The firm noted that the virus ‘had an impact on trading towards the end of March 2020, with some business areas operating at reduced activity levels’, but that cash collections last month were still strong.
It added that while demand for certain products and services had reduced, ‘many projects are continuing, new opportunities are emerging and others accelerating as economic conditions permit. As a result, the Group has to date retained a substantial proportion of its revenues entering its new financial year.’
QUICK COST CUTS
In order to trim spending – and protect its employees – many of the firm’s smaller depots have been closed and roughly half the workforce has been furloughed under the UK and Irish job protection and wage subsidy schemes.
The firm’s larger stores are open for customers providing essential services but all orders have to be submitted by phone or via the firm’s web platform, which has coped well with the uplift in traffic.
All hiring has been frozen and the board and senior management team have taken a 20% cut to their salaries for the next three months to help save cash outflows.
The firm’s hire fleet is relatively new thanks to previous investment programmes so capital spending can be ‘significantly’ reduced this year with no impact on rental revenues.
As yet there is no decision on the final dividend due in August but in order to give it more headroom we doubt the market would object if the board decided to pass this time round.
Speedy has net debt of £80m, well below its maximum existing loan facility of £180m, and based on various revenue downside scenarios and its cost-saving measures it is confident it can operate within its debt facility and its covenants during ‘a prolonged period of reduced trading activity.’
Analysts at Liberum have cut their forecast for current year revenues by 10% and pre-tax profit by a whopping 72% on the expectation that operating margins virtually halve to 3.3%.
However, they remain bullish on Speedy’s ability to bounce back once the lockdown ends. ‘We think the market underestimates Speedy’s strong financial position. It has taken significant actions to lower costs and to mitigate cash, mainly but not exclusively, by furloughing around half of UK employees, even as a substantial part of revenues are retained.
‘In spite of a weak short-term outlook, we expect net debt to fall in 2021 as capital spending is flexed. Speedy’s strong balance sheet will ensure it gets through the lockdown period and is then in a very strong position to deliver market share growth and take advantage of opportunities that may arise,’ they add.