SSP Group plc

Thank you very much. So good morning everyone and thank you for joining us again virtually for our interim results. On the call today we have Jonathan Davis our Group CFO and Sarah John our Director of Corporate Affairs. So just to take you through the agenda I will give you a short overview of the first six months. Jonathan will then take you through the financials. I will then review the business and our plans for recovery and as always we will finish with the Q&A and there'll be plenty of time for questions. So COVID-19 continues to have a significant impact on our business, but despite this, SSP has delivered a resilient performance in a challenging market. And I'm really proud of what the teams have achieved, both operationally and financially, delivering a valuable service to the travelling public, as well as supporting local communities. So I want to again personally thank all of our colleagues for their incredible efforts. So turning to our performance, whilst the rollout of vaccines in part of the world has been successful and resulted in the start of domestic travel, as we all know, there are still some countries that continue to be really challenged by the pandemic. In the first half, our revenue was £257 million, down almost 80% compared to pre-COVID levels. Now extensive action to reduce and variable the cost base as well as local government support enabled us to contain the drop through on the lost sales to 22% ahead of the previously indicated range of 25 to 30%. And minimizing our EBITDA losses together with the tight control of cash kept our underlying cash usage to 130 million, or an average of 22 million cash burn per month, ahead again of the previously indicated range of 25 to 30 million. Following the action to strengthen the balance sheet, our pro forma liquidity was £854 million and under the base case scenario shared as part of the rights issue, this will give us significant financial capability to invest in the recovery. Now whilst the pace of the recovery varies around the world and does remain volatile, we are now seeing encouraging signs, particularly in the UK and America, led by domestic travel. We are reopening units in these regions and driving profitable sales, having reopened around 250 units since March. We now have about 40% of the estate operating again, and we are ready to accelerate reopenings in our other divisions as demand recovers. And we expect that travel will largely recover by 2024. And it is this recovery combined with our market position, strong operational model and balance sheet capacity that will enable us to deliver long-term sustainable growth and create significant value for our shareholders. And with that, I will hand you over to Jonathan to take you through the financials. Thank you, Simon, and good morning.

Clearly, our first half results were heavily impacted by COVID-19, but were in line with the trading update and guidance that we gave in March with the announcement of our rights issue. Overall sales were £257 million in the first half, down by 79% year-on-year. We saw an underlying EBITDA loss of 110 million on a pre-IFRS 16 basis and an operating loss of 161 million. Net debt increased to 840 million, reflecting the continued cash burn over the last six months, but of course, this was prior to the recent rights issue. Under IFRS 16, we saw an underlying operating loss of 227 million, and net debt of just over 2 billion, reflecting the additional lease liabilities for the minimum guarantee rents. Now, over the next few slides, I'm going to run through the reported numbers and explain the impact of IFRS 16. And then once I've dealt with the accounting, I'll focus on the pre-IFRS 16 results. Firstly, concession fees are much lower at 28 million compared with the 85 million pre-IFRS 16. This is because under IFRS 16, the concession fees represent only the variable element of the rent above the minimum guarantee. As we saw in the full year results, the reported numbers reflect the temporary amendment to IFRS 16, such that any minimum guarantee waivers flow directly through the P&L, rather than being accounted for as lease modifications where the impact would be spread over the life of the lease. However, under the current ASB rules, these minimum guarantee waivers must be reported as an exceptional item, and so the underlying IFRS 16 concession fees don't include the benefit of any of the short-term rent waivers we've secured amounting to around 53 million. The second major impact is on the depreciation charge, which has increased to 184 million, compared with 50 million reflecting the depreciation of the capitalized minimum guarantees. In summary, if we included the adjustment for the minimum guarantee waivers, the underlying operating loss will be fairly similar under both accounting policies. Now looking further down the P&L, Pre IFRS 16, we saw an underlying net loss of 161 million or 30 pence a share, and this compared with the reported net loss of 222 million. The reported financing costs were 35 million compared to 21 million pre IFRS 16 due to the unwind of the discount applied to the capitalization of the minimum guarantees. Pre IFRS 16, the tax credit was 17 million and the non-controlling interests share of the losses were 4 million. A brief word about the exceptional items. The non-recurring items added a further 39 million to the reported loss before tax, reflecting impairments, restructuring costs and debt modifications. was offset by the temporary minimum guarantee waivers of 53 million that I've just referred to. We've made a number of further impairments to fixed assets and right of use assets amounting to 27 million, as well as further goodwill impairments of 3 million, all of which reflected the slower recovery in the travel sector that we're now assuming compared to our expectations last year. The restructuring costs of 10 million were mainly redundancy costs, and we've also expensed the bank fees for the amend and extend on our main facilities, which we negotiated alongside the rights issue. The exceptional financing costs principally reflect the treatment of the debt modifications under IFRS 9 as a result of the revised arrangements with our lenders and the higher interest costs that we will pay during the waiver period. Now, Leaving the accounting and turning to the underlying performance of the business, firstly, a look at sales. During the second quarter, sales remained at very low levels, down 78% year on year and around 81% down compared to pre-COVID levels. As you'd expect, given the reinstatement of lockdowns at the turn of the year across many of our markets and the even tighter restrictions imposed in many European countries, during the early parts of 2021. With the gradual easing of lockdown restrictions in recent weeks, like-for-like sales are currently running at around 70% down versus pre-COVID levels, and we expect quarter three like-for-like to be down by around 75%. Now looking at our regional performance, sales in all regions have remained very consistently at low levels during the second quarter, with the UK performance the weakest at around 10% of pre-COVID sales, reflecting the extreme lockdown measures. Whereas in continental Europe, sales have remained slightly more robust despite the lockdown, largely due to the rail sector as passengers have continued to travel in countries such as France and Germany. Over the last three months, there has been a real recovery in North America. Now, as over 50% of 2019 sales driven by strengthening domestic and leisure passengers, and also in the UK, now at around 25% of 2019 sales, driven by the gradual recovery of the rail sector. However, you can see that in the rest of the world, the further restrictions in recent weeks in India and to a lesser degree in Thailand have reversed some of the earlier improvements in the region. Now, Simon will talk about the regional trends in more detail later. So turning to profit, despite the low level of sales down around 1 billion versus pre-COVID levels, the impact on profit continues to be mitigated by the extent of the actions that we've taken to reduce operating costs and the extension of furlough and other government support measures, as well as our further success in negotiating rent reductions, principally minimum guarantee waivers. So as a result, we've managed to limit the profit conversion on the reduced sales to around 22%, which was better than the 25% that we had indicated in December, and in line with the update we provided in the rights issue for the four months to January. That's left the operating loss for the first half at £161 million, And we would expect profit conversions to remain in the region of 25% on the lost sales versus pre-COVID levels in the second half. Now, looking at the P&L for the first half, you can see the operating cost reductions that we've made in response to COVID taking out over £480 million from labour, concession fees and overheads. We've achieved this by opening outlets very selectively, trying to match the number of units as closely as possible to the passenger numbers in order to make the cost base as flexible as possible. Of course, we can do this because the vast majority of our operations are in multi-unit locations. So looking down the P&L, you can see we've reduced overall labour costs by 62%, benefiting, as I said, from keeping units closed where passenger numbers remain low, and of course, continued access to government furlough schemes. We've managed to reduce rents by around 66%, mainly through continuing to agree minimum guarantee waivers with our clients. And we've also been able to reduce the rest of the cost base dramatically, taking out well over 50% from our overhead costs, again helped by reduced unit numbers. Gross profit margin was up 1.5% year on year to 72.2%, reflecting mainly changes in channel mix, but also all of the work that we've done to simplify and optimize our ranges during the COVID period. Now turning to cash flow, we continue to manage cash very tightly using around 130 million of cash over the half, that is around 22 million a month. So below the cash burn guidance we'd given previously of 25 to 30 million. This was driven by the EBITDA losses being slightly lower at around 18 million a month and a good working capital performance And in fact, you can see from the chart that we saw a working capital inflow in the half of 22 million, despite the sales remaining at very low levels, reflecting the further successes in things like rent deferrals and accessing government support. And as we've said previously, we've been very disciplined with our capital investment program, limiting capex to around 25 million over the first half. So moving on to net debt. Net debt at the end of March was £840 million, as I've said, reflecting the underlying cash usage of £130 million and exceptional costs of around £11 million. Importantly, including the net proceeds from the rights issue, pro forma net debt would be around £389 million. So in terms of liquidity, Following the rights issue in April, we have pro forma liquidity of over £850 million, with cash on the balance sheet of nearly £700 million and further undrawn committed facilities of £163 million. This includes the Bank of England CCFF of £300 million, which has now been fully drawn down and will be repaid in February 2022. However, excluding this, we still have over 550 million of available liquidity. And even at the very low levels of sales we've seen in the third quarter, so down around 70 to 80% versus pre-COVID levels, we will anticipate our cash burn to be in the region of 20 to 25 million a month. Now, as you saw in the rights issue recently, we've agreed further covenant waivers and extensions with all of our lenders through to early 2024. So in summary, as a result of the actions we've taken to raise additional liquidity and the action we've taken to manage our cash flow, we're really in a very strong position to trade through a slow recovery scenario. But having said that, we're primed to reopen rapidly over the coming months and, of course, to accelerate our investment programme in due course. And finally, I'd just like to recap on our medium term expectations. So as we indicated in March, along with the rights issue, we expect the travel sector to recover in the medium term with our like-for-like sales returning to broadly pre-COVID levels by 2024 under our base case scenario. On top of this, The current secured pipeline, along with the full-year impact of units that we opened pre-COVID, should deliver a further 10% to 15% of net contract gains over this period. And by then, we would expect our EBITDA margin to be back at a similar level to 2019. Our strategy for medium-term leverage remains unchanged. That is, for leverage to be between 1.5% and 2 times net debt to EBITDA, And under the base case, this would give us the financial capacity for an additional 350 to 400 million in capex to drive further business growth and capitalize on the recovery of the travel sector. So I'll now pass back to Simon to take you through the business updates.

Thank you, Jonathan. So before moving on, I just wanted to remind you of our strategic objectives. Operating in a large, structurally growing and fragmented market gives SSP the opportunity to deliver long-term sustainable growth for the benefit of all our stakeholders, and it's getting it right across all these groups that builds momentum and drive performance in our business. We are continuously improving the business to deliver long-term competitive advantage, and our values underpin this approach. So as you saw from the previous slide, making a positive contribution to our environment, our people and the local communities is really important to us. And over the past year, I've seen numerous examples of our teams doing this, whether that's in supporting the local communities, furthering our sustainable sourcing agenda or launching innovative food waste programs. And having established a new strategic framework with updated targets, our teams have been busy developing their local corporate responsibility plans to support the overall strategy. And I'll update you in more detail on the progress that we've made, as well as some of our key focus areas at our year-end results. So turning to the next slide, now you've seen this slide a number of times before, but it is important to remind ourselves of the extensive action taken during this crisis to protect our people and our business. We acted decisively and quickly, keeping our team safe, creating the liquidity needed, whilst at the same time, removing significant cost and creating a more flexible operating model, which enables us to break even at lower levels of sales. With the recovery in domestic travel now commencing, our focus will now evolve towards the recovery and driving sustainable growth. So reminding you of our strategy, our immediate focus is to reopen our units safely and to drive profitable sales. Our approach to reopening remains data driven, the lead indicator being passenger volumes through our sites, safety, speed of service and digital capability are all important to our customers. We are focused on capturing every sales opportunity we can, particularly while some of the competitor units remain closed. And that means being nimble and flexible around what we sell through our brands and ensuring our ranges are in line with evolving customer needs. Our business development, the immediate priority is to renew and extend contracts where we can on improved terms. As Jonathan has just mentioned, we have a significant pipeline of contracts which we have won but are yet to open, and we will do this as demand recovers. Whilst it's still early, we are now seeing some new tenders and our client and brand partner relationships, which have been strengthened through the crisis, our broad-ranging customer offer and, of course, our robust balance sheet plus us in a strong position to respond. And I'll take you through some examples of this later in the presentation. Aside from investing capital to drive new business, we are continuing to reinvest in the business to drive competitiveness in our consumer proposition, including brand and menu innovation and in our digital agenda. And it's the combination of profitable sales and a disciplined approach to capital investment that all underpin the delivery of shareholder returns. So I thought it'd be helpful to give you some insight into the sales trends that we're seeing across the business, starting with the UK, where sales are currently around 25% of pre-COVID levels. After very limited rail activity in the winter, passenger numbers have started to improve, and in the first week of June, mainline station passenger numbers were around 50% of pre-COVID levels. Customers are gradually starting to use trains for both leisure, especially on the weekends, and to go back to offices. The UK air sector is just starting to open, and we expect this to gather pace over the summer months. So we've been rapidly reopening units and currently have about a third of our units open. And if the current trends continue, we expect to have around half the estate opened over the summer. Demand is strong for our retail brands like Marks and Spencer's, as well as quick service and grab-and-go coffee offers, including Starbucks and Burger King. In continental Europe, where sales are currently around 30% of pre-COVID levels, the recovery continues to be led by rail, which accounts for about one third of our business there, and where around half the rail sales are from leisure travellers. And whilst activity in air remains subdued, we expect some improvement and we hope to have over half our estate trading over the summer. Again, consumer trends are similar to those in the UK, including strong demand for retail, which I'll talk about in a moment, as well as more indulgence and wellness items. We're also seeing a strong take up of the digital customer ordering solutions and we continue to roll out our technology. We've seen a good recovery in the United States where sales are around 60% of pre-COVID levels. And whilst Canada remains largely locked down with sales at around 10% of pre-COVID levels, the US recovery is being led by domestic travel and passenger numbers that have recovered to around 75% of pre-COVID levels. We currently have around 160 units trading with further plan to trade over the summer and I'll talk about this more in a moment. And finally in the rest of the world division where sales are less than 20% of pre-COVID levels, we have about 260 units open or about a third of the estate. Now the situation here varies by region and we expect it to remain quite volatile in the So, for example, China and Australia have both shown very strong demand for domestic leisure travel, but international travel remains subdued in the region, and India has sadly been heavily impacted recently by COVID. Close to home, we're seeing increased demand in Egypt with tourism reopening. Despite the slower recovery, we have seen some new business opportunities in the region. We've recently extended a number of contracts in Greece and in India, which again I will cover in more detail later in the presentation. So I did want to share just a couple of case studies to illustrate some of what we've been discussing this morning and turning first to North America. So as I said, we are seeing travel start to reopen, led by domestic travel, as you can see from the graph, with international travel improving, but more slowly. Passenger growth really started to increase from the spring break in March through April and has been growing steadily since. Sales in the United States last week were back to 60% of pre-COVID levels. Domestic demand is being fueled by leisure travel and we are seeing a pent-up demand for holidays with a more even pattern of demand during the day and more families traveling. In terms of consumer trends, grab and go is important. So we've added takeaway stations to our table service restaurants, and we're seeing more demands for treats and indulgence purchases. So we've added more opportunities to buy these from our sites. So with the return of domestic air travel, we've been really busy opening units in the United States, and on the slide is just a small selection. We've talked in the past about a systematic approach to reopening, and you can see there's a significant amount of analysis that goes into deciding what to open and where to capture the best sales opportunity. The start point is to analyze what's open in the zone by brand, range, operating hours, et cetera, and then overlay passenger volume data from the airport. From this, we make our reopening decisions. Recruitment in some of our locations is currently a challenge, so deploying simplified menus, our order and pay technology, as well as leveraging central kitchens are all important actions to help us open our units and maximise our sales in line with passenger demand. The sales and profitability report then looks at how to maximise those profitable sales once open. We test and trial different initiatives like menu changes, operating hours and promotions. And then the daily sales profitability report evaluates how effective we are being and we change and adapt where we see opportunities to drive performance. As we've reopened, we've used many of our COVID learnings to drive performance. With a focus on driving performance, there are many opportunities to rationalize and simplify our menus and deliver our service more efficiently. For example, we've reopened our Urban Crave brand with around half the previous menu items. Focusing on our best sellers, which align with customer preferences, we can deliver this menu really quickly and just with one chef. And remember, having multi-unit sites gives us the flexibility to move our brands around. At Seattle, we took the opportunity to swap a local brand, Asian Box, to a Mikasa Cantina, one of our own brands, to meet customer demand. The new Mikasa, with its all-day menu offering breakfast, has delivered a 12% sales uplift and at a higher margin. Again, with a focus on capturing sales, we're trialing grab-and-go promotions like this carry-on combo to encourage customers to take their in-flight meal onto the plane. We also saw a rapid increase in take-up in demand for digital customer ordering during COVID, and in response we're accelerating the rollout. Where we install order at table and virtual kiosks, we're regularly seeing average transaction value increases of around 5%. We're also making good progress in renewing and expanding our business in Europe. So in Europe, we've renewed and extended contracts with long-standing clients, for example, with Svedavia in Swedish airports and Nantes Airport in France. In both cases, we've extended contracts and agreed better terms and have a reopening plan in place as passengers return. On NewSpace, although there have been fewer tenders, clients are selectively continuing with expansion and development plans. For example, we've run a 10-year contract for eight units at Martinique Airport in the French West Indies, which is being significantly expanded. We also saw strong demand in Germany for our retail brands during COVID, as customers sought to access a one-stop shop service for the on-the-go or take-home consumption. So we've partnered with a market-leading German convenience brand to launch Rev2Go, which is a new format for them at Dortmund Rail Station. And if successful, we could see this roll out in the German rail channel. Strong client and brand partnerships have also helped us begin to access sites where competitors have withdrawn from travel operations. For example, at Zurich Airport, where we've taken over two Starbucks units, as well as in Denmark and Copenhagen Airport, where we've taken over the operations of the Gorm's Pizza unit. And finally, in adjacent markets, we've recently expanded the footprint of TOG Service from Norway into Sweden. Now, TOG Service provides a full range of rail catering and platform vending services, and we've just started operating onboard rail services between Stockholm and Narvik in the north of Norway. And we've also recently agreed a new venture with Norwegian airline FLIR, to operate in-flight food services. Now this leverages our food production capability. We can use existing kitchen production facilities to provide the new service. There does continue to be significant amounts of business development activity right around the globe, with the team focusing on rent negotiations, renewals, extensions, planning the mobilization of all those recent wins, as well as tendering for some new space opportunities where they arise. Some examples of renewal include at Goa Airport, where we will continue to operate 22 units for a further four years on preferential terms, and in Thailand, where we've also renewed 20 units at Savannah Bumi Airport. We also have a substantial amount of previously won new units to mobilize as passenger demand recovers, including, for example, 11 units at Dublin Airport, eight units at Cincinnati Airport, and nine units, one across regional leisure airports in Greece, amongst many others. We've agreed an opening plan with each client, determined by passenger volumes, location, and customer offer. We are also just starting to see some new tender activity. So alongside the European examples that I referenced earlier, we've also recently secured new business at the Gold Coast Airport, which expands our presence in Australian airports to six. And we continue to grow our joint venture business in India with an additional two units, one, as well as three new units in Thailand's Savarnabhumi Airport. And it's the combination of our range of brands, our robust balance sheet, and the strong partnerships we've forged with our clients throughout this crisis that have all helped us win these tenders. So there is plenty of business development activity. And so to summarise, despite the challenging trading conditions, we have continued to minimise our losses and cash burn while systematically reopening our units in line with demand. The creation of additional liquidity has strengthened our business and in the base case scenario provides significant firepower to invest in the recovery as well as downside protection if the recovery is more prolonged. Whilst the pace of recovery is unknown, we do expect sales to recover by 2024 and this, combined with our disciplined approach to efficiencies, our strong domestic and leisure mix, should deliver margins similar to pre-COVID levels over the medium term. We are already seeing a strong domestic recovery led by leisure travel in parts of the world, and we are using our learnings from COVID to help optimize performance. And as other markets recover, we are ready to do exactly the same there. Our market position with over 500 brands to choose from and with multi-unit operations gives us a competitive advantage. we will continue to invest in our customer proposition to keep us competitive and the rollout of our strength in digital and CSR strategies underpin our performance. So once again, I did want to thank our teams around the world for their incredible commitment. It is their hard work that means we are poised to take advantage of the many opportunities that will arise as the global travel market reopens and to deliver long-term sustainable growth for our shareholders. And with that, we are happy to move to questions.