Business

Datalex report must pave way for company to deal with 18% Desmond loans

Travel retail group hoping to capitalise as good times return for the airline sector, according to IATA

Datalex's new chief executive Jonathan Rockett: time to bite the bullet on raising finance to address Dermot Desmond loans

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Joe Brennan
Fri Jun 7 2024 - 17:47

Dubliner Willie Walsh, director general of the International Air Travel Association (IATA), was in ebullient mood earlier this week as he unveiled the global airline industry’s latest biannual outlook. As well he might. The former chief executive of Aer Lingus owner International Airlines Group (IAG) said revenue for the industry is set to rise 10 per cent this year to within a whisker of $1 trillion (€920 billion) – a record, and almost a fifth higher than pre-pandemic levels.

IATA also upgraded its net profit forecast for the sector by 19 per cent from its last attempt in December, to $30.5 billion – even as the industry grapples with rising labour costs and the impact of heightened interest rates on consumers and financing aircraft fleets.

“That’s not a record, unfortunately,” he told the IATA annual general meeting at the JW Marriott Marquis Hotel in Dubai in relation to the profit figure. “But considering where we were just a few years ago, it is a major achievement.” (The sector racked up almost $180 billion of losses between 2020 and 2021.)

Still, he lamented that the profit per passenger these days amounts to a little over $6. “That buys you a single espresso in this hotel’s coffee shop.”

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The need for airlines to squeeze as much money as possible out of passengers should play into the hands of Irish travel retail software company Datalex, which has gone through a massive restructuring – and refocusing – since it was the subject of an accounting scandal five years ago.

Under a turnaround management team that was led by tech industry veteran Sean Corkery, the company went from being one that built bespoke, and expensive, systems for airlines to essentially selling off-the-shelf products designed to help carriers get the most out of customers.

These include products for airlines taking direct bookings, taking more control over sales through online travel aggregators, adapting fares for seats and baggage in response to demand fluctuating demand, and flogging add-ons at every opportunity. The company has even joined the artificial intelligence (AI) frenzy by designing a pricing system that, according to its pitch, has “market-leading reasoning, which mimics human decision-making”.

[ Datalex reviews long-term strategy as 2023 revenue to top forecast ]

At a special investors’ day in London just over a year ago, he said Datalex saw its turnover doubling to almost $47 million between 2022 and 2026 – with its gross profit margin rising at the same pace to 55-60 per cent. Corkery stepped down late last year and was succeeded by Jonathan Rockett, the former managing director and chief financial officer of mobile top-up firm Ding.

That investor-day presentation predicted the total addressable market for its products would explode from $800 million in 2019 to $3 billion by the end of this decade. However, the perennial problem with Datalex – whose range of customers include Aer Lingus, EasyJet, JetBlue and Air China – has been the pace at which it can deliver on its promise.

Datalex has yet to call its own agm. Indeed, investors haven’t even had sight of its 2023 annual report. It only has three weeks to publish this – six months after the end of the financial period – to avoid being in breach of rules for the Euronext Growth market

The company issued a relatively short “trading update” in late March for 2023, revealing figures that were pretty much in line with what the market had expected.

But Datalex highlighted that while it had entered 2024 “with a strong recurring revenue base and has a solid pipeline of growth that will be unlocked as new customers are activated further”, it suggested that a bump in transaction-based revenue from new customers would likely be delayed until next year.

This prompted Dudley Shanley, an analyst with Datalex’s corporate broker Goodbody Stockbrokers, to slash his total revenue forecast for the company for this year by a third to $28.4 million.

American Airlines – while not a customer of Datalex – recently highlighted perils of airlines moving too aggressively to take more control of bookings. It swung into a loss for the first quarter as the strategy alienated corporate travellers and agents.

“We moved faster than we should, and we didn’t execute well,” the carrier’s chief executive, Robert Isom, told investors its annual general meeting (agm) last week.

Datalex has yet to call its own agm. Indeed, investors haven’t even had sight of its 2023 annual report. It only has three weeks to publish this – six months after the end of the financial period – to avoid being in breach of rules for the Euronext Growth market.

A spokeswoman told The Irish Times that the report will be issued during the trading week commencing June 18th. “The new management team is looking forward to meeting and engaging with shareholders and analysts to bring them through full-year 2023 highlights, and future plans and opportunities for the group.”

The new team also includes Stephen Moloney, a former finance executive with payments fintech Block, who joined as chief financial officer in April.

It is understood that the delay in finalising the annual report centres on €15 million of loan facilities the company has from billionaire Dermot Desmond, its largest shareholder with a stake of more than 40 per cent. The loans, issued through Desmond’s Tireragh vehicle, carry an interest rate of 18 per cent and are due to be repaid by the end of 2024.

Datalex’s management will find it difficult to sign off on the accounts as a going concern (essentially that it has the ability to remain in business for at least the next 12 months) unless a firm plan is in place either to extend the time frame of the loans or raise equity to refinance them.

Realistically, the company is likely to need to raise a similar amount of money to provide it with comfortable financial headroom as revenue from new contracts take longer than originally expected to hit top gear, according to observers.

Sources said 12 months ago that the company was reluctant to proceed with a share sale amid unease among existing investors about its depressed share price at the time when it was trading at 54 cent.

A year later and the share price has fallen further, to 46 cent. It is hard for fresh investors to buy into its growth prospects if the business is undercapitalised. It’s surely beyond time for Datalex to bite the bullet and raise fresh equity to free itself from the shackles of the Desmond loans.

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