TIDMESKN

RNS Number : 6611G

Esken Limited

27 July 2021

THIS ANNOUNCEMENT, INCLUDING THE APPICES AND THE INFORMATION CONTAINED THEREIN, IS RESTRICTED AND IS NOT FOR PUBLICATION, RELEASE OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN, INTO OR FROM THE UNITED STATES, CANADA, AUSTRALIA, HONG KONG, THE PEOPLE'S REPUBLIC OF CHINA, THE REPUBLIC OF SOUTH AFRICA, JAPAN OR ANY OTHER JURISDICTION IN WHICH SUCH PUBLICATION, RELEASE OR DISTRIBUTION WOULD BE UNLAWFUL.

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF EU REGULATION 596/2014 AS IT FORMS PART OF UNITED KINGDOM LAW BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018 AS AMED ("UK MAR"). IN ADDITION, MARKET SOUNDINGS (AS DEFINED IN UK MAR) WERE TAKEN IN RESPECT OF CERTAIN OF THE MATTERS CONTAINED IN THIS ANNOUNCEMENT, WITH THE RESULT THAT CERTAIN PERSONS BECAME AWARE OF SUCH INSIDE INFORMATION, AS PERMITTED BY MAR. UPON THE PUBLICATION OF THIS ANNOUNCEMENT, THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN AND SUCH PERSONS SHALL THEREFORE CEASE TO BE IN POSSESSION OF INSIDE INFORMATION.

THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND IS NOT AN OFFER OF SECURITIES IN ANY JURISDICTION.

27 July 2021

Esken Limited

("Esken", the "Company" or the "Group")

Proposed Firm Placing and Placing and Open Offer

to raise MINIMUM GROSS PROCEEDS OF GBP45 MILLION

Following the announcements on 30 June 2021 and 2 July 2021 of a potential documented prospectus offering, Esken today announces its intention to raise minimum gross proceeds of GBP45 million by way of a Firm Placing and Placing and Open Offer (together, the "Capital Raise") of new ordinary shares in the capital of the Company (the "New Shares").

The Company also today announces it has agreed a new GBP20 million revolving credit facility with Lloyds Bank plc and AIB Group (UK) plc (the "New Facility").

The Firm Placing and the Placing will be conducted through an accelerated bookbuilding process (the "Bookbuild"), which will be launched immediately following release of this announcement. The Firm Placing and the Placing are subject to the terms and conditions set out in Appendix III to this announcement (which forms part of this announcement). The final price per New Share (the "Offer Price") will be determined following closing of the Bookbuild, and is anticipated to be between 14 and 16 pence.

Canaccord Genuity Limited ("Canaccord") and UBS AG London Branch ("UBS") are acting as Joint Sponsors, Joint Global Co-ordinators and Joint Bookrunners (together the "Joint Bookrunners" and each a "Joint Bookrunner").

The Capital Raise will be fully underwritten by the Joint Bookrunners on closing of the Bookbuild (other than the New Shares for which the Directors and certain senior managers have committed to subscribe), subject to, and in accordance with, the terms and conditions of the Placing Agreement.

Reasons for the Capital Raise

In line with the announcement on 2 July 2021 detailing the proposed investment by Carlyle Global Infrastructure Opportunity Fund, L.P. ("CGI") in London Southend Airport ("LSA") through a GBP125 million senior loan facility provided by CGIOF River S.à r.l. (a special purpose vehicle which is controlled by CGI) to, and which is convertible into 29.999 per cent. of the entire issued share capital of, LSA (which shall be increased to 30 per cent. following receipt of approval from the Office of Rail and Road) (the "Investment", and together with the Capital Raise, the "Transaction"), a combination of factors has accelerated the need for a refinancing and additional liquidity is required both to fund Esken's short-term requirements and to enable it to build a strong foundation from which it can return the business to growth and deliver on its longer-term strategic ambitions for Esken's core operations. The impact of the COVID-19 pandemic has been significant on people, society and the economy and the actions taken to respond to these challenges and to ensure sufficient resources to manage through the crisis has allowed Esken to maintain the operational capability of our core operations. However, the ramifications of the pandemic are likely to continue for some period of time.

Following the liquidation of Stobart Air Unlimited Company ("Stobart Air") announced on 12 June 2021, the Group now owns and operates two core businesses: Energy and Aviation (comprising LSA and Stobart Aviation Services). The Board believes that these operations have the potential to generate significant value for Shareholders in a post-COVID environment, however the recovery will need time and therefore require medium-term funding to underpin the business plans through this period while there remains market uncertainty. A refinancing allows us to look ahead with confidence as we navigate the recovery into a post COVID-19 world.

Completion of the Transaction will enable Esken to repay the outstanding amounts payable under its existing banking facilities, which are expected to total GBP113 million by 31 August 2021 allow it to meet certain of its residual legacy obligations in respect of Stobart Air (and its liquidation) and Propius Limited ("Propius"), and, alongside the New Facility, underpin the business plan for both the Energy and Aviation businesses.

Appendix III to this announcement sets out further details of and the terms and conditions of the Capital Raise.

Key Highlights

-- Intention to raise minimum gross proceeds of GBP45 million through a Firm Placing and Placing and Open Offer at the Offer Price, and is anticipated to be between 14 and 16 pence.

-- Entry into an amendment and restatement agreement in respect of the Existing Facility Agreement (the Existing Facility Agreement, as so amended and restated, the "Amended Facility Agreement") pursuant to which the GBP20 million New Facility will be made available and up to GBP5 million of funds from the Existing Facility B will be made available to Esken through to 31 August 2021, subject to satisfaction of certain conditions.

-- Completion of the Transaction, together with entry into the New Facility, would enable Esken to repay all outstanding bank debt, meet its ongoing working capital requirements, underpin its business plan going forward and meet certain of its legacy obligations.

-- Completion of the Transaction is conditional upon the approval of Shareholders at a general meeting of the Company which will take place at 11.00 a.m. on 17 August 2021 (the "General Meeting"). The New Facility is conditional upon completion of the Transaction.

-- The Company intends to raise approximately 80 per cent. of the gross proceeds of the Capital Raise through the Firm Placing at the Offer Price to certain institutional investors.

-- Approximately 20 per cent. of the Capital Raise is expected to be raised through the Placing, pursuant to which the Joint Bookrunners intend to conditionally place the Open Offer Shares with certain institutional investors at the Offer Price, subject to clawback to satisfy valid applications by Qualifying Shareholders under the Open Offer.

-- The Capital Raise will be fully underwritten by the Joint Bookrunners on closing of the Bookbuild (other than the New Shares for which the Directors and certain senior managers have committed to subscribe) and is conditional upon, among other things, the approval of Shareholders at the General Meeting.

-- The Directors and certain senior managers intend to subscribe for an aggregate of approximately GBP241,500 of New Shares (including under the Open Offer).

-- The Company's largest shareholder, Toscafund Asset Management LLP has communicated to the Company that it sees significant value in the equity of Esken and intends to fully support the Investment and the Capital Raise pro rata with its shareholding. All Board directors have also indicated their intention to participate in the Capital Raise.

-- Qualifying Shareholders will be offered the opportunity to apply for Excess Shares at the Offer Price through the Excess Application Facility pursuant to the Open Offer.

-- Following completion of the Bookbuild, the Company will publish a press announcement setting out the Offer Price (the "Pricing Announcement") and a combined prospectus and class 1 circular in connection with the Transaction (the "Prospectus") and will convene a General Meeting to approve certain matters necessary to implement the Capital Raise and the Investment. The Company will hold its Annual General Meeting immediately prior to the General Meeting.

Bookbuild

The Firm Placing and the Placing are being conducted by way of the Bookbuild on the Company's behalf by the Joint Bookrunners. The Bookbuild will open with immediate effect following release of this announcement. The Firm Placed Shares and Open Offer Shares, when issued, will be fully paid and will rank pari passu in all respects with the Existing Shares.

The Bookbuild is expected to close no later than 7.00 a.m. on 28 July 2021, subject to acceleration. Timing of the closing of the Bookbuild and allocations are at the discretion of the Joint Bookrunners and the Company. Details of the results of the Firm Placing and the Placing will be announced as soon as practicable after the close of the Bookbuild.

If a Placee is entitled to participate in the Open Offer by virtue of being a Qualifying Shareholder it will be able to apply to subscribe for Open Offer Shares under the terms and conditions of the Open Offer. Unless otherwise agreed with the Joint Bookrunners, any participation by a Placee as a Qualifying Shareholder in the Open Offer will not reduce such Placee's commitment in respect of its participation in the Firm Placing and/or Placing.

The New Shares, Open Offer Entitlements and Excess Open Offer Entitlements are being offered outside the United States in reliance on Regulation S under the US Securities Act of 1933, as amended (the "Securities Act").

Applications will be made to the Financial Conduct Authority (the "FCA") for admission of the New Shares to the premium listing segment of the Official List and to the London Stock Exchange for admission of the New Shares to trading on its main market for listed securities (together, "Admission").

Settlement for the New Shares and Admission are expected to take place on or before 8:00 a.m. on the seventh Business Day following approval of the Transaction by the Company's shareholders at the General Meeting. The Firm Placing and Placing and Open Offer are conditional upon, among other things, Admission in respect of the New Shares becoming effective. The Firm Placing and Placing and Open Offer are also conditional upon the placing agreement between the Joint Bookrunners and the Company (the "Placing Agreement") not being terminated in accordance with its terms. Appendix III to this announcement sets out further details of the terms of the Placing Agreement.

The Firm Placing and Placing are subject to the terms and conditions set out in Appendix III to this announcement (which forms part of this announcement).

Capitalised terms used but not otherwise defined in the text of this announcement are defined in Appendix II of this announcement.

Expected Timetable of Principal Events (1) (2) [1]

 
 Record Date for entitlements under the                   close of business on 26 
  Open Offer                                                            July 2021 
 Announcement of the Capital Raise                                   27 July 2021 
                                                     ---------------------------- 
 Ex-entitlement date for the Open Offer                              28 July 2021 
                                                     ---------------------------- 
 Publication and posting of the Prospectus                           28 July 2021 
  and the Application Form (to Qualifying 
  Non-CREST Shareholders only) 
                                                     ---------------------------- 
 Announcement of the results of the Firm                             28 July 2021 
  Placing through a Regulatory Information 
  Service 
                                                     ---------------------------- 
 Open Offer Entitlements and Excess Open                             29 July 2021 
  Offer Entitlements enabled in CREST and 
  credited to stock accounts of Qualifying 
  CREST Shareholders in CREST 
                                                     ---------------------------- 
 Recommended latest time for requesting                    4.30 p.m. on 10 August 
  withdrawal of Open Offer Entitlements and                                  2021 
  Excess Open Offer Entitlements from CREST 
                                                     ---------------------------- 
 Latest time and date for depositing Open                  3.00 p.m. on 11 August 
  Offer Entitlements and Excess Open Offer                                   2021 
  Entitlements into CREST 
                                                     ---------------------------- 
 Latest time and date for splitting of Application         3.00 p.m. on 12 August 
  Forms (to satisfy bona fide market claims                                  2021 
  only) 
                                                     ---------------------------- 
 Latest time and date for electronic proxy                11.00 a.m. on 13 August 
  appointments or receipt of form of proxy                                   2021 
                                                     ---------------------------- 
 Voting Record Time                                        6.00 p.m. on 13 August 
                                                                             2021 
                                                     ---------------------------- 
 Latest time and date for receipt of completed            11.00 a.m. on 16 August 
  Application Forms and payment in full under                                2021 
  the Open Offer or settlement of relevant 
  CREST instructions (as appropriate) 
                                                     ---------------------------- 
 Announcement of the results of the Placing                7.00 a.m. on 17 August 
  and Open Offer through a Regulatory Information                            2021 
  Service 
                                                     ---------------------------- 
 General Meeting (3)                                      11.00 a.m. on 17 August 
                                                                             2021 
                                                     ---------------------------- 
 Results of General Meeting announced through                      17 August 2021 
  a Regulatory Information Service 
                                                     ---------------------------- 
 Admission of, and dealings commence in,                   8.00 a.m. on 26 August 
  the New Shares                                                             2021 
                                                     ---------------------------- 
 CREST members' accounts credited in respect          From 8.00 a.m. on 26 August 
  of New Shares in uncertificated form                                       2021 
                                                     ---------------------------- 
 Expected dispatch of definitive share certificates   Within 14 days of Admission 
  for New Shares in certificated form 
                                                     ---------------------------- 
 Expected completion of the Transaction                            26 August 2021 
                                                     ---------------------------- 
 Draw-Stop Date                                                    31 August 2021 
                                                     ---------------------------- 
 

Notes:

   (1)    References to times in this announcement are to London time unless otherwise indicated. 

(2) The ability to participate in the Placing and Open Offer is subject to certain restrictions relating to Shareholders with registered addresses outside the United Kingdom, details of which are set out in the prospectus expected to be published by the Company on 28 July 2021.

(3) The Company will hold its Annual General Meeting immediately prior to the General Meeting. The Annual General Meeting is expected to have concluded by 11.00 a.m. If the Annual General Meeting has not concluded by 11.00 a.m. then the General Meeting will commence immediately after its conclusion. If the Annual General Meeting concludes before 11.00 a.m. then the General Meeting will commence at 11.00 a.m.

This announcement contains inside information for the purposes of article 7 of UK MAR. The person who arranged the release of this announcement on behalf of the Company was Matthew Joy.

For further information, please contact:

 
 Esken Limited 
 Charlie Geller, Communications Director              C/O Tulchan Communications 
 
 Canaccord Genuity Limited (Joint Sponsor, 
  Joint Bookrunner and Joint Global Co-ordinator)               +44 20 7523 8000 
 Adam James / Andrew Potts / Patrick 
  Dolaghan 
  Sam Lucas 
 
 UBS AG London Branch (Joint Sponsor, 
  Joint Bookrunner and Joint Global Co-ordinator)               +44 207 567 8000 
 David James / Peter Mackie 
  Alex Bloch / Tom Snowball 
 
 Tulchan Communications                                         +44 207 353 4200 
 Olivia Peters / David Allchurch                          esken@tulchangroup.com 
 

Important notices

This announcement including the appendices and the information contained in it has been issued by and is the sole responsibility of the Company. The information contained in this announcement is for information purposes only and does not purport to be full or complete. No reliance may or should be placed by any person for any purpose whatsoever on the information contained in this announcement or on its accuracy or completeness. The information in this announcement is subject to change.

This announcement is not a prospectus but an advertisement. Neither this announcement nor anything contained in it shall form the basis of, or be relied upon in conjunction with, any offer or commitment whatsoever in any jurisdiction. Investors should not acquire any Shares referred to in this announcement except on the basis of the information contained in the Prospectus to be published by the Company in connection with the Transaction.

Copies of the Prospectus when published will be available on the Company's website at www.esken.com. Neither the content of the Company's website nor any website accessible by hyperlinks on the Company's website is incorporated in, or forms part of, this announcement. The Prospectus will provide further details of the New Shares being offered pursuant to the Capital Raise.

This announcement does not contain or constitute an offer for sale or the solicitation of an offer to purchase securities in the United States. The New Shares, Open Offer Entitlements and Excess Open Offer Entitlements have not been and will not be registered under the US Securities Act of 1933, as amended (the "Securities Act") or under any securities laws of any state or other jurisdiction of the United States and may not be offered, sold, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, within the United States. There will be no offer of the New Shares in the United States. None of the New Shares, Open Offer Entitlements, Excess Open Offer Entitlements, this announcement or any other document connected with the Capital Raise has been or will be approved or disapproved by the United States Securities and Exchange Commission or by the securities commissions of any state or other jurisdiction of the United States or any US regulatory authority, nor have any of the foregoing authorities has passed upon or endorsed the merits of the offering of the New Shares, Open Offer Entitlements, or Excess Open Offer Entitlements or the accuracy or

adequacy of this announcement or any other document connected with the Capital Raise. Any representation to the contrary is a criminal offence in the United States.

This announcement is for information purposes only and, subject to certain limited exceptions, is not intended to and does not constitute or form part of any offer or invitation to sell, allot or issue, or any offer or invitation to purchase or subscribe for, New Shares, or to take up any entitlements to New Shares, in any jurisdiction or any solicitation to purchase or subscribe for, any securities in the United States, Australia, Canada, Hong Kong, Japan, the People's Republic of China or the Republic of South Africa (the "Excluded Territories") or in any jurisdiction where such offer or invitation is unlawful, nor does the fact of its distribution form the basis of, nor can it be relied upon in connection with, or act as any inducement to enter into, any contract or commitment whatsoever with respect to such securities, the Company or otherwise.

The distribution of this announcement into jurisdictions other than the United Kingdom may be restricted by law, and, therefore, persons into whose possession this announcement comes should inform themselves about and observe any such restrictions. Any failure to comply with any such restrictions may constitute a violation of the securities laws of such jurisdiction. In particular, subject to certain limited exceptions, this announcement, the Prospectus (once published) and the Application Forms (once printed) should not be distributed, forwarded to or transmitted in or into any Excluded Territory.

The New Shares may not be offered or sold in Hong Kong, by means of any document, other than (i) to "professional investors" as defined in the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) of Hong Kong (the "SFO") and any rules made under the SFO; or (ii) in other circumstances which do not constitute an offer to the public within the meaning of the Companies (Winding up and Miscellaneous Provisions) Ordinance (Cap.32, Laws of Hong Kong) of Hong Kong (the "C(WUMP)O") or an invitation to induce an offer by the public to subscribe for or purchase any shares and which do not result in this document being a "prospectus" as defined in the C(WUMP)O. No advertisement, invitation or document relating to the New Shares or this document may be issued or may be in the possession of any person for the purpose of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the C(WUMP)O and the SFO) other than with respect to the New Shares which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" as defined in the SFO and any rules made under the SFO or in other circumstances which do not constitute an offer or invitation to the public within the meaning of the C(WUMP)O. The contents of this document have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of this document you should obtain independent professional advice.

Recipients of this announcement and/or the Prospectus should conduct their own investigation, evaluation and analysis of the business, data and property described in this announcement and/or if and when published the Prospectus. This announcement does not constitute a recommendation concerning any investor's options with respect to the Capital Raise. The price and value of securities can go down as well as up. Past performance is not a guide to future performance. The contents of this announcement are not to be construed as legal, business, financial or tax advice. Each Shareholder or prospective investor should consult his, her or its own legal adviser, business adviser, financial adviser or tax adviser for legal, financial, business or tax advice.

Notice to all investors

Canaccord Genuity Limited ("Canaccord") is authorised and regulated by the Financial Conduct Authority ("FCA") in the United Kingdom. UBS AG London Branch ("UBS" and together with Canaccord, the "Joint Bookrunners") is authorised and regulated by the Financial Market Supervisory Authority in Switzerland, and it is authorised by the Prudential Regulation Authority ("PRA") and subject to regulation by the FCA and limited regulation by the PRA in the United Kingdom.

Canaccord and UBS are each acting exclusively for the Company and no one else in connection with the Capital Raise or any other matter referred to in this announcement and will not be responsible to anyone other than the Company for providing the protections afforded to their respective clients or for providing advice in connection with the Capital Raise and/or any other matter referred to in this announcement.

No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by the Joint Bookrunners or by any of their respective affiliates or agents (or any of their respective directors, officers, employees or advisers) for the contents of the information contained in this announcement, or any other written or oral information made available to or publicly available to any interested party or its advisers, or any other statement made or purported to be made by or on behalf of either Joint Bookrunner or any of their respective affiliates in connection with the Company, the New Shares or the Capital Raise and any responsibility therefor is expressly disclaimed. The Joint Bookrunners and each of their respective affiliates accordingly disclaim all and any liability, whether arising in tort, contract or in respect of any statements or other information contained in this announcement and no representation or warranty, express or implied, is made by either Joint Bookrunner or any of their respective affiliates as to the accuracy, completeness or sufficiency of the information contained in this announcement.

No person has been authorised to give any information or to make any representations other than those contained in this announcement, the Prospectus and the Application Forms, and, if given or made, such information or representations must not be relied on as having been authorised by the Company or Canaccord and UBS.

In connection with the Capital Raise, the Joint Bookrunners may release communications to the market as to the extent to which the book is "covered". A communication that a transaction is, or that the books are, "covered" refers to the position of the order book at that time. It is not an assurance that the books will remain covered, that the transaction will take place on any terms indicated or at all, or that if the transaction does take place, the securities will be fully distributed by the Joint Bookrunners.

In connection with the Capital Raise, each of their Joint Bookrunners and any of their respective affiliates, acting as investors for their own accounts, may take up a portion of the shares in the Capital Raise as a principal position and in that capacity may retain, purchase, sell, offer to sell for their own accounts such shares and other securities of the Company or related investments in connection with the Capital Raise or otherwise. Accordingly, references in the Prospectus to the Shares being issued, offered, subscribed, acquired, placed or otherwise dealt in should be read as including any issue or offer to, or subscription, acquisition, placing or dealing by, the Joint Bookrunners and any of their respective affiliates acting as investors for their own accounts. Except as required by applicable law or regulation, the Joint Bookrunners do not propose to make any public disclosure in relation to such transactions.

Cautionary statement regarding forward-looking statements

This announcement contains forward-looking statements, including with respect to financial information, that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as "anticipate", "target", "expect", "estimate", "intend", "plan", "goal", "believe", "will", "may", "should", "would", "could", "is confident", or other words of similar meaning. Undue reliance should not be placed on any such statements because they speak only as at the date of this announcement and, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and the Company's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. No representation or warranty is made that any forward-looking statement will come to pass.

You are advised to read the Prospectus when published and the information incorporated by reference therein in their entirety, and, in particular, the section of the Prospectus headed "Risk Factors", for a further discussion of the factors that could affect the Group's future performance and the industry in which it operates. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements, including statements regarding prospective financial information, in this announcement may not occur. These statements are not fact and should not be relied upon as being necessarily indicative of future results, and readers of this announcement are cautioned not to place undue reliance on the forward-looking statements, including those regarding prospective financial information.

No statement in this announcement is intended as a profit forecast, and no statement in this announcement should be interpreted to mean that underlying operating profit for the current or future financial years would necessarily be above a minimum level, or match or exceed the historical published operating profit or set a minimum level of operating profit.

Neither the Company nor Canaccord nor UBS are under any obligation to update or revise publicly any forward-looking statement contained within this announcement, whether as a result of new information, future events or otherwise, other than in accordance with their legal or regulatory obligations (including, for the avoidance of doubt, the Prospectus Regulation Rules, the Listing Rules and the Disclosure Guidance and Transparency Rules). Subject to the Prospectus Regulation Rules, the Listing Rules and the Disclosure Guidance and Transparency Rules, the issue of this announcement shall not, in any circumstances, create any implication that there has been no change in the affairs of the Company since the date of this announcement or that the information in it is correct as at any subsequent date.

Information to Distributors

Solely for the purposes of the product governance requirements contained in Chapter 3 of the FCA Handbook Product Intervention and Product Governance Sourcebook (together, the "UK Product Governance Requirements"), and disclaiming all and any liability, whether arising in tort, contract or otherwise, which any "manufacturer" (for the purposes of the UK Product Governance Requirements) may otherwise have with respect thereto, the New Shares have been subject to a product approval process, which has determined that such securities are: (i) compatible with an end target market of retail investors and investors who meet the criteria of professional clients and eligible counterparties, each as defined in paragraph 3 of the FCA Handbook Conduct of Business Sourcebook; and (ii) eligible for distribution through all permitted distribution channels (the "Target Market Assessment"). Notwithstanding the Target Market Assessment, distributors should note that: the price of the New Shares may decline and investors could lose all or part of their investment; the New Shares offer no guaranteed income and no capital protection; and an investment in the New Shares is compatible only with investors who do not need a guaranteed income or capital protection, who (either alone or in conjunction with an appropriate financial or other adviser) are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses that may result therefrom. The Target Market Assessment is without prejudice to the requirements of any contractual, legal or regulatory selling restrictions in relation to the Capital Raise. Furthermore, it is noted that, notwithstanding the Target Market Assessment, the Joint Bookrunners will only procure investors who meet the criteria of professional clients and eligible counterparties.

For the avoidance of doubt, the Target Market Assessment does not constitute: (a) an assessment of suitability or appropriateness for the purposes of Chapter 9A or 10A respectively of the FCA Handbook Conduct of Business Sourcebook; or (b) a recommendation to any investor or group of investors to invest in, or purchase, or take any other action whatsoever with respect to the New Shares.

Each distributor is responsible for undertaking its own target market assessment in respect of the New Shares and determining appropriate distribution channels.

ESKEN LIMITED

PROPOSED FIRM PLACING AND PLACING AND OPEN OFFER

TO RAISE GROSS PROCEEDS OF MINIMUM GBP45 MILLION

1. Introduction

Esken today announces its intention to raise gross proceeds of minimum GBP45 million by way of a Firm Placing and Placing and Open Offer.

The Capital Raise will be fully underwritten by the Joint Bookrunners (other than the New Shares for which the Directors and certain senior managers have committed to subscribe), subject to, and in accordance with, the terms and conditions of the Placing Agreement.

The Company today also announces that it has entered into an amendment and restatement agreement in respect of the Existing Facility Agreement pursuant to which, among other terms, the Company and the Existing Lenders have agreed the terms of the New Facility, which will be made available to the Group (other than LSA, Thames Gateway Airport Limited, Stobart Solar Limited and Stobart Jet Centre Limited) (the "Wider Group") pursuant to the Amended Facility Agreement. The New Facility will become effective on the date on which certain conditions have been satisfied (the "Effective Date") including (i) completion of the Transaction, (ii) receipt of net proceeds of the Capital Raise and (iii) repayment of all outstanding borrowings under the Existing Facility. From the Effective Date, the funds under the New Facility may be applied towards the general corporate purposes of the Wider Group and in accordance with the Wider Group's short-term cash flow forecasts.

Under the terms of the amendment and restatement agreement entered into with the Existing Lenders, the Existing Lenders have agreed with the Company to allow further drawings of no more than GBP5 million under Facility B of its Existing Facility in the period between 29 July 2021 and 31 August 2021, subject to satisfaction of certain conditions, including that: (i) the Company complies with certain reporting requirements including delivery of weekly cashflow forecasts; and (ii) the key steps towards implementation of the Capital Raise and the Investment occur such that the Transaction will be implemented before 31 August 2021.

The Company also announced on 2 July 2021 that they have reached agreement with CGI on the terms of the Investment.

The Investment will provide funding for the Wider Group of approximately GBP100 million which, together with the net proceeds of the Capital Raise of minimum GBP40 million, will enable the Company to repay the outstanding amounts payable under its Existing GBP120 million revolving credit Facility which matures on 31 January 2022 (the "Existing Facility"). The Transaction and the New Facility are intended to secure the financial position of the Group for the next 18 months from the date of this announcement.

The Board believes the Transaction to be in the best interests of Shareholders as a whole and this announcement will explain why the Board unanimously recommends that Shareholders should vote in favour of the Resolutions, as each Director has committed to do so in respect of his or her own legal and beneficial holdings of Shares.

2. Background to and reasons for the Capital Raise

At the time of concluding the 2020 Capital Raise in June 2020, the Group also agreed an additional bank facility of GBP40 million to sit alongside its existing facility of GBP80 million through to the expiry of those facilities in January 2022. At the time, it was anticipated that this additional funding would be sufficient to allow the Group to execute its strategy to exit both the Rail & Civils business and Stobart Air as well as its related aircraft leasing company Propius Limited (Propius), while at the same time ensuring that the Group had sufficient funds to manage the impact of the pandemic. It was the intention that these bank facilities would be refinanced in the normal course once the pandemic was over.

A combination of factors (described below) has accelerated the need for a refinancing and additional liquidity is required both to fund the Group's short-term requirements and to enable it to build a strong foundation from which it can return the business to growth and deliver on its longer-term strategic ambitions for the Group's core operations: Energy and Aviation. Following the liquidation of Stobart Air announced on 12 June 2021, the Group now owns and operates two core businesses, being Stobart Energy and its aviation business comprising London Southend Airport (refer to paragraph 4 below for further information on the Borrower Group) as well as Stobart Aviation Services. Whilst the Board believes that these operations have the potential to generate significant value for Shareholders in a post-COVID environment, the recovery will need time and therefore require medium-term funding to underpin the business plans through the recovery period. The Board has concluded that while it was originally intended to monetise the Stobart Energy business within the two-year period following the 2020 Capital Raise, this is not the right answer from a Shareholder value perspective and so is to be held for the medium term.

The COVID-19 pandemic has created unprecedented challenges for the Company and the aviation sector as a whole. The Group has focused on cost control and cash conservation throughout the year and operational cash flows in the core business have been ahead of the reasonable worst case scenario set out at the time of the Capital Raise in June 2020. That scenario envisaged: (i) a phased recovery in waste wood supply and gate fees through to the end of August 2020, followed by normalised levels thereafter in the Stobart Energy division; and (ii) lockdown restrictions extending no later than March 2021 and a slow recovery thereafter in the Stobart Aviation division through to June 2021.

The impact of the pandemic has been greater and lasted longer than all governments' and experts' prevailing forecasts reviewed by the Directors at the time of the initial outbreak of the COVID-19 pandemic. Whilst Stobart Energy has been performing within the above parameters, it is now clear that travel restrictions will last longer and Stobart Aviation's recovery will be slower than was predicted in June 2020. In addition, cash outflows from Stobart Air (including the impact of liquidation) and Propius have exceeded the Directors' expectations at the time of the acquisition in early 2020, with Esken having funded the two entities GBP42.2 million between May 2020 and February 2021, and thus Group cash outflows have now exceeded the reasonable worst-case scenario established in June 2020 on an overall basis.

Stobart Energy was impacted by the first lockdown which affected construction activity and restricted the availability of waste wood during a period when the business would traditionally build stock to meet its contractual commitments during the period of peak demand through the winter months. The business took an early decision to secure supply in the UK market by reducing its gate fees charged to suppliers and in addition sourced additional supply of waste wood from overseas. These actions impacted both margins and earnings within that business but enabled the business to fulfil its contractual commitments to customers.

The extended lockdowns and restrictions on international travel throughout Europe in 2020 meant that air passenger travel was limited, which impacted London Southend Airport, Stobart Aviation Services and the Stobart Air operations. While steps were taken to minimise cash burn through utilising government schemes including furlough, freezing all capital expenditure, except safety critical projects, and all discretionary expenditure, the impact on the Group's financial resources has been significant.

Stobart Energy is recovering and it is expected to be back to pre-COVID-19 levels of activity by the end of FY22. It is a profitable cash-generative business with long term contracts and benefits from barriers to entry which make it an attractive and potentially valuable business over the medium term.

While London Southend Airport has been hit hard by the pandemic, it remains a key strategic asset in the globally important London airport market as that is expected to recover over the next two to three years as capacity constraints in London airports again become an issue. It has also developed a strong logistics operation which contributed meaningful revenues throughout the pandemic and this offers scope for further development and value creation. The airport will take longer to fulfil its full potential and will need further investment to capitalise on the long-term opportunity. Discussions with strategic aviation partners have taken place over the last two years with this aim, but the uncertainty created by the pandemic meant that the Group had been unable to structure a transaction until now.

With the envisaged recovery of the London Southend Airport business and the streamlined operations, the opportunity to raise finance from an investment in the airport has once again been under consideration. Over the last nine months, the Group has been in discussions with CGI in relation to the development of LSA as aviation recovers from the pandemic. These discussions were announced on 14 June 2021 and the Investment was announced on 2 July 2021.

The Carlyle Group is a global investment firm with total assets under management of $260 billion globally. Carlyle has been attracted to the opportunity at London Southend Airport and has spent considerable time with the management team understanding the business and the long-term opportunity. While the Transaction is structured as a loan with an option to convert into an equity share in the airport, both parties see this as a long-term strategic partnership in respect of London Southend Airport.

The Investment provides funding for the Wider Group of approximately GBP100 million (after the GBP20 million funding for London Southend Airport by way of the Pari Passu Loan but before other transaction costs incurred by Esken, including the Commitment Fee) which, together with the net proceeds of the Capital Raise of minimum GBP40 million (net of estimated commissions, fees and expenses), will enable the Company to repay the outstanding amounts payable under the Existing Facility, which is expected to total GBP113 million as at 31 August 2021. As a result, post-Closing, the Transaction will reduce overall bank indebtedness of the Group, allow it to meet certain of its residual legacy obligations in respect of Stobart Air (and its liquidation) and Propius and underpin the business plan for Stobart Energy, as well as London Southend Airport for a period of 18 months from the date of this announcement . Any additional capital investment required in the medium to long term by the Borrower is expected to be raised as debt funding by the Borrower Group ringfenced from the Wider Group. In addition to the funding being provided, CGI brings significant expertise in developing airports around the world. This, together with the experienced operational team at the Borrower, adds to the Group's offering to its existing and prospective airline and logistics partners alike. This is important to the Group's airline and other partners as the Board looks to renew and rebuild the Group's commercial relationships with them. A combination of the Group's proven operational ability at London Southend Airport in a pre-COVID-19 world and a strong strategic financial partner in CGI will be powerful as passenger demand returns and activity levels increase.

The Transaction and the New Facility are intended to secure the financial position of the Group for the next 18 months from the date of this announcement . The New Facility matures on 1 February 2023 (the "New Facility Termination Date") and the management fully intends to refinance or repay the New Facility prior to its expiry date. In addition, funding for the Group to meet the final residual legacy obligations for Propius in March to December 2023 totalling GBP26 million (after which Propius will become dormant), for the GBP53.1 million Exchangeable Bonds that mature in May 2024 and for other of the Group's purposes in the medium term would be expected to be sourced from the sale of non-core infrastructure assets, additional external funding at the relevant time and/or from cash flows from trading at levels above the Group budget. The Company has taken immediate steps to seek sublease arrangements for the aircraft held by Propius with alternative operators to mitigate the cash requirements from the Group but any beneficial impact from this has not been reflected in management's current expectations.

3. Use of proceeds

The Investment is expected to raise GBP125 million in gross proceeds and approximately GBP120 million net of lender costs. The GBP120 million of proceeds will be available for the Group to refinance its Existing Facility and meet other transaction costs incurred by Esken, including the Commitment Fee, with GBP20 million of the proceeds being advanced by the Wider Group to the Borrower pursuant to the Pari Passu Loan Agreement so as to provide funding for London Southend Airport to cover all currently anticipated expenditure of the Borrower Group for the period through to the end of FY24, other than amounts funded from operating cash flows.

The Group has in place an GBP80 million revolving credit facility ("Facility A") and a GBP40 million revolving credit facility ("Facility B") until 31 January 2022, which were drawn down to GBP80 million and GBP28 million, respectively, as at 23 July 2021. The proceeds from the Investment totalling GBP100 million (after the GBP20 million is advanced under the Pari Passu Loan but before other transaction costs incurred by Esken, including the Commitment Fee) will be used to repay amounts drawn down under Facility A and Facility B, which totalled GBP108 million as at 23 July 2021 and, pursuant to consents provided as part of the 2021 Amendment Agreement, the Group anticipates drawing down up to an additional GBP5 million from Facility B (representing an aggregate draw down from the Existing Facility of GBP113 million) to provide working capital to the Group through to 31 August 2021.

The Capital Raise is expected to raise a minimum of GBP45 million in gross proceeds. Following repayment of the remaining GBP5 million drawn under the Existing Facility Agreement pursuant to consents provided as part of the 2021 Amendment Agreement out of the proceeds of the Capital Raise, the Group intends to use the remaining net proceeds of the Capital Raise, together with the anticipated Group available cash balance in excess of GBP7 million as at 1 August 2021 and the GBP20 million New Facility (subject to meeting certain drawdown conditions) for its working capital requirements, including to meet certain of its residual legacy obligations under Stobart Air (and its liquidation) and Propius for 18 months from the date of this announcement . The proceeds will also be used to underpin the business plan for Stobart Energy.

The Group intends to draw down such funds under the New Facility as and when they are needed for its working capital requirements, which are set forth in the following table. Although entry into the Amended Facility Agreement in relation to the New Facility does not require the approval of Shareholders and will not be the subject of a vote at the General Meeting, it is conditional on completion of the Transaction.

A table [2] setting out the detailed use of proceeds from the Transaction and the New Facility can be found below, which has been prepared on a reasonable worst case scenario basis. This table and the following commentary assumes the Transaction raises gross proceeds of approximately GBP45 million which is the minimum targeted amount. By its nature, the information in the following table involves risks and uncertainties because it relates to events and depends on circumstances that may or may not occur in the future, in particular given the risks and uncertainties related to the COVID-19 pandemic.

 
                                                         18 months 
                                    7 months  11 months   to 31 Jan  1 month    To end 
                                     FY22(1)   FY23(2)      2023      FY23(3)   of FY23 
                                                      (GBP millions) 
Opening available cash balance             7         20           7         5         7 
==================================  ========  =========  ==========  ========  ======== 
 
 Investment proceeds, net 
  of Lender costs                        120          -         120         -       120 
 Pari Passu Loan                        (20)          -        (20)         -      (20) 
 Repay Existing Facility               (113)          -       (113)         -     (113) 
 New Facility drawdown                     -         15          15         -        15 
 Repay New Facility                        -          -           -      (15)      (15) 
 Net proceeds of the Capital 
  Raise                                   40          -          40         -        40 
 Transaction costs and Commitment 
  Fee                                    (8)          -         (8)         -       (8) 
 =================================  ========  =========  ==========  ========  ======== 
 Proceeds from refinancing 
  and the Capital Raise                   19         15          34      (15)        19 
 Debt, leases and asset 
  financing                             (10)       (17)        (27)       (1)      (28) 
 Capex net of asset financing(4)         (1)        (1)         (2)       (0)       (2) 
 Stobart Air liquidation 
  and Propius(5)                         (9)       (18)        (27)       (4)      (31) 
 Other cash inflow / (outflow) 
  including working capital               13          6          20         1        21 
 Closing available cash 
  balance                                 20          5           5      (14)      (14) 
 =================================  ========  =========  ==========  ========  ======== 
 
    Notes: 
    (1) 7 months from 1 August 2021 to 28 February 2022. 
    (2) 11 months from 1 March 2022 to 31 January 2023. 
    (3) 1 month from 1 February 2023 to 28 February 2023. 
    (4) Excludes potential proceeds from infrastructure asset sales. 
    (5) GBP24.5 million Stobart Air and Propius liquidation cash 
    flows incurred in FY22 prior to July 2021. 
    (6) Due to the structure of the Investment, and the Borrower 
    becoming a ringfenced asset as a result of the Pari Passu Loan, 
    the subsequent cash flows presented above do not include the 
    Borrower. 
    (7) Available cash balances are shown net of restricted cash 
    of GBP12.8 million. 
    (8) Figures may not sum fully due to rounding. 
 

The Transaction and the New Facility are intended to secure the financial position of the Group for the next 18 months from the date of this announcement and therefore the Prospectus will have a statement that, taking into account the net proceeds of the Investment, the net proceeds of the Capital Raise and the New Facility, the Group has sufficient working capital for its present requirements, that is for at least 12 months from the date of the Prospectus, based on certain assumptions.

However, as set out in the table above, management's forecasts show a working capital shortfall of approximately GBP14 million in February 2023 for the Group, on a reasonable worst case scenario basis. This shortfall is principally a result of the requirement to refinance the New Facility by 1 February 2023. The Group anticipates incurring additional cash outflow from that date, pursuant to residual legacy obligations relating to Propius, the liquidation of Stobart Air and the cash impact of identified sensitivities and reduced activity levels across all divisions.

Whilst the Company has taken immediate steps to mitigate the risk of such shortfalls arising in the Group and fully intends to refinance or repay the New Facility prior to its maturity date on 1 February 2023, any beneficial impact from this has not been reflected in management's reasonable worst case scenario forecasts. Mitigating actions that may be available to management include (but are not limited to): seeking sublease arrangements for the aircraft held by Propius with alternative operators; the sale of non-core infrastructure assets; the delaying of certain discretionary capital expenditure and the refinancing of the New Facility.

4. Terms of the Capital Raise and the New Shares

The Company is proposing to raise gross proceeds of approximately GBP45 million by way of a Firm Placing and Placing and Open Offer, at the Offer Price, which is anticipated to be between 14 and 16 pence. The Firm Placing and Placing and Open Offer is conditional, among other things, on the passing of the Resolutions, which will be sought at the General Meeting.

The Directors have given careful consideration as to how to structure the proposed issuance of equity and have concluded that a Placing and Open Offer and Firm Placing is the most suitable option available to the Company and its Shareholders at this time.

Subject to completion of the Bookbuild, the Joint Bookrunners have agreed to underwrite the settlement of the Firm Placed Shares and conditionally place Open Offer Shares with Placees procured through the Bookbuild, on the terms and subject to the conditions in the Placing Agreement.

The Firm Placing is expected to settle on or before 8:00 a.m. on the seventh Business Day following approval of the Investment by the Company's shareholders and is conditional on, among other things:

   (a)         Shareholder approval of the Resolutions at the General Meeting; and 

(b) the Placing Agreement having become or been declared unconditional in all respects and the Placing Agreement not having been terminated by the Managers (being Canaccord and UBS) in accordance with its terms.

If Admission of the Firm Placed Shares does not take place on or before 8.00 a.m. on 26 August 2021 (or such later time and/or date as the Company and the Joint Bookrunners may agree), the Firm Placing will not proceed and subscription monies will be refunded to Firm Placees by cheque or CREST payment, as appropriate (at the Firm Placees' risk).

The New Shares to be issued pursuant to the Firm Placing and Placing and Open Offer will, following Admission, rank pari passu in all respects with the Existing Shares and will carry the right to receive all dividends and distributions declared, made or paid on or in respect of the ordinary shares after Admission.

Application will be made to the FCA for the New Shares proposed to be issued in connection with the Firm Placing and Placing and Open Offer to be admitted to the premium listing segment of the Official List and to the London Stock Exchange for the New Shares to be admitted to trading on its Main Market for listed securities. It is expected that Admission will become effective, and that dealings in the New Shares will commence, at 8.00 a.m. on or around 26 August 2021.

Firm Placing

Approximately 80 per cent. of the Firm Placing and Placing and Open Offer will be placed pursuant to the Firm Placing. The Firm Placed Shares are not to be offered first to Shareholders generally. The Board has undertaken discussions with key Shareholders in relation to the Firm Placing. The Firm Placed Shares are not subject to clawback under, nor do they form part of, the Open Offer.

Subject to completion of the Bookbuild, the Joint Bookrunners have agreed to underwrite the settlement of the Firm Placed Shares and conditionally placed Open Offer Shares placed with Placees procured through the institutional Bookbuild, on the terms and subject to the conditions in the Placing Agreement. With effect from the completion of the Bookbuild and subject to the execution by the Company and the Joint Bookrunners of the terms of issue setting out, among other things, the final number of the Firm Placed Shares and the Open Offer Shares to be issued and the final Offer Price following completion of the Bookbuild (the "Terms of Issue"), to the extent that any Firm Placee procured by the Joint Bookrunners fails to take up any or all of the Firm Placed Shares which have been allocated to it or which it has agreed to take up at the Offer Price, each of the Joint Bookrunners has agreed, on the terms and subject to the conditions set out in the Placing Agreement, to take up such Firm Placed Shares at the Offer Price in equal proportions. This underwriting commitment is conditional on the Placing Agreement becoming fully unconditional and not having been terminated in accordance with its terms.

The Firm Placed Shares, when issued and fully paid, will be identical to, and rank pari passu with, the Existing Shares in respect of all dividends or other distributions declared, made or paid after Admission. Firm Placees will not be able to participate in the Open Offer with respect to the Firm Placed Shares.

Placing and Open Offer

Approximately 20 per cent. of the Firm Placing and Placing and Open Offer will be placed conditionally with Conditional Placees. The Joint Bookrunners intend, pursuant to the Placing Agreement, to conditionally place all of the Open Offer Shares at the Offer Price with institutional investors. The commitments of the Conditional Placees will be subject to clawback in respect of valid applications for Open Offer Shares by Qualifying Shareholders pursuant to the Open Offer. Subject to waiver or satisfaction of the conditions relating to Admission and the Placing and Open Offer not being terminated, any Open Offer Shares which are not applied for in the Open Offer through valid applications received from Qualifying Shareholders will be issued to the Conditional Placees procured by the Joint Bookrunners. Certain Conditional Placees who are existing Shareholders of the Company, at the absolute discretion of the Joint Bookrunners, may be offered the opportunity to offset their Placing commitments against the Open Offer Shares validly taken up and paid for under the Open Offer.

With effect from the completion of the Bookbuild and subject to the execution by the Company and the Joint Bookrunners of the Terms of Issue, to the extent that any Conditional Placee procured by the Joint Bookrunners fails to take up any or all of the Open Offer Shares which have been allocated to it or which it has agreed to take up at the Offer Price, each of the Joint Bookrunners has agreed, on the terms and subject to the conditions set out in the Placing Agreement, to take up such Open Offer Shares at the Offer Price in equal proportions. This underwriting commitment is conditional on the Placing Agreement becoming fully unconditional and not having been terminated in accordance with its terms.

Subject to the fulfilment of the conditions set out below and in the terms and conditions of the Open Offer and, in the case of Qualifying Non-CREST Shareholders, the terms and conditions in the Application Form, Qualifying Shareholders will be given the opportunity to subscribe for New Shares pro rata to their existing shareholdings at the Offer Price on the basis of a ratio determined at the close of the Bookbuild.

Fractions of ordinary shares will not be issued and each Qualifying Shareholder's entitlement under the Open Offer will be rounded down to the nearest whole number.

Shareholders who have sold or otherwise transferred all of their Existing Shares before the ex-entitlement date will not be entitled to participate in the Open Offer.

The New Shares will not be made available in whole or in part to the public except under the terms of the Open Offer. The Open Offer will not be made to Shareholders in any Excluded Territory. Accordingly, Application Forms will not be sent to and Open Offer Entitlements will not be credited to the accounts of Shareholders in the Excluded Territories.

Shareholders should note that the Open Offer is not a rights issue. Qualifying Shareholders should be aware that in the Open Offer, unlike in a rights issue, any Open Offer Shares not applied for will not be sold in the market on behalf of or placed for the benefit of Qualifying Shareholders who do not apply under the Open Offer, but will be subscribed for under the Placing for the benefit of the Company.

Full terms and conditions of the Open Offer will be contained in the Prospectus which is expected to be published by the Company on or around 28 July 2021 following approval by the FCA in accordance with the Prospectus Regulation Rules and, in respect of Qualifying Non-CREST Shareholders, in the Application Form.

5. Intentions of the Directors

The Directors, who beneficially hold in aggregate 1,518,134 Existing Shares, representing approximately 0.25 per cent. of the Company's existing issued ordinary share capital as at 23 July 2021 (being the latest practicable date prior to the date of this announcement), each have committed to vote their Existing Shares in favour of the Resolutions.

In addition, each of the Directors has committed to subscribe for a total investment (including under the Open Offer) of approximately GBP228,000.

6. Current trading and prospects in respect of the Group

The two core businesses of Aviation and Energy are currently returning to operations in different phases as a result of the continued impact of government travel advice.

The Stobart Energy division has continued to see the business operate at the expected levels now that the availability of waste wood from the construction industry has returned to pre-COVID-19 levels. The business has continued to see gate fees move in line with the expected increases with the move into the summer season and due to increased wood supply from the construction sector. The business is trading in line with management's expectations for FY22 and continues to develop to pre-COVID-19 levels as all plants are fully operational compared to FY20 and FY21. It is expected that Stobart Energy's performance will be back to pre-COVID-19 levels of activity by the end of FY22. Management intends to develop near-term growth opportunities from additional supply contracts and broaden the base of the market offering within the energy from waste space where existing operational expertise can be applied.

The challenging aviation sector travel advice and limited availability of travel routes has meant a slower recovery for London Southend Airport. However, there has been a return to some passenger flying though this will continue to be at low levels whilst "green routes" are limited. The management team remain focused on maintaining the tight cost control demonstrated throughout this period and remain prepared for an increased level of activity once routes open up and travel returns. The business remains resilient through the continued global logistics operation which has now returned to similar levels to last year following the earlier reduction in operations due to planned Brexit risk mitigation in January and February 2021.

Stobart Aviation Services is also being affected by the slower return to flying through this summer but, as with London Southend Airport, it has taken steps to ensure the cost base is reflective of this reduced level of activity and is ready in anticipation of the return of travel at the bases it serves.

The Directors have considered various operating scenarios with regard to the Group's recovery from the impact of COVID-19 for London Southend Airport and Stobart Aviation Services in 2021 and the years ending February 2022 and February 2023. The table below sets forth management's current expectations in respect of its future business operations.

Management's current expectations refer to the assumptions and beliefs of management as at the date of this announcement for London Southend Airport, Stobart Energy and non-core assets which are reflected in the Company's business plan and budget. Management's current expectations are not a forecast, but rather are a management model based on a number of assumptions and beliefs concerning, amongst other things, results of operations, financial condition, liquidity, prospects, growth, strategies and recovery from the impact of COVID-19 for London Southend Airport, Stobart Energy and non-core assets. By their nature, these assumptions and beliefs involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future.

These risks are heightened as a result of the risks and uncertainties resulting from the COVID-19 pandemic. As a result of these risks and uncertainties, the Directors have considered a range of operating scenarios with regard to the impact of COVID-19 and the Group's recovery. For a discussion of the 'reasonable worst case scenario' prepared in connection with the Company's working capital statement, please see paragraph Error! Reference source not found. below.

 
                                                                                                  Management's current 
                                                                                                   expectations(1)(2) 
                                                                                                  -------------------- 
  London Southend Airport 
  Passengers numbers at pre-COVID-19 average run                                                            April 2022 
   rate by end of........................................... 
  Cargo rotations at December 2020 levels                                                                 October 2021 
  by.............................................................................. 
  Stobart Energy 
  Cumulative tonnes sold in excess of FY20 by(3)                                                          January 2022 
   ....................................................................... 
  Cumulative gate fee revenue in excess of FY20                                                          November 2021 
   by................................................................... 
  Disposal of Non-Strategic Infrastructure Assets                                                             May 2023 
   ................................................................. 
 
Notes: 
 
 (1) In the period following the 2020 Capital Raise to the end 
 of the financial year (February 2021), the core business consumed 
 GBP13.7 million cash including capital expenditure, an average 
 of GBP1.7 million per month. This compares favourably to the 
 downside scenario within the plan produced in 2020 of cash consumption 
 of GBP37.0 million (GBP4.6 million per month) and management 
 base case consumption of GBP34.4 million (GBP4.3 million per 
 month). 
 (2) Total group cash consumption over the same period was GBP59.1 
 million (GBP7.4 million per month), including over GBP40 million 
 of funding support to Stobart Air. The Directors are confident 
 that the strict cash management disciplines now embedded in 
 the Group will continue. 
 (3) Tilbury Green Power plant was offline for part of FY20. 
 
 

7. Dividends and dividend policy

The Group is focused on strengthening its balance sheet and maximising the capital available for the further development of its growth businesses. It is therefore the Directors' intention to retain the Group's cash flow to achieve these objectives. The Directors intend to review the Company's dividend policy on an ongoing basis and restore dividends at the point at which the Group becomes significantly cash generative at an operating level, subject to investment requirements to maximise shareholder returns.

In addition, under the terms of the Amended Facility Agreement, the Company is restricted from paying or declaring dividends whilst the New Facility remains in place. Dividends from the Borrower Group to the Wider Group are subject to certain restrictions under the terms of the Investment (as described in more detail below) and are not expected to be paid for a number of years.

8. Working Capital

The Prospectus will contain a statement that the Company is of the opinion that, taking into account the net proceeds of the Transaction and the New Facility, the Group has sufficient working capital for its present requirements, that is for at least 12 months from the date of the Prospectus.

Assumptions in respect of the impact of COVID-19

The COVID-19 pandemic and the attendant public health interventions to combat the virus have caused considerable disruption to business globally. Whilst considerable progress has been made globally in seeking to mitigate the effects of the virus, notably the global vaccination, monitoring and prevention programmes, the Directors note the seemingly unpredictability of new strains and outbreaks and consequential impact on national and international governments' guidelines and policies, plus their respective public's response to the continually evolving situation. Consequently, there remains significant uncertainty as to the continued magnitude and duration of this disruption, particularly for the aviation sector. In preparing its working capital statement, the Company has prepared a 'reasonable worst case scenario' to reflect the continuing impact and outlook of the COVID-19 pandemic. The uncertainties created by the COVID-19 pandemic make the construction of a 'reasonable worst case scenario' uniquely challenging.

The Company has made its working capital statement based on a model that has sufficient headroom to cover the 'reasonable worst case scenario', which includes the following principal COVID-19 pandemic-related assumptions:

(a) between September 2021 and February 2022, there will be a gradual resumption of passenger travel, with an average of 38,000 passengers per month, compared to pre-COVID-19 levels of 159,000 in the corresponding period in FY20;

(b) the phased recovery will continue, with an average of 107,000 passengers per month at London Southend Airport during FY23 and passenger numbers at pre-COVID-19 average run rate by April 2023, compared to pre-COVID-19 levels of 178,000 for the full year FY20;

(c) as a result of the Aviation-related assumptions discussed above, for the period March 2021 to February 2022, Stobart Aviation revenues will be 53 per cent. of the corresponding period in FY20; and

(d) within Stobart Energy, there will be no further lockdowns due to COVID-19 that would impact the construction and recycling sectors.

The working capital statement to be contained in the Prospectus has been prepared in accordance with the ESMA Recommendations (ESMA/2013/319), and the technical supplement to the FCA Statement of Policy published on 8 April 2020 relating to the COVID-19 crisis.

9. Importance of vote

Shareholders are asked to vote in favour of the Resolutions at the General Meeting in order for the Transaction to proceed. The Directors believe that successful completion of the Transaction and the New Facility becoming effective, is required to fund the Group's short-term working capital requirements, allow the Group to refinance the Existing Facility, survive the short-term difficulties through the ongoing COVID-19 crisis and position the Group to deliver its medium-term growth strategies.

The Group has obtained a deferral of financial covenant testing from its lending banks under the Existing Facility Agreement from May 2021 to 31 August 2021. Facility A is fully drawn down at GBP80 million. Drawdowns under Facility B during July and August 2021 are subject to meeting certain conditions, including the Company's ability to successfully complete the Transaction on or prior to 31 August 2021 (the "Draw-Stop Date"). The Group has satisfied these conditions to date and as at 23 July 2021 has drawn down GBP28 million of the GBP40 million available under Facility B in order to provide working capital for the Group and to maintain cash headroom up to 28 July 2021 and expects to draw down up to GBP33 million in aggregate under Facility B by the Draw-Stop Date.

Accordingly, if the Transaction fails to complete, the Lenders have no obligation to fund any further drawings and there can be no guarantee that the lending banks will consent to allow further drawdowns under Facility B beyond the Draw-Stop Date. If they do so consent, any further access to drawings under Facility B is expected to be conditional upon the Group seeking to market and dispose of all or part of the business of the Group on an accelerated basis. The New Facility is conditional on completion of the Transaction and the repayment by the Company of all outstanding amounts under the Existing Facility.

The Company's auditor has included a paragraph in the independent auditor's reports in respect of the FY20 Financial Statements and the FY21 Financial Statements stating that there is material uncertainty in respect of the Company's ability to continue as a going concern. The COVID-19 pandemic has continued to significantly impact the Group's revenue and costs in FY21 and the first five months of FY22, in particular in the Stobart Aviation business. The COVID-19 pandemic is expected to continue to significantly impact the Group given the current restrictions and limitations on both domestic and international air travel. Since the start of the COVID-19 pandemic, the Group has implemented the following measures to manage costs and preserve liquidity:

-- The Group has frozen all capital expenditure other than where it is considered business critical, including being required to meet regulatory requirements, and has deferred all discretionary spend.

-- The Group utilised the UK Government's Job Retention Scheme and initially put approximately 57 per cent. of the Group's more than 1,550 employees on furlough at its highest in April 2020. Approximately 243 of its employees remain on furlough or part time furlough (out of a total number of employees of the Group of 931 as at June 2021).

   --    The Group has reduced employee numbers from 1,482 as at February 2020 to 931 as at June 2021. 

-- The Directors and members of the Management Board agreed to 20 per cent. pay reductions and all other non-furloughed management accepted 10 per cent. pay reductions for six months during 2020.

-- A recruitment freeze was put in place in early March 2020 and all variable pay awards were deferred during FY21. No annual bonus scheme has yet been put in place for FY22 other than for Stobart Energy.

-- The Group has utilised a number of measures made available by the UK Government to help conserve cash.

If the Capital Raise is not completed by 31 August 2021, the Amended Facility Agreement will not become effective and the lending banks may choose to no longer provide financial covenant waivers or deferrals under the Existing Facility and may not provide consent to the Company drawing down further funds under Facility B prior to or beyond the Draw-Stop Date such that the Group would be unable to meet its liabilities as they fall due, and, in respect of the financial covenants, an event of default would immediately occur on 31 August 2021 following which the lending banks would be entitled to demand immediate repayment of all outstanding amounts under the Existing Facility Agreement (which as at 23 July 2021 are GBP108 million and is anticipated to total GBP113 million by 31 August 2021). Unless the Group is able to agree short-term relief with the lending banks and certain of its other stakeholders in order to explore alternative funding options to refinance the Existing Facility, or dispose of all or part of the business of the Group in order to generate sufficient funds to repay the Existing Facility, the Company does not expect that the Group would be able to obtain the funds necessary to pay all due amounts under the Existing Facility, and enforcement of the security granted in favour of the lending banks, together with Administration (or equivalent local law procedures), would therefore become reasonably likely for the Company and key trading companies in the Group at that time.

The Directors believe that any potential remedial actions, such as disposals of assets, would not be achievable in the required timeframe. In addition, as the Group has already implemented significant cost savings following the outbreak of COVID-19, the Directors believe that no further significant cost savings are likely possible to avoid Administration (or equivalent local law procedures) in the event that the Transaction does not successfully complete.

Consequently, if (i) the Transaction does not successfully complete and (ii) the Effective Date does not occur in respect of the Amended Facility Agreement, in each case by the Draw-Stop Date (or such later date as agreed with the lending banks including the provision of further funding under Facility B), the Directors expect that Administration (or equivalent local law procedures) of the Company and of certain key trading companies in the Group and enforcement of the transaction security granted in favour of the Lenders would be reasonably likely shortly thereafter. Shareholders would likely lose all or a substantial part of their investment in the Company as a result.

Accordingly, it is critical that Shareholders vote in favour of the Resolutions, as the Directors consider the Transaction to represent the best transaction possible for the Company, Shareholders and its stakeholders as a whole in the current circumstances.

Even if the Transaction is approved by Shareholders, management's forecasts show a working capital shortfall of approximately GBP14 million in February 2023, on a reasonable worst case scenario basis. This shortfall is principally a result of the requirement to refinance the New Facility by 1 February 2023. The Group anticipates incurring additional cash outflow from that date, pursuant to residual legacy costs relating to Propius, the liquidation of Stobart Air and the cash impact of identified sensitivities, and reduced activity levels across all divisions.

10. Recommendation and voting intentions

The Board believes the Transaction to be in the best interests of the Company and its Shareholders as a whole. Accordingly, the Board unanimously recommends that the Shareholders vote in favour of the Resolutions to be proposed at the General Meeting to approve the Capital Raise, as the Directors each intend to do in respect of their own legal and beneficial holdings.

APPIX I

EXTRACTS OF CERTAIN ADDITIONAL INFORMATION TO BE INCLUDED IN THE PROSPECTUS

   I.          SUMMARY OF THE KEY TERMS RELATING TO THE INVESTMENT 

Part A - Loan Agreement / security arrangements

Loan Agreement

The Loan Agreement includes provisions to the following effect:

Borrower and Guarantors

The Loan Agreement includes London Southend Airport Company Limited ("LSA") as the Borrower and Thames Gateway Airport Limited, Stobart Solar Limited and Stobart Jet Centre Limited as joint and several guarantors of the Borrower's obligations (together with the Borrower, the "Obligors").

Principal amount and interest

The principal amount of the available facility as at the Closing Date (as defined therein) will be GBP125 million.

Interest shall accrue on the outstanding principal amount of the Loan at a rate of 2 per cent. per annum (the "PIK Interest") and 8 per cent. per annum (the "Cash Interest"). Interest payment dates will be the fifth Business Day following the end of each interest period (being a period of 12 months ending on the last day of February in each year save that the first interest period shall commence on the Closing Date and shall end on the last day of February 2022).

PIK Interest accrued during each Interest Period will be added to the principal amount of the Loan. Cash Interest will only be payable to CGIOF River S.à r.l. ( the "Lender") out of revenues generated by the Obligors during the interest period preceding each interest payment date (after deducting certain expenditure and debt service charges of the Obligors) and shall only be payable to the extent that a minimum headroom liquidity requirement is met. Such minimum headroom liquidity requirement will be met to the extent that (i) following payment of the accrued Cash Interest on such interest payment date, and taking into account any other debt service charges payable on such date, there is a minimum of GBP5 million of cash to be available to the Obligors; and (ii) during each month of the three-year period following such interest payment date, there is a minimum of GBP2.5 million of cash (after deducting anticipated payments of operating and capital expenditure, debt service and cash taxes) ("Projected Cash") forecast to be available to the Obligors and when the Projected Cash for each month of such three-year period is aggregated, the average Projected Cash available to the Obligors during such period is forecast to be not less than GBP5 million. To the extent that Cash Interest is not paid on an interest payment date, the unpaid amount will be added to the principal amount of the Loan with effect from such date and interest will accrue on such increased principal amount thereafter.

Purpose

The Borrower shall apply all amounts borrowed by it under the Loan in partial repayment of the outstanding intercompany loans advanced by the Company and Stobart Aviation Limited ("Stobart Aviation") and settlement of the transaction fees, costs and expenses of the Lender incurred in entry into this Agreement.

Conditions precedent

The Loan Agreement requires the satisfaction of certain conditions precedent prior to the Lender being obliged to make the Loan available to the Borrower. These conditions precedent include:

-- Customary corporate authorisations for a transaction of this type, including board resolutions, directors' certificates, financial statements and constitutional documents.

   --    A legal opinion of the legal advisers to the Lender. 

-- Duly executed copies of the ancillary transaction documents, including the Pari Passu Loan, Intercreditor Agreement, Deed of Indemnity, Shareholders' Agreement, Implementation Agreement, the document granting the Transaction Security, deed of release of existing security and utilisation request.

   --    Evidence of the approval of the Investment by the Shareholders of the Company. 

-- One or more RNS announcements from the Company which together confirm that (i) the Group has obtained at least GBP60 million of committed funding of which at least GBP40 million has been raised by way of the issue of Shares (which requirement will be met by the net proceeds from the Capital Raise if it is concluded) and no more than GBP20 million made available pursuant to a committed working capital facility; (ii) the equity raise has completed; and (iii) the working capital facility has been entered into and all initial conditions precedent have been satisfied.

-- Certain other evidence such as a business plan, a cashflow statement for the period beginning 1 March 2021 and ending on the business day prior to the Closing Date demonstrating the funding injected by the Wider Group into the Borrower Group, a steps paper for the reorganisation of the Obligors into the Borrower Group and a licence in favour of the Borrower granting an exclusive and perpetual license to use the trademarks associated with London Southend Airport.

Undertakings

The Loan Agreement requires the Obligors to comply, with effect from the Closing Date and for so long as the Loan remains outstanding, with a number of customary undertakings and covenants, which are subject to customary materiality qualifications, exceptions and baskets. These covenants include, among others:

-- restrictions on the nature and amount of financial indebtedness that may be incurred by the Obligors, including the requirement to meet certain debt incurrence tests before certain types of financial indebtedness can be incurred;

-- restrictions on capital and operating expenditure which may be incurred by the Obligors during the term of the Loan;

   --    restrictions on disposals of assets; 

-- restrictions on the ability of the Obligors to make dividend payments, distributions or payments in respect of subordinated debt unless certain permitted distribution conditions are met; and

-- restrictions on the ability of the Borrower to make material changes to the terms of reference for the Operational Committee or establish further committees for managing the Borrower other than with the prior consent of the Lender.

In addition, there are certain performance related triggers such that, in the event of underperformance by the Obligors in terms of passenger numbers using London Southend Airport and/or its profitability which are not cured within prescribed timeframes, the Obligors will be subject to certain tighter restrictions and the Lender will have certain enhanced rights and powers, including further restrictions with respect to the incurrence of financial indebtedness, a restriction on all disposals by the Borrower Group and a restriction on the payment of any distributions, dividends or in respect of subordinated debt.

Restrictions on transfer

The Loan Agreement includes restrictions on the ability for the Lender to transfer its rights and obligations under the Loan Agreement to a third party. The Lender is at all times restricted from transferring its interest to any entity on the Restricted List without the prior written consent of the Borrower.

The Lender may transfer its rights without the prior consent of the Borrower (subject to the Restricted List restrictions) provided that any transferee accedes to the relevant finance documents, and:

-- the transferee is an affiliate of the Lender who has (a) completed any relevant "know your customer" checks requested to confirm that such transferee is in fact an affiliate; and (b) where no person, together with any of its affiliates (excluding any affiliates of the Lender) holds an economic interest (on a look through basis, whether held directly or indirectly) of more than 49 per cent. of the Lender ; or

   --    an event of default under the Loan Agreement has been continuing for more than 70 days; or 

-- an event of default has been continuing for fewer than 70 days, but the Lender has accelerated the loan, confirmed that it will not exercise its conversion right and the Borrower has failed to repay the Loan within 10 Business Days.

Conversion and redemption rights

Conversion

At any time, prior to the maturity of the Loan, the Lender may elect, by serving 30 days' notice to the Borrower, to exercise its conversion right in respect of the Loan so as to convert the principal amount outstanding under the Loan (including all accrued interest) into ordinary shares in an amount equal to 29.9999 per cent. of the fully diluted share capital of the Borrower (which shall be increased to 30 per cent. following receipt of approval from the Office of Rail and Road) ("Conversion") . Following receipt of such notice, the Borrower must issue the shares to the Lender on the date specified by the Lender (such date being no less than 60 days following receipt of the notice).

Upon the exercise of its conversion rights, the Lender may require that the Borrower (a) capitalise certain outstanding shareholder indebtedness and (b) procure the release of certain debt guarantees granted in support of indebtedness incurred by the Wider Group. In the seven months prior to the final maturity of the Loan, the Lender will indicate its intention to convert the Loan or require its repayment at maturity at the request of the Borrower.

At any time following the fifth anniversary of the Closing Date, the Borrower may provide written notice to the Lender requesting that the Lender exercise its conversion right. If the Borrower provides such notice, the Lender shall either consent to the conversion, at which point the conversion as described above will occur, or consent to the Borrower repaying the loan in full at the Repayment Price (as defined below).

Following any conversion of the Loan, the obligations and liabilities of all parties under the Loan Agreement shall be discharged in full.

Redemption

To the extent that the Loan remains outstanding, the Borrower is obliged to repay the Loan in full on the final maturity date, being seven years from the Closing Date at the Repayment Price, which is the greater of: (a) the amount which generates a 10 per cent. IRR for the period from the Closing Date to the repayment date taking into account as part of the IRR calculation the amounts of all Cash Interest paid; or (b) GBP193.75 million less the amounts of all Cash Interest paid prior to the repayment date.

Following the second anniversary of the Closing Date, the Borrower may elect to repay the Loan in full by serving a notice on the Lender. Following delivery of such notice, the Lender will then have a two-month period to elect to exercise its conversion right. If the Lender does not exercise its conversion right during that period, the Borrower is required to repay the Loan at the Repayment Price on or prior to a pre-specified long-stop date.

The Esken Shareholder is required to notify the Lender of any proposed change of control of the Borrower Group or certain insolvency events. In respect of any proposed change of control, the Lender shall have a right of first offer in respect of the shares in the Borrower. Subject to such right, and following receipt of such notice, the Lender may serve notice on the Borrower to either require the Borrower to repay the Loan at the Repayment Price or exercise its conversion right. If the Lender does not elect to pursue either option above within two months of being notified of a proposed change of control, the Borrower may (at its option) elect to repay the Loan at the Repayment Price and/or implement the proposed change of control.

If any sum payable to the Lender by the Borrower Group under the Loan Agreement becomes subject to gross-up or if the Lender claims any tax-related indemnification from an Obligor the Borrower may serve notice on the Lender of its intention to repay the Loan in full at the Repayment Price on or prior to a long-stop date not more than 6 months following the date of such notice. If, within two months of receipt of such notice, the Lender does not serve notice exercising its conversion right, the Borrower shall repay the Loan in full at the Repayment Price on or prior to the long-stop date specified in its notice.

Marketing

The Lender is entitled to informally approach investors in the market with a view to determining the potential value of a sale of its stake in the Borrower if it exercised its conversion right subject to certain restrictions on the number of investors that can be approached and the scope of information that can be shared with such investors (and any commercially sensitive information shared will be subject to the terms of access that the board of the Borrower shall reasonably determine).

The Borrower will use its reasonable endeavours to procure that its management shall, upon request from the Lender, provide reasonable assistance in preparing and providing non-public information to be shared with such limited number of investors, provided that any non-public information shared will be subject to appropriate confidentiality undertakings.

Emergency Funding

The Loan Agreement includes the ability for the Borrower to submit a notice to the Lender and the Esken Shareholder specifying that certain emergency funding situations (including urgent liquidity requirements and events of default occurring under any of the Borrower's other financing) may arise (or have arisen).

Following submission of such notice, the Borrower may seek cost-effective third-party financing to remedy such situation. If the Borrower is unable to secure such financing or considers it to not be cost-effective, the Borrower may submit a request to the Lender and the Esken Shareholder to provide such emergency funding. The Lender and the Esken Shareholder shall notify the Borrower whether they are prepared to participate and on what terms. The Borrower shall notify both the Lender and the Esken Shareholder which terms it is willing to agree to and the other shall be given the opportunity to match such terms. If insufficient funding is offered by one party, the other party may elect to provide the shortfall. Up to GBP10 million of emergency funding may rank senior to the secured senior liabilities, including the Loan and the Pari Passu Loan (as set out in the Intercreditor Agreement). Any excess shall be subordinated to such secured senior liabilities.

Governance

Committees

Under the Loan Agreement, the Borrower shall undertake to establish an operational committee (the "Operational Committee") responsible for the day-to-day decision making of the Borrower Group with delegated authority from the board of the Borrower with effect from the Closing Date.

The Esken Shareholder will undertake that it will establish a strategic committee for shareholder-level discussions (the "Strategic Committee") in accordance with the terms set out in the Shareholders' Agreement.

Further details on the governance of the Borrower is set out in the section relating to the Shareholders' Agreement below.

Underperformance events

On the occurrence of certain trigger events related to underperformance with respect to passenger numbers at and/or profitability of London Southend Airport at various test dates (commencing in August 2022), the following shall occur:

-- a revised business plan and annual budget shall be agreed between the Lender and the Esken Shareholder; and

-- the Lender may commission an independent review to ascertain the causes of the relevant underperformance and the Lender and the Esken Shareholder shall meet to consider whether any management changes ought to be implemented.

In the event such underperformance is not cured within a set time period (which shorten depending on the severity of the underperformance), additional restrictions shall apply to the Obligors (including those outlined in the "Undertakings" above), the Lender may appoint additional non-executive directors to the Borrower's board (providing that the Lender's representatives remain a minority) and the Lenders and the Esken Shareholder shall promptly meet to discuss senior management changes and, if considered appropriate, a replacement process shall ensue as part of which the Lender shall have a deciding right in respect of replacement of the CEO and/or Finance Director of the Borrower.

Insolvency Event in relation to a Material Person

Following the appointment of an insolvency officeholder in respect of any of the Company, the Esken Shareholder and any intermediate holding company between the Company and the Esken Shareholder (each, a "Material Person") (an "Insolvency Event"), and until such time as either such Insolvency Event has ceased or a change of control has occurred such that the Borrower is no longer controlled by a person subject to an Insolvency Event (whichever is earlier), the Lender shall have the right to appoint the minimum number of:

   --    directors to constitute the majority of the board of the Borrower; and 

-- members of the sub-committees of the Borrower (including the Operational Committee) to constitute the majority of such sub-committees.

In the event that the Lender does appoint a majority of the board of the Borrower following the occurrence of an Insolvency Event in respect of a Material Person, the Lender shall procure that:

-- no action or decision is taken in respect of any matters which are "Reserved Matters" under the Shareholders' Agreement without the prior consent of at least one director appointed by each of the Lender and the Esken Shareholder; and

-- no material updates or amendments are made to the then current Business Plan and Annual Budget without the consent of the directors appointed by the Esken Shareholder.

Right of First Offer

In certain circumstances relating to transactions which might give rise to a change of control of the Borrower, the Lender shall have the right to (i) demand repayment at the Repayment Price, or (ii) exercise its conversion rights and / or (iii) make an offer to Esken and the Esken Shareholder to acquire the shares held by the Esken Shareholder in the Borrower on the same terms implied by the transaction leading to the change of control, which Esken and the Esken Shareholder may choose to accept.

Events of Default

The Loan Agreement contains certain customary events of default (subject in certain cases to agreed grace periods, thresholds and other qualifications), including, for example, non-payment, breach of obligations and a cross-default to other financial indebtedness which ranks senior to liabilities under the Loan Agreement of any member of the Borrower Group.

Following the occurrence of an event of default, the Lender shall have 60 days from the date of such occurrence to either exercise its conversion right in respect of the Loan or to require that the Borrower repay the Loan in full at the Repayment Price and/or take enforcement action with respect to the transaction security. If within 90 days of such occurrence, the Lender has neither exercised its conversion right nor demanded repayment at the Repayment Price, nor granted a waiver in respect of the event of default, the Borrower shall be entitled to repay the Loan at the Repayment Price.

To the extent that, following the occurrence of an Event of Default, the Lender has elected to require that the Borrower repay the Loan in full at the Repayment Price and/or take enforcement action, the Lender may require that the Borrower (a) capitalise certain outstanding shareholder indebtedness and (b) procure the release of certain debt guarantees granted in support of indebtedness incurred by the Wider Group, to the extent that such capitalisation and/or release is required to order that the Lender recover the Repayment Price.

Security Agreement

The obligations of the Obligors under the Loan Agreement and related finance documents will be secured in favour of the Security Agent by the security granted under an English-law governed security agreement to be dated the Closing Date creating fixed and floating security as applicable over substantially all of the assets of the Obligors save for certain assets where the consent of a third party is required to be obtained in order for such security to be granted or such rights to be assigned (as the case may be), in relation to which the Borrower will use reasonable endeavours to obtain such consent as soon as reasonably practicable.

Part B - Summary of the Shareholders' Agreement

The Shareholders' Agreement will be signed on Closing of the Investment, with certain limited provisions taking effect at Closing and all other provisions taking effect on Conversion. A summary of the Shareholders' Agreement is as follows:

Investors

The Shareholders' Agreement is between LSA, Stobart Aviation Limited (a wholly-owned subsidiary of the Company) (in that capacity, the "Esken Shareholder") and the Lender (in that capacity, the "CGI Shareholder"), and governs the relationship between the Esken Shareholder and the CGI Shareholder as investors in LSA. The business of the Borrower Group is specified as the business: (i) operated by the Borrower Group as at the Closing Date; and (ii) of owning, operating and developing London Southend Airport (including, without limitation, provision of facilities for and connected with aeronautical activities and commercial activities including retail, car parks, jet centres, advertising and surface transport and the development thereof).

Issue of shares

Following Conversion, any shares in LSA can only be issued with the consent of the Esken Shareholder (whilst the Esken Shareholder holds at least 50 per cent. of the shares in LSA) and on a pre-emptive basis to the CGI Shareholder and the Esken Shareholder pro rata to their equity proportions.

General governance

Board of LSA

Following Conversion, the board of LSA will be increased up to seven members. Subject to the consequences of a Material Person Insolvency Event outlined below, the CGI Shareholder will be entitled to appoint and remove up to two directors (while it holds 30 per cent. or less of the shares in LSA, and if it holds more than 30 per cent. of shares, it shall be entitled to appoint such number of directors equivalent to its equity proportion) who must have relevant experience in the airport or aviation sector and who must each be approved by the Esken Shareholder (the "CGI Directors"). The Esken Shareholder shall be entitled to appoint at least four directors (for so long as it holds a majority of shares in LSA), and if it no longer holds a majority of shares, it shall be entitled to appoint such number of directors equivalent to its equity proportion (the "Esken Directors"). The Esken Shareholder and CGI Shareholder shall jointly be entitled to appoint at least one independent non-executive director who must have relevant experience in the airport or aviation sector. The rights of the CGI Shareholder in this respect, and in relation to the other governance rights referred to below, shall subsist for so long as it holds at least 25 per cent. of the shares in the Borrower. The rights of the Esken Shareholder in this respect shall subsist for so long as it remains, in some circumstances, the holder of the majority of shares in LSA and in certain other respects for so long as it holds at least 25 per cent. of the shares in LSA. For the avoidance of doubt, the CGI Shareholder does not have a right or option exercisable at its sole discretion under the Shareholders' Agreement to increase its stake in LSA.

The chair of the board of LSA shall be appointed from the Esken Directors, whilst the Esken Shareholder remains the largest shareholder in LSA, but shall not have a casting vote. The quorum for board meetings shall in most circumstances be at least three directors, including at least two Esken Directors and one CGI Director, except at a meeting which has been adjourned and reconvened twice, in which case the quorum shall be at least three directors, including at least two Esken Directors.

Each director of LSA shall be entitled to cast one vote, unless that director has a conflict of interests. However, if the CGI Shareholder or the Esken Shareholder elects to appoint fewer CGI Directors or Esken Directors (as applicable) than it is entitled to appoint pursuant to the Shareholders' Agreement, then the CGI Directors or Esken Directors (as applicable) shall be entitled to exercise such number of votes as would have been held by the CGI Directors or Esken Directors (as applicable) if the maximum number of CGI Directors or Esken Directors (as applicable) was appointed pursuant to the Shareholders' Agreement.

Board meetings will take place at least quarterly every financial year, and the chair of Esken Limited and any executive director of Esken Limited is permitted to attend such board meetings (whilst the Esken Shareholder holds at least 25 per cent. of the shares in LSA).

CGI Observer rights

The CGI Shareholder is entitled to nominate one CGI Director to attend any board meeting of any Borrower Group company without any voting rights, provided that it holds at least 25 per cent. of the shares in LSA.

Operational Committee

At Closing, the Esken Shareholder will establish an Operational Committee, which will be responsible for the day to day management of the Borrower Group. The Operational Committee will comprise of nine members, including two members appointed by the CGI Shareholder, two members which comprise the existing directors of LSA (prior to Conversion) or the Esken Directors (following Conversion) and five members from the senior management of LSA, comprising the chief executive, finance director, chief operations officer, business development director and one other member of senior management of LSA nominated for such purposes by the chief executive of LSA.

The Operational Committee will take decisions via majority vote.

The chair of the Operational Committee shall be appointed from the senior management members but shall not have a casting vote. The quorum for Operational Committee meetings shall be at least three members, including at least two senior management members and one member appointed by the CGI Shareholder, except at a meeting which has been adjourned and reconvened twice, in which case the quorum shall be at least three members, including two senior management members.

Operational Committee meetings shall take place at least monthly, and as more frequently as required for the management of LSA. The chair of Esken Limited and any executive director of Esken Limited may attend any Operational Committee meeting at any time.

The Esken Shareholder is entitled to nominate one observer to attend any Operational Committee meeting of LSA, provided that it holds at least 25 per cent. of the shares in LSA.

The CGI Shareholder is entitled to nominate one observer to attend any Operational Committee meeting of LSA where the business plan and annual budget is discussed, provided that it holds at least 25 per cent. of the shares in LSA.

Appointment of Chief Executive

For so long as the Esken Shareholder holds more than 50 per cent. of the shares in LSA, the chief executive of LSA will be appointed and may be removed at any time by the Esken Shareholder, provided that the Esken Shareholder shall consult with the CGI Shareholder and take into account the CGI Shareholder's reasonable comments in relation to any appointment or removal of the chief executive of LSA. The Esken Shareholder will consult with the CGI Shareholder on the proposed remuneration of any proposed chief executive of LSA.

General Meetings

LSA general meetings shall be conducted in accordance with the articles of association of LSA. A quorum shall only be present if at least one representative from both the Esken Shareholder and the CGI Shareholder are present for so long as the CGI Shareholder holds at least 25 per cent. of the shares in LSA.

Strategic Committee

From Closing, the parties will establish the Strategic Committee to accommodate discussions between the Esken Shareholder and the CGI Shareholder for so long as the CGI Shareholder holds at least 25 per cent. of the shares in LSA. Each of the Esken Shareholder and the CGI Shareholder has up to two appointed representatives on the Strategic Committee. The quorum for any meeting of the Strategic Committee is one representative appointed by the Esken Shareholder and one representative appointed by the CGI Shareholder.

Investor Conflicts

In the event any of the Esken Shareholder or the CGI Shareholder or any of their affiliates are involved in litigation or other legal proceedings against LSA, that party will not be permitted be counted in the quorum in respect of any general meeting or Strategic Committee meeting (and the quorum requirement shall be adjusted as necessary so as not to require the presence of the conflicted shareholder), nor to vote on that matter at any general meeting or Strategic Committee meeting (and the non-conflicted Investor shall be entitled to exercise the votes of any conflicted Investor) and to the extent that this matter is an Investor Matter (as defined below), it will be deemed not to require the consent of that conflicted shareholder.

Reserved Matters

Following Conversion, certain matters are designated as reserved matters under the Shareholders' Agreement, which require consent either from CGI Directors and Esken Directors ("Board Matters") or from the CGI Shareholder and the Esken Shareholder ("Investor Matters").

Board Matters cover (amongst other matters) incurrence of borrowings and debt (excluding certain debt which is deemed to be permitted financing), entry into material contracts, incurrence of capital expenditure (excluding certain capital expenditure which is deemed permitted), acquisitions or disposals of intellectual property rights, actions taken in relation to legal proceedings with a value of GBP5 million and above or incurrence of material operating expenditure.

Investor Matters cover (amongst other matters) amendments to the constitutional documents of the Borrower Group, changes in the share capital of LSA, changing the nature of the business of LSA, the Borrower Group making material acquisitions or disposals or entering into partnerships or joint ventures, the winding up of any Borrower Group company or entry into certain related party transactions with investors.

Deadlock

The Shareholders' Agreement includes provisions for resolving a deadlock ("Deadlock"), which occurs when any reserved matter is proposed at two consecutive board meetings, Strategic Committee meetings or general meetings, but is not approved, the LSA board fails to approve a Subsequent Business Plan or Annual Budget, a quorum is not present at two consecutive Strategic Committee meetings, general meetings of the holders of shares in LSA, LSA board meetings or Operational Committee meetings due to the same investor (or its directors) failing to attend, or an investor gives notice that there is a fundamental difference in opinion relating to the strategy for LSA or the business intended to be carried out by the Borrower Group (the "Business"), or other circumstances which seriously threatens the relationship of the shareholders in relation to the Business.

If a Deadlock occurs, any investor may serve notice on the other investor stating that a Deadlock has arisen. If a Deadlock cannot be resolved through amicable negotiation between the interested parties within 10 Business Days from and including the date on which a deadlock notice is received, the matter shall be referred to appointed representatives of each of the investors, who will attempt in good faith to resolve the Deadlock. If the Deadlock cannot be resolved through negotiation between the appointed representatives of the investors within 10 Business Days from and including the date of the referral, the parties will attempt to resolve the Deadlock through mediation. If the Deadlock cannot be resolved by mediation within 20 Business Days following the date of appointment of the mediator, the status quo shall continue to apply.

Business Plan and Annual Budget

The initial long-term business plan (the "Initial Business Plan") and budget (the "Initial Annual Budget") for the Borrower Group has been agreed between the Esken Shareholder and the CGI Shareholder and will be adopted by LSA immediately prior to drawdown of the Loan by LSA. The initial business plan will cover a seven-year period commencing with the financial year in which the Shareholders' Agreement is entered into.

Each year the Operational Committee will prepare an update to the previous year's business plan (a "Subsequent Business Plan"). A draft of a Subsequent Business Plan will be circulated to each member of the LSA board at the same time as it is circulated to the CGI Shareholder (as applicable), the Esken Shareholder and Esken Limited (as applicable), and each member of the LSA board will have the opportunity to review and comment on the draft.

LSA shall use all reasonable endeavours to procure that, by no later than 15 days prior to the end of each financial year, the LSA board will have approved a revised draft of the annual budget (to be prepared by the Operational Committee) for the Borrower Group covering the twelve-month period commencing at the start of the following financial year to replace the prior existing annual budget (the "New Annual Budget").

Any Subsequent Business Plan or New Annual Budget may only be adopted by a majority vote of the LSA board and approval from the board of Esken Limited while Esken Limited remains a listed entity. Following Conversion, if Esken Limited is delisted, any Subsequent Business Plan or Subsequent Annual Budget may only be adopted by a majority vote of the LSA board and approval from the Esken Shareholder and the CGI Shareholder. Any material amendment of the Business Plan or the Annual Budget shall require a majority vote of the LSA board.

LSA agrees that it will act in a commercially reasonable manner when setting and approving any Subsequent Business Plan and/or New Annual Budget and take into account (i) the aim to balance operating expenditure and capital expenditure needs over the relevant period with the then current and forecast passenger numbers, and revenue growth, and recognising that (A) any growth capital expenditure will be related to and supported by forecast passenger numbers and related revenue generation and (B) the current infrastructure of London Southend Airport can support up to 3 million passengers and any increase in passenger capacity beyond 3 million would require significant capital expenditure to be undertaken; (ii) all commercially reasonable comments on it from the CGI Shareholder at the time when it is being discussed/settled at the operations committee/board of LSA; and (iii) the Financial Principles and other obligations of the Borrower Group.

Based on the information currently available to LSA, the Esken Shareholder and the CGI Shareholder, the joint view of LSA, the Esken Shareholder and the CGI Shareholder as at the Closing Date is that commencing construction on certain key projects prior to the passenger numbers for the preceding 12 months being at or above the numbers set out in certain investment principles appended to the Shareholders' Agreement would (for this purpose) be commercially unreasonable.

Escalation procedure

In the event that the CGI Shareholder determines (acting reasonably) that any proposed Subsequent Business Plan or New Annual Budget is not commercially reasonable, it may, to the extent that any such concerns are not resolved in the ordinary course monthly meetings of the Operational Committee/the board meetings of LSA:

(a) deliver to the Esken Shareholder notice of its concerns following which a meeting of the Strategic Committee will be formally convened as soon as is reasonably practicable to discuss such concerns with a view to resolving them;

(b) if the Esken Shareholder and the CGI Shareholder are unable to reach agreement as to the commercial reasonableness of the proposed Subsequent Business Plan and/or New Annual Budget within 15 Business Days of the meeting of the Strategic Committee or resolve the concerns raised, the CGI Shareholder may request that a board meeting of Esken Limited be convened at which representatives of the CGI Shareholder shall be entitled to discuss their concerns with the board of Esken Limited with a view to resolving such concerns; and

(c) if, notwithstanding the meetings in paragraphs (a) and (b) above, the Esken Shareholder wishes to continue with the proposed Business Plan and/or Annual Budget, then the matters in dispute may be referred (on the application of either the Esken Shareholder or the CGI Shareholder) for review by an independent mediator in accordance with a mediation process provided that the outcome of the review as to commercial reasonableness of the relevant matters in dispute by such mediator shall not be binding on either LSA or the Esken Shareholder.

Failure to approve Business Plan or Annual Budget

If the LSA board fails to approve a Subsequent Business Plan or a New Annual Budget, the Business Plan or Annual Budget (as applicable) then in force shall continue to apply, and LSA shall continue to comply with those provisions of the Business Plan or Annual Budget (as applicable) as applicable to the relevant financial year, with the only updates being adjustments by reference to the Consumer Price Index (as published from time to time) to the previous Business Plan or Annual Budget, until such time as a Subsequent Business Plan or Annual Budget (as applicable) is approved.

If the Company ceases to be a listed entity (including for example following a takeover of the Company), any Subsequent Business Plan or New Annual Budget must be approved by: (i) a majority vote of the board of directors of the LSA; and (ii) each of the shareholders of LSA which hold at least 25 per cent. of the shares in LSA.

Transfers of shares

Save with prior written consent of the Esken Shareholder, the CGI Shareholder may not make any transfer of shares in LSA save for certain circumstances expressly permitted by the Shareholders' Agreement (as described below).

No transfer of LSA shares may be made by the CGI Shareholder unless prior consent from the Esken Shareholder has been received, except for the following:

-- a transfer to an affiliate which is not a Restricted Person (provided that: (i) such affiliate is, or is majority-owned by, a fund or funds which is managed and advised by Carlyle Investment Management L.L.C. (or its affiliates) (each a "CGI PAT Fund"); (ii) the CGI Shareholder's Approved Parent controls the affiliate and, if the affiliate is not a CGI PAT Fund, the CGI PAT Fund(s); and (iii) no person, together with any of its affiliates (excluding any affiliates of the CGI Shareholder) holds an economic interest (on a look-through basis, whether held directly or indirectly) of more than 49 per cent. of the CGI Shareholder;

-- a transfer required to reverse a previous transfer made in breach of the Shareholders' Agreement;

-- a transfer permitted by the Shareholders' Agreement in relation to the right of first refusal, drag-along and tag-along rights (as further described below);

-- a transfer made as part of the implementation of an exit approved by both the CGI Shareholder and the Esken Shareholder from the investment (whether through an IPO or a sale); or

   --    a transfer made in accordance with the option to purchase right referred to below. 

Save with prior written consent of the Esken Shareholder, the CGI Shareholder may not transfer any LSA shares to any person (each, a "Restricted Person"):

   --    who is subject to certain insolvency events; 

-- unless the CGI Shareholder has provided any "know your customer" information and evidence reasonably requested by LSA to enable LSA to satisfy itself (acting reasonably) with respect to all relevant reasonable "know your customer" requirements relating to such person;

-- who directly or indirectly, holds an interest exceeding 10 per cent. (excluding any limited partnership interests or any other interest in which such person does not exert control or influence) in the following airports: Gatwick Airport, London City Airport, Luton Airport and Stansted Airport; or

   --    who is on the Restricted List. 

If the Esken Shareholder transfers any of its LSA shares, the transferee must accede to relevant documentation to become subject to the same provisions as the Esken Shareholder, and if the transferee is a person that is not part of the Esken Group, the Esken Shareholder must have complied with the right of first refusal and tag-along rights set out below. The Esken Shareholder may not transfer shares to any person that is subject to certain insolvency events or who the Esken Shareholder has not provided "know your customer" information and evidence reasonably requested by the CGI Shareholder to enable the CGI shareholder to satisfy itself (acting reasonably) with respect to all relevant reasonable "know your customer" requirements relating to such person, in each case without the CGI Shareholder's prior consent.

Save with prior written consent of the CGI Shareholder, the Esken Shareholder may not transfer any LSA shares to any person:

   --    who is subject to certain insolvency events; or 

-- with respect to whom all relevant reasonable 'know your customer requirements' for the CGI Shareholder have not been satisfactorily completed.

Sale by the CGI Shareholder

Subject to the right of first refusal below, the CGI Shareholder is permitted to sell all (but not some) of its LSA shares to a third party who is not a Restricted Person following the second anniversary of the drawdown of the Loan provided Conversion has occurred. The CGI Shareholder shall consult with the Esken Shareholder as to the identity of the proposed third party before implementing any such sale. The Esken Shareholder will procure that LSA's management provides the CGI Shareholder with such reasonable assistance in any sale process as the CGI Shareholder may reasonably request (provided any reasonable third party expenses are borne by the CGI Shareholder).

Right of first refusal

Where either investor proposes to transfer any of its LSA shares to a third party, that investor will notify the other investor prior to signing any agreement relating to such transfer. The transferring investor must first make an offer to the other investor to acquire the shares being transferred at such price and on such terms as the transferring investor proposes in cash. If the notified investor does not accept the transferring investor's offer within one month, the transferring investor may agree to sell the relevant shares offered for transfer to any person at a price equivalent to no less than 100 per cent. of the transferring investor's offer and otherwise on customary terms for any such sale, subject to the definitive agreement for such sale being entered into within six months after the initial notice of proposed transfer.

Drag-Along rights

Where the Esken Shareholder proposes to transfer LSA shares amounting to a majority interest in LSA to a third party and the CGI Shareholder has not exercised its right of first refusal as set out in the section entitled "Right of first refusal" above or its tag-along right as set out in the section entitled "Tag along rights" below, the Esken Shareholder shall have the right to require the CGI Shareholder to transfer all (but not some only) of the shares held by it and its permitted affiliate transferees to the transferee, at the same price (such price to be payable in cash) and on the same terms and conditions as the proposed transfer of shares by the Esken Shareholder to the transferee, by giving written notice to that effect to the CGI Shareholder accompanied by copies of all documents necessary to be executed by the CGI Shareholder to give effect to the transfer of its shares to the third party.

The minimum price at which the CGI Shareholder shall be required to transfer its shares shall be a cash amount equal to the greater of (i) 3x multiple on invested capital and (ii) such amount as would give the CGI Shareholder 16 per cent. IRR, calculated based on the initial principal amount of the Loan on the Closing Date. The minimum price at which any third party of the shares previously held by the CGI Shareholder shall be required to transfer its shares shall be a cash amount equal to a 16 per cent. IRR calculated based on the purchase price of the shares from the CGI Shareholder.

Tag-Along rights

Where the Esken Shareholder proposes to enter into a transaction pursuant to which it, or another member of the Group, agrees to transfer shares in LSA to any person outside the Group (such person being a "Third Party Purchaser") (a "Third Party Transaction") which would result in a Third Party Purchaser and/or any affiliate or any other person known by the Esken Shareholder to be acting on behalf of the Third Party Purchaser (a "Related Third Party") (together or separately) acquiring a majority interest in LSA (taking into account any additional Third Party Transaction either with the same Third Party Purchaser or with a Related Third Party (a "Related Transaction")), the Esken Shareholder shall not complete such Third Party Transaction (or in the case of a series of Related Transactions, the last Related Transaction) unless it first ensures that the Third Party Purchaser and/or the Related Third Party (as applicable) makes a separate offer to the CGI Shareholder to buy all of the shares held by the CGI Shareholder at the same price (with the alternative of a cash-equivalent of such price if for non-cash) and on the same terms and conditions of the proposed Third Party Transaction (or in the case of a series of Related Transactions: (i) the weighted average price across the Third Party Transaction and the series of Related Transactions; and (ii) the best terms and conditions applicable to any of the Third Party Transaction and the Related Transactions) (a "Tag Along Offer").

If the CGI Shareholder accepts such Tag Along Offer then its shares shall be transferred to the Third Party Purchaser at the same time as the shares held by the Esken Shareholder are so transferred. If the CGI Shareholder does not accept the Tag Along Offer within 30 days it shall lapse.

Marketing

The CGI Shareholder is entitled to, following the second anniversary of the drawdown of the Loan provided Conversion has occurred, informally approach investors in the market with a view to determining the potential value of a sale of its stake or a syndication of an indirect interest in LSA subject to certain restrictions on the number of investors that can be approached and the scope of information that can be shared with such investors (and any commercially sensitive information shared will be subject to the terms of access that the senior management members of the Operational Committee shall determine).

LSA will use its reasonable endeavours to procure that its management shall, upon request from the CGI Shareholder, provide reasonable assistance in preparing and providing non-public information to be shared with such limited number of investors, provided that any non-public information shared will be subject to appropriate confidentiality undertakings.

Option to Purchase in the event of a default

Each of the following events shall be a Material Default with respect to the relevant investor:

(a) the party or any member of its group transferring Shareholder Instruments otherwise than in accordance with the Shareholders' Agreement or failing to complete or procure the completion of a required transfer of Shareholder Instruments in accordance with the Shareholders' Agreement;

(b) the party failing to provide any reasonable information and evidence in relation to the transfer or issue of Shareholder Instruments requested pursuant to the Shareholders' Agreement; or

(c) the party or any of its affiliates breaching the restrictions set out in the Restrictive Covenant Side Letter (as defined herein).

In the event of any of the following:

(a) a Material Default;

(b) an Insolvency Event of the CGI Shareholder or any other investor other than the Esken Shareholder;

(c) the appointment of a liquidator, trustee in bankruptcy, receiver, administrator, compulsory manager or other similar officer of a Material Person (a "Material Person Insolvency Event");

(d) the Company ceasing to control the Esken Shareholder, and the appointment of an administrator, liquidator, compulsory manager or other similar officeholder over the Company shall not in itself constitute a cessation of control of Esken Limited over the Esken Shareholder;

(e) the Company ceasing to be the beneficial owner (directly or indirectly through wholly-owned Subsidiaries) of the majority of the issued share capital of the Esken Shareholder;

(f) Carlyle Investment Management L.L.C. (or its affiliates) ceasing to be adviser and manager to Carlyle Global Infrastructure Opportunity Fund, L.P. or such other funds which, individually or together, majority-own (directly or indirectly) the CGI Shareholder (each a "Carlyle Fund");

(g) The Carlyle Group Inc. ceasing to control the CGI Shareholder or the Carlyle Funds;

(h) Carlyle Funds ceasing to, individually or together, majority-own (directly or indirectly) the CGI Shareholder;

(i) any person, together with any of its affiliates, (excluding any affiliates of the CGI Shareholder) holding an economic interest (on a look-through basis, whether held directly or indirectly) of greater than 49 per cent. of the CGI Shareholder);

(j) any entity on the Restricted List acquiring any interest or ownership in (i) the CGI Shareholder or (ii) any entity which holds an interest or ownership in the CGI Shareholder and is Controlled by the CGI Shareholder's Approved Parent, in each case otherwise than through being a limited partner; or

(k) for so long as the Esken Shareholder Controls LSA, LSA disposing of Material Assets without the Requisite Approval,

(each a "Trigger Event"), the relevant party shall notify the other investor.

The shareholder in respect of which the Trigger Event applies will have one month from such notification to rectify the Trigger Event (if possible). If, after one month, the Trigger Event has not been rectified or persists, the other shareholder may then exercise an option to purchase all (but not only some) of the shares held by the shareholder in respect of which the Trigger Event applies, at fair market value, which is determined by an independent valuation (at the cost of LSA).

Upon the occurrence of a Trigger Event set out in (b), (c) and (j) above until the earlier of the date on which such Trigger Event is rectified or (i) in the case of the Trigger Events in (b) and (j), if applicable, the date of expiry of the right to purchase period set out in the Shareholders' Agreement; and (ii) in the case of the Trigger Events in (c), if applicable, the date on which a Material Person Insolvency Event Cessation Event occurs, the affected investor shall cease to have any rights:

(a) to vote at any LSA board meeting, Operational Committee meeting and Strategic Committee meeting (as applicable);

(b) to otherwise give its consent in respect of any Reserved Matter (and where a vote to be taken on any Reserved Matter the votes attributable to the equity proportion of the affected investor shall be allocated to the other investor); and

   (c)   to certain information and access granted under the Shareholders' Agreement. 

Upon the occurrence of a Trigger Event set out in (a), (b), (c) and (j) above until the earlier of the date on which such Trigger Event is rectified or (i) in the case of the Trigger Events set out in (a), (b) and (j), if applicable, the date of expiry of the Right to Purchase Period; and (ii) in the case of the Trigger Events set out in (c), if applicable, the date on which a Material Person Insolvency Event Cessation Event occurs, the pre-emption rights, the right of first refusal and the emergency funding procedure shall cease to apply in favour of the affected investor.

Upon the occurrence of the Trigger Event set out in (c) above until the earlier of the date on which such Trigger Event is rectified or the date on which a Material Person Insolvency Event Cessation Event occurs:

(a) the right of the Esken Shareholder to appoint and remove the majority of the Board shall cease to apply;

(b) the right of the Esken Shareholder to appoint and remove the chief executive of LSA shall cease to apply, provided that the CGI Shareholder shall consult with the Esken Shareholder and take into account the Esken Shareholder's reasonable comments in relation to any appointment or removal and on the proposed remuneration of the chief executive; and

(c) the right of the Company to approve any Subsequent Business Plan and Annual Budget under the Shareholders' Agreement shall cease to apply, provided that (i) LSA agrees that it will take into account all commercially reasonable comments on any Subsequent Business Plan and Annual Budget from the Esken Shareholder; and (ii) the escalation procedure as set out in the section titled "Escalation Procedure" above will be available in favour of the Esken Shareholder in the event that the Esken Shareholder determines (acting reasonably) that any proposed Subsequent Business Plan or Subsequent Annual Budget is not commercially reasonable.

Emergency Funding (post-Conversion)

If, following Conversion, the board of LSA, acting in good faith and first having considered all reasonable and practical alternatives in the circumstances, considers that there is a material risk of an emergency funding situation arising (an "Emergency Funding Situation"), the board will promptly deliver to the Esken Shareholder and the CGI Shareholder notice of the circumstances giving rise to the Emergency Funding Situation (an "Emergency Funding Notice"), and together with such notice or as soon as practicable thereafter, details of any proposed fundraising from LSA, in the form of an issue or grant of Shareholder Instruments.

If the LSA board serves an Emergency Funding Notice on the Esken Shareholder and the CGI Shareholder, it may resolve to issue or grant New Shareholder Instruments to investors on a pre-emptive basis or incur financial indebtedness provided that an Emergency Funding Situation has arisen.

If the LSA board resolves that an event is an Emergency Funding Situation it may raise such Emergency Funding (through the issue or grant of only such number of New Shareholder Instruments or incurrence of financial indebtedness) as would, in its reasonable opinion, cure or avoid the relevant Emergency Funding Situation.

The Esken Shareholder and the CGI Shareholder will first be offered an opportunity to either subscribe, on the same terms, pro rata to their equity proportions, for all or some of such New Shareholder Instruments in accordance with a pre-emption procedure or to commit to providing any financial indebtedness calculated by reference to their equity proportion.

If one shareholder does not fully participate in the issue of the New Shareholder Instruments in such an Emergency Funding Situation, it shall be given a period following their issue to exercise a catch-up option to acquire New Shareholder Instruments from the other investor such that the shareholders return to their equity proportions as they had been prior to the issue of the New Shareholder Instruments.

If the funding offered by the shareholders is insufficient, in aggregate, to cure or avoid the relevant Emergency Funding Situation then LSA shall seek any shortfall in the Emergency Funding from third parties, subject to the reserved matters.

Restrictive covenant

The Company, the Esken Shareholder, CGIOF GP L.L.C. and the CGI Shareholder have also agreed in a separate side letter to the shareholders' agreement that neither it (nor certain of its affiliates) shall (without the prior consent of the other investor):

   --    compete with the Business; or 

-- in the case of the CGI Shareholder and CGIOF GP L.L.C. only, directly or indirectly solicit or entice away or endeavour to solicit or entice away from the Borrower Group or the Group any Senior Employee (subject to certain customary exceptions) (the "Restrictive Covenant Side Letter").

For the purposes of this section, "compete" means to directly or indirectly hold an interest exceeding 10 per cent. of the shares, equity or voting rights (excluding any limited partnership interests or any other interest in which such person does not exert control or influence) in the ownership, operation and/or development of any of the following airports: Gatwick Airport, London City Airport, Luton Airport and Stansted Airport (whether alone or jointly with others, whether as principal, agent, shareholder or otherwise and whether for its own benefit or that of others).

The letter shall automatically terminate on the first date to occur of the following:

-- in respect of an investor and its affiliates who are party to the letter, the date which is two years following the date on which it ceases to be an investor under the Shareholders' Agreement;

   --    in respect of all parties to the letter: 

o prior to Conversion, the date on which LSA repays the Loan in its entirety;

o prior to Conversion, the date on which the Loan matures in accordance with its terms; and

o following Conversion, the date which is two years following the date on which the Shareholders' Agreement is terminated (subject to certain exceptions).

These restrictions shall not affect or prohibit any investor (nor any of its affiliates) from owning securities which are publicly traded in any entity which is listed on a stock exchange that do not exceed 5 per cent. in nominal value of or voting rights in such entity.

Part C - Implementation Agreement

The Implementation Agreement has been signed on the date of the Loan Agreement and governs the obligations and commitments on the CGI Shareholder, the Lender, the Esken Shareholder and the Company to implement the Investment:

Commitments to satisfy the conditions precedent in the Loan Agreement

The Implementation Agreement contains a requirement on each of the parties to use all reasonable endeavours to satisfy the conditions precedent in the Loan Agreement as at the utilisation date. The Lender gives certain warranties as to capacity and authority to execute the Investment documents, insolvency and that it has sufficient funds to provide the Loan on the utilisation date.

Undertakings on Esken

The Company has provided a "no-shop" undertaking from it and its affiliates from 2 July 2021 until the earlier of (i) the utilisation of the Loan; (ii) if the Resolution is not approved at the General Meeting; or (iii) termination of the Implementation Agreement, prohibiting the Company from soliciting an offer from, or participating in discussions with, another party to acquire the Borrower Group or issuing any debt which is convertible into shares in LSA or entering into any other arrangements which would frustrate or preclude, or would be an alternative to, the implementation of the Transaction, or would be an alternative to the financing provided pursuant to the Loan Agreement.

The Company will use best endeavours to ensure that the General Meeting is held as soon as reasonably practicable after the date of publication of the Prospectus and that the General Meeting is in any event held by no later than 10.00 a.m. (London time) on 21 September 2021.

Commitment Fee payment

The CGI Shareholder will be entitled under the Implementation Agreement to receive a commitment fee of GBP1,649,871.80 (the "Commitment Fee") which shall become payable on the earlier of: (i) the Closing Date and (ii) the date on which the Implementation Agreement terminates as a result of the conditions to Closing having not been satisfied by 30 September 2021. If the Commitment Fee becomes payable on the Closing Date, it may be deducted from the proceeds of the Loan.

The Implementation Agreement will terminate if all of the Conditions Precedent have not been satisfied by 30 September 2021.

Part D - Indemnity Deed

In connection with the Investment, the Company has agreed to enter into a separate deed of indemnity (the "Indemnity Deed") on the Closing Date pursuant to which it will grant certain indemnities in favour of the Borrower Group and, in some instances, the Lender and certain of its affiliates. These indemnities include obligations of the Company to indemnify:

   --    the Borrower Group against any losses arising from implementing the Reorganisation; 

-- the Borrower Group against any losses arising from secondary tax liabilities or VAT liabilities of the Wider Group which are required to be paid by the Borrower Group to HMRC;

-- the Borrower Group, the Lender and/or CGI and their affiliates against any "secondary" pension liabilities arising in connection with the existing defined benefit pension scheme in the Wider Group which are required to be paid by the Borrower Group, the Lender, CGI or any such affiliate;

-- the Borrower Group against any losses arising from the noise litigation proceedings (which are referred to in paragraph Error! Reference source not found. of Part XI-Additional information) which were settled or otherwise provided for by the Borrower Group prior to the Closing Date; and

-- the Borrower Group against any losses directly arising from certain litigation brought against the Group.

The Indemnity Deed will also contain wrong-pockets provisions requiring the Group to transfer assets to the Borrower Group (i) which are exclusively used by the Borrower Group but which are held by the Group to the Borrower Group and (ii) which were anticipated to be transferred to the Borrower Group pursuant to the Reorganisation but were not transferred, following completion of the Loan Agreement, if any such assets are found. The Borrower Group will also be subject to a similar obligation to transfer assets to the Esken Group (excluding the Borrower Group) which are exclusively used by the Group but which are held by the Borrower Group and (ii) which were anticipated to be transferred to the Esken Group pursuant to the Reorganisation but were not so transferred, to the Group following completion of the Loan Agreement, if any such assets exist.

Part E - Pari Passu Loan

In connection with the Investment, Stobart Aviation Limited, acting as "Pari Passu Lender" , will enter into an intercompany loan agreement which will rank pari passu with the Loan (the "Pari Passu Loan Agreement") on the Closing Date with the Borrower Group to advance a GBP20 million loan (the "Pari Passu Loan") to the Borrower, which will include provisions to the following effect:

Borrower and Guarantors

Under the Pari Passu Loan Agreement, LSA will be the Borrower and Thames Gateway Airport Limited, Stobart Solar Limited and Stobart Jet Centre Limited will be joint and several guarantors of the Borrower's obligations.

Principal amount and interest

Stobart Aviation Limited, as Pari Passu Lender, will make GBP20 million available to the Borrower.

Interest shall accrue on the outstanding principal amount of the Pari Passu Loan at a rate of 8 per cent. per annum (the "PP Cash Interest"). Interest payment dates will be the fifth Business Day following the end of each interest period (being a period of 12 months ending on the last day of February in each year save that the first interest period shall commence on the Utilisation Date and shall end on the last day of February 2022).

PP Cash Interest will only be payable to the Pari Passu Lender out of revenues generated by the Obligors during the interest period preceding each interest payment date and shall only be payable to the extent that a minimum headroom liquidity requirement is met. Such minimum headroom liquidity requirement will be met to the extent that (i) following payment of the accrued Cash Interest on such interest payment date, and taking into account any other debt service charges payable on such date, there is a minimum of GBP5 million of cash to be available to the Obligors on that Interest Payment Date; and (ii) during each month of the three-year period following such interest payment date, there is a minimum of GBP2.5 million of Projected Cash forecast to be available to the Obligors and when the Projected Cash for each month of such three-year period is aggregated, the average Projected Cash available to the Obligors during such period is not less than GBP5 million. To the extent that PP Cash Interest is not paid on an interest payment date, the unpaid amount will be added to the principal amount of the Loan with effect from such date and interest will accrue on such increased principal amount thereafter.

Purpose

The Borrower shall apply all amounts borrowed by it under the Pari Passu Loan for general corporate purposes.

Redemption

To the extent that the Pari Passu Loan remains outstanding, the Borrower is obliged to repay the Pari Passu Loan in full on the final maturity date, being seven years from the date on which the Pari Passu Loan is drawn by the Borrower.

Events of Default

The Pari Passu Loan Agreement will contain certain customary events of default (subject in certain cases to agreed grace periods, thresholds and other qualifications), including, for example, non-payment, breach of obligations and a cross-default to the Loan Agreement.

Ranking and Security

The Pari Passu Loan will rank pari passu with the Loan save that if any part of the Loan and the Pari Passu Loa remain outstanding on the final maturity date of the Loan, the Pari Passu Loan shall be subordinated to and all monies then available for repayment of such loans shall first be applied in payment of the Repayment Price in full before any monies are applied in repayment of the Pari Passu Loan.

The Obligors' liabilities to the Pari Passu Lender in respect of the Pari Passu Loan shall be secured by the Transaction Security.

Under the terms of the Intercreditor Agreement, the Pari Passu Lender shall not form part of the "Enforcement Instructing Group" (as defined below) for so long as the Loan remains outstanding.

Part F - Intercreditor Agreement

In connection with the Investment, each member of the Borrower Group, the Lender, the Pari Passu Lender and the Security Agent, amongst others, shall, on the Closing Date, enter into an intercreditor agreement (the "Intercreditor Agreement").

The Intercreditor Agreement will set out, amongst other things:

   --    the relative ranking of debt incurred by the Borrower Group; 
   --    when payments can be made in respect of the subordinated debt of the Borrower Group; 
   --    when enforcement action can be taken in respect of the subordinated debt; and 
   --    turnover provisions. 

Ranking and Priority

The Intercreditor Agreement will provide that in the event that there are any liabilities owing to holders of Super Senior Liabilities (as defined therein and which includes up to GBP10 million in emergency funding and up to GBP50 million of capex funding) and certain agent liabilities will rank pari passu in right and priority of payment between themselves and in priority to (A) the liabilities owing to the Lender under the Loan Agreement (the "Convertible Facility Liabilities") the liabilities owing to the Pari Passu Lender under the Pari Passu Loan (the "Pari Passu Liabilities") and/or the Alternative Financing Liabilities (as defined therein) which will rank pari passu in right and priority of payment between themselves (except where FMD Subordination (as defined therein) applies in which case the Convertible Facility Liabilities shall rank in priority to the Pari Passu Liabilities) and, in turn, in priority to (B) the Junior Liabilities (as defined therein). The Super Senior Liabilities, the Convertible Facility Liabilities, the Pari Passu Liabilities

and the Alternative Financing Liabilities constitute the "Senior Liabilities" and the creditors in respect of such liabilities, the "Senior Creditors".

The Intra-Group Liabilities (as defined therein), the Wider Group Debt Guarantee Liabilities (as defined therein) and Subordinated Liabilities (being the liabilities in respect of indebtedness (other than the Pari Passu Loan) owing to any member of the Wider Group or any Sponsor Affiliate (as defined therein)) will be subordinated to the liabilities owed to the Senior Creditors. The Intra-Group Liabilities will be subordinated to the Subordinated Liabilities and the Wider Group Debt Guarantee Liabilities. The Subordinated Liabilities will be subordinated to the Wider Group Debt Guarantee Liabilities.

Security and Priority of Security

The Senior Creditors will benefit from the Transaction Security, which will not become enforceable until the occurrence of an applicable acceleration event (such creditors and the Security Agent, the Secured Parties).

The Transaction Security will rank and secure the Senior Liabilities in the following order, firstly the liabilities in respect of Super Senior Liabilities and certain agent liabilities pari passu and without any preference between them; secondly the liabilities in respect of the Convertible Facility Liabilities, Pari Passu Liabilities and/or the Alternative Financing Liabilities (except where FMD Subordination (as defined therein) applies in which case the Convertible Facility Liabilities shall rank in priority to the Pari Passu Liabilities) pari passu and without any preference between them; and thirdly the Junior Liabilities.

Additional Restrictions

The Intercreditor Agreement will restrict (among other things) with respect to the Borrower and its subsidiaries:

-- the ability of intra-group debtors to pay, prepay, repay, redeem, defease or discharge or acquire intra-group liabilities except for certain specified permitted payments;

-- their ability to pay, prepay, repay, redeem, defease or discharge or acquire Subordinated Liabilities except for certain specified permitted payments;

-- their ability to pay, prepay, repay, redeem, defease or discharge or acquire the Wider Group Debt Guarantee Liabilities except for certain specified permitted payments;

-- their ability of the intra-group lenders and Subordinated Creditors to take any enforcement action; and

-- the ability of the intra-group lenders and Subordinated Creditors to take the benefit of any guarantees or security

Instructions and enforcement of Transaction Security

For the purposes of this section, "Enforcement Instructing Group" means at any time, the Senior Creditors (excluding, before the Convertible Facility Discharge Date (as defined therein), the Pari Passu Lender) whose Senior Credit Participations (as defined therein) at that time aggregate to more than:

(a) if none of (b), (c) and (d) below apply, 66 per cent. of the total Senior Credit Participations of such Senior Creditors at that time;

(b) if an Enforcement Trigger Event (as defined therein) is continuing for more than 6 months but less than 12 months, more than 50 per cent. of the total Senior Credit Participations of such Senior Creditors at that time; or

(c) if an Enforcement Trigger Event is continuing for more than 12 months but less than 15 months, more than 33 per cent. of the total Senior Credit Participations of such Senior Creditors at that time;

(d) if an Enforcement Trigger Event is continuing for more than 15 months but less than 18 months, more than 25 per cent. of the total Senior Credit Participations of such Senior Creditors at that time; or

(e) if an Enforcement Trigger Event is continuing for more than 18 months, more than 10 per cent. of the total Senior Credit Participations of such Senior Creditors at that time.

At any time after the Security Agent has received notice of an Enforcement Trigger Event (as defined therein), it shall notify each Secured Creditor of such Enforcement Trigger Event and shall promptly request by notice (an "Enforcement Instruction Notice") an instruction from the Enforcement Instructing Group as to whether the Security Agent should deliver an Enforcement Notice to enforce all or any part of the Transaction Security or to take any other kind of Enforcement Action.

The Security Trustee shall enforce according to the enforcement instructions received from the Enforcement Instructing Group.

Part G - Reorganisation

Esken will implement a corporate reorganisation to form the Borrower Group (the "Reorganisation") on the Closing Date. The Reorganisation will involve the Borrower acquiring Stobart Solar Limited and Stobart Jet Centre Limited from Stobart Aviation by way of a share for share exchange.

   II.        BUSINESS OVERVIEW OF THE GROUP 

Overview

Esken is a UK infrastructure group with operations across the United Kingdom in the aviation and biomass energy industries, with a strategy to develop valuable growth assets from aviation and energy from waste. The Group's operations are organised across two core operating divisions, together with a portfolio of non-core assets.

The Group's core operating divisions are:

-- Stobart Aviation -The Group owns and operates London Southend Airport. In addition, Stobart Aviation Services, one of the businesses within the division, provides check-in, baggage handling and cargo services for 13 airlines at London Stansted, London Southend and Manchester airports. Stobart Aviation accounted for GBP24.7 million of total revenue (before adjustments and eliminations) in FY21.

-- Stobart Energy -The Directors believe that the Group is the United Kingdom's largest supplier of waste wood fuel to UK biomass energy plants, with long-term exclusive contracts in place with some of the largest biomass energy plants in the United Kingdom. The Group has contracts in place to supply 1.7 million tonnes of waste wood fuel and in FY21 supplied 1.4 million tonnes. Stobart Energy accounted for GBP75.0 million of total revenue (before adjustments and eliminations) in FY21.

The Group's non-core operating divisions are:

-- Stobart Investments -The Group holds an 9.1 per cent. stake in Logistics Development Group plc (formerly Eddie Stobart Logistics plc) ("Eddie Stobart") and a 19.3 per cent. stake in luggage transportation company, AirportR. The Group holds a 30 per cent. stake in Connect Airways, and on 10 March 2020 Connect Airways, which owns Flybe, entered into Administration following Flybe entering into Administration on 5 March 2020. In addition, on 27 April 2020, the Group announced it had reached agreement with the administrators of Connect Airways to acquire Stobart Air and Propius, and the Group now holds a 40 per cent. voting and 75 per cent. economic interest in Everdeal, the ultimate holding company of both businesses, and a 15 per cent. shareholding in the company that holds the remaining 60 per cent. voting interest and 25 per cent. economic interest in Everdeal, Everdeal Employees 2019 Limited. As announced by the Company on 12 June 2021, Stobart Air is undergoing liquidation proceedings, and two of Stobart Air's subsidiaries (Stobart Air Services (UK) Limited and Stobart Air Services (IOM) Limited) are now also undergoing liquidation proceedings . Stobart Investments accounted for GBP9.0 million of total revenue (before adjustments and eliminations) in FY21.

-- Stobart Infrastructure -The Group holds a portfolio of non-strategic property and infrastructure assets, including the Carlisle Lake District Airport, with a book value of GBP39.2 million as at 28 February 2021. The Group aims to divest all of its non-core assets for cash by FY24 with the aim of realising value over time from a position of strength when market conditions are right. Stobart Infrastructure accounted for GBP1.1 million of total revenue (before adjustments and eliminations) in FY21.

The Group divested Stobart Rail & Civils, previously a non-core operating division, in July 2020 and continues to explore opportunities to exit its remaining non-core operating divisions as market conditions for asset sales improve.

Esken is registered in Guernsey, headquartered in London and it employed 911 people in the United Kingdom as at 28 February 2021.

The Company has been listed on the London Stock Exchange since 2007, at which point it was primarily a logistics provider. Shortly after the listing, the Group expanded its portfolio to include a rail and civil engineering business in 2008, London Southend Airport in 2008, Carlisle Lake District Airport in 2009 and a biomass energy business in 2010. Since then, the Group has continued to develop its business through organic operations and selected acquisitions and disposals.

For the year ended 28 February 2021, the Group's revenue was GBP110.7 million, its loss for the year from continuing operations was GBP143.3 million and its Adjusted EBITDA was a loss of GBP17.9 million.

Recent Developments

The COVID-19 pandemic has continued to cause significant disruption for the Group. However, strict financial discipline has helped minimise cash burn and protect the Group's liquidity position. Stobart Energy continues to deliver cash generation whilst the Stobart Aviation business faces continuing challenges in terms of weak passenger demand. In addition, the acquisition of Stobart Air, the liquidation of which was announced on 12 June 2021, and Propius has resulted in cash outflows for the Group during the past year which will continue at a lower level until mid-2023. Break fees of US$21.2 million in total plus associated break fee finance costs will be paid under the lease arrangements relating to Stobart Air's aircraft as the aircraft are returned to the GOAL Lessors, following which the aircraft leases and parent company guarantees will expire and Propius will become dormant. The Directors believe cash flow discipline, coupled with the depth of operational talent within the businesses, will help protect the value of the Company's core assets and aid

recovery as vaccine programmes are rolled out, with activity expected to slowly increase over the coming months.

London Southend Airport

London Southend Airport has a strong and differentiated commercial passenger proposition and allows airlines to generate similar yields to other London airports but at a lower cost per passenger, including through the current usage of airline marketing contributions. The Company believes that this low-cost proposition will appeal to cost conscious airlines as the aviation sector recovers from the pandemic.

Lockdown restrictions curtailed much of the commercial passenger operations at London Southend Airport during 2020 and 2021 as evolving quarantine arrangements and late changes to travel corridors eroded passenger confidence when restrictions were lifted. As a result, 147,000 passengers flew through London Southend Airport in FY21 compared to 2.14 million in the prior year. Of those 147,000 passengers, 68,000 flew in March 2020 before travel restrictions took hold. Though some flying resumed in June 2021, with 4,555 passengers flying, the Directors do not expect commercial passenger operations to restart in earnest until much later in 2021.

In response to this trading environment, management took a range of decisive actions to significantly reduce London Southend Airport's cash burn, including extensive use of the UK Government's furlough scheme. London Southend Airport benefitted from continued operations and income from its global logistics operation throughout the year. However, movements reduced during January and February 2021 due to Brexit uncertainty and seasonal variances. While the logistics operations involved five daily rotations pre-Brexit, it returned to three daily rotations in March 2021.

Stobart Air and Propius

On 20 April 2021, the Group announced it had entered into agreements for the sale of its entire shareholdings in Stobart Air Unlimited Company (which operated regional flights under a franchise agreement for Aer Lingus) and Stobart Air (UK) Limited, the owner of Carlisle Lake District Airport to Ettyl Limited ("Ettyl").

On 28 May 2021, Ettyl advised that its original funding package to support the transactions was no longer available and that it was in discussions on alternative funding options. On 12 June 2021, the Company announced that it was clear that Ettyl was unable to conclude the transactions on the original terms or to obtain an alternative funding package within the required timescale and exercised its right to terminate the contracts for the transactions with immediate effect. Further, in the absence of any alternative purchasers or sources of funding for the Stobart Air business within the timescales required, the Company advised the board of Stobart Air that it would not continue to provide financial support to the Stobart Air business going forward. As a result of this, the board of Stobart Air terminated its franchise agreement with Aer Lingus and ceased trading and appointed a liquidator on 14 June 2021.

The Company also announced that it had undertaken certain contingency planning measures and has agreed in response to these developments that it will continue to fund the lease obligations for certain of Stobart Air's aircraft through to termination of the leases in April 2023 under the terms of its pre-existing guarantee, and confirmed that it would take immediate steps to seek sublease arrangements for the aircraft with alternative operators to mitigate the impact on the Group.

The Company remains responsible for certain obligations to Aer Lingus under the franchise agreement which were also the subject of a pre-existing guarantee and have become payable following termination of the franchise agreement. These obligations and the guarantees entered into in early 2017 were the reason that the Group reacquired the airline and its related leasing company in April 2020. This enabled the Group to manage and seek to mitigate the impact of these liabilities following the administration of Connect Airways Limited.

In the announcement on 20 April 2021, the Company set out the cash flow impact on the Group on the assumption that the transactions concluded. The following table reflects the amended position over the period to the end of the leases assuming that the Group is unable to sublease the aircraft. It also includes the termination of the sale of Carlisle Lake District Airport which had been set to be concluded for consideration of GBP15 million.

 
                                                                                  F Y22     FY23    FY24 
  Cash outflow reported previously 
   (GBP millions).........                                                        (16)      (9)     (24) 
  Additional cash impact arising 
   from liquidation.....                                                         (18)(1)    (13)    (2) 
  Total cash impact ........................................................      (34)      (22)    (26) 
 

Note:

(1) Cash impact reflects that the Group will retain ownership of Carlisle Lake District Airport rather than receive sale proceeds of GBP15 million.

Since April 2020, the Company has taken all steps to minimise the cash requirement of Stobart Air while seeking to find a purchaser recognising the importance of the airline to connectivity between the United Kingdom and Ireland, the 480 jobs involved and the fact that a sale would have been a better outcome for Shareholders. The Company has been successful in reducing the impact of its pre-existing obligations and in agreeing terms under which it has control of residual obligations through to expiry. However, the continuing impact of the pandemic which has resulted in almost no flying since April 2020 and the decision taken by Aer Lingus to award preferred bidder status to another party for the franchise agreement beyond its expiry in December 2022 significantly hampered the exhaustive steps taken to secure a future for the business and its staff.

The Group will retain the ownership of Carlisle Lake District Airport but will actively explore strategic options for the use of this asset in discussion with stakeholders including potential alternative commercial opportunities for the airport.

Stobart Aviation Limited ("SAL") entered into a transaction with DLP Holdings S.a.r.l. (managed by Cyrus Capital), pursuant to which SAL agreed to transfer all of its interests as lender under (a) two facility agreements between it (and others), as lenders, and Flybe Limited (in administration), as borrower, and (b) one unsecured loan note issued by Connect Airways Limited (in administration), as borrower, to SAL (and others), as lenders. The transaction became unconditional on 23 July 2021 and SAL will be paid a cash consideration of GBP1.15 million on completion of the transaction, which is expected to occur in the near future.

Strategic Update

The impact of the pandemic has been both greater and over a longer period than anticipated at the time of the 2020 Capital Raise. This has led the Board to undertake a further review of the strategy and the medium-term funding requirements for the Group. This concluded that the Group holds two attractive businesses which can generate significant value for Shareholders as markets recover post-COVID-19. The key strategic objective will therefore be to drive value for Shareholders from these assets with any decision on the realisation of value being deferred until the businesses recover fully from the pandemic and become mature cash generative business units. While it was previously intended at the time of the 2020 Capital Raise to seek to monetise the Stobart Energy business by June 2022, the Board has concluded that this is not the right option for Shareholder value and so is to be held in the medium term.

Stobart Energy is a recovering cash generative business with a strong market position and long-term supply contracts. It is anticipated that financial performance will return to pre-COVID-19 run rate levels in FY22. Opportunities are being explored for additional supply contracts and to broaden the base of the market offering within the energy from waste space where existing operational expertise can be applied. The business offers the opportunity to generate returns from an asset with infrastructure characteristics and a compelling environmental benefit by recycling waste wood to produce energy rather than it going to landfill.

In the Stobart Aviation business the prime asset is London Southend Airport, which, prior to the pandemic, offered passenger services to over 40 destinations to a market of approximately eight million people living within one hour travel time to the airport. Whilst aviation has been one of the hardest hit sectors by the pandemic the fundamental long term value drivers of LSA remain sound.

The Group will continue to invest in the infrastructure of LSA in line with passenger demand recovery allowing LSA to meet the needs of airline partners for an efficient cost effective London airport and offering a safe and enjoyable passenger experience. In addition there is an opportunity to develop the logistics offering both with the existing global logistics partner and other related businesses. Given the award of the Thames Freeport status in the Estuary and proximity to East London, LSA is well placed to capitalise on accelerated airfreight growth and movements.

In line with the previously stated strategy, the Group will actively look to exit from all other non-core infrastructure assets owned by the Group having a net book value of approximately GBP39 million at 28 February 2021. When this process is complete the Group will become a focussed group with two operating businesses.

Business Operations

The Group's operations are organised across two core operating divisions, together with a portfolio of non-core assets. The core operating divisions are Stobart Aviation and Stobart Energy, and the non-core operating divisions are Stobart Investments and Stobart Infrastructure. The Group divested Stobart Rail & Civils, previously a non-core operating division, in July 2020 and continues to explore opportunities to exit its remaining non-core operating divisions as market conditions for asset sales improve.

Stobart Aviation

Stobart Aviation's principal asset is London Southend Airport, which has been rated the best London airport in 2019 for the sixth consecutive year in the Which? Airport Passenger Survey and was the United Kingdom's fastest growing airport in 2019 according to CAA data.

In addition, Stobart Aviation Services, which started operations in FY17/18, provides check-in, baggage handling and cargo services for 13 airlines at London Stansted, London Southend and Manchester airports.

In FY19, London Southend Airport (including the hotel and Stobart Jet Centre) accounted for approximately three-quarters of Stobart Aviation's revenue, and Stobart Aviation Services accounted for approximately one-quarter of Stobart Aviation's revenue.

The Group also owns and operates the Carlisle Lake District Airport, which is operated and accounted for in Stobart Infrastructure, as discussed below.

Revenue generation

The Group's airports generate two types of revenue: aeronautical revenue, which is generated from fees charged to airlines for use of the airports' facilities, and non-aeronautical revenue from a variety of sources. During FY19, FY20 and FY21, the majority of Stobart Aviation's revenue comprised non-aeronautical revenue.

Aeronautical revenue

Aeronautical revenue reflects the tariffs levied by the Group's airports on their airline customers. The tariff structure through which the aeronautical revenue is recovered from airlines includes three key elements:

-- Departing passenger fees -Fees per passenger are based on the number of passengers on board an aircraft and are levied in respect of all departing passengers. Fees can vary depending on the route and are subject to minimum levels.

-- Landing charges - Landing charges are levied for substantially all aircraft and are calculated with respect to the weight of the aircraft, as well as other factors such as noise rating and emissions levels.

-- Parking charges - Aircraft parking charges are levied on aircraft after they have exceeded a minimum parking time.

Non-aeronautical revenue

The Group generates non-aeronautical income from a variety of sources, including:

   --      the sale of jet fuel to the Group's airline customers; 
   --      concession fees from retail operators; 
   --      revenue generated by the train station at London Southend Airport; 
   --      revenue generated by the hotel at London Southend Airport; 
   --      direct revenue from car parks and advertising; 

-- the leasing of airport premises such as aircraft hangars, warehouses, cargo storage facilities, maintenance facilities, offices and airline lounges; and

-- through Stobart Aviation Services, the provision of check-in, baggage handling and cargo services.

Market Overview

FY21 saw unprecedented challenges for the global aviation industry as a result of the COVID-19 pandemic, which continues to have a material impact on the sector. However, the UK Government has offered support to business, including aviation, and the Group anticipates that such support will help the industry recover once travel restrictions are lifted in the United Kingdom and abroad.

With a long-term view, the Group considers that the underlying fundamentals of the London aviation market remain strong. The London aviation market is the largest in the world and, over the long term, has continued to grow in excess of UK GDP despite significant constraints at the majority of London airports. As a result, the Directors believe the growth trajectory will resume and continue once the COVID-19 pandemic passes, although there is considerable uncertainty as to the duration and impact of the pandemic. London is the largest metropolitan area in Europe, with over 14 million residents and in 2018 ranked in the top three visitor destinations in the world by number of visitors. It also serves as a major global international commercial centre.

London metropolitan area air traffic is the busiest in the world with 181 million passengers in 2019 and is 25 per cent. larger than New York, the second busiest city. As a consequence, both the network carriers and low-cost carriers ("LCCs") have been growing their capacity. Since 2014, LCCs have added 9.2 million seats (a 32 per cent. increase) to the London market, or the equivalent of 41 daily aircraft (a 27 per cent. increase).

Once the unprecedented effects of COVID-19 have subsided, the Directors believe that LCCs will benefit from their lower cost bases and will likely return to normalised operations faster than non- LCCs. The Directors believe that LCCs will likely be focused on seeking a low cost base for operations and hub capacity at suitable prices and service levels.

The pace at which this capacity is required will largely depend on the demand from passengers to return to international travel, the ability of airlines to react to that demand and the preparedness of airports to respond to the changing expectations of passengers and airlines alike. Airports will be expected to provide clean, secure and spacious environments in which passengers are not expected to gather in confined retail spaces, where cleaners are highly visible and where people can move through central search areas efficiently. The Directors believe that London Southend Airport has an opportunity therefore to make use of significant unutilised space and enhanced technology, provide a cost-efficient base for airlines given the airport's lower capital expenditure to date, and deliver a passenger-focused experience for its customers.

London Southend Airport

London Southend Airport is located in the county of Essex, England, approximately 36 miles east of central London. The airport has a known catchment area of 8.2 million people and served 1.49 million, 2.14 million and 147.2 thousand passengers in FY19, FY20 and F21, respectively.

In early 2020, London Southend Airport served approximately 40 destinations across Europe and the United Kingdom with flights operated by easyJet, Ryanair, Loganair, Wizz Air and Flybe, amongst others. Flybe entered into Administration and ceased flight operations in March 2020 and easyJet closed its London Southend Airport base from August 2020. In FY21, Ryanair and Wizz Air accounted for, in aggregate, approximately 60 per cent. of the airport's passenger traffic.

London Southend Airport has more than 1,100 square metres of retail space served by seven retail clients operating 10 retail outlets. The largest retail client in London Southend Airport is The Restaurant Group, which operates a number of food concessions and in FY21 comprised nearly half of the airport's retail concession fees.

The airport also has a hotel facility on site. The Group sold the hotel to Interstate Hotels & Resorts in FY18 pursuant to a sale and leaseback agreement under which the Group continues to operate and generate revenue from the hotel.

In October 2019, Stobart Aviation Services signed an agreement with a global logistics customer to provide full cargo handling facilities including screening and clearance for the import and export of goods at London Southend Airport, which successfully handled 28.4 million packages in the 12 months to February 2021.

In 2011, the Stobart Rail & Civils operating division built a train station at London Southend Airport which serves central London with up to six trains per hour during peak times. The journey to London takes approximately 52 minutes, and in FY20 approximately 30 per cent. of London Southend Airport passengers travelled to/from the airport by train. The Group receives a share of ticket fares from people using the station at London Southend Airport.

The Group also operates the Stobart Jet Centre located at the London Southend Airport, which offers private aviation services. The Stobart Jet Centre had 1,660, 1,512 and 408 movements in FY19, FY20 and FY21.

Passenger experience

The Directors believe that, as a result of COVID-19, airports are expected to provide clean, secure and spacious environments in which passengers are not expected to gather in confined retail spaces, where cleaners are highly visible and where people can move through central search areas efficiently. The Directors believe that London Southend Airport has a highly flexible, modular and cost-efficient capital expenditure plan with minimal passenger disruption. The Directors believe that London Southend Airport has an opportunity therefore to make use of significant unutilised space and enhanced technology, provide a cost-efficient base for airlines given the airport's lower capital expenditure to date, and deliver a passenger-focused experience for its customers.

The Company made the following enhancements to the passenger experience at London Southend Airport as a result of COVID-19:

-- Thermal cameras were installed to monitor passenger temperatures as they approach the entrance to the departure terminal, allowing airport staff to identify potential infected people and take appropriate action.

-- Hand sanitisation stations and large wipe dispensers were installed every 20 paces throughout the terminal journey.

-- Deep cleaning took place nightly whilst the airport's cleaning team sanitised handrails and surfaces throughout the day.

   --      Bio screens were installed at all face-to-face locations to protect passengers and staff. 

-- The security process now uses advanced baggage scanning devices, which means liquids and laptops can remain within bags.

-- After security, passengers moved through to a large, open-plan departure lounge and were encouraged to socially distance. Whilst the airport's main retail outlets remained closed, a new pop-up café was introduced serving hot drinks and snacks. Vending machines were also located throughout the terminal.

Stobart Aviation Services

Stobart Aviation Services began operating in FY17/18 and provides check-in, baggage handling and cargo services at London Stansted, London Southend and Manchester airports. The Group has contracts with 13 airlines, including Scandinavian airlines (SAS), Wizz Air, Titan, Ryanair, Norwegian, Eurowings and SN Brussels. The Group's Aviation Services contracts employ cost-plus, fixed cost and price per turn contracts used to appeal to both larger and smaller airlines to be handled on a frequent or ad hoc basis, and the contracts vary in duration, but are typically three to five years.

Airport Regulation

The Group's airports are regulated by the Civil Aviation Authority ("CAA"). The CAA is the independent aviation regulator in the United Kingdom, responsible for economic regulation, airspace policy, safety and consumer protection.

Under the current regulatory regime, the Group's airports will not be subject to economic regulation by the CAA unless one or part of them is found in the future to satisfy the significant market power test set out in the Civil Aviation Act 2012.

Other duties to which the CAA must have regard include:

-- the need to secure that each holder of a licence is able to finance its provision of airport operation services in the area for which the licence is granted;

   --      the need to secure that all reasonable demands for airport operation services are met; 

-- the need to promote economy and efficiency on the part of each holder of a licence in its provision of airport operation services at the airport to which the licence relates;

-- the need to secure that each holder of a licence is able to take reasonable measures to reduce, control or mitigate the adverse environmental effects of the airport to which the licence relates, facilities used or intended to be used in connection with that airport and aircraft using that airport;

   --      any guidance issued to the CAA by the Secretary of State for Transport; 

-- any international obligation of the United Kingdom notified to the CAA by the Secretary of State for Transport; and

-- the principles that regulatory activities should be carried out in a way which is transparent, accountable, proportionate and consistent, and that regulatory activities should be targeted only at cases in which action is needed.

As part of the aerodrome licencing regime, an airport operator must demonstrate that it is competent to conduct aerodrome operations safely. The CAA must grant a licence in respect of any aerodrome in the United Kingdom if it is satisfied that:

-- the applicant is competent, having regard to its previous conduct and experience, equipment, organisation, staffing, maintenance and other arrangements, to secure that the aerodrome and the airspace within which its visual traffic pattern is normally contained are safe for use by aircraft; and

-- the aerodrome is safe for use by aircraft, having regard in particular to the physical characteristics of the aerodrome and of its surroundings.

Carlisle Lake District Airport maintains a CAA aerodrome licence, whereas London Southend Airport has transitioned from a CAA aerodrome licence to a certificate issued in accordance with the European Aviation Safety Agency's ("EASA") regime. Under the EASA regime, the CAA is still the primary regulatory point of contact for London Southend Airport, and it remains the CAA's responsibility to conduct audits of the airport in its capacity as a National Aviation Authority. However, EASA may conduct audits of the CAA (and other National Aviation Authorities) to ensure standardisation across member states. Following the end of the Brexit transition period on 31 December 2020, the United Kingdom no longer participates in the EASA regime and the Group anticipates that London Southend Airport will transition back to a CAA aerodrome licence.

Environment

Rapid airport growth often raises concerns in neighbouring communities about aspects of environmental impact. Although it can be difficult to address all community concerns whilst continuing to grow, the Directors consider that London Southend Airport has always complied in full with all of the requirements placed upon it by its planning authorities.

Aircraft noise in and around UK airports is subject to UK and local regulation. The UK Government has a key role in setting and developing the policy framework for aircraft noise control at UK airports, although individual procedures are generally agreed with local planning authorities. A range of noise controls relating to aircraft operations are set out in statutory notices and published in the UK Aeronautical Information Package and elsewhere as appropriate. These controls cover aspects such as departure noise limits and night flight restrictions. Additional noise-related controls are a feature of the local planning system that often introduces planning obligations in Section 106 agreements between airport operators and planning authorities.

Stobart Aviation's airports are also subject to or influenced by various regulations and legislation designed to improve air quality and reduce carbon emissions. These include global agreements binding the United Kingdom to reduce its carbon emissions and UK regulations setting minimum standards for local air quality and limits on emissions of nitrogen oxides (whether from airport or other activities).

Since 2016, the Group has operated a 3.2 hectare solar farm at London Southend Airport with the objective of reducing its carbon footprint and electricity requirement from the National Grid network. Over 20 per cent. of London Southend Airport's electricity comes from renewable sources.

   1.   Stobart Energy 

The Directors believe that the Group is the United Kingdom's largest supplier of waste wood fuel to UK biomass energy plants, with long-term exclusive contracts in place with some of the largest biomass energy plants in the United Kingdom. The Group has contracts in place to supply 1.7 million tonnes of waste wood fuel and in FY21 supplied 1.4 million tonnes.

Biomass energy (including waste wood fuel) is generated using plant-based products, including wood pellets and wood chips, bioenergy crops and agricultural and domestic waste. The plant-based products are processed to create a low-carbon, renewable alternative to fossil fuels. Bioenergy (including waste wood fuel) is Britain's second largest source of renewable electricity (according to UK Department for Business, Energy & Industrial Strategy statistics), and the UK Committee on Climate Change has stated that sustainably sourced bioenergy could provide up to 15 per cent. of the United Kingdom's primary energy by 2050.

The Group offers a range of solutions across the biomass energy supply chain, from commercial waste collection through to producing fuel to a specification and delivering fuel to biomass energy plants using its large logistics function. The Group has expertise in waste wood, virgin wood, refuse derived fuel ("RDF") and solid recovered fuel ("SRF"). Stobart Energy employs approximately 320 people, operates 145 walking floor vehicles and operates six large fuel production and storage facilities, with a significant number of other fuel production and storage sites contracted to third parties to operate. The Group supplies more than 15 large, and a significant number of smaller, biomass energy plants in the United Kingdom and Ireland.

The following table sets forth Stobart Energy's actual tonnage of waste wood fuel supplied, revenue, profit before tax from continuing operations and Adjusted EBITDA for the periods indicated.

 
                                                                                             FY21    FY20    FY19 
                                                                                            ------  ------  ------ 
Waste wood fuel supplied(1) 
 .......................................................................                       1.4     1.5     1.3 
Revenue(2) 
 ......................................................................................... 
 ........                                                                                   75,019  76,339  65,143 
(Loss)/profit before tax from continuing operations(2) 
 ..................................                                                          (666)   5,192   5,324 
 
 
   (1) 18.3.3 
 
 
Adjusted EBITDA(3) 
 ...................................................................................        10,005  14,975  19,200 
------------------------------------------------------------------------------------------ 
  Notes: 
   (1) Figures represent millions of tonnes of waste wood fuel 
   supplied to third-party biomass energy plants. 
   (2) Figures are presented in thousands of pounds sterling. 
   (3) Figures are presented in thousands of pounds sterling. Adjusted 
   EBITDA is referred to as EBITDA in the FY19 Financial Statements, 
   FY20 Financial Statements and FY21 Financial Statements. 
 

Market and Competition

In November 2019, gate fees declined significantly due to a combination of a seasonal decline in waste wood supply, demand from UK biomass energy plants peaking and a six-month drop in construction output due to Brexit uncertainties. In addition, the UK national lockdown announced on 23 March 2020 in response to the COVID-19 pandemic initially resulted in the closure of household waste and recycling centres operated by local authorities and of the construction and demolition sectors. Without these key sources of supply, the Group's inbound waste wood supply decreased as much as 80 per cent. year-on-year and Stobart Energy entered FY21 at its lowest level of gate fees in recent years. The supply of waste wood has improved considerably since the time of the first lockdown and as a result gate fees are steadily returning toward pre-COVID-19 levels.

Pre-COVID-19, approximately 4.5 million tonnes of waste wood were produced annually in the United Kingdom, with a large proportion of this used as fuel for biomass energy plants. Supply of timber is generally low in the winter months in the United Kingdom, whilst fuel demand increases during that time due to the cold weather.

In the long term when the market returns to normal, the Group believes that waste wood suppliers will continue to find it cheaper and more environmentally responsible to provide waste wood to biomass energy producers than to send it to landfill.

In addition, accreditation under the Renewables Obligation scheme closed to new biomass energy plants in September 2018 and will terminate entirely in 2037. As a result, the Group does not expect any new plants to become operational.

Fuel Production and Storage

The Group operates six large fuel production and storage facilities in England, located at Port Clarence, Pollington, Rotherham, Widnes and two at Tilbury. The facilities receive waste wood and other biomass materials, such as virgin wood, and convert the materials into fuel. Each facility has a dedicated laboratory where qualified technicians measure moisture, particle size and bulk density to monitor energy content and plant suitability to meet customer requirements.

One of the Group's fuel production facilities includes its own port facility to receive raw materials by water, and the Group has port operations in Cardiff and Shoreham as well. The Group also operates a drying facility in Port Clarence to receive and treat virgin wood and other wastes from across the United Kingdom.

The Group's own facilities can store up to 102,000 tonnes of unprocessed waste wood, which equates to approximately 1.9 months' worth of supply. In addition, the Group has a significant number of other fuel production and storage facilities in strategic locations around the United Kingdom that are operated by third-party contractors for supply into UK biomass energy plants. This helps the Group to balance seasonal demand and supply, as supply of timber is generally low in the winter months in the United Kingdom, whilst fuel demand increases during that time due to the cold weather. The Group's national network of fuel production and storage facilities are critical to the operation of many of the United Kingdom's largest biomass energy power plants, which are not always able to store large volumes of processed material at their own sites.

Customers and Contracts

The Group supplies more than 15 large, and a significant number of smaller, biomass energy plants in the United Kingdom and Ireland. The Group has contracts in place with all of its large and many of its smaller customers, with an average remaining contract duration of 12 years. By the end of FY20, all of the plants currently supplied by the Group had successfully completed commissioning and become fully operational. The Group supplied 1.4 million tonnes of waste wood fuel in FY21.

The COVID-19 pandemic led to a shortage of waste wood supply, which resulted in an inability of the Group to fulfil its requirements under its supply agreements with its biomass energy plant customers in some respects. As a result, the Group issued force majeure notices to many of its biomass energy plant customers pursuant to the terms of certain of its supply agreements, and, as at the date of the Prospectus, all of those force majeure situations have ended.

The Group's seven largest biomass energy plant customers accounted for approximately 72.2 per cent. of the tonnage supplied by the Group in FY21, and the Group is the exclusive supplier to six of these seven customers.

A majority of the Group's supply agreements with its large biomass energy plant customers contain "take or pay" provisions whereby the plant customer is obligated to pay penalties if it doesn't meet contracted demand levels or a specified percentage thereof. Similarly, the Group is obligated to pay penalties if it cannot supply minimum contracted levels or a specified percentage thereof.

Procurement and Supply

The Group has relationships with over 300 suppliers, ranging from local skip companies to tier 1 waste companies, as well as virgin wood suppliers.

For the collection of waste wood, the Group charges third parties a gate fee for taking wood from them. The Group's gate fees are not contracted with many of its waste wood suppliers, and in many cases such suppliers are not committed to supplying any minimum volume. Therefore, the Group's gate fee revenue is variable and subject to shifts in demand and availability of supply. For example, gate fees in November 2019 declined significantly due to a combination of a seasonal decline in waste wood supply, demand from UK biomass energy plants peaking and a six-month drop in construction output due to Brexit uncertainties. The COVID-19 pandemic has exacerbated this supply shortage, which is negatively impacting gate fee pricing and may continue to do so for an extended period. Gate fees impact on pricing into the Group's own facilities and the facilities operated by its contracted fuel producers. Therefore, gate fees have a large impact on both the revenue and cost base of the business.

The Group employs an integrated supply chain IT system that provides real-time data to various functions within the business. The system tracks supply from the time of supply order, through the fuel production, transportation and delivery to customers, and it provides detailed management information to enable quick decision-making.

Transport

The Group operates a fleet of 145 walking floor vehicles located in depots across the United Kingdom. The vehicles are specifically designed for the transport of waste wood, virgin wood and RDF. The Group also provides services for the transportation of other waste products, renewable fuels and power plant residues.

The Group operates a rolling three-year replacement programme of its fleet to ensure the fleet is operating with the most efficient and environmentally friendly vehicles available. The Group's drivers undertake regular training including tailored annual appraisals, certificate of professional competence training and career development programmes.

Renewables Obligation Certificates

The Renewables Obligation scheme was introduced in Great Britain in 2002. The scheme is administered by Ofgem, which is Great Britain's government regulator for gas and electricity. A similar scheme operates in Northern Ireland.

Under the scheme, an ROC is issued by Ofgem to an operator of an accredited renewable energy generator for every megawatt hour of renewable energy that it generates. The operator then sells its ROCs to electricity suppliers alongside the electricity supplied, thereby allowing the operator to receive a premium in addition to the wholesale electricity price. Suppliers submit their purchased ROCs to Ofgem to demonstrate compliance with the Renewables Obligation scheme. Non-compliant suppliers must pay a penalty.

Accreditation under the Renewables Obligation scheme closed to new biomass energy plants in September 2018 and will terminate entirely in 2037. Of the biomass energy plants with which the Group had supply agreements, all but one completed the commissioning phase before the deadline and have therefore been accredited. The one plant that did not obtain accreditation is not currently operating and has terminated its supply agreement with the Group.

Other Regulatory and Environmental Issues

The Group's fuel production and storage facilities, as well as its industrial scale drying facility, operate under environmental permits issued and regulated by the UK Environment Agency. Compliance under the permits is audited at least once per year by the UK Environment Agency and on a regular basis by the Group's own health, safety, quality and environment team, which reports directly to the Board.

The quality teams in place at each fuel production facility provides customers with advice on the sampling and testing of fuels, the environmental characteristics and the best ways to meet UK and international standards.

The Group also has a number of bespoke permit variations for its fuel production and storage facilities, allowing storage of material in larger stockpiles and longer periods for finished fuel.

Stobart Investments

Stobart Investments holds a 9.1 per cent. stake in Logistics Development Group plc (formerly Eddie Stobart Logistics plc) and a 19.3 per cent. stake in luggage transportation company, AirportR. The Group holds a 30 per cent. stake in Connect Airways, which owns Flybe. Flybe and Connect Airways entered into Administration on 5 March 2020 and 10 March 2020, respectively.

Stobart Infrastructure

Stobart Infrastructure holds a portfolio of non-strategic property and infrastructure assets with a book value of GBP39.2 million as at 28 February 2021 (compared to GBP47.3 million as at 29 February 2020). The portfolio includes Carlisle Lake District Airport, the Group's Widnes and Pollington biomass fuel production facilities and a stake in Mersey Bioenergy Holdings Limited, among others.

The Group aims to divest all of its non-core assets for cash by FY24, including Carlisle Lake District Airport, with the aim of realising value over time from a position of strength when market conditions are right. The Group has assumed proceeds of GBP11.8 million from asset sales in its base case business plan and nil proceeds under a 'reasonable worst case scenario'.

Carlisle Lake District Airport

The Group acquired Carlisle Lake District Airport, which largely serves the private aviation market, in 2009. The airport has also housed an air freight distribution centre since 2015, which is leased to Eddie Stobart.

The airport had 6,067, 14,007 and 4,918 movements in FY19, FY20 and FY21. The reduced movements in FY19 were due to the airport being closed whilst the new runway was being built.

In 2018, Stobart Rail & Civils completed construction of a new terminal, which began welcoming commercial Loganair flights in July 2019, although these flights were subsequently suspended in late March 2020 due to the COVID-19 pandemic. The Group, along with local government partners, is in discussions with the UK Government with a view to having services to and from the airport designated as "Public Service Obligation" routes and therefore able to benefit from UK Government funding. This would reduce commercial risk to airlines and therefore encourage operations by other carriers. In FY21, Carlisle Lake District Airport served approximately 1,108 commercial passengers.

In April 2021, the Group announced it had entered into agreements with Ettyl Limited for the sale of its entire shareholding in Stobart Air as well as Carlisle Lake District Airport, subject to certain change of control and bank facility consents. On 28 May 2021, Ettyl advised that its original funding package to support the transactions was no longer available and that it was in discussions on alternative funding options. On 12 June 2021, the Company announced that it was clear that Ettyl was unable to conclude the transactions on the original terms or to obtain an alternative funding package within the required timescale and exercised its right to terminate the contracts for the transactions with immediate effect. Customary surviving provisions have survived termination of the agreements.

Carlisle Lake District Airport's results are accounted for in Stobart Infrastructure due to the infrastructure potential at the site.

Health and Safety

The Group has documented systems in place designed to ensure legal compliance with health and safety legislation. Documentation is supported by detailed training for staff, monitoring and reporting routines, key risk analysis and regular internal and external inspections and audits.

The Group Safety and Compliance team oversees, steers and challenges the progress of the Group's safety performance, and ensures that the Group continues to deliver. Divisional senior managers are directly responsible for their risks and manage the actions to mitigate or remove risks within their division. They also identify, through continuous monitoring and review, where potential new hazards could emerge within the business. There are regular audits of compliance at all levels within the business.

The Group's strategic objective for enhancing safety is to manage the Group's risks throughout each of the divisions by providing support, knowledge, training and appropriate resources, through continuous performance review and by encouraging open and honest reporting. In FY21, employee 'accidents' decreased 61 per cent. and employee 'incidents' decreased 23 per cent. compared to the prior year. The Group will continue to strive for improved accident and incident performance throughout the business and increase hazard awareness with employees through training.

Information Technology

The Group relies on technology solutions and strong information security to support the delivery of services across the Group. These information technology systems are either maintained in-house or by third-party contractors and outsourcers, and support a wide range of operations including air traffic control, flight planning, safety and security, supply chain management, finance and data processing.

The Group monitors its information security arrangements and continues to enhance controls in this area. In addition to mitigations that have been in place previously, such as anti-virus controls, patching policies, perimeter security monitoring, network management processes, and the implementation of appropriate policies within the Group, a significant programme of security enhancements was rolled out in 2019.

The Group has established disaster recovery plans which seek to ensure that it can continue to operate its business in the event of an information technology system failure and the Group regularly reviews and updates these plans.

Intellectual Property

The Group sold the Eddie Stobart and Stobart trademarks and designs to Eddie Stobart for a total consideration of GBP10 million on 21 May 2020. Until completion of the sale, the Group owned the Eddie Stobart and Stobart trademarks and designs and all associated intellectual property rights.

The sale of the Eddie Stobart and Stobart trademarks and designs resulted in an immediate cash receipt. It also had the effect of helping investors and stakeholders to more easily differentiate between Eddie Stobart's business and Stobart Group's aviation and energy businesses through the Group's transition to the Esken name.

The consideration for the sale is GBP10.0 million, of which GBP6.0 million was received on completion, GBP2.5 million was received on 1 December 2020 and GBP1.5 million is payable 36 months following completion of the sale. The cash consideration will be used for general working capital purposes.

The Shareholders approved a resolution at a general meeting on 3 February 2021 to change the Company's corporate name to Esken Limited. However, there are a number of Stobart divisions that will continue to use the brand for up to 36 months after completion and this will be licenced on a royalty free basis from Eddie Stobart.

Stobart Air may continue to use its name so long as it is owned by the Group. If the Group sells the Stobart Air business, it must use reasonable endeavours to procure a change of name as part of that sale.

Following this sale, the Group does not consider that it holds any material intellectual property.

Insurance

The Group's insurance strategy is to maintain an insurance programme that provides the optimal balance between coverage and risk retention. The Group maintains insurance policies covering a wide range of risks (including fleet, directors and officers, commercial combined liability, material damage and business interruption, operational engineering and engineering inspection, airport and operators liability, rail professional indemnity and trackside liability) that the Group considers are consistent with customary industry practices in the markets in which the Group operates and are appropriate to cover the principal risks of its business, taking into account statutory and regulatory requirements.

Employees

As at 28 February 2021, the Group had a team of 911 people located in the United Kingdom. The following table details the number of the Group's employees by location as at 28 February 2019, 29 February 2020 and 28 February 2021.

 
                                                              As at 28     As at          As at 
                                                              February      29 February   28 February 
                                                              2021          2020          2019 
  England 
   ......................................................... 
   ..................................                                870          1,416           1,126 
       Home-based.......................................... 
        ......................................                         8              3               3 
       Midlands............................................ 
        .........................................                      0              0               2 
       North 
        East................................................ 
        ...................................                           62             98             102 
       North 
        West................................................ 
        ..................................                           312            543             415 
       South 
        East................................................ 
        ..................................                           481            765             602 
       South 
        West................................................ 
        ..................................                             7              7               2 
  Northern 
   Ireland.................................................. 
   .............................                                       3              5               1 
  Scotland................................................. 
   .........................................                          21            114              98 
  Wales.................................................... 
   ...........................................                        17             15              12 
  Total.................................................... 
   ............................................                      911          1,482           1,237 
 
 

The following table details the number of the Group's employees by operating division as at 28 February 2019, 29 February 2020 and 28 February 2021.

 
                                                            As at          As at          As at 
                                                             28 February    29 February    28 February 
                                                             2021           2020           2019 
  Stobart Aviation 
   ..................................................... 
   ............................                                      540            922            619 
       Stobart Aviation 
        Services........................................ 
        .......................                                      297            607            358 
       Other........................................... 
        ................................................ 
        ..                                                           243            315            261 
  Stobart Energy 
   ..................................................... 
   ..............................                                    317            358            342 
  Stobart Rail & Civils(1) 
   ..................................................... 
   ....................                                                0            211            222 
  Central / head office (Stobart Group) 
   ..................................................                 54             59             54 
  Total 
   ..................................................... 
   ..............................................                    911          1,482          1,237 
 
 
 

The percentage of the Group's workforce that is unionised or covered by a collective bargaining agreement is not significant, with most of the unionised employees being in the Stobart Aviation Services business. The Group considers that it has proactive and productive relationships with unions and its employees in general, and the Group has not experienced any material labour-related work stoppages in FY19, FY20 or FY21.

   III.       OPERATING AND FINANCIAL REVIEW 

O VERVIEW

Esken is a UK infrastructure group with operations across the United Kingdom in the aviation and biomass energy industries, with a strategy to develop valuable growth assets from aviation and energy from waste. The Group's operations are organised across two core operating divisions, together with a portfolio of non-core assets.

The Group's core operating divisions are:

-- Stobart Aviation- The Group owns and operates London Southend Airport. In addition, Stobart Aviation Services, one of the businesses within the division, provides check-in, baggage handling and cargo services for 13 airlines at London Stansted, London Southend and Manchester airports. Stobart Aviation accounted for GBP24.7 million of total revenue (before adjustments and eliminations) in FY21.

-- Stobart Energy -The Directors believe that the Group is the United Kingdom's largest supplier of waste wood fuel to UK biomass energy plants, with long-term exclusive contracts in place with some of the largest biomass energy plants in the United Kingdom. The Group has contracts in place to supply 1.7 million tonnes of waste wood fuel and in FY21 supplied 1.4 million tonnes. Stobart Energy accounted for GBP75.0 million of total revenue (before adjustments and eliminations) in FY21.

The Group's non-core operating divisions are:

-- Stobart Investments -The Group holds a 9.1 per cent. stake in Logistics Development Group plc (formerly Eddie Stobart Logistics plc) and a 19.3 per cent. stake in luggage transportation company, AirportR. The Group holds a 30 per cent. stake in Connect Airways, and on 10 March 2020 Connect Airways, which owns Flybe, entered into Administration following Flybe entering into Administration on 5 March 2020. In addition, on 27 April 2020, the Group announced it had reached agreement with the administrators of Connect Airways to acquire Stobart Air and Propius, and the Group now holds a 40 per cent. voting and 75 per cent. economic interest in Everdeal, the ultimate holding company of both businesses, and a 15 per cent. shareholding in the company that holds the remaining 60 per cent. voting interest and 25 per cent. economic interest in Everdeal, Everdeal Employees 2019 Limited. As announced by the Company on 12 June 2021, Stobart Air is undergoing liquidation proceedings, and two of Stobart Air's subsidiaries (Stobart Air Services (UK) Limited and Stobart Air Services (IOM) Limited) are now also undergoing liquidation proceedings. Stobart Investments accounted for GBP9.0 million of total revenue (before adjustments and eliminations) in FY21.

-- Stobart Infrastructure- The Group holds a portfolio of non-strategic property and infrastructure assets, including the Carlisle Lake District Airport, with a book value of GBP39.2 million as at 28 February 2021. The Group aims to divest all of its non-core assets for cash by FY24, with the aim of realising value over time from a position of strength when market conditions are right. Stobart Infrastructure accounted for GBP1.1 million of total revenue (before adjustments and eliminations) in FY21.

The Group divested Stobart Rail & Civils, previously a non-core operating division, in July 2020 and continues to explore opportunities to exit its remaining non-core operating divisions as market conditions for asset sales improve.

Esken is registered in Guernsey, headquartered in London and it employed 911 people in the United Kingdom as at 28 February 2021.

The Company has been listed on the London Stock Exchange since 2007, at which point it was primarily a logistics provider. Shortly after the listing, the Group expanded its portfolio to include a rail and civil engineering business in 2008, London Southend Airport in 2008, Carlisle Lake District Airport in 2009 and a biomass energy business in 2010. Since then, the Group has continued to develop its business through organic operations and selected acquisitions and disposals.

For the year ended 28 February 2021, the Group's revenue was GBP110.7 million, its loss for the year from continuing operations was GBP143.3 million and its Adjusted EBITDA was a loss of GBP17.9 million.

R ECENT D EVELOPMENTS

The COVID-19 pandemic has continued to cause significant disruption for the Group. However, strict financial discipline has helped minimise cash burn and protect the Group's liquidity position. Stobart Energy continues to deliver cash generation whilst the Stobart Aviation business faces continuing challenges in terms of weak passenger demand. In addition, the acquisition of Stobart Air, the liquidation of which was announced on 12 June 2021, and Propius has resulted in cash outflows for the Group during the past year which will continue at a lower level until mid-2023. Break fees of US$21.2 million in total plus associated break fee finance costs will be paid under the lease arrangements relating to Stobart Air's aircraft as the aircraft are returned to the GOAL Lessors, following which the aircraft leases and parent company guarantees will expire and Propius will become dormant. The Directors believe cash flow discipline, coupled with the depth of operational talent within the businesses, will help protect the value of the Company's core assets and aid recovery as vaccine programmes are rolled out, with activity expected to slowly increase over the coming months.

London Southend Airport

London Southend Airport has a strong and differentiated commercial passenger proposition and allows airlines to generate similar yields to other London airports but at a lower cost per passenger, including through the current usage of airline marketing contributions. The Company believes that this low-cost proposition will appeal to cost conscious airlines as the aviation sector recovers from the pandemic.

Lockdown restrictions curtailed much of the commercial passenger operations at London Southend Airport during 2020 and 2021 as evolving quarantine arrangements and late changes to travel corridors eroded passenger confidence when restrictions were lifted. As a result, 147,000 passengers flew through London Southend Airport in FY21 compared to 2.14 million in the prior year. Of those 147,000 passengers, 68,000 flew in March 2020 before travel restrictions took hold. Though some flying resumed in June 2021, with 4,555 passengers flying, the Directors do not expect commercial passenger operations to restart in earnest until much later in 2021.

In response to this trading environment, management took a range of decisive actions to significantly reduce London Southend Airport's cash burn, including extensive use of the UK Government's furlough scheme. London Southend Airport benefitted from continued operations and income from its global logistics operation throughout the year. However, movements reduced during January and February 2021 due to Brexit uncertainty and seasonal variances. While the logistics operations involved five daily rotations pre-Brexit, it returned to three daily rotations in March 2021.

Stobart Air and Propius

On 20 April 2021, the Group announced it had entered into agreements for the sale of its entire shareholdings in Stobart Air Unlimited Company (which operated regional flights under a franchise agreement for Aer Lingus) and Stobart Air (UK) Limited, the owner of Carlisle Lake District Airport to Ettyl Limited.

On 28 May 2021, Ettyl advised that its original funding package to support the transactions was no longer available and that it was in discussions on alternative funding options. On 12 June 2021, the Company announced that it was clear that Ettyl was unable to conclude the transactions on the original terms or to obtain an alternative funding package within the required timescale and exercised its right to terminate the contracts for the transactions with immediate effect. Further, in the absence of any alternative purchasers or sources of funding for the Stobart Air business within the timescales required, the Company advised the board of Stobart Air that it would not continue to provide financial support to the Stobart Air business going forward. As a result of this, the board of Stobart Air terminated its franchise agreement with Aer Lingus and ceased trading and appointed a liquidator on 14 June 2021.

The Company also announced that it had undertaken certain contingency planning measures and has agreed in response to these developments that it will continue to fund the lease obligations for certain of Stobart Air's aircraft through to termination of the leases in April 2023 under the terms of its pre-existing guarantee, and confirmed that it would take immediate steps to seek sublease arrangements for the aircraft with alternative operators to mitigate the impact on the Group.

The Company remains responsible for certain obligations to Aer Lingus under the franchise agreement which were also the subject of a pre-existing guarantee and have become payable following termination of the franchise agreement. These obligations and the guarantees entered into in early 2017 were the reason that the Group reacquired the airline and its related leasing company in April 2020. This enabled the Group to manage and seek to mitigate the impact of these liabilities following the administration of Connect Airways Limited.

In the announcement on 20 April 2021, the Company set out the cash flow impact on the Group on the assumption that the transactions concluded. The following table reflects the amended position over the period to the end of the leases assuming that the Group is unable to sublease the aircraft. It also includes the termination of the sale of Carlisle Lake District Airport which had been set to be concluded for consideration of GBP15 million.

 
                                                                                   FY22      FY23    FY24 
  Cash outflow reported previously 
   (GBP millions).........                                                         (16)      (9)     (24) 
  Additional cash impact arising 
   from liquidation.....                                                          (18)(1)    (13)    (2) 
  Total cash impact..........................................................      (34)      (22)    (26) 
 

Note:

(1) Cash impact reflects that the Group will retain ownership of Carlisle Lake District Airport rather than receive sale proceeds of GBP15 million.

Since April 2020, the Company has taken all steps to minimise the cash requirement of Stobart Air while seeking to find a purchaser recognising the importance of the airline to connectivity between the United Kingdom and Ireland, the 480 jobs involved and the fact that a sale would have been a better outcome for Shareholders. The Company has been successful in reducing the impact of its pre-existing obligations and in agreeing terms under which it has control of residual obligations through to expiry. However, the continuing impact of the pandemic which has resulted in almost no flying since April 2020 and the decision taken by Aer Lingus to award preferred bidder status to another party for the franchise agreement beyond its expiry in December 2022 significantly hampered the exhaustive steps taken to secure a future for the business and its staff.

Esken will retain the ownership of Carlisle Lake District Airport but will actively explore strategic options for the use of this asset in discussion with stakeholders including potential alternative commercial opportunities for the airport.

Teesside International Airport

On 26 July 2021, the Company announced the conclusion of its role as strategic partner and operator of Teesside International Airport and transferred its 25% ownership of Teesside International Airport to a new Teesside Airport Foundation for a nominal consideration. If there were to be a future sale of Teesside International Airport before 25 January 2023, the Company has agreed with TVCA that Esken would be entitled to share in the proceeds of that sale up to an amount not exceeding GBP31.3 million, which would be used for general corporate purposes.

KEY FACTORS AFFECTING RESULTS OF OPERATIONS

The results of the Group's operations have been, and will continue to be, affected by many factors, some of which are beyond the Group's control. This section sets out certain key factors the Group considers have affected the Group's results of operations in FY19, FY20 and FY21 and could affect its results of operations in the future.

Stobart Aviation

Macroeconomic conditions

Stobart Aviation's success depends to a significant extent on discretionary consumer spending, which is influenced by general economic conditions, including employment, disposable income, inflation, consumer credit availability and interest rates. Airport passenger traffic, which directly impacts both aeronautical and non-aeronautical revenue, tends to vary with economic growth and will therefore be impacted by the overall economic outlook.

Passenger traffic and aircraft movements (i.e. landings or take-offs) over the course of March 2020 fell sharply to nearly zero as a result of the COVID-19 pandemic. Passenger numbers have improved to an average of 277 per day over the course of July 2021 and aircraft movements (primarily relating to logistics) have started to recover at an average of ten per day in the same period and the Group expects this recovery to continue gradually until the end of February 2022 under a 'reasonable worst case scenario'. The Group anticipates that economic conditions in the United Kingdom and Europe will remain challenging in the short term following the resumption of flights in the United Kingdom and that the speed of recovery of passenger traffic will therefore be limited throughout the remainder of FY22.

Passenger demand

The Group's aeronautical and non-aeronautical revenue is directly impacted by passenger demand at its airports. In FY19 and FY20 London Southend Airport served 1.49 million and 2.14 million passengers, respectively. As described in "Recent Developments" above, the COVID-19 pandemic has had a significant and adverse impact on passenger demand, with London Southend Airport serving 147,000 passengers in FY21. Passenger demand has remained suppressed in the first five months of FY22, which the Group expects a gradual resumption of passenger travel until the end of February 2022, with an average of 38,000 passengers per month, compared to pre-COVID-19 levels of 159,000 in the corresponding period in FY20, under a 'reasonable worst case scenario', and the phased recovery will continue with passenger numbers at pre-COVID-19 average run rate by April 2023, compared to pre-COVID-19 levels of 178,000 for the full year FY20, under a 'reasonable worst case scenario'.

Aeronautical revenue consists of tariffs levied by the Group's airports on their airline customers, and a portion of these tariffs are based on the number of departing passengers per aircraft. In addition, a portion of the tariffs include landing charges for aircraft arriving at the Group's airports. Because the operating contracts with the airlines operating at the Group's airports do not commit either party to specific volumes of activity, airlines can add or cancel flights to/from the Group's airports relatively easily in response to shifts in passenger demand.

Non-aeronautical revenue consists of, among other things, retail concession fees, car parking, rail services, revenue from the hotel at London Southend Airport and advertising. Car parking, rail services and hotel revenue is directly correlated with the number of passengers using the Group's airports, and the amount the Group is able to charge for advertising space and retail concessions is also correlated to passenger demand. In addition, fees paid by certain of the Group's retail concession customers are based in part on the concessions' revenue, which is generally directly related to passenger traffic.

Number of airlines and destinations served

Stobart Aviation's success depends to a significant extent on its ability to attract new airline customers and increase the destinations served by those customers, as this will increase aeronautical revenue and passenger volume-dependent non-aeronautical revenue.

FY19 saw substantial growth in the number of flights to/from London Southend Airport operated by easyJet, and in FY20, Ryanair, Wizz Air, Loganair and FlyOne each began operating flights to/from London Southend Airport. The COVID-19 pandemic had a significant and adverse impact on the Group's airline customers in FY21, contributing to Flybe's entry into Administration on 5 March 2020 and easyJet's decision to close its bases at London Southend Airport and two further airports in August 2020 as part of a wider cost-cutting exercise, and continued to have a significant and adverse impact on passenger volumes in the first three months of FY22.

Stobart Aviation Services contract wins and renewals

The Group's ability to win new and renew existing contracts is key to the Stobart Aviation Services business, which accounted for 16 per cent., 27 per cent. and 47 per cent. of Stobart Aviation's revenue in FY19, FY20 and FY21, respectively. The COVID-19 pandemic had a significant and adverse impact on the Group's airline customers in FY21 and contributed to Flybe's entry into Administration on 5 March 2020.

Stobart Aviation Services was awarded its first external contract in March 2018 with easyJet to provide ground handling services at London Stansted Airport. The Group added a further two airline customers in FY19 and 13 in FY20, and now provides services to 13 airlines at three airports across the United Kingdom. In FY21, the arrangements to provide ground handling services for Logan Air at Glasgow and Edinburgh airports were terminated.

The Group's Aviation Services contracts employ cost-plus, fixed cost and price per turn contracts used to appeal to both larger and smaller airlines to be handled on a frequent or ad hoc basis, and the contracts vary in duration, but are typically three to five years. Revenue depends on the number of flights operated by the business' customers.

Seasonality

Stobart Aviation's business is subject to seasonality as it is largely dependent on the leisure segment of the travel industry, which is particularly active during the summer season. Accordingly, the continuation of travel restrictions as a result of the COVID-19 pandemic into the peak summer travel season for a second year can be expected to have a disproportionate impact on the Group's results of operations in FY22, as they did in FY21. Ordinarily, the operating division's profitability tends to increase in the summer as a result of higher passenger volume and is generally lower in the fourth quarter of the Group's financial year when fewer people travel and airlines reduce the number of flights operated. Adverse weather conditions can also result in short-term fluctuations in trading patterns, particularly during the winter when severe weather can result in flight cancellations, although this can be offset by higher passenger spend in airport as a result of flight delays.

Stobart Energy

Plant commissioning

The primary driver of Stobart Energy's revenue from the supply of waste wood fuel in the period under review has been the completion of the commissioning phase of the biomass energy plants that the Group is contracted to supply. Plants completed their commissioning phase throughout the period under review, with the highest concentration in the summer of 2018. Following commissioning, the plants become operational and the Group is able to start supplying waste wood fuel under its contracts.

ROC subsidies

Under the United Kingdom's Renewables Obligation scheme, an ROC is issued by Ofgem to an operator of an accredited renewable energy generator for every megawatt hour of renewable energy that it generates. The operator then sells its ROCs to electricity suppliers alongside the electricity supplied, thereby allowing the operator to receive a premium in addition to the wholesale electricity price. Suppliers submit their purchased ROCs to Ofgem to demonstrate compliance with the Renewables Obligation scheme. Non-compliant suppliers must pay a penalty.

Accreditation under the Renewables Obligation scheme closed to new biomass energy plants in September 2018. Of the biomass energy plants with which the Group had supply agreements, all but one completed the commissioning phase before the deadline and have therefore been accredited. The one plant that did not obtain accreditation is not currently operating and has terminated its supply agreement with the Group.

The timing of the Renewables Obligation scheme closure drove the number of biomass energy plants commencing operations during the period under review. Because the Renewables Obligations scheme is now closed to new biomass energy plants and will terminate entirely in 2037, the Group does not expect further such plants to be built.

Consumer demand for waste wood fuel

Stobart Energy's business depends on the demand from its biomass energy plant customers, which in turn is directly dependent on consumer demand for renewable and biomass energy. Such demand has increased during the period under review as consumers have become increasingly focused on climate change and sustainability initiatives.

Bioenergy (including waste wood fuel) is Britain's second largest source of renewable electricity (behind wind), generating more than 11 per cent. of the United Kingdom's electricity in 2019 (according to UK Department for Business, Energy & Industrial Strategy statistics). The UK Committee on Climate Change has stated that sustainably sourced bioenergy could provide up to 15 per cent. of the United Kingdom's primary energy by 2050.

Availability of waste wood and gate fees

Stobart Energy is dependent on the availability of waste wood supply for its operations, as this is the primary input for the production of waste wood fuel.

In addition, the Group charges third parties a gate fee for taking waste wood from them. The Group's gate fees are not contracted with many of its waste wood suppliers, and in many cases such suppliers are not committed to supplying any minimum volume. Therefore, the Group's gate fee revenue is variable and subject to shifts in demand and availability of supply. For example, in November 2019, gate fees declined significantly due to a combination of a seasonal decline in waste wood supply, demand from UK biomass energy plants peaking and a six-month drop in construction output due to Brexit uncertainties. In addition, the UK national lockdown announced on 23 March 2020 in response to the COVID-19 pandemic initially resulted in the closure of household waste and recycling centres operated by local authorities and of the construction and demolition sectors. Without these key sources of supply, the Group's inbound waste wood supply decreased as much as 80 per cent. year-on-year and Stobart Energy entered FY21 at its lowest level of gate fees in recent years. Gate fees impact on pricing into the Group's own facilities and the facilities operated by its contracted fuel producers. Therefore, gate fees have a large impact on both the revenue and cost base of the business. In addition to the impact on the Group's gate fees, the supply shortage during the first half of 2020 caused the Group to be unable to supply its biomass energy plant customers. As a result, the Group issued force majeure notices to many of its biomass energy plant customers pursuant to the terms of certain of its supply agreements, although those force majeure conditions abated later in 2020.

The supply of waste wood has improved considerably since the time of the first lockdown and as a result gate fees are steadily returning toward pre-COVID-19 levels.

Seasonality

Stobart Energy's operations are affected by seasonal factors. In particular, supply of timber is generally low in the winter months in the United Kingdom, whilst fuel demand increases during that time due to the cold weather.

As a result of this imbalance, the Group has strategically prioritised the storage of fuel in its facilities. The Group has obtained bespoke permit variations for certain of its fuel production and storage facilities, allowing storage of material in larger stockpiles and longer periods for finished fuel. The Group's own facilities can store up to 102,000 tonnes of waste wood fuel, which equates to approximately 1.9 months' worth of supply. In addition, the Group has a significant number of other fuel production and storage facilities in strategic locations around the United Kingdom that are operated by third-party contractors for supply into UK biomass energy plants. The Group's national network of fuel production and storage facilities are critical to the operation of many of the United Kingdom's largest renewable biomass energy plants, which are not always able to store large volumes of processed material at their own sites.

Notwithstanding the Group's storage capabilities, the Group's revenue and cash flow may be negatively impacted by supply shortages in the case of adverse weather affecting the supply of timber in the United Kingdom or by a decrease in demand if the United Kingdom experiences uncharacteristically warm winters.

Stobart Rail & Civils

Exiting Stobart Rail & Civils

Stobart Rail & Civils continued to trade below expectations in the first half of FY21, in part due to delays in Network Rail awarding contracts at the start of its Control Period 6 and the Group's continued exposure to a poor performing legacy project. As a result of that poor performance, the Group divested Stobart Rail & Civils, previously a non-core operating division, to Bavaria Industries Group AG in July 2020.

New contracts during FY19 and FY20

Other than contracts with other Group entities, all of the Group's Rail & Civils contracts were competitively tendered, and therefore the Group's ability to win new contracts was key to the Stobart Rail & Civils operating division.

Historically, a significant portion of Stobart Rail & Civils' revenue was generated from projects for other Group operating divisions. For example, Stobart Rail & Civils delivered a runway improvement project and new train station at London Southend Airport, constructed the new terminal at Carlisle Lake District Airport and undertook improvement works at Stobart Energy facilities. In FY19, the Group implemented a strategic plan aimed at both increasing work with existing partners and securing new contracts. The following table sets forth Stobart Rail & Civils' internal and external revenue during the periods indicated.

 
                                                                                                   FY20      FY19 
                                                                                                 ---------  ------ 
                                                                                                 (GBP'000) 
  Internal 
   revenue..................................................................................... 
   .                                                                                              13,404    20,480 
  External 
   revenue.....................................................................................   28,077    31,867 
                                                                                                 ---------  ------ 
  Total revenue(1) 
   ......................................................................................         41,481    52,347 
 
 
 

Government spending

Stobart Rail & Civils historically derived a majority of its revenues from contracts with the UK Government, its agencies and other public sector bodies. The level of government spending on public infrastructure projects therefore directly affected the Group's results of operations prior to its disposal of Stobart Rail & Civils in July 2020.

During FY19 and FY20, there was a trend of national and local governments and public entities cutting budgets, including spending on public infrastructure, which continued into FY21. This led to fewer new projects being available on which to bid, as well as delays or cancellations of existing projects. For example, Stobart Rail & Civils traded below expectation in FY20, in part due to delays in Network Rail awarding contracts at the start of its Control Period 6.

KEY FACTORS AFFECTING COMPARABILITY

IFRS 16

The Group adopted IFRS 16 Leases on 1 March 2019, which resulted in right-of-use assets of GBP60.9 million, a net investment of GBP14.0 million, liabilities of GBP78.2 million and GBP2.8 million adjustment to equity being recognised on the Group's balance sheet. The right-of-use assets recognised on transition were adjusted for any prepaid or accrued lease expenses. The lease liability was calculated as the future lease repayments, discounted at the incremental borrowing rate. The weighted average incremental borrowing rate applied on transition was 4.2 per cent. The Group has a sub-lease on one of its properties and has recognised a net investment for this particular property, with the difference between the leases as lessee and lessor taken directly to retained earnings. The Group applied the modified retrospective approach and as such the comparative periods have not been restated. The Group has applied the ongoing recognition exemptions for short-term leases and low value leases (less than GBP5,000) and applied the following practical expedients on transition:

-- reliance on previous identification of a lease (as provided by IAS 17) for all contracts that existed on 1 March 2019;

-- reliance on previous assessments on whether leases are onerous instead of performing an impairment review;

-- accounting for operating leases with a remaining term of less than 12 months from 1 March 2019 as short-term leases;

-- exclusion of initial direct costs from the measurement of the right-of-use asset at 1 March 2019; and

-- use of hindsight in determining the lease term where there is the option to extend the lease.

For a reconciliation between operating lease commitments as lessee under IAS 17 and finance lease liability recognised under IFRS 16, please see note 1 to the FY20 Financial Statements.

Restated FY20 comparative financial information

On 14 July 2020, the Group divested Stobart Rail Limited to Bavaria Industries Group AG. The operations of Stobart Rail Limited represented a separate major line of business. The Group's results of the operations, along with the loss on disposal, have been reported as part of the single line loss from discontinued operations, net of tax on the face of the consolidated income statement of the FY21 Financial Statements. The comparative results for the year ended 29 February 2020 included in the consolidated income statement of the FY21 Financial Statements have been restated on the same basis. Refer to note 5 of the FY21 Financial Statements for more details.

The Group's audited consolidated FY20 Financial Statements have not been restated or reissued and as a result the audited FY20 Financial Statements are not directly comparable to the financial information presented by the Group in respect of subsequent financial periods. The discussion of movements in the Group's results of operations and financial position between FY20 and FY21 in this Section III (Operating and Financial Review) is based on the unaudited comparative financial statements for the year ended 29 February 2020 included in the FY21 Financial Statements. The discussion of movements in the Group's results of operations and financial position between FY19 and FY20 in this Section III (Operating and Financial Review) is based on the audited comparative financial statements for the year ended 28 February 2019 included in the F20 Financial Statements.

DESCRIPTION OF KEY LINE ITEMS ON THE INCOME STATEMENT

Revenue

Stobart Aviation provides some of its services under contracts and others relate to the sale of goods. Revenue is recognised in the consolidated income statement in the accounting period in which the services are rendered. It is recognised at the fair value of the consideration received or receivable, net of VAT. The principal sources of revenue within the Stobart Aviation division are aeronautical income, jet fuel sales, retail and concession income, hotel income, surface access income (including car parking and train tickets) and ground handling services.

A receivable is recognised when the services are delivered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due. Any marketing contributions paid to airlines under contractual agreements are separately disclosed, not netted against revenue, as the marketing contributions arise from a separate transaction that is not linked to the revenue generated.

Revenue from Stobart Energy mainly relates to gate fee income, in relation to waste wood taken, and delivery of processed material to biomass energy plants. Gate receipts are not contracted, and revenue received is recognised on receipt of waste material as this is the point in time that the consideration is unconditional. The majority of revenue from the supply of processed material is contracted. These contracts detail the specification of material required, annual tonnages required and the price per tonne. Revenue is recognised on delivery as this is the point in time that the consideration is unconditional.

Within certain fuel supply agreements there are 'take or pay' provisions where revenue can be recognised on material not taken by plants. This revenue is recognised at a point in time in line with specific contractual provisions. During the year, the tonnages delivered under each contract are reviewed to ensure that contracted tonnages will be met. As soon as there is reason to believe contract tonnages will not be met, a contract liability is provided to reduce the revenue recognised to date.

Prior to its disposal, Stobart Rail & Civils recognised revenue based on the specification within the contract and the input method was used to measure progress of delivery. If a modification to the contract occurred, the specifics of the modification were assessed as to whether it represented a separate performance obligation or if it was a modification to the existing contract. Consideration was given to ensure that recognition of a contract modification was only recognised as revenue when either it was approved or it was considered legally enforceable. Revenue was only recognised on a contract if it was highly probable not to result in a significant reversal of revenue in future periods.

Stobart Investments revenue relates to dividend income. This revenue is recognised on receipt of dividend as that is the point in time that the consideration is unconditional.

Revenue from Stobart Infrastructure relates to rental income under contracts. Revenue is recognised in the consolidated income statement at the contractual rental income over the term of the lease, as these charges represent the service provided.

In FY20 and prior, the Group generated royalty revenue from the licence of its trademarks and designs, which was recognised over time in line with the relevant contract.

Other income

Other income comprises the Group's income that does not relate to its principal activities.

Operating expenses

Operating expenses primarily comprise employee benefits (including salaries), direct material costs, diesel and jet fuel and other purchases and external expenses, as well as certain non-underlying items. Further detail can be found in note 8 to the FY21 Financial Statements.

Share of post-tax profits of associates and joint ventures

Share of post-tax profits of associates and joint ventures comprises the results of the Group's Connect Airways joint venture, which entered Administration on 10 March 2020, including costs incurred by Connect Airways in acquiring Flybe, Stobart Air and Propius.

(Loss)/gain on swaps

The Group uses derivative financial instruments such as fuel and currency swaps to mitigate the risk of fuel price and currency fluctuations. Losses and gains on these financial instruments are recorded as (loss)/gain on swaps on the Group's income statement.

Depreciation

Depreciation of property, plant and equipment is calculated using the straight line method. Further detail can be found in note 15 to the FY21 Financial Statements.

Amortisation

Amortisation relates to the Eddie Stobart brand, which until May 2020 was owned by the Group.

Impairment-Other

Impairment-Other includes the write down in the value of certain Stobart Infrastructure assets, the write off of goodwill and other intangible assets attributable to Stobart Rail & Civils and a write down in the value of other property, plant and equipment (PPE) and property inventory.

Impairment-Loan receivables from joint venture

Impairment-Loan receivables from joint venture comprises primarily the write down of the Connect Airways loans that are deemed to have nil value following Flybe and Connect Airways entering Administration in 2020.

Impairment of loan notes

Impairment of loan notes comprises an impairment in FY20 in relation to the shareholder loan notes relating to Mersey Bioenergy Holdings Limited, the Widnes biomass plant owner.

Finance costs

Finance costs primarily comprise interest expense related to the Group's debt, finance charges payable under leases and foreign exchange losses. Further detail can be found in note 11 to the FY21 Financial Statements.

Finance income

Finance income primarily comprises interest on a loan to Connect Airways, as well as bank interest receivables and foreign exchange gains. Further detail can be found in note 10 to the FY21 Financial Statements.

Tax

Tax primarily comprises accrued charges and credits and payments made pursuant to UK corporation tax liabilities. Further detail can be found in note 12 to the FY21 Financial Statements.

COMPARISON RESULTS OF OPERATIONS

The following table sets forth the Group's consolidated income statement for the periods indicated.

 
                                                                            Year ended 
                                                                            29 February 
                                                                               2020 
                                                            Year ended                      Year ended     Year ended 
                                                            28 February                     29 February    28 February 
                                                               2021        (restated)(1)       2020           2019 
                                                          -------------  ---------------  -------------  ------------- 
 Continuing Operations                                                              (GBP'000) 
  Revenue.............................................. 
   ..............................                               110,724          142,098        170,175        146,889 
  Other 
   income............................................... 
   ......................                                         5,798            4,700          4,700          1,310 
  Operating expenses - 
   other................................................ 
   ..                                                         (134,263)        (142,943)      (178,288)      (152,766) 
  Share of post-tax profits of 
   associates and joint ventures.........                         (218)          (9,765)        (9,765)        (1,740) 
  Loss on 
   swaps................................................ 
   ....................                                              80            (300)          (300)          (353) 
  Adjusted EBITDA(2) 
   ..................................................... 
   ......                                                      (17,879)          (6,210)       (13,478)        (6,660) 
  Depreciation......................................... 
   .............................                               (31,814)         (20,024)       (22,723)       (16,305) 
  Amortisation......................................... 
   .............................                                      -          (7,456)        (7,456)        (3,938) 
  Loss on 
  acquisition........................................... 
  ..................                                           (58,182)                -              -              - 
  Impairment - 
   other................................................ 
   .............                                               (22,097)         (48,330)       (56,804)        (7,800) 
  Impairment-loan receivables 
   from joint venture...................                              -         (45,105)       (45,105)              - 
  Operating 
   loss................................................. 
   ...................                                        (129,972)        (127,125)      (145,566)       (34,703) 
  Impairment of loan 
   notes................................................ 
   ....                                                         (8,000)          (2,754)        (2,754)        (3,208) 
  Finance 
   costs................................................ 
   ..................... 
   ..................................................... 
   ...................................                         (17,214)         (14,453)       (14,017)        (5,213) 
  Finance 
   income............................................... 
   ...................                                            4,849            4,917          4,353          1,010 
  Loss before 
   tax.................................................. 
   .................                                          (150,337)        (139,415)      (157,984)       (42,114) 
  Tax.................................................. 
   .................................                              7,083            8,390          8,390          (530) 
  Loss for the year from continuing 
   operations(3) ......................                       (143,254)        (131,025)      (149,594)       (42,644) 
 
 Notes: 
  (1) The comparative results for the year ended 29 February 2020 
  included in the consolidated income statement of the FY21 Financial 
  Statements have been restated where required due to IFRS 5 Discontinued 
  Operations in connection with the preparation of the FY21 Financial 
  Statements. Refer to note 5 of the FY21 Financial Statements 
  for more details. The Group's audited consolidated FY20 Financial 
  Statements have not been restated or reissued. 
  (2) Adjusted EBITDA is referred to as EBITDA in the FY20 Financial 
  Statements and FY21 Financial Statements. 
  (3) For the avoidance of doubt, the results of Stobart Air are 
  included in the Group's continuing operations for FY19, FY20 
  and FY21 as the decision to liquidate Stobart Air did not take 
  place until after the end of FY21. 
 

Results of operations for the year ended 28 February 2021 compared to the year ended 29 February 2020

As described in "Key factors affecting comparability" above, the comparative results for the year ended 29 February 2020 included in the FY21 Financial Statements have been restated. The discussion below is based on the unaudited comparative financial statements for the year ended 29 February 2020 included in the FY21 Financial Statements.

Revenue

Revenue decreased by GBP31.4 million, or 22.1 per cent., to GBP110.7 million in the year ended 28 February 2021 from GBP142.1 million in the year ended 29 February 2020.

The following table sets forth the Group's total revenue by operating division.

 
                                                                           Year ended    Year ended 
                                                                           28 February   29 February 
                                                                              2021         2020(1)         Change 
                                                                                  (GBP'000)           GBP'000      % 
  Aviation............................................................ 
   ...........                                                                  24,742        56,786  (32,044)  (56.4) 
  Energy.............................................................. 
   ..........                                                                   75,019        76,339  (1,320)   (1.7) 
  Investments......................................................... 
   ........                                                                      9,034         2,127   6,907    324.7 
  Non-strategic 
   infrastructure...........................................                     1,059         2,777  (1,718)   (61.9) 
  Group central and eliminations(2) 
   ...................................                                             870         4,069  (3,199)   (78.6) 
                                                                         -------------  ------------  --------  ------ 
  Total revenue 
   .................................................................... 
   .................                                                           110,724       142,098  (31,374)  (22.1) 
----------------------------------------------------------------------- 
Notes: 
 (1) The comparative results for the year ended 29 February 2020 
 included in the consolidated income statement of the FY21 Financial 
 Statements have been restated where required due to IFRS 5 Discontinued 
 Operations in connection with the preparation of the FY21 Financial 
 Statements. Refer to note 5 of the FY21 Financial Statements 
 for more details. The Group's audited consolidated FY20 Financial 
 Statements have not been restated or reissued. 
 (2) Group central and eliminations revenue comprises rental income, 
 brand licence income and merchandising income. 
 

Aviation

Total revenue in the Aviation operating division decreased by GBP32.0 million, or 56.4 per cent., to GBP24.7 million in the year ended 28 February 2021 from GBP56.8 million in the year ended 29 February 2020. Revenue in the Aviation operating division was significantly impacted by the COVID-19 pandemic, with passengers numbers at London Southend Airport down 93.1 per cent. in FY21.

Energy

Total revenue in the Energy operating division decreased by GBP1.3 million, or 1.7 per cent., to GBP75.0 million in the year ended 28 February 2021 from GBP76.3 million in the year ended 29 February 2020. Tonnes of waste wood fuel supplied decreased 6.7 per cent. to 1.4 million tonnes in FY21.

In November 2019, gate fees declined significantly due to a combination of a seasonal decline in waste wood supply, demand from UK biomass energy plants peaking and a six-month drop in construction output due to Brexit uncertainties. In addition, the UK national lockdown announced on 23 March 2020 in response to the COVID-19 pandemic initially resulted in the closure of household waste and recycling centres operated by local authorities and of the construction and demolition sectors. Without these key sources of supply, the Group's inbound waste wood supply decreased as much as 80 per cent. year-on-year and Stobart Energy entered FY21 at its lowest level of gate fees in recent years. The supply of waste wood has improved considerably since the time of the first lockdown and as a result gate fees are steadily returning toward pre-COVID-19 levels.

Investments

Total revenue from the Investments operating division increased to GBP9.0 million in the year ended 28 February 2021 from GBP2.1 million in the year ended 29 February 2020, primarily due to the acquisition of Stobart Air in FY21.

Other income

Other income was GBP5.8 million in the year ended 28 February 2021 (compared to GBP4.7 million in the year ended 29 February 2020), which primarily relates to public service obligation income in Stobart Air (GBP5.5 million) and profit on disposal of PPE.

Operating expenses - other

Operating expenses decreased by GBP8.7 million, or 6.1 per cent., to GBP134.3 million in the year ended 28 February 2021 from GBP142.9 million in the year ended 29 February 2020.

Aviation

Operating expenses in the Aviation operating division decreased by GBP26.7 million, or 46.4 per cent., to GBP30.8 million in the year ended 28 February 2021 from GBP57.5 million in the year ended 29 February 2020. This decrease was primarily due to the steps taken by Stobart Aviation to manage costs. Stobart Aviation suspended all recruitment, modified employment contracts to improve flexibility and cut both bonus and any annual cost of living increases, as well as made some roles redundant. In addition, Stobart Aviation took advantage of government support packages, for example putting numbers of staff on furlough and applying to the Airport and Ground Operations Support Scheme. The Group also reduced costs within Stobart Aviation Services by closing its operations at Edinburgh and Glasgow Airports, placing a number of staff on furlough and making some roles redundant. This allowed the business to manage costs and focus operations at London Southend Airport, London Stansted Airport and Manchester Airport.

Energy

Operating expenses in the Energy operating division decreased by GBP1.0 million, or 1.5 per cent., to GBP65.1 million in the year ended 28 February 2021 from GBP66.1 million in the year ended 29 February 2020. This decrease was primarily due to reduced staff costs following a review of the business where some roles were made redundant and the furlough scheme was utilised as a result of the COVID-19 pandemic.

Share of post-tax profits of associates and joint ventures

Share of post-tax profits of associates and joint ventures was a loss of GBP0.2 million in the year ended 28 February 2021, compared to a loss of GBP9.8 million in the year ended 29 February 2020. Share of post-tax profits of associates and joint ventures in the year ended 29 February 2020 related to the equity accounted losses of Connect Airways up to the value of its investment (GBP9.1 million). Connect Airways, and its subsidiary Flybe, entered Administration in FY21 and the Group impaired all outstanding balances to nil.

Loss on swaps

Loss on swaps was GBP0.0 million in the year ended 28 February 2021, compared to GBP0.3 million in the year ended 29 February 2020.

Adjusted EBITDA

Adjusted EBITDA was a loss of GBP17.9 million in the year ended 28 February 2021, compared to a loss of GBP6.2 million in the year ended 29 February 2020, driven by the movements in the Group's revenue, operating expenses, other income and share of post-tax profits of associates and joint ventures, as discussed above. In addition, losses in the Investment operating division resulted from the inclusion of Stobart Air and Propius, which were acquired in FY21. Adjusted EBITDA as presented in this announcement is referred to as EBITDA in the FY20 Financial Statements and FY21 Financial Statements.

Depreciation

Depreciation increased by GBP11.8 million, or 58.9 per cent., to GBP31.8 million in the year ended 28 February 2021 from GBP20.0 million in the year ended 29 February 2020. This increase was primarily due to the right-of-use aircraft acquired as part of the purchase of Stobart Air and Propius in FY21.

Amortisation

Amortisation decreased to nil in the year ended 28 February 2021 from GBP7.5 million in the year ended 29 February 2020. There was no amortisation in FY21 due to the Stobart brands being reclassed to assets held for sale at year end FY21.

Loss on acquisition

Loss on acquisition increased to GBP58.2 million in the year ended 28 February 2021 from nil in the year ended 29 February 2020. The Group's acquisition of equity interests in Stobart Air and Propius from the administrators of Connect Airways led to the consolidation of both businesses as wholly-owned subsidiaries. A GBP58.2 million loss on acquisition was recorded, due to the settlement of pre-existing relationships.

Impairment-other

The Group's impairment-other in the year ended 28 February 2021 was GBP22.1 million, which primarily related to the impairment of all PPE in Stobart Air and the right-of-use aircraft in Propius (GBP22.9 million), offset in part by the impairment reversal related to three land and building and property inventory assets that were subject to external independent development valuations at the end of FY21 (GBP0.8 million).

The Group's impairment-other in the year ended 29 February 2020 was GBP48.3 million, primarily relating to a write down of Carlisle Lake District Airport (GBP21.0 million) and impairment of the Eddie Stobart and Stobart brands following the sale to Eddie Stobart (GBP19.9 million).

Impairments-Loan receivables from joint venture

The Group's impairments-loan receivables from joint ventures in the year ended 28 February 2021 were nil.

Operating loss

As a result of the above, the Group's operating loss was GBP130.0 million in the year ended 28 February 2021, compared to a loss of GBP127.1 million in the year ended 29 February 2020.

Impairment of loan notes

The Group's impairment of loan notes in the year ended 28 February 2021 were GBP8.0 million, relating to an impairment charge (from GBP8.0 million to nil) in relation to the shareholder loan notes relating to Mersey Bioenergy Holdings Limited, the Widnes biomass energy plant owner. The impairment was based on discounted forecast future cash flows provided, which had deteriorated over the period with the awaited refinancing still not complete.

Finance costs (net)

Finance costs (net) increased by GBP2.8 million, or 29.7 per cent., to GBP12.4 million in the year ended 28 February 2021 from GBP9.5 million in the year ended 29 February 2020. This increase was primarily due to higher interest charges on the Existing Facility and interest on IFRS 16 leases in the Stobart Air and Propius businesses. Finance income decreased by GBP0.1 million in FY21 primarily due to no interest being received on the loans to Connect Airways after it entered administration in March 2020, partially offset by the revaluation of financial liabilities in FY21.

Tax

Tax was a credit of GBP7.1 million in the year ended 28 February 2021, compared to a credit of GBP8.4 million in the year ended 29 February 2020. The credit reflects an effective tax rate of 4.4 per cent., which is lower than the standard rate of 19 per cent. mainly due to deferred tax assets not recognised in respect of losses carried forward. The deferred tax liabilities have been recognised/provided at 19 per cent., being the rate enacted at 28 February 2021.

Loss for the year from continuing operations

As a result of the above, the Group's loss for the year from continuing operations was GBP143.3 million in the year ended 28 February 2021, compared to a loss of GBP131.0 million in the year ended 29 February 2020.

Results of operations for the year ended 29 February 2020 compared to the year ended 28 February 2019

As described in "Key factors affecting comparability" above, the discussion below is based on the audited financial statements for the year ended 29 February 2020 included in the FY20 Financial Statements.

Revenue

Revenue increased by GBP23.3 million, or 15.9 per cent., to GBP170.2 million in the year ended 29 February 2020 from GBP146.9 million in the year ended 28 February 2019.

The following table sets forth the Group's total revenue by operating division.

 
                                                                          Year ended    Year ended 
                                                                          29 February   28 February 
                                                                             2020          2019            Change 
                                                                                 (GBP'000)           (GBP'000)     % 
  Aviation........................................................... 
   .............                                                               56,786        39,411     17,375    44.1 
  Energy............................................................. 
   .............                                                               76,339        65,143     11,196    17.2 
  Rail & 
   Civils............................................................. 
   .....                                                                       41,481        52,347   (10,866)  (20.8) 
  Investments........................................................ 
   ..........                                                                   2,127         2,655      (528)  (19.9) 
  Non-strategic 
   infrastructure............................................                   2,777         2,187        590    27.0 
  Group central and eliminations(1) 
   .....................................                                      (9,335)      (14,854)      5,519    37.2 
                                                                        -------------  ------------  ---------  ------ 
  Total revenue 
   ...............................................................            170,175       146,889     23,286    15.9 
---------------------------------------------------------------------- 
Note: 
 (1) Group central and eliminations revenue comprises rental income, 
 brand licence income and merchandising income. 
 

Aviation

Total revenue in the Aviation operating division increased by GBP17.4 million, or 44.1 per cent., to GBP56.8 million in the year ended 29 February 2020 from GBP39.4 million in the year ended 28 February 2019. Passenger numbers increased 43.1 per cent. to 2.14 million in FY20, primarily driven by new relationships with Ryanair, Wizz Air, Loganair and FlyOne, each of which began operating flights at London Southend Airport in FY20. In addition, the Group entered into a strategic partnership with the Tees Valley Combined Authority to provide management services in respect of the Teesside International Airport, which has subsequently been terminated.

In addition, the Group announced in October 2019 that it had entered into a two-year agreement with a global logistics customer to provide facilities and expertise to support the import and export of goods at London Southend Airport. Stobart Aviation Services added 13 new customers in FY20 and provided services to 16 airlines across five airports in the United Kingdom at the end of that financial year.

Energy

Total revenue in the Energy operating division increased by GBP11.2 million, or 17.2 per cent., to GBP76.3 million in the year ended 29 February 2020 from GBP65.1 million in the year ended 28 February 2019. Tonnes of waste wood fuel supplied increased 11.5 per cent. to 1.5 million tonnes in FY20, primarily due to the maturing state of the biomass energy plants the Group supplies, with all of the Group's biomass energy plant customers having successfully completed commissioning and being fully operational as at the end of FY20.

The Tilbury biomass energy plant experienced a seven-month unplanned outage caused by a dust explosion. This meant that the plant was not in a position to receive its contracted supply of waste wood fuel from the Group, leading to in excess of 100,000 tonnes of waste wood being diverted to other customers and processing sites across the United Kingdom, causing the Group to incur significant costs and losses. During FY21, a settlement of GBP3.1 million was reached with Tilbury Green Power over the contractual 'take or pay' amounts due. As part of this one-off settlement, GBP2.4 million was recognised within revenue under IFRS 15 by applying contract modification accounting.

Rail & Civils

Total revenue in the Rail & Civils operating division decreased by GBP10.9 million, or 20.8 per cent., to GBP41.5 million in the year ended 29 February 2020 from GBP52.3 million in the year ended 28 February 2019. This decrease was primarily due to delays in Network Rail awarding contracts at the start of its Control Period 6 and the Group's continued exposure to a poor performing legacy project. Included in total revenue for Rail & Civils in FY20 is GBP13.4 million of internal revenue (FY19: GBP20.5 million), which comprises revenue from projects for other Group divisions and which is eliminated on consolidation.

Other income

Other income was GBP4.7 million in the year ended 29 February 2020 (compared to GBP1.3 million in the year ended 28 February 2019). In February 2020, the Group entered into a settlement deed with a renewable energy plant owner under which the long-term fuel supply agreement was terminated. In recognition of the future revenue forgone and with the plant confirming that it was no longer intending to operate a waste wood fuel boiler, consideration payable to the Group was agreed at an amount less than GBP5.0 million.

Operating expenses

Operating expenses increased by GBP25.5 million, or 16.7 per cent., to GBP178.3 million in the year ended 29 February 2020 from GBP152.8 million in the year ended 28 February 2019. The increase was primarily due to the increases in Stobart Aviation and Stobart Energy, as discussed in the divisional breakdowns below, partially offset by the decrease in Stobart Rail & Civils and a decrease in charges for litigation and claims, which in FY19 resulted from the costs of a High Court dispute with Andrew Tinkler, the Group's former Chief Executive.

Aviation

Operating expenses in the Aviation operating division increased by GBP18.4 million, or 47.1 per cent., to GBP57.5 million in the year ended 29 February 2020 from GBP39.2 million in the year ended 28 February 2019. This increase was primarily due to the division's increased revenue during the year, as well as an increase in new business and contract set-up costs related to route development at London Southend Airport (GBP9.3 million). In addition, jet fuel costs increased as a percentage of the division's costs as a result of increased jet fuel sales as the number of aircraft movements increased at the Group's airports.

Energy

Operating expenses in the Energy operating division increased by GBP14.2 million, or 27.4 per cent., to GBP66.1 million in the year ended 29 February 2020 from GBP51.9 million in the year ended 28 February 2019. This increase was primarily due to the division's increased revenue during the year, as well as an increase in new business and contract set-up costs related to delayed commissioning at certain of the Group's customers (GBP2.3 million) and the unplanned outage at the Tilbury biomass energy plant (GBP6.9 million). In addition, direct material costs increased as a percentage of the division's costs as a result of the Group's biomass energy plant customers completing their commissioning phases. The division's other significant cost inputs, such as staff costs, are largely fixed costs.

Rail & Civils

Operating expenses in the Rail & Civils operating division decreased by GBP8.9 million, or 15.5 per cent., to GBP48.6 million in the year ended 29 February 2020 from GBP57.5 million in the year ended 28 February 2019. This decrease was primarily due to the decrease in Stobart Rail & Civils' revenue during the year.

Share of post-tax profits of associates and joint ventures

Share of post-tax profits of associates and joint ventures was a loss of GBP9.8 million in the year ended 29 February 2020, compared to a loss of GBP1.7 million in the year ended 28 February 2019. The change was primarily due to the increase in equity accounted losses of Connect Airways up to the value of its investment (GBP9.1 million). Connect Airways, and its subsidiary Flybe, entered Administration following FY20 year end and the Group has impaired all outstanding balances to nil.

Adjusted EBITDA

Adjusted EBITDA was a loss of GBP13.2 million in the year ended 29 February 2020, compared to a loss of GBP6.3 million in the year ended 28 February 2019, driven by the movements in the Group's revenue, operating expenses, other income and share of post-tax profits of associates and joint ventures, as discussed above. Adjusted EBITDA as presented in this announcement is referred to as EBITDA in the FY19 Financial Statements and FY20 Financial Statements.

Loss on swaps

Loss on swaps was a loss of GBP0.3 million in the year ended 29 February 2020, compared to a loss of GBP0.4 million in the year ended 28 February 2019. This change was primarily due to a downturn in fuel prices partly offset by currency exchange rates.

Depreciation

Depreciation increased by GBP6.4 million, or 39.4 per cent., to GBP22.7 million in the year ended 29 February 2020 from GBP16.3 million in the year ended 28 February 2019. This increase was primarily due to additional assets recognised on transition to IFRS 16 (GBP3.7 million) and the further development of London Southend Airport (GBP1.0 million).

Amortisation

Amortisation increased by GBP3.5 million, or 89.3 per cent., to GBP7.5 million in the year ended 29 February 2020 from GBP3.9 million in the year ended 28 February 2019. This increase was primarily due to the Eddie Stobart brand, which until May 2020 was owned by the Group. Following a review of the brand during FY20, the residual value was reduced, resulting in an increased annual amortisation charge.

Impairment-Other

The Group's impairments-other in the year ended 29 February 2020 were GBP56.8 million, comprising:

-- a GBP21.0 million write down of Carlisle Lake District Airport. Regional connectivity was affected by the failure of Flybe, and so the Group recognised the likely importance of the land ownership rather than the commercial aviation opportunities;

-- a GBP19.9 million impairment of the Eddie Stobart and Stobart brands following the sale to Eddie Stobart;

   --      the GBP8.5 million write off of goodwill and brand value in Stobart Rail & Civils; 

-- a GBP5.0 million and GBP0.7 million write down of the Stobart Infrastructure Widnes and Runcorn properties, respectively, reflecting the commercial reality of development land in the North West of England; and

-- a GBP1.8 million write down of the Group's investment in AirportR to reflect the value achieved on its latest fundraising.

The Group's impairments in the year ended 28 February 2019 were GBP7.8 million, primarily relating to a decrease in value of PPE at the water port and storage site at Weston Point, Runcorn (GBP6.5 million) and property inventory at the Widnes site (GBP1.3 million).

Impairments-Loan receivables from joint venture

The Group's impairments-loan receivables from joint ventures in the year ended 29 February 2020 were GBP45.1 million, comprising the write down of the Connect Airways loans that were deemed to have nil value.

Operating (loss)/profit

As a result of the above, the Group's operating loss was GBP149.6 million in the year ended 29 February 2020, compared to a loss of GBP34.7 million in the year ended 28 February 2019.

Impairment of loan notes

The Group's impairment of loan notes in the year ended 29 February 2020 were GBP2.8 million, relating to an impairment charge in relation to the shareholder loan notes relating to Mersey Bioenergy Holdings Limited, the Widnes biomass energy plant owner.

The Group's impairments of loan notes in the year ended 28 February 2019 were GBP3.2 million, primarily relating to the Group's 25 per cent. investment in its associated undertaking, Shuban Power Limited, principally comprising shareholder loan notes. The book value of loans outstanding from Shuban Power Limited as at 28 February 2019 was GBP3.7 million. These amounts were fully repaid in cash subsequent to the FY19 year end.

Finance costs (net)

Finance costs (net) increased by GBP5.5 million, or 129.9 per cent., to GBP9.7 million in the year ended 29 February 2020 from GBP4.2 million in the year ended 28 February 2019. This increase was primarily due to interest on liabilities recognised following the transition to IFRS 16. Other new finance costs in the year include the coupon payable on the Exchangeable Bonds (GBP1.5 million) and dividend received in respect of Eddie Stobart that is passed to bondholders (GBP2.1 million). Also included in finance costs are foreign exchange losses of GBP0.6 million, compared to gains of GBP0.9 million in 2019.

Finance income increased to GBP4.4 million, due to interest receivable on loans to Connect Airways, which were impaired to nil at the year-end, therefore this finance income will not continue next year.

Tax

Tax was a credit of GBP8.4 million in the year ended 29 February 2020, compared to a charge of GBP0.5 million in the year ended 28 February 2019. The credit reflects an effective tax rate of 6.3 per cent., which is lower than the standard rate of 19 per cent. mainly due to deferred tax assets not recognised in respect of losses carried forward. The deferred tax liabilities have been recognised/provided at 17 per cent., being the rate enacted at 29 February 2020, however, following this date the tax rate has increased to 19 per cent. If this rate was applied to the year-end deferred tax liabilities, an additional charge of GBP0.7 million would be recognised.

(Loss)/profit for the year from continuing operations

As a result of the above, the Group's loss for the year from continuing operations was GBP149.6 million in the year ended 29 February 2020, compared to a loss of GBP42.6 million in the year ended 28 February 2019.

LIQUIDITY AND CAPITAL RESOURCES

During FY19, FY20 and FY21, the Group's primary sources of liquidity were the revenues generated from its operations, disposals of assets, the Exchangeable Bonds, the Existing Facility and the 2020 Capital Raise. The primary use of this liquidity was to fund the Group's operations.

Cash flows

The following table sets out the condensed consolidated statement of cash flows for the periods indicated.

 
                                                                           As at         As at         As at 
                                                                         28 February   29 February   28 February 
                                                                            2021          2020          2019 
                                                                        ------------  ------------  ------------ 
                                                                                       (GBP'000) 
  Net cash outflow from operating 
   activities...............                                              (29,443)      (22,221)      (12,796) 
  Net cash inflow/(outflow) from investing 
   activities....                                                          4,979        (9,751)        9,863 
  Net cash inflow/(outflow) from financing 
   activities...                                                           27,070        27,342       (25,743) 
  Increase/(decrease) in cash and 
   cash equivalents....                                                    2,606        (4,630)       (28,676) 
  Cash and cash equivalents 
   at the beginning of the year....................................        9,802         14,432        43,108 
  Cash and cash equivalents 
   at the end of the year............................................      12,408        9,802         14,432 
 

Net cash from operating activities

The Group's net cash outflow from operating activities was GBP29.4 million in the year ended 28 February 2021 compared to GBP22.2 million in the year ended 29 February 2020. Within the Aviation operating division, net cash outflow from operating activities decreased to GBP4.1 million in the year ended 28 February 2021 from GBP8.0 million in the year ended 29 February 2020, primarily due to the cost cutting measures implemented by the Group to mitigate the impact on profitability resulting from the COVID-19 pandemic. Within the Energy operating division, net cash inflow from operating activities increased to GBP15.4 million in the year ended 28 February 2021 from GBP9.9 million in the year ended 29 February 2020, primarily due the strong cash conversion in the Energy business and strict financial discipline and working capital management throughout the COVID-19 pandemic.

The Group's net cash outflow from operating activities was GBP22.2 million for the year ended 29 February 2020 compared to GBP12.8 million for the year ended 28 February 2019. Operating cash flow in FY20 was adversely impacted by cash outflows relating to new business and contract set-up costs, litigation and claims and working capital requirements in the divisions. There have been adverse working capital cashflows due to a build-up of receivables relating to a large ongoing project in the Stobart Rail & Civils division that was expected to complete in 2021. The significant debtor balances for this project are considered recoverable and negotiations with the customers are ongoing.

Net cash from investing activities

The Group's net cash inflow from investing activities was GBP5.0 million in the year ended 28 February 2021 compared to an outflow of GBP9.8 million in the year ended 29 February 2020. Net cash inflow from investing activities in FY21 included GBP8.5 million of the total GBP10.0 million consideration for the disposal of the Stobart brands, offset by a GBP3.1 million purchase of PPE.

The Group's net cash outflow from investing activities was GBP9.8 million in the year ended 29 February 2020 compared to a net cash inflow of GBP9.9 million in the year ended 28 February 2019. Cash flow from investing activities in FY20 includes purchase of PPE (GBP14.6 million), partly offset by proceeds from the sale of PPE and investment property.

Net cash from financing activities

The Group's net cash inflow from financing activities was GBP27.1 million in the year ended 28 February 2021 compared to GBP27.3 million in the year ended 29 February 2020. Net cash inflow from financing activities in FY21 included the net proceeds of the 2020 Capital Raise (GBP91.0 million), offset by a net repayment of the Existing Facility (GBP24.3 million), the repayment of capital elements of lease obligations (GBP24.0 million), interest payments (GBP9.4 million) and the repayment of loans to Virgin and Cyrus (GBP4.5 million).

The Group's net cash inflow from financing activities was GBP27.3 million in the year ended 29 February 2020 compared to a net cash outflow of GBP25.7 million in the year ended 28 February 2019. Cash flow from financing activities in FY20 includes GBP51.3 million of net proceeds from the issuance of the Exchangeable Bonds and lower dividends paid of GBP11.1 million (compared to GBP52.5 million in FY19). On 14 November 2019, the Group announced it was suspending the dividend until the Group becomes significantly cash generative at an operating level, subject to investment requirements to maximise shareholder returns.

Balance sheet

The following table sets out the Group's net assets as at the dates indicated.

 
                                                                                 As at         As at         As at 
                                                                               28 February   29 February   28 February 
                                                                                  2021          2020          2019 
                                                                              ------------  ------------  ------------ 
                                                                                  (GBP millions, unless otherwise 
                                                                                             indicated) 
  Non-current 
   assets................................................................... 
   ..............................                                               369,373       388,866       467,416 
  Current 
   assets................................................................... 
   .....................................                                         55,444        75,270        79,736 
  Non-current 
   liabilities.............................................................. 
   ................................                                            (172,600)     (221,979)     (137,722) 
  Current 
   liabilities.............................................................. 
   .......................................                                     (203,904)     (139,059)     (112,476) 
  Net 
   assets................................................................... 
   ..........................................                                    48,313       103,098       296,954 
 

Net assets decreased in FY21 by GBP54.8 million, to GBP48.3 million as at 28 February 2021 from GBP103.1 million as at 29 February 2020, mainly due to the loss in FY21, partially offset by the net proceeds of the 2020 Capital Raise and the increase in the fair value of the investment in Logistics Development Group plc.

Net assets decreased in FY20 by GBP193.9 million, to GBP103.1 million as at 29 February 2020 from GBP297.0 million as at 28 February 2019, mainly due to the loss for the year (GBP137.9 million), which includes the reduction in the fair value of the Group's investment in Eddie Stobart (GBP40.2 million), and dividends paid (GBP11.1 million).

Non-current assets

The overall value of PPE decreased by GBP21.0 million, to GBP285.6 million as at 28 February 2021 from GBP306.6 million as at 29 February 2020, primarily due to the disposal of Stobart Rail & Civils and the annual depreciation charge across the Group. The revaluation of, and further investment in, Logistics Development Group plc led to an increase in other financial assets of GBP5.6 million. The impairment of the loans to Mersey Bioenergy Holdings reduced non-current other receivables by GBP8.0 million.

PPE increased by GBP43.7 million, to GBP306.6 million as at 29 February 2020 from GBP262.9 million as at 28 February 2019, primarily due to IFRS 16, which saw right-of-use assets recognised for the first time for properties and vehicles that the Group leases. See note 1 to the FY20 Financial Statements for further details. Other non-current asset movements include the reduction in value of the Eddie Stobart investment (GBP40.2 million), impairment of Connect Airways loans (GBP45.1 million), the write down of Carlisle Lake District Airport (GBP21.0 million) and the sale of the Group's last investment property at Speke (GBP4.0 million). Intangible assets have reduced due to the write off of intangibles attributable to Stobart Rail & Civils (GBP8.5 million), impairment of the Eddie Stobart and Stobart brands (GBP19.9 million) prior to the post-year-end sale to Eddie Stobart and amortisation of the Eddie Stobart brand (GBP7.4 million).

Current assets

Current assets decreased by GBP19.8 million, to GBP55.4 million as at 28 February 2021 from GBP75.3 million as at 29 February 2010, primarily due to an overall decrease in trade and other receivables across the Group of GBP12.8 million and the disposal of the Stobart brand (GBP10.0 million), which were held for sale at the end of FY20.

Current assets decreased by GBP4.4 million, to GBP75.3 million as at 29 February 2020 from GBP79.7 million as at 28 February 2019, primarily due to a property inventory impairment (GBP7.0 million) and a reduction in cash (GBP4.6 million) and disposal of assets held for sale relating to Propius (GBP1.5 million), offset by an increase in trade receivables.

Non-current liabilities

Non-current liabilities decreased by GBP49.4 million, to GBP172.6 million as at 28 February 2021 from GBP222.0 million as at 29 February 2020, primarily due to the Existing Facility liability of GBP52.3 million being presented as a current liability. This was offset in part by an increase in provisions of GBP15.2 million, mainly relating to maintenance reserves in Stobart Air and Propius, and reductions in the defined benefit pension and deferred tax liabilities.

Non-current liabilities increased by GBP84.3 million, to GBP222.0 million as at 29 February 2020 from GBP137.7 million as at 28 February 2019, primarily due to liabilities recognised following the transition to IFRS 16 (GBP76.4 million) and an increased drawdown on the Existing Facility (GBP17.0 million).

Current liabilities

Current liabilities increased by GBP64.8 million, to GBP203.9 million as at 28 February 2021 from GBP139.1 million as at 29 February 2020, primarily due to the Existing Facility liability of GBP52.3 million being presented as a current liability and IFRS 16 leases being recognised following the acquisition of Propius in FY21. The Existing Facility liability decreased in FY21 by GBP22.4 million.

Current liabilities increased by GBP26.6 million, to GBP139.1 million as at 29 February 2020 from GBP112.5 million as at 28 February 2019, primarily due to the Exchangeable Bonds issued in May 2019 (GBP51.7 million) and an increase in trade payables, offset in part by a reduction in liabilities held for sale following the disposal of Propius (GBP27.5 million).

Current liabilities include the Exchangeable Bonds in accordance with IAS 1 because the Group does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. The bondholders have an unconditional right to require the Group to settle the Exchangeable Bonds by giving the bondholders shares in Eddie Stobart at any time. The Group has no obligation to settle the Exchangeable Bonds in cash within 12 months of 29 February 2020.

Net Debt and Gearing

The following table sets forth the Group's Net Debt and Gearing as at the dates indicated.

 
                                                                                 As at         As at         As at 
                                                                               28 February   29 February   28 February 
                                                                                  2021          2020          2019 
                                                                                  (GBP millions, unless otherwise 
                                                                                             indicated) 
  Loans and 
   borrowings-current....................................................... 
   ...........................                                                    89.1          15.8          13.4 
  Loans and 
   borrowings-non-current................................................... 
   .........................                                                     122.1         177.8          84.1 
  Exchangeable 
   bonds.................................................................... 
   .............................                                                  52.0          51.7           - 
  Cash and cash 
   equivalents.............................................................. 
   ...........................                                                   (12.4)        (9.8)         (14.4) 
                                                                              ------------  ------------  ------------ 
  Net Debt 
   ......................................................................... 
   ..........................................                                    250.8         235.5          83.1 
                                                                              ------------  ------------  ------------ 
  Group shareholders' 
   equity................................................................... 
   .....................                                                          48.3         103.1         297.0 
  Gearing 
   ......................................................................... 
   ...........................................                                   519.2%        228.4%        28.0% 
 

In May 2019, the Group placed GBP53.1 million of Exchangeable Bonds. The Exchangeable Bonds have a five-year maturity and are unconditionally and irrevocably guaranteed by the Company and are exchangeable into ordinary shares of one penny each in the capital of Eddie Stobart.

On 1 March 2019, the Group adopted IFRS 16 which created lease liabilities of GBP78.2 million. These liabilities have replaced operating lease charges for nearly all leases held. See note 1 to the FY20 Financial Statements for more detail.

As at 29 February 2020, the Group held an GBP80 million variable rate committed revolving credit facility with Lloyds Bank plc and Allied Irish Bank that was drawn at GBP75.0 million (compared to GBP58.0 million as at 28 February 2019). As at 23 July 2021, the Group is drawn down under the Existing Facility as to GBP108 million, which is expected to increase to GBP113 million by 31 August 2021.

Existing Facility

The Company entered into the Existing Facility Agreement comprising Facility A, the GBP80.0 million revolving credit facility under which the Group is fully drawn, and Facility B, the GBP40.0 million revolving credit facility, on 4 June 2020, of which GBP28 million is drawn as at 23 July 2021. The Company has agreed with the Existing Lenders that it may draw up to GBP5 under Facility B (in addition to the GBP28 already drawn under Facility B) up to and including the date on which the Transaction completes, subject to certain conditions. Upon completion of the Transaction, the Company shall apply the proceeds of the Investment and the Capital Raise in repayment of all outstanding amounts under the Existing Facility.

New Facility

The Company has today entered into an amendment and restatement agreement with the Existing Lenders in respect of the Existing Facility Agreement pursuant to which the Amended Facility Agreement will become effective, and the New Facility will be made available thereunder, on the Effective Date . The Company and Stobart Energy Limited will be borrowers under the New Facility and shall be able to draw under the New Facility from the date on which the Transaction completes until one month before the New Facility Termination Date, subject to certain conditions. The borrowers' obligations under the New Facility will be guaranteed by members of the Wider Group and fixed and floating security will be granted by the borrowers and the guarantors. The terms of the New Facility will be substantially similar to those of the Existing Facility.

The New Facility is conditional upon completion of the Transaction. In the event that the Transaction does not complete, the New Facility will not be available and the terms of the Existing Facility shall remain in force, and any further drawings under the Existing Facility beyond 31 August 2021 shall be subject to conditions imposed by the Existing Lenders at such time, which would be expected to include the requirement to seek to market and dispose of all or part of the business of the Group on an accelerated basis.

Capital Expenditure

In FY21, the Group's Capital Expenditure was GBP5.1 million, of which GBP2.0 million was financed. This primarily comprised GBP3.1 million related to the development of London Southend Airport, including a new hold baggage screening area, and GBP1.1 million in the Energy operating division principally relating to the development of processing facilities.

In FY20, the Group's Capital Expenditure was GBP29.1 million. This primarily comprised development of London Southend Airport (including improvements to the runway and conversion of existing hangarage to support the Group's global logistics customer); and the replacement of part of its vehicle fleet and development of the Pollington fuel production and storage facility in the Stobart Energy division.

In FY19, the Group's Capital Expenditure was GBP40.4 million. This primarily comprised development costs at London Southend Airport, the construction of a new commercial terminal at Carlisle Lake District Airport, the replacement of part of its vehicle fleet in the Stobart Energy division and development of the Port Clarence fuel production and storage facility.

Pensions

The Group's only defined benefit pension scheme is the Ansa plan, which remains open for employees of Ansa Logistics Limited. The latest actuarial valuation of the Ansa plan was as at 31 December 2016 and was carried out by an independent qualified actuary using the projected unit method. At the date of the latest actuarial valuation, the realisable value of assets was GBP27.9 million, which was sufficient to cover 82 per cent. of the value of benefits that had accrued to members, measured on the continuing basis. Total contributions payable for FY21 amounted to GBP1.2 million (compared to GBP1.2 million in FY20) with no contributions due to the plan at 28 February 2021 (compared to GBP97,000 at 29 February 2020).

The Group's defined benefit pension liability, which is assessed each period by actuaries, is based on key assumptions including return on plan assets, discount rates, mortality rates, inflation and future salary and pension costs. These assumptions, individually or collectively, may be different to actual outcomes. Other key assumptions for pension obligations are based in part on current market conditions and are updated annually for the purposes of financial reporting.

The Group also operates a defined contribution plan. The charge in FY21 to the consolidated income statement was GBP1.0 million (FY20: GBP1.3 million). The value of contributions outstanding as at 28 February 2021 and included in other payables was GBP187,000 (GBP97,000 at 29 February 2020).

For further detail, please see note 26 to the FY21 Financial Statements.

Capitalisation and indebtedness

The following tables set out the Group's capitalisation and indebtedness as at the dates indicated and, as such, do not reflect the impact of the Capital Raise. The information below should be read together with Esken Limited's consolidated financial information, as well as the rest of the information in this Part III (Operating and Financial Review). The tables below are prepared for illustrative purposes only.

Capitalisation

The table below sets out the Company's capitalisation as at 28 February 2021. This information has been extracted without material adjustment from the Company's historical financial information.

As at

28 February 2021

(GBP'000)

Shareholders' equity

Share capital................................................................................................................................................................. 62,492

Share premium............................................................................................................................................................. 390,336

Other reserves............................................................................................................................................................... (3,654)

Total capitalisation..................................................................................................................................................... 449,174

There has been no material change in the Company's capitalisation since 28 February 2021.

The following table sets out the Company's indebtedness as at 31 May 2021.

As at

31 May 2021

(GBP'000)

Total current debt

Guaranteed................................................................................................................................................................... -

Secured.......................................................................................................................................................................... 177,400

Unguaranteed/Unsecured........................................................................................................................................... -

Total non-current debt (excluding current portion of long-term debt)

Guaranteed................................................................................................................................................................... -

Secured.......................................................................................................................................................................... 104,963

Unguaranteed/Unsecured........................................................................................................................................... -

Net Financial Indebtedness

The following table sets out the Company's net financial indebtedness as at 31 May 2021.

As at

31 May 2021

(GBP'000)

A. Cash.......................................................................................................................................................................... 11,093

B. Cash equivalents.................................................................................................................................................... -

C. Financial assets held at fair value..................................................................................................................... -

D. Liquidity (A) + (B) + (C)....................................................................................................................................... 11,093

E. Current financial receivables................................................................................................................................ -

F. Current bank debt................................................................................................................................................... (84,233)

G. Bonds issued............................................................................................................................................................ (52,104)

H. Current portion of non-current debt.................................................................................................................... -

I. Other current financial debt................................................................................................................................ .. (41,063)

J. Current financial debt (F) + (G) + (H) + (I).................................................................................................... .. (177,400)

K. Net current financial indebtedness (D) + (E) + (I)....................................................................................... .. (166,307)

L. Non-current bank debt........................................................................................................................................ .. -

M. Bonds issued........................................................................................................................................................... -

N. Non-current other financial debt...................................................................................................................... .. (104,963)

2. O. Non-current financial indebtedness (L) + (M) + (N).............................................................................. .. (104,963)

P. Net financial indebtedness (K) + (O).............................................................................................................. .. (271,270)

Notes:

In accordance with IAS 1 it is necessary for the Exchangeable Bonds, issued on 3 May 2019, to be presented as a current liability because the Group does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. The bondholders have an unconditional right to require the Group to settle the Exchangeable Bonds by giving the bondholders shares in Eddie Stobart at any time. The Group has no obligation to settle the Exchangeable Bonds in cash within 12 months of the balance sheet date.

Non-current bank debt relates to a revolving credit facility with end date January 2022. Under the terms of the facility, the Company and all material subsidiaries have charged security to the lenders via a debenture, the material subsidiaries are also guarantors and obligors in relation to the facility agreement. There are fixed charges over land and properties including London Southend Airport, Carlisle Lake District Airport, Widnes and Runcorn, in addition floating charges and charges over shares.

Indirect and contingent indebtedness

Capital commitments

At 28 February 2021, the Group had capital commitments of GBP1.2 million related to development works at LSA in the Aviation division.

At 29 February 2020, the Group had no capital commitments.

Contingent liabilities

Guarantees were given for some Eddie Stobart property leases when that business formed part of the Group. The guarantees remained in place following the Group's partial disposal of Eddie Stobart in 2014. Under the terms of the guarantees, if Eddie Stobart were to default on its rent or rates payments in respect of a guaranteed lease, the Group would be liable to pay the applicable costs until the relevant landlord replaced Eddie Stobart with a new tenant. The Group's maximum potential liability under the guarantees as at 28 February 2021 was approximately GBP54.9 million. This liability decreases each year as the various leases near termination until 2034 when the final lease terminates. The maximum liability in any one year, should the risk crystallise, is GBP4.6 million, which is the annual rent and rates liability if all the properties covered by the guarantee were to become vacant. The Directors believe that, due to the nature of the properties, it is unlikely that the properties would remain vacant for any significant period of time in the event that Eddie Stobart defaults.

For a discussion of certain risks relating to the above contingent liabilities, please see the risk factor titled "The Group has given a number of parent company guarantees".

In addition, various legal claims have been made against the Stobart Energy and Stobart Aviation divisions, including the claims against the Stobart Aviation division made under Part 1 of the Land Compensation Act 1973. The Lands Tribunal have found in favour of the claimants to an extent which would lead to the Company making payments in an amount of approximately GBP1.2 million, plus certain costs of the claimants which are yet to be assessed. The Group has agreed to make a payment of GBP500,000 on account of such costs. On 10 July 2021, the Upper Tribunal (Lands Chamber) refused the claimants' application for permission to appeal its decision. The claimants may apply to the Court of Appeal for permission to appeal, which must be filed within 28 days of the 10 July 2021 decision of the Upper Tribunal (Lands Chamber).

Accounting systems and processes

The Group's management has implemented several measures to strengthen its accounting systems and processes in order to enable the Group to cater more efficiently for its current and near-term requirements, as well as to establish a more advanced base for the Directors' strategic ambitions in the medium and longer terms. Such measures include implementation and unification of new software, restructuring of the Group's finance team and alignment of divisional finance functions across the Group.

Qualitative and quantitative disclosures about market risk

The main risks arising from the Group's financial instruments are credit risk, interest rate risk, capital risk, diesel price risk, currency price risk, liquidity risk and jet fuel price risk, as explained below. The Board has overall responsibility for the determination of the Group's risk management objectives and policies. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility.

For further information on the risks discussed below, please see note 25 to the FY21 Financial Statements.

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or a counterparty to a financial instrument fails to meet its contractual obligations. The Group is mainly exposed to credit risk from credit sales. It is Group policy, implemented locally, to assess the credit risk of new customers before entering contracts. Such credit ratings are taken into account by local business practices.

All credit sales are made under Group payment and delivery terms and conditions and are mostly covered by insurance. All credit limits are formally set and are in agreement with the bank.

The recoverability of the net trade receivables, including contract assets, is considered highly likely. This is supported by the collection history of the Group. In generating the expected credit loss provision, historical credit loss rates for the preceding five years are observed, including consideration given to factors that may affect the ability of customers to settle receivables, and percentages applied to the trade and other receivable aging buckets at the year end. The Group applies the simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables.

The expected credit losses on other receivables have not been recognised as the resultant provision would not be material to the financial statements.

Interest rate risk

The Group is exposed to cash flow interest rate risk from long-term borrowings and cash at variable rates. There are loan facilities at variable rates as well as amounts held on deposit. These borrowing policies are managed centrally. Although the Board accepts that this policy neither protects the Group entirely from the risk of paying rates in excess of current market rates nor eliminates fully cash flow risk associated with variability in interest payments, it considers that it achieves an appropriate balance of exposure to these risks.

The Group's borrowings at variable rate were denominated in GBP and the fixed rate borrowings were denominated in USD and GBP.

Capital risk

The Group is exposed to capital risk in relation to its shareholding in Logistics Development Group plc. Any adverse movement in the quoted share price will directly impact the fair value of the investment held.

Diesel price risk

The Group is exposed to diesel price risk as diesel fuel is a key supply to the transport fleet of vehicles in the Stobart Energy operating division. If diesel prices rise, there will be increases in the base costs that cannot be fully passed on to customers. In order to mitigate this risk, the Group has taken out diesel swap contracts to manage its exposure.

The fair value of diesel swap contracts falling within level 2 of the fair value hierarchy as at 28 February 2021 is GBP46,000 liability (2020: GBP416,000 liability) and the gross swap coverage was GBP333,000 (2020: GBP1,877,000). The fair value of the swaps is calculated by Lloyds Bank Corporate Markets plc and Mitsui Bussan Commodities Ltd based on mid-market levels as of the close of business on 28 February 2021.

Foreign exchange risk

As at 28 February 2021, the Group had a USD balance payable in instalments so had taken out currency swap contracts to manage its exposure. The fair value of currency swap contracts falling within level 2 of the fair value hierarchy as at 28 February 2021 was GBP48,000 liability (2020: GBP195,000 asset) and the gross swap coverage was GBP10,052,000 (2020: GBP13,305,000). The fair value of the swaps was calculated by Lloyds Bank plc based on mid-market levels as of the close of business on 28 February 2021.

Liquidity risk

Liquidity risk arises from the Group's management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. See the maturity profile of loans and borrowings below.

The Group prepares and reviews rolling weekly cash flow projections. Actual cash and debt positions along with available facilities and headroom are reported weekly. These are monitored by Group management.

In addition, full annual five-year forecasts are prepared including cash flow and headroom forecasts. These are full, detailed forecasts prepared by each division and consolidated for the Group.

The financial statements have been prepared using the going concern basis. Please refer to Note 1 to the FY21 Financial Statements for further discussion on the basis of preparation. The Company's auditor has included a paragraph in the independent auditor's reports in respect of the FY20 Financial Statements and the FY21 Financial Statements stating that there is material uncertainty in respect of the Company's ability to continue as a going concern.

The following table summarises the maturity analysis of financial liabilities based on contractual undiscounted payments as at 28 February 2021.

 
                                                                              One to 
                                                             Less than         five          More than 
                                                              one year         years         five years         Total 
                                                       ---------------                                   ------------- 
 
                                                                                                          (GBP'000) 
      Loans and 
       borrowings.................................... 
       .............................................. 
       .............................................. 
       .........                                              55,882            -                -             55,882 
      Obligations under 
       leases........................................ 
       .............................................. 
       .............................................. 
       ..                                                     39,821          68,571          92,684           201,076 
      Trade 
       payables...................................... 
       .............................................. 
       .............................................. 
       ...................                                    19,558            -                -             19,558 
      Swaps......................................... 
       .............................................. 
       .............................................. 
       .................................                        404             -                -               404 
                                                       ---------------  ------------  -----------------  ------------- 
      Total 
       .............................................. 
       .............................................. 
       .............................................. 
       .............................                          115,665         68,571          92,684           276,920 
                                                       ---------------  ------------  -----------------  ------------- 
 

Sensitivity analysis

The sensitivity analysis set out in the following table summarises the sensitivity of the market value of financial instruments to hypothetical changes in market rates and prices. Sensitivity is calculated based on all other variables remaining constant.

The interest rate analysis assumes a one per cent. change in interest rates, the currency analysis assumes a one per cent. change in currency price and the diesel price analysis assume a ten per cent. price change. The diesel and currency price sensitivity analysis is based on diesel- and currency-related derivative instruments held at the end of each reporting period.

The impact of a one per cent. increase in interest rates, a one per cent. increase in currency price and a ten per cent. increase in the diesel price is disclosed. A corresponding decrease results in an equal and opposite impact on the consolidated income statement.

 
                                       Interest   Diesel           Currency 
                                        rate 1%    price            price 1% 
                                        increase   10% increase     increase 
                                       ---------  ---------------  --------- 
                                                        (GBP'000) 
At 28 February 2021 
 Increase in fair value of financial 
 instruments                              767          30                 6 
Impact on profit: (loss)/gain            (731)         30                 6 
At 29 February 2020 
 Increase in fair value of financial 
 instruments                              799             146         134 
Impact on profit: (loss)/gain            (770)            146         134 
 

Jet fuel price risk

Prior to the liquidation of Stobart Air, announced on 12 June 2021, the Group was exposed to jet fuel price risk as jet fuel is a key supply to the fleet of aircraft in Stobart Air. If jet fuel prices rose there would have been increases in the base costs that could not be fully passed on to customers. In order to mitigate this risk the Group historically took out jet fuel swap contracts to manage its exposure. Due to the Group's intention to dispose of Stobart Air, the jet fuel swap contracts were not renewed and ceased before the end of FY21.

CRITICAL ACCOUNTING POLICIES

The Group makes judgments and estimates in preparing the financial statements. Judgments and estimates are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these judgments and estimates. The judgments and estimates that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed in note 2 to the FY21 Financial Statements.

   IV.       NEW FACILITY 

On 26 January 2015, the Company and certain of its subsidiaries as original borrowers and original guarantors (collectively, the " RCF Obligors ") entered into a multicurrency revolving facility agreement with Lloyds Bank plc as arranger and Lloyds Bank plc as agent and security trustee (such agreement as subsequently amended and restated, the "Existing Facility Agreement").

The Existing Facility Agreement provides for borrowings up to an aggregate of an aggregate principal amount of GBP120,000,000 on a committed basis, comprising the original GBP80,000,000 revolving credit facility (Facility A) and a new GBP40,000,000 revolving credit facility (Facility B) pursuant to the amendment and restatement agreement in respect of the Existing Facility Agreement dated 4 June 2020. Under an amendment and restatement agreement in respect of the Facility Agreement dated 27 July 2021 (the " 2021 Amendment Agreement "), the Existing Facility Agreement will be amended with effect from the Effective Date so as to provide for borrowings up to an aggregate principal amount of GBP20,000,000 on a committed basis (the " New Facility ").

The Effective Date will occur on the date on which certain conditions have been satisfied, including (i) completion of the Transaction, (ii) receipt of the net proceeds of the equity raise and (iii) repayment of all outstanding borrowings under Facility A and Facility B (totalling GBP108 million as at 23 July 2021 and anticipated to total GBP113 million prior to repayment on the Effective Date).

On the Effective Date (i) Stobart Energy Limited shall accede as a borrower to the Amended Facility Agreement (together with the Company, the " Esken Borrowers ") and (ii) each member of the Borrower Group shall be released from the guarantee and security granted under the Existing Facility and shall cease to be an RCF

Obligor. The remaining RCF Obligors shall be the " 2021   RCF Obligors ". 

From the Effective Date, the funds under the New Facility may be applied towards the general corporate purposes of the Wider Group and in accordance with the Wider Group's short-term cash flow forecasts. Up to GBP10 million of the New Facility may be drawn by way of standby letter of credit facility. The following terms shall apply under the Amended Facility Agreement from the Effective Date.

Conditions to Utilisation

The Esken Borrowers are entitled to utilise the New Facility provided that (i) no default, or, in the case of a rollover loan, no event of default is continuing and (ii) certain representations are true in all material respects as at the date of the proposed utilisation.

Maturity and repayment

The Amended Facility Agreement will terminate on 1 February 2023 (the " New Facility Termination Date "). Subject to the rollover provisions in the Amended Facility Agreement (detailed below), each loan under the New Facility must be repaid on the last day of the interest period relating thereto. The interest period in respect of a loan under the New Facility is one, two, three or six months at the election of the relevant Esken Borrower upon utilisation.

Subject to certain conditions and exceptions, loans under the New Facility may be borrowed, repaid and re- borrowed at any time during the availability period under the Amended Facility Agreement (which runs until the date falling one month prior to the New Facility Termination Date). All outstanding amounts under the Amended Facility Agreement must be repaid in full on or prior to the New Facility Termination Date.

Mandatory Repayment upon asset disposals

The Amended Facility Agreement requires that, within 5 business days of receipt of the net proceeds of any disposal of non-core assets as contemplated in the Company's business plan, the Esken Borrowers must:

1. prepay any outstanding loans under the Facility in an amount equal to the lower of: (i) 100 per cent. of such net proceeds and (ii) the then amount outstanding under all loans (but excluding the principal amount of any outstanding standby letter of credit); and

2. permanently cancel the available commitments under the New Facility in an amount equal to 25 per cent. of such net proceeds but provided always that the available commitments shall not be reduced to below GBP14 million.

Mandatory Repayment upon change of control

The Amended Facility Agreement requires that upon a change of control of the Company, the Company must notify the agent. Within 30 days of such notification, the Lender shall have the right to require repayment of all outstanding loans under the Facility.

Interest rates and fees

The loans under the Amended Facility Agreement accrue interest at the percentage rate per annum equal to the aggregate of 5.25 per cent. (with ratchet increases by 0.5 per cent. per financial quarter after May 2022) in respect of the New Facility (the " Margin ") and SONIA.

A commitment fee applies to the New Facility at the rate of 35 per cent. of the then applicable Margin payable on the unused and uncancelled amount available from each lender in respect of each facility. The commitment fees are payable in arrears on the last day of each successive period of three months during the term of the Amended Facility Agreement. Customary fees will also be payable to the agent and the security agent during the term of the Amended Facility Agreement.

An arrangement fee applies to the New Facility and is payable on the earlier of (i) the last day of the availability period (1 January 2023); (ii) the completion of a refinancing in full of the New Facility; and (iii) acceleration of the New Facility (the " Arrangement Fee Payment Date "). The arrangement fee is a percentage of total commitments under the New Facility, depending on when the Arrangement Fee Payment Date occurs, and ranging from 1 per cent. of total commitments if the Arrangement Fee Payment Date occurs on or before 31 December 2021 to 4.5 per cent. of total commitments if the Arrangement Fee Payment Date occurs after 31 December 2022.

Guarantees

Each 2021 RCF Obligor has provided a continuing guarantee of punctual performance and payment of each 2021 RCF Obligor's obligations under the Amended Facility Agreement and related finance documents.

Security

The obligations of the 2021 RCF Obligors under the Existing Facility Agreement and related finance documents are secured by the following security documents.

An English-law governed debenture originally dated 26 January 2015 (as supplemented and amended by deeds of accession or release from time to time, including a supplemental debenture dated 23 May 2020 and a second supplemental debenture dated 4 June 2020) creating fixed and floating security as applicable over all of the assets of the following chargors:

   --          Esken Limited 
   --          Westlink Group Limited 
   --          Westlink Holdings Limited 
   --          Stobart Air (UK) Limited 
   --          London Southend Airport Company Limited 
   --          Stobart Properties Limited 
   --          Stobart Realisations Limited (formerly known as Eddie Stobart Promotions Limited) 
   --          Stobart Holdings Limited 
   --          Stobart Energy Limited 
   --          Stobart Biomass Transport Limited 
   --          Stobart Estates Holdings Limited 
   --          Stobart Green Energy Limited 
   --          Stobart Group Brands LLP 
   --          SPD1 Limited 
   --          Wadi Properties Limited 
   --          Moneypenny Limited 
   --          Stobart Aviation Limited 
   --          Stobart Aviation Services Limited 
   --          Stobart Jet Centre Limited 
   --          Stobart Solar Limited 
   --          Thames Gateway Airport Limited 

In connection with the New Facility, a supplemental English law governed debenture will be granted by the 2021 RCF Obligors on the Effective Date and each member of the Borrower Group shall be released from the security granted in respect of the Existing Facility Agreement on the Effective Date.

Pursuant to an Irish-law governed security assignment agreement dated 23 May 2020, and an Irish-law governed second security assignment dated 4 June 2020 entered into between Stobart Aviation Limited and Lloyds Bank plc as security trustee, Stobart Aviation Limited assigned by way of security, its rights under a deed of assignment in respect of a share mortgage (under which Everdeal 2019 Limited had granted, in favour of Connect Airways Limited, a mortgage over its shares in Everdeal Holdings Limited; Connect Airways Limited had assigned its rights under such mortgage to Stobart Aviation Limited pursuant to the deed of assignment); and its rights under the share mortgage itself.

Pursuant to an English-law governed charge dated 23 May 2020, and an English-law governed second charge dated 4 June 2020, the following chargors granted security by way of first fixed charge over all membership interests in Stobart Group Brands LLP and all rights and interest in the Limited Liability Partnership Agreement dated 21 March 2012 entered into, inter alia, by Westlink Holdings Limited and Stobart Group Brands LLP.

Pursuant to an Irish-law governed share charge dated 23 May 2020, and an Irish-law governed second charge dated 4 June 2020, Stobart Aviation Limited granted a first fixed charge over its shares in Everdeal Employees 2019 Limited.

Pursuant to a Guernsey-law governed security interest agreement dated 4 June 2020, WADI Properties Limited and Estera Nominees (Guernsey) Limited granted a security interest over their respective rights, title and interest in and to the shares in Moneypenny Limited.

On 23 May 2020, the chargors, Lloyds Bank plc as security trustee, Lloyds Bank plc and AIB as lenders, Lloyds Bank plc as facilities lenders, Lloyds Bank Corporate Markets plc as hedge counterparty and the other parties listed therein, entered into an intercreditor agreement (the " 2020 Intercreditor Agreement ") which, amongst other things, governs the ranking and priority of debt liabilities between each of the creditors, and governs the application of proceeds of enforcement of the security.

Rollover periods

If one or more loans are to be made available to an Esken Borrower:

(1) on the same day that a maturing loan is due to be repaid by that borrower;

(2) in the same currency as the maturing loan; and

(3) in whole or in part for the purpose of refinancing the maturing Loan,

the aggregate amount of the new loan(s) will be treated as if applied in or towards repayment of the maturing loan.

Covenants

The Amended Facility Agreement requires the 2021 RCF Obligors to comply, and to ensure the compliance by each other member of the Wider Group, with a number of customary undertakings and covenants, which are subject to customary materiality qualifications, exceptions and baskets. These covenants include, among others, the following financial covenants:

-- Consolidated EBITDA (as defined in the Amended Facility Agreement), in respect of any period specified in column 1 below shall not be less than the amount set out in column 2 below opposite that period:

 
                                               Column 1                                                    Column 2 
                                                 Period                                                   Consolidated 
                                                                                                             EBITDA 
                       Period of 9 months ending 30 November 2021...............                           2,900,000 
                       Period of 12 months ending 28 February 
                        2022...............                                                                4,700,000 
                       Period of 12 months ending 31 May 
                        2022.....................                                                          7,100,000 
                       Period of 12 months ending 31 August 
                        2022..................                                                             8,200,000 
                       Period of 12 months ending 30 November 2022.............                            9,000,000 
 

(the " Minimum EBITDA covenant "); and

-- Group Liquidity (as defined in the Amended Facility Agreement) shall not be, and shall not be forecast to be, less than (i) GBP10,000,000 for the period up to and including 31 December 2022; and (ii) GBP8,700,000 for the period on and from 1 January 2023:

   --          as at the end of each Month for the duration of the relevant Forecast Period; and 

-- as at close of business on each business day during the two months immediately following each utilisation of the New Facility,

(the " Minimum Liquidity covenant ").

The Amended Facility Agreement also imposes a restriction on payment of any distributions or dividends by the Company whilst the New Facility remains in place.

The Amended Facility Agreement includes restrictions on the ability of the Wider Group to inject or advance any funding or cash support to the Borrower Group whilst the New Facility remains in place, other than the Pari Passu Loan. It is however expected that the Pari Passu Loan will cover the first three years of operating and capital expenditure of the Borrower Group following the completion of the Investment.

Repeating representations

A number of standard representations and warranties have been given in the Amended Facility Agreement, most of which are repeated on the date of each utilisation request and the first day of each interest period.

The Amended Facility Agreement also includes certain representations reflecting the ring-fencing of the Borrower Group and include representations relating to the transactions or arrangements between the Wider Group and the Borrower Group, indebtedness owing by the Wider Group to the Borrower Group and guarantees granted by the Wider Group in respect of obligations of the Borrower Group.

Customary materiality tests, carve-outs and grace periods apply in respect of these representations.

Events of defaults

The Amended Facility Agreement contains certain customary events of default (subject in certain cases to agreed grace periods, thresholds and other qualifications), including, for example, non-payment, breach of financial covenants and a cross-default to other financial indebtedness of any member of the Wider Group. The occurrence of an event of default which is continuing would allow the lenders under the Amended Facility Agreement to, amongst other things, upon written notice to the Company, accelerate all or part of the outstanding loans, cancel the commitments and declare all or part of the loans payable on demand. If the Company is unable to pay all outstanding loans upon such demand, the lenders shall have the right to direct the security agent to enforce the transaction security and thereby take control of the assets of the 2021 RCF Obligors.

   V.        ADDITIONAL INFORMATION 

NO SIGNIFICANT CHANGE

Other than as described in paragraphs 1 and 2 below, there has been no significant change in the financial position or financial performance of the Group since 28 February 2021, being the end of the last financial period for which the latest financial information on the Group was published.

Other than as described in paragraph 2 below, there has been no significant change in the financial position or financial performance of the Borrower Group since 28 February 2021, being the date to which the historical financial information relating to the Borrower Group to be included in the Prospectus was prepared.

1. On 20 April 2021, the Group announced it had entered into agreements for the sale of its entire shareholdings in Stobart Air Unlimited Company (which operated regional flights under a franchise agreement for Aer Lingus) and Stobart Air (UK) Limited, the owner of Carlisle Lake District Airport to Ettyl Limited.

On 28 May 2021, Ettyl advised that its original funding package to support the transactions was no longer available and that it was in discussions on alternative funding options. On 12 June 2021, the Company announced that it was clear that Ettyl was unable to conclude the transactions on the original terms or to obtain an alternative funding package within the required timescale and exercised its right to terminate the contracts for the transactions with immediate effect. Further, in the absence of any alternative purchasers or sources of funding for the Stobart Air business within the timescales required, the Company advised the board of Stobart Air that it would not continue to provide financial support to the Stobart Air business going forward. As a result of this, the board of Stobart Air terminated its franchise agreement with Aer Lingus and ceased trading and appointed a liquidator on 14 June 2021.

In the announcement on 20 April 2021, the Company set out the cash flow impact on the Group on the assumption that the transactions concluded. As announced on 12 June 2021, the following table reflects the amended position over the period to the end of the leases assuming that the Group is unable to sublease the eight ATR aircraft. It also includes the termination of the sale of Carlisle Lake District Airport which had been set to be concluded for consideration of GBP15 million.

 
                                                                                  F Y22     FY23    FY24 
  Cash outflow reported previously 
   (GBP millions)........                                                         (16)      (9)     (24) 
  Additional cash impact arising 
   from liquidation.....                                                         (18)(1)    (13)    (2) 
  Total cash impact ........................................................      (34)      (22)    (26) 
 

Note:

(1) Cash impact reflects that the Group will retain ownership of Carlisle Lake District Airport rather than receive sale proceeds of GBP15 million.

2. The Board announced on 2 July 2021 that they had reached agreement with the Lender, a special purpose vehicle controlled by CGI, on the terms of a proposed investment by CGI through a GBP125 million (minus transaction costs) senior loan facility provided by the Lender to, and which is convertible into 29.999 per cent. of the ordinary shares in, the Borrower (which shall be increased to 30 per cent. following receipt of certain approvals from the Office of Rail and Road).

LITIGATION

Other than as described below, there are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Company is aware), during the period covering the twelve months preceding the date of this announcement which may have, or have had in the recent past, significant effects on the Company's, the Group's and/or the Borrower Group's financial position or profitability.

Under Part 1 of the Land Compensation Act 1973, compensation can be claimed by people who own and also occupy property that has been reduced in value by more than GBP50 by physical factors caused by the use of a new or altered runway. Such Part 1 claims against the Group have been brought by approximately 190 landowners in proximity to London Southend Airport in relation to the extension of the London Southend Airport runway in 2012. Test cases were heard in the Upper Tribunal (Lands Chamber) in October 2020. The aggregate amount claimed by the claimants was approximately GBP9 million. However, the Lands Tribunal have found in favour of the claimants to an extent which would lead to the Company making payments in an amount of approximately GBP1.2 million, plus certain costs of the claimants which are yet to be assessed. The Group has agreed to make a payment of GBP500,000 on account of such costs. On 10 July 2021, the Upper Tribunal (Lands Chamber) refused the claimants' application for permission to appeal its decision. The claimants may apply to the Court of Appeal for permission to appeal, which must be filed within 28 days of the 10 July 2021 decision of the Upper Tribunal (Lands Chamber).

In addition, the Group has been involved in several court actions with Andrew Tinkler, the Group's former Chief Executive, following his removal from the Board on 14 June 2018. A number of these actions have either run their course in the courts or been the subject of an agreed confidential settlement. As at the date of this announcement, there remain the three outstanding matters relating to Mr Tinkler:

(a) firstly, a commercial dispute between the Group and Stobart Capital Limited (a company in which Andrew Tinkler is the majority shareholder) in relation to the termination of a management agreement on 12 March 2019 regarding management fees and other costs which may or may not be chargeable. It is expected that a trial in relation to this matter will take place in January 2022;

(b) secondly, on 17 November 2020, Mr Tinkler served proceedings against the Company seeking to set aside the judgment of HHJ Russen QC dated 15 February 2019 for fraud by the Company; and

(c) thirdly, on 19 November 2020, Mr Tinkler served further proceedings against the Company, Mr Ian Soanes, Mr Warwick Brady (a former Chief Executive Officer of the Company) and Mr Iain Ferguson (a former Chairman of the Company) alleging an unlawful means conspiracy against him.

This third claim has been stayed pending resolution of the claim to set aside the judgment. A trial in regard to the claim to set aside the judgment has been listed in a trial window in February 2022. The Company believes these allegations are entirely without merit and will be vigorously defended.

In addition, Andrew Tinkler may continue to attempt to bring further claims against the Group or that may affect the Group, but the Company considers that any such attempts would be vexatious and without merit. In addition, there are sums due to various Group companies by Andrew Tinkler and his various related entities for historic charges which remain unpaid, which the Company will seek to set off against any liability in relation to the ongoing disputes. These matters may give rise to litigation either by or against Group companies. The Company considers that the net liability to Andrew Tinkler or Stobart Capital Limited in respect of these claims, if any, is unlikely to exceed approximately GBP1 million.

APPIX II

DEFINITIONS

The following definitions apply throughout this announcement unless the context requires otherwise:

 
 Admission                 admission of the New Shares to (a) the premium 
                            listing segment of the Official List and (b) 
                            trading on the London Stock Exchange's main market 
                            for listed securities 
 Application Form          the personalised application form on which Qualifying 
                            Non-CREST Shareholders may apply for the New 
                            Shares under the Open Offer 
 Board                     the board of directors of the Company 
 Bookbuild                 the accelerated bookbuilding process to be launched 
                            immediately following this announcement by the 
                            Joint Bookrunners to use reasonable endeavours 
                            to procure placees for the Firm Placed Shares 
                            and conditionally placed Open Offer Shares, as 
                            described in this announcement and subject to 
                            the terms and conditions set out in this announcement 
                            and the Placing Agreement 
 Borrower                  London Southend Airport Company Limited, a wholly-owned 
                            subsidiary of the Company 
 Borrower Group            the Borrower and each of Thames Gateway Airport 
                            Limited, Stobart Solar Limited and Stobart Jet 
                            Centre Limited 
 Business Day              a day (other than a Saturday or Sunday) on which 
                            banks are open for general business in London 
 Canaccord                 Canaccord Genuity Limited 
 Capital Raise             the Placing, the Open Offer and the Firm Placing 
 CREST                     the CREST system (as defined in the CREST Regulations) 
 CREST member              a person who has been admitted by Euroclear & 
                            Ireland Limited as a system-member (as defined 
                            in the CREST Regulations) 
 CREST Regulations         the Uncertificated Securities (Guernsey) Regulations, 
                            2009 (GSI 2009/48) 
 Directors                 the executive directors and non-executive directors 
                            of the Company as at the date of this announcement 
 Excess Application        the facility for Qualifying Shareholders to apply 
  Facility                  for Excess Shares in excess of their Open Offer 
                            Entitlements 
 Excess Open Offer         in respect of each Qualifying Shareholder who 
  Entitlements              has taken up his or her Open Offer Entitlement 
                            in full, the entitlement (in addition to the 
                            Open Offer Entitlement) to apply for Excess Shares, 
                            up to a maximum number equal to four times the 
                            number of that Qualifying Shareholder's Open 
                            Offer Entitlements, pursuant to the Excess Application 
                            Facility, which may be subject to scaling down 
                            at the absolute discretion of the Board in consultation 
                            with the Joint Bookrunners 
 Excess Shares             New Shares which may be applied for by Qualifying 
                            Shareholders in addition to their Open Offer 
                            Entitlements pursuant to the Excess Application 
                            Facility 
 Excluded Territories      the United States of America, Australia, Canada, 
                            Hong Kong, Japan, the People's Republic of China 
                            and the Republic of South Africa 
 Existing Shares           the existing Shares in issue immediately preceding 
                            the issue of the New Shares 
 FCA                       the Financial Conduct Authority acting in its 
                            capacity as the competent authority for the purposes 
                            of Part VI of the FSMA 
 Firm Placed Shares        the New Shares which the Company is proposing 
                            to issue pursuant to the Firm Placing 
 Firm Placees              any persons who have agreed or shall agree to 
                            subscribe for Firm Placed Shares pursuant to 
                            the Firm Placing 
 Firm Placing              the subscription by the Firm Placees for the 
                            Firm Placed Shares 
 FSMA                      the Financial Services and Markets Act 2000, 
                            as amended 
 FY19                      the year ended 28 February 2019 
 FY20                      the year ended 29 February 2020 
 FY21                      the year ended 28 February 2021 
 FY19 Financial            the audited consolidated financial statements 
  Statements                of the Company, which comprise the consolidated 
                            statement of financial position and the related 
                            consolidated statements of income, comprehensive 
                            income, changes in equity and cash flows and 
                            the related notes to the consolidated financial 
                            statements, as of and for the year ended 28 February 
                            2019 and the comparative financial information 
                            for the year ended 28 February 2018 
 FY20 Financial            the audited consolidated financial statements 
  Statements                of the Company, which comprise the consolidated 
                            statement of financial position and the related 
                            consolidated statements of income, comprehensive 
                            income, changes in equity and cash flows and 
                            the related notes to the consolidated financial 
                            statements, as of and for the year ended 29 February 
                            2020 and the comparative financial information 
                            for the year ended 28 February 2019 
 FY21 Financial            the audited consolidated financial statements 
  Statements                of the Company, which comprise the consolidated 
                            statement of financial position and the related 
                            consolidated statements of income, comprehensive 
                            income, changes in equity and cash flows and 
                            the related notes to the consolidated financial 
                            statements, as of and for the year ended 28 February 
                            2021 and the comparative financial information 
                            for the year ended 29 February 2020 
 General Meeting           the general meeting of the Company to be held 
                            at 11.00 a.m. on 17 August 2021, notice of which 
                            will be set out in the Prospectus 
 Group                     the Company and its subsidiary undertakings and, 
                            where the context requires, its associated undertakings 
 Investment                senior loan facility convertible into ordinary 
                            shares of London Southend Airport Company Limited 
 Joint Bookrunners         Canaccord and UBS 
 London Stock Exchange     London Stock Exchange plc 
 New Shares                the new Shares which the Company will issue pursuant 
                            to the Placing and Open Offer and the new Shares 
                            which the Company will issue pursuant to the 
                            Firm Placing 
 Offer Price               the price per New Share, to be determined following 
                            closing of the Bookbuild 
 Official List             the Official List of the FCA 
 Open Offer                the conditional invitation to Qualifying Shareholders 
                            to subscribe for the Open Offer Shares at the 
                            Offer Price on the terms and subject to the conditions 
                            set out in the Prospectus and, in the case of 
                            Qualifying Non-CREST Shareholders only, the Application 
                            Form 
 Open Offer Entitlements   entitlements to subscribe for the Open Offer 
                            Shares, allocated to a Qualifying Shareholder 
                            pursuant to the Open Offer 
 Open Offer Shares         the New Shares for which Qualifying Shareholders 
                            are being invited to apply to be issued pursuant 
                            to the terms of the Open Offer 
 Placee                    any persons who have agreed or shall agree to 
                            subscribe for shares pursuant to the Placing 
 Placing                   the conditional placing, by the Joint Bookrunners, 
                            as agent of and on behalf of the Company, of 
                            the Open Offer Shares subject to clawback pursuant 
                            to the Open Offer, on the terms and subject to 
                            the conditions contained in the Placing Agreement 
 Placing Agreement         the placing agreement entered into between the 
                            Company and the Joint Bookrunners on 27 July 
                            2021 
 Prospectus                the combined prospectus and class 1 circular 
                            expected to be published by the Company on or 
                            around 28 July 2021 in respect of the Transaction, 
                            together with any supplements thereto 
 Prospectus Regulation     Prospectus Regulation (EU) 2017/1129 
 Qualifying CREST          Qualifying Shareholders holding Shares in uncertificated 
  Shareholders              form 
 Qualifying Non-CREST      Qualifying Shareholders holding Shares in certificated 
  Shareholders              form 
 Qualifying Shareholders   Shareholders on the register of members of the 
                            Company on the Record Date with the exclusion 
                            of persons with a registered address or located 
                            or resident in an Excluded Territory or the United 
                            States 
 Record Date               close of business on 26 July 2021 
 Regulation S              Regulation S promulgated under the Securities 
                            Act 
 Regulatory Information    any of the services set out in Appendix 3 of 
  Service                   the Listing Rules 
 Resolutions               the resolutions to be proposed at the General 
                            Meeting in connection with the Capital Raise 
 Securities Act            the US Securities Act of 1933, as amended 
 Shareholders              holders of Shares 
 Shares                    ordinary shares of GBP0.10 each in the capital 
                            of the Company having the rights set out in the 
                            Company's articles of incorporation 
 Transaction               the Investment and the Capital Raise 
 UBS                       UBS AG London Branch 
 UK MAR                    the Market Abuse Regulation (EU) No 596/2014, 
                            as it forms part of United Kingdom law by virtue 
                            of the European Union (Withdrawal) Act 2018 as 
                            amended 
 UK Prospectus             the Prospectus Regulation (EU) 2017/1129 and 
  Regulation                amendments thereto, which is part of United Kingdom 
                            law by virtue of the European Union (Withdrawal) 
                            Act 2018 as amended 
 United Kingdom            the United Kingdom of Great Britain and Northern 
  or UK                     Ireland 
 United States             the United States of America, its territories 
  or US                     and possessions, any state of the United States 
                            and the District of Columbia 
 

Unless otherwise indicated in this announcement, all references to "GBP", "GBP", "pounds", "pound sterling", "sterling", "p", "penny" or "pence" are to the lawful currency of the UK.

Capital Raise Statistics

 
 Offer Price for each New Share                          Between 14 pence 
                                                             and 16 pence 
 Number of Existing Shares in issue at 23 July 2021           630,926,123 
                                                      ------------------- 
 Open Offer Entitlement                                  To be determined 
                                                             at the close 
                                                         of the Bookbuild 
                                                                      (1) 
                                                      ------------------- 
 Number of New Shares to be issued pursuant to the          Approximately 
  Firm Placing                                               80 per cent. 
                                                        of the New Shares 
                                                             to be issued 
                                                           under the Firm 
                                                              Placing and 
                                                              Placing and 
                                                               Open Offer 
                                                      ------------------- 
 Number of New Shares to be issued pursuant to the          Approximately 
  Placing and Open Offer                                     20 per cent. 
                                                        of the New Shares 
                                                             to be issued 
                                                           under the Firm 
                                                              Placing and 
                                                              Placing and 
                                                               Open Offer 
                                                      ------------------- 
 Minimum expected gross proceeds from the Capital           GBP45 million 
  Raise 
                                                      ------------------- 
 

Notes:

(1) Fractions of New Shares will not be issued to Shareholders in the Open Offer and fractional entitlements under the Open Offer will be rounded down to the nearest whole number of New Shares.

APPIX III

FURTHER DETAILS AND TERMS AND CONDITIONS OF THE FIRM PLACING AND PLACING

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL.

IMPORTANT INFORMATION ON THE FIRM PLACING AND PLACING FOR INVITED PLACEES ONLY.

MEMBERS OF THE PUBLIC ARE NOT ELIGIBLE TO TAKE PART IN THE FIRM PLACING OR THE PLACING. THIS ANNOUNCEMENT (INCLUDING THE APPICES) AND THE TERMS AND CONDITIONS SET OUT HEREIN ARE FOR INFORMATION PURPOSES ONLY AND ARE ONLY DIRECTED AT, AND BEING DISTRIBUTED TO PERSONS SELECTED BY CANACCORD GENUITY LIMITED ("CANACCORD") AND UBS AG LONDON BRANCH ("UBS", AND TOGETHER WITH CANACCORD, THE "JOINT BOOKRUNNERS" AND EACH A "JOINT BOOKRUNNER") (EACH ACTING AS AGENT FOR THE COMPANY AND AS JOINT BOOKRUNNER): (A) IF IN A MEMBER STATE OF THE EUROPEAN ECONOMIC AREA ("EEA"), PERSONS WHO ARE QUALIFIED INVESTORS WITHIN THE MEANING OF ARTICLE 2(E) OF REGULATION (EU) 2017/1129 (THE "PROSPECTUS REGULATION") ("QUALIFIED INVESTORS"); (B) IF IN THE UNITED KINGDOM, PERSONS WHO ARE QUALIFIED INVESTORS AS DEFINED IN THE PROSPECTUS REGULATION (EU) 2017/1129, AS IT FORMS PART OF UNITED KINGDOM LAW BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018 AS AMED (THE "UK PROSPECTUS REGULATION") WHO ARE PERSONS WHO (I) HAVE PROFESSIONAL EXPERIENCE IN MATTERS RELATING TO INVESTMENTS FALLING WITHIN THE DEFINITION OF "INVESTMENT PROFESSIONALS" IN ARTICLE 19(5) OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005, AS AMED (THE "ORDER"); OR (II) ARE PERSONS FALLING WITHIN ARTICLE 49(2)(A) TO (D) ("HIGH NET WORTH COMPANIES, UNINCORPORATED ASSOCIATIONS, ETC.") OF THE ORDER ("UK QUALIFIED INVESTORS") ; OR (C) ANY OTHER PERSON TO WHOM IT MAY OTHERWISE LAWFULLY BE COMMUNICATED; AND, IN EACH CASE, WHO HAVE BEEN INVITED TO PARTICIPATE IN THE FIRM PLACING AND/OR THE PLACING BY THE JOINT BOOKRUNNERS (ALL SUCH PERSONS TOGETHER BEING REFERRED TO AS "RELEVANT PERSONS").

THIS ANNOUNCEMENT AND THE TERMS AND CONDITIONS SET OUT HEREIN MUST NOT BE ACTED ON OR RELIED ON BY PERSONS WHO ARE NOT RELEVANT PERSONS. ANY PERSON WHO HAS RECEIVED OR IS DISTRIBUTING THIS ANNOUNCEMENT AND THESE TERMS AND CONDITIONS MUST SATISFY THEMSELVES THAT IT IS LAWFUL TO DO SO. ANY INVESTMENT OR INVESTMENT ACTIVITY TO WHICH THIS ANNOUNCEMENT AND THESE TERMS AND CONDITIONS RELATE IS AVAILABLE ONLY TO RELEVANT PERSONS AND WILL BE ENGAGED IN ONLY WITH RELEVANT PERSONS. THIS ANNOUNCEMENT AND THESE TERMS AND CONDITIONS DO NOT THEMSELVES CONSTITUTE AN OFFER FOR SALE OR SUBSCRIPTION OF ANY SECURITIES IN THE COMPANY.

THE SECURITIES REFERRED TO HEREIN HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND THE SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED OR DELIVERED, DIRECTLY OR INDIRECTLY IN, INTO OR WITHIN THE UNITED STATES. THERE WILL BE NO OFFERING OF THE SECURITIES IN THE UNITED STATES.

EACH PLACEE SHOULD CONSULT WITH ITS OWN ADVISERS AS TO LEGAL, TAX, BUSINESS AND RELATED ASPECTS OF AN ACQUISITION OF PLACING SHARES (AS SUCH TERM IS DEFINED BELOW).

Unless otherwise defined in these terms and conditions, capitalised terms used in these terms and conditions shall have the meaning given to them in Appendix II.

If a person indicates to the Joint Bookrunners that it wishes to participate in the Firm Placing and/or the Placing (together, the "Equity Placings") by making an oral or written offer to acquire Firm Placed Shares pursuant to the Firm Placing and/or Open Offer Shares pursuant to the terms of the Placing (together, the "Placing Shares") (each such person, a "Placee") it will be deemed (i) to have read and understood these terms and conditions in this Appendix and the announcement of which it forms part and the draft prospectus dated 28 July 2021 prepared by, and relating to, the Company (the "Preliminary Prospectus") and the Pricing Announcement in their entirety, (ii) to be participating and making such offer on the terms and conditions contained in this Appendix, and (iii) to be providing the representations, warranties, indemnities, agreements, undertakings and acknowledgements, contained in these terms and conditions in this Appendix.

In particular, each such Placee represents, warrants and acknowledges that:

1. it is a Relevant Person and undertakes that it will acquire, hold, manage and dispose of any of the Placing Shares that are allocated to it for the purposes of its business only;

2. in the case of any Placing Shares subscribed for by it as a financial intermediary, as that term is used in Article 5(1) of the Prospectus Regulation, (i) the Placing Shares acquired by and/or subscribed for by it in the Equity Placings will not be acquired or subscribed for on a non-discretionary basis on behalf of, nor will they be acquired or subscribed for with a view to their offer or resale to, persons in any member state of the EEA other than Qualified Investors or in circumstances in which the prior consent of the Joint Bookrunners has been given to the offer or resale; or (ii) where Placing Shares have been acquired or subscribed for by it on behalf of persons in any member state of the EEA other than Qualified Investors, the offer of those Placing Shares to it is not treated under the Prospectus Regulation as having been made to such persons;

3. in the case of any Placing Shares subscribed for by it as a financial intermediary, as that term is used in Article 5(1) of the UK Prospectus Regulation, (i) the Placing Shares acquired by and/or subscribed for by it in the Equity Placings will not be acquired or subscribed for on a non-discretionary basis on behalf of, nor will they be acquired or subscribed for with a view to their offer or resale to, persons in the United Kingdom other than UK Qualified Investors or in circumstances in which the prior consent of the Joint Bookrunners has been given to the offer or resale; or (ii) where Placing Shares have been acquired or subscribed for by it on behalf of persons in the United Kingdom other than UK Qualified Investors, the offer of those Placing Shares to it is not treated under the UK Prospectus Regulation as having been made to such persons;

4. that the Placing Shares have not been, and will not be, registered under the Securities Act or with any State or other jurisdiction of the United States;

5. it is and, at the time the Placing Shares are acquired, will be outside the United States, and acquiring the Placing Shares in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S under the Securities Act ("Regulation S") for its own account or purchasing the Placing Shares for an account with respect to which it exercises sole investment discretion. Subject to certain limited exceptions, these terms and conditions do not constitute an offer to sell or issue or the invitation or solicitation of an offer to buy or acquire the Placing Shares in the United States, Australia, Canada, Hong Kong, Japan, the People's Republic of China, the Republic of South Africa or any other jurisdiction where the extension or availability of the Equity Placing would breach any applicable laws or regulations, and "Excluded Territories" shall mean any of them;

6. it understands (or, if acting for the account of another person, such person understands) the resale and transfer restrictions set out in this Appendix; and

7. the Company and the Joint Bookrunners will rely upon the truth and accuracy of the foregoing representations, warranties and acknowledgements. Each such Placee hereby agrees with the Joint Bookrunners and the Company to be bound by these terms and conditions as being the terms and conditions upon which Placing Shares will be issued. A Placee shall, without limitation, become so bound if any of the Joint Bookrunners confirms to such Placee its allocation of Placing Shares.

These terms and conditions and the information contained herein are not for release, publication or distribution, directly or indirectly, in whole or in part, in or into any Excluded Territory, subject to certain exceptions.

In particular, the Placing Shares referred to in these terms and conditions have not been and will not be registered under the Securities Act or the securities laws of any state or other jurisdiction of the United States and the Placing Shares may not be offered, sold, transferred or delivered, directly or indirectly in, into or within the United States, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. Accordingly, the Placing Shares are being offered and sold outside the United States in accordance with Regulation S. There will be no offering of the Placing Shares in the United States. The Placing Shares have not been approved or disapproved by the U.S. Securities and Exchange Commission, or state securities commission in the United States or any other regulatory authority in the United States, nor have any of the foregoing authorities passed upon or endorsed the merits of the Equity Placings or the accuracy or adequacy of these terms and conditions. Any representation to the contrary is a criminal offence in the United States.

The distribution of these terms and conditions and the offer and/or placing of Placing Shares in certain other jurisdictions may be restricted by law. No action has been or will be taken by the Joint Bookrunners or the Company that would, or is intended to, permit an offer of the Placing Shares or possession or distribution of these terms and conditions or any other offering or publicity material relating to the Placing Shares in any jurisdiction where any such action for that purpose is required, save as mentioned above. Persons into whose possession these terms and conditions come are required by the Joint Bookrunners and the Company to inform themselves about and to observe any such restrictions.

Each Placee's commitments will be made solely on the basis of the information set out in this announcement (including the Appendix), the Preliminary Prospectus and the Pricing Announcement. Each Placee, by participating in the Equity Placings, agrees that it has neither received nor relied on any other information, representation, warranty or statement made by or on behalf of any of the Joint Bookrunners or the Company or any of their respective affiliates. None of the Joint Bookrunners, the Company, or any person acting on such person's behalf nor any of their respective affiliates has or shall have liability for any Placee's decision to accept this invitation to participate in the Equity Placings based on any other information, representation, warranty or statement. Each Placee acknowledges and agrees that it has relied on its own investigation of the business, financial or other position of the Company in accepting a participation in the Equity Placings. Nothing in this paragraph shall exclude the liability of any person for fraudulent misrepresentation.

No undertaking, representation, warranty or any other assurance, express or implied, is made or given by or on behalf of any Joint Bookrunner or any of its affiliates, their respective directors, officers, employees, agents, advisers, or any other person, as to the accuracy, completeness, correctness or fairness of the information or opinions contained in the Preliminary Prospectus and the Prospectus (when published), this announcement, the Pricing Announcement or for any other statement made or purported to be made by any of them, or on behalf of them, in connection with the Company or the Equity Placings and no such person shall have any responsibility or liability for any such information or opinions or for any errors or omissions. Accordingly, save to the extent permitted by law, no liability whatsoever is accepted by any of the Joint Bookrunners or any of their respective directors, officers, employees or affiliates or any other person for any loss howsoever arising, directly or indirectly, from any use of this announcement or such information or opinions contained herein or otherwise arising in connection with the Preliminary Prospectus and the Prospectus (when published).

These terms and conditions do not constitute or form part of, and should not be construed as, any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any Placing Shares or any other securities or an inducement or recommendation to enter into investment activity, nor shall these terms and conditions (or any part of them), nor the fact of their distribution, form the basis of, or be relied on in connection with, any investment activity. No statement in this announcement is intended to be nor may be construed as a profit forecast and nor should any such statement be interpreted to mean that the Company's profits or earnings per share for any future period will necessarily match or exceed historical published profits or earnings per share of the Company.

Proposed Firm Placing of Firm Placed Shares and Placing of Open Offer Shares subject to clawback in respect of valid applications by Qualifying Shareholders pursuant to the Open Offer

Placees are referred to these terms and conditions, this announcement, the Preliminary Prospectus and the Pricing Announcement containing details of, inter alia, the Equity Placings. These terms and conditions, this announcement, the Preliminary Prospectus and the Pricing Announcement have been prepared and issued by the Company, and each of these documents is the sole responsibility of the Company.

Applications will be made to the FCA for admission of the Placing Shares to listing on the premium listing segment of the Official List of the FCA and to the London Stock Exchange for admission of the Placing Shares to trading on its main market for listed securities.

Firm Placing

The Joint Bookrunners have severally agreed, pursuant to the Placing Agreement, to use reasonable endeavours to procure subscribers for the Firm Placed Shares, as agent for the Company, at the Offer Price. The Firm Placed Shares are not subject to clawback and do not form part of the Placing and Open Offer. The Firm Placing is subject to the same conditions and termination rights which apply to the Placing and Open Offer.

Following the execution of the Terms of Issue if any Placee fails to take up any or all of the Firm Placed Shares which have been allocated to it or which it has agreed to take up at the Offer Price, the Joint Bookrunners have severally agreed, on the terms and subject to the conditions in the Placing Agreement, to take up such Firm Placed Shares at the Offer Price.

Subject to the conditions below being satisfied, it is expected that Admission will become effective on 26 August 2021 and that dealings for normal settlement in the Firm Placed Shares will commence at 8.00 a.m. on the same day. The Firm Placed Shares, when issued and fully paid, will be identical to, and rank pari passu with, the Existing Shares, including the right to receive all dividends and other distributions declared, made or paid on the Existing Shares by reference to a record date on or after Admission.

Placees should note that the Firm Placed Shares do not carry any entitlement to participate in the Open Offer.

The Firm Placing is conditional, inter alia, upon:

   1.          the Resolutions being passed by Shareholders at the General Meeting; 

2. the Placing Agreement having become unconditional in all respects and not having been terminated by the Joint Bookrunners in accordance with its terms prior to Admission; and

3. Admission becoming effective by not later than 8.00 a.m. on 26 August 2021 (or such later time or date as the Company and the Joint Bookrunners may agree).

Conditional Placing and Open Offer

The Joint Bookrunners have severally agreed, pursuant to the Placing Agreement, to use reasonable endeavours to procure subscribers for the Open Offer Shares, as agent for the Company, at the Offer Price. The commitments of Placees in respect of the Open Offer Shares in the Placing (the "Conditional Placees") are subject to clawback in respect of valid applications for Open Offer Shares by Qualifying Shareholders pursuant to the Open Offer. Following the execution of the Terms of Issue by the Company and the Joint Bookrunners, to the extent that placees cannot be found for the Open Offer Shares which are not applied for in respect of the Open Offer or any Conditional Placee fails to take up any or all of the Open Offer Shares which are not applied for in respect of the Open Offer and which have been allocated to it, the Joint Bookrunners have severally agreed, on the terms and subject to the conditions in the Placing Agreement, to take up such Open Offer Shares at the Offer Price.

Qualifying Shareholders are being given the opportunity to apply for the Open Offer Shares at the Offer Price on and subject to the terms and conditions of the Open Offer, pro rata to their holdings of Existing Shares on the Record Date. Fractions of Open Offer Shares will be rounded down to the nearest whole number. Qualifying Shareholders are also being given the opportunity to apply for Excess Shares at the Offer Price through the Excess Application Facility. If applications under the Excess Application Facility are received for more than the number of Excess Shares available following take up of Open Offer Entitlements, applications will be scaled back at the absolute discretion of the Company in consultation with the Joint Bookrunners.

The New Shares issued under the Placing and Open Offer, when issued and fully paid, will be identical to, and rank pari passu in all respects with, the Existing Shares including the right to receive all dividends and other distributions declared, made or paid on the Existing Shares by reference to a record date on or after Admission.

Subject to the conditions below being satisfied, it is expected that Admission will become effective on 26 August 2021 and that dealings for normal settlement in the Open Offer Shares will commence at 8.00 a.m. on the same day.

The Placing and Open Offer are conditional, inter alia, upon:

   1.          the Resolutions being passed by Shareholders at the General Meeting; 

2. the Placing Agreement having become unconditional in all respects and not having been terminated by the Joint Bookrunners in accordance with its terms prior to Admission; and

3. Admission becoming effective by not later than 8.00 a.m. on 26 August 2021 (or such later time or date as the Company and the Joint Bookrunners may agree).

The full terms and conditions of the Open Offer will be contained in the Prospectus to be issued by the Company in connection with the Capital Raise and Admission. The Prospectus to be issued by the Company will be approved by the FCA under section 87A of the FSMA and made available to the public in accordance with Rule 3.2 of the Prospectus Regulation Rules made under Part VI of the FSMA.

Bookbuild of the Equity Placings

Commencing today, the Joint Bookrunners will be conducting the Bookbuild to determine demand for participation in the Equity Placings. The Joint Bookrunners will seek to procure Placees as agent for the Company as part of this Bookbuild. These terms and conditions give details of the terms and conditions of, and the mechanics of participation in, the Equity Placings.

The Joint Bookrunners and the Company shall be entitled to effect the Placing by such alternative method to the Bookbuild as they may, in their sole discretion, determine.

Principal terms of the Bookbuild

(a) The Joint Bookrunners are arranging the Placing as joint bookrunners and agents of the Company.

(b) By participating in the Equity Placings, Placees will be deemed (i) to have read and understood this announcement, these terms and conditions in this Appendix, the Preliminary Prospectus and the Pricing Announcement in their entirety and (ii) to be participating and making an offer for any Placing Shares on the terms and conditions in this Appendix, and (iii) to be providing the representations, warranties, indemnities, agreements, undertakings and acknowledgements, contained in this Appendix.

(c) The Joint Bookrunners are arranging the Equity Placings severally, and not jointly, nor jointly and severally, as agents of the Company.

(d) Participation in the Equity Placings will only be available to persons who are Relevant Persons and who may lawfully be, and are, invited to participate by any of the Joint Bookrunners. The Joint Bookrunners and their respective affiliates are entitled to offer to subscribe for Placing Shares as principal in the Bookbuild.

(e) To bid in the Bookbuild, Placees should communicate their bid by telephone or in writing to their usual sales contact at any Joint Bookrunner. Each bid should state the aggregate number of Firm Placed Shares and Open Offer Shares which the Placee wishes to acquire or the total monetary amount which it wishes to commit to acquire Placing Shares at the Offer Price which is ultimately established by the Company and the Joint Bookrunners, or at a price up to a price limit specified in its bid. Allocations of Placing Shares will be made in a combination that reflects an approximately 80:20 ratio of Firm Placed Shares to Open Offer Shares. The Offer Price will be jointly agreed between the Joint Bookrunners and the Company following completion of the Bookbuild and will be payable by the Placees in respect of the Placing Shares allocated to them. A ny discount to the market price of the ordinary shares will be determined in accordance with the Listing Rules produced by the FCA under Part VI of FSMA. Bids may be scaled down by the Joint Bookrunners on the basis referred to in paragraph (k) below.

(f) The Bookbuild is expected to close no later than 7.00 a.m. on 28 July 2021 but may close earlier or later, at the discretion of the Joint Bookrunners and the Company. The timing of the closing of the books and allocations will be agreed between the Joint Bookrunners and the Company following completion of the Bookbuild. The Joint Bookrunners may, in agreement with the Company, accept offers to subscribe for Placing Shares that are received after the Bookbuild has closed.

(g) An offer to subscribe for Placing Shares in the Bookbuild will be made on the basis of these terms and conditions (which shall be deemed to be incorporated in such offer), the Preliminary Prospectus and the Pricing Announcement and will be legally binding on the Placee by which, or on behalf of which, it is made and will not be capable of variation or revocation.

(h) Subject to paragraph (e) above, the Joint Bookrunners reserve the right not to accept an offer to subscribe for Placing Shares, either in whole or in part, on the basis of allocations agreed with the Company and may scale down any offer to subscribe for Placing Shares for this purpose.

(i) If successful, each Placee's allocation will be confirmed to it by the Joint Bookrunners following the close of the Bookbuild. Oral or written confirmation (at the Joint Bookrunners' discretion) from the Joint Bookrunners to such Placee confirming its allocation will constitute a legally binding commitment upon such Placee, in favour of the Joint Bookrunners and the Company to acquire the number of Placing Shares allocated to it (and in the respective numbers of Firm Placed Shares and Open Offer Shares (subject to clawback) so allocated) on the terms and conditions set out herein (which shall be deemed to be incorporated in such legally binding commitment). Each Placee will have an immediate, separate, irrevocable and binding obligation, owed to the Joint Bookrunners, to pay to the Joint Bookrunners (or as the Joint Bookrunners may direct) as agent for the Company in cleared funds an amount equal to the product of the Offer Price and the sum of the number of Firm Placed Shares and, once apportioned after clawback (in accordance with the procedure described in the paragraph entitled "Placing Procedure" below), the Open Offer Shares, which such Placee has agreed to acquire.

(j) The Company will make a further announcement detailing the Offer Price and the number of Placing Shares to be issued. It is expected that such announcement will be made as soon as practicable after the close of the Bookbuild.

(k) Subject to paragraphs (h) and (i) above, the Joint Bookrunners reserve the right not to accept bids or to accept bids, either in whole or in part, on the basis of allocations determined at the Joint Bookrunners' discretion and may scale down any bids as the Joint Bookrunners may determine, subject to agreement with the Company. The acceptance of bids shall be at the Joint Bookrunners' absolute discretion, subject to agreement with the Company.

(l) Irrespective of the time at which a Placee's allocation(s) pursuant to the Equity Placings is/are confirmed, settlement for all Placing Shares to be acquired pursuant to the Firm Placing will be required to be made at the time specified and all Placing Shares to be acquired pursuant to the Placing will be required to be made at the later time specified, on the basis explained below under the paragraph entitled "Registration and Settlement".

(m) Commissions are payable to Placees in respect of the Placing, subject to certain exceptions. No commissions are payable to Placees in respect of the Firm Placing or any Open Offer Shares which are subscribed for under the Open Offer.

(n) By participating in the Bookbuild, each Placee agrees that its rights and obligations in respect of the Firm Placing and/or the Placing will terminate only in the circumstances described below and will not be capable of rescission or termination by the Placee. All obligations under the Equity Placings will be subject to the fulfilment of the conditions referred to below under the paragraph entitled "Conditions of the Equity Placings and Termination of the Placing Agreement".

(o) To the fullest extent permissible by law, no Joint Bookrunner nor any of its affiliates nor any of its or their respective affiliates' agents, directors, officers or employees, respectively, shall have any liability to Placees (or to any other person whether acting on behalf of a Placee or otherwise). In particular, no Joint Bookrunner nor any of its affiliates nor any of its or their respective affiliates' agents, directors, officers or employees, respectively, shall have any liability (including, to the extent permissible by law, any fiduciary duties) to Placees (or to any person whether acting on behalf of a Placee or otherwise) in respect of the Joint Bookrunners' conduct of the Bookbuild or of such alternative method of effecting the Equity Placings as the Joint Bookrunners and the Company may agree.

Conditions of the Equity Placings and Termination of the Placing Agreement

Placees will only be called on to subscribe for Placing Shares if the obligations of the Joint Bookrunners under the Placing Agreement have become unconditional in all respects and the Joint Bookrunners have not terminated the Placing Agreement prior to Admission.

The Joint Bookrunners' obligations under the Placing Agreement in respect of the Firm Placing and the Placing and Open Offer are conditional upon, inter alia:

(a) the Prospectus being approved pursuant to the Prospectus Regulation Rules by the FCA not later than 5.00 p.m. on 28 July 2021 (or such other time or date as the Joint Bookrunners may agree);

(b) Admission occurring not later than 8.00 a.m. on 26 August 2021 (or such later time and/or date as the Joint Bookrunners may agree with the Company);

(c) the passing of the Resolutions (without amendment or with such amendments as the Joint Bookrunners may agree) at the General Meeting;

(d) representations and warranties given by the Company to the Joint Bookrunners as contained in the Placing Agreement being true and accurate in all respects and not misleading on and as of the date of the Placing Agreement, the date of the Prospectus, the date of any supplementary circular or supplementary prospectus published prior to Admission and immediately prior to Admission, in each case by reference to the facts and circumstances then existing;

(e) in the opinion of the Joint Bookrunners (acting in good faith), there not having occurred a material adverse change (as such term is defined in the Placing Agreement) at any time prior to Admission;

(f) no event referred to in Article 23 of the UK Prospectus Regulation and/or Listing Rule 10.5.4R arising between the time of publication of the Prospectus and Admission and no supplementary circular or supplementary prospectus being published by or on behalf of the Company which the Joint Bookrunners consider (acting in good faith) to be material in the context of the Investment, the Firm Placing and the Placing and Open Offer or Admission;

(g) the Company not being in breach of any of its obligations under the Placing Agreement and/or the terms of the Firm Placing and the Placing and Open Offer, in each case, to the extent the same fall to be performed or satisfied prior to Admission, except for any breaches which the Joint Bookrunners consider (acting in good faith) not to be material in the context of the Firm Placing and the Placing and Open Offer or Admission;

(a) in relation to each of the agreements relating to the Investment and the New Facility, (i) such agreement remaining in full force and effect, not having lapsed, not having been amended in any material respect and not having been terminated in accordance with its terms prior to Admission; (ii) no fact, matter or circumstance having arisen that would give rise to a right of a party to terminate such agreement; and (iii) no condition to which such agreement is subject having become incapable of satisfaction and not having been waived prior to Admission; and

(h) the Terms of Issue having been executed by the Company and the Joint Bookrunners by no later than 8.00 a.m. on the Business Day following signing of the Placing Agreement,

(the Conditions).

The Placing Agreement can be terminated at any time before Admission by the Joint Bookrunners by giving notice to the Company in certain circumstances, including (but not limited to): (a) where there has been a breach by the Company of any of its obligations in the Placing Agreement which, in the good faith opinion of the Joint Bookrunners, is material in the context of the Group taken as a whole, the Investment, the Capital Raise, Admission or the underwriting of the New Shares; (b) in the good faith opinion of the Joint Bookrunners, any of the representations and warranties given by the Company in the Placing Agreement is or if repeated at any time up to and including Admission (by reference to the facts and circumstances then existing) would be untrue, inaccurate or misleading; or (c) in the good faith opinion of the Joint Bookrunners, there has been a material adverse change (as defined in the Placing Agreement). If any notice is given to terminate the Placing Agreement by the Joint Bookrunners, the Joint Bookrunners shall, on behalf of the Company, withdraw any application to the FCA and the London Stock Exchange for Admission.

If any Condition has not been satisfied or waived by the Joint Bookrunners as described below or if the Placing Agreement is terminated, all obligations under these terms and conditions will automatically terminate . By participating in the Equity Placings, each Placee agrees that its rights and obligations hereunder are conditional upon the Placing Agreement becoming unconditional in all respects in respect of the Firm Placing (in respect of Firm Placed Shares subscribed for under the Firm Placing) and/or in respect of the Placing (in respect of Open Offer Shares subscribed for under the Placing) and that its rights and obligations will terminate only in the circumstances described above and will not be capable otherwise of rescission or termination by it after oral or written confirmation by the Joint Bookrunners (at the Joint Bookrunners' discretion) following the close of the Bookbuild.

The Joint Bookrunners may in their absolute discretion waive fulfilment of certain of the Conditions in the Placing Agreement or extend the time provided for fulfilment of any of the Conditions. Any such extension or waiver will not affect Placees' commitments as set out in these terms and conditions.

By participating in the Equity Placings each Placee agrees that the exercise by the Company or any Joint Bookrunner of any right or other discretion under the Placing Agreement shall be within the absolute discretion of the Company and each Joint Bookrunner (as the case may be) and that neither the Company nor any Joint Bookrunner need make any reference to such Placee (or to any other person whether acting on behalf of any Placee or otherwise) and that neither the Company nor any Joint Bookrunner nor any person acting on their behalf shall have any liability to such Placee (or to any other person whether acting on behalf of any Placee or otherwise) whatsoever in connection with any such exercise or failure so to exercise.

Neither the Company nor any Joint Bookrunner nor any of their respective directors, officers, employees, agents or affiliates shall have any liability to any Placee (or to any other person whether acting on behalf of a Placee or otherwise) in respect of any decision made by the Joint Bookrunners as to whether or not to waive or to extend the time and/or date for the fulfilment of any condition in the Placing Agreement and/or whether or not to exercise any such termination right.

Withdrawal Rights

Placees acknowledge that their acceptance of any of the Placing Shares is not by way of acceptance of the public offer made in the Prospectus and (if applicable) the Application Form but is by way of a collateral contract and as such Article 23(2) of the UK Prospectus Regulation does not entitle Placees to withdraw in the event that the Company publishes a supplementary prospectus in connection with the Firm Placing and Placing and Open Offer or Admission.

Placing Procedure

Placees shall acquire or subscribe for the Firm Placed Shares and Open Offer Shares to be issued pursuant to the Equity Placings (after clawback) and any allocation of the Firm Placed Shares and Open Offer Shares (subject to clawback) to be issued pursuant to the Equity Placings will be notified to them on or around 17 August 2021 (or such other time and/or date as the Company and the Joint Bookrunners may agree).

Placees will be called upon to subscribe for, and shall subscribe for, the Open Offer Shares only to the extent that valid applications by Qualifying Shareholders under the Open Offer are not received by 11.00 a.m. on 16 August 2021 or if applications have otherwise not been deemed to be valid in accordance with the Prospectus and the Application Form.

Payment in full for any Firm Placed Shares and Open Offer Shares so allocated in respect of the Equity Placings at the Offer Price must be made by no later than 16 August 2021 (or such other date as shall be notified to each Placee by the relevant Joint Bookrunner) on the closing date for the Firm Placing and the closing date for the Open Offer, respectively (or such other time and/or date as the Company and the Joint Bookrunners may agree). The Joint Bookrunners will notify Placees if any of the dates in these terms and conditions should change, including as a result of delay in the posting of the Prospectus, the Application Forms or the crediting of the Open Offer Entitlements in CREST or the production of a supplementary prospectus or otherwise.

Lock-up

The Company has undertaken to the Joint Bookrunners that, between the date of the Placing Agreement and 90 calendar days after Admission, it will not, without the prior written consent of the Joint Bookrunners (acting in good faith) enter into certain transactions involving or relating to the Shares, subject to certain customary carve-outs agreed between the Joint Bookrunners and the Company.

By participating in the Firm Placing and/or the Placing, Placees agree that the exercise by the Joint Bookrunners of any power to grant consent to waive the undertaking by the Company of a transaction which would otherwise be subject to the lock-up under the Placing Agreement shall be within the absolute discretion of the Joint Bookrunners and that they need not make any reference to, or consult with, Placees and that they shall have no liability to Placees whatsoever in connection with any such exercise of the power to grant consent.

Registration and Settlement

Settlement of transactions in the Placing Shares following Admission will take place within the CREST system, subject to certain exceptions. The Joint Bookrunners and the Company reserve the right to require settlement for, and delivery of, the Placing Shares to Placees by such other means that they deem necessary if delivery or settlement is not possible or practicable within the CREST system within the timetable set out in the Preliminary Prospectus and/or Prospectus or would not be consistent with the regulatory requirements in the Placee's jurisdiction. Each Placee will be deemed to agree that it will do all things necessary to ensure that delivery and payment is completed in accordance with either the standing CREST or certificated settlement instructions which they have in place with the relevant Joint Bookrunner.

Settlement for the Equity Placings will take place on the seventh Business Day following approval of the Transaction at the General Meeting by the Shareholders. Each Placee is deemed to agree that if it does not comply with these obligations, the Joint Bookrunners may sell any or all of the Placing Shares allocated to it on its behalf and retain from the proceeds, for its own account and benefit, an amount equal to the aggregate amount owed by the Placee. By communicating a bid for Placing Shares, each Placee confers on the Joint Bookrunners all such authorities and powers necessary to carry out any such sale and agrees to ratify and confirm all actions which the Joint Bookrunners lawfully take in pursuance of such sale. The relevant Placee will, however, remain liable for any shortfall below the aggregate amount owed by it and may be required to bear any stamp duty, stamp duty reserve tax or any other similar duty or tax payable inside or outside the UK which may arise upon any transaction in the Placing Shares on such Placee's behalf.

Acceptance

By participating in the Equity Placings, a Placee (and any person acting on such Placee's behalf) irrevocably acknowledges, confirms, undertakes, represents, warrants and agrees (as the case may be) with the Joint Bookrunners and the Company, the following:

1. in consideration of its allocation of a placing participation, to subscribe at the Offer Price for any Placing Shares comprised in its allocation for which it is required to subscribe pursuant to these terms and conditions, subject in respect of the conditional Placing only to clawback of the Open Offer Shares in respect of valid applications from Qualifying Shareholders in the Open Offer;

2. it has read and understood this announcement (including these terms and conditions), the Preliminary Prospectus and the Pricing Announcement in their entirety and that (i) it has neither received nor relied on any information given or any investigations, representations, warranties or statements made at any time by any person in connection with Admission, the Equity Placings, the Company, the New Shares, or otherwise, other than the information contained in this announcement (including these terms and conditions), the Preliminary Prospectus and the Pricing Announcement that in accepting the offer of its placing participation it will be relying solely on the information contained in this announcement (including these terms and conditions), the Preliminary Prospectus and the Pricing Announcement, receipt of which is hereby acknowledged, and undertakes not to redistribute or duplicate such documents;

3. its oral or written commitment will be made solely on the basis of the information set out in this announcement, the Preliminary Prospectus and the Pricing Announcement, such information being all that such Placee deems necessary or appropriate and sufficient to make an investment decision in respect of the Placing Shares and that it has neither received nor relied on any other information given, or representations or warranties or statements made, by or on behalf of any of the Joint Bookrunners or the Company nor any of their respective affiliates and none of the Joint Bookrunners nor the Company nor any of their respective affiliates shall be liable for any Placee's decision to participate in the Equity Placings based on any other information, representation, warranty or statement;

4. the content of this announcement, these terms and conditions, the Preliminary Prospectus and the Pricing Announcement are exclusively the responsibility of the Company and agrees that none of the Joint Bookrunners nor any of their affiliates nor any person acting on behalf of any of such persons will be responsible for or shall have liability for any information, representation or statements contained therein or any information previously published by or on behalf of the Company, and none of the Joint Bookrunners nor the Company nor any of their respective affiliates or any person acting on behalf of any such person will be responsible or liable for a Placee's decision to accept its placing participation;

5. (i) it has not relied on, and will not rely on, any information relating to the Company contained or which may be contained in any research report or investor presentation prepared or which may be prepared by any of the Joint Bookrunners or any of their affiliates; (ii) none of the Joint Bookrunners nor any of their affiliates nor any person acting on behalf of any of such persons has or shall have any responsibility or liability for public information relating to the Company; (iii) none of the Joint Bookrunners nor any of its affiliates nor any person acting on behalf of any of such persons has or shall have any responsibility or liability for any additional information that has otherwise been made available to it, whether at the date of publication of such information, the date of these terms and conditions or otherwise; and that (iv) none of the Joint Bookrunners nor any of their affiliates nor any person acting on behalf of any of such persons makes any representation or warranty, express or implied, as to the truth, accuracy or completeness of any such information referred to in (i) to (iii) above, whether at the date of publication of such information, the date of this announcement or otherwise;

6. it has made its own assessment of the Company and has relied on its own investigation of the business, financial or other position of the Company in deciding to participate in the Equity Placings, and has satisfied itself concerning the relevant tax, legal, currency and other economic considerations relevant to its decision to participate in the Firm Placing and/or the Placing;

7. it is acting as principal only in respect of the Equity Placings or, if it is acting for any other person (i) it is duly authorised to do so and has full power to make the acknowledgements, representations and agreements herein on behalf of each such person, (ii) it is and will remain liable to the Company and the Joint Bookrunners for the performance of all its obligations as a Placee in respect of the Equity Placings (regardless of the fact that it is acting for another person);

8. it is a Relevant Person and undertakes that it will acquire, hold, manage or dispose of any Placing Shares that are allocated to it for the purposes of its business;

9. in the case of any Placing Shares subscribed for by it as a financial intermediary, as that term is used in Article 5(1) of the Prospectus Regulation, (i) the Placing Shares acquired by and/or subscribed for by it in the Equity Placings will not be acquired or subscribed for on a non-discretionary basis on behalf of, nor will they be acquired or subscribed for with a view to their offer or resale to, persons in any member state of the EEA other than Qualified Investors or in circumstances in which the prior consent of the Joint Bookrunners has been given to the offer or resale; or (ii) where Placing Shares have been acquired or subscribed for by it on behalf of persons in any member state of the EEA other than Qualified Investors, the offer of those Placing Shares to it is not treated under the Prospectus Regulation as having been made to such persons;

10. in the case of any Placing Shares subscribed for by it as a financial intermediary, as that term is used in Article 5(1) of the UK Prospectus Regulation, (i) the Placing Shares acquired by and/or subscribed for by it in the Equity Placings will not be acquired or subscribed for on a non-discretionary basis on behalf of, nor will they be acquired or subscribed for with a view to their offer or resale to, persons in the United Kingdom other than UK Qualified Investors or in circumstances in which the prior consent of the Joint Bookrunners has been given to the offer or resale; or (ii) where Placing Shares have been acquired or subscribed for by it on behalf of persons in the United Kingdom other than UK Qualified Investors, the offer of those Placing Shares to it is not treated under the UK Prospectus Regulation as having been made to such persons;

11. if it has received any "inside information" (as defined in EU Regulation No. 596/2014 or UK MAR, as applicable) about the Company in advance of the Equity Placings, it has not (i) dealt in the securities of the Company; (ii) encouraged or required another person to deal in the securities of the Company; or (iii) disclosed such information to any person, prior to the information being made generally available;

12. it has complied with its obligations in connection with money laundering and terrorist financing under the Proceeds of Crime Act 2002, the Terrorism Act 2000, the Terrorism Act 2006 and the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) 2017 Regulations and the Criminal Justice (Money Laundering and Terrorism Financing) Act 2010 and any related or similar rules, regulations or guidelines, issued, administered or enforced by any government agency having jurisdiction in respect thereof (the "AML Regulations") and, if it is making payment on behalf of a third party, it has obtained and recorded satisfactory evidence to verify the identity of the third party as may be required by the AML Regulations;

13. it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) relating to the Placing Shares in circumstances in which section 21(1) of FSMA does not require approval of the communication by an authorised person;

14. it is not acting in concert (within the meaning given in the City Code on Takeovers and Mergers) with any other Placee or any other person in relation to the Company;

15. it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Placing Shares in, from or otherwise involving the United Kingdom;

16. it and any person acting on its behalf is entitled to acquire the Placing Shares under the laws of all relevant jurisdictions and that it has all necessary capacity and has obtained all necessary consents and authorities to enable it to commit to this participation in the Equity Placings and to perform its obligations in relation thereto (including, without limitation, in the case of any person on whose behalf it is acting, all necessary consents and authorities to agree to the terms set out or referred to in these terms and conditions);

17. unless otherwise agreed by the Company (after agreement with the Joint Bookrunners), it is not, and at the time the Placing Shares are subscribed for and purchased will not be, subscribing for and on behalf of a resident of any Excluded Territory and further acknowledges that the Placing Shares have not been and will not be registered under the securities legislation of any Excluded Territory and, subject to certain exceptions, may not be offered, sold, transferred, delivered or distributed, directly or indirectly, in or into those jurisdictions;

18. it does not expect the Joint Bookrunners to have any duties or responsibilities towards it for providing protections afforded to clients under the rules of the FCA Handbook (the "Rules") or advising it with regard to the Placing Shares and that it is not, and will not be, a client of any of the Joint Bookrunners as defined by the Rules. Likewise, any payment by it will not be treated as client money governed by the Rules;

19. any exercise by the Joint Bookrunners of any right to terminate the Placing Agreement or of other rights or discretions under the Placing Agreement or the Equity Placings shall be within that the Joint Bookrunners absolute discretion and neither of the Joint Bookrunners shall have any liability to it whatsoever in relation to any decision to exercise or not to exercise any such right or the timing thereof;

20. neither it, nor the person specified by it for registration as a holder of Placing Shares is, or is acting as nominee(s) or agent(s) for, and that the Placing Shares will not be issued to, a person/person(s) whose business either is or includes issuing depository receipts or the provision of clearance services and therefore that the issue to the Placee, or the person specified by the Placee for registration as holder, of the Placing Shares will not give rise to a liability under any of sections 67, 70, 93 and 96 of the Finance Act 1986 (depositary receipts and clearance services) and that the Placing Shares are not being acquired in connection with arrangements to issue depository receipts or to issue or transfer Placing Shares into a clearance system;

21. it has the funds available to pay for, and will make payment to the Joint Bookrunners (as the Joint Bookrunners may direct) for, the Placing Shares allocated to it in accordance with the terms and conditions of this announcement on the due times and dates set out in this announcement, failing which the relevant Placing Shares may be sold to or placed with other persons on such terms as the Joint Bookrunners determine in their absolute discretion without liability to the Placee and on the basis that such Placee will remain liable for any shortfall below the net proceeds of such sale and the placing proceeds of such Placing Shares and may be required to bear any stamp duty, stamp duty reserve tax or any other similar duty or tax payable inside or outside the UK (together with any interest or penalties due pursuant to the terms set out or referred to in this announcement) which may arise upon the sale of such Placee's Placing Shares on its behalf;

22. the person who it specifies for registration as holder of the Placing Shares will be (i) itself or (ii) its nominee, as the case may be, and acknowledges that the Joint Bookrunners and the Company will not be responsible for any liability to pay stamp duty or stamp duty reserve tax (together with interest and penalties) resulting from a failure to observe this requirement; and each Placee and any person acting on behalf of such Placee agrees to participate in the Equity Placings on the basis that the Placing Shares will be credited to a CREST stock account of one of the Joint Bookrunners who will hold them as nominee on behalf of the Placee until settlement in accordance with its standing settlement instructions with it;

23. where it is acquiring Placing Shares for one or more managed accounts, it is authorised in writing by each managed account to acquire Placing Shares for that managed account;

24. if it is a pension fund or investment company, its acquisition of any Placing Shares is in full compliance with applicable laws and regulations;

25. it has not offered or sold and will not offer or sell any New Shares to persons in the United Kingdom, except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their business or otherwise in circumstances which have not resulted and which will not result in an offer to the public in the United Kingdom within the meaning of section 85(1) of the FSMA or the UK Prospectus Regulation;

26. it has not offered or sold and will not offer or sell any New Shares to persons in any member state of the EEA prior to Admission except to persons whose ordinary activities involve them acquiring, holding, managing or disposing of investments (as principal or agent) for the purpose of their business or otherwise in circumstances which have not resulted and will not result in an offer to the public in any member state of the EEA within the meaning of the Prospectus Regulation ;

27. participation in the Equity Placings is on the basis that, for the purposes of the Equity Placings, it is not and will not be a client of either of the Joint Bookrunners and that none of the Joint Bookrunner have any duties or responsibilities to it for providing the protections afforded to their clients nor for providing advice in relation to the Equity Placings nor in respect of any representations, warranties, undertakings or indemnities contained in the Placing Agreement or the contents of these terms and conditions;

28. to provide the Joint Bookrunners with such relevant documents as they may reasonably request to comply with requests or requirements that either they or the Company may receive from relevant regulators in relation to the Equity Placings, subject to its legal, regulatory and compliance requirements and restrictions;

29. any agreements entered into by it pursuant to these terms and conditions and any noncontractual obligations arising out of or in connection with such agreement shall be governed by and construed in accordance with the laws of England and Wales and it submits (on its behalf and on behalf of any Placee on whose behalf it is acting) to the exclusive jurisdiction of the English courts as regards any claim, dispute or matter arising out of any such contract, except that enforcement proceedings in respect of the obligation to make payment for the Placing Shares (together with any interest chargeable thereon) may be taken by the Joint Bookrunners in any jurisdiction in which the relevant Placee is incorporated or in which any of its securities have a quotation on a recognised stock exchange;

30. to fully and effectively indemnify and hold harmless the Company and the Joint Bookrunners and each of their respective affiliates (as defined in Rule 501(b) under the Securities Act) and each person, if any, who controls any Joint Bookrunner within the meaning of Section 15 of the Securities Act or Section 20 of the US Securities Exchange Act of 1934, as amended, and any such person's respective affiliates, subsidiaries, branches, associates and holding companies, and in each case their respective directors, employees, officers and agents (each, an "Indemnified Person") from and against any and all losses, claims, damages, liabilities and expenses (including legal fees and expenses) (i) arising from any breach by such Placee of any of the provisions of these terms and conditions and (ii) incurred by any Indemnified Person arising from the performance of the Placee's obligations as set out in these terms and conditions;

31. in making any decision to subscribe for Placing Shares: (i) it has knowledge and experience in financial, business and international investment matters as is required to evaluate the merits and risks of acquiring the Placing Shares; (ii) it is experienced in investing in securities of this nature and is aware that it may be required to bear, and is able to bear, the economic risk of, and is able to sustain a complete loss in connection with, the Placing; (iii) it has relied on its own examination, due diligence and analysis of the Company and its affiliates taken as a whole (including the markets in which the Group operates) and the terms of the Equity Placings (including the merits and risks involved); (iv) it has had sufficient time to consider and conduct its own investigation with respect to the offer and purchase of the Placing Shares, including the legal, regulatory, tax, business, currency and other economic and financial considerations relevant to such investment; and (v) will not look to the Joint Bookrunners, any of their respective affiliates or any person acting on their behalf for all or part of any such loss or losses it or they may suffer;

32. the Joint Bookrunners and the Company and their respective affiliates and others will rely upon the truth and accuracy of the foregoing representations, warranties, acknowledgments and undertakings which are irrevocable; and

33. its commitment to acquire Placing Shares will continue notwithstanding any amendment that may in future be made to the terms and conditions of the Firm Placing and/or the Placing, and that Placees will have no right to be consulted or require that their consent be obtained with respect to the Company's or the Joint Bookrunners' conduct of the Firm Placing and/or the Placing.

Please also note that the agreement to allot and issue Placing Shares to Placees (or the persons for whom Placees are contracting as agent) free of stamp duty and stamp duty reserve tax in the UK relates only to their allotment and issue to Placees, or such persons as they nominate as their agents, direct from the Company for the Placing Shares in question. Furthermore, each Placee agrees to indemnify on an after-tax basis and hold each of the Joint Bookrunners and/or the Company and their respective affiliates harmless from any and all stamp duty, stamp duty reserve tax and all other similar duties or taxes to the extent that such taxes, interest, fines or penalties arise from the unreasonable default or delay of that Placee or its agent or from a breach or inaccuracy of the foregoing representations, warranties, acknowledgements and undertakings of that Placee or its agent. In addition, Placees should note that they will be liable for any capital duty, stamp duty and all other stamp, issue, securities, transfer, registration, documentary or other duties or taxes (including any interest, fines or penalties relating thereto) payable outside the UK by them or any other person on the acquisition by them of any Placing Shares or the agreement by them to acquire any Placing Shares.

Selling Restrictions

By participating in the Equity Placings, a Placee (and any person acting on such Placee's behalf) irrevocably acknowledges, confirms, undertakes, represents, warrants and agrees (as the case may be) with the Joint Bookrunners and the Company, the following:

1. it is not a person who has a registered address in, or is a resident, citizen or national of, a country or countries, in which it is unlawful to make or accept an offer to subscribe for Placing Shares;

2. it has fully observed and will fully observe the applicable laws of any relevant territory, including complying with the selling restrictions set out herein and obtaining any requisite governmental or other consents and it has fully observed and will fully observe any other requisite formalities and pay any issue, transfer or other taxes due in such territories;

   3.          if it is in the United Kingdom, it is a UK Qualified Investor; 
   4.          if it is in a member state of the EEA, it is a Qualified Investor; 

5. it is a person whose ordinary activities involve it (as principal or agent) in acquiring, holding, managing or disposing of investments for the purpose of its business and it undertakes that it will (as principal or agent) acquire, hold, manage or dispose of any Placing Shares that are allocated to it for the purposes of its business, in each case, not with a view to, or for resale in connection with, the distribution thereof, in or into the United States within the meaning of US securities laws;

6. it is and, at the time the Placing Shares are purchased, will be outside the United States, acquiring the Placing Shares in an offshore transaction in accordance with Regulation S; not a resident of any Excluded Territory or a corporation, partnership or other entity organised under the laws of any Excluded Territory; subscribing for Placing Shares for its own account (or for the account of its affiliates or funds managed by the Placee or its affiliates with respect to which the Placee either has investment discretion or which are outside the United States);

7. none of the Placing Shares have been or will be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States;

8. that the Placing Shares may not be offered, sold, pledged, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, except outside the United States in an offshore transaction in reliance on Regulation S under the Securities Act ("Regulation S") and in compliance with any applicable securities law. The Placees understand that no representation has been, or will be, made as to the availability of any exemption under the Securities Act or any applicable securities laws of any state or other jurisdiction of the United States for the reoffer, resale, pledge or transfer of the Placing Shares, which may be further subject to applicable restrictions on transfer of the Placing Shares; and

9. it (on its behalf and on behalf of any Placee on whose behalf it is acting) has (a) fully observed the laws of all relevant jurisdictions which apply to it; (b) obtained all governmental and other consents which may be required; (c) fully observed any other requisite formalities; (d) paid or will pay any issue, transfer or other taxes; (e) not taken any action which will or may result in the Company or the Joint Bookrunners (or any of them) being in breach of a legal or regulatory requirement of any territory in connection with the Equity Placings; (f) obtained all other necessary consents and authorities required to enable it to give its commitment to subscribe for the relevant Placing Shares; and (g) the power and capacity to, and will, perform its obligations under the terms contained in these terms and conditions.

Miscellaneous

If a Placee is entitled to participate in the Open Offer by virtue of being a Qualifying Shareholder it will be able to apply to subscribe for Open Offer Shares under the terms and conditions of the Open Offer. Unless otherwise agreed with the Joint Bookrunners, any participation by a Placee as a Qualifying Shareholder in the Open Offer will not reduce such Placee's commitment in respect of its participation in the Firm Placing and/or Placing.

The Company reserves the right to treat as invalid any application or purported application for Placing Shares that appears to the Company or its agents to have been executed, effected or dispatched from any Excluded Territory or in a manner that may involve a breach of the laws or regulations of any jurisdiction or if the Company or its agents believe that the same may violate applicable legal or regulatory requirements or if it provides an address for delivery of the share certificates of Placing Shares in, or in the case of a credit of Open Offer Entitlements to a stock account in CREST, to a CREST member whose registered address would be in, the United States, any Excluded Territory or any other jurisdiction outside the United Kingdom in which it would be unlawful to deliver such share certificates or make such a credit.

When a Placee or person acting on behalf of the Placee is dealing with any of the Joint Bookrunners, any money held in an account with any of the Joint Bookrunners on behalf of the Placee and/or any person acting on behalf of the Placee will not be treated as client money within the meaning of the rules and regulations of the FCA made under the FSMA. The Placee acknowledges that the money will not be subject to the protections conferred by the client money rules; as a consequence, this money will not be segregated from the Joint Bookrunners' money in accordance with the client money rules and will be used by each Joint Bookrunner in the course of its own business; and the Placee will rank only as a general creditor of the relevant Joint Bookrunner.

Times

Unless the context otherwise requires, all references to time are to London time. All times and dates in these terms and conditions may be subject to amendment. The Joint Bookrunners will notify Placees and any persons acting on behalf of the Placees of any changes.

[1] Note to DPW: to be aligned with latest draft prospectus, including the footnotes where relevant.

[2] Note to DPW: To align with latest UoP table as reflected in draft prospectus.

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END

MSCEASXXASLFEFA

(END) Dow Jones Newswires

July 27, 2021 11:59 ET (15:59 GMT)

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