Coronavirus - What do we want?
16 April 2020
Protesters in the US state of Michigan have demanded that businesses reopen to allow them to work. The governor recently extended the state’s lockdown. Meanwhile, workers in Mexico are protesting to shut factories that remain open as it is risking their health. Clearly there is heightened concern for workers across a number of ‘essential industries’, where they are more at risk of catching the virus. However, this has to be balanced against the need to ensure the continued production of key products (eg food), and for economic activity to resume. Public opinion will be a key driver in balancing the outcome.
Cases – 84,515
Deaths – 7,959
Cases – 2,081,402
Deaths – 134,608
• US – 5.25m new jobless claims.
• UK government approves first new ventilator.
• The EC has apologised to Italy for its initial response.
• The G20 has agreed to suspend some countries debt repayments.
• Protests in Michigan over extended lockdown.
Buildings & Construction
• Barratt Developments#– “All locations were closed safely and securely by 27 March 2020. To help our customers, some home completions were delivered after closure using an updated process in line with Public Health England guidance on social distancing to protect both our employees and customers.
Trading update and financial guidance – Between 23 March 2020 and 12 April 2020, the Group delivered 1,349 home completions (including JVs). The Group has therefore completed 11,713 homes (2019: 10,954 homes) in the period to 12 April 2020 (including JVs). Our total forward sales are 12,376 homes at a value of £2,891.9m (including JVs). Whilst our sales centres and construction sites remain closed, we expect any further home completions and reservations to be very limited.
The Board announced on 25 March 2020 that it had suspended all forward guidance until such time that the overall impact of Covid-19 on the Group becomes clearer. Given the ongoing uncertainty, particularly in the duration of the closure of our sales centres and construction sites, we reiterate that all existing financial guidance is suspended.
Further mitigating actions – As reported on 25 March 2020, the Board acted rapidly in response to Covid-19, taking a number of immediate measures to manage the Group's cost base and cash flows to ensure resilience. These actions have included:
• Suspending all land buying activity.
• Ceasing all recruitment activity.
• Postponing all non‐essential capital expenditure.
• Actively managing cash flows whilst ensuring that we are paying our suppliers and sub‐contractors on time.
• Cancelling the interim dividend of 9.8 pence per share (c. £100m), which was due to be paid on 11 May 2020.
In addition to the actions previously announced, we are in the process of furloughing around 85% of our employees. We will pay furloughed employees their normal pay while they are furloughed until at least the end of May 2020.
To reflect the ongoing focus on preserving cash within the business, as agreed with the Remuneration Committee, all Executive Directors, the wider Executive and Regional Managing Director team, the Chairman and the Non-Executive Directors have agreed to a voluntary 20% reduction in base salary and fees, effective from April 2020, until such time as the Group is able to restart work on site. In addition, they have also agreed to waive any salary or fee increase for FY21.
More generally, we will continue to assess further cost‐saving opportunities available to us as the situation develops, whilst balancing the long‐term requirements of our business.
Funding and liquidity – The Group continues to be financially strong, with a well-capitalised balance sheet and a robust cash and liquidity position. As at 14 April 2020 the Group had c. £450m of cash. The Group has total committed facilities and private placement notes of £900m, comprising a £700m undrawn revolving credit facility3 and fully drawn £200m US private placement notes4. The Group continues to explore other Government funding initiatives and will provide updates where appropriate.”
• Walker Greenbank – “As announced on 25 March 2020, the Board and executive management team have moved swiftly to protect the business and its employees in light of Covid-19, including the temporary closure of the Company's factories in the UK and of its showrooms in the UK, New York and Paris. Measures have been taken to preserve cash including suspension of the final dividend and of capital expenditure plus very tight controls over operating costs. Wherever possible, the Company is accessing government support mechanisms both in the UK and overseas.
The Company is continuing to serve its customers in all key territories from its warehouses in the UK and the US, whilst rigorously observing social distancing controls, hygiene measures and safety protocols.
Almost all other trading activities have been reduced significantly, such that the vast majority of the Company's employees are now furloughed under the Government's Coronavirus Job Retention Scheme and similar grant-based programmes overseas. Those furloughed, the Board, management team and others working from home, have accepted a temporary salary reduction of 20%, further reducing the Company's cash burn, pending government guidance on when businesses can safely resume some or all of their operations. Licensing income continues to be received by the Company, though at a reduced level reflecting the ability of licensees to sell their products.
As outlined in the Company's announcement on 25 March 2020, the Company has headroom in its existing £12.5 million revolving credit facility. Significant progress has since been made with the Company's lenders in obtaining a temporary overdraft facility of £2.5 million, the terms of which have been agreed, for use if the Company needs further funding. In addition, the Company has an uncommitted accordion facility of £5.0 million as part of its revolving credit facility.”
• Ashmore Group – “The firm has comprehensive plans in place to manage the business by ensuring business continuity and fulfilling obligations to clients, counterparties and stakeholders. The Group's Business Continuity Plan (BCP) has been operational globally since mid-March and has been fully effective with the vast majority of employees in its global operating hubs and local offices working remotely, in accordance with the relevant government advice in each location.
Ashmore's business model has several characteristics that have provided resilience in previous market dislocations and that underpin the firm's ability to continue to protect returns for shareholders. These include a strong, liquid balance sheet with no debt and over £700 million of financial resources including more than £400 million of cash (as at 31 March 2020), and a flexible cost base with low fixed costs and a high operating margin (69% for the six-month period ending 31 December 2019). Therefore, while the full extent of the impact of Covid-19 remains unclear, Ashmore is confident that it has in place an effective BCP to maintain daily operations and a flexible operating model to cope with the downturn in markets.”
• Brooks MacDonald# – “In the context of the steep market decline caused by the outbreak of Covid-19, the Group's investment performance was robust,
with portfolios declining by 14.1% (£1.8 billion), compared to the MSCI WMA Private Investor Balanced Index decline of 15.2%.
The ongoing Covid-19 crisis will inevitably have some impact on the current year out-turn. However, should markets at our financial year end (30 June 2020) be broadly in line with current levels, we would anticipate delivering a satisfactory result, marginally ahead of last year's in terms of underlying profit and underlying profit margin. Given the nature of the crisis all guidance is inevitably subject to uncertainty.
The Group is well capitalised with a strong balance sheet and therefore reconfirms its decision to pay the interim dividend of 21.0p on 24 April as previously announced.”
• Charles Stanley# – “Given current trading conditions and the uncertain length and depth of the disruption to global economies, including the UK's ‘lockdown’, it is difficult to predict accurately what the outcome for the new financial year might be. However, comparatives for the financial year to 31 March 2021 are expected to be far less favourable relative to the year just ended. This reflects the sharp decline in market values and cuts to interest rates since February, albeit commission income is currently holding up well since greater market volatility is leading to more trading.
The Board is confident about the strength of the Group's balance sheet and liquidity position. As at 31 March 2020, the Group had total cash balances (including treasury bills) of £93.5 million (unaudited), no borrowings and a strong regulatory capital solvency ratio of 186%.”
Food, Drinks & Household
• PZ CUSSONS – “Our key manufacturing sites across all regions remain open, with our employees demonstrating huge commitment to ensuring that production of our important hygiene products continues. Where possible, all employees who can work from home are doing so, although each of our markets requires a different approach to this. Ensuring safe and secure conditions for those who still need to come to a place of work continues to be a priority.
We are also conscious of our wider role in society and will continue to support those most at risk in our communities. Our approach varies from market to market but we have programmes in place to distribute free soap, sanitiser and hand wash to those most vulnerable and in need. For example, in the UK, our ‘That’s why we Carex’ programme is working with the homeless, elderly and other vulnerable groups. In Nigeria, the PZ Cussons Foundation is distributing soap in the north of the country while in Asia we support those communities close to our manufacturing sites.
Trading Implications – The impact of Covid-19 across our businesses is significant, although very different across business unit and market.
In the UK, we are experiencing exceptionally high demand for our Carex hand wash and sanitiser gel products and Imperial Leather soap. Our focus remains on sourcing, producing and distributing these. Our team has shown exceptional ability to reconfigure products and supply chains rapidly, but we continue to face challenges in sourcing packaging and raw materials to enable us to fully meet demand.
Our Beauty business has been severely impacted. St Tropez has been hit hard by the social distancing measures in place in the UK, US and across Europe. Our significant marketing activities planned for Q4 have been cancelled and we expect this business to be slow to recover. Our other beauty brands have also been adversely impacted with the focus of retailers at this time on hygiene and personal care and the closure of hair salons.
In Asia, our Indonesian business has continued to trade largely as normal with increased customer demand for our hygiene related products offsetting a reduction in some of our lotions and creams. Australia has seen a recent spike in demand for Morning Fresh and Raffertys Garden as a result of Covid-19 but also a severe reduction in Beauty sales.
The situation in Nigeria is uncertain. The recent fall in the global oil price has led to further economic pressure, and the Covid-19 situation continues to develop. All our Nigerian businesses are likely to be impacted by the significant disruption to both manufacturing and route to market.
Liquidity – The Group has historically maintained a prudent financial position, and we entered the current crisis with a strong balance sheet.
PZ Cussons’ external funding is through a syndicated borrowing facility which is provided by a syndicate of six lenders in the form of a £325 million committed multi-currency revolving credit facility committed until 28 November 2023. As at 29th February 2020, we had headroom of £147m under our committed facilities.
We continue to focus on management actions to manage liquidity carefully across the group. Recent actions taken have included the cancellation of capital expenditure projects, the review of the cost base, particularly in those areas of the business most impacted by Covid-19 and working capital initiatives across our business. At this time, we have not elected to participate in the UK furlough scheme or similar schemes in other countries.
We completed the sale of local Polish brand Luksja for £9.2m in the quarter and recently announced the disposal of Nutricima, our Nigerian milk business, for $20.3m. Our target debt level for the year-end remains at £110m in line with guidance at the half year.
Outlook – Whilst there is a high level of uncertainty regarding the full impact of Covid-19 across all of our different businesses and markets continues, at this point our guidance on profit remains within consensus, albeit at the lower end.
Given the current uncertain environment, we plan to issue our preliminary results for the year ended 31st May 2020 in late summer, with a date to be confirmed in due course.”
• Clinigen Group – “Clinigen has implemented a range of measures to prioritize keeping its employees safe, including extensive home working, whilst ensuring it can support hospitals and their patients during these times.
The Group has been working closely with its pharmaceutical clients as well as its hospital customers to ensure that the supply of critical medicines to patients on a global basis continues uninterrupted.
Trading for the year to 30 June 2020 continues to be in line with the Board's expectations and the business had a strong first nine months of the year with organic gross profit growth of over 10% to the end of March 2020.
To date the Group has experienced only marginal disruption from Covid-19, which is a testament to the strength of its global diversified platform and its partners in the industry.
The cash generation delivered in the first three months of the second half has proceeded in line with the Board's expectations as the Group has made material strides in alleviating issues related to the ERP system.
The fundamental positive cash generation characteristic of Clinigen remains unchanged with significant levels of liquidity available to the Group from its £430m debt facility. Clinigen expects to keep well within its 3.0x net debt / EBTIDA covenant limit throughout FY20 before reducing this leverage ratio to below 2.0x during FY21.”
• N4 Pharma – “The Company has received delivery of the initial quantity of the Covid-19 plasmid DNA from the National Institute for Health (‘NIH’) in the USA and has appointed Evotec International Gmbh (‘Evotec’) to undertake the Nuvec® proof of concept work for use with Covid-19 at its site in Toulouse, France.
The initial proof of concept work will commence during the first week of May once all required materials have been sourced by Evotec and will involve the following three stages:
• amplification of the plasmid DNA received from the NIH to provide sufficient plasmid DNA to undertake the in vitro and initial in vivo studies. This work is expected to take approximately four weeks;
• demonstrating whether Nuvec® is capable of loading the Covid-19 plasmid and transfecting murine peripheral blood mononuclear ("PBMC") cells in vitro, and induce an expression of the spike protein in target cells. This stage is expected to last a further ten weeks; and
• subject to positive results being achieved at stage 2, undertaking an initial pre in vivo study to demonstrate expression of the spike protein in target cells in a murine target. This stage would be expected to take a further ten weeks, commencing in mid-July.
Once the stage 3 results have been reviewed, the Company will then determine whether to do a further in vivo study to demonstrate the capability of Nuvec® to generate Covid-19 specific antibodies. In light of the current global urgency around treatments for Covid-19, the Company would also seek to collaborate, where it can, with appropriate partners to accelerate further studies at this juncture.”
• Haydale Graphene Industries – “The impact of Covid-19 on the Group's business is still being assessed by the Directors but the Group has already seen a general slowdown in a number of its markets. This downturn is more pronounced in the Group's US division where demand for its Silicon Carbide blanks has been indirectly affected by the severely reduced demand for global aviation which has compounded the on-going impact of the slowdown at one of the major US manufacturers. The aerospace sector had responded to this sharp decline with the temporary suspension of production or reduced time working in many manufacturing facilities in the US. Recently, the indefinite extension of some of these temporary closures has increased the level of business uncertainty in the US and has now made it likely, in the current environment, that the overall Group will fall markedly short of its trading expectations.
The economic impact of Covid-19 is evolving daily, but the Directors can report that whilst the Group’s facilities are operational, they have put in place a range of measures based on governmental advice in the relevant jurisdictions, to mitigate the impact of coronavirus on our colleagues, customers and operations. The Directors are taking advantage of applicable national support schemes in both the UK and US and will continue to take the appropriate action to ensure that they protect the business during these unprecedented times. The Group has sufficient reserves to adequately manage the anticipated impact of Covid-19 and the Directors are taking prudent steps to preserve its cash position.”
#corporate client of Peel Hunt
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