This announcement contains inside information for the purposes of article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018.

21 June 2023

Esken Limited

("Esken" or the "Group")

Results for the 12 months ended 28 February 2023

Sale process advancing alongside continuing operational optimisation

Esken Limited, the Aviation and Renewables Group, today announces its results for the 12 months to 28 February 2023.

Summary

• Esken completed a strategic review of its operating businesses and is actively progressing a managed sale process of its core Renewables and Aviation businesses.
• The sale of Esken Renewables is progressing well and is now at an advanced stage working with a preferred bidder on an exclusive basis.
• Esken has started the process for the sale of London Southend Airport (LSA), its key strategic airport asset within the Aviation business.
• In November 2022, Esken secured a new borrowing facility comprising £50m of committed funding.
• Esken Renewables took steps to optimise its margins and secured additional sub supply agreements.
• easyJet entered a multiyear agreement for the return of flying to LSA with three summer routes and has recently announced additional all-year-round routes to Paris and Amsterdam. These new routes and airline partnership are encouraging signs that LSA's recovery is now under way.
• Since the year end, Esken has completed the sale of Star Handling Limited for up to £4.8m in May 2023.
• As at 28 February 2023, the Group's headroom was £50.3m, in line with management expectations (see Alternative performance measure note for the definition of headroom).

Strategic Review

At the time of our interim results we announced that a decision had been taken by the Board to conduct a strategic review of the Group's operational businesses. The Board concluded that the interests of all stakeholders would be best served by seeking a new owner for each of the core businesses through a managed sale process. In each case the Renewables and Aviation businesses will benefit from long term strategic owners with access to capital to support growth ambitions, while offering stability and certainty to the staff, customers and suppliers.

In view of the different rates of recovery of the businesses we initiated a sale of the Renewables business first and that process is now at an advanced stage working with a preferred bidder on an exclusive basis. We have also started the process for the sale of LSA, the core asset within the Aviation business.

As we progress with these disposals we are reducing the underlying cost base of the Group to a level sufficient to support the remaining operations, including an exit from the residual non-core assets. In line with this approach we are exploring a move to the Standard segment of the Main Market following completion of the disposal of Renewables.

David Shearer, Executive Chairman of Esken said,

"Over the last financial year, we secured a successful debt fund raising in difficult market conditions, completed a strategic review of our operating businesses, and are now progressing with our plans to sell our core operating businesses and residual non-core assets through a managed disposal process with a view to returning any remaining value to Esken shareholders.

Our Renewables business saw increased revenues albeit at a lower margin, reflecting increased volumes of lower margin fuel supply, an increased number of unplanned outages at customer waste wood biomass plants and the impact of inflationary pressures where there is a lag before the benefit of indexation on our contracts impact. The Division is focused on steps to improve margins going forwards, including optimising the fleet for efficiency and strong cost control.

Our Aviation business continues to make progress as demand recovers, with LSA signing a multi-year partnership with easyJet in January 2023 - the airline will now serve five destinations from the airport. We installed a new, experienced senior management team and the case for the airport remains well founded as demonstrated by the increase in routes served by easyJet."

1      The 2022 results have been restated where required due to prior period adjustments.

2      Adjusted EBITDA represents profit/(loss) before interest, tax, depreciation and impairments. Refer to Segmental information note for reconciliation to statutory loss before tax.

Financial summary

• Esken's core Aviation and Renewables businesses generated a combined positive adjusted EBITDA of £14.6m (2022: £19.5m).
• Esken Renewables supplied 1.6m tonnes of biomass fuel, up 9.4% on last year (2022: 1.5m tonnes). The overall increase in the volume of fuel supplied reflected an improvement in lower margin forestry by-product and third-party fuel supply and resulted in revenue increasing by 17.7% to £93.7m (2022 £79.7m). However, a series of unplanned outages at plants where we supply higher margin waste wood fuel, coupled with the impacts of inflation, resulted in a 9.5% reduction in adjusted EBITDA to £18.4m (2022 £20.3m).
• Within Aviation, staffing challenges and industrial action taking place at airports across Europe reduced some planned flights inbound to LSA at various points during the second half of the year. As a result, passenger numbers reduced by 5.3% from 94k to 89k. The Aviation Division received £1.4m related to the recovery of airline marketing support payments and delivered an adjusted EBITDA loss of £3.8m in FY23. In the prior year, the Division reported a loss of £0.8m having benefitted from £3.5m of one-off receipts associated with Connect Airways and the conclusion of the partnership with Teesside International Airport.
• Group central significantly reduced its costs during the year whilst there was no repeat of the £4.7m benefit of the onerous lease exit in Non-Core Infrastructure in the prior year. Overall Group adjusted EBITDA reduced by 46.9% to £5.6m (2022 £10.6m). However, the Group benefitted from the reversal of impairment of loan notes and a reduction in property impairments in the year and, as a result, total losses before tax improved by 22.4% to £27.7m (2022 £35.7m).
• At year end, the Group's portfolio of non-core assets had an aggregate book value of £43.1m (2022 £39.7m) following the disposal of a portion of land in Widnes and the reversal of impairment of MBE loan notes during the year. Since the period end, Esken completed the sale of Star Handling Limited for up to £4.8m in May 2023.
• Esken continues to work to realise value from its remaining non-core assets; future proceeds of which will be used to reduce debt and provide working capital as the realisation strategy is implemented. Once completed and any remaining Group liabilities are settled, any surplus will be returned to shareholders.
•  

ESG progress

·    Across its businesses Esken produced 23,633 tonnes of carbon dioxide, representing a 11% decrease on the baseline year for Scope 1 and 2 emissions.

• Esken has developed a Net Zero Roadmap to reduce its Scope 1 by 8% over the next 3-5 years and aims to reduce its Scope 2 emissions to nil by 2030.
• Esken continued to collect and voluntarily reported initial Scope 3 emissions data, with reduction plans under review.
• Esken Renewables again undertook third-party research with Logika Consultants to validate Scope 1-3 emissions data. The research established that whilst Esken produced around 134,925 tonnes of greenhouse gas (GHG) emissions in FY23, it saved the UK 620,000 tonnes of additional GHG emissions (equivalent to taking c.430k cars off the road) by supplying biomass power customers directly or via third parties over 1.1m tonnes of waste wood that would have otherwise gone to landfill, producing methane.
• Esken continued to support its charity partnerships through fundraising and launched a volunteering programme, contributing over 500 hours of volunteering to benefit the communities in which we operate.
• The company established an ESG risk register and put in place ESG performance KPIs linked to Executive remuneration.

Outlook

The challenges Esken Renewables experienced during the financial year ending 28 February 2023 regarding biomass plant outages has continued into the new financial year but there are now signs of an improvement in gate fees and more consistency of plant performance, with an expectation of improving performance as the year progresses.

Following the sale of Star Handling's ground handling operations at Manchester and Stansted airports the Aviation Division is now entirely focused on the recovery at LSA. That airport has started the year positively as demand for flights across the market has shown a strong recovery towards pre pandemic levels. The return of a route to Amsterdam and increased flight frequencies to Faro mean that there is a 30% uplift in planned easyJet flights during the summer. Flights will then continue through the winter months with the announcement that easyJet will operate flights to Paris in addition to Amsterdam starting from 29 October 2023.

These new routes and airline partnerships are encouraging signs that LSA's recovery is now underway. While signs are encouraging, the aviation industry as a whole has not yet fully recovered from the effects of the pandemic. As a result and in view of the current sale process, Esken has taken the decision not to reinstate guidance for LSA at this time.

The Board is encouraged by the progress on the sale process for Renewables and now has a sound base with which to progress the process for the sale of LSA. The Board would expect to update the market with further substantive progress in the months ahead.

Going concern

As at 28 February 2023, the Group had cash balances of £50.3m (FY22: £52.7m), of which £5.3m is ring fenced in LSA and its subsidiaries, as part of the Carlyle Global Infrastructure Opportunity Fund (CGI) convertible debt facility. While the Group continues to tightly manage its cash resources as it executes the sale of the Renewables and Aviation Divisions, the current position is that the Group has a material uncertainty primarily in relation to the timing of the disposal of the Renewables business. Full discussion around the Group's going concern position is set out in the notes to the extracts from the audited financial statements in this results announcement. This section must be read in order to fully understand the significant judgements the Directors have made and the material uncertainty that exists in respect of the going concern assumption for the Group.

The Group will provide a live presentation relating to its results via the Investor Meet Company platform at 9:30am BST today.

The presentation is open to all existing and potential shareholders. Investors can sign up to Investor Meet Company for free and add to meet Esken via: https://www.investormeetcompany.com/esken-limited/register-investor. Investors who already follow Esken on the Investor Meet Company platform will automatically be invited.

Chairman's Statement

I am pleased to present my chairman's statement for the year to the end of February 2023. This has been a year when the Group, in common with many other businesses, has faced a number of challenges.

Review of the year

The year has seen continued progress as we streamlined the Group to focus on the core businesses of Renewables and Aviation while completing a medium-term debt refinancing in difficult market conditions to support the Group through the implementation of its strategy. The Board decided to undertake a strategic review and concluded that it was in the interests of all stakeholders to pursue a sale of the core businesses. I refer to the detail of this review below but we have made good progress with the sale of the Renewables business at an advanced stage working with a preferred bidder on an exclusive basis. The process for the sale of LSA now underway.

This was all achieved against the backdrop of the Russian invasion of Ukraine which had an immediate impact on energy prices and a significant knock-on effect on the global economy. This occurred just as the aviation industry was finally emerging from the pandemic and created further uncertainty with our airline customers. In addition, the disruption to global supply chains as they recovered from the pandemic led to strong inflationary pressures across the developed world. The response from central banks was to raise interest rates significantly and tighten money supply, all of which impacted demand. These inflationary pressures and interest rate increases affected the cost base of the Group.

In a year characterised by these significant geo-political and economic events, we continued our journey toward becoming a focussed group with interests in Renewables and Aviation, while managing the exit of non-core assets for value and reducing residual liabilities. These liabilities had arisen through the historic decisions in relation to the guarantee of aircraft lease arrangements by the Group in 2017 which crystallised following the failure of Stobart Air in June 2021. A number of these aircraft had been returned by the year end and the remaining liabilities are due to run off during Q3 of FY24. In total the Group is expecting to have spent £134.2m addressing these matters from the administration of Connect Airways to conclusion, meaning these funds were not otherwise available to reduce debt or invest in the core operations. We continued to streamline the cost base of the Group consistent with the prevailing needs of the business.

In November 2022, we concluded a successful debt fund raising with a medium-term facility of £50m to support the operational needs of the business and settle the final residual liabilities of Stobart Air and Propius. In view of the difficult market conditions for raising debt at that time, the cost of this funding was expensive but gave the Group certainty on its funding needs going forward.

At LSA we changed the entire senior management team to ensure the right leadership was in place to take that business forward through the recovery. These changes were a combination of internal promotions and external recruitment and provide a good blend of knowledge of the operational assets and a fresh perspective on the way forward. It was clear in the second half of the year that aviation demand at London airports would recover to pre pandemic levels and LSA is starting to see the impact of this with a continuing momentum in new routes operating from the airport.

Results

Esken Renewables supplied 1.62m tonnes of fuel to biomass plant customers in the year to 28 February 2023, up 9.4% on the prior year (2022 1.47m tonnes). However, this increase reflected improved demand from biomass plants to which Esken Renewables primarily supplies third party and forestry by-product, which is at a lower margin. Higher margin biomass plants that use waste wood experienced an increased number of unplanned outages, particularly during the winter months. This reduced the total volume of waste wood supplied by Esken Renewables and the associated gate fee income. This in turn resulted in adjusted EBITDA reducing by 9.5% from £20.3m to £18.4m.

Esken Renewables has taken a number of steps to improve margins going forward. The fleet has been optimised to achieve the most efficient use of trucks and drivers, and strong cost control has resulted in lower overheads. Inflationary pressures have been eased by RPI-linked indexation elements within the Division's long-term customer supply contracts, however these are retrospective in a number of cases and as such the full benefit of indexation will not be seen until FY24. Esken Renewables also took the decision to close its Port Clarence site having entered into a new sub-supply agreement to replace the supply provided from Port Clarence. This is expected to deliver an additional £0.9m of annual recurring adjusted EBITDA from 1 April 2023.

Whilst LSA maintained adequate staffing levels during the year, staffing challenges elsewhere across the aviation sector led to the removal of planned flights at LSA at various points particularly during the second half of the year. This resulted in passenger numbers reducing by 5.3% from 94k to 89k.

The Aviation Division received £1.4m relating to the recovery of previously paid airline marketing support payments and delivered an adjusted EBITDA loss of £3.8m in FY23. In the prior year, the Division reported a loss of £0.8m having benefitted from £3.5m of one-off receipts associated with Connect Airways and the conclusion of the partnership with Teesside International Airport.

The airport continued to make progress despite the residual impacts of the pandemic across the sector. It signed a multi-year partnership with easyJet in January 2023 and easyJet started operating a new route to Amsterdam at the end of May 2023 with Paris staring October 2023. These two new routes will operate year round. The addition of these routes takes the number of destinations easyJet serves from the airport to five including Malaga, Palma and Faro. The airline has also announced an increase in the weekly frequency of flights to Faro.

Central costs were significantly reduced during the year as the business was streamlined whilst there was no repeat of the £4.7m benefit of the onerous lease exit in Non-Core Infrastructure in the prior year. Overall Group adjusted EBITDA reduced by 46.9% to £5.6m (2022 £10.6m). However, the Group benefitted from the reversal of impairment of MBE loan notes and a reduction in property impairments in the year and, as a result, total losses before tax improved by 22.4% to £27.7m (2022 £35.7m).

At year end, the Group's portfolio of non-core assets had an aggregate book value of £43.1m (2022 £39.7m) following the sale of a portion of land in Widnes and the reversal of impairment of MBE loan notes. Esken continues to work to realise the value of its non-core assets and future proceeds will be used to reduce debt and provide working capital as the Group executes its realisation strategy. Since the year end Esken completed the sale of Star Handling Limited for up to £4.8m in May.

Strategic Review of operating businesses

At the time of our interim results, we announced that a decision had been taken by the Board to conduct a strategic review of the Group's operational businesses. This was prompted by the fact that the two core operating Divisions were recovering at differing rates coming out of the pandemic, there was limited synergy between the two businesses, each had different strategic and financial needs to realise the full potential of its business, and the Group remained financially constrained to support those future growth plans. In common with many companies at the smaller end of the UK listed market, there also appeared to be a disconnect between the share price and the potential value of the businesses on a sum of the parts basis.

The Board worked with Canaccord Genuity in conducting this review and the Board has concluded that the interests of all stakeholders would be best served by seeking a new owner for each of the core businesses through a managed sale process. In each case the Renewables and Aviation businesses will benefit from long term strategic owners with access to capital to support growth ambitions, while offering stability and certainty to staff, customers and suppliers. The market will determine the value of each of these businesses and the proceeds, in conjunction with the ongoing disposal process of the non-core assets, will be used to repay debt, provide working capital and ultimately return value to shareholders.

In view of the different rates of recovery of the businesses we initiated a sale of the Renewables business first and are at an advanced stage of process with a preferred bidder now undertaking due diligence. We have also started the process for LSA which is the key strategic asset within the Aviation business. The market for aviation has improved significantly over the last six months with most external analysis suggesting that capacity use at London airports will have returned to pre pandemic levels this summer. We would expect to see continuing positive moves by our airline partners in the months ahead which will offer support to our market approach. LSA was a proven airport in the pre pandemic period and is a key strategic asset in the provision of passenger air services to London at a time when peak time slots are starting to become constrained once more. The Board is of the view that the airport has strong potential within the right ownership structure along with capital to support its medium to long term growth ambitions.

In May 2023, we announced the sale of Star Handling, our ground handling business with operations at Manchester and Stansted Airports, while retaining the ground handling capability at LSA to support the airport. While this business had been successful in winning contracts and delivering for its airline clients it remained sub scale in a market dominated by major international competitors and we took the opportunity to exit for value at this time.

As we progress with these disposals, we are reducing the underlying cost base of the Group to a level sufficient to support the remaining operations, including an exit from the residual non -core assets. In line with this approach, we are exploring a move to the Standard segment of the Main Market at the time of completing the disposal of Renewables. The Board believe that moving from the Premium segment will have a limited effect on shareholders but will allow us to reduce the costs of being a listed business while making it easier from an administrative point of view to conclude the final delivery of the strategy. Once there is clarity on the outcome of the sale processes, we will review the appropriate means to return value to shareholders.

Environmental, social and governance

We have continued to build on the last two years of our ESG journey by increasing the ownership and delivery within our operating divisions. In light of the outcome of the strategic review the divisions have further enhanced their own governance structure to include a Steering Group, Working Groups and ownership and oversight of their own individual implementation plans and KPI tracking.

We understand the importance of developing our plans to reduce our carbon footprint and this year have developed Net Zero Roadmaps for our operating divisions that aim to bring our carbon footprint to zero by 2040. These roadmaps are aligned with each division's growth plans.

Our colleagues have continued to build relationships and fundraise for our charitable partnerships. A partnership has been developed with the Co-op Levy Share to contribute a percentage of Esken's apprenticeship levy to community partners to take on apprentices. An employee volunteering programme was also launched during Volunteers' Week and our colleagues contributed over 500 hours of volunteering in the local community. Not only did this benefit the chosen cause, but also provided invaluable team building opportunities.

Board and people

I would like to express my personal thanks to my Board and all of our colleagues at Esken for their hard work and support over the last year. It has continued to be a challenging time for everyone and I appreciate the efforts and dedication of our staff through this difficult period. I do appreciate that the decisions taken following the strategic review of our operating businesses creates an element of uncertainty as to the future, in particular for those people who work in the Group support areas at the centre. In making the decision to sell the core operating businesses we will have regard to ensuring that new owners will offer long term security to the workforce and the opportunity for these businesses to grow. Throughout the implementation period, the senior management team and myself have engaged actively with staff affected and will offer support for those who need to seek new roles outside the Group.

We have deferred any decisions around future Board composition given the future direction of the Group. In particular, while recognising that the Group does not meet the diversity targets in respect of either gender or ethnicity, the skill sets which we have around the Board table are best placed to support the Group through its realisation strategy. The Board has decided against adding additional Board members in view of the revised strategic objectives.

Future

A successful conclusion to the sale process for Renewables will allow the Group to reduce its core debt significantly while providing working capital to facilitate the managed reduction of Group support functions, facilitate the exit of the remaining non-core assets and support the liquidity needs of LSA through to its sale. There is no set timescale on the completion of the airport sale as the Board wishes to ensure that the value is optimised from a shareholder perspective as aviation continues to recover. Following the completion of these steps, the remaining value will be returned to shareholders.

David Shearer

Executive Chairman

Financial review

Strategic review

The Board has concluded that it is in the best interests of all stakeholders to secure the long-term potential of the Group's operating divisions, Esken Aviation and Esken Renewables, and deliver value for the Esken shareholders through a managed disposal of both of the businesses. A sale process for Esken Renewables is at an advanced stage working with a preferred bidder on an exclusive basis. A sale of the Aviation business will focus on London Southend Airport (LSA) with the aim of securing a buyer with the capital to drive growth at the airport over the long term.

Renewables

Adjusted EBITDA for the division was lower than anticipated at the start of the financial year at £18.4m due to a number of challenges. An increased number of unplanned shutdowns at customer plants have resulted in a lower than expected supply of biomass material by the division, along with increases in associated costs. Gate fee income has been reduced as a result of a more competitive market for waste wood impacting volumes and prices, in addition to the reduced ability of several processing sites to take in waste wood during times of unplanned customer plant closures. The transport margin has been adversely affected by high fuel costs and the rollover impact of wage inflation due to driver shortages last year. The division has taken mitigating actions to counter these challenges: the fleet size has been reduced to achieve the most efficient use the trucks and drivers, and strong cost control has resulted in lower than anticipated overheads. Inflationary pressures have been eased by RPI-linked indexation elements within the division's long-term customer supply contracts. However, these are retrospective in a number of cases and as such the true benefits of indexation will not be seen until FY24.

Aviation

The division serviced three routes for passenger flights during the year, however airline take up of available slots at the airport was lower than expected and passenger numbers are still well below pre-COVID levels. Due to the slow take up management decided that the best course of action was for LSA to be closed to commercial flights for Winter 2022/2023. The division's cargo contract with its global logistics partner ceased in September 2022 resulting in an estimated £3.8m reduction in adjusted EBITDA for FY23 and FY24. These downsides have been partly offset by cash benefits of receipt of airline marketing costs and a number of commercial initiatives including filming and other media opportunities. 

LSA has secured a multi-year agreement with easyJet. The airline will operate a new route to Amsterdam, in addition to the three existing destinations of Malaga, Majorca and Faro. For the Summer 2023 season LSA will operate around 30% more flights in Summer 2023 than in Summer 2022 due to the new route and an increase in the number of flights to Faro.

Liquidity

On 9 November 2022, the Group signed a three-year £50m term loan agreement, see financial assets and liabilities note for further details. The new loan will be used to settle maintenance and lease liabilities in Propius, fees payable for cancellation of the old Revolving Credit Facility (RCF) and entry into the facility itself, and provide working capital for the Group. This loan was fully drawn on 15 December 2022 and on the same day the Group cancelled its £19.1m RCF with Lloyds and AIB. Going forward, the Group will operate all corporate banking through Barclays. The Group's headroom at the year end is £50.3m and includes £5.3m of ringfenced cash in LSA. The Group also has non-core assets with a net book value of £43.1m.

Non-core assets and sale of Star Handling

In August 2022, the Group disposed of another plot of land at Widnes for £3.5m at net book value. Management is exploring a number of options for the Group's remaining non-core assets. On 15 May 2023, the Group disposed of Star Handling Limited, our ground handling business with operations at Manchester and Stansted Airports, to Skytanking UK Ltd for a maximum cash consideration of £4.8m.

Discontinued operations

Four of the eight ATR aircraft leased by Propius have been successfully returned to the lessor by the year end, with the remaining four to be returned in the period to September 2023. The Group agreed the early hand back of two of the four aircraft returned, resulting in maintenance savings of £2.0m. At 28 February 2023, the Group has c.£25.2m of obligations relating to leases, maintenance and other aircraft-related costs, that will be settled within one year, see alternative performance measure note for breakdown of the costs. The remaining costs have been fully provided for in these financial statements.

Revenue

Revenue from continuing operations has increased by 14.7% to £120.0m. Revenue from our two main operating divisions, Renewables and Aviation, has increased by 15.6% to £119.2m. RPI-linked contracts in the Renewables division have been the main driver of the increase in the division's revenue year-on-year. Revenue in the Aviation division increased due to improved performance of the hotel, solar farm and Star Handling, partly offset by a £1.5m one-off receipt in the prior year related to Teesside settlement not repeating in the current year.

Profitability

1 The 2022 results have been restated where required due to prior period adjustments, see prior year restatement note.

2 Adjusted EBITDA represents profit/(loss) before interest, tax, depreciation and impairments. Refer to segment note for reconciliation of divisional adjusted EBITDA to loss before tax.

3 In the prior year the share of post-tax losses of associates and joint ventures was presented as part of adjusted EBITDA. This year it is presented on its own line as part of the loss before tax.

Adjusted EBITDA and profit before tax are the Group's key measures of profitability. Adjusted EBITDA has decreased by 46.9% to £5.6m (2022: £10.6m) and the loss before tax has decreased by £8.0m to £27.7m (2022: £35.7m).

In the Renewables division, performance has been hit by unplanned shutdowns of customer plants and the impact of market pressures on gate fee receipts, leading to a 9.5% decrease in adjusted EBITDA to £18.4m (2022: £20.3m). The Aviation division adjusted EBITDA loss has increased by 390.9% to £3.8m (2022: £0.8m) primarily due to one-off receipts in the prior year of £3.5m associated with Connect Airways and the conclusion of the partnership with Teesside International Airport not being repeated in the current year.

In the Non-Strategic Infrastructure division a £4.7m one-off receipt in the prior year relating to the agreement to exit a long-term onerous property lease has not been repeated in the current year. This is the main driver of the decrease in adjusted EBITDA to a £1.7m loss (2022: £3.3m gain). The Group Central and Eliminations division's adjusted EBITDA loss decreased by 41.0% to £7.3m (2022: £12.2m) mainly due to one-off legal fees and an increase in the provision for part 1 claims relating to LSA in the prior year which have not been repeated.

Business segments

The business segments reported in the financial statements are Renewables, Aviation, Investments and Non-Strategic Infrastructure, which represent the operational and reporting structure of the Group. The Operational review contains further details about the performance of the operating divisions.

The fair value of the investment in Logistics Development Group plc (LDG), increased by £1.0m (2022: £1.2m decrease) due to an increase in the LDG share price. The gain on revaluation of the investment to current market share price is presented in the consolidated statement of comprehensive income.

The Non-Strategic Infrastructure division continues to realise value from its property assets when the time and price is right. At 28 February 2023, the book value of Infrastructure assets held was £43.1m (2022: £39.7m). During the year, there was a disposal of a portion of Widnes land generating net proceeds of £3.5m (2022: £nil). Following commercial discussions regarding a potential disposal of the Group's investment in, and shareholder loan notes issued to, Mersey Bioenergy Holdings Limited (MBHL), the Group recognised a reversal of impairment of the loan notes from £nil to £7.3m.

Depreciation

Depreciation has reduced from £20.7m to £18.3m due to an overall reduction in the asset base across the Group.

Impairments and reversal of impairment of loan notes

There was an impairment of £1.0m of assets relating to the Port Clarence site in the Renewables division ahead of the disposal of the site post year end. The £7.3m reversal of impairment of MBHL loan notes is presented on a separate line, impairment of loan notes, on the consolidated income statement.

Net finance costs

Finance costs increased by £3.3m to £24.8m, mainly due to full year's interest charged on the CGI convertible debt instrument in the current year, but only part year in the prior. Finance income increased by £1.8m to £4.0m primarily due to gains on the revaluation of Esken Limited's intercompany US Dollar denominated loan with Propius.

Tax

The tax credit on continuing operations of £2.5m (2022: £9.9m) reflects an effective tax rate of 9.1% (2022: 27.7%). The effective rate is lower than the standard rate of 19%, mainly due to the net release of provisions relating to uncertain tax positions. Deferred tax has been calculated at a blended rate. The amounts expected to unwind pre 1 April 2023 are calculated at 19% and the amounts expected to unwind post 1 April 2023 are calculated at 25%.

Discontinued operations

The results of Propius, our aircraft leasing business are presented as discontinued as it is abandoned in line with the IFRS 5 definition of a discontinued operation. The decrease in the loss from discontinued operations of £2.4m to £0.1m is primarily due to the provision of maintenance and other aircraft related costs being made in the prior year.

Loss per share

Loss per share from continuing operations was 2.47p (2022: 3.12p). Total basic loss per share was 2.47p (2022: 3.41p).

Balance sheet

The overall value of property, plant and equipment (PPE) of £263.4m (2022: £269.9m) has decreased in the year mainly due to the depreciation charge across the Group and the impairment of Port Clarence assets, partly offset by the reclass of Widnes land from property inventories, and fixed asset additions related to terminal improvements at LSA and plant and machinery in Renewables.

There has been a £7.3m reversal of impairment of MBHL loan notes and a £3.1m increase in trade receivables, offset by a £10.8m decrease in property inventory and a £2.5m decrease in cash, see following section on the major cash flows in the year.

Non-current liabilities have increased from £244.9m to £272.7m. In the year a £44.8m liability was recognised on the balance sheet relating to the term loan and an interest accrual of £12.2m on the CGI convertible debt. These increases are partially offset by a £19.3m reduction in lease liabilities, due to capital repayments, and a £13.3m reduction in non-current provisions, mainly due to maintenance payments.

Current liabilities have reduced mainly due to a reduction in corporation tax provisions.

Debt and gearing¹

1  See Alternative performance measures note for an explanation and reconciliation of gearing.

During the year the Group signed a three year £50m term loan, following the loan the £19.1m RCF with current bank lenders was cancelled.

Cash flow

Discontinued cash flows in the year relates to Propius lease, maintenance and other aircraft related costs.

Restricted cash relates to money held in escrow within the Renewables division as security for one of its contracts.

Investing activities include inflows of £3.5m received from the sale of a portion of Widnes land, £2.2m from the sale of PPE and £1.7m for the receipt of the capital element of net investment in leases.

Financing activities includes net proceeds from the term loan of £44.8m. Offsetting this there were outflows of £16.4m for the repayment of the capital element of lease obligations and £6.8m for interest payments.

Lewis Girdwood

Chief Financial Officer

Operating reviews

Renewables

Esken Renewables supplied 1.6m tonnes of fuel to biomass plant customers in the year to 28 February 2023, up 9.4% on the prior year (2022 1.5m tonnes).

However, this increase reflected improved demand from biomass plants to which Esken Renewables primarily supplies third party and forestry by-product, at a lower margin. Higher margin biomass plants that use waste wood experienced an increased number of unplanned outages, particularly during the winter months. This reduced the total volume of waste wood supplied by Esken Renewables and the associated gate fee income. Ongoing fluctuations in UK construction supply chains also led to a market wide reduction in waste wood, further impacting gate fee income and margins. 

The overall increase in volume supplied resulted in revenue increasing 17.7% to £93.7m (2022 £79.7m) but the reduction in higher margin waste wood income resulted in adjusted EBITDA reducing by 9.5% from £20.3m to £18.4m.

Margins are expected to improve as biomass plant customers continue to better understand their infrastructure and optimise performance. Margins will also be supported by continued annual contracted indexation revisions that reflect the cost inflation experienced during the year. RPI linked contracts for two of the six largest plants were revised to reflect higher costs in April 2022 with a further two revised by the end of the first half of the financial year. The remaining two contracts were revised in January 2023.

Further steps were taken to optimise ongoing margins through the closure of Esken Renewables' Port Clarence processing and storage site, which had originally been built to service the Port Clarence Biomass Plant, which was never commissioned. The processing site had never been profitable as a result. Esken Renewables took the decision to close the site having entered into a new sub-supply agreement to support the Chilton Biomass plant, replacing the supply provided from Port Clarence. The sub-supply agreement and closure of Port Clarence is expected to deliver an additional £0.9m of annual recurring EBITDA from 1 April 2023.

A new sub-supply arrangement in Yorkshire and the Cramlington supply contract moving to an exclusive basis from September 2022 will also support improved recurring revenues going forward, and Esken Renewables continues to seek further supply agreements and strategic partnerships.

Aviation

The Aviation Division received £1.4m related to the recovery of airline marketing support payments and delivered an adjusted EBITDA loss of £3.8m in FY23. In the prior year, the Division reported a loss of £0.8m having benefitted from £3.5m of one-off receipts associated with Connect Airways and the conclusion of the partnership with Teesside International Airport. The adjusted EBITDA loss of £3.8m included positive contributions from the airport hotel, London Southend Jet Centre, and Star Handling.

The aftereffects of the pandemic continued to impact the aviation sector during the year. Whilst LSA continued to maintain adequate staffing levels, several aviation businesses saw their staffing numbers reduce during the last two years and the industry experienced challenges in recruiting people back into aviation. During the summer months, many airline staff also went on strike, causing airlines to both continue to retrench to traditional hub bases and remove flights if there weren't staff available to operate them. The challenges elsewhere in turn led to the removal of planned flights at LSA at various points over the summer, reducing passenger numbers by 5.3% from 94k to 89k.

LSA has continued to position itself for recovery despite the legacy challenges that followed the pandemic. This recovery will be built on having in place a strong management team that is taking a proactive approach to airline engagement while continuing to develop the airport proposition.

John Upton joined the airport team as CEO in September 2022 and has sought to engender an entrepreneurial spirit in the business. John leads a new management team with the Finance Director and Business Development Director appointed toward the beginning of the year under review. They are joined by recently promoted operations and commercial directors in a newly formed operational Board.

That team are regularly engaging with airlines on both based and non-based flying, using the data from 40 previously proven routes to indicate the profit opportunities arising from operating at LSA.

Those airlines are increasingly aware that London's traditional airport hubs are now very close to pre-pandemic operating levels and that peak slot capacity is reaching a cliff edge. LSA is therefore making the case for profitable and sustainable growth capacity now, serving the fast-growing east London and east of England catchment area. Direct rail access to London Liverpool Street and Stratford, the UK's busiest train station, with further connections to the Elizabeth Line 30 minutes away in Shenfield also add to the attractiveness of the airport's location.

The airport's affluent and growing catchment area, direct, quick rail access to London and modern airport infrastructure were important factors that led to LSA signing a multi-year partnership with easyJet in January 2023. easyJet started operating a new route to Amsterdam at the end of May 2023 with Paris starting October 2023. These two new routes will operate year round. The addition of these routes takes the number of destinations easyJet serves from the airport to five including Malaga, Palma and Faro. The airline has also announced an increase in the weekly frequency of flights to Faro.

LSA will also aim to build on its positive engagement last summer with airlines following a small number of flights that were added by Blue Air to Bucharest, Sky Express to Athens and Wideroe to Bergen in late July. The airport team will also continue to explore further logistics opportunities following a successful operation supporting a new logistics partner on a temporary basis from January through to March 2023.

The Board of Esken believe LSA has the potential to grow well beyond the 2.1m passengers that it welcomed in FY20. The Board concluded that the best way to help the airport achieve this potential, and deliver value for Esken shareholders, is through a managed disposal process. A key objective will be to find the right buyer with the capital to support the growth prospects of the airport over the long term and benefit airline partners, customers and local stakeholders.

Consolidated income statement

For the year ended 28 February 2023

¹The 2022 results have been restated where required due to prior period adjustments, see note below.

Consolidated statement of comprehensive income

For the year ended 28 February 2023

¹The 2022 results have been restated where required due to prior period adjustments, see note below.

Of the total comprehensive expense for the year, a loss of £24,232,000 (2022: £25,533,000) is in respect of continuing operations and a loss of £7,076,000 (2022: £4,210,000) is in respect of discontinued operations.

Consolidated statement of financial position

As at 28 February 2023

¹The 2022 results have been restated where required due to prior period adjustments, see note below.