Results for the six months ended 31 August 2022
David Shearer, Executive Chairman of Esken said,
“I am pleased that we have been able to conclude our debt financing, encompassing £50m of committed funds, with £40m uncommitted, despite challenging market conditions. Upon shareholder approval of an increase in our borrowing limits, the £50m of committed funds will bring stability and allows us to clear our residual legacy liabilities.”
“Our Renewables business has proved resilient in what have been challenging conditions with unplanned biomass plant outages, reduced waste wood availability and rising costs. We expect biomass plant performance to improve in the Winter months, and Esken Renewables has secured new supply agreements and implemented annual contract indexation revisions. This is expected to lead to improved margins, and we have restated our guidance of £22m EBITDA for FY 2022.”
“Our Aviation business has continued its recovery but at a slower pace than we would have wished due to continuing disruption throughout the industry with many airlines focussing on short term performance ahead of strategic positioning. The medium-term case for London Southend Airport remains compelling and our refreshed airport leadership team is well placed as the market returns to normality.”
“As a board we have decided to initiate an updated strategic review of our operating businesses. This review will consider all options for the operating businesses and may conclude that it is in the best interests of all stakeholders to progress a sale or partial sale of one or both of the Renewables or Aviation divisions to secure the long term potential of these businesses and deliver value for Esken shareholders."
- Esken’s core Aviation and Renewables businesses generated a positive combined EBITDA of £6.5m for the six months to 31 August 2022 (HY21: £9.9m).
- Esken Renewables supplied 753k tonnes of biomass fuel, up 6.7% on the same period last year (HY21: 706k tonnes). Ongoing fluctuations in UK construction supply chains during the period led to a reduced availability of waste wood, impacting gate fee income. This, combined with unplanned outages at higher margin biomass plant customers and cost inflation resulted in Esken Renewables reporting EBITDA of £7.0m (HY21: £9.1m). However, this performance is expected to improve in the second half as a result of additional supply agreements, expected improvements in biomass plant customer performance and annual contract indexation revisions coming into effect, supporting £22m FY23 EBITDA guidance.
- The Aviation business received £1.4m related to the recovery of airline marketing support payments and reported an EBITDA loss of £0.5m. This compares to a £0.8m profit in the same period last year, when the Aviation business benefitted from £3.5m of one-off payments associated with Connect Airways and Teesside International Airport. Passenger numbers improved by 32.6% to 61k (HY21: 46K) reflecting continued easyJet operations with flights to three popular European destinations throughout the Summer.
- The Group’s headroom at the period end was £51.0m (HY21: £90.5m), which is in line with management expectations set out at the time of the refinancing and includes £10.1m of ring-fenced cash in London Southend Airport.
- Esken today announces it has secured a new lending facility from funds managed by a specialty lender (the lender), subject to shareholder approval of an increase in our borrowing limits in our articles of association, comprising £50m of committed funding and £40m uncommitted funding, which will be used, inter alia, to fund Esken’s residual c.£44m of Propius legacy liabilities, cancel the undrawn £19.1m RCF, and provide working capital. The uncommitted element of the new funding could be used, if accessed,alongside the disposal of £36m of non-core assets and the value of its Logistics Development Group shares, to refinance Esken’s exchangeable bond, which matures in May 2024 and provide up to £10m of additional working capital for London Southend Airport.
- Esken entered into an agreement for the early return to the lessor of two of the aircraft leased by Propius, resulting in a net cash benefit of c.£2m. However, adverse FX movements have also impacted expected future cash outflows.
|£'m||Six months ended 31 August 2022||Six months ended 31 August 2021||% change|
|Revenue by division|
|Revenue for two core operating divisions||57.7||51.0||13.1%|
|Investments and Non-Strategic infrastructure||0.3||0.3||13.9|
|Group central and eliminations||0.1||0.4||(63.8%)|
|EBITDA by division|
|EBITDA for two core operating divisions||6.5||9.9||(34.8%)|
|Investments and Non-Strategic infrastructure||(0.8)||(0.5)||(46.4%)|
|Group central and eliminations||(3.2)||(3.8)||16.3%|
|Loss before tax||(12.7)||(12.5)||(1.4%)|
|Discontinued operations, net of tax||1.6||(2.9)||154.8%|
|Loss for the period||(8.6)||(6.4)||(33.8%)|
|£'m||31 August 2022||28 February 2022||% change|
|Cash and undrawn banking facilities||51.0||72.7||(29.8%)|
Esken today announces a new facility comprising £50m of committed funding, and £40m of uncommitted funding which will be provided at the discretion of the lender. The funds are subject to shareholder approval of the matters specified below at an EGM scheduled for 29 November 2022.
Subject to shareholder approval to increase the borrowing limits in our articles of association, funds will be provided by the lender on a 3 year term (maturing in November 2025) with a further year at the discretion of the lender, with a SONIA plus 9.875% interest rate. The funds are secured primarily against the Renewables business along with fixed and floating charges over the assets and shares of all other trading subsidiaries except London Southend Airport. The committed element of the facility will be used to fund all of Esken’s residual Propius legacy liabilities of c.£44m, fees payable in respect of the cancellation of the undrawn £19.1m RCF and entry into the facility itself, and to provide working capital for the Group. £30m of the uncommitted element of the new funding could be used, if accessed, alongside the disposal of £36m of non-core assets and the value of its LDG shares, to refinance Esken’s exchangeable bond, which matures in May 2024. The remaining £10m of the uncommitted element of the new funding could be used, if accessed, to provide additional working capital for London Southend Airport to satisfy the funding it is expected to require in the period to April 2024.
As referred to above, Esken will require the approval of its shareholders to amend certain provisions of its articles of incorporation (the “Articles”) which limit its borrowings to four times its adjusted capital and reserves. We therefore intend today to issue a Notice of Extraordinary General Meeting ("EGM") to shareholders for the purposes of passing a resolution to approve the incurrence of borrowings beyond the limits in our Articles. Further details relating to the EGM are contained in an announcement expected to be made today.
Esken today announces that it is initiating an updated strategic review of its operating businesses. This review will consider all options for its operating businesses and may conclude that it is in the best interests of all stakeholders to progress a sale or partial sale of one or both of the Renewables or Aviation divisions to secure the long-term potential of these businesses and deliver value for Esken shareholders. The strategic review will be led by the board and supported by advisers as required.
- Esken remains committed to developing a Net Zero roadmap and work is ongoing to finalise the plan ahead of the year end.
- Esken continues to be committed to reviewing, developing and reporting Scope 3 emissions and is supported by Logika Consultants in delivering this.
- The delivery of the overall ESG strategy has been enhanced following the completion of the Business in the Community Responsible Business Tracker.
- Each of our businesses continue to support their chosen charity partners; FareShare, Help for Heroes and MIND and we are proud signatories of the Military Covenant, achieving Gold and Silver awards across the Group.
- Colleagues have embraced the new employee volunteering programme, which supports our charity partners, contributes to education, employment and skills programmes and delivers environmental projects.
- The established good governance programme continues to provide support to report against the TCFD requirement for governance, metrics, risk and strategy.
Esken Renewables is expected to deliver £22m EBITDA for the full year, which is a tightened expectation compared to previously announced guidance of in excess of £22m. The supply of waste wood is expected to return to seasonal norms in the second half. At the same time, biomass plant customers are expected to operate more consistently and take advantage of higher electricity prices. Esken Renewables also secured additional supply agreements that commenced in September 2022. Moreover, annual contract indexation revisions on two of its main contracts came into effect toward the end of the first half, with two contracts having come into effect early in the first half. These revisions will support margin improvements.
The combination of improved biomass plant performance, additional supply agreements, annual contract indexation revisions and management’s continued tight cost control is therefore expected to support an improved performance in the second half.
London Southend Airport welcomed flying with easyJet to three destinations - Malaga, Faro and Palma - throughout the Summer period. Flights to these destinations are now on sale for Summer 2023. Positive discussions regarding additional airline agreements for Summer 2023 and beyond are supported by the excellent passenger experience provided throughout the period, combined with the airport’s attractive operating cost.
As previously announced, cargo operations with London Southend Airport’s global logistics partner have now ended, with an anticipated impact on EBITDA for the remainder of FY23 in the order of c.£0.9m before exit fees receivable by Esken. The FY24 impact on Esken's Aviation business is expected to be a c.£2.9m reduction in EBITDA, prior to any additional cost savings or new cargo agreements. However, post period end, the division signed a contract with a new logistics partner, to support them on a temporary basis from 8th January through to 25th March 2023.
London Southend Airport remains well positioned for the recovery and longer-term growth in commercial passenger flying. As flight volumes continue to build and more established London airports begin to face capacity constraints once again, London Southend Airport's proximity to London, strong transport links and enjoyable passenger experience supports positive growth prospects.