Connect Group pulls interim dividend as profits slide

Connect Group reported a 4.5% fall in continuing adjusted revenue in its first half on Wednesday, to £623.1m, while its operating profit slid 7.9% to £19.9m, as it worked to maintain its liquidity amid the coronavirus crisis and confirmed there would be no interim dividend.

The London-listed news and periodical distributor said that its profit before tax for the 26 weeks ended 29 February totalled £16.3m, down 12.4%, while basic earnings per share were off 11.5% at 5.4p.

It said its overall performance in the period was in line with its expectations, adding that on a year-on-year basis, it was impacted by one-off and non-core items.

Central function efficiencies delivered savings of £1.0m in the period, the board said, adding that free cash flow of £9.1m in the first half reduced its bank net debt to £68.0m.

Looking at the Smiths News division, Connect Group said it delivered sustainable efficiencies of £3.1m, “more than offsetting” the decline in its core sale.

Its ancillary business, DMD, was impacted by the loss of the BA contract from June 2019.

In its discontinued Tuffnells operation, the company completed the sale and Leaseback of eight properties prior to the strategic review, raking in net proceeds of £14.6m.

The Strategic review and subsequent disposal of Tuffnells was completed on 2 May, after the period ended.

Connect Group said its current ongoing operations were still profitable and cash generative, in light of the Covid-19 coronavirus pandemic, with Smiths News maintaining its “vital service” to retailers and their communities.

It noted that up to 10% of retail customer outlets had closed, primarily at high volume stores, with sales further impacted by lockdown restrictions, with newspapers proving more resilient than magazines.

The board said “substantial” mitigating actions had been taken, although that was insufficient to offset reduced sales and additional safety costs.

Operations of the DMD and InStore units were operating with skeleton staff and limited services, and more than 500 employees had been furloughed across group functions, Smiths News, DMD and InStore.

Connect Group said it was prioritising the maintenance of liquidity, with no interim dividend to be paid.

As it had previously said, the board was not able to quantify “with any certainty” the impact of the pandemic on full-year adjusted profit before tax.

It said its immediate priorities were the maintenance of ongoing service, mitigating the impact of the lockdown without damaging its long term capability.

The company said it would “carefully manage” the gradual return towards more normal trading patterns as restrictions eased, and was working to resize its support functions to deliver central savings following the sale of Tuffnells .

Connect said the renewal of its banking facilities at commercially acceptable terms would occur in the autumn, with the board adding that it would define a “transparent roadmap” to deliver shareholder value.

“The group has made good progress in the delivery of its core objectives in the period, continuing to drive efficiencies in Smiths News while completing the strategic review of the Tuffnells business and its subsequent disposal on 2 May,” said interim chief executive officer Jonathan Bunting.

“The removal of the drag on profitability and cash, and the alignment to our core expertise, will strengthen and focus the group going forward.

“The Covid-19 pandemic will clearly have a material impact on the group's performance in the second half of the year, the quantum of which remains unclear.”

Bunting said that although the company’s markets and business model were “well-placed” to recover as lockdown restrictions eased.

“In the current environment, we are applying that same focus to our vital role in supplying our retailers and their communities across the UK.

“Colleagues across the group have been steadfast in their commitment to these goals; their safety and wellbeing, together with that of our customers, remains our top priority at this time.”

At 1303 BST, shares in Connect Group were up 4.48% at 18.65p.