Coronavirus - Testing the brakes
8 June 2020
Lockdowns have had a dramatic impact on the spread of the virus in Europe, with strict controls on people’s movements preventing an estimated 3.1 million deaths by the beginning of May, according to researchers at Imperial College London. The lockdowns lowered the R0 below 1 in all 11 countries studied. This success, given the variations in lockdown restrictions, provides a positive indication of the potential to manage this virus long term. It is hoped the smaller-scale efforts to slow the virus will be able to maintain control.
• UK begins quarantine for travellers.
• New York City begins to reopen.
• No Covid-19 deaths in London over 24 hours.
• Shielding in Scotland extended to 31 July.
• Zero cases in New Zealand.
• Amigo – “Amigo has seen a significant increase in customer complaints in recent weeks. As announced on 27 May 2020, Amigo, in line with its commitment to managing complaints raised by customers in accordance with regulatory requirements, has agreed a Voluntary Requirement with the Financial Conduct Authority to work through and reach a decision, before the end of June 2020, on a backlog of complaints which have arisen principally in 2020.
Whilst there is significant uncertainty about the eventual outcome, Amigo expects that the cost of clearing the backlog of complaints covered by the Voluntary Requirement will be at least £35 million and could be materially higher.
In addition, Amigo expects to report a material increase in the provision in respect of complaints within its full year results for the year to 31 March 2020, which are expected to be announced by the end of June 2020.”
• Plus 500 – “Following the Q1 Trading Update issued on 7 April 2020 and the subsequent Trading Update issued on 28 April 2020, heightened levels of market volatility have persisted, and the Company has continued to see record levels of customer trading activity. Performance across the Company’s financial and operational KPIs remains strong, with the Group continuing to attract significant numbers of new customers at an attractive cost, and increased levels of activity from existing customers. The Company has added 100,574 New Customers since the start of Q2, which is already ahead of our expectations for the entire quarter, and in excess of the 82,951 New Customers added in Q1.
Revenue from Customer Income remains at record levels, with the Company generating approximately $249.0m in Q2 to date. However, in recent weeks, most particularly, the week ended 5 June, the Company's Customer Trading Performance for the year now represents a gain for customers and consequently total revenue for Q2 to date stands at approximately $102.5m. The Board continues to expect Customer Trading Performance to be neutral over time, consistent with aggregate Customer Trading Performance representing an insignificant proportion of revenue over many years historically.
This Customer Trading Performance, along with the average deposit per Active Customer remaining strong, has resulted in a significant increase in the level of net client deposits which are currently approximately $488.4m, three times the level as at 31 December 2019.
Plus500 is a high cash conversion business, with no debt, low capital intensity and limited capital expenditure needs. The Group maintains a substantial level of cash to support current and future levels of activity, including potential fluctuations in Customer Trading Performance. The Company's cash balance is currently approximately $473.9m.
As announced when reporting gains from Customer Trading Performance in Q1, the Board expected this performance to revert to a medium-term historic level of near zero. Consequently, notwithstanding the uncertainty regarding the duration of current levels of volatility or the unquantified potential impact from regulatory changes in Australia and the relatively early stage in our financial year, revenue and profitability for the full year is currently expected to be in-line with consensus expectations, as revised following the Trading Update on 28 April 2020. A further update will be provided when we report on Q2 trading in early July.”
• Goodwin – “Whilst there has been global disruption gripping the world with the onset of Covid-19 since January, the Company is pleased to confirm that its UK companies have remained open for business since the start of the pandemic, taking appropriate measures in accordance with government guidance.
The overseas operations have been working in accordance with their local legislation, and wherever legally allowable, remaining operational. There are currently no Goodwin Group companies closed for business.
With the disruption in the last quarter of the financial year ended 30th April 2020, there have been delays in executing certain capital goods contracts due to the Company's customers' inability to travel. However, with limited international travel and social distancing becoming the new 'norm', working practices have been adapted for business to continue in a routine manner.
The medium-term impact of Covid-19 is becoming clearer, and the Company is pleased to confirm that the manufacturing of its engineering capital goods should continue positively as expected, with the Group's current record forward order book of £177 million (some 94% higher than the average for the past 6 years) being predominantly for projects and applications that are not consumer orientated. So, with newly adapted working practices that we along with our customers could not have envisaged doing only six months ago, the business continues to progress.
The Group’s UK and overseas refractory companies, whilst all operational, primarily manufacture products utilised in the manufacture of luxury consumer goods and in construction industries. Whilst in May they have been fulfilling existing orders, they are now predicting a 20%-25% reduction in consumer business activity for the next few months. However, the elements of the business making refractories used for the manufacture of industrial goods are expected to fare much better.
Liquidity – The Group remains in a financially resilient position. Cash flow and net debt are in line with the Board's expectations, with the Company only utilising approximately 50% of its £50million traditional debt facilities.
Due to initial uncertainty surrounding Covid-19, the Board has secured an additional credit line through the Bank of England Covid Corporate Financing Facility (CCFF) as an insurance policy. So if faced with the unexpected, such as payment delays by customers and /or temporarily increased work in progress should projects be delayed and /or a major second pandemic peak, we would have sufficient financial resources to weather the storm, enabling the Board to continue to focus on doing what is right for the business. The committed, 100% UK Government backed commercial paper facility option would bolster our liquidity headroom by up to £30million if the Board deems it prudent and appropriate to utilise.
We are not aware of any adversity looming and in line with custom and practice, approximately 80% of the Group's debtor book remains covered by credit insurance and / or cash positive stage payments. Furthermore, the Group's reported gearing ratio as at the 31st October 2019 of 27% has improved and as things stand, we do not envisage a deterioration.
The Board continues to be focused on resilience through cash conservation, close control on expenditure and matching the overheads of individual Group companies to their current or expected level of activity, thus limiting as far as possible any impact on the Group's revenue and profitability.”
• TT Electronics – “Through this period of unprecedented uncertainty, TT has executed the plans and actions set out in the announcement of 3 April 2020 to protect the safety and wellbeing of our people and wider communities, as well as our customers and partners, at the same time as reducing our costs and protecting our cash flows.
As anticipated in the 3 April 2020 announcement, ‘essential’ business status has enabled TT to remain largely operational through the period and delivering to customer requirements. However, the Group has operated at lower capacity in April and May as a result of both the temporary closure of sites in Mexico, Malaysia, Barbados and Tunisia, in compliance with local government requirements, and employee shielding and self-isolation. The overall situation is now improving as government restrictions ease, with all TT facilities open, and the number of employees in self-isolation reducing.
Trading performance – Group revenues in the first quarter were 11% lower than the prior year on an organic basis and for the five months to May were 14% lower organically, reflecting both reduced economic and industrial output globally and the direct impact of Covid-19 related restrictions. The peak of the disruption was experienced in April (21% organic reduction) and some sequential recovery in revenue was already evident in May. The order book at the end of May remained broadly in line with the prior year on a like-for-like basis.
The organic revenue reduction within the Sensors and Specialist Components and Power and Connectivity divisions in the year-to-date has been slightly higher than the Group average due to the impact of demand and site closures primarily affecting these divisions. Performance in Global Manufacturing Solutions has been better than the Group average, in part helped by the ramp up of some new contracts that were won in 2019.
Mitigating actions and financial position – TT entered this unprecedented period with a strong balance sheet and significant liquidity. The Group has preserved this position with actions in the past two months to reduce costs and protect cash flows. We are now progressing the self-help projects announced at our full year results in March 2020 and have expanded them to take account of the reduction in demand. In total the cash cost of these projects is expected to be circa £18 million, comprising restructuring costs and capital expenditure, of which approximately half is expected to be spent in 2020. Full year run rate benefits from these projects will be £11-12 million in 2023, with initial benefits in 2020 and 2021 helping to mitigate the demand slowdown in certain end markets and protect the Group’s margin improvement plans.”
• The Gym Group# – “The Gym group today announces that it has signed an extended bank facility (the ‘New Facility’) with incremental commitments of £30 million from its existing lenders HSBC, Natwest and Banco de Sabadell. This agreement formalises the deal which was agreed in principle and outlined within documentation relating to the Company's equity placing announced on 16 April 2020.
The New Facility has an 18 months term and is an amendment to the Company’s existing £70 million Revolving Credit Facility (RCF) signed with the same three banks in October 2019. From September 2020 until June 2021 the covenant tests of the RCF will be replaced by new covenant tests primarily relating to the performance of the Company against agreed EBITDA targets that reflect a period of gym closure (relating to Covid-19) and phased recovery thereafter. Upon termination or early cancellation of the New Facility the covenants and all other terms of the original RCF will apply until the maturity of the RCF in October 2023.”
• Amino Technologies – “Our transformation to a software-led business has provided the Group with improved resilience during this Covid-19 period. Whilst we have experienced challenges in the supply chain and delayed
orders, we have also seen increased viewing on our streaming platforms. The Group is well-diversified and continues to secure new business, particularly in OTT streaming. We have good visibility of orders and sales pipeline to meet revenue expectations for the financial year. However, it is still too early to quantify the potential negative impact of the current economic situation and therefore the outcome remains uncertain.
As outlined in our update on 30 March 2020, the safety of our people, business partners and customers remains our highest priority.
H1 2020 revenues are expected to be approximately $38.1m (H1 2019: $34.6m) of which approximately $9.8m relates to software and services (H1 2019 $3.6m) and $28.3m relates to devices including integrated software (H1 2019: $31.0m). We continue to manage liquidity carefully, with $3.7m of gross cash, drawn credit facilities of $2.0m and undrawn credit facilities of $13.0m at 31 May 2020.
We have continued to invest in product development to support long-term profitable growth as we focus on our software-led strategy. Covid-19 has accelerated the usage of streaming services globally. We have therefore experienced increased business levels with existing customers; however, we anticipate that new business wins may be delayed in the second half of the financial year.”
• Speedy Hire – “The Group took decisive action to manage revenue, contain costs and preserve cash following the Covid-19 pandemic, whilst maintaining the capability to support our customers and protecting the health and safety of our colleagues and stakeholders.
Group revenues in April were ahead of the Board’s expectations, albeit 35% lower than the prior year due to reduced activity levels and suspensions of hired equipment. Activity levels have steadily improved during May as lockdown measures have eased and customers have returned to work. As a result, hire revenue for the week ended 5 June 2020 was c.17% lower than the prior year.
As previously reported, the Group had furloughed c.50% of its UK and Ireland workforce in April; as at 5 June approximately 1,200 colleagues (c.33%) remained on furlough.
Balance sheet and liquidity – The Group has a strong balance sheet and substantial unutilised banking facilities. Cash collections, which had been strong in March 2020, have remained strong in April and May. As a consequence of this and the utilisation of government support measures, net debt (on a non IFRS 16 basis) reduced from £79.3m at the year end to c.£68m at 31 May 2020. The maximum committed facilities amount to £180m, which expire in October 2022.
Based on various revenue downturn scenarios, and the measures outlined above, the Board remains confident that the Group can operate within its existing debt facilities and covenant tests during a prolonged period of reduced trading activity.
Revised date for 31 March 2020 results – On 12 May 2020 the Group announced that, in light of recent Covid-19 guidance from the FCA, the FRC and the PRA, it would announce its results for the year ended 31 March 2020 on 9 June 2020.
The Group and its auditors, KPMG, are continuing to finalise the year-end accounts, and given the practical challenges of remote working and the extra work required in relation to Geason Training as detailed below, these are now expected to be released on 23 June 2020.
The Group’s training business, Geason, which was acquired for £9m in December 2018, accounts for c.2% of Group revenue. Geason has not performed in line with management's expectations and as a consequence the carrying value of goodwill and any contingent consideration payable will be written down to nil in the year end accounts. In addition, Geason received a claim from a funding agency in late April 2020 alleging poor financial controls and overpayments of up to £2.6m for the three year period commencing August 2017, which the Company is investigating.
Guidance – Further to its previous announcement on 9 April 2020, as the Covid-19 situation is likely to remain uncertain for some time all guidance remains suspended.”
• Frontier Development – “Following the trading update on 20 May 2020 which confirmed a strong finish to the financial year, Frontier expects to report revenue of approximately £76 million for FY20 when full financial results are announced in September 2020. Operating profit, as reported under IFRS, is anticipated to be at least £16 million, subject to audit, which would equate to an operating profit margin of approximately 21%.
We start FY21 (the financial year ending 31 May 2021) confidently, based on our attractive portfolio of existing titles, our exciting development and publishing roadmaps, and our skilled, passionate and growing team of people who are doing a terrific job during these challenging times, continuing to work from home.
On 3 June 2020 we unveiled Elite Dangerous: Odyssey, which is our major new paid-for update for Elite Dangerous, coming in Q1 calendar 2021 (in FY21). Elite Dangerous: Odyssey marks the birth of a highly anticipated new era for the long running definitive space simulation, allowing players to touch down on countless new planets powered by stunning new tech, and explore with unrestricted freedom from a first person, feet-on-the-ground perspective, something we know many players are keen to see.
FY21 will also see the release of genre leading Planet Coaster on the PlayStation and Xbox consoles, and the first two game releases from Frontier's third party publishing initiative. A further three third party games have already been signed for FY22 and there is scope for more. Five or six third party game releases per year are expected from FY23 onwards.
Full financial results for FY20 are expected to be announced on Wednesday 9 September 2020.”
• Solid State – “The Board is pleased to announce that trading since the update given on 15 April 2020 in respect of the first two months of the new financial year has been ahead of management's expectations, despite the impact of the Covid-19 outbreak.
We are seeing and expecting some slowdown in order intake but the diversification in our sector and product exposure, and strong open order book, is providing some resilience to the effects of the Covid-19 outbreak. Understandably, sectors such as the oil & gas market and commercial aviation have been significantly impacted however, others, notably the medical and food retail sectors, have been far more buoyant and are helping to compensate.
In many instances the Group has found ways to engage with new and existing customers to maintain service levels, notwithstanding the inability to travel and attend face to face meetings. This has included securing new clients through an innovative series of virtual ‘hands-on’ design and specification meetings, which would in the normal way have been conducted in person. Greater resources have been committed to web site optimisation and digital marketing to take advantage of this opportunity as all businesses continue to operate under the current restrictions.
All of the Group’s four manufacturing sites remain operational and compliant with government guidelines. At this point, any evidence of pressure on the Group's supply chain has largely been mitigated by the Group’s buffer stocking policies. The open order book at 31 May 2020 was £37.9m (31 May 2019: £35.9m). Solid State continues to be cash generative with net cash at 31 May 2020 standing at £4.5m (as at 31 March 2020: circa £3m). In addition, the Group has an unutilised RCF with its bank of £7.5m.
The outlook remains difficult to predict however the Board is confident that given its niches in sectors currently in demand and those likely to be in receipt of government stimulus packages, for example transportation and medical, it is well placed to navigate these exceptional trading conditions. A further update on trading conditions and the outlook will be given in the announcement of the full year results at the end of this month.
Dividend: Given the resilience of the Group’s business model and strong cash position, the Board intends to recommend a final dividend of 7.25p in the announcement of its full year results. This will, if approved at the AGM, result in a total dividend for the year of 12.5p, equal to the total dividends paid in respect of the prior year.”
• New York City is reopening non-essential businesses. The changes will mean that as many as 400,000 people can return to work in construction, manufacturing and retail. The subway railway system will pick up to 95% of pre-pandemic service. Work places will have to observe certain safety measures and retail will start with kerb-side and in-store pick-up only.
• In the Republic of Ireland, all high street shops can now resume their business while enforcing social distancing. People will be able to travel up to 20km from their home or anywhere in their own county – up to now, the restriction was five kilometres.
• In Northern Ireland, vulnerable people who were advised to shield can now go outdoors. Large retailers, including car showrooms and shops in retail parks, can also reopen, and outdoor weddings with 10 people present can take place.
• New Zealand will allow full crowds in stadiums after the government lifted all domestic Covid-19 restrictions.
• Denmark has increased the limit on public gatherings from 10 to 50 people.
• Moscow will allow restaurants and cafes to open their summer verandas from 16 June.
• BP has told staff it plans to cut 10,000 jobs from its global workforce.
• Some Premier League clubs have begun playing friendlies at their home grounds as the competition moves towards its restart on 17 June.
• As of today new arrivals in the UK must self quarantine for 14 days. However, there are a number of exceptions: • Road haulage and freight workers.
• Medical and care professionals providing essential healthcare.
• Those arriving for pre-arranged medical treatment.
• Passengers in transit, if they do not pass through border control.
• Seasonal agricultural workers if they self-isolate where they are working.
• UK residents who ordinarily travel overseas at least once a week for work.
• Australia is to stop offering free childcare from12 July. The Australian government announced in April that all parents would receive free childcare as schools closed down.
• Italy’s GDP is set to shrink by 8.3% this year according to the National Institute of Statistics.
• Poland has ordered the temporary closure of 12 coalmines after a major outbreak of coronavirus among miners in the country’s southern coal-mining regions.
• At least half of Singapore’s coronavirus cases show no symptoms, the co-head of the government’s virus taskforce has said.
• Japan’s GDP contracted by 0.6% in Q1 compared to the previous quarter. Authorities had initially reported a 0.9% contraction.
• A new survey of international students by the British Council has found that nearly 14,000 fewer students from eight countries – including China, Singapore and Malaysia – are likely to come to the UK in 2020/21, a decline of 12% in overall international student numbers.
• Scotland is extending its shielding advice to 31 July, but has stated that if infection rates are low enough, it will advise that people shielding can go outside for exercise from 18 June.
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