Last checked at 1 Apr 2020 07:00
This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.
1 April 2020
AUTO TRADER GROUP PLC
FURTHER ACTIONS IN RESPONSE TO COVID-19 DISRUPTION: ADDITIONAL MEASURES TO STRENGTHEN OUR BALANCE SHEET, COST REDUCTIONS AND PROPOSED PLACING OF SHARES
Auto Trader Group plc (LSE: AUTO, "Auto Trader" or the "Company"), the UK's largest digital automotive marketplace, today provides a further update on the evolving COVID-19 situation following its previous statement on 19 March 2020.
This announcement covers the additional actions which we are taking to further strengthen our balance sheet, reduce costs and support both our employees and customers during this time of uncertainty. We have also announced this morning our intention to launch a non-pre-emptive placing of new ordinary shares representing approximately 5% of the Company's current issued share capital.
The Board believes the combination of actions communicated below will make an important contribution to maintaining and strengthening Auto Trader's position as the place that the UK public go to find their next car.
Nathan Coe, Auto Trader's Chief Executive Officer, commented: "I would like to thank everyone at Auto Trader for their commitment through these challenging times. We believe our actions to support our employees and customers, to reduce our costs and to strengthen our balance sheet will provide greater flexibility to act in the long-term interests of shareholders, employees, customers and other stakeholders."
Actions taken to support our customers
Prior to the announcement of the lock down in the UK on 23 March 2020, Auto Trader announced that we would support our vehicle retailing customers by allowing them to advertise all their vehicles on our site and by making the service free to them throughout April. This has contributed to a record number of vehicles being displayed on the Auto Trader website (around 540,000 as at 31 March 2020 as compared to around 480,000 at the end of March 2019).
Car retailers are currently closed for business, at least in relation to the selling and buying of cars, with many staff furloughed under the government's scheme. We remain committed to supporting our industry through these difficult times and would expect our next major communication to customers to occur at an appropriate point in April.
Actions taken to reduce costs
The entire Board has voluntarily offered to forego at least half of their salaries or Board fees for the foreseeable future. The executive directors have also requested that their annual FY20 bonus be waived. The Board believes that acting in this way is the clearest indication that we stand together with all our stakeholders, whether employees, customers, shareholders or suppliers.
Action has already been taken to remove the majority of discretionary spending, including marketing. We do not believe that pausing marketing spend at this time will make a material difference to our levels of consumer audience nor our long-term brand recognition.
We have announced a furlough programme to our employees which will take effect shortly. We intend to fully top up salaries for the large majority of those who are impacted. The Company is supportive of the government's goal of trying to keep as many people as possible in work. We believe our use of the furlough programme will be in the long-term interest of shareholders as well as other stakeholders. The Company has also received indications of support for this approach from some of our major investors.
Balance sheet update
The Group's balance sheet is strong. At the end of February, we had drawings of £289 million on our £400 million revolving credit facility, with a net debt/EBITDA ratio of 1.1x which is well below our covenant level of 3.5x. Covenants are tested in March and September and look at a rolling 12 month period. As well as debt cover, the test includes interest cover for which the last 12 months' EBITDA must be at least 3x the net interest expense. We expect to meet the March 2020 test with significant headroom available. Looking forward to our September 2020 covenant test, we expect our net debt/EBITDA ratio to rise as a function of the free services being provided to our customers but will remain well below the maximum covenant threshold.
Equity placing to further strengthen our balance sheet and increase flexibility for the future
The Board believes it is important to support our customers and employees through this period of uncertainty. We also believe there may be attractive opportunities to strengthen the business in the immediate aftermath of the current crisis. The Board believes it is in the best long-term interests of all stakeholders to strengthen our balance sheet today and ensure we avoid constraints that might otherwise be imposed in the medium term in order to meet debt covenants.
Consequently, Auto Trader is announcing today a proposed equity raising:
· Intention to conduct a non-pre-emptive placing of up to 46,468,300 new ordinary shares in the Company (representing approximately 5% of the Company's current issued share capital).
· The net proceeds of the placing will be used to strengthen Auto Trader's balance sheet and liquidity position, support all stakeholders, increase our flexibility to take advantage of future opportunities, and increase certainty around meeting covenant tests in future years. Furthermore, this equity raise will allow us to resume our existing capital return policy at the earliest prudent opportunity.
Capital Structure and shareholder returns
As previously announced, we will not buy back any further shares until we report our full year results. No decision has yet been made regarding the final dividend for FY20, although if the current environment persists then it is unlikely that one will be declared. Notwithstanding that, the Board continues to believe in the long-term benefits of the Company's existing capital structure and return of surplus capital policy. In summary, low levels of indebtedness and a very high proportion of post-tax operating profit returned promptly to shareholders through a combination of dividends and share buy backs.
Reporting on FY20 and Guidance for FY21
Auto Trader will delay releasing its full year results for the financial year ended 31 March 2020 and a new date for reporting will be announced in due course. The FCA have allowed and even encouraged companies to utilise the additional two months offered to enable auditors more time to complete work and make a clearer assessment on forward looking statements.
We continue to believe our results for FY20 will be broadly in line with the market consensus, though this may be subject to prudent provisions for post year end events relating exclusively to the impact of the COVID-19 pandemic. As we previously stated, we cannot sensibly provide guidance for FY21 given the considerable uncertainty around the COVID-19 pandemic, the timing of any changes to the government's regulations and guidelines and the subsequent impact on the UK automotive industry.
Media Enquiries:
Powerscourt +44 (0)20 7250 1446
autotrader@powerscourt-group.com
Market Abuse Regulation: Auto Trader Group plc Legal Entity Identifier: 213800QLK9BZILB1DI86. Notification by Claire Baty, Company Secretary