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RNS Number : 7124B
Esken Limited
12 June 2021
This announcement contains inside information for the purposes
of article 7 of the Market Abuse Regulations (EU) 596/2014 as it
forms part of domestic law by virtue of the European Union
(Withdrawal) Act 2018.
12 June 2021
Esken Limited
('Esken' or 'the Group')
Update on Stobart Air; Potential strategic partnership for LSA;
and funding and trading update
Esken, the aviation and energy infrastructure group, issues the
following update ahead of publishing its preliminary results for
the year ended 28 February 2021 due by the end of June.
Stobart Air and Carlisle Lake District Airport (together 'the
transactions')
Esken is providing an update on the sale of Stobart Air ('SA')
and Carlisle Lake District Airport ('CLDA') to Ettyl Limited
('Ettyl') under the conditional contracts entered into on 20 April
2021. On 28 May 2021 and as reported to the market, Ettyl advised
that its original funding package to support the transaction was no
longer available and that it was in discussions on alternative
funding options. It is now clear that Ettyl is unable to conclude
the transactions on the original terms or to obtain an alternative
funding package within the required timescale. Esken has therefore
exercised its right to terminate the contracts for the transactions
with immediate effect. In the absence of any alternative purchasers
or sources of funding for the SA business within the timescales
required, Esken has advised the Board of SA that it will not
continue to provide financial support to the business going
forward. As a result of this the Board of SA has terminated its
franchise agreement with Aer Lingus, will cease trading and is
taking steps to appoint a liquidator.
The Board of Esken has undertaken certain contingency planning
measures and has agreed in response to these developments that it
will continue to fund the lease obligations on the 8 ATR aircraft
through to termination of the leases in April 2023 under the terms
of its pre-existing guarantee. Esken confirms that it will take
immediate steps to seek sublease arrangements for the aircraft with
alternative operators to mitigate the impact on the Group.
Esken also 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, Esken 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.
FY22 FY23 FY24
GBPm GBPm GBPm
Cash outflow reported previously 16 9 24
Additional cash impact arising from
liquidation 18 13 2
Total Cash outflow 34 22 26
Since April 2020 Esken has taken all steps to minimise the cash
requirement of SA while seeking to find a purchaser recognising the
importance of the airline to connectivity between the UK &
Ireland, the 480 jobs involved and the fact that a sale would be a
better outcome for shareholders. Esken 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 CLDA rather than it being
sold for GBP15 million (reflected in the cash impact above) but
will actively explore strategic options for the use of this asset
in discussion with stakeholders including potential alternative
commercial opportunities for the airport.
Strategic Update
The impact of the pandemic has been both greater and over a
longer period than anticipated at the time of the capital raise in
June 2020. 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 shareholder value 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 capital raise to seek to monetise the Energy business
by June 2022, the Board has concluded that this is not the right
option for shareholder value.
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 the current financial year. 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 Aviation business the prime asset is London Southend
Airport ('LSA') which prior to the pandemic offered passenger
services to over 40 destinations to a market of c.8 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 the Airport remain sound.
This has been recognised through strategic partnership discussions
in relation to LSA which are covered below.
Esken will continue to invest in the infrastructure of the
Airport in step 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, the
Airport is well placed to capitalise on accelerated airfreight
growth and movements.
In line with the previously stated strategy Esken will actively
look to exit from all other non-core infrastructure assets owned by
the Group having a net book value of c. GBP39 million at 28
February 2021. When this process is complete Esken will become a
focussed Group with two operating businesses.
Strategic Partnership for LSA
Over the last nine months Esken has been in discussions with a
strategic financial partner in relation to the development of LSA
as aviation recovers from the pandemic. This partner has
significant investment experience in the airport sector globally
and will deploy its resources alongside the operational management
team at LSA through the COVID-19 recovery phase and future
development of the Airport. Esken is now in the final stages of
agreeing the documentation for a strategic funding transaction into
LSA which would release significant liquidity into the Group while
underpinning the funding requirement of the Airport in the medium
term. The transaction would be conditional on obtaining shareholder
approval. Further details are expected to be announced at the time
of the issue of the full year results anticipated by the end of
June. Esken nevertheless cautions that no guarantees can be given
at this stage that the transaction will be forthcoming.
Funding and liquidity update
The Group raised GBP100 million by way of a capital raise in
June 2020 together with additional bank facilities of GBP40 million
("Facility B") to enable Esken to navigate the impact of the
pandemic expected at that time whilst maintaining the operational
integrity of its core businesses. The Group's bank facilities
totalling GBP120 million expire at the end of January 2022 and
Esken has been in continuing dialogue with its banks in relation to
the repayment of these facilities as well as its medium term
funding requirements to meet its ongoing working capital needs. It
was a term of Facility B that in order to continue to draw on that
facility Esken must satisfy the banks as to its ability to repay
the facilities by the due date. The Group has drawn GBP10 million
of its GBP40 million additional facility but the drawing of any
amounts under this facility in excess of GBP15 million beyond 30
June 2021 is subject to certain conditions. Esken is currently in
discussions with its banks in relation to the satisfaction and/or
waiver of such conditions in order to ensure continued access to
the facilities.
The strategic funding proposal in relation to LSA would, if
completed, enable Esken to repay the outstanding bank facilities
and would significantly reduce the funding requirement of the
business to underpin its business plan and meet its legacy
obligations and working capital needs. Esken is, and will be, in
discussions with its banks and other stakeholders in relation to
this requirement, including potentially a modest equity issue on an
accelerated basis and expects to conclude these discussions prior
to the issue of its financial results for the year to 28 February
2021. Esken cautions that no guarantees can be given at this stage
that the discussions with its banks or in respect of an equity
raise will result in agreement or a transaction being
concluded.
Trading Update
Esken is also providing a further update on its current
operating performance following its trading statement on 11 March
2021.
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 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 as we move into the summer seasonality and
increased wood supply from the construction sector. The business is
trading in line with management's expectations for FY22 and
continues to develop the business to post covid-19 levels as all
plants are fully operational compared to FY20 and FY21.
The challenging Aviation sector travel advice and limited
availability of travel routes has meant the continuation of a
slower recovery for LSA. 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 the 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 early
reduction in operations due to planned Brexit risk mitigation in
January and February 2021.
Stobart Aviation Services is also seeing the slower return to
flying through this summer but as with LSA 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.
David Shearer - Executive Chairman said
"It is disappointing for all stakeholders that we have been
unable to conclude the sale of Stobart Air as a going concern
despite the tireless efforts of my executive colleagues, the
management team of the Airline and the team of advisors who have
supported them. I am acutely aware of the impact this will have on
the staff, customers and the businesses associated with the Airline
but the continuing impact of the pandemic in terms of lockdown and
limited travel has prevented us from achieving a better
outcome."
"Our focus now is to secure the position for the rest of the
Group and ensure that we have the necessary resources to support
the recovery plans for our two core businesses as we anticipate the
return to normal activity levels in a post COVID world. The
discussions on future financing including the strategic partnership
for LSA are continuing and I fully expect to bring these to a
positive conclusion when we announce our year end results by the
end of June."
Enquiries:
Esken Limited
Charlie Geller, Communications Director
C/O Tulchan Communications
Tulchan Communications 020 7353 4200
Olivia Peters/David Allchurch esken@tulchangroup.com
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END
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