Business Update

26 April 2016

Snoozebox Holdings plc

Business update

The Board of Snoozebox Holdings plc ("Snoozebox" or the "Group") (AIM: ZZZ) provides the following business update. The Board has begun a comprehensive review of the business with a view to putting the Group on a more sustainable financial footing. The review is nearing completion and the initial findings are set out below.

FY15 Trading update

The Board announced its expectation for the 2015 results on 5 November 2015 and now updates its guidance in respect of the 12 months to 31 December 2015. It currently expects to report an Adjusted EBITDA loss before non-recurring items for the year ended 31 December 2015 of approximately £5.5m and net debt at 31 December 2015 of approximately £5.4m (comprising £9m debt, £2.3m of cash and cash equivalents and £1.3m of restricted cash (see Note 1)), excluding the benefit of £4.5m net cash proceeds received in January 2016 from the placing announced by the Group on 11 December 2015. The audit for the year ended 31 December 2015 is on-going and accordingly these figures are currently unaudited.

Financial position

The Group's net debt at 31 March 2016 was approximately £1.9m (comprising £9m debt, £5.8m of cash and cash equivalents and £1.3m of restricted cash (see Note 1)).

The Group issued a circular on 11 December 2015 in connection with a placing to raise £5m gross proceeds, which completed successfully in January 2016. The circular noted that: "Notwithstanding the completion of the Placing, the Company may be required to seek alternative sources of fundraising, including a further equity fundraising, or explore other options, including the sale of the business, in the near term, and there can be no certainty that these alternatives would be concluded successfully." The Group re-iterates this statement and also notes that it now expects a decline in year-on-year revenues for the current financial year in the absence of securing new customers. 

The Group has recently initiated discussions with its primary lender (a provider of asset based finance and owner of the Group's first generation ("V1") room stock) seeking an amendment to its debt servicing obligations. The Board intends to provide a further update on these discussions in due course.

Semi-Permanent update

The Group has possession of and access to 578 V1 containerised rooms, all of which are owned by a third party provider of asset finance and leased by the Group (see Note 2), for deployment to generate Semi-Permanent revenues.

Semi-Permanent revenues for the first quarter of 2016 were broadly as planned, arising from existing contracts secured in prior years, primarily from the major Falklands contract announced to the market on 21 November 2014. The Falklands contract is currently expected to cease generating revenues in May 2016, although the precise date will depend on return of the V1 rooms to the UK by the customer. Following conclusion of this contract, the Group will have one lower margin Semi-Permanent contract for 80 rooms remaining with a customer in the UK, which is subject to renegotiation in the second half of 2016.

The Group recently secured conditional planning permission for a 240 room Semi-Permanent V1 hotel in Barrow and is currently working to assess the commercial case and timing for a hotel deployment. The up-front new capital expenditure required to complete and deploy this hotel is likely to give rise to a significant net cash outflow in respect of this project in 2016.

Lead times to secure new Semi-Permanent contracts for the Group's V1 stock in 2016 are proving to be longer than had been planned. New opportunities generated in 2015 and brought forward into 2016 have seen their planned completion dates delayed further into 2016, or beyond, with commercial discussions on-going, and there can be no certainty that these discussions will be successfully concluded. 

Semi-Permanent revenues are the primary driver of trading results for the Group and, due to the relatively weak pipeline, the Board now expects Semi-Permanent revenues to decline for the remainder of 2016 unless new customers are secured with sufficient remaining time in the year for deployment and commencement of revenue streams, which would have a materially adverse impact on the Group's trading and cash balances.

Events update

The Group owns 18 second generation ("V2") containerised rooms on trailers and 200 Snoozy rooms from which to generate Events revenues. In addition, spare capacity from the V1 room stock, as outlined above, is available to satisfy Events demand.

The Group expects to deploy room stock at five UK Events in 2016, with a small number of additional Events under consideration. The Board does not expect the Events business to make a significant contribution to central overheads in 2016, due to the historically low margin achieved, even if the total number of Events were to be increased.

Overheads and debt servicing

The central overhead cost base has been significantly reduced following action taken during the 2015 financial year and into Q1 2016. The Group also has debt service obligations of approximately £2m (of cash outflows) per annum, comprising capital repayments and interest.

Board change

Yesterday, the Board announced that Lorcán Ó Murchú had resigned with immediate effect. Chris Errington, Non-Executive Chairman, has taken up the role of Executive Chairman on a part-time basis. The Board is in the process of introducing an interim general manager to assist it with execution of strategy and day to day operations of the Group. A key focus will be on securing new customers for the V1 stock of rooms.

Outlook

Trading in the new financial year to 31 March 2016 has been broadly in line with the Board's expectations. The Board has taken a more cautious view about the trading for the balance of 2016.

The Board is mindful of the need to improve the profitability of the Group to a level which is sustainable over the medium term. Therefore the Board has commenced a review of strategic options and reached an initial conclusion that the primary focus for 2016 and beyond is to secure long-term deployment of V1 stock on Semi-Permanent contracts where an appropriate commercial return can be achieved, allowing the Group to cover overheads and service its debt obligations.

The Board believes that the Group has sufficient working capital in the short term to complete its review of the business and commence the execution of a revised strategy focussed on securing new customers for the Semi-Permanent room stock. There can be no certainty that plans to secure new customers on suitable commercial terms will be successful nor that negotiations with the Group's primary lender will be successful and, as a result, the Group may be unable to continue as a going concern.

The Board will provide further updates in due course.

Notes

Note 1: As a condition of the leasing arrangement described in Note 2 below, the Group is required to maintain a cash balance in a Debt Service Reserve bank account held in the name of Snoozebox Limited with a charge in favour of the third party provider of asset finance. The cash balance on this account is currently £1.3m (31 December 2015 £1.3m).

Note 2: On 2 September 2014, the Group entered into a sale and leaseback arrangement whereby it sold its V1 portable hotel rooms to third party provider of asset finance and leased them back for a primary term of 7.5 years. The assets under lease included 578 rooms in the amount of £10m, which was drawn down in full on 24 October 2014.

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