SATS ASA – Update on the temporary closure of clubs
Reference is made to the stock exchange announcements “SATS has decided to temporarily close all clubs” on 12 March 2020 and “SATS ASA – Notice of Extraordinary General Meeting – New Investment Programme” on 25 February 2020 from SATS ASA (“the Company”).
This statement includes estimates which are based on current expectations and projections about future events. All such estimates are subject to a high degree of uncertainty and risk.
SATS decided on the morning of March 12 to temporarily close down all clubs in the Nordics to take social responsibility and contribute to limit the contagion of COVID-19. The Norwegian government imposed a lock-down of all gyms later the same day. SATS calls for clear guidelines from the authorities in the other Nordic countries, in particular in Sweden and Finland where most competitors still are open.
With the assumption of a 14-days closure in all the Nordic countries, the Company estimates the negative effect on Adjusted EBITDA before impact of IFRS 16 to be approximately NOK 150 million in March. The revenue effect is estimated to approximately NOK 190 million, mainly due to existing memberships being on hold during the closure, but partly also explained by an estimated negative effect from reduced membership sales and drop-off. The effect on operating costs, including cost of goods sold, is estimated to approximately NOK 40 million, representing approximately 20% of the operational costs in the period.
The cost reduction is limited in the short term, due to binding contracts. The Company is working on temporary lay-offs in Norway, but the total salary effect is limited both in the short and medium term due to the country labour regulations in Sweden, Finland and Denmark. The estimates take into account the supporting initiatives related to the COVID-19 from the Norwegian government, and the Company expects action from the remaining Nordic governments to remedy the negative financial effects of this challenging situation. The Company is continuously working to find ways to reduce costs during the closure. In a scenario where the closure is extended beyond 14 days, the Company expects to be able to reduce a larger proportion of the operating costs, including easing from landlords.
SATS is working on a range of measures to allow our members to get back to work out in our clubs in a proper and safe manner as quickly as possible, especially in Sweden, Finland and Denmark where the closure is voluntary and not imposed by the authorities. Until the clubs can reopen, the Company will share the Online Training product with both members and non-members, offering daily training programs and 80+ classes for everyone. SATS will also arrange daily live classes via the Online Training platform during this extraordinary period.
SATS’ Board of Directors has, in consultation with the Company’s nomination committee, today resolved to cancel the extraordinary general meeting scheduled to be held on 18 March 2020 due to the coronavirus COVID-19 pandemic. The SATS’ board of directors will consider to reintroduce the investment program at a later stage when the market conditions have stabilized.
The Company has financial flexibility through a revolving credit facility with a maximum principal amount of NOK 2 500 million, of which NOK 1 300 million was drawn by end-Q4 2019. The draw-down might be increased going forward. This is, in combination with a negative EBITDA effect, expected to result in a temporary significant deviation from the leverage target of 2.0x Adjusted EBITDA. Due to the extraordinary situation, the Board of Directors will not propose to distribute the guided dividend of NOK 250 million to the shareholders in 2020. The Board will reassess the capacity for a dividend once the situation has stabilized.
Cecilie Elde, Chief Financial Officer, phone: +47 924 14 195
Stine Klund, Finance and Investor Relations Manager, phone: +47 986 99 259
Malin Selander, Head of Communication & PR, phone: +46 70 426 40 06