Coronavirus - Lessons from the (recent) past

Sweden’s economy shrank by 8.6% in Q2 compared with the previous quarter – the largest quarterly fall for at least 40 years.

However, the preliminary estimate from the Swedish statistics office indicated that the country fared better than other EU nations that took stricter measures, which on average saw a contraction of 11.9%. Sweden’s deaths per million inhabitants, while significantly higher than its neighbours, remained below that of the UK, Spain and Italy. Whilst nothing can be done about the past, this demonstrates that a complete lockdown can and should be avoided with any future wave.


• Aberdeen goes back into lockdown.

• WH Smith may cut 1,500 jobs.

• Virgin Atlantic files for Chapter 15 bankruptcy in the US.

• Sweden’s economy shrinks 8.6% in Q2.

• Disney’s film Mulan to be released on streaming services only.

Company news

Buildings & Construction

 Hill & Smith – “As expected, trading performance in the six months to 30 June 2020 has been impacted by Covid-19 related business closures and reduced activity levels from the middle of March. As a result, revenue for the second quarter was 22% lower than the same period last year. We are pleased to report that all those businesses that were temporarily closed re-opened by the middle of May and we have seen a gradual recovery in trading across the Group.”

 Morgan Sindall – “The extent of the operational and financial impact of C-19 on each division is included in the Divisional Review below, however Group revenue for the second quarter was down 23% on the prior year. For April alone, revenue was 35% down on the prior year. As a result, total Group revenue for the half-year period decreased by 4% to £1,363m (HY 2019: £1,421m).

The gross margin impact of this lower revenue, together with additional costs arising through site closures, lower productivity on sites, and from implementing new safety processes and procedures, have impacted profitability during this period. In addition, construction delays on many of the development schemes in the regeneration activities, together with lower revenue in the mixed-tenure activity of Partnership Housing, have further reduced profit in the period.

As a result, the adjusted operating profit was down 52% to £18.1m (HY 2019: £37.5m), at an adjusted operating margin of 1.3%, down from 2.6% on the prior year. Consequently, the adjusted profit before tax was £15.7m, down 57% (HY 2019: £36.3m) and the adjusted earnings per share of 27.4p was also 57% lower (HY 2019: 64.2p)

Through the period, the Group placed a number of its employees on furlough and accessed the Government's Coronavirus Job Retention Scheme ('CJRS'). At the peak, c1,900 employees were furloughed across the Group and as at 30 June, the Group had claimed £9.3m under the CJRS, the benefit of which is reflected in the HY income statement. As at the start of August, there remained c200 employees on furlough, primarily within the Property Services and Infrastructure divisions with this number expected to reduce further through the month.

The Group's strategy remains the same, based on organic growth and operational improvement and a balanced business geared towards future demand for affordable housing, urban regeneration and infrastructure and construction investment. Together with the high-quality secured workload, there is confidence of future growth and success.

There is now greater clarity of the extent of the impact of C-19 on the current year's performance and on the assumption of no further significant business interruptions arising from any widespread secondary lockdown, profit before tax for 2020 is expected to be in the range of £50m-£60m. This includes the repayment of all amounts received under the CJRS, which will be charged through Central costs in the second half.”


 Legal & General – “The economic impact of Covid-19 related claims for Legal & General has been £(80)m in LGI which includes a provision for future Covid-19 claims, although the tragically disproportionate impact of the pandemic on older people resulted in an offsetting £32m from UK mortality experience in LGR. Furthermore, our reinsurance strategy, which reinsures virtually all of LGI's UK retail protection business, has substantially reduced the impact on LGI of higher claims. Further operational impacts included pausing LGC Build-to-Sell Housing operations for 3 months, reducing profits by an estimated £(60)m. Additionally, Group operational costs increased by £(21)m reflecting incremental expenses incurred as a result of Covid-19, including the provision of IT spend on remote working. In all, we estimate Covid-19 related events reduced operating profit by £(129)m.”

 Metro Bank – “Operational: 100% of stores remained open during the lockdown to ensure customer needs continued to be served, albeit with temporarily reduced hours. Colleague absence rate peaked at 8.2% in March but recovered to a more normal level of 1.5% in June.

'Run the Bank' opex growth was contained within expectations even with the purchase of personal protective equipment, working from home equipment and the rewarding of frontline teams with a £2 million 'thank you' fund.

Action taken to accelerate the move out of central London office space.

Launched BBLS, CBILS and CLBILS lending to support customers and grow capital light assets.

Fee income

• Lower levels of economic activity during lockdown impacted fee income as ATM, card and FX transaction volumes declined significantly.

• Marginal recovery in transaction volumes has been observed.

Credit Provisioning

• ECL expense recognised in H1 2020 under IFRS9, with 86% resulting from Covid-19. Scenarios apply and are sensitive to independent macro-economic forecasts.

• Not anticipating H1 2020 charge to annualise in H2 2020, dependent on macro-economic assumptions.

Margin compression

• Base rate cut by 65bps in March to 0.1%, affecting yields on treasury assets.

• Short-term impact on profitability in H1 2020 due to the 'lag effect' of lending re-pricing faster than deposits. The lower rate environment is also anticipated to have an impact on financial performance into the medium term.

• Accelerating mix shift to improve yield including the acquisition of RateSetter and expansion within specialist mortgages will mitigate some of this impact.”


 RHI Magnesita# – “Revenue for the six months to June 2020 was €1,171 million, a decrease of 22.7% compared to the same period last year on an adjusted constant currency basis. This performance broadly mirrors the declines experienced by our customers' and is consistent with the scenario planning originally set out at the 2019 Full Year Results in April. The unprecedented challenges of the Covid-19 pandemic have affected customer activity heavily with a resultant sharp reduction in volumes across both the Steel and the Industrial Divisions. Although there has been some variability between geographies and end market segments, most of the business units experienced a material drop in volumes in the second quarter.

We continue to expect that our markets will remain challenging in the short term, with activity levels likely to remain subdued into Q3 and limited visibility into Q4. However, the strategy remains on track and the Group has extended a number of key initiatives to further improve, for the longer term, its overall cost effectiveness. These initiatives, reducing SG&A and further consolidating our production network, will support the profitability in both H2 2020 and beyond.

The long-term economic impact of Covid-19 remains uncertain. However, the business is taking appropriate actions to manage effectively through an extended period of subdued demand. With significant financial strength, RHI Magnesita is well positioned to take advantage of growth opportunities when markets improve and will exit this period of disruption with positive strategic momentum.”


 Hastings – “As a result of the lockdown measures the UK Government introduced, motor vehicle traffic reduced by an average of 47%5 from the start of the lockdown to 30 June 2020 compared to an equivalent day prior to the lockdown and subsequently the Group has experienced decreased claims frequencies in the second quarter, with signs of these increasing as restrictions have begun to ease, but still remaining lower than prior years. The Group has also seen an increase in claims severities, due to higher property damage repair costs, reflecting increased vehicle sophistication, continued inflation of paint, parts and labour, and some disruption in the repair network as a result of the lockdown restrictions the UK Government has in place.

The Group's strong customer retention rates and some improvement in new business competitiveness has contributed to a 4% increase in live customer policies in the six months to 30 June 2020, and a 5% year on year growth from 30 June 2019. The market share of UK private car insurance increased to 8.1%, from 7.7% at 31 December 2019.”


 Loungers# – “The Board is pleased to update on current trading having now re-opened all 165 sites in the estate, with the exception of Cosy Club in Leicester which opens this Friday. Like-for-like sales have been -1.7% over the period from 4 July, when our phased re-opening commenced, through to 2 August. Whilst these are still early days, we are encouraged by the initial strength of our trading performance to date and remain confident the Company will emerge strongly from this period.”

 William Hill – “Our digital businesses have delivered good performances with new product launches Online and accelerated product development in the US. Operational emphasis on winning with the customer delivered material improvements in our NPS and customer satisfaction scores

International Online grew 17%, furthering our strategic goals of both geographic and product diversification

Our next phase of strategic alignment in the UK is the merger of our UK Online and Retail divisions to achieve a single view of our UK customer and improve operational efficiency. Some 119 shops will not re-open following the Covid-19 impact on the UK retail environment with minimal cost of closure. The business has traded well since mainstream sport resumed and our UK shops have re-opened and we are encouraged by the early indications. International Online has maintained its strong momentum in recent weeks and UK Online, following a robust first half, made good progress during July. We are encouraged by the early performance in UK Retail while the US online business has produced a solid outcome with limited sports content.”


 Ferrexpo – “Following the Covid-19 outbreak in the first quarter of 2020, the Chinese economy recovered faster than many other regions and steel production in China maintained relatively high levels for most of the period compared to the rest of the world. This compared to large steel production cuts for the most part of 2Q 2020 in Europe and Japan. As a result, a significant volume of Ferrexpo's seaborne iron ore pellets were redirected from Europe and North East Asia to the Chinese market. This redirection increased the volume of sales to the spot market compared to previous periods. The supply of iron ore fines was affected by disruptions at producers in Brazil supporting the fines prices whereas a lower demand for iron pellets in traditional pellet markets put some pressure on the pellet premiums.”

Real Estate

 SEGRO – “The diversity of our customer base means that the impacts were wide-ranging, many benefitting from a sudden increase in demand for their goods and services and others finding that their revenues stopped overnight or having to shut down their operations temporarily as employees were no longer able to travel to their premises. We acted swiftly to help those businesses who were fundamentally sound but suffering short-term cash flow issues by re-profiling rents to alleviate some of the pressure that they were facing.

Our development programme was also affected by the crisis with most of our projects in Southern Europe and some in the UK temporarily suspended. We worked closely with our contractors to monitor the situation and, as soon as it was feasible, safe, and permitted by regulation, sites were re-opened with the appropriate social distancing and other necessary measures in place. All of our development projects have now resumed with only minor delays to completion dates and, in some cases, are expected to finish ahead of schedule.”

Support Services

 PageGroup – “The Group's revenue for the six months ended 30 June 2020 decreased 20.2% to £655.0m (2019: £820.5m) and gross profit decreased 30.6% to £300.7m (2019: £433.5m). In constant currencies, the Group's revenue declined 19.4% and gross profit decreased by 30.1%. The Group's revenue mix between permanent and temporary placements was 33:67 (2019: 41:59) and for gross profit was 70:30 (2019: 76:24), demonstrating the greater resilience of temporary recruitment during the pandemic.

Revenue from temporary placements comprises the salaries of those placed, together with the margin charged. Overall, pricing has remained relatively stable across all regions. Fee earner productivity decreased by 24.8%, reflecting the far more challenging conditions. As a result of the global lockdown caused by Covid-19, our fee earners have seen a significant reduction in activity. This, along with our strategy of maintaining our platform of experienced consultants as far as possible to take market share as markets recover, has resulted in this short-term drop in productivity.

During the second quarter, activity levels started to pick up in several of the Group's markets. As offices have been progressively re-opened, we have seen improvements in our main forward-looking KPIs, such as new opportunities, candidates sent to clients, interviews and offers. Whilst trading conditions remain unpredictable, we are choosing to invest in the business, returning all our staff to full time working and full pay in Q3. We are also investing in experienced hires from our competitors as well as continuing to invest in systems, such as our new operating system, Customer Connect.”

Lifting restrictions

• Singapore has further lifted restrictions. Under its ‘Phase 2’, non-essential retail stores, gyms and most businesses are allowed to re-open. Dine-in services in restaurants and cafes will also resume. Gatherings of more than five people, however, aren't permitted.

• In Wales, all non-essential shops can re-open, providing they follow social distancing rules from Monday. The housing market will begin to re-open, with viewings able to take place. Outdoor markets can also re-open, along with outdoor sports courts for non-contact sports, as well as places of worship for private prayer. Childcare facilities will begin to re-open on a phased basis.


• A vaccine against the coronavirus will be available in 2020 and 2021, Sir Jeremy Farrar, director of health research charity Wellcome Trust, a leading pandemic adviser to the UK government, has suggested.

• Media watchdog Ofcom’s annual study into UK media habits suggested adults spent 40% of their waking hours in front of a screen, on average. Time spent on subscription streaming services also doubled during April. At the height of lockdown, adults spent an average of six hours and 25 minutes each day watching TV or online video.

• Virgin Atlantic has filed for Chapter 15 bankruptcy in the US as lockdown restrictions continue to curtail travel worldwide.

• The Australian state of Victoria has reported another record rise in coronavirus cases, days after it tightened its lockdown measures to curb the disease.

• Ireland has delayed re-opening more pubs, extended use of face coverings and tightened its travel list. The Taoiseach, Micheál Martin, announced yesterday night that the government was delaying the relaxation of lockdown restrictions for the second time to ensure schools and colleges can open at the end of the month.

• The Eurozone economy contracted by a record 12.1% last quarter, data showed on Friday. A Reuters poll in July predicted 8.1% growth this quarter as businesses begin to return to some sort of normal.

• July’s final Composite Purchasing Managers’ Index (PMI) from IHS Markit, released today, bounced to 54.9 from June’s 48.5. While demand increased and optimism improved, firms again cut staff sharply. The employment index held below breakeven at 46.5, albeit better than June’s 43.2 reading. As people ventured out to bars and restaurants, the services PMI rose from 48.3 to 54.7, its highest since September 2018.

• Disney's latest film Mulan has finally been given a release date of 4 September. However, the film will only be available on streaming platform Disney+.

• Sweden’s economy shrank by 8.6% in April-June, one of its largest quarterly falls in decades. However, the economic figures were better than other EU nations that imposed stricter lockdown measures.

• WH Smith said it is planning to cut 1,500 jobs – 11% of its workforce.

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