Published: 2020-08-05 10:24:54 CEST
Magnetic MRO
Interim information

CONSOLIDATED NON-AUDITED INTERIM REPORT FOR Q2 2020

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.

 

Q2 2020 OPERATIONS AND ACTIVITIES

COVID-19 crisis has had a major and rapid impact on the aviation sector overall. The countries wide lockdown, thus a sharp drop in the number of travellers starting March-April, had stopped most of the flights and thus cash inflow for our main customers. Respectively, Magnetic MRO business activity was decreased almost by three-fold compared to January and the number of debtors started to increase as rapidly having a major negative impact on the company cash flow. Due to reduced business activity, the company had to take immediate actions in order to restructure its activities. By evaluating the business outlook for 2020-2022, the company started to adjust its business strategy and restructure its cost base by cost cuts and implementing a more efficient way of working.

 

Main cost cut related activities:

  • Reduction of material costs coming mainly from reduced business activity (March-December)
  • Reduction and restriction of outsourced support activities (April-September)
  • Restructuring of the organization (consolidation and reduction of business units permanently)
  • Reduction of the workforce (March-September)
  • Applying downtime for the workforce (15-100%; March-September)
  • Salary and bonus cuts (March-September)
  • Termination of rental agreements for premises (permanently)
  • Travel restrictions (March-August)

     

  • MAC Aero Interiors, a subsidiary of Magnetic MRO, has had Airbus approved supplier status for many years.

As a new milestone, the Magnetic MRO facility has received approval from Airbus to start producing interior elements for Airbus aircraft in their production facility located in Tallinn, Estonia.

MAC Aero Interiors has previously been producing parts for Airbus in the former plant in the UK. In early 2020 the production facility was relocated to Estonia. The manufacturing line in Tallinn has received the approval from Airbus for future production of literature pockets for A380 aircraft.

 

  • Magnetic MRO has announced the recent successful completion of their first virtual inspection on the aircraft as part of the pre-lease preparation.

This inspection signify industry’s resilience and ability to adapt to the changed norms in the aviation industry. Performed by the company’s engineering department, such inspection was executed with the preparation of video material of both the airframe and interior. „This virtual inspection is just an example of how innovative yet simple approach can help to continue operations even in times likes these”, shared Tõnno Toompuu, Engineering Manager at Magnetic MRO.

 

  • The winner of the Estonian Employers’ Confederation’s competition “Best Internship Provider 2020” is Magnetic MRO AS.

Organising well-considered traineeships, and contributing to the development of curricula for the necessary professions, is what brought the main prize home. The company was submitted for the competition by the Estonian Aviation Academy, for whom Magnetic MRO is an important internship site and a valued cooperation partner.        

The prize was handed over to the winner by the Minister of Education and Research Mailis Reps and Chief Executive Arto              Aas of the Estonian Employers’ Confederation.

 

  • Magnetic MRO AS increased its share capital.

Magnetic MRO AS increased its share capital by 172,524.80 euros and issued 26,957 new shares for the issue price of 8,000,000 euros to Hongkong Yongtai Trading Services Co., Limited, a Hong Kong company, in accordance with the investment agreement entered into on 5 June 2019.

Sapphire Investment Holding Limited subscribed for the shares to the maximum extent prescribed in the investment agreement. After the subscription for the new shares, the amount of the registered share capital of Magnetic MRO AS is 1,283,200 euros and the total number of shares is 200,500.

 

  • Direct Maintenance.

Magnetic MRO susidiary Direct Maintenance supported a Pakistan International Airlines flight bringing Dutch citizens back from Pakistan. We have been working together with PIA since 2010 when they had regular flights to and from Amsterdam. We were happy to assist their beautiful Boeing 777 aircraft on their short stop to Amsterdam, give them a warm welcome and wave them off to a safe return home flight.

Direct Maintenances welcomed back an old airline friend. Back in 2006, Malaysia Airlines was the first customer of Direct Maintenance in Amsterdam. Over the years we enjoyed supporting their fleet and greeting their crew in Amsterdam. It was a great pleasure to welcome the first flight since 2015 and experience the bond we continue to have with each other. Especially in these times, seeing back an old friend is a warm and positive experience. We look forward to continuing our cooperation with Malaysia Airlines for many years to come!

 

  • MAC Aero Interiors started sanitizing kits production.

MAC Aero Interiors, subsidiary of Magnetic MRO, reacting to the current situation in the aviation market, has started the production of the sanitizing kits, designed for both airports and airlines and aimed at tackling both the virus and the fear of air-travel because of it.

In the light of the coronavirus crisis and reflecting to changing perception towards flying and personal health safety, MAC Aero Interiors, consulted by medical staff, have developed sanitizing kits which could be used both by passengers and the crew at the aircraft. PPE kits come with certificates and individual packaging, maintaining the items sterile until they are used, and also can be branded and customized according to the customer needs. 

 

  • Magnetic MRO drastically expand engine workshop capabilities.

Magnetic MRO has announced that the company has acquired tooling, dedicated to the engine workshop and drastically expanding its capabilities which already have received full EASA AND FAA approvals.

New tooling has already been delivered to Magnetic MRO’s engine workshop in Tallinn, Estonia. This latest addition adds more than 40 new services in the company’s list, including the ability to perform modular maintenance and repair of CFM56-5B and CFM56-7B engines. Also, new capability includes Fan, LPT MM, Hot section modules replacement, special procedures, partial and full replacement of HPT blades, HPT NGVs, HPT shrouds, LPT Stage 1 Vanes and others.

Airlines or leasing companies will be interested in deferring expensive overhauls of the engines and do only minimum quick fix which will return the engine back to operation without major investments. Moreover, we see that CFM56-5B and -7B engines become more and more mature (oldest engines are 20+ years old already) and asset owners become much more flexible with the repair of such engines and prefer modules changes, quick and cheap repairs instead of overhauls.

 

  • Magnetic MRO reacting to the current situation in the aviation market, announced the company’s readiness to provide temporary cabin modifications.

In the light of the coronavirus crisis and reflecting to changing needs of the Airline’s, company’s DOA (EASA Part 21J) team is ready to provide its customers with cabin modifications for COVID-19 medical cargo transportation in primarily passenger cabin aircraft. Company has certification and experience in providing both types of modifications that are allowed by the European Union Aviation Safety Agency (EASA).


   

 

 

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: Direct Maintenance Holding BV (NL) (further on Direct Maintenance Group), MAC Aero Interiors Ltd (UK), Magnetic Leasing Ltd (IE), Arrowhead assistance UAB (LT), Magnetic MRO Malaysia Sdh Bhd (MY).

The financial and other additional information of the Magnetic MRO Group published in the interim report Q2 2020 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 Q2 2020 and Q2 2019 are not audited. The financial information in Interim Report is prepared in accordance with the Estonian financial reporting standards. The Estonian financial reporting standards are prescribed by the Accounting Act of Estonia and supplemented by the guidelines issued by the Accounting Standards Board.

COMPLIANCE WITH COVENANTS

According to p.3.4.2 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 June, 30 2020:

1) Equity Ratio: 41%.

2) Net Debt/EBITDA: 2.4.

3) In July 2019 Magnetic MRO Group received two thirds of the contribution from the equity capital injection announced in Q2 2019. The remaining one third is received in April 2020. As of the date of the current report share capital increase registration in Commercial Register of Estonia is completed.

 

Covenants calculation:

  kEUR TTM

6.2020

TTM

6.2019

1 Interest bearing liabilities 19,654 19,398
     incl. Bonds 8,000 8,000
2 Cash and bank 6,444 912
3=1-2 Net Debt 13,209 18,486
4 Total Equity 26,904 17,669
5 Total Assets 65,239 56,438
6=4/5 Equity Ratio 41% 31%
       
7 EBITDA 5,517 5,995
8=3/7 Net Debt/EBITDA 2.4 3.1

 

*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:

  1. Any provision on account of taxation;
  2. Any interest, commission, discounts or other fees incurred or payable, received or receivable in respect of financial indebtedness;
  3. Any depreciation and amortization of tangible and intangible assets; and
  4. Any re-valuation, disposal or writing off of assets.

*** Equity method income:

  • 49,9% of net income from associated company Magnetic Parts Trading Ltd;
  • 10,0% of net income from associated company MAC Sichuan Aviation Technology Ltd.

 

 

Interim Consolidated Financial Statements, kEUR

 

PROFIT and LOSS STATEMENT CONSOLIDATED

 

  Q2 2020 Q2 2019
Sales revenue 12,591 24,656
Variable direct costs -10,702 -20,520
Fixed direct costs -75 -197
Other operating income 669 135
Other operating expenses -492 -436
GROSS PROFIT 1,992 3,638
Marketing expenses -36 -78
Administrative costs -871 -1,755
Personnel costs -425 -949
EBITDA 659 855
Depreciation and amortization -789 -572
Interest income/expense -276 -113
Financial income and expenses -150 -26
Foreign exchange gain/loss 93 -236
Equity method income * 26 64
Income tax 3  
NET PROFIT -433 -28
Minority Interest ** 23 -60
ATTRIBUTABLE NET PROFIT -456 32

 

* Shareholding in Magnetic Parts Trading Ltd: 49.9%

*Shareholding in MAC Sichuan Aviation Technology Ltd: 10.0%

 

**Minority Interest:

Direct Maintenance East Africa Ltd 49%

Direct Maintenance Zanzibar Ltd 49%

 

Sales by Business Units and Subsidiaries:


   

  Q2 2020 Q2 2019 Q2 2020, %
non-consolidated, kEUR      
Base Maintenance 4,207 5,408 35.5%
Line Maintenance 779 1,434 6.6%
Trading 5,440 8,359 45.9%
Engines 609 2,975 5.1%
Engineering 255 429 2.1%
Workshop 119 1,188 1.0%
Others 445 177 3.8%
MMRO TOTAL 11,853 19,969 92.8%
MAC Aero Interiors 60 1,082 0.5%
Direct Maintenance 853 2,714 6.7%
MAC Sichuan*   137 0.0%
MMRO Malaysia **     0.0%

     * Satrting from December 2019 Magnetic MRO Group particiapation in MAC Sichuan is 10%, results are not consolidated

** Due to COVID Malaysian office is temporarly closed. Plans is to open up again during 4th quarter 2020.


CASHFLOW CONSOLIDATED

 

      
  Q2 2020 Q2 2019
OPERATIONAL ACTIVITIES    
Operating profit 659 855
Adjustments   883
Change in receivables and prepayments 4,246 -3,879
Change in inventories -904 -1,839
Change in liabilities and prepayments -1,296 3,765
TOTAL from OPERATIONAL ACTIVITIES 2,705 -216
     
INVESTMENT ACTIVITIES    
Proceeds from sale and purchase of Fixed Assets -876 -2,366
Long-Term Investments   -117
TOTAL from INVESTMENT ACTIVITIES -876 -2,482
     
FINANCING ACTIVITIES    
Financing activities -353 2,670
Paid in capital 2,683  
TOTAL from FINANCING ACTIVITIES 2,331 2,670
     
TOTAL CASHFLOW 4,160 -28
   

 

BALANCE SHEET CONSOLIDATED

 

  06.2020 6.2019
ASSETS    
Current assets    
Cash and bank (incl OD) 6,444 912
Trade receivables 9,857 12,635
Other receivables 1,050 70
Accrued revenue 3,555 3,749
Prepayments made 1,798 3,213
Inventory 15,533 10,954
Total current assets 38,238 31,532
Non-current assets    
Long-term Investments 7,566 15,956
Tangible assets 10,211 8,260
Intangible assets 4,223 177
Goodwill 5,002 514
Total non-current assets 27,001 24,906
TOTAL ASSETS 65,239 56,438
     
LIABILITIES AND OWNERS EQUITY    
Short term liabilities    
Short-term Loans 11,068 9,749
Trade payables 6,882 9,967
Other payables 1,494 649
Taxes payable 1,695 1,289
Accrued expenses 924 1,860
Prepayments received 6,851 5,606
Total Short-term liabilities 28,914 29,121
Long-term liabilities    
Long-term Loans 8,585 9,649
Deferred tax 836  
Total long-term liabilities 9,421 9,649
TOTAL LIABILITIES 38,335 38,770
Share capital 1,283 1,090
Share premium 15,376 6,619
Reserves 79 32
Unrealised FX BS 263 90
Retained earnings 10,176 9,170
Minority Interest 29 99
Profit for the period -304 568
Total Owners' equity 26,904 17,669
TOTAL LIABILITIES AND OWNERS EQUITY 65,239 56,438
          

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY              
    Issued capital Unregistered Share 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
Mergers and Acquisitions             827     827
Annual period profit (loss)         -47 32 508     493
Minority interest                    
30.06.2019   1,090   6,619 32 -31 9,859     17,570
31.12.2019   1,090 5,317 6,619 79 195 10,550 31   23,881
Paid in share capital   173 -5,317 7,828           2,683
Annual period profit (loss)           -1 -1,014     -1,015
Minority interest               67   67
30.06.2020   1,283   15,376 79 263 9,872 29   26,903

 


MagneticMRO_Q2_2020_ENG.pdf