SSP Group plc

Thank you. Good morning and thank you for joining us virtually for our interim results. On the call today we have Jonathan Davis, our Group CFO, and Sarah John, Director of Corporate Affairs. So just to take you through the agenda, I'll 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've 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 half one 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 had made good further progress in expanding the business, opening new units and existing and new sites, and 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 quarter two by around 150 million and profit by some 65 million. The pandemic has been unprecedented and resulted in an almost total shutdown of the global travel industry. Now, our experience in Asia helped 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 a pessimistic one, we increased our liquidity to cover this scenario and create additional headroom. This puts us in a very strong position to manage through this crisis. 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 galvanized, 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 immensely 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 relaunch 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 reopen and are starting to test this Simultaneously, we are reducing fixed costs and driving more flexibility into our model. Building on our existing strengths and our market position, I believe the actions we are taking now will leave SSP a fitter and a stronger business. And with that, I will hand over to Jonathan to take you through the financials. Thank you.

Good morning, everybody. So as Simon's already shown you, our first half results were heavily impacted by COVID-19, but we're in line with the expectations that we set out in our trading update on the 25th of March. 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 IFRS 17 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 breakeven at 1.3 million compared with 62.5 million last year, and under IFRS 16, we saw a small loss of 5.8 million. EPS showed a loss per share of 4p or 7.5p under IFRS 16. Net debt increased to 458 million, including the proceeds of the equity placing of 209 million in March. So first, looking at the overall P&L, the sharp fall in sales due to COVID-19 hits 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 IFRS 16 impact, Firstly, you can see that concession fees are lower at £113 million compared with £254 million pre IFRS 16, as this now represents only the variable element above the minimum annual guarantee. And secondly, you can see the increase in the depreciation charge to £203 million from £55 million pre IFRS 16, reflecting the capitalization of the minimum guarantees on the balance sheet as a right of use asset of about one and a half billion. Looking further down the P&L, we saw an overall net loss of 18 million or four pence a share. Including the effect of IFRS 16, this net loss increased to 34 million with net financing costs higher at 27 million compared to 12 million pre-IFRS 16 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% in line with our expectations. They weakened dramatically in February as a result of 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 to 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 to 12 million over January and February, with a corresponding impact on profits of 4 to 5 million. In the March update, we estimated that the impact would be a further 125 to 135 million in sales with a corresponding profit impact of 50 to 60 million. The actual impact on our results was at the higher end of that range, reflecting the almost total shutdown 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 slightly less due to the slower timing of the lockdowns. 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 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 in the 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. So turning to cash flow, free cash outflow in the first half was 177 million. The working capital outflow was 45 million, benefiting from actions taken to manage short-term liquidity, which will unwind in the second half. Capital was 120 million, up 11 million year on year, reflecting the strength of the net gains and the new opening programme. We've now put our CapEx programme essentially on hold until such time as we have more clarity on our anticipating CapEx in the 10 to 50 million range in the second half. We also invested 27 million on acquisitions, principally on the Red Rock Airport operations in Australia and the station food rail business in Germany. Now, looking at net debt, net debt at the end of March was 458 million, representing leverage of 1.7 times EBITDA. This benefited, of course, from the equity raise of 209 million in late March, so excluding this on a pro forma basis, net debt was about 667 million, with leverage at about two and a half times. This included cash on the balance sheet and undrawn committed facilities of around 205 million prior to the equity raise. In March, we took swift and decisive action to strengthen the balance sheet and provide additional liquidity. The next chart shows the impact on sales and profit in the second half of the pessimistic scenario that we set out in March. So just to recap, in this scenario, we assumed an almost total shutdown of the travel sector with sales down 80% to 85% in the second half, with the impact in the third quarter being more severe and a very slight improvement in the final quarter. This represented a sales reduction of some 1.4 billion against previous expectations with a profit impact of between 350 million and 420 million, representing a profit conversion of between 25 and 30% on the lost sales. This would translate into an EBITDA loss of between 120 and 190 million in the second half. And in terms of operating profit, that would represent a second half loss of about 180 to 250 million with a similar number, of course, for the full year. Now, as I said earlier, sales are running slightly below this level. However, even if we were to see sales at the current run rate for the entire second half, we would still anticipate EBITDA for the second half to be within the range we indicated in March. Why is this? Well, it's mainly due to the speed and scale of the cost-based reductions that we've been able to achieve already. In particular, through negotiating reduced rents, mainly the waiver of minimum guarantees, and the access to government support through furlough schemes in most of our major countries, which has been more extensive than we'd originally anticipated. So whilst we hope to see sales and therefore profits pick up as the lockdown eases and more units open over the coming months, the timing is still very difficult to predict and therefore we continue to plan for this very pessimistic scenario. So what would this scenario imply for cash usage? Looking at the second half, as I've just shown you, this scenario would represent an EBITDA loss in the range of 120 to 190 million. On top of this, we'd see a loss of negative working capital of somewhere between 180 and 200 million due to the sharp fall in sales. And there would be other net outflows of between 40 and 50 million. This is very much in line with the scenario that we set out in March. And it's worth emphasizing here that as soon as we see any recovery in sales from these very low levels, we will benefit from the rebuilding of the normal negative working capital, which is not assumed in this scenario. Just to complete the picture, we've taken further action to protect liquidity, including negotiating a two-year deferral of our term loan repayment of 32 million, which was due in July. We, of course, are not paying an interim dividend, and as I said earlier, we are effectively putting our capital program on hold. We're also looking to retain in the business as much of the cash from the final dividend of 27 million through a small placing today, which will offer shareholders the opportunity to convert their dividend into new shares. Therefore, under this scenario, even with no recovery in sales, we would still anticipate cash usage in the region of 340 to 440 million in the second half. And in terms of the ongoing cash burn, we would expect this to be in the region of 25 to 30 million by the end of the half. Now, looking at the latest position in terms of the available cash and facilities. At the end of March, we had 413 million of liquidity, that is cash on the balance sheet and undrawn RCF. And during April, we've put in place a further 337 million giving us total liquidity of just over 750 million. This was principally through gaining access to the Bank of England COVID commercial finance facility, which will provide a further 300 million for nearly two years. The terms of the 112 million liquidity facility that we announced in March required that any drawings would be repaid as soon as we accessed the Bank of England scheme and therefore has been effectively superseded. Since the end of March, we've also secured access to a number of other smaller liquidity lines, including government-backed facilities in France, Spain and Switzerland, providing a further £37 million. So, as a result, we would still have significant liquidity reserves by the end of the year in the region of 310 to 410 million. And therefore, even if there was no improvement in sales, as I said, we would still have sufficient liquidity for over 12 months. As well as raising additional funding, we've also negotiated leverage and interest cover waivers on our senior facilities and our US private placement debt over the next two periods. In other words, that's right through to September 21. So, in summary, with the additional funding that we've raised, the actions we've taken to protect liquidity and manage costs, we believe that we're in a strong position to operate through a really prolonged crisis and a slow recovery. And with that, I'll pass over to Simon to update you on our business plans. Thank you, Jonathan.

And so turning to COVID-19, I've described our response in four phases. Business protection, hibernation, planning for and the recovery itself, and beyond that, a return to sustainable growth. And over the next few slides, I'll talk through our response and our planning for each phase. Now, what matters to me most is being decisive at each stage. doing the right things to set us up for the next stage and always leading with health and safety. The actions we've taken to date have consistently followed this approach. Now my expectation is that we will see a gradual recovery in our travel channels, led first by our units in the rail channel and then through our domestic air locations before more international travel later this year. So in phase one, our immediate focus was on business protection. The priority was the health and safety of our colleagues and customers, and in practice, this meant instigating and communicating new hygiene protocols based on local health advice and directing office colleagues to work from home. We immediately engaged with our landlords and sought to remove minimum guaranteed rentals. And as we took the decision to close more and more units, we implemented unit closure procedures around stock, deep cleaning, and security. Units and head office staff were furloughed where possible, and the business was effectively hibernated. To preserve cash, we immediately reduced discretionary spend and capex to the minimum levels required, and the board and senior management took salary reductions. So we faced our liquidity challenge head on, and having quickly planned for the pessimistic scenarios, with revenues down 85% for half two, and importantly with scope for further protection, we sought to bolster existing facilities, raising around £550 million through new equity and access to government loan schemes. We also suspended the share buyback programme and deferred the final dividend. Through all of this, we've sought to minimise the impact on our colleagues and have been regularly communicating with our teams to keep them well informed. And we've also tried to support those most in need during this crisis by donating to local charities and health services. And the next slide gives you a snapshot of some of the initiatives that we have undertaken around the group. Now I've been humbled by the efforts of our team to support their local communities and some of which you can see on this slide. I'll just pick out a couple. In the UK, Millies Cookies has worked with suppliers to make and distribute 100,000 freshly baked cookies for our NHS hospital staff. And in India, through our joint venture TFS, we've taken part in an initiative working with local NGOs to cook meals for people who have lost their livelihood as a result of the government lockdown. And to date, more than one million meals have been supplied. So before moving on, let me try to give you a flavour of what's happening around the 36 countries in which we operate. So until recently, we've seen virtually no activity at all across the regions. However, we are now starting to see some relaxation of the global lockdown led by China, with most of Europe following suit. The early evidence suggests that when restrictions begin easing, it takes both time for people to have the confidence to start using public transport again. And there, of course, remains a degree of uncertainty in how quickly our customers resume their spending habits. So now turning to each region. In the UK at the moment, almost all of our units are closed, with the exception of some M&S Simply food stores located in hospitals that we kept open to support our key workers. With the slight easing of restrictions, we are now preparing to test opening some units in rail later this month, and if successful, we would expect to have around 50 units open by the autumn. In continental Europe, the picture is mixed. In Germany, the easing of restrictions started in April, and the momentum behind relaxation has continued to grow, with the rail network still partially operating through the crisis. In Nordics, rail is just starting to open up again, but conversely, there is almost no activity in France or Spain, the latter being solely an air business for us. Again, our expectation is to open more units in each country, so for the whole of the continental Europe region, we anticipate having around 200 to 300 units open by the autumn. In North America, which is exclusively an air business for us, 80% of which is domestic, the lockdown is easing state by state. And whilst it's still very quiet, the expectations for a gradual return led first by domestic air travel. And we're planning to open around 50 units in our domestic terminals by the end of the summer. And finally, in the rest of the world, again, the pitch is mixed. I'll talk about China in a moment, but aside from China, in most of Southeast Asia and the Middle East, travel is still closed. Australia is beginning a very cautious relaxation of lockdown, and India is doing the same. And in both these countries, I'd expect to see domestic air business open up first. All in all, in our rest of world division, we are aiming for around 100 to 150 units to be opened by the autumn. So let's just take a closer look at China. The Asia Pacific region, which includes China and Hong Kong, accounts for around 80% of SSP's revenues. Following the outbreak of COVID-19, China locked down in January and air travel declined quickly, and you can see that from the charts on the right. The number of flights executed in February was less than 4,000 daily, or about 20% of the capacity, and this was down from more than 17,000 in January. As China starts to emerge from its lockdown, flight numbers are picking up. And by the end of May, daily flight numbers are up and now over 10,000. It's clearly led by domestic air with very little change in international flights at this stage. Encouragingly, around 45% of our business in China is in domestic air. And from a low of almost no domestic air sales, we are now tracking at around 30 to 40% of normal levels in those airports, which are almost exclusively domestic. So as I look around the world, although the travel sector remains largely closed, there are few common trends emerging. The rail sector seems likely to recover first, followed by domestic air and finally international air. And our focus now is on planning for the recovery as we gradually progress into the recovery phase. And so to my immediate priorities. As always, it's health and safety first, getting colleagues back to work safely and our units ready for customers is key. We're implementing additional health and safety protocols and new operational and social distancing measures to help restore confidence. As you would expect, our approach to reopening our units is data-driven and systematic. We are tracking traffic volumes and prioritising which units to open first based on customer demand, unit location at our sites, and profitability. Customer research in the rail sector has highlighted the demand for more grab-and-go, speed of service, mobile ordering, cashless payments, and social distancing as really important. Importantly, having multi-site operations, often with five or more different concepts at one site, we can open our units selectively over time as passengers return. So we have the flexibility to open the right units in the right locations and do profitably, even at lower levels of numbers of sales. Ahead of opening units, We're re-engineering the cost base to enable us to make profit at a lower level of sales. And the immediate focus is on reducing rents, our minimum guarantees and franchise fees, and of course, taking down our unit overheads. Clearly, not all of our units will open now. And for those that don't, assets are safely and securely hibernated, and we've agreed rent holidays with our clients. Getting our units open at the right time and in the right way will, I believe, support the process of rebuilding customer confidence to travel again. My approach to our overhead is to strike the right balance between right-sizing the business for the short term and having the right infrastructure in place for the recovery. So the focus is on the simplification of our structures and processes and the removal of low-value discretionary spend. We will continue to invest in technology where this will further simplify our processes and support our efficiency plans. regularly with our people, being open and honest through every step of the process and keeping them informed and treating them fairly. And finally, we'll continue to support the communities in which we operate. As I said earlier, daily passenger data is informing us of what and when we open, with the most prime locations opening first. Our approach is simple, to test, learn, and adapt. As units open, our teams across the globe are able to share learnings and take this best practice to take into the next phase of our openings. So let me give you a couple examples of how we put this theory into practice and then what we've actually opened to date. In Germany, we prioritize units with low complexity and waste. So predominantly our retail spa express formats and our bakery brand Haberer to open first. With a simplified offer focused on the most popular items, reduced opening hours and a lower franchise fee, we can make the offer work at lower levels of sales. In China, we continue to operate a number of units at our key airports, including Xi'an pictured. We've implemented strict health and safety protocols, including temperature checks, face marks, and limits on customers who eat in. Again, we've adapted the menu to drive key items and encourage trade-offs, and the units are trading well. And so to the longer term. As I said from the outset, I want SSP to emerge from this crisis a fitter and stronger business. Our customer base gives us a unique opportunity to stay ahead of the changing customer trends, and I expect we will see further changes, including, for example, a gradual shift towards healthier eating as we move through the crisis. The demand for technology to order and pay is already a well-established trend, and we will continue to build our capability to deliver this, as well as trial new technology. For example, order from seats and delivery to our customers in our locations. We will also continue to grow our business. Building on the already strong new business pipeline, new opportunities will emerge. North America remains a significant opportunity for us and we have a great business there which we will continue to invest in and grow. I'd also expect new opportunities, including acquisitions, may arise. We will obviously benchmark these and really focus on those that give us the best returns. And finally, before finishing, just a few words overall on how we've done in our first half. Whilst travel will undoubtedly be disrupted, it will recover and we will continue to seek out value-creating growth opportunities. We opened important new business in half one, growing by 5.7% and added to an already strong pipeline of new business wins. Just a couple of recent examples of some of those wins. We won a new contract at Dublin Airport, which commenced operations in February. We won that business with a compelling offer of local and international brands, supported by service technology enhancing the customer experience and a credible sustainability plan, which includes removing the use of single plastics and using local and certified ingredients. In North America, we've had another strong period of net gains. And we've also won business in Germany, in Scandinavia, amongst others. So, in conclusion, as I said at the outset, prior to the onset of COVID, SSP had a good first half. The impact of the virus has been very significant, but I think our response to date has set us up well to manage through this crisis. Importantly, even in the pessimistic scenario and with extremely low sales, we have sufficient liquidity to withstand a prolonged downturn and a slow recovery. That said, while the degree of uncertainty remains, my expectation is that we will see travel recover sooner than that. Yes, it will be a gradual recovery, led first by our rail channel and then domestic air, especially in countries with significant domestic air infrastructure, like in the USA and Asia. So our focus now is to gradually and safely reopen our business where demand supports this, and simultaneously, we will lower our cost base and reduce the fixed element of it, importantly by reducing our minimum guarantee commitments. Alongside this, we will, at the right pace, open the units in our pipeline and seek out and invest in new long-term growth opportunities. The protection of our people and customers is key to me, And we will remain absolutely focused on delivering for all of our stakeholders in a sustainable way. And finally, before finishing, again, I want to thank our teams who are doing an amazing job. But I would just say thank you for your time. In the interest of time, we look forward to seeing you when we're out of this crisis. And please keep safe and well in the meanwhile.

And thank you very much indeed for joining the call, guys.

Thank you. Bye-bye.