Coronavirus - Collateral damage

As the global war on Covid-19 continues, most countries are understandably focused on navigating their own path through this crisis.

Funds and minds are focused on solving internal issues. This could have huge consequences. According to the head of the World Food Programme David Beasley, 30 million people, and possibly more, could die in a matter of months if the UN does not secure more funding and food. The direct death toll of the virus could be dwarfed by deaths caused through policy change.


• Spain extends its lockdown until mid-May.

• UK government plans to use a contact tracing app.

• Inflation in the UK drops to 1.5%.

• US to stop issuing green cards.

• Germany bans mass gatherings until October.

• Map of Covid-19 world results.

• Delta capacity -85% for Q2 (US -80%, International -90%).

• BoE governor – £10bn issued under CCFF.

Company news

Buildings & Construction

 Bellway – “Announces that, in light of the Covid-19 crisis and its extraordinary impact on the business and the wider economy, the Board of Directors have agreed to a voluntary, temporary 20% reduction in basic salary and fees effective from 1st April until 31st May 2020, which will be donated to various charities. The Company will match-fund the donations with a contribution to its national charity partner, Cancer Research UK whose important work and fundraising capacity has been adversely impacted by the Covid-19 pandemic.”

 CRH – “The current health emergency caused by the global spread of Covid-19 has significant implications for the economies and construction markets in which we operate, and we are following the advice and direction of the World Health Organization (WHO) as well as government and public health authorities across our markets.

CRH continues to actively monitor the rapidly evolving situation and an extensive range of business continuity measures are in place across our operations globally. These measures include enhanced safety and sanitation protocols as well as adjustments to work practices to ensure social distancing is observed.

In an effort to slow the spread of the virus, governments around the world have implemented various restrictions on public gatherings, the movement of people and certain business activities. The impact of these measures on our operations has been visible since the middle of March, however the severity and the operational impact of the restrictions varies significantly from country to country.

In North America, while emergency restrictions have been implemented in all US states, construction has to-date been deemed an 'essential activity' in most markets and is permitted to continue, provided appropriate safety measures are implemented. Our businesses in Pennsylvania, New York City and Washington state have been the most impacted to-date, while our operations in the Southeast, Central and Western US have been less affected. We have also experienced significantly lower activity levels in Ontario and Quebec as a result of government restrictions on construction in both markets. Nevertheless, healthy backlogs and a favourable bidding environment continue to provide support for our business, and although the situation remains fluid, we are starting to see early indications of restrictions being eased across a number of markets.

Our operations in Europe have been more impacted to-date, with nationwide shutdowns being implemented across a number of Western European markets, including the UK, France and Ireland. With the exception of certain essential activities which are permitted to continue, our operations in these markets have been significantly impacted in recent weeks. In the absence of nationwide restrictions on construction activity, our Central and Eastern European businesses have been less impacted to-date.

In the Philippines, government restrictions implemented during the month of March have resulted in significantly lower volumes and activity levels in recent weeks.”

 Wynnstay Properties – “In the light of the Covid-19 pandemic and the UK Government's measures to address the impact on business and the UK economy, the Company considers that it is both in shareholders' interests and vital for UK economic recovery to support our tenants as far as we reasonably can, so that they are in a position to resume trading once the current restrictions are lifted. We expect tenants with viable businesses who are suffering short-term pressures on cash flow to take full advantage of the various reliefs and schemes that have been made available to business by the UK Government to assist them. These include business rates suspension, employee cost support, tax payment deferrals and government-supported loans.

Typical support that we may be able to offer to viable businesses are to accept for a limited period monthly, instead of quarterly, in advance rent payments and in some cases to defer a part of a quarter's rent, spreading its payment over the remainder of our financial year.

The Company has received some requests from tenants for rent holidays or longer-term rent deferrals. These requests are being considered on a case-by-case basis on their merits, having regard to the resources, size and viability of the businesses concerned, the availability and take-up of UK Government reliefs and schemes by the tenants and the opportunities to vary lease terms in a mutually beneficial way.”

Food, Drinks & Household

 Fevertree – “We have established a cross departmental team from across all our regions to focus and co-ordinate our response to the rapidly changing situation and the Board is kept up to date with any key developments.

The Group’s unique asset light, outsourced business model enables agility and flexibility. We are working very closely with our production partners across the UK and Europe as they have enacted their own business contingency plans, with our key bottlers and canners continuing to operate through the crisis with segregated shift patterns.

In addition we have taken action to ensure our finished goods stock in the UK is held across separate locations within our logistics partner's estate, and in the US we hold our stock across three locations on the West Coast, East Coast and in Texas.

Cash and liquidity – The Group is in a very strong financial position. We are debt-free, with year end cash of £128m, which has further increased post period end. Alongside this, our strong underlying cash flow conversion, our low level of capital commitments and low fixed cost base means that we are in a robust position to withstand the potential impacts of Covid-19.

Reflecting the financial strength of the business and our ongoing ability to generate significant cash, we remain committed to paying a final dividend for FY19 of 9.88p per share, which brings the total dividend for the year to 15.08p, up 4% on the prior year.

As well as a low fixed cost base, we have the ability to flex our variable cost base where required to reflect the changing channel dynamics and consumer demand as it evolves across our regions, and we will continue to keep our advertising and promotion spend under review over the coming months.

On/Off-Trade Channels – The On-Trade channel, which makes up 45% of Group sales, continues to be challenged across many of our regions. We are remaining in close contact with our On-Trade customers, many of whom have been severely impacted by the crisis. Our focus has been on offering support as and when it is needed most. This can be through extending payment terms to help ease near term cash flow pressure and more recently looking at ways we can support them as and when the On-Trade begins to reopen.

Within the Off-Trade channel which accounts for 55% of Group sales, the initial weeks of the crisis were characterised by periods of very strong sales in many of our key markets as consumers increased the frequency of their visits and purchased more per basket as they prepared for the implementation of social distancing orders.

We continue to work very closely with our key Off-Trade customers through the crisis and while there has been a degree of moderation in recent weeks, overall sales in the Off-Trade have remained strong.

Summary – While Covid-19 will have a material impact on FY20 trading, the Group is financially strong and has well balanced revenue streams across regions, channels and customers.

We have modelled a number of possible outcomes which consider, amongst other things, the overall length of the lockdown in key regions, trading within the Off-Trade channel during the period, as well as the rate of normalisation across the On-Trade post lockdown.

These scenarios give a broad range of outcomes on revenue, before then considering the related margin impact and approach to discretionary spend as we move through the year.

Given the level of uncertainty and the dynamic nature of the situation, it is too early to quantify Covid-19's full impact on the remainder of the financial year. However, we remain confident that the Group will be well positioned coming out of this extremely difficult period and we will continue to deliver our plans for long-term growth.”

 Glanbia – “In the first quarter of 2020, the Group has traded well due to good consumer demand for its nutritious products and ingredients, which are predominantly sold in retail end markets. Strong demand in North America offset weaker demand in International markets where the challenges posed by Covid-19 had a greater impact, in particular, on GPN's route-to-market.

In response to the Covid-19 pandemic the Group put in place business continuity planning teams with three priorities: protect the health and safety of employees, continue supply of food and maintain the Group's strong financial position.

Protecting employees and maintaining food supply – The health and safety of the Group's employees is its number one priority with office based staff working remotely and a restriction on all travel in place. A comprehensive set of health and safety measures has been implemented at all production sites worldwide including health monitoring, occupational health support, employee welfare supports, physical distancing, hygiene and sanitation measures.

Glanbia employees have done an exceptional job and to date all plants across the Group have maintained production with plans in place at each site to manage potential disruption.

Financial position – Net debt at 4 April 2020 was €690.3 million, which represents a decrease of €119.5 million versus the net debt position at the end of the first quarter of 2019 with this improvement due to continuing strong operating cash flow. Glanbia has available total committed banking facilities of €1.15 billion with no facilities coming due for renewal in the next 12 months. In addition, to further preserve cash, the following precautionary measures have been taken, discretionary spend has been curtailed, working capital monitoring has been increased, capital expenditure has been reduced to key strategic projects and essential maintenance only, and M&A activity has been deferred.

Strategic initiatives – Glanbia remains focused on delivering its Group wide strategic initiatives as outlined in February 2020. GPN organisational changes and SKU rationalisation have been largely progressed. The exit of contract manufacturing in North America remains on track. Given the Covid-19 restrictions currently in place, the pacing of some of the projects relating to Group wide initiatives and GPN route to market may alter.

Outlook – The period since Glanbia gave financial guidance in late February has been marked by a rapid acceleration of the Covid-19 pandemic across the globe. A significant proportion of the global population is now in lockdown which has impacted consumer shopping activity in a variety of ways and it is difficult to model how those behaviours will evolve.

Although the Group has traded well in Q1 2020, demand became more volatile at the end of the quarter and into April particularly in GPN. At this time it is extremely difficult to assess the impact and duration of Covid-19 and therefore it is prudent for Glanbia to withdraw its 2020 full year financial guidance issued on 26 February 2020.

As an organisation Glanbia is highly focused both on navigating the current challenges and emerging strongly to capture growth opportunities that will become available. The majority of the Glanbia portfolio is exposed to health and wellness trends and in growing channels which is positive for long term growth. The financial strength of Glanbia and the commitment of its people, positions the Group well for the future.”


 CareTech – “In these unprecedented times, the health, safety and wellbeing of our employees and service users is paramount and remains our number one priority. The majority of service users we care for are children and adults with learning disabilities, mental health diagnoses and/or with challenging behaviours. Less than 3% of our service users fall into the formal NHS high-risk category groups for Covid-19, such as those with underlying health conditions, which is very different to that of elderly care services which have been significantly impacted by the virus. Local Authorities, the NHS and Public Health England recognise the vital role of the social care sector and are very supportive of the high quality services we provide and they are working to ensure that these services remain operational and funded. In addition, the Government announced further funding of £1.6bn for social care to help respond to Covid-19 and we are in discussions with each Local Authority in establishing a dedicated funding arrangement. As such the negative financial impact to date of Covid-19 on the Group has been minimal and we do not foresee that changing albeit there is uncertainty surrounding the pandemic.

With security of income, our focus is very much on delivering safe services and we have a Covid-19 taskforce, comprising both divisional leadership and members of the Group Executive Team, which is in place to mitigate risks with contingency plans in place at every site. This covers arrangements to provide staff cover between services and utilising extra staff as necessary. Following the latest Government and Public Health guidance, we have strict precautions in place at our sites including enhanced levels of cleaning, additional hygiene facilities and social distancing. Enhanced precautions and safety checks have also been set up and only essential visits are taking place with oversight being provided remotely where possible.

To proactively support our staff, a CareTech Covid-19 Fund has been launched, allocating up to £1m of the Group's cash to support staff and service users facing adversity due to the consequences of this pandemic.”


 AB Dynamics – “Whilst the Group has not seen a material reduction in order intake during March and into April, we have seen deferment of some orders, particularly when related to higher value capital equipment. The Group is likely to see an impact on order intake in the second half of the year as customers temporarily close operations, conserve cash and limit R&D activities. The expected demand profile differs geographically as countries enter and exit the pandemic at varying points in time.

The Group has sufficient inventory and work in progress to maintain production schedules for the foreseeable future and to date there are limited impacts from supplier constraints. The Group is constantly monitoring supplier performance and through proactive dialogue we will attempt to mitigate any risks to production. In many cases, for critical components, the Group has a dual sourcing strategy to ensure any impact relating to individual suppliers are minimised.

rFpro continues to operate effectively as the provision of software can easily be produced from a home environment. The DRI business in California is currently operating both manufacturing and track testing under an exemption to the Californian State shutdown.

The Group has implemented mitigating actions to ensure cash conservation for the duration of the crisis and has approximately £35m of cash available to support any potential emergent issues. It is critical that we maintain our new product development activities during this period to ensure new products and services are delivered on time to meet market demand. R&D activities are continuing as planned with engineering being completed remotely using collaborative online tools. The Group has also determined that it should continue to invest in the Company wide ERP system and has approved the contract to deliver the system in FY21. These actions should ensure AB Dynamics remains well-positioned post-Covid-19.

Discretionary spend has been tightly controlled and the nature of the pandemic is naturally reducing certain operating costs. If required, the Group will make use of government assistance programmes to furlough staff if deemed appropriate, but there are no current plans to utilise these schemes.

The construction of both the North Site and the Melksham Manufacturing Centre has been postponed both to conserve cash and in order to maintain compliance with safe working guidelines in terms of social distancing. Depending on the duration of the delay to the North Site project it is estimated that approximately £3m of cash outflow will be deferred into FY21. We have also suspended declaration of an interim dividend and delayed our acquisition plans.”

 Johnson Matthey – “Matthey is an important part of the value chains that are providing vital products and services to the healthcare industry, and that are maintaining food and energy supplies during Covid-19. We have:

Kept operations running for customers where it is safe to do so and where government measures allow, so we are there when they need us:

• Maintained our payment terms to support all of our suppliers; and

• Pledged to support any small supplier to our business that is suffering hardship and requests early payment terms as a result of the impact of Covid-19 during April, May and June 2020.

Our shareholders – We continue to drive long term sustainable value creation for our shareholders through:

• Taking actions to maintain a strong financial position and tightly manage our cash flow and costs as we navigate the short term impact of Covid-19;.

• Continue to execute our strategic plans that drive operational efficiencies across our business, while at the same time maintaining key long term investments for future growth.

• We will give more detail on the actions we are taking in our full year results announcement planned for 28th May 2020.

Management actions – In recognition of the circumstances affecting many of JM's employees, customers, suppliers and communities, the Chair, Patrick Thomas, Chief Executive, Robert MacLeod, Chief Financial Officer, Anna Manz and our Non-Executive Directors have chosen to make a donation equal to 20% of their salaries and fees for at least the first quarter of 2020/21 to provide support to the company's special fund for science education.”


 Ebiquity – “The Company continues to closely monitor the Covid-19 pandemic and its impact on our staff, clients and operations. Our primary focus is ensuring the safety and well-being of our employees and as previously reported, we have successfully implemented a remote working policy for all of our offices globally, although our staff in China have now returned to their offices. The Covid-19 disruption is affecting our clients' businesses and their service requirements, although the extent and timing of its impact over the coming months remains uncertain. As previously reported, no guidance is currently being provided on the outlook for 2020.

The Company is undertaking prudent cost reduction measures in order to protect the business and preserve cash in the current environment. This includes a 20% salary reduction taken by the senior management team and Board, a deferral of the annual pay review and temporary freeze on recruitment. The Group is also utilising, to the extent necessary, the different government schemes put in place to support businesses in many of the countries in which it operates. To date, these include the selected furloughing of staff in the UK and France, and receipt of funds from the US Payroll Protection Program.

As at 31 March, the Group had net debt of £6 million comprising cash balances of £13 million and borrowings of £19 million. The Group has total committed banking facilities of £24 million, of which £5 million remains undrawn, maturing in September 2023. Although the Group is in a healthy financial position, the Board also considers it prudent as part of the cash conservation measures to defer the payment of dividends until economic and business conditions are more certain.

Following the postponement of the 2019 results announcement originally scheduled for 26 March in compliance with FCA guidance, the Board now expects to issue the 2019 results early in May. Details will be confirmed in due course.”

YouGov – “With strong cash balances and no debt, we are confident of YouGov's resilience to endure the period of uncertainty. We have taken and will continue to take all the necessary actions to protect our business and people. The health and safety of our people is of paramount importance. At the time of writing all 38 YouGov offices are closed with our entire workforce working from home

No current intention to furlough any employees or apply for any Government loans or grants.

Being an online company, we have an established culture of remote and flexible working. Consequently, our clients continue to receive business as usual service, and we are well-positioned to maintain this continuity of service during this period.

Prudent cost reviews and contingency planning undertaken.

We continue to closely monitor the rapidly evolving situation in order to respond accordingly.

We understand the importance of accurate and easily accessible data and insights during these unprecedented times. To support the healthcare research community and public health bodies across the world, we have partnered with the Institute of Global Health Innovation at Imperial College London to gather global insights on people's behaviours and opinions in response to Covid-19, with the data being freely available for public health researchers.

We have also developed the YouGov Covid-19 Monitor for our commercial clients to help provide key consumer and social insights, including market and sector impact and health compliance, across 29 markets.”

#corporate client of Peel Hunt

To read the full research note, please click here.