Coronavirus - The long game

The WHO has undertaken serological testing to ascertain what proportion of the global population has been infected and developed antibodies.

Early results show that only a small number ‘maybe as few as 2% or 3%’ appear to have antibodies. For a virus with an R0 value of 2 (the lower estimate of Covid-19), herd immunity is achieved when around 60% of the population is immune. This shows there could still be a long way to go before herd immunity is achieved, and lockdowns in varying forms may last longer than some expect.


• Trump announces plan to ban immigration.

• Pandemic could double populous suffering acute hunger.

• Primark reversing decision to not pay suppliers. 

• Admiral providing refund on idle period.

• Virgin Australia enters administration.

• Singapore extends lockdown to 1 June.

• Hong Kong extends lockdown to 7 May.

• Oktoberfest has been cancelled.

• Pamplona bull run has been cancelled.

Company news

Buildings & Construction

 Michelmersh Brick Holdings – “Further to the update on 25 March 2020 and the suspension of operations on 30 March 2020, the Group will this week begin an orderly and safe recommencement of production across its plants.
During the period of suspension, the Group has carried out an extensive health and safety review. To keep staff as safe as possible, the Group has realigned its operations to meet and exceed government guidelines.”

 Titon Holdings – “Further to the statement issued on 24 March 2020, Titon is pleased to announce that limited scale production will re-start at the Group's factory in Haverhill, Suffolk from today. This follows careful and detailed planning with the Group putting in place measures in the factory in accordance with the UK Government's guidelines on social distancing in the workplace to safeguard the health and safety of our employees.
Initially, production will predominantly be to satisfy existing orders from certain customers, who have maintained operations during the various lockdown regimes imposed across the world. Since the factory's temporary closure in March we have retained an ongoing dialogue with all of our customers and responded to their queries. At this time, we anticipate that the orders fulfilled will only represent a small proportion of our normal level of sales, but as and when restrictions are gradually withdrawn across the world and demand returns, Titon hopes to increase levels of production back to normalised levels.
At this stage, there have been no material changes to the Group's cash position or balance sheet since the Company's statement on 24 March 2020. The next scheduled reporting event is the Company's Interim Report for the six month period ended 31 March 2020, which is due to be published on 14 May 2020.”


 Integrafin#– “I can report that in our second quarter we achieved our highest ever quarterly inflows, both gross and net. This follows on from our highest ever first quarter gross inflows in the previous quarter.
Despite the substantial, downward movements in world equity markets since mid-February, this strong inflow growth has contributed to a small increase in FUD over the year.

My primary concerns are, of course, the welfare of our staff and the maintenance of services to clients. Our staff are currently working from home whilst providing as good a quality service as possible to clients and their advisers. There have been costs involved in implementing these new arrangements - but these should not have a meaningfully detrimental effect on the business or the delivery of Transact.
The outlook for the second half of the year is dependent upon the economic effects of measures to combat Covid-19 and their impact upon equity markets, FUD and flows.”

 Quilter – “Approximately 98% of Quilter's staff are now working remotely including over 200 contact centre-based colleagues servicing its UK and International platforms. Contingency plans have been implemented through accelerated delivery of IT and remote telephony solutions. This has allowed Quilter to maintain high client service levels and to support advisers and customers on-line and by telephone. Quilter has no plans to take advantage of any of the government backed support schemes.
In the latter weeks of the quarter, against a backdrop of high market volatility, transfers out from the Quilter platform to competitor platforms reduced significantly while transfers in remained steady, due to a relatively higher level of business continuity and adviser support. March was the strongest month of the quarter for net flows. Throughout the period Quilter was, and continues to be, open for business.
The Group has reviewed its financial budgets and operating plans in response to the challenges arising from Covid-19 and an unpredictable operating outlook. Quilter is operationally resilient and remains focussed on completing principal projects including the Platform Transformation Programme and Optimisation plans.
The Group recognises that lower AuMA will lead to a materially lower run-rate of revenues and while the Group is undertaking a number of management actions to reduce expenses, it no longer expects to achieve its 27% operating margin target in 2020.

At end March 2020 the Group held cash of c.£750 million across its holding companies and has an estimated pro forma Group Solvency II ratio of c.210% following planned capital returns. Accordingly, given this strong financial position, the Group intends to continue with the first tranche of the buyback, recommend payment of the 2019 final dividend and to undertake the Odd-lot Offer.”

 Tatton Asset Management – “The Group responded swiftly to the Covid-19 outbreak and efficiently implemented comprehensive business continuity plans when it was necessary to pivot to remote working, seamlessly replicating our processes and systems, safe guarding the health and safety of our employees and ensuring that the business continues to service our clients as normal. The Group will not be taking advantage of any Government support scheme, which the Board believes are intended for businesses which have been significantly more affected than TAM plc.
The full implications of the impact of Covid-19 on the financial performance of the Group in the future remain uncertain. As we progress over the next two months, the Board believes that it will be in a much better place to provide a comprehensive update to the market, with guidance given when we release our full year results in June.
Dividend policy unchanged – The Board remains committed to its dividend policy and prudently allocates its earned profit between returns to shareholders, supporting the capital base and further investment to support the future growth of the business.”

Food, Drinks & Household

 Associated British Foods – “Our food businesses have continued to operate fully, providing safe, nutritious, affordable food to customers, and have in recent weeks seen a significant increase in demand.
The rapid closure of Primark stores has presented a major challenge to the group to manage and mitigate the profit and cash flow impacts arising from the loss of sales. The Operating Review sets out the detailed actions taken by management and, at the same time, we have taken steps to confirm the availability of existing, and to agree new, borrowing facilities.
There is substantial financial headroom between our cash flow forecast and the cash available to the group over the next year. At the half year, the group had net cash of £801m and had an undrawn, committed revolving credit facility (RCF) of £1,088m. As a precaution to avoid any possible illiquidity in the banking market, funds were drawn down in full on the RCF on 18 March 2020. We saw no need to seek a waiver for the covenant test for September 2020 but it was considered prudent to seek a waiver for February 2021, which was confirmed on 8 April 2020. The group's headroom was increased further following the confirmation by the Bank of England of our eligibility to access funding under its Covid Corporate Financing Facility on 15 April 2020. As at the date of these interim results, the group has available central cash on hand of £1.5bn.
Our assessment of going concern shows that, even though this is a time of unprecedented uncertainty, the group has ample cash liquidity to deal with the likely challenges in the year ahead.
I'd like to pay tribute on behalf of the board to every one of our employees for their hard work and determination in these exceptionally difficult times. So many have gone beyond the ordinary call of duty. I am proud of the many examples of the contribution of our employees to support local communities at a time of such need.
The board is acutely aware that many of our employees will see their livelihoods affected by Covid-19. With this in mind, the board has accepted the proposal by the executive directors to reduce their base pay temporarily by 50% and that no bonuses relating to the current financial year will be paid to them. In addition, the non-executive directors of the board, including myself as chairman, have decided that their fees should be reduced temporarily by 25%. These steps are appropriate given our expectation that full year earnings for the group will now be much lower than we anticipated at the start of the financial year.
Dividend – The board has decided not to declare an interim dividend. The directors consider that this is prudent given the focus on managing the group's cash outflow in the second half of this financial year.
We will consider the declaration of a dividend at the year end in the light of trading for the full financial year and the financial circumstances at that time.”


 Billington Holdings – “Sadly, after such a positive year we are now faced with the serious potential consequences of Covid-19. Since the escalation of the pandemic, the Board has been focused on taking actions to preserve cash and protect liquidity in a way that does not compromise the long-term prospects of the business. These include the deferral of all non-essential capital expenditure, a hiring freeze, cost reductions, agreed additional banking facilities, deferral of VAT payments and utilisation of the UK Government's Job Retention Scheme. In addition, the Board has decided to suspend payment of the dividend which would ordinarily have been paid to shareholders in July 2020. We understand the importance of the dividend to our shareholders and will keep our dividend policy under review in the coming months.
The Board believe these actions to be prudent with the uncertain economic outlook, notwithstanding the non-discretionary nature of much of our work and the covenant strength of our customers. Nevertheless, at this stage we are not able to quantify the impact on our full year results and consequently the Board does not believe it would be appropriate to provide forward looking financial guidance until greater clarity returns.
In 2019 there was a slight reduction in the Group operating margin to 5.7 per cent (2018: 6.3 per cent), reflecting the nature of the contracts undertaken during the year and some pricing pressure in the structural steel business, particularly in the later part of the year. However, we continue to seek cost savings and the opportunity for margin improvement where appropriate. Whilst margin pressures remain in the structural steel market, we believe our continued focus on, and delivery of, larger contracts leaves the Company well positioned for the future.
During the year our structural steel businesses, Billington Structures and Shafton Steel Services operated at near full capacity, delivering a number of exceptional projects, improving productivity and further increasing the range of services we can offer our clients. The conclusion of 2019 noted an increasingly competitive market and as Covid-19 has become more prevalent a small number of contract commencements have been deferred.”

 Dialight– “Our Mexican manufacturing facilities remained operational until last week, though with a reduction in headcount due to the social distancing measures that, in line with government guidelines, we had put in place. We have now voluntarily suspended manufacturing operations, pending the review of our application to the Mexican government for an ‘essential business’ order. We believe that a significant proportion of our manufacturing operations should qualify due to the number of critical infrastructure and medical equipment customers we have.
Our Malaysian manufacturing facility has been closed since 17 March 2020. Whilst most Malaysian manufacturing operations are not expected to re-open until after 28 April 2020, given the government's directive, we have also applied for an ‘essential business’ order and are awaiting a decision.
To date, component supply has been resilient, but we are monitoring supply chains closely.
Current Trading – Order intake during Q1 was in line with our expectations until the latter part of March where we saw some softening in Lighting.
Whilst the US project business has softened, MRO orders increased substantially, improving our overall order intake in our largest end market.
Our smaller EMEA business has been significantly impacted due to governments' actions across northern Europe.
APAC orders have been more resilient with an uptick in the Australian mining sector.
The components business has seen robust trading with a significant increase in orders to supply parts for medical equipment. We are working through supply chain challenges to deliver these critical components on a timely basis.
Management actions – The Group has acted decisively to reduce costs with all discretionary spend curtailed. The Board and executive team are taking a 20% reduction in salaries and the Chairman forgoing all fees, until the immediate crisis is over.
Regretfully, we have also had to furlough a number of employees and have taken additional salary reductions across the majority of our employees. All capital expenditure on new products has been paused temporarily while we evaluate which projects will derive the highest return when the crisis is over.

Financial position – Net debt at 20 April 2020 was £16.2 million compared to £16.5 million at 31 December 2019. The company remains focused on strict cash management and continues to unwind working capital with good progress being made on reducing inventory levels.
The Group renewed its bank financing in February 2020 with a committed revolving credit facility of £25.0m to February 2023 plus a two-year option. The facility is provided by HSBC UK Bank PLC. We are in early stage discussions with HSBC to arrange additional liquidity and covenant headroom, should that be required.”

 Halma – “Partnering with our central and regional Covid-19 support groups, the first of which was established in January 2020 following the initial outbreak in China, each of our companies is implementing an operating plan to suit its market and local circumstances.
Our 43 operating companies have a total of 54 principal operating facilities spread across the UK, the USA, Mainland Europe and Asia. Over 30 of our companies deliver critical safety, healthcare and environmental protection solutions and have a mandate or permission from regional or national authorities to continue to operate during shutdown restrictions.
Currently, following the re-opening of our fire safety business in Italy last week, there are only two facilities, in California and Tunisia, that are closed due to government shutdown restrictions. However, all our businesses are having to address their specific supply chain and distribution challenges that are being caused by the pandemic, as well as responding to the similar challenges faced by their customers.
There has been a significant focus on ensuring a safe working environment for all Halma company employees. Measures taken include working from home wherever possible, a ban on non-essential travel and visitors to facilities, increased spacing between workstations, appropriate protective equipment, staggered shifts and breaks, plus enhanced cleaning processes and contingency planning.
Cost reduction and cash conservation measures – As in previous downturns, we have sought to act quickly to mitigate potential impacts by reducing costs, optimising cash flow, protecting liquidity and, where necessary, changing how we operate.
These actions are expected to result in a cost reduction (net of the cost to implement them) of over £20 million in the first quarter of the new financial year, compared to the previous fourth quarter's run-rate. We will review these mitigating actions at the end of the first quarter. We have sought to limit the impact of these actions on our employees, and protect their employment, in anticipation of trading conditions improving later in the financial year. Company, sector and group leaders have agreed to temporary salary reductions from 1 April 2020 for an initial three-month period, demonstrating their commitment to absorb a significant proportion of the cost savings necessary to protect ongoing operations. This includes the Halma plc Board and the Executive Board, both of which have agreed to a 20% reduction in salaries or fees. Whilst we have furloughed a small percentage of our workforce, currently we intend to fund this without any support from the UK government's Coronavirus Job Retention Scheme.
We have implemented a widespread hiring freeze, a reduction in the use of contractors and a significant reduction in discretionary overhead spending. We are ensuring that our companies continue to manage their working capital effectively, while maintaining productive relationships with customers and suppliers. We are limiting capital investment to essential projects and R&D only, and do not expect to complete any acquisitions during the first quarter, though our M&A search efforts are continuing.
The Covid-19 pandemic is expected to have a net adverse impact on our markets and our full year financial results to 31 March 2021, which are likely to have a significant second half weighting even though the timing and profile of recovery remains uncertain at this stage.”

 Severfield– “In managing the Group's response to the Covid-19 pandemic, the primary focus is on the health, safety and wellbeing of all employees, clients and the wider public, together with protecting the financial strength of the Group. In line with the current guidance on Covid-19 from the UK government (and the latest Standard Operating Procedures ('SOPs') issued by the Construction Leadership Council), the Group’s factories and sites are remaining operational where it is safe and practical to do so and with strict precautions in place including enhanced levels of cleaning, additional hygiene facilities and social distancing. All employees who can work from home are now doing so and have the technology and capability to service clients remotely. For construction sites in the Republic of Ireland and in continental Europe, the Group is following local government guidance.
The overall impact of Covid-19 remains uncertain and the Group is experiencing some disruption to its operations, both on its sites and within its factories, as a result of the outbreak. Notwithstanding this, the UK and Europe order book at 1 April 2020 stands at £293m (1 November 2019: £323m), providing the Group with a strong future workload during this unprecedented period of uncertainty. The level of tendering and pipeline activity for the Group remains good.
Current trading and outlook – Whilst the Group has started to see the initial impacts of Covid-19, these are not expected to have a material impact on the results for the year ended 31 March 2020 (FY20). The financial position of the Group remains good and year-end net funds (excluding IFRS 16 lease liabilities) were approximately £16m (31 March 2019: net funds of £25m). Net funds at 31 March 2020 comprised cash of £44m offset by borrowings under the Group's revolving credit facility ('RCF') of £15m and the outstanding term loan of £13m for the Harry Peers acquisition.
For the year ending 31 March 2021 (FY21), it is anticipated that the extent of the overall disruption from Covid-19 will inevitably have an impact on Group profitability. Whilst the majority of the Group's construction sites remain open and its factories remain operational, given the ongoing market uncertainty, it is not possible to accurately predict either the duration of the disruption or its impact on the FY21 outturn. We will continue to monitor external events, manage the situation closely and update the market as appropriate.
Focus on cash preservation – To mitigate the financial impact of Covid-19 and protect the Group's cash position during the current uncertain period, the following precautionary actions have been implemented:

• The deferral of all non-essential and uncommitted capital expenditure, together with restrictions on discretionary operating expenditure;

• Tight management of working capital whilst continuing to support supply chain partners;

• Taking advantage of the opportunity to defer tax payments including PAYE, NIC and VAT;

• The agreement with the Group's lenders to defer quarterly term loan repayments (due in March and June) until September 2020.”

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