Published: 2019-11-08 11:48:11 CET
Magnetic MRO
Interim information

CORRECTION: CONSOLIDATED NON-AUDITED INTERIM REPORT FOR Q3 2019

Magnetic MRO AS has published its financial results for Q3 of 2019 on 31st October 2019, the report did not include the Notes. With the current announcement the Issuer has added the Notes.

 

GENERAL INFORMATION

Magnetic MRO is a Total Technical Care maintenance and asset management organization with a global presence and more than two decades of worldwide experience. The company has a well-established reputation in innovative aviation solutions and proven track record as a one-stop shop for airlines, asset owners, OEMs and operators. It offers a wide range of services varying from asset management and engineering, to line and base maintenance.

 

Q3 2019 OPERATIONS AND ACTIVITIES

  • Magnetic MRO strengthens its position in Asia as EngineStands24 opens a hub in China

EngineStands24, a subsidiary of Magnetic MRO, opened a new hub in Guangzhou, China. The Guangzhou hub will be launched in cooperation with Magnetic MRO’s shareholder, Chinese company Hangxin Aviation Services Co. Ltd, and will begin operating by offering its customers a selection of the most popular engine stand types, like CFM56-5A/B, CFM56-7B and V2500.

  • Magnetic MRO paints airBaltic’s Airbus A220-300 into a special Lithuanian flag livery

Magnetic MRO has painted the Latvian airline airBaltic’s third A220-300 aircraft into a unique one-off livery that features the colors of the Lithuanian national flag.

  • Magnetic MRO produces a record number of interior details for Finnair’s ATR fleet

Magnetic MRO and Finnair, the flag carrier of Finland, have signed a contract for complete paintwork, full interior refurbishment and maintenance of all 12 of the airline’s ATR 72’s operated for Finnair by its partner company Norra. For Magnetic MRO’s Production organization this is the most components that the team has ever produced for an aircraft in-house.

  • Magnetic MRO hits 600th C-Check

Magnetic MRO marks a new milestone by welcoming a freighter Boeing 737 for the company’s 600th C-Check. The latest symbolic achievement echoes the company’s ever-improving efficiency, as well as the geographical expansion of its clientele.  

  • Berlin-Schönefeld (SXF) Airport station opened by Direct Maintenance

Direct Maintenance announces the opening and approval of the fourth line maintenance station in Germany at Berlin-Schönefeld (SXF) Airport. The company’s capabilities include aircraft types like B737, B767, A320 as well as exterior washes and engine washes.

 

STATEMENT OF THE MANAGEMENT BOARD

Magnetic MRO Group AS (further on Magnetic MRO Group or the Group) consists of parent company Magnetic MRO AS (EE), and its subsidiaries: MAC Aero Interiors Ltd (UK), MAC Sichuan Aviation Technology Ltd (CN), Magnetic Leasing Ltd (IE), Arrowhead assistance UAB (LT), Magnetic MRO Malaysia Sdh Bhd (MY). Starting from March 01 2019 Magnetic MRO Group consolidates newly acquired group of line maintenance companies - Direct Maintenance Holding BV (NL) (further on Direct Maintenance Group).

The financial and other additional information of the Magnetic MRO Group is published in the interim report Q3 2019 is true and complete. The consolidated main financial statements give a true and fair view of the actual financial position, results of operations and cash flows of the Group.

The consolidated financial statements of the Magnetic MRO Group in the report for the period Q3 2019 and Q3 2018 are not audited. The financial information in Interim Report is prepared in accordance with the Estonian financial reporting standards. The Estonian financial reporting standards is prescribed by the Accounting Act of Estonia and supplemented by the guidelines issued by the Accounting Standards Board.

COMPLIANCE WITH COVENANTS

According to p3.4.2 and 3.4.3 of the Terms and Conditions of Magnetic MRO 8% 21.12.2021 bonds, the Issuer shall be obliged to comply with the following covenants until the Notes are fully repaid:

3.4.2 Equity Ratio shall not fall under 25% at the end of each Reporting Period;

3.4.3 Net Debt/EBITDA Ratio shall not be higher than 3.2.

The Management Board confirms the following execution of covenants as of September 30 2019:

1) Equity Ratio - 32%.  

2) Net Debt/EBITDA3.7. The Net Debt/EBITDA ratio of 3.7 is higher than the covenant of 3.2 and therefore we are non-compliant with p3.4.3 of the Terms and Conditions of Magnetic MRO 8% 21.12.2012 bonds. This is caused by the adverse impact of a PBH (Power by the Hour) contract signed at the end of 2018 and related start-up costs. Adjusted conditions were signed with the client and will become valid from October 2019 and will improve the situation.

3) Net Debt/Pro-forma EBITDA3.2. However, taking into account the pro-forma EBITDA contribution of Direct Maintenance Group (acquired in March 2019), Magnetic MRO Group fully complies with above mentioned covenant ratio.

4) In July Magnetic MRO Group received 2/3 of equity contribution, in Q3 2019 Financial statement equity contribution is reported under Liabilities - as of date of disclosure of the current report, equity increase is not registered In Commercial Register of Estonia. The remaining 1/3 is expected by the year end.

Covenants calculation:

  kEUR TTM 9.2018 TTM 9.2019
1 Interest bearing liabilities 9,784 19,096
     incl. Bonds   8,000
2 Cash and bank 792 734
3=1-2 Net Debt 8,992 18,362
4 Total Equity 15,620 19,305
5 Total Assets 35,855 59,429
6=4/5 Equity Ratio 44% 32%
       
  EBITDA** 6,489 4,678
  Equity method income*** 1,565 352
7 EBITDA 8,055 5,030
8=3/7 Net Debt/EBITDA 1.1 3.7
       
9 EBITDA Direct Maintenance (up to 02.2019) 929 652
10=7+9 EBITDA pro-forma (Direct Maintenance) 8,984 5,682
11=3/10 Net Debt/EBITDA pro-forma 1.0 3.2

*TTM - trailing twelve months

** Per p.2.1.11 of Terms and Conditions of Magnetic MRO 8% 21.12.2021 bonds, EBITDA means the net income of the measurement period before:

a) any provision on account of taxation;

b) any interest, commission, discounts or other fees incurred or payable, received or receivable in respect of financial indebtedness;

c) any depreciation and amortization of tangible and intangible assets; and

d) any re-valuation, disposal or writing off of assets.

*** Equity method income - 49,9% of net income from associated company Magnetic Parts Trading Ltd.


 

INTERIM CONSOLIDATED FINANCIAL STATEMENTS, kEUR

PPA for Direct Maintenance group acquisition is on finalization stage.

 

PROFIT and LOSS STATEMENT CONSOLIDATED    
  Q3 2019 Q3 2018
Sales revenue 26,650 16,201
Variable direct costs -21,140 -13,086
Fixed direct costs -289 -109
Other operating income 224 82
Other operating expenses -873 -41
GROSS PROFIT 4,571 3,047
Marketing expenses -96 -135
Administrative costs -1,595 -1,087
Personnel costs -910 -1,108
EBITDA 1,970 718
Depreciation -634 -410
Financial income and expenses 324 380
Assets revaluation -215 -43
Equity method income * 513 -242
NET PROFIT 1,958 403
Minority Interest ** -95  
ATTRIBUTABLE NET PROFIT 2,052 403


* Shareholding in Magnetic Parts Trading Ltd: 49.9%

**Minority Interest:

MAC Sichuan 35,29%

Direct Maintenance East Africa Ltd 49%

Direct Maintenance Zanzibar Ltd 49%

 

Magnetic MRO had an opportunity to step into a new business line, which it had foreseen in its strategy since 2012, and that is the signing of ‘power-by-hour’ 3 years contract with a fleet of 22 airplanes (Enter Air). This project generates significant cross-synergies on our Group level and boosts further our exposure to international spare parts market. The start-up costs of the project brought negative impact to EBITDA. MMRO management foresaw the shortcoming in the results, but had anticipated less, because the investment to warehouse material happened with a delay. At this point, both the investment to material stock has started and the revision to Enter Air PBH agreement in better financial terms to Magnetic MRO is signed. We anticipate that with the Group’s organic growth, we will be fully compliant with all Covenants. Furthermore, the remaining proceeds from the equity injection could be used to lower the Group’s net debt.

   

CASHFLOW CONSOLIDATED    
  Q3 2019 Q3 2018
OPERATIONAL ACTIVITIES    
Operating profit 1,970 718
Adjustments 13 315
Change in receivables and prepayments -605 -3,120
Change in inventories -1,838 446
Change in liabilities and prepayments -3,661 595
TOTAL from OPERATIONAL ACTIVITIES -4,122 -1,045
     
INVESTMENT ACTIVITIES    
Proceeds from sale and purchase of Fixed Assets -501 35
Long-Term Investments -569 -408
TOTAL from INVESTMENT ACTIVITIES -1,070 -373
     
FINANCING ACTIVITIES    
Financing activities 5,015 1,604
TOTAL from FINANCING ACTIVITIES 5,015 1,604
     
TOTAL CASHFLOW -177 186

 

BALANCE SHEET CONSOLIDATED    
  30.09.2019 30.09.2018
Cash and bank 734 792
Receivables 20,272 14,877
Inventory 12,793 7,808
Total current assets 33,798 23,477
Non-current assets    
Long-term Investments 16,525 6,160
Fixed Assets 8,606 5,639
Goodwill 500 579
Total non-current assets 25,631 12,377
TOTAL ASSETS 59,429 35,855
     
LIABILITIES AND OWNERS EQUITY    
Short term liabilities    
Short-term Loans 9,698 9,460
Payables 21,027 10,450
Total Short-term liabilities 30,725 19,910
Long-term liabilities    
Long-term Loans 9,399 324
Total long-term liabilities 9,399 324
TOTAL LIABILITIES 40,124 20,234
Share capital 1,090 1,090
Share premium 6,619 6,619
Reserves 32 79
Unrealized FX BS 95 60
Minority Interest -103  
Retained earnings 9,011 3,340
Profit for the period 2,560 4,432
Total Owners' equity 19,305 15,620
TOTAL LIABILITIES AND OWNERS EQUITY 59,429 35,855

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY            
  Issued capital Share premium Statutory
reserve capital
Unrealised
exchange rate
Retained
earnings (loss)
Minority interest Total
31.12.2018 1,090 6,619 79 -63 8,524   16,250
Annual period profit (loss)     -47 159 3,047   3,158
Minority interest           -103 -103
30.09.2019 1,090 6,619 32 95 11,571 -103 19,305

 

NOTES

Accounting Principles

The interim consolidated financial statements have been prepared in accordance with the same standards as last Annual Report - Estonian financial reporting standard. The Estonian financial reporting standard is prescribed by the Accounting Act of Estonia and supplemented by the guidelines issued by the Accounting Standards Board.

The consolidated financial statements of Magnetic MRO Group consist of Magnetic MRO AS and its subsidiaries: MAC Aero Interiors Ltd (UK), MAC Sichuan Aviation Technology Ltd (CN), Magnetic Leasing Ltd (IE), Arrowhead assistance UAB (LT), Magnetic MRO Malaysia Sdh Bhd (MY). Starting from March, 01 2019 Direct Maintenance Holding BV (NL).

 

Preparation of consolidated statements

The financial information of all subsidiaries under the control of the parent is combined on a line-by-line basis in the consolidated financial statements. Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated. Non-controlling interest in the results and equity of subsidiaries are shown separately in the consolidated income statement, comprehensive income statement, statement of changes in equity and balance sheet.

Investments in associates are accounted for at cost. Investment is initially recognized at cost, which is the fair value of paid fee and costs directly related to the acquisition. Subsequently investment is adjusted by the changes of investor's participation in the investee's equity.

 

Related Parties

The parties are considered related if one party exercises control over the other party or exercises significant influence on the other party’s business decisions, including other entrepreneurs belonging to the same group, owners, members of the board and management, their families and companies in which above-mentioned persons have control or significant influence.

Name of accounting entity's parent company - Hangxin Aviation Services Co., Ltd

Country where accounting entity's parent company is registered - People's Republic of China

Shares of subsidiaries, general information      
Name of subsidiary Country of
incorporation
Principal activity Ownership interest (%)
      30.09.2019 30.09.2018
Magnetic Leasing Limited Ireland sale of aircraft spare parts 100 100
MAC Aero Interiors Ltd United Kingdom production of aircraft
interior
100 100
Arrowhead Assistance UAB Lithuania repair of aircraft
components
100 100
MAC Sichuan China production of aircraft
interior
64.71 0
Direct Maintenance Holding BV Netherlands line maintenance 100 0
         
Shares of associate        
Name of subsidiary Country of
incorporation
Principal activity Ownership interest (%)
      30.09.2019 30.09.2018
Magnetic Parts Trading Limited United Kingdom sale of aircraft spare parts 49.9 49.9

 

Transactions with related parties

Transactions, receivables and payables for related parties

Name of related party Q3 2019 Q3 2018
kEUR Purchases Sales Purchases Sales
Hangxin Aviation Services Co Limited 14 5 2 7
Guangzhou Hangxin Avionics Co Ltd 0 0    
Magnetic Parts Trading Limited 898 915   181

 

Name of related party 30.09.2019 30.09.2018
kEUR Receivables Payables Receivables Payables
Hangxin Aviation Services Co Limited 5 14    
Guangzhou Hangxin Avionics Co Ltd 0 0    
Magnetic Parts Trading Limited 0 362   781

 

Labor expenses & Remuneration for members of management and highest supervisory body

kEUR Q3 2019 Q3 2018
Wage and salary expense 5,005 2,480
Social security taxes 770 628
Total labor expense 5,775 3,108
Average number of employees Magnetic MRO 503 484
Average number of employees MAC Interiors 24 34
Average number of employees Direct Maintenance 141  
Remuneration and other significant benefits calculated for members of management and highest supervisory body 86 81

 

Revenue

Revenue is recognized at the fair value of the received / receivable income taking into account all discounts and rebates. Revenue from sales of goods is recognized when all material risks related to the ownership of the asset have been transferred to the buyer and the amount of revenue and expenses related to the transaction can be reliably measured.

Revenue from provided services is recognized when service is provided and accepted by the third party of for ongoing services revenue is determined on balance sheet date based on method of completion. Completion is determined based on the ratio between the actual and estimated costs on balance sheet date.

 

Sales by Business Units and Subsidiaries

  Q3 2019 Q3 2018
non-consolidated, kEUR    
Base Maintenance 6,021 3,936
Line Maintenance 1,818 1,106
Trading 10,127 6,763
Engines 2,371 2,430
Engineering 465 599
Workshop 1,476 667
Others 175 90
MMRO TOTAL 22,454 15,593
MAC Aero Interiors 770 779
Direct Maintenance group 3,271  
MAC Sichuan 128  
MMRO Malaysia 40  
 
 

 Sales TOP10 by geographical location:

Country Q3 2019 Q3 2018 Growth Q3 2019 Q3 2018
  kEUR KEUR 2019 to 2018 % in Total % in Total
United Arab Emirates 3,523 392 798% 16% 3%
Great Britain 2,671 1,238 116% 12% 10%
Finland 2,539 25 10090% 11% 0%
United States of America 2,039 177 1050% 9% 1%
Sweden 1,690 507 234% 7% 4%
Poland 1,652 84 1870% 7% 1%
Russia 1,251 1,442 -13% 6% 11%
Lithuania 1,131 557 103% 5% 4%
Latvia 913 829 10% 4% 7%
Norway 874 727 20% 4% 6%

 

Receivables and prepayments

Trade receivables, accrued receivables and other short and long-term receivables (incl. loans and deposits) that the company has not purchased for resale, including financial assets that are intended to be held to maturity, are measured at amortized cost. Amortized cost is calculated by taking into account any discount or premium on acquisition, as well as expenses directly related to the transaction, over the year to maturity.

kEUR 30.09.2019 30.09.2018
Trade receivables 10,970 10,176
Other receivables 585 35
Accrued revenue 5,525 3,097
Prepayments made 3,191 1,569
Total Receivables 20,272 14,877

 

Inventories

Inventories are recorded in the balance sheet at cost, consisting of the purchase costs and other costs incurred in bringing the inventories to their present location and condition.

Inventories are expensed using the FIFO method.

Inventories are measured in the balance sheet at the lower of acquisition cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

 

Plant, property and equipment and intangible assets

Property, plant and equipment are initially recorded at cost, including purchase price and other expenses directly associated with the acquisition of those assets, which are necessary for bringing the asset to its operating condition and location. Property, plant and equipment are stated at historical cost less any accumulated depreciation and any impairment losses.

 

Financial liabilities

All financial liabilities (trade payables, borrowings, accrued expenses and other current and long-term liabilities) are stated at amortized cost. The amortized cost of current financial liabilities generally equals their nominal value; therefore current financial liabilities are carried in the balance sheet at their net redemption value. For calculating the amortized cost of non-current financial liabilities, they are initially recognized at fair value of the proceeds received (net of transaction costs incurred) and an interest cost is calculated on the liability in subsequent periods using the effective interest rate method.

A financial liability is classified as current if its payment term is within twelve months of the balance sheet date or if the group does not have an unconditional right to postpone the payment of the liability for more than twelve months after the balance sheet date. Loan payables that the lender has the right to recall at the balance sheet date due to a breach of the terms and conditions specified in the loan agreement are also recognized as current liabilities.

 

kEUR 30.09.2019 30.09.2018
Short-term Loans 9,698 9,460
Trade payables 10,766 4,983
Other payables 6,098 166
Taxes payable 1,210 1,143
Accrued expenses 204 1,823
Prepayments received 2,750 2,336
Total Short-term liabilities 25,218 19,910
Long-term Loans 9,399 324
Total long-term liabilities 9,399 324

Equity contribution is reported under Other Liabilities (30.09.2019) as it is not registered In Commercial Register of Estonia as of the reporting date.

 

  30.09.2019 30.09.2018
kEUR Amount Interest rate  Base currency Due date Amount Interest rate  Base currency Due date
Short-term Loans                
Luminor Bank AS (Overdraft) 8,650 3.6% + base rate EUR 26.06.2020 7,815 3.4% + base rate EUR 29.03.2019
Luminor Bank AS 1,000 3.4% +  base rate EUR 22.11.2021 700 2.5% + base rate EUR 19.03.2019
Luminor Bank AS                
Hangxin Avaition Services Co., Ltd         800 2.5% + base rate EUR 10.07.2019
Financal Lease Short-Term 48       145      
Long-term Loans                
Luminor Bank AS 1,167 3.4% + base rate EUR 22.11.2021        
Long-term signing of bonds 8,040 8% EUR 21.12.2021        
Long-Term Loan MAC Interiors         1      
Long-term Financial Lease 191       323      

 

         Astrit Viisma-Kass
         CFO
         Astrit.Viisma@magneticmro.com


MagneticMRO_Q3_2019_ENG Correction.pdf