Coronavirus - Hard landing
29 April 2020
Gilead has said its possible coronavirus treatment has had positive results in a US study, raising hopes that an effective treatment is on the way. Meanwhile, Boeing has announced plans to cut 10% of its 150,000 strong workforce following BA’s announcement that it may cut 12,000 jobs. The airline industry has realised that even with unprecedented support from governments on both sides of the Atlantic, it will not be able to survive the long lasting damage without radical structural changes. Many will also struggle even after a cure is found; others will see their model proven in the new global landscape and will find themselves on a strong platform when the crisis eases.
• US economy contracts 4.8% in Q1.
• A third of all cases that require hospital treatment are fatal in the UK.
• UK extends visas for frontline health workers.
• Boeing to cut 15,000 jobs.
• Next expect sales for the year to be down between 30-40%.
• Institute for government report on bailout.
• Gilead says remdesivir shows promise in US coronavirus trial.
Buildings & Construction
• Grafton Group – “Trading in the year to mid-March was broadly in line with our expectations as branches generally operated at close to normal levels of activity. The impact of Covid-19 became visible over the second half of March and intensified following the introduction of Government restrictions leading to national lock downs. The majority of our UK distribution branches and manufacturing plants were closed on 24 March 2020 and the distribution business in Ireland was significantly scaled down on 28 March 2020. On the same date, trading in the Woodie's DIY, Home and Garden business was suspended except for on-line transactions.
Construction activity has largely continued in the Netherlands where our distribution operations have successfully implemented physical distancing measures and, as a consequence, we are currently trading at circa 90 per cent of anticipated revenue.
The UK distribution business is currently trading at circa ten per cent of normal volumes from the provision of materials for emergency supplies and essential projects. From 4 May, many of its branches will return to more extended operations and will gradually expand their offering over the coming days and weeks. Leyland SDM continues to operate most of its branches in Central London on a collection basis. The Irish distribution business is currently trading from all branches during restricted trading hours and is operating at circa 15 per cent of normal volumes though this has been gradually increasing.
We are taking appropriate actions to manage our cost base while protecting jobs and ensuring that our businesses are strongly positioned for a phased return to trading as restrictions in the UK and Ireland are relaxed. The Group is availing of job retention scheme arrangements for almost 9,000 colleagues in the UK and Ireland out of a total workforce of circa 11,000 in the two countries.
Liquidity – Grafton continues to be in a strong financial position with excellent liquidity. As at 24 April, the Group had total liquidity of £562m primarily in accessible cash deposits. In addition, approval has been received from the Bank of England which permits drawdown under their Covid Corporate Finance Facility providing further financial flexibility. No refinancing of debt is due until March 2023, the Group does not have a leverage (net debt/EBITDA) covenant in any of its financing arrangements and its assets are unsecured.”
• Persimmon –Trading Highlights.
“Strong start to the year in the period before the Covid-19 lockdown – average private sales rate per site was c. 10% ahead year-on-year in the first 11 weeks of the period.
Customer enquiries have remained at good levels through the lockdown period providing some encouragement on the resilience of demand.
Current forward sales position, including legal completions taken to date in 2020, remains robust at £2.4bn (2019: £2.7bn).
The average private selling price of a new Persimmon home in our forward order book is c. £244,500 (2019: c. £237,850), c. 17% below the UK national average1, reflecting our commitment to providing 'homes for all'
From the start of this challenging time for the UK, our priority has been the safety, health and wellbeing of our customers, our workforce and the public and Persimmon fully supports the action taken by the UK Government and continues to follow all public health guidance
As announced on 24 April 2020, having developed and tested new site protocols incorporating the latest Government and Construction Leadership Council guidance on social distancing and protective measures, the Group has commenced a phased restart to work on site
To protect our entire workforce, these new measures will be strictly enforced by a specialist team, with a 'Covid-19 Passport to Work' governing site operation
The Group has not made use of the Government's Coronavirus Job Retention Scheme to furlough staff and has no current plans to access any UK Government's Covid-19 funding.”
• Barclays – “As at 24 April 2020 we have facilitated significant commercial paper issuance though the Covid Corporate Financing Facility, lent £737m in Coronavirus Business Interruption Loans, approved over 238,000 mortgage and loan payment holidays, and over 6 million customers and clients are currently paying no personal overdraft or business banking charges. We have launched a community aid package; through which we are donating £100m to support those who are being hardest hit by Covid-19. We expect that all of these measures will help to limit the economic and social impact of the pandemic.
The impact of Covid-19 came late in what was until that point a good quarter. Statutory profit before tax was £0.9bn and profit before tax excluding credit impairment charges was £3.0bn. We have taken a £2.1bn credit impairment charge which reflects our initial estimates of the impact of the Covid-19 pandemic.
The strength of Barclays lies in our diversification by business, geography and currency, which allows us to remain resilient through the developing economic downturn.
Q1 represented a strong income performance in the Corporate and Investment Bank (CIB), where our Markets business had a record quarter as we supported our clients through a period of extreme volatility.
Barclays UK, and Consumer, Cards and Payments (CC&P) showed a resilient income performance in Q1 despite challenges that are expected to remain for the rest of the year.
Group return on tangible equity (RoTE) was 5.1% for the quarter, with attributable profit of £604m, and earnings per share (EPS) of 3.5 pence, excluding litigation and conduct.
Barclays remains well capitalised with a common equity tier 1 (CET1) ratio of 13.1%. Given the uncertainty around the developing economic downturn and low interest rate environment, 2020 is expected to be challenging. However, we believe that a RoTE of greater than 10% remains the right target for the bank over time.
In response to a request from the Prudential Regulation Authority (PRA), we cancelled the full year 2019 dividend payment of 6 pence per ordinary share, and the Board will decide on future dividends and its capital returns policy at year-end 2020.”
• Standard Chartered – “We expect a gradual recovery from the Covid-19 pandemic, with major contraction in economic growth rates across most of the world in the second quarter, before the global economy moves out of recession in the latter part of 2020, most likely led and driven by markets in our footprint. The pace at which individual markets recover will be heavily dependent on the efficacy of government stimulus initiatives and policies to ease restrictions, as well as the resilience of the Covid-19 virus itself. We are well prepared for a protracted period of severe dislocation and will continue to support our clients and employees and to manage our risk, capital and liquidity with that view in mind.
We said in February that if income grows more slowly due to exogenous factors then so must our costs. We are acting to manage our costs prudently while doing everything we can to protect jobs. And while the decision to cancel last year's final dividend and not consider an interim dividend this year was difficult, it was taken in the light of extraordinary circumstances and will ensure that we have more capital to support individuals, businesses and the communities in which we operate through these difficult times.
If we are wrong about the pace of recovery and the global economy gets back on its feet rapidly – and we are seeing encouraging early signs of that happening in China – then the actions we are taking now will make us leaner and fitter to take advantage of the opportunities that will bring.”
Food, Drinks & Household
• Anpario# – “Anpario# has been and continues to operate with little disruption in terms of production and delivery to our customers on a worldwide basis. The continuity plan implemented in early March which included remote working, social distancing measures, split shifts in our production plant, as well as building up inventories has enabled the company to meet the increase in demand from customers and our subsidiaries.
The strong performance in the first quarter is from customers increasing stock levels and recent business development initiatives coming to fruition. Some new customers have been gained as they experienced disruption in deliveries from other suppliers where Anpario# has been able to step in and fulfil their requirements. Our contingency planning in early March included setting up technology to ensure our global sales team could support our customers and continue with business development on a remote basis is effective and has been well received. We see new opportunities to grow market share through remote sales calls, consistent customer service and our continued product development.
Anpario# entered this crisis with a strong balance sheet and as at 25 April 2020 has a cash balance of £13.8m. The Board reaffirms its commitment to the previously announced final dividend of 5.5p, subject to shareholder approval at the AGM on 25 June 2020.”
• AstraZeneca – “AstraZeneca's priority during the Covid-19 global pandemic is to continue to safely supply all of the company's medicines to millions of patients. A description of the specific impact on and the actions by the company regarding the pandemic is shown below.
a) Colleagues – Office-based colleagues are typically working from home; in a growing number of countries that are potentially past the pandemic's peak, however, colleagues have returned to the office, in line with government guidelines. For supply-chain and research and development (R&D) roles that cannot be performed from home, AstraZeneca has put clear processes in place relating to social distancing. In April 2020, the company implemented voluntary assessments of critical supply-chain and manufacturing colleagues at three sites, using the company's own laboratories, to rapidly identify and isolate Covid-19 cases.
b) Supply chain – The company did not see any material disruptions to its supply chain in the period. AstraZeneca's manufacturing sites in China returned to full capacity within weeks of the declared outbreak, with little intervening impact on supply. The company's supply chain includes an effective inventory management policy for each medicine, as well as robust business continuity plans (BCPs). These plans seek to ensure that there are appropriate inventory levels of active pharmaceutical ingredients and critical materials to ensure manufacturing and supply continuity. AstraZeneca's approach to BCP utilises various strategic measures, for example, inventory, dual-supply processes, and operational agility.
Some medicines experienced particular growth in global demand in the quarter, partly reflecting short-term inventory increases in the distribution channel, as well as prescription-lengthening and improved treatment-regimen adherence by patients. This growth in the quarter was within the company's fulfilment capability; AstraZeneca is, however, closely monitoring fulfilment risks, particularly within Respiratory & Immunology.
c) Sales and marketing – Interactions with healthcare professionals and organisations have been significantly impacted and virtual meetings today, especially in the US, Europe and Japan, remain predominant. As part of the early response to the pandemic, AstraZeneca quickly expanded its levels of digital activities, including:
• remote detailing to healthcare professionals;
• collaborating with telemedicine providers and e-pharmacies;
• investing in new platforms designed for communication with healthcare professionals.
In a growing number of countries that are potentially past the pandemic's peak, face-to-face meetings with healthcare professionals have been increasingly reinitiated.
d) Clinical trials – AstraZeneca has focused on ensuring the continued safety of patients in all of its ongoing clinical trials, while activating continuity plans in order to minimise trial disruption from the pandemic. Mitigation strategies included home-based treatment and monitoring options, moving patient recruitment to less-affected regions, and planning for accelerated recruitment once the pandemic has receded. Having assessed the Covid-19 impact across the pipeline, the company does not expect material delays to anticipated dates of late-stage and lifecycle-management news flow in 2020 and 2021.
Impact on operations, performance and the Condensed Consolidated Interim Financial Statements.
The impact of Covid-19 on the company's operations is highly uncertain and cannot be predicted with confidence and the extent of any adverse impact on AstraZeneca's operations will depend on the global duration, extent and severity of the pandemic. To the extent the pandemic adversely affects AstraZeneca operations and/or performance, the company expects it to have the effect of heightening many of the risks described beginning on page 246 in the Risk section of the Annual Report and Form 20-F Information 2019, such as those relating to the delivery of the pipeline or launch of new medicines, the execution of the company's commercial strategy, the manufacturing and supply of medicines and reliance on third-party goods and services.
Guidance on Total Revenue and Core EPS reflects the changing nature and growing strategic impact of Collaboration Revenue which, over time, will primarily comprise potential income from existing collaborations as follows:
• A share of gross profits derived from sales of Enhertu in several markets, where those sales are recorded by Daiichi Sankyo Company, Limited (Daiichi Sankyo);
• A share of gross profits derived from sales of roxadustat in China, recorded by FibroGen Inc. (FibroGen)9;
• Milestone revenue from the MSD10 collaboration on Lynparza;
• Smaller amounts of milestone and royalty revenue from other marketed and pipeline medicines.
The guidance below is subject to the assumption that the global impact of the Covid-19 pandemic lasts for several more months and is based on recent trends in the business. The company will monitor closely the development of the pandemic and anticipates providing an update at the H1 2020 results. Variations in performance between quarters can be expected to continue.”
• Destiny Pharma – “The Covid-19 pandemic has slowed recruitment in the company's lead Phase 2b clinical trial with XF-73 for the prevention of post-surgical infections. Destiny Pharma has also seen a slowdown in some of its grant funded research projects as staff and facilities follow government guidance although the business impact here is minimal. Destiny Pharma is complying with international governmental advice and requirements across its operations to prioritise safety with all employees able to continue working effectively from home with minimal disruption to day-to-day operations as a result of the company's existing virtual model. Through careful management of cash resources Destiny Pharma is currently able to manage the impact of the pandemic and is closely monitoring the situation.”
• EKF Diagnostics – “Announces that it has signed an agreement with Source BioScience UK Ltd ("Source BioScience"), which provides Laboratory testing services for the NHS, to supply PrimeStore MTM, a novel patented sample collection device, to be used for its growing Covid-19 testing service.”
• Airbus – “€8bn cash outflow – €4.4bn operational and €3.6bn in compliance penalties. Says it is the gravest crisis the aerospace industry has ever known.
The already revised production rates of 40 A320, 2 A330 and 6 A350 remain unchanged. This drop equates to a third of total production.”
• Dialight – “We have now received notification that our Mexican manufacturing facilities can reopen. We intend to initiate a phased restart from today.
Similarly, on 22 April 2020 we received notification from the Malaysian government that our Penang manufacturing facility could reopen. We have already initiated a phased restart.
Following these restarts, all our manufacturing facilities will be operational, albeit on reduced capacity in line with local constraints. Enhanced levels of health, safety and welfare measures are being operated for our staff at all our facilities.”
• Elementis – “In the first quarter of 2020, trading has been in line with expectations, with year on year operating profit growth. Our global supply chain operated well with no raw material shortages or plant shutdowns except for, as previously announced, a temporary closure of two sites in China during February. • Personal Care performance was modestly ahead of the prior year period, with resilient Cosmetics performance. AP Actives was stable with good volume growth offset by year on year pricing impacts.
• Coatings revenue grew with strong volumes in Asia and the Americas driven by new business wins and good momentum at global key accounts. Margins improved materially driven by cost savings, an improved product portfolio and lower raw material costs.
• Talc performance was broadly in line with the prior year period as robust sales in plastics and coatings were offset by lower ceramics and paper sales.
• Energy had a challenging start to the year with deteriorating market conditions only partially offset by strong global key account sales.
• Chromium sales were in line with the prior year period but margins declined due to lower pricing, notably outside of North America.
Liquidity and balance sheet – Elementis has a proven cash generative business model, with average operating cash conversion of 90% over the last 3 years. In addition, the Group continues to have significant liquidity, with in total over $300m immediately available through committed lending facilities. Total net debt for the Group (excluding lease liabilities under IFRS 16) was $454m at 31 December 2019, representing a ratio of 2.7x EBITDA* compared to a recently relaxed banking covenant of 3.75x*, which will apply for the next two testing periods (i.e. 30 June 2020 and 31 December 2020).
Proactive Covid-19 measures – To safely service customer demand the company has taken proactive steps to protect its people and maintain operations during the Covid-19 situation. The company's 22 operating sites continue to operate well, with the exception of a two week shutdown of our Palmital (Brazil) site in April. Construction of our new site in Mumbai, India, has been temporarily stopped due to government restrictions on operations.
In addition to the previously announced suspension of the 2019 final dividend, saving approximately $33m, and the temporary relaxation of banking covenants, the Group has taken the following further actions:
• Stopping all discretionary spend;
• Reducing manufacturing costs based on lower demand;
• Identifying additional working capital reductions.
Outlook – Although first quarter trading was in line with expectations with improved profitability, the macro-economic and end-market outlook is highly uncertain and we have seen an approximate 15% year on year decline in April revenue. Given the uncertain environment no specific guidance is provided for the remainder of the year, although we will update as and when visibility improves. We continue to tightly and actively manage the business in terms of costs and cash flow to address changes in demand.”
• Ford – “Unit sales were down 21% in Q1 and it is expecting an EBIT loss of $5bn in Q2. It is restarting in Europe next week Saarlouis, Cologne, Valencia and Craiova (Romania). Dates for Dagenham and Bridgend have yet to be decided.”
• Synthomer – “The Group continues to operate 37 of its 38 global manufacturing sites, with speciality chemicals designated as key industrial assets in the geographies in which Synthomer operates. To date, the Group has experienced no significant issues with regards to raw material supply, the distribution of finished goods or the availability of operating personnel.
Notwithstanding Synthomer's broad geographic and end market diversity, Q2 sales into industrial markets including Automotive and the Oil & Gas sector are currently being impacted. However, demand for Nitrile continues to be strong particularly as a result of the Covid-19 pandemic.
As previously announced, the Group has a strong balance sheet with significant leverage covenant headroom (4.25x and 4.00x EBITDA for 2020 and 2021), and significant liquidity underpinned by the 2024 committed unsecured 5 year €460m RCF and $260m term loan bank facilities.
Synthomer expects to reduce its capital expenditure for 2020 to approximately £50m from the £73.5m originally anticipated (including OMNOVA). The Group has recently completed a material capital expenditure programme and its asset base remains well invested.
Under the current circumstances, the Group's Board, Executive and Senior Management have frozen their salaries at 2019 levels and delayed any further review until October 2020.
Following the completion of the OMNOVA transaction, as announced on the 1st April 2020, the ongoing integration of the business is progressing. We confirm delivery of the expected $29.6m synergy is on track. OMNOVA reported EBITDA Q1 2020 marginally ahead of Q1 2019 but given their exposure to a broad range of industrial markets expect an impact from the Covid-19 pandemic in the months ahead.”
• Dalata Group – “The sudden onset of Covid-19 has had a very significant impact on our business. For the first quarter of 2020, RevPAR on a 'like for like'1 basis decreased by 24.3% at our Dublin hotels, 14.0% at our Regional Ireland hotels and 18.6% at our UK hotels. Adjusted EBITDA for the first quarter of 2020 was €17.7 million. These figures include 2 months of normal trading before the effects of the global pandemic were first felt in our business. Our results for subsequent periods will reflect the fact that currently our hotels are either temporarily closed or operating at significantly reduced capacities in line with guidelines issued by the Irish and UK Governments.
It is not yet known when the current restrictions on travel and movement will be lifted in Ireland and the UK. The outlook for the remainder of the year remains uncertain as a result.
To date, we have implemented several measures to mitigate the financial consequences of the impact of Covid-19 and to maintain our strong liquidity. We announced last week, that we have agreed the sale and lease back of Clayton Hotel Charlemont in Dublin to Deka Immobilien for a consideration of €65 million. This transaction, which we completed on 24 April, strengthens our considerable cash resources during the current Covid-19 crisis and ensures that financially we are in a strong position to trade through the crisis. We have significant financial headroom and will be in compliance with covenants in June 2020.”
• Ascential – “The majority of Ascential's revenues come from robust digital subscriptions and platforms and high repeat advisory revenue streams. However, the company does derive 25% of its revenue from live events and 8% from its Cannes Lions benchmark product. As previously announced, as a result of the impact of Covid-19 restrictions, the company has cancelled the 2020 edition of the Cannes Lions Festival and its associated regional events, which comprised just over half total revenues in the Marketing Segment in 2019. Additionally, we have deferred the Money20/20 Asia and Money20/20 Europe events from H1 to August 2020 and September 2020, respectively.
In order to mitigate the impact of both cancellations and deferrals as a result of Covid-19 restrictions, we have previously announced the suspension of the share buyback programme and the 2019 final dividend, a temporary reduction of 25% in the Executive Directors' salaries and Non-Executive Director fees, and a suspension of the previously proposed 2020 annual salary increases across Ascential.
In addition to these previously announced measures, Ascential has identified a further £20-£40m of prudent cost saving measures in the current financial year, which can be deployed as the year evolves. Our objective will be to balance near-term cost focus with the importance of preserving and nurturing Ascential's market leading positions and capabilities and its ability to deliver a strong rebound in 2021.”
• Malvern International – “All of Malvern UK learning centres are currently closed as is its school in Singapore. While some teaching has been successfully moved online, the company has experienced a very significant drop in revenue and cash inflow. As there is no certainty as to when and how Covid restrictions will be lifted or how quickly trading activity will be able to resume, there is considerable uncertainty as to the company's prospects. It is currently anticipated that the company's existing working capital facilities will be exhausted by the end of May. The company is in discussion with its existing major shareholders and debt providers regarding the raising of additional funding.”
• WPP – “In March, LFL revenue less pass-through costs was -7.9% as the impact of Covid-19 began to be felt more widely across our business.
As announced on 31 March 2020, we have already taken a number of actions to reduce cost to protect profitability, where possible, from a decline in revenue less pass-through costs. These include: freezing new hires; reviewing freelance expenditure; stopping discretionary costs, including travel and hotels and the costs of award shows; and postponing planned salary increases for 2020. In addition, members of the WPP executive committee, as well as the Board, have committed to taking a 20% reduction in their salaries or fees for an initial period of three months. We anticipate these actions will generate total in-year savings for 2020 of £700-800 million.
More recently, we have implemented a range of additional measures, including voluntary salary sacrifice and part-time working. Over 3,000 people with salaries above certain levels have already committed to give up 10-20% of their salary for an initial three-month period. While we continue to protect our people as much as possible from redundancy, as well as ensure our ability to serve clients and grow when markets recover, we have had to reduce headcount in certain areas.
Given the significant uncertainty over the immediate outlook, we have modelled a number of economic scenarios and developed detailed cost actions against each of these, using a combination of the cost savings outlined above. Owing to the flexibility of the cost base, we are able to respond quickly and will reduce cost further if the depth and length of the downturn requires it, as well as ensure the business is ready to take advantage of any market recovery.
Balance sheet and liquidity – WPP has a strong balance sheet and good liquidity. Over the last two years, we have raised approximately £3.2 billion from our disposals programme, selling 50 businesses and investments.
As at 31 March 2020 we had cash of £1.7 billion and total liquidity, including undrawn credit facilities, of £4.4 billion. Net debt was £2.8 billion, down from £4.6 billion a year earlier, and average net debt over the three-month period was £2.1 billion. The significant reduction in net debt year-on-year reflects the proceeds of the disposal programme, good underlying cash generation and improved working capital management. The increase in net debt since the year-end reflects normal seasonal working capital movements and share buybacks.
Our covenants, which relate to our $2.5 billion revolving credit facility, are <3.5x net debt/EBITDA and >5x EBITDA/net interest. Our bond portfolio at 31 March 2020 had an average maturity of 7.9 years, with only one bond due in the next two years (May 2020 €250 million Eurobond).
During the period we received a further £137 million in consideration for the Kantar transaction and spent £285 million on share buybacks.
As previously communicated, to preserve liquidity the Board has decided to suspend the share buyback programme and the 2019 final dividend. These two actions together will preserve approximately £1.1 billion of cash. The Board will continue to review the status of both the share buyback and the 2019 dividend.
We have identified capital expenditure savings in excess of £100 million in property and IT against an initial 2020 budget of around £400 million. We continue to monitor our working capital position, working closely with our clients to ensure timely payment for the services we have provided in line with contractual commitments.”
• Fresnillo – “In conjunction with the Mexican Mining Chamber, other mining companies and union, Fresnillo has engaged in a series of discussions with government officials at both the Federal and local level to seek ways in which
the mining industry can maintain certain limited operations while prioritising the well-being of all workers and local communities. Those discussions are on-going.”
• Tritax Eurobox – “The company's diversified income stream is supported by a wide tenant base comprising retailers, manufacturers, third party logistics providers, pharmaceutical, food and drink and packaging companies. 58% of the company's income is generated by occupiers in the retail sector, 80% of which are online retailers, either exclusively or significantly.
The Management team has been in regular contact with all 21 tenants in the portfolio as the crisis has unfolded and is closely working with them on a case by case basis in a supportive and commercial way.
All tenants are still operating their properties, although some are operating at reduced capacity due to lower business volumes or government restrictions. This continued usage, alongside the significant investment that our tenants have made in our buildings, demonstrates that these are key operating assets for their businesses, as well as being essential in providing the goods and services that the underlying customers continue to require.
All rents due for the quarter ended 31 March 2020 have been collected. With regard to the company's rental receipts for the quarter ending 30 June 2020, the position is as follows:
• While the company has confidence in the financial strength of all tenant businesses, it has supported two tenants by temporarily delaying some of their rental payments by formally agreeing staged payment plans, and it is still in discussion with a third tenant.
• Approximately two thirds of the company's rental income is payable in advance on a monthly basis with the remainder payable on a quarterly basis.
• Of the total €10.14 million rent due to the company between 1 April and 30 June 2020, an amount of €1.6 million (15.7%) has been agreed to be delayed and repaid during 2021.
• The company is still in discussion with one tenant on the repayment terms of €0.35 million of rent (3.4% of the total quarterly rent demanded).
• The company also has the additional security of 14 rental deposits and bank guarantees and seven parent company guarantees across its portfolio.”
• Dixons Carphone – “In April we have seen strong demand for home office equipment including computers and home networking as people work and communicate remotely. Gaming and TV sales have also been strong. In kitchen products, refrigeration and food preparation including bread makers have sold particularly well. The latter part of the month has seen increased sales for personal care products and fitness trackers. In contrast, sales for other major domestic appliances have fallen as home moves stall and the imaging market continues to decline.
During this period, we closed our 531 standalone Carphone Warehouse stores in the UK as the Group took the next step in its transformation as customers change how they buy mobile devices, connectivity and technology. The stores closed 11 days earlier than planned. As a result of these closures our UK&I Mobile sales will no longer be disclosed on a like-for-like basis; total sales will be reported in full year results.
Liquidity Update – The Group has extended its committed debt facilities with an additional £266m RCF and now has total committed facilities in excess of £1,350m. At the year end the Group will have net debt (excluding IFRS16 lease liabilities) of around £300m and access to over £1bn of unutilised committed facilities.
Measures to preserve liquidity were announced on 26 March 2020 and included Government cost support, discretionary spend control, capital expenditure reduction, working capital control and Government support of tax payment delay.
These combined measures put the Group in a robust position. We do not foresee needing to access any additional liquidity, and we expect to comply with bank covenants unless substantially all of our operations are required to close for an extended period.
Full Year Dividend – Given the uncertainty and need to build for the future, the Board has decided not to pay a full year dividend for the current year. Dividend payments will not be resumed until our standby debt facilities have been cancelled, which can be done at any time and is something we would plan to do when there is more certainty over the future.
Operational Update – Since the start of this crisis we have focussed the business relentlessly on three priorities: keeping our colleagues and customers safe, helping our customers and securing our future.
Keeping Our Colleagues and Customers Safe – There is no bigger priority than our colleague and customer safety and we have been taking further steps to protect them during recent weeks while meeting high customer demand for vital products and services. It is through these measures we are able to ensure social distancing, maintain the highest standards of customer safety, and continue to deliver to customers the technology they need. Our colleagues have risen to this challenge brilliantly. We have been clear that we will not ask colleagues to do anything that they are not comfortable with.
Stores – In line with Governments' regulations, the Group's stores in Greece closed on 18 March and all UK and Ireland stores closed on 24 March. All Nordics stores have remained open throughout the period, except for four stores located in shopping centres in Denmark and three stores in Norway due to low footfall.
In Nordics stores we have ensured colleague and customer safety through measures including protective barriers for cashiers, contactless payment, pre-paid pickups and increased cleaning and hygiene actions.
Online – Across the group, the online operations have remained open. To ensure delivery colleague safety, shift patterns have been adjusted to reduce potential congestion and rosters are designed to keep colleagues in the same pairs and the same vehicle wherever possible. Among many measures, our colleagues are equipped with masks and full safety equipment, deliveries are done on a no-contact basis. We ask customers to keep 2 metres from our colleagues while they are delivering to, or working in or near, their homes.
We have reduced the repair and installation services offered. We are only repairing vital items such as washing machines, cookers or refrigeration units.
Similarly, we currently only offer installation for cookers which are necessary for customers and their families to eat.
Our distribution centres have introduced extensive measures to keep our colleagues safe, including social distancing in all areas, one-way systems, signage and tannoy reminders, regular cleaning and sanitisation of all frequently touched surfaces.
We've consulted a range of organisations including the British Retail Consortium as well as Environmental Health Officers, which are supportive of the measures we have put in place.
Head office and customer service – All UK contact centres and offices have enabled working from home for all colleagues through providing set up laptops and increasing VPN access. Our UK head office building has been closed since 20 March with continuity of operations maintained.”
• Next – “At a time of unprecedented uncertainty, we are using this trading statement to give shareholders a comprehensive, and much longer than normal, update on our trading and operational environment. We include a revised stress test of the company's sales, costs, cash flows and finances for the current year. The headlines are as follows:
Sales – The fall off in sales to date has been faster and steeper than anticipated in our March stress test and we are now modelling lower sales for both the first and second half of the year.
Costs – We believe that we can achieve higher cost savings and stock cancellations than we originally anticipated.
Cash – We have increased the company's cash resources through asset sales, and through suspending share buybacks and dividends.
Facilities – We have taken further steps to secure our debt finances by agreeing with our banks to waive the financial covenants in our Revolving Credit Facility (RCF) for the coming year. We have also secured additional borrowing facilities through the Government's Covid Corporate Financing Facility (CCFF) though, at this time, we think it is unlikely that we will need to draw on these additional funds.
The conclusion is that we now believe that the finances of the company are as secure as when we announced in March, if not more so.
Much will depend on our ability to continue increasing the capacity of our Online operations within the constraints of new safe working practices and on the timing of store re-openings. Nonetheless we believe that, even in our worst scenario, with full year full price sales down -40%, the mitigation we have put in place means that: the company can operate comfortably within its cash resources and we will end the year with less net financial debt than at the end of last year.” Full release.
• NWF# – “As set out in the interim results on 28 January 2020, the Group delivered a strong performance in the first half, with increased activity levels in all divisions. The Group continued to trade well through the third quarter, in line with the Board's expectations.
Given the essential nature of the products supplied by the Group, we have seen a significant increase in demand and activity levels during March and April to date. Whilst some cost and operational restructuring has been required to accommodate this, it has resulted in an acceleration of the trading momentum through the final quarter of the year. Furthermore, the Fuels business and its customers have benefited from a significant fall in oil prices over recent weeks which will make material contribution to profits in the short term.
In Food demand reached unprecedented levels during March and April as food retailers managed a significant surge in demand for ambient groceries. We have worked with food manufacturers and retailers to meet this demand and have now established a sustainable supply position. Whilst operations were initially inefficient through the demand spike, performance is now at optimised levels in the circumstances with the some of the additional revenue from this activity being offset by additional costs required to ensure safe working. Progress is being made in the new warehouse at Crewe with 12,000 racking spaces available to date, stock being stored and shipments commencing broadly in line with our plans.
In Feeds demand has been in line with expectations and we continue to deliver greater volumes of ruminant feed than the prior year. A recent significant increase in feed commodity prices, particularly proteins, is impacting the business in the short term.
In Fuels performance across both the core and acquired businesses was strong through to the end of February with the former trading well ahead of prior year. Demand for heating oil increased significantly in March and into April combined with a deep, sharp and sustained fall in the oil price that has enhanced margins. Demand from commercial customers has been significantly reduced given lower levels of economic activity during lockdown.
Outlook – In light of the backdrop, visibility remains limited and the Board is mindful of the considerable uncertainty as to outlook moving forward. However, whilst it is expected that activity levels will reduce in May, given the previous strong underlying performance of the Group, combined with benefits to date of the higher demand and a lower oil price experienced recently, the Board now anticipates that overall trading for the full year will be significantly ahead of prior year.
At this point and in light of the ongoing uncertainty, the Board does not believe it is appropriate to provide guidance on performance for the year ending 31 May 2021. However, the Board has been encouraged both by the strong performance of the Group as well as the exceptional response by its people to the Covid-19 outbreak and remains confident in the long-term prospects of the Group.”
• Trainline – “Today announces that its lenders have waived the financial covenant in respect of its £350 million revolving credit facility until August 2021 to support the business through the Covid-19 pandemic and the related impact on trading.
The financial covenant, tested semi-annually, requires that Trainline's net debt position does not surpass 3.75x adj. EBITDA for the prior twelve months.
Today's announcement underlines the Group's confidence that it can operate through an extended downturn period if required. It follows Trainline's announcement on 9th April 2020, which outlined the mitigating actions it has taken in response to the Covid-19 pandemic, reducing its monthly cash outflow from operating costs and capital expenditure to c.£8-9 million, together with its liquidity headroom of c.£150 million forecasted as at the end of May 2020.”
• IAG – “Total revenue declined by 13 per cent to €4.6 billion compared to €5.3 billion in the prior year period. Operating result before exceptional items was a loss of €535 million compared to a profit of €135 million last year. In addition, IAG's pre-tax profit was impacted by an exceptional charge of €1.3 billion resulting from the ineffectiveness of its fuel and foreign currency hedges for the rest of 2020 due to over-hedging. This exceptional charge is measured as at the quarter end date. Detailed results for the first quarter will be released as planned on 7 May, accompanied by a presentation and conference call for analysts and investors.
The operating result in the first two months of 2020 was similar to that of last year, despite the suspension of flights to China due to Covid-19 from the end of January. All of the reduction in the operating result in the quarter compared to last year came in March. The majority of the reduction in IAG's operating result was incurred by British Airways, followed by Iberia and Aer Lingus, while Vueling experienced a modest increase in operating loss.
Capacity – Passenger capacity, expressed in terms of available seat kilometres, declined by 10.5 per cent in the quarter. Passenger traffic in terms of revenue passenger kilometres declined by 15.2 per cent in the quarter. Seat load factor for the quarter declined by 4.3 points to 76.4 per cent.
IAG has reduced passenger capacity in April and May by 94 per cent compared to last year, only operating flights for essential travel and repatriation. Between 22 March and 26 April IAG Cargo undertook around 350 additional cargo only return flights, primarily on long-haul routes with passenger wide body aircraft. Passenger capacity from June will depend on the timing of the easing of lockdowns and travel restrictions by governments around the world.
British Airways redundancy consultation – In light of the impact of Covid-19 on current operations and the expectation that the recovery of passenger demand to 2019 levels will take several years, British Airways is formally notifying its trade unions about a proposed restructuring and redundancy programme. The proposals remain subject to consultation but it is likely that they will affect most of British Airways' employees and may result in the redundancy of up to 12,000 of them.
As previously announced, British Airways has availed itself of the UK's Covid-19 Job Retention Scheme and furloughed 22,626 employees in April.
Outlook – As announced on 28 February 2020, given the uncertainty on the impact and duration of Covid-19, IAG is not currently providing profit guidance for 2020. However, the Group expects its operating loss in the second quarter to be significantly worse than in the first quarter, given the substantial decline in passenger capacity and traffic and despite some relief on employee costs from government job retention and wage support schemes.
Total cash and undrawn general and committed aircraft finance facilities amounted to €9.5 billion at the end of March, including €6.95 billion of cash, cash equivalents and interest-bearing deposits.
Recovery to the level of passenger demand in 2019 is expected to take several years, necessitating Group-wide restructuring measures.”
• The US economy shrank by 4.8% in Q1, its most severe contraction in more than a decade in the first quarter of the year. This number does not include the April shut down, where 95% of the country was in some form of lockdown.
• The owner of Odeon Cinemas AMC has banned all Universal films after the studio said it will release new movies at home and on the big screen on the same day. The ban will cover its 1,000 cinemas worldwide. It follows comments from NBCUniversal which said the film Trolls World Tour had performed well despite only being available on streaming services. The children's film is reported to have generated sales of nearly $100m. Trolls World Tour was scheduled for release in cinemas at the beginning of April. However, with cinemas currently closed, it was offered as a Premium Video on Demand (PVOD) on streaming platforms such as Apple TV.
• Malawi's President, Peter Mutharika, has announced an emergency cash transfer programme for people worst affected by Covid-19. Eligible households will receive a monthly payment of 35,000 Malawian kwacha ($47; £38) by mobile cash transfer starting in May. The announcement came after the High Court in Malawi extended an order preventing the government from implementing a three-week lockdown.
• Vietnam has had 13 consecutive days without community transmissions. While sharing a border with China, Vietnam has only seen 240 cases.
• US President, Donald Trump, has ordered meat processing plants to stay open to protect the nation's food supply. Invoking a Korean War-era law from the 1950s to mandate that the plants continue to function, amid industry warnings of a strain on the supply chain. Twenty-two US meatpacking plants across the American Midwest have closed. Including slaughterhouses owned by Smithfield Foods, Tyson Foods, Cargill and JBS USA.
• Free visa extensions are to be automatically granted to overseas health and care workers in the UK.
• KFC has announced plans to expand its delivery services in the UK. The fried chicken chain had already reopened 20 restaurants and says it will open another 80 next week.
• Germany is going to extend its global travel warning until 14 June, according to Der Spiegel newspaper.
• The reopening of schools in England is expected to take place in a “phased manner,” says the Education Secretary Gavin Williamson.
• Domestic flights in Ghana are set to resume by the weekend, according to the aviation minister.
• The International Monetary Fund (IMF) has approved a $3.4bn (£2.7bn) emergency fund to support Nigeria’s efforts to limit the effect of the coronavirus pandemic and the sharp fall of oil prices.
• Ukraine's national airline has cancelled a special flight taking seasonal contract workers to the UK.