By Powerscourt on 01/04/2020

Powerscourt Coronavirus Briefing – 01 April 2020

ANALYSIS

US stocks fell on Tuesday after the previous day’s strong showing, with the financial services, telecoms and utilities sectors faring particularly badly. The Dow Jones declined 1.84%, while the S&P 500 fell 1.60% and the NASDAQ dropped 0.95%. The picture was similarly gloomy in overnight trading in Asia, with the Nikkei 225 losing 3.54%, South Korea’s Kospi dropping 1.26%, and the Hang Seng down 2.28%.

In the UK, a row has kicked off over the government’s claims that it is unable to carry out testing for the virus due to a lack of availability of the necessary raw materials. Speaking at the daily press conference in the face of growing criticism about the inability of NHS staff to get tests, Cabinet Office minister Michael Gove noted the need to go “further, faster”, but suggested that there is a global shortage of the chemicals required to do so. However, the UK’s Chemical Industries Association immediately refuted the claims, saying that it had contacted its members and been told that there is no shortage of the relevant reagents. Expect a lot more questions to be asked on this topic today.

In corporate news, Taylor Wimpey, the FTSE 100 residential developer, has announced this morning that it has cancelled annual bonuses and salary increases for the executive directors, and that they are also taking a voluntary 30% reduction in base salary and bonus for the duration of the UK lockdown.

Similarly, Auto Trader, the UK’s largest digital automotive marketplace, has announced that the entire board has voluntarily offered to forego at least half of their salaries or board fees for the foreseeable future. The executive directors have also requested that their annual FY20 bonus be waived. In addition, the company is carrying out an equity placing in order to be able to support its customers and employees, and to take advantage of attractive opportunities to strengthen the business in the immediate aftermath of the current crisis.

There is also a flurry of announcements in the UK banking sector, with Barclays, Lloyds, HSBC, RBS and Standard Chartered all announcing that they are suspending their dividends. The banks have taken the decision after a request from the Bank of England’s Prudential Regulation Authority, which also said that it expects banks to suspend cash bonuses to senior staff.

All of which will add to the distinct sense that the topic of executive pay is rising further and further up agenda at the moment. Today’s FT Lex column outlines some ground rules on the topic based on recent company statements which, it says, should help businesses “avoid red top denunciations, Twitter storms and other modern forms of mob violence.” In the unlikely event that this subject hasn’t been properly discussed around the boardroom table yet, it should be now.

WHAT ARE COMPANIES SAYING?

Consumer and Retail

Adidas

The dangers of doing business in the age of COVID-19 were brought home by Adidas as the German sportswear group found itself under attack from senior politicians, celebrities and columnists who lambasted its response to the crisis. There were appeals to boycott the group’s products, with a German member of parliament even filming himself setting an Adidas shirt on fire in a trash can. The backlash was triggered by the company’s decision to skip rental payments on its own-brand retail outlets, which are shuttered as part of the coronavirus lockdown. Whilst critics admitted the decision was perfectly legal, it sparked outrage as the measure was designed to help individuals and businesses fighting for financial survival, not companies like Adidas, which made almost €2bn in net profit last year.

Auto Trader

The UK’s largest digital automotive marketplace today provided a further update on the evolving COVID-19 situation, stating that they are taking additional actions to further strengthen their balance sheet, reduce costs and support employees and customers during this time of uncertainty. Also announced this morning is their intention to launch a non-pre-emptive placing of new ordinary shares representing approximately 5% of the company’s current issued share capital.

 Burberry

The British fashion behemoth, Burberry has joined the ever-growing list of fashion and beauty brands pivoting their businesses to assist in fighting the outbreak of COVID-19. The London-based luxury brand has pledged to use its extensive global supply chain network to fast track the delivery of over 100,000 surgical masks to the NHS, for use by medical staff. Burberry has also repurposed its trench coat factory in Castleford, Yorkshire, for the production of non-surgical gowns and masks for patients, the production and distribution of which will be subject to approval from the Medicines and Healthcare Products Regulatory Agency (MHRA).

Chapel Down

England’s leading wine producer today provides an update in light of the consequences of the COVID-19 pandemic, stating that in this significant time of change, the Board has been focussed on delivering swift responses to a number of recent government announcements. Following the closure of pubs, theatres and hospitality venues, the group has seen substantial growth in sales in supermarkets and off licenses, with online sales multiplying dramatically as well. Whilst it is currently too early to extrapolate trends, England’s strongest wine brand expects that off-trade sales and online growth will more than make up for losses in on-trade wine sales, leaving the group with a stronger business and increased market share in the areas where they see long term growth.

Total Produce

As per a previous update on 27 March, Total Produce confirms in its Annual Report and Accounts statement that the Board has decided to postpone the AGM, due to be held on 15 May 2020, to 28 August 2020. This is as a result of the COVID-19 pandemic and therefore all matters to be conducted at this meeting, including the approval of a final dividend, will be deferred to that date.

Zoetic

The London-listed, vertically integrated CBD company this morning provided a further update regarding the impact of COVID-19, stating that the steep fall in oil & gas prices has put considerable pressure on margins at the company’s East Denver project. In the circumstances, Zoetic is exploring aid packages being made available by the US federal and state governments and is working with its bank to apply for loans to cover short term operating costs. In their CBD division, Zoetic has confirmed they expect lower revenue as sales are more dependent on stores. However, the company still plans to launch its smokable products and chew pouches with the assistance of its distribution partners.

Travel & Leisure 

Carnival

In a recent corporation update, Carnival announced they expect the ongoing effects of COVID-19 have had, and will continue to have, a material negative impact on financial results and liquidity, impacting on their ability to obtain financing to fund resulting restrictions in cash from operations. The company made reference to the negative publicity they have received and how it, in addition to expected lawsuits from passengers aboard the Grand Princess voyage in February 2020, could have a long term impact on the appeal of their brands and thus diminish demand for vacations on their vessels. As a result, it was later announced that Carnival is turning to all corners of the capital markets to raise at least $6 billion, the largest test of investor willingness to finance industries ravaged by the coronavirus outbreak.

Tui

Almost 11,000 staff have been laid off by Tui, which has turned to the British government support scheme to furlough workers, as well as receiving a €1.8 billion grant from the German state. The London-listed, Hanover-based travel and holiday operator stated last night that it was putting 4,455 travel agency staff and more than 6,500 pilots, cabin crew and head-office workers on temporary leave from today, using the UK government scheme that ensures 80 per cent of the workers’ wages are covered by the taxpayer.

Industrials

Glencore

The mining and commodities trading group, Glencore has postponed a decision on whether to pay the proposed $2.6 billion dividend this year due to risks that production could be significantly disrupted by the coronavirus pandemic. The group said that the move was “prudent” in light of the “exceptional economic uncertainty” caused by the virus and in order to help to protect its investment-grade credit rating. Glencore stated that once the impacts of the virus, the economic outlook and the company’s prospects were more clear, it would take a decision alongside its interim results announcement in the third quarter.

Lucara Diamond Corp

Lucara announced today that it has implemented a crisis management strategy to protect the health and wellbeing of employees in Botswana and Canada, during the COVID-19 pandemic. Despite increased travel restrictions, reduced staffing and increased social distancing implemented across their sites, mines remain fully operational. The group confirmed that weaker demand as a result of COVID-19 has deteriorated diamond prices and the production outlook for 2020 remains highly uncertain. As a result, the Lucara has taken the decision to suspend its 2020 guidance until further notice.

Renew Holdings

The engineering services group this morning updated the market, stating that they remain operational, where safe to do so, across the majority of their sectors but are experiencing disruption in certain areas. In Rail and Highways, which account for the majority of the group’s engineering activity, Renew is working closely with sector customers in areas designated critical to the COVID-19 response. Water and Telecommunications have also been designated ‘critical sectors’ and so they remain operational here too, with key workers deployed across all network areas. In total, approximately 80% of Renew’s activities are in areas deemed critical to the COVID-19 response.

Royal Dutch Shell

The Anglo-Dutch energy group is bracing for a hit of up to $800 million in the first quarter after cutting its assumptions for oil prices this year. Whilst Shell sought to reassure investors about their financial strength through an extra $12 billion loan facility it had secured, it also suggested that the impact of the plunge in oil prices following the COVID-19 pandemic, could be even greater than its guidance of a $6 billion blow to its cashflow for every $10 cut to the price of a barrel of Brent crude. Brent crude has fallen by more than $40 a barrel since the start of the year and the international oil price benchmark was trading at little more than $23 a barrel yesterday.

Financials & Real Estate 

Bank of England

Following the Bank of England’s published statement welcoming dividend cancellations, a number of the UK’s largest lenders have bowed to the pressure and cancelled dividends for 2019, as well as pledging to not carry out any share buybacks. In a series of co-ordinated statements on Tuesday evening, Lloyds, RBS, Barclays, HSBC, Santander and Standard Chartered announced the cancellation and stated they would refrain from setting cash aside for investor payouts this year, due to the warning against paying out billions of pounds to shareholders during the coronavirus pandemic.

Christie Group

The Board of Christie Group, the leading provider of professional & financial services and stock & inventory systems & services to the hospitality, leisure, healthcare, medical, childcare & education and retail sectors, has issued a statement announcing that they do not anticipate being profitable this year. Whilst the group began the year trading normally, the COVID-19 outbreak induced restriction of trade and thus impacted on profitability.

Primary Health Properties

During the COVID-19 outbreak, the UK’s leading investor in modern primary healthcare facilities has been actively working with the NHS, HSE and their GP tenants to help them better utilise their properties for deployment in the front line of the current global crisis. The pandemic has highlighted demands on health systems around the world and Primary Health Properties anticipates that the crisis will highlight the integral role primary healthcare will play in the future provision of health services and the continuing movement of services away from over-burdened hospital settings. Managing Director Harry Hyman commented: “Despite the uncertainty created around the world by the COVID-19 pandemic, our portfolio of properties stands on the front-line of delivering vital services for the NHS and… whilst it is too early to understand in full the financial implications of the crisis, we remain in a very strong and robust position”.

Savills

In response to the Government’s public health instructions, Savills’ Board has taken the decision to defer the holding of the AGM from 6 May 2020 to 25 June 2020. In addition, the company is withdrawing previously announced proposed dividends in order to retain sufficient cash reserves to mitigate the effect of the COVID-19 pandemic on global real estate market activity in the coming months. If appropriate, an enhanced interim dividend on or around the revised date of the AGM will be declared.

Taylor Wimpey

In recognition of the impact of previous measures introduced in response to the COVID-19 pandemic, including the closure of all show homes, sales centres and construction sites, Taylor Wimpey’s Remuneration Committee has carefully considered the proposed application of the Remuneration Policy in 2020. Following the review of this application, the company has announced that the 2% annual salary increase has been cancelled, alongside the Executive Incentive Scheme and a 30% reduction in base salary and pension for the duration of the Government-imposed lockdown.

Healthcare

MHRA

The UK’s medicines regulator has sounded the alarm over unsafe and unlicensed coronavirus tests, warning the unscrupulous suppliers are seeking to exploit the public’s desperation to be screened for the disease. The MHRA said it was currently working to investigate a number of potential scams, having already taken down several fraudulent websites. The regulator is particularly worried about the marketing of self-testing kits for use at home as these antibody tests are currently being validated by scientists at Oxford for accuracy, but none have been approved for sale to the general public.

Smiths Group

The operation to separate Smiths Medical from Smiths Group, its FTSE100 conglomerate parent, has once again been delayed due to Smiths Medical’s position at the centre of emergency efforts to assemble thousands of ventilators to help hospitals during the coronavirus outbreak. However, the group has confirmed that they are determined to continue with the demerger once capital markets have stabilised.

Spire Healthcare

The leading UK independent hospital group today announces that lenders have agreed to waive the covenant testing required under the company’s Senior Facility Agreement to allow further flexibility through, and in the period after, its partnership with the NHS. However, due to the current uncertainties, the Board believes it is prudent and in the long-term interests of shareholders to suspend dividend payments until the current crisis is over. As a result, the company will not be putting forward a final dividend payment approval to shareholders at its forthcoming AGM.

TMT

Bango

Bango plc, the mobile commerce company, and Sun Mobile, the Hong Kong Mobile Virtual Network Operator, have teamed up to announce the launch of a carrier billing in the Google Play store, enabling customers to access the content on Google Pay and charge it directly to their phone bill. In the announcement, CEO Paul Larbey states the decision to launch this service at this time underlies “the importance of mobile commerce not just at time of restricted movement but also as countries start to emerge from the COVID-19 crisis”.

Kin + Carta

In a COVID-19 update released this morning, the global digital transformation business announced they will not be providing further guidance until the scale and duration of disruption is made clearer. Whilst a few of their clients have needed to scale back on projects, 78% of revenue is from multi-year client engagements that will continue as planned, with Kin + Carta making it a priority to continue serving their clients during this time. Given the current uncertainties, the Board believes it is prudent to conserve cash and maintain maximum financial flexibility, thus they have taken the decision to withdraw the recommendation the pay the previously proposed interim dividend of 0.65 pence per share. Once further clarity around the business has returned, the Board will reconsider the timing and quantum of dividends.

Softcat

In light of the COVID-19 pandemic, Softcat, a leading UK provider of IT infrastructure products and services, announced their interim dividend would be cancelled. They explained that given the highly unusual circumstances, the company considers it prudent to protect their cash position and maintain flexibility around the timing of dividend payments for the current financial year. Whilst trading has been in line with expectations since the Company’s interim results on 17 March 2020, the interim dividend of 5.4 pence per share will be reviewed at a later date, when the COVID-19 situation becomes clearer.

Zoom

The videoconferencing app Zoom has come under fresh high-level scrutiny as its popularity soars during the coronavirus pandemic. With Zoom being used by millions of people for work and leisure as lockdowns are imposed in many countries, its data security and privacy measures have been questioned by the office of New York Attorney General Letitia James. The Attorney General asked Zoom to confirm whether it had reviewed its security measures since its popularity surged and pointed out that the app has previously been slow to address issues. In response, the company confirmed they were happy to provide the Attorney General with the requested information.

IN THE NEWS

First ‘Formula One’ ventilators ready for NHS use at weekend – The Times

New contact-tracing app could be key to ending the coronavirus lockdown – The Daily Telegraph

Taiwan to donate 10m masks to Europe and US – Financial Times