Coronavirus - 17 September 2020


• New measures in the North East of England

• John Lewis cancels staff bonus

• Kia closes two plants in Seoul

• 170 countries join WHO vaccine distribution plan

• New Zealand’s GDP shrank by 12.2% in Q2

Company news

Buildings & Construction

• Breedon – “Breedon has continued to deliver an encouraging trading performance since demand began to return in early May after the Covid-19 lockdown, with the improving trend that we reported for June and July at the time of our interim results continuing into August. The group delivered revenues for the first eight months of the year of £531m (2019: £624m), including a one-month contribution from our recently acquired CEMEX assets in the UK. Outlook. The board has reviewed the latest management forecasts and is now in a position to reinstate guidance for the 2020 financial year. Accordingly, we currently anticipate delivering second-half underlying EBIT broadly in line with the second half of 2019, which would deliver a result in excess of the average of current full-year market expectations.”


• IG Group – “The business performed very strongly throughout the first quarter, delivering net trading revenue of £209m, 62% higher than the same period in the prior year (Q1 FY20: £129.1m). Performance was driven by a combination of continued high levels of trading activity from existing clients and growth in the active client base, with 201,500 total active clients, up 50% on the prior year.”

• Morses Club# – “Sales for the 26 weeks to 31 August 2020 were £51.2m, compared to £82.2m in the 26-week equivalent period in H1 FY20(1), a decline of 37.7%, and compared to £85.5m reported for the 27-week period to 31 August 2019. Sales have recovered during the period from the initial reductions experienced in April and May 2020. This reduction in April to June 2020 was due to lending only being available to existing customers. The Company attributes the slight reduction in August 2020 to the impact of the various regional lockdowns across the UK. The table below shows monthly HCC sales from the beginning of FY21 as a proportion of the equivalent month in FY20.

Customer loan repayments for the 26 weeks to 31 August 2020 were £104.5m, compared to £133.2m in the 26-week equivalent period the previous year, a reduction of (21.6%) and £138.2m reported for the 27-week period to 31 August 2019. Repayments remained much more consistent during the period. The table below shows the monthly breakdown of loan repayments from the beginning of FY21 as a proportion of the equivalent month in FY20. Morses Club’s primary measure of collections performance is measured by the amount of cash the company collects against anticipated collections.

As previously reported, the group achieved a strong performance of 98% in July which marginally reduced to 97% in August, which the company believes is attributable to the impact of the commencement of regional lockdowns across the UK.”

Food, Drinks & Household

 Co-op – “The Co -op continues to operate in highly competitive markets and against the backdrop of a worsening consumer economy. In addition, the business is planning for and dealing with further local lockdowns as the Covid - 19 pandemic continues. Over the second half:
• In Food, the competition is set to intensify but we remain well positioned. We have already resumed our store opening programme and have made a commitment to invest £130m in opening 50 stores, giving 15 stores significant extensions, and giving 100 further outlets major makeovers, creating 1,000 jobs before the end of the year.
• In Funeralcare, the exceptional impact and challenges created by Covid-19 will continue into the second half of the year. Since the end of the first half, the Competition and Markets Authority (CMA) published its provisional findings into the market. The Co -op will continue to work closely with the CMA through the remainder of process
• The insurance market will remain highly unpredictable, with travel restrictions changing regularly and government regulation around housing causing market spikes. However, we expect to strengthen our insurance presence from Q4, following completion of sale of underwriting business and increased focus and investment into product and distribution business. ”

 Hilton Food Group – “Performance in the period saw volume growth of 22.6% attributable to our new Australian facility, UK and increased home consumption driven by Covid. Revenue and profit also increased the latter despite increased Covid -related costs. Operating margin was lower at 13.2p per kg (2019: 13.8p per kg) and the margin was 2.5% (2019: 2.9%) mainly due to higher Australia unit revenues, more resourcing and also Covid -related costs. We have not sought or received any governmental assistance or support including no use of furlough in our production facilities. There have been no Covid -related changes to employee pay and conditions and no redundancies. Employees having to isolate due to the virus have remained on full pay. In addition, there have been no commercial changes in trading with our suppliers and customers. ”


 Clinigen – “Trading to date at this early stage of the current financial year is in line with market expectations, with the impact of Covid -19 continuing, but at an improved level from Q4 FY20. The group’s medium -term guidance is for future organic net revenue growth to be between 5% to 10%, with FY21 expected to be at the lower -end due to the impact of Covid -19, which is expected to subside, and an expected launch of a generic Foscavir in the EU. Given the above and the timing of contracted Proleukin shipments, H1 is expected to be below the prior year followed by a return to growth in H2. This will be more evident within Commercial Medicines and Unlicensed Medicines where the impact of Covid -19 has been greater.”

Oxford BioMedica# – “With the growth of the group’s partner programmes to 20, the group expects the underlying lentivector-based revenues to continue to grow from bioprocessing and commercial development activities and, as previously observed, the group expects a stronger second half to the year. In addition, the partnership with AstraZeneca for their potential Covid-19 vaccine (AZD1222) is likely to boost revenues in the year in excess of £10m subject to successful scale up and regulatory approval of the fourth bioprocessing suite within Oxbox early in the fourth quarter of 2020. Operating EBITDA for the Group is expected to be in the low to mid-single digit range for the year on this basis.”

 Spire Healthcare – “The cancellation of elective procedures during the peak of the Covid-19 pandemic has resulted in significant demand in both the NHS and private sector. The NHS England contract variation will provide a phased transition back to a more balanced business with a definitive end date of 31 December 2020 at latest. Spire Healthcare expects to participate in the tender for NHS waiting list work and expects greater visibility from this payer in 2021 as a result. It is challenging to set future expectations given the current uncertainty with Covid-19. The Group will remain within the NHSE contract for most of 2020 and if current trends continue, the board expects operating profit in H2 2020 to be at least in-line with H1 2020. December 2020 net bank debt is expected to be in the range of £320m to £360m. There has been a return of private activity since lock down and there is significant national unmet demand for both private and NHS procedures. Subject to any significant change in the Covid environment, the board anticipates trading returning to 2019 levels in 2021.”


 John Lewis – “Sales were a touch higher than last year – up 1%. But shoppers spent more on less-profitable lines such as laptops and loo rolls. We benefited from government support through the furlough scheme, which we exited at the end of July, and business rates, which helped to offset £50m of additional pandemic-related costs like safety equipment. In John Lewis, online sales growth was strong at 73%, helping to offset the impact of shop closures, with overall sales down -10% on last year.

Sales momentum is starting to build in reopened stores, with sales down around 30% on last year, ahead of expectations. Stores in retail parks are down by around 15% and are doing better than city centres, especially London which is down around 40%. Home working has had a big impact on what people are buying – more TVs and tablets, fewer trousers and trainers. Online now accounts for more than 60% of sales, from 40% before the pandemic. As a result of this pronounced shift to digital we had to reassess how much shops contribute to whether our customers buy online with us or not. Before the crisis we believed that shops contributed around £6 of every £10 spent online. We now think that figure is, on average, around £3.

This has the effect of reducing the book value of John Lewis shops by about £470m, known as an ‘impairment’. This is a technical adjustment in our accounts and has no impact on our underlying profits or cash in the bank. There is some judgement here. If shops drove 10% more online sales in future, the impairment would be around £400m; 10% less and it would be around £570m.

In Waitrose, like-for-like sales were up almost 10% on last year. The early days of stockpiling pasta and long life milk have given way to a varied basket with more fresh produce and a return to the weekly shop. Demand for online shopping remains strong and we are now delivering around 170,000 weekly orders, up from around 60,000 before the pandemic. The average basket size is four times bigger for home deliveries than in store.”

 Next – “Brand full price sales in the first half of this year were down -33% on last year and total sales (including markdown sales) were down -34%. Profit before tax in the first half of the year was £9m (on a pre-IFRS 16 basis) and we reduced our net debt by £347m to £765m. In the last thirteen weeks (since our stores reopened) Brand full price sales have been much better than we anticipated, down -2% on last year. Unfortunately, we believe that recent sales are very unlikely to be indicative of our sales performance for the rest of the year. We believe that sales in August and September have been boosted by:
• Far fewer people taking overseas holidays in August
• Cool weather at the end of August and over the bank holiday boosting sales of Autumn weight clothing. This contrasted with a bank holiday heat wave the previous year. Our new central scenario assumes that sales will be down -12% for the rest of the year. This may sound pessimistic, but we believe that it is realistic for the following reasons:
• Furlough comes to an end in October, with all the economic discomfort that is likely to bring
• The onset of colder weather might worsen the effects of the pandemic and the measures required to contain it
• The recently implemented social distancing rule (the ‘rule of six’), if still in force in December, is likely to depress demand for gifts and clothing associated with traditional Christmas family get-togethers In our downside scenario we assume that full price sales will be down -34% for the rest of the year. This scenario reflects a level of sales decline that seems likely if we experience more widespread lockdown measures and store closures. The upside scenario assumes full price sales are down -4% for the rest of the year and almost certainly represents the top end of what is achievable with the stock that we have bought for the second half.”

Support Services

 Kier# – “Revenues in the year fell 15% to £3,476m, primarily due to the effects of Covid-19 on the last three months as well as the challenging market conditions through the year affecting both Construction and Infrastructure Services, where revenues were down 15% and 10%, respectively. This was in part due to several long-term investment programmes concluding in the year, including the Road Investment Strategy 1, but these have been offset by new project wins that result in our order book remaining flat at £7.9bn. Group operating results, both before and after adjusting items, reflect these revenue reductions and the impact of direct related Covid-19 costs offsetting the benefits made through the realisation of significant overhead cost savings and the inclusion of £9m arising from the IFRS16 accounting change.

The realisation of cost savings, along with the progress made in the delivery of the strategic priorities, has resulted in restructuring related charges of £156m in the year, which the Group has classified as an adjusting item. The first nine months of the year reflected the progress in the steps which had been taken to simplify the group. We substantially exited our Environmental Services business, reduced capital in our Property business and significantly reduced our cost base. We continue to expect our cost saving programme to deliver at least £100m of annual run rate savings by 30 June 2021.

We strengthened the management team, launched our Performance Excellence programme across the Group and published our new Operating Framework, both of which are underpinned with a refreshed set of values, and all of which aim to drive future profits and cash flows. Despite decisive management actions taken to mitigate the effects of Covid-19, trading in the final quarter was adversely affected by the pandemic, notably in the key months of May and June, and this resulted in net debt being higher than forecast.”


• Keywords – “Trading in July and August has started strongly with all our service lines performing well, even with the continued operational and market disruption resulting from Covid-19. We are still seeing some constraints particularly to our recruitment efforts but these should ease as governments rein in some of the Covid-19 specific support measures to individuals, thereby encouraging them back into the work place. Despite the Covid-19 disruptions, revenue for H1 2020 increased by 13.3% to €173.5m (H1 2019: €153.2m).

Total revenue growth was supplemented by the impact of acquisitions made in 2019 and the impact of currency movements, in particular the strengthening of the US dollar against the Euro between H1 2019 and H1 2020, which contributed 1.7% pts of the growth in the first half. Organic revenue growth (which adjusts for the impact of currency movements and acquisitions) was 8.0% driven by a robust performance in most service lines, despite the closure of most of our studios in March and the move to work from home arrangements, and a particularly strong performance in Game Development which delivered organic growth of 25.7%. Whilst we saw continued strong demand for most of our services, all of our service lines were held back due to studio closures, particularly in our Testing and Audio businesses, while Localization was held back by some short-term client disruption, which caused delays to content flowing into the service line.

• Gross margin - Gross profit in H1 2020 was €62.9m (H1 2019: €55.2m) representing an increase of 13.9%. The gross profit margin improved by 0.2% pts to 36.3% (H1 2019: 36.1%) albeit the margin improvement was held back by the revenue shortfalls from March onwards compared to preCovid-19 expectations, particularly in our Testing, Audio and Localization service lines.

• Operating costs - Adjusted operating costs increased by 9.1% in the first half of the year to €32.1m (H1 2019: €29.4m) representing 18.5% of revenue versus 19.2% in H1 2019. This was partly driven a reduction in certain costs including travel and marketing as a result of the lockdown restrictions.”

Trainline – “Q1 FY 2021: government measures to curb the spread of Covid -19 resulted in a significant slowdown in all the markets in which Trainline operates. The impact was particularly marked in the first quarter of the financial year, when industry passenger volumes in the UK fell to c.5% of the same period in the prior year through April and May, with similar declines across International markets.

Trainline also processed a significantly higher number of refund requests (more than 2 m in the UK alone). As a result, Group net ticket sales in Q1 declined to £79 m, equivalent to 9% of the same period in the prior year. Q2 FY 2021: Group net ticket sales in the second quarter stepped up to £280 m - equivalent to 30% of the same period in the prior year – as operating conditions began to recover.

This followed the relaxation of government lockdowns and social distancing measures, first in International markets and then several weeks later in the UK. There was also a notable shift of ticket volumes to online and digital channels. Group net ticket sales improved throughout the quarter, exiting in August at 42% of the equivalent prior year period.

• UK Consumer net ticket sales of £154 m was 30% of the equivalent prior year period - compared to Q2 industry passenger volumes at 24%1 - and improved over the quarter to 46% in August. This reflected an accelerated shift to online and digital ticketing, as well as a significant step up in new customers to Trainline in the second quarter.

• UK Trainline for Business (UK T4B) net ticket sales of £21 m was 7% of the equivalent prior year period, up from 1% in Q1, and improved over the quarter to 15% in August. While trends improved over the second quarter, demand for business travel remained subdued and the White Label business continued to be impacted by season ticket refunds.

• International net ticket sales of £105 m was 74% of the equivalent prior year period, up from 10% in Q1, and at the end of the quarter in August was at 78%. The International business has recovered more quickly than the UK, primarily reflecting a much earlier relaxation of lockdown and social distancing restrictions in those markets. ”


• John Lewis has confirmed that staff will not receive a bonus this year, for the first time since 1953.The retailer posted a £635m pre -tax loss for the six months to 25 July after higher costs offset a 1% rise in sales.

• A £546m funding package to help protect care homes from coronavirus over the winter is to be announced in the UK.

• Kia Motors has suspended production at two factories near Seoul, after eight workers tested positive, and sent all 6,000 workers home.

• New Zealand’s GDP shrank 12.2% between April and June, the largest quarterly fall since such records began in 1987.

• South Africa’s president has said he will start to lift the majority of the country’s restrictions, which were some of the strictest in the world.

• The global economic recovery from the coronavirus pandemic may take as much as five years, the World Bank’s chief economist Carmen Reinhart has said. Australia’s employment rebounded with 111,000 more jobs in August compared with July. The Australian Bureau of Statistics labour force data, released on Thursday, confirms Australia’s two-speed economy, with unemployment falling overall by 0.7% to 6.8%, but rising in Victoria to 7.1% after the loss of 42,400 jobs.

• New measures are being introduced in the North East of England: Newcastle, Sunderland, South Tyneside, North Tyneside, Gateshead, Northumberland and County Durham.

• No socialising with people outside of their home or support bubble

• Restaurants only able to offer table service

• Restaurants, bars and pubs to shut between 22:00 and 05:00.

• The World Health Organization Chief Dr Tedros has said there are now more than 170 countries participating in its plan to distribute vaccines fairly around the world, ahead of a Friday deadline for entry to its Covax vaccine facility.

#Corporate Client of Peel Hunt