Trading Update and UK Business Reorganisation

 

LEI:213800QGNIWTXFMENJ24

 

1 July 2020

SSP GROUP PLC

Trading Update and UK Business Reorganisation

 

SSP Group plc ("SSP" or the "Group") is today providing an update on its trading and its proposed plans to reorganise the UK business to reflect the current low level of UK passenger demand resulting from COVID-19. The trading scenario and the corresponding expectations for H2 2020 operating profit, cash usage and monthly cash burn as set out in the Interim Results on 3^rd June 2020 remain unchanged.

 

SSP Group CEO, Simon Smith, said:

"Covid-19 continues to have an unprecedented impact on the travel industry and on SSP's businesses in all geographies. Reflecting this, over the last three months the company has taken rapid and decisive action to protect the business and to substantially strengthen the Group's financial position.

"We are beginning to see early signs of recovery in some parts of the world and are starting to open units as passenger demand picks up. However, in the UK the pace of the recovery continues to be slow. In response to this, we are now taking further action to protect the business and create the right base from which to rebuild our operations. Regrettably, we are starting a collective consultation which will affect our UK colleagues. These are extremely difficult decisions, and our main priority will be to conduct the process carefully and fairly. Importantly, we are retaining the flexibility to upscale operations and swiftly re-open additional units if we see improved sales over the summer.

"The medium-term prospects for the Group remain positive. The objective of the action that we are proposing today is to ensure that we manage through this pandemic, rebuild our business as demand recovers and, in time, deliver long term sustainable growth for the benefit of all our stakeholders."

 

Impact of COVID-19

Covid-19 has had an unprecedented impact on the travel sector. Our response has been to take rapid and decisive management action to protect our colleagues and customers and to preserve cash and liquidity for the duration of the many government restrictions worldwide. These actions included the following:

·    New health and safety protocols created and cascaded to colleagues

·    Offices closed and colleagues supported to work from home

·    Temporary closure of the majority of units; colleagues furloughed where schemes available

·    March equity placing completed and access to the Bank of England's CCFF confirmed, considerably strengthening our balance sheet. Approximately £750m liquidity in place leaving us well positioned to operate throughout even our most pessimistic trading scenario

·    Waivers of existing covenant tests until September 2021

·    Salary reductions across senior management, Executive Committee and Board

·    Discretionary spend and capital investment reduced to a minimum

·    Share buyback programme suspended

·    No Interim dividend declared

·    A placing allowing shareholders to reinvest their 2019 dividend payment into new SSP shares and retain cash in the business

 

Recap on Scenario Planning and Current Trading

The trading scenario we presented at our Interim Results on 3 June 2020 assumed an almost total shutdown of the travel market for the whole of the second half of our financial year. In this scenario, we envisaged Group revenue being down approximately 80% to 85% in H2 2020 against the same period last year and an underlying EBITDA loss of between £120m and £190m and operating loss of between £180m and £250m for the second half year, the final out-turn depending on our ability to manage the profit conversion on the reduced sales.

With the global lock-down continuing, and as we indicated in June, sales in April and May were approximately 95% below last year. During June sales have recovered slightly and are now running at approximately 90% below last year, with stronger performances in Continental Europe and North America reflecting the gradual easing of lockdowns in these regions offset by the UK and Rest of World, where sales remain below this level.

Despite the low level of sales across the Group, the impact on operating profit is being mitigated by the speed and the extent to which we have been able to reduce operating costs and hence our expectations for operating losses and EBITDA in H2 remain within the ranges indicated above, prior to restructuring costs, even if we see sales remain at the current run rate until the end of the financial year.

 

UK Outlook and Reorganisation

The impact on passenger travel arising from COVID 19 resulted in the closure of almost all of our units in the UK. Our intention was to re-open units and bring back our teams as rapidly as possible once passenger demand recovered, having accessed the UK Government's furlough scheme. The reality is that passenger numbers still remain at very low levels, a reflection of the extent and duration of the current restrictions in place. In the Rail sector, which represents the majority of SSP's UK operations, passenger numbers remain c. 85% lower YOY and the UK Air sector has to date been largely closed.

The proposed introduction of air bridges and the start of the holiday season may lead to some limited return of short-haul air travel demand in July, although capacity is expected to be significantly reduced, and long-haul travel is anticipated to remain at extremely low levels. With the current social distancing measures remaining in place, the recovery in passenger numbers in the rail sector is expected to be prolonged.

As a consequence, our expectation is that by the autumn only around 20% of units in the UK will have opened. We have therefore come to the very difficult conclusion that we will need to simplify and reshape our UK business, and we are now starting a collective consultation on a proposed reorganisation. If the pace of the recovery continues at the current level, this could lead to up to c. 5,000 roles becoming redundant from within the Head Office and UK Operations. Clearly, these decisions are very difficult, and our priority is to conduct this process fairly and to support those affected.

Our initial assessment is that the costs associated with this will be in the region of £8m-£10m.

At this stage, we have not commenced restructuring of a material scale in any other geographies due to our expectations of a more rapid recovery, the longer durations of furlough support or our contractual lay-off arrangements.

 

Liquidity Position

Our liquidity position remains consistent with the detail we provided at the interim results.  At the end of the reporting period and following the equity issue in late March, the Group had approximately £413m of available liquidity, with access to around £343m of additional facilities secured in April and May, a total of approximately £756m.

Taking into account this level of cash and available facilities, the Group is confident that it has sufficient funds to allow it to operate throughout even its most pessimistic scenario.

 

CONTACTS

 

Investor and analyst enquiries

 

Sarah John, Corporate Affairs Director, SSP Group plc

+44 (0) 203 714 5251; E-mail: [email protected]

 

Media enquiries

 

Peter Ogden / Lisa Kavanagh, Powerscourt

+44 (0) 207 250 1446; E-mail: [email protected]

 

NOTES TO EDITORS

About SSP

SSP is a leading operator of food and beverage concessions in travel locations, operating restaurants, bars, cafés, food courts, lounges and convenience stores in airports, train stations, motorway service stations and other leisure locations. Prior to the onset of Covid-19, during 2019 SSP Group employed c 40,000 colleagues (on average) around the world, serving around one and a half million customers every day at approximately 180 airports and 300 rail stations in 36 countries around the world and operated more than 550 international, national and local brands across our c. 2,800 units.            

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