Covid-19 Update and New Financing Arrangements

RNS Number : 9533I

WH Smith PLC

06 April 2020

 

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION

THIS ANNOUNCEMENT INCLUDES INSIDE INFORMATION

For Immediate Release

WH Smith PLC

Covid-19 Update and New Financing Arrangements

6 April 2020

As a result of the rapidly changing situation regarding Covid-19, WH Smith PLC is issuing an update on trading in its Travel and High Street stores, further to the update issued on 12 March 2020. We are very proud of all our colleagues across our stores who are doing an outstanding job in continuing to serve our customers and communities. Our key priority is their health and wellbeing and we have a number of measures in place to keep everyone safe and supported. 

Current Trading

In our UK Travel business, we have seen a significant decline in passenger numbers as a result of travel bans.  Consequently, all our stores at airports and railway stations are temporarily closed.  We remain committed to serving the communities which most need our services at this critical time and we are proud to continue to serve NHS staff from our 140 stores located in hospitals across the UK.  Internationally, we are seeing broadly similar trends to the UK with all large airport stores closed. In our High Street business, our 203 stores with Post Offices continue to serve their local communities by providing vital postal and banking services at this time. 

Total Group revenue in March 2020 was down 25% year on year.  However, as a result of the high number of store closures, in the latest week of trading to 4 April 2020, revenues across the Group were down around 85% year on year. On this basis, in the month of April as a whole, we expect Group revenue to be down by approximately £114m (down 90% year on year), with a reduction in operating profit of approximately £39m compared to last year. 

Outlook

It is clear that Covid-19 is having a very significant impact on our business.  However, what is uncertain is the duration of the pandemic and as such the effect it may have on the Group's financial performance.

As a result, we are working on the basis of a pessimistic scenario which assumes that 95% of our store estate remains closed with gradual re-openings.  We have the appropriate financial actions in place in terms of cost mitigation and cash preservation taking into account this scenario.   With respect to the remaining part of the second half of the financial year from April until 31 August 2020, our scenario planning assumes revenue could be down between 80% and 85%.  Our estimates for operating profit reflect the benefits of extensive management actions that are being taken to reduce costs, described below, and as such would result in a drop-through to operating profit in the second half of approximately 45% of lost revenues for that period.  For the balancing four months of the calendar year, we are planning for a gradual improvement in trading through to the end of December.

Longer term, the Board remains confident in the Group strategy and believes WH Smith is well positioned to benefit from the long-term growth in its key markets.

Mitigating Actions

We are taking a broad range of mitigating actions to manage our cost base and cash flow. As a result, for the remaining part of the second half of this financial year, we currently estimate being able to reduce Group cash operating costs by around 60% (around £200m). We also intend to reduce capital expenditure by around £29m.  

These actions include:

-  Delaying all non-essential and non-contractual capital expenditure;

-  Reducing our stock purchases to reflect ongoing demand, returning sale or return stock and negotiating extended payment terms;

-  Temporary closure of trading units and reduced operating hours;

-  Working with landlords to significantly reduce or remove rent payments and ensuring rent is aligned with revenue;

-  Suspension of business rates in the UK;

-  Significant reduction in headcount across stores and head offices through furlough arrangements; participating in the UK government Job Retention Scheme;

-  Deferring tax payments in line with UK government announcements;

-  Stopping all discretionary expenditure and reducing corporate overheads to a minimum;

-  In the current circumstances the Board will not be making an interim dividend payment in the current financial year.

The Group is also in discussions with governments in other countries to access support under their local schemes. 

Our recently acquired business, Marshall Retail Group (MRG), along with InMotion, has acted fast to minimise operating costs, negotiating rents and furloughing most store and head office staff.  MRG has performed well and has won further significant stores since the acquisition completed in December 2019.  The business is well placed to continue to grow when the US travel market re-opens.

Financing

Despite the significant mitigating actions being taken by the business, the Board has decided to strengthen the balance sheet and liquidity position with additional financing.

The Group today announces that it has secured a package of new bank financing arrangements which further strengthen the balance sheet. This includes a new £120m 12 month + 7 month, at the option of the Group, committed banking facility from BNP Paribas, HSBC Bank PLC and Santander UK PLC which is in addition to its existing facilities.  It also includes a waiver on the existing bank covenants at August 2020 and February 2021, with a new covenant at February 2021. This package is conditional on the Group raising new equity.

The Group's debt position is as follows:

	Quantum Drawn	Maturity
Available facilities
£120m New Committed Facility	£0m	November 2021*
£200m Revolving Credit facility	£76m**	December 2023
Existing debt
£200m Term Loan	£200m	October 2022
£200m MRG Loan	£200m	October 2022***

*Subject to extension options at the Company's control

**As at 6 April 2020

***Extension options being at the Group control for the last 12 months of maturity conditional on the Group raising new equity

WH Smith has separately announced today a proposed non pre-emptive equity placing of new ordinary shares representing up to 13.7% of its share capital which will supplement the bank financing and further strengthen the balance sheet, working capital and liquidity position.

WH Smith has consulted with a number of its major shareholders on the rationale for, and the structure of, the placing prior to this announcement. Based on the scenario planning undertaken by WH Smith management, the additional financing arrangements will provide sufficient liquidity to deal with this most challenging of trading environments and enable WH Smith to continue to operate, where possible, through this extraordinary period whilst ensuring the Group is well positioned for the eventual normalisation and growth of the global travel market.  The Directors believe that the placing is in the best interests of shareholders and will promote the success of the Group and this view has been strengthened by the shareholder consultation it has undertaken.

Directors and members of the senior management team of WH Smith, including Chairman, Chief Executive and CFO will be participating alongside the equity placing and intend to contribute £535k.

Furthermore, the joint HM Treasury and Bank of England lending facility, named the Covid Corporate Financing Facility ("CCFF") was launched on 23 March 2020. 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. WH Smith is in discussions with HM Treasury and the Bank of England to access the scheme.

Interim Financial Statements

The Group intends to release its interim financial statements on 14 May 2020 and is confident that underlying profit before tax for the first half will be in line with market expectations of £80m.  In view of Covid-19, the Group will be making a small exceptional non-cash impairment charge in its interim financial statements of approximately £3m in respect of its airport operations in Asia.

Commenting on this announcement, Carl Cowling, Chief Executive, WH Smith, said: 

"While the Group made good progress in the first half of the financial year, the outbreak of Covid-19 has had a significant impact on both our Travel and High Street businesses. 

"We continue to operate c.30% of our UK store portfolio ensuring we keep our stores open in the communities that most need our services at this critical time. We are enormously proud of our colleagues across our hospital stores who continue to serve food and drinks to NHS staff.  Similarly, across our High Street stores that host Post Offices, our colleagues continue to provide vital postal and banking services for their communities. The entire team has worked tirelessly to ensure we can adapt to the changing environment always ensuring our colleagues' health and wellbeing is our key priority, and I am hugely grateful for everyone's effort and ongoing support.

"We are a resilient business and with the new financing arrangements announced today, together with our continued focus on managing cost, we are in a strong position to navigate through this time of uncertainty and are well positioned to benefit from the normalisation and growth of our key markets." 

Enquiries:

WH Smith PLC

Nicola Hillman   Media Relations        01793 563 354

Mark Boyle   Investor Relations     07879 897 687

Brunswick

Fiona Micallef-Eynaud / Camille Ng    020 7404 5959  

Important notices:

This Announcement contains inside information and is issued on behalf of the Group by Ian Houghton, Company Secretary.  This Announcement is issued at 4.40pm BST on 6 April 2020.

This Announcement is not intended to, and does not constitute, or form part of, any offer to sell or issue or any solicitation of an offer to purchase, subscribe for, or otherwise acquire, any securities or a solicitation of any vote or approval in any jurisdiction.   

 

END

 

 

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