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Chilling headlines and deaths are escalating, but statistics show deaths from coronavirus are low as a share of the total. ONS stats for England & Wales for the week to 20 March show 108 deaths ytd from Covid-19 vs 21,320 for respiratory causes. This lagging indicator uses registered deaths, and will always be behind the latest numbers (1,789 at 31 March), but more complete. Respiratory causes deaths were 71,674 last year; 13.5% of the total. There’s no clear evidence that Covid-19 will register as a statistical event. Indeed, deaths may even decline due to social distancing (ie, less flu) and road deaths will fall materially.

Headlines

• Italy has extended its lockdown period to 12 April
• BA has stopped all flights to Gatwick
• Japan bans entry for foreign nationals from the US, China, South Korea and most of Europe
• Cities go quiet Citymapper
• Tunisia using robots to enforce lockdown link
• Fideres forecasts US$100bn of losses from leveraged loans link
• Will food retailers get the £3bn tax break (Wales has already decided no) Link
• Grocery sales +20.6% in four weeks to 22 March Link
• Funerals limited to the deceased person’s household or close family members link
• Ford has extended the shutdown of some of its NAM plants
Good news
• Supermarkets scrap some product restrictions
• France, Germany and the UK have sent medical supplies to Iran

Citymapper
The list of cities going quiet continues to extend. Spain leads the way with 4% of city moving yesterday in Barcelona and Madrid, but a number of cities are similar (eg, Paris on 5%). New York is 8%, Istanbul 9%, London 10%, Tokyo 11%, Berlin 12%, Sao Paulo 14%, Sydney 16%. Singapore is busiest at 53%. The striking point is the extent to which cities worldwide have gone quiet. Compare it to three weeks ago: London was 83%, Istanbul 93% and Sao Paulo 104%.

Death rate (England & wales)
From the ONS stats, the age of the deaths from Covid were 79 over 75 (73%), 21 between 65 and 75 (19%) and 8 were 15-65 (8%). The 108 reported (and 1,789 official numbers) compares to 21,320 for all respiratory diseases over the same period, which was a 3% reduction on the prior year. Although these stats are very early in the outbreak, they do provide a similar picture to the outcomes elsewhere.

Company news
Buildings & construction
• James Halstead – ‘Inevitably office refurbishment, retailer business and leisure will slow drastically in the coming weeks. None of our markets are unaffected in terms of the general economic environment. However, a major part of our business is in healthcare and over 70% of our turnover is exported and we are receiving a large number of enquiries from many of our markets.
Our Group has plans in place to mitigate adverse challenges we face, and resources have been put in place to allow for remote working for many office-based personnel. More importantly we have rigorous procedures in our factories to protect our colleagues including social distancing measures and use of sanitizers. In addition we stopped all external visitors to site and segregated delivery drivers from warehouse operatives. We have also insisted on any employee with symptoms remaining at home, sent home any worker with underlying conditions, closed vending machines, conducted all meetings by conference call and limited staff to no more than two people in any room at the same time.
Government measures to slow the growth of the virus disrupts a significant part of our business, most noticeably in the UK but, as noted earlier, around 70% of our sales are exported and other markets are also affected. It is highly likely that our sales of luxury vinyl tiles ("LVT") will slow rapidly to the extent that LVT is installed in the retail and hospitality sectors. Refurbishment is less affected, and it is clear than contractors are active in this early phase but are winding-down. Equally, for a period of time the sheet vinyl part of the business will grow given the immediate need for expansion of temporary hospitals, assessment centres, sterile changing areas and isolation wards. Our UK production lines can fulfil some of this need and are producing this flooring.
In several markets we have "key supplier" status and are a preferred supplier to the UK's National Health Service, whilst there are two other preferred suppliers who are based in France where all manufacturing is currently closed. Despite being competitors, we work closely with these two companies on trade bodies and international standards and have sent our wishes for a safe outcome. Given the "stay at home'' message our employees and their families have understandable concerns, and the stress and worry associated with the current situation is an issue for everyone. Having regard to this, and given the nearness of our normal Easter shutdown, we will close the Radcliffe factory one week earlier and extend the break to three weeks.
Our suppliers are in contact and raw material supplies continue, with 60% of raw materials sourced in Europe and, to date, supply and delivery are largely unaffected. The 3 week break will give us more clarity on supply chains as government policy evolves.’
• Northern Bear – ‘Although circumstances are changing daily, the majority of our businesses have seen construction sites close and expect to have limited work opportunities until the sites reopen. Due to differing prevailing conditions, we are managing the situation on a company by company basis. Each business' Managing Director has produced a plan to be implemented as work levels continue to reduce as a result of site closures. These plans include using the Coronavirus Job Retention Scheme to temporarily furlough affected employees and keeping a tight control over the remaining cost base and cash outflows.
In the meantime, we currently have a very strong order book and whilst the timing of the roll out of this work has been impacted by current events, we look forward to a return to a more normal level of operating performance across the Group once sites re-open. In addition, we retain an excellent relationship with Yorkshire Bank, as evidenced by the renewal and improvement of our bank facilities despite the uncertain environment in which we are currently operating, and with our major shareholders.’
Food, Drinks & Household
• Imperial Brands – ‘Although the economic and social impact of COVID-19 is developing rapidly, there has been no material impact on Group performance to date and current trading remains in-line with expectations.’
• MP Evans# – ‘More than one million tonnes of crop processed, and an improved oil-extraction rate of 23.7%, did not translate into record profits in 2019 only on account of this year coinciding with a period of low crude palm-oil prices. Notwithstanding a background of rising demand, tight vegetable-oil supply and low stocks, the near-term picture is now clouded by the current Covid-19 pandemic. The board remains confident in the long-term demand for palm oil, and as a basic foodstuff, palm oil is well placed to be an early beneficiary of the economic rebound that is likely to occur as the pandemic recedes.’
• Nichols – ‘as a result of the COVID-19 pandemic and the restriction of movement of people worldwide, the Board now expects a significant impact on the Group's financial performance in 2020.
Given the level of global uncertainty, the Board is not currently able to provide financial guidance for the year ended 31 December 2020.
Mitigating action - The Group entered this financial year with a strong balance sheet, with more than £40m of cash and no debt. However, in light of the uncertain outlook, the Board considers it prudent to protect the Group's cash position in the near term and has taken the decision to cancel the final dividend announced on 26 February 2020 of 28.0 pence per share, which was due for shareholder approval at the upcoming AGM and expected to be paid on 1 May 2020. This decision will conserve £10.4m of cash over the seasonally critical spring and summer period. The Board will consider the Group's cash position once through this critical trading period and if it is appropriate will reinstate the payment of a dividend. As a result of this decision, Ordinary Resolution 2 (proposed final dividend) will be withdrawn from the AGM due to take place on 29 April 2020.
The Board and management team continue to plan for multiple scenarios and explore various ways to mitigate the impact of reduced demand on the business for a potentially sustained period. Whilst the Group operates a co-packing and licensing model and is therefore asset light, the Board is taking steps to remove cost, including the re-evaluation of its marketing spend given the changed circumstances, postponing non-essential recruitment and suspending non-critical capital expenditure from the business.’
• Conagra – ‘To-date in the fourth fiscal quarter, the Company has experienced significantly increased demand in its retail businesses, associated with the COVID-19 pandemic; the Company has also begun to experience declines in foodservice demand.
The Company's supply chain has executed very well to-date to meet the needs of customers and consumers.
The Company now expects to exceed prior full-year guidance for total-company sales and profit metrics, assuming the end-to-end supply chain continues to operate effectively.’
Healthcare
• Synairgen – ‘announces that it has now commenced dosing patients in its trial of SNG001 (inhaled formulation of interferon-beta-1a) in COVID-19 patients. This announcement follows the one made by the Company on 18 March 2020.
The first patient has been dosed at the initial trial site (University Hospital Southampton NHS Foundation Trust). Synairgen has initiated a further six trial sites which are expected to start dosing in the coming days.’
Industrials
• Castings – ‘We reported in November 2019 that the commercial vehicle sector was witnessing a decline in order intake in Europe. Therefore, as expected, we experienced lower output levels at the end of Q3 and into Q4 from this element of our customer base, which represents 70% of group revenue.
There were indications that demand was increasing slightly towards the end of Q4. However, the consequence of the COVID-19 outbreak is affecting the truck sector significantly. Many of the OEMs have recently reported factory closures as a result of labour shortages and supply chain disruption.
Whilst we have not completely closed either the foundry or machining operations, we have reduced production levels to reflect the significantly lower levels of demand. Given the uncertainty of the situation, it is not currently possible to predict the impact on the business heading into 2020/21.
• Dewhurst – ‘In the first five months of the current financial year to 29 February 2020 there was no material COVID-19 impact on overall Group trading, although Hong Kong revenues started to be affected. During March Dewhurst saw the impact gradually spread to other locations. Overall first half revenues are now expected to be approximately £28 million (HY19 revenue: £28 million, restated to exclude TVC which was sold on 30 September 2019).
Clearly the main concern beyond employee welfare and customer support is the impact of the COVID-19 pandemic on the long-term security of the Group. To mitigate the effects of the pandemic the Board has made several decisions to reduce costs and contain cash outflow including the following:
• Over the last week it became increasingly difficult for Dewhurst UK to maintain normal production as more of its suppliers and customers closed their doors and staff numbers reduced due to staff self-isolating at home. Accordingly, Dewhurst has taken the decision to close operations at Dewhurst UK. In the UK, A&A and TMP currently remain open albeit with a reduced workforce. It is anticipated that similar action may become necessary in the Group's other operations in time, if greater restrictions come into force in other countries in which the Group operates.
• We are restricting discretionary spending and non-committed capital expenditure. For now, the development of Dupar's new premises discussed in the 2019 financial statements is continuing as this was contracted and committed to at the start of 2020 but pause points within the construction contract will be regularly reviewed.
• We are considering appropriate cost saving initiatives, whilst seeking to protect our talented workforce and being careful not to compromise the long-term prospects of the business.
• We are also evaluating and, where sensible, implementing government support measures available in the jurisdictions in which we operate.
Strong Cash Balance Sheet - Dewhurst has a strong balance sheet, is well financed and remains debt free and is therefore well positioned to navigate the COVID-19 pandemic. The Group had c.£17m of cash as at 30 September 2019 and cash flow in the first six months of the year was in line with management's expectations. We currently expect to have sufficient liquidity from existing resources to meet our needs through the remainder of this financial year.
• Ford - is delaying the restart of a car plant in Mexico as well as four truck SUV and van plants in the U.S. The plants were scheduled to begin reopening in April.
• Sabien Technology – ‘announces today it has furloughed all non-essential staff in response to the extraordinary circumstances relating to the global coronavirus emergency. Following the national lockdown announced last week, and the closure of most non-essential industries, the Board has decided to take unprecedented action to protect the Sabien business and the jobs of our staff from what may be a prolonged period of commercial inactivity.
Increasingly, customers do not want third party contractors to visit their sites and Sabien is not prepared to put its installation engineers at risk by asking them to make non-essential visits away from their homes. With reduced sales opportunities and no installations possible, the Company has recognised that it must take immediate action to protect the business from unprecedented economic headwinds. Consequently, the Board has decided to immediately suspend all non-essential functions for the duration of the crisis.
Fortunately, the Government has announced the Coronavirus Job Retention Scheme ('Scheme') which will fund the continued employment and protect the jobs of our skilled workforce. After a period of consultation, more than 85% of the Sabien workforce have agreed to be furloughed with effect from 30 March 2020. The Company will maintain a slimmed down sales and customer support function to ensure we are ready to restart normal operations at the earliest possible date. The Company will review the situation on a monthly basis and may ask selected furloughed staff to return to the business for special projects.’
• Rotork – ‘Our ability to deliver products and services to our customers has remained good considering the demanding environment. However, in the last few weeks we have started to experience increased disruption. This is due to our actions to protect our people (including in our factories, where we have had to change working practices and conditions, and in some cases have had temporary closures), our supply chain (where not all of our alternative suppliers have been able to sufficiently lift production) and logistics (international transportation is taking longer and has become more expensive).
• The initial COVID-19 outbreak in China caused delays in deliveries and an increase in logistics costs. The Rotork teams have worked hard to overcome these issues and the output from our factory in China is now close to back to normal.
• Whilst our teams in India and Malaysia continue to work effectively, our factories in these countries are currently closed, in-line with government instructions.
• The situation in Italy is now impacting the Group. Rotork has three manufacturing sites in Italy, and a significant valve-maker customer base in the country. Our sales people, application engineers and contracts teams are working from home and remain in close contact with their customers and their Rotork colleagues globally. Our factories in Italy are currently all closed, in-line with government guidance.
• Our UK factories are now open having been temporarily closed last week whilst we further strengthened our health and safety procedures including new work patterns.
• Our US factories are complying with local government instructions meaning they are currently open as deemed essential facilities but operating at reduced capacity. There have been some additional delays in deliveries from our US factories due to component shortages resulting from the cancellation of airfreight from Europe.
Whilst we are planning to keep our sites open, we will not hesitate to close them again if required or if we believe there is any risk to our colleagues from them being on site.
Market environment - In light of uncertainty relating to COVID-19, and the near term requirement to conserve cash, customers in several of our end markets have announced high level plans to revisit their capital and operational expenditure commitments. It is too early to fully assess the impact of these. It is also too early to assess the impact of lower hydrocarbon prices on our upstream oil & gas customers. Water & wastewater customers in most regions expect the sector to remain active. In the short term our customers' focus is on fulfilling existing commitments, and we in turn are focused on meeting those needs for both our products and services. Notwithstanding the short term impact, Rotork products and services remain pivotal to the safe and efficient running of critical processes across a wide range of key end markets.
Mitigating actions, 2019 final dividend and balance sheet - Given the high level of uncertainty we currently face due to COVID-19, we are taking steps to reduce the impact on our business. Actions taken across the Group include a recruitment freeze, postponing salary increases including for the Board, restricting discretionary spending and drawing on government wage replacement schemes (where these exist) and flexibility within the workforce.
Our ambitious Growth Acceleration Programme continues to drive cost benefits from procurement, site improvement, continuous improvement/lean and organisation change. We are reviewing whether there are cost benefits we could bring forward or investments we could delay. We made strong progress on cash generation in 2019 and this remains a major focus across the Group.
In order to ensure that Rotork can continue to act from a position of strength, and recognising the exceptional set of circumstances and the mitigating actions the business is taking, the Board believes it is appropriate to withdraw the recommendation to pay the final dividend of 3.9 pence per share, resulting in an anticipated cash saving of £34m, and reassess the position later in the calendar year when the situation is clearer.
This decision reflects the Board's confidence in the long-term outlook for Rotork and its Growth Acceleration Programme.
Financial position - Rotork is a highly cash generative business with a robust balance sheet. The Group had c. £110m of net cash as at 29 March 2020 and a £60m undrawn revolving committed facility which is scheduled to mature on 26 August 2020. We are currently in advanced discussions with the Group's banks to extend this facility and have also applied to the UK Government's CCFF scheme.
Current trading and guidance - Whilst the activity level for the Group in January and February was in-line with our expectations, we began to see an impact on both orders and deliveries in March. Asia Pacific order intake, however, was broadly in-line with expectations despite softness early in the period. Given the unprecedented level of uncertainty, it is not currently possible for the Group to provide guidance for 2020.
• Hardide – ‘Revenue in the six months to 31 March 2020 has been more than 25 per cent ahead of the same period last year. The Group's facilities in Bicester, Oxfordshire, UK and Martinsville, Virginia, USA are continuing to coat product as normal at present. Demand has been strong from customers in the oil and gas, flow control and precision engineering sectors throughout the first half of this financial year and the Board has not yet seen any significant reduction going into the second half.
Notwithstanding this, the Board is mindful that order intake in the second half of this financial year might well be affected as customers, especially those from the oil and gas sector, could defer investment decisions or increasing governmental restrictions may have an impact on customer production levels. The Board will continue to monitor the situation and keep an open dialogue with customers over the coming weeks.
The aircraft industry in general is being seriously affected by the current situation but this is not having an effect on the developments and discussions underway between the Company and Airbus and their Tier 1 suppliers on converting components away from hard chrome plating to our Hardide-A coating. Engineering work is currently being done by Airbus to allow for our coating on a range of components and a supply agreement with a major Tier 1 supplier is almost complete. The programme of work agreed with Airbus to gain approval for the new site in Bicester continues. Other development work with Leonardo Helicopters and other aerospace companies, both in the UK and the US, is also continuing; so far without disruption.
The internal fit-out of the new Bicester facility has been completed and the transition to the new site currently remains on plan for completion during September 2020, although the current situation with COVID-19 may cause some delay.
The Group has a robust cash position following the fundraise in January 2020 and is pleased to have entered recently into its first asset finance agreement with Hitachi Capital (guaranteed by the British Business Bank) over a sum of £0.4m secured against a new coating reactor at its facility in Bicester. Nonetheless, the Group's management is reviewing discretionary spending and implementing cost savings where appropriate.
The Board continues to observe all new government restrictions and will adhere to all those that apply to its businesses both in the UK and the US. A core customer informs us that it meets the US Department of Homeland Security's criteria for an Essential Critical Infrastructure Company and, as a key part of its supply chain, the Group has been asked to ensure the facilities in the UK and USA stay open for production, unless mandated by law to close.’

For the full research note, please click here