Non-essential retail has been earmarked for reopening on 15 June by the UK government.
A number of restrictions will apply, including no changing rooms, one-way layouts, and restrictions on touching and handling items. One of the main residual advantages of the high street over online is the experience it provides for some users. Many enjoy the tactile browsing that high street shopping usually provides and while it is likely some pent-up demand will see shoppers return at first, if the experience is lacking many may be reticent about returning in the short term.
Headlines
• EU proposes €750bn ‘recovery fund’.
• France announces €8bn rescue plan for its car industry.
• France’s GDP to fall 20% in Q2 (source: Insee).
• UK grocery sales rose 17.2% last month.
Company news
Buildings & Construction
• Walker Greenbank – “Announces that it is restarting manufacturing on a phased, demand-led basis following the Covid-19 related shutdown of its two UK factories. Staff began to return last week to Standfast & Barracks, the Company’s fabric printing factory in Lancaster, and this week staff will return to the Company's wallpaper printing factory, Anstey & Co, in Loughborough.
As previously announced, both factories were temporarily closed due to Covid-19 and factory staff furloughed. Staff are returning to the factories on a phased basis following both factories having been made Covid-19 secure in line with UK Government guidelines. The phased re-opening of both factories is to meet customer demand, together with preparations ahead of the autumn selling season. The Company has continued to serve customers worldwide throughout the lockdown period from its warehouses in the UK and US.”
Financial
• Majedie Investments – “This first quarter of the financial year was relatively strong for stock markets and in particular the UK, which was emerging from three years of Brexit chaos with a newly elected Government whose mandate was to fiscally pump prime the economy. The low valuation of the UK market was attracting the attention of international asset allocators. It seemed the patience of retaining an overweight UK stance would be rewarded. The chaos of Covid-19 and the resulting lockdowns across the world hit markets hard. The UK market was particularly hard hit for two reasons; its heavy exposure to banks which are now discouraged from paying dividends and secondly the collapse in the oil price as Saudi Arabia and Russia increased supply just as demand was falling heavily. Investors reacted to the chaos by buying the large technology stocks in the US, thereby ensuring the UK market underperformed its Global peers.
Markets have recovered some composure, but the shape of any recovery is difficult to judge. It does seem that in the new investment world good stock picking based on fundamental analysis will come to the fore. This plays to the core strengths of MAM, as shown by good relative performance in previous market dislocations and its distinctive long-term track record.”
• Provident Financial – “The Group has strong capital and liquidity positions, comprising: • Regulatory capital of c.£710m at 30 April 2020, equating to a core CET1 ratio of c.33.4% and headroom of approximately £190m above the minimum regulatory requirement. This is before taking into account the capital conservation buffer of approximately £50m, which is held and may be used in the event of a stress scenario such as the one currently being experienced in the UK.
• Total headroom on committed facilities and surplus cash and liquid resources amounts to approximately £1.2bn. This includes approximately £1bn of liquid resources held by Vanquis Bank, with its ongoing access to the retail deposits market, versus c.£200m in respect of their Individual Liquidity Requirement.
During the first quarter, the Group repaid an outstanding balance of £50m for a loan facility with M&G, half of which was an early repayment ahead of a contractual obligation in January 2021, and also repaid a £25m bond. There are no further contractual maturities of the Group’s facilities until the second half of 2021.
We have not accessed any of the Government funding schemes put in place by HM Treasury or the Bank of England such as the Coronavirus Large Business Interruption Loan Scheme (CLBILS) or TFSME. However, this option remains open to us in the future.
The macroeconomic provisions held by Vanquis Bank and Moneybarn have been updated, in accordance with IFRS 9, to incorporate conservative unemployment forecasts. It is our intention to publish further detail on the assumptions adopted as part of our interim results, which we expect to announce in August.
On 27 March 2020, we announced that the Board has decided, given the uncertainties, that the 2019 final dividend of 16.0p per share would no longer be proposed at the Annual General Meeting (AGM). The cash and capital impact is approximately £40m. This was clearly a difficult decision, and it was not one taken lightly. It is our intention to maintain a strong capital position whilst facing unprecedented levels of uncertainty in order to support business stability and growth, when the opportunity arises. Future dividend decisions will be taken as and when conditions normalise.
As part of the Group’s wider response to Covid-19, the Board and senior management have agreed to reduce their pay by 20% for three months from April onwards.
Vanquis Bank – Vanquis Bank adapted its operations well to the Covid-19 crisis. By mid-April, c.80% of Vanquis contact centre and 100% of head office colleagues were working remotely. Contact centre staff have been able to continue using dialler technology to support customers and SMS communications have been increased. Approximately 1% of Vanquis staff have been placed on Government furlough.
Underwriting standards have been tightened significantly in response to Covid-19. As a result, during the period, new customer bookings have been reduced by approximately 75% and the Credit Line Increase programme has been temporarily paused.
We are working on recalibrating our decisioning scorecards with a view to recommencing normal levels of lending as soon as possible.
As set out in the preliminary results announcement in February, customer spending began to trend down at the end of 2019 and this continued during the first two months of this year. This trend has been significantly exacerbated by the Covid-19 crisis with customer spending through April and May being around 60% of normal levels, in line with peers. As a result, receivables are now approximately 10% lower than at December 2019.
We are focused on supporting our customers through the Covid-19 crisis. Approximately 3% have so far been granted payment holidays and, based on current take-up rates, this may trend to a moderately higher level by the end of July when the three month holiday period ends. In addition, customers with the Repayment Option Plan (ROP) product have been utilising the ability to freeze their account. We have not applied any credit line decreases to our customer accounts for Covid-19 reasons.
Moneybarn – Moneybarn has remained open to new business throughout the Covid-19 crisis, enabling brokers and dealerships to continue offering loans to our customers. Lending criteria were tightened with extra checks put in place to ensure affordability, fraud mitigation and a reduction in acceptance rates for the highest risk tier that we lend to.
In early May, some contact centre staff were moved back to the office, under strict social distancing measures, which enabled inbound and outbound call volumes to increase. This has seen customer contact rates improve. Approximately 50% of the workforce have been retrained to help with customer queries and steps have been taken to make collections more straightforward over the telephone. Across Moneybarn, around 5% of staff have been placed on Government furlough and a similar number have been redeployed into other customer facing roles.
The level of payment holidays is around 22% of Moneybarn customers. The rate of increase has slowed in recent weeks and positive customer outcomes remain the primary focus.
New business volumes during January and February remained strong, and were consistent with 2019 growth trends, as were the first three weeks of March. For April, new business volumes fell significantly, before starting to recover in May. As a result, new business volumes have reduced by approximately 20% year to date at the end of April. Key workers have accounted for around 40% of new business volumes recently, reflecting the Group's wider purpose to support our customers with their everyday financial needs.
Since the start of Covid-19, impairment has increased due to increased arrears and a prudent approach to the treatment of payment holidays, which are starting to stabilise. The period end receivables for April was consistent with that at December 2019.
Consumer Credit Division (CCD)
Home credit – The business and its customers have also adapted well in response to the Covid-19 crisis. Significant changes to lending and collecting practices have been delivered quickly and successfully, whilst colleagues have been unable to visit customer homes.
At present, collections across home credit are over 80% of normal levels, which shows the resilience of the relationship model underpinning home credit.
Lending to existing customers was paused whilst the ability to disburse loans into customer bank accounts was introduced for Home Credit UK in early April and for the Republic of Ireland (ROI) in early May. For existing customers, lending decisioning and affordability checks have been adapted for Covid-19.
Provident Direct was rolled out nationally by the end of March, several months ahead of schedule. This enables Customer Experience Managers (CEMs) to support customers with the additional option of direct repayment via continuous payment authority. Provident Direct is currently available to existing customers only and represents approximately 35% of repeat lending volumes. Overall, lending to existing customers is currently c.30% of expected volumes.
Lending to new customers was paused following the Government lockdown. New customer lending in Home Credit UK restarted in mid-May with a cautious approach including tighter credit decisioning and an adapted model for Covid-19.
Collections levels have remained resilient throughout the period. Prior to Covid-19, approximately 25% of collections in the UK and 5% in the ROI were made via card payments or other remote methods. Since the Covid-19 restrictions were introduced, all home credit collections have migrated to remote methods. To support this, we have implemented the capability for CEMs to take customer payments over the telephone and extra payment cards have been distributed to customers who still wish to make cash payments.
The cost reduction programme continues to deliver initiatives to further reduce operating expenditure. In addition, further cost savings are being achieved from reduced activity during the Covid-19 restrictions, including c.12% of staff from across CCD currently being on Government furlough.
Receivables declined in the first quarter in line with seasonal trends, as collections outweigh new lending. However, the significantly reduced lending volumes as a result of the Covid-19 restrictions, combined with good customer repayment levels, has seen the receivables book decline by c.33% since December 2019 at the end of April.
Satsuma – Lending in Satsuma has been temporarily paused during the Covid-19 crisis whilst the effectiveness of the digital channel, under the current circumstances, is reviewed. All applications are now being referred to Provident. Collections in Satsuma remain robust and are broadly in line with pre-Covid expectations, even after accounting for the impact of some customers choosing to take a payment holiday. Restarting lending in Satsuma remains under constant review.”
• St James Place – “Following record first quarter new business, we have naturally seen a reduction in new investments as the Covid-19 crisis developed. In light of the need to observe social distancing, the Partnership has quickly adapted to managing client relationships ‘virtually’ and April gross inflows were robust, albeit 13% lower than the same month last year. Retention of client investments was particularly strong during the month and as a result, April net inflows were 1% higher than a year ago. Funds under management benefitted from both positive net inflows and a positive investment return, to end the month at £108.8 billion.
We are encouraged by the robust gross and net inflows we have continued to experience during May, though the short to medium-term impact of government measures and economic volatility on our flows remains uncertain.”
Food, Drinks & Household
• Britvic – “In light of the scale and impact of the global pandemic on the economy and consumer behaviour, there is a high degree of uncertainty in predicting the potential outlook on Britvic’s revenue, profit and cash. Our priority has been to take actions and prepare our business, so we are able to respond with pace to all plausible outcomes.
Government restrictions on trading activity in the Out-of-Home channel and on the movement of people in our markets have had a significant impact on our business since early March. The largest impacts have been seen in GB and Ireland, where exposure to the Out-of-Home channel is greater than in France or Brazil. Actions have been taken to partly mitigate the adverse impact we are seeing on profit and cash flows as a result of these restrictions. These actions have included reduced discretionary spend, within which the most significant lever is A&P; stopping all non-essential and non-committed capex in the remainder of this financial year; and tightly managing our working capital.
In our Covid-19 update on March 23 we shared a sensitivity analysis, attempting to quantify the mitigated monthly profit impact on our business of a full lockdown in all our markets, which we estimated to be in the range of £12m-£18m. The situation continues to be fluid, but nothing in our subsequent analysis would cause us to modify this estimate.
We have analysed a range of possible scenarios, which model different levels of impact on revenue, profit and cash, and the offsetting effect of the mitigating actions over the course of the next 18 months. These include a range of estimated impacts primarily based on length of time various levels of restrictions are in place and the severity of the consequent impact of those restrictions on our At-Home and Out-of-Home channels.
For each of our markets we have sensitised the revenue, profit and cash flow impact of reduced trading activity in our Out-of-Home channel and changes in product mix for the At-Home channel. In line with the impacts noted above, the scenarios are most sensitive to the assumptions made for GB and Ireland. France and Brazil are predominantly At-Home markets and therefore drive less sensitivity. We have not assumed any uplift in the At-Home channel in any market, under any level of restrictions, for the purpose of the scenario modelling.
The scenarios include an assumption that a level of restrictions on movement and social distancing will remain in place until March 2021, our next half year reporting date. The assumptions modelled in this conservative view assume only a small proportion of Out-of-Home outlets re-open during this time. Our Covid-19 impact range of £12m-£18m per month was based on assumptions for lockdown impacting the busiest trading period in 2020. As the level of these trading restrictions reduces, so should the monthly adjusted EBIT impact, and as we exit both lockdown and our busiest trading periods, the forecast Covid-19 impact should also reduce.
Under each scenario, mitigating actions are all within management control, can be initiated as they relate to discretionary spend, and do not impact our ability to meet demand. These actions include reduced A&P and stopping all non-essential and non-committed capex in the next 12-18 months. We believe that the risk of enforced factory closure is low and have implemented additional health and safety measures in each of our factories to reduce the risk of a major supply disruption. We have assumed no significant structural changes to the business will be needed in any of the scenarios modelled.
In all the scenarios we have modelled, there remains significant liquidity headroom under on our existing debt facilities at each month end. At the half year, the net debt position was £664.5m and our covenant net debt to EBITDA ratio was 2.5x with a covenant net interest EBITDA ratio of 15.0x. Undrawn facilities were £162m with £47.6m of cash holdings as at 31 March 2020. Since the half year date, we have received approximately £150m from the recent refinancing of private placement notes, increasing undrawn facilities to approximately £300m. This returns our total access to private placement notes to approximately £625m, with maturities out to 2035. Earlier this year we also re-financed our £400m RCF up to 2025, with the potential to extend maturity to 2027 with lender consent. The RCF also offers an accordion facility of £200m, again with lender consent. Covenants are set at 3.5x Net Debt to EBITDA and 3.0x EBITDA to Net Interest Expense in all of our lending agreements.
As part of our EBITDA and cash flow modelling, we tested the possibility of the debt covenants being breached in September 2020, March 2021, and September 2021. March 2021 is the most sensitive test point as the EBITDA modelling assumes a full 12 months of reduced trading due to the impact of restrictions and a working capital peak ahead of summer trading. Under all the scenarios modelled, after taking mitigating actions as required, our forecasts did not indicate breach on any of those dates.”
Healthcare
• Vectura – “Demand signals from Vectura’s product supply partners have been maintained at expected levels and the Group has worked closely with key suppliers to monitor any potential supply chain interruptions. At this time, no material disruption to supply chain activities has been noted and the Group has worked to ensure appropriate stock levels are maintained and mitigation plans are in place where appropriate.
Despite the travel restrictions imposed as a result of the Covid-19 outbreak, business development discussions continue, with growing momentum in the deal pipeline.
Vectura has a strong balance sheet, an undrawn £50 million Revolving Credit Facility, minimal corporate debt and continues to be a resilient business in the face of the risks posed by the Covid-19 outbreak.”
Industrials
• Iofina – “While we expect the Company to see some impact from the Covid-19 pandemic, we are confident that we are in a strong position based on our unique product offering and diversity of products within the Group. Iofina has been able to produce 24/7 at our legacy plants throughout the current crisis, being deemed an essential industry across all product lines. We are also confident that iodine prices will remain robust going forward due to the versatility of the compound and its numerous applications. All that being said, the changes that are brought forward by Covid-19 will be widespread and unprecedented and we, like most other industries, will need to adjust accordingly.”
• Vitec – “Coid-19 impacted Vitec early in the pandemic, with half of the Group’s revenue coming from products sourced from China and made in Italy. We responded quickly, implementing significant and far-reaching mitigating actions to cut costs and manage cash. The year-on-year benefit of these cost actions is expected to be between £20.0-£25.0 million. We are using Government support where possible to preserve the long-term capabilities of the business.
All of our manufacturing sites are now operational, albeit we are seeking to flex production with demand and carefully manage inventory levels. The Group has worked with its manufacturing teams and followed government guidelines to put stringent health & safety and social distancing measures in place. The majority of our offices remain closed due to government directives, with employees working from home where possible, with minimal operational disruption.
Current end market demand – Customer demand remains significantly impacted. The high-end film and scripted TV production industry is shut down, sporting events postponed, professional photographers impacted and many retail outlets remain closed, and this has curtailed short-term demand.
However, the Chinese market is slowly recovering and some market segments (e.g. news, reality and documentary TV production) continue to remain active. We are focusing our short-term efforts in these areas, especially where Broadcasters and Enterprise customers are using our products to help them work remotely and keep their social distance, for example with robotic cameras and remote streaming, monitoring and lighting equipment. We are also seeing increased demand for our JOBY vlogging and smartphonography products through online channels.
Current trading – Vitec felt the first effects of Covid-19 on its supply chain at the end of February, with customer demand significantly impacted in March and April. Revenue for the first quarter of 2020 was down c.20% vs the prior year. Revenue for April 2020 was down c.60% vs the previous year, in line with our revised expectations, but trading conditions in May are starting to improve. Interest costs for the full year will rise by c.£1.0 million.
There remains considerable uncertainty in our markets but we currently expect trading conditions to continue to improve in H2 2020, albeit at a slower rate than we had previously hoped. It remains difficult to provide financial guidance for the full year.
Financing and liquidity – Vitec has a robust financial position with liquidity, long-term financing and short-term flexibility. As at 30 April 2020, the Group’s net debt was £113.4 million (31 December 2019 £96.0 million). We continue to take significant actions to optimise cash and, based on current expectations, and subject to FX fluctuations, we expect net debt at the end of FY 2020 to be broadly similar to the end of FY 2019.
On 4 May 2020, the Group announced revised covenants for 2020 under its £165.0 million five-year Revolving Credit Facility (‘RCF’) and that we had further reinforced our liquidity position by accessing the Bank of England's Covid Corporate Financing Facility (‘CCFF’) scheme. As anticipated, the Group has drawn down £30.0 million of the CCFF to repay part of the RCF.
Longer-term prospects – We firmly believe that Vitec's end markets will recover well once the crisis is over as the demand for original content continues to grow.
Our strategy for long-term growth remains just as relevant as it was before the crisis:
• In Creative Solutions, we remain focused on the significant growth potential from the launch of our 4K eco-system of wireless video products in the cine market;
• In Imaging Solutions, we expect to benefit from the continued growth in JOBY vlogging and smartphonography accessories. Although there will be further disruption to the traditional photographic retail channel, the transition to the higher margin ecommerce channel will accelerate and we had already restructured our business to benefit from this continued change; and
• In Production Solutions, we will benefit from the growth in on-location lights and mobile power, robotic cameras and voice-activated prompting, the rescheduling of major sporting events to 2021, as well as targeting further operational efficiencies.
As a result of the Covid-19 pandemic, we expect to see a fundamental structural change in production with film and TV companies demanding more distributed production with remote viewing and remote-controlled products. We believe that this could significantly benefit Vitec and we are actively looking at how we can take advantage of these new opportunities.”
Media
• Auto Trader– “The government’s guidance on 25 May confirmed that vehicle retailers in England can reopen from 1 June. Today, we will advise those customers of the support we will provide as they resume trading. This will include a 25% discount for the month of June. We will confirm any changes to our existing arrangements with our customers in Wales, Scotland and Northern Ireland at such time as their government announcements are made.”
Real Estate
• British Land – “Our immediate priority has been to work alongside and support the communities in which we operate, our suppliers and those customers most affected to protect the long term value of our business. To help do this, we have released smaller retail, food & beverage and leisure customers from their rental obligations for the three months to June; the financial impact of this in terms of lost rent is £2m. Recognising that many other customers, particularly those operating in the retail, food & beverage and leisure sectors are experiencing challenges as a result of Covid-19, we offered to defer their March rents, and will spread repayment over six quarters from September 2020. Around £35m of rent deferrals have been agreed.
Overall, we have collected 68% of the rent originally due for the March quarter (97% for Offices and 43% for Retail), which equates to 91% adjusting for rent deferred, forgiven or moved to monthly payments. The balance owing is primarily from strong retailers.
The value of the retail portfolio declined 26.1% as ongoing structural challenges were exacerbated at the year end valuation date by the early effects of Covid-19. Offices saw an uplift of 2.3% so overall the portfolio was down 10.1%.
In Offices, occupiers are working on plans to get back to the workplace and most feel that it is too early to make fundamental long term changes around their requirements. However, we are mindful that the trend towards greater flexibility may accelerate following this prolonged period of working from home. At the same time, there will be a greater focus on high quality, modern and safe environments, which provide more space per person and we expect the trend towards higher density offices and hot desking to reverse. We continue to make progress on leasing discussions, particularly larger space requirements, which are generally on a longer time frame. Supply at this end of the market remains constrained. Where occupiers are looking for smaller spaces, on a shorter timeframe progress has been delayed due to remote working, and uncertainty around fit out and timing of occupation. We are conducting virtual viewings and have now commenced physical viewings and are encouraged by the level of activity we are seeing.
We suspended work on our developments in March for health and safety reasons, although this has now recommenced at all major sites, including our two largest development sites at 100 Liverpool Street and 1 Triton Square. This work has started with a clear focus on social distancing and safety, meaning that the numbers of people on site is reduced and our productivity is lower. 100 Liverpool Street is now expected to complete in calendar Q3 2020 and subject to social distancing requirements, we are targeting calendar Q2 2021 at 1 Triton Square. We completed 135 Bishopsgate in the year, and the space is now being fitted out, albeit progress will inevitably be slower. When appropriate, we are ready to start work on the next phase of our development programme at 1 Broadgate and Norton Folgate.
We benefit from the work we have done over several years to strengthen our balance sheet. Our leverage increased modestly to 34% and we have access to £1.3bn of undrawn bank facilities and cash. We successfully completed our first ESG linked RCF of £450m and extended £925m of facilities, providing additional flexibility and meaning that we have no requirement to refinance until 2024. We have significant headroom to our debt covenants, meaning we could withstand a fall in asset values across the portfolio of 45% prior to taking any mitigating actions. There are no income or interest cover covenants on the Group's unsecured debt.
Longer term, it is our view that many of the macro trends that have informed our strategy will accelerate. This includes the growth of online shopping, reinforcing our focus on delivering a smaller, more focused retail business. We continue to believe there remains a role for the right kind of retail within our portfolio especially assets that can play a key role for retailers in terms of fulfilment of online sales, returns and click and collect. This will particularly be the case for well located, open air retail parks, which lend themselves to more mission-based shopping and people may feel more comfortable visiting, as well as those London assets located conveniently in-and-around key transport hubs. We also expect demand to polarise towards workspace which is high quality, modern and sustainable and supports more flexible working patterns, and this plays well to the space we provide including through Storey. However, it remains early days and we do not yet have clarity around what long term trends will emerge so we will remain alert as things develop and flexible in our approach, including evolving or adapting our strategy as appropriate. Near term, it is clear that the management and maintenance of places and buildings is likely to become more important to businesses, their customers and their people, as they place an even greater focus on the safety and quality of their environments. As a result, our property management expertise is likely to become even more of a positive differentiator for our business.
Review of the year ended March 2020 – Occupancy remains high at 97% across our London campuses and 96% in Retail. We signed 946,000 sq ft of lettings and renewals in London and 1,361,000 sq ft in Retail over the year. Our progress on development leasing means that £54m of future rental income is secured and speculative exposure is low at just 0.6% of portfolio value.
Reflecting the broader appeal of our campuses, we saw strong demand for repurposed as well as new space with challenger bank Monzo signing at Broadgate and Visa recommitting at Paddington Central. Storey is operational across 297,000 sq ft and occupancy on the stabilised portfolio is 92%. The Offices portfolio saw an uplift in value of 2.3%, led by a strong performance at Broadgate, up 4.7%.
In Retail, we have been pragmatic in our approach to leasing, accepting lower rents and shorter leases where it makes sense to maintain occupancy. Overall, deals of more than one year were 4% below previous passing rent. CVAs and administrations impacted 118 units in the year of which 29% were unaffected; rent reductions resulted in a loss of £5.5m in contracted rent, with store closures accounting for a further £5.8m, together totalling £11.3m on an annualised basis. Several of our customers entered administration post year end, accounting for a further £5.1m of lost contracted rent. Overall, reflecting ongoing challenges in the market and with uncertainty heightened as a result of Covid-19, valuations were down 26.1% in Retail.
At Canada Water, our valuation increased 9.8% reflecting progress on planning and we were delighted to receive a resolution to grant planning on our 53 acre scheme with detailed permission on the first three buildings. This is a major milestone for our process and is the culmination of five years masterplanning and engagement with the local community.
Capital Allocation – In November 2018 we announced a plan to reduce retail to 30-35% of our portfolio over the medium term. Because of valuation declines in Retail, we have now reached this level. However, that does not mean we have achieved our aspirations and over time we expect to make further selective retail sales. Our revised plan is for retail to comprise 25-30% of the portfolio. We have made £296m of retail disposals (our share) in the year, bringing total retail sales since we set out our plan in November 2018 to £610m. Making sales is more challenging in the current market, with a lack of liquidity and depressed values, and so our immediate focus will be on driving value through intensive asset management, keeping our centres as full as possible and exploiting demand for assets which support instore fulfilment and click and collect.
In March, the Board took the difficult decision to temporarily suspend the dividend. This was the appropriate course of action given the circumstances and uncertainty of outlook despite our financial resilience and performance during FY20. Going forward, the Board understands the importance of the dividend to shareholders and is mindful of our obligations as a REIT. We will seek to resume dividends at an appropriate level as soon as there is sufficient clarity of outlook. For this we will need to see a significant improvement in rent collection and have more visibility on the post lockdown productivity of our assets, principally how quickly retail customers and office workers return.
Looking ahead, our business benefits from several key attributes that position us to succeed: we have established a unique network of campuses located in some of the most exciting parts of London; our development pipeline is focused on further enhancing these places, and is unmatched in scale and optionality; we have a robust financial position and a broad range of skills and expertise across our business which has been very much in evidence in recent months.”
• Hibernia REIT – “The full impact of the Covid-19 pandemic on market rents and property values is yet to be felt but we are well-positioned to withstand it thanks to our experienced team, high-quality portfolio and robust balance sheet. We believe the current health crisis is underlining the importance of city centre offices as places for employees to work together and exchange information and ideas. We remain confident in the long term prospects of the central Dublin office market and the Dublin residential market and will continue to manage the business and our pipeline of developments accordingly.”
Retail
• Caffyns – “The final trading days of the Company's financial year to 31 March 2020 were impacted materially when the Company was required to temporarily close all its car showrooms and most of its aftersales operations on 24 March 2020, following UK Government restrictions implemented to deal with the nationwide Covid-19 pandemic. With our showrooms closed, only on-line and telephone sales operations were able to continue, alongside three aftersales operations which provided essential support for key workers. As would be expected, this had a significant adverse impact on the financial performance for March 2020, a key month for the Company due to the bi-annual registration plate change on the first of that month. However, as previously reported, trading in the period until the beginning of March 2020 was broadly in line with the Board's expectations and, subject to the finalisation of certain audit review procedures which can only be completed once trading has recommenced, the Board still expects to report an underlying profit for the year to 31 March 2020.
The Company has now re-started its aftersales operations at all its sites and in line with Government permission, will re-open showrooms from 1 June 2020. It is anticipated that such a re-opening will allow the Company and its auditors to complete all necessary audit procedures to enable the Company to announce its full year results on 17 July 2020. On that basis, the Annual General Meeting will be scheduled for 24 September 2020.
In response to the impact of Covid-19, the Company has implemented numerous cost saving measures across many areas of the business, including making extensive use of the Government's Job Retention Scheme, with approximately 80% of employees furloughed in April. The number of furloughed employees has reduced in May and is expected to reduce further in June once the showrooms are able to re-open. As part of the cost savings exercise, an annual salary ceiling of £37,500 was implemented for all active employees, including the executive directors and the chairman of the Company, for the month of April. The non-executive directors of the Company also agreed a significant reduction to their fees. These salary reductions for employees are being unwound in stages, with most non-furloughed employees returning to 80% of their contractual salary from 1 May with the exception of the full-time executive directors who moved to 50% of their contractual salary from 1 May.
The response from our employees to this crisis has been outstanding and the Board would like to particularly thank those that have remained active throughout the lockdown period to ensure that we have been able to restart the business quickly and effectively. We are very focused on the health and safety of our employees and customers and the re-opening of showrooms will be undertaken in a responsible and socially distanced way.
The Company has a very strong balance sheet which includes significant tangible fixed assets (including freehold land and buildings) with an unaudited book value of £47 million at 31 March 2020. However, given the level of Government support of which the Company has taken advantage and in order to conserve cash resources, the Board has decided that it will not recommend a final dividend in relation to the year ended 31 March 2020.
The Company continues to enjoy supportive relationships with its banking partners, HSBC and Volkswagen Bank and, prior to the year-end, additional working capital facilities were approved by HSBC, providing additional headroom against our forecast cash flow requirements. Unaudited net bank borrowings at 31 March 2020 were £16 million, with available but undrawn facilities in excess of a further £10 million.
Full use has also been made of inventory stocking facilities and the Company's manufacturer partners continue to be very supportive, offering extended new vehicle funding and reduced funding costs.
As a consequence, the Board is confident that the Company has sufficient liquidity to effectively manage its exit from the lockdown restrictions and to capitalise on the trading opportunities which are expected to arise as markets return to more normal levels of activity.”
Support Services
• Christie Group – “Christie Group plc is pleased to advise that it has accepted the offer of a CLBILS loan in the sum of £6 million.
The loan terms require that it is drawn down in full. The loan will be additional to existing bank facilities and cash resources.
The new loan is a precautionary and prudent measure ready to assist with working capital and operational changes in response to the disruption caused by the Covid-19 pandemic as the Group’s businesses re-establish more normalised trading.”
• FireAngle Safety Tech – “As announced on 30 April 2020, while Covid-19 has impacted the Company outlook in the short term, revenue for April, at almost 55% of the Company’s pre-Covid-19 budget, was, encouragingly, some way ahead of the board's revised expectations. Revenue for May is expected to be at a similar level of budget achievement.
The Board continues to believe that the medium and long-term prospects for the Company's unique technology are strong. We are encouraged by online sales resilience and the increasing shift to online fulfilment in the Retail business. In recent days, new enquiries have come through the Trade business, adding to our growing funnel of opportunities. In addition, pre-existing commercial opportunities for our connected technology continue to move forward. The recent re-opening of retail and trade channels, and clear attempts to restart the construction sector, reinforce the expectation of a reasonably quick rebound in demand for FireAngel’s unique cost-effective connected solutions. It is pleasing that demand, whilst reduced, has continued to recover in our international markets and the emphasis in many UK-customer conversations has moved to preparing to return to normal behaviour after lockdown restrictions have been lifted further.
The Board continues to take mitigating actions to conserve cash and protect profit, whilst maintaining capability in these times of exceptional uncertainty. In addition to the initial range of measures previously announced by the Company, which included placing a number of employees on furlough and further headcount savings through a reassessment of R&D project deliverables, the Board has extended the furlough period for some employees, placed additional employees on furlough, whilst at the same time taken required employees off furlough to meet increasing demand. Consistent with this, the Executive Directors have agreed to extend their reductions of 10% of salary for a further two months and senior managers have volunteered to similar reductions for two months. All measures remain subject to review as the macro and trading picture become clearer.
To conserve cash, the Company has taken advantage of the Government’s tax payment deferral arrangements and has applied for a Coronavirus Large Business Interruption Loan as a further measure of prudence. A further announcement will be made as appropriate. Together with our recent equity fundraising, this will strengthen the Company’s ability to navigate through these unprecedented times.”
• HSS Hire – “It is clear that Covid-19 will materially change the outlook for all businesses in 2020 and we are reacting accordingly.
Our primary focus is the safety and security of our colleagues, customers, suppliers and other stakeholders, whilst continuing to provide essential equipment to critical customers. To this end we have enacted our continuity plans to minimise business disruption, ranging from increasing home working for all head office colleagues to stricter hygiene procedures across all of our locations.
In response to UK Government instructions on 23 March, we took the difficult but necessary decision to temporarily close the majority of our UK branches and move to a delivery only operation through our national Customer Distribution Centres and OneCall rehire business. Similar actions were enacted on 30 March in our Southern Irish business in response to Government advice. For the first twelve weeks of FY20 we did not observe any material impact on the Group’s performance, however for the 9 weeks since the Government lockdown instruction on 23 March we have seen revenue circa 40% below our original FY20 forecasts.
Immediate actions have been taken to mitigate the unprecedented risks we now face to protect liquidity including deferring capital expenditure and taking advantage of tax relief and Government job retention schemes.
With such uncertainty, we have considered a number of scenarios as to the potential impact that Covid-19 could have on the Group’s results as set out in the Corporate Governance section. In certain forecast scenarios there is an indication that financial covenants could be breached and additional liquidity could be required, indicating the existence of a material uncertainty in the adoption of going concern should our lenders not support addressing these areas if they arise. These have been discussed with our lenders, all of whom I am pleased to say have expressed their continued commitment to the business and support for the Board’s response to the Covid-19 pandemic.”
• Mears Group# – “The UK today is unimaginably different from the conditions which prevailed throughout 2019. As at the date of this announcement, the degree and speed with which normal activity can return remains very unclear.
For Mears, the ‘lockdown’ introduced by the Government some weeks ago has required us to react in a number of ways. We have had detailed discussions with all of our customers about the basis on which we can continue to work and deliver a service to them. Most of our customers have treated Mears as a valued partner, evidence of the close working relationships which we have developed with them. While some of our activities have continued at pre-Covid levels, in others, especially our regular maintenance work, we have agreed with customers to defer much work and undertake only an emergency service. In due course, we would expect to build on those relationships and to agree a path back towards normal levels of service.
In arriving at new ways of working, our primary focus has been the safety and well-being of our staff and of the individual clients to whom we provide housing and care services. We have sought to offer as much support as we can to our workforce. We have regrettably found it necessary to place some staff into the Government's furlough arrangements for a period of time whilst directing top-up payments to support those lowest paid and setting up a staff hardship fund. We understand that the Group’s success depends upon the commitment and engagement of our staff. I am pleased to put on record our recognition of that dedication and commitment and our thanks to them all, especially those who have given of their time and effort to support clients and their families through difficult times.
We have also enjoyed the support of other stakeholders. Our banking partners have all agreed to provide additional facilities to the Group should they be needed and we thank them for their flexibility. These arrangements will also be reviewed in due course. We will continue to keep a careful watch on our cash position as the emergency continues and as we proceed to a gradual recovery toward normality. That cash position has been improved by the Board’s decision not to declare a final dividend in respect of the 2019 year. It remains the Board’s intention to adopt a progressive dividend policy once it is confident that activity levels and the Group’s financial position make it prudent so to do.
Once this crisis has passed, there will need to be a major programme of economic restructuring and recovery. Mears is determined that, working closely with our customers, we will be able to play a full and effective part in supporting the communities which we serve across the country.”
• Sureserve Group – “Despite the very difficult economic circumstances facing the United Kingdom, the six months ended 31st March 2020 showed continued growth and an impressive improvement in profits from our businesses.
The results include the latter part of March where the country and our Scottish, Welsh and Smart Metering businesses were in lockdown as a result of the Covid-19 crisis.
All of our gas, water and electrical service businesses, classified as ‘key worker’ status, carrying out predominantly emergency testing services, continue to operate to agreed protocols with key clients. We maintain open communications with our clients to ensure we are able to minimize the risks to our employees and position us to participate fully when we return to more normal work streams.
Our Scottish and Welsh operations in Energy Services, where we manage the Emerging Fuel Poverty programme for both governments and smart metering installation working for Big 6 energy companies, saw an immediate shut down in March.
Like most other businesses, it was with deep regret that we furloughed those employees who were not required to provide front line services. I would also like to thank those frontline employees for their commitment to deliver the emergency services in difficult conditions which our clients expect of us. I believe the team effort from the most junior to senior members of staff will hold the Group in good stead as we emerge from lockdown.
The Board felt it right and proper that it reduce its compensation for the period during which we have been receiving government support for the business by 20%.
I would also like to thank Peter Smith, our new Chief Financial Officer, and his team for their excellent work managing our working capital and thereby reducing our debt from £12.9m at the end of March 2019 to £3.5m at March 2020. Furthermore, at the time of writing, the Group is debt free with a modest net cash balance.
The Group has implemented a clear procedure for ensuring that all of our premises have undertaken a comprehensive risk assessment enabling all divisions of the group to recommence trading when the government determines it as safe to do so.
Our risk assessments have been created in consultation with our teams and clearly established control measures which we have put in place. Due to the nature of our organization and its various geographical locations, each business has undertaken this risk assessment in the desired format and all assessments have been reviewed and approved by the senior management teams and our SHEQ managers.
Looking to the future – We are a business which is heavily dependent on government and local authority expenditure. It is still too early to evaluate the long-term impact of the massive government deficits that are being incurred and what effect this will have on us over the medium term.
Our businesses are, however, market leaders providing critical services to the public sector offering, we believe, competitive pricing and meeting the high standards of performance expected by our clients.
We also take comfort that we have a strong order book of £323.7m. The Group’s financial position is now better than it has been for many years and we believe that, with a highly competitive cost basis, we can gain market share as we emerge out of what has been a most difficult time for the UK economy.
Traditionally the profitability of the Group is heavily weighted towards the second half of the trading year. Sadly, our Welsh and Scottish operations remain closed and there is, as yet, no indication from the Scottish and Welsh governments when they will resume.
England, on the other hand, is coming out of furlough so whilst our results will fall short of our original expectations for the year, we believe that the second half will show further progress.”
Lifting restrictions
• Luxembourg has begun reopening outdoor areas in bars and restaurants.
Other
• The European Commission has proposed a €750bn recovery fund to help the EU tackle the crisis. The package will be made up of grants and loans for every EU member state.
• Japan is putting together another stimulus package worth about $1.1 trillion.
• France has announced an €8bn rescue plan for its car industry, which has been particularly affected by the crisis.
• The French government has said doctors are no longer allowed to use hydroxychloroquine to treat coronavirus patients after two advisory bodies said it could pose serious health risks.
• Germany has extended social distancing rules until 29 June. Up to 10 people will be allowed to meet together in public but Germans should still try to see as few people as possible, according to rules agreed by the 16 federal states and the government in Berlin.
• France’s economy is set to shrink by roughly 20% in the second quarter. It contracted by nearly 6% in the first quarter, according to Insee the statistics office.
• Villa Azul a shanty town on the outskirts of Buenos Aires, has been shut off for 15 days. No-one can enter or leave without special permission. Around 3,000 people live in the neighbourhood, according to AFP.
•
8.4 million workers are now covered by the government’s furlough scheme, up from eight million a week earlier, and costs rose to £15bn from £11.1bn according to the Treasury. In addition, the scheme for self-employed workers saw 2.3 million claims made worth £6.8bn.
• Nielsen data shows that 7.9m UK households placed an online grocery order in the last four weeks ending 16 May, up from 4.8m during the same period last year, with 1.1m of these being new online shoppers.
• UK grocery sales rose by 17.2% in the four weeks to 17 May and grocery sales were up by 14.3% over the 12 weeks to 17 May, according to Kantar
#corporate client of Peel Hunt
