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.

1 November 2023

ESKEN LIMITED

("Esken" or the "Company")

Proposed Disposal of Esken Renewables

Proposed Transfer from Premium Listing to Standard Listing

Esken, the aviation and renewable energy group, is pleased to announce that it has agreed the conditional disposal of its wholly owned subsidiary, Esken Renewables Limited ("Esken Renewables"), (the "Disposal").

Key terms of the Disposal

·    The proposed disposal of the entire issued share capital of Esken Renewables to Pioneer Balmoral UK Limited (the "Purchaser"), a vehicle fully owned and funded by the sustainable infrastructure fund, Pioneer Infrastructure Partners SCSp, managed by Pioneer Point Partners LLP ("Pioneer");

·    Consideration for the entire issued share capital of Esken Renewables of £77.6 million, plus the Intercompany Loan Reimbursement, expected to total £6.9 million, which represents an equity value of £84.5 million, to be satisfied in cash. This reflects an enterprise value of £107.7 million, with adjustments made for cash and debt like items;

·    Net proceeds of the Disposal are expected to total £78.5 million (which includes the Intercompany Loan Reimbursement and is net of transaction costs), which will be used to immediately repay the £55 million of committed funding drawn under the Facilities Agreement and associated costs (based on the Company's latest calculation, the amount to settle will be £70.6 million in total). The balance of the net proceeds will be used: (i) to further contribute approximately £3.6 million to the Group's defined benefit pension scheme; and (ii) to provide additional working capital in the short term;

·    The Disposal will provide Esken with increased financial stability to support the previously announced managed sale of London Southend Airport ("LSA").  While early in the process, the Board has been encouraged by the initial level of interest from a range of parties who recognise the long-term strategic value of LSA;

·    Completion of the Disposal is conditional on inter alia: approval by Shareholders at the General Meeting; the Deed of Settlement and Variation being duly executed by Esken Renewables and Tilbury Green Power Limited ("TGP"); and the satisfaction or waiver of the Cash Sweep Condition; and

·      The Disposal is expected to complete in early December 2023.

David Shearer, Executive Chairman of the Company commented:

I am pleased to be able to announce the sale of our Renewables business today.

It is almost a year since the Board announced that we would undertake a strategic review of the core operations of the Group. Since then, we have worked with advisers on a comprehensive process to find the right strategic partner for the Renewables business going forward. I am pleased that, in Pioneer, we have found such a partner and wish the proposed new owners, as well as the management team and staff, good luck for the future.

The sale of Esken Renewables is a positive outcome set against a persisting challenging market with an increase in interest rates over the last 12 months that has supressed M&A activity. Following this sale, and subsequent repayment of our debt facility, our focus will now primarily turn to addressing the maturity and terms of the Exchangeable Bond, and to the sale of LSA, to facilitate a managed process to realise value for Shareholders.

Proposed Transfer and Executive Remuneration Scheme

In addition, the Board intends to transfer the Company's listing from the Premium Listing segment of the Main Market of the London Stock Exchange to the Standard Listing segment (the "Proposed Transfer").

The Board also intends to introduce a new Executive Remuneration Scheme which will facilitate certain incentive entitlements for its Executive Directors, that fall outside the scope of the Company's current remuneration policy, and seeks shareholder approval to implement the Executive Remuneration Scheme.

The Disposal, the Proposed Transfer and the implementation of the Executive Remuneration Scheme, are all subject inter alia to approval of Shareholders at the General Meeting. A circular, convening the General Meeting, will be published and notified to Shareholders shortly (the "Circular").

Enquiries:

Esken Limited    C/o Teneo

Canaccord Genuity 

Adam James, Emma Gabriel (Sponsor and Broker)

Chris Robinson, Ben Spencer (Financial Adviser)

0207 523 8000

Teneo

Olivia Peters / Giles Kernick

020 7353 4200

esken@teneo.com 

TB Cardew, PR Advisers to Pioneer Point Partners

Tom Allison                                                                                         T: +44 (0) 7789 998 020

Henry Crane                                                                                       T: +44 (0) 7918 207157

Important Notices

Information regarding forward-looking statements

This announcement contains statements which are, or may be deemed to be, "forward-looking statements" which are prospective in nature. All statements, other than statements of historical fact, are forward-looking statements. They are based on intentions, beliefs or current expectations and projections about future events, and concerning, among other things, the business, results of operations, prospects, growth and strategies of, the Company, the Group, Esken Renewables or the Continuing Group, and are therefore subject to risks and uncertainties which could cause actual results to differ materially from the future results expressed or implied by the forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of forward-looking words such as "plans", "expects", "is expected", "is subject to", "budget", "scheduled", "estimates", "forecasts", "goals", "intends", "anticipates", "believes", "targets", "aims", "hopes", "continues" or "projects". Words or terms of similar substance or the negative thereof, are forward-looking statements, as well as variations of such words and phrases or statements that certain actions, events or results "may", "could", "should", "would", "might" or "will" be taken, occur or be achieved. Such statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations.

Forward-looking statements include statements relating to: (a) future capital expenditures, expenses, revenues, earnings, economic performance, indebtedness, financial condition, dividend policy, losses and future prospects; (b) business and management strategies and the expansion and growth of the Company's, the Group's, Esken Renewables' or the Continuing Group's operations; and (c) the effects of economic conditions on the Company's, the Group's, Esken Renewables' or the Continuing Group's business.

Such forward-looking statements involve known and unknown risks and uncertainties that could significantly affect expected results and are based on certain key assumptions. Many factors may cause actual results, performance or achievements of the Company, the Group, Esken Renewables or the Continuing Group to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Important factors that could cause actual results, performance or achievements of the Company, the Group, Esken Renewables or the Continuing Group to differ materially from the expectations of the Company, the Group, Esken Renewables or the Continuing Group include, among other things, general political, business and economic conditions, industry and market trends, competition, changes in government and changes in law, regulation and policy, including in relation to taxation, as well as political and economic uncertainty (including, but not limited to, the Ukraine-Russia conflict), stakeholder perception of the Company, the Group, Esken Renewables or the Continuing Group and/or the sectors or markets in which it operates. Such forward-looking statements should therefore be construed in light of such factors. Any information contained in this announcement on the price at which shares or other securities in the Company have been bought or sold in the past, or on the yield on such shares or other securities, should not be relied upon as a guide to future performance.

Neither the Company nor any of its Directors, officers or advisers provides any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in this announcement will actually occur. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as at the date of this announcement.

Other than in accordance with its legal or regulatory obligations, neither the Company nor the Sponsor is under any obligation to, and each of the Company and the Sponsor expressly disclaims any intention or obligation to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

No profit forecast

Unless otherwise stated within this announcement, no statement in this announcement is intended as a profit forecast or a profit estimate and no statement in this announcement should be interpreted to mean that earnings, earnings per share or income, for the Company, the Group, Esken Renewables or the Continuing Group, as appropriate, for the current or future financial years will necessarily match or exceed the historical published earnings, earnings per share or income for the Company, the Group, Esken Renewables or the Continuing Group, as appropriate.

Rounding

Percentages in tables have been rounded and accordingly may not add up to 100 per cent. Certain financial data have also been rounded. As a result of this rounding, the totals of data presented in this announcement may vary slightly from the actual arithmetic totals of such data.

Cautionary statement

This announcement is not intended to, and does not constitute, or form part of, any offer to sell or an invitation to purchase or subscribe for any securities or a solicitation of any vote or approval in any jurisdiction. Shareholders are advised to read carefully the formal documentation in relation to the Disposal once it has been despatched. Any response to the Disposal should be made only on the basis of the information in the formal documentation to follow.

This announcement has been prepared for the purpose of complying with the applicable law and regulation of the United Kingdom and information disclosed may not be the same as that which would have been disclosed if this announcement has been prepared in accordance with the laws and regulations of jurisdictions outside the United Kingdom.

Important information relating to financial adviser

Canaccord Genuity Limited (the "Sponsor"), which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting solely for the Company, and for no-one else, as sponsor, broker and financial adviser in connection with the Disposal and the Proposed Transfer and will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice to any other person in relation to the Disposal and the Proposed Transfer, the content of this announcement or any other matters described in this announcement. To the fullest extent permitted by law, neither the Sponsor nor any of its affiliates assumes any responsibility whatsoever for or makes any representation or warranty express or implied, in relation to the contents of this announcement, including its accuracy, completeness or verification or for any other statement made or purported to be made by it, or on its behalf and nothing contained in this announcement is, or shall be, relied upon as a promise or representation in this respect whether as to the past, present or future, in connection with the Company, the Group, Esken Renewables, the Continuing Group, the Disposal or the Proposed Transfer. The Sponsor and its affiliates accordingly disclaim to the fullest extent permitted by law all and any duty, responsibility and liability whether arising in tort, contract or otherwise which it might otherwise be found to have in respect of this announcement or any such statement or otherwise.

Publication on website

A copy of this announcement will be available for inspection on the Company's website at: www.esken.com. For the avoidance of doubt, the contents of this website are not incorporated into and do not form part of this announcement.

Inside information

This announcement contains inside information. The person responsible for arranging this announcement on behalf of Esken is Adam Davidson, General Counsel and Company Secretary.

Proposed disposal of Esken Renewables Limited, proposed transfer from Premium Listing to Standard Listing and certain proposals for executive remuneration

Introduction

The Board today announces the proposed disposal by its subsidiary, Esken Holdings Limited (the "Seller"), of the entire issued share capital of Esken Renewables to Pioneer Balmoral UK Limited, a vehicle fully owned and funded by the sustainable infrastructure fund, Pioneer Infrastructure Partners SCSp, managed by Pioneer Point Partners. The consideration for the entire issued share capital of Esken Renewables is £77.6 million, plus the Intercompany Loan Reimbursement, expected to total £6.9 million, which represents an equity value of £84.5 million, to be satisfied in cash. This reflects an enterprise value of £107.7 million, with adjustments made for cash and debt like items.

In addition, the Company announces its intention to transfer the Company's listing from the Premium Listing segment of the Main Market of the London Stock Exchange to the Standard Listing segment.

The Board also intends to introduce an Executive Remuneration Scheme which will facilitate certain incentive entitlements for its Executive Directors that fall outside the scope of the Company's current remuneration policy.

The Disposal, the Proposed Transfer and the implementation of the Executive Remuneration Scheme are all subject to approval of the Company's shareholders at the General Meeting. The Circular, convening the General Meeting, will be published and notified to Shareholders shortly.

Pursuant to an agreement between the Purchaser and the Seller in relation to the Disposal (the "Disposal Agreement"), the Seller has conditionally agreed that it will dispose of Esken Renewables to the Purchaser.  Esken Renewables is the United Kingdom's largest supplier of waste wood fuel, with contracts in place to supply c.1.7 million tonnes of waste wood fuel to dedicated biomass plants across the United Kingdom.  The Disposal will be satisfied in cash and the net proceeds of the Disposal are expected to be £78.5 million (which includes the Intercompany Loan Reimbursement and is net of transaction costs).

The sale of Esken Renewables constitutes a class 1 transaction pursuant to the Listing Rules and as such requires the approval of Shareholders at a General Meeting. The Proposed Transfer and the proposed Executive Remuneration Scheme also require prior approval of Shareholders at a General Meeting. A notice of the General Meeting, at which Shareholder approval will be sought for, inter alia, the Disposal, the Proposed Transfer and the Executive Remuneration Scheme, will be set out in the Circular.

Background to and reasons for the Disposal

As previously announced, Esken conducted a strategic review of its operating businesses, which concluded that it was in the best interests of all stakeholders to secure the long-term potential of these businesses and deliver value for Shareholders through a managed disposal process.

The Board is now pleased to announce the proposed conditional disposal of Esken Renewables.

The Board believes that the Disposal will allow Esken Renewables to benefit from having a long-term strategic owner to support its growth ambitions through the expertise, resources and access to capital of the Purchaser. It will also crystallise value for Shareholders and precipitates the repayment and closure of the debt drawn under the Facilities Agreement and will thus significantly reduce the Continuing Group's debt financing costs going forwards. It will also be used for working capital in the short term.

The Board believes that the Disposal is in the best interests of the Company and its Shareholders for the following reasons:

·    It is in line with the strategy to deliver value to Shareholders;

·    Following an extensive competitive sales process in a difficult market, the Disposal has been achieved at a purchase price which unlocks value for Shareholders and will allow for the repayment and closure of the committed funding under the Facilities Agreement;

·    It supports the Continuing Group's strategy to reduce existing indebtedness;

·    It provides for an immediate injection of cash into the Continuing Group to facilitate the managed reduction of the Continuing Group's support functions, to contribute to the Group's defined benefit pension scheme, and to fund working capital and other financial obligations in the near term; and

·    It provides for increased financial stability of the Continuing Group so as to support:

(i)     the finalisation and entry into a potential £20 million funding facility from certain of Esken's larger Shareholders into Esken Aviation, as holding company of the LSA Group ("Potential £20 million LSA Facility");

(ii)    the entry into binding documentation for the disposals of the non-core assets of Pollington and Port of Weston, in which the Group has entered into a non-binding heads of terms for aggregate cash consideration of £8.5 million (the "Heads of Terms for Pollington and Port of Weston");

(iii)   a potential renegotiation of the terms and/or deferral of the maturity of the Exchangeable Bond beyond 8 May 2024; and

(iv)   a managed sale process of the Continuing Group's remaining core operating division (being the LSA Group) as well as its non-core assets, with a view to ultimately returning remaining available value to Shareholders.

Information on the Purchaser

The Purchaser is a vehicle fully owned and funded by the sustainable infrastructure fund, Pioneer Infrastructure Partners SCSp, managed by Pioneer.

Summary of key terms of the Disposal

The Seller has agreed to sell the entire issued share capital of Esken Renewables for consideration of £77.6 million plus the Intercompany Loan Reimbursement, expected to total £6.9 million, which represents an equity value of £84.5 million, to be satisfied in cash. This reflects an enterprise value of £107.7 million, with adjustments made for cash and debt like items.

The net proceeds of the Disposal are expected to be £78.5 million (which includes the Intercompany Loan Reimbursement and is net of transaction costs).

The Seller has given certain warranties and indemnities to the Purchaser, further details of which will be set out in the Circular.

Completion is conditional upon, inter alia: the passing of the Disposal Resolution at the General Meeting to be convened by the Company; the Deed of Settlement and Variation being duly executed by Esken Renewables and TGP, being the settlement of certain matters and variation of the fuel supply agreement with one of Esken Renewables' key customers; and the satisfaction or waiver of the Cash Sweep Condition.

In the event that the Disposal is not approved at the General Meeting prior to the Longstop Date, being eight weeks from the date of the Disposal Agreement, the Purchaser would be entitled to a break fee under the Disposal Agreement up to a maximum aggregate amount of £276,000.

Financial Information on Esken Renewables

The financial information on Esken Renewables contained in this paragraph has been extracted, without material adjustment, from the financial information table on Esken Renewables for the three years ended 28 February 2023 (Historical Financial Information Relating to Esken Renewables), full details of which will be contained in the Circular.    

As at 28 February 2023, Esken Renewables had audited total assets of £97.6 million and net assets of £33.5 million.

After 28 February 2023, as part of the Disposal, the Group will transfer certain of its properties (being its office, processing site and estate access road in Widnes) to Esken Renewables, as these are properties that were and continue to be used predominantly by Esken Renewables rather than any other member of the Group. These transfers release the Group from the ongoing lease liability for the Widnes office and processing site, and remove the Group's ongoing maintenance liability in relation to the Widnes estate access road.

Financial effects of the Disposal and use of proceeds

Financial effects of the Disposal

As Esken holds 100 per cent. of Esken Renewables, the Group's consolidated accounts include Esken Renewables.

Following Completion, the Continuing Group will no longer receive the profitable contribution that Esken Renewables currently makes to the Group's financial results. Further information on the financial effects of the Disposal, including pro-forma financial information, will be set out in the Circular. In the Group's forthcoming interim results for the six month period ending 31 August 2023, which are due to be published by 30 November 2023, Esken Renewables will be reclassed as a disposal group held for sale and a discontinued operation.

Use of proceeds

The net proceeds of the Disposal are expected to be £78.5 million (which includes the Intercompany Loan Reimbursement and is net of transaction costs).

The net proceeds receivable by the Seller will be used by the Continuing Group to immediately repay the £55 million of committed funding drawn under the Facilities Agreement and associated costs (based on the Company's latest calculation, the amount to settle will be £70.6 million in total). The balance of the net proceeds will be used: (i) to further contribute approximately £3.6 million to the Group's defined benefit pension scheme, which the Board expects to be sufficient to fund the scheme through buy-in, buy-out and wind up; and (ii) to provide additional working capital in the short term.

The residual net cash of the Disposal, together with any consideration from the anticipated disposal of certain of the Continuing Group's non-core assets, will increase the financial stability of the Continuing Group in the short term thus supporting it: (i) to finalise the Potential £20 million LSA Facility into Esken Aviation to provide certain funds as necessary to support the recovery of LSA and allow a managed sale process; (ii) to enter into binding documentation for the disposals of the non-core assets of Pollington and Port of Weston; and (iii) to potentially renegotiate the terms and/or deferral of the maturity of the Exchangeable Bond beyond the current maturity date of 8 May 2024.

Group Strategy of the Continuing Group

Following the Disposal, the Continuing Group will comprise: (i) Esken Aviation, principally comprising the LSA Group; and (ii) non-core assets.  

The strategy of the Continuing Group (which assumes the Disposal will complete) is as follows:

·    to provide support, including, inter alia, by means of the Potential £20 million LSA Facility into Esken Aviation currently being negotiated by the Board, for the ongoing recovery of passenger growth at LSA while continuing the managed sale process to secure a new owner for the LSA Group;

·    to dispose of its remaining non-core assets;

·    to potentially renegotiate the terms and/or deferral of the maturity of the Exchangeable Bond beyond the current maturity date of 8 May 2024, and to subsequently repay and close out the Exchangeable Bond when it becomes due;

·    to settle all remaining outstanding liabilities; and

·    in time, once sufficient assets have been realised, to seek a managed sale process of any of the remaining assets of the Continuing Group and return remaining value to Shareholders.

The Board is discussing heads of terms with certain of Esken's larger Shareholders in respect of a Potential £20 million LSA Facility into Esken Aviation, as holding company of the LSA Group. If Esken is successful in securing this facility, the proceeds are intended to provide funding support for the operations at LSA including capital expenditure. The Potential £20 million LSA Facility is expected to receive a priority return and repayment from the proceeds of the sale of the airport after redemption of the Group's convertible debt facility, provided by Carlyle Global Infrastructure Fund L.P ("CGI") (the "Convertible Debt Facility") at that time. Upon completion of the Disposal, the Board will seek to finalise the Potential £20 million LSA Facility and enter into a binding agreement. It is currently envisaged that this would occur once the Continuing Group has completed the Proposed Transfer. The Board is also seeking to bring forward the commitment of a tranche of this facility in the near term. At this stage, there can be no guarantee that the Potential £20 million LSA Facility or any tranche thereof will be agreed.

Esken has entered into the non-binding Heads of Terms for Pollington and Port of Weston for cash consideration of £3.5 million and £5.0 million, respectively. It is currently envisaged that the Board would enter into binding documents and complete the disposals in respect of these non-core assets shortly after the Continuing Group has completed the Proposed Transfer. There can be no guarantees that the disposals will complete within any time frame or at all, or, if they do, on what terms, but it is intended that the proceeds will be used for additional working capital and to extend the liquidity headroom of the Continuing Group.

With the benefit of, amongst other things, the Potential £20 million LSA Facility, the disposal of non-core assets for £8.5 million in aggregate in the near term, and the potential renegotiation of the Exchangeable Bond, it is anticipated that the Continuing Group will continue to operate as a going concern (noting that the Group's 2023 Annual Report and Financial Statements contained a material uncertainty in respect of going concern to which the auditor drew attention by way of emphasis without modifying their report).

As previously announced, the Board has concluded that the interests of all stakeholders would be best served by seeking a new owner for the LSA Group through a managed sale process. The LSA Group would benefit from a long term strategic owner with access to capital to support its growth ambitions given the increase in passenger demand in the London market, while offering stability and certainty to its staff, customers and suppliers.

The process to seek a new owner for the LSA Group is underway. While early in the process, the Board has been encouraged by the initial level of interest from a range of parties who recognise the long-term strategic value of LSA. However, the certainty, value and timing of any such disposal of the LSA Group cannot be determined at this stage. The market for aviation has improved significantly recently with strong passenger demand experienced and a return to pre-pandemic passenger levels by other London airports during the summer season which, as a result, are increasingly capacity constrained, impacting both airline and passenger growth. Negotiations continue with multiple prospective airlines to meet the continued passenger demand and, in turn, accelerate the trajectory of LSA on its journey back to at least 2.2 million passengers (2019 level) in the medium term and then to approximately 5 million beyond,  given the Board's estimate of LSA's capability to handle that level of passengers, with a compelling investment case for the incremental capital expenditure required.

Assuming that the Company successfully concludes (i) the Disposal, (ii) the sale of the LSA Group, (iii) the disposal of the non-core assets of the Continuing Group and addresses the dedicated ground handling team at LSA (if not sold as part of an LSA Group disposal), (iv) the closure of the Exchangeable Bond, and (v) settlement of any of the Continuing Group's material remaining liabilities, the Board's intention would be to return remaining value to Shareholders, seek to delist the Company from the London Stock Exchange and to conclude the winding down of the Continuing Group.

Proposed Transfer

The Board is mindful that, following the Disposal, the Continuing Group will be smaller and that the strategy to sell its remaining assets, including the LSA Group, and repay or settle outstanding liabilities will further reduce the size of the Continuing Group.

The Board also wishes to reduce ongoing costs for the Continuing Group and believes that a transfer of listing from a Premium Listing to a Standard Listing will assist in that, as it will reduce some of the Company's ongoing costs of compliance. Whilst the Proposed Transfer will mean that the Company will no longer be required to comply with the super-equivalent provisions of the Listing Rules that apply to companies with securities admitted to the Premium Listing segment of the Official List, the Board's intention is that there will be no material governance changes as a result of the Proposed Transfer.

Under the Listing Rules, the Proposed Transfer requires prior approval of Shareholders by way of special resolution. Shareholders will therefore be asked to vote on a special resolution relating to the Proposed Transfer at the General Meeting (the "Transfer Resolution"). If the Proposed Transfer does not occur because the Transfer Resolution does not pass, the Company's Premium Listing will continue. The date of the Proposed Transfer must not be less than 20 business days after the passing of the Transfer Resolution at the General Meeting. Details of the impact of the Proposed Transfer on the Company and its continuing obligations under the Listing Rules will be set out in the Circular.

Executive Remuneration Scheme

The Company has reflected on the remuneration required to retain its Executive Directors for the period during which it intends to implement its strategy for the Continuing Group.  It has concluded that certain incentive arrangements need to be put in place which fall outside the scope of the Company's current remuneration policy. It has further concluded that the existing long term incentive plan in place in the Company, where performance is assessed over a number of years, is no longer appropriate given the strategy to dispose of the Continuing Group's assets and return remaining value to Shareholders. These proposals relate to both future annual bonuses, and future long-term incentive arrangements, and are intended to directly align the management incentive arrangements with returns to Shareholders from the disposal processes referred to above and to aid in the retention of key personnel to oversee implementation of the Continuing Group's strategy.

Under the Listing Rules, the Executive Remuneration Scheme requires prior approval of Shareholders by way of an ordinary resolution. Shareholders will therefore be asked to vote on a resolution relating to the Executive Remuneration Scheme at the General Meeting, (the "Remuneration Resolution"). Further details on the Executive Remuneration Scheme will be set out in the Circular.

Current trading, trends and prospects of the Continuing Group  

Following the Star Handling Disposal, being the ground handling operations at Manchester and Stansted airports, the aviation related businesses of the Group are now entirely focused on the recovery at LSA. The airport has benefitted during the summer season from the industry's strong passenger demand which has seen the other London airports return to pre-pandemic passenger levels. The partnership with easyJet has seen the schedule grow from three to eight destinations with increasing frequency and strong load factors being experienced. This has encouraged easyJet to add additional routes with Alicante, Amsterdam, Geneva and Paris and most recently added, Grenoble to operate through the winter this year.

Against this positive backdrop, discussions continue on an expanded summer schedule for 2024 with a number of airlines who recognise the growing capacity constraints at other London airports and the strong offering from LSA in terms of operating cost and passenger experience. For instance, a new route to Bourgas, in partnership with Balkan Airlines, will start in summer 2024. 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 an extension to the growth in scheduled routes, the Jet Centre continues to play an important role. The Directors intend to pursue new prospects following the Jet Centre open day in June.

The Board believes it now has a base from which to progress the process to seek a new owner for the LSA Group. The decision taken by the Board to sell the LSA Group, in order to crystallise shareholder value and secure the right long-term partner best placed to support future growth, has been reinforced by this market momentum. While early in the process, the Board has been encouraged by the initial level of interest from a range of parties who recognise the long-term strategic value of LSA. The Board will be focussing its engagement over the months ahead, with the objective of achieving the best outcome for stakeholders.

In light of the strategic review triggering the managed sale of the LSA Group, the estimated repayment date of the Group's Convertible Debt Facility, provided by CGI, has been brought forward. As required by IFRS 9, the Group has recalculated the amortised cost of the financial liability leading to a one-off adjustment through profit or loss, in addition to the monthly interest charges. The Convertible Debt Facility has a maturity date of 2028; however, a sale event before this maturity date crystallises early repayment of the facility in full (principal plus all interest amounting to £193.75 million in total). This increased interest is a non-cash item and the debt liability will be settled when the LSA Group is sold. There are no changes to the terms of the Convertible Debt Facility. The increased one-off non-cash interest charge is anticipated to total approximately £29.4 million and will be included within the Group's forthcoming interim results.

On 26 September 2023, Esken received notification that documents filed by CGI in the High Court have been served on LSA, claiming certain technical breaches by LSA with respect to the Convertible Debt Facility. LSA does not agree with CGI's claimed interpretation of the Convertible Debt Facility and intends to defend the action vigorously. Esken will continue with its sale process to find the right long-term owner for the airport.

Non-core assets

Following the completed disposal on 3 August 2023 of the investment in Mersey BioEnergy for cash consideration of £9 million, discussions continue to progress the remaining non-core assets with a view to realising value for Shareholders. Further to this, the Group has recognised an impairment of approximately £5.3 million on its non-core asset at Pollington, reflecting a reduction in the assessment of the assets net realisable value in light of ongoing negotiations, in respect of which Esken has now entered into non-binding heads of terms, over a potential disposal of Pollington and also Port of Weston (being the Heads of Terms for Pollington and Port of Weston).

The remaining aircraft of the original eight leased by Propius following the demise of the group of companies known as "Stobart Air" was due to be returned to the lessor in October 2023. However, due to supply chain challenges, the return is likely to be delayed by a few months. Landing gear overhaul on one of the previously returned aircraft agreed with the lessor will then bring to a conclusion all guaranteed lease payments and return condition obligations in connection with Propius. The final outcome is expected to remain within the amounts previously provided in Esken's annual report and accounts for the financial year ended 28 February 2023 being approximately £25 million and as at 31 August 2023 is expected to be approximately £5 million.

In line with the stated strategy for managed disposals and the ultimate wind down of the Continuing Group, the Board has undertaken a consultation with staff at Continuing Group level and commenced the implementation of a phased redundancy plan to reduce central costs as disposals are completed, with a £2.2 million provision for redundancy costs to be included in the Group's forthcoming interim results.

Group cash and cash equivalents as at 31 August 2023 was £26.9 million, comprising approximately £7.0 million held within Esken Renewables and approximately £3.0 million of ring-fenced cash held in LSA and its subsidiaries (all figures unaudited).

Current trading, trends and prospects of Esken Renewables

The challenges Esken Renewables experienced during the financial year ended 28 February 2023 regarding biomass plant outages have continued into the current financial year. Plant performance has been behind expectations, with Esken Renewables exercising the contractual take or pay provisions within its supply contracts where applicable. The performance of the plants has now improved, with all major plants currently having returned from any prolonged unplanned outages.

Gate fees have also been subdued during the first half of the year, although these are continuing to show signs of improvement, with Esken Renewables being well stocked ahead of the upcoming winter period.

These issues have been compounded by one-off settlements that have been agreed with specific plants in relation to contractual negotiations, in parallel with discussions to seek change of control consents for the Disposal with the same counterparties, which have impacted year to date profitability. Esken Renewables has also been impacted by temporary deviation from the exclusive supply agreement to a key customer, resulting in a reduction in volumes supplied. The recent resolution of these discussions resulted in a return to exclusivity in mid-October 2023.

General Meeting

The Disposal, the Proposed Transfer and the Executive Remuneration Scheme are conditional upon, inter alia, the passing at the General Meeting of the Disposal Resolution, the Transfer Resolution and the Remuneration Resolution respectively.

The Disposal Resolution, the Transfer Resolution and the Remuneration Resolution are independent resolutions and none is conditional upon the passing of the other Resolutions. If any of the Resolutions are passed, it will be implemented whether or not the other Resolutions are passed.

The Circular is expected to be posted by the Company to its Shareholders shortly which will contain a notice convening the General Meeting. 

Irrevocable Undertakings

The Company has received an irrevocable undertaking to vote in favour of the Disposal Resolution and the Transfer Resolution at the General Meeting in respect of 285,077,383 Ordinary Shares (representing, in aggregate, approximately 27.8 per cent. of the issued ordinary share capital of the Company).

Importance of vote

Shareholders will be asked to vote in favour of the Disposal Resolution at the General Meeting in order for the Disposal to proceed. If the Disposal Resolution is not passed by Shareholders, the Disposal cannot complete and the Company will not receive the net proceeds of the Disposal. The Directors believe that successful completion of the Disposal is required, absent mitigating actions, to fund the Continuing Group's short-term working capital requirements and position the Continuing Group to deliver its medium-term Group strategies.

Attention is drawn to the fact that completion of the Disposal is conditional upon, amongst other things: the Disposal Resolution being passed at the General Meeting; the Deed of Settlement and Variation being duly executed; and the satisfaction or waiver of the Cash Sweep Condition.

a. Impact of completion of the Disposal being delayed or the Disposal not completing - Liquidity

As at 28 February 2023, the Group had cash balances of £50.3 million. Included in this cash figure was £5.3 million of cash ringfenced in LSA and its subsidiaries. Group cash and cash equivalents as at 31 August 2023 was £26.9 million, comprising approximately £7.0 million held within Esken Renewables and approximately £3.0 million of ring-fenced cash held in LSA and its subsidiaries (all figures unaudited). Whilst the Group continues to tightly manage its cash resources, the current position is that the Group needs to complete the Disposal prior to mid December 2023, complete other significant asset disposals or obtain alternative sources of funding, in order to continue trading.

The Company's auditor included a paragraph in the independent auditor's reports in respect of each of the financial statements for the years ended 28 February 2022 and 28 February 2023 stating that there is material uncertainty in respect of the Company's ability to continue as a going concern.

If the Disposal fails to complete by mid December 2023, this is expected to lead to severe liquidity issues and ultimately the administration of the Group, absent mitigating actions. The severe liquidity issues, if no mitigating actions are taken, will lead to a funding shortfall in respect of the LSA Group, which is expected to occur from 22 December 2023.

Such a funding shortfall in respect of the LSA Group would, in turn, permit CGI to accelerate the repayment of the Convertible Debt Facility in an amount of £193.75 million, and thus would also likely lead to a significant or total loss of the Group's investment in LSA.

A failure to pay any debt over £10 million when due and payable (including by way of acceleration) by LSA would also trigger an event of default in relation to the Exchangeable Bond, which would result in the Exchangeable Bond becoming due and repayable if the trustee of the Exchangeable Bond (acting on instructions) so declares.

As a result, the Company (as guarantor of the Exchangeable Bond) and key trading companies in the Group would no longer be able to operate as a going concern. In such circumstances, the Board or the Group's lenders may resolve to place the Company and such key trading companies into an administration process (or equivalent local law procedures), as noted below.

b. Impact of completion of the Disposal being delayed or the Disposal not completing - Facilities Agreement and consequent effects

If the Disposal fails to complete by mid December 2023, in addition to the funding shortfall in respect of the LSA Group from 22 December 2023, the Group will, in mid December 2023 likely breach its covenants under the Facilities Agreement, absent any mitigating actions. If the Disposal was to be delayed, the Directors would have a limited amount of time to raise additional funds, to allow the Group to continue trading. In such circumstances, the lender under the Facilities Agreement will have no obligation to waive the likely covenant breach and may not consent to continue to provide funding to the Group - this may mean that the Group would be unable to meet its liabilities as they fall due.

In respect of those financial covenants, an event of default would occur in mid December 2023 by reference to the prior month covenants assessment of the Facilities Agreement (absent any mitigation). In an event of default, the lenders under the Facilities Agreement would be entitled to demand immediate repayment of all principal amounts outstanding under the Facilities Agreement (£55 million has been drawn as at 31 August 2023) and associated costs (based on the Company's latest calculation, the aggregate amount to settle is £70.6 million).

Unless the Group is able to agree short-term relief with the lenders under the Facilities Agreement in order to explore alternative funding options to refinance the Facilities Agreement, or dispose of all or part of the business of the Group in order to generate sufficient funds to repay the Facilities Agreement, the Directors do not expect that the Group would be able to obtain the funds necessary to pay all due amounts under the Facilities Agreement in such circumstances. Administration (or equivalent local law procedures) would therefore become a reasonably likely outcome for the Company, and the key trading companies in the Group, at that time.

Such a funding shortfall in respect of the LSA Group, would, in turn, permit CGI to accelerate the repayment of the Convertible Debt Facility in an amount of £193.75 million. A failure to pay any debt over £10 million when due and payable (including by way of acceleration) by LSA would trigger an event of default in relation to the Exchangeable Bond. Enforcement action of the transaction security granted in favour of the lenders under the Convertible Debt Facility and the Exchangeable Bond could occur thereafter. Shareholders would likely lose the benefit of all or a substantial part of their investment in the Company and the LSA Group as a result.  

c. Mitigating actions

The Directors have a number of potential mitigating actions available to them in the event that the Disposal does not successfully complete by mid December 2023. These primarily comprise: i) disposals of non-core assets, including potentially bringing forward the Heads of Terms for Pollington and Port of Weston for aggregate consideration of £8.5 million; (ii) seeking the potential entry into waivers and/or amendments with the relevant lenders under the Facilities Agreement, the Convertible Debt Facility and/or the Exchangeable Bond, to the extent deemed appropriate; (iii) seeking to bring forward the disposal of the LSA Group; and/or (iv) seeking additional equity, debt and/or other financing arrangements.

There is, however, a material risk that the aforementioned potential mitigating actions will not be achievable in the required timeframe to avoid administration (or equivalent local law procedures) in the event that the Disposal does not successfully complete by mid December 2023. In addition, as the Group has already implemented significant cost savings, the Directors believe that no further significant cost savings are likely possible.

A reasonable worst case scenario if the Disposal does not complete by mid December 2023, and the lenders under the Facilities Agreement consent to waive the likely covenant breaches of the Facilities Agreement, is that the Group will, absent any alternative solution, face liquidity constraints in mid February 2024 in addition to the Group facing a forecast funding shortfall within the LSA Group from 22 December 2023.

Consequently, as noted above, if (i) the Disposal does not successfully complete by mid December 2023, or (ii) the lenders under the Facilities Agreement do not provide a waiver in respect of the likely covenant breaches in mid December 2023 in respect of the Facilities Agreement and no further funding is available, such as from the aforementioned mitigating actions, the Directors expect that administration (or equivalent local law procedures) of the Company and of certain key trading companies in the Group, including the LSA Group, and permit the potential enforcement of the transaction security granted in favour of the relevant lenders under the Facilities Agreement, the Convertible Debt Facility and the Exchangeable Bond. Were the lenders to take such action, Shareholders would likely lose all or a substantial part of their investment in the Company as a result.

Accordingly, it is critical that Shareholders vote in favour of the Disposal Resolution, as the Directors consider the Disposal to represent the best possible transaction for Shareholders as a whole in the current circumstances.

Even if the Disposal is approved by Shareholders, as further disclosed in the 'Working Capital' paragraph below, management's forecasts show a working capital shortfall in mid February 2024, based on the residual net cash received from the Disposal and the ongoing funding requirements of the Continuing Group, absent any mitigating actions. This shortfall widens on 8 May 2024 as a result of the requirement to repay the Exchangeable Bond on that date (and assuming no refinancing or extension of the Exchangeable Bond). Under the assumptions of the reasonable worst case scenario, and prior to any mitigating actions, it is expected that this funding shortfall would continue to increase on a 12 month horizon and further continue thereafter.

Working Capital

(a)             Background to regulatory approach to working capital disclosure

The requirement of the FCA's Listing Rules in regards this class 1 disposal is for the Company to make a statement that there is sufficient working capital available to the Continuing Group for its present requirements or, if not, how it proposes to provide for the additional working capital needed.

There is guidance in relation to working capital from the FCA contained in Primary Market Technical Note 619.1 that sits alongside the Listing Rules. The technical note makes it clear that an issuer has a binary choice - namely that, if it cannot make a 'clean' working capital statement, then it has to make a 'qualified' working capital statement. There is no middle ground. The analysis of sufficiency of working capital is also required to take into account a wide range of variables and sensitivities to cover a reasonable worst case scenario.

Accordingly, the working capital disclosure set out below has been included in consequence of Primary Market Technical Note 619.1.

(b)             Working Capital

It is anticipated that Company will make the following statement in the Circular, that in Company's opinion, taking into account the debt facilities available to the Continuing Group and the net proceeds of the Disposal, the working capital available to the Continuing Group is not sufficient for its present requirements, that is for at least the next 12 months from the date of the Circular.

(c)              Directors' perspectives

The above qualified working capital statement is in respect of an anticipated working capital shortfall of the Continuing Group in mid February 2024, based on the residual net cash received from the Disposal and the ongoing funding requirements of the Continuing Group, absent any mitigating actions. This shortfall widens on 8 May 2024, as a result of the required repayment of the Exchangeable Bond on this date (and assuming no refinancing or extension of the bond).

As detailed in the paragraph entitled Use of Proceeds above, the net proceeds of the Disposal will predominantly be used to (i) meet the repayment of the full monies borrowed under the Facilities Agreement and associated costs which becomes mandatory upon Completion (which would otherwise have become due in December 2025); (ii) contribute into the Group's defined benefit pension scheme; and (iii) in the short term to provide additional working capital.

The Exchangeable Bond is currently due to be repaid on 8 May 2024. The cash outflow for the Exchangeable Bond, with nominal value of £53.1 million, is dependent on the value of the offsetting listed share collateral held at the date of maturity, valued at £7.2 million, as at 31 August 2023, which can either be sold or included as part of the payment by the Group to Exchangeable Bond holders by way of an in-specie distribution. The Facilities Agreement (of which £55 million has been drawn down and an additional £30 million is uncommitted) will cease to be in effect and will no longer be available to the Continuing Group following its repayment upon Completion of the Disposal.

Esken's aviation related businesses have £3.0 million of ring-fenced cash, as at 31 August 2023, in the LSA Group. The Continuing Group intends to provide, primarily by way of the Potential £20 million LSA Facility, funding support for the operations at LSA including capital expenditure. Due to the structure of the Convertible Debt Facility, the LSA Group has become a ringfenced asset and so the LSA Group cash balances are not accessible for use by the remainder of the Continuing Group.

The Directors have run stress tests and various downside sensitivities on the Company's business plan to result in a reasonable worst case scenario.

This scenario analysis indicates that the Continuing Group will have a working capital shortfall in mid February 2024, based on the residual net cash received from the Disposal and the ongoing funding requirements of the Continuing Group, absent any mitigating actions. This shortfall widens on 8 May 2024, as a result of the required repayment of the Exchangeable Bond on this date (and assuming no refinancing or extension of the bond). Under the assumptions of the reasonable worst case scenario, and prior to any mitigating actions, it is expected that this funding shortfall would continue to increase on a 12 month horizon, and continue thereafter.

Mitigating Actions

Upon Completion, the Directors intend to take various mitigating actions to improve the Continuing Group's liquidity and which will, in the opinion of the Directors, provide adequate liquidity headroom so as to retain the Company as a going concern (noting that the Group's 2023 Annual Report and Financial Statements contained a material uncertainty in respect of going concern to which the auditor drew attention by way of emphasis without modifying their report).

(i)    The Board is in active discussions to seek to dispose of certain of the Continuing Group's non-core assets, which may give rise to cash proceeds of up to £10.5 million (to be received prior to February 2024). Contributing to this amount, the Board has entered into the non-binding Heads of Terms for Pollington and Port of Weston for aggregate consideration of £8.5 million. The Board may seek to bring forward the disposals of the Continuing Group's other non-core assets, if at an appropriate value, to generate additional proceeds to supplement its liquidity profile; 

(ii)   Upon Completion of the Disposal, the Board will seek to finalise and enter into a binding agreement with respect to the Potential £20 million LSA Facility. It is currently envisaged that this would occur once the Continuing Group has completed the Proposed Transfer. The Board is also seeking to bring forward the commitment of a tranche of this facility in the near term. In the event that the Potential £20 million LSA Facility is made available, the proceeds would be used to provide funding support for the operations at LSA including capital expenditure;

(iii)  In conjunction with other mitigating actions, the Company intends to commence a process to seek a potential renegotiation of the terms and deferral of the maturity of the Exchangeable Bond to such future date as to ensure the sufficiency of working capital of the Continuing Group beyond the current maturity date of 8 May 2024;

(iv) The Board has begun a sale process in respect of the aviation related businesses of the Group, primarily the LSA Group; and/or

(v)  The Company would review all future funding and refinancing options, which could include, but is not limited to, additional equity, debt and/or other financing arrangements so as to ensure the sufficiency of working capital of the Continuing Group. It is currently anticipated by the Directors that the mitigating actions in this paragraph (v) would only be undertaken in the event that the mitigating actions in paragraphs (i) to (iv) above are not sufficiently successful.  

As is customarily the case, there can be no certainty that an agreement will be reached for any of the above mitigating actions, either in sufficient time or at all, or as to the terms and/or quantum of any such transaction(s). It should also be noted that none of the aforementioned mitigating actions are solely within management control. However, the Directors currently consider that, assuming a successful renegotiation of the Exchangeable Bond, and as assisted by the potential disposal of certain of the Continuing Group's non-core assets  and the entry into the Potential £20 million LSA Facility, the anticipated net proceeds from the intended LSA Group disposal will, and in sufficient time, sufficiently exceed the funding shortfall of the Continuing Group under the reasonable worst case scenario.

In the event that the aforementioned mitigating actions are not able to be sufficiently employed, in time or at all, to generate further working capital for the Continuing Group's requirements, the Company and key trading companies in the Group would no longer be able to operate as a going concern, in which case the Board may resolve to place the Company and such key trading companies into an administration process (or equivalent local law procedures).

Attention is also drawn to the paragraph entitled "Importance of your vote" above, which sets out the consequences of the Disposal Resolution not being approved by Shareholders at the General Meeting, the Deed of Settlement and Variation not being duly executed or the Disposal otherwise failing to complete, in which event, there would be no Disposal proceeds and therefore no paydown of the Facilities Agreement, and as such a covenant breach in respect of the Facilities Agreement is anticipated to occur in mid December 2023 (absent any mitigation), in addition to a potential funding shortfall in the LSA Group from 22 December 2023. In such circumstances, the Group's lenders may seek to put the Company and key trading companies in the Group into an administration (or equivalent local law procedures).

Definitions

The following definitions apply throughout this announcement, unless the context requires otherwise: