Coronavirus - Leading a horse to water
17 July 2020
Today the UK government signalled its intention to move the country back to some form of working normality. Asking workers to return to offices may appear unnecessary, but the sub economy that services the office user – lunch outlets, coffee shops, etc – will have a different opinion. However, many will see the resurgences around the world as restrictions lift and wonder if it is worth the personal risk; further, some may feel it unnecessary to return, regardless of the status of the outbreak.
• DCC – “Since DCC’s last trading update on 19 May 2020, which covered the first six weeks of the year ending 31 March 2021, the trading performance of the Group has continued to improve in the seasonally less significant first quarter. Trading for the first quarter was resilient and ahead of the Group’s expectations at the time of the last update, although behind the prior year due to the severe lockdown restrictions in place during April and May.
Operating profit in DCC LPG was behind the prior year due to weakness in commercial and industrial volumes, particularly in Britain and Ireland. Notwithstanding a relatively warmer start to the year, the increase in time spent at home by consumers meant domestic and retail cylinder demand was strong during the quarter across most of DCC LPG’s markets.
DCC Retail & Oil performed well in the quarter, driven by good performances from both the British and Danish businesses. The good performances reflected strong demand from agricultural customers and very strong demand in the domestic sector, where customers sought to secure supply during the uncertain lockdown period. Although overall volumes for the quarter were well behind the prior year due to the reduced demand for transport fuels, the positive mix impact of the strong domestic and agricultural performance, the gradual recovery in transport fuels volumes through the second half of the quarter and a good cost performance delivered operating profit modestly ahead of the prior year.
Operating profit in DCC Technology was behind the prior year, although trading improved steadily through the quarter. The business benefited from good underlying demand for consumer technology products in the e-tail and non-traditional retail channels. B2B demand has been impacted more significantly, in particular for products dependent on resellers or integrators accessing business premises.
DCC Healthcare performed strongly during the quarter, with operating profit well ahead of the prior year. DCC Health & Beauty Solutions saw strong demand for nutritional products and benefited from the first-time contribution from the prior year acquisitions in the US of Ion Labs and Amerilab. DCC Vital experienced very strong demand for Covid-19 related products, which offset the impact of substantially lower routine hospital procedures and in-person consultations.
Outlook - Whilst the sustained uncertain environment created by the pandemic continues to impact all economies, DCC has a diverse and very resilient business model as demonstrated during the quarter, leading market positions and an extremely strong balance sheet. The Group is well positioned to continue its growth and development into the future.”
• Gattaca – “Whilst the Covid-19 pandemic has impacted Group performance, trading over the period has been stronger than the Board’s initial expectations following the imposition of the UK-wide lock-down. Trading during April, May and June 2020 has been 41% below last year (contract 36% and perm 52% lower).
Overall, continuing operations’ Net Fee Income (NFI) for the year ending 31 July 2020 is expected to be in the region of £54m (FY 2019: £69m), approximately 22% below prior year. Previous consensus forecasts were £64m. The majority of the shortfall is in UK NFI.
The Group’s international operations have performed better than expected, having implemented cost reductions over the last few months. Our China business is now operationally closed.
During this period, the health and safety of our colleagues has been our key priority. All staff are working remotely and were fully operational within a few days of the lock-down announcement and we continued to win new business both in contract and permanent recruitment. In the UK, we have utilised the Government furlough scheme and the Board, executive management and all staff have taken a temporary 20% salary reduction for a period, with the staff having now been returned to full pay.
As we see some encouraging signs of increased activity, we are beginning to bring staff back from furlough and have reopened our offices following staff engagement and reconfiguration of spaces to be Covid-compliant.”
• Homeserve – “In HomeServe’s Membership businesses, policy renewal and mid-term cancellation rates have continued in line with historic trends in this traditionally quieter period, with no impact from the Covid-19 pandemic. Customer acquisition marketing has now resumed, with initial small-scale campaigns producing better results than expected, notably in the UK and North America. While government guidance only permitted emergency repairs during the lockdown, all claims are now being completed in each of HomeServe’s territories, and customer satisfaction is at record highs reflecting strong service levels during the pandemic. In HVAC, M&A activity has restarted with a strong pipeline of attractive targets and four profitable
acquisitions completed in May and June, with the most significant of these bringing 38,000 new policy customers in Spain.
In Home Experts, consumer demand for home improvements has recovered strongly across all businesses. Call traffic is at record highs at eLocal, while Checkatrade had its largest ever number of consumer web visits in June at 2.76m (June 2019: 1.74m). Among Checkatrade’s 43,000 members, 87% are now paying full monthly fees, with the remainder classed as free of charge affiliate members.”
• Xpediator – “The trading period has, like most of the world, been influenced by the global Covid-19 pandemic. The Group maintained the transportation of essential goods across the UK and Europe during the initial Covid-19 lock-down periods, with the Group now seeing transportation volumes moving back towards pre-Covid-19 levels.
As announced at the time of the final results, trading in the first three months was slightly up on a like for like basis and whilst trading was impacted as a result of lockdown, the Group has performed robustly during the pandemic with steady recovery since April.
The Group’s trading has been assisted by the diversity of its European footprint and we have seen good performance in some of our Central and Eastern European countries that have not been as badly affected by the crisis. Activity in the logistics division has remained broadly stable and transportation services, after a natural period of reduced sales, are gathering momentum.
As a result, the business traded only marginally behind management’s original expectations for the six-month period to 30 June 2020.
Actions taken to mitigate Covid-19 impact - Significant cost reductions were made at the outset of the pandemic, and in combination with the Group’s existing asset light and relatively low fixed overheads model, the impact of Covid-19 on the Group’s cash position and margins has been mitigated. Some of the cost reductions implemented have been temporary, such as voluntary pay reductions and furloughed staff, however a large proportion are permanent and should ensure the business remains well positioned to deliver on its longer-term growth ambitions.
Outlook - The Group continues to see trading volumes moving towards more normal levels but it is still too early to predict with any certainty how quickly our markets will recover, and we therefore remain unable to provide market guidance at this time. However, the business is financially stable and well placed to grow and capitalise on opportunities that may arise alongside the wider global recovery.”
• The UK government has changed its guidance for returning to work to give employers more discretion over where their staff can work. Currently, staff are being advised to work from home where possible. From 1 August, staff will be encouraged to use public transport and talk to their employers as to whether they can return safely. Other sectors of the economy will also be able to re-open, with indoor performances before a live audience being allowed again. Beauty parlours, skating rinks and casinos will be able to re-open their doors but nightclubs and soft play centres will remain shut.
• An extra £3bn of funding will be provided to the NHS over the winter to prepare for a second wave of coronavirus.
• British Airways has said it will retire its fleet of Boeing 747s after a sharp downturn in travel as a result of the outbreak.
• Leicester’s local lockdown has been partially eased, but pubs and restaurants will remain close in the city.
• Catalonia’s regional authorities announced today they will restrict some activities in Barcelona. The measures, which are due to last two weeks, include limiting numbers of people in bars and restaurants and closing down nightclubs, gyms and cultural venues. The authorities have said that people should only leave home for essential errands and that no more than 10 people should gather at once. The measures, which are recommendations and not prohibitions, will affect an estimated four million inhabitants.
• Israel is re-imposing a full lockdown: shops, hairdressers, gyms and fitness studios will be closed, while restaurants, which opened again in May, will return to takeaways and deliveries only. All indoor gatherings of 10 or more people will be banned.
• The US Centers for Disease Control (CDC) has extended its no-sail order on cruise ships. The ban was due to expire on 24 July. This extension will last through 30 September. The CDC noted that from 1 March to 10 July 80% of cruise ships were affected by the virus, and nine are still grappling with outbreaks.
• House building in the US increased 17.3% MoM in June to a seasonally adjusted annual rate of 1.186 million units last month, the Commerce Department said on today. The percentage increase was the largest since October 2016. Data for May were revised up to 1.011 million units, from the previously reported 974,000.
#corporate client of Peel Hunt