Coronavirus - Cutting corners

China’s military has approved a coronavirus vaccine for use on its soldiers.

It has been developed by China’s Academy of Military Medical Sciences and a biotech firm, CanSino Biologics. It is the first large-scale human trial of any of the 131 candidate vaccines identified by the WHO. This is an acceleration of the normal process. Therefore the risks increase, however so does the speed in reaching a conclusion and any more human trials will likely be similarly accelerated. Vaccines remain central to the global fight; Dr Anthony Fauci has warned that the US is ‘unlikely’ to develop herd immunity until a vaccine is available.


• Mumbai extends lockdown.

• UK mortgage approvals fall 90% since March.

• Greece extends ban on flights from the UK and Sweden until 15 July.

• California shuts bars and pubs in seven counties.

Company news

Buildings & Construction

 Mountfield– “As a result of the deteriorating business climate, some of the larger contracts were negotiated at significantly lower margins than originally anticipated, something which the Board expects to continue in the current environment.

The Board is hopeful that contracts that the Group expected to sign and those that are currently being tendered for will be resurrected in Q3 and Q4 of 2020 and that this will provide a good flow of work for Q3 and beyond.

The value of the Group’s secured order book currently stands at approximately £9.3m, a figure that is somewhat lower than that recorded at the same point in 2019. The Group is working within its banking facilities and the cash flow of the businesses continues to be closely monitored and controlled.

The Group’s Board is encouraged by the re-opening of many of its clients’ sites and the determination of many of its clients to restore activity levels to their pre-Covid-19 levels. It is, however, too early to predict in detail what the impact of Covid-19 will be on the Group and, as a result, the Board is unable anticipate what the Group will achieve for the year to 31 December 2020.As a result of the site closures in the early part of 2020, however, it is almost certain that the Group's turnover and profits will be lower in this year than in recent years.”


 H&T Group – “All of our stores are now reopen following the temporary closure of the entire estate on 24 March, in the light of HM Government's introduction of nationwide social restrictions and instructions regarding retail operations.

Our priority is the health, safety and wellbeing of our colleagues and customers and we have taken the time to implement health and safety measures within our stores. We commenced a phased reopening of our store estate from 12 May and by 31 May all stores except two were open, servicing essential financial services with the exclusion of personal unsecured lending.

HM Government’s guidance in May widened the services we could offer so allowing us to open with a full financial service offering and from 15 June, we recommenced offering retail jewellery through our stores. At the same time, we have finalised and implemented our online pawn broking payment portal, allowing customers to settle loans remotely. To date 12,000 customers have used this service, making payments of £3m.

Throughout the period we have continued to sell jewellery online and have maintained our gold processing operation, smelted gold and so benefited from the relatively high gold price.

While our stores were closed, our store colleagues were furloughed under the government's Job Retention Scheme. Most colleagues have now returned to employment as we have reopened for business. During the last three months, our colleagues across the UK have offered support in their local communities and the Group has provided a charitable fund to support local, small charities who are connected to our customers and employees.

Customer interaction: Treating our customers fairly is at the heart of the way that H&T does business and through this period we have implemented initiatives to help them through this extraordinary period, including:

1. an interest holiday on all outstanding secured loans while our stores were closed;

2. providing pawn broking customers with the opportunity to defer payment, by extending their loan period for up to 3-months;

3. allowing personal loan customers the opportunity to take up to 3-month payment deferral; and

4. launching our new and fully functional online pawn broking payment portal.

We have supported and stayed in touch with our customers by offering a dedicated call centre operation and online chat facility, regularly updating our website providing information and guidance, and issuing additional sms text and postal communications direct to customers.

Financial update: The Group has mitigated its costs and cash outflows and has been able to reduce its drawn credit facility with Lloyds and reduced overall net debt. We now have the full revolving credit facility to draw on as the pledge book grows in coming months.

Revenues were materially impacted during the period of closure and the phased reopening. We have mitigated this through prompt actions on costs and stronger performance in gold processing. As a result we have seen cash inflow and a reduction in overall net debt at the period end. We will continue to focus on operating expenses while we build revenues back to pre Covid-19 levels. While it is too early to determine the trading impact of Covid-19 on our performance for the year as a whole we are reassured by the volume of customers being serviced since we have safely re-opened our stores, and the early recovery in new customer lending.”


 Autins – “Since the period end, the impact of Covid-19 has been significant and our manufacturing facilities have been largely shut down due to plant shutdowns across the European automotive sector. Recovery in UK and Sweden has slowly commenced in the last few weeks, although demand is weak, whilst the German automotive market recovery is looking stronger. Autins' UK and Sweden manufacturing output is currently operating at 30% and Germany at approximately 60% of pre-Covid-19 volumes. This reflects the different timing of the easing of lockdown restrictions in the different countries. The Board expects continued volume recovery in the coming months but does not anticipate that pre Covid-19 volumes will return during the current financial year. This will result in a significant reduction in revenues and a negative impact on the Group's financial performance in FY20.

During the pandemic, Autins has leveraged its material and manufacturing capabilities to design, develop and launch a range of face masks and filters based on our unique patented Neptune melt-blown technology. Medical (Type IIR) and PPE (FFP2) certification approvals (EN14683 and EN149) are currently being pursued to enable the Group to supply accredited masks, melt-blown Neptune filtration material and parts for products such as visors. Autins is one of only two UK based manufacturers of melt-blown non-woven material, providing a strategic advantage within the UK’s ‘on-shore’ PPE supply chain.

Autins is currently selling its PPE equipment into non-medical sectors, including businesses, keen to make the return to work safe for employees and the general public, via on-line and direct sales channels.

Whilst the Board continues to review possible scenarios and determine the actions it may take as the outlook becomes clearer, market forecasts remain withdrawn.”

 Porvair– “The direct effects of the pandemic on Group operations evolved through the period. In the early weeks, with order books at record levels, issues were mainly around supply: ensuring staff were able to work safely and amending working practices to meet safety guidelines. The plant in Hubei Province was closed for two months from February with staff retained on full pay. All other plants remained open, with some minor supply disruptions which have now been largely resolved.

As the pandemic developed, so order patterns changed. All demand in China stopped in February and March but is now recovering. Orders from academic and industrial laboratories fell, offset by increases from those dealing with diagnostics. Plants serving general industrial and automotive markets in the US and Europe saw demand reducing from late April. Aviation demand was strong in the first quarter but was lower in the final two months of the period, with shipments for the balance of the year harder to predict and expected to be at lower levels.

In anticipation of recessionary pressure, spending has been reduced across the Group. Ordinarily, a combination of overtime and temporary or subcontracted staff are used to give operational flexibility, but these arrangements are all being adjusted to amend capacity. By the end of May, 7% of Group staff had been furloughed, around one third on grounds of vulnerability and the remainder to reduce operating costs. Those affected have received full pay for up to three months. In the US, the federal Paycheck Protection Plan loan scheme will be used in June and July to maintain levels of employment. Overall staff numbers have reduced by around 10% since the start of the year.

The Group continues to undertake sensible capital expenditure, either to meet anticipated demand, increase margins or improve quality. Further expansion of clean room capacity will be added in the second half of the year, with projects to improve process automation and visual inspection continuing unchanged.

Much has been done in support of the wider fight against the pandemic. Filters and other components have been made for several of the UK consortia that developed hospital breathing apparatus. Orders for these products have been received from around the world. Demand for diagnostic kit components has increased. New sample preparation and sample automation products were launched as planned and first orders have already been received.

Nevertheless, trading in the second half is difficult to predict and such actions as are necessary will be taken to preserve the Group's financial position. Earnings guidance was withdrawn at the time of the trading update on 8 April 2020, and the Board does not consider it prudent to reinstate guidance until patterns of demand stabilise. Commentary on the current outlook for each division is given in the review below.

Immediate management priorities are firstly to safeguard the wellbeing of staff; and secondly to adjust operating activity to meet fast-changing patterns of demand and maintain balance sheet strength. Longer term, the Board has been looking at measures to ensure the Group emerges robustly from the pandemic. Group risks have been re-evaluated and changes made to asset valuations, including an impairment of the assets in the Metal Melt Quality plant in China, reducing the carrying value of these assets by £2.3 million, as described in note 1.

Over the last five years the Group has achieved revenue growth of 47% (8% CAGR), earnings per share growth of 77% (12% CAGR) and generated cash from operations of £70 million. Over the next twelve months, maintaining these rates of growth is unlikely as the recessionary effects of the pandemic work through. But a longer-term perspective continues to inform the Group’s planning and investment decisions despite currently challenging conditions. While Covid-19 may adversely affect some markets over the next few years (aviation for example), it will benefit others such as diagnostic research and laboratory consumables. The Group is well set to benefit from global trends: tighter environmental regulations; growth in analytical science; the replacement of plastic by aluminium; and the drive for manufacturing process efficiency.”


 Reach4Entertainment – “Inevitably, the Covid-19 outbreak – and the consequent closure of live venues on Broadway and London's West End – has resulted in a significant reduction in advertising and marketing spend. No one knows with certainty when venues will be able to reopen and the impact of social distancing measures. However, the Group anticipates that when live venues finally reopen – at whatever capacity – the requirement to market shows should ensure that r4e quickly returns to previous levels of trading. It is too early to predict the resumption of normal trading and therefore too early to forecast the extent to which Covid-19 will impact the Group's financial performance. The impact of the pandemic will inevitably result in a material reduction to market expectations for the full year 2020.

As part of the Group's drive for operational efficiency, through virtualised applications and storage on the cloud, r4e has enabled secure remote working with no material reduction in the Company's delivery capability for clients. In order to mitigate the impact of Covid-19, management responded rapidly to manage the Group’s working capital position and to ensure liquidity. Several measures were promptly implemented which have enabled r4e to reduce its monthly running costs by 50% to generate annualised savings of approximately £12m. As of 31 May 2020, the Group had adjusted net cash (before IFRS 16 right of use liabilities and deferred consideration) of £12.0m.

The Board is immensely proud of the response of the Company's employees in the face of the current situation. As part of the turnaround programme over the past two years, the Company has seen a disciplined focus on profitability and diversification of the business. Considered together with the action taken to ensure liquidity, the Board is confident that r4e will be able to withstand the impact of Covid-19. That being said, the Directors have concluded that although the Company remains a Going Concern for the foreseeable future, the unknown future impact of Covid-19 represents a material uncertainty that may cast significant doubt on the Group's ability to continue as a Going Concern beyond the current forecasts which cover the period to 31 August 2021.”


 Draper Esprit – “At the end of our financial year, the Covid-19 virus led to a global pandemic, the impact of which is clearly profound, both from the perspective of public health and the economic outlook. The necessary restrictions imposed by Governments on businesses and employees in order to contain the spread of the virus significantly curtailed the operations of many businesses across the wider economy, however our portfolio remains overall very well positioned, in particular given the expected acceleration in the transition to digital.

Over the medium to long term, we believe the recovery from the pandemic will sharply accelerate the trends which Draper Esprit’s portfolio businesses focus on. Transformations such as secure cloud infrastructure, remote financial services, online gaming and entertainment, and digital health all stand to benefit from the societal shifts which the crisis has engendered. These dynamic businesses are weathering the current environment well and we are confident they will emerge stronger when economic activity normalises.”


 Airbus – CEO Guillaume Faury has said that production and deliveries will be 40% lower than originally planned in 2020 and 2021. It could take until 2025 to return production to pre-crisis levels, he added.

Lifting restrictions

• In the Republic of Ireland, pubs and bars that serve food, restaurants, cafes, hairdressers and barbers are reopening but must observe social distancing rules.


• The Bank of England has reported that the number of mortgage approvals for house purchases fell to just 9,300 in May, down from around 15,800 in April. This is almost 90% below the February level, and around a third of their trough during the financial crisis in 2008.

• Sri Lanka has completely lifted its curfew – the 24-hour curfew was first imposed in March, and in April, was reduced to night-time only. On Sunday, when the curfew was removed, officials said they had succeeded in controlling the spread of coronavirus in the country.

• More than half of Tokyo’s residents do not think the postponed Olympic Games should be held next year, a poll suggests. The poll, which was conducted by two Japanese news organisations between 26-28 June, found that 51.7% of people hoped the Games in 2021 were postponed or cancelled again.

• There will be a return to full class sizes for primary and secondary schools in September in England, five days a week, the education secretary Gavin Williamson has confirmed. Further, parents in England who do not send their children back to school in September will face fines.

• An experimental coronavirus vaccine has been approved for use by the Chinese military. The Ad5-nCoV vaccine is one of 150 being investigated around the world to see if immunisation can protect people against the pandemic virus by teaching the body to recognise and fight off the disease. This particular jab, developed by Can Sino Biologics and the Beijing Institute of Biotechnology in the Academy of Military Medical Sciences, was the first one to enter a clinical trial with human volunteers.

• The UK government published its guidance this morning for how weddings and civil partnership ceremonies can take place in England from 4 July link.

• On Sunday, California governor Gavin Newsom ordered bars in seven counties – an area home to 13.5 million residents – to close.

• Vietnam’s economy unexpectedly expanded in the second quarter. Gross domestic product rose by 0.36% April to June compared to the same period last year, the General Statistics Office in Hanoi announced. Border closures from coronavirus restrictions took a punitive toll on Vietnam’s exports, which fell 9% year-on-year and were down 8.3% against the first three months of the year.

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