By Powerscourt on 27/03/2020

Powerscourt Coronavirus Briefing – 27 March 2020

ANALYSIS

Asian markets were once again positive overnight following another strong performance on Wall Street yesterday where the Dow has risen 21% in three days, putting the index back in bull market territory.

Today, Korea’s Kospi index was up 1.9%, Japan’s Nikkei 225 rose 3.9% and Hong Kong’s Hang Seng was up 0.5% as Asian investors looked towards the prospect of further stimulus measures to combat the coronavirus pandemic, after record U.S. unemployment filings.

In the UK, the raft of COVID19 updates from listed UK corporates continues with seven FTSE100s and 10 FTSE250 companies updating the market this morning. 

While the usual themes around reassurances on liquidity, balance sheet strength and reduced spending plans feature prominently, the rapidly evolving nature of the COVID19 crisis has this morning been sharply illustrated by a trio of companies announcing reasonably significant U turns.

Fashion retailer Next has this morning confirmed that it has closed its online, warehousing and distribution operations.  The move comes after Next had previously offered staff a 20% pay rise to carry out online orders in stores.

Meggitt, the FTSE100 aerospace business, says it has decided to scrap its full year dividend despite previously maintaining in its market update on March 19 that this would still be paid.

Lastly, despite issuing an update just three days ago, FTSE250 housebuilder Redrow has issued a further update this morning in which it now says that it intends to close all of its sites and offices.  Just three days ago, it had said it wanted to keep all its sites open.

As John Maynard Keynes, economist, once said: “When the facts change, I change my mind.”

These about-turns from three firms operating in very different sectors underline the rapidly evolving nature of the COVID19 crisis and the need for businesses to monitor closely, think fast and communicate clearly.

 

WHAT ARE COMPANIES SAYING?

 

Consumer and Retail

Coca-Cola

Coca-Cola HBC acknowledged the COVID-19 outbreak and its potential greater impact in people’s life, communities and global economy. The Group implemented appropriate contingency and business continuity plans in order to safeguard that our production plants and supply chain remain fully operational. Trading in January and February was in line with expectations. During March, trading across markets has been dependant on the severity of restrictions on mobility. It is already looking at cost-saving measures and reassessing marketing and capex investments. Given the uncertainty of the duration and economic impact of this global pandemic, the Group no longer believes that it is prudent to provide guidance for the current financial year.

Constellation Brands

Constellation Brands, leading beverage alcohol company, in partnership with a number of its iconic beer, wine, and spirits brands, announced a collective commitment of more than $2.5 million to COVID-19 relief efforts. The company established the Constellation Brands COVID-19 Crisis Relief Fund, through which Constellation will match contributions from its several thousand employees across the country 2:1 to benefit non-profit organizations supporting communities impacted by this crisis.

Domino’s Pizza Group Plc

Domino’s Pizza Group plc is the UK’s leading pizza brand and a major player in the Irish market. Trading in January, February and the first two weeks of March was in line with expectations. The growth of delivery orders over the past week had more than offset the closure of its in-store collection service due to coronavirus social-distancing restrictions. There is minimal supply chain disruption to date. The announced business rates freeze, and the VAT payments deferral will benefit franchisee partners and the corporate store network. The Board are assessing other measures to support franchisees as required. Despite the boost in sales, the group has also taken a number of cost saving measures. It said that it had fully drawn its revolving credit facility for this year and would cut its dividend. At the current time, and in light of a rapidly changing market and global macro-economic situation, Domino’s is unable to provide guidance for the remainder of the current financial year.

Ford

Ford plans to reopen a handful of plants in North America at the beginning of next month.  The Detroit automaker, along with General Motors and Fiat Chrysler, closed its plants last week after reaching an agreement with the United Auto Workers. The union had said plants needed to close to protect workers from the spread of coronavirus. The move to reopen comes a day after credit-rating agencies Moody’s and S&P Global downgraded Ford’s $36bn* debt to junk.

Next Plc

NEXT has taken the difficult decision to temporarily close its Online, Warehousing and Distribution Operations from this evening, Thursday 26 March 2020.

Rapala Group

Rapala group is the world’s leading fishing tackle company and the global market leader in fishing lures, treble hooks and fishing related knives and tools. The Group cancelled its outlook for 2020 issued on February 12, 2020 due to the uncertainty caused by the worldwide COVID-19 pandemic. It is impossible to estimate the impact to the Group.

Sports Direct

Sports Direct owner Mike Ashley has issued a personal apology for his business’s response to the coronavirus pandemic. “I thought it was necessary to address and apologise for much of what has been reported across various media outlets regarding my personal actions and those of the Frasers Group business,” Mr Ashley said in an open letter published on Friday. “In hindsight, our emails to the Government were ill-judged and poorly timed, when they clearly had much greater pressures than ours to deal with. On top of this, our communications to our employees and the public on this was poor … I am deeply apologetic about the misunderstandings of the last few days. We will learn from this and will try not to make the same mistakes in the future”.

Totally Plc

Totally Plc, a provider of a range of healthcare services to the healthcare sector in the UK and Ireland, continues to deliver its other healthcare services during this critical time of need and the response required from the Urgent Care team has been of paramount importance. In addition to its usual services Totally is supporting NHS England through the provision of additional services such as the new service at Heathrow Airport, London, offering specialist support to people arriving into the country and requiring isolation.

 

Industrials

Anglo American

Anglo American, a leading global mining company, has consulted with the government authorities and industry bodies in South Africa to determine and agree the appropriate measures to be taken across its operational and other business activities. In line with the British Government’s measures to prevent the spread of COVID-19, Anglo American is in the process of pausing most construction and development activity on its Woodsmith polyhalite project. Appropriate action is being taken to enable safe and swift resumption of work. There is a tight focus on cost management, the deferral of non-essential capital investment, selected asset sales and the suspension of dividend payments. In addition to this all Directors and senior management have now taken 20% fee and salary reductions.

AIREA PLC

AIREA is a leader in the manufacturing, marketing and distribution of commercial floor coverings. Following the recent guidance issued by the government in response to COVID-19, the Group expects an overall reduction in demand for flooring products. At this stage it is not possible to estimate what the financial impact will be for the financial year ending 31 December 2020.

Chaarat Gold

Chaarat Gold, the AIM-quoted gold mining company with an operating mine in Armenia, and assets at various stages of development in the Kyrgyz Republic, is prioritizing the safety and health of its people and ensuring the resilience of the Company’s operations. While the impact of coronavirus on the global economy is significant, demand for its products has remained relatively healthy. In addition, there are positive trends in cost reduction in both of its jurisdictions due to the declining price of fuel and the depreciation of local currencies versus the US Dollar. The Company is in advanced discussions with the holder of a US$17,000,000 loan which matures on 31 March 2020.

Glencore Plc

Glencore, one of the world’s largest global diversified natural resource companies and a major producer and marketer of more than 60 commodities, introduced a number of precautionary measures across its offices and industrial assets in response to COVID-19 including the implementation of enhanced hygiene and cleaning measures, application of social distancing and identification of higher risk groups. To date, its larger operations have not been materially impacted, however a number of its smaller assets have had to restrict or stop operations.

Hummingbird Resources plc

Hummingbird Resources is a leading gold production, development and exploration company. Currently the business continues as normal with no impact on production at the Yanfolila mine in Mali. A COVID-19 task force has been established with a robust set of procedures being implemented at site in order to minimise the potential impact of COVID-19 where possible. These measures include, but are not limited to, the movement of people and goods; hygiene and cleanliness; social distancing and remote working;  isolation procedures in the event of higher risk personnel or positive cases; community liaison and contingency plans for potential disruptions including increases of inventory and reagents where feasible. 

LafargeHolcim Ltd

LafargeHolcim Ltd, a Swiss multinational manufacturer of building materials, has taken the necessary measures to protect the health of its employees, customers, suppliers and other stakeholders. While the construction sector and construction sites are generally more resilient than other sectors, LafargeHolcim is now experiencing disruptions in operations in various countries. While the implementation of the action plan “HEALTH, COST & CASH” is in full execution, the dynamic, volatile development of the Coronavirus pandemic makes it currently no longer possible to fully evaluate its impact on the performance of LafargeHolcim in 2020.

 Meggitt PLC

Meggitt PLC, a leading international engineering company specialising in high performance components and sub-systems for the aerospace, defence and selected energy markets, cancelled its dividend.

MetalNRG plc

MetalNRG plc, the natural resource investing and exploration company, says that the impact of Covid-19 on the Gold Ridge project in Arizona, is that on site work has stopped. The company is advancing its planning work and making preparations to be in a position to go back on site as soon as there is confirmation that it is safe to do so and have the human resources and tools to implement the next stage of work.

Pembridge Resources plc

Pembridge, a mining company, notified shareholders that there are 3 cases of COVID-19 in the Yukon and no cases at the Minto mine. Minto Explorations staff’s health and safety is a priority and Minto mine management continue to follow government recommendations and guidance with regard to the COVID-19 situation across Canada. Gati Al-Jebouri, Chief Executive Officer and Chairman of the Board said, “the current extremely difficult and challenging times for all mean that we must carry out our duty to reduce the risk of any of our staff being infected with the virus or putting other people at risk.  We will continue to monitor the situation and adhere to all government recommendations and instructions.  In due course more detailed information shall be provided including the first quarter operations update.”

 

Financials & Real Estate

ABN Amro

Dutch bank ABN Amro has announced a $200m hit to its profits after recent market volatility led to the failure of a client in its business catering to proprietary trading firms.

Apax Global Alpha Limited

AGA is a Guernsey registered closed-ended collective investment scheme. The extent and nature of the economic impact of COVID-19 is unprecedented and unlike a typical cyclical downturn. The population lockdowns and pausing of many types of economic activity is causing unusual effects in the economy in general, and AGA’s Private Equity portfolio is not exempt. Much of Apax Funds’ private equity portfolio is in sectors that are less severely impacted by the crisis. Given significant volatility in capital markets, it is also likely there will be a decline in AGA’s Net Asset Value in the short term. Where public market multiples are used to value portfolio companies, it expects lower multiples to have an impact on the valuation of portfolio companies at 31 March 2020 compared to the prior quarter.

Arricano Real Estate Plc

Arricano Real Estate Plc, a big developer and shopping centre network operator, announced the temporary closure of its retail shopping centres, noting that COVID-19 is likely that it will have a negative overall effect on the Company’s 2020 performance. The Company believes that its high quality portfolio of operating assets, market leading tenants, and experienced team will protect the long-term value for the investors.

Balfour Beatty

Balfour Beatty, the international infrastructure group, had a positive start to 2020. However, at this stage, it is not possible to forecast either the duration of this disruption or its impact on the Group’s financial results for 2020. The primary focus for the Group is on the health, safety and wellbeing of all employees, partners and the general public. In line with the current guidance on COVID-19 from the UK Government, the Group’s sites and contracts will remain operational where it is practical to appropriately implement the Standard Operating Procedure (SOP). Communications to the Group’s employees have been significantly increased and include daily safety briefings to the operational workforce with specific reference to COVID-19 mandatory procedures. It has postponed its May AGM and with it any vote on approving its dividend. 

DWF Group Plc

DWF, a global legal business, announced that the Board estimates that Group revenue for the financial year ending 30 April 2020 (FY20) as compared to the prior financial year (FY19) will show high single-digit organic growth and total growth of between 15% and 20%, which is below management’s previous expectations. Given it is uncertain when the market dislocation will end, management are keeping their expectations for FY21 under review. The Group is very focused on working capital management and cash collections; however management anticipate that the current business environment will slow collections. Management is confident that the Group has sufficient liquidity to deal with current working capital requirements.

 EPE Special Opportunities Limited

EPE Special Opportunities Limited, a private equity investment company, says that the long-term impact of COVID-19 on the Company and its portfolio remains uncertain. The portfolio has taken all appropriate steps to protect and promote the wellbeing of colleagues (including adherence with local government advice). · The Company maintains strong liquidity of £26.4 million (as at 31 January 2020) and operates with modest committed outgoings.

FCA, FRC and PRA

FCA, FRC and PRA issued a joint statement noting that whilst the reduction in activity associated with coronavirus could be sharp and large, it is likely to rebound sharply when social distancing measures are lifted. The regulatory bodies announced a series of actions to ensure information continues to flow to investors and support the continued functioning of the UK’s capital markets. This includes:

-FCA statement allowing listed companies an extra 2 months to publish their audited annual financial reports.

-Guidance from the FRC(link is external) for companies preparing financial statements in the current uncertain environment. This is complemented by guidance from the PRA(link is external) regarding the approach that should be taken by banks, building societies and PRA-designated investment firms in assessing expected loss provisions under IFRS9.

-Guidance from the FRC for audit firms seeking to overcome challenges in obtaining audit evidence.

Full statement here.

Glenveagh Properties plc

Glenveagh Properties plc, a leading Irish homebuilder, has implemented wide ranging measures across its sites to limit the spread of COVID-19. These measures allow all sites to remain operational currently. Glenveagh’s sales performance in the current financial year has been in line with the Board’s expectations. Despite the measures implemented by the Group, Glenveagh’s ability to achieve its 2020 delivery targets will be dependent on how long the advised restrictions remain in place and the extent to which future restrictions impact construction progress on-site. As a result, the Group announced that it is suspending all existing FY20 guidance until both the severity and duration of the COVID-19 impact becomes clearer.

London Stock Exchange

London Stock Exchange supports the joint statement from the Financial Conduct Authority, Financial Reporting Council and Prudential Regulatory Authority which sets out a series of actions and statements designed to assist companies across UK markets in light of the unprecedented impact of the Coronavirus (COVID-19) pandemic. It also announced temporary changes relating to annual accounts deadlines and guidance on other temporary measures to assist AIM nominated advisers and AIM companies at this time. It is important that markets remain open to support companies who will continue to need access to capital and to ensure pricing is conducted in a fair and transparent manner for retail and institutional investors who need ongoing access to liquidity.

Mattioli Woods plc

Mattioli Woods plc, the specialist wealth management and employee benefits business, continue to be fully operational throughout all its core business areas. It is too early to predict what the full impact of Covid-19 will be, but the Group does anticipate inevitable disruption to trading in the coming months and an associated reduction in the Group’s income streams linked to the value of clients’ funds under management and advice and banking revenue. Ian Mattioli, Chief Executive Officer of Mattioli Woods says, “[…]I have chosen to reduce my basic salary to zero and all other plc Board directors have agreed to reduce their basic salary or fees by 50% until 30 June 2020, when we will review the position further.  […] In addition, we are reviewing our operating costs, restricting travel and reducing discretionary spending.  We have confirmed to all staff that it is likely no bonuses will be paid in respect of the current financial year, providing additional resources to address the impact of Covid-19.”

Redrow Plc

Redrow plc, one of the largest British housebuilders, says due to the significant impact on its supply chain in recent days, the Board has decided to commence with immediate effect, an orderly and safe closure of all its sites and offices. It intends to increase the additional ‘accordion’ facility of £50m that is available to £100m. Redrow has also submitted an application to the Bank of England for eligibility for the Government’s COVID-19 Corporate Financing Facility.

Rightmove

Rightmove plc, the UK’s largest property portal, cancelled its dividend and pulled its guidance.

Watkin Jones Plc

Watkin Jones plc, the UK’s leading developer and manager of residential for rent, with a focus on the student accommodation and Build to Rent sectors, is taking measures to manage and mitigate the potential risks to its employees, clients, customers, partners and shareholders. In order to prioritise welfare, the Group has decided to close its active development sites temporarily, with the exception of a small number of sites which will remain open whilst essential services works are completed. The Fresh Property Group, which manages student and build to rent tenants on behalf of institutional owners, there are enhanced cleaning regimes and adjusted social interaction arrangements in place to assist in managing and controlling the potential spread of the virus. It is too early to assess accurately the extent and length of disruption arising from COVID-19.  The Group will provide an update on first half performance shortly following the period end.

 

TMT

Align Technology, Inc.

Align Technology designs and manufactures the Invisalign® system, the most advanced clear aligner system in the world, and iTero® intraoral scanners and services. Align Foundation, the Company’s donor-advised fund through Fidelity Charitable, has pledged to donate US$1 million to support COVID-19 relief efforts globally. Align will also donate personal protective equipment (PPE) such as N95 masks and is working with partners to source supplies for any additional PPE to help hospitals and healthcare providers that are treating patients with COVID-19.

Sony

Sony has warned it might be forced to delay the release of its full-year earnings results at the end of April as the coronavirus outbreak shuts down its plants in Malaysia and Wales, and deals a blow to its movie and music business. The Japanese group said its entertainment business will be affected by the closure of cinemas worldwide, delays in new music releases and a temporary shutdown of its film and television production.

 

Travel & Leisure 

Airbnb

Airbnb has launched a platform to connect medical staff and charity workers assisting with the coronavirus outbreak to free accommodation provided by hosts around the world. The aim of the short-term home rental platform was to help house 100,000 people working on the Covid-19 pandemic.

John Menzies plc

John Menzies plc, the global aviation services business, announced that the impact of the spread of the COVID-19 virus has increased significantly and extended across all of its international operations. It had to layoff 17,500 people globally as the number of flights it handled in the past two weeks plummeted more than 60 per cent. Whilst it is clear that this disruption will have a very significant adverse impact on the Group’s financial performance in the short term, the level of continued uncertainty means that the Board has determined that it is not possible to provide financial guidance for the remainder of the current financial year.

 

IN THE NEWS

Coronavirus prompts No 10 to suspend housing market The Times

Insurance industry could be ‘in jeopardy’ over virus claims, warns Lloyd’s chair Financial Times

Banks urged to scrap billion-pound payouts The Times

Coronavirus: UK government unveils aid for self-employed BBC