WHSmith has issued a trading update on its travel and high street stores as a result of the rapidly evolving Covid-19 crisis.
In the update released yesterday (6 April), the UK company reported a significant decline in passenger numbers across its UK Travel business as a result of travel bans.
Consequently, all airport and railway stations are temporarily closed. At present, the company remains committed to serving communities in most need of its services, along with NHS staff from its 140 UK hospital stores.
Internationally, WHSmith is noticing broadly similar trends to the UK with all large airport stores closed.
In March 2020, total group revenue fell 25% year-on-year. Due to the high number of store closures, however, revenues across the group dropped around 85% year-on-year in the latest week of trading to 4 April 2020.
GROUP REVENUE COULD DROP £114M IN APRIL
On this basis, WHSmith expects Group revenue to decrease by around £114m ($141m) in April (a 90% drop year-on-year), with a reduction in operating profit of approximately £39m compared to 2019.
The company said: “It is clear that Covid-19 is having a very significant impact on our business. However, what is uncertain is the duration of the pandemic and as such the effect it may have on the Group’s financial performance.
“As a result, we are working on the basis of a pessimistic scenario which assumes that 95% of our store estate remains closed with gradual re-openings. We have the appropriate financial actions in place in terms of cost mitigation and cash preservation taking into account this scenario.
“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%. Longer term, the Board remains confident in the Group strategy and believes WHSmith is well positioned to benefit from the long-term growth in its key markets.”
In light of the current circumstances, WHSmith is taking mitigating actions to manage its cost base and cash flow.
These include, delaying all non-essential and non-contractual capital expenditure, reducing stock purchases to reflect ongoing demand, returning sale or return stock and negotiating extended payment terms.
Other measures include the 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.
The suspension of business rates in the UK, significant reduction in headcount across stores and head offices through furlough arrangements (staff being placed on temporary leave, but remaining on the payroll) and participation in the UK government Job Retention Scheme should also assist the Group during this traumatic period. This is not to mention the deferral of tax payments in line with UK government announcements.
Additionally, the Group is stopping all discretionary expenditure and reducing corporate overheads to a minimum. Due to the current circumstances, the Board will not make an interim dividend payment in the current financial year.
DISCUSSIONS CONTINUE WITH GOVERNMENTS
In the meantime, discussions are taking place with governments in other countries to access support under their local schemes.
Recently acquired businesses, Marshall Retail Group and InMotion have also acted fast to minimise trading costs, according to the company. Rents have been negotiated and most store and head office staff have been placed on temporary leave (furloughed).
Despite the aforementioned mitigating actions, the Board has opted to strengthen the balance sheet and liquidity position with additional financing.
The Group has secured a package of new bank financing arrangements which further strengthen the balance sheet. This includes a new £120m 12-month committed banking facility from BNP Paribas, HSBC Bank PLC and Santander UK PLC, which can be extended for seven months at the Group’s discretion.
Carl Cowling, Chief Executive, WH Smith 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 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 enormously proud of our colleagues across our hospital stores who continue to serve food and drinks to NHS staff.
“Similarly, across our high street stores that host post offices, our colleagues continue providing vital postal and banking services for their communities. The entire team has worked tirelessly to ensure we can adapt to the changing environment, always ensuring our colleagues’ health and wellbeing is our key priority. I am hugely grateful for everyone’s effort and ongoing support.”
He concluded: “We are a resilient business and with the new financing arrangements announced, together with our continued focus on managing cost, we are in a strong position to navigate through this time of uncertainty and well positioned to benefit from the normalisation and growth of our key markets.”