Coronavirus - Withdrawal symptoms
29 May 2020
The chancellor Rishi Sunak will set out the details of the extension to the furlough scheme today. It is expected that companies will now be asked to contribute a percentage to the cost of the scheme, which has been extended until October. It is likely the amount companies are required to contribute will increase over time and businesses will need to face the reality of maintaining a full complement of staff. Today, Renault was the latest company to announce job cuts as it reorganises itself for the new reality. More will follow over the next few months.
• Renault cuts 15,000 jobs worldwide.
• South Korea has re-imposed lockdown in some schools.
• Brazil has the most new daily infections, overtaking the US.
• Spain's La Liga will resume on 11 June.
• WHO warns of new outbreaks that will build quickly.
Buildings & Construction
• SIG# – “As a result of government restrictions that were implemented to mitigate the spread of Covid-19, large sections of SIG's end-markets experienced a severe reduction in sales. During April, the fourteen-day rolling average daily sales in the UK and Ireland reduced to approximately 12% of their average daily sales between January and mid-March (i.e. pre Covid-19 levels), reflecting the closure of the majority of SIG's trading sites in response to government advice. By mid-May, the fourteen-day average daily sales had recovered to over 50% of pre Covid -19 levels as the Group's sites and customers began to re-open. The Group had re-opened over 80% of the UK and Ireland sites by the middle of May.
In France, although trading continued from all sites, the fourteen-day rolling average daily sales had reduced to approximately 32% of pre Covid-19 levels by early April, recovering to pre Covid-19 levels by the middle of May. The impact was less severe in Germany, Poland and Benelux, where trading continued from all sites and revenue fell to approximately 82% of pre Covid-19 levels. By the end of April, these countries saw activity back to pre Covid-19 levels.
In response to the challenges posed by the Coi-19 pandemic, the Group has implemented a comprehensive set of actions to reduce costs and manage liquidity. These actions include, but are not limited, to:
• Employees: Over 2,000 employees were furloughed under the UK government's scheme and the majority of trading sites across the UK and Ireland were temporarily closed. Remaining staff agreed to take up to 20% temporary pay reductions, with the salaries of all members of the Board temporarily reduced by 50% from 1 April to 30 June 2020. In mid-May, the Company re-instated the executive Directors' pay to 80% at the same time as other Group employees were returning to work on full pay. The furloughing of employees, combined with other wage saving initiatives, has enabled the Group to retain an incremental c.£8m of cash in the period to May 2020.
• Government support: Relevant government support is being accessed in all countries of operation, across employment support, tax and social security deferrals and the business is assessing whether to apply for government loans (which are currently being considered in France and Germany, in coordination with the Group's existing financial arrangements). Tax and social security deferrals have been implemented where available in the UK (PAYE/NIC, VAT), in France (social charges, pension contributions), Germany (VAT), Poland (corporation tax), Belgium (VAT, payroll tax) and the Netherlands (VAT, payroll tax). In the aggregate, use of government support schemes has enabled the Group to defer approximately £15 million of cash payments in the period through May 2020.
• Capital expenditure: Programmes that require significant cash investment or do not provide near-term business benefits have been paused, including major IT projects.
• Customers: The Group has maintained a sharp focus on proactively managing collections and monitoring overdue payments.
• Trade suppliers: The Group has conducted active discussions with large trade suppliers, in order to maintain continuity of supply while netting rebates and agreeing slower payment plans where possible.
• Non-trade suppliers: Deferral and terms extension requests are being managed across non-trade suppliers, with a significant focus on IT, services and property, with property rates being deferred on UK properties and 'empty' or 'retail' relief claims submitted.
• Landlords: A number of UK landlords have been approached to request that the June rent quarter payment is spread across the subsequent two quarters. In other cases, lease extensions are being offered in return for rent-free periods. The Group's business in Poland has also approached landlords for rent reductions.
• Fleet leases: Payment holidays have been requested from fleet lease providers.
• Dividend: The Board took the decision not to declare a full year 2019 dividend, nor to consider any return to shareholders of the proceeds of recent disposals.
The Group's ability to maintain its liquidity position during this period of extreme uncertainty reflects the effectiveness of the mitigating actions initiated by the Board, the agility of the organisation and the experience of the managers who enacted these measures throughout the Group.
Notwithstanding the effectiveness of these actions, the prolonged impact of Covid-19 is anticipated to have significant consequences on the Group's financial performance in 2020, both in terms of profitability and cash.
Group revenue for the two months ended 29 February 2020 was £296.0m, down £36.8m from the prior year (two months ended 28 February 2019: £332.8m), a like-for-like decline of c.11%. Trading in the UK and Germany saw a continuation of the challenging trends seen in the last quarter of 2019, whilst trading activity in the rest of Europe was relatively stable.
Due to reduced sales volumes in key markets, gross profit margin fell compared to the prior year period (two months ended 28 February 2019).
As reported in the Group's trading update on 26 March 2020, the Group posted an underlying operating loss of c.£9m, pre IFRS 16, in the first two months of the year.
Covid-19 period (March 2020 to April 2020) – Group revenue for the two months ended 30 April 2020 was £235.0m, down £138.9m from the prior year (two months ended 30 April 2019: £373.9m). Revenues in the period were significantly impacted by the Covid-19 outbreak, particularly in the UK, Ireland and France.
On 30 March 2020, the Group announced that large parts of its UK market had seen sales fall away rapidly, in common with the broader construction industry. It was concluded that it was necessary and appropriate to temporarily close UK operations. Trading sites in Ireland were also temporarily closed due to restrictions implemented by the Irish Government.
The UK and Ireland businesses remained open to service critical and emergency projects only, such as for the NHS, energy and food sectors. Revenue, during the closure period in April, reduced to c.£0.4m per day on average, a reduction of c.86% compared to February. By mid-May, the fourteen-day average daily sales had recovered to over 50% as the Group's sites and customers began to re-open. The Group had re-opened over 80% of the UK and Ireland sites by the middle of May.
Trading activity suffered a temporary setback in France following the short-term closure of all branches for three days in mid-March, with the fourteen-day rolling average daily sales reduced to approximately 32% of pre Covid-19 levels by early April. A staged reopening throughout April and into early May saw, on average, France trading at c.56% of pre-Covid-19 revenue levels in April, recovering to pre Covid-19 levels by the middle of May.
The Group's operating companies in Germany, Poland and Benelux were impacted by government measures to a lesser extent, where trading continued from all sites and revenue fell to approximately 82% of pre Covid-19 levels. By the end of April, these countries saw activity back to pre Covid-19 levels.
Similar to the first two months, the Group's gross profit margin in March and April was negatively impacted by the decline in overall sales, combined with a shift in mix away from the more profitable roofing merchanting businesses in the UK and France.
During the period, the Group has taken decisive cost actions in response to Covid-19 as well as accessing the government-supported job retention schemes, resulting in a reduction in its operating costs year-on-year.
Outlook – As a result of the impacts of declining revenues under the previous strategy and Covid-19 on the construction industry across Europe generally, management expects revenues for 2020 to be approximately £500m lower than 2019 as reported, post the disposal of the Air Handling division. Management is targeting a return to around 2019 levels of Group revenues (as reported, post the disposal of the Air Handling division) in 2022.
While those geographies that were less severely impacted by Covid-19 are expected to recover faster, those which need strategic improvements may take longer to see the impact of management actions. The focus of the UK business through the second half of 2020 will be to continue to put the correct leadership structures and people in place, and restructuring the organisation to better position it to recapture market share. The planned combination of the leadership teams in UK Distribution and UK Exteriors is expected to reduce and simplify the central functions, resulting in a potential reduction in operating costs within the UK businesses of up to £4m, after investments in front line sales to drive growth. In Germany and Benelux, the consolidation of the management structure is also intended to return Germany to growth after recent underperformance. In France, where the Group has shown resilience over the last few years, the business is expected to recover to targeted levels of revenue faster given its strong existing platform in the region.
Management remains focused on the overall levels of operating cost in the business which, if properly controlled, can result in significant operational gearing. The Group aims to grow its market share over time to leverage its cost base, which the Group seeks to supplement with improved processes and systems which the Board believes will improve Group productivity. The new strategy will be focused on growth with limited cost reductions outside the merging of senior management and central support functions in the UK and Germany and Benelux. Management's medium term target is to restore an operating margin of approximately 5% within the Group's operating companies and a Group operating margin of approximately 3%, trending towards approximately 5% in the longer term.
Depreciation and amortisation as a percentage of sales is expected to remain in line with historical levels going forward, capital expenditure is expected to run slightly ahead of depreciation and as a percentage of sales return to historic levels given management's strategic plan focusing on operational improvements rather than requiring large capex investment.
The loss of revenues in 2020 is expected to impact profitability, cash generation and therefore debt levels. The Group's cash conservation measures have resulted in estimated cash savings of approximately £23m through to May 2020, comprising approximately £8m of wage savings under the furlough schemes and other wage saving initiatives and a further approximately £15m of tax and other deferrals. As at 30 April 2020, the Group had £155m of cash and a net debt position, pre IFRS 16, of £114m. The unwind of these cash conservation measures, as well as the expected growth in sales, is expected to lead to a higher working capital position by the year end. As the Group returns to growth it will also require more working capital in the business, compared to its average historic levels, both to improve the service to customers and to support the Group's sales growth.”
• Volvere – “The Group's trading businesses are both food manufacturers and, as a result, have an important part to play during the current Covid-19 pandemic.
In the first quarter of 2020 there has been an uplift in sales made to our retail customers when compared with the comparable period of 2019. However, it is too early to say whether this will be sustained and ultimately translate into higher sales for the Group for the year overall. In both Shire and Indulgence there are foodservice customers from whom we have seen a downturn in orders.
In the case of Shire, foodservice represented about 12.5% of sales in 2019. We have some reducing debt and stock exposure to those customers but at this time we expect that, once the pandemic restrictions are eased, normal trading will resume over time.
In Indulgence, foodservice previously represented a larger part of sales, but as we are actively rebuilding that business, historical sales are less important. More generally, since the acquisition date, we have been working to improve customer and supplier relationships, increasing teamwork and investing in new systems – and whilst we have been encouraged on a number of fronts, there is still work to be done in making the business more efficient and reducing costs.
Throughout the Covid-19 period to date we have not seen material staff absences from illness and at both companies we have put in place mitigating measures to try to reduce the risk of internal contagion. Whilst those measures are modestly affecting our short-term capacity and resulting in increased labour costs, we are still achieving an encouraging level of output and, for the most part, meeting customer demand. Our staff's welfare is a continual focus.
Irrespective of the current pandemic, the Group is in a strong financial position, with significant cash resources.
We are already seeing increased levels of distressed deal flow due to the Covid-19 pandemic. The length of the economic effects is uncertain, but I fear it is likely to extend well into 2021 and possibly beyond. The anticipated reductions in financial support from state schemes will probably trigger more hardship for individuals and companies.
We will do what we can to rescue those businesses which we believe viable, in all sectors and geographies, in accordance with our investment mandate, but with added focus on building a larger group of food businesses, leveraging our competencies in this area.”
Food, Drinks & Household
• Benchmark Group – “The Group reported revenues from continuing operations of £57.0m and an Adjusted EBITDA from continuing operations of £2.8m in H12020 as a result of continued weakness in the shrimp markets, oversupply of Artemia, and the early impact of the Covid-19 pandemic which overshadowed a robust performance in the Genetics business.
An estimated 60% of demand for shrimp derives from the food services sector which has been critically affected by the global lockdown; the sea bass/bream sectors have a similar exposure but the longer production cycle reduces volatility and impact has been modest. In salmon, by contrast, 70% of demand is represented by retail, which has tended to benefit from the lockdown measures with an increase in home consumption of salmon in certain markets including the US. In addition, the two and a half to three year production cycle in salmon means that demand for salmon eggs is less affected by the short term impact from Covid-19.
The Company began to experience the impact from Covid-19 in the Advanced Nutrition business in Asia towards the end of the Period. In addition to the fall in demand for shrimp, which drove down the shrimp price and resulted in reduced production, curfews and regional quarantines in major producing countries affected production volumes. At the same time, the sector experienced transportation lockdowns across the supply chain from hatchery to nursery, grow-out and end markets which increased economic pressure across the value chain, impacting farm gate prices and stocking decisions.
Covid-19 measures – The Group took early action to protect the health and wellbeing of its staff, to ensure continuity of supply and service for its customers and to conserve cash and maintain headroom. We have implemented remote working for office-based employees, adapted shift patterns at manufacturing sites worldwide to reduce employee exposure and enhanced safety procedures.
We continue to serve our customers with limited interruption to date. We have built an inventory of product and key ingredients in response to the risk from border closure and freight and logistical challenges, and are conducting regular customer support webinars and generating online content which will remain a positive addition to our service offering post Covid-19.
From a financial perspective, actions taken by the Company to date to conserve cash include reducing variable costs where possible; cuts and delays to R&D and capex spend; and working capital management. We have initiated a review of our vaccine strategy and pushed back the launch of our SPR shrimp and of our 100% Artemia replacement to align the timing to a market recovery. We have furloughed, reduced working hours or applied temporary salary cuts or temporary redundancy to c.20% of our workforce, with the implementation of these measures corresponding with the areas of our business that are being most impacted. Our Board and our Operations Board have voluntarily taken a temporary 20% salary cut.
Update on programme of disposals and restructuring – Despite the challenges raised by the Covid-19 pandemic, we remain firmly focused on completing the planned disposals and restructuring of the Group to focus on our core aquaculture disciplines and on reducing our cost base in order to transition from R&D investment into profitability.
To-date, we have completed four disposals raising a total of £2.4m and expect to generate £27m-£30m from planned disposals which are underway. In addition to the previously announced disposals, the Company has initiated a review of its vaccines strategy to define the best route to realise value from its technology and assets. The Company aims to deliver a minimum of £10m in annual savings from its restructuring and cost savings plan.
We expect market conditions in shrimp and the operational and economic effects from the Covid-19 pandemic to continue to impact our Advanced Nutrition business for the rest of the financial year. Encouragingly, Genetics continues to perform robustly reflecting more stable demand for salmon and we have good visibility of the order book for the rest of the year. Our commercialisation plan for BMK08 is progressing and whilst timing is reliant on any potential impact from Covid-19 on the regulatory approval process we remain on track to launch in Q22021 CY.
It is too early to fully assess the level of impact of the Covid-19 pandemic on the current financial year ending 30 September 2020. We recognise the uncertainty regarding the possibility of a second wave of infection and it is too early to assess the speed of economic recovery as markets reopen. In line with the market we expect an average three-month lockdown phased in territories across the globe, followed by a gradual six to twelve month recovery period. In territories coming out of lockdown we are starting to see cautious signs of recovery.
We are in a solid financial position following the net £42m fundraising earlier this year and expect that the measures we are taking to maintain our production and commercial functions, and to conserve cash, will enable us to remain resilient during this period. Longer term the fundamentals of our business are very attractive with an increasing need for products and solutions that enable sustainable food production.”
• Renault – “Is cutting 15,000 jobs worldwide as part of a €2bn cost-cutting plan. Some 4,600 jobs will go in France, and Renault has said six plants are under review for possible cuts and closure. Renault’s sales by volume in the first three months of 2020 fell by 25%, before dropping further in April.”
• Safestay – “Our re-opening plans will be staggered over the course of 2020, subject to the restrictions in each market and look to initially focus on just domestic customers while international travel remains limited. Under the slogan, ‘Stay Safe at Safestay’ the priority will be to inform guests of the safety measures that will be in place. Check-in will be completed via WhatsApp, hand sanitiser gel, masks and gloves will be made available, common rooms including the restaurant areas will be closed, breakfasts will instead be served in boxes. A substantially increased cleaning rota will be introduced and no shared rooms will be sold, and instead rooms will be sold to individuals or groups who are known to each other.
With this as a starting point, the hostels will adapt their operating structures according to market conditions over the course of 2020 with the emphasis on matching operational costs with income. It will require flexibility and careful monitoring across all our markets.
Material uncertainty which may cast significant doubt regarding the Company’s ability to trade as a going concern has resulted from the impact of the Covid-19 virus on the economy and the hospitality industry. Note 1 below elaborates on the position of the Company regarding going concern, and the measures introduced before and after the re-opening of the hostels to protect our clients, employees and the Company. We believe that Safestay has the infrastructure in place to manage the re-engagement and that ultimately, we will find the route to returning our portfolio of hostels to pre-Covid-19 levels.”
• B&M – “Strong end to fourth quarter trading driven by exceptionally strong March performance on Grocery, with B&M UK fascia LFL revenues of +6.6% over the quarter.
Strong revenue growth in the first 8 weeks of the new financial year with B&M UK fascia LFL revenues of +22.7%, driven by exceptionally strong DIY and Gardening categories and despite a significant fall in customer count.
If DIY and Gardening categories are excluded, the B&M UK fascia LFL over that 8 week period was +10.3%.
DIY and Gardening revenue growth represents a significant pull-forward of demand in those categories caused by warm dry weather and customers being at home during the lockdown, and the closure of most DIY and gardening retailers.
The B&M UK business is experiencing higher than normal operating costs in distribution and at stores resulting from the application of social distancing measures put in place to protect our customers and colleagues, as well as the payment of premium wage rates during the Covid-19 peak period.
Strong performance from Heron Foods in both the fourth quarter and the early weeks of the new financial year.
49 B&M UK fascia stores which had previously been temporarily closed have all now re-opened.
B&M has donated £1m to UK Food banks and has provided £2m in discount to NHS workers.
B&M and Babou stores in France closed from 15 March and all but two re-opened on 11 May.”
• DWF Group – “Covid-19 has caused significant disruption to the Group during March and April. However, early indications for May show improved activity compared to April as well as to the same period last year. DWF remains a strong and resilient business and has established an international platform which can provide best service to clients through its Complex, Managed and Connected delivery model.
While the macroeconomic environment remains challenging, the Group believes there is substantial opportunity to make the business more efficient, with a focus on delivering cash backed profit. The Group is working through its incremental cost efficiency plans which it will deploy as soon as possible within the current financial year. On 27 March 2020, the Company announced that the Covid-19 pandemic was impacting its business and that it therefore expected revenue growth of between 15% to 20% for the financial year. In the event, the disruption experienced in April was greater than anticipated and as a result revenues grew by c.11% over the financial year. The impact and timing of Covid-19 gave little opportunity for remedial action in this financial year, further reducing the Group's profit expectations for FY20, with expected FY20 EBITDA of c.£34m under IFRS16, with underlying adjusted EBITDA of c.£21m, excluding the application of IFRS16.
As experienced throughout the sector, a variety of short-term factors impacted trading in April as the worldwide lockdown affected work flows and some client demand, leading to a greater than anticipated reduction in activity for the month. The Group has seen activity levels strengthen in May with a number of new client wins, including panel appointments, and with a good pipeline of bid activity.
Although activity levels in April were impacted, April was the Group's strongest ever in terms of billings and cash collection, driven by a concerted action from the partners, with over £40m of billings and over £45m of cash collected. While April is a key cash collection month, the Group is seeing this trend continue in May, supported by the high level of billings in April and strong cash collections from its institutional client base.
As a result, period end net debt was better than expected at £64.9m, well within the Group's total available facilities of £122m. The Group operates and expects to continue to operate within the banking covenants agreed with its lenders under the terms of the RCF.
Divisional performance – DWF has a broad based and resilient business and the majority of the Group's businesses delivered a creditable performance for the financial year, given the challenging Q4 environment, alongside some specific areas of weakness where direct action is being taken. A substantial level of investment was made over the year as the Group positioned itself for growth in certain markets with a net 25 partners joining the business. However, the Q4 weakness has meant that new hire productivity levels have not increased as originally expected.
The Group's Insurance Services business delivered revenue growth in the mid single digits for the year, despite the Covid-related impact of a slowdown in instructions in the important end of year month, with a broadly flat gross margin. The Group believes prospects for this division remain resilient given the annuity type nature of these services.
The Group’s International Division delivered revenue growth of c.50% for the year, however certain geographies such as the Middle East materially underperformed. In addition, European offices in Spain, Italy and France were particularly impacted in April, but activity levels have since recovered somewhat with the prospect of lockdowns easing. The Group continues to recognise the substantial growth potential of this Division, but has taken swift action to reduce some of the partner and new hire investment to ensure a focus on margin optimisation.
The Group’s Connected Services Division delivered revenue growth of c.14% for the year, less than targeted due to a particular underperformance in the DWF360 business which experienced low demand and has since been restructured. Excluding this, the other business divisions delivered c.24% growth year on year with stable margins. With the largest part of this business represented by claims handling, the Group expects that future business demand should be supported as business interruption and employment claims build throughout the year.
The Group's Commercial Division underperformed with a decline in revenues of c.6%, driven by the impact of Covid-19. The investment in this division over the year meant gross margin declined markedly. Within Commercial, Litigation and Real Estate performed relatively better but did see some declines in activity, while the main impact was seen in Corporate and transactional work. As a result of this underperformance, the Group is planning further actions to protect margin.
While disappointed with this performance, the Group has a substantial number of opportunities in order to improve cash backed margins, including:
• The previously announced cost reduction plan has been implemented which will provide £10m of savings in FY21 and £13.5m of savings in FY22 at a full annualised run rate;
• Further incremental cost savings that can be achieved through remedial action;
• A greater focus on integration of recent acquisitions to better drive business opportunities and synergies;
• A renewed focus on billing, credit control and cash collection, the initial benefits of which were seen in April and May.
A further update on the steps taken to improve cash backed margins will be provided when the Group announces its full-year results.”
• Johnson Service Group – “As previously announced on 5 May 2020, the Group is continuing to see a significant amount of disruption across its markets. Trading for the first two months of the year before the impact of Covid-19 was in line with our expectations.
The Workwear business, which provides garment rental, protective wear and laundry services, continues to supply key industries and all processing sites remain open. Trading for the first two months of the year was in line with management's expectations. Organic revenues within the Workwear business for the first quarter were slightly negative and were some 12% down in April 2020. During May 2020, the Group has seen early indications of some customers reopening.
Within HORECA, which serves the Hotel, Restaurant and Catering markets, the Group has ceased processing at the vast majority of its 18 sites. Organic growth for the first two months of the year was particularly strong at 9%, aided by Gleneagles and Jurys Inn, however, March 2020 saw volumes reduce resulting in a negative organic growth in the month of 27%. In April 2020, revenue fell by 97% on an organic basis due to the closure of the vast majority of the Group's hospitality customers. Revenues during May 2020 are expected to be slightly ahead of April 2020, as a small number of customers reopen.
The full implications of Covid-19 on the Group's financial performance and position are difficult to determine at this stage. The Group has modelled a range of potential scenarios regarding how the business might trade during lockdown and how performance is expected to develop once lockdown has been lifted.
Our core scenario assumes that the market slowly begins to recover from July 2020, in-line with Government indications. The Group would then begin to recover from its current levels, with modest initial revenue assumptions which increase gradually during FY20 and FY21. The benefit of the Government's CJRS scheme is only included in the scenario planning until the end of June 2020.
In Workwear it is assumed that organic revenue of (12%) in April 2020 gradually improves to (9%) in Q4 2020, with revenue returning to 2019 levels by H1 2022.
Within HORECA it is assumed that revenue at the start of the recovery is at 25% of typical activity levels, gradually improving each month to reach 75% of typical activity by the end of FY20 with sites reopening on a phased basis as volumes increase. It is assumed that HORECA revenues do not normalise until during Q2 2022.
Based on the above revenue profile assumptions and appropriate cost management actions, including those outlined above, it is anticipated that:
• Maximum net debt, which occurs in April 2021, is expected to be approximately £110m;
• The Group will remain in compliance with its revised banking covenants;
In addition to the scenario outlined above, the Group has modelled additional downside scenarios with alternative assumptions including later dates for the HORECA recovery to start as well as different revenue recovery profiles. These scenarios result in reductions to FY2020 and FY2021 forecast EBITDA figures and an increased maximum net debt figure.
For example, under the scenario that the recovery in the HORECA market is delayed by two months (i.e. the market begins to slowly recover from September 2020) there is a reduction in EBITDA of £29m and £9m in FY20 and FY21 respectively and maximum net debt of £142m, which occurs in April 2021. The key mitigating actions that would reduce the impact of this scenario are the continuation of CJRS, a reduction of rental stock spend and further curtailment of PPE spend.
All of the above scenario planning is before taking account of any proceeds from the Placing.”
• Renewi# – “The impact on Renewi since the second half of March has varied with the different lockdown restrictions in each region and sector. • In Belgium the lockdown has resulted in a fall in waste volumes of around 35% in April, improving slowly in May;
• In the Netherlands waste volumes have fallen by around 15% in April, with resilience in construction and bulky waste reducing the greater impact in roller bin collection;
• Recyclate income generally weakened in April, through lower prices and/or reduced materials available;
• In the UK municipal segment, the closure of household waste recycling centres has reduced revenue, partially offset by increased residual volumes; and
• ATM and Mineralz have been relatively unaffected but Maltha has seen significantly reduced demand for glass cullet in France and two of Coolrec's three fridge recycling facilities were temporarily closed.
Consequences for earnings and cash – The impact of Covid-19 on the second half of March was estimated at €4m, including a €1m doubtful debt provision. Looking forward, we have built detailed models by Division and by waste stream to assess a range of potential scenarios. We assumed as a base case that lockdowns will extend into June and that there will be ongoing significant disruption through the whole of this financial year compared to our original expectations. Our severe scenario includes a further full lockdown in the autumn.
Given the expected short-term impact on earnings, the Group has agreed amendments to the Group's leverage and interest covenants with its lending banks that provide appropriate headroom for the next five quarters, even in a pessimistic scenario with a second full lockdown in the second half. Our net debt to EBITDA covenant has been increased progressively to 6.0x in the second half of FY21, decreasing back to 3.5x in September 2021.
Based on our experience since the second half of March, we expect Covid-19 to result in a potential reduction in EBIT and cash of up to €20m in the first quarter compared with our previous expectations. This outflow is comfortably contained within our €252m of liquidity as at 31 March 2020. The outlook for the remainder of the year will be dependent on the nature and timing of the lifting of lockdown restrictions and the speed of economic recovery.
Long-term business model and growth opportunities unchanged – Covid-19 may slow the progress of some customer initiatives and hence our deployment of capital in the short term, and it is likely to have some medium-term impact on the economy. However, the global climate crisis remains of an altogether larger scale and we are confident that government and society recognise that the need to address climate change and the goal to transition Europe towards a circular economy is urgent, with consistent targets for improved recycling/circularity and the measures to achieve them. Indeed, the Dutch government on 28 April revealed its plans for the introduction of significant and increasing carbon taxes in the Netherlands in the coming years, which will be important incentives for recycling and the use of secondary materials.”
• Smart Metering Systems – “SMS has continued to provide essential and emergency field works to maintain critical national infrastructure and energy supplies since the Covid-19 outbreak and the temporary suspension of non-essential field work announced in March. This remobilisation is expected to be implemented over a period of three months and will see the resumption of non-essential field-based activities, including the installation of smart meters.
This will be continually reviewed and governed by a comprehensive Covid-19 Business Risk Assessment developed in consultation with employees, contractors and customers and will adhere to Government guidelines.
The Risk Assessment includes new stringent health and safety processes for engineers and field work, and additionally establishes later phases of the Group's Return to Work plan, including for office staff who successfully continue to work remotely.”
• Eagle Eye Solutions – “Trading in the weeks following the release of our Final Results on 17 March 2020 has continued largely as we anticipated at the time, in the scenario that the UK entered a period of full lock-down.
Revenues from supermarket clients have remained resilient. Our large client implementations and projects are progressing well and to plan. Food & Beverage, Retail (non-grocery) and Leisure clients have been impacted as we anticipated, representing a 10% decrease in monthly Group revenue for the period of the Covid-19 lock-down.
The longer-term social distancing measures likely to be a part of the gradual re-opening of the economy are prompting retailers to consider how to prepare their businesses to re-open in a safe manner, including assessing where digital engagement with customers can replace direct interactions.
We are experiencing normal levels of new business activity and a growing sales pipeline, however new contract signings are taking longer to close, as anticipated.
We have continued to invest in enhancements to our AIR platform and anticipate R&D spend in the second half to be broadly in line with the first half of the year.
We have maintained our strong focus on operational cost control and implemented a reduction in run rate cost in response to Covid-19, including a reduction in ad hoc spend, travel costs and variable overheads related to Food & Beverage. The Company has benefited from its agile structure, which has facilitated the redeployment of existing UK teams to support the implementation of our first US client, Southeastern Grocers. This has enabled the successful ongoing deployment with a key new client without the short term need to increase headcount. As a result of these factors, adjusted EBITDA for the year ending 30 June 2020 is expected to be at least £0.5m ahead of market expectations.
The improved profit performance and continued focus on cash management means that the Group’s net debt position is tracking better than management expectations. As a prudent measure we have engaged the Group's lender, Barclays, in discussions with regards to increasing the flexibility of the facility, should it be required. However, the Group's current funding position is secure and sufficient headroom remains within the Group's £5m banking facility to support existing growth plans and taking into account Covid-19 scenario planning.”
• Wizz Air – “announces that from 1 July it will open four new bases deploying 11 aircraft and launching over 50 new routes to: • Milan Malpensa, Italy: Five new based aircraft, 20 new routes.
• Larnaca, Cyprus: Two new based aircraft, 11 new routes.
• Lviv, Ukraine: One new based aircraft, five new routes.
• Tirana, Albania: Three new based aircraft, 15 new routes.
• Spain has decided to move 70% of the country to Phase Two of lifting the lockdown on Monday – cinemas, theatres, concert halls and shopping centres will reopen, in a limited way.
• Croatia has reopened its borders to 10 European Union countries. People from the following countries will be permitted to enter without restrictions from Friday: Hungary, Austria, the Czech Republic, Slovakia, Estonia, Latvia, Lithuania, Poland and Germany.
• Hotels are reopening in Austria today, in a further easing of the country’s lockdown restrictions. For now they are only open to citizens, but there are hopes that foreign tourists will be able to visit once the borders with neighbouring countries open in mid-June. Swimming in outdoor pools and holding weddings with up to 100 people are also now allowed.
• Starting from 19 June: Poland will allow football fans back into stadiums at a maximum capacity of 25%.
• The National Trust is to reopen some gardens and parklands in England and Northern Ireland from 3 June. Only around a third of the usual number of visitors will be permitted in order to maintain social distancing. All properties and car parks in Wales will remain closed.
• Professional sports matches have been given the go-ahead to take place in Sweden without spectators from 14 June.
• British car manufacturing in April was down 99.7% on the same month last year. Just 197 vehicles were made.
• Joe Garner, chief executive of the Nationwide Building Society, said an extension to the mortgage break should affect a borrower's credit rating.
• C.D.C. has published new recommendations for workplace changes in the US. Including employees getting a temperature and symptom check, desks should be six feet apart and seating barred in common areas. Link
• More than 200 schools in South Korea closed after they reopened on Wednesday as further lockdown restrictions are re-imposed on the country after a spike in infections.
• Paris is no longer marked as a ‘red zone’ according to the French categorisation for the risks posed by the virus.
• The Philippines has been granted a $500m loan from the world bank.
• A meat processing plant in the Netherlands has reported an outbreak – 21 out of 130 staff have tested positive at Van Rooi Meat in the southern city of Helmond.
#corporate client of Peel Hunt