Coronavirus - Changing the outcome

According to a study published in The Lancet today, Britain faces a second wave of Covid-19 this winter twice as widespread as the initial outbreak if schools re-open without a more effective test-and-trace system in place.

However, there is still time to prepare. Importantly, the study found that it is possible to avoid a second wave if enough people with and without symptoms are diagnosed, their contacts traced, and they are effectively isolated. Speed and ease of testing has come a long way already, but much more needs to be done if re-opening is to continue.


• Philippines extends lockdown to 27m.

• Pizza Express may cut 1,100 jobs.

• easyJet is adding more flights to its schedule.

• Denmark’s state epidemiologist advises against easing restrictions.

• Poland reports record daily increase for fourth time in a week.

Company news

Buildings & Construction

 Keller – “In EMEA, the impact of Covid-19 arrived earlier and was more significant than in North America and varied markedly by country. North East Europe, Central Europe and Mexico performed well with activity levels generally maintained, whilst the more disrupted operations in UK, Iberia and French speaking countries performed less well. We continue to monitor the evolving situation with regard to the virus in the Middle East, Africa and South America, which have been impacted later than the rest of the division.

In APAC, trading patterns in the second quarter varied widely by market with Australia largely operational, India and Malaysia closed for a period and Singapore remaining largely closed for construction at the period end. We are pleased that the division continues to be profitable, building on its return to profit in the second half of 2019. Australia in particular had a strong first half benefiting from the Cape Lambert project for Rio Tinto.

The Group had a strong first quarter and a resilient second quarter, with the business responding to the challenges of Covid-19 with a number of proactive measures taken to protect margin and support strong cash generation. Whilst the order book has remained steady at c.£1bn at the period end, there has been a recent decline in order intake, reflecting a combination of the short-term impact of the pandemic and more general restraint caused by the increased macroeconomic uncertainty.

The current order book supports trading through much of the second half of 2020 and, assuming no further material lockdowns, we anticipate delivering a resilient full year result, albeit without the typical second half weighting.

We anticipate that any sustained continuation of the recent decline in order intake during the second half will impact the forward order book which, together with the macroeconomic uncertainty as a result of Covid-19, would be likely to result in the 2021 outlook being more challenging than for 2020.”


 BMO – “The Company has a diverse tenant base across the portfolio and its Managers have been proactively engaged with many of them, assessing and responding to requests for support on a case by case basis. We summarise below our current rent collection outcome for Quarter 2 as well as providing an update for Quarter 3.”

 Impax Asset Management– “The Covid-19 pandemic will, we believe, help support our general investment thesis, in that it has focused attention on ‘tail risks’ to which societies are exposed, with climate change being the most prominent. This will generate tailwinds for the Company’s investments in renewable energy and energy efficiency.

The comprehensive responses of governments to the pandemic, and the broad public support for lockdown measures and other extreme constraints on personal freedom, have widened the window of the possible when it comes to addressing other collective challenges such as climate change. Furthermore, the massive sums spent by governments in protecting economies from the effects of lockdown have put the costs of the low-carbon transition in perspective.”

Food, Drinks & Household

 Diageo – “North America delivered net sales growth of 2%, with growth in all three markets, US Spirits, Diageo Beer Company USA and Canada. Strong net sales growth in the first half of the year was only partially offset by lower on-trade sales in the second half. This reflects strong demand in the off-trade channel during Covid-19. US Spirits net sales increased 2%. Tequila net sales grew 36% reflecting strong double-digit growth in Don Julio and Casamigos throughout the year. Crown Royal net sales increased 8% driven by the sustained performance of innovations. Scotch net sales declined 9%. Good growth in Malts was offset by lower sales of Johnnie Walker, as a result of the on-trade channel closure in the second half and lapping the prior year success of ‘White Walker by Johnnie Walker’. Vodka net sales declined 7% due to lower sales of Smirnoff, Ketel One and Cîroc. Bulleit net sales increased 4%. Captain Morgan net sales decreased 5%. Diageo Beer Company USA grew net sales 8% as a result of the continued strong performance of ready to drink products. Beer net sales declined 5% due to the closure of the on-trade channel as a result of Covid-19. Net sales in Canada increased 7% with good broad-based growth across all categories, with the exception of beer, which was more impacted by the on-trade channel closure. North America operating margin increased 75bps. The adverse margin impact from lower fixed cost absorption and a change in category and channel mix resulting from Covid-19 was more than offset by reduced discretionary expenditure.

Europe and Turkey net sales declined 12%. Growth in the first half was more than offset by the impact of Covid-19 in the second half. High on-trade exposure significantly impacted markets across the region through the closures of the channel in many countries. In Europe, beer was particularly impacted, declining 20%. Growth of scotch in the first half was offset by declines in Continental Europe and France in the second half due to on-trade closures. Rum grew 3%, driven by Captain Morgan. Vodka declined 12%, driven mainly by Smirnoff in Continental Europe. Gin declined 9%, driven by declines of Gordon’s and Tanqueray mainly in Continental Europe. Travel Retail was also severely impacted. In Turkey, net sales declined 6%, driven by declines in raki and vodka. Total operating margin declined 470bps. Impacts of the closure of the on-trade on volumes and adverse mix, bad debt provisions, along with one-offs and inflationary cost pressures in Turkey more than offset actions driving overhead and marketing spend savings through the second half.

Africa net sales declined 13%. Growth in the first half was offset by the impact of Covid-19 in the second half. East Africa declined 10% where continued beer growth in Tanzania was offset by lockdown closures affecting the on-trade in Kenya and Uganda. Net sales in Nigeria declined 20%, driven by double-digit declines in beer and scotch. In South Africa, net sales declined 25%, driven by scotch and vodka, as a result of both on-trade and off-trade closures and a troubled economic climate. Africa Regional Markets declined 8%, as strong beer growth in Ghana was offset by on-trade closures and the impact of significant excise increases in Ethiopia. Beer declined 13% as growth of Serengeti was offset by other key beer brands, including Guinness, Tusker and Senator, mainly due to on-trade closures. Spirits declined 14%, mainly impacting Johnnie Walker, Kenya Cane and Smirnoff. Operating margin declined 877bps, driven mainly by volume losses that caused lower fixed cost absorption and excise duty increases. These were partially offset by marketing spend savings and improved overhead management.

Latin America and Caribbean net sales declined 15%. Performance in the second half continued to be impacted by economic and socio-political pressures in key markets compounded by the impact of the Covid-19 pandemic. All markets declined except Andean which grew 8% due to a strong first half and continued momentum in scotch in Colombia. Scotch overall declined 21% as growth in Buchanan's in Colombia and Brazil, and White Horse in Brazil, were offset by declines in Johnnie Walker across the region. Gin grew double-digit primarily driven by Tanqueray in Brazil. Tequila was down 11% as strong Don Julio performance in Caribbean and Central America was more than offset by a decline in Mexico. Operating margin for the region was down 544bps due to the adverse impact of product mix and lower fixed cost absorption despite actions taken to reduce discretionary spend.

Asia Pacific net sales declined 16%. Despite growth in the first half for the region, all markets other than Australia declined due to the impact of Covid-19. Greater China declined 7% as scotch, liqueurs and beer growth was offset by declines in Chinese white spirits. Australia net sales grew 6%, driven by ready to drink, liqueurs, gin and scotch. India net sales declined 17%, driven by the continued economic slowdown exacerbated by lockdowns impacting both Prestige and Above and Popular segments. South East Asia declined 23%, driven by scotch in Key Accounts and beer in Indonesia. North Asia declined 15%, driven by double-digit decline in scotch, partially offset by beer growth. In Travel Retail Asia and Middle East, net sales declined 46%, as first half declines were further exacerbated by significant declines of travellers due to Covid-19. Scotch declined 20%, driven by Johnnie Walker in Travel Retail Asia and Middle East, South East Asia, and Korea. Operating margin declined 420bps driven mainly by volume loss due to closures which caused lower fixed cost absorption. These impacts were partially offset by a reduction of marketing spend and overhead savings.”


 Babcock– “Coronavirus (Covid-19) had a significant impact on our financial results in the period but work has continued on key customer programmes and demand for our work in critical areas remains resilient.

Underlying revenue for the first quarter was 11% lower than last year. This reflects the absence of Magnox revenue and weakness in our Land adjacent market short cycle businesses including South Africa. Group revenue from the core business grew slightly, demonstrating the high level of continuing work across the majority of our business.

The necessary safety constraints on close proximity working have had a significant impact on costs and efficiency, directly impacting Group margins and profitability. These include restricted access to customer sites, complex safety measures, reduced numbers of staff on site, changed shift patterns and additional costs. These have led to slower progress on some work streams which has impacted margins on some of our long term contracts in the quarter.

Underlying operating profit for the first quarter was around 40% lower than last year. Around half of this profit reduction was due to lower levels of productivity in the core business while Magnox, South Africa and Land adjacent market businesses account for the other half.

Order intake in the quarter was £0.7 billion and in July we secured around £500 million of new contracts in our Aviation business, helped by the delays in bid decisions beginning to clear.”

 Filtronics – “Despite maintaining full 24/7 operational capability throughout the entire Covid-19 lockdown period, the measures we had to take to achieve this within a safe environment for employees affected our ability to maintain productivity and efficiency levels, and thus our profitability took a slight dip over the final quarter of the year. In addition, our customers similarly advised us of progressive impacts on their own businesses and, whilst we suffered no order cancellations, a number of delivery programmes were rescheduled out over a longer period.

A further consequence of Covid-19 was the slowdown of business development and sales acquisition activities during the final quarter of FY2020. Our customers and end-clients were unable to make the expected progress with existing project completions whilst new project developments fell victim to deferred decision-making. The key impact of this was a reduced level of order intake over the final quarter.

In order to mitigate reduced order intake and accommodate the rescheduling of certain client orders, we commenced a furlough programme using the UK government’s Coronavirus Job Retention Scheme for 23 employees at the start of the new financial year. At the time of writing we have restart instructions from these customers and we expect to return furloughed staff progressively as the production programmes regain momentum, with all staff expected back by August 2020.”

 Rotork – “Group order intake in the first half decreased 17.1% year-on-year, or 15.6% on an OCC basis, to £300.5m. The reduction, which was largely in the second quarter and impacted all of our divisions, reflected a sharp increase in economic uncertainty, the strong comparative period and extreme volatility in hydrocarbon prices.

Despite the uncertainty our customers continue to spend on automation and environmental projects as well as maintenance and upgrades. Larger capital projects we are tracking are seeing delays, and in a very few cases cancellations. However the majority of Rotork’s activity is driven by customers’ operational rather than capital expenditure. We estimate that maintenance, repair and small to mid-sized automation/upgrade projects (individual orders less than £100k) generate 75% of Group orders by value in a typical year, and that orders above £1m represent only 5% of Group order intake.

Group revenue was 11.1% lower (9.6% OCC). Water & Power sales grew year-on-year, with growth in both its principal end markets. The division provides essential products and services and reported an encouraging performance with sales driven by increased refurbishment and upgrade activity, including power sector work won in the first half of 2019. We currently expect this power sector refurbishment work to continue through into 2021. Oil & Gas and CPI sales declined, largely due to Covid-19 related disruption on production facilities, logistics and Rotork Site Services.

By geography, Europe, Middle East & Africa (‘EMEA’) revenues by destination were only modestly lower year-on-year. Asia Pacific sales were down slightly less than for the Group, with increased sales at Water & Power offset by declines elsewhere. Revenues fell double-digits in the Americas reflecting the disposal of a distribution business at year end and a significant reduction in activity within the Oil & Gas division.

Rotork Site Services, our global service network, is a key differentiator in our industry and made important strategic progress in the period despite Covid-19 making access to customer sites more challenging. One priority for Rotork Site Services is increasing the number of actuators under annual service agreements. The launches of our new Lifetime Management and Reliability Services programmes were important steps in this regard. During lockdown in April and May we put the output of our earlier global survey of training requirements to good use, with 3,600 unique development sessions being completed by Site Services employees. Rotork Site Services is managed as a separate unit within Rotork's divisions and continues to contribute a significant proportion of Group sales.

Adjusted operating profit was 8.9% down year-on-year (8.0% OCC) reflecting reduced volumes and higher logistics costs which were partly offset by Growth Acceleration Programme savings, cost mitigation actions and reduced discretionary spend (including travel). Margin however increased, benefiting from the ongoing Growth Acceleration Programme initiatives to improve Rotork's cyclical resilience, cost savings and mix. With lower intangible amortisation, adjustments to profit and net finance charges, profit before tax has declined by 4.3%.”


 Direct Line – “Direct own brand in-force policies grew 2.0% with continued growth across Motor, Green Flag and Commercial direct own brands, with Home broadly stable. Total policies reduced by 1.7% as partnership volumes reduced.

Gross written premium was broadly steady as strong momentum in Q1, with growth of 4.7%, was largely offset by lower new business shopping in Motor and Rescue in Q2 due to Covid-19.

Across the Group the impact of Covid-19 on operating profit was broadly neutral, as the additional travel and business interruption claims, alongside a reduction in investment asset returns and higher operating expenses, were offset by favourable claims frequencies in Motor and Commercial. The net impacts of Covid-19 on travel and business interruption claims are unchanged from Q1 and estimated at £25 million and £10 million respectively.”


 Ascential – “Further deterioration of the situation in the United States relating to Covid-19 and the recent spikes in infection rates in certain European countries have contributed to a greater level of uncertainty in these regions. This, combined with the rapidly evolving restrictions on physical travel in both the US and Europe, means we are no longer confident we can deliver physical events this year that meet the standard expected of Money20/20.” ‘


 BP– “The ongoing severe impacts of the Covid-19 pandemic continue to create a volatile and challenging trading environment.

Looking ahead, the outlook for commodity prices and product demand remains challenging and uncertain.

Global GDP is expected to contract this year by 4-5%.

Global oil demand is expected to be around 8-9 million barrels of oil per day lower than 2019, with OECD oil stocks above their five-year range, and gas markets are likely to remain materially oversupplied. There is also a risk of the pandemic having an enduring impact on the global economy, with the potential for weaker demand for energy for a sustained period.

In July, refining margins remained under pressure, with RMM at $6.3/barrel due to lower product demand and high inventories, while BP refining utilization improved to above 80%. Retail fuel demand recovered in July to 10-15% lower than a year earlier, however, aviation fuel demand continued to be over 70% lower.

The pandemic is not expected to result in Upstream oil and gas outages but has impacted development of the Mad Dog 2, Tangguh Expansion, Trinidad Cassia Compression and Greater Tortue Ahmeyin Phase 1 major projects.

BP’s future financial performance, including cash flows, net debt and gearing, will be impacted by the extent and duration of the current market conditions and the effectiveness of the actions that it and others take, including its financial interventions. It is difficult to predict when current supply and demand imbalances will be resolved and what the ultimate impact of Covid-19 will be.”

Real Estate

 IWG – “The Covid-19 pandemic which started to affect the business from March, particularly in Asia where we experienced a significant drop in new sales activity during the lockdown period. As previously reported, sales activity in Asia continually improved from April onwards and has now returned to normal levels.

The subsequent spread of the pandemic to the West created a very challenging trading environment in the second quarter across our European, UK and Americas markets, and this has carried into the start of the third quarter. The recovery trend in these markets now looks slower as the pandemic continues and looks to be more prolonged than first anticipated. During the lockdown phase we saw similarly sharp declines in sales activity in these markets. However, as these markets gradually move out of lockdown, we have started to see some green shoots of sales activity to replenish the forward order book. If sustained, this bodes well for the fourth quarter.”

Support Services

 NWF– “NWF has delivered a very strong set of results demonstrating both resilience and growth. Three acquisitions have been completed in Fuels and we have added significant additional warehouse capacity to support long-term customer contracts in Food. Feeds gained share with volume growth in a contracting market. The fundamental resilience of the Group has been highlighted with the response to the Covid-19 crisis. Huge thanks must go to all our employees for their outstanding efforts in very challenging times. All our employees were designated as key workers, demand increased, deliveries to customers were completed and safe working and home working where possible were implemented in early March and remain effective today.

A strong focus on cash has continued and the record profit performance has been converted into cash ensuring the Group has significant headroom under its banking facilities and against its covenants during this period of uncertain economic outlook. We are proposing an increased dividend, demonstrating the Board’s confidence in the resilience of the Group, and have a number of strategic development opportunities which we continue to review.”


 Spectris – “In the first half of 2020, sales decreased by 21% to £599.0 million (H1 2019: £759.1 million). On an organic, constant currency (like-for-like, ‘LFL’) basis, sales decreased 14%. There was a 9% impact from disposals, primarily related to BTG, and a 1% positive impact from foreign currency exchange movements. LFL sales declined less than anticipated during the second quarter with sales in May down 20%, similar to the 21% decline in April, and June sales only 12% down on last year. Orders in the first half fared better with a 11% decline.

All three platform businesses posted a decline in LFL sales, with Malvern Panalytical being the most impacted, primarily resulting from a reduction in demand in metals, minerals and mining and from universities and research institutes being closed during lockdown. After only a small LFL decline in the first quarter, HBK’s sales fell further in the second quarter, resulting in an 8% decline overall, whilst both Omega and the Industrial Solutions division saw 13% lower LFL sales.

All regions saw a decline in sales from the previous year. While Asia posted the largest decline, China grew in the second quarter. By end market, the fall in LFL sales was highest in metals, minerals and mining and academic research, with pharmaceutical and machine manufacturing suffering the least.

We continue to expect a full-year profit drop-through in the range of 40-50%, depending on the LFL decline in sales year-on-year. The 32% drop-through achieved in the first half will not be repeated as we translate temporary cost savings to permanent over the coming months.”


 easyJet – “Total group revenue for the quarter ending 30 June 2020 was £7 million. The fleet was fully grounded on 30 March due to the Covid-19 pandemic. Having re-started flying on 15 June, easyJet carried 117,000 passengers with a total capacity of 132,000 seats in the remaining two weeks of the quarter. The initial schedule comprised only 10 lines of flying and delivered a load factor of 88.9%.

We have now completed more than one month of restart operations and are seeing encouraging performance across the network with a continued focus to undertake only profitable flying. In July easyJet flew just over 2 million passengers with a load factor of 84%.

Based on current travel restrictions in the markets in which we operate:

• easyJet expects to fly c.40% of planned capacity for Q4 2020. This compares to the 30% highlighted previously, and;

• based on the current schedule, easyJet expects to record a smaller loss in Q4 than was experienced in Q3.”


• Researchers from UCL and the London School of Hygiene and Tropical Medicine are warning that the UK’s test and trace system is not good enough to prevent a second, bigger wave of the coronavirus when schools re-open across the UK.

• France’s scientific committee has warned that a second wave of the virus in autumn or winter is “highly likely”. It comes as cases in the country have risen over the past few weeks. About 3,376 cases were confirmed over the past three days and the number of people being treated in ICUs has started to increase.

• Hays Travel – which bought the shops of Thomas Cook when the firm went bust last October – has said up to 878 employees out of 4,500 may lose their jobs because of new coronavirus travel restrictions.

• Pizza Express is considering closing 15% of its UK restaurants, which would mean the loss of 1,100 jobs.

• Denmark’s state epidemiologist on Tuesday said he could not recommend proceeding to the next phase of re-opening society during the coronavirus outbreak.

#corporate client of Peel Hunt