TIDMSTOB
RNS Number : 1630E
Stobart Group Limited
04 November 2020
The information contained within this announcement is deemed to
constitute inside information as stipulated under the Market Abuse
Regulations (EU) No. 596/2014. Upon the publication of this
announcement, this inside information is now considered to be in
the public domain.
4 November 2020
Stobart Group Limited
("Stobart" or the "Group")
Interim results for the six months ended 31 August 2020
Strict financial discipline in place protecting operational
capability
Stobart Group Limited, the aviation and energy infrastructure
group, today announces its interim results for the six months to 31
August 2020.
Warwick Brady, Chief Executive, Stobart Group said,
"COVID-19 has created unprecedented challenges for the Group. In
response, we have taken decisive action to bolster liquidity,
reduce cash burn and protect our long-term strategic objectives.
These actions should allow us to emerge from this crisis in the
best possible position to deliver our focused strategy."
"Whilst passenger travel has been severely disrupted by
lockdowns and evolving quarantine arrangements, London Southend
Airport has benefited from uninterrupted income from its global
logistics operation. At Stobart Energy, we are seeing a more
consistent demand profile and have taken appropriate actions to
ensure certainty of supply of waste wood for customers over the
winter period to fulfil our valuable long-term supply contracts. We
remain focused on realising value for shareholders from Stobart
Energy as a maturing, cash generative and stable business over the
next 18 months and are considering all options to achieve
this."
"Looking forward, the Group has immediate access to liquidity,
with GBP119.1m in cash and undrawn banking facilities. Our focus
remains on what we can control, namely managing our operations
well, optimising both cost and cash management and rationalising
the portfolio to maximise value. We continue to believe our future
strategy and the medium-term move to a pure play airport and
aviation services business will deliver superior shareholder
returns."
Financial h ighlights
-- The Group has GBP119.1m of cash and undrawn banking facilities following its GBP100m capital raise in June.
-- Within the period under review, the cash burn, excluding capex, for Stobart Group's core business (excluding
Stobart Air and Propius), was reduced to an average of c.GBP2.0m per month. Of this, c.GBP1.9m is represented by
lease and rental payments and other debt servicing costs.
-- The total cash burn (funding provided by the Group) for Stobart Air and Propius since acquisition is c.GBP14.7m.
In August 2020, the cash burn for those businesses was GBP3.6m, of which GBP1.6m was legacy lease payments and
GBP0.5m was maintenance and insurance costs. The Group is actively working towards an exit of these businesses in
early course.
-- Group losses before tax excluding the impact of Stobart Air and Propius were GBP16.1m compared to GBP15.5m in the
six months ended 31 August 2019. However, Stobart Group incurred GBP68.5m of non-cash items, including a GBP55.0m
non-cash loss on acquisition of Stobart Air and Propius and GBP14.4m of depreciation. This meant the total Group
loss before tax was GBP77.4m.
-- Net debt pre-IFRS 16 was GBP89.2m (post IFRS 16 net debt was GBP223.7m) and the net pension deficit was GBP5.7m
as of 31 August 2020.
GBP'm 2020 2019 % change
---------------------------------------------- ------- ------- ---------
Revenue by division
Aviation 13.5 26.4 (48.9%)
Energy 33.2 42.9 (22.5%)
---------------------------------------------- ------- ------- ---------
Revenue for two main operating divisions 46.7 69.3 (32.6%)
---------------------------------------------- ------- ------- ---------
Investments and Non-Strategic infrastructure 6.0 3.4 73.7%
Central costs and eliminations 0.5 2.1 (75.5%)
---------------------------------------------- ------- ------- ---------
Total revenue 53.2 74.8 (28.9%)
---------------------------------------------- ------- ------- ---------
EBITDA by division
Aviation (0.9) (1.7) 44.1%
Energy 2.4 10.6 (77.3%)
---------------------------------------------- ------- ------- ---------
EBITDA for two main operating divisions 1.5 8.9 (83.5%)
---------------------------------------------- ------- ------- ---------
Investments and Non-Strategic infrastructure (2.2) (2.2) (0.2%)
Central costs and eliminations (4.2) (4.2) (1.0%)
---------------------------------------------- ------- ------- ---------
Total EBITDA (4.9) 2.5 (294.6%)
---------------------------------------------- ------- ------- ---------
Non-cash loss on acquisition of Stobart
Air and Propius (55.0) - -
Loss before tax (77.4) (15.5) (399.0%)
Discontinued operations, net of tax (11.6) (8.5) (35.6%)
Net debt - excluding IFRS 16 89.2 139.7 36.2%
Net debt - total 223.7 216.7 (3.2%)
Cash and undrawn banking facilities 119.1 36.7 224.3%
---------------------------------------------- ------- ------- ---------
Uninterrupted global logistics income and tight cost control is
underpinning the Aviation Division
-- The Aviation Division has been severely impacted by COVID-19. Passenger flights resumed from June 2020 but
rolling quarantine arrangements led passenger numbers to fall by 89.5% to 124.5k passengers, with revenues down
48.9% to GBP13.5m.
-- Despite this backdrop, Aviation EBITDA improved from a loss of GBP1.7m to a GBP0.9m loss due to strong
uninterrupted income through the global logistics operations and lower marketing support costs at London Southend
Airport.
-- The Group is carefully managing the cash burn through the winter period and the second national lockdown and is
confident in its partnerships with its existing carriers. It is in positive discussions in relation to the
post-winter schedule, which starts in April 2021.
-- With a best-in-class passenger experience, London Southend Airport is well positioned to benefit from any
recovery in the short-haul leisure travel market as restrictions ease. We are specifically designing and
implementing an improved passenger experience for post-COVID-19 travel, making use of significant unutilised
space and technology to enhance passenger safety and confidence, while providing a cost-efficient base of
operation to airlines.
Stobart Energy has protected long term value by ensuring
certainty of supply for its customers
-- Disruption to the construction industry and the closure of recycling facilities during the initial COVID-19
period resulted in a reduction of available waste wood.
-- The business took the strategic decision to ensure certainty of supply for customers over the winter period and
beyond by building stock levels of waste wood. This action put short-term pressure on margins, and this is
expected to recover in the first half of the next calendar year.
-- Stobart Energy also imported waste wood, taking pressure off UK supply availability and worked closely with its
biomass plant partners to plan rolling production stoppages that allowed for maintenance.
-- As a result of these actions, Stobart Energy achieved 86.1% of the supply volumes it delivered in the six months
ended 31 August 2019 and supplied 616k tonnes of fuel to biomass plants. EBITDA reduced from GBP10.6m to GBP2.4m,
with the business impacted by lower supply volumes and downward margin pressures.
-- We are encouraged that the actions taken have alleviated pressure on gate fees whilst ensuring continuity of
supply and delivery of a reliable service to customers.
-- September and October 2020 gate fees and volumes show an improving trend, and we remain focused on realising
value from Stobart Energy as a maturing, cash generative and stable business over the next 18 months.
The Group remains focused on exiting Stobart Air
-- The trading outlook for Stobart Air has deteriorated significantly since the capital raise due to the continued
quarantine arrangements in Ireland, with limited flights operating.
-- At the time of the capital raise in June 2020, Stobart Group planned for a potential no-fly scenario through the
winter period and has consequently taken appropriate action to manage its cost base and minimise cash burn.
-- The Group is seeking to exit that business in early course. To that end, it is engaging actively with parties
interested in acquiring its stake and with Aer Lingus to enter a new commercial arrangement beyond December 2022
as part of this process.
Enquiries:
Stobart Group Limited C/o Tulchan
Charlie Geller, Communications Director
Tulchan
Olivia Peters T: +44 (0)20 7353 4200 E: opeters@tulchangoup.com
David Allchurch T: +44 (0)20 7353 4200 E : dallchurch@tulchangroup.com
Divisional review
Group
The COVID-19 pandemic has disrupted economic activity globally.
The sectors in which Stobart Group operates have been particularly
impacted. The aviation industry has never experienced business
interruption like this in its history. Stoppages to the
construction industry for parts of the year also restricted the
availability of waste wood, affecting Stobart Energy.
Stobart Group responded to these huge challenges by taking
decisive action. Within the last six months we have proactively
managed costs, taken difficult decisions to reduce headcount,
exited the loss-making Rail & Civils business, sold the Stobart
brand receiving an immediate cash payment, acquired Stobart Air in
order to take control of legacy risks and increased our liquidity
following the successful GBP100m capital raise in June 2020.
We have put in place strict financial discipline in order to
preserve that liquidity and protect operational capability for the
long-term. From the start of the initial lockdown, Stobart Group
immediately utilised the UK Government's Job Retention Scheme to
put on furlough c.50% of Stobart Group's 1,500+ employees as of 1
April 2020. The Board and Senior Leadership agreed to 20% pay
reductions and all other non-furloughed management accepted 10% pay
reductions through to the end of September 2020. A recruitment
freeze has been in place since early March 2020 and all variable
pay awards were deferred.
We are confident that we have taken the right actions to
stabilise the business in the face of significant headwinds. Our
priority is to dispose of Stobart Air and Propius in a timely
manner. Once that is achieved, we will hold two strong and valuable
businesses, with significant growth opportunities, together with a
manageable portfolio of non-core assets, with a book value of
c.GBP40m that will be disposed of over the next three years. The
Group has reduced costs significantly and is primed to respond to
growth opportunities quickly once restrictions are eased.
It is important to recognise that the actions that we have taken
to stabilise the business have been a collective effort. I would
therefore like to recognise the immense contribution of our teams.
People across the business have responded effectively to new ways
of working and remained focused on protecting our operational
capability for the long-term.
This review will consider the specific impacts that we have
experienced, detail the actions we have taken and provide a view on
how we see activity evolving over the coming periods.
Aviation
The impact of COVID-19
As the first UK lockdown took effect, London Southend Airport
closed its scheduled passenger operation from late March 2020. The
airport re-started scheduled services in late June 2020, having put
in place an enhanced COVID-19-secure passenger experience. However,
passenger numbers stayed low as a result of the UK Government's
decision to put in place rolling quarantine measures with countries
put on quarantine lists at short notice.
The quarantine policy significantly impacted passenger
confidence to book holidays outside of the UK. As a result, airline
load factors fell. In response, airlines - already suffering from
the cost burden of the initial lockdown period - took the decision
to cut capacity. Airlines have also closed bases across Europe as
they look for further ways to cut costs. As previously announced,
easyJet closed three UK bases, including its long-established base
at London Southend Airport.
The combination of the airport closure during the initial
lockdown period, reductions in airline capacity and the closure of
the easyJet base led to passenger numbers at London Southend
Airport falling 89.5% to 124.5k passengers during the period from
March 2020 to the end of August 2020.
The significant reduction in airline flying and the closure of
airport bases, in particular the closure of easyJet bases at London
Stansted Airport as well as London Southend Airport, also impacted
the operations of Stobart Aviation Services. That business had been
growing rapidly pre-COVID-19 and provides check-in and baggage
handling across London Stansted Airport, London Southend Airport,
Manchester Airport, Edinburgh Airport and Glasgow Airport. However,
despite the significant reduction in activity across those
airports, Stobart Aviation Services and London Southend Airport
benefited from uninterrupted income from the global logistics
operation based at the airport.
The actions we have taken
London Southend Airport put most of its capex investments on
hold. Capex spend will be reviewed in step with future passenger
growth. A minimal level of capex was invested to put in place an
enhanced passenger experience once the initial lockdown was
eased.
At the outset of the initial lockdown, London Southend Airport
put over 50% of its staff on furlough. London Southend Airport is
currently awaiting clarity regarding the latest furlough scheme
announced on 31 October 2020 and the parameters under which it will
be implemented. With airline capacity and passenger volumes
reduced, London Southend Airport made the difficult decision to
restructure its operations and regrettably make 10% of staff
redundant. This was not a decision taken lightly, but one that was
sadly necessary in order to protect the long-term operation of the
airport. The airport also froze recruitment and staff accepted pay
reductions and revised contract terms where necessary.
However, the greatest single cost saving resulted from a
significant reduction in marketing support payments to airlines.
Airline marketing incentives are primarily linked to passenger
volumes. With passenger numbers down, marketing support was
substantially reduced. easyJet's decision to close its base also
meant that all marketing support payments to that airline
stopped.
Stobart Aviation Services benefitted from having "cost-plus"
operations in place at London Stansted Airport and its Scottish
airport bases. This essentially meant that its airline partners
covered its costs. However, the business had to make significant
cost savings at its other bases. This included extensive use of the
furlough scheme and also required the difficult decision to make
redundancies. Stobart Aviation Services also elected not to extend
rental agreements on equipment at airport bases with low
activity.
The performance outcomes
Considering the significant challenges facing the aviation
sector across the world, the improvement in Stobart Aviation losses
was a positive achievement. Aviation EBITDA improved from a loss of
GBP1.7m to a GBP0.9m loss. In part, this was due to a reduction in
airline marketing support costs, as well as reductions in staff
costs. However, a major contributor to this performance was the
uninterrupted income generated from the global logistics operation
based at London Southend Airport and operated by the Stobart
Aviation Services team. The continued demand for online shopping
throughout 2020, the efficient management of the operation and the
resulting performance bonuses optimised that income further.
Outlook
The key focus for London Southend Airport is to rebuild
passenger numbers in the New Year once the current national
lockdown has ended. We remain confident in our relationships with
our existing carriers, Ryanair and Wizz Air and are in positive
discussions in relation to the post winter schedule which starts in
April 2021.
We are also actively engaging with a range of other low-cost
carrier airlines regarding their interest in our established proven
routes. There are several reasons why the airport and its proven
routes should be attractive to other carriers.
Firstly, we have already put in place an enhanced passenger
experience for the post-COVID-19 world. Critical protections such
as h and sanitising stations every 20 steps and bio shields have
been in place for some months now. But we are also seeking to
further differentiate our airport offering by deploying contactless
technology and are trialling next generation baggage screening
equipment. The use of technology will allow us to avoid bottlenecks
and provide a quick and stress-free experience that delivers
confidence to airline passengers.
Our airport proposition aligns with the strategy of low-cost
carriers. The airport is located in an 8m plus catchment area that
allows airlines significant coverage of the valuable and attractive
London market. It is our expectation that London air travel will be
at the vanguard of any recovery.
It is also our belief that low-cost carriers will be the first
airlines to recover, offering short haul point-to-point flights on
a cost-efficient basis. London Southend Airport, and its proven,
well established routes, previously operated by easyJet without
direct competition, will allow airlines to generate similar yields
to other London airports but at a lower cost of operation. Our
airport also provides the best opportunity to secure London slots
as the UK recovers from the pandemic over the coming years. Given
the significant year-on-year growth achieved in the years leading
up to the COVID-19 pandemic we are confident that we will secure
additional deals with airlines once better visibility of passenger
demand returns. We will target agreements with existing airlines,
new low-cost carriers, full service and regional niche carriers.
The airport will seek individually tailored agreements, based on
size of operation and expected passenger volumes. The key will be
to agree deals that are cost neutral from the start and tie
incentives to passenger volumes.
Across our aviation assets we will also explore further aviation
logistics opportunities. There is available land to base further
logistics operations at London Southend Airport. Stobart Aviation
Services has developed significant expertise in handling cargo and
will also look to secure additional logistics contracts at other
locations.
Stobart Energy
The impact of COVID-19
Stobart Energy has not been exposed to the same level of
business interruption as our aviation businesses. However, it has
not escaped significant challenges. The initial lockdown period led
to a pause in construction work and the closure of Household Waste
and Recycling Centres. The volume of waste wood available to then
convert into biomass fuel that could be supplied to biomass plants
fell considerably as a result.
Despite the reduction in the availability of waste wood, our
biomass plant partners still required their contracted volumes of
fuel. Stobart Energy therefore had to deploy a range of actions to
meet its contracted volumes, including the issuance of force
majeure notices, and this impacted operating margins in the short
term.
The actions we have taken
Stobart Energy has taken positive action to manage its ability
to supply waste wood and deliver on its long-term contracts.
With less waste wood available and competing demand for that
waste wood from both the biomass sector and furniture
manufacturers, Stobart Energy had to take steps to ensure certainty
of supply for its customers. Stobart Energy has storage sites
strategically located across the UK. These are capable of storing
up to 100,000 tonnes of unprocessed waste wood at any one time.
Stobart Energy utilised its stockpiles and has been working to
restock, particularly in view of the key winter period when waste
wood is traditionally in shorter supply.
In order to rebuild stock levels and in line with its
competitors, Stobart Energy reduced its gate fee - the fee it
charges to those businesses that supply waste wood to Stobart
Energy so that those business can avoid much higher landfill
charges. Stobart Energy also imported waste wood. This took the
pressure off the demand for waste wood from within the UK.
Importing waste wood is more expensive. However, reducing the
demand on UK waste wood allowed Stobart Energy to gradually
increase the gate fee it charges to those that supply it, with the
intention of mitigating a prolonged period of margin pressures into
2021. Stobart Energy also worked closely with its biomass plant
partners to put in place planned rolling production stoppages
further reducing the demand for UK waste wood.
The performance outcomes
As a result of the strategic decisions taken by its management
team, Stobart Energy achieved 86.1% of the supply volumes it
delivered in the six months ended 31 August 2019 and supplied 616k
tonnes of fuel to biomass plants. EBITDA however reduced from
GBP10.6m to GBP2.4m. This outcome reflected the impact of lower
supply volumes caused by the initial lockdown and the interruption
to the construction sector. The return of construction activity
came at a time when demand for waste wood exceeded supply. This
resulted in Stobart Energy needing to lower its gate fees to
attract waste wood suppliers which led to short-term downward
margin pressures.
Outlook
We are confident that Stobart Energy has taken appropriate
actions to successfully protect the longer-term value of its
operational capability. Throughout a challenging year the business
has continued to supply contracted volumes of fuel to its long-term
biomass plant partners. By importing some waste wood, it has taken
pressure off the demand for waste wood within the UK. This is
already showing signs of allowing gate fee prices to increase.
September 2020 and October 2020 gate fees and volumes show an
improving trend. We also remain focused on realising value for
shareholders from Stobart Energy as a maturing, cash generative and
stable business over the next 18 months. COVID-19 has hampered the
operational and financial performance in the short term but has not
materially impacted the prospective longer term cashflows of a
business that generated EBITDA of GBP15m in the year ended February
2020.
Non-strategic assets
The COVID-19 pandemic and resulting quarantine measures have had
a particularly severe impact on Stobart Air and Propius. That
business, and the liabilities attached to it, had previously been
transferred in to the Connect Airways consortium as part of the
acquisition of Flybe. Sadly, Flybe was an early victim of the
COVID-19 pandemic and its impact on forward funding. Flybe, and
Connect Airways entered into administration in March 2020. This led
to uncertainty regarding the future of Stobart Air and Propius.
Stobart Group is a guarantor for various obligations of Propius
following a sale and leaseback of aircraft arrangement which was
entered into by Propius in April 2017.
The Board of Stobart Group reviewed all options available to the
Company in relation to the future of Stobart Air and Propius and
concluded that the best course of action financially was to buy
back Stobart Air and Propius, taking effective control over the
pre-existing obligations it has in respect of those businesses.
Stobart Air's core business is the operation of a regional
flying programme across the UK and Ireland under a franchise
agreement with Aer Lingus. This agreement expires in December 2022.
Under a normal trading environment this is a stable and profitable
business. However, quarantine rules enforced by the Irish
Government mean that demand for the majority of the programme is
very low and therefore most of the fleet is currently grounded.
This has placed a significant cash strain on the business given the
ongoing lease agreements in place for those aircraft. The total
cash burn for Stobart Air and Propius since acquisition is
c.GBP14.7m. In August 2020, the cash burn for those businesses was
GBP3.6m, of which GBP1.6m was legacy lease payments and GBP0.5m was
maintenance and insurance costs.
We are taking immediate action to seek an exit from Stobart Air
and Propius before the end of the current financial year. The first
step has been to reduce costs. This has included negotiating rate
reductions with key suppliers, making redundancies, exercising
temporary layoffs, putting in place temporary pay cuts and
utilising the Irish employee subsidy schemes (furlough equivalent).
We are also engaged in a competitive tender process in order to put
in place a ten-year commercial agreement with Aer Lingus from 2023.
A decision on the new agreement is expected by the end of 2020. A
reduced cost base and a franchise agreement with Aer Lingus will
make Stobart Air a more attractive proposition and Stobart Group is
in active discussions with a number of parties interested in
acquiring our stake in Stobart Air.
Following the commitment made at the time of Stobart Group's
capital raise in June 2020, we divested of the Rail & Civils
division to Bavaria Industries Group AG for an initial cash
consideration of GBP1,000 on 14 July 2020. An additional cash
consideration of up to GBP2.9m may be received based on the
conclusion of a legacy contract. The fair value of this deferred
consideration is GBP0.3m at 31 August 2020. The sale of the Rail
& Civils business removed the obligation for the Group to fund
that business. The sale resulted in a loss on disposal of
GBP9.3m.
Stobart Group continues to hold c.GBP40m of non-strategic assets
that it is seeking to divest of over the next three years. The
Group is making progress in terms of those divestments.
ESG
Stobart Group has put in place a framework for our ESG strategy
which is based around five pillars: developing our people,
supporting sustainable communities, taking climate action,
excelling in health, wellbeing and safety and minimising our
environmental footprint. This is about us positioning our business
for the future and considering how the needs of all our
stakeholders are met.
During the six months under review, Stobart Group has put in
place a COVID-19 support program for team members and revised the
London Southend Airport Safety Management System. We recognised the
need to do more and are now also developing a new internal Health
and Safety campaign as part of our programme to excel in health,
wellbeing and safety. We have started to put in place a holistic
diversity strategy, which includes positive actions to support
women leaders as part of our focus on "developing our people".
Our commitment to supporting all the communities we operate
within continues, which is especially relevant given the impact of
COVID-19 and our ongoing response. We are pleased to be developing
a formal community strategy, aligning our purpose and values, which
we will launch in 2021 and this will help us measure our impact and
show how we are "supporting sustainable communities".
The expectation is that carbon emissions will have reduced
during the period, given the fall in passengers and flights. But
this does not mean that we have put our environmental progress on
hold. We are currently developing an energy data management
structure to help us better record, and understand, our
environmental footprint and emissions - especially as we transition
to those classified as Scope 3. We have also signed up to the
Airports Council International (ACI) and are currently progressing
on their Airport Carbon Accreditation programme.
Financial Review
Key events in the period
The Group completed a successful capital raise in the period,
which was approved at the Annual General Meeting on 30 June 2020.
The capital raise resulted in gross proceeds of GBP100.1m (GBP91.1m
net) and the issue of 251.1m new shares in Stobart Group Limited.
This enabled the Group to repay certain amounts drawn under the
Revolving Credit Facility (RCF), mitigate the effects of COVID-19
on the Aviation and Energy businesses and allow those divisions to
best position themselves for the COVID-19 recovery period.
Agreement was reached with the Group's current bank lenders to
fund an additional GBP40m RCF. This brought the Group's total RCF
to GBP120m, giving increased headroom for the Group.
The Group divested of Stobart Rail Limited (Stobart Rail) for
initial cash consideration of GBP1,000, resulting in a loss on
disposal of GBP9.3m. Additional cash consideration of up to GBP2.9m
could be received based on the outcome of the conclusion of a
single legacy contract. The divestment follows the commitment made
alongside the Group's full year February 2020 results to exit the
Stobart Rail business by the end of the February 2021 financial
year end. This transaction removes the need to fund the expected
ongoing losses of Stobart Rail and allows the Group to focus on
investment in aviation.
The acquisition of an effective indirect economic interest of
78.75% in Stobart Air and Propius, as mentioned in the Annual
Report and Accounts for the year ending 29 February 2020, resulted
in these businesses being accounted for as subsidiaries. The
acquisitions of Stobart Air and Propius gave rise to a loss on
acquisition of GBP55.0m, accounting for the recognition of
pre-existing guarantee arrangements. See note 6 for further
details.
As previously reported to the market, it is the Group's
intention to sell its stake in Stobart Air and Propius. The Group
is in early-stage discussions with a number of interested parties
regarding the potential sale.
The ongoing COVID-19 global pandemic has had a significant
impact on the Group, both operationally and financially. The most
significant operational impact has been within our regional airline
Stobart Air, which was re-acquired in April 2020, where passenger
numbers have been significantly reduced following the continued
quarantine arrangements in Ireland.
The Energy division has been impacted financially following the
disruption to the construction industry and the closure of many
recycling facilities which reduced waste wood availability for many
months. Following the return of construction and the re-opening of
recycling facilities the availability of wood, whilst improved, has
seen an excess demand as various sectors look to obtain wood, which
has resulted in our gate fee income reducing.
Whilst LSA operationally remained open to facilitate ongoing
flights of both passengers and logistics, the level of passenger
volumes was greatly reduced and saw increased variability as
quarantine legislation dictated both airline and passenger volumes.
Despite the reduction in passenger numbers the Aviation division
was able to see a slight improvement in losses year-on-year due to
strong uninterrupted income through the global logistics operations
and greatly reduced marketing costs at London Southend Airport.
Revenue
Revenue from continuing operations has decreased by 28.9% to
GBP53.2m (2019: GBP74.8m) in the six months to 31 August 2020,
primarily driven by COVID-19 lockdown restrictions affecting the
two operating divisions, Aviation and Energy. Aviation revenue has
decreased by 48.9% to GBP13.5m (2019: GBP26.4m) with passenger
numbers through LSA falling by 89.5% to 124,499 period-on-period.
Energy revenue has decreased by 22.5% to GBP33.2m (2019: GBP42.9m)
and biomass tonnages supplied fell by 13.9% to 616,290
period-on-period.
Profitability
Divisional Continuing Profit Summary 31 August 31 August
2020 2019
GBPm GBPm
---------- ----------
Aviation (0.9) (1.7)
Energy 2.4 10.6
----------
EBITDA from operating divisions(1) 1.5 8.9
Investments (1.6) (0.2)
Non-Strategic Infrastructure (0.6) (2.0)
Central costs and eliminations (4.2) (4.2)
---------- ----------
EBITDA(1) (4.9) 2.5
(Loss)/gain on swaps (0.4) 0.1
Depreciation (14.4) (10.0)
Amortisation - (3.7)
Loss on acquisition (55.0) -
Finance costs (net) (2.7) (4.4)
---------- ----------
PBT (77.4) (15.5)
Tax 0.9 3.2
Loss from discontinued operations,
net of tax (11.6) (8.6)
---------- ----------
Loss for the period (88.1) (20.9)
---------- ----------
(1) Defined in glossary in note 20
In this period, the Group has moved away from the classification
of underlying and non-underlying items in the financial statements.
EBITDA and PBT are the Group's key measures of profitability.
EBITDA has decreased by 294.6% to a loss of GBP4.9m (2019:
GBP2.5m profit). Aviation has seen EBITDA increase by 44.1% to a
loss of GBP0.9m (2019: GBP1.7m) due to careful control of costs as
revenues fall, including the use of the UK Government's furlough
scheme, and because of airline marketing costs incurred in the
prior period not being incurred in the current period. Energy
EBITDA has decreased by 77.3% to GBP2.4m (2019: GBP10.6m) caused by
the availability of material and challenging market conditions
impacting gate fees. The division has imported material from abroad
to maintain contractual supply and build up stock for the winter
period, although this has been at the expense of short-term
profitability.
The loss before tax from continuing operations is GBP77.4m
(2019: GBP15.5m). Depreciation of GBP14.4m (2019: GBP10.0m) has
increased mainly due to the inclusion of Stobart Air and Propius
results in this period. Amortisation is nil (2019: GBP3.7m)
following the disposal of the Stobart brands and licences. The loss
before tax includes the GBP55.0m non-cash loss on acquisition.
Finance costs of GBP7.8m (2019: GBP7.2m) have increased principally
due to the increased cost of borrowing on the RCF. Finance income
of GBP5.1m (2019: GBP2.8m) has grown mostly because of the
revaluation of financial liabilities and foreign exchange gains,
see note 7.
A summary of divisional profitability is set out on page 11 and
further details of divisional performance are set out in the
Divisional Reviews section.
Discontinued operations and restatement
Following the divestment, the results of Stobart Rail for the
period have been included within discontinued operations. The prior
period results have been restated within the Condensed Consolidated
Income Statement, Condensed Consolidated Statement of Cash Flows
and accompanying notes accordingly.
Taxation
The tax credit of GBP0.9m (2019: GBP3.2m) arises due an
accelerated unwind of the Group's deferred tax liability relating
to the disposal of the Stobart brands and licences, offset by the
change in tax rate from 17% to 19% (see note 8 for further
details).
Loss per share
Loss per share from continuing operations(1) was 12.41p (2019:
3.37p) (see note 9 for further details).
(1) Defined in glossary in note 20.
Dividends
There were no dividends paid in the period. In the prior period
a final dividend of 3.0p per share totaling GBP11.1m was declared
on 29 May 2019 and was paid on 31 July 2019.
Balance sheet
29 February
31 August 2020 2020
GBPm GBPm
--------------- ------------
Non-current assets 404.4 388.8
Current assets 71.9 75.3
--------------- ------------
Total assets 476.3 464.1
Non-current liabilities (214.1) (222.0)
Current liabilities (159.0) (139.0)
Net assets 103.2 103.1
--------------- ------------
The increase in the net asset position of GBP0.1m principally
relates to the GBP100m capital raise, partially offset by the loss
for the period of GBP88.1m.
Non-current assets have increased in the period, largely due to
the inclusion of right-of-use assets in Stobart Air and Propius,
offset by depreciation in the period and the disposal of Stobart
Rail.
Current assets have decreased primarily because the Stobart
brand and licences, which were held for sale at GBP10.0m at the 29
February 2020 year end, have been sold in the period. This is
partly offset by an increase in inventories, as Stobart Air's
balances are included at the period end, and the Energy division
increases its stock in readiness for the Winter period, alongside
an increase in trade and other debtors.
Non-current liabilities have fallen by GBP7.9m, the main drivers
of which are a decrease in the amount drawn on the RCF facilities,
offset by an increase maintenance reserves and leases following the
acquisition of Stobart Air and Propius.
Current liabilities have increased by GBP20.0m, largely due to
the inclusion of Stobart Air's lease liabilities, maintenance
reserves and other creditors balances.
Debt and gearing
29 February
31 August 2020 2020
--------------- ------------
Net debt:
- Revolving credit facility (net GBP7.1m GBP74.8m
of arrangements fees)
- Obligations under leases GBP40.4m GBP42.4m
- Exchangeable bonds GBP51.8m GBP51.7m
- IFRS 16 lease obligations GBP134.5m GBP76.4m
- cash (GBP10.1m) (GBP9.8m)
Total net debt GBP223.7m GBP235.5m
--------------- ------------
EBITDA(1) /interest -1.1 -0.7
Net debt/total assets 47.0% 50.7%
Gearing 216.8% 228.4%
--------------- ------------
(1) Defined in glossary in note 20.
Following the increase in RCF from GBP80m to GBP120m, the
committed undrawn headroom on the facility at 31 August 2020 was
GBP109m (29 February 2020: GBP5m), and with cash balances of
GBP10.1m (29 February 2020: GBP9.8m), total headroom was GBP119.1m
(29 February 2020: GBP14.8m).
Cash flow
31 August 2020 31 August 2019
GBPm GBPm
--------------- ---------------
Operating cash flow (7.9) (18.6)
Investing activities 2.0 (9.4)
Financing activities 6.2 21.3
--------------- ---------------
Increase/(decrease) in the period 0.3 (6.7)
Cash at beginning of period 9.8 14.4
Cash at end of period 10.1 7.7
--------------- ---------------
There was an operating cash outflow in the period of GBP7.9m
(2019: GBP18.6m) principally relating to the operating cash
outflows of Stobart Air and Propius, partly offset by positive
operating cash flows in Aviation and Energy. The prior period
outflow was mainly due to adverse working capital movements in the
Energy and Aviation divisions.
Investing inflows include GBP6.0m of the GBP10.0m due from the
disposal of the Stobart brand and licences. There were investing
outflows include GBP3.5m relating to the disposal of Stobart Rail.
The prior period included GBP13.0m for the purchase of property,
plant and equipment, principally relating to the development at
London Southend Airport.
The main financing inflow was from the issue of new shares which
resulted in a net receipt of GBP91.1m after costs, which was used
to repay the drawn amount of the RCF in full. When offset by
drawdowns on the RCF, the net repayment of RCF was a GBP68.2m
outflow. Other outflows in the period included the repayment of
loans from Virgin and Cyrus (GBP4.5m), relating to equity
investments in Connect Airways prior to Connect entering
administration, and repayment of leases (GBP8.0m). In the prior
period financing activities included proceeds from the issue of
Bonds (GBP51.4m), repayment of leases (GBP9.5m), the net repayment
of the RCF (GBP7.0m) and dividends paid (GBP11.1m).
Key Risks and Uncertainties
As with any business, risk assessment and the implementation of
mitigating actions and controls are vital to successfully achieving
the Group's strategy. The Board has overall responsibility for risk
management and internal control within the context of achieving the
Group's objectives. The key risks are set out in our statutory
accounts for the year ended 29 February 2020 and are still
applicable. In addition, at the year end COVID-19 was accounted for
as an unadjusted post-balance sheet event, whereas COVID-19 is now
considered a key risk and uncertainty for all divisions in the
Group.
Going concern
The directors are satisfied that the company will have
sufficient funds to continue to meet its liabilities as they fall
due for at least 15 months from the date of approval of the interim
financial statements and therefore have prepared the financial
statements on a going concern basis. However, the substantial
achievement of forecasts, the continued availability of existing
facilities and the renewal of the Group's existing RCF by January
2022, represent material uncertainties that may cast significant
doubt on the ability of the Group and Company to continue as a
going concern.
The base case forecasts indicate that the Group will have
facility headroom of c.GBP47m at February 2022. However, there is a
forecast breach of some covenants in November 2021. The directors
believe that given the need to refinance the RCF before the end of
January 2022, a covenant reset will form part of these discussions
and therefore should not result in the RCF being recalled in
advance of its maturity.
The directors have considered a severe but plausible downside
forecast, which represents a scenario before non-controllable
mitigating actions such as asset disposals and other controllable
mitigating actions. This forecast indicates that the Group may
require additional funding by February 2022 and may breach some
covenants in May 2021. The Board will of course seek to mitigate
the financial impact of this downside forecast, should it arise,
and reset the RCF covenants if necessary. Refer to note 1 for
further information.
Directors' Responsibility Statement
We confirm that to the best of our knowledge:
-- The condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU; and
-- The interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have taken place in
the first six months of the current financial year and that have
materially affected the financial position or performance of the
entity during that period; and any changes in the related party
transactions described in the statutory accounts for the year ended
29 February 2020 that could do so.
The above statement of Directors' responsibilities was approved
by the Board on
4 November 2020.
Lewis Girdwood
Director
4 November 2020
Condensed Consolidated Income Statement
For the six months ended 31 August 2020
Restated(1)
Six months Six months
ended 31 ended 31
August 2020 August 2019
Unaudited Unaudited
Continuing operations Notes GBP'000 GBP'000
Revenue 4 53,171 74,756
------------- -------------
Other operating income 255 127
Operating expenses - other (58,224) (69,992)
Share of post-tax losses of associates
and joint ventures (148) (2,350)
------------- -------------
EBITDA (4,946) 2,541
(Loss)/gain on swaps (397) 114
Depreciation (14,446) (9,984)
Amortisation - (3,739)
Loss on acquisition 6 (54,977) -
------------- -------------
Operating loss (74,766) (11,068)
Finance costs 7 (7,755) (7,206)
Finance income 7 5,079 2,755
------------- -------------
Loss before tax (77,442) (15,519)
Tax 8 933 3,182
------------- -------------
Loss for the period from continuing
operations (76,509) (12,337)
Discontinued operations
Loss from discontinued operations,
net of tax 5 (11,589) (8,547)
------------- -------------
Loss for the period (88,098) (20,884)
------------- -------------
Loss per share expressed in pence per share - continuing operations
Basic 9 (16.74p) (3.37p)
Diluted 9 (16.74p) (3.37p)
Loss per share expressed in pence
per share - total
Basic 9 (19.27p) (5.70p)
Diluted 9 (19.27p) (5.70p)
(1) The 2019 results have been restated where required due to
IFRS 5 Discontinued Operations. Refer to note 5 for more
details.
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 31 August 2020
Six months Restated
ended Six months
31 August ended 31
2020 August 2019
Unaudited Unaudited
GBP'000 GBP'000
Loss for the period (88,098) (20,884)
Exchange differences on translation 18 -
of foreign operations
Discontinued operations, net of tax,
relating to exchange differences - (1,212)
Other comprehensive income/(expense)
to be reclassified to profit or loss
in subsequent periods, net of tax 18 (1,212)
------------- --------------
Re-measurement of defined benefit plan (1,702) (1,231)
Change in fair value of financial assets
classified as FVOCI (1,354) (16,358)
Tax on items relating to components
of other comprehensive income 323 273
Other comprehensive expense not being
reclassified to profit or loss in subsequent
periods, net of tax (2,733) (17,316)
Other comprehensive expense for the
period, net of tax (2,715) (18,528)
------------- --------------
Total comprehensive expense for the
period (90,813) (39,412)
------------- --------------
Condensed Consolidated Statement of Financial Position
As at 31 August 2020
31 August 29 February
2020 2020
Unaudited Audited
Notes GBP'000 GBP'000
Non-current assets
Property, plant and equipment 11 323,606 306,584
Investment in associates and joint
ventures 1,442 1,590
Other financial assets 3,422 4,776
Intangible assets 54,669 54,669
Net investment in lease 13,256 13,247
Other receivables 8,000 8,000
---------- ------------
404,395 388,866
---------- ------------
Current assets
Inventories 18,706 13,893
Trade and other receivables 41,673 40,167
Cash and cash equivalents 12 10,109 9,802
Assets held for sale 1,408 11,408
71,896 75,270
---------- ------------
Total assets 476,291 464,136
---------- ------------
Non-current liabilities
Loans and borrowings 12 (159,176) (177,788)
Defined benefit pension scheme (5,713) (4,422)
Other liabilities (9,523) (9,687)
Deferred tax (2,671) (5,736)
Provisions 13 (37,052) (24,346)
---------- ------------
(214,135) (221,979)
---------- ------------
Current liabilities
Trade and other payables (72,936) (61,899)
Financial liabilities 7 (1,122) (3,500)
Loans and borrowings 12 (22,820) (15,780)
Exchangeable bonds 12 (51,822) (51,689)
Corporation tax (500) -
Provisions 13 (9,767) (6,191)
(158,967) (139,059)
---------- ------------
Total liabilities (373,102) (361,038)
---------- ------------
Net assets 103,189 103,098
---------- ------------
Capital and reserves
Issued share capital 14 62,492 37,465
Share premium 14 390,411 324,368
Foreign currency exchange reserve 18 -
Reserve for own shares held by employee
benefit trust (7,161) (7,161)
Retained deficit (342,571) (251,574)
---------- ------------
Total Equity 103,189 103,098
---------- ------------
Condensed Consolidated Statement of Changes in Equity
For the six months ended 31 August 2020
For the six months ended 31 August 2020
Unaudited
Reserve
Foreign for own
Issued currency shares
share exchange held by Retained
capital Share premium reserve EBT earnings Total equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- --------- -------------- ---------- --------- ---------- -------------
Balance at 1 March
2020 37,465 324,368 - (7,161) (251,574) 103,098
Loss for the period - - - - (88,098) (88,098)
Other comprehensive
income/(expense)
for the period - - 18 - (2,733) (2,715)
---------------------- --------- -------------- ---------- --------- ---------- -------------
Total comprehensive
income/(expense)
for the period - - 18 - (90,831) (90,813)
Issue of ordinary
shares 25,027 66,043 - - - 91,070
Employee benefit
trust - - - - (318) (318)
Share-based payment
credit - - - - (8) (8)
Tax on share-based
payment credit - - - - 160 160
Balance at 31 August
2020 62,492 390,411 18 (7,161) (342,571) 103,189
---------------------- --------- -------------- ---------- --------- ---------- -------------
For the six months ended 31 August 2019
Unaudited
Reserve
Foreign for own
Issued currency shares
share Share exchange held by Retained Total
capital premium reserve EBT earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- --------- --------- ---------- --------- ---------- ---------
Balance at 1 March
2019 37,082 324,379 480 (12,154) (52,833) 296,954
IFRS 16 transition
adjustment, net of
tax - - - - (2,846) (2,846)
------------------------- --------- --------- ---------- --------- ---------- ---------
Balance at 1 March
2019 (adjusted) 37,082 324,379 480 (12,154) (55,679) 294,108
------------------------- --------- --------- ---------- --------- ---------- ---------
Loss for the period - - - - (20,884) (20,884)
Other comprehensive
expense for the period - - (1,212) - (17,316) (18,528)
------------------------- --------- --------- ---------- --------- ---------- ---------
Total comprehensive
expense for the period - - (1,212) - (38,200) (39,412)
Employee benefit trust - - - 3,395 (3,294) 101
Share-based payment
credit - - - - 420 420
Tax on share-based
payment credit - - - - 84 84
Dividends - - - - (11,125) (11,125)
------------------------- --------- --------- ---------- --------- ---------- ---------
Balance at 31 August
2019 37,082 324,379 (732) (8,759) (107,794) 244,176
------------------------- --------- --------- ---------- --------- ---------- ---------
Condensed Consolidated Statement of Cash Flows
For the six months ended 31 August 2020
Restated
Six months Six months
ended 31 August ended 31
2020 August 2019
Unaudited Unaudited
Notes GBP'000 GBP'000
Cash used in continuing operations 17 (11,012) (15,210)
Cash inflow/(outflow) from discontinued
operations 3,150 (3,402)
Income taxes paid - -
----------------- -------------
Net cash flow from operating activities (7,862) (18,612)
----------------- -------------
Purchase of property, plant and equipment (1,554) (12,934)
Purchase of investment property - (78)
Proceeds from the sale of property,
plant and equipment 314 2,136
Proceeds from disposal of asset held 6,000 -
for sale
Receipt of capital element of IFRS 129 -
16 net investment in lease
Acquisition of subsidiary undertakings 603 -
(net of cash acquired and fees)
Cash disposed on sale of subsidiary (3,529) -
undertaking
Equity investment in associates and
joint ventures - (2,667)
Net amounts repaid from joint ventures - 2,938
Interest received - 670
Cash inflow from discontinued operations 24 576
----------------- -------------
Net cash flow from investing activities 1,987 (9,359)
----------------- -------------
Dividend paid on ordinary shares - (11,125)
Issue of ordinary shares less costs
of issue 91,071 -
Proceeds from issue of exchangeable
bonds - 51,354
Proceeds from grants - 318
Principal element of lease payments (7,985) (8,401)
Net drawdown from revolving credit
facility (68,247) (7,000)
Repayment of borrowings (4,500) -
Interest paid (3,950) (2,746)
Cash outflow from discontinued operations (207) (1,136)
----------------- -------------
Net cash flow from financing activities 6,182 21,264
----------------- -------------
Increase/(decrease) in cash and cash
equivalents 307 (6,707)
Cash and cash equivalents at beginning
of period 9,802 14,432
----------------- -------------
Cash and cash equivalents at end of
period 10,109 7,725
----------------- -------------
1 Accounting policies of Stobart Group Limited
Corporate information
The Condensed Consolidated Financial Statements of the Group for
the six months ended 31 August 2020 (interim financial statements)
were authorised for issue in accordance with a resolution of the
Directors on 4 November 2020. Stobart Group Limited is a Guernsey
registered company whose ordinary shares are publicly traded on the
London Stock Exchange. The principal activities of the Group are
described in note 3.
Basis of preparation
The interim financial statements have been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by
the EU.
The interim financial statements do not include all the
information and disclosures required in the annual financial
statements and should be read in conjunction with the Group's
annual financial statements as at 29 February 2020. Except for the
29 February 2020 statutory comparatives, the financial information
set out herein is unaudited but has been reviewed by the auditors,
KPMG LLP, and their report to the Company is attached.
The audited comparative financial information set out in these
interim financial statements does not constitute the Group's
statutory accounts for the year ended 29 February 2020 but has been
derived from those accounts. Statutory accounts for the year ended
29 February 2020 have been published and KPMG LLP has reported on
those accounts. Their audit report was unqualified, however, it
highlighted a material uncertainty regarding going concern related
to the capital raise, see note 14, the extension of the RCF and
covenant compliance. The annual financial statements of the Group
are prepared in accordance with IFRSs as adopted by the EU.
Restatement
Following the disposal of Stobart Rail Limited (Stobart Rail)
(see note 5), all prior period results have been restated where
applicable to remove the results of Stobart Rail from continuing
operations.
Going concern
Position adopted at year end February 2020
The Group's financial statements for the year ended 29 February
2020 were issued on 4 June 2020. Those financial statements were
prepared on the basis that the Group was a going concern although
there were material uncertainties in respect of the position
adopted.
In arriving at that expectation, the Directors had reviewed the
Group's updated cash flow forecasts together with the projected
covenant compliance of the Group, which covered a period up to
February 2022. Following the Group's success in securing, on 4 June
2020, an additional GBP40m revolving credit facility (RCF) from
current lenders and fully expecting to raise at least GBP80m from
an imminent equity raise, the Directors were satisfied the Group
had sufficient cash headroom to continue trading for the period
assessed.
Update to position
Subsequent to the issue of the February 2020 financial
statements, the Group successfully raised GBP100m of gross proceeds
from the equity raise and also disposed of Stobart Rail. Following
the completion of the equity raise, the new GBP120m RCF became
unconditional. The Directors, in forming their going concern
conclusion, believe that the new and amended RCF maturing in
January 2022, will be able to be successfully renewed or replaced,
prior to or during January 2022, at a level sufficient to meet the
Group's requirements. Should this not occur, the Group will need to
find alternative funding or other mitigating actions from January
2022.
The Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
foreseeable future. Accordingly, the Group's interim financial
statements have been prepared on a going concern basis. However,
there remains a material uncertainty in respect of this going
concern assumption and the Directors have exercised judgement in
concluding that the Group remains a going concern. The
uncertainties are in respect of the substantial achievement of
forecasts (including in particular the successful disposal of
Stobart Air and Propius), the continued availability of existing
facilities (including the waiver or amendment of any covenants that
may be breached) and the renewal of the Group's existing RCF by
January 2022.
Base case forecast
In considering the going concern position, the Directors have
reviewed the Group's updated base case forecasts through to
February 2022, together with sensitivity analysis on those
forecasts, including a new severe but plausible downside set of
assumptions around the cessation of ongoing COVID-19 restrictions,
imposed by national governments, and the subsequent recovery for
the Group, whilst recognising the different recovery periods likely
to be seen given the nature of the different divisions. The
Directors consider the Energy division will recover first, with the
Aviation division likely to see a slower recovery as both airlines
and passengers adapt to the post COVID-19 environment.
The base case forecasts indicate that the Group will have
sufficient funds to meet its liabilities for the period covered by
the forecasts and anticipate facility headroom of c.GBP47m at
February 2022. However, there is a forecast breach of some
covenants in November 2021. The Directors believe that given the
need to refinance the RCF before the end of January 2022, a
covenant reset will form part of these discussions and therefore
should not result in the RCF being recalled in advance of its
maturity. A key assumption in respect of liquidity in the base case
forecasts is the disposal of Stobart Air and Propius during this
financial year, with no assumptions made for the final transaction
cash flows. This assumption is material as Stobart Air and Propius
are using approximately c.GBP30m of cash per annum and as
previously disclosed, the lease agreements between Propius and the
aircraft owners contain a break clause which, if exercised in April
2023, may cost approximately $21m.
Severe but plausible downside forecast
The directors have considered a severe but plausible downside
forecast. This scenario indicates that, before non-controllable
mitigating actions such as asset disposals, the Group may require
additional funding by February 2022 and may breach covenants in May
2021. The amount of additional funding that may be required in the
severe but plausible downside forecast, and the risk of breaching
covenants earlier increases the greater the cash shortfall against
operational forecasts.
The severe but plausible downside forecast includes the
following:
-- There is no disposal of Stobart Air and Propius before the
end of the forecast period (February 2022);
-- Assumed additional passenger volumes do not materialise for
summer 2021 at LSA;
-- There is an unplanned shut down for 3 months at a major plant
serviced by the Energy division; and
-- Additional cash outflows of approximately GBP13m for certain
provisions, liabilities and contingent liabilities to reflect the
risk of crystallisation during the going concern period.
The Board will of course seek to mitigate the financial impact
of this downside forecast should it arise.
Conclusion
Overall, the directors are satisfied that the company will have
sufficient funds to continue to meet its liabilities as they fall
due for at least 15 months from the date of approval of the interim
financial statements and therefore have prepared the financial
statements on a going concern basis.
However, the substantial achievement of forecasts (including in
particular the successful disposal of Stobart Air and Propius), the
continued availability of existing facilities (including the waiver
or amendment of any covenants that may be breached) and the renewal
of the Group's existing RCF by January 2022, together with the
other matters referred to above, represent material uncertainties
that may cast significant doubt on the ability of the Group and
Company to continue as a going concern and, therefore, to continue
realising its assets and discharging its liabilities in the normal
course of business. The financial statements do not include any
adjustments that would be necessary if the going concern basis was
inappropriate.
Significant accounting policies
The accounting policies adopted in the preparation of the
interim financial statements are consistent with those followed in
the preparation of the Group's annual financial statements for the
year ended 29 February 2020. These accounting policies are expected
to be applied for the full year to 28 February 2021. New accounting
policies adopted in the period are as follows:
Unearned revenue
Stobart Air receives consideration from customers for flights
that have not yet been flown. This unearned revenue is a contract
liability as defined by IFRS 15 and is held on the Consolidated
Statement of Financial Position until it is realised in the income
statement when the performance obligation is complete.
Aircraft
Stobart Air and Propius lease aircraft from third party lessors.
A lease liability is recognised in the statement of financial
position at the present value of the future minimum lease payments,
discounted at the incremental borrowing rate. A right-of-use asset
is recognised based on the present value of current market rate
payments for similar aircraft, discounted at the incremental
borrowing rate. The interest element of the lease liability is
charged to the consolidated income statement over the period of the
lease. Right-of-use assets are depreciated over the period of the
lease and the depreciation is charged to the consolidated income
statement.
Furlough
Payments received from the UK Government under the furlough job
retention scheme are recognised in the same period in which the
related expense is incurred and are netted off against the
expense.
Key estimates and judgements
The estimates and judgements taken by the Directors in preparing
these interim financial statements are comparable with those
disclosed in the annual financial statements for the year ended 29
February 2020, with the addition of the following.
Acquisition of Stobart Air and Propius
Judgement was required in relation to the Group's 100%
consolidation of the newly acquired Stobart Air and Propius. The
main judgement was whether control was achieved and took into
account the equity investment, the level of reliance on the Group
to fund and operate these businesses, the reacquisition of a loan
and other factors. Judgements and estimates relating to the fair
value of assets and liabilities acquired, and the recognition of a
loss on acquisition, have been disclosed in note 6.
Presentation of Condensed Consolidated Income Statement
In the Group's interim financial statements for the period ended
31 August 2019 and the annual financial statements for the year
ended 29 February 2020, the income statement was presented with a
split of underlying and non-underlying items. The Condensed
Consolidated Income Statement for the period ended 31 August 2020
is presented as one total column and the prior period comparatives
have been restated accordingly.
EBITDA is the key profitability measure used by management for
performance review in the day-to-day operations of the Group.
EBITDA is a non-GAAP measure and is explained in note 20. Non-GAAP
measures are used as they are considered to be both useful and
necessary. They are used for internal performance analysis and the
presentation of these measures facilitates comparability with other
companies, although management's measures may not be calculated in
the same way as similarly titled measures reported by other
companies.
The post-tax results of discontinued operations along with any
gain or loss recognised on the disposal of the assets or disposal
groups constituting the discontinued operation are disclosed as a
single amount in the Condensed Consolidated Income Statement. The
comparative period results are restated accordingly.
COVID-19
Management have considered the impact of the COVID-19 pandemic
on the assets and liabilities of the Group. For example, impairment
reviews have been performed in respect of non-financial assets, the
credit risk of trade and other receivables has been reassessed at
the period end and management has considered the fair value of
assets and liabilities. There have been no material adjustments to
assets or liabilities as a direct consequence of COVID-19. Further
details on how COVID-19 has impacted London Southend Airport are
disclosed in note 11.
2 Seasonality of operations
There is a material effect of seasonality in both of our largest
operating divisions. In the Aviation division there are higher
seasonal sales in summer, due to increased demand for overseas
travel, and this is partly offset by higher seasonal sales in
winter in the Energy division, due to higher energy consumption.
COVID-19 has impacted the effect of seasonality in the current
period; however, this does not alter the long-term seasonality of
operations of the Group.
3 Segmental information
The reporting segments are Stobart Aviation, Stobart Energy,
Stobart Investments and Non-Strategic Infrastructure. In the prior
period the results of Stobart Rail were included as a separate
reporting segment, Stobart Rail & Civils. However, due to the
disposal of Stobart Rail, the results of the division are no longer
included as a separate segment but are presented as discontinued
operations on the face of the Condensed Consolidated Income
Statement, see note 5.
The Stobart Aviation segment specialises in the operation of a
commercial airport and the provision of ground handling services.
The Stobart Energy segment specialises in the supply of sustainable
biomass for the generation of renewable energy.
The Stobart Investments segment primarily represents the
operations of our regional airline operator, Stobart Air, and an
aircraft leasing business, Propius. The segment also holds two
investments in non-controlling interests, the results of which are
immaterial. Substantially all of the results reported in this
segment are in respect of Stobart Air and Propius.
The Stobart Non-Strategic Infrastructure segment specialises in
management, development and realisation of a portfolio of property
assets, including Carlisle Lake District Airport, as well as an
investment in a renewable energy plant.
The Executive Directors are regarded as the Chief Operating
Decision Maker. The Directors monitor the results of each business
unit separately for the purposes of making decisions about resource
allocation and performance assessment. The main segmental profit
measure is EBITDA, which is calculated as profit/(loss) before tax,
interest, depreciation, loss on acquisition and swaps. Income taxes
and certain central costs are managed on a Group basis and are not
allocated to operating segments.
Six months ended Non-Strategic Group central
31 August 2020 Aviation Energy Investments Infrastructure and eliminations Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue
External 13,402 33,223 5,169 730 647 53,171
Internal 65 - - 76 (141) -
--------- -------- ------------ ---------------- ------------------ ---------
Statutory revenue 13,467 33,223 5,169 806 506 53,171
--------- -------- ------------ ---------------- ------------------ ---------
EBITDA (936) 2,402 (1,577) (636) (4,199) (4,946)
Swaps - - (111) - (286) (397)
Depreciation (4,599) (4,333) (4,523) (498) (493) (14,446)
Loss on acquisition - - (54,977) - - (54,977)
Net interest (418) (961) (1,084) (221) 8 (2,676)
--------- -------- ------------ ---------------- ------------------ ---------
Loss before tax (5,953) (2,892) (62,272) (1,355) (4,970) (77,442)
--------- -------- ------------ ---------------- ------------------ ---------
Restated
Six months ended Non-Strategic Group central
31 August 2019 Aviation Energy Investments Infrastructure and eliminations Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue
External 26,307 42,883 2,127 1,170 2,269 74,756
Internal 65 - - 142 (207) -
--------- -------- ------------ ---------------- ------------------ ---------
Statutory revenue 26,372 42,883 2,127 1,312 2,062 74,756
--------- -------- ------------ ---------------- ------------------ ---------
EBITDA (1,674) 10,582 (223) (1,986) (4,158) 2,541
Swaps - - - - 114 114
Depreciation (3,653) (4,442) - (1,016) (873) (9,984)
Amortisation - (22) - - (3,717) (3,739)
Net interest (581) (585) (479) (255) (2,551) (4,451)
--------- -------- ------------ ---------------- ------------------ ---------
(Loss)/profit before
tax (5,908) 5,533 (702) (3,257) (11,185) (15,519)
--------- -------- ------------ ---------------- ------------------ ---------
Internal revenue above relates to inter-segment revenues that
are eliminated within Group central and eliminations. Intra-segment
revenues are eliminated within each segment.
4 Revenue
In the following table, revenue is disaggregated by major
products and service lines, primary geographical market, and timing
of revenue recognition.
Six months ended Non-Strategic Group central
31 August 2020 Aviation Energy Investments Infrastructure and eliminations Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Major product/service
line
Sale of goods 2,268 33,223 - 27 7 35,525
Rendering of services 10,749 - 5,169 77 - 15,995
Royalties/commissions - - - - 207 207
Property rentals 385 - - 626 433 1,444
--------- -------- ------------ ---------------- ------------------ --------
13,402 33,223 5,169 730 647 53,171
--------- -------- ------------ ---------------- ------------------ --------
Primary geographical markets
United Kingdom 11,225 33,223 1,964 728 647 47,787
Europe and Ireland 2,175 - 3,205 2 - 5,382
Rest of world 2 - - - - 2
--------- -------- ------------ ---------------- ------------------ --------
13,402 33,223 5,169 730 647 53,171
--------- -------- ------------ ---------------- ------------------ --------
Timing of revenue recognition
Products and services
transferred at a
point in time 13,402 33,223 5,169 678 440 52,912
Products and services
transferred over
time - - - 52 207 259
--------- -------- ------------ ---------------- ------------------ --------
13,402 33,223 5,169 730 647 53,171
--------- -------- ------------ ---------------- ------------------ --------
Restated
Six months ended Non-Strategic Group central
31 August 2019 Aviation Energy Investments Infrastructure and eliminations Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Major product/service
line
Sale of goods 6,976 37,960 - 352 26 45,314
Rendering of services 18,924 4,839 2,127 344 42 26,276
Royalties/commissions - - - - 2,068 2,068
Property rentals 407 84 - 474 133 1,098
--------- -------- ------------ ---------------- ------------------ --------
26,307 42,883 2,127 1,170 2,269 74,756
--------- -------- ------------ ---------------- ------------------ --------
Primary geographical markets
United Kingdom 24,848 42,883 2,127 1,124 2,269 73,251
Europe and Ireland 1,411 - - 7 - 1,418
Rest of world 48 - - 39 - 87
--------- -------- ------------ ---------------- ------------------ --------
26,307 42,883 2,127 1,170 2,269 74,756
--------- -------- ------------ ---------------- ------------------ --------
Timing of revenue recognition
Products and services
transferred at a
point in time 26,307 42,883 2,127 691 208 72,216
Products and services
transferred over
time - - - 479 2,061 2,540
--------- -------- ------------ ---------------- ------------------ --------
26,307 42,883 2,127 1,170 2,269 74,756
--------- -------- ------------ ---------------- ------------------ --------
Opening and closing receivables, contract assets and contract
liabilities from contracts with customers are provided in the table
below.
31 August 2020 29 February
2020
Unaudited Audited
GBP'000 GBP'000
Receivables 10,109 18,094
Contract assets 33 -
Contract liabilities (10,150) (167)
--------------- ------------
Contract assets primarily relate to the Group's rights to
consideration for work completed but not billed at the reporting
date on contracts in Stobart Air. Contract liabilities relate to an
entity's obligation to transfer goods or services to a customer for
which the entity has received consideration.
Receivables have decreased in the period mainly due to a
provision posted against a receivables balance relating to a
processing plant.
The contract liabilities have increased since year end primarily
due to the acquisition of Stobart Air in the period and relate to
advance consideration received from flights booked in advance but
not flown.
5 Discontinued operations
On 14 July 2020, the Group divested of Stobart Rail Limited
(Stobart Rail) to Bavaria Industries Group AG for initial cash
consideration of GBP1,000 and contingent consideration with a fair
value of GBP331,000. The net assets disposed totalled GBP8,902,000
and GBP779,000 costs were incurred, resulting in a loss on disposal
of GBP9,349,000. The contingent consideration, up to GBP2.9m,
relates to the outcome of a single legacy contract and takes into
account costs and likelihood to complete the contract. The fair
value of contingent consideration will be reviewed at each
reporting date.
Under the SPA, the Group provided warranties up to a maximum of
GBP500,000. The warranties are title and capacity only, with no
trading warranties. There are no material indemnities provided to
Stobart Rail by the Group.
The results of Stobart Rail in the period, along with the loss
on disposal, have been reported on a single line, net of tax on the
face of the Condensed Consolidated Income Statement. The Condensed
Consolidated Income Statement for the period ended 31 August 2019
has been restated on the same basis.
The loss for the period from discontinued operations, net of tax
for the period ended 31 August 2019 also includes the results of
the operations of Propius Holdings Limited (Propius). Propius was
held for sale at the year ended 28 February 2019 and was fully
disposed in November 2020. In the current period Propius and
Stobart Air have been re-acquired, see note 6 for more details.
A summary of the Stobart Rail results included in discontinued
operations is as follows:
Six months Six months
ended 31 ended 31
August 2020 August 2019
Unaudited Unaudited
GBP'000 GBP'000
Revenue 6,309 18,375
Operating expenses (7,793) (19,550)
Depreciation (854) (1,370)
Impairments - (8,474)
Net finance costs (22) (95)
------------- -------------
Results from operating activities before
tax (2,360) (11,114)
Loss on disposal (9,349) -
------------- -------------
Loss before tax (11,709) (11,114)
Tax 120 -
------------- -------------
Loss for the period from discontinued
operations, net of tax (11,589) (11,114)
------------- -------------
A summary of the discontinued operations recognised in the
Condensed Consolidated Income Statement is as follows:
Six months Six months
ended 31 ended 31
August 2020 August 2019
Unaudited Unaudited
GBP'000 GBP'000
Rail discontinued operations, net of
tax (11,589) (11,114)
Propius discontinued operations, net
of tax - 2,567
(11,589) (8,547)
------------- -------------
6 Stobart Air and Propius transaction
Whilst Propius was originally a subsidiary of the group it
entered into the sale and leaseback of eight ATR72-600 aircraft to
a third party in April 2017. The Group provided guarantees to the
third party over the $15.4m annual rentals payable by Propius which
expire in April 2027. These guarantees remained in place on
disposal of Propius to Connect Airways Limited (Connect Airways).
On 18 March 2020, Connect Airways, the parent company of Stobart
Air and Propius, entered administration. The Directors reviewed all
options available to the Group in relation to the future of Stobart
Air and Propius, and concluded that the best course of action was
to buy back Stobart Air and Propius to give the Group effective
control over the pre-existing guarantee obligations it has in
respect of those businesses. Accounting for the recognition of
these pre-existing guarantee arrangements has resulted in the
current period loss of GBP54,977,000. The net liabilities
recognised on the subsequent acquisition reflect this loss.
The Group re-acquired equity in Stobart Air Limited and Propius
Limited on 27 April 2020 for initial cash consideration of GBP0.3m.
There is a further GBP2.0m of deferred consideration to be paid by
15 December 2020, and deferred contingent consideration up to a
maximum of GBP6.25m, based on the equity value achieved after
disposal costs, on a realisation of value in respect of both of the
businesses prior to 31 December 2023. The deferred contingent
consideration has a nil fair value. These businesses have been
accounted for as 100% subsidiaries.
Stobart Group's Aviation Strategy has not changed as a result of
this transaction the Group will work with Aer Lingus to identify a
new financial partner to support the business for the future with
Stobart Group exiting its involvement in a controlled way at the
appropriate time. Although the Group has communicated its intention
to sell, these businesses have not met the conditions to be
presented as held for sale at the period end.
In the period between acquisition and 31 August 2020, Stobart
Air and Propius contributed revenue of GBP5,169,000 and a loss
before tax of GBP6,387,000 in the Condensed Consolidated Income
Statement. If the acquisition had occurred on 1 March 2020,
management estimates that Stobart Air and Propius' revenue would
have been GBP12,129,000 and loss before tax would have been
GBP10,283,000. In determining these amounts management has assumed
that the fair value adjustments, determined provisionally, that
arose on the date of acquisition would have been the same if the
acquisition had occurred on 1 March 2020.
Consideration transferred
The following table summarises the acquisition date fair value
of each major class of consideration transferred.
GBP'000
Cash 343
Deferred consideration 2,000
Contingent consideration -
--------
Total consideration transferred 2,343
--------
Acquisition related costs
The Group incurred acquisition-related costs of GBP533,000 on
legal and due diligence costs. These costs have been included in
operating expenses in the Condensed Consolidated Income
Statement.
Identifiable assets acquired and liabilities assumed
The following table summarises the recognised amounts of assets
acquired, and liabilities assumed at the date of acquisition:
GBP'000
Right-of-use assets 35,171
Property, plant & equipment 1,561
Inventory 4,208
Cash and cash equivalents 1,479
Trade and other receivables 30,295
Deferred tax asset 1,790
Trade and other payables (35,447)
Current tax liability (490)
Lease obligations (64,708)
Provisions (32,457)
Derivative financial instruments (3,661)
---------
Net identifiable assets and liabilities at fair value (62,259)
---------
Fair values measured on a provisional basis
The aircraft lease liabilities have been calculated using the
lease cashflows with the lease being terminated at the break clause
in April 2023 on the payment of the termination charge. An interest
charge based on an incremental borrowing rate has been
reflected.
Spare part inventory held by Stobart Air for Embraer aircraft
was fair valued to GBPnil on the basis that there were no future
plans to utilise the Embraer aircraft in the fleet. However, the
fair value of, and accounting for, all inventory acquired is
provisional.
The right-of-use aircraft in the Propius balance sheet following
transition to IFRS 16 was based on the contractual monthly lease
charge of $160,000 per aircraft. Under IFRS 3, the fair value of
these right-of-use assets was recalculated using a market lease
rate of $90,000 per aircraft over the lease term to the break
clause in April 2023. This adjustment did not impact the liability
as that is based on the contractual lease obligation.
The estimate of the right-of-use assets and lease liabilities is
materially sensitive to the discount rate used.
Onerous lease contract provision
Stobart Group Limited held a provision for an onerous lease
contract for GBP9,625,000 relating to amounts payable to Connect
Airways in connection with the lease of aircraft which has now been
acquired as part of the transaction. Following the acquisition,
there is no obligation for Stobart Group Limited to settle this
liability in cash and so the reversal of the provision has been
reflected in the acquisition assessment.
GBP'000
Cash and deferred consideration 2,343
Reversal of onerous lease contract provision held
as at 29 February 2020 (9,625)
Loss on Stobart Air and Propius transactions reflected
in the subsequent acquisition (54,977)
Fair value of identifiable net liabilities (62,259)
---------
7 Finance costs and income
Restated
Six months Six months
ended 31 ended 31
August 2020 August 2019
Unaudited Unaudited
GBP'000 GBP'000
Bank loans 2,008 1,292
Interest on defined benefit pension
scheme 33 40
Finance charges payable under leases 4,522 2,521
Amortisation of deferred issue costs 769 182
ESL dividend passed to exchangeable
bondholders - 1,985
Other interest 295 525
Foreign exchange losses 128 661
Total finance costs 7,755 7,206
------------- -------------
Six months Six months
ended 31 ended 31
August 2020 August 2019
Unaudited Unaudited
GBP'000 GBP'000
Bank interest receivable - 12
Interest receivable from associates
and joint ventures - 2,174
Fair value of financial liabilities 2,378 -
Interest received from net investment
in lease 674 564
Foreign exchange gains 2,027 5
------------- -------------
Total finance income 5,079 2,755
------------- -------------
The increase in finance charges payable under leases is
primarily due to aircraft leases following the acquisition of
Stobart Air and Propius. The increase in foreign exchange gains is
due to favourable fluctuations in US Dollar and Euro exchange
rates.
In the prior year the Group entered into a put option with
fellow Connect Airways shareholder Cyrus Capital Partners (Cyrus).
This agreement gave Cyrus the option to exchange GBP23m of second
ranking six-year 8% RCF debt with Connect Airways, for equity
shares in Stobart Group Limited. The Cyrus put option is valued
using the Stobart Group share price and assumptions around legal
probability and the creditworthiness of Connect Airways. This has
been valued at GBP1,122,000 at 31 August 2020
(29 February 2020: GBP3,500,000) and the gain on revaluation is
presented as fair value of financial liabilities within finance
income.
8 Taxation
Taxation on profit on ordinary activities
Total tax in the Condensed Consolidated Restated
Income Statement from continuing and Six months Six months
discontinued operations ended 31 ended 31
August 2020 August 2019
Unaudited Unaudited
GBP'000 GBP'000
Corporation tax:
Overseas corporation tax - (22)
Adjustments in respect of prior years 1,000 -
Total corporation tax 1,000 (22)
-------------- -------------
Deferred tax:
Origination and reversal of temporary
differences (2,728) (2,021)
Impact of change in rate 675 -
Adjustment in respect of prior years - (1,083)
-------------- -------------
Total deferred tax (2,053) (3,104)
-------------- -------------
Total credit in the income statement (1,053) (3,126)
-------------- -------------
Split between:
Continuing (933) (3,182)
Discontinued (120) 56
-------------- -------------
Included in the above tax charges are total current tax charge
on continuing operations of GBP1,000,000 (2019: GBPnil) and a total
deferred tax credit on continuing operations of GBP1,933,000 (2019:
GBP3,182,000) giving a total tax credit on continuing operations in
the Condensed Consolidated Income Statement of GBP933,000 (2019:
GBP3,182,000). In addition, there is a current tax credit on
discontinued operations of GBPnil (2019: GBPnil) in addition to a
deferred tax credit on discontinued operations of GBP120,000 (2019:
GBP56,000 charge) giving a total tax credit on continuing and
discontinued operations in the Condensed Consolidated Income
Statement of GBP1,053,000 (2019: GBP3,126,000).
The effective tax rate in the year was 1.3% which was driven by
the loss on acquisition in the year being treated as disallowable
for tax purposes and deferred tax assets not being recognised in
respect of certain temporary differences in the year.
A change to the UK corporation tax rate was announced in the
March 2020 Budget. This was substantively enacted on 17 March 2020
and the corporation tax rate now applicable from 1 April 2020
remains at 19% rather than the previously enacted reduction to 17%.
As such, the deferred tax assets/liabilities as at 31 August 2020
have been recognised/provided at 19%.
9 Loss per share
The following table reflects the income and share data used in
the basic and diluted earnings per share calculations:
Restated
Six months Six months
ended 31 ended 31
August 2020 August 2019
Unaudited Unaudited
GBP'000 GBP'000
Numerator
Loss from continuing operations used
for basic and diluted earnings (76,509) (12,337)
Denominator Number Number
Weighted average number of shares used
in basic EPS 457,090,082 366,331,503
Effects of employee share options - -
------------- -------------
Weighted average number of shares used
in diluted EPS 457,090,082 366,331,503
------------- -------------
Own shares held and therefore excluded
from weighted average number 3,254,037 4,490,212
------------- -------------
10 Dividends
There are no dividends payable for the current period. In the
prior period a final dividend of 3.0p per share totalling
GBP11,125,000 was declared on 29 May 2019 and was paid on 31 July
2019.
11 Property, plant and equipment
Additions and disposals
During the six months ended 31 August 2020, the Group acquired
or developed property, plant and equipment assets with a cost of
GBP2,222,000 (2019: GBP19,708,000). This included development work
at London Southend Airport and processing plant equipment and
trailers in the Energy division. Property, plant and equipment
assets with a book value of GBP291,000 (2019: GBP2,537,000) were
disposed of by the Group during the six months ended 31 August
2020, resulting in a profit on disposal of GBP24,000 (2019:
GBP194,000). Following the acquisition of Stobart Air and Propius,
property, plant and equipment with a net book value of
GBP36,733,000, primarily relating to right-of-use aircraft assets,
was recognised in the Condensed Consolidated Statement of Financial
Position.
Capital commitments
At 31 August 2020, the Group had capital commitments of
GBP331,000 (2019: GBP4,875,000), principally relating to ground
handling equipment in the Aviation division.
Impairment testing of other property, plant and equipment where
no charge for impairment has been recognised
The London Southend Airport (LSA) CGU comprises the business
operations of the commercial airport and railway station ancillary
operation. The CGU has been tested for impairment as the business
suffered a loss before tax in the six-month period ended 31 August
2020 and because following COVID-19 there has been a material
reduction in passenger numbers during the period.
The Group estimated the value-in-use of the CGU and determined
that no charge for impairment was necessary. The pre-tax discount
rate used in the value-in-use calculation was 10.1% based on the
weighted average cost of capital, taking into account the cost of
equity and debt for the CGU, and adjusting for risk specific to the
CGU. The estimated value-in-use was based on estimates of the
timing and extent of increases in the level of future passenger
numbers, income per passenger, global logistics income and the
discount rate.
The cash flows are based on internal financial forecasts for the
5 years ending February 2026. These forecasts are based on
performance to date, industry data on the recovery period to
pre-COVID-19 levels for an airport with similar characteristics and
wider capacity constraints in the London airport market. Cash flows
beyond this period are deemed to be in perpetuity but an annual
growth rate of 2.0% is assumed in the calculations. The carrying
value of PPE included in this CGU at 31 August 2020 was GBP160.2m
and the headroom over and above the carrying amount of assets was
GBP63.8m.
The calculation of the value-in-use is sensitive to the discount
rate. In order for the estimated recoverable amount of the CGU to
be equal to the carrying amount, the discount rate would need to be
individually increased by 2.0 percentage points. The key source of
estimation uncertainty is future cash flow, driven by passenger
volumes and estimated airport spend per passenger, which will be
determined by the Group's ability to continue attracting new
airlines and improving the customer experience in the terminal,
post COVID-19 downturn. The current base case forecast is that
passenger numbers in the year ending February 2022 will be 20% down
on those of year ending February 2019, February 2023 forecast is
slight above the February 2020 actuals and after this date steady
growth is forecast taking passenger numbers to 4.4m in the year
ending February 2026. If all cash flows in the impairment model
were reduced by 23.6%, the estimated recoverable amount would equal
the carrying amount.
COVID-19 has had a material impact on the revenue and cash flow
generation of LSA during the period. The cash flows used in the
value-in-use calculation are significant lower than those used in
prior years before the impact of COVID-19 and capital expenditure
has been scaled back and delayed where appropriate, however, the
airport is still very well positioned to take advantage of the
aviation market post COVID-19. The advantages held by LSA are the
slot availability at peak times and its low cost of operation
compared to other London airports. An example of the improved
customer experience is the next generation baggage scanning
equipment that is being installed and will maintain the efficient
movement of passengers through the airport.
Should there be a severe long-term impact on the aviation
industry as a result of COVID-19, the Directors are satisfied that
the land LSA occupies has a significant underlying value that could
be exploited through pursuing other non-passenger aviation related
activities. In this scenario, the Directors are confident there
would be no material impairment, however, no valuations have been
performed as this is not the approach management intend to adopt to
generate sufficient cash flows to support the carrying value of the
asset.
12 Analysis of net debt
31 August 29 February
2020 2020
Unaudited Audited
Loans and borrowings GBP'000 GBP'000
Non-current
Fixed rate:
* Obligations under leases 23,129 24,371
Variable rate:
* Obligations under leases 5,028 5,532
* Revolving credit facility (net of arrangements fees) 7,097 74,757
---------- ------------
35,254 104,660
---------- ------------
Current
Fixed rate:
* Obligations under leases 9,381 8,647
* Exchangeable bonds* 51,822 51,689
Variable rate:
* Obligations under leases 2,840 3,852
---------- ------------
64,043 64,188
---------- ------------
Total loans and borrowings (excluding IFRS
16) 99,297 168,848
Cash (10,109) (9,802)
---------- ------------
Net debt (excluding IFRS 16) 89,188 159,046
Non-current
- IFRS 16 lease obligations 122,563 73,128
Current
- IFRS 16 lease obligations 11,958 3,281
---------- ------------
Net debt 223,709 235,455
---------- ------------
* In accordance with IAS 1 it is necessary for the secured
guaranteed exchangeable bonds (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 Bonds by
giving the bondholders shares in Eddie Stobart Logistics plc at any
time. The Group has no obligation to settle the Bonds in cash
within 12 months of the balance sheet date.
The IFRS 16 lease obligations balance has increased mainly due
to the acquisition of Stobart Air and Propius.
The obligations under leases are taken out with various lenders
at fixed or variable interest rates prevailing at the inception of
the contracts. A breakdown of cash and non-cash movements in leases
is as follows:
Six months Six months
ended 31 ended 31
August 2020 August 2019
Unaudited Unaudited
GBP'000 GBP'000
Obligations under leases
Principal elements of lease payments (7,897) (9,720)
New leases entered into 1,894 13,476
Unwind of discount 74 74
Transition liability recognised - 78,229
Non-cash interest accruals 1,967 138
Foreign exchange retranslation (2,951) -
Acquisition of subsidiary 64,708 -
Disposal of subsidiary (1,707) -
------------- -------------
Movement in lease obligations 56,088 82,197
------------- -------------
On 4 June 2020, the current bank lenders agreed to fund an
additional GBP40m revolving credit facility (RCF). As a result of
the new RCF, it has been necessary to renegotiate the existing RCF
terms and has resulted in an increased cost of borrowing, made up
of both arrangement fees and increased drawn and undrawn interest
rates and revised/rebased certain covenants. The terms are now
aligned for both the new and amended RCF. The new RCF will run
concurrently with the amended RCF and both expire in January 2022.
The renegotiation of the RCF led to the Group incurring legal and
professional fees of GBP4,247,000. These fees have been capitalised
and will be released over the life of the RCF.
The capital raise, see note 14, enabled the Group to repay
certain amounts drawn under the RCF. The facility was drawn at
GBP11,000,000 (Feb 2020: GBP75,000,000) at the period end.
The Group was in compliance with all financial covenants
throughout both the current and prior periods.
13 Provisions
Onerous Corporation Litigation Capital Maintenance
Site restoration lease tax and claims commitments reserves Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- -------- ------------ ------------ ------------- ------------ --------
At 1 March 2020 2,962 10,589 11,355 1,689 3,942 - 30,537
Acquisition of
subsidiary - 74 3,311 1,262 558 27,252 32,457
Provisions used - - - (1,209) - (5,347) (6,556)
Provisions made - - 1,000 28 - 518 1,546
Provisions utilised - (76) - (71) - - (147)
Provisions reversed - (9,625) - - - - (9,625)
Unwind of discount 37 9 - - - - 46
Currency
retranslation - 2 - 31 14 (926) (879)
Disposal of
subsidiary - (560) - - - - (560)
----------------- -------- ------------ ------------ ------------- ------------ --------
At 31 August
2020 2,999 413 15,666 1,730 4,514 21,497 46,819
----------------- -------- ------------ ------------ ------------- ------------ --------
Analysis of
provisions
Current - - 3,311 498 3,942 2,016 9,767
Non-current 2,999 413 12,355 1,232 572 19,481 37,052
----------------- -------- ------------ ------------ ------------- ------------ --------
At the year ended 29 February 2020 a provision of GBP9,625,000
was held in relation to amounts payable to the former owners of
Propius, linked to lease payments on the ATR aircraft in excess of
$100k per month. Following acquisition, there is no obligation for
Stobart Group Limited to settle this liability in cash and as such
the provision has been released as part of the acquisition
accounting, see note 6.
At the year ended 29 February 2020 the Group held provisions of
GBP11,355,000 for number of tax enquiries across the Group which
management is working with HMRC and professional advisers to
satisfy and resolve. In the period a GBP3,300,000 increase has
arisen on acquisition of Stobart Air and Propius and the Group has
increased the total provision by GBP1,000,000. Management believes
that the current provision is a reasonable estimate to cover the
potential liabilities. The timing of cash outflows is currently
uncertain, however management's best estimate is that no cash
outflows will occur within the next 12 months.
Following the acquisition of Stobart Air and Propius maintenance
reserve provisions of GBP27,252,000 relating to the maintenance of
aircraft were added to the Group balance sheet.
14 Issue of ordinary shares
On 29 June 2020 the Group issued 250,273,461 ordinary shares in
Stobart Group Limited at 40p per share raising GBP100.1m. The share
capital increased by GBP25,027,000 and share premium increased by
GBP66,043,000, net of costs.
15 Disposal of intangible assets
On 20 May 2020, the Group disposed of its Eddie Stobart and
Stobart trademarks and designs, which were held for sale at 29
February 2020, to Eddie Stobart Logistics plc (ESL) for cash
consideration of GBP10.0m. The consideration equalled the carrying
value of the asset held for sale there was no gain or loss on
disposal. Cash of GBP6.0m was received upon completion, a further
GBP2.5m is to be paid by 1 December 2020 and GBP1.5m is to be paid
36 months after completion.
16 Fair values
Financial assets and liabilities
The carrying amounts of the following financial assets and
financial liabilities are a reasonable approximation of their fair
value: cash and cash equivalents, financial assets at fair value
through other comprehensive income, investments in associates and
joint ventures, trade and other receivables, trade and other
payables, derivative financial assets/liabilities.
The book value and fair values of the remaining financial
liabilities are as follows:
Book Value Fair Value
31 August 31 August
2020 2020
Unaudited Unaudited
GBP'000 GBP'000
Financial Liabilities
Bank loans 7,097 7,097
Exchangeable bonds 51,822 47,148
Lease obligations 174,899 163,336
Book Value Fair Value
29 February 29 February
2020 2020
Audited Audited
GBP'000 GBP'000
Financial Liabilities
Bank loans 74,757 74,757
Exchangeable bonds 51,689 46,389
Lease obligations 118,811 113,446
The fair values of loans and borrowings have been calculated by
discounting the expected future cash flows at prevailing interest
rates. The fair value of the exchangeable bonds includes an
immaterial derivative instrument, valued using an option pricing
model, and a debt component where the fair value has been
calculated by discounting the expected future cashflows at
prevailing interest rates.
Fair Value Hierarchy
The fair value hierarchy is explained in the statutory accounts
for the year ended 29 February 2020.
Financial Assets measured at Fair Value
Total Level 1 Level 2 Level 3
GBP'000 GBP'000 GBP'000 GBP'000
As at 31 August
2020
Other financial
assets 3,422 3,352 - 70
As at 29 February
2020
Other financial
assets 4,776 4,706 - 70
Financial liabilities measured at Fair Value
Total Level 1 Level 2 Level 3
GBP'000 GBP'000 GBP'000 GBP'000
As at 31 August
2020
Other financial
liabilities 1,122 - - 1,122
Swaps 2,086 - 2,086 -
As at 29 February
2020
Other financial
liabilities 3,500 - - 3,500
Swaps 248 - 248 -
During the six months ended 31 August 2020, there were no
transfers between Level 1 and Level 2 fair value measurements, and
no transfers into and out of Level 3 fair value measurements.
17 Cash used in operations
Six months Six months
ended 31 ended 31
August 2020 August 2019
Unaudited Unaudited
GBP'000 GBP'000
Loss before tax (77,442) (15,519)
Adjustments to reconcile loss before
tax to net cash flows:
Loss in value of investment properties - 879
Realised profit on sale of property,
plant and equipment and investment properties (24) (194)
Share of post-tax profits of associates
and joint ventures accounted for using
the equity method 148 2,349
Depreciation of property, plant and
equipment 14,446 9,984
Finance income (2,378) (2,755)
Finance costs 6,953 4,440
Release of grant income (234) (356)
Release of deferred premiums (207) (1,308)
Amortisation of intangibles - 3,739
Loss on acquisition 54,977 -
(Credit)/charge for share-based payments (8) 420
Movement in fair value of exchange derivative
liability - 124
Foreign exchange retranslation (1,644) -
Gain on fuel swaps mark to market valuation (1,728) (114)
Retirement benefits and other provisions (1,776) (2,174)
Working capital adjustments:
Increase in inventories (696) (188)
Increase in trade and other receivables (638) (24,739)
Increase in trade and other payables 4,586 10,202
Cash payment for maintenance events (5,347) -
Cash used in continuing operations (11,012) (15,210)
------------- -------------
18 Contingent liabilities
Eddie Stobart Logistics plc (ESL) property rent guarantees have
been in place since the disposal of ESL in April 2014. The Group
believes that the possibility of any outflow in settlement is no
longer remote. However, an outflow would only materialise if ESL
failed in its lease obligations to the landlord, in addition to a
new tenant not stepping into the lease. The Group's maximum
exposure over the period to February 2034 is GBP58.5m, this has
reduced by GBP18.8m following the renegotiation of one ESL property
lease and the expiry of another.
Various claims have been made against our Energy and Aviation
divisions. One of these claims is expected to reach a conclusion
before the end of this financial year, following a hearing in
October 2020. Stobart is vigorously defending all these claims and
believes the risk of outflow to be low, however, the likelihood of
a future outflow of economic benefit is no longer classified as
remote. The maximum exposure under these claims is GBP12.0m.
Following the sale and leaseback of eight ATR72-600 aircraft in
April 2017, the Group provided guarantees over the $15.4m annual
rentals payable by Propius which were recognised as a contingent
liability at 29 February 2020. Due to the acquisition of Propius
during the period the leases are now recognised on the balance
sheet under IFRS 16 and so are no longer contingent
liabilities.
19 Related parties
During the period, the Group made sales of GBP2,706,000 (2019:
GBP2,554,000) to its associate Mersey Bioenergy Limited (a
subsidiary of Mersey Bioenergy Holdings Limited) relating to the
sale of material. At 31 August 2020, GBP377,000 (29 February 2020:
GBP535,000) was owed to the Group.
20 Glossary - Alternative performance measures (APMs)
In the reporting of financial information, the Directors have
adopted various APMs. These measures are not defined by
International Financial Reporting Standards (IFRS) and therefore
may not be directly comparable with other companies' APMs.
APMs should be considered in addition to, and are not intended
to be a substitute for, or superior to, IFRS measurements.
Non-GAAP APMs are used as they are considered to be both useful
and necessary as well as enhancing the comparability of information
between reporting periods, by adjusting for non-recurring or
uncontrollable factors which affect IFRS measures, to aid users in
understanding the Group's performance.
Consequently, APMs are used by the Directors and management for
internal performance analysis, planning, reporting and
incentive-setting purposes. The presentation of these measures
facilitates comparability with other companies, although
management's measures may not be calculated in the same way as
similarly titled measures reported by other companies.
EBITDA
EBITDA is the key profitability measure used by management for
performance review in the day-to-day operations of the Group.
EBITDA represents profit/(loss) before interest, tax,
depreciation, amortisation and swaps. Refer to note 3 for
reconciliation to statutory (loss)/profit before tax.
Loss per share from continuing operations
This APM is based on profit after tax from continuing operations
which is loss for the period before discontinued operations (see
note 9 for further details).
Independent Review Report to Stobart Group Limited
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 31 August 2020 which comprises the Condensed
consolidated income statement, Condensed consolidated statement of
comprehensive income, Condensed consolidated statement of financial
position, Condensed statement of changes in equity, Condensed
consolidated statement of cash flows and the related explanatory
notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 31
August 2020 is not prepared, in all material respects, in
accordance with IAS 34 Interim Financial Reporting as adopted by
the EU and the Disclosure Guidance and Transparency Rules ("the
DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Material uncertainty relating to going concern
We draw attention to note 1 to the condensed financial
statements which describes uncertainties in respect of the
substantial achievement of forecasts (including in particular the
successful disposal of Stobart Air and Propius), the continued
availability of existing facilities (including the waiver or
amendment of any covenants that may be breached) and the renewal of
the Group's existing RCF by January 2022. These events and
conditions, along with the other matters explained in note 1,
constitute a material uncertainty that may cast significant doubt
on the ability of the Group and Company to continue as a going
concern.
Our conclusion is not modified in respect of this matter.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
The annual financial statements of the group are prepared in
accordance with International Financial Reporting Standards as
adopted by the EU. The directors are responsible for preparing the
condensed set of financial statements included in the half-yearly
financial report in accordance with IAS 34 as adopted by the
EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Michael Froom
for and on behalf of KPMG LLP
Chartered Accountants
1 St Peter's Square
Manchester
M2 3AE
4 November 2020
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