Coronavirus - “I see no ships”
25 March 2020
As successive countries have seen exponential rises in cases, many have sent clear signals to others at an earlier stage in the outbreak to prepare. Most, if not all, have not heeded the warnings. Even now, Brazil’s President Jair Bolsonaro has called on governors to roll back restrictions. President Trump has said the outbreak will be over in two weeks. As the NHS asks for 250,000 volunteers and looks to commandeer exhibition centres, the message should be clearer than ever. Underprepare for the outbreak at your own risk.
#corporate client of Peel Hunt
Buildings & construction
• Michelmersh Brick – “Following the announcement made by the UK Government and its measures to restrict the movement of people, as of Monday 30th March, deliveries at all of the Group's plants will be suspended during the government three-week review period. The situation will remain under constant review. To protect the Group's employees, stakeholders and assets, the Group has immediately commenced a safe and orderly suspension of its operations. The Group's plants are highly efficient and will be able to return to normal levels of production quickly once restrictions are lifted.
Since the start of 2020 and up until 24th March, the Group has been trading in line with Board expectations. Whilst there is much uncertainty, the Group is in a strong financial position with substantial cash and good covenant headroom. As such, the Board believes the Group is very well protected to see out a period stretching beyond what the UK Government is currently indicating for the pandemic.
Considering the suspension of deliveries and now lack of visibility for 2020, the Board believes it is prudent to defer any dividend payments until it is confident that normal business has resumed across its sector. Whilst the Group has not issued financial guidance for 2020, previously published market expectations should be disregarded.”
• Morgan Sindall – “The Group is now experiencing disruption to its operations in a number of areas. Certain construction sites have already closed under instruction from the relevant clients and this is expected to increase across a number of divisions and activities. In addition, activity on other sites and projects is slowing and progress with some development schemes in the regeneration activities is becoming more uncertain.
As a consequence, it is anticipated that the extent of the overall disruption will inevitably have a material impact on Group profitability for the year. Given the evolving and dynamic nature of the situation, it is too early to quantify the impact and so the Group is withdrawing its previous market guidance until greater clarity returns.
The Group continues to benefit from a strong financial position. At 31 December 2019, the Group had year-end net cash of £193m (of which £57m was held in jointly controlled operations or held for future payment to designated suppliers).
For the current year, average daily net cash from 1 January to 20 March was £132m. Net cash as at 20 March was £102m (including £60m held in jointly controlled operations or held for future payment to designated suppliers).
In addition, the Group has committed bank facilities of £180m and as a precautionary measure, the Group has drawn on these facilities in full to provide control over its own cash resources. It should also be noted that the Group has no defined benefit pension scheme contribution commitments.
In the light of the current economic uncertainty, the Board believes it is prudent to cancel the final dividend of 38p per share as announced on 20 February 2020. The Board may consider paying a second interim dividend in lieu of the cancelled final dividend once there is greater visibility on the impact of Covid-19 on the Group's businesses and the economy as a whole.”
• Bellway – “The unprecedented challenge and uncertainty presented by Covid-19 will result in a period of substantial disruption.
There is a significant risk to production capability and customer demand in the weeks and months ahead.
There is also a threat to liquidity across the wider economy and the Board is therefore taking immediate action to preserve the strength and resilience of the balance sheet. This includes a pause in new site acquisitions and a re-prioritisation of production expenditure to focus on plots that are in the later stages of construction programmes.
In addition, the decision to pay an interim dividend will be postponed until later in the calendar year, when there is more certainty with regards to the economic outlook.”
• Walker Greenbank – “Government measures in our key markets to prevent the spread of the virus, is now impacting our trading outlook. It is difficult for us to quantify the likely impact of Covid-19 at this stage. The Company is, therefore, withdrawing financial guidance until visibility on the impact of Covid-19 improves.
Owing to the uncertainty caused by Covid-19, we have been focusing on contingency planning and cost reduction to preserve cash in the business.
The launch of all Spring collections has been postponed, which will have the effect of reducing marketing and associated costs, and the procurement of raw materials for the factories and finished goods has been temporarily frozen, as has discretionary spend and capital expenditure. We are continuing to identify further cost mitigation measures. It is intended to make use of the UK Government's Coronavirus Job Retention Scheme, both for those employees affected by the temporary closure of the factories and others who are unable to work from home.
The Group had net cash as at 31 January 2020 of approximately £1 million, although this has now moved to a seasonal net debt position. The Group has headroom in its £12.5 million banking facility, an uncommitted £5 million accordion facility and discussions with its bank have been supportive. To further preserve cash, the Board does not intend to propose payment of a final dividend for the year ended 31 January 2020.”
• McCarthy & Stone# – While the Group is focused on supporting its homeowners, we are also in the process of implementing the following cash saving measures in light of the latest Government 'stay at home' directive: • All build activity is being safely paused across our entire development programme with the exception of certain specific sites that are close to completion. Current levels of inventory ensure that sales can resume with minimal delay once the situation improves.
• No further land spend will be incurred and contractually committed land spend has been reviewed and minimised where possible.
• All marketing activity has been paused.
• Reservations, rentals and completions can still be taken in cases of need, but on-site sales offices are now temporarily closed.
• All members of the Board and wider leadership team taking a voluntary 20% reduction in basic salary from 1 April until further notice.
• Employees impacted by the above actions will either be redeployed to support our homeowners or will qualify for support under the new Government Job Retention Scheme.
• These immediate steps result in a cash saving of c£230m in FY20 compared to the Board's pre- Covid-19 expectation.
Balance sheet and cash generation -The Group has a strong balance sheet with a Tangible Net Asset Value at 28 February 2020 of c£687m and gearing of 8%.
At the end of February, the main liquid assets on the Group's balance sheet were c£350m of finished stock, a total portfolio of >£50m of rental and shared ownership assets (at attractive yields) and >£50m of part exchange assets. Negotiations regarding the sale of our rental assets are ongoing and the Group is intending to utilise its strong asset base to generate further revenue or liquidity as necessary during this period of low sales activity.
The Group has no long-term debt and has already fully drawn on its £200m Revolving Credit Facility (RCF) resulting in an available cash balance of c£127m as reported on 18 March 2020.
The Board has already withdrawn Resolution 4 in relation to the final dividend payment of 3.5p per ordinary share (resulting in a cash saving of c£19m).
All cash measures announced today ensure that the business would be able to operate with no sales revenue for a period of c2.5 years.
• Cairn Homes – “Footfall and face to face enquiries have slowed significantly over the last two weeks, although online engagement has increased. The Board is monitoring this carefully and while there remains considerable uncertainty, the Company expects sales activity to be negatively impacted over at least the near term and possibly for an indeterminate period of time.
For the moment, and aligned to Government guidelines, construction activity continues across each of our active sites under extensive health and safety protocols implemented to ensure the risk to employees and subcontractors from Covid-19 is reduced and to enable social distancing.
It remains our expectation that the Company will generate significant excess cash over the coming years and the medium term commitment to a progressive capital returns policy remains in place. However, in light of the unprecedented circumstances and considerable uncertainty, the Board has taken the decision to withdraw its intention to propose a final 2019 dividend of 2.75c per share. In addition, the Company is also suspending its current share buyback programme, of which approximately €46 million of the €60 million programme has been completed to date.
The Company had net debt of €91.2 million as at 31 December 2019, comprising of drawn debt of €148.0 million, available cash of €56.8 million and undrawn facilities of €194.0 million under its revolving credit facility. We also have a strong balance sheet with total equity of €763.7 million as at 31 December 2019 underpinned by €897.3 million in inventories, consisting of €692.8 million land held for development and €204.5 million construction work in progress. In recent weeks the Company has drawn down the available €194.0 million of its €200.0 million revolving credit facility.
In addition, the Company announces that it is suspending its existing guidance for FY20 as the impact and duration of Covid-19 remains uncertain.”
• Keller – “The major impact to date of the Covid-19 pandemic for the group is travel and activity restrictions invoked by national and local governments as part of their virus containment initiatives, and in the longer term by an expected reduction in the global macroeconomic demand.
Trading in January and February was largely unaffected by Covid-19 and was marginally ahead of our expectations. In late March, market conditions deteriorated swiftly which have affected trading, particularly in European countries within our EMEA division due to national and regional restrictions. However, we currently expect overall group performance in the first quarter to be broadly in line with our expectations.
Looking forward, the situation is now becoming more challenging in North America, where the ability to continue to operate is subject to increasingly onerous state specific restrictions and lockdowns, and we expect this deteriorating trend to continue. In our APAC division, which was the first to feel the effects of the virus at the start of the year, up until now trading has been only moderately impacted and we continue to monitor events closely. The benefit provided by our diversity in terms of geography and market segment is more limited by the global nature of this pandemic.
The Covid-19 situation is rapidly evolving and the trading outlook has become uncertain. We are putting in place a broad range of measures to significantly reduce costs and manage our liquidity through this period of uncertainty. Measures include operating cost reductions, cancellation of discretionary projects, capital expenditure freeze, and an even greater focus on working capital management. We are not limited to these actions and we will continue to review all options available to us that will preserve the strength of the group's balance sheet, as we navigate our way through this unprecedented time, including the Board's recommendation of the final 2019 dividend.
In terms of financing and liquidity, as reported at our full year results on 3 March 2020, at 31 December 2019, our net debt was £213m, on a bank covenant IAS 17 basis, equating to net debt to EBITDA ratio of 1.2x compared to our covenant limit of 3.0x. The group has substantial borrowing facilities available to it. At 31 December 2019 the group had undrawn committed and uncommitted borrowing facilities totalling £247m, comprising £183m of the unutilised portion of the group's £375m revolving credit facility, which expires in November 2024 and has an option to extend by one further year, £22m of other undrawn committed borrowing facilities and undrawn uncommitted borrowing facilities of £42m. At that time cash and cash equivalents were £99m. As at the end of February 2020, the group had undrawn committed and uncommitted borrowing facilities totalling £230m, comprising £167m of the unutilised portion of revolving credit facility, £32m of other undrawn committed borrowing facilities and undrawn uncommitted borrowing facilities of £31m with cash and cash equivalents of £76m. Our liquidity position will remain under constant review during this uncertain time.
Given the evolving nature of the Covid-19 pandemic, it is too early to provide earnings guidance in relation to the remainder of the current financial year.”
• Persimmon – “Following enhanced Government and Public Health England guidance on Monday 23 March, we are now taking further measures including closing all of Persimmon's sales offices from Thursday 26 March until further notice. While we will continue to support existing and new customers on the telephone and / or online, all customer care site visits will cease except for emergencies. All Persimmon regional offices will also close, with only a skeleton staff to facilitate the wider workforce working from home. Construction sites are commencing an orderly shutdown with only essential work taking place, which will be focused on making partly built homes safe and secure, and where failure to complete the build could put customers in a vulnerable position.
Balance Sheet Conservatism and Capital Return Plan Update – Persimmon entered this period of uncertainty with a robust operational performance in the year to date and a strong forward order book. Despite this encouraging start to the financial year we are preparing for a significant delay in the timing of legal completions, a rise in cancellation rates and a material slowdown in new sales, the extent and duration of which is uncertain.
In light of the current uncertainty caused by the Covid-19 virus and its operational impact on UK economic activity, and in line with the Group's strategy of minimising the financial risk through the cycle, the Board believes that conserving cash and maximising financial flexibility is in the long-term best interests of the business and all its stakeholders.
Accordingly, the Board of Persimmon has decided to: (i) cancel the proposed 125p per share interim dividend payment of surplus capital to shareholders on 2 April 2020; and (ii) to postpone the proposed annual, final dividend payment of 110p per share on 6 July 2020 and reassess it later in the calendar year when the effects of the virus will be clearer. Whilst the Company's regular annual payment of at least 110p per share has been stress tested for payment through the housebuilding industry cycle, the Covid-19 virus presents an exceptional set of circumstances.
Persimmon entered the current year with a strong balance sheet including cash holdings of £844m, land creditors of £435m (£268m payable over 2020) and industry leading land holdings of 93,246 plots owned and under control. The Board remains confident of the Group's future prospects. The Group's current cash position of c£610m (as at 20 March 2020), deferred land commitments of c£195m to the end of the current year, availability of the Group's £300m Revolving Credit Facility, together with the measures the Board is taking to manage the cash flows of the business, will preserve the strength of the Group during this unprecedented period of uncertainty.
At this stage, given the level of continued uncertainty around economic and business activity, it is not possible to provide financial guidance for the FY20 financial year.”
• Unite – “Unite will not charge any student who wishes to leave their accommodation for the final semester of 2019/20, with effect from mid-April. We will continue to work closely with our University partners through our nominations agreements to meet any additional short-term requirements.
In addition, for international students who are unable to return home at the end of their tenancies, we will provide accommodation over the summer months at no further charge. We have already freed up capacity to do this through a reduced programme of summer business.
We have implemented a cash saving programme, reducing variable operating costs and suspending all non-essential operational capital expenditure leading to cash savings of £20-30 million in 2020.
There has been little impact to date on Unite's sales performance for the 2020/21 academic year with reservations currently at 78% and in line with the same time last year (78%). We have seen a reduced number of new offers to customers in the past week, but the level of cancellations and expired bookings has remained in line with prior years.
The UK Government's decision to cancel A-Level exams in the current year, while disruptive to school leavers, should ensure that Universities are able to make offers to students in time for the usual start of the academic year in September. Universities Minister, Michele Donelan, has stated that there is no reason for the usual admissions cycle to be disrupted. A-Level grades will be awarded on the basis of predicted grades, based on mock exams, non-exam assessment and prior attainment.
Our PRISM operating platform provides us with the flexibility to implement new marketing strategies rapidly in changing market conditions. There is an obvious risk that travel restrictions imposed to combat Coronavirus result in a reduced intake of international students for 2020/21. In the 2019/20 academic year there was a 165,000 surplus of applications to acceptances to UK Universities, of which over 60% came from the UK. We would expect UK Universities to recruit additional UK domestic students to counter any reduction in demand from international students.
We are ready to shift the emphasis of our marketing to target domestic students who may otherwise stay in houses of multiple occupancy (HMOs) and international students already in the UK in the event of any weakness in sales to students outside the UK. However, there remains a risk of lower occupancy and rental rates for 2020/21 than previously anticipated.
We are a strategic partner to Universities and have a high degree of income visibility through our nominations agreements, the majority of which are multi-year. We will maintain a close dialogue with them as their accommodation requirements for 2020/21 become clearer.
Integration – The integration of Liberty Living is continuing as planned. Over the coming weeks, all Liberty Living employees and properties will be moved across to the Unite platform. Positive early progress on integration has increased 2020 cost synergies to £5-6 million. Liberty Living beds will be fully integrated into PRISM, delivering £15 million of annual cost synergies from 2021.
Development pipeline – The Company is currently on site with five development schemes totalling 3,586 beds for delivery over the next two years. There is £68 million of remaining cash to spend on 2020 deliveries and £115 million for 2021 deliveries.
To date, we have not seen any disruption to activity levels on our developments, although extra precautions are being taken for people working on site. However, there is a risk that restrictions on working practices made by the Government could lead to the delay of project deliveries, beyond scheduled move-in dates for students.
Our 2020 deliveries are progressing well. Due to early procurement of materials in 2019 to mitigate risks around Brexit, the vast majority of materials are already in the country, but additional workforce restrictions or sustained absences present a risk to delivery. We are proactively engaging with our University partners to highlight these risks and will continue to monitor the situation over the coming weeks.
For our 2021 projects, the disruption to supply chains will undoubtedly have an impact on the availability of materials and we face near-term risks around labour availability. Given these risks and the priority of conserving cash while income uncertainties remain, we are planning to defer the delivery of the two 2021 completions into 2022. This will lead to a cash saving of £72 million during 2020.
We will continue to work through the planning applications for the remainder of our committed development pipeline but will not start on site with any new developments until we have greater clarity on the outcome of the Coronavirus crisis.
Given risks to our rental income as a result of Coronavirus, we are suspending guidance for like-for-like rental growth and EPRA EPS for 2020.
Dividends – In addition to its focus on the safety of our students and employees, the Board's primary objective in the near-term is to ensure the liquidity of the Group's balance sheet in a period of highly uncertain trading conditions. As a result, the Board has taken the decision to cancel the 2019 final dividend given the desire to retain cash in the business. The 2019 final dividend will therefore not be proposed at the AGM scheduled to be held on 7 May 2020.
As a REIT focused on delivering sustainable growth in earnings and cash flow, the Board intends to reinstate dividend payments as soon as possible once market conditions stabilise. The Group is able to maintain compliance with the REIT regime without the payment of further dividends in the year.
Cash headroom – The Group has £1,857 million of current debt facilities with no maturities before April 2022. As of 24th March, the Company had £141 million of cash reserves and £150 million of undrawn revolving credit facilities, providing available liquidity of £291 million. We have recently drawn £100 million from our revolving credit facilities and will draw the remaining £150 million over the coming few days.
In addition, we are in discussions with our banks around our future funding requirements and are considering a £100 million extension of our Group revolving credit facility.
As an investment grade borrower, rated BBB by S&P and Baa2 by Moody's, Unite is also eligible for the joint HM Treasury and Bank of England Covid Corporate Financing Facility (CCFF). We are exploring this as an option for additional liquidity to the extent required.
Banking relationships and debt covenants – We continue to monitor our banking covenants, which vary between facilities but are principally based on LTV and interest cover ratios (ICRs). Our Group LTV was 37% as at 31 December 2019 and our interest cover ratio for 2019 was 3.5 times.
The Group covenants have a significant level of headroom, allowing for a 45% decline in pre-interest cash flow under the tightest ICR covenant and a 40% decline in GAV on the tightest LTV covenant.”
• Victoria# – “The issues surrounding Covid-19 have the capacity to impact companies' earnings by interrupting supply chains, workforce sustainability, and demand. Unquestionably, a decline in demand is likely to have the most significant impact on Victoria. Together with the general loss of consumer confidence following the emergence of the virus, in some countries potential customers cannot buy flooring – even if they wish to do so – due to the closure of all non-essential retail businesses.
Looking ahead, given the uncertainty around both the duration and severity of government actions in the different countries in which we manufacture and distribute flooring, it is not possible at this point to provide meaningful earnings guidance for FY2021.
Not an Existential Threat – The Board, however, is clear that the situation does not present an existential threat to Victoria. Whilst short term trading will be affected, the long-term outlook for the Group remains positive.
There are a number of key reasons that underpin the Board's assertion in making this statement:
• Victoria enjoys comparatively low operational gearing across its business. Of our annual operating cost base, approximately; 54% of such costs are wholly variable with revenue. This includes raw materials, energy, and freight. 36% is semi-variable (which the Board defines as being capable of being significantly changed within 60 days) such as direct labour, logistics, and marketing expenditure. 10% is fixed.
• The Group's supply chain is highly diversified and invariably localised to the key manufacturing plants. Our access to raw materials is secure.
• Victoria is fortunate to have a highly experienced and motivated operational management team who have a track record of successfully navigating through deep economic downturns. Many of our managers have been in the industry for 30 years or more and the value of this experience is enormous.
• The wide geographic spread of both our manufacturing operations and, more importantly, our customers means that the virus's impact on Group revenue (and its subsequent recovery) is likely to occur at varying times and not simultaneously. This is important.
• Shareholders will recall that in July 2019 and again in January 2020 Victoria issued a total of €500 million of Senior Secured Notes ("bonds"). These bonds are not due before July 2024 and, in themselves, carry no maintenance financial covenants.
• Victoria has a strong balance sheet with sufficient cash on hand to support the business in even the most severe scenarios we have modelled. That said, we are taking every precaution to protect the liquidity of the Group. In addition to direct internal actions, we are in the process of accessing various Government schemes in our different countries of operation to help increase our cost base flexibility and mitigate adverse cash flow impacts.
Group Stress-Test – The Board has modelled potential scenarios of different duration and severity – including periods of nil revenues and an extended period of 50% revenue loss – for their impact on earnings and cash over the next 12 months. Our conclusion is that within the Group's current financial resources, Victoria can withstand all likely outcomes.
The modelling exercise has been undertaken in three steps. Beginning with the base case position (i.e. our 2021 forecast prior to the impact of coronavirus), we applied different levels of significant sales decline over varying periods, examining the effect on the manufacturing and logistics operations of each business within the Group, assessing the impact on earnings and, more importantly, the working capital and cash position of each business, incorporating certain assumptions around receipts and bad debts.
Each subsidiary then developed its own operational contingency plan (clearly many actions are common for all businesses, but some businesses have unique opportunities to reduce expenses and cash outgoings).”
• Headlam – Trading to date in 2020, incorporating the majority of the first quarter, has been reasonably resilient, and broadly in-line with that of 2019. However, following the recent changes in UK Government guidance in response to Covid-19, the Company now expects an imminent and meaningful downturn in orders. As the overall impact on demand and over what time period is not yet known, it is not currently possible to provide guidance on the expected outturn for the financial year ending 31 December 2020. As soon as the Board has improved clarity, a further announcement will be made in respect of the anticipated 2020 performance.
Operations and Cash Management – The Company is focused on cash management and limiting operating costs to the lowest possible level in preparation for the expected meaningful reduction in orders, which will hopefully be deferrals and temporary in nature, until Government restrictions on movement are lifted. All non-critical operational and capital spend has been halted and all purchasing of stock ceased earlier this month.
The Company closed all of its UK sites as of close of business yesterday until further notice, with the exception of its largest national distribution centre in Coleshill. This will enable the Company to fulfil demand that may arise, specifically within the commercial sector where there is essential work driven by health and safety requirements and medical or emergency infrastructure related orders. The Company has a significant inventory position, £132.5 million as at 31 December 2019, which will enable it to continue to fulfil demand for the foreseeable future.
The opening of the Company's new regional distribution centre in Ipswich has been delayed from the originally planned Easter 2020 opening as a result of European contractors being recalled due to travel restrictions. It will be possible for the centre to be operational in a matter of weeks once restrictions are lifted.
The Company is currently assessing the UK Government's range of Covid-19 related financial support available to businesses and is assessing if any of them would provide any benefit to the Company in the long-term.
People – It is the Board's intention to protect the wellbeing of its people and preserve employment, with this firmly in-line with the UK Government's aim. All of the Company's people who are affected by the temporary closure of sites and businesses will be paid an enhanced form of the UK Government's Coronavirus Job Retention Scheme.
Operational Improvement Programme It is the Company's intention to remain focused on the long-term, and will, where practical, continue with the planning and / or acceleration of some of the projects forming part of the overall operational improvement programme designed to make the business more efficient and effective.
Balance Sheet and Liquidity – The Company has a strong Balance Sheet and significant liquidity headroom as detailed below. Additionally, the Company has a largely freehold property portfolio with minimal lease commitments that limits property cash outflows.
As stated in the Company's final results announcement on 5 March 2020, average net debt in 2019 was £3.3 million (2018: £16.9 million net debt), with cash and cash equivalents of £33.4 million as at 31 December 2019.
On 5 August 2019, the Company completed a refinancing of its existing banking facilities to extend their term from 14 December 2021 to 30 April 2023. The Company maintained its two agreements with Barclays Bank PLC and HSBC Bank Plc, and decreased the level of Sterling committed facilities from £72.5 million to £68.5 million and increased its Euro committed facilities from €8.6 million to €9.6 million. The Company also has short-term uncommitted facilities, which continue at £25.0 million, and are renewable on an annual basis. The total banking facilities available to the Company at 31 December 2019 were £109.7 million, and as at that date 94.1% of the total facilities were undrawn, equivalent to £103.2 million.
2019 Final Ordinary Dividend – Notwithstanding the current Balance Sheet strength and liquidity headroom, in light of the uncertain environment which is likely to prevail for a considerable period, the Board has taken the prudent decision to suspend the proposed 2019 final ordinary dividend of 17.45 pence per share that was detailed within the final results announcement, and that was to be put to a shareholder vote at the forthcoming AGM in May 2020. This is reflective of the Board's overriding focus on preserving the financial stability of the Company, with the suspension of the dividend reducing cash outflow by £14.6 million. The Board is committed to providing dividend income to its shareholders, and dependent on prevailing conditions at the time, the Board will consider an appropriate augmentation to the 2020 interim dividend that is normally declared at the time of the Company's interim results announcement and payable in January of the following year. Alternatively, and subject to trading in the final quarter of 2020 and other prevailing conditions at the time, the Company may consider the declaration of a special dividend.
• Epwin – “In anticipation of significantly reduced demand levels and in the interest of customer and employee safety, we have taken the decision to implement a controlled shutdown of Epwin's operating sites for a temporary period. We will restart the business as soon as it is safe and socially responsible to do so.
Balance sheet, liquidity and dividend – The Group has a strong balance sheet with significant headroom on its banking facilities which it renewed in June 2019 for an initial period of three years to June 2022, comprising a £65m Revolving Credit Facility and £10m overdraft. We have now taken the prudent step of drawing down the remainder of our Revolving Credit Facility.
In addition, we have been actively focussed on cost reduction and cash management measures in recent weeks, including the deferral of capital expenditure and tax payments, with the agreement of HMRC. The Group also intends to make use of the Coronavirus Job Retention Scheme grants as far as it is able, in order to maximise its liquidity at this time.
Whilst the Board believes that the Group is well positioned to withstand a period of uncertainty such as is associated with this pandemic, it believes that it would be imprudent to recommend the payment of a final dividend for the year ended 31 December 2019. The Board believes that it is in the best interests of the Group to conserve cash reserves until there is a greater level of visibility over the full impact of Covid-19 on the business.
Epwin remains an inherently cash generative business and once the extent and duration of any disruption is better understood, the Board fully intends to recommence dividend payments.
Delay to results – As previously announced, Epwin intended to announce its results for the year ended 31 December 2019 on Thursday 2 April 2020. However, based on [FCA & QCA] guidance, the announcement will be postponed. The Group will await further guidance from the FCA, the QCA and the Financial Reporting Council regarding the timing of the announcement of its 2019 results.”
• Countryside Properties – “Having considered the Government's latest advice, the Group has decided to close and suspend all construction works on its sites. Sales offices have also been closed. While these measures will inevitably affect the Group's financial performance, it is unclear how long they will remain in place or the extent to which they will affect the Group. As a result, the Group is withdrawing financial guidance for the current financial year and is suspending dividend payments until further notice.
Countryside has a strong balance sheet with available cash of £110m and a good liquidity position. The Group has a current £300m revolving credit facility in place until May 2023, provided by a syndicate of four banks. Given the current uncertainty around Covid-19, the Board has taken the prudent decision to commence discussions in respect of additional financing facilities, should they be required, and we will update on these discussions in due course.”
• Sirius Real Estate# – “The Board does not expect any material impact to its trading profit for the year ending 31 March 2020, as a result of Covid-19.
In response to Covid-19, all meeting room and conference facility hire has been put on hold until the end of April, which will have a marginal impact on revenues and cash flow. The other noticeable effect on the business to date has been a 50% reduction in the run rate of core enquiries for new tenants, which we expect will translate into a 10% reduction in new lettings in March and a 35-40% reduction in monthly new lettings throughout April and into May. This could lead to a circa 1% reduction in underlying occupancy.
On the positive side, the Company is seeing an increase in demand for storage space from both new and existing commercial tenants as well as new self-storage customers. Storage makes up 35%* of space in Sirius's portfolio.
Although it is still early on in the spread of Covid-19 in Germany, to date there has been no increase in the level of contract terminations or failure to meet rental payments above normal levels.
Balance Sheet – Sirius has a strong balance sheet with total cash balances currently in excess of €110 million, €90.0 million of which is unrestricted. In addition, the Group has €39.3 million of undrawn facilities and a further €10.1 million to be received on 1 April 2020, upon the completion of the disposal of the Weilimdorf asset announced as part of the Group's interim review in November 2019. Sirius's top 50 tenants make up 44% of the rent roll and comprise some of the world's best known multi-national companies. Across the board, the weighted average lease expiry is 2.8 years and only 6% of the rent roll comes from the Company's flexible SmartSpace products. It is also worth noting that 7% of the Company's total rent roll is derived from government tenants, ranging from the Ministry of Finance to local regional police forces.
The Company has significant covenant headroom and a capital structure that is well placed to absorb a prolonged period of uncertainty. The Company expects to report in its financial results for the year ending 31 March 2020, a net LTV of around 35% and approximately 10.5x interest cover on its debt.
Continuity plans and the German Government Response – The Company's immediate priority is the health and safety of its employees, tenants and contractors, together with the need to comply with the instructions from German central and local government.
The Company activated its business continuity plan some weeks ago, having recognised at an early stage the potential for the Covid-19 situation to escalate and the ramifications that government-enforced restrictions could have on the Company's ability to operate. This means we are now better able to continue the operation of the Company as the German government manages the country's response to Covid-19.
In Germany, there are a number of financial protections in place to help support businesses including 'Kurzarbeit' (the short-working compensation scheme that covers a proportion of workers salaries). In addition, the German government has promised €550 billion of state-backed loans to support business continuity through the crisis, as well as the opportunity for business to defer billions of euros in taxes. The German finance minister has said the government will provide unlimited liquidity assistance to German companies hit by Covid-19.”
• Halfords – “We are modelling a range of scenarios to understand the potential impact on sales, profit and cash flow and to support decisions on mitigating actions. Whilst we are confident that the post-pandemic future of the business remains strong, trading in the near term is likely to be severely impacted. Recent trading has been in line with expectations, and, in fact, very strong in the last couple of weeks, but delivery of the FY20 profit outturn is dependent on sales performance in the final two weeks of the financial year.
Post the Government's latest announcement on measures to protect the public, we are working through our operational plans. We are seeking to strike a balance between providing essential motoring and cycling services to the UK public alongside guaranteeing the personal safety of our customers and colleagues. Given the latest Government guidance we believe there is a high likelihood that sales will drop sharply and, if so, that the shortfall will have an impact on profitability, such that FY20 underlying profit before tax, on a 52-week and pre-IFRS16 basis, could be at the lower end of, or slightly below, the current guidance range of £50-55m.
At this early stage in the pandemic, it is not possible to provide meaningful guidance on earnings in FY21. Our focus now is on taking every step necessary to secure future value for colleagues and shareholders.
Financing – The Group has access to substantial liquidity through a £180m revolving credit facility (RCF) and a £20m overdraft facility, provided by a syndicate of major banks, expiring in September 2022. We have drawn down on the RCF in full and now have approximately £118m of cash on deposit. Total liquidity is therefore £138m, including the overdraft facility. The Group continues to expect that it will satisfy its covenant requirements at the FY20 year-end. We are in active dialogue with our existing lending syndicate to provide additional flexibility to support Halfords through this period of uncertainty.
Outlook and mitigating actions – Despite an improvement in recent sales performance, we expect that volumes could now see a material reduction. We have modelled a range of disruption scenarios, with our median scenario assuming significant sales declines for the three-month period from April to June, followed by weakness for the remaining nine months. Over the course of the full year, this would result in a sales decline of 25% (c£300m) with the most material impact being seen in the first quarter of the new financial year.
In response, the Board is taking a series of immediate measures to preserve cash, including, but not limited to:
• Suspension of the dividend, resulting in a cash saving of approximately £24m in FY21.
• As announced by the UK Government, business rate relief for the whole of FY21. This currently applies to the retail estate only, saving approximately £26m per year.
• Negotiations with landlords regarding rent relief, including an immediate switch to monthly payments from quarterly.
• Where stores and garages are closed, we will access Government support on salary payments.
• Reduced purchases of goods not for resale (GNFR), including lower marketing spend.
• Postponing capital commitments: Our capital spend for FY21 will be well below current guidance of £40-60m. We are currently planning for capital spend in FY21 to be in the range of £10-15m, but this will remain under review as the situation evolves.
• Optimising working capital, including changes to the timing and amount of stock purchases.
• Deferral of VAT payments to March 2021.
Based on the median sales scenario, and the measures we have outlined above, we are confident that we can operate within our existing debt facilities throughout FY21.”
• DFS# – “In order to protect our financial position we have taken a number of actions and will be taking advantage of the welcome support from the UK Government, including: • Significantly reducing our marketing expenditure, to reflect the current environment, albeit we have maintained spend where cancellation terms are excessively punitive;
• Pausing all discretionary capital and operating expenditure, including the deferral of six planned new showroom openings in FY21;
• Benefitting from the business rates holiday for retail properties, effective from 1st April, the deferment of VAT payments to HMRC and the potential deferral of PAYE, NI and corporation tax payments, through the Time to pay scheme;
• Seeking to utilise the UK Government's Job Retention Scheme, to fund colleagues who are no longer able to work for the Group in this lockdown period;
• Reducing the usage of consultants and contractors, and implementing a recruitment and training freeze;
• Agreeing with senior leaders of the business to reduce their pay while this shutdown continues, and deferring all annual salary reviews.
We will also be working with our landlords to secure improvements to payment schedules on leased properties. Our mitigated operating cash outflow, during the period of operational suspension, is expected to be c £15m per month from April until we re-open.
As part of this approach the Board of DFS has taken the decision to cancel payment of the interim dividend of 3.7p per share, which was due to be paid to shareholders on 17 June 2020, saving over £8m of cash in June.
Our financial position – The Group has access to a total of £250m of committed bank facilities (maturing in August 2022). As at 24 March, the Group had unutilised immediately available cash resources of approximately £70m.
We also have a customer order book of c £185m, which represents orders that have been taken over the busiest part of our year, post Boxing Day through our Winter sale. Typically this results in c £125m of net cash receipts upon delivery to customers' homes (net of customer deposits and finance subsidy costs). These receipts then fund our outstanding trade creditors of c£100m as at 24 March.
We intend to seek additional financing facilities to cover the risk of an unwind of the negative working capital balance that is inherent in our business, in the event of a prolonged lockdown, given that we are currently unable to deliver our order bank.”
• Centamin – “As of 24 March 2020, Centamin has no cases of Covid-19 amongst its workforce and has experienced no material disruption to operations, supply chain or gold shipments.
Early action was taken at Sukari, in line with our Severe Communicable Disease Outbreak Management Plan and the advice of governments and health authorities, to cease non-essential travel, adjust and manage on-site rosters, enable employees to work from home where possible, educate the workforce on the virus (symptoms and preventative measures), cease non-essential visitors, establish multiple mandatory checkpoints (Marsa Alam airport, community centre and mine gate) for possible symptoms and travel history screening for all visitors. Measures are in place to ensure all countries in which our people are located follow the advice of local government and health authorities.
A Covid-19 Executive Committee has been established with a clear management and site support framework in place, including daily workforce and supply chain risk reviews. As with many countries globally, Egypt has temporarily closed the national borders to civilian travel until 15 April 2020, but borders remain open to goods and supplies. To date, we have experienced no supply disruptions and have sufficient internationally sourced critical supplies stockpiled for the next quarter. We maintain open dialogue with our key international and domestic suppliers and, as a matter of caution, have assessed alternative potential supply channels. As the pandemic progresses we will continue to monitor the situation closely and will adapt our policies, procedures and controls to minimise potential impacts, within our control, to our business.
Centamin is a strong, resilient business with zero debt and US$348.9 million in cash and liquid assets, as at 31 December 2019.”
• SolGold# – “The Emergency Operations Committee (COE) of Ecuador announced a "Stay at home" policy in Ecuador which has meant the temporary closure of businesses across the country. SolGold is committed to the safety and wellbeing of its employees and communities, and as a result of the state policy and the reaction from many communities within its areas of operations to the potential for transfer of Covid-19, the Company is complying with government preventative measures and has reduced operations throughout Ecuador.”
• Firestone Diamonds – “Announces that a decision has been taken to suspend operations, save for essential care and maintenance services and security, at its Liqhobong Mine ("the Mine") in Lesotho for at least a 3 week period to safeguard its workforce and surrounding community from the coronavirus pandemic. The health, safety and wellbeing of the Mine's workforce and surrounding community is of paramount concern to the Company. All staff on the Mine may be especially vulnerable to an onset of the coronavirus due to the remote location of the Mine and distance from expert medical care, high altitude and close proximity to one another in buildings on Mine.
This decision is aligned to the 23 March 2020 directive issued by the South African Government requiring a 21-day national lockdown, effective midnight Thursday 26 March 2020 to midnight Thursday 16 April 2020, in order to contain the spread of the coronavirus. Lesotho is landlocked by South Africa and the Mine is dependent on South Africa for a large portion of its essential mining supplies.”
• Ramsdens – Effective from yesterday, the Group closed all its stores in the UK until further notice.
As stated in the Group's trading update on 18 March 2020, Ramsdens has a strong balance sheet, including approximately £10m of cash and an undrawn £10m revolving credit facility. The Group welcomes the support measures for businesses outlined by the UK Government so far and plans to utilise those measures that are applicable to the Group. The Group will provide a further update as and when appropriate.
Food, drinks & household
• McBride – “Since early March, the Group has seen order levels across most regions increase for a range of products such as bleach, anti-bacterial and disinfecting sprays and certain dish and laundry cleaning products. At this stage, it is not clear to what extent this demand increase is due to additional end-user consumption or short-term consumer stockpiling.
The Group's factories remain open and operating at varying levels of production. Our ability to operate at full production is constrained by labour attendance, certain material supplies and, increasingly, distribution challenges for both inbound and outbound materials. At this time excess demand levels are being met for the most part from a combination of inventory and choices of production priorities.
As Europe progressively 'locks down' we may see further restrictions on our ability to operate factories to match demand levels. We are working on output optimisation through measures such as recruitment of additional labour, customer prioritisation, range simplification and haulage optionality.
Revenue improvements in the short term are likely to be tempered by reduced factory efficiencies, although we expect to see some benefit from lower raw material input costs in the fourth quarter, dependent on activity levels and product mix. We are actively limiting discretionary spend, postponing or cancelling capital projects and closely monitoring working capital levels. At this time, and in light of the factors outlined above, we are unable to offer any update on guidance for the current financial year.
The Group has €60m of committed headroom under its RCF arrangements, with its debt/EBITDA ratio at 2.1x at 31 December 2019 compared to a limit of 3.0x. As part of its prudent management of cash resources, the Group is cancelling the interim payment to shareholders of 0.8p per ordinary share, announced in the recent interim results. The Board does not expect to provide an update on payments to shareholders before the Group's next scheduled update on 14 July 2020.”
• SSP – In our recent update on 26 February 2020, we indicated that we had seen sharp declines in passenger numbers across the Asia Pacific regions (which account for approximately 8% of SSP's Group revenue) in February. Since that update, SSP has seen an unprecedented and rapidly escalating impact of the Covid-19 virus on the travel operating environment, particularly in airports. The widespread travel bans imposed by governments and airline capacity reductions across our core markets have severely affected passenger numbers in the UK, Europe and North America, particularly in international travel.
As a consequence, like-for-like revenues (based on the latest week) across the UK and continental Europe are currently running approximately 80% to 85% lower year-on-year ("YOY"), with the impact in the air market being greater than in rail. In North America, like-for-like revenues are approximately 80% lower YOY and in the Rest of World, which includes Asia Pacific, Eastern Europe, the Middle East, India and Brazil, like-for-like revenues are approximately 60% lower YOY.
In terms of the financial impact of Covid-19, our expectation is that for the month of March 2020, revenue across the Group will be approximately 40% to 45% lower YOY. This is expected to reduce Group revenue by approximately £125-135m, with a corresponding reduction in operating profit of approximately £50-£60m.
Including the impact of Covid-19 on current trading, for the six months ending 31 March 2020 ("H1 2020"), SSP expects to see a decrease in total Group revenue of approximately -3% on a constant currency basis, compared to the same period last year, comprising a like-for-like sales decline of approximately -8% and net gains of approximately +5%. Total Group revenue at actual exchange rates is expected to decline by approximately -4% compared to the same period last year. SSP expects to have approximately £180-200m of cash and undrawn committed facilities (before any new funding as described below) at the end of H1 2020, leaving leverage at approximately 2.4x net debt / EBITDA (last twelve months).
Management Actions – We are taking all available actions to protect profit and cash, whilst working closely with our clients to maintain appropriate service levels for our customers.
• Temporary closure of units
• Reduced operating hours
• Opening programme ceased for H2 2020
• Headcount reduction and temporary lay-offs commenced
• Significant salary reductions across all senior management, the Group Executive and Group Board
• Majority of rent is being paid on a fully variable basis, as a percentage of revenue
• Ongoing discussions with landlords for further rent relief
Discretionary overhead expenditure being reduced to minimum levels to operate the business
Capital expenditure to be reduced to approximately £10m in H2 2020
Further to the management actions set out above, SSP has suspended its previously announced share buyback of up to £100m, having only purchased approximately £2m of shares to date.
SSP will also defer the payment date of the final dividend of 6.0 pence per ordinary share to 4 June 2020. The dividend was approved at the Company's annual general meeting held on 26 February 2020 (with a record date and time of 6.00 p.m. on 6 March 2020) and would otherwise have been payable on 27 March 2020. SSP will also enter into discussions with shareholders to request that they waive their final dividend entitlement enabling that cash to be retained in the business.
SSP's Board does not intend to pay an interim dividend for H1 2020.
In addition to management action, on 17 March 2020 and 20 March 2020 HM Treasury announced a package of temporary, timely and targeted measures to support public services, people and businesses through this period of disruption caused by Covid-19. These include the Coronavirus Job Retention Scheme, deferred VAT payments and changes to business rates. In addition to these UK schemes, SSP is in active discussions with Governments around the world to secure support under their local schemes.
Furthermore, the joint HM Treasury and Bank of England lending facility, named the Covid Corporate Financing Facility ("CCFF") was launched. This facility is designed to support liquidity among larger firms, helping them to bridge coronavirus disruption to their cash flows through the purchase of short-term debt in the form of commercial paper. SSP expects to qualify for this scheme and is already well advanced in preparations and discussions with HM Treasury and the Bank of England to access the scheme.
Outlook – Clearly the duration of Covid-19's impact, including on global travel is very uncertain at this stage as are its consequences for our financial performance for the full year. Looking into the second half of the financial year (April-September 2020, or "H2 2020"), SSP's central planning assumption is that recent trading conditions seen through March 2020 will likely deteriorate further.
SSP has considered a very pessimistic scenario assuming an almost total shutdown of the travel market for the whole of the second half of the financial year, with Group revenue being down approximately 80% to 85% in H2 2020 against the same period last year. This reflects a worsening revenue impact in the third quarter of the financial year (down 85%) and only minimal improvement in the fourth quarter (down 80%). In considering the impact of this on operating profit, SSP has assumed that the benefit of the extensive management action to reduce the cost base would result in a "drop through" to operating profit from the reduced sales of 25% to 30%, an improvement compared with that experienced in February and March 2020.
Financing Arrangements and Equity Placing – SSP is taking decisive and immediate action to preserve cash and ensure sufficient liquidity even in the event of the most pessimistic trading scenario.
SSP announces that it has agreed a new up to £112.5m 18-month committed bank facility with HSBC Bank plc, Lloyds Bank plc and National Westminster Bank plc, which represents incremental financing to its existing debt facilities. This is subject to documentation on terms and conditions in line with such existing facilities and is conditional on SSP raising new equity. The Company is confident in its ability to meet its covenant thresholds as at 31 March 2020.
SSP has separately announced today a proposed equity raising
• Intention to conduct a non‑pre‑emptive placing of new ordinary shares of 1 17/200 pence each in the capital of the Company representing up to 19.99% of the Company's existing issued ordinary share capital (the "Equity Placing")
• Directors and members of the senior management team including CEO, CFO and Chairman to participate alongside the Equity Placing and intend to contribute £760,000
• The net proceeds of the Equity Placing will be used to strengthen the Company's balance sheet, working capital and liquidity position during this period of unprecedented disruption in the global travel market as a result of the Covid-19 outbreak
Based on the scenario planning undertaken by SSP management, the additional financing arrangements will provide sufficient liquidity to deal with even the most pessimistic trading scenario and enable SSP to operate through this unprecedented travel environment and also be positioned to return to growth as markets normalise.
• Wilmington – Whilst the internal response has been swift and a testament to the professionalism of our employees, there is no doubt that the external impacts on parts of our business are now material. The recent restrictions placed on the congregation and movement of individuals by governments in Europe and the US are, by their nature, having an impact on the Group's ability to run conferences, events and face-to-face training courses.
Networking events – which typically account for c15% of annual Group revenues – Currently the Group has suspended all face-to-face conferences and events until further notice. We are not planning to run any face-to-face events prior to 1 July, other than a handful of events such as RISE Nashville that were originally due to run in March and where delegates and sponsors are already signed up. These are currently scheduled to run in late June. We will review the feasibility of these current plans as the situation develops.
Where possible we are converting elements of postponed events to run in an online format. There has been demand for such developments in a number of our communities and we are actively seeking to support them at this time.
Education and training – which typically accounts for c40% of annual Group revenues -The Group has currently suspended all face-to-face training in Europe, the US and Asia until further notice. The Group has made significant progress over the last few years enhancing its capability to deliver a variety of digital learning solutions. Prior to the outbreak of coronavirus around a third of Group training was delivered digitally, often as part of a blended solution. Demand for this has increased notably over recent weeks, and the Group is meeting this demand with a range of novel and innovative solutions.
Information and Data – which typically accounts for c45% of annual Group revenues – We are seeing no material impact on demand for data and information products. 65% of data and information products are sold via subscription, typically on an annual basis.
See full research note for more