Datalex, the Irish travel retail software provider to airlines, expects a "significant impact" on sales as the global aviation industry has ground to a virtual halt, putting the focus on onerous terms the company was given for emergency loans from businessman Dermot Desmond last year.
The Dublin-listed company, which was the subject of an accounting scandal last year, said on Thursday that market conditions had “deteriorated” since it issued a trading statement on March 12th, as “travel restrictions imposed to control the spread of Covid-19 are having a significant and negative impact on our airline customers”.
"This is an unprecedented time for our industry, and it is difficult to accurately quantify the likely impact of Covid-19 on our financial and trading performance at this stage," said the company, led by chief executive Sean Corkery.
“However, Datalex has taken immediate action to offset the expected significant impact on the group’s revenues in 2020 and to protect overall outturn for the year by reducing operating expenses and improving cash flows.”
Redundancy programme
Datalex had launched a “targeted” redundancy programme, re-negotiated business partner arrangements, and eliminated discretionary spending, it said. It has also brought in voluntary leave options and temporary reduced working hours for all employees.
“The board believes that these actions, together with the support of our customers and ongoing flexibility from our business partners, mean that the group is well positioned to withstand the impact of Covid-19 and to look to the future following the pandemic with confidence,” it said.
Datalex had been hoping to carry out a multimillion euro share sale in the first quarter of this year to repay emergency loans from Mr Desmond, its main shareholder, and shore up its balance sheet. However, the near-term prospects of an equity raise remain uncertain as the company’s shares have been suspended since last May and as globally equity markets have turned exceptionally volatile.
Terms attached to an increased loan facility from Mr Desmond late last year granted the businessman additional security over group assets and tighter conditions that could see the software business fall under the billionaire’s control if they are breached. The company has €11.3 million of debt facilities from the businessman’s Tireragh company.
Forecasts
Datalex would be deemed to be in default if its revenue or earnings were at least 20 per cent below forecasts, or if its net working capital was less than 80 per cent of projected figures for two consecutive test dates. The covenants were to be tested monthly and based off rolling six-month figures, according to documents published in November.
The agreement stated that Datalex would be in default if Tireragh is of “the reasonable opinion” that an event or circumstance “has or is reasonably likely to have a material adverse effect” on its business or prospects.
A spokesman for Datalex on Thursday afternoon declined comment on the implications of the sales warning on the loan facilities.
