The coronavirus pandemic is having wide-ranging effects on the general trading environment and Walker Greenbank has announced the steps it is taking in response. Manufacturing facilities are temporarily being closed, but the company is still currently able to support customers and sales through carried inventory levels. Consistent with others, actions being taken to preserve business cash and operate within existing banking facilities look sensible. The company has withdrawn financial guidance and, apart from FY20, our estimates have been removed.
Since our last note covering the company’s year-end update, the coronavirus outbreak has escalated to pandemic status. Consequently – after an in line start to FY21 – management has taken the decision to temporarily close UK factories (Standfast & Barracks, Lancaster and Anstey, Loughborough) as well as four showrooms (in London, New York, Chicago and Paris). This is consistent with general government advice and part of heightened cash management disciplines. Customer support teams are working remotely and warehouse facilities in the UK (and US) are still able to fulfil orders currently
Note that Walker Greenbank typically carries significant finished goods inventory and this could be advantageous in meeting customer requirements, albeit at lower expected levels. The company’s cost base is largely variable through the COGS line (and will flex down with production activity), while marketing/promotional and other discretionary costs in opex will also be much reduced. Staff costs (split between COGS and opex) have historically run at c 25% of sales. While revenues are split broadly half UK, half overseas (the US and continental Europe together account for around one-third of the group total), employees are substantially UKbased and government support measures are intended to be used as appropriate.
Management previously noted a pre-IFRS 16 net funds position of c £1m at the year end. We would expect the seasonal net debt swing to be more modest than in a normal trading year and other steps are being taken (eg through quarterly tax and capex lines) to preserve business cash. Walker Greenbank’s existing banking arrangements include a committed £12.5m facility and an uncommitted £5m accordion.
The newly assembled management team will clearly prioritise actions to ensure business stability and cash preservation in the current environment and the execution of a new multi-year strategic plan will inevitably proceed more slowly in our view.