We expect the deepest recession in a century to be confirmed today, but figures from the British Retail Consortium and KPMG indicate that a recovery is under way via the consumer, with total retail sales increasing 3.2% YoY in July.
Good weather and the reopening of non-essential shops across most of the UK has fuelled an increase in consumer spending close to pre-pandemic levels. Food, furniture and homeware sales all rose, as people cancelled their usual summer holiday plans and increasingly invested in their homes.
• Auckland goes into lockdown after first local cases found
• UK payroll decreased by 220,000 in the quarter
• Debenhams to cut a further 2,500 jobs
• 10.5m meals so far claimed on the UK’s ‘eat out to help out’ scheme
• Scottish students return to school
• Russia approves first vaccine
Buildings & Construction
• Bellway – “All sales outlets have reopened, with employees in all roles across the group recommencing work to support the safe resumption of sales activity. The group has made a significant effort to ensure operating divisions, construction sites and sales offices operate as safely as possible, whilst adhering to strict social distancing protocols.
The number of housing completions in the period fell significantly, reducing by 31% to 7,522 (2019 – 10,892), as a result of temporary groupwide site closures during the ‘lockdown’ period.
Customer interest is increasing, with recent private reservations rising to 140 per week throughout the month of July 2020 (July 2019 – 162 per week), with demand supported by the ongoing availability of Help-to-Buy.
Bellway has a strong forward order book, comprising 6,588 homes (2019 – 4,878 homes), with a value of £1,760.2m (2019 – £1,223.9m), a solid platform for the year ahead.”
• Walker Greenbank – “Total Brand sales, before licensing, discounts and rebates, in the half year were down 28% in reportable currency at £31.3m (down 28% in constant currency) compared with the first half last year.
Brand product sales, before discounts and rebates, in the UK, the company’s largest market, were down 31% whilst international brand sales, before discounts and rebates, were down 24% in reportable currency (down 25% in constant currency). In the US, the company’s second largest market, Brand product sales, before discounts and rebates, were down approximately 32% in reportable currency (down 33% per cent in constant currency) and in Northern Europe were down approximately 13% in reportable currency (down 13% in constant currency).
Manufacturing operations, which were temporarily closed during lockdown, have resumed. The current third-party order book is good and demand continues to grow, particularly from the US. As a result of Covid-19, total third-party sales were down 32% in the first half.”
• H&T Group – “In line with government guidance and in order to protect our colleagues, customers and the communities where we operate, all stores were closed on 24 March 2020. Stores have since reopened.
During the temporary store closure period, 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. Pawnbroking customers were provided with an interest holiday while our stores were closed and offered the opportunity to defer payment, by extending their loan. Personal lending customers, financially impacted by Covid-19, were offered the opportunity to take payment deferrals.
At the same time, we have finalised and implemented our online pawnbroking payment portal, allowing customers to settle loans remotely. To date 14,000 customers have used this service, making payments of £3.5m.
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.”
• S&U# – “It is barely two months since our AGM trading update in June and our business continues its steady recovery from the economic shocks initially caused by Covid-19, and the government’s measures to combat it. As we adjust to a gradual but uneven easing of the Lockdown, and trading volumes return nearer normal, we still feel it wise at present not to issue forward guidance. In changing times, it is wise to recall Mark Twain’s admonition – “It ain’t what you don’t know that gets you into trouble, but what you know for certain that just ain’t so”. The mood of the British consumer is still skittish and cautious. Although recent manufacturing and financial services sectoral surveys are encouraging, uncertainty still persists about both the state of the labour market as Government support measures are dismantled, and about the deeper structural effects on the economy caused by the pandemic. We anticipate greater clarity over the next three months.
Although these trends will inevitably have a significant impact on S&U’s results this year, the Company is still profitable, paying dividends and our financial strength, experience, excellent broker partnerships and flexible and committed staff should ensure a return to a more ‘normal’ trading environment by the end of the year.”
• Zotefoams# – “The first six months of 2020 were severely impacted by the Covid-19 pandemic. Group revenue decreased by 18% to £34.6m (30 June 2019: £42.3m), as we experienced broad-based declines in demand in many of our main markets, particularly for Polyolefin foams, as supply chains reacted to lower end-user demand and high levels of uncertainty.
As previously reported, the group responded quickly and effectively to the challenges presented by Covid-19, implementing a number of operating, cost management and capital expenditure actions to protect the financial and operational capability of the business, with positive results. Despite the decline in sales, gross profit margin held firm at 34.8% (30 June 2019: 35.5%), benefiting from lower raw material prices and tight cost control as well as the differentiated nature of our products. The group remained profitable in the period, generating an operating profit of £3.1m (30 June 2019: £5.1m), with £6.0m (30 June 2019: £5.2m) cash generated from operations. Profit before tax was £2.7m (30 June 2019: £4.9m). Basic earnings per share reduced to 4.48p (30 June 2019: 8.55p).
As a result of the effective cash preservation actions taken, closing net debt for the period rose by only £4.3m to £36.2m (31 December 2019: £31.9m), after planned capital expenditure of £7.4m (30 June 2019: £10.9m) mainly related to our new facility in Poland. Adjusting for the impact of IFRS 2 and IFRS 16, net debt under the group’s banking definition was £35.4m (31 December 2019: £30.7m), resulting in liquidity headroom of £18.8m. The bank facility leverage covenant (net borrowings to EBITDA) was 2.6x (31 December 2019: 2.0x), well below the 4.0x covenant the Group had negotiated with its banks in Q1 to mitigate potential risks identified early in the period.
Zotefoams operates across a variety of markets globally. During Q1 we experienced a continuation of the lower level of demand in our western European and North American markets that we witnessed during the latter part of 2019, albeit with more encouraging conditions in certain segments. The onset of the Covid-19 pandemic from the latter part of Q1 materially impacted our major volume markets, particularly for Polyolefin Foams, including industrial protection, automotive, aviation and marine, which have all seen declines in excess of 30% in the period, with assembly plant shut-downs and supply chain contraction contributing to the impact on Zotefoams.
We anticipate that general levels of demand in the majority of these markets will be in a recovery phase in the latter part of this year or early in 2021, however, the timing and rate of any improvement remains uncertain. We are mindful that certain segments are likely to remain challenging for an extended period, such as commercial aviation, with aircraft build rates scheduled to be around 30% lower than pre-Covid-19 levels for some years. In other markets, such as sports & leisure and construction, demand conditions are likely to be more resilient for our products.”
• Carnival – “Seabourn, the ultra-luxury travel experience, announced today that it will cancel upcoming voyages for three cruise ships in its fleet as a part of its pause in global ship operations.
The announcement applies to Seabourn Encore, Seabourn Ovation, and Seabourn Sojourn, with each ship having a different ‘effective through’ date. Specific details are as follows:
• Seabourn Encore: with its operations pause effective through November 25, 2020.
• Seabourn Ovation: with its operations pause effective through December 20, 2020.
• Seabourn Sojourn: paused through World Cruise 2021, with its operations pause effective through May 24, 2021.
The brand had previously announced a pause in its global ship operations from March 14 to November 20, 2020, depending on the ship, effectively cancelling all voyages scheduled to operate during that timeframe. The decision to cancel additional voyages is a proactive action to deal with the circumstances continuing to evolve from the global response to the Covid-19 situation.”
• Domino’s Pizza– “Trading in the first few weeks of the second half has been encouraging. This trading performance has been assisted by the vast majority of our estate now having reopened for contact-free collection, the return of Premier League football, an increase in UK staycations and more recently the VAT reduction on hot food, which has enabled our franchisees to sharpen their local deals. With lockdown restrictions easing, our incremental Covid-19 related costs are declining and we expect approximately £2m of such costs in the second half, all of which will be in the supply chain. This compares to £6.2m of Covid-19 related costs in the first half.
The macroeconomic, consumer and competitive backdrop for the second half of the year contain considerable uncertainties and it is too early to conclude on how consumer behaviour will evolve. We look forward to the remainder of the financial year, and to the long-term future of the business, with confidence in the strength of the brand and our operations.”
• Intercontinental Hotels Group – “The impact of Covid-19 on our business has been substantial. Global RevPAR declined by 52% in the first half and was down 75% in the second quarter, when occupancy at comparable hotels fell to 25%. Despite this challenging environment, we delivered an operating profit of $74m. Small but steady improvements in occupancy and RevPAR through the second quarter continued into July, with an expected RevPAR decline of 58%, and occupancy rising to around 45%.
The support we have offered owners, such as fee relief and increased payment flexibility, was well received. Together with other measures we’ve taken to preserve cash, we have maintained substantial liquidity of around $2bn. Our ongoing actions to reduce costs include plans to make around half of the $150m of savings we will achieve this year sustainable into 2021, alongside continued investment in our growth initiatives. However, with limited visibility of the pace and scale of market recovery, we are not proposing an interim dividend.
As has been the case in previous downturns, domestic mainstream travel is proving to be the most resilient. Our weighting in this segment, led by our industry-leading Holiday Inn Brand Family, positions us well as demand returns in our key markets. In the US, our mainstream estate of almost 3,500 hotels is seeing lower levels of RevPAR decline than the industry, and is operating at occupancy levels of over 50%.
Comparable RevPAR decreased 47.6% (Q2: down 71.2%), driven by occupancy reducing to 41% (Q2: 28%). US RevPAR was down 46.8% for the half, down 69.3% in Q2, with our performance ahead of the industry in the second quarter. The decline in the US second quarter saw the franchised estate, which benefits from a weighting towards domestic demand-driven mainstream hotels, with a lower reliance on large group business and higher distribution in non-urban markets, decline by 66%. This compares to an 86% decline for the US managed estate, which is weighted to luxury and upscale hotels in urban markets. On a segment basis, the RevPAR decline in Q2 was most acute in luxury (down 93%) and upscale (down 83%), whereas the decline in mainstream, which represents 84% of our rooms in the US, declined by 64%.
Reported revenue of $262m was down 50% against the comparable period (decreased 49% at CER and underlying) and reported operating profit of $153m decreased 56% (down 55% at CER and underlying).
Underlying fee business revenue declined by 46% to $226m, whilst underlying fee business operating profit declined by 49% to $163m. The adverse mix impact from a higher proportion of temporary closures in the US managed estate than in the franchised estate, which also led to $5m lower recognition of incentive management fees, was partially offset by progress made towards reducing fee business costs, as well as the benefit of a $4m litigation settlement at one hotel, and the recognition of a $4m payroll tax credit, with a further ~$7m expected to be recognised in H2 2020.
Reported owned, leased and managed lease revenue was down 65% to $36m, with a reported operating loss of $10m, compared to $21m profit in the comparable period. The mitigation of renovation-related losses by business interruption insurance at one hotel was more than offset by extended periods of closure and low occupancy across the entire estate, reflecting the greater dependency on international travellers to urban and resort locations.
For July, the comparable RevPAR decline in the Americas region is expected to be ~54%, representing an ~8%pt improvement on the 62% decline for June. Occupancy levels in comparable open hotels improved to ~45%. Given further reopening progress during the month, the number of hotels that remained closed at the end of July reduced to 133, or ~3% of the Americas estate.
Comparable RevPAR decreased 58.9% (Q2: down 87.6%), driven by occupancy reducing to 34% (Q2: 14%). In the UK, RevPAR was down 59% for the half, with the second quarter decline of 90% particularly impacted by government-mandated hotel closures.
Continental Europe RevPAR was down 67%, with the closures and travel restrictions particularly impacting the second quarter, which was down 96%. Elsewhere, the Middle East was down 46% in the first half, with Australia and Japan down 48% and 64% respectively.
Reported revenue of $134m decreased 60% (down 60% at CER) and the reported operating loss was $16m, a reduction of $104m on the comparable period. Results include a previously disclosed $1m (H1 2019: $4m) benefit from an individually significant liquidated damages payment.
On an underlying basis, revenue decreased 59% to $131m and the operating loss was $20m compared to $81m profit in the comparable period. Underlying fee business revenue was down 63% to $56m, with an operating loss of $4m compared to an $87m profit in the comparable period. The adverse impact from hotel closures and subdued demand across the estate resulted in lower recognition of incentive management fees (down $35m versus the comparable period), which were partially offset by cost reduction measures.
Reported owned, leased and managed lease revenue was down 57% to $77m, whilst the operating loss reported in H1 2019 of $5m increased to a loss of $13m. This portfolio consists of 12 properties in the UK and a further six elsewhere in the region, most of which are only expected to gradually reopen through the third quarter, and once open we expect to experience low occupancies and lower than usual non-room revenues. The operating loss for the period includes the significant cost reduction measures undertaken across the estate, together with rent reductions received; there was also the benefit of a $3m gain from the sale of the lease on Holiday Inn Melbourne Airport for proceeds of $2m.
For July, the comparable RevPAR decline in the EMEAA region is expected to be ~74%, representing an ~11%pt improvement on the 85% decline for June. Occupancy levels in comparable open hotels improved to over 30%. Given further re-opening progress during the month, the number of hotels that remained closed at the end of July reduced to 180, or ~16% of the EMEAA estate.
Comparable RevPAR decreased 61.7% (Q2: down 59.2%), in-line with the industry in the second quarter, with occupancy in comparable hotels of 27% (Q2: 32%). In Mainland China, RevPAR was down 59%. Tier 1 cities were down 67% (Q2: down 66%), impacted by their weighting toward international and group events and meetings demand. Tier 2-4 cities, which are weighted more towards domestic and mainstream demand, performed relatively better with a decline of 55% (Q2: down 50%).
RevPAR in Hong Kong SAR was down 86% for the half, and down 90% in Q2, impacted by the reliance on inbound travel and the uncertainty posed by the political disputes, whilst Macau SAR RevPAR was down 72% for the half.
Reported revenue1 of $18m decreased by 73% (decreased 72% at CER) and the reported operating loss was $5m compared to $36m profit in the comparable period.
On an underlying basis, revenue decreased by 72% to $18m, with an operating loss of $5m compared to an operating profit of $35m in the comparable period. The adverse impact from the current trading environment, including lower recognition of incentive management fees (down $23m versus the comparable period), were in part offset by cost reductions across the region.
For July, the comparable RevPAR decline in the Greater China region is expected to be ~36%, representing a ~13%pt improvement on the 49% decline for June. Occupancy levels in comparable open hotels improved to over 50%. Given further reopening progress during the month, the number of hotels that remained closed at the end of July reduced to just four, or less than 1% of the Greater China estate.”
• Petrofac – “We remain confident that the actions we have taken to strengthen the balance sheet, invest in our core capability and reduce structural costs will best position us for the recovery when it occurs. Whilst Covid-19 and low oil prices are continuing to disrupt business activity and delay project awards, there are early signs of improvements in the supply chain and government related restrictions are easing.”
• Derwent London – “Technology has helped many companies operate effectively with workers working from home since the beginning of the pandemic. As time progressed questions have been raised about office use and its role in business. We believe that this debate has highlighted workplace trends that were already in place, which the pandemic has accelerated. For some time, occupiers have looked for more flexible, adaptable and increasingly higher quality and ‘greener’ space. These trends are likely to increase. As part of our planning and design, in conversation with business, with architects and with local authorities, we are focused on ‘long-life loose-fit’ adaptable spaces and wellness factors that can enable people to meet together in larger common areas, with higher ceilings and better air quality and ventilation.
We will continue to adapt. More flexible working, heightened health and safety, more space required between desks and in communal areas all impact the way in which we think about occupational density. Companies still need to bring their staff together, for the collaboration that social interaction brings, to build culture, to attract and retain talent and to have a physical embodiment of their brand. There is no substitute for building relationships with colleagues and clients in person. That is fundamental to the recovery of the economy and to our wellbeing. We expect the benefits of having technology working better from home will be supplemented by relationship building as businesses across sectors get back into work and London’s villages come alive again.
Surveys frequently report that many younger workers are keen to get back to the office. This closely relates to our long-held view that a significant driver of the demand for our spaces is the ‘war for talent’. This tenant demand will increasingly favour well-designed modern office space that provides good amenity and promotes wellbeing. We think our focus on progressive design, our wide range of leases, customer focus, flexible approach and early adoption of our Net Zero Carbon Pathway to 2030 leaves us well placed to meet the continually changing office demand.
Market background and outlook
The latest office market statistics, which are based on low activity levels, do not yet reflect the true impact of the lockdown. Our market guidance was withdrawn at the time of our Q1 update on 8 April 2020, reflecting significant uncertainty. This caution persists, especially over the pace of the London economic recovery with many businesses delaying their return to work. In the short term, we are still to see the impact of the government withdrawing furlough support and the terms by which the UK leaves the EU at the beginning of 2021.
We expect rising unemployment and business closures will see the London office vacancy rate rise, which, in turn, may put pressure on office rents. However, we believe our better quality lower rise space, located in West End and Tech Belt mixed use locations that attract a broader spread of occupiers, will be relatively resilient.
Against the background of extremely low interest rates, the relatively attractive yields on central London office properties should support values. However, investments are likely to become increasingly differentiated with demand focused on properties that offer secure income with a growing focus on adaptability and climate resilience.
Occupier demand is key to our business, so the speed of London’s economic recovery will play an important part in determining our medium-term performance. The current slowdown in momentum means that, in the short term, there will be more focus on the Group retaining existing income. However, we do have significant income growth already built-in from our recently completed or pre-let developments: 80 Charlotte Street will contribute in the second half of this year and Soho Place from 2022.
Looking forward, we have another 125,000 sq ft at The Featherstone Building for delivery in 2022, and our strong financial position means that we in a position to commit to new projects or pursue opportunities. We anticipate commencing our next major development at 19-35 Baker Street W1 in 2021, which has planning permission for 293,000 sq ft mixed use and is expected to complete in 2025. Covid-19 may have tempered our short-term growth but ongoing developments ensure that the portfolio is still strongly reversionary and we remain in a good position to benefit once the economy improves.”
• SDL – “Customer activity increasingly stabilised in May and June, with some signs of more positive momentum beginning to build
SDL has a good pipeline for the second half, which traditionally is its stronger period, but with a higher degree of uncertainty than in normal years and the Group remains alert to risks to customer spending and delays to sales cycles and decision-making.”
• Codemasters – “Trading since the start of the year has been particularly strong and the Board now anticipates that revenue and adjusted EBITDA for the full year will be significantly ahead of current market expectations.
These revised expectations are driven by the particularly strong performance to date both of the annual instalment of its Formula One title, F1® 2020, and the continued strength of the Company’s growing back catalogue of games. Fast & Furious Crossroads, which was released on 7 August 2020, has to date performed as anticipated, and the Board is pleased to report that levels of pre-orders from both retailers and consumers for the title launches scheduled for the remainder of the year also remain consistent with original expectations.”
• Gamesys – “The Group continues to focus on providing a recreational and entertaining experience for our community of players to enjoy, and we have seen significant increases in chatroom engagement and non-wagering sessions.
During the first half, we invested in additional resources and capabilities in our responsible gambling teams, including a 30% increase in budgeted headcount.
Between Q1 and Q2, we experienced a significant increase in both the number of players setting deposit limits and also in our proactive outbound calls to customers to discuss their play.
Upon entering Covid-19 lockdowns in Q2, we were the first operator to cease untargeted customer marketing in the UK, including the suspension of TV and radio campaigns.
We continue to monitor Covid-19 developments and government guidelines carefully, as the health and wellbeing of our employees and players remains our top priority.
We welcome the forthcoming review of the 2005 Gambling Act and look forward to contributing to an evidence-based assessment as to how to enhance the environment for responsible gambling.”
• Solid State – “The Board is pleased to announce that trading since the last update on 8 June 2020 has continued to be ahead of management’s expectations.
Group revenues were stable, down 4% year on year. As previously announced, the order intake in Q1 was down just under 15% compared to the prior year; by the end of July 2020, order intake for the four month period had improved being down 7% on a like-for-like basis compared to the equivalent period last year. The open order book at 31 July 2020 was 4% below the year end at £38.3m (31 March 2020: £39.9m) reflecting the shorter order periods referenced below.
All of the Group’s four manufacturing sites remain open, are operating effectively and compliant with government guidelines. Covid-19-secure reopening of our offices has been completed and those working from home that wish to return to work are now able to do so on a rota system whilst maintaining the Covid-19 safe environment. The group’s working from home procedures and robust IT systems have however proven to be both efficient and effective, therefore group policy remains that where possible staff should continue working from home.
The group’s supply chain remains strong, with all suppliers now shipping to schedule. However, lead times on new orders are lengthening and freight costs from the Far East remain at elevated levels. Consequently, the businesses are regularly communicating with their customers to ensure that appropriate levels of free stock and buffer stock are in place.
All customers have now re-opened to work, although a number of them are still operating at reduced levels. Consistent with others in the electronics sector, a significant slow down has been seen in the oil & gas and civil aerospace sectors. The medical, food retail, security and defence sectors remain strong, although reduced confidence in the UK economy has led to some domestic customers placing orders covering shorter time scales than would otherwise be expected, with the consequent reduction in forward order visibility.”
• The number of workers on payrolls in the UK fell by 730,000 between March and July, with 81,000 jobs lost last month, the Office for National Statistics said. Unemployment rose by 220,000 between April and June – the biggest quarterly drop in UK employment since 2009. The youngest workers, oldest workers and those in manual occupations were the worst hit.
• Universities in England have been told to hold places while appeals against A-level results take place. With exams cancelled, pupils have been given grades based on estimates and many of those left disappointed are expected to appeal.
• Retail sales rose again in the UK in July, but shop visits are down, with more people choosing to buy online, industry figures show. The British Retail Consortium (BRC) said some retailers continue to struggle due to the coronavirus crisis, and it made a fresh call for government help with rents. Sales were up 3.2% compared to last year, with internet shopping accounting for 40% of total sales.
• The ‘Eat Out to Help Out’ policy has served more than 10.5m meals in its first week. The discount dining scheme, which runs Monday to Wednesday, is aimed at getting the public to support the hospitality sector by offering 50% off food and drink, up to a value of £10.
• Singapore’s economy shrank almost 43% in the second quarter, in a sign that the country’s first recession in more than a decade was deeper than initially estimated, official data showed on Tuesday.
• Greece announced further measures intended to curb a recent spike in infections. Visitors from Spain, Belgium, Sweden, the Netherlands and the Czech Republic will have to show proof they have tested negative for the virus before entering the country.
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