SSP’s immediate priority continues to be the health and safety of all of our colleagues and customers. Across the business, we have implemented a range of additional health and safety policies and protocols covering hygiene, travel and self-isolation periods, and issued regular guidance in order to keep people fully informed and as well protected as possible against infection.
In our recent update on 26 February 2020, we indicated that we had seen sharp declines in passenger numbers across the Asia Pacific regions (which account for approximately 8% of SSP’s Group revenue) in February. Since that update, SSP has seen an unprecedented and rapidly escalating impact of the COVID-19 virus on the travel operating environment, particularly in airports. The widespread travel bans imposed by governments and airline capacity reductions across our core markets have severely impacted passenger numbers in the UK, Europe and North America, particularly in international travel.
As a consequence, like-for-like revenues (based on the latest week) across the UK and continental Europe are currently running approximately 80% to 85% lower year-on-year (“YOY”), with the impact in the air market being greater than in rail. In North America, like-for-like revenues are approximately 80% lower YOY and in the Rest of World, which includes Asia Pacific, Eastern Europe, the Middle East, India and Brazil, like-for-like revenues are approximately 60% lower YOY.
In terms of the financial impact of COVID-19, our expectation is that for the month of March 2020, revenue across the Group will be approximately 40% to 45% lower YOY. This is expected to reduce Group revenue by approximately £125m – £135m, with a corresponding reduction in operating profit of approximately £50m – £60m.
Including the impact of COVID-19 on current trading, for the six months ending 31 March 2020 (“H1 2020”), SSP expects to see a decrease in total Group revenue of approximately -3% on a constant currency basis, compared to the same period last year, comprising a like-for-like sales decline of approximately -8% and net gains of approximately +5%. Total Group revenue at actual exchange rates is expected to decline by approximately -4% compared to the same period last year. SSP expects to have approximately £180m – £200m of cash and undrawn committed facilities (before any new funding as described below) at the end of H1 2020, leaving leverage at approximately 2.4x net debt / EBITDA (last twelve months).
We are taking all available actions to protect profit and cash, whilst working closely with our clients to maintain appropriate service levels for our customers.
- Temporary closure of units
- Reduced operating hours
- Opening programme ceased for H2 2020
- Headcount reduction and temporary lay-offs commenced
- Significant salary reductions across all senior management, the Group Executive and Group Board
- Majority of rent is being paid on a fully variable basis, as a percentage of revenue
- Ongoing discussions with landlords for further rent relief
- Discretionary overhead expenditure being reduced to minimum levels to operate the business
Capital expenditure to be reduced to approximately £10m in H2 2020
Further to the management actions set out above, SSP has suspended its previously announced share buyback of up to £100m, having only purchased approximately £2m of shares to date.
SSP will also defer the payment date of the final dividend of 6.0 pence per ordinary share to 4 June 2020. The dividend was approved at the Company’s annual general meeting held on 26 February 2020 (with a record date and time of 6.00 p.m. on 6 March 2020) and would otherwise have been payable on 27 March 2020. SSP will also enter into discussions with shareholders to request that they waive their final dividend entitlement enabling that cash to be retained in the business.
SSP’s Board does not intend to pay an interim dividend for H1 2020.
In addition to management action, on 17 March 2020 and 20 March 2020 HM Treasury announced a package of temporary, timely and targeted measures to support public services, people and businesses through this period of disruption caused by COVID-19. These include the Coronavirus Job Retention Scheme, deferred VAT payments and changes to business rates. In addition to these UK schemes, SSP is in active discussions with Governments around the world to secure support under their local schemes.
Furthermore, the joint HM Treasury and Bank of England lending facility, named the Covid Corporate Financing Facility (“CCFF”) was launched. This facility is designed to support liquidity among larger firms, helping them to bridge coronavirus disruption to their cash flows through the purchase of short-term debt in the form of commercial paper. SSP expects to qualifies for this scheme and is already well advanced in preparations and discussions with HM Treasury and the Bank of England to access the scheme.
Clearly the duration of COVID-19’s impact, including on global travel is very uncertain at this stage as are its consequences for our financial performance for the full year. Looking into the second half of the financial year (April – September 2020, or “H2 2020”), SSP’s central planning assumption is that recent trading conditions seen through March 2020 will likely deteriorate further.
SSP has considered a very pessimistic scenario assuming an almost total shutdown of the travel market for the whole of the second half of the financial year, with Group revenue being down approximately 80% to 85% in H2 2020 against the same period last year. This reflects a worsening revenue impact in the third quarter of the financial year (down 85%) and only minimal improvement in the fourth quarter (down 80%). In considering the impact of this on operating profit, SSP has assumed that the benefit of the extensive management action to reduce the cost base would result in a “drop through” to operating profit from the reduced sales of 25% to 30%, an improvement compared with that experienced in February and March 2020.
Financing Arrangements and Equity Placing
SSP is taking decisive and immediate action to preserve cash and ensure sufficient liquidity even in the event of the most pessimistic trading scenario.
Furthermore, SSP today announces the following financing arrangements:
SSP announces that it has agreed a new up to £112.5m 18-month committed bank facility with HSBC Bank plc, Lloyds Bank plc and National Westminster Bank plc, which represents incremental financing to its existing debt facilities. This is subject to documentation on terms and conditions in line with such existing facilities and is conditional on SSP raising new equity. The Company is confident in its ability to meet its covenant thresholds as at 31 March 2020.
SSP has separately announced today a proposed equity raising
- Intention to conduct a non-pre-emptive placing of new ordinary shares of 1 17/200 pence each in the capital of the Company representing up to 19.99% of the Company’s existing issued ordinary share capital (the “Equity Placing”)
- Directors and members of the senior management team including CEO, CFO and Chairman to participate alongside the Equity Placing and intend to contribute £760,000
- The net proceeds of the Equity Placing will be used to strengthen the Company’s balance sheet, working capital and liquidity position during this period of unprecedented disruption in the global travel market as a result of the COVID-19 outbreak
Based on the scenario planning undertaken by SSP management, the additional financing arrangements will provide sufficient liquidity to deal with even the most pessimistic trading scenario and enable SSP to operate through this unprecedented travel environment and also be positioned to return to growth as markets normalise.
The global travel industry is facing unprecedented disruption on a scale never before seen due to the impact of COVID-19 and the government implemented travel bans. SSP’s Board and management team is, however, confident that the combination of our management actions to reduce costs and preserve cash, reduction in planned capex and the financing arrangements outlined above will position SSP to withstand the current environment. We remain confident in the long-term, proven strategy for growth and shareholder value creation.
Commenting on this announcement, Simon Smith, CEO of SSP Group, said:
“The COVID-19 outbreak is an unprecedented crisis and is having a severely negative impact on the travel sector. These are hugely challenging times and I would like to sincerely thank everyone at SSP for their support and commitment. In common with the sector, we have seen a very sharp drop off in passenger numbers and this has heavily impacted SSP revenues. We’ve had to take significant action to reduce our costs while doing everything we can to limit the impact of this on our colleagues. However, we have had to close a number of units given the extent to which passenger numbers have decreased. These decisions have not been taken lightly and I sincerely hope that we can re-open our units and welcome back our teams as soon as possible.
We also welcome the actions announced by HM Treasury to support individuals and businesses though the COVID-19 crisis. This together with the management action we are taking, and the additional funding arrangements announced today will put us in a strong position to manage through this crisis and be in the best shape possible to return to growth once the market begins to recover.”