As New Zealand faces the most brutal recession in living memory, the battle to preserve the core of the economy deepens. Companies are cancelling dividends to protect what cash they have, others are reaching for financial aid from their banks or the government.
Yet for some businesses, notably the big supermarket chains, the crisis is accelerating their cash flows.
Point of Order has surveyed an array of companies listed on NZX, particularly in several sectors—food production, health and pharmaceutical supplies, transport, agriculture services— which have issued updates. These should provide comfort to their shareholders, and the market generally.
Latest to do so is King Salmon, the world’s largest aquaculture producer of the premium King salmon species. Employing 500 people, it operates within the primary industry food producer category which has been included in the government’s list of essential services.
In its update to the NZX, it says :
“NZ consumers need a consistent supply of healthy protein and we are well placed as a local, vertically integrated producer to do that. We can reliably deliver to supermarkets during this time.Our main priority is to ensure the safety of our team members.
“As a food producer we already have full personal protective equipment and practices which are specifically designed to prevent the transmission of disease. We have also now implemented further stringent measures across all our sites, including increased use of additional personal protective equipment, splitting work teams, separation between shifts, and minimising other interaction between team members.
“Team members who can work from home are already doing so”.
The company goes on to inform the market:
“Although the Covid-19 situation is dynamic, based on currently known factors, we re-affirm the previously advised guidance for the FY20 year ended 30 June 2020, being a Pro Forma Operating EBITDA result of $25.0-28.5m”.
Sanford, NZ’s largest seafood company,in its market update said it has put special measures in place across its operations.
Sanford CEO Volker Kuntzsch, says the company is very conscious that it is privileged to be able to continue to operate as a provider of an essential service supplying food to NZ and the world.
“Our number one focus is on keeping our Sanford people safe and secure, that way we can continue to help the rest of NZ and by keeping food flowing to supermarkets.In order to do that we have put in place a number of extraordinary measures which include different operating procedures on our vessels and in our factories”.
Sanford acknowledges that there will be some impact on its business although it is too early to say what this will be. Kuntzsch says
“ … it is difficult at this time to assess the impacts from changing demand patterns as we are in a constantly moving situation. However our priority right now is safe operating, so we are taking all steps necessary to put our people’s safety and security first.”
Still in the food sector, A2 Milk whose shareprice has been one of the strongest on the NZX, has shown its confidence in its business by increasing its stake in one of its main suppliers Canterbury-based milk processor Synlait. It spent $21m in lifting its stake from 17.3% ro 19.84%.
Scales Corporation, a diversified agribusiness group with three operating divisions: horticulture, food ingredients and logistics, classified as ‘essential services’ says they do need to complete strict MPI registration processes to maintain that status, and subject to that, they will continue operating.
CEO Andy Borland says although these businesses will continue working, Scales is committed to put in place alternative ways of working to keep staff, suppliers and the public safe.
“For the 2020 apple season the harvest has continued with about 40% of the crop harvested and either in storage or shipped. Subject to market conditions, Scales currently has adequate resources to cover harvest, packing, coolstorage and shipping.
“Whilst markets are volatile, we are continuing to ship to customers all over the world. It is however too early to gauge market conditions for the full year at this time.
“Based on the harvest of early varieties the crop is on track for forecast quantity, with pleasing size and quality. The impact of Covid-19 on Scales remains uncertain and it is too early to assess whether the recent developments will materially affect Scales’ earnings for FY2020 and whether any change to guidance for FY2020 is required”.
Honey producer Comvita reports it is continuing to experience strong demand for its complete range of products (in particular Mānuka honey, Propolis, Fresh-Picked™ Olive Leaf Extract) from all markets over the last month.
“For example, we are seeing the best sales of Fresh-Picked™ Olive Leaf Extract in over seven years. We see good evidence that consumers are actively choosing products considered to support general immunity.
“We have good stock levels in market to support this demand and are in the process of moving extra inventory into market. At this stage there are no supply or logistic constraints, although this may change as the world’s response to COVID-19 changes.
“In addition, this year’s Mānuka honey harvest is looking very positive with volumes improved by around 50% over the prior season including improved average UMF™ quality profile. Testing of all new season honey will be concluded by the end of April”.
Comvita says it is currently trading profitably, is generating positive operating cashflows and paying down debt.
In the health sector, Fisher & Paykel Healthcare (whose shareprice has touched record levels this month) told the market it has been designated an essential service and will continue operations in its Auckland facilities. It has ramped up manufacturing output and this will continue under the Level 4 alert status.
CEO Lewis Gradon says the company is continuing to focus on meeting the global demand for respiratory products that are directly involved in treating patients with COVID-19.
“We are very appreciative of the support that we have received from our suppliers to date. We ask them to continue to work with us, as essential suppliers of raw materials, components, logistics and other services that are directly required for us to manufacture and supply critical respiratory products”.
Gradon says it is a rapidly changing situation.
“We are monitoring any developments closely and will proactively share further updates as we are able”.
This week F&P Healthcare, now NZ’s biggest company on the NZX by market capitalisation, moved as high as $30.90 and as low as $27 in just one trading day.
AFT Pharmaceuticals, in its market update, says it expects revenue for the year to March 31, 2020 to rise to more than $100m from $85.1m in the same period a year ago.
Products in high demand include cold and influenza medicines, hospital antibiotics and Vitamin C Liposachets®.
Managing directgor Dr Hartley Anderson reports:
“AFT continues to monitor developments related to the Covid-19 pandemic closely. We took a number of steps early in the year to prepare for the outbreak such as ordering additional quantities of stock above our standard 3-month safety stock levels.
“Most of our supplies are normally delivered by sea freight which has been less effected by the significant reduction in airfreight capacity, we have seen as the outbreak has progressed. While we cannot rule out supply disruptions, at present we are confident we can continue to deliver the products our customers need.
“Covid-19 represents a very real and distressing health threat to millions of people around the world. AFT’s mission in Australasia is to deliver our products to pharmacies and hospitals to help people’s health, especially in these difficult times. We are working very hard to ensure we continue to deliver on this goal”
In the transport sector, Port of Tauranga, classified as an essential service, reports it continues to operate though some of its customers, classified as non-essential services, will suspend shipping during the lockdown.
CEO Mark Cairns says major exports, including meat, dairy products and kiwifruit, are classified as essential cargoes while imports of oil products, food and medical supplies are also essential cargoes.
“However, log and other forestry product exports will be significantly impacted as they are currently considered a non-essential cargo.
“This is unfortunate as we were seeing positive signs emerging in China, our major log export market. Business there had been returning to normal with log consumption recovering towards pre-Chinese New Year levels.Under the current circumstances the Port of Tauranga Board considers it prudent to suspend profit guidance for the time being.”
Cairns said the company has total committed debt facilities of $560m, of which $57.3m is undrawn. Only $5m of these debt facilities mature in 2020.
“We have also secured an increase to, and extension of, our debt facilities that were maturing in January 2021. Our banking partners have been very supportive and we have experienced no issues with the routine increase and extension of these facilities”.
So the company remains in a strong position to weather the impact of the pandemic.
“We comfortably paid our interim dividend of $40.8m on March 20. We have a strong balance sheet and continuing strong operating cashflows from our diversified business”.
Cairns said Port of Tauranga’s focus is on protecting the health and safety of its people while ensuring essential cargoes flow unimpeded through the port.
“We are committed to ensuring that vital food, medical supplies and other cargoes get to those who need them” .
NZ’s big logistics operator, Mainfreight, reported year-to-date trading, including results from January, February and early March 2020, remains ahead of the previous year.
“While we have seen a decline in air and sea freight to and from our Asian operations, trading across other international trade-lanes, and domestically within NZ, Australia and Europe continues at reasonable levels.
“More recently, China volumes are re-emerging as factories and ports return to normal operations.
“The Americas, while ahead of the previous year in our domestic businesses, have had greater exposure in our Air & Ocean business to Asia down-trading.
“Although we are heading into a period of uncertainty, the world’s freight trade-lanes remain open. Our experience in China has given us some knowledge of how to operate in this new environment.
“All 275 of Mainfreight’s branches world-wide are open, and our team is moving freight and supporting the flow of supplies on behalf of our customers.”
Freightways also looks in good shape. Besides its own freight activity, it is set to integrate the operations of Big Chill, which it acquired late last year. It gained Overseas Investment Office approval this month for the purchase.
Tech company Eroad, confirming it has been designated an essential service by the government reported the US government has classified ‘trucking’ (its primary customer segment) as an essential service in the US.
“We are awaiting clarification from the Federal and State Australian Government on the essential services status. EROAD’s products and services support the supply chain and activities of essential transport and service providers across NZ, US and Australia.
“EROAD’s priority as the world fights this global pandemic is the safety of our EROAD team and supporting our customers, many of who provide essential transport and services across New Zealand, United States and Australia. EROAD is well equipped and prepared with our global business continuity plan which is now activated”, CEO Steven Newman reported.
“ Our business continues to operate effectively through our cloud business system stacks, communication tools and IT infrastructure:
“• In NZ working from home was tested last week and enacted from 23 March. The transition of call centre roles to home based began last week, with no issues seen from a customer perspective;
“• Our Oregon office has been working from home since 16 March with no issues arising from a customer or technical support perspective;
“• In Australia the sales team works remotely so no change to their way of operating; and
“• All customers and suppliers now meeting via digital channels or phone.”
Newman indicated there is some temporary disruption in the manufacturing of Eroad’s EHUBO units with new government restrictions around the world.
“However our current inventory levels are able to support essential transport and service customers until at least the end of May in NZ and at least the end of June in the US”.
In the agricultural services sector PGG Wrightson confirmed it will pay the 9c interim dividend on April 3. but the board has decided to withdraw its current guidance. Earlier it had forecast operating Ebitda guidance of around $30m for the financial year to June 30 (excluding changes due to the lease accounting standard), while noting the potential for volatility to earnings due to impacts of the COVID-19 virus on agricultural trade flows.
“In view of the unprecedented events in recent weeks that have seen the COVID-19 virus designated as a global pandemic, the Board has determined that it is prudent to withdraw PGW’s current guidance and place this under review until such time that the impact on earnings can be more accurately assessed.”
PGW chairman, Rodger Finlay said that with NZ going into ‘lockdown’, and with many international trading partners in the grips of responding to this pandemic, it is too soon to assess with certainty all the flow on effects to our trading performance.
“While we consider this is the prudent action to take to inform the market, the Board nevertheless considers that PGW is well placed to come through this challenging period positively. I
“In terms of the high level fundamentals, PGW has a strong balance sheet and has recorded a solid first half result and we also consider that the company has an important role to play in continuing to serve our farming and grower customers through the lockdown as a provider of essential services to the agricultural sector.
“Whether it is changing our ways of working so we can continue to safely serve customers at our Rural Supplies and Fruitfed stores or providing alternative solutions such as the use of the online bidr® trading platform for the trading of livestock, I have nothing but gratitude for the resourceful approach our people are taking. I don’t doubt that agriculture and horticulture will play a key role in how New Zealand comes through this challenging period and it will also be a critical part of the economic recovery on the other side and PGW will have an important role throughout that story.”
Electricity company Mercury told the NZX it is suspending construction work across its sites as required by the government’s COVID-19 directions. This includes the standing down of activity at its Turitea wind farm in the Manawatu for a period of time. Acting CEO William Meek says Mercury’s focus must be on the safety and wellbeing of our people while maintaining energy supply and services to customers and for NZ through this time of uncertainty.
“As non-essential construction work must be halted as part of NZ’s response to COVID-19, Mercury in conjunction with its contractors has immediately started securing its Turitea wind farm construction site and putting a temporary hold on certain other work currently in progress.
“The Turitea wind farm’s northern zone turbines were scheduled to be generating electricity this coming summer, with the remaining southern zone turbines expected to be completed late in calendar year 2021. Commissioning is expected to be delayed by the duration of any suspension although efforts will be made to accelerate work if and when safe and practical to do so”.
Ultimately the $464m project is expected to add $55m to Mercury’s Ebitdaf(northern zone $30m/southern zone $25m).
Mercury will monitor Covid-19 response levels.Mercury’s geothermal well drilling programme at Rotokawa will also be paused while the government’s Level 4 alert levels are in place.
Important planned maintenance activity will be completed at some power stations to return generating units to service essential to the country’s electricity security of supply during winter.