COVID-19 Overview

Our levels of activity in recent weeks have been high in many of our sectors, particularly Grocery, Consumer and General Haulage. We have recently experienced record levels of demand for our services from many of our leading customers and current indications are that good levels of demand will be maintained in those sectors during the period being impacted by COVID-19.

Pre-Close Trading Update

Ahead of the full year results for the year ending 31 March 2020, currently expected to be announced on 20 May 2020, the Board is pleased to confirm that underlying profit will be in line with market expectations and net debt at year end will be down to between£10m and £15m.  Revenue growth of over 4% for the year is slightly ahead of expectations and reflects new business and strong volumes throughout the second half in the Retail and Consumer sector.

The exceptional profit arising from a property gain in the first half, will be partially offset by costs in association with M&A activity, principally relating to the possible acquisition of Eddie Stobart Logistics plc.

COVID-19 Operational Measures

We have a vital role to play in keeping the UK supply chain moving, especially in food, drinks, other household items and fuel. To ensure we fulfil that role successfully, we have been working closely with both our customers and the Government to maintain operations and plan for the challenging period ahead. We are engaged with the Government on their contingency planning and we are providing our wholehearted support to assist with short term distribution needs wherever we possibly can.

Earlier this year, we established a central business continuity management team to coordinate our response across the business. This has resulted in the development of extensive plans with our customers to ensure operations can be maintained in the event of temporary labour shortfalls or site closures. We have also adopted working practices to minimise the risk of contagion across sites and our wider workforce. While infection presents the risk of higher than normal levels of absenteeism, we are attempting to minimise this through proactively managing collaboration across our diverse portfolio of customers, including the redeployment of both staff and fleet across sectors. For example, we have already deployed a number of staff and vehicles from our General Merchandise sector into the Grocery sector and are supplementing customer dedicated transport with our general haulage fleet.

Commercial Resilience

Our long-standing relationships with customers and the partnership approach we have fostered over the years is proving particularly helpful as we work through the impacts of COVID-19 measures together.

Overall some 64% of our contracts are open book with Retail being even higher at over 80%. This gives us a strong level of commercial protection against significant swings in Retail volumes.  Our closed book business includes our home delivery, construction and transport services businesses. While we have seen good volumes in these businesses during March, we are closely tracking volumes so that we are ready to redeploy or change resource levels in response to movements in demand levels. 

We have purposely built a level of flexibility into our cost base with the use of agencies and subcontractors as well as the use of short-term hire vehicles in our fleet.  Our warehouse properties are predominantly either customer-owned or customer-dedicated through back-to-back contracts and our three "shared user" properties operate with high levels of utilisation.

Most of our larger contracts have advanced billing provisions, thereby enabling close matching of receipts to payroll payments. We also make good use of both supplier financing arrangements offered by customers and our own Receivables Purchasing Facility to assist with early collections. These arrangements collectively enable us to minimise our working capital exposure and protect us against delays in customer payments.

Financial Resilience

Our balance sheet has been strengthened very considerably over recent years, particularly in terms of net debt reduction and pension deficit improvement. Our pension position moved into surplus at 30 September 2019 and the hedging arrangements that have been put in place in recent years are expected to provide good protection against the recent financial market movements.

In terms of finance facilities, we have a £141.2m Revolving Credit Facility (RCF) with a syndicate of five banks which matures in late 2023, an uncommitted accordion facility of a further £40m and a £7.5m overdraft facility. 

It is also worth noting the very substantial headroom we have in our banking covenants. Our leverage covenant of Adjusted Net Debt: EBITDA has a limit of 2.75 times compared with our expected outcome for the year of around 0.7 times. Our interest cover is currently over 15 times compared to the minimum permitted multiple of 3.5 times and our fixed charge cover is 3.4 times against a minimum allowed multiple of 1.4 times.

Despite this substantial headroom in terms of both level of facilities and covenants, we are taking additional steps to maximise our liquidity headroom to allow for any potential slowdown in trading and/or delays in receipts. These include close liaison with customers to ensure continuity of cash flows and making use of a number of the Government's recently announced measures, such as delaying the next quarterly VAT payment, which will give us a working capital benefit of some £30m.  We are also reviewing the Government's Job Retention Scheme and considering how this scheme may be able to help us and our people.

We are having productive discussions with our pension trustees regarding the timing of pension recovery payments and, as with many other companies during this period of extreme uncertainty, the Board is considering the payment of dividends against the current backdrop.  In addition, our management of the cost base is being tightened with the halting of discretionary operating and capital expenditure.

We have strong relationships with our banking group and we are in the early stages of discussing additional financing options that may be available should they be required.

Summary and Outlook

The announcement of our preliminary results is currently scheduled for 20 May 2020, but is subject to any guidance on alternative timing from the FCA and we will confirm the results date nearer the time.

On announcing the results, we will provide an update on COVID-19 implications to our ongoing business performance but will not give guidance for the full year ending 31 March 2021 until we have greater clarity later in the financial year. We are highly conscious of the need to manage cash carefully but expect to have sufficient balance sheet strength to see us through this period of extreme turbulence.

Logistics are crucial for most of our customers and for the country in general and in the medium term we remain confident in the ongoing demand for our services and positive about the growth prospects for our business.