Coronavirus - 8 September


• UK weekly deaths fall from 138 to 101.
• School disruption could impact global economic output by 1.5% estimates the OECD.
• Japan’s economy shrank 7.9% in Q2.
• 5-10% of UK furlough payments wrongly paid.
• Further restrictions placed on Bolton, UK.

Company news
Buildings & Construction
• Vistry# – “We have seen a strong start to the second half supported by positive market trends, with our sales rate since 1 July up 20% on the prior year at 0.73 (2019: 0.61) sales per active site per week including Vistry Partnerships.
Pricing remains firm and we see minimal cost inflation, with cost gains to be realised across the Group in the second half and into 2021 from the flow-through of procurement synergy benefits.
We have a record forward sales position with housing reservations (including Vistry Partnerships) totalling £1.86bn (30 June 2020: £1.66bn) and Vistry Partnerships’ contracting forward order book totalling £815m (30 June 2020: £920m).
Assuming stable pricing and current sales rates and productivity levels being maintained, the Group expects to deliver a significant step up in Housebuilding completions for 2021, with all land secured for forecast 2021 Housebuilding units. The Partnerships business is fully focused on the growth of its high margin mixed tenure revenues, as well as a strong contracting order book, with a target of an operating margin of at least 10% in 2022. Combined, the Group has the ability to deliver at least £310m of profit before tax in 2021.”

• International Personal Finance# – “We are encouraged by the extent to which our businesses are now stabilising into a ‘new normal’ operational environment, and we have achieved month-on-month improvements in collections efficiency from 76% in April to 88% in June, and further improving to 96% in August. The phased reopening of our European economies began in May as government restrictions were eased or lifted which enabled almost all our agents to resume weekly visits to their customers during June, and this remains the case.”

Food, Drinks & Household
• Bakkavor# – “Covid-19 has had a significant impact on our overall performance during this period. Our business in China was severely impacted towards the end of January, and our UK and US businesses, which started the year very well, experienced a sharp reduction in sales volumes in the last week of March and into April. This situation improved into May and June as volumes in all three regions started to stabilise and show early signs of recovery. However, markets remain volatile and consumer habits continue to adjust.”

• Fevertree – “Whilst the long-term aspirations of the Group remain unchanged, this year's performance will be impacted by the challenges and uncertainties Covid-19 has created, most notably the closure of the On-Trade across our regions for a significant proportion of the year followed by what we expect to be a gradual reopening. We are well positioned to benefit from the reopening but remain mindful of the impact of continued social distancing implications alongside the risk of further local or national lockdowns as the year progresses.
Given the level of uncertainty and the dynamic nature of the situation, the impact of Covid-19 on the remainder of the financial year is still hard to predict. However, on the assumption of no further significant lockdowns in our regions as seen in the second quarter this year, and a continued gradual recovery of the On-Trade, and incorporating the acquisition post-period end of GDP, we expect FY20 revenues of between £235m and £243m. The channel and regional mix impacts on gross margin seen in the first half of the year will continue throughout the second half, and we remain committed to spending c.£60m of underlying operating expenditure.”

• Genus# – “PIC continued to benefit from strong demand for its genetics in China, due to re-stocking, as large customers replenished and grew their herds following the spread of African Swine Fever (‘ASF’) in 2019. PIC also achieved strong growth in other regions and is clearly gaining market share due to the strength of its genetics.
ABS continued to grow strongly, driven by a combination of the success of Sexcel and NuEra®, our proprietary beef genetics. The beef and dairy markets have seen extreme volatility in prices during the Covid-19 pandemic, and engaging with customers and prospects has been challenging at times. Despite this ABS won significant new customers in all the regions.
Covid-19 has had a significant impact on the world economy and consumer incomes, and the pandemic has also caused operational challenges for elements of the animal protein value chain, most notably meat processors in the US. We expect these challenges to have a continuing impact for our customers in FY21 and greater currency headwinds are anticipated. However, Genus’s business model and strategy has again demonstrated its robustness and we anticipate further growth in constant currency across the business in the coming year and to perform in line with our expectations.”
• McBride – “Trading conditions are starting to normalise as consumer behaviour returns to pre-Covid-19 patterns. Volumes in laundry products have not recovered, although demand for other cleaning products continues to show some year-on-year growth. We anticipate modest revenue growth in the coming year following contract gains which, combined with increased efficiency, should see a modest improvement in year-on-year profitability.”

• Flowtech Fluidpower– “All our key customers have returned and the recovery is encouraging; our revenue in August was 12% down on the comparative period, a much-improved position from April which was down 41%. Over the last two months we have welcomed back most of our UK furloughed employees. 15 remain furloughed at the start of September, compared with a peak of 189 in April. Although most of our supplier base is located overseas, the quality of the working relationships we have with them has been invaluable throughout this period. Overall, it is pleasing to report that our supply chain has continued to function effectively, with only minor disruptions post lockdown.
The fluid power sector has previously shown resilience in economic downturns and this characteristic, when coupled with the Group’s wide mix of customers and sectors, has been evident in recent months. The trend in demand since the April nadir has been encouraging. If this pattern continues and is combined with our internal cost reduction programme it leads us to expect an improvement in performance in H2 2020 and into 2021. However, as it still remains difficult to predict short term market conditions, we therefore consider it prudent to withhold both formal financial guidance and the payment of a dividend. We will keep this position under constant review and intend to reinstate both guidance and dividend as soon as is practicable.”
• Meggit – “We had a very challenging second quarter in which we acted fast, executed well operationally and took action to position the Group for the recovery in civil aerospace. Our first half performance was impacted by the ongoing effects of Covid-19 in our civil aerospace business driven by the unprecedented reduction in global air traffic activity. Our defence business continued to perform strongly and represented 43% of the Group’s revenue in the period. Overall, we made very good progress on those elements within our control, including our targeted cost and cash preservation actions as well as resizing the Group as we look ahead to 2021. Despite the disruption caused by Covid-19, we have continued to execute against our strategic priorities and these remain our focus for the second half.
We are still working through a difficult and uncertain Covid-19 environment, and while it’s too early to precisely predict the trajectory of the return to prior levels of activity in civil aerospace, we continue to focus on ensuring that the business is well positioned to benefit from the recovery. Based on the effective actions we’ve taken to strengthen liquidity and the resilience of the Group, underpinned by our diverse end market exposure and strong market positions, we believe we are well placed to benefit from the recovery and to continue the transformation of Meggitt to deliver long-term, profitable growth.”

• Halfords – “In our preliminary results announcement on 7 July 2020, we provided details of potential outcomes for profit and net debt based on differing LFL trading scenarios for the remaining three quarters of the year. This provided insight on the margin and cost impact of a higher cycling mix and the incremental costs of operating with Covid-19. These factors have not changed and so the relative dynamics of the scenarios remain valid today when applied to a range of possible performance outcomes. Since our last market update, our trading performance has strengthened and the seven weeks since Q1 were significantly better than we anticipated in early July. This has given us more confidence in our profit outturn for H1, which, assuming expected levels of trading in September and stability in the relative value of the US dollar, we now expect to be in the range of £35-40m.
Beyond H1, there remains too much uncertainty in the trading environment to provide meaningful full year guidance. Within our own business there are stark differences in the relative performance of product categories and this is exacerbated by extreme uncertainty on macro factors such as the impact of second waves of Covid-19, an economic contraction driven by rising unemployment, and the impact of Brexit. Like most retail businesses currently, relatively high operating leverage and a highly uncertain trading environment mean that the range of possible profit outcomes for H2 is very wide. The macro headwinds we are likely to face, the continuing cost of operating with Covid-19, and a natural fall-off in the relative strength of cycling and staycation products during the winter months, means that profit in the second half could be significantly lower than the first half.”

• JD Sports Fashion# – “We are generally encouraged by our performance since the stores re-opened and with our performance in the first few weeks of the second half. However, retail footfall remains comparatively weak and the recent strengthening of measures in many countries and the subsequent temporary closure of some stores reminds us that Covid-19 remains an ongoing challenge. Nonetheless, we remain absolutely confident in our strengths in consumer engagement, key brand relationships and globally consistent multichannel retail standards. These, combined with an agile operational infrastructure provide us with a robust platform for further positive development.
We also believe that it is appropriate for the Group to reinstate guidance for the full year. Assuming a prudent but realistic set of assumptions for the peak trading period that reflect an uncertain outlook for consumer confidence, the ongoing challenges of attracting footfall to stores and the potential for further operational restrictions; we would presently anticipate delivering a headline profit before tax for the full year of at least £265 million when calculated under IFRS 16 ‘Leases’.”

Support Services
• Ashstead Group – “Looking forward, the strength of our business model and balance sheet positions the Group well in these more uncertain markets. Assuming there is no significant Covid-19 second wave leading to major market shutdowns, like we experienced earlier this year, we expect full-year Group rental revenue to be down mid to high single digits when compared with last year on a constant currency basis. The benefit we derive from the diversity of our products, services and end markets, coupled with ongoing structural change, enables the Board to look forward to a year with free cash flow in excess of £1bn, continued strengthening of our market position and the medium term with confidence.”
• DWF Group – “In our trading update issued in July, we said we were cautiously optimistic that FY21 will benefit from the actions we have taken to reshape costs, combined with the client opportunities we continue to see. The environment remains uncertain, but we have large parts of our business which are annuity and some which are counter-cyclical in nature and we expect to see some increased activity as a result. The first four months of trading have shown a steady recovery in activity levels since the dip in activity in Q4 of FY20, and more importantly, this has translated into a significantly improved net profit position. This is despite the cost savings we have executed having a time lag such that they are not yet all reflected in the FY21 year-to-date profit contribution. As we look forward, we expect to benefit from a full year revenue and profit contribution from our acquisitions, RCD and Mindcrest. The Group will also benefit from the partner and team hire activity made towards the end of FY20, as these contribute organic revenue and profits. The further impact of the cost saving measures and savings from discontinued loss making operations will underpin near term profitability, in line with the Group’s target of delivering profitable, cash backed growth. The discontinued and reduced operations represented c.1.5% of Group revenues and generated a £4.5m EBITDA loss in FY20. The Group’s cost saving programmes are expected to reduce the FY20 cost base by £15m, although approximately 50% of this may be reinvested into the business in key growth sectors. The proposal of a final dividend for FY20 underscores our current confidence in FY21 trading and outlook.
We are seeing our approach to providing integrated legal services through our Complex, Managed and Connected proposition resonate with clients. This is driving an encouraging pipeline of new work. At the same time, we continue to look for further operating efficiencies to build upon the cost reductions we announced in May and July and the office rationalisations that are well underway.
In the first quarter, we have seen a significant uptick in bid activity which has resulted in numerous client wins, including a new contract to handle casualty and motor injury claims in Scotland and Northern Ireland with multinational insurance company, Aviva.”
• Experian – “In July 2020, we stated that we expected organic revenue for Q2 FY21 would be in the range of flat to (5)% and that organic costs for the first half would be held broadly flat.
Following stronger trading in July and August, we today revise our Q2 FY21 expectations. We now expect Group organic revenue growth for the quarter to be in the range +3 to +5%, helped by further strength in US mortgage (which we expect will contribute +3 percentage points to growth in Q2), strength in the services we provide to consumers, as well as due to the naturally resilient qualities of parts of our portfolio.”
• RA International – “We have executed well to maintain momentum whilst managing the disruption caused byCovid-19. I am pleased with our performance and I am proud of the way our team has responded to the challenges of 2020, has focused on delivering for our customers, and has secured significant contract wins which meaningfully strengthen our business going forward. We continue to build RA’s reputation for managing and delivering large and complex projects and, importantly, have announced major contract wins in the commercial sector.
As highlighted by the Board previously, Covid-19 will have a material impact on our 2020 financial performance. Whilst we are encouraged by the return of more normal working practices and commercial activity across our business, we remain cautious on quantifying the impact of this disruption on our 2020 financial performance. Despite this, the resilience and capability of our business has been demonstrated through this period and with our balance sheet and growing order book we remain well-placed to withstand any near-term headwinds. We are also greatly encouraged by the quality of the business we are building at RA. The composition of our order-book continues to improve; we are winning larger contracts and we are broadening the mix of customer activity by sector and geography. This is all in-line with our customer-led growth strategy and we remain excited about the opportunity for sustainable growth as we deliver on our plans.”
• Signature Aviation – “We are encouraged by the extent of the flight operations recovery we have seen. August flight activity was down 19% year on year across our network, a marked improvement to the low point of 77% down in April. We will closely monitor trading in the important US business traffic season, post Labor Day.
Building on our effective cost management and with our flexible cost base now aligned with anticipated flight activity, we expect improved performance in the second half compared to the first half.
Our business has sound fundamentals and we continue to see attractive medium-term growth prospects. Therefore, we have continued to invest in growing our network despite Covid. We have recently acquired two FBOs in Switzerland, including the strategically important Geneva location. In the US, we were pleased to open our newly constructed Atlanta FBO in July.
We will continue to lead our industry working towards our sustainable future. Today, we are committing to reducing our carbon footprint with a 29% reduction in our controllable Scope 1 & 2 emissions targeted by 2025 and 50% by 2030.
The Board remains confident in the resilience of our market leading FBO business model, the quality of our network, the strength of our liquidity and therefore our ability to continue to invest in and grow our business. We will continue to drive further medium-term progress through our Signature strategic growth initiatives with a focus on further enhancing and leveraging our unique real estate network to grow non-fuel revenues and operational efficiency.”
• STM Group – “A key focus for the second half of the year, and into 2021, is accelerating our new business activity for new products, which for the reasons given above, is behind management’s expectations. Understandably, some of this timing delay is down to the disruption caused by Covid-19. With our recent launch of additional new pension product offerings for both SIPPs and the workplace pension aimed at the Shariah market, we are confident that these will start to fill some of the shortfall. We continue to look at ways to enhance and market our products to proactively serve our target market and deliver future growth.
We expect that 2021 will see a step-change in profitability due to improved operating margins as our investment in IT initiatives start to bear fruit, and our Options workplace pension business moves from a loss making position into profitability.”

• IQE# – “To date the Group has not provided full year guidance due to the uncertainty of the global pandemic and anticipated global recession. Despite this environment, performance to date has been strong and IQE’s customers have recently reported positive trading updates and outlooks, underlining the resilience of the sector.
In this context, the Group now provides full year FY20 revenue guidance of at least £165m equating to full year revenue growth of at least 18%.
The Group expects to deliver at least a mid-single digit adjusted operating profit for FY20.
The Group reiterates PP&E cash capital expenditure guidance of no more than £10m. Any investment in additional tools will be linked to future revenue opportunities.”
• Luceco – “Covid disruption started in early February when our production facility in Jiaxing China closed for the two weeks immediately after Chinese New Year as the coronavirus began to spread from its initial epicentre in Wuhan.
Production restarted thereafter albeit at reduced capacity due to a lack of workers returning to work.
Swiftly implemented social distancing measures and a safe ramp up of production allowed our facility to regain pre-Covid levels of manufacturing quickly – a great achievement in the circumstances.
By the end of February, it was clear to us that the coronavirus would eventually enter general circulation in our key markets, notably the UK. We began to develop a contingency plan to be triggered if governments responded with disruptive measures to contain the spread of the virus.
Our plan focused on safeguarding our employees, reducing costs and preserving cash. Details were shared in our 2019 Full Year Results announcement. The plan was implemented in March as lockdowns spread through our markets and it achieved our aims.
Predicting the impact on demand of social distancing was inherently difficult. Our plan was designed to accommodate our realistic worst-case scenario, which I am pleased to say did not materialise.
There were three reasons for this: continued socially distanced construction activity, channel diversity and product diversity. Whilst the former was a function of government policy, the latter two are competitive strengths and a product of our long-term strategy.
The Group has progressively built a diverse business serving a broad range of end-users with multiple products through multiple distribution channels. It has particularly focused on gaining share with distributors capable of multi-channel consumer engagement, whom we felt were well positioned to succeed long-term. This long-established strategy served us well during the pandemic.
Distributors with both online ordering and either direct or ‘click & collect’ fulfilment continued to operate throughout the lockdown and gained share from traditional ‘bricks & mortar’ channels. This benefited us due to our disproportionate share of the former. To illustrate, the year-on-year change in our H1 2020 UK Wiring Accessories revenue by distribution channel was as follows:
• Pure-play online: +88%.
• Hybrid operators (multi-channel capable): +5%.
• Traditional: -19% (consistent with decline in the overall UK Wiring Accessory market in the period).
Product diversity meant that we benefited from continued demand for DIY products from consumers willing and able to spend more on their homes, whilst demand for project-oriented, professional products declined as organisations cut back on discretionary investment. To illustrate, the year-on-year change in H1 2020 revenue by product during lockdown was as follows:
• DIY products / channels: +6.7%.
• Project-oriented products / channels: -38.7%.
The above examples illustrate a key driver of our resilient performance.
One other key driver was cost reduction.
We avoided the need for redundancies in H1 by reducing working hours and implementing a temporary pay cut from members of the Board down. Our strong performance allowed us to refund the latter before the end of the half. We made appropriate use of government job retention schemes, generating £1.2m of benefit in H1. This allowed us to maintain full employee salary levels despite the reduction in working hours, eliminating the risk of individual financial hardship. We do not plan to make use of such schemes in H2 now all employees have returned to work. We are not making use of any government lending or tax deferral schemes and have no plans to do so.
Revenue remained remarkably strong during Covid despite a sharp reduction in sales & marketing activity, testament to the power of our brands and our market position. Whilst welcome in 2020, the unsustainably low cost of acquiring sales in H1, combined with government furlough income, are a challenging performance headwind to overcome in 2021. Our sales force is now restored to full strength to preserve long-term customer relationships.
We are keeping non-discretionary expense under tight control in H2 until the outlook becomes clearer.
Whilst the risk of further Covid-related disruption remains high, we have a better understanding of its likely impact. Our experience in H1 suggests that a further Covid-driven UK lockdown of similar scale would cost £0.75m of operating profit per month of lockdown, without impacting liquidity, meaning the Group can comfortably fund any reasonably plausible future lockdown scenarios.”

• Midwich – “Group trading in much of the period was impacted significantly by Covid-19. As a result, Group revenue at £302.0 million for H1 2020 was 4.1% per cent below the same period last year (H1 2019: £314.8 million), with a decline in underlying revenue of 22.1%. On a constant currency basis, Group revenue reduced by 3.9%.
Mainly due to product mix, gross margins were 2.1 percentage points lower than the same period last year at 14.5% (H1 2019: 16.6%). Actions taken to reduce operating expenditure meant that the Group was profitable in the first half, but at a level significantly below the same period last year. H1 2020 adjusted operating profit was £4.1 million (H1 2019: £14.6 million), down 71.6% on a constant currency basis. The reported operating loss for the period was £0.7 million (H1 2019: £10.5 million profit).
As a specialist audio visual (‘AV’) distributor, a significant proportion of the products sold by the Group are installed into buildings. As countries entered lockdown, the ability of the Group’s customers, primarily system integrators, to access sites became significantly curtailed, and many projects were delayed. While some of these projects have since been undertaken, and certain others are anticipated in the short to medium term, a number are now considered unlikely to be carried out or be revised to accommodate post-Covid-19 requirements.
This led to a reduction in revenue, which was felt in the first quarter and more significantly in the month of April, when revenue was less than 50% of budgeted levels. Revenue improved relative to the prior year in May and June and has continued as such in July and August, when Group revenue (including Starin) was ahead of the equivalent months in 2019.
The Board is encouraged by the speed of recovery but is cognisant that further improvement will be, in part, linked to the development of the pandemic across its various territories.
Market conditions for the Group’s products and services are likely to remain significantly impacted by the development of the pandemic for the remainder of 2020. In the short term, changes in government restrictions and the associated business impact are expected to result in volatility in demand and product mix. This uncertainty makes forecasting the Group’s profitability in the coming months challenging.
According to recent research by industry trade body AVIXA, the global market for AV is expected to contract by around 8% in 2020, grow in 2021 and exceed its 2019 level in 2022. Over the five years to 2025 the global market is expected to grow at a compound annual rate of 5.8%. The Board expects short term uncertainty to continue into 2021, but it continues to believe that both the Group and the wider AV industry are well positioned for long term growth.
Should the recent positive trading momentum continue for the rest of this year, trading performance in the second half of the year should be better than in the first half, with H2 2020 revenue expected to be similar to that reported in H2 2019, albeit including the benefit of the Starin acquisition in the current year. It is likely that product mix will continue to adversely affect margins for the rest of the year and that the growth in profitability will reflect the impact of certain government support measures for employment, particularly in the UK, being scaled back later in 2020. Accordingly, the Board currently expects H2 2020 adjusted operating profit to be moderately ahead of the first half.
Whilst continuing to ensure the ongoing financial strength of the business, the Board is now putting increasing focus on ensuring the Group is best able to capitalise on trading conditions in 2021 and thereby continue the long-term momentum generated up to 2019.”


• easyJet – “easyJet has today announced that, due to the constantly evolving government restrictions across Europe and quarantine measures in the UK, including yesterday's announcements that removed seven Greek islands from the exemption list, customer confidence to make travel plans has been negatively affected.
In response to this reduced demand for travel, based on current travel restrictions and quarantines in the markets where we operate, easyJet now expects to fly slightly less than the 40% of planned capacity for Q4 2020 which was highlighted at our Q3 trading update. This is the result of continued schedule thinning as we continue to focus on profitable flying.
Given the many changes to government restrictions since our Q3 update, the lack of visibility and the continued level of uncertainty, it would not be appropriate to maintain any forward looking financial guidance, for FY'20 and FY'21, at this time.
easyJet will continue to focus on delivering a flying schedule that drives a positive contribution while maintaining focus on minimising cash burn through our cost out programme that will drive down costs in all areas of the business. easyJet will also continue to review its liquidity position on a regular basis to assess any further funding opportunities.”

Lifting restrictions
• Hong Kong’s cases have dropped into single digits, and today it was announced it would relax more of its coronavirus restrictions, increasing the size of public gatherings from two to four people. It will also re-open more sports venues from Friday, although swimming pools will remain closed.

• A local lockdown in the county of Caerphilly in South Wales will be imposed this evening, after nearly 100 new cases were reported there in the past week. From 18:00 BST, no-one will be allowed to leave or enter the area without good reason.
• The latest figures to come out from the Office for National Statistics show 101 deaths registered in England and Wales in the week ending 28 August mentioned Covid-19 on the death certificate. This is down from 138 deaths in the previous week, and is also the lowest number since the week ending 13 March, when five deaths involving Covid-19 were registered.
• Disruption to schooling stemming from the Covid-19 pandemic will cause a skill loss that could result in a 1.5% drop in global economic output for the rest of this century, the OECD has estimated.
• Japan’s economy shrank 7.9% in the April-June quarter, slightly more than initially thought, official data released today showed.
• Indonesia’s economy had its first quarterly contraction in over two decades in the second quarter – with Bali’s economy shrinking even more than the rest of the country at nearly 11%.

#corporate client of Peel Hunt