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viewEddie Stobart Logistics PLC

Eddie Stobart Logistics gets into bed with DBAY but there will be no full offer for the company

Stobart's existing shareholders, if they approve the DBAY transaction, would have a 49% interest in the operating business of Greenwhitestar, the subsidiary that holds the company's interests in the trading entities of the group.

Eddie Stobart Logistics PLC -
A takeover by the back door?

Eddie Stobart Logistics PLC (LON:ESL) said private equity firm DBAYAdvisers will not be making an offer for the issued share capital of the haulage company.

DBAY is, however, planning to pump roughly £55mln of new financing into the group through a payment in kind facility.

As part of the financing deal, DBAY will indirectly acquire a 51% stake in Greenwhitestar Acquisitions, which is currently the wholly-owned subsidiary of Eddie Stobart Logistics that holds the company's interests in the trading entities of the group.

Eddie Stobart Logistics is still working on the interim results for the six months to the end of June; publication of the results was delayed after a £2mln black hole was found in its accounts sparking a review of its revenue policy.

The review has uncovered further items that will necessitate several adjustments to the figures when they are finally published, many of which relate to property-related transactions. The board has been persuaded that a more appropriate way to account for these property transactions is to treat them as lease incentives allocated that are allocated pro-rata to the relevant unexpired lease terms.

Stobart said it expects the impact of these adjustments will mean that the loss before interest and tax for the half-year will be at least £12mln and cautioned that the auditors may yet insist on further adjustments that could alter the loss figure significantly. EBIT figures for previous years will also need to be restated as a result of this change in accounting practice.

As recently as September, the company was expecting half-year earnings before interest and tax (EBIT) to be positive and in the range of £10mln - £11mln.

Guidance on half-year revenue has been cut to £435mln from the £450mln figure provided back in September.

On the bright side, the board believes the group’s underlying operations have been trading profitably in the second half of the current financial year. The board expects earnings EBIT for the full-year is liable to max out at £2mln.

Before the hoo-hah over the accounting black hole, the consensus broker forecast for profit before tax was £56mln.

As a consequence of the reduction in EBIT, poor cash collection and the company's historical dividend policy, net debt at the end of this month is expected to be in the region of £200mln, which the board considers to be an unsustainable level.

The combination of these items has led the board to consider numerous potential options, including a sale of the company, to ensure the continued viability of the business.

"We are undertaking a thorough review of the operations and, whilst this has highlighted a number of short-to-medium term challenges which the team and I are working determinedly to resolve, it has also reaffirmed my view that the company, and its extensive operational capabilities and unique network, is anchored by strong underlying fundamentals with significant potential for the future. During the course of the year, we have secured a number of customer wins and extensions, and in particular, I am pleased to announce that our contract with Tesco has recently been renewed for a further 12 months up to March 2021. The proposed transaction announced today provides Eddie Stobart with the opportunity to move forward and look to deliver sustainable growth and profitability from a stable footing," said Sébastien Desreumaux, the chief executive officer of the company.

Quick facts: Eddie Stobart Logistics PLC

Price: 71 GBX

AIM:ESL
Market: AIM
Market Cap: £269.34 m
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