John Menzies plc, the global aviation services business, provided an update on financing and current trading.
New Covenant Package
The board is pleased to confirm that following positive discussions with its banking group, it has agreed a revised banking covenant structure, subject to agreement of final legal documentation between the group and its lenders and among the lenders. The new covenant package will provide additional flexibility to support the group, as the aviation industry recovers from the impact of the COVID-19 pandemic.
The key terms of the new covenant package are:
- The net leverage covenant is replaced with a minimum EBITDA covenant tested on a quarterly basis;
- A new minimum liquidity covenant will be introduced;
- The interest cover covenant is suspended;
- The interest margin is increased by 0.5% to 4.0% whilst leverage is greater than 3.5 times.
The revised covenant package will remain in place until the earlier of June 2022, or net leverage remaining below 3.0 times for two consecutive quarters, at which point the group will revert to the original covenants for the remainder of the facilities term.
Alongside the agreement on restructuring of the facility covenants, we have also been effective in our proactive management of the group’s liquidity. While a partial return to operations has required reinvestment in working capital, the group’s liquidity currently stands at approximately £170m.
The board believes that with the new covenant package the group will be well placed to manage through the current market uncertainty.
Trading Update
As expected, trading has remained challenging due to the ongoing impact of COVID-19, however the company is now re-starting operations and seeing a partial return of flight schedules. Cargo volumes continue to be more resilient and Menzies' AMI business, a cargo brokerage, is trading ahead of expectations given the current lack of available capacity.
As a result of the very challenging conditions experienced by the industry, revenue to the half year was down approximately 33%, in constant currency, on the prior year. The revenue decline has had a significant impact on profitability and will lead to the group being loss making in the first half, although the extent of this has been limited by the speed and effectiveness of cost management actions. In the second half, profitability will benefit from a more significant contribution by various government support programs and continuing tight cost management. Net debt as at June 30, 2020 pre IFRS16 was £160m (£336m on an IFRS16 basis) which reflects the very tight cash management by the business and the benefit of additional government support programs.
Despite the crisis, Menzies has made very encouraging commercial progress winning significant new business. In the first six months it added £27m of net annualized revenue from commercial activities. Since the half year end Menzies has won the ground handling and cabin cleaning business of Air France/KLM in Toronto, Canada, and further strengthened its relationship with Qatar Airways by securing new cargo handling contracts at six locations across three countries together with ground handling contracts at four of these locations.
