After easing some restrictions, Germany has seen its cases rise back to an r0 value of 1.0, meaning each infected individual will (on average) infect one other.
An r0 value of 1 is considered ideal as it allows for the development of herd immunity, still our best defence, while allowing health services to cope. However, above the value of one, exponential growth kicks in. Germany and others in the process of lifting lockdowns will be watching their r0 numbers closely and considering whether there is a need to reapply restrictions to ensure they maintain control.
Headlines
• FCA issue a warning to banks over corporate customer treatment
• Austria has announced further steps to relax its lockdown.
• Hong Kong civil servants to return to work.
• Portugal is to end its state of emergency.
• Nigeria to ‘gradually reduce’ lockdown in major cities.
• Scottish government recommends face coverings.
• Fourteen percent of UK mortgages on payment holiday.
News
Buildings & Construction
• DR Horton – “(the largest housebuilder in the US) in Q2 homes sold were up 8% but in late March and April, the company saw increases in cancellations and decreases in sales orders. In month to date April, net sales are -11%.”
• Forterra– “Since our announcement of 24 March 2020 in which we stated that Forterra would be suspending business operations until further notice, the Group has been planning alternative working practices that enable manufacturing facilities to operate whilst keeping employees safe and maintaining social distancing.
Working to the guidance from Public Health England and the Construction Leadership Council we have been able to continue manufacturing small volumes of precast concrete products to support essential public sector projects. In addition, we have continued to service customer demand delivering our brick and block products from inventory.
Responding to news that housebuilders are to begin a phased re-opening of building sites along with many builders' merchants reopening and having undertaken the necessary risk assessments, we will relight the kiln at one of our brick manufacturing facilities this week ready to restart production. We will also recommence production of hollowcore concrete flooring to service customer requirements.
The Group expects to recommence production at two further facilities in May although due to existing inventory levels, it is currently anticipated that the majority of Forterra facilities will not resume manufacturing before the summer. Should demand increase at a faster rate than expected the Group retains full flexibility to reopen facilities sooner. ”
Financial
• Distribution Finance – “Since its last update, the company has been working collaboratively with the Lenders with the objective to agree the shape of its funding facility and covenants appropriate for the current climate, particularly as the loan book stock turn has slowed in light of most dealers being closed during the Covid-19 public health crisis. Both the company and the Lenders believe that without further operating data relating to the emerging trading pattern of dealers and the impact of the lockdown, it is difficult to agree appropriate terms for a longer-term waiver. The company remains in ongoing constructive discussion with the Lenders and further weekly extensions to the temporary waiver have been granted during this period of negotiation. This pattern of waiver extension may continue until such time as there is greater clarity and analysis of the current situation. The company recognises the current constraints on the facility in light of the Lenders' own credit risk appetite given the current economic environment and the impact of Covid-19.
Notwithstanding the economic landscape, the company's loan book continues to perform well and remains stable. Despite some of its industrial sector clients continuing to trade during the lockdown, in the near-term demand is likely to be curtailed whilst the majority of the company's dealer networks and manufacturers remain closed. However, the company believes that its predominant lending sectors of caravans, recreational vehicles, small motorboats and motorbikes will perform strongly after Government restrictions are lifted, as UK consumers seek to "staycation" and continue to mitigate Covid-19 risk.
In light of the current position with its Lenders, the company believes it is likely that its existing lending portfolio will modestly reduce in the near-term. Normal levels of new lending should be achievable once the existing facilities are renegotiated with the Lenders, or can be re-financed in whole or part through alternative wholesale funding and/or the company receives a banking licence, and as many dealers reopen for business in the post-lockdown period.
In addition to its ongoing banking licence application and negotiations with the Lenders, the company has made an application to the British Business Bank to participate in its Enable Funding Scheme, which provides wholesale finance to non-bank SME lenders such as DF Capital. This application is progressing.
The company remains committed to its bank licence application, which is subject to regulatory approval. In light of the current pandemic, the company has completed analysis of its business plan and forecasts, subjecting them to severe assumptions, including a very prolonged lockdown of client premises. This analysis shows that the firm can continue to meet its desired capital and liquidity position at all times through the pandemic. Consequently, the Board remains confident that its internal assessment demonstrates that as a bank the company would not breach any of its anticipated capital or liquidity limits. DF Capital would be well capitalised, a strong and secure savings franchise and in an enviable position to support its SME borrowers, many of whom are in the domestic leisure-sector, in the post lockdown period.
Additionally, the company has announced a number of cost mitigation actions aligned to an expected lower loan book in light of the restrictions on its facility, which include potential staff redundancies and furloughing of certain employees, who will receive 100% of their salary and benefits during the furlough period. ”
• HSBC – “The outbreak of Covid-19 has had, and continues to have, a material impact on businesses around the world and the economic environments in which they operate. The outbreak has caused disruption to our customers, suppliers and staff globally. A number of jurisdictions in which we operate have implemented severe restrictions on the movement of populations, with a resultant significant impact on economic activity. These restrictions are being determined by the governments of individual jurisdictions, including through the implementation of emergency powers. The impacts of these restrictions, including the subsequent lifting of restrictions, may vary from jurisdiction to jurisdiction. We have invoked our business continuity plans at many of our sites to help ensure the safety and well-being of our staff, as well as our ability to support our customers and maintain our business operations. Many of our staff have continued to provide critical services in branches, contact and service centres, and in offices, all with heightened safety measures, and we have equipped the majority of our staff to work remotely. It remains unclear how this will evolve through 2020 and we continue to monitor the situation closely.
In many of our markets we have initiated market-specific measures to support our personal and business customers through these challenging times, including mortgage assistance, payment holidays, the waiving of certain fees and charges, and liquidity relief for businesses facing market uncertainty and supply chain disruption. These measures have been well received and we remain responsive to our customers' changing needs. We are also working closely with governments and supporting national schemes that focus on the parts of the economy most impacted by Covid-19.
The actions taken by the various governments and central banks, in particular in the UK, mainland China, Hong Kong and the US, provide an indication of the potential severity of the downturn and post-recovery environment, which from a commercial, regulatory and risk perspective could be significantly different to past crises and persist for a prolonged period. An immediate financial impact of the outbreak is an increase in ECL, driven by a change in the economic scenarios used to calculate ECL. The outbreak has led to a weakening in GDP in many of our markets, a key input used for calculating ECL, and the probability of a more adverse economic scenario for at least the short term is substantially higher than at 31 December 2019. Furthermore, ECL will arise from other parts of our business impacted by the disruption to supply chains. The impact will vary by sectors of the economy, with heightened risk to the oil and gas, transport and discretionary consumer sectors being observed in the first stages of the outbreak. The impact of the outbreak on the long-term prospects of businesses in these sectors is uncertain and may lead to significant ECL charges on specific exposures, which may not be fully captured by ECL modelling techniques. In addition, in times of crisis, fraudulent activity is often more prevalent, leading to potentially significant ECL charges.
Should the Covid-19 outbreak continue to cause disruption to economic activity globally through 2020, there could be further adverse impacts on our income due to lower lending and transaction volumes and lower wealth and insurance manufacturing revenue due to equity markets volatility. Lower interest rates globally will negatively impact net interest income and increase the cost of guarantees for insurance manufacturing, and there could also be adverse impacts on other assets, such as our investment in Bank of Communications Co., Limited.
The Covid-19 outbreak will also have material impacts on capital and liquidity. This may include downward customer credit rating migration, which could negatively impact our risk-weighted assets and capital position, and potential liquidity stress due, among other factors, to increased customer drawdowns, notwithstanding the significant initiatives that governments and central banks have put in place to support funding and liquidity. Central banks in some markets have also initiated a series of capital measures, including the reduction of certain regulatory capital buffers, to support the ability of banks to supply credit to businesses and households through this period of economic disruption.
Central bank and government actions and support measures may result in restrictions in relation to capital. These may limit management's flexibility in managing the business and taking action in relation to capital distribution and capital allocation. In response to a written request from the UK's Prudential Regulation Authority ('PRA'), we cancelled the fourth interim dividend of $0.21 per ordinary share. Similar requests were also made to other UK incorporated banking groups. We also announced that until the end of 2020 we will make no quarterly or interim dividend payments or accruals in respect of ordinary shares. As previously disclosed in our Annual Report and Accounts 2019, we also plan to suspend share buy-backs in respect of ordinary shares in 2020 and 2021. ”
• Plus500 – “Following the Q1 Trading Update issued on 7 April 2020, heightened levels of market volatility have persisted, and the company has continued to see a significantly increased level of customer trading activity. Performance across all financial and operational KPIs remains very strong, with the Group continuing to attract significant numbers of new customers at an attractive cost, and increased levels of activity from existing customers. Revenue from Customer Income1 in the first half to date remains at record levels, with the Group's financial performance during the second quarter continuing to show further momentum following an exceptional first quarter. The company has also continued to experience strong gains from Customer Trading Performance, which is expected to be neutral over time.
Notwithstanding the uncertainty regarding the duration of current levels of volatility or the unquantified potential impact from regulatory changes in Australia, revenue and profitability for the full year is expected to be substantially ahead of current consensus expectations, as revised following the Q1 trading update on 7 April. ”
• Santander – “Our first quarter results continued to be impacted by lower mortgage margins as well as the Covid-19 crisis. While it is too early to reliably estimate the financial and business impacts this crisis will have on our 2020 results, we believe that with strong foundations in place, including capital and liquidity, we will continue to be able to support our customers, our colleagues and the wider society.
Looking after our people and changing the way we work during the Covid-19 crisis
• Enabled over 20k colleagues to work from home and implemented social distancing measures in branches and offices.
• Full pay for colleagues unable to work alongside enhanced wellbeing support, regular communication and updated HR policies.
• Our branch network and contact centres remain operational, with a focus on prioritising access for our most vulnerable customers.
• Significant capacity improvements to our digital platform to reduce call centre and branch volumes.
Impact on our business and results
• Statutory PBT of £114m, down 58% year-on-year with competitive mortgage margin pressure, continued SVR attrition and an increased impairment charge due to Covid-19. Adjusted PBT 2 of £152m, down 57% and adjusted RoTE 2 of 4.4% (2019: 7.8%).
• Q120 incremental £122m Covid-19 impairment charge; loan loss allowances up by c14% compared to pre Covid-19 crisis levels.
• Transformation programme has slowed as we focus on the Covid-19 crisis, which will impact our efficiency savings.
• Expect our income to be further impacted by the lower base rate and significantly reduced new business related to the lockdown affecting the UK economy, partially offset by changes to deposit pricing which will take effect in H220. A more severe economic slowdown than forecast could also increase our credit impairment losses. ”
Food, Drinks & Household
• Coca-Cola Europe– “Trading impacts:
Ongoing volatility in both channels (AFH & Home) given uncertainty
Sharp declines in AFH volumes with c.75% of the channel impacted by lockdown measures (which vary by market)
Some initial stockpiling in Home has since subsided
Immediate consumption & small priority packs significantly impacted (affects both AFH & Home channels); Future consumption packs performing better, though varies by market
Total volume decline for the Covid-19 impacted weeks to date (5 weeks ending 17 April 2020) in a range of c.-20% to -40% (AFH: range of -45% to -85%; Home: range of +5% to -10%) across our markets
CCEP response to crisis: Respond, Recover, Sustain – Our rapid response has prioritised our people, customers & communities whilst protecting our business for the long term. Measures taken are as follows:
People- Implemented comprehensive measures in line with official guidance from governments & health authorities to keep our people safe including:
• Large scale home working supported by up-weighted digital support
• Additional safety measures to support those in the field or at manufacturing sites
Emotional & mental well-being support of our people through this stressful & uncertain time
Motivating & providing workplace security for our people
Regular internal communications across the business
Customers – Working closely with our suppliers, partners & KO to ensure we do everything we can to best serve our customers including:
• Continued build of finished goods & raw material inventory
• Shifting production resource to higher demand channels by prioritising core SKUs, reflecting the shift in brand & pack mix (e.g. more multipack cans & large PET)
Developing comprehensive contingency plans to ensure our products continue to be available despite any logistical challenges
Business
Governance. Increased cadence of reviews with country leadership teams, Board of Directors & KO1. Incorporating learnings from across the Coca-Cola system. Modelling multiple scenarios & risk analyses to regularly stress test our financials
Costs – Reducing discretionary spend in areas such as trade marketing, promotions, merchandising, incentives, seasonal labour, travel & meetings – amounting to a potential FY20 reduction of c.€200-250m
Delaying c.€200m of discretionary capital expenditure, resulting in FY20 total capex of c.€350m
Finance – Withdrawal of FY20 guidance given significant uncertainty as previously announced
To keep CCEP well positioned given its current financial position & strong balance sheet (net debt/adjusted EBITDA of 2.7 times) & to preserve maximum flexibility during this period:
• Suspension of share buyback programme until further notice as previously announced (to date repurchased c.€130m of €1bn programme announced Feb 2020)
• FY19 dividend fully paid in 2019; Deferral of 2020 HY1 dividend until visibility has improved
• Issued 6 year €600m bond at 1.75% coupon to add to an already balanced mix of long-term maturities (with no covenants on debt or facilities)
• Received confirmation of eligibility to access UK Government Covid Corporate Financing Facility (CCFF)
CCEP has strong cash generation & solid position on liquidity given the following: €0.9bn cash & cash equivalents; €1.5bn sustainability linked committed undrawn RCF; €1.5bn multi-currency commercial paper programme (€0.6bn issued); unutilised CCFF. ”
• Games Workshop# – “Our priority continues to be the health, safety and wellbeing of our staff and customers. Since the announcement on 24 March 2020, we have fully assessed the health and safety measures required within our operations to meet social distancing and hygiene requirements. Following the necessary changes we have made across our warehouse operations, we will start making trade sales in Europe and North America this week and online orders on games-workshop.com from 1 May 2020.
The majority of our stores remain closed, however, a small number have re-opened in China, the Netherlands and Scandinavia in line with local guidance and subject to their local social distancing measures. Our stores will continue to re-open across the world as local restrictions are lifted and all required health and safety measures are met.
Financial update – As stated previously, trading for the Group in the nine months to the end of February was in line with expectations. However, since the outbreak of Covid-19 and the subsequent closure of our operations globally, our performance has been impacted. As we are now re-opening our sales channels as discussed above, we estimate our profit before tax for the year ended 31 May 2020 to be no less than £70 million.
We have also agreed in principle with our bank, Santander, to secure an overdraft facility of £25 million for a six month period with a potential six month extension, if required. This will be drawn, as needed, to meet operational cash flow requirements. ”
Healthcare
• EKF Diagnostic – “Global demand for the PrimeStore MTM device has increased significantly due to Covid-19. The PrimeStore MTM sample collection device, deactivates viruses, bacteria, fungi and mycobacterium tuberculosis allowing safe sample handling and transport, greatly reducing risk of infection. The device was invented in 2006 in preparation for a worldwide pandemic and is designed to de-activate pathogen rapidly and stabilise the RNA for up to four weeks with no requirement for cold storage. In the case of Covid-19, by inactivating the virus testing can now take place outside of containment facilities opening up capacity in more testing laboratories.
The company expects to ship first products from the new production line in Penarth in mid-May, if not sooner, and will provide further updates to shareholders as appropriate. Following the successful establishment of the production line in Wales, the company will look to increase manufacturing capacity for the PrimeStore MTM device further, via its two sites in Germany. This will increase the capacity to supply sample collection devices into mainland Europe.
The establishment of the production line will see EKF increase staffing levels at the Penarth facility with 12 temporary contracts, with these positions being filled by local workers, recently out of work due to the impact of the pandemic or on leave from their studies. ”
Industrials
• Caterpillar – “sales are down 21% in Q1. The company has had to temporarily suspend operations at some facilities in recent weeks reflecting supply chain issues, weak demand or Government regulation. As of mid-April, 75% of its primary production facilities continued to be open.”
• Cummins – “Q1 organic revenue down 16% reflecting lower truck production and weaker demand from global construction. The company sees a similar impact in Q2 and expects it to persist for some time.”
• Nucor – “largest US steel producer, saw shipments up 12% on Q4 and 8% up year on year. Its average selling price was down 1% and 11% on the same basis. Expects to make a loss in Q2 and also sees Q2 as being the bottom.”
• Rockwell Automation. “Q2 organic revenue was flat – Architecture and software up 4% and control products and solutions – -3.6%. For Q3 it expects a drop in organic revenue of 20% with some improvement in Q4. For the year the company is now forecasting sales to be down -9.5% to -6.5% from -1.5% to +1.5%.”
• Weir Group – “Minerals – The long-term effect of Covid-19 remains uncertain but its impact on mining markets has been relatively limited so far, reflecting the designation of miners, and providers of mission-critical technology such as Weir, as essential businesses in most countries. While there have been some inevitable disruptions as a result of travel restrictions and staffing, ore production has continued, supported by commodity prices, which remain above incentive levels for our key exposures. Gold markets are strong with copper and iron ore remaining robust overall. Thermal coal markets are more challenging given reduced global power consumption, while oil sands demand has remained relatively robust so far, despite a significant reduction in Canadian oil prices.
The vast majority of global mines have continued to operate, and the division has continued to fully meet customer demand despite some disruptions to operations. In South Africa, a comprehensive nationwide shutdown has seen both mines and our facilities largely closed. In Peru and Panama, some mines have reduced production levels but remained operational and we have been able to supply spares from our distribution centres. In Malaysia, we have seen ongoing disruption to our manufacturing capability from extended government shutdowns, although we have been able to ship some already completed products. In India, we have secured permits to enable around 50% of our employees to continue working in our manufacturing operations. In the UK, we temporarily closed our foundry for five days to reconfigure operations to support social distancing and hygiene, but we are now operational. In China, operations have fully recovered after Covid-19 restrictions interrupted production in February. In all other locations operations are largely unaffected despite a significant level of mandated home working for managerial and administrative staff.
Overall, the division has benefited from its regional manufacturing footprint and localised supply chains, enabling it to shift production to support customers around the world, as demonstrated by its resilient first quarter performance. Aftermarket orders, which represented 76% of the total, were stable, down 1% against a strong prior year comparator but up 2% sequentially with March remaining strong. This was supported by good demand for spares in Latin America reflecting production trends and some customers increasing safety stocks. This was offset by weakness in Russia Central Africa and Australasia. Original equipment orders were 13% lower as a result of deferrals in project procurement, particularly for longer lead time products. However, the division's project pipeline and quotation levels remained strong, reflecting its technology leadership and the positive long-term fundamentals underpinning its markets. The book-to-bill ratio in the first quarter was 1.14.
Looking forward visibility remains limited. Currently, there has been a modest reduction in miners' production forecasts, but this may change given the uncertain impact of Covid-19 on demand and supply in mining markets. As a result, the division is under-taking a number of pre-emptive mitigating actions to reduce costs and preserve cash including freezing recruitment, restricting discretionary spending and undertaking some restructuring activities, including a workforce reduction of 350 (4%), in total saving c.£30m to be realised this year.
ESCO – Demand for the division's core GET products has remained robust in both mining and infrastructure markets. In the first quarter the division saw a 7% reduction, although core GET remained robust with softer demand for more discretionary products such as buckets and blades in construction markets, particularly in North America and Europe, reflecting lower economic activity levels. The division did however see a 15% sequential increase in orders from Q4'19 and its book-to-bill ratio was 1.02.
Performance was supported by the division's global manufacturing footprint and service facilities which include foundries in North America, Chile and China. These are all currently fully operational although there have been some interruptions to production due to temporary closures in the US, including a five-day closure of its Newton, Mississippi foundry. The division's foundry in China is now fully operational following the extended shutdown at the beginning of February and previous supply chain interruptions in Europe due to Covid-19 restrictions have now been resolved.
Looking forward visibility remains limited. Currently, there has been a modest reduction in miners' production forecasts, but this may change given the uncertain impact of Covid-19 on demand and supply in mining markets. Infrastructure markets, and particularly construction in North America and Europe, have been significantly impacted by nationwide shutdowns with the duration and extent of these still uncertain. Given ongoing uncertainty, the division is taking a number of mitigating actions to reduce costs including freezing recruitment, restricting discretionary spending and undertaking some restructuring activities, including a workforce reduction of 130 (5%), in total saving £9m this year.”
Oil & Gas – There has been a deep downturn in oil and gas markets since the beginning of the year with E&P capex now expected to fall c.50% in North America compared to March estimates of 30%, reflecting recent oil price declines which have seen WTI fall to multi-decade lows. These conditions had an immediate impact on the US land rig count which is 54% lower than last year. At the same time, the number of active frack fleets has reduced by c.60%, with a subsequent reduction in demand for both pressure pumping and pressure control products. International markets have been more robust, although there has been an increase in project deferrals.
These conditions are reflected in the division's first quarter performance where orders fell 34% in the period with OE down 41% and AM 31% lower although the division did make market share gains in fluid ends and services. Following previously announced 2020 cost savings of $30m (c.£24m), the division has taken further steps to right size its operations and protect cash generation which is expected to deliver an incremental £12m saving this year. This included a workforce reduction of 150 meaning the division has reduced its workforce by 350 in 2020, and by a total of c.1,000 (c.30%) since the start of 2019. In addition, the division has increased furloughs and secured concessions from vendors and landlords. These actions have been taken while protecting the division's technology leadership, broader service capability and core manufacturing capacity so that it is well positioned to benefit from a future recovery.
The impact of Covid-19 on the division's operations has been restricted to the temporary closure of a facility in the United Arab Emirates. Looking forward, while the recent OPEC+ agreement will eventually contribute to a reduction in oversupply, there remains significant uncertainty over the extent and duration of Covid-19's impact, including on global energy demand. Based on current market conditions the division is now expected to be loss making but remain cash positive through 2020.
Prudent cost control and cash management – The longer-term impact of Covid-19 on macro-economic conditions and our markets is as yet uncertain and therefore the Group is taking a prudent approach to reduce costs and conserve cash. In addition to the operational actions detailed in the Divisional Reviews, the Group has also undertaken a number of corporate measures. These include: withdrawing the recommendation to pay the 2019 final dividend; curtailing capital expenditure; managing working capital to minimise normal seasonal outflow in the first half; rightsizing Group functions; and, restricting all discretionary spending. In addition, all 2020 executive and management annual bonus schemes have been suspended and inflationary increases in Board and Group Executive fees and salaries withdrawn.
The Group expects to realise c.£75m of cost mitigation savings in 2020 which include workforce reductions, reduced travel and discretionary spending. We expect to incur exceptional cash costs of c.£25m in the year.
Through the first half of the year, cash preservation actions of £140m include withdrawal of the final 2019 dividend, minimising non-committed and non-safety related capex and rephasing of tax payments.
While our mining aftermarket will be resilient if ore production volumes continue to be robust, we have stress tested a number of potential downside scenarios of varying severity. These include widespread disruption to our operations and supply chain, deferment of original equipment orders and revenues, and significant reduction in aftermarket demand. While there is a high degree of uncertainty, in each of these scenarios we expect to have adequate liquidity and manageable levels of net debt supported by a range of well-developed mitigating actions that are ready to be executed if necessary.
At the same time the Group will continue to invest in strengthening its key competitive advantages in technology leadership and differentiated customer service. This will enable Weir to take full advantage of the attractive long-term prospects in its markets, including the Group's critical role in making mining more sustainable and efficient.
Outlook – After a resilient first quarter, we expect Covid-19 to have a greater impact in the second quarter, and as outlined above, a first round of mitigations has already been actioned which will help underpin first half profitability. Given the uncertain environment no specific guidance is provided for the remainder of the year, although we will update as and when visibility improves.
Net Debt and Liquidity – As in prior downturns, we expect the business to continue to be highly cash generative and are taking actions to mitigate the normal first half working capital seasonal outflow. Based on Net Debt levels at the end of March, which were higher than 31 December 2019 reflecting normal seasonal patterns, the Group has liquidity of c.£500m of immediately available committed facilities and cash balances. It also has the ability to access up to £300m under the UK Government's Covid Corporate Finance Facility (CCFF) programme and has a further c.£100m of uncommitted facilities.
As part of a normal schedule, the Group is currently undertaking a refinancing of its $950m Revolving Credit Facility ($152m matures in September 2020 and $798m matures in September 2021) and its £300m Term Loan which matures in December 2020. These discussions are ongoing and are expected to conclude during the second quarter. ”
Media
• Rightmove – “Rightmove is pleased to announce that it has received confirmation that it is eligible to access the UK Government’s Covid Corporate Financing Facility (‘CCFF’). We have not yet issued any commercial paper under the scheme.
The combination of our current cash balance, our committed Revolving Credit Facility, which we have extended by a year to February 2022, and access to the CCFF will, in our view, provide Rightmove with sufficient liquidity and leave us well positioned to return to growth as markets normalise. ”
Oil & Gas
• BP – “The economic impact of the Covid-19 pandemic coupled with pre-existing supply and demand factors have resulted in an exceptionally challenged commodity environment. Product demand has sharply reduced, notably for mobility, contributing sharp falls in refining margins and utilization. The resulting reduction in demand for crude oil has begun to put severe pressure on storage and logistics, with a substantial effect on prices and has promoted volatility. In April, OPEC and its partners agreed to significant supply cuts that are expected to help reduce the imbalance but are unlikely to prevent material supply shut ins by oil producers in the near-term, some of which may be difficult to reverse. Challenges in gas markets, following significant growth in supply over recent years, have been compounded by the pandemic, lowering LNG demand.
In March, Brent crude marker prices and BP's refining marker margin touched levels not seen for well over a decade, while Henry Hub gas price hit multi-year lows and prices and margins have continued to remain depressed.
Looking forward, there remains an exceptional level of uncertainty regarding the near-term outlook for prices and product demand, particularly while many economies remain under lockdown. There is the risk of more sustained consequences depending on the efforts of governments and the public and private sectors to manage the health, economic and financial stability effects of the pandemic.
Upstream second-quarter reported production is expected to be lower compared to the first quarter. There are significant uncertainties with regard to the implementation of OPEC+ restrictions, price impacts on entitlement volumes, divestments, market restrictions given lack of demand for oil and Covid-19 operational impacts.
In Downstream, material impacts from Covid-19 are expected in the second quarter. Product demand in fuels marketing is expected to be significantly lower in BP's key European and North America businesses. In refining, reduced utilization is expected due to the overall product demand declines, as well as significantly lower refining margins. In addition, a lower level of North American heavy crude discounts is expected.
During the second quarter BP also expects to make the annual payment of around $1.2 billion relating to the Gulf of Mexico spill settlement.
Gearing is expected to remain above the 20 to 30% target range into 2021. It is expected to trend down over time reflecting receipt of divestment proceeds and reversal of first quarter working capital impacts, and as BP's financial interventions take effect.
BP's future financial performance, including cash flows, net debt and gearing, will be impacted by the extent and duration of the current market conditions and the effectiveness of the actions that it and others take, including its financial interventions. It is difficult to predict when current supply and demand imbalances will be resolved and what the ultimate impact of Covid-19 will be.”
Retail
• Marks & Spencer – “Marks & Spencer has now completed steps to secure liquidity for the likely duration of the Covid crisis and to underpin the recovery strategy and accelerated transformation in 2021.
We are planning for the Clothing & Home business to be severely constrained during lockdown and highly uncertain trading conditions in a prolonged exit period. In the absence of a clear basis for forecasting, our scenario planning and stress tests are based on materially subdued trading for the balance of 2020 in Clothing & Home. M&S benefits from having a strong food business and the transition to Ocado supply is on track to proceed in September to form a multi-channel food operation. However, Food trading has been adversely affected by lockdown due to the closure of cafes and slowdown in travel and some city centre locations.
We have therefore taken steps to maximise liquidity for the likely duration of the crisis and recovery period beyond.
Formal agreement has been reached with the lending syndicate of banks providing the £1.1bn revolving credit facility to substantially relax or remove covenant conditions for the tests arising in September 2020, March 2021, and September 2021.
M&S has been confirmed as an eligible issuer under the UK Government's Covid Corporate Financing Facility (CCFF), providing significant further liquidity headroom.
The agreement with the banks combined with other measures we have taken means that under our base planning scenarios and even more adverse assumptions, the business would have significant undrawn credit available for the 18 months ahead.
As part of the planning for these measures and in order to provide for the uncertain outlook the board does not at this stage anticipate paying a dividend for the 2020/21 financial year, generating a cash saving of c.£210m.
We are scheduled to report preliminary full year results on 20 May and will at that stage provide a further update on the very significant measures being taken to reduce costs and protect cash flow during the crisis period.
The crisis has created a very different way of working and rapid learning for the business at all levels. At the time of the results presentation we will also outline measures being taken to accelerate the transformation programme and change ways of working permanently under our "never the same again" programme currently being prepared for implementation.”
Support Services
• Panoply Holdings – “The Group's top priority is the health and safety of its team, clients and the communities in which it operates in and it implemented remote working ahead of government guidance. As an agile technology services group, The Panoply has been able to continue operating effectively during this period and its teams are continuing to fully service clients. At present, the Group has not seen a net negative impact on revenue and staff utilisation remains greater than 70%, which is in line with previous periods.
The Group is proud to be working with a number of clients on the Covid-19 emergency response. FutureGov have been working with Camden Council, having together designed and built an open source directory of service tool, "Beacon", which helps the council and local public service partners understand the needs of vulnerable residents, matching them to the relevant support. FutureGov and Notbinary have built both ventilator and PPE 'dashboards' in order to help manage the effective supply of these crucial products, whilst Notbinary has created a system with the Competition and Markets Authority via the Department for Business, Energy & Industrial Strategy which allows businesses to be held to account for unfair behaviour during the crisis.
Human+ & FutureGov along with other industry partners are proud to be working with NHSx to assist NHS efforts to support vulnerable people during Covid-19. The Group will be supporting the development and execution of user-centred design, Intelligent Automation and Artificial Intelligence. This includes user research, robotic process automation (RPA) and service design support to help evaluate and design remote care and digital mental health solutions, as well as data coalition and automation opportunities, across the NHS.
Formal agreement has been reached with the lending syndicate of banks providing the £1.1bn revolving credit facility to substantially relax or remove covenant conditions for the tests arising in September 2020, March 2021, and September 2021.
M&S has been confirmed as an eligible issuer under the UK Government's Covid Corporate Financing Facility (CCFF), providing significant further liquidity headroom.
The agreement with the banks combined with other measures we have taken means that under our base planning scenarios and even more adverse assumptions, the business would have significant undrawn credit available for the 18 months ahead.
As part of the planning for these measures and in order to provide for the uncertain outlook the board does not at this stage anticipate paying a dividend for the 2020/21 financial year, generating a cash saving of c.£210m.
We are scheduled to report preliminary full year results on 20 May and will at that stage provide a further update on the very significant measures being taken to reduce costs and protect cash flow during the crisis period.
The crisis has created a very different way of working and rapid learning for the business at all levels. At the time of the results presentation we will also outline measures being taken to accelerate the transformation programme and change ways of working permanently under our "never the same again" programme currently being prepared for implementation.”
Support Services
• Panoply Holdings – “The Group's top priority is the health and safety of its team, clients and the communities in which it operates in and it implemented remote working ahead of government guidance. As an agile technology services group, The Panoply has been able to continue operating effectively during this period and its teams are continuing to fully service clients. At present, the Group has not seen a net negative impact on revenue and staff utilisation remains greater than 70%, which is in line with previous periods.
The Group is proud to be working with a number of clients on the Covid-19 emergency response. FutureGov have been working with Camden Council, having together designed and built an open source directory of service tool, "Beacon", which helps the council and local public service partners understand the needs of vulnerable residents, matching them to the relevant support. FutureGov and Notbinary have built both ventilator and PPE 'dashboards' in order to help manage the effective supply of these crucial products, whilst Notbinary has created a system with the Competition and Markets Authority via the Department for Business, Energy & Industrial Strategy which allows businesses to be held to account for unfair behaviour during the crisis.
Human+ & FutureGov along with other industry partners are proud to be working with NHSx to assist NHS efforts to support vulnerable people during Covid-19. The Group will be supporting the development and execution of user-centred design, Intelligent Automation and Artificial Intelligence. This includes user research, robotic process automation (RPA) and service design support to help evaluate and design remote care and digital mental health solutions, as well as data coalition and automation opportunities, across the NHS.
Technology
• IQE# – “The full effects of the Coronavirus pandemic on global economic output in 2020 are still uncertain. The effect of an anticipated downturn on IQE’s markets is also uncertain and the increased risk to near-term performance is not currently quantifiable.
Given the unprecedented levels of uncertainty, we are unable to provide explicit guidance at this point in time. However, in line with the Trading Update on 24 March trading so far in 2020 has been in line with previous expectations, and the outlook for Q2 2020 remains positive.”
• Universe Group – “We are continually assessing the impact of Covid-19 on trading in the current year in terms of both profits and cash. Having benefitted from a good performance in 2019, we started the year with £6.4 million of gross cash, alongside undrawn bank facilities of a further £1.5 million. This was followed by solid Q1 2020 trading which was in line with budget.
As we have entered a more restrictive stage of the Covid-19 pandemic, we continue to focus our resources on ensuring that we help keep the country running. It is important to note that all our customers are retailers of vital supplies, being food, drink and/or fuel. We have no exposure to retailers of any other goods. We are proud of the way our people have transitioned to many, very different, working environments and we issue regular updates both externally to customers and internally to employees, setting out the actions we are taking in relation to the crisis.
It is encouraging that the Group has a revenue pipeline for this year that indicates already completed revenues of £5.2 million in Q1, with further revenues of £16.8 million visible through existing recurring and repeatable revenue contracts and the order book. In the current context, the Group are mindful that the final value, terms and timing of delivery of the order book, remain subject to ongoing discussions.
Nevertheless, because of the current market disruptions, the Group is prudently assuming that some non-critical work planned for customers in this financial year will be delayed by them until the crisis passes, quite possibly for a period lasting into next year. As noted above, it is difficult to estimate these possible delays until there is greater clarity regarding the duration of public lockdowns. New sales to new retail customers are also unlikely until the situation improves, but equally, material customer losses are not expected. In that light, cash conservation measures to protect the business, including the furloughing of some staff, have been put in place.
We are working closely with the Petrol Retailers Association, the Association of Convenience Stores and the UK Government through the Department for Business, Energy and Industrial Strategy. In mid-March we were designated an "essential service provider" by the Government. Accordingly, we have aligned our focus with the changing needs of our customers and the overall national infrastructure, given our responsibility to assist in keeping the highest priority retail sites functioning.
Regarding support in the marketplace, we have been successful in maintaining material service levels for customers. In doing this, we have managed to reduce personal contact with the general public, in order to protect our customers' staff, consumers in store and our field engineers. These measures are enabling our field engineers to attend any sites that may have significant operational issues, on an ongoing basis. As part of this, the engineers have temporarily postponed the processing of ad hoc hardware and software upgrades, as well as new installations that are not deemed to be critical in nature, although some of our scheduled major upgrades will still go ahead. All postponed work will be rescheduled when restrictions lift sufficiently.”
Lifting restrictions
• Hong Kong civil servants will head back to work from Monday 4 May. Sports facilities, libraries and museums will open from Monday but the ban on meetings of more than four people will remain in place.
• New Zealand’s approach to a lighter lockdown: • People still have to stay in what's called their ‘household bubble’, but they can expand that bubble now: to meet close family, caregivers, or support isolated people;
• People should work from home where possible but businesses are allowed to open if they can provide contactless service;
• Restaurants can now do ‘contactless’ takeaway;
• For recreational activities, you are allowed to drive short distances, and people have headed to parks and beaches this morning. You're allowed to do this with people from your household bubble;
• Schools can reopen but have to ensure social distancing; and
• Mass gatherings will remain cancelled, and public venues closed.
• Austria has announced further steps to relax its lockdown. As of 1 May, events with groups of up to 10 people will be allowed, although people will be asked to stay a metre apart. The recommendations to stay at home, except for a few key reasons, expire on 30 April and will not be renewed. However, working from home is still encouraged. Hotels will be allowed to reopen on 29 May.
Other
• Argentina has banned all internal and international commercial flights until 1 September. The authorities said airlines should not be allowed to sell tickets for flights that may not go ahead in the next four months.
• One in every seven UK mortgages is currently subject to a payment holiday, according to new figures from trade association UK Finance. As of Friday 24 April, lenders had granted more than 1.6m mortgage payment holidays.
• Oxford University's Jenner Institute believes it has produced an effective vaccine, and plans to carry out clinical tests on 6,000 people before the end of May.
• Australian Health Minister, Greg Hunt, told reporters on Tuesday that 2.4 million people had downloaded and registered for the government's coronavirus contact tracing app. The CovidSafe smartphone app uses a bluetooth wireless signal to exchange a ‘digital handshake’ with another user when they come within 1.5m (4.9ft). The app then logs this contact and encrypts it. Users will be notified if they have had more than 15 minutes of close contact with another user who tests positive.
• Botswana's President, Mokgweetsi Masisi, has announced a one-week extension of the nationwide lockdown that was due to end on 30 April.
• Portuguese President, Marcelo Rebelo de Sousa, has announced that Portugal's state of emergency will end on Sunday 2 May.
• Nigeria will begin a ‘gradual easing’ of coronavirus-related lockdowns for millions of people in its largest city Lagos and the capital, Abuja. However, the rest of the country has seen an extension of the lockdown until 4 May.
• 373,000 property sales are on hold in UK cities, researchers at Zoopla have estimated. The value of held sales totals a collective £82bn.
• McDonalds is to begin testing reopening branches in the UK. The test will only be for operational purposes and no customers will be served.
#corporate client of Peel Hunt
News
Buildings & Construction
• DR Horton – “(the largest housebuilder in the US) in Q2 homes sold were up 8% but in late March and April, the company saw increases in cancellations and decreases in sales orders. In month to date April, net sales are -11%.”
• Forterra– “Since our announcement of 24 March 2020 in which we stated that Forterra would be suspending business operations until further notice, the Group has been planning alternative working practices that enable manufacturing facilities to operate whilst keeping employees safe and maintaining social distancing.
Working to the guidance from Public Health England and the Construction Leadership Council we have been able to continue manufacturing small volumes of precast concrete products to support essential public sector projects. In addition, we have continued to service customer demand delivering our brick and block products from inventory.
Responding to news that housebuilders are to begin a phased re-opening of building sites along with many builders' merchants reopening and having undertaken the necessary risk assessments, we will relight the kiln at one of our brick manufacturing facilities this week ready to restart production. We will also recommence production of hollowcore concrete flooring to service customer requirements.
The Group expects to recommence production at two further facilities in May although due to existing inventory levels, it is currently anticipated that the majority of Forterra facilities will not resume manufacturing before the summer. Should demand increase at a faster rate than expected the Group retains full flexibility to reopen facilities sooner. ”
Financial
• Distribution Finance – “Since its last update, the company has been working collaboratively with the Lenders with the objective to agree the shape of its funding facility and covenants appropriate for the current climate, particularly as the loan book stock turn has slowed in light of most dealers being closed during the Covid-19 public health crisis. Both the company and the Lenders believe that without further operating data relating to the emerging trading pattern of dealers and the impact of the lockdown, it is difficult to agree appropriate terms for a longer-term waiver. The company remains in ongoing constructive discussion with the Lenders and further weekly extensions to the temporary waiver have been granted during this period of negotiation. This pattern of waiver extension may continue until such time as there is greater clarity and analysis of the current situation. The company recognises the current constraints on the facility in light of the Lenders' own credit risk appetite given the current economic environment and the impact of Covid-19.
Notwithstanding the economic landscape, the company's loan book continues to perform well and remains stable. Despite some of its industrial sector clients continuing to trade during the lockdown, in the near-term demand is likely to be curtailed whilst the majority of the company's dealer networks and manufacturers remain closed. However, the company believes that its predominant lending sectors of caravans, recreational vehicles, small motorboats and motorbikes will perform strongly after Government restrictions are lifted, as UK consumers seek to "staycation" and continue to mitigate Covid-19 risk.
In light of the current position with its Lenders, the company believes it is likely that its existing lending portfolio will modestly reduce in the near-term. Normal levels of new lending should be achievable once the existing facilities are renegotiated with the Lenders, or can be re-financed in whole or part through alternative wholesale funding and/or the company receives a banking licence, and as many dealers reopen for business in the post-lockdown period.
In addition to its ongoing banking licence application and negotiations with the Lenders, the company has made an application to the British Business Bank to participate in its Enable Funding Scheme, which provides wholesale finance to non-bank SME lenders such as DF Capital. This application is progressing.
The company remains committed to its bank licence application, which is subject to regulatory approval. In light of the current pandemic, the company has completed analysis of its business plan and forecasts, subjecting them to severe assumptions, including a very prolonged lockdown of client premises. This analysis shows that the firm can continue to meet its desired capital and liquidity position at all times through the pandemic. Consequently, the Board remains confident that its internal assessment demonstrates that as a bank the company would not breach any of its anticipated capital or liquidity limits. DF Capital would be well capitalised, a strong and secure savings franchise and in an enviable position to support its SME borrowers, many of whom are in the domestic leisure-sector, in the post lockdown period.
Additionally, the company has announced a number of cost mitigation actions aligned to an expected lower loan book in light of the restrictions on its facility, which include potential staff redundancies and furloughing of certain employees, who will receive 100% of their salary and benefits during the furlough period. ”
• HSBC – “The outbreak of Covid-19 has had, and continues to have, a material impact on businesses around the world and the economic environments in which they operate. The outbreak has caused disruption to our customers, suppliers and staff globally. A number of jurisdictions in which we operate have implemented severe restrictions on the movement of populations, with a resultant significant impact on economic activity. These restrictions are being determined by the governments of individual jurisdictions, including through the implementation of emergency powers. The impacts of these restrictions, including the subsequent lifting of restrictions, may vary from jurisdiction to jurisdiction. We have invoked our business continuity plans at many of our sites to help ensure the safety and well-being of our staff, as well as our ability to support our customers and maintain our business operations. Many of our staff have continued to provide critical services in branches, contact and service centres, and in offices, all with heightened safety measures, and we have equipped the majority of our staff to work remotely. It remains unclear how this will evolve through 2020 and we continue to monitor the situation closely.
In many of our markets we have initiated market-specific measures to support our personal and business customers through these challenging times, including mortgage assistance, payment holidays, the waiving of certain fees and charges, and liquidity relief for businesses facing market uncertainty and supply chain disruption. These measures have been well received and we remain responsive to our customers' changing needs. We are also working closely with governments and supporting national schemes that focus on the parts of the economy most impacted by Covid-19.
The actions taken by the various governments and central banks, in particular in the UK, mainland China, Hong Kong and the US, provide an indication of the potential severity of the downturn and post-recovery environment, which from a commercial, regulatory and risk perspective could be significantly different to past crises and persist for a prolonged period. An immediate financial impact of the outbreak is an increase in ECL, driven by a change in the economic scenarios used to calculate ECL. The outbreak has led to a weakening in GDP in many of our markets, a key input used for calculating ECL, and the probability of a more adverse economic scenario for at least the short term is substantially higher than at 31 December 2019. Furthermore, ECL will arise from other parts of our business impacted by the disruption to supply chains. The impact will vary by sectors of the economy, with heightened risk to the oil and gas, transport and discretionary consumer sectors being observed in the first stages of the outbreak. The impact of the outbreak on the long-term prospects of businesses in these sectors is uncertain and may lead to significant ECL charges on specific exposures, which may not be fully captured by ECL modelling techniques. In addition, in times of crisis, fraudulent activity is often more prevalent, leading to potentially significant ECL charges.
Should the Covid-19 outbreak continue to cause disruption to economic activity globally through 2020, there could be further adverse impacts on our income due to lower lending and transaction volumes and lower wealth and insurance manufacturing revenue due to equity markets volatility. Lower interest rates globally will negatively impact net interest income and increase the cost of guarantees for insurance manufacturing, and there could also be adverse impacts on other assets, such as our investment in Bank of Communications Co., Limited.
The Covid-19 outbreak will also have material impacts on capital and liquidity. This may include downward customer credit rating migration, which could negatively impact our risk-weighted assets and capital position, and potential liquidity stress due, among other factors, to increased customer drawdowns, notwithstanding the significant initiatives that governments and central banks have put in place to support funding and liquidity. Central banks in some markets have also initiated a series of capital measures, including the reduction of certain regulatory capital buffers, to support the ability of banks to supply credit to businesses and households through this period of economic disruption.
Central bank and government actions and support measures may result in restrictions in relation to capital. These may limit management's flexibility in managing the business and taking action in relation to capital distribution and capital allocation. In response to a written request from the UK's Prudential Regulation Authority ('PRA'), we cancelled the fourth interim dividend of $0.21 per ordinary share. Similar requests were also made to other UK incorporated banking groups. We also announced that until the end of 2020 we will make no quarterly or interim dividend payments or accruals in respect of ordinary shares. As previously disclosed in our Annual Report and Accounts 2019, we also plan to suspend share buy-backs in respect of ordinary shares in 2020 and 2021. ”
• Plus500 – “Following the Q1 Trading Update issued on 7 April 2020, heightened levels of market volatility have persisted, and the company has continued to see a significantly increased level of customer trading activity. Performance across all financial and operational KPIs remains very strong, with the Group continuing to attract significant numbers of new customers at an attractive cost, and increased levels of activity from existing customers. Revenue from Customer Income1 in the first half to date remains at record levels, with the Group's financial performance during the second quarter continuing to show further momentum following an exceptional first quarter. The company has also continued to experience strong gains from Customer Trading Performance, which is expected to be neutral over time.
Notwithstanding the uncertainty regarding the duration of current levels of volatility or the unquantified potential impact from regulatory changes in Australia, revenue and profitability for the full year is expected to be substantially ahead of current consensus expectations, as revised following the Q1 trading update on 7 April. ”
• Santander – “Our first quarter results continued to be impacted by lower mortgage margins as well as the Covid-19 crisis. While it is too early to reliably estimate the financial and business impacts this crisis will have on our 2020 results, we believe that with strong foundations in place, including capital and liquidity, we will continue to be able to support our customers, our colleagues and the wider society.
Looking after our people and changing the way we work during the Covid-19 crisis
• Enabled over 20k colleagues to work from home and implemented social distancing measures in branches and offices.
• Full pay for colleagues unable to work alongside enhanced wellbeing support, regular communication and updated HR policies.
• Our branch network and contact centres remain operational, with a focus on prioritising access for our most vulnerable customers.
• Significant capacity improvements to our digital platform to reduce call centre and branch volumes.
Impact on our business and results
• Statutory PBT of £114m, down 58% year-on-year with competitive mortgage margin pressure, continued SVR attrition and an increased impairment charge due to Covid-19. Adjusted PBT 2 of £152m, down 57% and adjusted RoTE 2 of 4.4% (2019: 7.8%).
• Q120 incremental £122m Covid-19 impairment charge; loan loss allowances up by c14% compared to pre Covid-19 crisis levels.
• Transformation programme has slowed as we focus on the Covid-19 crisis, which will impact our efficiency savings.
• Expect our income to be further impacted by the lower base rate and significantly reduced new business related to the lockdown affecting the UK economy, partially offset by changes to deposit pricing which will take effect in H220. A more severe economic slowdown than forecast could also increase our credit impairment losses. ”
Food, Drinks & Household
• Coca-Cola Europe– “Trading impacts:
Ongoing volatility in both channels (AFH & Home) given uncertainty
Sharp declines in AFH volumes with c.75% of the channel impacted by lockdown measures (which vary by market)
Some initial stockpiling in Home has since subsided
Immediate consumption & small priority packs significantly impacted (affects both AFH & Home channels); Future consumption packs performing better, though varies by market
Total volume decline for the Covid-19 impacted weeks to date (5 weeks ending 17 April 2020) in a range of c.-20% to -40% (AFH: range of -45% to -85%; Home: range of +5% to -10%) across our markets
CCEP response to crisis: Respond, Recover, Sustain – Our rapid response has prioritised our people, customers & communities whilst protecting our business for the long term. Measures taken are as follows:
People- Implemented comprehensive measures in line with official guidance from governments & health authorities to keep our people safe including:
• Large scale home working supported by up-weighted digital support
• Additional safety measures to support those in the field or at manufacturing sites
Emotional & mental well-being support of our people through this stressful & uncertain time
Motivating & providing workplace security for our people
Regular internal communications across the business
Customers – Working closely with our suppliers, partners & KO to ensure we do everything we can to best serve our customers including:
• Continued build of finished goods & raw material inventory
• Shifting production resource to higher demand channels by prioritising core SKUs, reflecting the shift in brand & pack mix (e.g. more multipack cans & large PET)
Developing comprehensive contingency plans to ensure our products continue to be available despite any logistical challenges
Business
Governance. Increased cadence of reviews with country leadership teams, Board of Directors & KO1. Incorporating learnings from across the Coca-Cola system. Modelling multiple scenarios & risk analyses to regularly stress test our financials
Costs – Reducing discretionary spend in areas such as trade marketing, promotions, merchandising, incentives, seasonal labour, travel & meetings – amounting to a potential FY20 reduction of c.€200-250m
Delaying c.€200m of discretionary capital expenditure, resulting in FY20 total capex of c.€350m
Finance – Withdrawal of FY20 guidance given significant uncertainty as previously announced
To keep CCEP well positioned given its current financial position & strong balance sheet (net debt/adjusted EBITDA of 2.7 times) & to preserve maximum flexibility during this period:
• Suspension of share buyback programme until further notice as previously announced (to date repurchased c.€130m of €1bn programme announced Feb 2020)
• FY19 dividend fully paid in 2019; Deferral of 2020 HY1 dividend until visibility has improved
• Issued 6 year €600m bond at 1.75% coupon to add to an already balanced mix of long-term maturities (with no covenants on debt or facilities)
• Received confirmation of eligibility to access UK Government Covid Corporate Financing Facility (CCFF)
CCEP has strong cash generation & solid position on liquidity given the following: €0.9bn cash & cash equivalents; €1.5bn sustainability linked committed undrawn RCF; €1.5bn multi-currency commercial paper programme (€0.6bn issued); unutilised CCFF. ”
• Games Workshop# – “Our priority continues to be the health, safety and wellbeing of our staff and customers. Since the announcement on 24 March 2020, we have fully assessed the health and safety measures required within our operations to meet social distancing and hygiene requirements. Following the necessary changes we have made across our warehouse operations, we will start making trade sales in Europe and North America this week and online orders on games-workshop.com from 1 May 2020.
The majority of our stores remain closed, however, a small number have re-opened in China, the Netherlands and Scandinavia in line with local guidance and subject to their local social distancing measures. Our stores will continue to re-open across the world as local restrictions are lifted and all required health and safety measures are met.
Financial update – As stated previously, trading for the Group in the nine months to the end of February was in line with expectations. However, since the outbreak of Covid-19 and the subsequent closure of our operations globally, our performance has been impacted. As we are now re-opening our sales channels as discussed above, we estimate our profit before tax for the year ended 31 May 2020 to be no less than £70 million.
We have also agreed in principle with our bank, Santander, to secure an overdraft facility of £25 million for a six month period with a potential six month extension, if required. This will be drawn, as needed, to meet operational cash flow requirements. ”
Healthcare
• EKF Diagnostic – “Global demand for the PrimeStore MTM device has increased significantly due to Covid-19. The PrimeStore MTM sample collection device, deactivates viruses, bacteria, fungi and mycobacterium tuberculosis allowing safe sample handling and transport, greatly reducing risk of infection. The device was invented in 2006 in preparation for a worldwide pandemic and is designed to de-activate pathogen rapidly and stabilise the RNA for up to four weeks with no requirement for cold storage. In the case of Covid-19, by inactivating the virus testing can now take place outside of containment facilities opening up capacity in more testing laboratories.
The company expects to ship first products from the new production line in Penarth in mid-May, if not sooner, and will provide further updates to shareholders as appropriate. Following the successful establishment of the production line in Wales, the company will look to increase manufacturing capacity for the PrimeStore MTM device further, via its two sites in Germany. This will increase the capacity to supply sample collection devices into mainland Europe.
The establishment of the production line will see EKF increase staffing levels at the Penarth facility with 12 temporary contracts, with these positions being filled by local workers, recently out of work due to the impact of the pandemic or on leave from their studies. ”
Industrials
• Caterpillar – “sales are down 21% in Q1. The company has had to temporarily suspend operations at some facilities in recent weeks reflecting supply chain issues, weak demand or Government regulation. As of mid-April, 75% of its primary production facilities continued to be open.”
• Cummins – “Q1 organic revenue down 16% reflecting lower truck production and weaker demand from global construction. The company sees a similar impact in Q2 and expects it to persist for some time.”
• Nucor – “largest US steel producer, saw shipments up 12% on Q4 and 8% up year on year. Its average selling price was down 1% and 11% on the same basis. Expects to make a loss in Q2 and also sees Q2 as being the bottom.”
• Rockwell Automation. “Q2 organic revenue was flat – Architecture and software up 4% and control products and solutions – -3.6%. For Q3 it expects a drop in organic revenue of 20% with some improvement in Q4. For the year the company is now forecasting sales to be down -9.5% to -6.5% from -1.5% to +1.5%.”
• Weir Group – “Minerals – The long-term effect of Covid-19 remains uncertain but its impact on mining markets has been relatively limited so far, reflecting the designation of miners, and providers of mission-critical technology such as Weir, as essential businesses in most countries. While there have been some inevitable disruptions as a result of travel restrictions and staffing, ore production has continued, supported by commodity prices, which remain above incentive levels for our key exposures. Gold markets are strong with copper and iron ore remaining robust overall. Thermal coal markets are more challenging given reduced global power consumption, while oil sands demand has remained relatively robust so far, despite a significant reduction in Canadian oil prices.
The vast majority of global mines have continued to operate, and the division has continued to fully meet customer demand despite some disruptions to operations. In South Africa, a comprehensive nationwide shutdown has seen both mines and our facilities largely closed. In Peru and Panama, some mines have reduced production levels but remained operational and we have been able to supply spares from our distribution centres. In Malaysia, we have seen ongoing disruption to our manufacturing capability from extended government shutdowns, although we have been able to ship some already completed products. In India, we have secured permits to enable around 50% of our employees to continue working in our manufacturing operations. In the UK, we temporarily closed our foundry for five days to reconfigure operations to support social distancing and hygiene, but we are now operational. In China, operations have fully recovered after Covid-19 restrictions interrupted production in February. In all other locations operations are largely unaffected despite a significant level of mandated home working for managerial and administrative staff.
Overall, the division has benefited from its regional manufacturing footprint and localised supply chains, enabling it to shift production to support customers around the world, as demonstrated by its resilient first quarter performance. Aftermarket orders, which represented 76% of the total, were stable, down 1% against a strong prior year comparator but up 2% sequentially with March remaining strong. This was supported by good demand for spares in Latin America reflecting production trends and some customers increasing safety stocks. This was offset by weakness in Russia Central Africa and Australasia. Original equipment orders were 13% lower as a result of deferrals in project procurement, particularly for longer lead time products. However, the division's project pipeline and quotation levels remained strong, reflecting its technology leadership and the positive long-term fundamentals underpinning its markets. The book-to-bill ratio in the first quarter was 1.14.
Looking forward visibility remains limited. Currently, there has been a modest reduction in miners' production forecasts, but this may change given the uncertain impact of Covid-19 on demand and supply in mining markets. As a result, the division is under-taking a number of pre-emptive mitigating actions to reduce costs and preserve cash including freezing recruitment, restricting discretionary spending and undertaking some restructuring activities, including a workforce reduction of 350 (4%), in total saving c.£30m to be realised this year.
ESCO – Demand for the division's core GET products has remained robust in both mining and infrastructure markets. In the first quarter the division saw a 7% reduction, although core GET remained robust with softer demand for more discretionary products such as buckets and blades in construction markets, particularly in North America and Europe, reflecting lower economic activity levels. The division did however see a 15% sequential increase in orders from Q4'19 and its book-to-bill ratio was 1.02.
Performance was supported by the division's global manufacturing footprint and service facilities which include foundries in North America, Chile and China. These are all currently fully operational although there have been some interruptions to production due to temporary closures in the US, including a five-day closure of its Newton, Mississippi foundry. The division's foundry in China is now fully operational following the extended shutdown at the beginning of February and previous supply chain interruptions in Europe due to Covid-19 restrictions have now been resolved.
Looking forward visibility remains limited. Currently, there has been a modest reduction in miners' production forecasts, but this may change given the uncertain impact of Covid-19 on demand and supply in mining markets. Infrastructure markets, and particularly construction in North America and Europe, have been significantly impacted by nationwide shutdowns with the duration and extent of these still uncertain. Given ongoing uncertainty, the division is taking a number of mitigating actions to reduce costs including freezing recruitment, restricting discretionary spending and undertaking some restructuring activities, including a workforce reduction of 130 (5%), in total saving £9m this year.”
Oil & Gas – There has been a deep downturn in oil and gas markets since the beginning of the year with E&P capex now expected to fall c.50% in North America compared to March estimates of 30%, reflecting recent oil price declines which have seen WTI fall to multi-decade lows. These conditions had an immediate impact on the US land rig count which is 54% lower than last year. At the same time, the number of active frack fleets has reduced by c.60%, with a subsequent reduction in demand for both pressure pumping and pressure control products. International markets have been more robust, although there has been an increase in project deferrals.
These conditions are reflected in the division's first quarter performance where orders fell 34% in the period with OE down 41% and AM 31% lower although the division did make market share gains in fluid ends and services. Following previously announced 2020 cost savings of $30m (c.£24m), the division has taken further steps to right size its operations and protect cash generation which is expected to deliver an incremental £12m saving this year. This included a workforce reduction of 150 meaning the division has reduced its workforce by 350 in 2020, and by a total of c.1,000 (c.30%) since the start of 2019. In addition, the division has increased furloughs and secured concessions from vendors and landlords. These actions have been taken while protecting the division's technology leadership, broader service capability and core manufacturing capacity so that it is well positioned to benefit from a future recovery.
The impact of Covid-19 on the division's operations has been restricted to the temporary closure of a facility in the United Arab Emirates. Looking forward, while the recent OPEC+ agreement will eventually contribute to a reduction in oversupply, there remains significant uncertainty over the extent and duration of Covid-19's impact, including on global energy demand. Based on current market conditions the division is now expected to be loss making but remain cash positive through 2020.
Prudent cost control and cash management – The longer-term impact of Covid-19 on macro-economic conditions and our markets is as yet uncertain and therefore the Group is taking a prudent approach to reduce costs and conserve cash. In addition to the operational actions detailed in the Divisional Reviews, the Group has also undertaken a number of corporate measures. These include: withdrawing the recommendation to pay the 2019 final dividend; curtailing capital expenditure; managing working capital to minimise normal seasonal outflow in the first half; rightsizing Group functions; and, restricting all discretionary spending. In addition, all 2020 executive and management annual bonus schemes have been suspended and inflationary increases in Board and Group Executive fees and salaries withdrawn.
The Group expects to realise c.£75m of cost mitigation savings in 2020 which include workforce reductions, reduced travel and discretionary spending. We expect to incur exceptional cash costs of c.£25m in the year.
Through the first half of the year, cash preservation actions of £140m include withdrawal of the final 2019 dividend, minimising non-committed and non-safety related capex and rephasing of tax payments.
While our mining aftermarket will be resilient if ore production volumes continue to be robust, we have stress tested a number of potential downside scenarios of varying severity. These include widespread disruption to our operations and supply chain, deferment of original equipment orders and revenues, and significant reduction in aftermarket demand. While there is a high degree of uncertainty, in each of these scenarios we expect to have adequate liquidity and manageable levels of net debt supported by a range of well-developed mitigating actions that are ready to be executed if necessary.
At the same time the Group will continue to invest in strengthening its key competitive advantages in technology leadership and differentiated customer service. This will enable Weir to take full advantage of the attractive long-term prospects in its markets, including the Group's critical role in making mining more sustainable and efficient.
Outlook – After a resilient first quarter, we expect Covid-19 to have a greater impact in the second quarter, and as outlined above, a first round of mitigations has already been actioned which will help underpin first half profitability. Given the uncertain environment no specific guidance is provided for the remainder of the year, although we will update as and when visibility improves.
Net Debt and Liquidity – As in prior downturns, we expect the business to continue to be highly cash generative and are taking actions to mitigate the normal first half working capital seasonal outflow. Based on Net Debt levels at the end of March, which were higher than 31 December 2019 reflecting normal seasonal patterns, the Group has liquidity of c.£500m of immediately available committed facilities and cash balances. It also has the ability to access up to £300m under the UK Government's Covid Corporate Finance Facility (CCFF) programme and has a further c.£100m of uncommitted facilities.
As part of a normal schedule, the Group is currently undertaking a refinancing of its $950m Revolving Credit Facility ($152m matures in September 2020 and $798m matures in September 2021) and its £300m Term Loan which matures in December 2020. These discussions are ongoing and are expected to conclude during the second quarter. ”
Media
• Rightmove – “Rightmove is pleased to announce that it has received confirmation that it is eligible to access the UK Government’s Covid Corporate Financing Facility (‘CCFF’). We have not yet issued any commercial paper under the scheme.
The combination of our current cash balance, our committed Revolving Credit Facility, which we have extended by a year to February 2022, and access to the CCFF will, in our view, provide Rightmove with sufficient liquidity and leave us well positioned to return to growth as markets normalise. ”
Oil & Gas
• BP – “The economic impact of the Covid-19 pandemic coupled with pre-existing supply and demand factors have resulted in an exceptionally challenged commodity environment. Product demand has sharply reduced, notably for mobility, contributing sharp falls in refining margins and utilization. The resulting reduction in demand for crude oil has begun to put severe pressure on storage and logistics, with a substantial effect on prices and has promoted volatility. In April, OPEC and its partners agreed to significant supply cuts that are expected to help reduce the imbalance but are unlikely to prevent material supply shut ins by oil producers in the near-term, some of which may be difficult to reverse. Challenges in gas markets, following significant growth in supply over recent years, have been compounded by the pandemic, lowering LNG demand.
In March, Brent crude marker prices and BP's refining marker margin touched levels not seen for well over a decade, while Henry Hub gas price hit multi-year lows and prices and margins have continued to remain depressed.
Looking forward, there remains an exceptional level of uncertainty regarding the near-term outlook for prices and product demand, particularly while many economies remain under lockdown. There is the risk of more sustained consequences depending on the efforts of governments and the public and private sectors to manage the health, economic and financial stability effects of the pandemic.
Upstream second-quarter reported production is expected to be lower compared to the first quarter. There are significant uncertainties with regard to the implementation of OPEC+ restrictions, price impacts on entitlement volumes, divestments, market restrictions given lack of demand for oil and Covid-19 operational impacts.
In Downstream, material impacts from Covid-19 are expected in the second quarter. Product demand in fuels marketing is expected to be significantly lower in BP's key European and North America businesses. In refining, reduced utilization is expected due to the overall product demand declines, as well as significantly lower refining margins. In addition, a lower level of North American heavy crude discounts is expected.
During the second quarter BP also expects to make the annual payment of around $1.2 billion relating to the Gulf of Mexico spill settlement.
Gearing is expected to remain above the 20 to 30% target range into 2021. It is expected to trend down over time reflecting receipt of divestment proceeds and reversal of first quarter working capital impacts, and as BP's financial interventions take effect.
BP's future financial performance, including cash flows, net debt and gearing, will be impacted by the extent and duration of the current market conditions and the effectiveness of the actions that it and others take, including its financial interventions. It is difficult to predict when current supply and demand imbalances will be resolved and what the ultimate impact of Covid-19 will be.”
Retail
• Marks & Spencer – “Marks & Spencer has now completed steps to secure liquidity for the likely duration of the Covid crisis and to underpin the recovery strategy and accelerated transformation in 2021.
We are planning for the Clothing & Home business to be severely constrained during lockdown and highly uncertain trading conditions in a prolonged exit period. In the absence of a clear basis for forecasting, our scenario planning and stress tests are based on materially subdued trading for the balance of 2020 in Clothing & Home. M&S benefits from having a strong food business and the transition to Ocado supply is on track to proceed in September to form a multi-channel food operation. However, Food trading has been adversely affected by lockdown due to the closure of cafes and slowdown in travel and some city centre locations.
We have therefore taken steps to maximise liquidity for the likely duration of the crisis and recovery period beyond.
Formal agreement has been reached with the lending syndicate of banks providing the £1.1bn revolving credit facility to substantially relax or remove covenant conditions for the tests arising in September 2020, March 2021, and September 2021.
M&S has been confirmed as an eligible issuer under the UK Government's Covid Corporate Financing Facility (CCFF), providing significant further liquidity headroom.
The agreement with the banks combined with other measures we have taken means that under our base planning scenarios and even more adverse assumptions, the business would have significant undrawn credit available for the 18 months ahead.
As part of the planning for these measures and in order to provide for the uncertain outlook the board does not at this stage anticipate paying a dividend for the 2020/21 financial year, generating a cash saving of c.£210m.
We are scheduled to report preliminary full year results on 20 May and will at that stage provide a further update on the very significant measures being taken to reduce costs and protect cash flow during the crisis period.
The crisis has created a very different way of working and rapid learning for the business at all levels. At the time of the results presentation we will also outline measures being taken to accelerate the transformation programme and change ways of working permanently under our "never the same again" programme currently being prepared for implementation.”
Support Services
• Panoply Holdings – “The Group's top priority is the health and safety of its team, clients and the communities in which it operates in and it implemented remote working ahead of government guidance. As an agile technology services group, The Panoply has been able to continue operating effectively during this period and its teams are continuing to fully service clients. At present, the Group has not seen a net negative impact on revenue and staff utilisation remains greater than 70%, which is in line with previous periods.
The Group is proud to be working with a number of clients on the Covid-19 emergency response. FutureGov have been working with Camden Council, having together designed and built an open source directory of service tool, "Beacon", which helps the council and local public service partners understand the needs of vulnerable residents, matching them to the relevant support. FutureGov and Notbinary have built both ventilator and PPE 'dashboards' in order to help manage the effective supply of these crucial products, whilst Notbinary has created a system with the Competition and Markets Authority via the Department for Business, Energy & Industrial Strategy which allows businesses to be held to account for unfair behaviour during the crisis.
Human+ & FutureGov along with other industry partners are proud to be working with NHSx to assist NHS efforts to support vulnerable people during Covid-19. The Group will be supporting the development and execution of user-centred design, Intelligent Automation and Artificial Intelligence. This includes user research, robotic process automation (RPA) and service design support to help evaluate and design remote care and digital mental health solutions, as well as data coalition and automation opportunities, across the NHS.
Formal agreement has been reached with the lending syndicate of banks providing the £1.1bn revolving credit facility to substantially relax or remove covenant conditions for the tests arising in September 2020, March 2021, and September 2021.
M&S has been confirmed as an eligible issuer under the UK Government's Covid Corporate Financing Facility (CCFF), providing significant further liquidity headroom.
The agreement with the banks combined with other measures we have taken means that under our base planning scenarios and even more adverse assumptions, the business would have significant undrawn credit available for the 18 months ahead.
As part of the planning for these measures and in order to provide for the uncertain outlook the board does not at this stage anticipate paying a dividend for the 2020/21 financial year, generating a cash saving of c.£210m.
We are scheduled to report preliminary full year results on 20 May and will at that stage provide a further update on the very significant measures being taken to reduce costs and protect cash flow during the crisis period.
The crisis has created a very different way of working and rapid learning for the business at all levels. At the time of the results presentation we will also outline measures being taken to accelerate the transformation programme and change ways of working permanently under our "never the same again" programme currently being prepared for implementation.”
Support Services
• Panoply Holdings – “The Group's top priority is the health and safety of its team, clients and the communities in which it operates in and it implemented remote working ahead of government guidance. As an agile technology services group, The Panoply has been able to continue operating effectively during this period and its teams are continuing to fully service clients. At present, the Group has not seen a net negative impact on revenue and staff utilisation remains greater than 70%, which is in line with previous periods.
The Group is proud to be working with a number of clients on the Covid-19 emergency response. FutureGov have been working with Camden Council, having together designed and built an open source directory of service tool, "Beacon", which helps the council and local public service partners understand the needs of vulnerable residents, matching them to the relevant support. FutureGov and Notbinary have built both ventilator and PPE 'dashboards' in order to help manage the effective supply of these crucial products, whilst Notbinary has created a system with the Competition and Markets Authority via the Department for Business, Energy & Industrial Strategy which allows businesses to be held to account for unfair behaviour during the crisis.
Human+ & FutureGov along with other industry partners are proud to be working with NHSx to assist NHS efforts to support vulnerable people during Covid-19. The Group will be supporting the development and execution of user-centred design, Intelligent Automation and Artificial Intelligence. This includes user research, robotic process automation (RPA) and service design support to help evaluate and design remote care and digital mental health solutions, as well as data coalition and automation opportunities, across the NHS.
Technology
• IQE# – “The full effects of the Coronavirus pandemic on global economic output in 2020 are still uncertain. The effect of an anticipated downturn on IQE’s markets is also uncertain and the increased risk to near-term performance is not currently quantifiable.
Given the unprecedented levels of uncertainty, we are unable to provide explicit guidance at this point in time. However, in line with the Trading Update on 24 March trading so far in 2020 has been in line with previous expectations, and the outlook for Q2 2020 remains positive.”
• Universe Group – “We are continually assessing the impact of Covid-19 on trading in the current year in terms of both profits and cash. Having benefitted from a good performance in 2019, we started the year with £6.4 million of gross cash, alongside undrawn bank facilities of a further £1.5 million. This was followed by solid Q1 2020 trading which was in line with budget.
As we have entered a more restrictive stage of the Covid-19 pandemic, we continue to focus our resources on ensuring that we help keep the country running. It is important to note that all our customers are retailers of vital supplies, being food, drink and/or fuel. We have no exposure to retailers of any other goods. We are proud of the way our people have transitioned to many, very different, working environments and we issue regular updates both externally to customers and internally to employees, setting out the actions we are taking in relation to the crisis.
It is encouraging that the Group has a revenue pipeline for this year that indicates already completed revenues of £5.2 million in Q1, with further revenues of £16.8 million visible through existing recurring and repeatable revenue contracts and the order book. In the current context, the Group are mindful that the final value, terms and timing of delivery of the order book, remain subject to ongoing discussions.
Nevertheless, because of the current market disruptions, the Group is prudently assuming that some non-critical work planned for customers in this financial year will be delayed by them until the crisis passes, quite possibly for a period lasting into next year. As noted above, it is difficult to estimate these possible delays until there is greater clarity regarding the duration of public lockdowns. New sales to new retail customers are also unlikely until the situation improves, but equally, material customer losses are not expected. In that light, cash conservation measures to protect the business, including the furloughing of some staff, have been put in place.
We are working closely with the Petrol Retailers Association, the Association of Convenience Stores and the UK Government through the Department for Business, Energy and Industrial Strategy. In mid-March we were designated an "essential service provider" by the Government. Accordingly, we have aligned our focus with the changing needs of our customers and the overall national infrastructure, given our responsibility to assist in keeping the highest priority retail sites functioning.
Regarding support in the marketplace, we have been successful in maintaining material service levels for customers. In doing this, we have managed to reduce personal contact with the general public, in order to protect our customers' staff, consumers in store and our field engineers. These measures are enabling our field engineers to attend any sites that may have significant operational issues, on an ongoing basis. As part of this, the engineers have temporarily postponed the processing of ad hoc hardware and software upgrades, as well as new installations that are not deemed to be critical in nature, although some of our scheduled major upgrades will still go ahead. All postponed work will be rescheduled when restrictions lift sufficiently.”
Lifting restrictions
• Hong Kong civil servants will head back to work from Monday 4 May. Sports facilities, libraries and museums will open from Monday but the ban on meetings of more than four people will remain in place.
• New Zealand’s approach to a lighter lockdown: • People still have to stay in what's called their ‘household bubble’, but they can expand that bubble now: to meet close family, caregivers, or support isolated people;
• People should work from home where possible but businesses are allowed to open if they can provide contactless service;
• Restaurants can now do ‘contactless’ takeaway;
• For recreational activities, you are allowed to drive short distances, and people have headed to parks and beaches this morning. You're allowed to do this with people from your household bubble;
• Schools can reopen but have to ensure social distancing; and
• Mass gatherings will remain cancelled, and public venues closed.
• Austria has announced further steps to relax its lockdown. As of 1 May, events with groups of up to 10 people will be allowed, although people will be asked to stay a metre apart. The recommendations to stay at home, except for a few key reasons, expire on 30 April and will not be renewed. However, working from home is still encouraged. Hotels will be allowed to reopen on 29 May.
Other
• Argentina has banned all internal and international commercial flights until 1 September. The authorities said airlines should not be allowed to sell tickets for flights that may not go ahead in the next four months.
• One in every seven UK mortgages is currently subject to a payment holiday, according to new figures from trade association UK Finance. As of Friday 24 April, lenders had granted more than 1.6m mortgage payment holidays.
• Oxford University's Jenner Institute believes it has produced an effective vaccine, and plans to carry out clinical tests on 6,000 people before the end of May.
• Australian Health Minister, Greg Hunt, told reporters on Tuesday that 2.4 million people had downloaded and registered for the government's coronavirus contact tracing app. The CovidSafe smartphone app uses a bluetooth wireless signal to exchange a ‘digital handshake’ with another user when they come within 1.5m (4.9ft). The app then logs this contact and encrypts it. Users will be notified if they have had more than 15 minutes of close contact with another user who tests positive.
• Botswana's President, Mokgweetsi Masisi, has announced a one-week extension of the nationwide lockdown that was due to end on 30 April.
• Portuguese President, Marcelo Rebelo de Sousa, has announced that Portugal's state of emergency will end on Sunday 2 May.
• Nigeria will begin a ‘gradual easing’ of coronavirus-related lockdowns for millions of people in its largest city Lagos and the capital, Abuja. However, the rest of the country has seen an extension of the lockdown until 4 May.
• 373,000 property sales are on hold in UK cities, researchers at Zoopla have estimated. The value of held sales totals a collective £82bn.
• McDonalds is to begin testing reopening branches in the UK. The test will only be for operational purposes and no customers will be served.
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