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the challenges facing PLCs in the current environment and how listed businesses can navigate COVID-19.

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the challenges facing PLCs in the current environment and how listed businesses can navigate COVID-19. 1

 

By Jamie Peel, director of corporate finance at independent investment bank Zeus Capital,

During the months spent in lockdown, there has been plenty of time for mid-market companies to draw up and implement their initial response to the crisis. Many public companies have announced the anticipated impacts of COVID-19 on their business and their short and medium term funding solutions.

Whilst the position of individual companies varies depending on their situation, there are some key themes that have occurred across how listed companies have chosen to respond to the crisis.

Communication with the market is key

Companies that have communicated clearly and early with the market have been well rewarded. Those that have been impacted and have opened up discussions with their shareholders and banks regarding future funding options have been able to source additional funding and/or flexibility from banks as needed, whilst those that have been able to announce that their business has not been heavily affected to date have been rewarded in some cases with substantial share price increases.

CentralNic is a great example of this – shares in the internet services provider closed on the day of lockdown (23rd March) at 68.5p. Recognising the need to communicate quickly with the market, the company put out a statement on how they anticipated the lockdown period would not affect their core business and that they remained on track for their previous market forecasts.

This transparency was clearly valued by investors – the business fully recovered to its 2nd January closing price of 93.5p by the 27th of April, and has been trading in a similar range to that experienced in January and February since the statement’s release. As a result, the firm closed on 18th June at 86p – 25 per cent higher than the initial lockdown price.

Dividend cuts have not been heavily penalised

the challenges facing PLCs in the current environment and how listed businesses can navigate COVID-19. 2

Jamie Peel

In normal markets, dividend cuts can be harshly treated by shareholders, but in the current environment the market is understanding of the need for cash preservation and the long term benefits that this could bring. Zeus Capital analysis shows that since 23rd March, 427 companies have made statements regarding their dividends, and 373 of those have either cut, cancelled or suspended the payment (as at 16th June). These measures have paid off to this point, with 76 per cent of these companies trading back above the price at which they announced the dividend cut, illustrating that these cuts are being accepted by investors, and the ‘new normal’ is to preserve cash at this time.

Indeed, data from AJ Bell in May reveals that UK companies have cut or deferred £30bn in dividend payments, with the intention of shoring up balance sheets and weathering the financial impact of the pandemic. This includes unprecedented announcements from Royal Dutch Shell, which cut its first quarter payout by two thirds following the fall in oil prices – the first cut to Shell’s dividend since the Second World War.

Unsurprisingly, given the significant demand for lending from SMEs across the UK, it is the banks that made some of the largest cuts, suspensions or deferrals to dividends. Between Barclays, HSBC, Lloyds, Royal Bank of Scotland and Standard Chartered, nearly £8bn of dividends have been scrapped, across both 2019 and into 2020.

Equity fundraising is happening

In a number of cases, public companies have announced equity fundraisings to provide extra capital to see them through the crisis. Importantly, these fundraisings have often been associated with formal amendments to banking covenants, showing that shareholders are willing to support their stronger portfolio companies but that banks must also play their part in funding solutions. Public company boards have been keen to align themselves with shareholders in these situations by investing significantly in fundraises and/or taking voluntary reductions in their remuneration.

Equity fundraising activity has accelerated over recent weeks, with rescue and balance sheet repair fundraises being joined by opportunistic capital raising by companies that are ‘survivors’ in their sector and looking to accelerate their growth by taking advantage of opportunities created by the crisis. In May, we supported a £200m fundraising for fast fashion giant Boohoo as the retailer looked to create a war chest from which to make strategic acquisitions. Boohoo has previously had significant success acquiring struggling brands and retailers including Nasty Gal, MissPap, Coast and Karen Millen, and it is possible that more opportunities may arise as the economic damage from COVID-19 increases.

Whilst both repair and growth capital is currently available to the right companies, there is a risk that fatigue may set into the market as fundraisings increase in number, and we would advise companies considering a fundraise to implement this plan sooner rather than later in order to maximise their chances of raising the funds they need.

Business

Sunak to raise business tax to pay for COVID-19 support – The Sunday Times

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Sunak to raise business tax to pay for COVID-19 support - The Sunday Times 3

(Reuters) – British finance minister Rishi Sunak is set to increase a tax on business to pay for an extension to COVID-19 support schemes in the budget next month, The Sunday Times reported https://bit.ly/3ujaBcU.

Sunak, in his speech on March 3, will announce he is increasing corporation tax from 19 pence in the pound and will outline a pathway where it rises to 23 pence in the pound by the time of the next general election, the report said. The move will raise an expected 12 billion pounds ($16.8 billion) a year, the report added.

According to the report, at least 1 pence is set to be added to the bill for business from this autumn, at a cost to business of 3 billion pounds, with further rises in subsequent years.

Allies of Sunak clarified he would not increase corporation tax higher than 23%.

These measures will be helpful in paying for an extension to the furlough scheme, VAT cuts and business support loans until at least August.

Unlike the 2010 Conservative-led government, which pursued spending cuts to rebalance the economy after the global financial crisis, Sunak is expected to defer most of the toughest decisions about how to pay for that support in his budget speech.

“The corporation tax hike will be higher than expected and the extension of the support schemes will be longer than most people expect,” the newspaper quoted a source as saying.

Insiders indicated the stamp duty holiday on property purchases would also be extended in line with the other coronavirus support measures, the report said.

Britain’s economy had its biggest slump in 300 years in 2020, when it contracted by 10%, and will shrink by 4% in the first three months of 2021, the Bank of England predicts.

($1 = 0.7136 pounds)

 

(Reporting by Vishal Vivek in Bengaluru; Editing by Lincoln Feast.)

 

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Foxconn chairman says expects “limited impact” from chip shortage on clients

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Foxconn chairman says expects "limited impact" from chip shortage on clients 4

TAIPEI (Reuters) – The chairman of Apple Inc supplier Foxconn said on Saturday he expects his company and its clients will face only “limited impact” from a chip shortage that has rattled the global automotive and semiconductor industries.

“Since most of the customers we serve are large customers, they all have proper precautionary planning,” said Liu Young-way, chairman of the manufacturing conglomerate formally known as Hon Hai Precision Industry Co Ltd

“Therefore, the impact on these large customers is there, but limited,” he told reporters.

Liu said he expected the company to do well in the first half of 2021, “especially as the pandemic is easing and demand is still being sustained.”

The global spread of COVID-19 has increased demand for laptops, gaming consoles, and other electronics. This caused chip manufacturers to reallocate capacity away from the automotive sector, which was expecting a steep downturn.

Now, car manufacturers such as Volkswagen AG, General Motors Co and Ford Motor Co have cut output as chip capacity has shrunk.

Counterpoint Research says the shortage has extended to the smartphone sector, with application processors, display driver chips, and power management chips all facing a crunch.

However, the research firm predicts Apple will face a minimal impact, due to its large size and its suppliers’ tendency to prioritise it. Apple is Foxconn’s largest customer.

Foxconn is looking at other areas for growth, including in electric vehicles (EVs), and Liu said their EV development platform MIH now had 736 partner companies participating.

He expected it would have two or three models to show by the fourth quarter, though did not expect EVs to make an obvious contribution to company earnings until 2023.

Liu also said the company was still looking for semiconductor fab purchase opportunities in Southeast Asia after not winning a bid to take over a stake in Malaysia-based 8-inch foundry house Silterra.

(Reporting by Ben Blanchard and Jeanny Kao; Writing by Josh Horwitz; Editing by William Mallard and Ana Nicolaci da Costa)

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EU seeks alliance with U.S. on climate change, tech rules

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EU seeks alliance with U.S. on climate change, tech rules 5

By Sabine Siebold and Kate Abnett

BERLIN (Reuters) – Europe and the United States should join forces in the fight against climate change and agree on a new framework for the digital market, limiting the power of big tech companies, European Union chief executive Ursula von der Leyen said.

“I am sure: A shared transatlantic commitment to a net-zero emissions pathway by 2050 would make climate neutrality a new global benchmark,” the president of the European Commission said in a speech at the virtual Munich Security Conference on Friday.

“Together, we could create a digital economy rulebook that is valid worldwide: a set of rules based on our values, human rights and pluralism, inclusion and the protection of privacy.”

The EU has pledged to cut its net greenhouse gas emissions to zero by 2050, while President Joe Biden has committed the United States to become a “net zero economy” by 2050.

Scientists say the world must reach net zero emissions by 2050 to limit global temperature increases to 1.5 degrees above pre-industrial times and avert the most catastrophic impacts of climate change.

The hope is that a transatlantic alliance could help persuade large emitters who have yet to commit to this timeline – including China, which is aiming for carbon neutrality by 2060, and India.

“The United States is our natural partner for global leadership on climate change,” von der Leyen said.

She called the Jan. 6 storming of the U.S. Capitol a turning point for the discussion on the impact social media has on democracies.

“Of course, imposing democratic limits on the uncontrolled power of big tech companies alone will not stop political violence,” von der Leyen said. “But it is an important step.”

She was referring to a draft set of rules unveiled in December which aims to rein in tech companies that control troves of data and online platforms relied on by thousands of companies and millions of Europeans for work and social interactions.

They show the European Commission’s frustration with its antitrust cases against the tech giants, notably Alphabet Inc’s Google, which critics say have not addressed the problem.

But they also risk inflaming tensions with Washington, already irked by Brussels’ attempts to tax U.S. tech firms more.

Von der Leyen said Facebook’s decision on a news blackout on Thursday in response to a forthcoming Australian law requiring it and Google to share revenue from news underscored the importance of a global approach to dealing with tech giants.

(Additional reporting by Foo Yun Chee; editing by Robin Emmott and Nick Macfie; editing by Jonathan Oatis)

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