Member Info for Hazzy01

Hi Dontgive up - totally agree with your sentiments regarding the people of Ukraine - what a aheroic people.

My point however is to take issue with your comment regarding biomass.

The current invasion will have no impact on the UK biomass market - all the plants are built and being supplied. There will be no more built as the subsidy regime is now closed.

Therefore the position for Esken is unchanged - they will supply the existing plants that they are contracted to but the Ukraine situation doesnt mean there is any upside to come.

It is basic economics that all power plants want high levels of availability during the winter as that is when the power prices are the highest - but you cant make a power station produce more megawatts than it was designed to do.

Not posting this to be negative to Esken at all - just correcting the misconception that the Ukraine crisis will improve the Energy Division's prospects which is not correct.

Hi Birdog - Wow I didn't know that which says it all.

Isnt it weird though that when Warwick Brady joined Stobarts the focus of the board went very aviation focused and the biomass knowledge and driver of Andrew Tinckler were effectively sidelined and then removed.

Morning

The original strategy of the BoD was to monetise ie sell the Biomass Division.

That strategy was changed by them taking it off the market and stating that the new strategy was to grow it - no doubt because it was the only part of the business that was earning.

This will also be partly due to the fact that its valuation would be low due to the Covid impact so it was more important to drive the earnings back to pre Covid levels which they now say they have done and more.

So their dilemma must be do they sell the golden goose or work it as hard as they can to get benefits to stay in the game and cover the Airport Division.

The articulation of all the liabilities and legacy payments highighted in previous posts was sobering though.

Hi TF - you sound like an accountant but your insight is really interesting.

Is the point that things will move from a longer term liability to a shorter term? - which then causes an issue or does it just impact on sentiment?

What is the problem coming down the track - is it the bond?

Note your point on free cash flow but will the energy division operating well not provide free cash flow? Is your point that whilst it keeps them in the game it isnt going to be sufficient to get them past 2023?

Its fascinating how people analyse things in different ways - its great to assist understanding

Best regards

H

Totally agree Gerry that Carlyle are in the box seat.

With the airport mothballed for passengers this winter the trading debate turns to the biomass division.

All the main biomass plants are burning and so this is the first year when that has been the case in the UK.

Also gate fees are still reasonable for this point of the year - as you go into the winter the gate fees tend to fall as wood waste arisings naturally fall in the marketplace. The higher gate fees in the market will reflect the point that every biomass supplier will have started the winter season with full stocks.

Therefore the biomass division should be posting good numbers over the following months. The two things that could impact them are:-

1) unplanned outages at the power stations (of which they have no control or visibility of)
2) managing their supply chain at maximum supply (of which this is the first year). Their storage capacity of 100k tonnes is insufficient to manage a 1.5 million contract base. Therefore the strength of their supply chain will be tested this winter as less than 4 weeks buffer stock at a 30k supply per week.

Obviously the impact of 1) would impact the earning but would mitigate the issue of supply chain management in 2)

What I am most interested in watching is can they manage the full supply over the winter when wood waste arisings fall. It will be visible because if they get short they will undercut gate fees and gate fees will drop very quickly.

Its going to be interesting to watch

Best regards

H

Hi Gerry

Interesting post to validate some of the figures.

What do you mean when you say £10ph? Is that a different metric?

I agree with most of your sentiment. Only question is whether Carlyle and Esken might have different strategies. Esken need to get past B/E as quickly as possible. Carlyle can play a longer game and a cheap deal which gets passenger figures rising at a quicker level to its long term future (at the expense of short term profitability) might actually suit them.

Esken getting weaker only plays into Carlyle's hands about getting the airport on the cheap?

Question is (and I have no idea the balance of power / influence) is whether Esken is the sole decision maker or whether Carlyle have a blocking vote.

It also could work both ways - what happens if Carlyle are the drivers of low margin passenger volume and Esken dont want to pursue it because of the negative impact on profitability?

It really could be a poker game - although from previous posts the inference is that other airports would recover first ......... I have no idea if that is valid or not.

Its an interesting one to see play out - as you say never a dull moment here

Best regards

H

much higher thannthe previous best!

Best regards

H

Great informative post Gerry and it gives me an insight into valuation that I didnt previously understand.

My point to Locky would be slightly different in relation to the sentiment of Southend.

I have never been to it and have no doubt with his point that it is the best experience..

The last proper year of trading in 2019 showed a record number of passengers going through it at 2.1 million and perceived continued growth from that point.

However even with those record numbers of passengers the Aviation Division was loss making. This stark fact was demonstrated that when Easyjet stopped using the airport the losses actually fell - they lost less money after Easyjet left which means that Esken were paying Easyjet for using Southend as a hub.

I dont know what the break even number of passengers would be - there has been some debate on the various boards but it is much greater than 2.1 million passengers - I'm not sure if a figure of 5-8 million was mentioned - it would be great if anyone had a better steer?

Even if you use the lower figure the modelling should be obvious that to get from a starting point of 46k passengers past the historical best year of 2.1 million up to 5 million is not going to be a jump that is performed in one or even two years.

This is why me and others have expressed a view that whilst Southend airport will be a great success eventually for all the positives that have been highlighted elsewhere, the question is whether Esken can manage the cash burn until the passenger numbers recover?

If they can't then the Southend success story will be played out by another owner - probably the Carlyle Group.

As Esken negotiate with the airlines as they decide when and where to fly from and with how many planes it is possible that Esken could negotiate better deals than they had previously - however from the current starting point you would have to say that their starting negotiation position is weak.

I was talking to a senior ex manager from another airport group recently and his anecdotal view at a high macro level was that if you want to determine a break even position then they worked on the base assumption of £10 average revenue per passenger (which was a combination of hub fees, airline slots, car parking, rent, income from concessionaries, railway station etc etc). I didnt think that number was very high but it was their crude indicator so it might give some information to others with more knowledge to reverse calculate what that might the break even number of passengers be.

And to be completely transparent - I'm not shorting the stock, I don't own any shares and never have - but I have followed this share for years.

If it works out then you are absolutely correct that you are in at a really low base price.

What Gerry has highlighted is the mechanics of issuing of new shares - my comments are purely on the potential time lag for the airport to recover which has to be to a position much higher t

Hi Gerry

It frustrates me when misleading statements are given out by some people which are obviously incorrect and could give the wrong impression. I get people have strong views as to the stock, which is absolutely fine, but it is important to be balanced in the posts to not mislead potential investors.

Just to give some more clarity on the Energy division.

The capital expenditure historically is on the storage and processing sites of which they state they have 6 seperate sites. Recycled wood waste into biomass is still a waste and so the sites has to have a waste permit and an approved Fire Prevention Plan agreed with the Environment Agency - which can be highly difficult to get agreement on - as it has been the biggest topic of conflict between the wood recycling sector and its regulator over the last five years. They will have sorted this.

Esken's storage capacity is circa 120k tonnes of waste wood at maximum. The BoD were asked the question about current stock on Wednesday and the answer was 85k - 90k tonnes at the current time.

Therefore there is no question that at the start of the winter period they were full of waste wood which is absolutely key for biomass suppliers. The more worrying question however is that 120k of storage is insufficient to manage a biomass supply chain of 1.5 million tonnes? Wood waste arisings are seasonally counter cyclical to biomass demand - and thus the question is whether their supply chain is in balance because to be at circa 75% maximum stock one month into the winter period raises a question of whether they will run of fuel (as happened in 2019).

Esken have never started a winter like this one where all the biomass plants are online and burning (in 2019 the power station at Tilbury, Essex had a 9 month outage) and so the strength of their supply chain will be tested this winter. As wood stocks go down the economics of supply and demand means that gate fees fall agressively as the UK wood markets is broadly in balance - this means that most waste wood already has a home and thus to cannibilise it to maintain supplies means that you have to undercut the market gate fee prices.

It would be really frustrating that they have the best opportunity to post great numbers (probably the best ever) on the Energy Division but the insufficiency of their storage causes them to run short of waste wood (with the associated contractual penalties).

Unfortunately this issue is not unique to Esken but a fundamental problem within the industry generally.

It will be interesting to see how this plays out over the next few months - the key pressure point period is the late December / early January period when arisings dry up as the festive period starts.

Best regards

H

And the doubling of the Net Assets is predominantly as a result of the Capital raise - not the trading performance as the business which is still loss making.

In the fine details regarding the EBITDA of £762k from the Aviation Division it highlights a one off receipt of £3.5 million which is the reason it made a contribution. This means the underlying performance of the Aviation Division is still loss making at an EBITDA level.

The key question is whether the Energy Division continues to perform which will be directly related to the biomass power station's uptime. They have made base case assumptions that gate fee revenue will not reduce in winter and that there are no unplanned outages at the power stations. Both those scenarios are considered in their downside case.

Esken do not benefit from increased energy prices - that benefit only accrues to the power stations that they supply.

There are some other headwinds due to start next April when the fuel duty on red diesel is aligned with white diesel - it means the fuel costs of their handling plant will double. It's a general problem for the whole industry.

Supercharger - I think you are completely dlusional regarding your views on the airport - Birddog gave a rather sobering response as to the reality of the current situation.

In relation to your point on the biomass market - the current high energy prices (which will remain) have absolutely no impact on the fortunes of the biomass sector. Esken have supply contracts with the biomass plants and any upsides on energy price revenue is a benefit for those power generators - not a benefit for the fuel supplier.

On the energy side where is the huge growth potential?

All the biomass plants in the UK are now built and commissioned so there is no growth potential.

The only growth possibility is that the existing plants have better plant availability (uptime) in order that the Energy Division can maximise tonnages supplied. The uptime from the plant in Tilbury should be better this year as it was off for a significant proportion last year but apart from that there is unlikely to be any volume growth.

The only other growth could be in gate fee revenue but gate fees tend to go down in winter - not up.

So if furlough has ended then they have the choice of increasing the cash burn of the airport running only cargo or to lose the staff.

Do we have any idea what the break even number of passengers was for the airport ?

We did know that at 2.2 million passengers (its best year pre Covid) the airport was still lossmaking. I thought I've read somewhere that the break even assumption was 5 - 6 million passengers but I can't remember where it was.

I have been told that the average revenue assumption from an airport is circa £10 per passenger - so might be able to reverse logic the calculation from the next results.

So the lease liabilities on the three planes are effectively still underwritten by Esken?

So this will be another unplanned cash burn that they will have to carry from now on or until they get someone else to lease the planes - the potential likelihood is unlikely?

Interesting point from the last RNS is the impact on EBITDA of doing nothing versus trying to mitigate the Ryanair loss is circa £1.4 million over the reasonable worst case scenario.

Therefore if nothing happens then the 18 months headroom becomes less.

However not sure if this is spin - back to previous points the Aviation sector loses money with low passengers so being able to mothball things for the winter might actually conserve cash burn rather than accelerate it.

That isn't going to look good for sentiment and the share price and the perception of Esken's survival but it might actually mean the Aviation Division is effectively mothballed which elongates the cash burn.

It was really interesting in the last half year results that the Aviation Division did better when there were no flights under lockdown than when they were flying normally (with EBITDA being the measure).

I can't help but respond to your posts Supercharger because your glass is always overflowing regarding your perception of Esken and the aviation sector which seems to bear no resemblance to reality.

Its always frustrating to let a dose of truth get in the way of a good story - especially when it comes directly from the BoD's own RNS.

I don't trade in this stock at all but have followed it for a long time so no axe to grind but I think it is important to give a balanced perspective - to combat some of the ramping statements that are made.

"Anyone can sell a tenner for a fiver."

That made me laugh out loud !!!

But very true and unfortunately necessary when they are trying to get to critical mass - the last two years of Covid has decimated what to that point was a clear defined and executed strategy towards London Southend getting past a break even position. I actually feel for the BoD as I'm not sure what they could / should have done any better.

I do think the airport will be a success eventually but it won't be owned by Esken

Passenger numbers might equate to revenue but also associated costs so it doesn't translate into EBITDA earnings.

The aviation division lost money I thought when they had 2.1 million passengers due to the marketing payments to the likes of Easyjet and Ryanair. Therefore assuming that passengers equates to turning the aviation division's corner into profit is not realistic - especially on the numbers forecasted by the BoD in the RNS document.

The cash burn is expected to continue for the next eighteen months and the BoD's assumptions are that by Feb 2023 they will have a funding shortfall of £14 million. The notes below the funding table taken directly from the RNS is shown below:-

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

However, as set out in the table above, management's forecasts show a working capital shortfall of approximately £14 million in February 2023 for the Group, on a reasonable worst case scenario basis. This shortfall is principally a result of the requirement to refinance the New Facility by 1 February 2023. The Group anticipates incurring additional cash outflow from that date, pursuant to residual legacy obligations relating to Propius, the liquidation of Stobart Air and the cash impact of identified sensitivities and reduced activity levels across all divisions.

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