PLCs update on virus impact, responses
Monday, April 6, 2020
A number of listed companies have been updating shareholders on how the coronavirus situation is affecting their businesses, and the steps they are taking to mitigate its impact.
Last month the Financial Conduct Authority (FCA) “strongly requested” that all listed companies due to file financial statements should observe a moratorium of at least two weeks, due to the impact of the virus.
Subsequently, on 26 March this guidance was updated. PLCs can now delay the publication of audited annual financial reports to six months from the end of a firm’s financial year (the usual period is four months).
The FCA stated: “This policy is intended to be temporary while the UK faces the extreme disruption of the coronavirus pandemic and its aftermath. We will keep its application under review. When the disruption abates we will consider how best to end the policy in a fair, orderly and transparent way.”
This morning (6 April) newspaper and media group Reach issued a statement detailing its latest position, including new cost mitigation measures.
All board members and some of the most senior editorial and management team, will take an immediate pay cut of 20%. Other Reach employees will be asked to take 10% pay reduction, although no employee will fall below the Living Wage. In addition, 20% of the UK workforce will be furloughed under the government's Coronavirus Job Protection Scheme.
All company bonus schemes for 2020 have been suspended, as has the payment of Reach’s final dividend. Pension scheme contributions are to be reviewed. Reach stated: “The board has agreed that all stakeholder groups should be asked to contribute to ensuring the company is in as strong a position as it can be and as a result the company has requested discussions around a deferment of current contributions to all the group pension funds.”
The group said it began the year with a “robust” balance sheet position and confirms that it continues to have adequate liquidity. “There continues to be uncertainty around the severity and length of the crisis and the resulting impact on Reach in terms of advertising, print circulation and events.”
As a result Reach has suspended guidance for the financial year 2020 and beyond.
Kin + Carta (formerly St Ives)
The marketing services group is taking steps to conserve cash due to uncertainty caused by the virus, with some clients scaling back activity or cancelling projects. Its interim dividend has been withdrawn.
It is in discussions with trustees of the St Ives defined benefit pension scheme about the level of contributions – the scheme’s recovery plan currently requires Kin + Carta to pay £3m of “cash deficit repair contributions” a year. Kin + Carta is in the process of agreeing the triennial valuation of the scheme as at 30 April 2019.
The group could breach one of its banking covenants: “We do not currently anticipate liquidity constraints, but anticipate a potential technical breach of our current net debt to EBITDA covenant for a period of time given the current circumstances. Following ongoing dialogue with our banks, they are supportive of our business and the measures we are implementing.”
Inkjet manufacturer Xaar said that it “continues to make good progress with its strategy” and expects to report sales on continuing operations of £49.4 million for the year ended 31 December 2019.
It said that no orders had been cancelled due to Covid-19, but the group was “mindful of the rapidly changing environment in which the business is operating”. Xaar stated that the full implications of Covid-19 on the financial performance for the current financial year were “difficult to determine at this stage”, but the board remained confident in the long-term prospects for the business.
Andrew Herbert took over as chairman from Robin Williams on 1 April, as previously announced.
Grafenia said that sales have been “softer than usual” but “have not ceased”.
The group said that it continued to service clients and substitute alternative products. “Clients have looked for help with their own ‘plan B’, to offset business lost from events they planned to attend. We've seen more interest in online alternatives, as clients adjust to the current situation.”
The Nettl partner subscription model has been repositioned due to the virus crisis. “We are making Nettl more accessible, with online-only training and remote support. It is difficult to foresee what clients will want, on the other side of this pandemic. However, it would seem reasonable to imagine more business will be done online and clients might invest more in ecommerce, booking systems and search engine optimisation,” Grafenia stated.
“We're asking prospective Nettl partners to use the lock-down to up-skill and be ready for the recovery, so they can do all these things.”
The business continues to look for further acquisitions in the signage and graphics space, and is targeting companies with sales of more than £2m that could act as additional regional hubs.
De La Rue
De La Rue issued a trading update for the financial year ending 27 March. The group said that it had operated within its banking covenants, following previous fears that it could breach them. The security printer said it was progressing with the turnaround plan announced in February.
It said it was “too early” to quantity the potential impact of the coronavirus crisis on its results for the current financial year. “The Company is monitoring developments related to Covid-19, and actively taking steps to protect its employees in line with guidance from governments,” De La Rue stated.
Separately, Richard Bernstein’s Crystal Amber Fund has increased its stake in De La Rue to more than 19%.
Packaging group Macfarlane said that the changes in UK government guidance in response to Covid-19 have “negatively impacted a number of the market sectors in which Macfarlane operates”, and as a result the business now expects a marked slowdown in activity.
“Our customers in the hygiene, household essentials, medical and food sectors are currently demonstrating strong ongoing demand as they play a vital role in helping the country meet the challenge of Covid-19 and we are continuing to support them. However, customers in other sectors such as automotive, aerospace and segments within retail have been materially impacted and their business has declined rapidly,” it stated.
The situation means Macfarlane cannot provide meaningful guidance on trading for the financial year ending 31 December 2020. “A further announcement will be made on the anticipated 2020 performance when the Board has more clarity”.
The group is currently assessing the UK Government's range of Covid-19 related financial support measures to assess which of those would assist the business during this period.
Macfarlane has withdrawn its final dividend. It is taking a number of actions to reduce operating costs to reflect the reduced level of activity. “The board will waive 25% of their salaries and fees for the period from April 2020 until September 2020 and the executive directors have deferred payment of their 2019 bonuses. All non-critical operational and capital spend has stopped.”
Packaging and components group Essentra said that group-wide performance was “not materially impacted in first two months by Covid-19 but disruption to trading anticipated in the coming months.”
It described underlying demand in Packaging and Filters as “robust”, but Components saw some weakening in the week commencing 16 March with an accelerated trend expected
“In light of the need for prudent cash management, the board has decided to cancel the 2019 final dividend. Other cash actions include reductions in capex, net working capital and discretionary costs.” Essentra said its liquidity position and capital structure were well placed to absorb an extended period of uncertainty.
It has completed formalities around its new Chinese joint venture company, China Tobacco Essentra (Xiamen) Filters.
“As previously indicated in our year end 2019 results announcement, there has been some limited impact on trading from Covid-19 in the first two months of the year; most notably in the China Filters business and to a lesser extent in the China Components business. The company is pleased to update that in very recent weeks, demand in China has returned back to more normalised levels,” it stated.
Greetings card retailer Card Factory temporarily closed all its shops on 23 March.
It had already reported “a very material drop in High Street footfall”.
The business has cancelled its final dividend and carried out a detailed review of investment plans. “Significant reductions in non-essential capex have been identified, with any investments focused on a small number of key projects that remain important to the group's long-term strategic objectives.”
New store openings have been significantly restricted, and the replacement of equipment at its manufacturing plant has been deferred.
“Discretionary operational spend, such as point of sale and marketing spend, travel costs and costs related to distribution and packaging will be closely monitored and limited,” the firm stated.
“We note and appreciate the various actions taken by the Government to support businesses and their employees. The reduction in business rates provides a monthly cash saving of £2m, while the deferral of all HMRC payments to the end of June 2020 contributes positively to the short term cashflow. The announced support for payment of wages for colleagues is welcomed.”
Net debt at the end of February was £137m and the business has a £200m revolving credit facility.
Card Factory said it had maintained “a very constructive dialogue over the past few weeks” with its existing lenders regarding the availability of additional funding if required.