Company Announcements

The Directors are satisfied that the Group has adequate resources to fund its cash requirements for the foreseeable future. The base and sensitised forecasts indicate that the Group will continue to operate within the covenant requirements of the revolving credit facility in the forecast period. The going concern basis has been adopted and the financial statements do not include any adjustments that would be necessary if this basis were inappropriate.

 

Significant accounting policies and key estimates and judgements

The accounting policies adopted in the preparation of the interim consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 28 February 2019. These accounting policies are expected to be applied for the full year to 29 February 2020.

 

The estimates and judgements taken by the Directors in preparing these interim financial statements are comparable with those disclosed in the statutory accounts for the year ended 28 February 2019, except where stated.

 

The Group has initially adopted IFRS 16 Leases from 1 March 2019, which resulted in right-of-use assets of £60.9m, a net investment of £14.0m, liabilities of £78.2m and £2.8m adjustment to equity being recognised in the Condensed Consolidated Statement of Financial Position. The right-of-use assets recognised on transition were adjusted for any prepaid or accrued lease expenses. The lease liability was calculated as the future lease repayments, discounted at the incremental borrowing rate. The weighted average incremental borrowing rate applied on transition was 4.2%. The Group has a sub-lease on one of its property's and has recognised a net investment for this particular property, with the difference between the leases as lessee and lessor taken directly to retained earnings. The Group applied the modified retrospective approach and as such the comparative periods have not been restated. The Group has applied the ongoing recognition exemptions for short-term leases and low value leases and applied the following practical expedients on transition:

 

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

·     Reliance on previous assessments on whether leases are onerous instead of performing an impairment review;

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

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

·     Use of hindsight in determining the lease term where there is the option to extend the lease.

 

A reconciliation between operating lease commitments as lessee under IAS 17 and finance lease liability recognised under IFRS 16 is outlined in the table below.

 

	£'000
Operating lease commitments disclosed at 28 February 2019	139,679
Impact of discounting	(71,627)
IFRS 16 lease liabilities not recognised in prior period operating lease commitments	6,538
Increases in minimum lease commitment	3,926
Recognition exemption as less than 12 months of lease term remaining at transition	(286)
IFRS 16 liability recognised at 1 March 2019	78,230

 

 

 

IFRS 16 defines the lease term as the non-cancellable period of a lease together with the options to extend or terminate a lease, if it is reasonably certain that the option would be taken. The Group makes a judgement as to whether it is reasonably certain that the option will be taken when determining the length of the lease. The Group considers factors such as the length of time before the option is exercisable, operational requirements and any planned future capital expenditure.

 

The following standards and amendments have an effective date after the date of these financial statements:

Standard, amendment and interpretation	Effective for accounting periods commencing on or after
IFRIC 23 Uncertainty over Income Tax Treatments	1 January 2019
Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures	1 January 2019
Amendments to IAS 19: Plan Amendment, Curtailment or Settlement	1 January 2019
Annual Improvements to IFRS Standards 2015-2017 Cycle	1 January 2019
Amendments to References to the Conceptual Framework in IFRS Standards	1 January 2020
IFRS 17 Insurance Contracts	1 January 2021

 

Amendments to IAS 19 are not expected to have a material effect on the defined benefit obligation disclosures, due to scheme rules giving the Group and unconditional right to a refund if the scheme is in surplus. The adoption of all other standards, amendments and interpretations is not expected to have a material effect on the net assets, results and disclosures of the Group.

 

Presentation of Condensed Consolidated Income Statement

The presentation of the Condensed Consolidated Income Statement shows the underlying results and non-underlying results in separate columns. Non-underlying items are income and expenses, which because of their nature, infrequency or occurrence, or the events giving rise to them, merit separate presentation to allow shareholders to better understand the financial performance for the period. Non-underlying items includes the Group's share of non-underlying profits of associates and joint ventures. Underlying operating profit and underlying profit before tax are non-GAAP measures which comprise operating profit and profit before tax respectively before non-underlying items. The columnar format is considered to be the clearest method of presentation of this information.

 

Non-GAAP measures are used as they are considered to be both useful and necessary. They are used for internal performance analysis; 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 measurement to fair value less costs to sell or 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.

 

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, and this is partly offset by higher seasonal sales in winter in the Energy division.

 

 

 

3             Segmental information

 

The reporting segments are Stobart Aviation, Stobart Energy, Stobart Rail & Civils, Stobart Investments and Non-Strategic Infrastructure.

 

The Stobart Aviation segment specialises in the operation of commercial airports. The Stobart Energy segment specialises in the supply of sustainable biomass for the generation of renewable energy.

 

The Stobart Rail & Civils segment specialises in delivering internal and external civil engineering development projects including rail network operations. The Stobart Investments segment holds a non-controlling interest in a transport and distribution business, a regional airline business and a baggage handling business. The Non-Strategic Infrastructure segment specialises in management, development and realisation of non-strategic property assets.

 

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 underlying EBITDA, which is calculated as profit/(loss) before tax, interest, depreciation, amortisation, swaps and non-underlying items. Income taxes and certain central costs are managed on a Group basis and are not allocated to operating segments

Period ended 31 August 2019	Aviation	Energy	Rail & Civils	Investments	Non-Strategic Infrastructure	Adjustments and eliminations	Group
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Revenue
External	26,307	42,883	18,375	2,127	1,170	2,269	93,131
Internal	65	-	11,019	-	142	(11,226)	-
Statutory revenue	26,372	42,883	29,394	2,127	1,312	(8,957)	93,131
Underlying EBITDA	4,110	11,748	(967)	2,267	(1,454)	(3,599)	12,105
Non-underlying items	(5,784)	(1,166)	(84)	(2,490)	(532)	(683)	(10,739)
Swaps	-	-	-	-	-	114	114
Depreciation	(3,653)	(4,442)	(1,370)	-	(1,016)	(873)	(11,354)
Amortisation	-	(22)	-	-	-	(3,717)	(3,739)
Impairments	-	-	(8,474)	-	-	-	(8,474)
Net interest	(581)	(585)	(95)	(479)	(255)	(2,551)	(4,546)
(Loss)/profit before tax	(5,908)	5,533	(10,990)	(702)	(3,257)	(11,309)	(26,633)

 

 

 

 

Period ended 31 August 2018	Aviation	Energy	Rail & Civils	Investments	Non-Strategic Infrastructure	Adjustments and eliminations	Group
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Revenue
External	20,895	29,877	12,729	1,967	1,039	2,922	69,429
Internal	66	-	9,895	-	38	(9,999)	-
Statutory revenue	20,961	29,877	22,624	1,967	1,077	(7,077)	69,429
Underlying EBITDA	2,875	8,677	(4,840)	2,823	(1,054)	(4,265)	4,216
Non-underlying items	(310)	(2,170)	-	-	(844)	(1,687)	(5,011)
Swaps	-	-	-	-	-	3,579	3,579
Depreciation	(2,803)	(3,168)	(1,114)	-	(348)	(119)	(7,552)
Amortisation	-	(111)	-	-	-	(1,858)	(1,969)
Impairment of loan notes	-	-	-	-	(2,500)	-	(2,500)
Net interest	(131)	(366)	(116)	-	(170)	(595)	(1,378)
(Loss)/profit before tax	(369)	2,862	(6,070)	2,823	(4,916)	(4,945)	(10,615)

 

Inter-segment revenues are eliminated on consolidation. Included in adjustments and eliminations underlying EBITDA are central costs of £3,476,000 (2018: £4,199,000) and intragroup profits eliminated of £123,000 (2018: £66,000).

 

4              Discontinued operations

 

On 22 February 2019, the Group entered into an agreement to dispose of Propius Holdings Limited (Propius) to Connect Airways. The results of Propius have been reported on a single line, net of tax on the face of the Condensed Consolidated Income Statement and the assets and liabilities of Propius are presented as held for sale in the Condensed Consolidated Statement of Financial Position. The Condensed Consolidated Income Statement for the period ended 31 August 2018 has been restated on the same basis and also includes the results of the operations of Everdeal Holdings Limited (Everdeal) and the UK Flybe Franchise Operation (UKFFO) and the profit on disposal of Everdeal as explained in the statutory financial statements for the year ended 28 February 2019.

 

5              Non-underlying items

 

Non-underlying items included in the Condensed Consolidated Income Statement comprise the items set out and described below.

	Six months 2019	Six months 2018	Year ended 2019
	Unaudited	Unaudited	Audited
	£'000	£'000	£'000
New business and new contract set-up costs	7,367	3,324	11,551
Transaction costs	-	112	-
Restructuring costs	552	-	391
Litigation and claims	330	1,575	5,193
Share of post-tax losses of joint venture	2,490	-	-
Non-underlying items within EBITDA	10,739	5,011	17,135
Amortisation	3,739	1,969	3,938
Impairments	8,474	-	7,800
Total non-underlying items	22,952	6,980	28,873

New business and new contract set-up costs comprise costs of investing in major new business areas or major new contracts to commence or accelerate development of our business presence. These costs include new contract set-up costs at London Southend Airport in the Aviation division and pre-contract costs and excess costs incurred due to delays in customer plants becoming operational in the Energy division.

 

Transaction costs comprise costs of making investments or costs of financing transactions that are not permitted to be debited to the cost of investment or as issue costs. Restructuring costs, including the removal of some roles, have occurred within Group, Aviation and Rail.

 

The charge for litigation and claims includes the cost of a High Court dispute with a former Director, offset by any costs that have been recovered. Contingent assets relating to any outstanding claims are not recognised unless recovery is considered virtually certain, in accordance with accounting standards.

 

Non-underlying share of post-tax losses of joint venture relates to costs incurred by Connect Airways in acquiring Flybe, Stobart Air and Propius.

 

Amortisation of acquired intangibles comprises the amortisation of intangible assets including those identified as fair value adjustments in acquisition accounting. The charge in the year is principally in connection with amortisation of the Eddie Stobart brand (£3.7m), which has doubled compared to last half year, following a review of the residual value.

 

The impairment charge relates to the write off of goodwill and intangible assets attributable to Rail & Civils.

 

6              Finance costs and income

	Six months 2019	Six months 2018
	Unaudited	Unaudited
	£'000	£'000
Bank loans	1,292	822
Interest on defined benefit pension scheme	40	47
Finance charges payable under finance leases and hire purchase agreements	746	640
Interest on IFRS 16 leases	1,306	-
Amortisation of deferred issue costs	182	146
ESL dividend passed to exchangeable bondholders	1,985	-
Other interest	525	377
Foreign exchange losses	656	-
Total finance costs	6,732	2,032
	Six months 2019	Six months 2018
	Unaudited	Unaudited
	£'000	£'000
Bank interest receivable	12	18
Interest receivable from associates and joint ventures	2,174	-
Foreign exchange gains	-	636
Total finance income	2,186	654

 

 

 

7              Taxation

 

Taxation on profit on ordinary activities

 

Total tax in the Condensed Consolidated Income Statement from continuing and discontinued operations	Six months 2019	Six months 2018	Year ended 2019
	Unaudited	Unaudited	Audited
	£'000	£'000	£'000
Current income tax:
UK corporation tax	-	-	-
Overseas corporation tax	(22)	-	1,268
Adjustments in respect of prior years	-	1,015	3,016
Total current tax	(22)	1,015	4,284
Deferred tax:
Origination and reversal of temporary differences	(2,021)	(1,388)	(1,872)
Impact of change in rate	-	-	-
Adjustment in respect of prior years	(1,083)	(947)	(826)
Total deferred tax	(3,104)	(2,335)	(2,698)
Total (credit)/charge in the income statement from continuing and discontinued operations	(3,126)	(1,320)	1,586

 

Included in the above tax credits are total current tax credit on continuing operations of £nil
(2018: £1,015,000 charge) and a total deferred tax credit on continuing operations of £3,182,000 (2018: £2,546,000) giving a total tax credit on continuing operations in the Condensed Consolidated Income Statement of £3,182,000 (2018: £1,531,000).

 

The £3,182,000 credit on continuing operations in the period is allocated as £1,849,000 underlying and £1,333,000 non-underlying.

 

Reductions in the UK corporation tax rate from 20% to 19% (effective from 1 April 2017) and a further reduction to 17% (effective from 1 April 2020) have been announced and were substantively enacted at the Condensed Consolidated Statement of Financial Position date. As such, the deferred tax assets/liabilities as at 31 August 2019 have been recognised/provided at 17%.

 

 

 

8             Loss per share

 

The following table reflects the income and share data used in the basic and diluted earnings per share calculations:

	Six months 2019	Six months 2018	Year ended 2019
	Unaudited	Unaudited	Audited
Numerator	£'000	£'000	£'000
Loss used for basic and diluted earnings	(20,884)	(17,496)	(58,179)
Denominator	Number	Number	Number
Weighted average number of shares used in basic EPS	366,331,503	345,974,719	349,698,911
Effects of employee share options	-	-	-
Weighted average number of shares used in diluted EPS	366,331,503	345,974,719	349,698,911
Own shares held and therefore excluded from weighted average number	4,490,212	8,354,112	6,798,847

 

The following table reflects the income used in the basic and diluted underlying earnings per share calculations. The denominator is consistent with the disclosed data in the table above.

 

	Six months 2019	Six months 2018	Year ended 2019
	Unaudited	Unaudited	Audited
Numerator	£'000	£'000	£'000
Underlying profit/(loss) used for basic and diluted earnings	735	(10,969)	(31,054)
Underlying earnings/(loss) per share
Basic	0.20p	(3.17p)	(8.88p)
Diluted	0.20p	(3.17p)	(8.88p)

 

 

9              Dividends

 

A final dividend of 3.0p (2018: 4.5p) per share totalling £11,125,000 (2018: £15,628,000) was declared on 29 May 2019 and was paid on 31 July 2019.

 

10      Property, plant and equipment

 

Additions and disposals

During the six months ended 31 August 2019, the Group acquired or developed property, plant and equipment assets with a cost of £19,708,000 (2018: £18,681,000). This included development work at London Southend Airport. Property, plant and equipment assets with a book value of £2,537,000 (2018: £3,446,000) were disposed of by the Group during the six months ended 31 August 2019, resulting in a profit of £194,000 (2018: £442,000).

 

Capital commitments

At 31 August 2019, the Group had capital commitments of £4,875,000 (2018: £946,000), principally relating to replacement truck and trailers in the Energy fleet.

 

 

11           Analysis of net debt

	31 August 2019	28 February 2019
	Unaudited	Audited
Loans and borrowings	£'000	£'000
Non-current
Fixed rate:
- Obligations under finance leases and hire purchase contracts	14,697	20,668
Variable rate:
- Obligations under finance leases and hire purchase contracts	16,578	5,886
- Bank loans	50,667	57,567
	81,942	84,121
Current
Fixed rate:
- Obligations under finance leases and hire purchase contracts	8,079	6,663
- Exchangeable bonds*	51,559	-
Variable rate:
- Obligations under finance leases and hire purchase contracts	5,882	6,770
	65,520	13,433
Total loans and borrowings (excluding IFRS 16)	147,462	97,554
Cash	7,725	14,432
Comparable net debt (excluding IFRS 16)	139,737	83,122
Non-current
- IFRS 16 lease obligations	74,074	-
Current
- IFRS 16 lease obligations	2,874	-
Net debt	216,685	83,122

 

* 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 (ESL) at any time. The Group has no obligation to settle the Bonds in cash within 12 months of the balance sheet date.

 

The obligations under finance leases and hire purchase contracts are taken out with various lenders at fixed or variable interest rates prevailing at the inception of the contracts. During the period, £13,343,000 (Feb 2019: £14,178,000) of new finance leases were taken out, £8,168,000 (Feb 2019: £14,382,000) repayments made, and £74,000 (Feb 2019: £142,000) of unwind of discount.

 

The £80,000,000 variable rate committed revolving credit facility, with a facility end date of January 2022, was drawn at £51,000,000 (Feb 2019: £58,000,000) at the period end.

 

The Group was in compliance with all financial covenants throughout both the current and prior periods.

 

 

12           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 31 August 2019	Fair Value 31 August 2019
	Unaudited	Unaudited
	£'000	£'000
Financial Liabilities
Bank loans	50,667	50,667
Exchangeable bonds	51,559	51,559
Finance leases and hire purchase arrangements	122,184	120,838

 

	Book Value 28 February 2019	Fair Value 28 February 2019
	Audited	Audited
	£'000	£'000
Financial Liabilities
Bank loans	57,567	57,567
Finance leases and hire purchase arrangements	39,987	38,858

 

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 a 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 28 February 2019.

 

Financial Assets measured at Fair Value
	Total	Level 1	Level 2	Level 3
	£'000	£'000	£'000	£'000
As at 31 August 2019
Other financial assets	31,733	-	31,733	-
Swaps	357	-	357	-
As at 28 February 2019
Other financial assets	44,918	44,918	-	-
Swaps	248	-	248	-

 

During the six months ended 31 August 2019, there was one transfer from Level 1 to Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements. The transfer classified as other financial assets relates to the Group's investment in ESL shares and arose due to the suspension of trading in their shares on 23 August 2019 resulting in no observable price at 31 August 2019. The valuation method at the period end used the price on the date of suspension and applied a reduction of 10%, due to the RNS information released regarding the dividend. This is a judgement taken by management and once the trading in ESL shares is permitted, the valuation will return to level 1 and be based on the actively traded share price.  A movement of 1p in the ESL share price changes the investment value by £447,000.  

 

13           Cash used in operations

	Six months ended 31 August 2019	Six months ended 31 August 2018	Year ended 28 February 2019
	Unaudited	Unaudited	Audited
	£'000	£'000	£'000
Loss before tax	(26,633)	(10,615)	(42,114)
Adjustments to reconcile loss before tax to net cash flows:
Loss in value of investment properties	879	-	715
Realised profit on sale of property, plant and equipment and investment properties	(194)	(443)	(584)
Share of post-tax profits of associates and joint ventures accounted for using the equity method	2,349	588	1,740
Gain on conversion of loan	-	(1,095)	(1,095)
Loss on disposal & loss in value of assets held for sale	-	600	683
Profit on sale and leaseback	-	(710)	(629)
Depreciation of property, plant and equipment	11,354	7,552	16,305
Finance income	(2,186)	(18)	(63)
Finance costs	3,966	2,032	4,512
Release of grant income	(356)	(4,867)	(609)
Release of deferred premiums	(1,308)	(1,308)	(2,617)
Impairment	8,474	-	7,800
Amortisation of intangibles	3,739	1,969	3,938
Charge for share-based payments	420	674	714
Movement in fair value of exchange derivative liability	124	-	-
(Gain)/loss on fuel swaps mark to market valuation	(114)	(3,579)	353
Retirement benefits and other provisions	(2,174)	6,171	87
IFRS 15 transition adjustment	-	-	(3,949)
Working capital adjustments:
(Increase)/decrease in inventories	(180)	82	(127)
(Increase)/decrease in trade and other receivables	(18,662)	13,974	4,196
Increase/(decrease) in trade and other payables	3,679	(11,424)	9,007
Cash used in continuing operations	(16,823)	(417)	(1,737)

 

 

14           Contingent liabilities

 

The Group is party to a number of ongoing legal cases principally in relation to general employment, transaction and property-related matters. The Group will continue to defend any litigation in respect of such claims and, whilst the outcome of any claim, and therefore any future liability, cannot be certain, it is the Directors' opinion, based on external legal and property advice, that no material liabilities exist in respect of legal claims at 31 August 2019 beyond those included in provisions.