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14 Jul 2020 | 11:20

Connect Group markets begin to recover as it slashes costs further

(Sharecast News) - Newspaper and magazine distributor Connect Group reported some recovery in its end markets in an update on Tuesday, as it continued to make cost savings following the Covid-19 lockdown. The London-listed firm said core trading remained "resilient", despite the "considerable disruption" to the UK economy.

As it said in its interim financial results in May, during the first six weeks following the start of lockdown measures in the UK on 23 March, demand for newspapers and magazines was adversely impacted by 25%.

That, the board said, was the result of restrictions on movement and the temporary closure of about 10% of the retailers it supplied, including high street and travel outlets.

Since then, with the "consistent and gradual" reduction in Covid-19 restrictions and as consumer shopping behaviours adjusted, Connect said it had seen a marked increase in retail store outlets re-opening.

As a result, it said less than 5% of its customers' stores - primarily travel and leisure locations - remained closed, and thus, newspaper sales in the 15 week period to 4 July were now 12% lower than the equivalent period pre-lockdown.

Magazine sales had similarly recovered, albeit more gradually, due in part to the continuing closure until mid-June 2020 of the majority of Connect's largest magazine retailer's stores.

Magazine sales in the same 15 week period to 4 July were 18% lower than the equivalent period pre lockdown, with the board saying it expected continued improvement in magazine sales during July and August, as retailers re-stocked to current content and copy.

Sales at Smiths News for the period from 1 September to 4 July totalled £927m - down 8.4% year-on-year.

During the same period, Smiths News continued to reduce its operational costs, with planned cost savings expected to be more than £5m in the financial year, and further savings delivered in response to the fall in volumes during the lockdown.

Additionally, Connect said it had identified another £4m in annual savings from a structural reorganisation.

As it previously said, the company has a £175m committed bank facility, comprising a £50m term facility and a £125m revolving credit facility.

Despite the impact of the Covid-19 lockdown on trading, Connect said it had continued to operate "well within" the headroom under its current banking facilities.

The facility was due to expire on 31 January, with the board saying it expected to complete refinancing during the autumn.

Looking ahead, Connect said that during the lockdown it had continued to run a range of scenarios for full-year trading, and said that given the performance of the business and the improved performance following the easing of restrictions, it now expected full-year continuing adjusted EBITDA to fall between £35m and £37.5m.

Continuing adjusted profit before tax would be between £26m and £28m for the 2020 financial year.

Connect Group noted that guidance assumed no further material lockdown measures being introduced in the UK before its year-end on 29 August.

"In what has been unprecedented times for everyone, I am overwhelmed by the dedication and unstinting support of our colleagues which, together with the hard work of our supply chain partners, has ensured that we have continued to provide newspapers and magazines to every community, every day," said chief executive officer Jonathan Bunting.

"Our trading performance is a pleasingly resilient one, and we have also taken the right action to prepare the business for the year ahead."

Connect Group said it would present its full-year results to 29 August in November.

At 1046 BST, shares in Connect Group were up 3.19% at 18.11p.
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