Coronavirus - Extraordinary measures in extraordinary times
19 March 2020
Cash & liquidity are of paramount importance, given the uncertain length of disruption. Under a lengthy scenario, companies will need to aggressively conserve cash and test whether the government really will do ‘whatever it takes’. This could include stopping PAYE, NI and VAT payments. Other measures could be to stop business rates payments, even if not on the eligible list, and to reduce pension top-ups to the 3% statutory minimum. Companies will want to retain key workers where possible, so it may be preferable to introduce shorter working hours/weeks until the economy rebuilds.
Cases - 20,584 Deaths - 973
Cases - 218,991 Deaths - 8,950
Countries - 173
• UK closing all schools.
• Business rate relief – Government guidance.
• Bank of England cuts interest rate from 0.25% to 0.1%.
• Wuhan (epicentre) – Has reported no new cases and no current cases.
• US released $100bn relief package.
• FCA – Has issued guidelines for insurers.
• Tested positive – Michel Barnier, Prince Albert of Monaco.
Eligibility & mechanism of business rate relief
This government document shows who is eligible for business rate relief. Central government will reimburse billing authorities for the cost (ie local authorities). A legal term worth knowing is hereditaments, which is any type of property that can be inherited. The document outlines the types of hereditaments that are included or explicitly excluded. The exclusion list is likely to be of interest (page 9) as these include betting shops, pawnbrokers, estate agents, vets, dentists, doctors, casino, solicitors and accountants etc. We suspect a number of these will appeal or defer payment to test the government’s resolve.
FCA guidelines for insurers
The FCA is making the insurance industry aware that customer behaviour is set to change as a result of the COVID-19 pandemic, and guiding the sector how to respond. The expectation is that the sector should be flexible and treat customers fairly, particularly those in a vulnerable situation at the point of renewal. As outlined by Direct Line this morning, claims frequency is increasing rapidly in travel. Also with the population being asked to work from home, this impacts the wording of home insurance policies, as well as using the car to commute to work. Overall, the FCA is guiding the sector towards claims leniency. link
UK Insurers – Corporate default risk eases note
Social distancing has now been implemented in various forms across much of Europe. The epidemiologist sitting on the Japanese government’s coronavirus panel has said “the changes in social behaviour have been effective”. The graphic below demonstrates how effective it can be. Using best knowledge on the current R0 value, incubation and infectious periods of COVID-19 and our? numbers have assumed perfect transmission through the UK population.
• Elementis – “The group has experienced a solid start to the year with limited impact on production and demand from COVID-19. Our sites around the world remain open and are operating at normal levels. Trading and performance has been in line with our expectations, benefitting from efficiency actions implemented in 2019, with overall progress in Personal Care, Coatings and Talc. Market conditions are unchanged in Chromium.”
• LV – “The full effect of the COVID-19 crisis is still to be understood but we are in an exceptionally well-capitalised position and as we face the challenges ahead.”
• Gym Group# – In the past two weeks: daily gym usage has started to decrease, new joiner numbers are marginally lower than expected, cancellations are higher and the number of members freezing their membership has increased. All gyms remain open.
• Rockhopper# – Rockhopper and Premier Oil announced in January that a detailed heads of terms had been signed with Navitas Petroleum . . . Despite the current oil price weakness, all parties remain committed to the finalisation of the Navitas farm-out agreement, with completion subject to agreed consents and approvals. With the company's modest presence in Italy already having been substantially scaled back, the company's day-to-day operations remain unaffected by the spread of COVID-19, with necessary contingency measures in place.
• Auto trader – Not charging retailer customers for their advertising packages during April. Not providing guidance for financial year 2021, actions stated above will result in an operating loss for April in the range of £6m-£7m.
• Burberry – “The material negative effect of COVID-19 on luxury demand has intensified and is now impacting the industry in all regions. Since 24 January 2020, trading has deteriorated significantly with comparable retail store sales tracking between -40% and -50% over the last six weeks.
As we set out in our announcement on 7 February 2020, our sales losses in February were predominantly in our Asian markets. While trading in Mainland China has started to improve with the reopening of most of our stores, sales in EMEIA and the Americas have fallen materially in recent weeks. More than 60% of our stores in EMEIA and around 85% of our stores in the Americas are currently closed with those still open operating with reduced hours and with very weak footfall. In total, around 40% of our directly operated stores globally are closed with additional closures expected over the coming days.
Following the significant escalation of governmental trading, travel and social restrictions in recent days and the inevitable impact this will have on demand, we are expecting our comparable retail store sales in the final weeks of the year to be within the range of -70% to -80%. As a result, we now expect Q4 2020 comparable retail store sales to be around -30%.”
• New River# – Board has decided not to pay the fourth quarter dividend for the financial year ending 31 March 2020.
• Walt Disney – There has been disruption in the creation and availability of content we rely on for various distribution paths. Measures to prevent the spread are impacting is in a number of ways.
• Shepherd Neame# – The company's situation has changed materially and now it is inevitable that trading will deteriorate rapidly. Dividend has been suspended.
• Ocado – Experienced a several hundred percentage increase in order demand and basket size as a result of customer behaviour … has temporarily closed its webshop among other measures.
• Playtech – B2B Sport business is being significantly impacted by the postponement of most major sporting events and competitions globally.
• Qantas – Has cancelled all international flights.
• Lufthansa – Cannot give guidance for FY20, drastic action taken to reduce costs and capacity and can only report key figures for FY19, not full results.
Flight schedule – Relief flights until 19 April. Over 140 special flights operated, keeping entire freighter fleet flying to support supply chains and looking to convert passenger aircraft to cargo
Capacity reductions – 700 of 763 aircraft will be grounded, long-haul closed from Munich and only continuing from Frankfurt, with about 5% of total capacity continuing. Austrian Airlines closing, apart from special flights until 28 March. Brussels Airlines will close from 21 March to 19 April.
Liquidity – €600m of additional funds raised in recent weeks to give total liquidity of €4.3bn, with a further €800m of unused credit lines available. 86% of the fleet is owned and aircraft financing currently being raised against the €10bn net book value.
Management actions – Management 20% pay cut, dividend will be suspended, short-time working in home markets.
• Sportech# – COVID-19 will have a significant impact on our business given certain of our businesses are dependent on sporting events continuing.
• discoverIE# - The group has experienced some isolated disruption to the business. However, trading in the group during the fourth quarter has been in line with our expectations.
• Joules# – The group has experienced a decline in store footfall and revenue, which has significantly accelerated over recent days.
• Next – The risk to demand is by far the greatest challenge we face and we need to prepare for a significant downturn in sales for the duration of the pandemic.
• 4imprint# –Facing supply chain interruption and decline in demand. Materially recalibrating marketing activities and implementing cost saving initiatives.
• Direct Line Group – Has suspended its buy-back programme.
• Greene King – Has begun to roll-out a takeaway offering.
• Commercial Metals (steel recycler, producer and fabricator) – Issued Q2 numbers this morning. Gross margin increased by 45% year-over-year, while total shipment volumes grew 2% over the same period . . . unable to provide forward guidance at this time.
• Bluescope, (A$4.9bn mcap), which is one of Australia’s largest steel producers, has removed its guidance for its H2 (year end is June). To date, it is trading in line with expectations, with Australian demand robust and China ramping back up but now seeing business disruption from the national shutdown of Malaysia and the US auto OEMs stopping production.
• Diamondback Energy – Is the largest pure play E&P in the Permian. It is putting all of its completion crews on a one month break. Post that it will run with 35 from the previous level of 9. It will run 10 rigs into Q3 and then reduce to between 6 and 10. Capex is going to be cut to $1.5bn to $1.9bn from $2.8bn to $3bn (the latter would been flat on 2019). Weir’s Oil & Gas business is in for a very bleak period.
• Keurig Dr Pepper – Has reaffirmed its guidance for 2020. Plans to reduce its gearing to between 3.5x-3.8x.
• Expedia – Downgraded to BBB- by Fitch.
• Adidas AG – Postponed its AGM.
• Citi Trends – Reduces store hours and has withdrawn guidance for 2020.
• Accenture – Now expects revenue growth to be in the range of 3% to 6%, compared with 6% to 8% previously. It expects revenues for the third quarter of fiscal 2020 to be $10.75-$11.15 bn, or negative 2% per cent to positive 2%.
• Swatch – We have seen a strong impact on sales in February and March. The group was not planning to cut jobs, but shorter working hours were being introduced at most factories.
• Hyundai – Czech plant to suspend production for two weeks.
• OnTheMarket – “To help reduce the cash flow pressure which agents are expected to face, OnTheMarket is introducing a 33% listing fee discount for invoices issued in the three months starting April 2020. This discount will be given to all OnTheMarket agent customers who are paying on full-tariff listing agreements. It is too early to give guidance on the potential impact of COVID-19 on our results for the current financial year to 31 January 2021.”
• Turkey – Gratis (beauty and personal care) has shut 667 stores.
#Corporate client of Peel Hunt
• Formula 1 bosses have agreed to delay the planned 2021 rules until 2022 and to a flexible race calendar this season.
• All games in England's Premier League, EFL, Women's Super League and Women's Championship, and all fixtures in Scotland, Wales and Northern Ireland, will be suspended until at least 30 April.
• UK will close all schools on Friday until further notice. They will remain open for children of essential workers. Exams in the UK have been cancelled.
• Up to 40 London underground stations are to be shut. There is also going to be no night tube and bus services will be reduced.
• China has no new domestic cases. Wuhan, hubei as no existing suspected cases.
• Australia has shut its borders to non-residents.
• New Zealand is shutting its borders to all non-residents and have banned gatherings of more than 100.
• US President Donald Trump has signed into law a $100bn (£87bn) coronavirus relief package which includes: • Free coronavirus testing for those who need it.
• Paid family leave.
• Sick pay.
• The European Central Bank has launched an emergency €750bn ($820bn; £706bn) package to ease the impact of the coronavirus pandemic.
• Japan's northernmost island of Hokkaido has lifted a state of emergency, which was declared late last month.
• The New York Stock Exchange will close its trading floor and change to electronic trading only, starting next Monday.
• Michel Barnier has tested positive for COVID-19.
• Rwanda has suspended all passenger flights in and out of the country.
• All international flights to and from Chad are to be suspended for two weeks, starting from midnight on Thursday.
• The dabbawalas men who deliver freshly cooked meals from homes to offices in Mumbai announced on Thursday that they would be pausing delivery until 31 March. They deliver some 200,000 tiffin boxes everyday.
• Spain’s Health Minister has said the government will provide €210m to regional health authorities.
• FCA has said insurers must not reject insurance claims on vehicles due to temporary use change.
• Swiss government – Says the virus outbreak will push the country into recession in 2020.
• Chilean state miner Codelco says shipments not impacted.