Hayley: Ladies and gentlemen, thank you for standing by. Welcome to the SSP.

2021, Interim
results call. My name is Hayley and I will be the operator for your call this morning. [Operator
instruction] And I will now hand you over to fireman Smith group CEO. Please go ahead.

Chairman and CEO Simon Smith: Thank you very much. So good morning, everyone. And
thank you for joining us again, virtually for our interim results on the call today we have
Jonathan Davis, our group CFO and Sarah john are Director of Corporate affairs. So just to take
you through the agenda, I will give you a short overview of the first six months. Jonathan will
then take you through the financials, I will then review the business and our plans for recovery.
And as always, we will finish with the q&a and they'll be plenty of time for questions. So
COVID-19 continues to have a significant impact on our business. But despite this SSP has
delivered a resilient performance in a challenging market. And I'm really proud of what the
teams have achieved both operationally and financially delivering a valuable service to the
travelling public as well as supporting local communities. So I want to again personally thank all
of our colleagues for their incredible efforts. So turning to our performance, whilst the rollout of
vaccines in parts of the world has been successful, and resulted in the start of domestic travel. As
we all know, there are still some countries that continue to be really challenged by the pandemic.
In the first half, our revenue was 257 million down almost 80% compared to pre COVID levels.
Now extensive action to reduce and variable eyes the cost base as well as local government
support, and they would ask to contain the drop through on the last sales to 22% ahead of the
previously indicated range of 25 to 30%. And minimising a bit dire losses together with the tight
control of cash kept our underlying cash usage to 130 million, or an average of 22 million cash
burn per month ahead again at the previously indicated range of 25 to 30 million. Following the
action to strengthen the balance sheet, our pro forma liquidity was 854 million and under the
base case scenario shared as part of the rights issue. This will give us significant financial
capability to invest in the recovery. Now whilst the pace of the recovery varies around the world
and does remain volatile, we are now seeing encouraging signs, particularly in the UK and
America led by domestic travel. We are reopening units in these regions and driving profitable
sales having reopened around 250 units since March, we now have about 40% of the estate
operating again, and we are ready to accelerate reopenings in our other divisions, as demand
recovers, and we expect the travel will largely recover by 2024. And it is this recovery combined
with our market position, strong operational model and balance sheet capacity that will enable us
to deliver long term sustainable growth and create significant value for our shareholders. And
with that, I will hand you over to Jonathan to take you through the financials.
Chief financial officer Jonathan: Thank you, Simon, and good morning. Clearly, first off
results were heavily impacted by COVID-19. But we're in line with the trading update and
guidance that we gave in March with the announcement of our rights issue. overall sales were
257 million in the first half down by 79%. year on year. We saw an underlying EBIT da loss of
110 million on a pre IFRS 16 basis and an operating loss of 161 million. net debt increased to
840 million, reflecting the continued cash burn over the last six months. But of course this was
prior to the recent rights issue. under IFRS 16, we saw an underlying operating loss of 227
million and net debt of just over 2 billion reflecting the additional lease liabilities for the
minimum guaranteed rent. Now over the next few slides, I'm going to run through the reported
numbers and explain the impact of IFRS 16. And then once I've dealt with the accounting
Ophiucus on the pre IFRS 16 results. Firstly, concession fees are much lower at 28 million
compared with the 85 million pre IFRS 16. This is because under IFRS 16. The concession fees
represent only the variable element of the rent above the minimum guarantee. As we saw In the
full year results, the reported numbers reflect the temporary amendments to IFRS 16, such that
any minimum guarantee waivers flew directly through the p&l, rather than being accounted for
as lease modifications where the impact would be spread over the life of the lease. However,
under the current ASB rules, these minimum guarantee waivers must be reported as an
exceptional item. And so the underlying IFRS 16 concession fees don't include the benefit of any
of the short term rent waivers we've secured amounting to around 53 million. The second major
impact is on the depreciation charge, which has increased to 184 million, compared with 50
million reflecting the depreciation of the capitalised the name of guarantees. In summary, if we
included the adjustment for the minimum guarantee waivers, the underlying operating loss would
be fairly similar under both proper under both accounting policies. Now looking further down
the p&l pre IFRS 16, we saw an underlying net loss of 161 million or 30 pence a share of this
compared with the reported net loss of 222 million. The reported financing costs were 35 million
compared to 21 million pre IFRS 16. Due to the unwind of the discount applied to the
capitalization of the minimum guarantees. Pre IFRS 16, the tax credit was 70 million, and the
non controlling interest share of the losses were 4 million. A brief word about the exceptional
items. The non recurring items added a further 39 million to the reported loss before tax,
reflecting impairments, restructuring costs and debt modifications was offset by the temporary
minimum guarantee waivers of 53 million that I've just referred to. We've made a number of
further impairments to fixed assets and right of use assets amounting to 27 million, as well as
further goodwill impairments of 3 million, all of which reflected the slower recovery in the travel
sector that we're now assuming, compared to our expectations last year. The restructuring costs
of 10 million were mainly redundancy costs, and we've also expensed the bank fees for the
amended extend on our main facilities, which we know negotiated alongside the rights issue. The
exceptional financing costs principally reflect the treatment of the debt modifications under IFRS
nine as a result of the revised arrangements with our lenders, and the higher interest costs that we
will pay during the waiver period. Now leaving the accounting and turning to the underlying
performance of the business, firstly, a look at sales.
During the second quarter sales remained at very low levels down 78% year on year and around
81% down compared to pre COVID levels, as you'd expect to give them the reinstatement of
lockdowns at the turn of the year across many of our markets, and the even tighter restrictions
imposed in many European countries during the early parts of 2021. With the gradual easing of
lockdown restrictions in recent weeks, like for like sales are currently running at around 70%
down versus pre COVID levels. And we expect quarter three light for light to be down by around
75%. Now looking at our regional performance. Sales in all regions have remained very
consistently at low levels during the second quarter, with the UK performance, the weaker
weakest at around 10% of pre COVID sales, reflecting the extreme lockdown measures, whereas
in continental Europe sales have remained slightly more robust despite the lockdown largely due
to the rail sector as passengers have continued to travel in countries such as France and
Germany. Over the last three months, that has been a real recovery in North America now as
over 50% of 2019 sales driven by strengthening domestic and leisure passengers and also in the
UK, now at around 25% of 2019 sales driven by the gradual recovery of the rail sector. However,
you can see that in the rest of the world the further restrictions in recent weeks in India and to a
lesser degree in Thailand have reversed some of the earlier improvements in the region. Now
Simon will talk about the regional trends in more detail later.
So turning to profit despite the lower level of sales was down around 1 billion versus pre COVID
levels. The impact on profit continues to be mitigated by the extent of the actions that we've
taken to reduce operating costs. And the extension of furlough and other government support
measures, as well as our further success in negotiating rent reductions, principally minimum
guarantee waivers. So as a result, we managed to limit the profit conversion on the reduced sales
to around 22%, which was better than the 25% that we had indicated in December. And in line
with the update, we provided in the right tissue for the four months to January, that's left the
operating loss for the first half 161 million. And we would expect profit conversions to remain in
the region of 25% on the last sales versus pre COVID levels in the second half. Now, looking at
the p&l for the first half, you can see the operating cost reductions that we've made in response
to COVID, taking out over 480 million from labour, concession fees, and overheads. We've
achieved this by opening outlets very selectively, trying to match the number of units as closely
as possible to the passenger numbers in order to make the cost base as flexible as possible. Of
course, we can do this because the vast majority of our operations are in multi unit locations. So
looking down the p&l, you can see we've reduced overall labour costs by 62%. benefiting as I
said from keeping units close where passenger numbers remain low, and of course continued
access to government furlough schemes. We've managed to reduce rents by around 66%, mainly
through continuing to agree minimum guarantee waivers with our clients. And we've also been
able to reduce the rest of the cost base dramatically taking out well over 50% from our overhead
costs, again, helped by reduced unit numbers. Gross Profit Margin was up one and a half percent
year on year to 72.2%. Reflecting mainly changes in channel mix, but also all of the work that
we've done to simplify and optimise our ranges during the COVID period.
Now turning to cash flow, we continue to manage cash very tightly, using around 130 million of
cash over the half. That is around 22 million a month. So below the cash burn guidance we've
given previously of 25 to 30 million. This was driven by the EBIT da losses being slightly lower
at around 80 million a month, and a good working capital performance. And in fact, you can see
from the chart that we saw a working capital inflow in the half of 22 million, despite the sales
remaining at very low levels, reflecting the further successes in things like rent deferrals and
accessing government support. As we've said, previously, we've been very disciplined with our
capital investment programme, limiting capex to around 25 million over the first half. So moving
on to net debt. net debt at the end of March was 840 million, as I've said, reflecting the
underlying cash usage of older than 30 million and exceptional costs of around 11 million.
Importantly, including the net proceeds from the rights issue, pro forma net debt would be
around 389 million. So in terms of liquidity following the rights issue in April, we have pro
forma liquidity of over 850 million, with cash on the balance sheet of nearly 700 million and
further undrawn committed facilities of albumin 63 million. This includes the Bank of England,
CCF of 300 million, which has now been fully drawn down. And we'll be repaid in February 22.
However, excluding this, we still have over 550 million of available liquidity. And even at the
very low levels of sales we've seen in the third quarter, so down around 70 to 80% versus pre
COVID levels, we will anticipate our cash burn to be in the region of 20 to 25 million a month.
Now, as you saw the rights issue recently, we've agreed further covenant waivers and extensions
with all of our lenders through to early 2024. So in summary, as a result of the actions we've
taken to raise additional liquidity and the action we seek to manage our cash flow, we're really in
a very strong place. issue to trade through a slow recovery scenario. But having said that, we're
primed to reopen rapidly over the coming months. And of course, to accelerate our investment
programme in due course. And finally, I just like to recap on our medium term expectations. So
as we indicated in march along with the rights issue, we expect the travel sector to recover in the
medium term, with our like for like sales returning to broadly pre COVID levels by 2024. Under
our base case scenario. On top of this, the current secured pipeline, along with the four year
impact of units that were pre COVID, should deliver a further 10 to 15% of net contract gains
over this period. And by then, we would expect our EBIT da margin to be back at the similar
level.
[Operator instruction] And your first question today is from the loan of Jamie Rolo of mF,
please go ahead.
Jamie Rolo of mF: Thank you. Morning, everyone. Three questions in the morning. The first
one just want to compare the percentage of units that are currently open. And you're sort of
summer guidance against the sales trajectory. It looks like 1200 to 1500 units possibly open over
the summer, sort of 40 to 50% of the units. And I'm just trying to work out what that might imply
for where you think sales might go clear, you're trying to focus sales in fewer units. But for
example, in North America, your sales are running above the proportion of units open. And it's
the opposite to the other region. So I'm not really into that. But it'd be quite helpful to talk a bit
about the bit about that out directly. Secondly, on the flow through margin, that's quite
conservative a 25%. against what you've delivered what why might it not be as good as it was in
the first half other any other factors we should be thinking about? And then finally, just on North
America, where do you see the numbers look pretty good. In recent weeks, is it fair to say that
the US at least if not North America is now is now breakeven? Thank you.
Simon Smith: Okay, so I'll pick up the first and third question. And Jonathan will pick up slow
through margin The second question. So Jamie writes, our plan as things are at the moment is to
open somewhere between 12 115 100 units, so around 40 to 50% of the estate, the reality is, it is
difficult to give a forecast for q4. As you can know, the global situation remains very fluid. What
I can tell you is we have absolutely seen the start of recovery and domestic travel. And as you've
mentioned, USA is seeing the strongest recovery followed by UK, particularly due to the success
of the vaccination programme and the gradual easing of restrictions. There isn't much to talk
about between the different units and the sales performance. Most of that is really around timing
and the rollout of units, Jamie so you know, the fact that we've got a few more sales coming
through North America than we have in some of the other regions compared to their units is just
more about the timing of recovery. And when we're getting units open, we have a very
systematic approach to what we open when, and to make sure obviously, that it's breaking even
and that we're generating profitable sales. So I'd love to be able to give a stronger forecast to q4.
But at this point in time, I think, you know, given the fluidity of the situation, our job is just to
really focus on every single location, make sure that we can open those units really quickly, as
demand recovers. And as I said earlier, you know, with over 10,000 people ready to be
redeployed, we can respond really, really quickly in all of our regions. Jonathan, do you want to
pick up close requests
Jonathan: slowly, Jamie? So with regard to the profit conversion on the last sales, I wouldn't
read too much into what we see here. We're really maintaining the guidance that we've given
both in March and in December. With recent announcements. Clearly, there is still uncertainty
and there are a number of moving parts in there. So as we've said a number of times over the last
12 months or so. There is an unknown around for example, our ability to get ongoing waivers of
minimum guarantees with clients. There is a certain unknown About the further extension of
furlough across many of the countries we operate in. So I think we just need to be a tiny bit
cautious. conscious of that. Having said that, as you've seen, we've continued to negotiate
minimum guarantee waivers as to very similar level throughout the COVID period thus far. And
indeed, as sales have remained low furlough arrangements and other forms of support for various
governments have been extended. So, you know, we, we would really assume that to be the case,
but I think we're just taking a slightly cautionary position in the knowledge that there are certain
aspects of governments have bought, for example, here at home in the UK business rate relief
will fall away in the, you know, the latter part of this year, but I wouldn't read too much into that,
essentially, we're maintaining historical guidance.
Simon Smith: Thank you, Jonathan. So in the last question was around is America at breakeven.
So as we previously discussed, we would expect that when sales are north of about 50% of 2019
sales level and an EBIT da level, we will breakeven, now, with the United States being better
than that, I think you can read across that as an EBIT da level, we are more than revenue. Great,
thank you very much It's actually
[Operator Instruction] The next question is from Malone, or James rolling Clark of Barclays.
Please go ahead.

James rolling Clark of Barclays: Good morning, everyone. Thanks for taking my questions.
I've got three, just on the new tender opportunities, Please, could you elaborate a little bit about
the competitive environment there, and the kind of terms you're seeing on any bidding, bidding
processes that you're currently involved in? How that differs by region? And then secondly, on
the rent, could you give an idea of what proportion of the estate you've managed to link,
minimum guarantee to passenger numbers, and the proportion of contracts you'd expect to
extend during the discussions. And then And then finally, on the sort of unit model, going
forward during the recovery, and on the recovered sales base, can you just talk a little bit about
the the sort of shape of the units in terms of pricing the shape of menus, staff per site, and the
level of automation, that's just in reference to I think your earlier comment about kiosks
potentially offering 5% upside to transaction value?
Simon Smith: Thank you. Sure. So I'll do one three, again, and Josie will take up to so terms of
business development worth remembering that the absolute primary focus of the business
development teams is make sure that they continue to renegotiate the rents, particularly
minimum guarantees, make sure that we continue to extend business because as we all know,
renewals are profitable. And then on top of that, agree a opening programme for a very large
pipeline of units based on all the things you'd expect Jamie so you know, sort of passenger
numbers location and offer. Once they've done that, then we're into kind of in parallel, whereas
there's a new opportunities arise. I think, as we've said before, we expected and indeed are seeing
that in much of the sort of, sort of develop mature markets that we have. So for example, across
Europe, while there is a little bit of development activity, because of all the financial support that
the companies are getting. So by that I'm talking about things like furlough, we didn't expect to
see much change to the competitive competitive landscape this year. However, if you go more
further afield, to the rest of world where there is less support financially for companies, we are
seeing the shakeout of what we'd call the smaller competitors. So we've previously taught in
countries like India, where the sort of smaller private competitors have fallen by the wayside, it
doesn't mean that the larger portfolio players that we compete against have fallen away at all,
you know, they're still like us a very rational, but the sort of the tale of less rational competitors
definitely haven't reopened their units. And as a consequence, some does now where typically,
excuse me, you might see eight or nine people tend to now sort of three or four. A good example
of that, actually, was one of the examples that I touched on the presentation, which was the units
that we've won a Gold Coast Airport in Australia. So really interesting, the business came up for
tender. We were successful in bidding, they're not actually on the financials which were fine but
actually on our offer, and also on our reputation, the client actually referenced Perth airport,
where we trade and and the Perth airport gave us a glowing sort of commendation based on how
we have behaved through the crisis. So keeping our units open, supporting local communities.
And that played quite an important part in winning the business and Gold Coast. So I think for
me, there's a combination of things going on. First and foremost, the business development team
have to focus on the priorities of outlined. But when new business comes up, that is a bit less
competitive. We're seeing, but also the way we have behaved over the last year, and as I've just
described, I think gives us a competitive advantage. And we obviously intend to optimise that.
Jonathan, do you want to pick up on rent?
Jonathan: Yeah, sure. So with regard to the first point about the percentage of deals whereby
we've converted to a mag per passenger, first point I'd make is that we have continued to see, just
over two thirds of our contracts with the minimum guarantees waived. So we are only paying the
concession fee. And that's been a very consistent pattern throughout the pandemic. We haven't
disclosed the degree to which those are explicitly renegotiated to be a Magpul tax over the
lifetime of the contract, partly because we have quite a bunch of different models out there, to be
honest. So, you know, we have got some long term contracts where that has been the case. And
that, therefore gives us protection over the life of the contract. Equally, in many cases, we might
have got that contract in place just for a year or two, or in some cases, it will be an explicit
agreement that until passengers get back to a certain proportion of pre COVID levels, we will be
concession fee, so difficult to precisely articulate the mix there. But I think the key message is,
we continue to get at least two thirds of the minimum guarantees waived. And clearly, as we see
sales recover, that will become less and less important, or it may be slightly more challenging to
negotiate new terms. Again, with regard to the proportion that we have got extensions, difficult
to call, because it's quite a complex picture. I mean, the reality here is, I think Simon just alluded
to this, it's early days, and we've got a mixture of longer term and shorter term extension, some
of them with preferential terms, clearly stating what's probably clear to you the, for the clients, in
many cases, going to a full blown tender isn't particularly in their interests at this point, in the
cycle of therefore they are prepared to give us shorter or shorter or medium term extensions, you
know, anticipating a tender in the future, often with preferential terms, quite frankly, because
there's no real competitive tension for them to exploit, but difficult to put precise dimensions
around that at this stage. Hopefully, that gives you a flavour of what's going on.
Simon Smith: So just fine in terms of unit model. So as you know, we've got around 2800 units,
and we've effectively was only got 40% of them open at the moment, we've effectively rebuilt
each individual unit and operating model. And by that I mean, smaller menus more efficient,
more efficient back office, as well as more efficient and customer friendly front of house. So
digital solutions being the obvious one, as we reopen that that obviously allows us to break even
on a lower level of sales. As we look forward, I think that's going to be really, really important
because obviously, where we are, we are suggesting that we'll get back to sort of pre COVID
margin in the medium term. And in order to say that what we are balancing is all of those
initiatives across all of those units, where typically our menu sizes at the moment are about half
that that you'd normally see. We're balancing that with a very aggressive opening programme
and new business which as you know, has a drag on the margin in the year who take the over the
new store opening costs into the year, as well as some cost inflation, which we always see and
we expect and is built into our plan. So for me, and for the team, all of that work on menu
operations and customer solutions is the is the balances to make sure we've got a lot of
momentum to then as you always know, focus on long term compounding growth by opening 10
Is 15% of new business over the next couple of years? Good. That helps. Thanks, James.
Simon Smith: Thank you.
Operator Instructions: The next question is Malone, Leo Carrington of crepes with, please go
ahead. Good morning.
Simon Smith: Morning.
Malone: Just two questions from me, please. Firstly, in the Spanish press, there's been some
recent coverage of a dispute with aiyana. To the extent that this affects you, and the extent to
which you you can say, Here's, outline the details of this, what the likely resolution will be in, in
your view, and just how this particular scenario compares to that with other other landlords,
clearly, you mentioned two thirds of have given waivers. So potentially, there isn't that much,
really, Crossfire, I'd love to hear your, your view on that. And then secondly, in the, you know,
references for pipeline and business development activity
Simon Smith: Yeah
Malone: Of the 10 to 15%. net gains, you've, you've indicated, you expect, how much should
these have been achieved so far? I suppose through 2020. And, and, and this year, and how and
how much is is is sort of still to is still in the in the pipeline, if you like?
Simon Smith: Yeah. Okay. So I'll do the first one drove them to the second, the first will be
quite a quick answer. So obviously, with, with, with the what you're what you're leading to is the
various bits of press around court cases recently, with our largest clients in Spain. We obviously
can't comment on that for legal and business confidential reasons. What I would say is that we
have taken a prudent view in our business in terms of the accounting. I can't give you any more
comments at this stage in terms of the actual discussions going on. Okay, that's it.