Coronavirus - It's further than you think

Calls have been growing for the government to change its two metre distancing rule, and to some this may seem arbitrary.

However, it is worth remembering that to implement two metres, restaurants, shops and offices require 4x more space than for one metre, thus significantly increasing costs and reducing efficiency. Although a recent study by the Lancet showed that reducing the distance from two metres to one could double the risk of infection, it also showed that one metre is effective and reduces the overall risk by 80%. Therefore, while it is clear a reduction in distance will increase infection rates, the benefits could outweigh the risk.


• The US reports 1.5 million new jobless claims.

• WHO says pandemic is accelerating in Africa.

• Lufthansa to cut 22,000 jobs.

• New Zealand has now gone 20 days with no new infections.

Company news

Buildings & Construction

• Grafton – “Group revenue in continuing operations was down 26 per cent to £810.9 million in the five months to 31 May 2020 from £1.09 billion in the same period last year due to the impact of the Covid-19 pandemic.

The Group had a solid start to the year before experiencing a decline in activity in the second half of March resulting in an overall decline in Group revenue of two per cent in the first quarter compared to the same period last year.

The national shutdown measures remained in place throughout April in the UK and Ireland and had a material impact on trading leading to a decline in Group revenue of 80 per cent in the month compared to April 2019.

The easing of trading restrictions during May permitted the majority of Group locations that were closed in March to either fully or partially reopen through the month. Although Group revenue in May was down 38 per cent on the prior year, this marked a significant recovery in activity and also reflected the high proportion of branches in the UK and Ireland that traded for only the latter part of the month.

The overall level of trading during the short period since reopening, while encouraging, was influenced by a range of factors including pent-up demand and may not be indicative of ongoing activity levels. The Group remains focused on appropriately managing its cost base as restrictions ease and trading returns to a more sustainable level.

UK Distribution – The UK distribution business traded at approximately half the prior year level in May on an improving trend as the month progressed.

Selco reopened 42 branches initially on 6 May for Click & Collect and Click & Deliver trading only with the remaining 26 reopened on 18 May. In a gradual return to a more normalised operating environment, trading in the 42 branches that were initially reopened was extended to a full in-branch self-select service by the month end and the remainder of the branch estate will be fully operational by 22 June 2020. Selco was well positioned on reopening to support a higher proportion of orders and revenue through its on-line channel following a major upgrade to its website in February of this year that provided enhanced functionality and an improved user experience for customers.

The traditional UK merchanting businesses supported customers with branch collections and on-site deliveries of materials used mainly for outdoor residential RMI projects. The return of house builders to construction sites and the re-starting of commercial projects has been slower and, as a consequence, this segment of the market has seen a more gradual increase in activity. Buildbase experienced an increase in on-line orders following an upgrade to its website during the lockdown.

Both Leyland SDM, the specialist decorators’ merchant in London and TG Lynes, a distributor of commercial pipes and fittings in London, remained open and traded well during the lockdown.

Irish Distribution – Half of the Chadwicks distribution branch network in Ireland remained open during the lockdown for essential deliveries only typically to support health and public sector projects and to provide emergency supplies to businesses and homes. The business fully reopened on 18 May in the first phase of the Irish Government's roadmap for reopening the country and operated at two thirds of prior year revenue for the month. Demand has been largely driven by residential RMI projects with new home build activity expected to remain subdued.

Netherlands Distribution – The Netherlands distribution business was not impacted by the Covid-19 restrictions imposed by the Dutch Government and health authorities as the construction sector was deemed an essential activity and permitted to continue operating subject to implementing health and safety and social distancing measures. Both Isero and Polvo, the business acquired by the Group in July 2019, have proven very resilient delivering operating profit during the year to May that was in line with our original expectations going into 2020.

Retailing – The Woodie’s DIY, Home and Garden business in Ireland reopened on 18 May to a surge in demand that saw revenue for the two-week period to the month end comfortably exceed the level achieved for the full month of May 2019. Sales of garden furniture, barbeques, shrubs and plants and exterior paint and woodcare products were exceptional, supported by pent up demand and very favorable weather conditions.

Manufacturing – The UK mortar manufacturing business traded at one-third of the prior year level in May with all plants reopening except for one in Scotland where the lockdown continues. Capacity was reintroduced on a phased basis during the month in response to customer demand as existing house building sites reopened and construction work resumed.

Liquidity – The Group’s portfolio of cash generative businesses combined with prudent financial management and a strong balance sheet left it well positioned to respond to the adverse impact on trading of Covid-19. Pre-IFRS 16 net debt was estimated at £38 million at the end of May and liquidity of £578 million was almost entirely held in accessible cash deposits and bank balances.

In view of the Group’s excess liquidity, we anticipate repaying an element of drawn revolving bank facilities during June. The Group has approval from the Bank of England to issue commercial paper under the Covid Corporate Finance Facility which provides an additional source of liquidity though it is not anticipated that this facility will be utilised. No refinancing of debt is due until March 2023, the Group does not have a leverage (net debt/EBITDA) covenant in its financing arrangements and its assets are unsecured.

Outlook – The businesses in the UK and Ireland were successfully reopened following the lifting of restrictions during May and, in the absence of a reintroduction of measures to control the spread of the virus, we expect to build on this progress over the coming months as trading returns. In view of the continued uncertainty over the impact of Covid-19 on economic and construction activity generally, financial guidance for the year ending 31 December 2020 will remain suspended at this stage.”


• CMC Markets – “CFD gross client income at the start of the financial year has been around double that during the same period in the prior financial year and client income retention remains strong.

The Group has confidence in the underlying performance of the business when market activity becomes normalised, and in conjunction with further progress on its strategic initiatives, looks forward to continuing to generate business growth and value.

The Group's significant investment in technology development and infrastructure in its institutional (‘B2B’) business is expected to lead to a moderate increase in costs in the coming financial year.

It is anticipated that the Group effective tax rate will increase to above the UK corporate tax rate in the new financial year.

Final dividend for the year of 12.18 pence per share resulting in a total dividend of 15.03 pence per share, in line with the Group’s dividend policy of distributing 50% of profit after tax. Given the strength of the balance sheet and confidence in strategic delivery, the Board remains committed to paying a total dividend going forward of 50% of profit after tax.”


• Syncona – “The Covid-19 pandemic has had a significant impact on all levels of society and continues to represent an unparalleled challenge to public healthcare systems globally, with resources rightly focused on managing Covid-19 patients. As a result, elective procedures and clinical trials have been de-prioritised whilst the pandemic is managed. We have been fully supportive of these decisions. The Syncona team has leveraged its core expertise to provide support when called upon to both the Wellcome Trust and Government during these exceptional times.

Whilst the duration and impact of the disruption caused by Covid-19 remains uncertain at this time, the need for medicines in other diseases continues undiminished. Syncona's vision to develop treatments for patients in areas of high unmet medical need will continue to remain of profound importance for patient outcomes and our mission is, therefore, unchanged and as important as ever.

Once the Covid-19 situation has stabilised, specifically the work environment once global economies have exited the acute lockdown phase of containment, clinical development activity across the industry will continue and our companies will progress their clinical trials. To date, we have seen a more limited impact on clinical trials in the oncology setting, where the acute need for treatments for patients in these disease settings is more severe, whilst in indications where there is an existing treatment or a lower mortality risk, we have seen trials halted and expect them to be more gradually re-established. We have largely been able to progress pre-clinical work and the development of manufacturing capabilities and supply and expect this work to continue.

We have been working in close partnership with our companies’ management teams to ensure we take a disciplined approach to advancing value, whilst ensuring that they have in place scenario plans for their spending which take into account the potential ongoing impact of the Covid-19 pandemic. In line with this approach, we expect to deploy between £150 million and £250 million for the 2020/21 financial year based on whether our portfolio companies can access third-party capital (when appropriate) in this economic environment and the opportunities we see in our investment pipeline.”


• Babcock – “The majority of our service delivery is non-discretionary and critical to our customers' operations. Major sites including the Devonport Royal Dockyard, Clyde Naval Base, Rosyth Royal Dockyard and many Army and RAF land and air bases have remained operational during this crisis, as well as key civil nuclear sites around the UK. Where we continue to operate sites, we comply with government guidance as it evolves and have worked with our customers, regulators, staff and trade unions to establish new flexible work patterns and procedures on a site-by-site basis. As such most of our work has continued during this crisis, including:

• Our defence businesses providing crucial support to the national defence of all the countries we operate in.
• Continued work on key defence programmes such as submarine and surface ship refits and life extensions, design and build of new submarine equipment, design of the Type 31 frigates and critical defence training activities.
• Our Emergency Services businesses have kept all bases open as they operate on the front line of this crisis and our aerial firefighting businesses are preparing for a new season.
• Our Nuclear businesses continue to support the safe operation of nuclear power stations and decommissioned sites.
• Our South African business continues to provide the maintenance and engineering support that keeps the power stations running.
In the UK, many of our people are working from home, enabled by IT solutions with video and teleconferencing playing a critical role in making working from home an effective solution.
We have also helped our customers by sharing our experience from other countries and regions. In Italy, we pioneered the use of biocontainment isolation stretchers that allow infected patients to be transported to hospital by air, while at the same time protecting the flight and medical crews from infection. Once proven in Italy, similar approaches have been introduced in Spain, France, Sweden and the UK. In Spain we developed a new internal helicopter barrier arrangement that isolates aircrew from patients being transported and this has now been shared with our customers in the UK.
Babcock joined forces with a leading medical equipment company to design, manufacture and supply critical care ventilators in response to the UK Government's urgent request for help from industry. Working round the clock, our specialists developed a brand-new design. And when the technical requirements changed, we were able to make sure that our ground-breaking Zephyr Plus ventilator was flexible enough to meet the UK's need. Combining our engineering expertise and ability to create innovative supply chain solutions with developments in medical technology has resulted in a solution that could help medics in these extreme circumstances. We are incredibly proud of what our people, our suppliers, and everyone who has been involved in the project, has achieved in such a short space of time.
While many areas of our business continue to operate, they are experiencing lower levels of productivity due to staff absence and social distancing measures. There are some areas of our business that have been particularly affected by lower levels of demand, including:
• Many parts of our short-cycle work such as rail and power in the UK and our airports businesses are running at significantly lower levels of activity.
• Lower levels of flying in our aerial emergency services business following lockdowns and lower flying hours in our Oil and Gas business.

• Reduced activity at some civil nuclear sites with only essential safety works taking place.

• Training activity, both defence and civil, has reduced with some programmes paused and others operating at reduced levels.

This led to a small financial impact to our results for the year ended 31 March 2020. The ongoing crisis creates significant uncertainty for the year ahead and while the financial impact cannot yet be quantified, we have taken many steps to mitigate the impact to the Group to ensure a prudent approach to protect the long term health of the Group for all stakeholders. These steps include:

• Deferring non-essential operating and capital expenditure and tightening rules around spending across the business.

• Accelerating restructuring plans in our Aviation and Nuclear sectors.

• Limited use of furloughing staff in a number of areas such as our airports and civil training businesses.

• Senior executive management have taken a temporary 20% reduction in basic salary and the annual bonus and pay rise for the new financial year have been deferred.

• Non-Executive Board members have taken a temporary 20% reduction in fees and will have no increase in fees for this new financial year.

• Decision on final dividend deferred until there is greater certainty.

We are also preparing for the gradual easing of restrictions over the next few months that will allow more of our people to return safely to their workplaces in strict accordance with evolving government guidance.”

 Johnson Matthey – “Due to Covid-19, we experienced an adverse impact of c.£60 million to underlying operating profit in the year ended 31st March 2020, of which c.£30 million reflected lower demand in Clean Air, and the remainder was due to higher trade debtor provisions across the group of c.£15 million, and delayed sales due to logistical challenges in our other businesses.

Our immediate response to Covid-19 was to take decisive action to maintain our strong balance sheet and strengthen our liquidity through cost reduction, tightly managing our operations to optimise working capital and postponing non-strategic capex. Our cost reduction measures included adjusting working patterns, reducing contractor spend and restricting travel costs and we optimised working capital by reacting quickly and temporarily stopping production at our Clean Air plants, managing our raw materials purchases and controlling pgm refinery intakes.

Following the temporary closure of numerous automotive OEM production plants due to government mandated closures and lower consumer demand, our Clean Air plants are now gradually resuming production across all regions. Across the remainder of our business, the vast majority of our plants are operational and we have adopted new working practices in line with local guidelines. Alongside maintaining our operations where it is safe to do so, we are balancing obligations to our stakeholders through maintaining payment terms with suppliers and offering support to small suppliers who may be facing hardship.

Resilient business portfolio with a strong balance sheet – We are well positioned in an uncertain world. We have a resilient and diverse business portfolio which is exposed to a range of end markets and geographies and our flexible cost base, particularly in Clean Air where c.75% of our costs are variable, enables us to adapt quickly to changes in demand, reduce our costs and preserve cash. When the macroeconomic environment weakens, our business model provides a natural hedge which strengthens our balance sheet and liquidity as we have significant precious metal working capital inflows when demand is lower. The strength of our position means that we decided not to take any support from the UK government for furloughed staff, or draw down on the Bank of England’s Covid Corporate Financing Facility (CCFF) despite qualifying for the loan.

We have a strong balance sheet with good access to liquidity of c.£1.3 billion. Earlier in the year we concluded a £1 billion five year committed revolving credit facility and more recently we issued US$300 million of private placement notes.”


 MoneySuperMarket – “Our business has continued to trade effectively through the period, benefitting from diversified revenue streams and strong cash conversion. As at the end of May 2020, we had net debt of £0.8m having paid the £46m 2019 final dividend.

It is still too early to have full visibility on when and how the consumer and provider sides of our marketplace will be back to normal, so we continue to suspend forward financial guidance for 2020.

Insurance – beginning to return to normal in Motor

• Closed car dealerships significantly reduced car sales, which are a trigger for car insurance switching and loan demand. Across the market, car insurance search volumes declined by 22% year on year in April, recovering gradually in May to more normal levels in recent days. There are signs of lower car insurance premiums in April and May compared to last year, so we now view the likelihood of a return to premium inflation in 2020 as low.

• Other key insurance channels were hit by the closure of estate agents and restrictions on home moving (UK residential housing transactions are estimated to have fallen by over 55% year on year in April). House transactions are a key prompt for consumers to buy or switch life and home insurance. In home insurance over 10% of our enquiries are normally from those who have moved home in the last month. As the housing market begins to re-open, we expect performance will improve.

• Travel bans continue to mean almost no demand for travel and travel insurance products.

Money – provider appetite for lending has tightened considerably.

• We have seen a very significant reduction in the attractiveness and availability of credit and banking products as lending criteria have tightened and interest rates have fallen, and we do not expect this to change in the immediate future.

• Market-wide search demand for credit products has decreased materially, down 37% year on year for loans and cards combined in April, caused in part by lockdown measures leading consumers to postpone significant spending. This impact was compounded by lower conversion as tighter lending criteria mean consumers are seeing fewer attractive search results. In April, the proportion of consumers eligible for loan products on our

MoneySuperMarket site fell from above 85% to below 65%. These trends have persisted through the period.

• Within the savings part of banking, early on we saw consumers move rapidly to secure better rates. Across banking more broadly we now have a very significant reduction in the attractiveness and availability of products.

Home Services – attractive savings levels for consumers driving strong switching demand.

• Consumers can still make large savings when switching their energy. A combination of market-leading offers and MoneySavingExpert’s editorial strength meant we saw strong growth in energy switching.

• Broadband has become even more important to consumers, and we have seen robust growth.

Mobile has remained the primary device for users. Following our successful brand re-launch last year, our plans for above-the-line marketing spend in 2020 are unchanged, however we have adjusted our marketing mix to reflect how consumers are now spending their time.”

 OnTheMarket – “Trading in February and the first half of March was in line with the Group’s expectations.

However, the Covid-19 pandemic and subsequent government restrictions had an immediate impact on the ability of our customers to run their business, with transactions largely suspended.

Since the partial relaxation of restrictions on 11 May, the Group has seen strong increases in weekly new instructions, traffic and leads against the previously subdued levels. This is despite a substantial reduction in advertising expenditure.

In the first week of June, visits were up 260% compared with the trough experienced during lockdown and up c.15% versus the first week in March, which was before the impact of the Covid-19 crisis on the housing market.

New instructions have recovered to early March levels, whilst stock levels are up as the backlog of transactions takes time to complete.


Due to the continuing economic uncertainty, financial guidance remains suspended.

In the short-term, revenues will be reduced by the support we are providing our customers through the discounts we have offered them. Furthermore, the pandemic has impacted our customer recruitment and slowed the ongoing conversion of customers onto paying contracts.

However, the recent uplift in activity, which reflects increased brand awareness, is encouraging and we remain confident that we have the right strategy to support our longer-term vision to become the portal of choice for agent customers and property-seekers alike.”


 Angling Direct – “Proposed Placing of new ordinary shares of one penny each (‘Ordinary Shares’) in the capital of the Company (‘Placing Shares’) at a price not less than 50.0 pence per share (which will be determined at the close

of the bookbuild process) (‘Placing Price’) to raise gross proceeds of approximately £5.50 million.

The net proceeds of the Placing will strengthen the Group’s balance sheet to provide further protection against the uncertainty created by Covid-19 and provide additional funding for prompt payment of suppliers to secure product, given the high level of customer demand anticipated over the coming weeks as lock-down restrictions are eased and retail stores re-open from 15 June 2020 (which coincides with the start of the coarse fishing season). At a time when greater certainty exists, the Board anticipates that the Company will allocate any surplus funds from the Placing to growth opportunities.”

 B&M – “For many retailers the outlook in the Covid-19 world is more about survival than it is about the shape of the year ahead and beyond. B&M has significant advantages. The ‘variety retailing’ model with its core strength in everyday essentials, a well-invested infrastructure, strong value credentials, a modern and convenient store network with continuing growth opportunities in the UK and France, mean that the business is better positioned and more resilient than most to deal with the new realities.

We welcome the UK Government’s business rates holiday which we see as essential to support the viability of the UK retail industry and the incremental operating costs of serving customers in the present circumstances. We hope this will be a precursor to the much needed reform of the UK business rates system. The benefit of the business rates holiday for B&M will fall in our financial year ending March 2021 and is likely to be fully offset by Covid-19 related costs, dependent on the progression of the virus and, in particular, the nature and duration of social distancing requirements.

Our strong trading performance in the B&M UK stores in the initial 8 weeks of the new financial year was boosted in particular by our Gardening and DIY categories as announced on 29 May. Much of that outperformance is likely to have been a pull-forward of sales which would ordinarily be achieved later in the first half of the financial year. LFL customer count was -28.9% whilst LFL Average Transaction Value was +72.5% over the initial 8 weeks. Whilst trading has continued to be strong in more recent weeks, the growth rate is unlikely to be sustained as Gardening ranges have sold through and stock in some other categories is now lower than normal for this time of year.

The pandemic has delayed construction work on new stores and consequently there has been a slowdown to our store opening programme for this financial year. For FY21 we now expect to have 30 net new B&M UK store openings and the programme could be reduced to a similar number in FY22 dependent on the progress of the virus and social distancing requirements. Our overall long term target of at least 950 B&M stores in the UK remains unchanged.

There are greater than usual uncertainties during the remainder of the year. The economic environment and its impact on customers is difficult to predict. In addition to the impact of social distancing on operating costs, should this continue during the winter months, it is likely to reduce footfall due to the reluctance of customers to queue outside during less pleasant weather, and detract from our ability to serve customers in their usual numbers during the peak trading season.”

Support Services

 Mind Gym – “We started to see the impact of Covid-19 with the postponement of the APAC deliveries for a large, face-to-face, ethics

programme that we were running for a bank in late January. This was quickly followed by other clients cancelling face-to-face deliveries initially in APAC, then EMEA and then the US.

The team worked hard to encourage clients to switch from live, face-to-face to live virtual. There were some considerable successes which is why the revenue outcome for FY20 was at the very top end of the expectations set in our statement on 9 March 2020. Nonetheless, many clients chose not to replace live events, such as global leadership conferences, with virtual alternatives and not to commission significant new work.

Q4 is normally our strongest quarter and so the timing of the outbreak had a disproportionate effect on performance.

Over the course of February and March we began to see the increasing impact of Covid-19's global spread. Mind Gym’s clients were thrown into crisis mode as entire industries slowed down and like so many others we were confronted with a sudden drop in revenue. While events happened too close to the year-end to enable significant cost mitigation, the leadership team moved quickly to rationalise and adapt. We are grateful to everyone in the business for the generosity they have shown by accepting reduced hours, salary cuts or, in a small number of cases, furlough. The founders waived their salaries entirely for the first quarter of FY21.”


 Centrica – “Centrica plc has today announced plans for a significant restructure designed to create a simpler, leaner Group focused on delivering for our customers.

The company will have fewer customer-facing business units all of which will report directly to the CEO. Three management layers will be removed to create a flatter, less bureaucratic organisation which is closer to, and focused on, the customer. As a result of these changes, around half of the current 40 strong Senior Leadership Team will leave the group by the end of August.

The revised operating model is expected to accelerate the delivery of targeted cost savings and lead to a reduction of around 5,000 roles across the Group, with over half of the departures expected to come from management layers. The majority of the restructuring is expected to take place in the second half of 2020, following consultation on the proposals with our colleagues.

In addition to the proposed new organisational design, the company will today start consultation to simplify terms and conditions for employees in the UK. Centrica has over 80 different employee contracts, each with multiple variants, with many of the agreements dating back over 35 years. We need to modernise these to enable us to best serve the changing expectations of today's customers while retaining the quality of our services.”

Lifting restrictions

• Egypt will allow international flights and foreign tourists to travel to some of its coastal areas that have been least affected by coronavirus from 1 July. Red Sea resorts, including in South Sinai, are expected to be among the first to open along with Mediterranean beaches west of the coastal city of Alexandria.

• Finland’s government says restrictions on leisure travelling to and from neighbouring Baltic and Nordic countries will be lifted from Monday, but Sweden is not included.


• The World Health Organisation (WHO) has warned that the spread of the coronavirus pandemic is ‘accelerating’ in Africa, which has so far been the least affected continent.

• Miami Beach reopened for the first time since early May.

• Disneyland in California has said it plans to reopen in July subject to government approval but has said capacity will be ‘significantly limited’.

• Coachella – one of the biggest music festivals in the world – has been cancelled for 2020. The event was initially scheduled for April then postponed to October.

• New Zealand has now gone 20 days with no new virus cases, even after the country lifted almost all of its restrictions.

• The US Environmental Protection Agency (EPA) has ordered e-commerce giants Amazon and eBay to stop selling a number of unsafe or unproven pesticides and disinfectants, including products falsely marketed as anti-Covid-19.

• Marmite (Unilever) has begun to experience supply issues. Its product relies on repurposed brewers’ yeast, which is in short supply because beer production has been cut back while pubs remain closed.

• Heathrow Airport has launched a voluntary redundancy scheme.

• A&E attendances at hospitals in England were down 42% last month compared to a year ago, new figures show. A total of 1.3m attendances were recorded in May 2020, down from 2.2m in May 2019.

• Lufthansa has said it will cut 22,000 jobs. The carrier predicted a slow recovery in demand and expected to have about 100 fewer aircraft after the crisis. Lufthansa said half the job cuts would be in Germany. It hopes to agree the measures with unions by 22 June.

• The US Labor Department reports more than 1.5 million Americans applied for unemployment benefits in the past week.

• Premier League clubs face a £1bn reduction in their revenues in 2019-20 because of the pandemic, says Deloitte. £500m of the reduction is from rebates to broadcasters and a loss of match day revenue, which won’t be recovered.

#corporate client of Peel Hunt