Powerscourt

By Powerscourt on 19/03/2020

Powerscourt Coronavirus Briefing – 19 March 2020

ANALYSIS

While governments focus on suppressing transmission and on economic remediation, business leaders are anticipating the Great Question they will face in the years to come – what did you do during the pandemic?

In the UK, Morrison’s has vowed to ‘put the assets of the company at the disposal of the country’ while calling for competition rules to be relaxed so supermarkets can work together.

Google and Facebook are exploring ways to use location data from mobile phones to track the spread of the virus.

Many organisations have now made their first big announcements in an effort to reassure staff, customers, suppliers, and the markets… but where do they go from here?

Crafting a statesmanlike announcement is one thing; devising a communications strategy for the next few days, let alone the next few weeks and months, is more challenging.

With thousands of factory workers being sent home, schools closing, supermarkets imposing rationing, and further restrictions on public life all but inevitable, the science community is divided over when normality can resume.

According to the editor of The Lancet, Britain could start lifting social restrictions within two to three months. Research seen by its editor Richard Horton suggests we will not have to wait for a vaccine before some degree of normality can resume.

Authorities in Wuhan, where the outbreak began, say that a return to normal life may be able to start soon.

 

WHAT ARE COMPANIES SAYING?

 

Consumer and Retail

Ocado

The online supermarket announced last night that it has closed its online store as it struggles to deal with a huge increase in demand brought about by the pandemic. The company said that no new orders would be allowed “for the next few days” and no customers could edit existing orders. In the message posted to the firm’s website, CEO Melanie Smith stated: “Our first priority has to be to keep our service up and running and to play our part in feeding the nation.” This morning, the company released its Q1 trading update, reporting growth in Retail Revenue of 10.3%, in line with guidance, with average order size up slightly. 

Morrisons

The UK’s fourth largest supermarket has called on the government to relax competition law and other legislation temporarily to allow supermarkets to work together to ensure food supply for the country. In light of the coronavirus crisis, CEO David Potts has said that “legislation around competition works well in peacetime but not so well in wartime”. The supermarket has seen retail sales jump five per cent since its financial year end due to “considerable” stockpiling amid the coronavirus crisis.

Pret a Manger

The UK-based sandwich shop has announced that it is giving away free hot drinks to NHS workers, to thank them for their work during the coronavirus outbreak. They will also receive 50 per cent off all food in stores.

Sainsbury’s

In a statement on the company’s Twitter account, CEO Mike Coupe explained that (as of yesterday) customers would be able to buy “a maximum of three of any grocery product and a maximum of two on the most popular products including toilet paper, soap and UHT milk”. This is part of a bid to combat panic buying, with the company also introducing a shopping hour specifically for elderly and vulnerable customers, as well as giving them priority access to online delivery slots.

Tesco

From today, Tesco shoppers will only be allowed to buy three of the same item, as the supermarket struggles to keep up with demand amid panic buying. As part of the same message (released yesterday), CEO Dave Lewis also announced that all counter services will close, to free up staff to restock shelves, and a priority hour will be launched at larger stores between 9am and 10am every Monday, Wednesday and Friday.

Inditex

The owner of Zara announced yesterday that it has closed 3,785 of its stores across 39 markets globally amid the widespread outbreak of coronavirus. The Spanish company warned in a statement that the pandemic has had a “very significant impact” on its operations.

Hugo Boss

The German luxury fashion house announced last night that it has temporarily closed a large number of its retail stores in Europe and North America. In the statement it is noted that the outlook given for the fiscal year 2020 is no longer valid. The company has introduced measures to protect the Group’s free cash flow, including suspending store renovations and new openings until further notice as well as significantly limiting inventory inflow.

Burberry

The British luxury fashion house reported this morning that comparable retail sales have fallen between 40 per cent and 50 per cent over the past six weeks, with over 85 per cent of its shops in the Americas are currently closed. The statement included a quote from CEO Marco Gobbetti, who explained that “the material negative effect of COVID-19 on luxury demand has intensified and is now impacting the industry in all regions”.

Joules

The British clothing brand released a statement this morning, reporting a decline in footfall revenue and an impact on their e-commerce channel. As a result, it announces that it is removing cost and non-critical capex from the business, alongside cancelling the proposed interim dividend. While it is noted that the Board welcomes the measures introduced by the Government thus far, the company “strongly echo[s] the position of the British Retail Consortium and other senior retail leaders that more urgent action is needed to provide support to those working in retail during these challenging and uncertain times”. In the statement, CEO Nick Jones states “the challenges that all retailers are currently facing are unprecedented in modern times”.

Next

The fashion retailer released its annual results this morning, which showed that in the year to January 2020 total group sales and profit have risen slightly. The company warned however that warned that it may suspend its share buyback and defer its August dividend amid the fall-out from Coronavirus. CEO Lord Wolfson stated that “the risk to demand is by far the greatest challenge we face and we need to prepare for a significant downturn in sales for the duration of the pandemic”.

Heavitree Brewery

The company announced yesterday that it has experienced a decline in sales following the social distancing measures introduced this week, and “anticipates a material deterioration in the estate’s performance over the coming months”. It was included that the company is removing non-critical costs from the business in order to minimise the impact of Covid-19 and preserve cash, alongside working closely with its tenants and offering direct help with the immediate deferral of rent payments.

Shepherd Neame

The brewery issued a statement this morning, asking for clarity on the Chancellor’s comments on Business rates and small business grants and stating that “the provisions so far announced do not go far enough to support UK hospitality businesses”. The company also announced that it is introducing a number of precautionary measures, including cessation of all non-contractual capital expenditure for the foreseeable future and the suspension of rent receipts from Monday 16th March. The Board of Directors has voluntarily agreed to take a temporary 20% pay reduction, and the company has cancelled the interim dividend.

National Express

The coach operator shared this morning that it has seen “a significant decline in passenger numbers in recent weeks”, alongside announcing a range of measures that it has introduced to withstand this downturn. These include reducing its cost base and protecting cash flow, and working with contracting authorities and local governments to maintain some payments during the disruption, alongside a range of market-specific actions.

Gym Group

The company released a statement this morning reporting an impact on business from the outbreak of Covid-19, with daily gym usage decreasing, lower numbers of new joiners, and cancellation rates on the rise. It shares that it has taken a number of actions to reduce cash outgoings, “including pausing our pipeline rollout, as we operate through what we anticipate to be a period of significant disruption”.

PPHE Hotel Group

The international hospitality group released a statement this morning, noting that the social distancing measures introduced by several governments “have led to an immediate and significant deterioration in the hospitality market, with a high number of cancellations and no shows and very few new bookings”. The group announces the introduction of several operational measures to reduce costs, including reduced capacity of hotels in Germany and Hungary; the temporary closure of two hotels in Amsterdam and reduced capacity in the rest of the region; the potential temporary closure of approximately 2,000 rooms in London; steps to reduce payroll including reduced hours, potential reductions in FTEs and the deferral of all 2019 staff incentive payments.

Playtech

The UK gambling technology company led in its statement this morning by saying that it was protecting cashflow and proactively managing capital expenditure to offset the impact of the virus. It noted significant impact to its sporting business due to cancelled sporting events, however said its casino business had seen minimal impact. In order to maximise liquidity, the company has postponed the previously announced share buy-back scheme.

Everyman

The cinema group posted its FY results with the impact of the virus featuring prominently. They expect “significant interruption” in business and new openings, having closed all venues from 17 March until further notice. They highlighted £14m of headroom in their loan facility and a postponement of all non-committal capital expenditure.

Bloomsbury Publishing

In a trading update, the UK publishing house said that did not expect any impact to its FY2019 numbers and was on track to meet board expectations. However, it said that it was as yet “too early” to tell if there would be any impact on FY2020.

Autotrader

Autotrader led in its statement with news that it would not be charging customers for advertising packages in April and would defer March costs by 30 days. They stated that these actions would result in an operating loss for April of £6-7m, but stated that they cannot “sensibly” provide guidance for FY2021. They noted the strength of their balance sheet, with net debt/EBITDA of 1.1x being well below their covenant level of 3.5x.

 

Industrials

Crest Nicholson

The British housebuilder announced this morning that in light of the ongoing uncertainty around Covid-19, all existing financial guidance is being suspended “until both the severity and duration of the COVID-19 impact becomes clearer”. The statement also announced that final dividend will be cancelled.

Glencore

The miner and commodity trader announced yesterday that it will be postponing its AGM, as a results of the Swiss Federal Council decree prohibiting public meetings in light of the continuing spread of Covid-19. A new date is to be announced prior to the end of May.

BMW

The automobile company is temporarily shutting down its UK factories as a result of the pandemic, from Monday 23 March until Friday 17 April. The company has about 8,000 staff in the UK, with a Mini factory near Oxford, as well as plants in Swindon and Hams Hall. The car giant has said its factory workers will be paid for the four-week period, but would be expected to take the time off either as holiday, accrued overtime, or as “negative overtime” which they will “pay back” at a later date.

Toyota

The company announced yesterday that it is suspending production at its European plants, including its facilities in Derbyshire and Deeside, from today until further notice. The two plants, which employ about 3,000 people, will be put on paid leave for at least two weeks. The firm said in a statement: “This action is being taken to help ensure the health and safety of our employees, and due to an anticipated decline in market demand related to the economic impact of the COVID-19 pandemic”.

Ryanair

Europe’s biggest low-cost carrier has said that it will ground the vast majority of its flights from next Tuesday, only maintaining essential services between the UK and Ireland, in light of widespread coronavirus travel bans. In a statement, the airline said that “most if not all Ryanair Group flights will be grounded” as passenger demand collapses due to the worsening outbreak. For the remainder of this week Ryanair will cut its flight schedules by 80 per cent, as it had previously said it would do for the duration of April and May.

Arcelor Mittal

The international steel giant said in a very brief statement that it was “taking steps to reduce production from its European operations” to protect the well being of its employees and to align with demand. No further detail was given, other than that they will continue to monitor closely.

Meggitt

The international engineering company shared this morning that it has put in place “a broad range of measures to significantly reduce cost and manage our liquidity over the coming months”. They also announced that in response to the UK Government’s request for additional medical ventilators, “Meggitt is leading a consortium of UK aerospace suppliers working to develop and produce, in large volumes, a ventilator that meets their requirements for a rapidly manufactured ventilator”.

 

Financials & Real Estate

McCarthy & Stone

The UK’s leading developer and manager of retirement communities issued a statement yesterday announcing that they are putting in place a range of “preventative measures following and, in many cases, exceeding the advice from Government and Public Health England”, to reduce the risk of infection across their developments. The statement included that the company “anticipate[s] an inevitable material impact on trading in the coming months”, with the Board cancelling the final dividend payment of the year as a result of this.

Rightmove

The UK’s largest property portal yesterday announced a payment deferral plan of £275 per month for up to 6 months for qualifying agents, in order to alleviate some of the concerns held by their agency customer base over cash flows. In terms of the operational management of the business, they included in the statement that they benefit from being a digital business, with all employees now working remotely.

New River REIT

The investment trust highlighted the strength of its own balance sheet and cash, noting available liquidity of £117m. The company said that it was “too early to quantify the impact of COVID-19 on the Company’s operations” and that in order to focus on liquidity it would not be paying a Q4 dividend.

Direct Line

The insurance company announced this morning that it has paused its £150m share buyback programme.  Tim Harris, CFO, was quoted in the statement, explaining that the company’s “capital position remains strong”, with a hope that they will “be able to resume the share buybacks in due course”. 

IG Group

The online trading platform reported in its Q3 trading update that it continues to plan for the impact of the virus and that all employees are able to work from home. They noted that market volatility has been a significant boost for revenues, up 29% in Q3. In the first 12 trading days of Q4 they have seen revenue of £59m compared to the already high £140m in Q3.

 

TMT

Royal Philips

Frans van Houten, CEO of the health technology company has released a statement in which he states that he is “proud that our employees around the world are stepping up to support healthcare providers and their patients in the fight against COVID-19”. The company has announced that it has “mobilized its global resources” to fulfil its “triple duty of care: continuing to fulfil critical customer needs, ensuring the health and safety of its employees, and ensuring business continuity”.

4Imprint

The London based promotional marketing company said in an announcement that it expected supply chain disruption as well as impact in demand for their products. In the last 9 days they said order flow has dropped to 40% of the equivalent period last year. They warned that they expect impact to revenue and profitability, but provided reassurance of their strong balance sheet.

 

IN THE NEWS

ECB to launch €750bn bond-buying programme – The Financial Times 

Boris Johnson announces closure of schools in England – The Times 

Chancellor’s plan under fire as pound crashes to 35-year low – The Daily Telegraph




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