REG - Restore PLC - Trading Update

RestoreAnnouncement

04/07/2023 07:00

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RNS Number : 8879E  Restore PLC  04 July 2023

 

4 July
2023

 

Restore plc

 

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

 

Trading Update

 

Restore (AIM: RST), the UK's leading provider of digital and information
management and secure lifecycle services, provides the following trading and
business update.

The Group continues to deliver revenue growth in its core Records Management
business but notes the continued weakness in its Technology business, a
reduction in demand for certain service lines since the last update,
particularly in bulk digital scanning, and that the price of recycled shredded
paper has significantly fallen in the past month with this trend anticipated
to continue into H2.

As a result of these factors, whilst the Group continues to demonstrate its
cash generative characteristics, the Board anticipates that the adjusted
profit before tax will be lower than previously expected and will be £31
million for the full year.

Digital and Information Management Division

Records Management, which represents 70% of Group profits, is seeing expansion
in storage revenues and good cost control with the new contract wins for the
Department for Work and Pensions and BBC commencing successfully.

These positive effects are offsetting the anticipated year to year fall in
revenues in the Digital business due to the non-repeating large public sector
contract delivered in H1 2022 of £5.2 million. However, the Digital business
has additionally experienced a slow down in order conversion and demand for
bulk scanning services, reducing profit expectation from this business for the
year.

The other services (Cloud, Digital Mailrooms, BPO, Records Preservation) in
Digital, which represent over 40% of the business unit revenues and contain a
large proportion of longer term contracts, are trading in line with management
expectations.

Despite these headwinds, Records Management continues to make progress and in
Digital, win rates are consistent YoY and the overall size of the opportunity
pipeline is slightly larger versus the start of the year.

As a result, the division continues to take significant actions to reduce
costs whilst preserving the operational capabilities of the business to
respond when demand improves.

Secure Lifecycle Services Division

As previously reported, Restore Technology IT Recycling (ITAD) revenues are
declining year to year due to the contraction of IT hardware investment by
customers following their unique and significant increase in procurement in
2021 driven by the pandemic. Demand remains weak despite quoting activity
improving in June and we are now assuming volumes and resale values remain
consistent H2 vs H1 and therefore are lowering expectations from this business
for the year.

A number of strategic and tactical actions are in hand including the closure
of one processing site with a number of further actions planned to reduce
costs across the business, whilst ensuring capacity and skills are maintained
for future recovery in demand.

IT Relocation and Mid Life services growth continues and is in line with our
expectations for FY23 driven by data centre relocations and office moves.

Restore Datashred is delivering consistent volume of service visits YoY and we
expect this to continue into H2. Service visits contribute c.70% of the
revenues with the remaining c.30% from the sale of shredded/recycled paper.

Paper pricing has shown a sharp decline in recent weeks due to an over-supply
of paper (particularly from Europe) and weaker overall activity in the UK/EU
economies. Whilst profit is likely to be in line with expectation for H1, the
lower recycled paper pricing will impact H2 profitability significantly. The
overall impact is partly mitigated by continued strong cost control.

Restore Harrow Green is performing well and is expected to grow in FY23 with
committed larger projects already started and the overall activity driven by
significant customer organisational restructuring and office moves across the
UK. In addition, storage revenues are also expected to grow in FY23.

Financial

With the recent changes in the UK base rate and in anticipation of further
increases in Q3 and Q4, we have assumed higher interest cost for the year
notwithstanding lower net debt. Total interest cost, excluding the impact of
IFRS16, is now assumed to be c£9.6million for 2023 (2022: £5.9m, 2021:
£2.9m).

As a result of the weaker outlook for the business, an assessment of potential
non-cash impairment on intangible assets will be performed as part of the H1
close.

Cost Reductions

We continue to focus on structural cost savings in staff and supplier input
costs, and these programmes are delivering the targeted results.

With actions already taken and further planned steps in early Q3 we expect to
reduce permanent staff by 230. These roles are across senior managers, sales,
support functions and operations. The total savings in FY23 are £4.5m with H1
savings of £1.1m and H2 savings of £3.4m.

Outlook

The Board anticipates that the Group will deliver revenue growth for the year
underpinned by the core storage and long term contract income that are a
central feature of the Group's strength.

Cash generation remains good and net debt for H1 is in line with management
expectations.

Whilst the near-term economic outlook remains uncertain, the fundamentals of
the business remain strong, with the core long term contracted and storage
revenues underpinning the profitability of the business, strong cash
generation and the ability to implement inflation indexed price increases and
structural cost savings.

The Group's half year results will be announced on August 16(th) 2023.

For further information:

 Restore plc                                          www.restoreplc.com (http://www.restoreplc.com)
 Jamie Hopkins, Interim CEO                           +44 (0) 207 409 2420

 Sharon Baylay-Bell, Executive Chair

 Neil Ritchie, CFO

 Chris Fussell, Company Secretary

 Investec (Nominated Adviser and Joint Broker)        www.investec.com
 Carlton Nelson                                       +44 (0) 207 597 5970

 James Rudd

 Canaccord Genuity (Joint Broker, Corporate Advisor)  www.canaccordgenuity.com
 Max Hartley                                          +44 (0) 207 523 8000

 Chris Robinson

 Citi (Joint Broker)                                  www.citigroup.com
 Stuart Field                                         +44 (0) 207 986 4074

 Luke Spells

 Buchanan Communications (PR enquiries)               www.buchanan.uk.com (http://www.buchanan.uk.com)
 Charles Ryland                                       +44 (0) 207 466 5000

 Simon Compton

 Note:

This announcement includes inside information as defined in Article 7 of the
Market Abuse Regulation No. 596/2014 (which forms part of domestic UK law
pursuant to the European Union (Withdrawal) Act 2018) and is disclosed in
accordance with the Company's obligations under Article 17 of those
Regulations.

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