Prior to publication the information communicated in this announcement was deemed by the Company to constitute inside information for the purposes of article 7 of the Market Abuse Regulations (EU) No 596/2014 as amended by regulation 11 of the Market Abuse (Amendment) (EU Exit) Regulations No 2019/310 ('MAR'). With the publication of this announcement, this information is now considered to be in the public domain.

 

9 November 2022

Esken Limited

("Esken" or the "Group")

 

Results for the six months ended 31 August 2022

Financing secured and delivering a resilient performance

 

Esken Limited, the aviation and renewables group, today announces its unaudited interim results for the six months to 31 August 2022.

 

The Group will provide a live presentation relating to its results via the Investor Meet Company platform at 09:30am BST today.

 

The presentation is open to all existing and potential shareholders. Investors can sign up to Investor Meet Company for free and add to meet Esken via: https://www.investormeetcompany.com/esken-limited/registerinvestor. Investors who already follow Esken on the Investor Meet Company platform will automatically be invited.

 

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."

 

Financial highlights

·	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
Aviation	14.2	12.9	9.5%
Renewables	43.5	38.1	14.1%
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%)
Total revenue	58.1	51.7	12.5%
EBITDA by division
Aviation	(0.5)	0.8	(168.0%)
Renewables	7.0	9.1	(23.7%)
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%
Total EBITDA	2.5	5.6	(55.1%)
Loss before tax	(12.7)	(12.5)	(1.4%)
Tax	2.5	9.0	(72.2%)
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
Net debt	(263.6)	(241.9)	(9.4%)
Cash and undrawn banking facilities	51.0	72.7	(29.8%)

 

Financing

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.

 

Strategic review

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.   

 

ESG progress

·      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.

Outlook

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 8^th January through to 25^th 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.

 

Divisional review

Esken Renewables

Esken Renewables supplied 753k tonnes of biomass fuel, up 6.7% on the same period last year. Biomass plant performance varied during the year with plants which receive higher margin waste wood experiencing further unplanned outages and plants that receive forestry by-products performing better. However, we expect biomass plant operations to continue to become increasingly consistent over time as a result of proactive maintenance and investment programmes, with many plants under new long-term ownership.

 

The construction industry in the UK is a significant source of waste wood as it is regularly involved in stripping out existing buildings ahead of new construction works. The ongoing fluctuations in UK construction supply chains impacted activity and led to a reduced amount of waste wood from construction firms. As a result of this, and the unplanned plant outages, total gate fee income was lower.

 

The combination of biomass plant outages during the period, reduced gate fee income, and increased costs has resulted in Esken Renewables reporting EBITDA of £7.0m (HY21: £9.1m). However, when allowing for diesel cost increases (£0.9m), other inflationary cost pressures (£0.4m) and one-off benefits in HY21 (£0.9m), Esken Renewables' EBITDA performance is consistent with HY21.

 

Esken anticipates an improved second half performance as a result of a number of contributing factors. Firstly, Esken Renewables successfully negotiated a move in its supply contract at Cramlington to an exclusive basis and also secured a new sub-supply arrangement in Yorkshire, with both starting in September 2022.

 

At the same time, biomass plant customers are expected to operate consistently and optimise energy generation in the second half winter period.

 

Finally, Esken Renewables will see an improvement in the terms of the majority of its largest supply contracts as a result of the timing of its annual contract indexation revisions. The business experienced cost inflation throughout the first half, with the annual contract indexation revision on two of its main contracts coming into effect toward the end of the first half. This, combined with two plants' annual contract indexation having come early in the first half, will lead to improved margins in the second half. Annual contract indexation revisions for a further two plants will come into effect toward the end of the financial year.

 

Esken Renewables remains well placed to benefit from its position as a key supplier to UK energy generators at this critical time.

 

Aviation

London Southend Airport welcomed the return of easyJet passengers this summer with flights to three destinations: Malaga, Faro and Palma. These proven routes are popular with the airport's catchment area, and passengers have been able to enjoy a quick and easy journey to and through the airport. London Southend Airport welcomed 61k airport passengers in the first half (HY21: 46K). The Aviation division delivered an EBITDA loss of £0.5m, compared to a £0.8m profit in the same period last year. That period benefitted from £3.5m of one-off receipts relating to Connect Airways and Teesside International Airport. During the period under review, London Southend Airport benefitted from £1.4m related to the recovery of airline marketing support payments. When stripping out the one-off receipts in both periods the Aviation division's performance improved by circa £800k.

 

The airport remains well positioned for the recovery and longer-term growth in commercial passenger flying and remains confident in its medium term potential to return to pre-pandemic levels of over 2m passengers.

London Southend Airport was able to deliver its usual quick and easy passenger experience this summer. That experience reflected both the investment that the airport made in security screening and baggage handling equipment, and importantly, the staff it retained while the airport was closed to commercial passengers during the previous Winter.

 

London Southend Airport was also able to attract a number of airlines that were struggling to add additional flights at established London airports. Blue Air operated a small number of flights through August, and London Southend Airport also welcomed a small number of flights from Sky Express to Athens and Wideroe to Bergen in late July. 

 

Encouragingly, the renamed London Southend Jet Centre (previously Stobart Jet Centre) has also experienced a significant uplift in traffic and is continuing to unlock additional revenue growth.

 

Toward the end of the period London Southend Airport was also informed by its global logistics partner that it would cease cargo operations at the airport, effective mid-September 2022 following a change of strategic focus from air freight to road-based cargo. However, following the period end, it was confirmed that London Southend Airport will support a new logistics partner on a temporary basis from 8^th January through to 25^th March 2023.

 

London Southend Airport has also welcomed the news that easyJet has put on sale flights to three destinations next summer - Malaga, Palma and Faro for the Summer 2023 season, which starts at the end of March 2023. 

 

These developments have come on the back of an increasingly entrepreneurial spirit and (re-)start-up mentality under the leadership of the newly appointed CEO, John Upton. John most recently led the £40m international airport lounge business No1 Lounges (backed by NVM and Santander). As CEO he put in place an operational structure that enabled the business to double in size, opening new sites across the world, as well as securing new deals with airlines and airports. Prior to No1 Lounges, John worked as Managing Director of Leon, the fast growing natural food chain, and was a member of the senior team during 13 years at McDonald's UK.

 

With its new leadership team now in place, London Southend Airport is engaging with multiple existing and potential airline partners to accelerate the growth of the business. This focus on business development, while remaining closely aligned with our investment partner and underpinned by LSA's industry-leading team, will enable the airport to add pace to its recovery while also taking advantage of the long-term growth trends in commercial passenger flying.

 

Financial Review

 

Summary of the period

 

The Renewables division has seen a 6.7% period-on-period increase in biomass material supplied to plants. Inflationary pressures on the division have been mitigated by RPI-linked indexation elements within the division's long-term customer supply contracts. The increase in biomass material supplied comes despite challenges caused by external factors. A slowdown in the UK construction sector, driven by increased costs and supply chain issues, led to a more competitive market for waste wood impacting gate fee revenues. This had the knock-on effect of having to find alternative sources of supply in order to meet contractual demand, thereby increasing costs. The division has undertaken an appraisal of its vehicle fleet, reducing numbers to ensure the most efficient use of vehicles and drivers, driven by ongoing driver shortages and high fuel prices impacting the wider economy.

 

In the Aviation division, passenger flights returned to London Southend Airport with the airport servicing three routes. Passenger numbers in the period increased by 32.6% to 60,734, up from 45,816 in the prior period, however this is still considerably lower than pre-COVID 19 volumes. As previously announced in the Group's trading statement on 31 August 2022, the Aviation division's cargo contract with its global logistics partner ceased post-period end in September 2022 due to the partner's strategic shift to a more road-based operation.

 

The wind-down of Stobart Air and Propius legacy operations, as mentioned in the annual report for the year ended 28 February 2022, has continued in the period. Two of the eight ATR aircraft leased by Propius have been handed back early to the lessor in August 2022 and September 2022 which will lead to a reduction in the expected future cash outflows of around £2.0m due to a reduction in maintenance commitments. The return of aircraft, and the associated cash outflows, will continue until the final aircraft is handed back in August 2023.

 

At the period end, Group headroom is £51.0m, consisting of £31.9m cash, of which £10.1m is ring-fenced within LSA, and £19.1m of undrawn Revolving Credit Facility (RCF). The RCF was reduced from the original £20m as a result of non-core asset sales. The cash position was aided by the £3.5m non-core asset sale of a portion of Widnes land in the period. The Group has remaining non-core assets with book value of £36.0m to be sold when most beneficial to the Group.

 

Following the period end, the group secured committed funding of £50m, with an additional £40m uncommitted, which will be mainly used to settle Propius lease and maintenance liabilities and provide working capital to the Group. This funding is subject to shareholder approval and has a three year term to November 2025, plus an additional one year at the discretion of the lender. This new funding enables Esken to exit the RCF with Lloyds and AIB, with transactional banking transitioning to Barclays.

 

Revenue

Revenue from continuing operations has increased by 12.5% to £58.1m (2021: £51.7m) in the six months to 31 August 2022, mainly due to the Renewables division whose RPI-linked contracts have been impacted by the current high level of inflation. Aviation revenue has increased by 9.5% to £14.2m (2021: £12.9m) due to strong performance of the Hotel, Jet Centre and Star Handling, partly offset by the £1.5m prior period Teesside settlement not being repeated in the current period. Renewables revenue increased by 14.1% to £43.5m (2021: £38.1m) and biomass tonnages supplied rose by 6.7% to 753,000 period-on-period.

 

Profitability

 

Divisional Continuing Profit Summary	31 August 2022 £m	31 August 2021 £m
Aviation	(0.5)	0.8
Renewables	7.0	9.1
EBITDA from operating divisions	6.5	9.9
Investments	(0.4)	(0.2)
Non-Strategic Infrastructure	(0.4)	(0.3)
Group central and eliminations	(3.2)	(3.8)
EBITDA	2.5	5.6
Depreciation	(9.1)	(10.1)
Finance costs (net)	(6.1)	(8.0)
Loss before tax	(12.7)	(12.5)
Tax	2.5	9.0
Profit/(loss) from discontinued operations, net of tax	1.6	(2.9)
Loss for the period	(8.6)	(6.4)

 

EBITDA has decreased by 55.1% to a profit of £2.5m (2021: £5.6m). In Aviation, EBITDA has decreased to a loss of £0.5m (2021: £0.8m profit). This is mainly due to receipts of £3.5m associated with Connect Airways and Teesside International Airport in the prior period not being repeated, partly offset by a £1.4m recovery of airline marketing costs and general improvement across the division due to the return of passenger flights in the current period. Renewables EBITDA has decreased by 23.7% to £7.0m (2021: £9.1m) due to waste wood market pressures reducing gate fee revenue and leading to an increase in the amount of processed material needed to fulfill demand, thereby increasing costs. The division has also been impacted by longer than planned shutdowns at plants and high fuel costs.

 

The loss before tax from continuing operations is £12.7m (2021: £12.5m). Depreciation has reduced to £9.1m (2021: £10.1m) due to an overall reduction in the asset base across the Group. Finance costs of £11.3m (2021: £9.9m) have increased principally due to interest incurred on the Carlyle convertible debt in the current period but not in the prior, partly offset by a reduction in RCF interest. Finance income of £5.2m (2021: £1.9m) has increased mainly because of gains on the revaluation of Esken Limited's intercompany US-Dollar denominated loan with Propius.

 

A summary of divisional profitability and further details of divisional performance are set out in the Divisional Reviews section.

 

Taxation

The tax credit of £2.5m (2021: £9.0m) has arisen predominantly due to a change in estimation of uncertain tax provisions in the period.

 

Loss per share

Loss per share from continuing operations was 1.00p (2021: 0.55p) (see note 8 for further details).

 

Balance sheet

		31 August 2022 £m	28 February 2022 £m
Non-current assets		345.8	353.5
Current assets		72.9	89.2
Non-current liabilities		(212.8)	(239.5)
Current liabilities		(154.9)	(133.1)
Net assets		51.0	70.1

Non-current assets have decreased in the period, largely due to depreciation in addition to the reclass of the £1.5m brands deferred consideration to current assets. Current assets have increased primarily due to the decrease in cash balance in the period, see the Cash flow section below for more detail.

 

The decrease in non-current liabilities is mainly due to the reclass of lease obligations and maintenance provisions in Propius from non-current to current liabilities. The Propius reclass was the main driver for the increase in current liabilities in the period.

 

Debt and gearing

	31 August 2022	28 February 2022
Loans and borrowings	£295.5m	£294.6m
Cash	(£31.9m)	(£52.7m)
Net debt	£263.6m	£241.9m
EBITDA/interest	0.3	0.6
Net debt/total assets	62.9%	54.6%
Gearing	516.3%	344.9%

 

 

In the period, loans and borrowings have increased by £0.9m. The Carlyle convertible debt instrument has increased by £6.6m due to £6.6m interest being rolled into the loan and the release of £1.0m of associated debt-issue costs, partly offset by the £1.0m revaluation of the compound derivative. Lease liabilities have reduced by £5.9m due to capital repayments partly offset by an increase due to the retranslation of US-Dollar denominated leases in Propius.

 

During the period, the £3.5m sale of Widnes land triggered a clause in the current RCF reducing the available facility that the Group can draw on from £20.0m to £19.1m. At the period end the committed undrawn headroom on the RCF was £19.1m (28 February 2022: £20.0m) and, together with the cash balance of £31.9m (28 February 2022: £52.7m), the total headroom was £51.0m (28 February 2022: £72.7m).

 

Cash flow

	31 August 2022 £m	31 August 2021 £m
Operating cash (outflow)/inflow	(3.2)	0.1
Investing activities	4.3	(6.5)
Financing activities	(10.0)	96.0
(Decrease)/increase in the period	(8.9)	89.6
Discontinued operations	(11.9)	(31.5)
Cash at beginning of period	52.7	12.4
Cash at end of period	31.9	70.5

 

Discontinued cash flow in the period relates to maintenance and lease payments in Propius.

 

Investing inflows include £3.5m for the sale of a portion of Widnes land and £1.0m received from disposal of plant property and equipment, mainly related to plant and machinery in Renewables.

 

The principal financing outflows include £7.9m for the repayment of the principal element of leases and interest payments of £2.8m. The main financing inflow was £0.7m from the proceeds of grants in London Southend Airport.

  

Key Risks and Uncertainties

As with any business, risk assessment and the implementation of mitigating actions and controls are vital to successfully achieving the Group's strategy. The Board has overall responsibility for risk management and internal control within the context of achieving the Group's objectives. The key risks are set out in our statutory accounts for the year ended 28 February 2022 and are still applicable.

 

Directors' Responsibility Statement

 

We confirm that to the best of our knowledge:

 

·      The condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU; and

 

·      The interim management report includes a fair review of the information required by:

 

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the statutory accounts for the year ended 28 February 2021 that could do so.

The above statement of Directors' responsibilities was approved by the Board on
8 November 2022.

 

 

 

 

Lewis Girdwood

Director

9 November 2022