In an attempt to rebuild its balance sheet, Rolls-Royce (LON: RR) has revealed plans to raise £2bn from shareholders.
The aircraft engine-maker will be raising a total of £5bn through shareholders, a £1bn bond offering, and £3bn worth of loans.
Rolls-Royce shares plummeted 8% on Thursday morning. They have fallen 80% since January as the group has been battered by the effects of the pandemic.
For the first half of the year, Rolls-Royce revealed a £5.4bn loss.
Shareholders will vote on the 27 October.
Warren East, the chief executive at Rolls-Royce, said in a statement: “We are undertaking decisive and transformative action to fundamentally restructure our operations, materially reduce our cost base and improve our financial position. The capital raise announced today improves our resilience to navigate the current uncertain operating environment.
“By raising additional capital now, we will improve our liquidity headroom and reduce our level of balance sheet leverage, while supporting disciplined execution and investment to ensure we maximise value from our existing capabilities.”
The company is offering shares at a discounted price. They are being sold at a 41% discount to Wednesday’s closing price of 130p per share.
On Rolls-Royce’s plan to raise money through shareholders, Susannah Streeter, a market analyst from Hargreaves Lansdown, said:
“Rolls-Royce reckons going cap in hand to shareholders to raise £2bn is the least worst option, to help it deal with the crushing impact the pandemic has inflicted on its core business. This should all give Rolls Royce a lot more room for manoeuvre to help it navigate the Covid crisis.”
Rolls-Royce shares (LON: RR) are currently trading -10.12% at 116,85 (0932GMT).
New figures from the Office for National Statistics (ONS) have consolidated suspicions that the UK economy suffered its largest quarterly fall on record between April and June this year due to the impact of the coronavirus pandemic.
Gross domestic product – GDP – fell by 19.8% in the second quarter of 2020, in what has now been confirmed to be the largest decline on record. The figure is, however, marginally lower than the previous estimate of 20.4% that the ONS initially put forward in June, citing the “significant shock” of lockdown on the fragile economy.
The almost 20% free-fall is the largest since records began in 1955, but the Bank of England’s chief economist, Andy Haldane, warned against the temptation to slip into “contagious pessimism” about the UK’s chances of recovery.
He warned that “catastrophising” the fall earlier in the year was detracting attention from the economy’s bounce back in recent months.
“Averting an economic anxiety attack calls for a balanced and flexible approach to the words and actions of businesses and policymakers. Encouraging news about the present needs not to be drowned out by fears for the future”.
Haldane added that he was not personally in favour of introducing negative interest rates to further boost the UK economy, as speculation rises that the Bank of England may implement new measures as equities waiver over fears of a second wave.
Douglas Grant, director of Conister – a business and personal finance bank owned by Manx Financial Group (LON:MFX) – commented on the latest ONS figures, expressing concern for small and medium-sized businesses (SMEs) in the increasingly competitive environment, driven by both Covid-19 and long-standing Brexit grievances:
“The confirmed sharp decline of the UK’s GDP reflects the tough landscape faced by many UK businesses, especially SMEs who are having to work particularly hard to stay afloat.
“For the SME sector, which is entering the final quarter with the challenges of 2019 and 2020 – Brexit and Covid-19 – bundled into one, it is vital that we continue to open new channels for distributing much needed liquidity.
“SMEs have shown a great deal of adaptability and resilience in the face of changing consumer behaviour and as such it is critical that the government schemes – working in partnership with specialist lenders – continue to support the sector so that we can return to pre-crisis growth levels as soon as possible and avoid the downward spiral of output and job losses”.
TSB – owned by Spanish firm Banco de Sabadell (BME:SAB) since 2015 – has seen its shares emerge unscathed on Wednesday afternoon despite the news that the bank plans to shut 164 branches and cut up to 1,000 jobs across the UK.
Blaming the decline in customers visiting high street banks on the coronavirus pandemic, TSB announced that the store closures were a reflection of the shift in customer attitude towards the more efficient and easy-access online banking systems.
TSB is just the latest in a slew of high street brands to post job losses and store closures this year, following in the footsteps of John Lewis (LON:JLH), Pizza Express (HKG:3396), and WH Smith (LON:SMWH).
The retail sector was hit especially hard by the pandemic as lockdown measures forced thousands of companies to close their doors to customers between March and June. Even as stores reopened over the summer, high street footfall is still well below average for the time of year – 33% less year-on-year according to data collated by the British Retail Consortium (BRC) and Shoppertrak.
High street banks, in particular, have faced mounting competition from online operations, which proved a lifeline for millions in managing personal finances during the peak of the pandemic when access to in-store customer service was reduced.
TSB noted that it has been registering some 4,000 new customers per day on its digital app, compared to just 1,200 before the pandemic, and has seen more than 90% of its transactions handled digitally this year.
Chief executive Debbie Crosbie commented on the company’s announcement:
“Closing any of our branches is never an easy decision, but our customers are banking differently – with a marked shift to digital banking.
“We are reshaping our business to transform the customer experience and set us up for the future.
“This means having the right balance between branches on the high street and our digital platforms, enabling us to offer the very best experience for our personal and business customers across the UK”.
The Unite trade union, which represents TSB employees, stressed that it was not just the bank’s workers, but also its customers, that would be hit by the planned closures.
Dominic Hook, a Unite national officer, warned The Guardian on Wednesday:
“The financial services industry has a social responsibility not to walk away from its local customers who continue to need access to banking in bank branches”.
The job cuts and store closures are not expected to be finalised until next year, but TSB has assured that 94% of its customers would still be located within 20 minutes of a high street branch.
Shares at TSB’s parent company Banco de Sabadell have remained surprisingly resilient despite the announcement, up 4.80% to 0.30 EUR at 14:45 BST, but still down from a monthly high of 0.39 EUR earlier in the month.
Banco de Sabadell has not managed to escape the pressure of the pandemic entirely, however. Its shares have slipped considerably from a peak of 1.07 EUR at the start of 2020, but investors may be comforted in the knowledge that they appear to have levelled out in recent months, staying roughly within the range of 0.26-0.35 EUR.
AIM listed Tertiary Minerals (LON:TYM) is a mineral exploration and development company building and developing a multi-commodity project portfolio of precious metals and base metals in Nevada, USA, plus it holds some industrial mineral assets in northern Europe.
In an update on progress with its projects today, the company said that following unsuccessful metallurgical testwork, it had decided to terminate the lease agreement on the MB Fluorspar Project in order to fully focus on its expanding gold and base metals project portfolio.
Based on the progress with these projects, this looks to be a shrewd move on the part of management ahead of a series of drone magnetic surveys scheduled this week for the company’s key Peg Leg Copper and Paymaster, Silver, Lead and Zinc Projects.
The surveys will provide 3D imaging of the underlying geology and strata, to help determine future drill targets.
Recently Tertiary completed a drone survey at the Mount Tobin Silver Prospect, and now intends to undertake a soil sampling programme to define drill targets.
Soil sampling will also be shortly underway at the Pyramid Gold Project to extend and confirm historic gold-in-soil anomalies for drill targeting.
With such an intense schedule of activities underway, Tertiary has its work cut out for the remainder of 2020. Despite the challenge presented by COVID 19, work continues apace, with any positive data likely to act as a strong catalyst for a share price that is yet to catch up with events.
Tertiary Minerals shares traded at 0.24p in mid afternoon trade on Wednesday.
Royal Dutch Shell (LON: RDSA) will cut 9,000 jobs as part of a new cost-cutting drive.
The oil giant has suffered amid the pandemic, where the price of oil plummeted.
In the update, the group’s chief executive also revealed plans that push the oil company towards a net-zero emissions energy business in the next 30 years.
“It is very painful to know that you will end up saying goodbye to quite a few good people. I know I, and many others in Shell, will be saying goodbye to people we know well and really like and who have great loyalty to the company. But we are doing this because we have to, because it is the right thing to do for the future of the company,” said Ben van Beurden.
“We have to be a simpler, more streamlined, more competitive organisation that is more nimble and able to respond to customers.
“COVID-19 has shown we can work very effectively in ways we did not think we were ready for yet. But a large part of the cost saving for Shell will come from having fewer people.
“We do not have an exact figure because the details are still being worked out, and we have never had a target to reduce a particular number of jobs. But we can say that, because of the efficiencies we expect to gain, we will reduce between 7,000 and 9,000 jobs by the end of 2022,” added van Beurden.
In the update, van Beurden also said that Shell expects output in the third quarter to drop to 3,050 barrels per day due to the pandemic and hurricanes that forced offshore platforms to close.
It’s been a tough year for Shell, which saw profits plummet in the second quarter by 82% to $638m.
Royal Dutch Shell (LON: RDSA) shares are trading +1.38% at 997,35 (0848GMT).
Boohoo (LON: BOO) saw profits soar 53% in the six months to 31 August.
Despite the pandemic and factory scandal, the retailer’s revenue grew to 45% to £816.5m from £564.9m in the same period a year earlier.
The boost in profits and sales around the world for Boohoo comes at an interesting time. The allegations of the factory warehouse in Leicester led to a backlash among MPs, the general public, and the industry.
The fashion retailer published an independent report on its suppliers in Leicester, accepting supply chain criticisms and causing the share price to recover.
Despite the scandal, Boohoo has reaped the benefits of the shift to online shopping during the pandemic.
“Our business, along with many others, has faced some of its most challenging times in recent months: the onset of the pandemic meant we had to adapt our operations with nearly all office-based colleagues working from home; we introduced new ways of working safely in our distribution centres; and we have comprehensively investigated reports on concerning and unacceptable working practices in our Leicester supply chain,” said John Lyttle, the chief executive.
“There are many challenges still ahead due to uncertainties posed by the COVID-19 pandemic, but despite these challenges there are many positives from our activities in the first half. The resilience of our business model and the commitment and flexibility of our colleagues and partners has enabled us to continue to operate our business successfully.
“We are grateful to all and pleased to be able to report a strong performance with continued high growth rates in revenue and strong profitability. We also acquired two new well-known women’s brands, Oasis and Warehouse, and we acquired the remaining minority interest in PrettyLittleThing, all of which will support our continued growth and profitability.”
Boohoo has upgraded its revenue growth targets from 25% to 28%-32% for the full year. Shares (LON: BOO) jumped 3% in early trading.
With BlackRock (NYSE:BLK) having stated that Joe Biden remains ahead in national polling, data from marginal electoral states suggests that the gap has been closing ever since June – when concerns over the Trump administration’s handling of Covid-19 were at their peak. With some of that momentum having died off in recent weeks, however, two key revelations within the last couple of days might see the tide once again swing in the Democrats’ favour, just days out from the election.
BlackRock Investment Institute, with data from FiveThirtyEight.
Trump taxes, or lack thereof
The first of these revelations was the publication of President Trump’s income taxes by the New York Times on Monday. The reveal, while hardly surprising, puts the incumbent POTUS in something of a logical bind. Either, he accepts that he is a terrible businessman – which his $421 million in loans and debt might corroborate – and therefore not fit to run the largest economy in the world. Or, more likely, his $750 in income tax reveals, much like his famous draft-dodging, that his patriotism is entirely empty rhetoric.
While he might blow the horn of US nationalism, and tout ‘America First’, the reality is that the US as a society comes fairly far down on Trump’s priority list – perhaps somewhere behind his $70,000 on hairstyle expenses. The bottom line is this: he relies on the support of Americans who are proud of their country, without having much regard for it himself. And, while public services remain underfunded, and trust in public institutions remains fraught, we must all conclude that Trump himself embodies the very worst part of the elite he so often castigates.
Decades of tax information that President Trump has tried to hide from the public provides a detailed view of his business career, revealing huge losses, looming financial threats and a large, contested refund from the IRS. https://t.co/9dMTyjE15cpic.twitter.com/sDkQR56swu
Cambridge Analytica scandal – no man of the people, just a man who thinks little of the people
The second, and perhaps more damning revelation, though, was the recent breakthrough on Cambridge Analytica data – and the fact that the 2016 Trump campaign had relied on Cambridge Analytica’s psychographics to shape voter behaviour. While news that the Vote Leave campaign had used Cambridge Analytica’s data services to manipulate voters in a similar way, might have had little impact in the UK, this latest breakthrough might have greater significance in the US for a few reasons.
“I think every voter has a right to see this. It’s crazy that we don’t have the right to see this.”@profcarroll asked for Cambridge Analytica to release the information they held about him.
First, psychographics are a dossier of a person’s personality and psyche, built on myriad data about online transactions, interactions and opinions. And, while an Orwellian thought for most, what makes this subject particularly sensitive in the US, is that American citizens don’t yet have the right to access their own psychographics dossier. Therefore, data about who they are is being used to manipulate their decision-making at crucial junctures, by whoever has the money to pay for said data, and they are not even aware of what the data says about them.
Secondly, Trump is on record, promising that such tactics had not been used. Not only does such manipulation and control completely contravene – and undermine – much of the rhetoric he has spouted against the Democrats (namely that their policies encroach on people’s freedoms), but perhaps represents one of the most disturbing lies of his presidency. ‘I’m here to protect your freedoms from the clutches of the nasty liberal elite – except I’m even worse’ – or something to that effect.
Third, is the timing of this latest revelation. Not only has this scandal broken onto the (at least UK) news cycle just hours out from the first presidential debate – it is also an election scandal, only days out from election day. With all of Trump’s vitriol against postal votes, the potential for legal challenges and the POTUS even threatening to squat in the Whitehouse in the event that the vote doesn’t go his way, the Cambridge Analytica leak by Channel 4 News really should tell voters that he is the wolf in sheep’s clothing.
Whether or not swing voters accept these damning breakthroughs, or whether they’ll be seduced by the Trump ‘stitch-up’ narrative, has yet to be seen. However, just hours out from the beginning of the main election coverage, these revelations couldn’t have come at a better time for team Biden, and might prove costly for team Trump.
Hotel Chocolat (LON:HOTC) made a slightly better than expected profit last year, but the chocolate maker and retailer is likely to lose money this year. Online demand has increased by 150% so far this year.
In the year to June 2020, Hotel Chocolat made an underlying pre-tax profit of £2.4m, down from £14.1m, on revenues 3% ahead at £136m. Second half revenues fell by 14% - reflecting disruption to Easter trading. There is growth in online sales, and they will remain more important than in the past. This indicates the strength of the brand.
VIP members increased by 50% to 1.3 million. Managemen...
Digital TV technology developer Mirada (LON: MIRA) has provided technology to its first major TV service in Europe. This could help it to build up revenues on the continent.
Spain-based Mirada has provided its Iris technology for Zapi, a new digital pay TV platform launched by Plataforma Multimedia de Operadores (PMO). The Iris technology has been used in the Americas, but this the largest contract in Europe so far.
Iris can be used to provide services across all major TV set top boxes and devices. It can integrate services, such as Netflix.
The majority of group revenues have been coming from Mexico and other South American companies. Asia has also been a greater contributor than Europe. Spain will provide a reference for other potential clients in Europe.
Income
Clients like the choice of paying upfront for technology and licences or spreading the cost with a Software-as-a-Service type deal. By its nature the first type of revenues is likely to be more lumpy than SaaS, but there tends to be some revenues from this source each year. Those deals also generate recurring maintenance income.
The deal with PMO is one with an upfront payment plus income from user licences when customers are signed up. PMO expects subscribers to reach 600,000. That means that there will be licence income over the period that these users are signed up, which will be well past the end of this financial year. Even a few dollars per licence would generate a significant income.
Financials
Mirada increased continuing revenues by 13% to $13m in the year to March 2020 and it generated cash. Work was carried out on deployments that should yield growing licence and managed services revenues in the future.
Capitalised development spending was $4.3m last year and this was partly financed by the cash generated from operations and the £2.12m raised from the sale of a non-core business. Net debt was $5.1m at the end of March 2021 and a loan from the major shareholder has been extended to November 2021.
Lockdown has led to increased consumption and take up of TV services, but there were worries that it could delay the finalisation of contracts. The latest launch in Spain and the previous announcement of a service launch in the US Virgin Islands shows that work has been completed on contracts that were previously won.
Interim figures will be published during November. There will be some revenues from the Spanish deal, but there should be a greater contribution in the second half and the following year.
With sustainability becoming an increasingly significant consideration for discerning investors, being able to differentiate between true sustainability and merely a green veneer – or, ‘greenwashing’ – will become increasingly important as time goes on. That is why Tribe Impact Capital wants investors to know the risks of relying on ESG (Environmental, Social and Governance), and how a promising acronym might just be another way of pulling wool over consumers’ eyes.
According to the Tribe analysis, ESG has become a ‘powerful framework’ for businesses to consider their operational risks by using a shared language, and to provide shareholders and lenders with a gauge of the extent to which companies identify and mitigate against these risks.
However, despite encouraging steps in the right direction, and introducing sustainability vocabulary into corporate discourse, a major problem with ESG data sources is that the consumers are led to believe assertions of ‘sustainability’, ‘responsibility’ and ‘impact’ often provided by a singular piece of publicly available information.
According to Tribe, ‘genuine sustainability’ requires engagement with a business’ products, services and history, and needs to be based on data from multiple sources and specialists.
Indeed, if we look at oil and gas blue chip, Shell (although you could pick many), the company posts ESG reports, yet its operations are anything but sustainable or ethical. Indeed, even after undergoing seemingly radical CSR reforms, its operations in Nigeria remain the subject of regular controversy.
Between providing funding for munitions to suppress protestors (as declared in US Embassy cables in 2006); to being complicit in a $1.1 billion bribery arrangement in 2011 (as reported by global witness); tax irregularities valued at $1.67 billion between 2004 and 2012 (ActionAid); and 1,010 official oil spills between 2011 and 2018 (Amnesty), One might think of RDS as a prolific offender.
What makes Shell so interesting, though, is that their CSR initiatives are often touted as some of the best in the oil industry, and that should give us some sense of why using cheery acronyms, such as ESG, is often misleading. According to Tribe’s statement:
“Over the last few years we have seen examples of businesses that would never be recognised as responsible or sustainable, due to certain business practices identified in the impact due diligence process, appearing in active and passively managed funds under an ESG banner across sectors. From the financial sector – a bank getting exemplary scores for governance yet investing billions of dollars into Tar Sands exploration businesses for example, to within the clothing retail sector – where large gaps in data and scrutiny on both the environmental and social impact of production were overlooked.”
“Problems then arise in both hoped-for impact and financial returns. This misrepresentation is misleading to investors and opens them up to the exact risks they were seeking to protect themselves against with a sustainable investment strategy. It is therefore critical investors don’t fall into the trap of taking too much comfort from ESG data’s protective blanket and failing to interrogate a business’ strategy in a more holistic manner.”
The solution Tribe would suggest to this dilemma, would be a greater focus on impact investment. In Tribe’s investments, they focus on businesses working to affect positive change, and they use the UN’s 2015 Sustainable Development Goals as a framework to guide their efforts. Or, as Tickr Co-Founder, Tom McGillicuddy, put it: investing in companies with a business model built around creating a positive impact.
Another solution is put forward by the Temple Bar Investment Trust Director, Dr Lesley Sherratt, who suggests that another way to make companies more sustainable is by institutional investors moving the goalposts of what can be considered Responsible Investment. Using this approach, Sherratt appreciates the majority stake that the likes of pension funds and investment trusts have in buying shares, and states that if they were to apply more limited but demanding criteria, then companies would be obliged to change their business models, in order to be eligible for Responsible Investment portfolios.
