Maitland/AMO Morning Monitor – 1 May 2020
In the news
- Amazon posted $75bn first-quarter revenues buoyed by a boom in sales, but it came at a cost, as profits fell 29% from a year earlier to $2.5bn. Founder, Jeff Bezos said $4bn of additional spending is planned in the next quarter on coronavirus-related expenses.
- Apple reported sales of $58.3bn for the quarter, above year-ago results of $58bn. CEO, Tim Cook said sales in China were “headed in the right direction” as the country reopens and could prove indicative of other markets.
- Clean air in Europe during lockdown ‘leads to 11,000 fewer deaths’ from pollution
- A Spitfire and a Hurricane flew above the recently promoted Colonel Tom Moore's Bedfordshire home on 100th birthday
- Boris Johnson announces UK is 'past the peak' of coronavirus outbreak
- Boris Johnson signals U-turn on face coverings in bid to get Brits back to work
- Britain’s food bank use soaring amid coronavirus crisis, charities warn
Stock market moves
- On Friday, Japan’s benchmark Topix index fell 2.1% while Australia’s S&P/ASX 200 dropped 3.7%. Markets in mainland China, Hong Kong and South Korea were closed for public holidays.
- US indices closed down despite strong earnings results from Facebook and Tesla following a reported further 3.8m job losses last week. However, US markets have enjoyed their best April since 1938.
- The FTSE 100 is down 2.38% in early trading, while most other European indices are closed in observance of Labour Day.
Corporate announcements* Maitland Client
Royal Bank of Scotland Group PLC Q1 2020 Interim Management Statement
- RBS reported an operating profit before tax of £519m and an attributable profit of £288m.
- Total income, excluding notable items and own credit adjustments, decreased by 1.6% in comparison to 2019. Across the retail and commercial businesses income decreased by 6.5% whilst NatWest Markets core income increased by 9.3%.
- A cost reduction of £26m was achieved in the quarter excluding operating lease depreciation. The Bank’s key focus is on supporting its customers and colleagues through this period of uncertainty, while preserving shareholder value, and it remains on track to deliver a £250m cost reduction in 2020.
- Between 31 March and 23 April 2020, Commercial Banking has provided gross new lending of £2,015m to support its customers, including £501m to Large Corporates & Institutions, £420m to SMEs & Mid Corporates and £623m to Real Estate.
- Further to the announcement on 31 October 2019 regarding the proposed July 2020 retirement of its Chief Operating Officer and Director, Juan Colombás, the Group announced that he has agreed to remain in post and remain on the Board until September 18th 2020.
- The revised departure date will allow Juan to continue playing a key role in the Group’s response to the Covid-19 crisis and the Board is grateful for this accommodation.
- Work on the Group’s construction sites will recommence from 11 May, initially to implement the changes required under its new working practices and protocols. The Group will then start a phased return to construction, with 180 sites – around 50% of the total – in the first phase.
- The Group has contributed £100,000 to the NHS Charities Together and donated £50,000 to The Sun’s ‘Who Cares Wins Appeal’. The Group has also donated its PPE, including more than 5,000 FFP3 face masks to local NHS services and 400 of its defibrillators to the St John’s Ambulance in England and Wales and St Andrew’s First Aid in Scotland. In addition to its existing sponsorship of The Big Issue, the Group has donated an extra £25,000 to their Appeal to support their vendors who are unable to sell the magazine during the lockdown period.
- The Group continues to be financially strong, with a well-capitalised balance sheet and a robust cash and liquidity position. As at 28 April 2020 the Group had c. £430m of cash. The Group has total committed facilities and private placement notes of £900m, comprising a £700m undrawn revolving credit facility and fully drawn £200m US private placement notes.
- David Thomas, CEO, said: “Our first priority is the health and safety of our employees, sub-contractors and customers. We have created a detailed set of working practices and protocols for employees and sub-contractors to ensure that we can reopen our construction sites safely, in a phased and measured way, which minimises risk. In line with our commitment to put our customers first, we will be prioritising the completion of those homes that our customers have already exchanged or reserved.”
- International Airlines Group announces that Iberia and Vueling have signed syndicated financing agreements for €750m and €260m respectively.
- The banks involved in the syndicated agreement will ask the Instituto de Crédito Oficial (ICO) to grant guarantees for these loans and the financing is conditional on those guarantees being made available. The arrangement is within the legal framework set up by the Spanish government to mitigate the economic impact of COVID-19.
- The financing arrangements have a five-year term, amortising from 30 April 2023, but are repayable at any time on notice from Iberia or Vueling respectively. They contain a number of non-financial covenants to protect the position of the banks, including restrictions on the upstream of cash to the rest of the IAG companies.
- The Company has been notified that Peter Redfern, Chief Executive of Taylor Wimpey plc, has been appointed as the Senior Independent Director of Travis Perkins plc with immediate effect.
- The Board announced that Sharmila Nebhrajani has been appointed as a Non-Executive Director of the Company with effect from 1 May 2020.
- Sharmila has been appointed as a member of the Corporate Sustainability, Audit and Nominations Committees. She has also been appointed to the Board of Severn Trent Water Limited.
- The Board announced changes to its Committees.
- Kevin Havelock, a current Non-Executive Director of the Company and a member of the Remuneration Committee since 1 February 2018, has been appointed as Chair of the Remuneration Committee with immediate effect.
- Rooney Anand, the Company’s Senior Independent Non-Executive Director, has agreed to assume the role of interim Chair of the Company’s Corporate Compliance and Responsibility Committee pending the appointment of a new Chair.
- At 31 March 2020, the valuation of the Company’s portfolio was £986.5m representing a like-for-like decrease over the quarter of 0.9%. At that date the portfolio, of which 81% was located in and around London, comprised eleven assets with c.4,100 beds, including Scape Brighton which remains under construction, and the Net Initial Yield on the operational portfolio was 4.44%.
- As a result of the flexibility offered to direct let tenants and the wider economic impacts of Covid-19, the Directors anticipate a reduction of c.£9.0m (18%) to all the budgeted 2019/20 academic year income. The Company currently anticipates property operating cost savings of c.£1.0m from lower occupancy reducing the impact on earnings to c.£8.0m.
- The Company currently benefits from a robust balance sheet, including cash resources of c.£58.4m, conservative borrowing levels and an undrawn £45m redrawable credit facility at the date of this announcement.
- The Board announced a third interim dividend of 1.58 pence per ordinary share, in respect of the quarter ended 31 March 2020. The dividend will be paid on 8 June 2020 to ordinary shareholders on the register at 11 May 2020. The dividend will be paid as 1.30 pence per ordinary share as a REIT property income distribution in respect of the Group’s tax-exempt property rental business and 0.28 pence per ordinary share as an ordinary UK dividend.
- On 6 April 2020 GVC issued a Q1 trading and COVID-19 planning update, in which it stated that the Board’s Remuneration Committee would consider the impact of COVID-19 on GVC’s performance and review the implementation of the remuneration policy for 2020 in due course.
- Accordingly, at meetings of the Board and Remuneration Committee this week it was agreed it would be appropriate for the Board of Directors and members of the Group’s Executive Committee to take a voluntary 20% reduction in basic salary and fees for three months from today. The Executive Board Directors and ExCo members have also decided to forego their bonuses for 2020.
- The Group updated the market on its traffic projections for Q1, its plans for a likely return to services in Q2, the expected significant decline in current year traffic, and the impact on fares in Europe where the level playing field will be distorted by competing against legacy airlines who are receiving over €30bn of State Aid, in clear breach of both EU competition and State Aid rules. This State Aid will be challenged by Ryanair in the European Courts.
- Due to Continent wide EU Government flight restrictions, Ryanair expects to operate less than 1% of its scheduled flying program in Apr, May & June 2020. Q1 traffic of less than 150,000 passengers will be 99.5% behind the Q1 budget of 42.4m passengers.While some return to flight services is expected in the second (July-Sept) quarter, Ryanair expects to carry no more than 50% of its original traffic target of 44.6m in Q2. For the full year ended March 2021, Ryanair now expects to carry less than 100m passengers, more than 35% below its original 154m target.
- Ryanair is now reviewing its growth plans, and aircraft orders. The Group is in active negotiations with both Boeing, and Laudamotion’s A320 lessors to cut the number of planned aircraft deliveries over the next 24 months, which could reduce its capex commitments, to more accurately reflect a slower and more distorted EU air travel market in a post Covid-19 world.
- As announced on 3 April, given the uncertain duration of the Covid-19 crisis, and a slower return to “normal” flight services, Ryanair cannot provide any guidance for FY21 (year ended March 2021). The Group expects to report a net loss of over €100m in Q1, with further losses in Q2 (peak summer) due to the substantial decline in traffic arising from Covid-19 fleet groundings.