WFS – Q121 shows clouds over the field are clearing.

All,

Please refer to our unchanged analysis here.

The recovery in cargo volumes and the quicker return of passengers to the sky in North America have been a relief for the industry. WFS saw adjusted EBITDA in Q121 match that of Q119 despite the still challenging conditions in the Ground Handling business. On the back of this performance management offered some limited guidance for 2021 of “Expanded” Revenue (2020 EUR1bn) and EUR100m in adjusted EBITDA.

Covenant Relief:
The suspension of RCF covenants and their replacement with a EUR50m liquidity covenant has been extended to Q32021.

Liquidity”
- Liquidity at quarter-end was comfortable at EUR208m.
- We expect the company to end 2021 with around EUR152m in cash* (including EUR70m drawn under the RCF). Even netting off the RCF, liquidity is USD82m. This is above the cUSD50m of cash on hand the company held pre-Covid and well above the liquidity covenant. *EBITDA USD85m (guidance EUR100m) – Working Capital EUR88m – Other EUR47m – Capex EUR31m – Interest EUR51m + PSP loans EUR100m = NCF -EUR32m => 2021 Year-end cash of USD152m.
- The company continues to receive PSP loans and grants from the US government under the PSP scheme in 2020 (USD76.6m in cash and USD30.6 (promissory note). A further USD50.6m received in the first quarter (USD27.6m additional funding, USD22.8m extension first tranche). A little under EUR50m of that cash (no exact figure is given) is ringfenced PSP funds from the US Government furlough scheme.

Results Q1 21:
- Revenue was USD15m ahead of our model at USD282m. Cargo revenue is now higher than 2019 and bids for new business have returned with EUR50m of new net revenues won in the first quarter from 12 North American ground handling contracts. Ground revenues await the return of air passengers and were also hurt by the discontinuation of activities at CDG and Orly (EUR18m). Overall ground handling revenue is down EUR37.2m vs Q119.
- Gross Margin has improved to 15.1% from 13.5% with the cargo business helped by operational leverage and ground helped by cost-cutting (ground activities are more flexible cost-wise). Management believes there are 3%-5% of permanent savings from the previous cost base. Adjusted EBITDA was EUR19.4m, equal to the Q12019 figure and this was despite a fall of EUR7.9m in gross contribution from ground activities. This bodes well for the rest of the year.
- Operational cash flow was EUR3.2m as working capital unwinds from 2020 reversed along with some cost deferrals being paid. Capex of EUR4.8m was marginally above last year's level. The company says it intends to constrain Capex for now, but the figure will normalize around the 2018/2019 level of EUR38-EUR44m. We are assuming EUR31m in 2021, which could prove a little on the high side.

Positioning:
We remain long WFS bonds for 5% of NAV. The performance of the Cargo business is surpassing our expectations and even though this performance is unlikely to be permanent, in time Ground Handling should come back and with more contracts. Meanwhile, the US Grant Scheme is implicitly ensuring sufficient liquidity across the group and so we have little concerns about the position.

Happy to discuss thoughts our ideas.

Aengus

_______________________

E: amcmahon@sarria.co.uk
T: +44 203 744 7055

www.sarria.co.uk

Aengus McMahonWFS