UK. WHSmith has issued a trading update on performance amid the COVID-19 crisis, noting that group revenues in March 2020 fell -25% year-on-year, with the week to 4 April down by -85%. The company has forecast a -45% fall in revenues year-on-year for the second half to 31 August.
The company said: “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.”
On this basis, in the month of April as a whole, WHSmith expects group revenue to be down by around £114 million or -90% year-on-year, with a reduction in operating profit of about £39 million compared to last year.
Looking to the period ahead, the company said it was basing its assumptions on a “pessimistic scenario” that foresee 95% of stores closed and gradual reopenings thereafter.
“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.”
The group has taken a series of mitigating actions to manage its cost base and cash flow. For the remaining part of the second half it aims to reduce group cash operating costs by around -60% (around £200 million) and capital expenditure by around £29 million.
These actions include:
– Delaying all non-essential and non-contractual capital expenditure;
– Reducing stock purchases to reflect 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;
– No interim dividend payment in the current financial year.
The company is also in discussions with governments in other countries to access support under their local schemes.
Recently acquired Marshall Retail Group (MRG), along with InMotion, are acting to minimise operating costs, negotiating rents and furloughing most store and head office staff. MRG has has won further store contracts since the acquisition was completed in December 2019 and “is well placed to continue to grow when the US travel market re-opens”, said WHSmith.
The board has also decided to strengthen the balance sheet and liquidity position with additional financing. New financing arrangements include a £120 million 12 month + 7 month 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 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.
WH Smith separately announced today a proposed non pre-emptive equity placing of new ordinary shares representing up to 13.7% of its share capital. This, it said, will supplement bank financing and further strengthen the balance sheet, working capital and liquidity position.
“Based on the scenario planning undertaken by WHSmith management, the additional financing arrangements will provide sufficient liquidity to deal with this most challenging of trading environments and enable WHSmith 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.”
Directors and members of the senior management team of WHSmith, including Chairman, Chief Executive and CFO will be participating alongside the equity placing and intend to contribute £535,000.
The company also plans to access a joint UK Treasury and Bank of England lending facility, named the Covid Corporate Financing Facility (CCFF), which was launched on 23 March.
The retailer will release its interim financial statements on 14 May, saying it is confident that underlying profit before tax for the first half will be in line with market expectations of £80 million. In view of Covid-19, the group will be making an exceptional non-cash impairment charge in its interim financial statements of approximately £3 million in respect of its airport operations in Asia.
Chief Executive Carl Cowling 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 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.”
