Restore Regulatory News (RST)

21 April 2020

Restore plc

Business Update and COVID-19 Statement

Restore plc (AIM: RST), the UK market leader in document management and business relocation, today issues a trading update and statement surrounding COVID-19.

Overview

Restore recently announced in March 2020 a strong performance for the year to 31 December 2019 with double digit growth in both revenue and profit together with a significant reduction in net debt. The business entered the current year with good momentum, a robust business model and a strong financial position. Notwithstanding this the outbreak of COVID-19 has caused some disruption to our customers business activity levels and represents a change to the Group's planning assumptions for 2020.

The primary concern for Restore, continues to be the health and well-being of its staff and customers. The Group has robust health and safety policies and has moved swiftly to implement procedures to enable our sites and services to remain operational. As such we can continue to serve our public and private sector customers' critical needs, albeit the Government restrictions and the Company's own compliance procedures will have an impact on activity levels in some areas of the business.

Regarding outlook, the situation is currently too fluid to determine the nature and extent of impacts with certainty. Consequently, the Board does not believe it is appropriate to provide specific guidance for the current financial year. The Board has assessed a number of scenarios and is comfortable that the actions already taken to preserve cash and reduce cost, coupled with the Group's strong balance sheet and significant credit facilities, provides adequate headroom to manage through the current uncertainty.

In the short term, our focus is on continuing to provide essential services safely across all of Restore's business units, protecting operational capability and ensuring that decisions are made for the long term so that the Group is well positioned to bounce back strongly as our markets recover from the impact of COVID-19.

The Board and Executive team have voluntarily agreed to reduce their salaries by 20% and the 2020 LTIP award for the Executive Directors has been postponed at this time.

Restore has a strong balance sheet and with the stress testing we have performed we expect to be both profitable and remain within banking covenants for 2020, even if the effects of COVID-19 this year are long and severe as set out in our analysis below.

Putting COVID-19 into perspective for Restore

The core strength of the Group is the recurring nature of both revenue and profit, particularly from the storage of records, files, data tapes and heritage items. These services have continued without interruption across all our sites, albeit with some reduced activity in the more discretionary records management service areas.

Each of Restore's businesses provides a variety of business-critical services. The continued demand for many of the activities performed by the Group demonstrates their importance to organisations both in supporting front line operations in their fight against COVID-19 and in ensuring continuity for other customers which keep the nation functioning in areas such as banking and utilities.

By business unit we are seeing the following:

· Records Management continues to benefit from significant recurring storage income streams, whilst providing vital health record management services to the NHS and the wider health sector in general. In addition, other records services continue although at a reduced level.

· Restore Digital continues to provide scanning services to the health sector and wider non health organisations that are essential for the national infrastructure to continue to function, although the exam scanning session that peaks during the summer will be at a reduced level this year.

· Restore Datashred, which is classed as an essential waste collection organisation, has seen lower commercial volume but continues to provide secure collection and destruction of paper from both the public and private sectors. This recycled paper is subsequently passed to UK paper mills for the production of amongst other items, paper base health hygiene products.

· Restore Harrow Green is working at a reduced level on office relocations but is supporting critical services such as the NHS, helping customers setup their office/home environments and adapt to new ways of working as well as providing logistics support to the broader Group.

· Restore Technology has seen a slow-down in asset commissioning and disposal collections but is successfully developing its online re-sale portal and continues to provide parts and equipment to enable remote working.

Whilst we continue to have a strong commercial pipeline, sales activity is below normal levels and whilst we are still being awarded new business, decision making is taking longer than normal in the current conditions.

Restore's customer demographic is broad based and reliable. We provide essential services to public sector customers (NHS, Central Government, Local Government) and in some cases are experiencing an increase in demand in these areas. Our private sector clients are mainly blue-chip organisations which value large scale record management services, secure destruction of documents and equipment and require demonstrated chain of custody. Restore services Small Medium Enterprises (SME) customers mainly in our Datashred business (which represents around 1/3 of this business unit) and the Group overall has a relatively minor exposure to the retail, leisure, travel and entertainment sectors of the economy.

All the businesses are nationwide with strong regional diversity and therefore the impacts of the virus outbreak on the business varies according to differing levels of economic impact across the country. This helps with the continuity of service to customers and provides a wide pool of income sources for the Group.

Stress Testing

The Group has substantial resources and credit facilities in place and a number of cash levers which have been activated by management in order to preserve cash. Whilst the longevity and severity of the outbreak is uncertain and in order to assess finance risk, the Board has examined two scenarios to ensure the Group has adequate resources in place to manage uncertainty into the medium term.

Specifically, the Board has modelled two scenarios as described below:

1) 'Short and severe' being major Government restrictions and business disruption at the level currently being experienced extending throughout Q2 (April-Jun) with a stable and slight recovery in Q3/Q4 respectively

2) 'Long and severe' being major Government restrictions and disruption at the level currently being experienced extending throughout all Q2 and Q3 (April-Sept) with a slight recovery in Q4

Under both these scenarios, the Group retains more than adequate liquidity, remains profitable and well within its banking covenants.

Cash Management and Dividend

During 2019 the Company demonstrated its strong cash generation capability and reduced net debt substantially from £111.3 million to £88.5 million (on a pre-IFRS 16 basis) with a corresponding reduction in pro-forma leverage from 2.1x to 1.6x.

This strong level of underlying cash generation is a key asset as the business looks ahead at the more challenging environment. However, in order to react to changing demand and business restrictions, the Group has acted quickly to preserve cash whilst maintaining the long term capacity of the business.

A number of steps have been taken during March and April including:

· Freeze on capital investment unless related to Health and Safety and essential maintenance

· Reducing discretionary costs

· Postponing acquisition activity

· Temporarily furloughing a number of staff (approximately 40-50% of the overall workforce) using the Government Job Retention Scheme to preserve jobs and capability to bounce back strongly

· All members of the Board and Executive Committee members voluntarily reduced their pay by 20% at this time

Given the uncertain outlook and in order to provide flexibility for management on future capital allocation decisions, the Board has decided to withdraw the previous proposal for a final dividend of 4.8 pence per share for the year to 31 December 2019. This decision preserves approximately £6 million of cash, previously planned for payment in July 2020.

Credit Facilities

The Company has a strong balance sheet with a £160 million revolving credit facility (RCF) in place which runs to March 2023. The facility is provided by a strong banking syndicate and is subject to two primary covenant tests:

· Interest Cover at more than 4.0x

· Net Debt to rolling adjusted EBITDA ratio at less than 3.25x for Q2 and Q3, reducing to 3.0x for Q4.

The Board is confident that under the two stress testing scenarios discussed above, the business will remain within these covenants.

Summary

Although the overall impact of COVID-19 is unknown currently, the essential nature of the services the Company provides, the types of customers we service, and the high level of recurring revenues provides a strong foundation for Restore to weather the headwinds the economy now faces. We will provide a further update at the AGM on 21 May 2020.

Charles Bligh, CEO of Restore plc, commented:

"After a strong year in 2019 we enter this period of significant uncertainty with solid operational and financial foundations to face the inherent headwinds. All our business units continue to operate to deliver essential services to customers and we do so with the highest levels of safety for our staff and customers as we support the national effort to overcome COVID-19. We have acted quickly to maintain operational capability and preserve cash mindful that when the crisis is over with the reputation and services we provide in fragmented markets we will bounce back strongly."

Certain information contained in this announcement would have constituted inside information (as defined by Article 7 of Regulation (EU) No 596/2014) ("MAR") prior to its release as part of this announcement and is disclosed in accordance with the Company's obligations under Article 17 of those Regulations

Restore plc www.restoreplc.com

Charles Bligh, CEO 020 7409 2420

Neil Ritchie, CFO

Peel Hunt LLP www.peelhunt.com

Mike Bell 020 7418 8900

Ed Allsopp

Buchanan Communications www.buchanan.uk.com 

Charles Ryland 020 7466 5000

Vicky Hayns

Stephanie Watson