Restore Regulatory News (RST)

1 October 2020

Restore plc

("Restore" or the "Group" or "Company")

Positive Trading Update

Good momentum increasing across all businesses

Restore plc (AIM: RST), the UK market leading document management, commercial relocation and IT recycling business, is pleased to provide the following positive trading update for the nine months to 30 September 2020.

OVERVIEW - GOOD MOMENTUM ACROSS ALL BUSINESSES

· Further increase in activity levels and winning new business across all business units in Q3:

o Revenues showing sustained improvement, Q3 increased by c16% versus Q2

o With significantly improved activity levels, furloughed staff continue to return to work with only c21% on the Government's Job Retention Scheme at end of September 2020 vs 47% at peak of pandemic

o Continuing to win new customers across all business units in Q3

o Successful new product launches focused on flexible working trends

· Profitability substantially improved:

o Profit increased substantially with Q3 profit c50% higher vs Q2

o Cost actions implemented in Q2 continue to benefit financial performance

o Long-term structural cost reduction initiatives being implemented to drive sustainable improvements in efficiency and flexibility

· Cash generation strong, with continued reduction in net debt:

o Robust financial position, underpinned by core recurring cashflows

o Provides capability to accelerate strategic progress, with a growing pipeline of potential acquisitions

· Property rationalisation continuing on track as planned

· The Board remains highly confident in the Group's prospects:

o Restore on track to deliver stronger second half profit

BUSINESS UNIT TRADING REVIEW

Restore Records Management

o Continued growth in core highly predictable storage income

o Service revenue continued to rise throughout Q3 in response to improving activity levels

o Strong net new box intake in Q3 driving an overall net box growth for Q3, the highest for the year

o Continued market share gains in Q3 with a number of new customer wins and a strong pipeline

o As a result, overall revenue in Q3 increased to c90% of prior year

Restore Digital

o Strong trading and increased activity resulted in an improvement in revenue and profit in Q3 vs Q2

o Two smaller sites closing as planned with work consolidating into an expanded site in Redditch

o Won three further medical records scanning contracts of £6-10m total over two years. Restore has also been appointed to the NHS England DPS framework for GP records scanning which could bring to market projects worth £150m-190m over the next three to five years

o Continued to win digital mail room contracts with two larger customers each with a value of >£100k pa and we continue to build a strong pipeline

Restore Datashred

o Activity levels across the UK have increased sharply in Q3 vs Q2

o Continuing to win and re-sign customers with a full complement of sales staff at the end of September

o Recycled paper pricing has continued to be healthy and stable through Q3

o North London collection site closed as planned and work consolidated into our flagship London processing centre (Crayford), consistent with the Group's long-term site strategy

Restore Harrow Green

o Continued high levels of activity during Q3 both in London and the Regions

o Activity consisting of normal, scheduled relocations and further COVID-19 office reconfigurations as well as longer term, flexibility focused public and private sector site reconfigurations

o Increased scheduling of work during the week has improved workforce mix and reduced labour costs with a consequent improvement in margins

o Healthy win rate during Q3 from existing and new customers. Notable wins include relocation projects for four universities across the UK worth over £1.3m

Restore Technology

o Customers re-using older technology to enable homeworking is largely complete and therefore with IT refresh projects restarting it has delivered a significant increase in activity in Q3 vs Q2

o Profit in Q3 was significantly above profit levels in Q2

o E-commerce sales continue to perform strongly with pricing at healthy levels with increasing volume

GROWTH STRATEGY

The Group's growth strategy is unchanged despite COVID-19. Over time, the physical to digital services we provide customers as they transform their business models, as well as their data security we provide through Restore Datashred and Restore Technology will be in high demand in an increasingly flexible office environment.

As outlined at our Capital Markets Event in November 2019, our growth strategy is based on:

1) Organic Growth

2) Acquisition Growth

3) Margin Expansion

Restore has a market position of number 1 or number 2 in the markets we serve and overall, with only 11% market share we have significant room to grow and drive margin expansion with further scale.

We believe that COVID-19 will accelerate the trends we have seen in the last 25 years of 1) Flexible working, 2) Businesses automating with digital processes, 3) Risk of data loss increasing and 4) Environmental awareness. All these business trends will be positive for Restore as the Group utilises its diversified business portfolio. Restore is exceptionally well placed with market leading positions to support customers to address these challenges.

ACQUISITIONS

There are significant acquisition opportunities across all the markets we serve, and the level of inbound enquiries has increased, particularly with businesses we have known for some years. There are many factors driving this increased activity, but one important factor is the level of uncertainty in the market around potential changes in capital gains tax over the medium term. Overall, we are seeing improved realism in the market around prices for various businesses and we remain very disciplined in choosing the right businesses that drive the long-term strategy and strong financial returns.

OUTLOOK

The combination of the continued recovery in activity in our markets, together with the benefit of self-generated growth and improved profitability, have seen Group momentum strengthen noticeably in Q3. The Board is confident that the business is on track to deliver a stronger profit in H2 2020 in comparison with H1 2020, in line with previous market statements.

The Group's total revenue has bounced back strongly with total revenue now reaching 80% vs the previous year, compared with only 68% at the height of the COVID-19 impact in April 2020, and is anticipated to continue to improve during Q4. A strength of the Group, especially during the current uncertainty, is the regional nature of the business. Across the Group less than 10% of the operating profit is derived from London office 'footfall'. We continue to monitor the latest announcements from the Government relating to increasing social restrictions but with Harrow Green performing well in London, due to the constant changing nature of offices, and new products to support flexible working, we continue to minimise this impact.

Records Management, the Group's largest business unit, is rapidly approaching its pre-COVID levels of profitability and expects to achieve net box growth of c.1% for FY20.

With continued cost management, the strategic rationalisation of sites and staffing levels and with rising activity Restore expects around 10% spare capacity in staff by November which will enable further increases in customer activity going into December and Q1 2021. We further expect these changes to lower Group costs by c£2m pa during 2021.

With continued strong cash conversion and in the absence of acquisitions, our net debt reduction is expected to be c.£5-10m in H2 to deliver c.£65-69m overall net debt (pre-IFRS16) by the end of 2020, a significant reduction from £89m at the start of the year and a substantial improvement in underlying debt gearing. The RCF of £160m has substantial capacity to more than meet current requirements including supporting the Group's strategic priorities and capital allocation objectives.

Charles Bligh, CEO, commented on the good progress:

"I am delighted with the strong trading across all our markets as we deliver critical services to our customers. We focused on making decisions early in the pandemic that ensured we continued to deliver for customers safely and ensured we could bounce back strongly. These decisions are starting to deliver, and we are well placed to deliver increased profits in the second half of the year."

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

Stephanie Watson

Tilly Abraham