Renewables disposal allows Esken to focus on sale of London Southend Airport
Esken, the Widnes-based aviation and renewables group currently undergoing a winding-down process, saw sales fall and losses increase in the six months to August 31, 2023.
The group posted revenues of £9.142m, compared with £14.613m the previous period. A pre-tax loss of £60.823m was an increase on the prior year’s £15.020m loss.
Esken said the revenue decline was due to the Aviation division, with the cargo operations from a global logistics partner ending in mid-September 2022, and only three months of revenue in the period for Star Handling Limited, following the sale of the business. There was also a period-on-period reduction in fuel sales at its London Southend Airport (LSA) business due to a reduction in the global fuel price.
Post-period, the group said that shareholders have approved the disposal of Esken Renewables and this transaction is expected to complete on or around December 1, 2023.
The sale will generate net proceeds of £78.5m after costs, which will be used to repay the term loan that was secured against certain group assets, provide funding for a wind-up of the legacy pension scheme and generate some additional liquidity in the short term.
Esken said the disposal, in line with the results of the strategic review, has been completed despite a challenging market backdrop and will lead to a significant reduction in group indebtedness at a time of high interest rates as well as removing a number of guarantees given on long term contracts.
The aviation business reported an adjusted EBITDA loss of £2.8m (2022: £0.5m). Passenger numbers improved by 17.8% to 71,557 (2022: 60,734) reflecting continued easyJet operations, following increased flight frequency and increased destinations. The prior period benefited from a logistics contract which has terminated and one-off items.
During the reporting period Star Handling Limited was sold for £3.9m, generating a £1.6m profit on disposal, with a further contingent consideration of up to £1m dependent on revenue performance over the 12 months post sale.
Aircraft leasing business Propius handed back three aircraft in the period, leaving one aircraft still to return, along with the overhaul of one landing gear set still outstanding. Esken said the maintenance reserve provision remains sufficient to settle all outstanding obligations and will be fully utilised in the second half of the year.
The group also disposed of its investment in Mersey Bioenergy for £9m, generating a profit on disposal of £1.7m.
Esken’s cash at the period end was £26.9m (Feb 2023: £50.3m), which includes £3m (Feb 2023: £5.3m) of ring-fenced cash in LSA and £6.9m in Renewables, presented as held for sale.
Executive chairman, David Shearer, said following the disposal of the Renewables division the main operating business will be the Aviation division, primarily London Southend Airport (LSA).
He said: “The airport has benefited during the summer season from the industry’s strong passenger demand, which has seen the other London airports return to pre-pandemic passenger levels with the associated capacity constraints.
“The partnership with easyJet has seen the schedule grow from three to eight destinations, with increasing frequency and strong load factors being experienced, resulting in a 17.8% increase in passengers on the same period last year. This has encouraged easyJet to add additional routes with Alicante, Amsterdam, Geneva, Paris and most recently Grenoble to operate through the winter this year.
“Against this positive backdrop, discussions continue on an expanded summer schedule for 2024 with a number of airlines who recognise the growing capacity constraints at other London airports and the strong offering from LSA in terms of operating cost and passenger experience.”
He added: “The board believes it now has a base from which to progress the process to seek a new owner for LSA, with a view to crystallising shareholder value through securing the right long term partner, who both recognises the inherent strategic opportunity and is best placed to support future growth.
“The board recognises that this process may take time to get the right deal and, as disclosed in the recent circular, are taking steps to further secure the group’s financial position to support the airport so that the group can execute a sale of LSA without undue balance sheet pressure. As part of this work, the board has received a term sheet and has entered into negotiations with a large majority holder of the exchangeable bond, which currently matures in May 2024, with a view to agreeing terms and an extension on the maturity to December 2025, along with removing the cash drag from interest payments at 2.75%, to be replaced with 10% PIK payable on redemption.”
This funding facility is worth £20m, of which an initial £5m has been committed plus indicative commitments for a further £7m. Discussions will be progressed following the settlement of the existing debt facilities when the Renewables transaction completes.
Mr Shearer said: “These steps are being taken to ensure that the maturity profile of the group funding matches and supports the sale process, allowing it to be conducted in an orderly manner to maximise the value realised for shareholders.”
Also, since the period end, Esken has entered into non-binding heads of agreement for the sale of two of the non-core assets for a cash consideration of £8.5m
In addition, discussions are under way on the remaining non-core assets at Widnes and Carlisle Lake District Airport, with a view to completing transactions to dispose of these assets before the end of the financial year.
Mr Shearer said: “These transactions will not only generate cash to improve the group’s liquidity profile and support the wind down of the group services, but also remove long term lease liabilities from the balance sheet and allow a focus to be on the growth and sale of LSA. It is the intention of the board that once these transactions have been completed the residual value will be returned to shareholders.”