Powerscourt

By Powerscourt on 05/04/2020

Powerscourt Coronavirus Briefing – 05 April 2020

ANALYSIS

Looking ahead to the working week, we can expect headlines about business winners and losers during the coronavirus crisis. We may see Sir Philip Green’s Arcadia Group, operator of Topshop and other brands, serving notice to leave 550 high street stores while Debenhams is expected to enter administration. At the same time, the strength of the supermarket businesses will be emphasised if Tesco declares a £550m dividend, as expected.

In many cases, the businesses under greatest stress were already suffering from digital disruption. However, innovative start-ups are also under threat as the limitations of the Chancellor’s rescue package have started to become apparent. The government’s coronavirus lending scheme, for example, has had 130,000 enquiries but made only 983 loans. The Corporate Finance Network estimates that more than 800,000 small businesses face collapse in the next four weeks.

A campaign to ‘save our start-ups’ will be launched this week by entrepreneurs including Zoopla founder Alex Chesterman, Net-a-Porter’s Arnaud Massenet and the lastminute.com co-founder Brent Hoberman, with the backing of more than 20 industry bodies and lobby groups.

The UK is not alone in struggling to target measures at small businesses. In Germany the system quickly became overwhelmed and the French system is weighed down by paperwork. All three governments are seeking to learn from the Swiss government how its scheme has been so successful and effective. It was rolled out almost overnight using the regular banking network and existing credit history, data and customer relationships. In Switzerland, SMEs have been receiving money within hours of applying.

Looking at the spread of the virus, Cabinet Office Minister Michael Gove said on Saturday there was some evidence that social distancing was reducing transmission and that the latest data suggested that new cases had started to stabilise. He stressed there was no room for complacency. We shouldn’t expect real flattening of the curve until three weeks after lockdown began.

 

 

WHAT ARE COMPANIES SAYING?

 

Consumer and Retail

Debenhams

With the pandemic raising fears that pension schemes could become a soft target for companies seeking to preserve cash, Debenhams has failed to make an agreed top-up payment to their pension scheme this month. This weekend, the retailer is once again on the brink of collapse and making preparations for another pre-packaged administration that could allow it to jettison more liabilities. The lack of pension scheme payment has sparked fears that 10,000 members could be left out of pocket in a potential administration of the ailing department store.

Premier League

The Premier League has called on its players to take a 30 per cent cut to their annual pay, in the latest effort to address a deepening cash crunch in the national game, caused by the coronavirus pandemic. Footballers are at an impasse with the country’s leagues over demands to accept wage reductions, leading to the 20 clubs in English football’s top tier announcing they had “unanimously agreed to consult their players regarding a combination of conditional reductions and deferrals amounting to 30 per cent of total annual remuneration”.

Stewarts

After years of investing in three garden centres, the managing director of Stewarts, Martin Stewart, “loaded up with stock” ahead of the peak planting season between March and June. However, then the coronavirus struck and now Stewart owes £1.5m to suppliers with no prospect of sales at what would usually be his busiest time of the year. This is being shared by the owners of 2,300 garden centres forced to close when the country went into lockdown. They employ nearly 50,000 people between them and the horticulture industry contributes more than £20bn to the economy each year. The Horticulture Trade Association warned last week that plants worth £200m would have to be destroyed and a third of horticultural businesses might not survive.

 

Travel & Leisure 

Merlin Entertainments

Madame Tussauds and Alton Towers owner Merlin Entertainments is under pressure to source new capital after the theme park operator closed its sites and delayed the opening of Legoland New York. Merlin, which was due to open Legoland New York in July, followed by Legoland Korea in 2020, was expected to generate £300m of operating cash flow before the outbreak of the coronavirus pandemic. Interest charges and operating costs will mean that the company will burn through a considerable amount of cash until parks and attractions reopen.

 

Healthcare

Breas Medical

The breathing equipment supplier with sites in the UK, Sweden and the US was found to still be prioritising supplies to China only a month ago, even as the COVID-19 outbreak accelerated in the UK. Breas Medical, owned by the Chinese conglomerate Fosun, was focused on demand for ventilators in China until early March, when it was first contacted about boosting supplies to the NHS. In mid-February, a press release from Fosun’s medical arm confirmed Breas had responded to the outbreak by “immediately… prioritising the Chinese market”. Breas stressed that the equipment sent to China was made in the US and Sweden, and ministers in the UK have now issued a letter of intent to buy 2,000 ventilators from Breas.

NMC Health

The FTSE100 hospitals group NMC Health faces collapse after one of its lenders said it was pushing to appoint administrators. Abu Dhabi Commercial Bank, which has lent NMC £792m, said it had “failed to respond” to requests for improved governance in the wake of multiple scandals. Accountancy firms have been ordered by the industry watchdog, the Financial Reporting Council, to explain how they intend to weather the coronavirus crisis.

 

Industrials

Jaguar Land Rover

Britain’s biggest car maker is cutting spending on all but its most profitable models after admitting that its factories will not reopen until at least next month. Jaguar Land Rover has told staff and suppliers that it will extend its shutdown – estimated to be costing £1bn a month – by a “few more weeks”. It has been due to reopen factories in Solihull, Castle Bromwich and Merseyside in the week of April 20, with the extended shutdown heaping huge pressure on the car-maker’s resources.

 McLaren

Ron Dennis CBE, the former McLaren Formula One boss, has donated more than £1m to ensure thousands of medics are well fed as they work on the frontline of the COVID-19 outbreak. The new project, entitled SalutetheNHS, will deliver food packs containing breakfast, lunch, dinner and snacks on Monday with the help of Yodel, the parcel delivery service. Also contributing to this partnership is Tesco, who will donate all the food and ingredients for the one million meals. The food will be delivered to accessible areas of hospitals for staff who are unable to leave their clinical areas during 12-hour shifts.

 

Financials & Real Estate 

HSBC

Retail investors in Hong Kong have threatened legal action against HSBC and will attempt to force the bank to hold and extraordinary general meeting, after it was pressured by UK regulators to cancel its dividend due to the coronavirus crisis. The controversy lies in HSBC not making its annual payout to shareholders for the first time in nearly 75 years, despite deriving most of its profits before tax from Hon Kong. Individual shareholders in the Asian financial hub have banded together in an attempt to reach the threshold of 5 per cent of outstanding shares required to secure an EGM.

 The Co-op Bank

Whilst the Co-op Bank has not yet received approval to offer the Government’s coronavirus loans to its customers, it is hoping to join big lenders soon in being able to do so, similar to many other so-called “challenger” banks. Andrew Bester, CEO of the bank, stated they are learning from the “teething problems” that have emerged since the scheme launched two weeks ago, taking on board the problems larger rivals have faced before it is given the greenlight to dish out the money itself.

 

IN THE NEWS

Struggling retailers focus their efforts online, but profit margins are thin – The Daily Telegraph




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