Restore Regulatory News (RST)

22 November 2022

Restore plc

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

Trading Update

Continuing strategic progress and good momentum despite macro-economic headwinds

Restore plc (AIM: RST), the UK's leading provider of digital and information management and secure lifecycle services, is pleased to provide a trading update for the 10 months to 31 October 2022 (the "Period").

Recent trading has continued the positive momentum seen through the first half with significant contract wins and expansion in activity levels. Revenue is performing strongly with the second half to date tracking well ahead of the same period in 2021. EBITDA also continues to show strong growth despite the macroeconomic pressures of inflation and the uncertain commercial environment. Restore Technology is also growing strongly albeit at a lower rate than planned due to a slowing in the IT equipment market, associated with current global supply chain issues.

CHARLES BLIGH, CEO, commented:

"Restore has achieved strong commercial momentum in 2022 and, whilst the current economic environment creates challenges, we are winning new business and are confident that we will continue to expand in 2023 with organic growth, complementary acquisitions, and a continued focus on costs.

I am delighted with the recent landmark wins by Records Management for the BBC and the Department for Work and Pensions, which together have a total contract value of over £30 million and both of which were previously unvended opportunities that demonstrate that the underlying market continues to grow. Whilst recycled IT asset sales are growing more slowly than planned in H2, this is a near term supply chain issue with forecasts for PC shipments to grow in 2023 and onwards.

The Group is well-positioned to navigate the current macroeconomic uncertainty and with our highly cash generative business model that delivers essential services and saves customers money, we will emerge as an even larger and stronger business."

Operating performance year to date

· Records Management is winning substantial long-term and unvended contracts demonstrating continued strong demand and the growing breadth and depth of Restore's product offer:

- Expected net box growth in Records Management reaffirmed at 1% to 2% (FY21: 1.3%)

- In September, Restore announced its largest ever contract win, the BBC's heritage asset storage and service contract, which provides long-term secure storage and management for the nation's highly valued national film and assets archive. The total contract value over 10 years is c. £22 million and a new specialist environmentally controlled vault is being constructed by Restore to meet the BBC's stringent requirements. Restore Harrow Green will also manage the uplift of items worth c. £1 million in project revenues

- In November we signed a multi-year storage and service contract with the Department for Work and Pensions to add more than 350,000 boxes to the Group's existing portfolio of 22.3 million boxes under management. The value of the contract is anticipated to be in excess of £1 million per year and will be facilitated by the recent expansion of storage space in North West England

· Restore Digital is winning new contracts and building substantial product capability:

- After an outstanding performance in H1, the Digital pipeline for FY23 is building strongly

- Operational integration of EDM, acquired in 2021, is complete and focus has now moved to IT upgrades to optimise performance further

- Increased revenue visibility with c.70% of revenue derived from recurring revenue streams, including long-term digitisation and automation programmes, BPO and cloud storage

- Scale benefits clearly apparent in operating margins with further optimisation potential

· Datashred is demonstrating its resilience and strong performance optimisation:

- Service visits have built steadily and the business is exiting FY22 ahead of FY21

- Paper volume processed increased 10% to 44k tonnes for the period, with recycled paper bale pricing continuing to be strong

- Strong productivity levels achieved with visits per driver per day sustaining at 10.5 to 11 per day compared with 8 per day pre COVID19

· Restore Technology continues to navigate the impact of post COVID19 global supply chains:

- Weaker than planned sales of refurbished assets due to slower IT asset rotation upstream, resulting from supply chain issues

- IT market projections (PC/Laptop and Server shipments) are forecast to return to growth in FY23

- Substantial opportunity for revenue and cost synergies from the existing business in FY23

- Recently appointed Operations Director driving major efficiency enhancements and realising scale benefits following a period of significant acquisition activity

· Restore Harrow Green continuing to expand capability:

- Strategic objective to increase specialist storage revenues on track through organic growth and acquisition expansion during the Period

- Life science category expansion is progressing well with major contracts in the pipeline for FY23

· Acquisition activity continued in H2 with two further acquisitions recently completed for £2.6 million offering complimentary additions to Restore's portfolio of businesses:

- £0.1 million bolt-on in October 2022 with 17k boxes consolidated into Records Management's existing facilities

- Acquisition of specialist storage provider, CAMA Workspace Ltd, for an enterprise value of £2.5 million in October 2022 which will be fully integrated into Harrow Green's existing business

- 5 acquisitions successfully completed across 3 business units in the period showing continued delivery and discipline in our acquisition strategy

Outlook

· Since the interim results announcement in July, business momentum has continued across the Group, with significant contract wins, activity expansion and selective acquisitions delivering increasing annualised revenue

· For FY22 Restore continues to expect strong growth in EBITDA despite inflationary pressures across the business and an impact of the lower than planned expansion of refurbished asset sales in Restore Technology resulting from IT market headwinds, which we expect to improve substantially in FY23

· Higher borrowing rates mean that interest expense for FY22 is now anticipated to be £5 million (2021: £2.5 million)

· Following acquisition and restoration of dividend, leverage anticipated to be comfortably within target range of 1.5 to 2x proforma EBITDA at end of FY22 (FY21: 1.8x)

· Looking forward to FY23, the Group continues to see substantial growth potential across its organic and acquisition strategies, with opportunities to improve margins further through pricing and cost synergies

· We anticipate that net boxes under management will continue to grow strongly within the guided range of 1% to 2% (FY21: 1.3%) for FY22 and FY23 as a result of reported new wins and organic growth from existing customers

· The Group anticipates that its pricing in FY23 will reflect the cost inflation that it has seen in FY22 and anticipates for FY23 with price negotiations fully recovering the cost increases incurred across people and other operating expenses

· In response to the inflationary environment the Group is targeting further cost reductions of at least £3 million in FY23 spread across supplier rationalisation, cost of sales and operating overheads. £1 million of these savings have already been actioned

· Interest expense for FY23 will increase despite an expected reduction in debt levels (before any further acquisitions)

· The acquisition pipeline for FY23 remains strong with acquisition price levels anticipated to reduce reflecting the macro-economic environment and increasing cost of capital. The Group remains disciplined and focussed on delivering strong returns

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