which is the largest new listing by capitalisation on ICEX ever. The share price at the end of the day was 45.5.

The Board of Directors does not propose a payment of dividend to shareholders in 2006. As regards changes in net equity the Board refers to the Notes attached to the financial statements. Net profit for the period amounted to USD 42.7 million for the Group, according to the income statement. Total equity amounted to USD 460.5 million at the end of the period according to the balance sheet. At period-end, shareholders in Avion Group hf. numbered 20, compared to 11 at the beginning of the year. Three stockholders owned more than 10% share in the Company at the end of the period, Frontline Holding S.A. with 34.7% ownership, Straumur-Burdaras hf. with 13.2% ownership and Pilot Investors Ltd. with 10.4% share.

The board of directors and the executive chairman of Avion Group hf. hereby confirm the Group’s consolidated financial statements for the ten months ended 31 October 2005 with their signatures.

Kopavogur, 26 January 2006

Board of Directors 29

Magnus Thorsteinsson Executive Chairman

Eamonn Eugene Mullany Gunnar M. Bjorg

Eggert Magnusson Arngrimur Johannsson

CEOs’

Hafthor Hafsteinsson Philip Wyatt Baldur Gudnason Auditor’s Report

Board of directors and shareholders of Avion Group hf.

We have audited the accompanying consolidated balance sheet of Avion Group hf. as of October 31, 2005 and the related consolidated statements of income, changes in equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements give a true and fair view of the financial position of the 30 Company as of October 31, 2005 and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU.

Reykjavik, 26 January 2006

KPMG Endurskodun hf

Alexander G. Edvardsson

All amounts in thousands of USD Consolidated Income Statement for the Year 2005

2005 2004 Notes 1. 1–31. 10 1. 1–31. 12 Operating revenue

Net sales ...... 4 1,379,537 479,211 Other income ...... 5 21,954 17,563 Total operating revenue 1,401,491 496,774

Operating expenses

Aviation Services ...... (367,017 ) (444,894 ) Charter & Leisure ...... (783,329 ) (50,999 ) Shipping and Logistics ...... (189,793 ) 0 Total operating expenses (1,340,139 ) (495,893 )

Operating profit ...... 61,352 881 31 Effects of associated companies ...... 17 (203 ) 18,071 Financial income (expenses) ...... 10 (1,965 ) (9,643 ) Net financial income (expenses) (2,168 ) 8,428

Profit before taxes ...... 59,184 9,309

Income tax ...... 11 (16,517 ) 6,080

Net profit for the period...... 42,667 15,389

Attributable to: Equity holders of the parent ...... 43,869 18,037 Minority interest ...... 29 (1,202 ) (2,648 ) Net profit for the period ...... 42,667 15,389

Earnings per share

Basic earnings per share (USD) ...... 12 0.04230 0.02884

All amounts in thousands of USD Consolidated Balance Sheet

Notes 31.10.2005 31.12.2004 Assets

Non-current assets

Goodwill ...... 13 501,226 145,445 Other intangible assets ...... 14 30,566 1,927 Property, aircraft, vessels and equipment ...... 15 449,490 149,806 Investments in associated companies ...... 17 839 0 Other investments ...... 18 40,050 657 Guarantee deposits ...... 21 18,309 12,190 Deferred tax assets ...... 38 12,864 9,572 Total non-current assets 1,053,344 319,597

Current assets 32 Inventories ...... 19 16,105 10,792 Trade receivables ...... 20 184,422 69,841 Other receivables ...... 22 105,248 17,574 Cash and cash equivalents ...... 23 150,346 58,861 Assets classified as held for sale ...... 24 9,775 0 Total current assets 465,896 157,068

Total assets 1,519,240 476,665

All amounts in thousands of USD 31 October 2005

Notes 31. 10. 2005 31. 12. 2004 Equity and liabilities

Equity

Issued capital ...... 25 22,013 8,628 Share premium ...... 26 365,393 28,276 Reserves ...... 27 9,720 2,655 Retained earnings ...... 28 61,906 18,037 Stockholders’ equity 459,032 57,596

Minority interest ...... 29 1,495 9,459 Total equity 460,527 67,055

Liabilities 33 Non-current liabilities Interest bearing loans and borrowings ...... 33 410,132 162,006 Guarantee deposits ...... 34 1,697 4,806 Employee benefits ...... 35 1,073 1,196 Deferred tax liabilities ...... 38 7,934 1,552 Total non-current liabilities 420,836 169,560

Current liabilities Interest bearing loans and borrowings ...... 36 222,177 80,378 Trade payables ...... 152,476 87,056 Other payables ...... 37 263,224 72,616 Total current liabilities 637,877 240,050

Total liabilities 1,058,713 409,610

Total equity and liabilities 1,519,240 476,665

All amounts in thousands of USD Consolidated Statement of Cash Flow for the Year 2005

2005 2004 1. 1–31. 10 1. 1–31. 12 Cash flows from (to) operating activities

Profit from operations ...... 61,352 881 Depreciation and impairment of fixed assets ...... 15 51,310 30,973 Amortization and impairment of intangible assets and goodwill ...... 13, 14 2,532 (7,486 ) Currency fluctuation and indexation ...... (2,940 ) 856 Gain on sale of fixed assets ...... (21,139 ) (11,204 ) Other changes ...... (1,095 ) (4,860 ) Operating profit before changes in working capital 90,020 9,160 Changes in operating assets and liabilities ...... (67,887 ) (9,202 ) Cash generated by (to) operations 22,133 (42 ) Interest paid ...... (18,578 ) (3,170 ) Income tax paid ...... (2,461 ) (3,237 ) Net cash from (to) operating activities 1,094 (6,449 ) 34

Cash flows from investing activities

Investment in fixed and intangible assets ...... (180,825 ) (86,721 ) Proceeds from sale of fixed and intangible assets ...... 54,929 36,300 Investments in subsidiaries net of cash acquired ...... (39,110 ) (44,566 ) Investments in financial assets ...... (39,222 ) 0 Proceeds from financial assets ...... 772 156 Change in guarantee deposits ...... (6,158 ) (7,935 ) Net cash used in investing activities (209,614 ) (102,766 )

Cash flows from financing activities

Proceeds from new share capital issued ...... 146,263 0 Changes in treasury shares ...... 0 (1,456 ) Procceds from long-term borrowings ...... 270,372 212,287 Payments of interest bearing loans and borrowings ...... (110,914 ) (48,845 ) Change in guarantee deposits ...... (159 ) 0 Net cash provided by financing activities 305,563 161,986

Net change in cash and cash equivalents...... 97,042 52,771 Effects of foreign exchange adjustments ...... (5,558 ) 3,741 Cash and cash equivalents at beginning of year ...... 58,861 2,349

Cash and cash equivalents at end of period ...... 150,346 58,861

Notes: Statement of cash flows ...... 43

All amounts in thousands of USD Consolidated Statement of changes in Equity for 1 January 2004 to 31 October 2005

Issued Share Translation Revaluation Retained Minority capital premium reserve reserve earnings Interest Total

Balance at 1 January 2004 ...... 6,272 17,211 0 0 0 0 23,483 Translation difference of investment in foreign companies ...... - - 2,655 - - - 2,655 Net profit (losses) not recognised in the income statement ...... 0 0 2,655 0 0 0 2,655 Purchases of treasury stock...... (38 ) (411 ) - - - - (449 ) New shares issued ...... 2,394 11,476 - - - - 13,870 Recognised on acquisition of subsidiaries ...... - - - - - 12,107 12,107 Net profit for the year ...... - - - - 18,037 (2,648 ) 15,389 Balance at 31 December 2004 ...... 8,628 28,276 2,655 0 18,037 9,459 67,055 Change in fair value of hedges and available for sale investments . . . - - - (4,418 ) - - (4,418 ) Translation difference of investment in foreign companies ...... - - 11,483 - - - 11,483 Net profit (losses) not recognised in the income statement ...... 0 0 11,483 (4,418 ) 0 0 7,065 New shares issued ...... 5,813 140,450 - - - - 146,263 Recognised on acquisition of subsidiaries ...... - - - - - (6,762 ) (6,762 ) New shares issued due to purchases of subsidiaries...... 7,377 190,609 - - - - 197,986 35 Allocation of treasury stock due to purchase of subsidiaries ...... 195 6,058 - - - - 6,253 Net profit for the period...... - - - - 43,869 (1,202 ) 42,667 Balance at 31 October 2005 ...... 22,013 365,393 14,138 (4,418 ) 61,906 1,495 460,527

All amounts in thousands of USD Notes to the Financial Statements

1. General Information

Avion Group hf. the “Company” is a limited liability company domiciled in Iceland. The consolidated financial statements of the Group for the ten months ended 31 October 2005 comprise the Company and its subsidiaries (together referred to as the “Group”) and the Company’s interest in the performance of associated companies.

The accounting year was changed during the period from being the calendar year to the fiscal year 1 November to 31 October. However this is the first financial statement that the Group reports according to its new fiscal year. Therefore the financial statements only include ten months of financial data. The comparison figures include twelve month figures for the calendar year 2004.

Avion Group is an investment company focused on investments in the transportation industry and is formed of three business divisions: Aviation Services, Charter & Leisure, and Shipping & Logistics. Aviation Services is represented by Air Atlanta Icelandic, Avia Technical Services, and Charter & Leisure by Excel Airways Group. The operations of both divisions combined have approximately 60 aircraft in operation supported by 3,200 employees in 36 over 30 operational bases. The Shipping & Logistics division is represented by Eimskipafelag Islands in which there are approximately 30 ships in operation supported by 1,350 people at 55 operational bases.

Avion Group’s vision is to be a leading investment company in the field of global air, land and sea transportation solutions. The mission of Avion Group is to maximize total sharholders’ returns through financial strength and managment skills. Avion Group management seeks to improve its businesses through organic growth as well as complementary acqusitions. Core to this strategy is the development of profitable ACMI, Charter & Leisure operations, and Shipping & Logistics activities by identifying acquisitions that are complementary to the value chain. As acquisitions in all three divisions become integrated and supported within the Group, synergies are realised in areas such as joint purchasing, fuel and insurance as well as in functions such as marketing, IT and finance. As each successful acquisition develops within its division, further opportunities are identified to complement, extend and enhance the value chain.

2. Significant accounting policies

a. Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs). These are the Group’s first IFRS consolidated annual financial statements and IFRS 1 First-time Adoption of International Financial Reporting Standards has been applied.

Explanations of how the transition to IFRSs has affected the Group’s financial position, financial performance and cash flows are provided in note 47.

b. Basis of preparation The financial statements are presented in USD, rounded to the nearest thousand. They are prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value: derivative financial instruments, financial instruments classified as available-for-sale.

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The financial statements have been prepared on the basis of IFRSs in issue that are effective or available for early adoption at the Groups’ first IFRS annual reporting date, 31 October 2005.

The accounting methods described have been applied consistently for all periods covered by these financial statements and also in preparing an IFRS Opening Balance Sheet on 1 January 2004 for the purpose of transition to IFRS. The accounting policies have been applied consistently by Group entities.

All amounts in thousands of USD Notes to the Financial Statements

c. Basis of consolidation (i) Subsidiaries Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

(ii) Associates Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group’s share of the total recognised gains and losses of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an associate, the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an associate. 37 (iii) Transactions eliminated on consolidation Intragroup balances, intercompany transactions and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements.

d. Foreign currency (i) Foreign currency transactions Transactions in foreign currencies are translated at the foreign currency exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to USD at the closing exchange rate ruling at the balance sheet date. Foreign currency exchange differences arising on translation are recognised in the income statement.

(ii) Financial statements of subsidiaries The assets and liabilities of foreign operations are translated to USD at foreign exchange rates ruling at the date of the transaction. The revenue and expenses of foreign operations are translated to USD at the average rate for the period. Foreign exchange differences arising on retranslation are recognised directly in a separate component of equity.

Goodwill and fair value adjustments arising on the acquisition of foreign entities are treated as assets and liabilities of the foreign entities and translated at the closing rate.

e. Derivative financial instruments (i) Derivatives, general Derivative financial instruments are initially recognised in the balance sheet at cost and then remeasured at subsequent reporting dates to fair value. Hedging derivatives are classified on inception as fair value hedges, cash flow hedges or net investment hedges.

(ii) Hedge accounting Where a derivative financial instrument is used to hedge economically the foreign exchange exposure of a recognised monetary asset or liability, no hedge accounting is applied and any gain or loss on the hedging instrument is recognised in the financial statement.

Changes in the fair value of derivatives designated as fair value hedges are recorded in the income statement, with the changes in the fair value of the hedged asset or liability.

Changes in the fair value of derivatives designated as cash flow hedges are recognised in equity. Amounts deferred in equity are transferred to the income statement in line with the hedged forecast transaction.

Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in the income statement.

All amounts in thousands of USD Notes to the Financial Statements

f. Revenue recognition (i) Revenue recognition, general Revenue is recognised in the income statement when service is provided to customers. Revenue also includes copromotion income where the Group records its share of the revenue but no related cost of sales. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods also continuing management involvement with the goods.

(ii) Revenue recognition of activities Revenue is recognised as follows for the different activities of the business after deductions for discounts and returns: • Revenue from ACMI sales is recognised on block hours flown for the customer. • Revenue from flight and shipping operations is recognised when the transportation service is provided. • Revenue from travel agencies are recognised when the service is provided. • Other revenue is recognised on delivery to the customer, at which point the risk and rewards of ownership pass to the customer. 38 • Payments received from customers in advance of performance of the Group’s obligations are included as deferred revenue and not recognised until the Group performs its obligations.

(iii) Interest and dividend income Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

Dividend income from investments is recognised when the Group’s rights to receive payment have been established.

g. Expenses (i) Expenses, general Expenses are recognised in respect of goods and services provided in accordance with contractual terms. Provision is made when an obligation exists for a future liability in respect of a past event and where the amount of the obligation can be reliably estimated.

(ii) Aircraft and vessel maintenance expenditure Routine maintenance costs are recognised as incurred. Major maintenance and overhaul costs are capitalised as a separate component of the aircraft and vessel fleet and depreciated on a systematic basis.

(iii) Borrowing cost The Group capitalises borrowing cost that is directly attributable to the acquisition, construction or production of a qualifying asset and expenses other borrowing costs not meeting the criteria. The capitalisation of borrowing cost commences when: • expenditures for the asset are being incurred • borrowing costs are being incurred • activities that are necessary to prepare the asset for its intended use or sale are in progress and cease when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete.

h. Retirement benefit plan (i) Defined benefit scheme The costs of providing pensions under defined benefit schemes are calculated using the projected unit credit method and spread over the period during which benefit is expected to be derived from the employees’ services, in accordance with the advice of qualified actuaries. Pension obligations are measured as the present value of estimated future cash flows discounted at rates reflecting the yields of high quality corporate bonds. Pension scheme assets are measured at fair value at the balance sheet date. Actuarial gains and losses, differences between the expected and actual returns, and the effect of changes in actuarial assumptions are recognised in the income statement in the year they arise.

All amounts in thousands of USD Notes to the Financial Statements

When the benefits of the plan are improved, the portion of the increased benefit relating to past service by employees is recognised as an expense in the income statement on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in the income statement.

Where the calculation results in a benefit to the Group, the recognised asset is limited to the net total of any unrecognised actuarial losses and past service costs and the present value of any future refunds from the plan or reductions in future contributions to the plan.

(ii) Defined contribution scheme The Group’s contributions to defined contribution plans are charged to the income statement as incurred.

i. Taxation (i) Taxation, general The income tax comprises tax currently payable and deferred tax. 39 The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date and any adjustment to tax payable in respect of previous years.

(ii) Deffered tax Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

A deferred tax asset is recognised only to the extent that it is probable that future benefits will be available against which the assset can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

j. Property, aircraft, vessels and equipment (i) Owned assets Items of property, aircraft, vessels and equipment are stated at cost less accumulated depreciation and impairment losses.

Where parts of an item of property, aircraft, vessels and equipment have different useful lives, they are accounted for as separate items of property and equipment.

(ii) Leased assets Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. The owner-occupied property acquired by way of finance lease are stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses. All amounts in thousands of USD Notes to the Financial Statements

(iii) Subsequent costs The Company recognises in the carrying amount of an item of property and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits embodied with the item will flow to the Company and the cost of the item can be measured reliably. All other costs are recognised in the income statement as an expense as incurred.

(iv) Depreciation Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of property and equipment. Land is not depreciated. The estimated useful lives are as follows:

Buildings ...... 15–50 years Vessels ...... 5–14 years Equipment ...... 3–10 years Aircraft fleet ...... 4–13 years

40 Capitalised engine hours are charged to expenses according to actual hours flown.

The residual value, if not insignificant, is reassessed annually.

k. Intangible assets (i) Goodwill All business combinations are accounted for by applying the purchase method. Goodwill represents amounts arising on acquisition of subsidiaries and associates. In respect of business acquisitions that have occurred since 1 January 2004, goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired.

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is no longer amortised but is tested annually for impairment.

Negative goodwill arising on an acquisition is recognised directly as income in the income statement.

(ii) Other intangible assets Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses. The majority of the capitalised amount relates to airport take off and landing slots recognised on the acquisition of a subsidiary. Airport slots provide carriers rights to takeoff or land from an airport and to receive ground services. The right to use airport slots is issued for indefinite time. Airport slots are stated at cost less any accumulated impairment losses.

(iii) Subsequent expenditure Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.

(iv) Amortisation Amortisation is charged to the income statement on a straght-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. At each balance sheet date the Group reviews the carrying amount of goodwill and intangible assets with indefinite useful life to determine whether there is any indication that those assets have suffered impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the imparment loss (if any). Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows:

Computer software ...... 3–4 years Domain name ...... 10 years Other intangible assets ...... 3–5 years

All amounts in thousands of USD Notes to the Financial Statements

l. Investments (i) Investments in long-term notes The carrying-amount of long-term notes is the required return on the acquisition date. Accrued interest on long- term notes is calculated and presented among current assets.

Where the Group has the positive intent and ability to hold long-term notes to maturity, they are stated at amortised cost less impairment losses.

m. Receivables Trade and other receivables are stated at their cost less impairment losses.

n. Inventories Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated sales price in the ordinary course of business, less the estimated cost of completion and selling expenses.

o. Cash and cash equivalents 41 Cash and cash equivalents consist of cash and bank deposits.

p. Non-current assets held for sale and discontinued operations Immediately before classification as held for sale, the measurement of the assets (and all assets and liabilities in a disposal group) is brought up-to-date in accordance with applicable IFRSs. Then, on initial classification as held for sale, non-current assets and disposal groups are recognised at the lower of carrying amount and fair value less costs to sell.

Impairment losses on initial classification as held for sale are included in profit or loss, even when there is a revaluation. The same applies to gains and losses on subsequent remeasurement.

q. Impairment The carrying amounts of the Group’s assets, other than inventories and deferred tax assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. Impairment tests are conducted at least once a year on the intangible assets which are thought to have infinite lifetime.

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss.

Impairment losses recognised in respect of cash-generating unit are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units and then to reduce the carrying amount of the other assets in the unit on a pro rata basis.

Formal impairment tests were performed on all major capitalised goodwill. The tests showed no indication of impairment losses.

(i) Calculation of recoverable amount The recoverable amount of other assets is the greater of their net selling price and value in use. In assessing value in use, 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.

(ii) Reversal of impairment An impairment loss in respect of a held-to-maturity security or receivable carried at amortised cost is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised.

An impairment loss in respect of an investment in an equity instrument classified as available for sale is not reversed through profit or loss. If the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss shall be reversed, with the amount of the reversal recognised in profit or loss.

All amounts in thousands of USD Notes to the Financial Statements

An impairment loss in respect of goodwill is not reversed.

In respect of other assets, an impairment loss is reversed if a change has occurred in the estimates used to determine the recoverable amount.

An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

r. Share capital (i) Treasury shares When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is recognised as a change in equity. Purchase of treasury shares are deducted from total equity.

s. Liabilities 42 (i) Interest-bearing borrowings Interest-bearing borrowings are initially recognised at fair value less related transaction costs. Subsequently, interest-bearing borrowings are measured at amortized cost based on effective interest rates.

(ii) Non-current liabilities Non-current liabilities are valued at nominal value less payments made and the remaining nominal balance is adjusted by exchange rate or index, if applicable. Interest expenses are accrued on a periodical basis, based on the principal outstanding and at the interest rate applicable. Borrowing fees are capitalised and expensed using effective interest rates or over the term of the loan if it does not differ greatly form the effective interest rate method.

(iii) Accounts payable Accounts payable are valued at nominal value and accounts payable in other currencies than USD have been valued at the exchange rates prevailing at the balance sheet date.

(iv) Unearned transportation revenue Revenue from the sale of transportation that has not been provided is deferred. Transportation revenue is recognised in the income statement when the service is provided.

t. Earnings per share Earnings per share is the ratio between profit and weighted average number of shares for the period and reveals net profit per share. The nominal value of each share amounts to one ISK. Calculation of diluted earnings per share takes into consideraton stock options made with the Company’s employees and the prospective deliver- ance of shares related to those options.

u. Segment reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

All amounts in thousands of USD Notes to the Financial Statements

3. Quarterly statements Q1 Q2 Q3 Oct. YTD 2005 2005 2005 2005 2005

Operating revenue ...... 174,758 387,407 651,102 188,224 1,401,491 Operating expenses ...... (194,208 ) (390,035 ) (575,332 ) (180,564 ) (1,340,139 ) Operating profit (loss) ...... (19,450 ) (2,628 ) 75,770 7,660 61,352 Financial income (expenses) ...... (4,541 ) (189 ) 3,081 (519 ) (2,168 ) Profit (loss) before tax ...... (23,991 ) (2,817 ) 78,851 7,141 59,184 Income tax ...... 2,316 3,407 (20,021 ) (2,219 ) (16,517 ) Net profit (loss) for the period ...... (21,675 ) 590 58,830 4,922 42,667

The financial statements of Avion Group are for the ten months period 1 January – 31 October 2005.

4. Business segments 43

Segment information is presented in respect of the Groups’s business and geopgraphical segments. The primary format, business segments, is based on the Group’s management and internal reporting structure.

Inter-segment pricing is determined on an arm’s length basis.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Segmental capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period.

Business segments The Group comprises the following main business segments:

Aviation Services. The main operation of Aviation Services is provided by the Aircraft, Crew, Maintenance, Insurance (ACMI) or wetleasing operator Air Atlanta Icelandic and maintenance and engineering operator Avia Technical Services (ATS). The newly founded Avion Aircraft Trading (to be merged into Avion Group in 2006) and the airport handling provider SouthAir also are a part of Aviation Services.

Charter & Leisure. The Charter and Leisure division is provided by Excel Airways Group (Excel) and the newly acquired Travel City Holdings (Travel City). The Charter and Leisure division is divided into two operational divisions, Airline and aviation division and Tour operating division. Excel Airways Group is registered and headquartered in the UK with approximately 1,600 employees in its service.

Shipping and logistics. The Eimskip group of companies form Avion’s activities that are focused on shipping, logistic and supply chain management. Eimskip has developed from a shipping line into a comprehensive transportation and logistics solutions provider with a specialisation in temperature-controlled food storage. The services provided include the management and implementation of all transportation logistics and door-to-door services. Eimskip’s main transportation services include ocean transport to and from Iceland, domestic transportation within Iceland and freight forwarding between foreign ports. The services offered extend to inventory and distribution services, delivery, air freight, customs documentation, agency services, customs warehousing, loading and landing of fishing vessels and passenger transport.

Geographical segments In presenting information on the basis of geographical segments, segments revenue and assets are based on the location and registration of fixed assets.

All amounts in thousands of USD Notes to the Financial Statements

Business segments Aviation Stervices Charter & Leisure Shipping and logistics Eliminations Consolidated 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004

Income statement Net sales ...... 350,137 443,438 828,364 35,773 201,036 - 1,379,537 479,211 Other income ...... 21,187 15,712 - 1,851 767 - - - 21,954 17,563 Total revenue from external customers . . 371,324 459,150 828,364 37,624 201,803 0 0 0 1,401,491 496,774 Inter-segment revenue ...... 144,227 15,301 264,683 - - - (408,910 ) (15,301 ) 0 0 Total revenue ...... 515,551 474,451 1,093,047 37,624 201,803 0 (408,910 ) (15,301 ) 1,401,491 496,774 Operating expenses ...... (511,244 ) (460,195 ) (1,048,012 ) (50,999 ) (189,793 ) - 408,910 15,301 (1,340,139 ) (495,893 ) Operating result ...... 4,307 14,256 45,035 (13,375 ) 12,010 0 0 0 61,352 881 Effects of associated companies ...... (203) 18,071 Net financing costs ...... (1,965 ) (9,643 ) Profit before tax ...... 59,184 9,309 Income tax expense ...... (16,517 ) 6,080 Net profit for the period ...... 42,667 15,389

44 Balance sheet Segment assets ...... 396,602 368,785 556,356 137,484 696,206 - (129,924 ) (29,604 ) 1,519,240 476,665 Segment liabilities ...... 370,432 335,323 450,010 103,891 368,193 - (129,924 ) (29,604 ) 1,058,712 409,610

Cash flows Cash flows from operating activities . . . . . 23,093 34,651 (40,259 ) (41,100 ) 18,259 - - - 1,093 (6,449 ) Cash flows from investing activities . . . (144,133 ) (83,618 ) (5,113 ) (19,148 ) (60,368 ) - - - (209,614 ) (102,766 ) Cash flows from financing activities . . . 265,213 144,489 (2,182 ) 17,497 42,532 - - - 305,563 161,986

Other Capital additions ...... 149,596 67,573 5,113 19,148 26,116 - - - 180,825 86,721 Depreciation and amortisation . . . . . 37,608 23,127 4,086 360 12,147 - - - 53,841 23,487

Geographical segments Iceland Europe America & Asia Unallocated Consolidated 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004

Revenue from external customers ...... 444,819 459,150 938,427 37,624 18,245 - - - 1,401,491 496,774 Segment assets ...... 843,689 207,476 658,248 269,189 9,580 - 7,723 - 1,519,240 476,665 Capital additions ...... 148,623 65,802 32,075 20,919 127 - - - 180,825 86,721

All amounts in thousands of USD Notes to the Financial Statements

5. Other income YTD 2005 2004

Gain on sale of fixed assets ...... 21,139 11,204 Other revenue ...... 815 6,359 21,954 17,563

6. Gross profit YTD 2005 2004

Net Sales ...... 1,379,537 479,211 Cost of sale ...... (1,276,068 ) (439,216 ) Gross profit 103,469 39,995

7. Salaries 45 YTD 2005 2004

Salaries ...... 132,958 37,187 Related expenses ...... 16,969 5,192 149,927 42,379 Contractors ...... 66,352 52,487 Other personnel expenses ...... 14,935 4,248 231,214 99,114

Average number of positions ...... 3,460 1,628 Positions at end of year ...... 4,279 2,277

Allocation of salaries to items of income statement:

YTD 2005 2004

Aviation Services ...... 120,372 92,387 Shipping and Logistics ...... 42,170 - Charter & Leisure ...... 68,672 6,727 231,214 99,114

All amounts in thousands of USD Notes to the Financial Statements

8. Management salaries and benefits

Payment of salaries to the key executives for work performed for the companies within the Group, stock options and ownership in the Company are specified as follows:

Stock options Salaries and (number of Shares owned related exp. shares ‘000) (‘000)

Board of Directors: Magnus Thorsteinsson, Executive Chairman ...... 10 - 622,725 Arngrimur Johannson ...... 251 - 35,000 Gunnar M. Bjorg ...... - - 113,514 Eggert Magnusson ...... - - - Eamon Mullaney1 ...... 377 - 92,829

46 CEOs: Hafthor Hafsteinsson, Air Atlanta Icelandic2 ...... 409 5,100 43,768 Baldur Gudnason, Eimskipafelag Islands3 ...... 586 5,100 50,788 Philip Wyatt, Excel Airways1 ...... 484 - 92,829

Key management, five persons2,3 ...... 1,322 18,000 142,175

The shares owned by board members are either owned by them personally or through holding companies.

A formal stock options plan was issued 19 January 2006 for the aforementioned stock options.

1) Eamon Mullaney and Philip Wyatt each own 12% in Basalt holding which owns 61 million shares in Avion Group. They also own shares in Fidecs trust that further owns 32 million shares. These shares are included in full for both parties in above specification.

2) Together Hafthor Hafsteinsson CEO and Hannes Hilmarsson COO and Magnus Stephensen VP, who are part of key management control in total 43,768 thousand shares owned by related parties. These shares are included in full for both Hafthor and in key management in above specification.

3) Together Baldur Gudnason CEO and Steingrimur Petursson VP who is key management control in total 50,788 thousand shares owned by the related parties. These shares are included in full for both Baldur and key management in above specification.

9. Fees to Auditors

YTD 2005 2004

Audit of financial statements ...... 732 217 Review of financial statements ...... 428 61 Other services ...... 1,249 48 2,409 326

The amount includes payments to elected auditors of all companies within the consolidation.

All amounts in thousands of USD Notes to the Financial Statements

10. Financial income (expenses) YTD 2005 2004 Income from investments: Interest income on bank deposits ...... 2,363 332 Dividends from trading investments ...... 21 - Profit from loans and receivables ...... (137 ) - Other interest income ...... 2,926 221 5,172 553

Financial expenses: Interest on long term loans ...... (23,095 ) (6,695 ) Other interest expenses ...... (1,625 ) (256 ) (24,720 ) (6,951 )

Exchange rate differences ...... 17,582 (3,245 ) (1,965 ) (9,643 ) 47

11. Income tax expense

YTD 2005 2004 Current tax expense Current year ...... 18,771 (4,044 ) Under provided in prior years ...... 422 11 19,193 (4,033 ) Deferred tax expense Orgination and reversal of temporary differences ...... 327 (1,861 ) Benefit of tax losses recognised ...... (3,003 ) (186) (2,676 ) (2,047 )

Total income tax expense in income statement ...... 16,517 (6,080 )

Reconciliation of effective tax rate

Profit before tax ...... 59,184 9,309

Income tax using the domestic corporation tax rate ...... 10,653 1,676 Effect of tax rates in foreign jurisdictions ...... 5,016 (1,142 ) Non-deductible expenses ...... (134 ) (1,653 ) Tax exempt revenue ...... (97 ) - Capital allowances ...... (452 ) - Prior period adjusments ...... 548 - Other differences ...... 983 (4,961 ) 16,517 (6,080 )

Effective tax rate ...... 27.91% -

Deferred tax recognised directly in equity Relating to equity securities available-for-sale ...... 307 - Relating to equity derivatives ...... 169 - 476 0

All amounts in thousands of USD Notes to the Financial Statements

12. Earnings per share

The calculation of Earnings per Share is based on the following data:

YTD 2005 2004

Net profit for the period ...... 42,667 15,389

Total average number of shares outstanding during the period (in thousands) . 1,008,637 533,587

Basic Earnings per Share (USD) ...... 0.04230 0.02884

Weighted average number of shares (in thousands)

Issued shares at 1 January ...... 607,986 458,778 Effect of shares issued during period ...... 400,651 74,809 48 Weighted average of shares at 31 October 2005 / 31 December 2004 . . . . . 1,008,637 533,587

13. Goodwill 31.10.2005 Cost At 1 January 2005 ...... 145,694 Currency adjustments during period ...... 1,750 Recognised on acquisition of a subsidiary ...... 354,119 At 31 October 2005 ...... 501,563

Amortisation At 1 January 2005 ...... 249 Currency adjustments during period ...... (20 ) Impairment loss during period ...... 108 At 31 October 2005 ...... 337

Carrying amount At 31 October 2005 ...... 501,226

At 1 January 2005 ...... 145,445

The Impairment of Goodwill, classified by operational category, is specified as follows: YTD 2005 Charter & Leisure ...... 71 Shipping and logistics ...... 37 108

All amounts in thousands of USD Notes to the Financial Statements

Impairment tests for cash-generating units containing goodwill

The following units have significant carrying amounts of goodwill:

Eimskipafelag Islands ...... 265,807 Excel Airways Group ...... 168,165 Travel City Group ...... 52,955 Other, without significant goodwill ...... 14,299 501,226

The recoverable amount of the identified cash-generating units are based on value in use calculations. Those calculations use cash flow projections based on actual operating results and the five-year business plan. Cash flows for a future period are extrapolated using a 2-4 per cent growth rate. A pre-tax discount rate of 9-10 per cent has been used in discounting the projected cash flows.

49 14. Other Intangible assets Domain Computer Airport name software Slots Other Total

Cost At 1 January 2005 ...... 1,960 - - - 1,960 Currency adjustments during period . . . (155 ) 434 (976 ) (168 ) (865 ) Recognised on acquisition of subsidiaries . - 13,051 17,136 3,849 34,036 Additions during period ...... - 1,470 - - 1,470 At 31 October 2005 ...... 1,805 14,955 16,160 3,681 36,601

Amortization At 1 January 2005 ...... 33 - - - 33 Currency adjustments during period . . . (7 ) 146 - (26 ) 113 Recognised on acquisition of subsidiaries . - 3,466 - - 3,466 Amortised during period ...... 132 1,407 - 884 2,423 At 31 October 2005 ...... 158 5,019 - 858 6,035

Carrying Amount At 31 October 2005 ...... 1,647 9,936 16,160 2,823 30,566 At 1 January 2005 ...... 1,927 0 0 0 1,927

The amortization and impairment of other intangible assets, classified by operational category, is specified as follows: YTD 2005 Charter & Leisure ...... 1,631 Shipping and Logistics ...... 792 2,423

All amounts in thousands of USD Notes to the Financial Statements

15. Property, aircraft, vessels and equipment Vessels and Property Machinery and other transp. and plant equipment equipment Aircraft Total

Cost At 1 January 2005 ...... 33,878 13,931 - 151,606 199,415 Currency adjustments ...... (1,167 ) (857 ) 6,976 (793 ) 4,159 Recognised on acquisition of subsidiaries 106,234 1,941 191,429 65 299,669 Additions during period ...... 29,748 3,424 23,553 122,630 179,355 Transfer to available for sale ...... (12,251 ) - - - (12,251) Sales during period ...... (4,049 ) (27 ) (3,776 ) (50,759 ) (58,611 ) Disposals during period ...... - - - (24,562 ) (24,562 ) At 31 October 2005 ...... 152,393 18,412 218,182 198,187 587,174

Comprising: 50 At cost ...... 152,393 18,412 125,540 198,187 494,532 At revalued cost ...... - - 92,642 - 92,642 152,393 18,412 218,182 198,187 587,174

Accumulated depreciation At 1 January 2005 ...... 2,935 5,267 - 41,407 49,609 Currency adjustments ...... (192 ) (285 ) 2,803 (88 ) 2,238 Recognised on acquisition of subsidiaries 14,182 1,104 58,147 - 73,433 Transfer to available for sale ...... (2,892 ) - - - (2,892 ) Sales during period ...... (2,347 ) (2 ) (3,160 ) (5,943 ) (11,452 ) Depreciation during period ...... 3,221 2,712 9,682 35,695 51,310 Disposals during period ...... - - - (24,562 ) (24,562 ) At 31 October 2005 ...... 14,907 8,796 67,472 46,509 137,684

Carrying Amount At 31 October 2005 ...... 137,486 9,616 150,710 151,678 449,490 At 1 January 2005 ...... 30,943 8,664 0 110,199 149,806

Vessels owned by Eimskipafelag Islands were revalued as a part of purchase price allocation in accordance with IFRS 3 when the company was purchased.

Prepayments amounting to USD 11.9 million for three Airbus A300-600 passenger aircraft and freighter conversion slots (1.5 million) and four B777-200 Long Range Freighters (10.4 million) are included in Aircraft.

Prepayments amounting to USD 11.8 million for four reefer vessels are included in vessels and other transportation equipment.

Depreciation, classified by operational category, is shown in the following schedule:

YTD 2005 Aviation Services ...... 37,692 Charter & Leisure ...... 2,299 Shipping and Logistics ...... 11,319 51,310

All amounts in thousands of USD Notes to the Financial Statements

Insurance and market value of assets

Insurance Market Book value value value

Property and plants ...... 182,726 159,351 137,486 Machinery and equipment ...... 24,314 9,616 9,616 Vessels and other transportation equipment ...... 165,053 150,710 150,710 372,093 319,677 297,812

The management estimates the fair value of buildings and sites at USD 159.351 thousand and other operating fixed asset at their book value.

Aircraft is further specified as follows:

Aircraft Rotable Engine 51 and engines parts hours Total

Cost At 1 January 2005 ...... 65,200 61,523 24,883 151,606 Currency adjustments during period . . . . - (793 ) - (793 ) Recognised on acquisition of subsidiaries . - 65 - 65 Additions during period ...... 94,553 13,756 14,321 122,630 Sales during period ...... (46,567 ) (1,077 ) (3,115 ) (50,759 ) Disposals during period ...... - - (24,562 ) (24,562 ) At 31 October 2005 ...... 113,186 73,474 11,527 198,187

Accumulated depreciation At 1 January 2005 ...... 5,135 23,826 12,446 41,407 Currency adjustments during period . . . . - (88 ) - (88 ) Sales during period ...... (5,851 ) (92 ) - (5,943 ) Depreciation during period ...... 13,476 10,103 12,116 35,695 Disposals during period ...... - - (24,562 ) (24,562 ) At 31 October 2005 ...... 12,760 33,749 0 46,509

Carrying Amount At 31 October 2005 ...... 100,426 39,725 11,527 151,678 At 1 January 2005 ...... 60,065 37,697 12,437 110,199

Annual depreciation ratio ...... 8-25% 8-20% flighthours

Insurance and market value of aircraft fleet

Insurance Market Book value value value

Aircraft ...... 145,000 135,200 100,426 Spare parts ...... 46,000 39,725 39,725 Engine hours (insurance value included in aircraft) ...... - 11,527 11,527 191,000 186,452 151,678

The market value of aircraft is estimated by the management, supported with issued information from unrelated party.

The management estimates the market value of spare parts and engine hours equal to book value.

All amounts in thousands of USD Notes to the Financial Statements

16. The Consolidation

At period-end the Company owned six subsidiaries that are all included in the consolidation. The subsidiaries further owned 71 active subsidiaries at period-end. The subsidiaries that are included in the Group are as follows:

Place of registration Ownership Name of subsidiary and operation % Principal activity

Air Atlanta Icelandic hf ...... Iceland 100% ACMI Avia Technical Services Ltd ...... England 100% Maintenance provider Avion Aircraft Trading hf ...... Iceland 100% Holding company Excel Airways Group Plc ...... England 99.9% Charter & Leisure Travel City Holding Plc ...... England 100% Leisure Eimskipafelag Islands ehf ...... Iceland 100% Shipping and Logistic

52 The Group acquired control of Air Atlanta Europe at the beginning of 2005 when management and financial and operational responsibility was transferred to the Group. In accordance with IFRS 3 all of the operation of Air Atlanta Europe is included in the consolidated report from 1 January 2005.

During the period the Group acquired additional 28.4 % of the issued share capital of Excel Airways Group plc. and at 31. October 2005 owned 99.9% of issued share capital. The principal activity of Excel Airways Group and its subsidiaries is that of charter and seat broker operating flights mainly for UK tour operators. The group also char- ters aircraft for servicing travel agents’ and tour operators’ flight requirements and sub-leases aircraft to overseas airlines.

During the period the Group purchased all outstanding shares in Eimskipafelag Islands ehf. The Group will as a result of this purchase provide an air, sea and land transport solutions for its customers requiring logistical product support worldwide.

17. Investment in associates

31.10.2005 Recognised on acquisition of subsidiaries ...... 718 Currency adjustments during period ...... 91 Share in net loss of associates ...... (203 ) Other changes ...... 233 Total value end of period ...... 839

Share in profit Ownership Book value / loss Harbor Grace CS Inc, Canada ...... 25% 702 45 Halship Inc., Canada ...... 49% - (341 ) Euro container Line AS, Norway ...... 50% - (27 ) Freshport BV, Holland ...... 25% - 89 Dissaco GSS Airfreight NV, Holland ...... 25% 12 - Traxx Intercontinental BV, Holland ...... 20% 84 31 Kirkenes Agency AS, Norway ...... 50% 41 - 839 (203 )

The associates use the calendar year for reporting.

All amounts in thousands of USD Notes to the Financial Statements

Income from associates in 2004 (USD 18,071) relates to the Groups acquisition of 41.5% share in Excel Airways Group in May of 2004. Excel Airways Group was reported as an associate until October 2004 when further 30% was acquired and Avion gained control. From that time it has been reported as a subsidiary.

18. Other Investments

a. Available for sale investments Investments in securities

At 1 January 2005 ...... 251 Recognised on acquisition of subsidiaries ...... 920 Additions during period ...... 34,965 Currency adjustments during period ...... 1,389 Fair value changes ...... (1,706 ) Sold during period ...... (80 ) 53 At 31 October 2005 ...... 35,740

The investment included above represents investment in equity securities which present the Group with opportunity for return through dividend income and trading gains.

During the period a 19% share in the US charter airline TEM Enterprises d.b.a. Casino Express in Nevada was purchased. The investment will allow Avion to shift capacity and reduce fixed costs during the winter season by placing aircraft from Group airlines, Excel Airways, Air Atlanta Icelandic and Air Atlanta Europe to Casino Express Airlines when more capacity is required in the US counter-cyclical market.

In October Eimskipafelag Islands ehf. bought a 10% stake in the seafood export company Icelandic Group for USD 33 million. This acquisition further solidifies a long-standing and successful partnership between the two companies. Increased co-operation between them is expected to open many opportunities in the international arena for both companies.

b. Loans and receivables Loans and receivables

At 1 January 2005 ...... 406 Recognised on acquisition of subsidiaries ...... 4,372 New loans during the period ...... 3,312 Payments during the period ...... (692 ) Currency fluctuation and indexation ...... (1 ) Other ...... (272 ) At 31 October 2005 ...... 7,125

Aggregated annual maturities are as follows:

On demand or within 12 months ...... 2,815 Within 24 months ...... 1,345 Within 36 months ...... 1,016 Within 48 months ...... 716 Within 60 months ...... 350 Subsequent years ...... 883 7,125

All amounts in thousands of USD Notes to the Financial Statements

The investment included above represent investment in bonds, loans to associated companies and other long- term receivables which present the Group with opportunity for return through interest income and trading gains. The investment is valued at cost, less an allowance based on impairment by the management.

c. Other investments presentation in the balance sheet: Other Investments

Available for sale investments ...... 35,740 Loans and receivables ...... 7,125 Total non current other investments ...... 42,865 On demand or within 12 months ...... (2,815 ) 40,050

19. Inventories 54 31.10.2005 31.12.2004

Consumable spare parts ...... 11,781 10,134 Fuel in vessels ...... 1,923 - Other ...... 2,401 658 16,105 10,792

The Group recognises obsolete and defective inventory in the Income Statement. An allowance is deducted from inventories in the balance sheet and does not represent a final write-off. The allowance is based on management’s best estimate and past experience.

20. Trade receivables

31.10.2005 31.12.2004

Trade receivables ...... 203,021 78,748 Impairment losses ...... (18,599 ) (8,907 ) 184,422 69,841

Impairment losses have been recognised for doubtful accounts. Impairment losses are determined by management with reference to past default experience. The impairment losses do not represent a final write-off.

The directors believe that the carrying amount of trade receivables approximates their fair value.

Impairment losses on trade receivables is specified as follows:

YTD 2005 YTD 2004

At 1 January ...... 8,907 4,965 Addition due to acquisition of subsidiaries ...... 10,468 - Final write-off ...... (2,235 ) (102 ) Bad dept provision during period ...... 1,630 4,044 Currency adjustment during period ...... (171 ) - At 31 October 2005 / 31 December 2004 ...... 18,599 8,907

All amounts in thousands of USD Notes to the Financial Statements

21. Guarantee deposits (assets) 31.10.2005

Guarantee deposits in USD ...... 21,889 Guarantee deposits denominated in other currencies ...... 500 22,389 Current maturities ...... (4,080 ) Long term guarantee deposits ...... 18,309

Movements in guarantee deposits during the period:

At 1 January 2005 ...... 16,262 Additions during period ...... 8,509 Currency adjustments during period ...... (31 ) Repayments ...... (2,351 ) At 31 October 2005 ...... 22,389 55

22. Other receivables 31.10.2005 31.12.2004

Derivative assets ...... 9,795 - Other receivables ...... 23,337 4,503 Current maturities of guarantee deposits ...... 4,080 - Prepaid expenses ...... 68,036 13,071 105,248 17,574

23. Cash and cash equivalents

Bank balances and cash comprise cash and short-term deposits held by the Group’s treasury function.

24. Assets classified as held for sale

Avion Group’s property at Hedinsgata, Iceland, is presented as held for sale following the decision of the management to sell the property. The book value of the property is USD 9.8 million.

All amounts in thousands of USD Notes to the Financial Statements

25. Issued capital

The Company’s capital stock is nominated in Icelandic kronur. The nominal value of each share is one ISK and one vote is attached to each share. The USD amount of capital stock was 8.6 million at the beginning of the year. During the period the capital stock was increased by USD 13.4 million of nominal value and sold for USD 351 million. Issued capital is converted to USD using the exchange rate at payment date. The total number of shares at period-end was 1,472 million. The articles of association of Avion Group hf. authorizes the board of directors to issue up to 528 million new shares to meet future obligations. Of that amount 261 million shares was sold to institutional investors in December 2005.

Numer of shares in thousands USD

Outstanding capital stock at 1 January 2004 ...... 458,779 6,272 Treasury shares purchased ...... (2,789 ) (38 ) 56 Sale of new shares ...... 151,996 2,394 Outstanding capital stock at 1 January 2005 ...... 607,986 8,628 Proceeds from sale of new shares ...... 373,640 5,813 New shares issued due to purchases of subsidiaries ...... 477,910 7,377 Allocation of treasury stock due to purchase of subsidiaries ...... 12,541 195 Outstanding capital stock at 31 October 2005 ...... 1,472,077 22,013

Capital stock is as follows in thousands of shares and USD thousands:

Shares Ratio USD

Total capital stock issued ...... 1,519,493 100.0% 22,745 Treasury shares at 31 October 2005 ...... (47,416) -3.2% (732 ) Outstanding capital stock at 31 October 2005 ...... 1,472,077 96.8% 22,013

Avion Group owns 47.4 million treasuy shares. The shares are excess shares issued in relation to purchase of Eimskipafelag Islands ehf.

26. Share premium Share premium

Balance at 1 January 2004 ...... 17,211 Purchases of treasury stock ...... (411 ) New shared issued ...... 11,476 Balance at 1 January 2005 ...... 28,276 Proceeds from sale of new shares ...... 140,450 New shares issued due to purchases of subsidiaries ...... 190,609 Allocation of treasury stock due to purchase of subsidiaries ...... 6,058 Balance at 31 October 2005 ...... 365,393

All amounts in thousands of USD Notes to the Financial Statements

27. Reserves Translation Revaluation Revaluation reserve hedges investments Total

Balance at 1 January 2004 ...... 0 0 0 0 Exchange differences arising on translation of subsidiaries . 2,655 - - 2,655 Balance at 1 January 2005 ...... 2,655 0 0 2,655 Exchange differences arising on translation of subsidiaries . 11,483 - - 11,483 Change in effective cash flow hedge ...... - (2,957 ) (1,461 ) (4,418 ) Balance at 31 October 2005 ...... 14,138 (2,957 ) (1,461 ) 9,720

28. Retained earnings Retained earnings

57 Balance at 1 January 2004 ...... 0 Net profit for the year ...... 18,037 Balance at 1 January 2005 ...... 18,037 Net profit for the period ...... 43,869 Balance at 31 October 2005 ...... 61,906

29. Minority interest Minority Interest

Recognised on acquisition of subsidiaries in the year 2004 ...... 12,107 Minority interest in net profit for the year 2004 ...... (2,648 ) Balance at 1 January 2005 ...... 9,459 Minority interest in net profit for the period ...... (1,202 ) Recognised on acquisition of subsidiaries in the year 2004 ...... (6,762 ) Balance at 31 October 2005 ...... 1,495

30. Stock Option Contracts

No stock options agreements had been issued at balance sheet date. A formal stock options plan was issued 19 January 2006. The total number of shares allocated to employees according to the plan is 49.5 million.

All amounts in thousands of USD Notes to the Financial Statements

31. Risk management

a. Financial risk management and hedging activities

The principal objective of risk management is to reduce financial risk in the Group and to increase its financial stability. Avions’ risk management policy constitutes a framework of guidelines and rules covering areas such as foreign exchange, interest, jet fuel price and use of derivatives, as well as liquidity risk.

Exposure to fuel prices, currency and interest rate risk and liquidity risk arises in the normal course of the Group’s business. The Group has established formal risk management policies and guidelines that are approved by the board of directors to manage such risks. When deemed appropriate, risk exposures are reduced by the use of derivatives. Derivative financial instruments are primarily used to reduce exposure to fluctuations in fuel prices, foreign exchange rates and interest rates in line with the Group’s documented risk management policies and strategy.

58 b. Interest rate risk

The Group has it’s interest rate risk exposure from its debt, and lease liabilities. The Group aims to limit the interest rate risk and to achieve optimal ratios regarding fixed to float interest rate exposure and the duration of interest-bearing liabilities. The debt and leasing contracts are mainly denominated in USD.

c. Foreign currency risk

Exposure to foreign exchange rates arises from transactions in currencies other than the Group’s base currency, which is the USD. The Group differentiates between risk from operations and risk from investments. The currencies giving rise to this risk are primarily the GBP, ISK and the EUR, though transactions also occur in a number of other currencies. Whenever possible, internal hedging principles (matching of foreign currency in- and outflows) are applied. The Group then hedges its net transaction exposure externally in the foreign exchange markets. The Group uses forward exchange contracts and currency options to hedge its foreign currency risk.

d. Fuel price risk

One of the Group’s most significant operating cost is jet fuel. Therefore, the Group has a significant exposure to fluctuations in the price of crude oil and oil products. The Group hedges its jet fuel exposure mainly by entering into jet fuel swaps contracts.

e. Liquidity risk

Corporate treasury is responsible for the Group’s liquidity management and funding. The Group aims to maintain sufficient reserves of cash and cash equivalents in order to meet its liquidity requirements.

32. Forward transactions

The Group had outstanding forward transactions to hedge foreign currencies and fuel purchases as follows:

31.10.2005 Maturing within twelve months: - to hedge future operating payments against functional currency ...... 354,620 - to hedge future fuel costs in US dollars ...... 116,000 Maturing after twelve months: - to hedge future operating payments against functional currency ...... 43,500

All amounts in thousands of USD Notes to the Financial Statements

33. Non current interest bearing loans and borrowings

Non current interest bearing loans and borrowing are specified as follows: 31.10.2005 With collateral in property, aircraft, vessels and equipment ...... 316,224 With collateral in accounts receivables and investments ...... 240,116 Without collateral ...... 75,969 632,309

Loans from Weighted credit Financial average rate institutions leases Total

Loans in GBP ...... 7.4% 197,735 27 197,762 Loans in USD ...... 5.6% 191,743 1,428 193,171 Loans in EUR ...... 3.5% 92,105 - 92,105 59 Loans in CHF ...... 2.3% 50,941 - 50,941 Loans in JPY ...... 1.5% 31,757 - 31,757 Loans in NOK ...... 4.0% 13,589 - 13,589 Loans in ISK ...... 6.2% 35,907 141 36,048 Loans in DKK ...... 5.0% 6,738 - 6,738 Loans in SEK ...... 3.3% 10,198 - 10,198 630,713 1,596 632,309 Current maturities ...... (221,369 ) (808 ) (222,177 ) Loans from credit institutions ...... 409,344 788 410,132

Aggregated annual maturities are as follows:

On demand or within 12 months ...... 221,369 808 222,177 Within 24 months ...... 58,422 472 58,894 Within 36 months ...... 101,470 226 101,696 Within 48 months ...... 109,824 90 109,914 Within 60 months ...... 16,844 - 16,844 Subsequent years ...... 122,784 - 122,784 630,713 1,596 632,309 Movements in long term loans:

Balance at 1 January 2005 ...... 240,407 1,977 242,384 Addition due to acquisition of subsidiaries ...... 179,863 - 179,863 New loans during the period ...... 336,282 127 336,409 Payments during the period ...... (110,409 ) (505 ) (110,914 ) Currency fluctuation and indexation ...... (15,429 ) (3 ) (15,432 ) Balance at 31 October 2005 ...... 630,713 1,596 632,309

Financial lease liabilities is specified as follows: Minimum lease payments Interest Principal On demand or within 12 months ...... 848 40 808 Within 24 months ...... 510 38 472 Within 36 months ...... 230 4 226 Within 48 months ...... 90 - 90 1,678 82 1,596

All amounts in thousands of USD Notes to the Financial Statements

34. Guarantee deposits (liability)

Movements in guarantee deposits: 31.10.2005

Total guarantee deposits ...... 6,777 Current maturities (note 37) ...... (5,080 ) Long term guarantee deposits ...... 1,697

Balance at 1 January 2005 ...... 6,732 Additions during period ...... 8,866 Currency adjustments during period ...... 204 Repayments ...... (9,025 ) Balance at 31 October 2005 ...... 6,777

60 The Guarantee deposits are all in USD.

35. Employee benefits

One of the Aviation Services subsidiaries operates a pension scheme providing benefits based on final pensionable pay, secured by the company and its employees to an independent and separately administered pension fund. The pension charge to the company for the year amounted to USD 269.267 (2004: USD 274.854).

Contributions to the scheme are charged to the income statement so as to spread the cost of the pensions over employees working lives with the company.

The contributions are determined by a qualified actuary on the basis of triennial valuations using the projected unit method.

The actual valuation of the “Air Atlanta Aero Engineering Limited Retirement and Death Benefits Plan” was updated to 31 October 2005. The principal actuarial assumptions used as at 31 October 2005 are shown below:

YTD 2005 YTD 2004

Rate of increase in pensionable salaries ...... 3.25% 3.25% Discount rate ...... 4.50% 4.50% Rate of increase in pensions in payment ...... - - Inflation assumption ...... 2.25% 2.25%

All amounts in thousands of USD Notes to the Financial Statements

Based on these assumptions, the following table sets out the market value of the assets of the defined benefit scheme together with details of the expected long term rates of return used to generate the amount shown in the financial statement. It also shows the most recent valuation of the scheme liabilities updated for movements in the financial assumptions:

Expected rate of return Market value 31.10.2005 31.12.2004 31.10.2005 31.12.2004

Equities ...... 7,25% 7,25% 4,989 4,712 Bonds and cash ...... 4,25% 4,25% 945 893 Other ...... 2.00% 2.00% 286 270 Total market value at end of period . . . . 6,220 5,875 Present value of scheme liabilities . . . . . (7,293 ) (7,068 ) Deficit in the scheme ...... (1,073 ) (1,193 )

History of actuarial gains and losses: 31.10.2005 31.12.2004 61 Difference between the expected and actual return on assets ...... 271 179 Expressed as a percentage of scheme assets ...... 4.4% 3.1% Experience (losses) gains on scheme liabilities ...... (383 ) 124 Expressed as a percentage of scheme liabilities ...... 5.2% 2.1% Total actuarial gains and losses ...... (111 ) 303 Expressed as a precentage of scheme liabilities ...... 1.5% 11.9%

Movement in deficit during the period: YTD 2005 YTD 2004

Deficit in scheme at 1 January ...... (1,193 ) (737 ) Currency adjustments during period ...... 144 (101 ) Current service cost ...... (233 ) (256 ) Contributions ...... 269 281 Other financing gains/ (losses) ...... 56 (11 ) Actuarial losses ...... (116 ) (369 ) Deficit in the scheme at 31 October 2005 / 31 December 2004 ...... (1,073 ) (1,193 )

36. Current Interest bearing loans and borrowings

31.10.2005

Bank loans ...... 5,708 Current maturities of long-term interest bearing loans and borrowings ...... 216,469 222,177

37. Other payables 31.10.2005

Other liabilities ...... 193,594 Unearned transportation revenue ...... 54,194 Current maturities of guarantee deposits ...... 5,080 Derivative liabilities ...... 10,357 263,224

All amounts in thousands of USD Notes to the Financial Statements

38. Deferred tax

Recognised deferred tax assets and (liabilities)

Assets Liabilities Net Intangible assets ...... 84 - 84 Operating fixed assets ...... 256 (8,489 ) (8,233 ) Long-term investments ...... 626 (278 ) 348 Inventories ...... - (133 ) (133 ) Receivables ...... 763 - 763 Derivative assets ...... - 133 133 Long-term liabilities ...... - (98 ) (98 ) Employee benefits ...... 55 - 55 Derivative liabilities ...... 4 - 4 Carry forward income tax losses ...... 12,007 - 12,007 Total tax assets (liabilities) ...... 13,795 (8,865 ) 4,930 Set off tax ...... (931 ) 931 0 62 Net tax assets (liabilities) ...... 12,864 (7,934 ) 4,930

Movement in temporary differences during the period

Total value Additions Entry to Entry to the Total value 1 January due to merger income equity 31 October

Intangible assets ...... 50 46 (13 ) - 83 Operating fixed assets ...... (2,301 ) (7,220 ) 1,059 - (8,462 ) Long-term investments ...... - 309 (278 ) 307 338 Inventories ...... (62 ) (46 ) (23 ) - (131 ) Receivables ...... 858 111 (218 ) - 751 Derivative assets ...... - - - 169 169 Long-term liabilities ...... 304 - (403 ) - (99 ) Employee benefits ...... - - 53 - 53 Current liabilities ...... 72 4 (76 ) - 0 Derivative liabilities ...... - - 4 - 4 Carry forward income tax losses ...... 9,138 1,567 2,532 - 13,237 Other items ...... (39 ) - 39 - 0 Total ...... 8,020 (5,229 ) 2,676 476 5,943 Translation difference ...... (408 ) (576 ) (43 ) 14 (1,013 ) Total value 31 October 2005 . . . . . 7,612 (5,805 ) 2,633 490 4,930

At balance sheet date the Group has unused tax losses available for offset against future profits as follows:

Tax loss Deferred tax Expires after five years ...... 31,635 5,694 Available indefinitely ...... 22,083 6,312 53,718 12,007

No deferred tax asset has been recognised in respect of USD 20 million of UK tax losses and USD 4 million of Icelandic tax losses as the utilisation of these losses is uncertain. Tax losses written off may be utilised against future taxable profits. This may reduce future tax payments and the tax charge in future years.

All amounts in thousands of USD Notes to the Financial Statements

39. Acquisition of Air Atlanta Europe Ltd.

At the beginning of the 2005 the Group gained control of Air Atlanta Europe when it took over the management and financial and operational responsibilities of the company. This transaction has been accounted for by the purchase method of accounting.

Book Fair value Fair value adjustments value

Net assets acquired Property, plant and equipment ...... 65 - 65 Intangible assets ...... 1,011 20,985 21,996 Deferred tax assets ...... 6,613 (6,613 ) - Current assets ...... 7,712 - 7,712 Trade and other liabilities ...... (29,773 ) - (29,773 ) (14,372 ) 14,372

Total consideration ...... 0 63

40. Acquisition of Eimskipafélag Íslands ehf.

On 31st of May, the Group acquired all outstanding share capital of Eimskipafelag Islands ehf. for cash consideration of USD 204.1 million. This transaction has been accounted for by the purchase method of accounting.

Book Fair value Fair value adjustments value

Net assets acquired Property, plant and equipment ...... 193,600 25,800 219,400 Intangible assets ...... 24,310 - 24,310 Deferred tax assets ...... 823 - 823 Non current loans ...... 3,657 - 3,657 Investments in other companies ...... 1,560 - 1,560 Inventories ...... 4,823 - 4,823 Current assets ...... 125,584 - 125,584 Non current liabilities ...... (150,778 ) - (150,778 ) Bank loans ...... (21,683 ) - (21,683 ) Deferred tax liabilities ...... (1,637 ) - (1,637 ) Trade and other liabilities ...... (71,439 ) - (71,439 ) Minority interest in equity ...... (4,230 ) - (4,230 ) 104,590 25,800 Goodwill ...... 229,663 Tax effects of fair value adjustments ...... (4,644 ) Total consideration ...... 355,409

Satisfied by: Cash ...... (204,126 ) Directly attributable costs ...... (466 ) New shares issued ...... (150,817 ) (355,409 )

Net cash outflow arising on acquisition: Cash consideration ...... (204,592 ) Cash and cash equivalents acquired ...... 25,836 (178,756 )

If the acquisition of Eimskipafelag Islands ehf. had been completed on the first day of the financial year, Group revenue for the period would have increased by USD 186 million and Group profit attributable to equity holders of the parent would have been USD 1.5 million higher.

All amounts in thousands of USD Notes to the Financial Statements

41. Acquisition of Travel City Holdings Plc

On 17th of June the Group acquired 100 per cent of the issued share capital of Travel City Holding Plc. for cash consideration of USD 46.2 million. Travel City Holding Plc. is the parent company of tour operating companies. This transaction has been accounted for by the purchase method of accounting.

Book Fair value Fair value adjustments value

Net assets acquired Property, plant and equipment ...... 1,307 - 1,307 Deferred tax assets ...... 4,956 - 4,956 Current assets ...... 148,251 - 148,251 Liabilities ...... (161,985 ) - (161,985 ) (7,471) 0 Goodwill ...... 53,733 64 Total consideration ...... 46,262

Satisfied by: Cash ...... (46,150 ) Directly attributable costs ...... (112 ) (46,262 )

Net cash outflow arising on acquisition: Cash consideration ...... (46,262 ) Cash and cash equivalents acquired ...... 121,016 74,754

If the acquisition of Travel City Holding Plc. had been completed on the first day of the financial year, Group revenue for the period would have increased been USD 192 million with immaterial effect on net earnings.

42. Operating lease arrangements

The Group as lessee

31.10.2005 31.12.2004 Minimum lease payments under operating leases recognised in income statement for the period ...... 243,483 124,252

At the balance sheet date, the Group had outstanding commitments under non-cancellable operating leases, which fall due as follows:

31.10.2005 31.12.2004

On demand or within 12 months ...... 153,305 58,202 Within 24 months ...... 113,148 38,043 Within 36 months ...... 83,918 20,715 Within 48 months ...... 49,977 - Subsequent years ...... 41,720 - 442,068 116,960

Operating lease payments represent rentals payable by the Group companies for aircraft, vessels and certain office equipment.

The Group has subleased aircraft for approximately USD 399 million, of that amount USD 263 million is due within twelve months.

All amounts in thousands of USD Notes to the Financial Statements

43. Cash flow

During the period, the Group acquired all share capital of Eimskipafelag Islands ehf. A payment was made by increasing the Company’s share capital valued at USD 145.5 million, with allocation of treasury stock valued at USD 6.3 million and a loan amounting to USD 53.6 million was also taken to finance the purchase. These transactions do not affect cash and are therefore not included in the statement of cash flows.

On 17 June, the Group acquired all share capital of Travel City Holding Plc. A payment was made by issuing a loan note amounting to USD 14.6 million. These transactions do not affect cash and are therefore not included in the statement of cash flows.

At the end of June, the Group acquired 28.4 % of the issued share capital of Excel Airways Group Plc. A payment was made by increasing the Company’s share capital valued at USD 52.5 million. These transactions do not affect cash and are therefore not included in the statement of cash flows.

65 44. Capital commitments

In September 2005 Avion Group hf, throught its subsidiary Avion Aircraft Trading hf, became the second launch customer with Boeing of the B777 freighter program by signing and confirming an order of 4 B777-200 long range freighters, for delivery in 2009. Agreement for additonal 4 aircraft was signed early in November and confirmed in December. In addition 3 Airbus A300-600 were bought and freigther conversion slots already confirmed in 2006 - 2007. Total commitment due to these agreements is in excess of USD 1,200 million. In addition Excel Airways Group has signed a lease agreement for 6 new Boeing 737-800, 2 for delivery spring 2006 and 4 for spring 2007.

In November Avion Group hf, through Eimskipafelag Islands ehf. received a new reefer vessel, Svartfoss, in Alesund, Norway. This is the first construction of a reefer vessel this size in the world since 1990. Svartfoss is the first of four reefer vessels to be constructed and taken into operation by Eimskip in the near future. All four vessels being constructed for Eimskipafelag Islands ehf. will be delivered and in operation by April 2007. That will ensure the company’s leading position in reefer logistics in the North Atlantic. Total commitment due to these purchases amounts to USD 69.0 million.

In January 2006 Avion Group hf, through Eimskipafelag Islands ehf., acquired 40% share in Daalimpex BV for USD 19.8 million. Daalimpex is a leading company in the cold storage & logistic services branch. The company provides world class cold storage space to both food industry and other industries.

45. Subsequent events

In December 2005 Avion Group hf. sold 261,096,605 new shares to institutional investors at a share price of ISK 38.3 at approximetly USD 160 million.

The board of Avion Group hf. agreed to give each employee of the companies within the Avion Group ISK 50,000 in share capital at market value. Total number of shares expected to be allocated to employees is 3.9 million.

Avion Group hf increased the share capital in Air Atlanta Icelandic by USD 50 million in November 2005. This additonal share capital is a requirement from the Icelandic Civil Aviation for the operation of the two joint operation certificates, previously operated as Flugfelagid Atlanta hf d/b/a Air Atlanta Icelandic and Islandsflug. The capital injection has been paid in full with a long term loan from Landsbanki Island.

All amounts in thousands of USD Notes to the Financial Statements

In January 2006 Avion Group decided to grant key management call option agreements. The objective is to motivate the management and link the interest of shareholders and key management further. The options entitle purchase of shares at the price ISK 38,3 per share, January 15, for the next three years. No call options were in place before these transactions and no put options or finance are related to it. Avion Group has granted call options for 49.500.000 shares. Options granted to management according to these agreements are included in note 8.

46. Related party transactions

Identity of related parties:

The Group has a related party relationship with its subsidiaries (see note 16), associates (see note 17) and with management.

66 Loans to and from related parties were as follows: Payable from Payable to related parties related parties

31.10.2005 31.10.2005

Loans to associates Casino Express ...... 200,000 - Harbour Grace ...... 364,935 - Halship ...... 1,787,129 - Freshport ...... 430,928 - 2,782,991 - Other loans Magnus Thorsteinsson ...... - 11,382,016

Total loans to and from related parties ...... 2,782,991 11,382,016

No relevant transactions were between associates and the Group during the period. All agreements are priced at an arms length basis. The loan from Magnus Thorsteinsson was repaid in November.

47. Explanation of Transition to IFRSs

As stated in note 2, these are the Group’s first annual financial statements prepared in accordance with IFRS. The Accounting policies in note 2 have been applied in preparing the consolidated financial statements for the ten months ended 31 October 2005, the comparative information for the twelve months ended 31 December 2004 and the preparation of an opening IFRS balance sheet at 1 January 2004 (the Group’s date of transistion to IFRS).

In preparing its opening balance sheet, comparative information for the ten months ended 31 October 2005 and financial statements for the year ended 31 December 2004, the Group has adjusted amounts previously reported in financial statements prepared in accordance with previous GAAP.

An explanation of how the transistion from previous GAAP to IFRS has effected Groups financial position and financial performance is set out in the following tables and the accompanying notes.

Reconciliation of equity at 1 Januar 2005

Equity previously reported according to Icelandic GAAP 31 December 2004 ...... 62,048 Equity according to Icelandic IFRS 1 January 2005 ...... 67,059 Changes from Icelandic GAAP ...... 5,011

All amounts in thousands of USD Notes to the Financial Statements

Changes in equity are specified as follows:

1.1.2004 1.1.2005 Total Change in goodwill ...... IAS 36 - 8,130 8,130 Capitalised training cost reversed . . . . . IAS 38 (2,006 ) (7,061 ) (9,067 ) Change in reserves ...... IAS 16 / 37 1,429 948 2,377 Capitalised borrowing cost ...... IAS 23 - 1,223 1,223 Depreciation of fixed assets ...... IAS 16 1,300 2,229 3,529 Change in pension obligation ...... IAS 19 (811 ) (370 ) (1,181 ) (88 ) 5,099 5,011

Notes to the reconciliation of equity at 31 December 2004

Investment in subsidiaries All business combinations are accounted for by applying the purchase method. Goodwill has been recognized in acquisitions of subsidiaries and represents the difference between the cost of the acquisition and the fair value of 67 the net identifiable assets acquired. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is not amortized but is tested annually for impairment.

Negative goodwill arising on an acquisition is recognized directly in the income statement.

The effect of applying IFRS to business combinations concerning subsidiaries is an increase in net equity and net earnings by the amount of USD 8.1 million due to reversal of amortisation for the year 2004.

Training cost According to IFRS intangible assets have to meet a certain conditions and it has to be demonstrated that future economic benefit will flow to the company. Capitalised training cost did not meet the conditions and the cost was expensed.

The change made to capitalised training cost resulted in a reduction in equity of USD 9.1 million. The effect on the operation in the year 2004 is a reduction in net earnings amounting to USD 7.1 million.

Reserves Under Icelandic GAAP a reserve to meet future cost of major airplane overhauls is expensed in the income statement. Under IFRS major airplane overhaul will be treated as a separate asset component with the cost capitalised and depreciated over the period to the next expected major overhaul and reserves are no longer expensed.

The change made to reserves resulted in an increase in equity of USD 2.4 million. The effect on the operation in the year 2004 is an increase in net earnings amounting to USD 0.9 million.

Borrowing cost Under Icelandic GAAP all borrowing cost is expensed when a loan is acquired. Under IFRS interest bearing loans are reported using effective interest rates. Borrowing cost is treated as an expense unless they meet the criteria for capitalisation. The Group uses allowed alternative treatment, to capitalise borrowing cost if it is attributable to the acquisition, construction or production of a qualifying asset.

The effect of applying IFRS to acquisition of loans and borrowing cost is an increase in net equity and net earnings by the amount of USD 1.2 million.

Depreciation The calculation of depreciation of fixed assets did not include any residual value and major overhauls were not capitalised. The change made to depreciation method of fixed assets resulted in an increase in equity of USD 3.5 million. The effect on the operation in the year 2004 is an increase in net earnings amounting to USD 2.2 million.

All amounts in thousands of USD Notes to the Financial Statements

Pension obligation One of the Groups subsidiaries operates a pension scheme providing benefits based on final pensionable pay, secured by contributions by the company and its employees to an independent and separately administered pension fund. The pension obligation has been calculated using IFRS.

The change made to pension obligation resulted in a decrease in equity of USD 1.2 million. The effect on the operation in the year 2004 is an decrease in net earnings amounting to USD 0.4 million.

Balance sheet 31 December 2004 Effect of Previous transition GAAP to IFRSs IFRSs

Assets

Goodwill ...... 134,726 10,718 145,444 Other intangible assets ...... 10,845 (8,919 ) 1,926 68 Property, aircraft, vessels and equipment ...... 154,831 (5,025 ) 149,807 Other investments ...... 657 - 657 Guarantee depostits ...... 12,190 - 12,190 Deferred tax assets ...... 8,986 587 9,573 Total non-current assets ...... 322,235 (2,639 ) 319,597

Inventories ...... 10,792 - 10,792 Trade and other receivables ...... 69,842 - 69,842 Other receivables ...... 17,574 - 17,574 Cash and cash equivalents ...... 58,861 - 58,861 Total current assets ...... 157,069 0 157,069

Total Assets ...... 479,304 (2,639 ) 476,665

Equity

Issued capital ...... 8,628 - 8,628 Share premium ...... 28,365 (491 ) 27,874 Reserves ...... 2,274 - 2,274 Retained earnings ...... 13,322 5,502 18,824 Equity attributable to equity holders of the parent ...... 52,589 5,011 57,600 Minority interest ...... 9,459 - 9,459 Total equity ...... 62,048 5,011 67,059

Liabilities

Interest bearing loans and borrowings ...... 160,315 1,690 162,006 Employee benefits ...... - 1,196 1,196 Long term deposit / provision ...... 5,401 (594 ) 4,807 Deferred income tax liability ...... - 1,553 1,553 165,716 3,845 169,561

Interest bearing loans and borrowings ...... 80,378 - 80,378 Trade and other payables ...... 87,055 - 87,055 Other liabilities ...... 84,107 (11,495 ) 72,612 251,540 (11,495 ) 240,045

Total equity and liabilities ...... 479,304 (2,639 ) 476,665

All amounts in thousands of USD Notes to the Financial Statements

Reconciliation of income statement for 2004 Effect of Previous transition GAAP to IFRSs IFRSs

Net sales ...... 479,211 - 479,211 Other income ...... 13,267 4,296 17,563 Total operating revenue ...... 492,478 4,296 496,774 Operating expenses ...... (495,583 ) (310 ) (495,893 ) (Loss) / profit from operations ...... (3,105 ) 3,986 881 Income from associates ...... 18,071 - 18,071 Financial income / (expenses) ...... (9,643 ) - (9,643 ) Result before financial items ...... 5,323 3,986 9,309 Income tax ...... 5,350 730 6,080 Net profit ...... 10,673 4,716 15,389

Attributable to equity holders of the parent ...... 13,320 4,716 18,036 Attributable to minority interest ...... (2,647 ) - (2,647 ) 69 10,673 4,716 15,389

Material adjustments to the cash flow statement for 2004

The effect of IFRS decreased net cash provided by operating activities by USD 7.0 million during 2004 or from cash provided by operating activities 0.5 million changed to cash to operating activities amounting to -6.5 million. Net cash used in investing activities decreased by USD 8.2 million or from -111.0 to -102.8 million. Net cash provided in financing activities decreased by USD 1.2 million or from 163.2 to 162.0 million.

48. Financial ratios

An overview of the operations of the Group for the last five years in thousands of USD:

IFRS Icelandic GAAP 10m 2005 2004 2003 2002 2001 Income statement: Operating revenue ...... 1,401,491 496,774 228,268 222,869 210,115 Operating expenses ...... (1,340,139 ) (495,893 ) (241,299 ) (219,643 ) (208,035 ) EBIT ...... 61,352 881 (13,031 ) 3,226 2,080 Depreciation and amortization ...... 53,842 23,487 15,925 17,313 12,787 EBITDA ...... 115,194 24,368 2,894 20,540 14,867

Balance sheet: Fixed assets ...... 1,053,344 319,597 68,142 65,109 65,110 Current assets ...... 465,896 157,068 52,720 40,632 24,587 1,519,240 476,665 120,862 105,741 89,697

Total equity ...... 460,527 67,055 23,573 28,588 12,136 Long-term liabilities ...... 420,836 169,560 23,260 10,252 12,909 Current liabilities ...... 637,877 240,050 74,029 66,901 64,652 1,519,240 476,665 120,862 105,741 89,697

All amounts in thousands of USD Review in Icelandic / Íslenskur útdráttur Avion Group – íslensk sókn um allan heim

Avion Group var stofnað þann 1. janúar 2005 og er því ungt lagt inn pöntun á átta glænýjum fjárfestingafélag með sterkar rætur í íslenskri atvinnusögu. Avion Boeing 777 fraktvélum. Vélarnar Group byggir á traustum grunni sterkra fyrirtækja og hefur yfir verða með þeim fullkomnustu í að ráða gríðarlega öflugum flutningaflota í lofti, á láði sem legi. háloftunum við afhendingu árið Afkomusvið félagsins eru þrjú: Shipping & Logistics, Aviation 2009. Services og Charter & Leisure. Charter & Leisure Starfsemi Avion Group fer fram á að viðskiptavinir geti ekki fundið Excel Airways var stofnað árið 1999 85 stöðum í öllum byggðum heims hagkvæmari eða betri þjónustu og er með höfuðstöðvar við Gatwick 70 álfum. Um 4500 manns starfa hjá á heimamarkaði, hvorki sjálfir flugvöll á Englandi. Excel Airways, félaginu og fjöldi þessa fólks býr né hjá öðrum flutningafélögum. og rekstur á þess vegum, snýr að yfir afar verðmætri sérþekkingu og Fyrirtækið er með sterka markaðs- leiguflugi og almennri ferðaþjónustu reynslu á sínu sviði. hlutdeild í siglingum á Norður- og flytur félagið um þrjár milljónir Atlantshafi. Eimskip nýtir þann farþega á ári, auk þess að útvega Markmið Avion Group er að verða sterka grunn til enn frekari vaxtar á gistingu og aðra þjónustu. öflugasta fjárfestingarfélag í heimi öðrum sviðum flutningaþjónustu, á sviði flutningastarfsemi. Avion svo sem í stórflutningum, flug- Excel Airways er í dag tíunda Group byggir styrk sinn á stærðinni flutningum, frystiflutningum, stærsta leiguflugfélag í heimi og jafnt sem hæfni einstaklinga til flutningsmiðlun, landflutningum, stefnir markvisst að því að auka þess að ná árangri í sókn um allan vörugeymslu og dreifingu. hlut sinn á ferðamarkaði á komandi heim. árum. Uppistaðan í ferðum félags- Eimskip er markaðssinnað fyrirtæki ins er innan áfangastaða í Evrópu Avion Group hlotnaðist sá heiður sem leggur áherslu á að auka og og Mið-Austurlöndum frá um tólf að vera kjörið annað framsæknasta nýta sem best þekkingu og hæfi- flugvöllum innan Bretlands. félag Evrópu úr hópi 500 sókndjörf leika starfsmanna sinna. ustu félaga álfunnar árið 2005. Leiguflugsþjónustan er afar sveigj- Sókn Avion Group er því ævintýri Aviation Services anleg eftir árstíðum. Því er ein- sem er rétt að hefjast. Air Atlanta Icelandic var stofnað ungis um þriðjungur sætanna með 1986 og er leiðandi á sviði þjón vélum félagsins en tveir þriðju með Shipping & Logistics ustuleigu flugvéla í heiminum. árstíðabundinni leigu. Þetta skapar Eimskip var stofnað 1914, með það Air Atlanta Icelandic er ACMI-flug- einkar hagstætt rekstrarumhverfi. að markmiði að færa heiminn nær félag (Aircraft, Crew, Maintenance, Stærsti hlutinn af sætum félagsins íslensku þjóðinni. Ekkert félag á því Insurance) og leigir bæði frakt- og er seldur til annarra ferðaskrifstofa eins stóran sess í hjörtum íslensku farþegaflugvélar með allri áhöfn til en einnig býr félagið yfir öflugu þjóðarinnar og Eimskip, enda saga annarra flugfélaga. Avia Technical neti ferðaskrifstofa. þess samofin sjálfstæðisbaráttu Services er flugviðhaldsfyrirtæki Íslendinga. sem þjónustar bæði Air Atlanta Excel hefur hlotið verðlaun tvö Icelandic og Excel Airways, auk ár í röð sem besta leiguflugfélag Í dag er Eimskip eitt öflugasta fleiri flugfélaga. Bretlands og besta leiguflugfélag félag í flutningum á Norður- heims. Slíkar viðurkenningar Atlantshafi með 31 flutningaskip Stór markaðshlutdeild, jákvætt eru ómetanleg hvatning og í áætlunarsiglingum á milli umtal, öflugur hópur viðskiptavina staðfesting á sérþekkingu, dug Íslands, Skandínavíu, meginlands og yfirburðaþekking á markaði er og þjónustulund starfsmanna. Evrópu og Ameríku. Vöxtur grunnurinn að sterkri stöðu Air Eimskips á alþjóðavísu byggist á Atlanta Icelandic í dag. Orðsporið Avion Group hefur nýlega fest þessum sterka grunni en félagið um hraða og góða þjónustu hefur kaup á franska leiguflugfélag- stefnir að því að verða lykilaðili í verið byggt á reynslu og þekkingu inu Star Airlines, sem er annað flutningaþjónustu í hitastýrðum starfsfólks í gegnum tíðina. stærsta leiguflugfélag Frakklands. Star Airlines flýgur til tuttugu flutningum á alþjóðavísu. áfangastaða í Afríku, Mið-Austurl- Endurnýjun flugflota Air Atlanta öndum og við Miðjarðarhaf. Að Lykilhæfni Eimskips felst í því að Icelandic er hafin og hyggst félagið auki heldur félagið uppi áætlunar- skipuleggja og reka flutningakerfi auka mikilvægi fraktflutninga flugi til Mexíkó, Malí og Líbanon. á sem hagkvæmastan hátt þannig innan félagsins. Avion Group hefur Starfsemi Avion Group fer fram á 85 stöðum í öllum byggðum heimsálfum. Um 4500 manns starfa hjá félaginu og fjöldi þessa fólks býr yfir afar verðmætri sérþekkingu og reynslu á sínu sviði.

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Aviation Services Charter & Leisure Shipping & Logistics

Yfirlit 2005

10m 2005 2004

Eiginfjárhlutfall ...... 30,2% 12,1% Veltufjárhlutfall...... 0,73 0,65 Ávöxtun eiginfjár ...... 17,0% 44,4% Veltufé frá rekstri...... 71.535 18.852 EBIT...... 61.352 881 EBIT / tekjum ...... 4,4% 0,2% EBITDA ...... 115.194 24.368 EBITDA / tekjum ...... 8,2% 4,9% Fartími flugvéla...... 178.940 120.987 Fluttir farþegar...... 6.174 2.965 Flutt tonn með skipi...... 992,800 -

2005 2004 1.1–31.10 1.1–31.12 Rekstrartekjur Sala ...... 1.379.537 479.211 Aðrar tekjur ...... 21.954 17.563 Rekstrartekjur samtals 1.401.491 496.774

Rekstrargjöld Aviation Services ...... (367.017) (444.894) Charter & Leisure ...... (783.329) (50.999) Shipping & Logistics ...... (189.793) 0 Rekstrargjöld samtals (1.340.139) (495.893)

Rekstrarhagnaður...... 61.352 881

Hlutdeildartekjur ...... (203) 18.071 Fjármunatekjur og fjármagnsgjöld ...... (1.965) (9.643) Fjármunatekjur (fjármagnsgjöld) samtals (2.168) 8.428

Hagnaður fyrir tekjuskatt...... 59.184 9.309 Tekjuskattur ...... (16.517) 6.080

Hagnaður tímabilsins...... 42.667 15.389

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Magnús Þorsteinsson, stjórnarformaður: „Afkoma Avion Group var góð á árinu og vöxturinn mikill. Við erum ánægð með mikinn áhuga fjárfesta á félaginu. Nú þegar viðskipti með félagið eru hafin í Kauphöllinni verður sýnileiki okkar meiri og hlut höfum fjölgar ört.“ 73

■ 182% vöxtur heildartekna Arðgreiðslur ■ Hagnaður fyrir skatta $ 59 milljónir Stjórn Avion Group mun leggja ■ EBITDA $115 milljónir – EBIT $61 milljón það til við aðalfund að ekki verði greiddur arður fyrir árið 2005. ■ Hagnaður eftir skatta $43 milljónir Avion Group og forveri þess, Air ■ Heildareignir í árslok $1.519 milljónir – 219% aukning Atlanta Icelandic, greiddu ekki ■ Veltufé frá rekstri $72 milljónir arð fyrir árin 2002, 2003 og 2004. ■ Eigið fé 31. október $461 milljón – eiginfjárhlutfall 30% Avion Group stefnir að því að ■ Veltufjárhlutfall 0.73 greiða arð til hlutahafa sinna í ■ Fartímar (block hours) voru 178.940 – aukning um 48% framtíðinni. Ákvarðanir um arð- greiðslur eru teknar á aðalfundum ■ Fjöldi farþega var 6,2 milljónir – aukning um 108% félagsins og eru ákvarðar út frá ■ 993 þúsund tonn flutt sjóðleiðis fjárhagsstöðu félagsins.

Rekstrartekjur félagsins á árinu var 0,65 í lok árs 2004. Í lok árs var Skráning námu $1,401 milljón og jukust handbært fé félagins $150 milljónir Avion Group var skráð í um 182% samanborið við 2004. og ónýttar lánalínur að fjárhæð yfir Kauphöllina þann 20. janúar. Rekstrargjöld námu $1.340 millj $90 milljónir. Skráning Avion Group er stærsta ónum og jukust um 170% milli ára. nýskráning félags í Kauphöllina en Hagnaður samstæðunnar fyrir skatta Sjóðsstreymi markaðsvirði félagsins voru tæpir á fjárhagsárinu nam $59 milljón og Veltufé frá rekstri var $72 millj- 69 milljarðar króna við skráningu. jókst um 536%. Hagnaður samstæð- ónir fyrir tímabilið. Handbært Heildarfjöldi hluta í Avion Group unnar eftir skatta nam $43 millj- fé frá rekstri var $1 milljón. hf. eru alls 1.793.599.135 að nafn- ónum. Tölur fyrir fjárhagsárið 2005 Fjárfestingarhreyfingar námu $210 verði. ná til 10 mánaða en samanburðar- milljónir samanborið við $103 tölur eru fyrir allt árið 2004. milljónir á fyrra ári sem er meira en Framtíðarhorfur 100% aukning. Áætlanir Avion Group fyrir yfir- Efnahagsreikningur standandi ár gera ráð fyrir Á árinu breyttist efnahags- Hluthafar betri afkomu á öllum þremur reikningur fyrirtækisins mikið. Hluthafar í Avion Group voru 20 tekjusviðum félagsins (Aviation Aðalástæða þess eru kaup í lok október samanborið við 11 Services, Charter & Leisure and Avion Group á öðrum félögum. í upphafi árs. Þrír hluthafar áttu Shipping and Logistics). Heildareignir voru $1.519 milljónir meira en 10% hlut í félaginu í í lok árs sem er $477 milljóna króna lok árs. Fronline Holding S.A. Starfsemi félagsins er háð miklum aukning frá fyrra ári. Eigið fé jókst með 34,7% eignarhlut, Straumur árstíðarsveiflum. Oftast er hagn frá $67 milljónum í $461 milljón á Burðarás hf. með 13,2% eignarhlut aður á síðar helmingi ársins og árinu. Eiginfjárhlutfall var 30% í lok og Pilot Investors Ltd. með 10,4% gera má ráð fyrir tapi á fyrri árs- tímabilsins. Arðsemi eigin fjár var eignarhlut. Í dag eru hluthafar helmingi. 17%. Hagnaður á hlut var $ 0,04 á Avion Group 1.963. árinu. Veltufjárhlutfall er 0,73 en Efnahagsreikningur 31. október 2005

Eignir 31.10.2005 31.12.2004 Fastafjármunir Viðskiptavild ...... 501.226 145.445 Aðrar óefnislegar eignir ...... 30.566 1.927 Fasteignir, flugvélar, skip og tæki ...... 449.490 149.806 Eignarhlutir í hlutdeildarfélögum ...... 839 0 Eignarhlutir í öðrum félögum ...... 40.050 657 Vörslufé ...... 18.309 12.190 Skattinneign ...... 12.864 9.572 Fastafjármunir 1.053.344 319.597

Veltufjármunir Birgðir ...... 16.105 10.792 Viðskiptakröfur ...... 184.422 69.841 74 Aðrar kröfur ...... 105.248 17.574 Handbært fé ...... 150.346 58.861 Eignir til sölu ...... 9.775 0 Veltufjármunir 465.896 157.068

Eignir samtals 1.519.240 476.665

Eigið fé og skuldir

Eigið fé Hlutafé ...... 22.013 8.628 Yfirverðsreikningur ...... 365.393 27.874 Varasjóður ...... 9.720 2.273 Óráðstafað eigið fé ...... 61.906 18.821 Eigið fé hluthafa móðurfélags 459.032 57.596

Hlutdeild minnihluta ...... 1.495 9.459 Eigið fé 460.527 67.055

Skuldir

Langtímaskuldir Skuldir við lánastofnanir ...... 410.132 162.006 Vörslufé ...... 1.697 4.806 Eftirlaunaskuldbinding ...... 1.073 1.196 Tekjuskattsskuldbinding ...... 7.934 1.552 420.836 169.560

Skammtímaskuldir Skuldir við lánastofnanir ...... 222.177 80.378 Viðskiptaskuldir ...... 152.476 87.056 Aðrar skammtímaskuldir ...... 263.224 72.616 637.877 240.050

Skuldir samtals 1.058.713 409.610

Eigið fé og skuldir samtals 1.519.240 476.665

Allar fjárhæðir eru í þúsundum Bandaríkjadala Rekstrarreikningur ársins 2005

2005 2004 1.1-31.10 1.1-31.12 Rekstrartekjur

Sala ...... 1.379.537 479.211 Aðrar tekjur ...... 21.954 17.563 1.401.491 496.774

Rekstrargjöld ...... (1.340.139 ) (495.893 )

Rekstrarhagnaður ...... 61.352 881

Hlutdeildartekjur ...... (203 ) 18.071 Fjármunatekjur og fjármagnsgjöld ...... (1.965 ) (9.643 ) (2.168 ) 8.428 75

Hagnaður fyrir tekjuskatt ...... 59.184 9.309

Tekjuskattur ...... (16.517 ) 6.080

Hagnaður tímabilsins ...... 42.667 15.389

Hagnaður skiptist á: Hluthafa í móðurfélaginu ...... 43.869 18.037 Minnihluta í dótturfélögum ...... (1.202 ) (2.648 ) Hagnaður tímabilsins ...... 42.667 15.389

Hagnaður á hlut

Hagnaður á hverja krónu hlutafjár (USD) ...... 0.04230 0.02884

Allar fjárhæðir eru í þúsundum Bandaríkjadala Sjóðstreymi ársins 2005

2005 2004 1.1-31.10 1.1-31.12 Rekstrarhreyfingar

Rekstrarhagnaður tímabilsins ...... 61.352 881 Afskriftir ...... 53.842 23.487 Verðbætur og gengismunur ...... (2.940 ) 856 Söluhagnaður fastafjármuna ...... (21.139 ) (11.204 ) Aðrir liðir ...... (1.095 ) (4.860 ) Rekstrarhagnaður fyrir breytingar á rekstrartengdum eignum og skuldum . 90.020 9.160 Breytingar á rekstrartengdum eignum og skuldum ...... (67.887 ) (9.202 ) Handbært fé frá rekstri án vaxta og skatta ...... 22.133 (42 ) Greiddir vextir ...... (18.578 ) (3.170 ) Greiddir skattar ...... (2.461 ) (3.237 ) 76 Handbært fé frá rekstri 1.094 (6.449 )

Fjárfestingarhreyfingar

Fastafjármunir ...... (125.896 ) (50.421 ) Hlutabréf ...... (77.560 ) (44.410 ) Breytingar á vörslufjáreign ...... (6.158 ) (7.935 ) Fjárfestingarhreyfingar (209.614 ) (102.766 )

Fjármögnunarhreyfingar

Hlutafé ...... 146.263 (1.456 ) Nýjar langtímaskuldir ...... 270.372 212.287 Afborganir langtímalána ...... (110.914 ) (48.845 ) Breytingar á vörslufjárskuld ...... (159 ) 0 Fjármögnunarhreyfingar 305.562 161.986

Hækkun á handbæru fé ...... 97.042 52.771 Þýðingarmunur ...... (5.557 ) 3.741 Handbært fé í upphafi árs ...... 58.861 2.349

Handbært fé í lok tímabils ...... 150.346 58.861

Allar fjárhæðir eru í þúsundum Bandaríkjadala www.aviongroup.com/www.aviongroup.is