Coronavirus - Curing the fickle mind
16 July 2020
China’s economy returned to growth in the second quarter, with GDP rebounding more strongly than expected and expanding 3.2% in April-June, the National Bureau of Statistics said today. It remains to be seen how much of this was a catch-up of lost production in Q1. Retail sales, a key indication of consumer sentiment, fell short of expectations, shrinking 1.8% YoY last month, showing consumer sentiment is slower to recover. Measures taken by the UK government to encourage the consumer back will be vital in a service-dominated economy.
• UK unemployment rises to 2.6m
• China’s Q2 GDP rose +3.2% YoY
• Nissan plans 30% cut to global production
• Dr Fauci predicts the US will have a vaccine by end of 2020
Buildings & Construction
• Marshalls# – “Revenue for the 6 months ended 30 June 2020 was £210.5m (2019: £280.1m) which represents a decrease of 25% year on year. Trading in June was better than expected with revenue 2% ahead of June 2019, with the benefit of 2 extra trading days. On a like for like basis the June average daily revenue was down 7% compared to the prior year period. This is a significant improvement as April was 66% down on a like for like basis. This improved level of trading has continued in the early part of July. All continuing manufacturing sites are now fully operational and have been reorganised to accommodate appropriate social distancing requirements without any loss of productivity.
Sales to the Domestic end market have been strong, with the survey of domestic installers at the end of June 2020 showing a healthy order book of 12.4 weeks (June 2019: 11.5 weeks; February 2020 9.7 weeks). In the Public Sector and Commercial end market, infrastructure sales remain strong although there remains some uncertainty within the housebuilding sector.”
• Experian – “The Covid-19 crisis has shown the critical importance of data in responding to the huge challenges created by the pandemic and of finding a route to recovery. Through this challenging period, Experian has been working to support governments, hospitals, businesses and charities, and we will continue to provide data and other services to governments and frontline organisations to help get economies back on their feet.
There continues to be a range of outcomes and a level of uncertainty around the extent or re-imposition of lockdowns, government action to support economies and the shape of economic recovery. We therefore do not intend to provide guidance for the year ending 31 March 2021.”
• Morses Club# – “In the Group’s HCC division, both agents and customers reacted positively to the remote customer communication strategy, with over 109,000 customers now registered for the online customer portal compared with c.78,000 at the end of FY20. As announced on 13 July 2020, the Company has recently recommenced lending to new HCC customers via the remote lending process, which has experienced encouraging uptake in its first few days. The Company’s consistently high customer satisfaction levels have been maintained at 97%. Customer satisfaction with the agent service stands at 99%, a considerable achievement given the move from the doorstep to a digital contact strategy due to Covid-19 restrictions.
The Group has also taken the opportunity to implement structural changes to the business, bringing its property portfolio in line with employees’ support for working more flexibly. Morses Club has carefully reviewed its property portfolio and the ability to remodel the Company’s branches to make them compliant with the new regulations issued in relation to Covid-19. Employees who had previously been based at these premises continue to successfully work from home. Morses Club has not furloughed any staff and has not accepted any other government assistance.
• Restructuring at Morses Club’s digital division, Shelby Finance, continues apace, and lending has been robust. Customers have increasingly demanded Shelby Finance’s widening product and digital offering in the period, which has helped the Group to cater for its customers’ changing needs. The digital diversification strategy remains unchanged and the Company is confident that the division will drive growth in the medium term and enable Morses Club to consolidate its position as a leading provider of products and services to the non-standard finance market.
Credit issued and collections – In HCC, credit issued during the first four months of the financial year is 34.0% ahead of the Company’s Covid-19 plan, corresponding to a year-on-year decline of 46.6%. Morses Club is encouraged by the improving sales performance over recent months, with the decline in credit issued reducing from a 72% fall year-on-year in April 2020, to a 50% decline in May 2020 and a 30% decline in June 2020. It is anticipated that, given the recent re-commencement of lending to new customers, this decline will further reduce in July 2020. Furthermore, new lending since mid-April has been of exceptionally high quality as Morses Club extended credit solely to existing high performing customers until July 2020.
Cash collections within HCC in the first four months of the financial year to the end of June 2020 reduced by 19.8% year-on-year, with improving collection rates in recent weeks being offset by a smaller loan book. Cash collections for the first four months of the year are 21.2% ahead of the Company’s Covid-19 expectations, and in June were running at 91% of normal historic expectations when measured against expected terms. These collection rates within HCC are expected to approach pre-Covid levels by the end of August 2020. The percentage of collections completed remotely has risen from 41% as at the end of February 2020 to 80% year-to-date.
As is widely recognised, and the impact of Covid-19 aside, the HCC sector faces a number of headwinds and that trend is expected to continue. Morses Club had 184,000 HCC customers at the end of June 2020, a reduction of 16.4% compared to the end of FY20 and around 18.1% lower than the corresponding period last year. Gross receivables at the end of June 2020 were 22.7% lower than the end of FY20 and 19.3% lower than June 2019.
The Group’s diversification and strategy of growth within its Digital division, Shelby Finance, continues to progress, and we are pleased to report that the performance of the Digital division has been strong, with an increase in customer demand for 6-month and 9-month products. Balances not in arrears within the digital portfolio have increased by 6.9% since February 2020. Collections are currently 20% higher than in the Company’s Covid-19 plan.”
• GVC – “Group net gaming revenue (‘NGR’) down 11% (-10%cc1) and Online NGR up 19% (+21%cc1) in H1. Online NGR grew 22% (+23%cc1) in Q2, despite overall performance being impacted by sports cancellations, demonstrating the strength and diversification of the Group’s geographic, brand, channel and product offering.
During this period of lockdown measures around the world, we have been more aware than ever of our responsibility to provide the safest possible environment for our customers. We continue to focus on providing our customers with the tools to empower them to manage their own play, whilst deploying our market-leading technology to monitor for potentially problematic changes in behaviour and intervene as required. We are pleased that there is no evidence of any increase in problem gambling during lockdown. Hopefully this has also been duly noted by those whose preference for punitive and mandatory restrictions runs the risk of driving customers into the hands of unscrupulous black-market operators, as has been the case in other countries in which stringent and misguided regulation has been introduced.”
• Loungers# – “Loungers has successfully re-opened 75 Lounges and 19 Cosy Clubs (from a total estate of 138 Lounges and 29 Cosy Clubs), following the relaxation of the Government imposed closure period due to Covid-19. We have been very encouraged by the reception from both our teams and our customers. The steps we have taken to ensure everyone’s safety have been well-received and have not prevented us delivering our usual exceptionally high standards of hospitality and atmosphere. As a result of the confidence we have gained from the trading at our re-opened sites to date, we have decided to accelerate our re-opening programme and will have the full estate re-opened by 5 August.
We have decided not to re-open two sites. Banco Lounge in Bristol is one of our earliest sites and a combination of its small size and the additional costs of doing business mean that it no longer meets our returns criteria. Its lease expires in March 2021 and will not be renewed. We have also closed Allegro Lounge which hasn’t performed as we had hoped since opening in 2018. Whilst we are always willing to give each site time to mature, Northfield has proven to be the wrong location for a Lounge and we will ensure we learn from that. We are not considering any other sites for closure.
Therefore, from 5 August we will be operating from 165 sites, comprising 136 Lounges and 29 Cosy Clubs. We look forward to getting the new-site roll-out back on track in due course. We plan to participate in the Government’s ‘Eat out to help out’ campaign and welcome the crucial support our sector has received in the form of the VAT reduction (which applies to 65% of our sales) and the Job Retention Scheme Bonus.”
• Anglo American – “During Q2, the demand for rough diamonds was significantly impacted by a combination of Covid-19 restrictions impacting consumer demand and access to southern Africa, as well as severely limited midstream cutting and polishing capacity due to lockdowns, particularly in India. Rough diamond sales totalled 0.3m carats compared with 9.0m carats in Q2 2019. The third Sight of 2020 was cancelled due to Covid-19-related travel restrictions and, in response to the unprecedented industry conditions, De Beers also offered Sightholders the option to defer up to 100% of their allocations at the fourth and fifth Sights. Rough diamond consolidated sales in Q2 2020 decreased to $56m (Q2 2019: $1.3bn), driven by lower volumes and prices.”
• Biffa – “Trading in the first three months of FY21 has been slightly ahead of the Group’s base case scenario, which was developed at the outset of the Covid-19 pandemic. With the ongoing remobilisation of the economy, the Group is continuing to see a steady recovery in the demand for its essential services. Overall Group revenues, which in April were c.70% of pre-Covid-19 run rates, recovered in June to c.83% of pre-Covid-19 levels. The Industrial and Commercial (I&C) revenues during July are back to over 80% of pre-Covid-19 levels and landfill revenues are over 70% versus their low points in April.
The outlook for the rest of the year is dependent on how quickly the remaining restrictions are eased and the pace and shape of the economic recovery. However, the Board remains extremely pleased with the Group’s performance throughout this difficult period and confident of its future growth prospects.”
• Hays –”The pandemic has severely impacted all our markets globally. As it developed, our priority was to look after all our people and to support our business as it adjusted immediately to new realities. Facing conditions far harsher than any I have known, our business stood up well to that test. I am immensely proud of the commitment and innovation shown by all our colleagues in helping our clients and candidates deal with the crisis. Overall, we have both protected our business, while taking actions to appropriately reduce costs.
Conditions in all regions were extremely tough, although ANZ, the USA and Asia performed better than the Group average, as did IT, our largest global specialism. Overall, Temp outperformed Perm, illustrating the relative resilience of the business we have purposely built. Looking ahead, although the outlook remains highly uncertain there are tentative signs of stability.
In our fourth quarter, ended 30 June 2020, Group net fees decreased by 34% on a headline and like-for-like basis versus the prior year.
Like-for-like net fees in Temp (64% of Group fees) and Perm (36% of Group fees) declined by 26% and 44% respectively. Overall, our largest specialism of IT (29% Group fees) fell by 17%, Construction & Property fell by 44% and Accountancy & Finance by 39%.”
• TP Group – “Despite the significant market uncertainty during the period, the Group announced several material contract wins with a combined value approaching £30m for a range of consulting and critical systems projects. These contracts were awarded by customers across the Company’s key sectors of defence, space and energy, and located in Europe, the Middle East and the Asia Pacific region, reflecting the diversity and global nature of our business.
The Group has also developed a strong pipeline of business opportunities, including significant additional business under the previously announced European Space Agency support framework agreement, anticipated to be received early in the second half of the year.”
• LoopUp – “H1 2020 revenue increased by 43% to £31.9m (H1 2019: £22.3m), driven by the large-scale migration towards working from home associated with Covid-19.
H1 2020 gross profit increased by 52% to £22.8m (H1 2019: £15.0m). Gross margins also increased by approximately 400 BPS to 71% (H1 2019: 67%), driven by particularly strong growth in our higher margin LoopUp Meetings and Event by LoopUp lines of business.
H1 2020 EBITDA increased by 249% to £12.2m (H1 2019: £3.5m), driven by the material increase in gross margin, as above, combined with a modest decrease in staffing and overhead expenses versus H1 2019. EBITDA margins more than doubled to 38% (H1 2019: 16%).”
• SSE – “As set out in its Preliminary Full-Year Results Statement in June, SSE expects the impact of coronavirus on the wider economy to have adverse, albeit temporary, effects on several of its businesses during 2020/21 with the greater impacts likely to be experienced in the first six months of the year. Coronavirus impacts on operating profit for the first three months of trading are in line with our expectations, with the total for 2020/21 still anticipated to be in the range of £150m to £250m before mitigation. SSE continues to keep this assessment under review and will provide guidance on adjusted earnings per share later in the financial year.”
• The number of workers on UK payrolls fell 649,000 between March and June according to the ONS. Since the start of the pandemic, total weekly hours worked in the UK has fallen by a record 175.3m, or 16.7%, to 877.1m hours.
• China’s economy grew 3.2% in the second quarter. The figure is higher than analysts were predicting and points towards a V-shaped recovery in the country. It also means China avoids going into a technical recession – defined as two consecutive periods of negative growth.
• Australia’s unemployment rate is the highest in 22 years, with almost 1m Australians (or 7.4% of the workforce) out of work in June.
• French Prime Minister Jean Castex has announced it will be compulsory to wear a facemask in enclosed indoor spaces from next week.
• Argentina has suspended exports from eight meat-processing plants to China after employees tested positive for coronavirus. According to Argentina’s Agriculture Ministry, 76% of the 328,170 tonnes of bovine meat shipped from the country between January and May were destined for China.
• The government of the Spanish region of Aragon announced Thursday the slaughter of 92,700 mink after a number of the animals tested positive for coronavirus.
• Horseracing at the Del Mar track in California has been suspended after 15 jockeys tested positive for coronavirus. The jockeys are all asymptomatic.
• Nissan is planning a 30% YoY cut in global vehicle production through December, as falling demand due to the coronavirus complicates its efforts to recover profitability.
• If the postponed Tokyo Olympics do not go ahead next year due to Covid-19, then the 2022 Beijing Winter Games are also likely to be cancelled, according to an International Olympic Committee member.
• Asking rents outside London hit a record of £845 per month in early July, up 3.4% on the same time last year. However, in London rents fell 0.6% over the year, with stock levels up 41%, as Airbnb owners abandon hopes of attracting holidaymakers and put their properties on the long-term rental market, according to property website Rightmove.
• A total of 1.30m Americans filed new claims for unemployment support last week, dipping slightly from 1.31m a week ago.