header
search-icon
mobile-menu-icon search-icon

RESEARCH

Clients can browse and search the Peel Hunt research library and archive.

TRADING

A tool for our clients to submit and manage orders with Peel Hunt. 

REGISTER FOR OUR RESEARCH PORTAL

Thank you, your registration has been received.
We will be in contact with you shortly.

I'm interested in (tick all that apply)

SEARCH

PEOPLE
SERVICES
NEWS

Financial Advisory and Capital Markets Services to Corporates

Comprehensive coverage of over 350 companies

Investment ideas and execution for institutional investors

Complete UK pricing coverage and worldwide access

Our joined-up approach allows us to consistently deliver value

A wealth of experience, strong collegiate ethos underpinning our joined-up approach

Our principles define the relationship between our people, our departments and our clients

We are committed to making a difference in the communities we live and work in

An environment committed to the development of our colleagues

An internship programme for undergraduates as part of their study

Insight Image

All eyes were on the US today as it became the country with the most confirmed cases in the world. However, on this side of the Atlantic a possibly more significant problem has arisen. EU leaders failed to agree to share the debt that is rising out of this pandemic. They did agree to ask Eurogroup finance ministers to explore the subject further, reporting back in two weeks’ time. Two weeks in this environment is a long time. The problem was no doubt the richer northern countries not wishing to bail out the poorer south, as was the case in the financial crisis. This problem does not look an easy one to solve.

Headlines

• Boris Johnson tests positive
• Health Secretary Matt Hancock tests positive
• US overtakes China with most cases
• EU fails to agree to share the debt across the bloc
• Next – closes online and warehouse operations
• Domino’s Pizza has seen trading in the UK “accelerate”
Good news
• Ralph Lauren is to switch production to make masks and gowns
• The UK Government downgraded Covid-19 from being considered as a high consequence infectious diseases (HCID) in the UK

Company news
Buildings & construction
• Marshalls# – “The Group is implementing an agile, operational plan to manage all parts of the business safely, whilst continuing to support customers where there is demand. We are continuing to distribute product where demand exists, but in those parts of the business where demand has fallen we are managing the manufacturing facilities carefully and commencing a process of temporary suspension of operations. These actions will protect cash flow generation and contain costs. Non-essential capital expenditure has been deferred, but not at the expense of health and safety. Our operational planning is dynamic and able to react to the changing environment. The majority of our office-based employees are now safely working from home. We are adhering closely to official UK Government guidance.
Financial position – The Group has a strong balance sheet supported by a flexible capital structure and we maintain significant headroom against bank facilities. We conduct deep stress testing on a regular basis to support this position. We have a range of committed facilities in place with a spread of maturity dates that extend out to 2024. The Group's total bank facilities are currently £165 million of which £140 million are committed. As at 25 March the Group had £93 million of net debt (on a pre-IFRS 16 basis) of which £82 million was committed. Consequently, £72 million of facilities remain unutilised of which £58 million is committed.
Our bank covenants are for the ratio of EBITA to interest charge to be greater than 2.5 times and for the ratio of net debt to EBITDA to be less than 3.0 times. All bank covenants are on a pre-IFRS 16 basis. Interest cover and net debt to EBITDA covenants were comfortably met for the year ended 31 December 2019 at 42.6 times and 0.2 times respectively.
We maintain positive and constructive relationships with all our banking partners. Our short-term cash flows will also benefit from many of the initiatives announced by the Government.
2019 Final and Supplementary dividends – In the current circumstances, however, the Board believes it is important to preserve the Group's strong financial position and, consequently, that it is now appropriate to cancel the 2019 final dividend of 9.65 pence and the previously announced supplementary dividend of 4.00 pence. These were previously proposed with the announcement of the full year results for 2019 on 12 March 2020. As a result, the approval of these previously proposed dividends will not be put before shareholders at the AGM. The cash saving from this measure will be £27.1 million.”
• Redrow# – “It has become increasingly impracticable as our supply chain has been significantly impacted in recent days, as a result the Board has now decided to go further and commence with immediate effect, an orderly and safe closure of all of our sites and offices.
We have a strong balance sheet with total net assets of c £1.6bn. Despite this, as a consequence of the Board's decision to close sites, and the need to retain some flexibility through a prolonged period of inactivity, the company has commenced discussions with its syndicate of six banks in respect of additional committed banking facilities over and above the current £250m revolving credit facility. It is our intention to increase the additional 'accordion' facility of £50m that is available to us to £100m. We have also submitted an application to the Bank of England for eligibility for the Government's Covid-19 Corporate Financing Facility.
We are continuing to work proactively to protect our cash flow, and in addition to the measures we announced earlier in the week, we will immediately commence 'furloughing' a significant proportion of our employees under the Government's Job Retention Scheme.
When there is a return to normality in the supply chain, and we are satisfied it is safe for our workforce to return to work, we will reopen sites and recommence production with an initial focus on fulfilling our substantial order book that stands at £1.4bn of which £0.9bn is contracted.”
• Berkeley Group – “Due to this significant disruption, which affects the final six weeks of Berkeley's financial year, we now anticipate profits for the year ending 30 April 2020 will be in the region of £475 million, based upon a number of operational assumptions. Prior to the escalation of the disruption from Covid-19, Berkeley was on track to meet the Market's profit expectations for the year.
We are suspending future guidance until there is greater clarity of the impact of Covid-19 on business and the wider economy beyond 30 April 2020. Our priority is to maintain the dividend and deliver a pre-tax return on equity of 15% over the next six years, which the Board believes is the appropriate risk-adjusted target return across the cycle for Berkeley.
The dividend of 99.32 pence per share (£125 million), announced in the Company's 12 March Trading Update, will be paid to shareholders on 31 March 2020. The Board also confirms its intention to make the next £140.1 million shareholder return by 30 September 2020 through a combination of share buy-backs and dividend (£6.0 million of which has already been met through share buy-backs) and that it will reassess the position with regard to the postponed enhanced capital return when the Company announces its full year results for the year ended 30 April 2020.
Financial Strength – Financial strength and the recognition of the risks and cyclical nature of its activities has always been at the heart of Berkeley's business model. The Group currently has in excess of £1.0 billion of net cash, after payment of the £125 million dividend to be paid on 31 March 2020. Including bank facilities, Berkeley has total potential liquidity of £1.75 billion.”
Retail
• Next – “NEXT has listened very carefully to its colleagues working in Warehousing and Distribution Operations to fulfil Online orders. It is clear that many increasingly feel they should be at home in the current climate. NEXT has therefore taken the difficult decision to close temporarily its Online, Warehousing and Distribution Operations from this evening, Thursday 26 March 2020. NEXT will not be taking any more Online orders after this time until further notice.”
• Applegreen – “We expect a material reduction in profitability for the current financial year. The scale of this will be dependent on how the situation develops and over what timeframe, together with the impact of any further measures taken by national governments to mitigate the disruption. Accordingly, whilst the Group has not issued financial guidance for current and future years, previously published market expectations should be disregarded.
We have modelled our expectations of the impact on our business taking account of current levels of trading across the three markets where movement is severely restricted until the end of May with the expectation that restrictions will then ease gradually before normalising in Q4. That scenario sees a significant impact on working capital during April and May with a levelling off in June and improving thereafter. We have sufficient cash and credit facilities to get us through this cycle.
Short-term actions to conserve cash – In response to this unprecedented and uncertain environment, the Group is taking a number of actions to protect profitability and conserve cash including:
• Deferring development capital expenditure and reducing maintenance capital expenditure to its absolute minimum level;
• The Group has temporarily reduced headcount by more than 4,800 employees in both Ireland and UK, from a current total of approximately 11,500 Group employees, under the respective government job retention schemes;
• We have secured a deferral of payroll taxes and VAT from HMRC for a minimum of three months in the UK and are working with Irish Revenue to secure a similar arrangement;
• Benefiting from the UK government property rates moratorium for twelve months representing a very significant cost mitigation in the UK estate. Irish Revenue have also announced a two-month deferral of property rates;
• Reducing repairs and maintenance costs, a large component of the cost base, to minimal levels;
• Very tight management of working capital with a focus on reducing inventory levels and working with suppliers on payables;
• Implementation of a recruitment freeze;
• Deferred executive director bonuses;
• We have advanced negotiations with landlords across our estate to secure rent reductions for the period of the disruption and to seek more favourable payment terms; and
• We have tailored our convenience store product range to meet customers' current demands.
In addition to the above, in order to preserve liquidity, the Board has decided not to recommend a final dividend in relation to 2019 at its forthcoming AGM.
Financial position – At 31 December 2019, the Group had consolidated net external debt (pre-IFRS 16) of €525.5m comprised of total external debt of €664.2m and total cash of €138.7m.
At 31 December 2019, we had headroom of approximately 59% on the Applegreen plc banking group leverage covenant, (actual leverage of 1.9x compared to the covenant requirement of 3.0x) and approximately 45% headroom on the Welcome Break banking group leverage covenant (actual leverage of 4.5x compared to the covenant requirement of 6.5x).
At 20 March 2020, the Group had consolidated net external debt (pre-IFRS 16) of €545.5m comprised of total external debt of €665.0m and total cash of €119.5m:
• €94.8m cash and €272.6m external debt within the Applegreen plc banking group. Debt matures in October 2023; and
• €24.7m cash and €392.4m external debt within Welcome Break. Recently refinanced – now 50% in 10-year institutional term loans (2029 maturity) and 50% in 7-year term loan (2026 maturity)
In addition to the Group's current cash position, it currently has undrawn committed facilities totalling €22m, capital expenditure facilities of €28m and accordion facilities of €130m.
The Group considers that it is in a robust financial position to navigate the current Covid-19 crisis and is in compliance with its existing banking covenants. The Group is in close dialogue with its finance providers to ensure it will have sufficient covenant flexibility as may be required throughout this period.’
Mining
• Chaarat Gold – “While the impact of coronavirus on the global economy is significant, demand for our products has remained relatively healthy. In addition, we are seeing positive trends in cost reduction in both of our jurisdictions due to the declining price of fuel and the depreciation of local currencies versus the US Dollar.
As we continue our efforts to build a resilient business with a strong balance sheet, during this uncertain period, we are taking actions to further reduce costs and streamline processes to ensure the effectiveness and stability of the Company. We will also continue to evaluate every opportunity for the Company to grow during this period.
In this very dynamic situation, we are continuously monitoring the situation and have business continuity plans in place to protect our people, sustain our operations and monitor supply chains on a daily basis.
Kapan (Armenia) – Kapan continues to carry out operations at normal levels. Currently we are experiencing minimal disruptions to supply chains and shipment of our products, as the quarantine movement restrictions do not apply to commercial transport and goods. We have made adjustments to our normal working conditions to reduce contact and proximity of workers whilst working and during break periods.
We see potential benefits for our operations derived from the oil price drop and the local currency (AMD) devaluation versus the US Dollar for goods and services paid in local currency. These account for up to 84% of our operating costs in Kapan.
Tulkubash (Kyrgyz Republic) – As the Kyrgyz Republic government has declared a state of emergency, we have started to experience a slowdown in construction speed at the Tulkubash project. Following the country restrictions imposed, all local employees have been sent home. Our main contractor "Pamir Mining" continues limited works related to Haul Road and construction of other site roads. Fuel and food supplies remain steady and uninterrupted.
The significant global restrictions on the movement of people will impact our workforce mobilization for the summer construction period at our Tulkubash Project. This delay will likely cause the first gold pour to be moved by six months from late 2021 to Q3 2022. We are working on the revised timetable for the project and will update the market accordingly. The delay in first gold pour will have negligible impact on the total capital cost of construction at the Tulkubash Project as the works are being prolonged solely due to the current situation.
The oil price drop and depreciation of the Kyrgyz SOM is likely to have a favourable economic impact on the Tulkubash Project. We will provide an update once normal business resumes.
Funding update – The Company is in advanced discussions with the holder of a US$17,000,000 loan that matures on 31 March 2020. An appropriate update will be published when a final agreement is reached.
The Company continues with its efforts to advance project financing for the Tulkubash Project. However, in the current environment each funding institution is assessing the situation and implications for their own businesses. The efforts to optimise the funding structure, as well as the project financing discussions for the construction of the Tulkubash gold project in the Kyrgyz Republic are ongoing with interest from multiple parties albeit the timeline on those discussions is likely to be impacted by the pandemic. Chaarat is aiming to finalise project financing in H2 2020.
The Company does not foresee a requirement for any additional fund raising at the current time and will reconsider this position when the Covid-19 pandemic subsides. The working capital facility from Chaarat's largest supporting shareholder, Labro Investments Limited, provides a further US$8 million of additional liquidity.’
• Anglo American – “Anglo American notes the statement made by the President of the Republic of South Africa on 23 March in relation to a 21-day nationwide lockdown that took effect at midnight on Thursday 26 March, in order to help curb the spread of Covid-19 in South Africa.
In line with South African Government requirements, Anglo American is implementing all appropriate measures across its South African operations, with a focus on de-densification of the workforce, rigorous health screening, and isolation where needed. The status of operations is expected to be as follows during the lockdown period:
Kumba Iron Ore: Sishen and Kolomela mines continue to operate with a c50% level of workforce.
Anglo American Platinum: Mogalakwena mine and the mechanised Mototolo mine continue to operate with a reduced workforce and production, subject to further planning, as will the associated concentrator and smelter facilities; Repair of the ACP plant continues, as planned; Amandelbult, Modikwa (JV) and Kroondal (JV) underground mines, as well as the Mortimer and Waterfall smelters, are being placed onto care and maintenance.
De Beers: Venetia mine will operate with a c75% reduced workforce.
Thermal Coal: Operations continue with a c50-70% reduced workforce and production; Isibonelo, which supplies Sasol's fuel production facility, operates with a c20% reduced workforce.
The rail and port logistics infrastructure to support the export of iron ore and coal is expected to continue to service the operations during this period.
Supply chain planning is in place and any impact of the 21-day lockdown is being monitored and addressed where feasible.
Anglo American will also continue to provide a number of essential services, including security; mine maintenance; tailings facility safety management; water treatment; community water supply; increased capacity in Anglo American's hospitals; accommodation provision; health, safety and emergency response; and critical head office services.
Peru – Quellaveco Project – The Government of Peru has extended its initial 15-day national quarantine period by 13 days to 12 April. As announced on 17 March, Anglo American has temporarily withdrawn the majority of employees and contractors from its Quellaveco copper project in Peru and construction work is significantly reduced, with only critical areas of the project continuing as normal, until such time as workers can return safely.
UK – Woodsmith Project -In line with the British Government's measures to prevent the spread of Covid-19, Anglo American is in the process of pausing most construction and development activity on its Woodsmith polyhalite project. Appropriate action is being taken to enable safe and swift resumption of work.
Production from Anglo American's major operations in other countries has not been impacted materially to date and we are taking all appropriate preventative measures to reduce the probability of the virus spreading, including by reducing the density of people on our sites.”
• Jangada Mines – “Given the prevailing environment, the Company has decided to vary its previously announced drilling programme. Initially, the programme was planned to total 2,500 metres, but given the current macro-environment, the Board has elected to reduce the programme to a total of approximately 1,350 metres. To date, 908 metres have been completed in 2020 for a total of 8 (eight) DD holes, of which assay results have been received for 3 (three), including newly received Hole DD20PI13, which intersected 31.57 meters at 0.448% vanadium oxide ('V2O5'), 8.66% titanium ('TiO2') and 44.88% iron oxide ('Fe2O3').
Jangada will conclude its programme with an additional 7 (seven) DD holes, or 420 metres, by April 2020. The reduction of metres is substantially as a result of drilling the holes to a shallower depth. It is expected that this will not have a material impact on our immediate plans because, by completing the planned holes (albeit to a shallower depth) we will have tested the boundaries of the anomaly as required and we will have sufficient data to continue with a preliminary economic assessment ('PEA') and JORC resource estimate. The reduction in the drilling programme will also result in a cost saving, which seems prudent at this time.”
• Scotgold Resources – “The overall impact of the Covid-19 pandemic on the Cononish Project is difficult to predict. The Company has been fully complying with the Government's emergency measures to date, such as ensuring all staff who are not absolutely necessary on site are operating from home and those still working onsite observing social distancing and hygiene requirements. The Scottish Government has now advised that all non-essential construction sites be closed down until further guidance is issued on how this sector can operate safely.
As of today, the Company will close down the mining operations at Cononish but will continue with care and maintenance operations to ensure the health, safety and in particular environmental aspects of the site are secured. Our on-site team members not involved with care and maintenance will be furloughed in accordance with the Government's Job Retention Scheme, so full activities can resume as soon as permissible.”
• Tharisa# “makes reference to its announcement of 24 March 2020, noting the decision by the President of South Africa, Cyril Ramaphosa, of a three-week national shutdown, as part of wide-ranging interventions to combat the spread of Covid-19. Lockdown for 21 days began on Thursday, 26 March 2020, and will continue until midnight on Thursday, 16 April 2020.
Given the imposed lockdown, Tharisa provides the following market update:
• Tharisa has received force majeure notifications from its platinum group metals (PGM) concentrate offtakers
• The Tharisa PGM smelter is on care and maintenance
• Tharisa has declared force majeure on its contracted chrome concentrate sales agreements.”
• Bluejay mining – “In Greenland, the Government of Greenland have cancelled all air traffic international and domestic as well as imposed significant closures and restrictions on public gatherings. Bluejay have been engaged in continuous dialogue with authorities from the onset of the crises and yesterday the Government of Greenland announced that it is considering the following actions in order to protect investment and jobs in the Greenlandic exploration and mining industry:
• Relieve exploration commitments associated with licences
• No charges or fees to companies for governmental handling and administration
• Relieve financial requirements for exploitation permits
In Finland, the Government of Finland, together with the President of the Republic, have declared a state of emergency due to the Covid-19 situation, resulting in significant closures and restrictions.
In Canada, the Government of Quebec has ordered all non-essential businesses to close in an attempt to slow the spread of Covid-19. Accordingly, having successfully commissioned and operated the company's heavy mineral concentrate pilot processing facility, operations there have now been suspended. The plant has been placed on care and maintenance.”
Financial
• Provident Financial – “In the first eleven weeks of 2020, there was no discernible impact of Covid-19 on credit issued, credit quality or collections. However, we continue to assess the impact on our business from the measures recently announced by the UK Government, together with our own actions on forbearance where we help customers in difficulty to manage their repayments over an extended time frame. We expect both our credit issued and collections performance to be adversely impacted during this period of uncertainty. It is too early to quantify the potential financial impact of Covid-19 on the group's financial performance and, therefore, we consider it prudent to withdraw any forward guidance for 2020.
We remain heavily focused on managing capital and liquidity through: (i) tightening underwriting across each of our businesses, particularly in respect of new business in Moneybarn where loan values are higher and demand is expected to reduce in the coming weeks – our focus in all three businesses is on supporting our existing customers; (ii) maintaining tight control of costs in each business, particularly discretionary spend; and (iii) preserving our capital and liquidity positions where possible.
The Board has decided that, given the uncertainties at this time, the 2019 final dividend of 16.0p per share will no longer be proposed at the Annual General Meeting (AGM). The cash and capital impact of the decision to withdraw the dividend is approximately £40m. Future dividend decisions will be made as and when conditions normalise and an update will be provided with the group's interim results in July.
The group has strong capital and liquidity positions comprising:
• Regulatory capital headroom of approximately £200m1, prior to the capital conservation buffer of approximately £55m which is held and may be used in the event of a stress scenario such as currently being experienced in the UK.
• Headroom on committed facilities and surplus cash and liquid resources amounting to approximately £230m. This is in addition to £170m held by Vanquis Bank in respect of their Individual Liquidity Guidance and ongoing access to the retail deposits market.
The requirements of persistent debt regulation on credit cards which was due to come into effect on 1 March 2020 (PD36) has been deferred by the Financial Conduct Authority (FCA) until 1 October 2020.”
Food, drinks & household
• Domino’s – “In our core UK & Ireland business, trading in January, February and the first two weeks of March was in line with our expectations. UK LFL sales ex splits growth over this period was broadly similar to the run rate seen in Q4, at just over 3%, driven by order count. Over the past week, UK trading has accelerated, with the growth in delivery more than offsetting the lack of collection sales. This LFL sales growth has been driven by growth in items per order and therefore higher overall ticket, arising from both the shift from collection to delivery as well as a change in consumer purchasing behaviour.
We have taken a number of actions in our core UK & Ireland business:
• We have moved to entirely Contact Free Delivery, adding additional peace of mind for our customers and colleagues. At the start of this week, we also took the decision to stop in-store collection orders, to further protect colleagues and customers. Collection typically accounts for around 20% of sales, however so far we have seen the growth in delivery more than offsetting the lack of collection sales.
• Ensuring our supply chain remains operational and with a good level of service to stores. We have rolled out a number of measures to protect our supply chain centres, our distribution network and our supply chain centre colleagues. We have seen minimal disruption to date. We are working closely with our suppliers to ensure flow of food and other goods and are currently seeing a good level of service.
• Ensuring the safety of our customers and colleagues. We operate at the highest level of hygiene standards across both our supply chain operations and in our stores. We are working closely with our franchisee partners to ensure store operations continue and store colleagues are working in a safe environment. We are recruiting additional delivery drivers to ensure we can meet higher demand levels and provide employment opportunities during this period of uncertainty. Our delivery drivers, store colleagues and supply chain colleagues are categorised as key workers.
The announced business rates freeze and the VAT payments deferral will benefit our franchisee partners and our corporate store network. The Board are assessing other measures to support franchisees as required.
Directly operated international businesses (classified as discontinued) – In Norway, Switzerland and Iceland, we have seen significant disruption, with sales down double-digit year on year and around 16 temporary store closures across the three markets due to labour shortages and low demand. Our Swedish business is less affected at present, but we continue to monitor the evolving situation in this market closely.
Financing and liquidity – As reported at our full year results on 5 March 2020, as at 29 December 2019, our borrowing and financing position were as follows:
Net Debt and covenants – At 29 December 2019, our net debt was £232.6m, made up of drawn debt under our revolving credit facility ("RCF") of £250.4m, other loans of £0.5m, offset with cash of £16.0m and capitalised arrangement fees of £2.3m. Our net debt to EBITDA ratio was 2.28x on a reported basis, and 2.31x on a covenant basis, compared with our covenant limit of 3.0x. Our fixed charge cover interest cover was 8.2x on a reported basis and 7.8x on a covenant basis, compared with our covenant limit being greater than or equal to 1.5x. Our current net debt position is slightly lower than the reported year-end position.
Facilities and financing – At 29 December 2019, we had £350m of committed facilities in place under our RCF and overdraft, providing headroom of £99.6m above our net borrowings of £250.4m. The RCF facility runs to December 2023 and since the year-end has been drawn in full to provide the group with liquidity if required.
We have a good relationship and open dialogue with our lending banks, which, if necessary, will enable discussions to seek adequate liquidity to support our business and, if needed, the liquidity of our franchisee partners.
Dividend – The Board has already overseen actions taken on costs and capital spending and continues to assess carefully all remaining essential spending in order to protect our liquidity. Although our performance and liquidity position remain strong, given the volatility of delivery sales and with an uncertain outlook, we are taking a cautious and prudent approach and therefore the Board has decided to suspend the final dividend payment of 5.56p that was announced as part of our full year results on 5 March 2020. The Board will keep this matter under review in the coming months.”
• Finsbury Food Group – “As the effects of Covid-19 on the UK and Europe have become more pronounced, and with the UK government taking the decision to close food outlets, schools and other public places where food is provided, our UK foodservice business, which accounted for approximately 20% of total Group revenue in FY19, has seen a significant reduction in demand.
While the performance of the largest part of the Group, retail, is proving resilient with overtrade in bread and pockets of weakness in cake, trading in our foodservice business is likely to continue to be significantly impacted in the immediate term as a consequence of the closures. We are in the very early stages of understanding the impact of the virus on our business and, with the situation being as fluid as it is, it is not currently possible to provide guidance on future earnings.
Response to Covid-19 – As a manufacturer of a wide range of baked goods, we are committed to playing our part in ensuring the UK's supermarkets have the food stocks needed at this time of unprecedented demand. The health and safety of our employees is our top priority, and we continue to adhere to the UK government's rules and guidelines, with extensive procedures in place across our sites.
Considering the actual and anticipated change in demand across the business, the Board is taking actions to manage short-term costs, while ensuring the business remains on a sound footing to deliver on its longer-term growth ambitions. These include:
• Temporarily suspending production at our Kara site in Manchester whilst continuing to service customer sales from stock (Kara is solely focused on the foodservice channel) and reviewing shift patterns and production elsewhere as sales dictate;
• The freezing of all discretionary expenditure and capital investment; and
• Careful management of cash resources.
The Board has also taken the decision to withdraw its proposed interim dividend, as announced on 24 February 2020. While we remain committed to the payment of dividends, we believe it is prudent to conserve the Group's cash at this time of heightened instability. The Board will assess the Group's cash position and the outlook for the business at time of the full year results, and will adjust its approach to the final dividend accordingly.
Financial update – At the end of December 2019, the Group had net debt of £32.5 million. The Group has extensive headroom in its facilities, with a £55.0 million revolving credit facility and an accordion of £35.0 million.
We have strong relationships with our three banks and have been in regular dialogue with them since the onset of Covid-19. They remain highly supportive and the Board is comfortable that it will be able to manage the situation from its current financial position.”
• Total Produce – “Although the Group has experienced a reduced level of demand from the foodservice sector, demand from retailers has remained robust as consumer buying patterns shift. The Group continues to monitor the situation and is taking appropriate measures to adapt to the changing market and to ensure that supply chains remain open.
Total Produce is in a strong financial position and its cash flow also remains strong. The Group has significant cash and substantial undrawn credit lines. The Group is operating comfortably within its covenants.
Given the unprecedented nature of this outbreak, it is not yet possible to determine its full impact on the Group's results for the current financial year, however, the Group expects satisfactory results in FY20, although earnings are now likely to be lower than in FY19. Given the diverse structure of the Group's business in terms of customers, products and locations, the Board believes that Total Produce is well positioned to respond to the current global challenges.
Having regard to the current Government guidelines on the holding of meetings, the Board has decided to postpone the AGM, which was due to be held on 15 May 2020 to 28 August 2020. All matters scheduled to be conducted at the meeting, including the approval of the final dividend, will be deferred to that date.”
Support services
• Gattaca – “The Board of Gattaca recognises that these are unprecedented times and that the necessary actions the Government is taking to control Covid-19 is inevitably causing disruption to the economy. As with all businesses, we are not immune to this and are currently experiencing a significant reduction in permanent placements and a reduction in active contractors, our core business, of approximately 20% from pre-Covid-19 levels. We anticipate further reductions in contractors and permanent placements in due course.
The Group is implementing mitigating actions, including placing over a third of its UK workforce into the Government Coronavirus Job Retention Scheme (based on our understanding of it at this time), deferring HMRC payments to the end of the tax year which will provide a significant increase in short term liquidity; and we are temporarily reducing working hours and pay of the remaining workforce by 20%.
Nonetheless, the current situation will inevitably have a material impact on Group profitability for the year. Given the evolving and dynamic nature of the situation, we will not be in a position to provide meaningful guidance on FY20 until there is greater clarity around the broader economic situation and how it will affect our business.
The Group is in constructive dialogue with its bank and the Board expects to reach an agreement on revised terms that will address any covenant issues.”
• DWF – “Whilst the Group has, to date, shown strong revenue growth year on year, the final quarter of each financial year is typically the most important to the Group's financial performance, and has coincided with the Covid-19 outbreak in the Group's key markets.
As a consequence, the Board now estimates that Group revenue for the financial year ending 30 April 2020 (FY20) as compared to the prior financial year (FY19) will show high single-digit organic growth and total growth of between 15% and 20%, which is below management's previous expectations. Although the Group continues to expect double-digit percentage growth in underlying adjusted PBT this year, it expects a material impact on the expected FY20 profits due to lower than expected revenue and the level of investment made during the year to grow the platform. The Group has already implemented cost savings during the course of the year and has accelerated its cost saving programme, which is expected to deliver c£10m in cash savings during FY21 and annualised savings of £13.5m in FY22.
The payment of any final dividend for FY20 will be determined later in the year once the Group's financial results for FY20 are known and have been considered by the Board.
The Group invested through FY20 in its extensive lateral hire programme, increasing partner headcount on a net basis by 28 year to date, excluding those partners who joined through acquisition. Due to the current environment, partners who have joined recently are taking longer to ramp up their practices than would normally be the case but the Board are confident that, as the normal business environment returns, new joiner productivity will progress as had previously been anticipated.
Given it is uncertain when the market dislocation will end, management are keeping their expectations for FY21 under review.
The Company's revenues are generated from a diversified set of service lines and geographies, with a substantial proportion generated from litigation and related practice areas, which are less affected by the economy. Certain divisions and geographies have however experienced an impact from the market disruption caused by the Covid-19 pandemic.
International and Insurance will deliver most of the revenue growth in this financial year. As anticipated, International will deliver the strongest growth, albeit the Group has begun to experience issues in a number of locations as a result of Covid-19. Insurance, with its strong counter-cyclical offering, is trading ahead of management expectations. Connected Services is also expected to see revenue growth in FY20 whilst Commercial Services is now expected to be flat – corporate, finance and real estate have all been adversely impacted by Covid-19, with this partially offset by a strong performance from litigation.
As the Group expects that it will generate lower than anticipated profits in FY20 it also expects net debt at the year-end to be higher than anticipated. The Group is very focused on working capital management and cash collections, however management anticipate that the current business environment will slow collections. Management is confident that the Group has sufficient liquidity to deal with current working capital requirements.
The Group has a Revolving Credit Facility with HSBC, NatWest and Lloyds of £80m and currently expects to continue to operate within the limits of that facility. Notwithstanding that expectation, the Board believes it prudent to seek additional contingency facilities from its lenders to ensure that the Group has increased headroom for working capital purposes and a relaxation of certain covenants for a period of time. The Group has a strong relationship with its lenders and has had positive initial discussions, which are ongoing.”
• Totally – “At the forefront of this response is the NHS's 111 national triage service where Totally is making a significant contribution. Totally also continues to deliver its other healthcare services during this critical time of need and the response required from the Urgent Care team has been of paramount importance.
Totally's staff in Urgent Care are busy on the front line responding to unprecedented call volumes. Everyone in the organisation is part of the national response team, whether directly on the front line or providing corporate support. All of Totally's Urgent Care teams continue to deliver a service that is a critical element of the patient pathway for UK patients whether suffering from Covid-19 or other urgent conditions.
In addition to its usual services Totally is supporting NHS England through the provision of additional services such as the new service at Heathrow Airport, London, offering specialist support to people arriving into the country and requiring isolation. The list of changes to services and the provision of new services changes daily.
Totally has also implemented a number of operational changes in response to Covid-19, including replacing face-to-face services with video consultations in both Urgent and Planned Care. Additionally, clinicians in Planned Care are stepping forward to support urgent care services and many staff have deferred annual leave.
Demand for Totally's new insourcing business, Totally Healthcare, continues as diagnostic procedures still need to go ahead and its teams are ideally placed to provide such services to the NHS and other commissioning bodies. However, all planned non-urgent operations have been postponed.
All this work continues to be delivered via Totally's contracts with Commissioners, which secure the necessary funding for the delivery of such services. As Totally approaches its year end, at the end of March 2020, the Board remains confident that the Company's performance will remain strong. The Company has requested additional funding from the NHS and Commissioners for the additional, enhanced services delivered.”
• Mitie Group – “Although we cannot predict with any accuracy the long-term impact of Covid-19 on our business at the present time, currently we are seeing a mixed impact on our divisions:-
Across the essential services we provide to the public sector – including the NHS, Home Office, The Police, Sellafield, AWE, Bank of England, Network Rail etc – we expect little change in demand as a consequence of Covid-19. These services represent c30% of our annual revenues.
Services to the Finance, Professional, and Banking sector, which represent c12% of revenues, are expected to continue at close to normal levels, whilst branches remain open, as will essential statutory and mandatory maintenance services to critical infrastructure such as Data Centres, Telecoms and Drug Manufacturing, which represent a further c6% of revenues.
Demand for Cleaning and Security Services from food and On-line Retailers are increasing. These services represent c11% of group revenues.
However, we are starting to see discretionary project work in both Fire & Security and Technical Services (c.15% of Group Revenue) being significantly deferred, alongside reduced demand from Transport & Logistics, Manufacturing, Property Managers and general office-based clients. In the latter cases (representing in aggregate a further c26% of Group Revenues) we are seeking retainers to ring-fence 'furloughed' staff to ensure rapid and cost effective remobilisation, when the impact of Covid-19 has abated.
Currently almost all our front-line staff continue to work at client's sites as requested to provide essential services. Where clients have reduced demand for our services, so far, we have been able, in the main, to re-deploy colleagues in other areas of opportunity.
All of our HR, Finance and IT support activities – including those outsourced to India – are being maintained effectively by staff working remotely. All other staff able to work remotely are also doing so, as a consequence of which our major office hubs are now shut. In short, we remain fully capable of delivering our full suite of essential services, despite the challenges of the current environment.
Financial Considerations – We have some £427m of facilities available, comprising a £275m Revolving Credit Facility that matures 23rd July 2021 and £152m USPP, of which £122m matures December 2022.
We reported in our HY 2019/2020 results a closing net debt of £148m and average net debt of £263m, with peak debt of £355m. Peak debt in H2 was £273m.
The year-end debt balance will benefit from a deferral of VAT and PAYE payments, agreed with HMRC, and is therefore expected to be better than previous guidance, providing that clients settle March month end invoices as due.
Mitie has continued to trade in line with guidance provided in the trading update for the first nine months of FY19/20, issued on 30 January 2020 for both EBIT and Revenue, although in the last two weeks we have seen a material downturn in projects and non-essential maintenance spend.
We anticipate that this trend will continue to accelerate in FY20/21, while the Covid-19 situation continues. This is being mitigated to some extent by increasing demand for cleaning and security services.
Due to the inherent uncertainties arising out of the Covid-19 situation, the Board has concluded that it cannot provide guidance with regard to the anticipated financial performance for FY20/21 until the outlook becomes clearer.
As a strategic supplier to the Government, we are in conversations to seek additional support to bridge the downside impact on the business, as well as taking advantage of the "Coronavirus Job Retention Scheme", which will allow us to 'furlough' colleagues, if necessary, rather than laying them off.
We are also implementing a number of actions to further mitigate the impact of the Covid-19: we have carried out a review of our overhead cost base which should deliver savings over the next 12 months of c£25m; we have deferred any non-essential and uncommitted capital expenditure; the Board and CEO, and the Executive team have volunteered reductions in their directors' fees and salaries of 30% and 20% respectively (for at least the next three months); and the Board has determined that unless overall trading improves materially, no final dividend will be recommended for FY19/20.
In addition, we are pro-actively managing our cash flows, by working with clients to bring settlements forward, as well as securing HMRC support to defer PAYE and VAT payments (as referred to above). We have also initiated discussions with our lenders to ensure we have their support and flexibility to assist us in responding to the challenges arising out of Covid-19.”
• Keystone Law – “Whilst the outbreak of the Covid-19 virus and the resultant impact on the broader UK economy has, over the last two weeks, changed the economic landscape, Keystone is in a strong position to deal with the financial and operational impacts.
Keystone is highly liquid, being debt free and with a net cash position of £4.4 million as at 31 January 2020. Furthermore, the Group has been cash generative in the period since year end. The Keystone model itself is highly resilient to economic volatility due to the 'capital light' nature of the business and the high proportion of its cost base which is fully variable; most notably the lawyer fees, which represent approximately 75% of revenue. These are not only fully variable but also on a paid when paid basis, thus underpinning the cash generative nature of the Keystone model.
Operationally, Keystone's service delivery model, whereby lawyers operate on a remote basis accessing central services through its bespoke technology platform, has been substantially unaffected by the restrictions on movement implemented by the UK Government. In the interests of staff wellbeing the Board acted quickly to move all office based support staff to remote working with effect from 13 March. This change was achieved with no impact to the business and Keystone's service delivery capability is as robust as it was before the Covid-19 outbreak. We are well diversified, delivering legal services across a wide range of sectors and specialisms such that we have no dependency on any single area of the economy or client.
The current situation is unprecedented and the wider economic impact on our clients, together with the timing of this within our financial year and unknown duration for which it may apply, mean that the impact on the Group for the year ending 31 January 2021 cannot yet be assessed. We will provide further updates as the position develops and we have more clarity.
The Board believes that in these uncertain times it is only prudent to protect the liquidity of the business and as such it has decided that it will not be recommending a final dividend payment to shareholders when it announces the full year results for the period ended 31 January 2020. We will resume dividend distributions when circumstances make it appropriate to do so.”
• Royal Mail – “Recent trading UKPIL- In the last two weeks advertising mail in particular has been significantly impacted due to the Covid-19 pandemic, as marketing campaigns have been delayed or cancelled, especially in the travel sector. Business mail volumes have been resilient to date and broadly in line with previous expectations, supported by recent customer mailings. We anticipate that recent restrictions on individuals and businesses will have a negative impact on unsorted and stamped mail, although we are unable to quantify it at this stage. Whilst it is difficult to predict accurately how letter volumes will evolve over the coming weeks we do expect downward pressure to continue. 
In Parcels, business to consumer volumes have been strong during the last two weeks, supported by an increase in e-commerce as people have shopped more online. Royal Mail Tracked 24®/48® and other standard products have performed well. Tracked Returns® volumes have been lower than expected due to weaker volumes from the clothing sector. Volumes through the Post Office have seen declines in the past 7 days due to recent restrictions on movement and at this time it is difficult to assess how volumes will develop in the coming weeks. Business to business volumes have seen a significant negative impact, although this only accounts for a small proportion of our overall parcel volumes.
International has seen lower volumes given restrictions in certain countries, especially into and out of China, and reduced air freight capacity.
GLS – The impact of Covid-19 has been very challenging, although this differs from country to country. There has been disruption in key markets, particularly in Italy, France and Spain, where the most severe restrictions on movement have been imposed. In the last 2 weeks Business to Business (B2B) volumes have fallen significantly in some markets. Whilst we have seen growth in business to consumer volumes, driven by e-commerce, this has not offset B2B declines. We expect the declines in B2B volumes to continue.
In all our markets, we are following government and local authority guidelines and advice. While levels of sickness absence vary from market-to-market, the overall trend is an increase in absence from work due to the Covid-19 pandemic.
Business continuity – We are actively monitoring the rapidly evolving Covid-19 situation. We have implemented a comprehensive business continuity plan. We have established a daily committee to manage the crisis, chaired by Group CEO Rico Back and including key executives from Operations, Finance, and Human Resources.
We are reviewing the timing and phasing of the Group's investment programme. We are reviewing all capital expenditure, whilst being careful not to compromise the long-term prospects of the business. We are taking significant action to contain all costs and preserve cash.
Our financial position – The Group's current liquidity position is strong, with good levels of cash and limited financial debt. Currently the Group has in excess of £800 million in cash plus a £925 million Revolving Credit Facility. Both our leverage (net debt/EBITDA) and interest coverage (EBITDA/interest) covenants for our RCF are 3.5x (pre IFRS 16). There are no financial covenants on either the €550 million bond (maturing October 2026) or the €500 million bond (maturing July 2024). If current volume and revenue trends outlined above were to persist, the Group is confident it has sufficient liquidity and will be able to stay well within covenant limits. However, if trends remained unchanged, by the calendar fourth quarter the risk around covenants would increase.
The Board has also taken note of the emergency funding measures available to companies recently announced by the Government.
In the light of the current economic uncertainty, the Board believes it is prudent not to recommend a final dividend for the financial year 2019-20.
As part of the usual annual results process, we will conduct an impairment assessment based on updated forecasts that take into account Covid-19 impacts.
Outlook – We continue to expect FY2019-20 Group adjusted operating profit (before IFRS 16) of £300 million – £340 million.
For 2020-21, there is the potential for sharp and sustained economic downturns in many of our core markets. Due to the rapidly-evolving and fluid nature of the Covid-19 pandemic, it is too early to predict accurately the impact. However, it is likely that UKPIL will be materially loss making in 2020-21, with profitability at GLS significantly reduced. The previously highlighted delays to our UKPIL transformation plan, when combined with uncertainty around the length and impact of the Covid-19 pandemic, means we now believe it will take longer than expected to achieve the targets laid out in our Journey 2024 plan. Therefore, the Board has taken the decision at this time to suspend guidance for 2020-21 and beyond. We are undertaking a review of our Journey 2024 plan and will update the market when practicable.”
• Capita “has a range of core services and mission-critical infrastructure that our clients depend on and which underpin a high proportion of our revenue. In 2019, half of our revenues were related to services to the UK Government. The Group order book at 31 December 2019 was £6.7bn.
In the last few weeks we have secured new work including a three-year extension to a Ministry of Justice contract (worth £114m). Capita also won new projects for a high street bank (worth £33m over three years) and a healthcare contract win in the Software division (worth £19m over seven years).
We are currently exploring more than 100 situations to support the UK Government Covid-19 response with additional services. This includes contributing resource to healthcare call centres as well as being part of an initiative to set up health testing centres. Some private sector clients have also asked for additional help to respond to higher demand from their customers.
The business remains focused on operational delivery and regulatory compliance. Where we are providing key services, we are receiving strong support from our major clients including the UK public sector, telecoms, utilities and financial services and we expect limited financial impact in these areas.
However, the rest of our business is expected to be more adversely impacted by Covid-19, including significant, although temporary, impact in areas such as face-to-face training, resourcing, contact centres for retail and leisure clients, consulting and our corporate travel agency.
Management actions
• We have therefore decided to take robust and wide-ranging action to protect our financial position in this unprecedented situation, including prudent cost-saving measures to offset the impact of expected revenue reduction, including:
• Central overhead costs will be reduced to the bare minimum whilst ensuring operational oversight and regulatory compliance are maintained.
• Discretionary expenditure has been materially reduced, specifically in areas such as travel, marketing, non-essential training and recruitment.
• We have temporarily closed a number of our offices around the UK which are not required for the provision of essential services and are planning to move rent payments to a monthly in advance basis (from quarterly).
• We have reduced the number of contractors we use by reallocating and prioritising internal resources.
• Significant temporary reductions of salary by senior management and the Board
These actions are expected to mitigate any profit impact by more than £100m in 2020 before taking into account the furlough support from Government.
We employ over 40,000 people in the UK. Where, as a result of Covid-19, any of these cannot work from home and are not required to come into their normal workplace, their roles will be furloughed in accordance with the UK Government scheme and they will receive 80% of base salary, up to £2,500 per month.
We have also identified cash management actions to maximise the liquidity available to the business in the short term, including:
• A number of planned restructuring initiatives and un-committed capital expenditure have been put on hold indefinitely, saving £25m this year.
• Making use of the HMRC policy to defer VAT payments of c£100m to 2021.
Liquidity and balance sheet – Capita had more than £450m of liquidity as at 25 March and is taking all necessary measures to protect its financial position.
The group has access to significant liquidity comprising a revolving credit facility of £452m and an additional facility of £150m. As at 25 March, £150m of this was drawn, reflecting the typical seasonal requirements of the business.
At 31 December 2019, the group had debt excluding lease liabilities and swaps of £991m, of which £233m is scheduled for repayment in June and September 2020. At 31 December 2019 headline net debt (net debt excluding lease liabilities) was £791m and headline net debt to adjusted EBITDA was 2.0x (excluding the impact of IFRS 16).
The covenants1 that govern the US and Euro private placement notes are set at 3.0x and 3.5x net debt to EBITDA respectively, with the calculations based on hybrid and frozen GAAP and described in detail in our Annual Report. These are tested at the half year and full year.
In addition to the above we are continuing to progress with non-core disposals and it remains our intention to extend the Group’s debt maturities when market conditions improve.”
Oil & gas
• Cairn Energy – “In light of current market conditions, Cairn is proactively reviewing each of its assets and related capital expenditure programmes. Significant reductions and deferrals have already been identified for the 2020 programme, representing an overall 23% reduction in capital expenditure for the year. Further initiatives relating to the whole forward programme are under active discussion with joint venture partners and other stakeholders. These changes are not expected to affect our previously disclosed production and production cost guidance for 2020.
Producing Assets – Planned 2020 capital expenditure on the UK producing assets is expected to be below US$45 million, reduced from the original forecast of US$65 million as a result of cost savings identified and the deferral of certain activities planned for the Catcher fields.
Development Assets – The Sangomar joint venture partnership is working collaboratively to assess several substantial initiatives to reduce and re-phase capital expenditure on the Sangomar Development Project. At this stage, based on initiatives already identified, Cairn's expectation is that net capital expenditure on Sangomar in 2020 will be below US$330 million, reduced from the original forecast of US$400 million. A broader review of capital expenditure for 2020 and future years is ongoing with the joint venture, and an update on the results of that will be provided in due course.
Exploration – All forward capital expenditure on exploration and appraisal activity is now deferred with the exception of ongoing operations on the Eni operated Ehecatl well in Mexico. Capital expenditure on exploration in 2020 is now anticipated to be approximately US$100million, reduced from the original forecast of US$150 million.
The Company remains well funded from existing sources of financing:
• 2020 opening cash position of US$255 million (pro forma for the sale of the Group's Norwegian subsidiary that completed in February).
• Cash flows from UK production, which is expected to be in the range of 19,000-23,000 bopd in 2020 with 36% of mid case production hedged at US$62/bbl Brent and a targeted all-in production cost of below US$20/boe.
• Undrawn US$575 million reserves-based lending facility, which includes an "accordion" option to increase lending commitments by up to an additional US$425 million on the inclusion of Sangomar in the borrowing base assets. An update on the actual additional debt capacity determined by the inclusion of Sangomar in the facility will be provided as discussions with lenders progress.”