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Industrials

• Luceco – “Our first half results remain in line with guidance given in our pre-close update on 13 July 2020. Since then, our performance has continued to improve and our expectations for full year 2020 Adjusted Operating Profit have increased from at least £18m to at least £23m.

The background to this is as follows:

We continue to out-perform the UK market as a result of our higher share of online / multi-channel capable customers and consumer/DIY markets, where demand has been robust.

As previously announced, activity levels improved steadily in Q2 2020 as lockdown conditions eased. This trend has continued into the second half. The business has good visibility of Q3 2020 trading and we now expect a return to low single digit like-for-like revenue growth in the quarter.

The recent improvement has been driven by:

• Continued recovery in demand from professional / wholesale channels, supplementing the earlier recovery in consumer / DIY markets.

• Some channel restocking in response to a sustained improvement in end-user demand.

The recovery is particularly benefiting our higher margin, in-house manufactured product categories, resulting in increased production efficiency and an accelerated improvement in Group margins. We therefore expect full year 2020 Adjusted Gross Margin of approximately 40.0% (FY 2019: 36.2%, H1 2020: 38.4%).

Whilst the outlook for Q3 is clearer, the prospects for Q4 remain inherently uncertain, dependent on:

• the macroeconomic impact of government stimulus withdrawal on employment, consumer confidence and therefore demand; and

• the ongoing risk of a disruptive second wave of coronavirus infection.

We are confident that a confirmed improvement in near-term demand, improved gross margin and tight control of overheads should deliver full year 2020 Adjusted Operating Profit of at least £23m provided there is no severely disruptive second wave of coronavirus infection in H2. This would yield an Adjusted Operating Margin of at least 14.5%. Significant additional progress is possible if the second half is unaffected by the macroeconomic uncertainty referred to above.”

Mining

• Hochschild Mining – “As mentioned above, Hochschild’s output in the first half was impacted by Covid-19 related stoppages at all our mines lasting from the middle of March until the restart was announced towards the end of May. Production was 126,835 gold equivalent ounces (10.9 million silver equivalent ounces) which was understandably substantially lower than the 2019 figure of 239,090 gold equivalent ounces (20.6 million silver equivalent ounces). Inmaculada delivered a solid start to the year in the first quarter but the stoppage resulted in production of only 79,604 gold equivalent ounces (H1 2019: 132,915 ounces). All-in sustaining costs were lower than budgeted at $777 per gold equivalent ounce, principally due to expenditure on the mine's tailings dam being deferred until the second half of the year. Inmaculada is back in production following the second stoppage in July and expected to be operating at full production capacity by the end of August.

This year has seen precious metal prices continuing the strong rise which started in mid-2019 with fresh impetus coming from the significant fiscal and monetary stimulus initiated by governments and central banks in response to the Covid-19 crisis. Gold has recorded an all-time high recently and silver has reached its highest price level in seven years and we are therefore hopeful of delivering a strong rebound in profitability in the second half of the year provided our people are able to operate safely and experience less disruption. We intend to provide updated guidance when we have assessed the full impact of the suspensions.

We have a very busy second half of brownfield and greenfield activity planned with the aim of adding reserves and resources and identifying new projects for our pipeline. We continue to assess value accretive acquisitions throughout the Americas and are also carrying out development work on our suite of early-stage projects such as Azuca, Volcan and BioLantanidos.”

• Kenmare Resources# – “The ilmenite market remained strong in H1 2020, continuing the momentum of 2019. This led to a fifth consecutive quarter of higher average prices received in Q2 2020. Demand for Kenmare’s ilmenite products continues to be stable and Kenmare has secured offtake agreements for the majority of its ilmenite production in H2 2020.

The effects of Covid-19 are uncertain for the ilmenite market. Downstream demand for titanium pigment has been negatively impacted by lower global economic activity as a result of the pandemic. Some pigment producers reduced production in Q2 2020, which was driven by lower sales, and although downstream market conditions improved as the quarter progressed and into early Q3, pigment production is expected to remain below 2019 levels in H2 2020.

Pigment demand in China strengthened in Q2 as the country emerged from its lockdown, but pigment exports towards the end of the quarter were limited by restrictions relating to Covid-19 in other countries around the world.

Global ilmenite supply remained constrained in H1 2020. This was exacerbated by reduced feedstock supply from China, India and South Africa, as a result of lockdowns, although this was more than offset by reduced demand. As a result of the reduced demand, ilmenite market conditions are expected to become more subdued in H2 2020.

While the pricing outlook for 2021 is uncertain, Kenmare expects to be able to secure contracts for all of its increased production. The medium-term outlook for Kenmare’s ilmenite products remains solid, with demand expected to outstrip supply and additional sources of production required to balance the market in the coming years.

The oversupply in the zircon market continued in H1 2020. This resulted in lower achieved zircon prices compared to Q4 2019, although prices began to stabilise in June and into Q3. As with the ilmenite market, downstream demand for zircon has been impacted by the Covid-19 outbreak, although this has been partly offset by the disruption to supply, particularly in South Africa.



Kenmare expects challenging zircon market conditions to persist in the short term but to improve in the medium term, with global supply deficits emerging due to depleting production from the major mines.”

Support Services

• Softcat – “Following the third quarter update provided in May, the Company has continued to trade satisfactorily during the final three months of the year and has delivered operating profit for the full year slightly ahead of the Board's expectations.

Cash generation also remained strong and it is now the Company’s intention to resume its normal dividend policy and timetable later this year. This will include payment of the interim dividend previously cancelled in March of this year. These actions are dependent upon there being no material adverse movement in prevailing conditions in the period between now and publication of the Company’s full year results, scheduled for 20th October 2020. Details of the final dividend decision will be provided within the October announcement.”

Technology

• Tracsis – “Group revenues are expected to be around £48m (2019: £49.2m) and as noted previously, Covid-19 has had a negative impact of around £10m on overall revenues mainly in our Traffic & Data Services Division, though the impact was much less than originally feared. Under the circumstances, the Board is pleased with the overall revenue performance, which was assisted by a very strong performance from our Rail Technology & Services Division.

Despite the impact of Covid-19, the Group expects to report a pre IFRS 16 EBITDA margin in the region of 20% (2019: 21%). Adjusted EBITDA before the adoption of IFRS 16 and Adjusted Profit are therefore both expected to be less than the previous year (2019: £10.5m EBITDA, £9.7m Adjusted Profit). The majority of the EBITDA has been generated from our Rail Technology & Services Division given that this has largely been protected from the impact of Covid-19 with the exception of a reduction in delay-repay related revenues.

Cash balances at the end of July were circa £18m (2019: £24.1m) after having completed the acquisition of iBlocks Limited in March 2020, making all tax payments due and all payments due in respect of previous acquisitions. This once again reflects continued strong cash generation within the business and provides a strong platform for continued investment in future opportunities and growth.

Our Rail Technology & Services Division has continued to trade very well throughout the pandemic. The performance of this part of the Group is underpinned by high levels of recurring Software revenue. In addition, our Remote Condition Monitoring business has traded very strongly, as have all of our Software businesses which continue to deliver a number of major multi-year contracts. Alongside this, the Group has started delivery of the recently announced major software contract wins which include a large multi-year TRACS Enterprise contract and a large RSSB grant secured by Bellvedi to develop innovative dynamic train planning software over the next two years. iBlocks, which was acquired in March 2020, has traded well since joining the Group, and integration is ongoing and progressing well. The business continues to pursue a number of exciting opportunities in the smart ticketing space, which could be a major growth opportunity.



Despite the impact that Covid-19 has had on clients cancelling and postponing projects within the Traffic & Data Services division we have continued to secure new work during the pandemic, with the most notable sources of revenue being the continued strong performance of Compass Informatics and the delivery of a major contract within our Traffic Data business. The impact of the reduced revenue on profitability has been mitigated to an extent by not requiring casual labour at major events that have not taken place, plus other actions that have been proactively taken to quickly reduce the fixed cost base across this part of the Group.”

Other

• The UK’s inflation rate rose to 1% in July as lockdown measures eased further. The Consumer Prices Index (CPI) rose from June’s value of 0.6%, the Office for National Statistics (ONS) said.

• Finland is bringing back travel restrictions for several countries that it had for months considered safe destinations. Travelling from Iceland, Greece, Malta, Germany, Norway, Denmark, Ireland, Cyprus, San Marino and Japan to Finland would be limited to essential trips from 24 August, with people returning from those countries required to self-quarantine for two weeks.

• Germany is expected to extend its pandemic furlough scheme to 24 months.

• Lebanese authorities announced a new lockdown and an overnight curfew to rein-in a surge in infections. The new measures will come into effect on Friday and last just over two weeks. Areas damaged by the devastating explosion that hit Beirut on 4 August will be exempt from the restrictions, as clean-up efforts continue across multiple neighbourhoods.

• Pizza Express is to close 73 of its UK restaurants, with the potential loss of 1,100 jobs. The chain, which at the moment has 454 UK outlets, said it had cut a deal to reduce rent costs.

• Leading infectious diseases expert Paul Tambyah, senior consultant at Singapore’s National University Hospital and president-elect of the International Society of Infectious Diseases, has suggested the proliferation of the so-called D614G mutation in some parts of the world has coincided with a drop in death rates, suggesting it is less lethal.

• In Aberdeen, restrictions will be extended for another week, Scotland's First Minister Nicola Sturgeon has said. Pubs, restaurants and cafes will remain closed, and restrictions on travel in the city and on households will be in place until next Wednesday at the earliest.

• Global trade in goods is likely to have fallen by a record amount in the second quarter of this year, the World Trade Organization (WTO) says. The data comes from the WTO’s Goods Trade Barometer, a real-time gauge of trends in global trade. The current barometer reading of 84.5 is 15.5 points down on the baseline value of 100.

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