SSP Interim results Wednesday, 3 rd June 2020 Simon Smith, Group Chief Executive Officer Thank you. Good morning and thank you for joining us “virtually” for our Interim results. On the call today we have Jonathan Davies our Group CFO and Sarah John, Director of Corporate Affairs So just to take you through the agenda. I will give you a short overview of the first half, Jonathan will then take you through the financials and I will review the business and our plans for recovery. And we will finish with Q&A where there will be plenty of time for questions So to start, COVID 19 has clearly had a very significant impact on us all. And on a personal note, I hope that you have been able to deal with these challenging times and that you and your families are safe and are well. In a moment I’ll take you through our response, but before that a few words on how the business performed in H1 before this crisis. So, before COVID 19, SSP had a good first half and we were on track to deliver another strong set of results, in line with expectations. We have made good further progress in expanding the business, opening new units in existing and new sites, with strong new business wins further strengthening our pipeline. Our like for like sales were in line and we had made further efficiency gains. From the end of January we saw the rapid escalation of COVID 19 right across the business, and as Jonathan will take you through in a moment, its impact reduced sales in Q2 by around £150m and profit by some £65m. The pandemic has been unprecedented and resulted in an almost total shut down of the global travel industry. Now our experience in Asia helped us, inform us of the likely trajectory of the virus. And our response was to take quick and decisive action, to protect our people, our cash and our business from a very early stage. We immediately planned for a variety of trading scenarios, and, using the “pessimistic”, we increased liquidity to cover this scenario and create additional headroom. This puts us in a very strong position to manage though this crisis. 1
Furthermore, we have now hibernated the business and are operating around 10% of our units. Throughout all of this, I've seen SSP at its best. Teams have galvanised, working swiftly and professionally and demonstrating their resilience and “can - do” approach. And simultaneously, around the world countries are doing what they can to help and support our local communities. I'm immensel y proud of what’s been achieved, and in many ways this experience has strengthened us as a team and, I believe, puts us on an even stronger footing to re-launch our business as demand recovers. But we are not complacent, and although the travel market still remains largely closed, it will recover over time, and we will play our part in helping to build customer confidence to travel again. We have planned how and what to re-open, and are starting to test this. Simultaneously we are reducing fixed cost and driving more flexibility into the model. Building on our existing strengths and market position, I believe the actions we are taking no, will leave SSP a fitter, stronger business. With that, I will hand over to Jonathan to take you through the financials. Jonathan Davies, Chief Financial Officer Thank you. Good morning everybody. So as Simon ’s already shown you, our first half results were heavily impacted by COVID 19, th March. but were in line with the expectations we set out in our trading update of 25 Just before I start, it’s worth saying that this is our first set of results on an IFRS 16 basis, but I’ll show you IAS17 comparatives throughout the presentation and I’ll explain the impact of any adjustments. Overall sales were down by 2.7%, on a constant currency basis, with net gains adding 5.7% to sales. Operating Profit was just above break even, at £1.3m, compared with £62.5m last year, and under IFRS16 we saw a small loss of £5.8m. EPS showed a loss per share of 4p, or 7.5p under IFRS16 Net debt increased to £458m, including the proceeds of the equity placing of £209m in March. So first looking at the overall P&L. The sharp fall in sales due to COVID 19 hit all of the P&L ratios, as would be expected, and indeed as indicated in March, leaving Operating Margin down by around 5% year on year. If you look at the IFRS16 impact, first you can see that concession fees are lower at £113m, compared with £254m pre-IFRS16, as this now represents only the variable element above the minimum annual guarantee. 2
And secondly, you can see the increase in the depreciation charge to £203m, from £55m pre-IFRS16. Reflecting the capitalisation of the minimum guarantees on the balance sheet as a “right of use asset” of about £1.5bn. Looking further down the P&L, we saw an overall Net Loss of £18m, or 4.0p a share. Including the effect of IFRS16, this Net Loss increased to £34m, with Net Financing costs higher, at £27m compared to £12m pre-IFRS16. This of course is due to the unwind of the discount applied to the capitalisation of the minimum guarantees over the lifetime of the contracts. The tax charge is a small credit, reflecting our estimated losses for the full year as a result of COVID 19, and represents an effective tax rate of 7% Non-controlling interests were also lower, again due to the impact of COVID 19 on our joint venture operations. So now turning to the impact of COVID 19 on sales. Prior to the pandemic sales were running at around 1%, like for like sales running around1%, in line with expectations. They weakened dramatically in February, as a result of the COVID 19 across Asia, and then even more dramatically in March, as the impact spread across the rest of the world. In fact sales were down only 20-30% in early March, but down over 90% in the final few days of the month. During April and early May, sales have remained at very low levels, down around 95%, reflecting the almost total closure of the travel space, and our very rapid response, closing over 90% of our outlets during March and early April. So how did this translate into overall sales and profit? In our February update, we indicated the sales impact, mainly in the Asia Pacific region, would be something like £10- 12m over January and February, with a corresponding impact on profit of £4- £5m. In the March update we estimated that the impact would be a further c £125-135m in sales with a corresponding profit impact of £50-£60m The actual impact on our results was at the higher end of the range, reflecting the almost total shut down of the travel sector in the last days of March. Looking briefly at the impact by region. As you can see, like for like sales were down across all regions. The rest of the world was hit slightly harder due to the earlier timing of COVID 19 in Asia, and the UK and North America slight less due to the slower timing of the lock downs. The Net Gains were still up 5.7%, despite COVID 19, due to the strength of our new business opening programme particularly in North America and in Continental Europe. Without COVID 19 we would have anticipated Net Gains for the Full Year to be slightly ahead of this, at just over 6%. Now looking at the profit impact. The most extreme impact was in Continental Europe which made an operating loss in the first half. This largely reflected the higher labour costs across the region and the fact that in many of the Continental European countries it takes longer to reduce staff numbers than, say, in the UK or US. It’s also worth remembering that Continental Europe was impacted by the strikes in France in December and January, as well as significant pre-opening costs from some large new contracts. The rest of the divisions were all profitable, despite the impact of COVID 19, albeit with lower profits year on year. 3
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