Coronavirus - Ostriches won’t survive

Today, the UK government announced it is dropping its plan to reopen primary schools for all pupils in time for the last month before the summer break.

The government acknowledged that the practicalities are too difficult to overcome. This is a U-turn, but not one that should be derided. Governments and businesses will need to make decisions as we begin to emerge from this crisis. Some will be wrong. The most important thing is that they do change course. Flexibility is the most valuable asset going forward. For example, reducing social distancing from two metres to one would make a considerable difference to economic activity and productivity.


• US economy declared in recession by the National Bureau of Economic Research.

• WHO says the pandemic is "worsening" globally.

• Total UK retail sales fell by 5.9% in May, BRC.

• German exports fell 24% in the month of May.

HMRC coronavirus support scheme statistics

The total value of claims under the job retention scheme as at 7 June is £19.6bn.

The total value of claims under the self-employment support scheme as at 7 June is £7.5bn.

Total/cumulative amount of VAT deferred as at 7 May is £22.4bn.

HMRC coronavirus support scheme statistics.

Company news

Buildings & Construction

 Bellway – “Overview • Construction activity has recommenced on around 230 sites, with a continuing focus on ensuring safe working practices, and on those homes which are in the latter stages of production.

• All remaining sales offices reopened in England on 1 June, following the success of a trial beginning on 18 May. Viewings are limited to single family groups and are on an appointment only basis, thereby ensuring the wellbeing of our customers and colleagues.

• The balance sheet remains strong, with net bank debt of only £157 million at 31 May (2 June 2019 – £261 million) and committed bank facilities of £545 million. In addition, although undrawn, the Group has been confirmed as an eligible issuer for the Government’s Covid Corporate Financing Facility (‘CCFF’), with an issuer limit of £300 million.

• The forward sales position is substantial, with an order book comprising 6,038 homes (2 June 2019 – 6,312 homes) and a value of £1,568 million (2 June 2019 – £1,643 million). This, together with Bellway’s responsible site re-opening programme, should enable the Group to preserve its strong liquidity position in the months ahead.

• All furloughed employees have remained on full basic pay throughout April and May and Bellway has no current plans to claim grant using the Government's Coronavirus Job Retention Scheme (‘CJRS’).

A measured and responsible approach to site-based construction – As previously reported, we began the process of resuming construction activity on a phased basis on Monday 4 May, focusing primarily on those properties in the latter stages of production. This approach was designed to enable safe social distancing, with initially only one tradesperson operating in a home at any given time. In addition, it has enabled us to progress exchanged plots through to completion, helping us to meet the expectations of customers hoping to move into their new home, whilst supporting the Group’s liquidity position.

Following the success of this trial, Bellway has now restarted construction activity on around 230 sites, although productivity is reduced, and work is still primarily limited to those homes which are nearing completion. Over the coming weeks, the careful introduction of further social distancing working practices should enable more than one tradesperson to work in a home at the same time, albeit on separate floors. This will help to increase the construction rate, whilst maintaining a safe onsite working environment.

Re-establishing a sales environment which is safe for both customers and colleagues

Bellway has maintained a telephone and online sales presence since the onset of the crisis. Following the issuance of Government guidance with effect from 13 May, we reintroduced a limited onsite sales presence from 18 May. Strict protocols have been established to ensure the safety of both our customers and sales personnel, with show home viewings limited to single family groups and strictly by appointment only, amongst other measures. Given the success of this trial, the Group reopened the remainder of its sales outlets in England, on a similar basis, from 1 June.

We remain committed to providing the highest levels of customer care possible during the current situation and will respond to all customer care calls and emails during this period. In addition to limited home visits for essential maintenance work, we intend to recommence home visits for more routine maintenance items, gradually and safely, from mid-June.

Supporting our colleagues during the pandemic – Following our decision on 23 March to close sites, the Group furloughed around 75% of its workforce, with this principally comprising directly employed site tradespeople, site managers and sales advisers. We have paid these employees full basic salary throughout April and May. Although eligible, Bellway has not applied for a grant using the CJRS and currently does not intend to do so.

Except for Scotland, where government restrictions regarding onsite activity remain in place, our phased and carefully executed reopening plan has enabled us to provide a safe environment for our site-based employees and subcontractors to return to work. In addition, we are in the process of finalising new working practices for our Head Office and divisional office-based employees, in order that we can facilitate a gradual return from homeworking at the appropriate time.

Trading update – In the period from 1 August 2019 to 31 May 2020, the Group completed the sale of 6,721 homes (1 August 2018 to 2 June 2019 – 7,674 homes), including 708 which completed on or after 23 March 2020. Our order book remains substantial, with a value of £1,568 million at 31 May (2 June 2019 – £1,643 million) and comprises 6,038 homes (2 June 2019 – 6,312 homes).

Sales activity has remained restrained since initially closing our sales centres, with the net reservation rate rapidly declining to an average of 71 homes per week in the ten weeks from 23 March to 31 May (25 March to 2 June 2019 – 231 per week). Pricing has remained firm and our sales centre reopening programme is leading to a gradual pick-up in customer interest.

Notwithstanding this, we expect year-on-year sales activity to be severely constrained until a time when ‘lockdown’ restrictions are further lifted.

Funding and liquidity – The Group benefits from a strong balance sheet, with net bank debt of £157 million at 31 May (2 June 2019 – £261 million). Following recommencement of onsite construction works, the total amount payable to suppliers and subcontractors at 31 May is around £65 million, with the majority of this expected to be paid by the end of June. Land spend from 1 August to 31 May was £597 million (1 August 2018 to 2 June 2019 – £677 million) and committed land obligations for the remainder of the financial year are expected to remain modest, at around £35 million. In general, new land buying activity remains suspended, however, the Board continues to assess individual land deals on their own merit. Given the reduction in activity, our plans for opening new divisions have been curtailed.

As previously reported, the Group has committed bank facilities of £545 million and has been confirmed as an eligible issuer for the CCFF, with an issuer limit of £300 million. The CCFF is currently undrawn but remains in place as a prudent backup should there by a prolonged period of economic inactivity.”

 SigmaRoc– “Trading performance – For the five-month period ended 31 May 2020, the Group reported unaudited revenues of £42m. This represents 84% of revenues recorded for the same period in 2019 on a like-for-like basis adjusting for subsequent acquisitions (‘pro-forma’). Comparing pro-forma monthly performance to the prior year, Group revenues tracked at 60% in April and recovered to 98% in May. As a result, each platform within the Group, and the Group itself, has been EBITDA positive for each month of this year-to-date.

Operations – SigmaRoc has rigorously implemented government recommended health and social distancing protocols across all its operating regions. As such, the Group is pleased it could continue to operate at the majority of its operations and continue to serve customers, pay suppliers and thereby support its local communities in difficult times.

Across the months of April and May, restrictions in the Channel Islands were lifted allowing the Ronez operations to resume more normal trading, albeit against a backdrop of somewhat reduced activity in road contracting in Guernsey and certain major projects in Jersey.

In the UK, the Group’s PPG and South Wales platforms scaled up towards full production at the end of April and into May as RMI and housing demand recovered. The supply of large-scale precast concrete products for infrastructure projects helped the PPG platform deliver good results. South Wales relied more heavily on the reopening of local road and civil engineering schemes, which gradually happened across May.

Operations in Belgium remained active throughout April, albeit at a lower activity level. Production activity returned to full capacity in May as order books recovered to standard run rates. By the end of May, shipments of dimension stone materials had returned to pre-Covid-19 levels. Aggregate supplies resumed with the reopening of our partner's operations in May.

Financial position – As a result of the solid trading performance and effective cash management strategies implemented, SigmaRoc’s cash position increased from £11m to £13.5m during the two months to 31 May 2020, while its long-term debt position remained largely unchanged. SigmaRoc's adjusted leverage ratio, which was approximately 2 times underlying EBITDA on 31 March 2020, is expected to remain at similar levels when covenant tests are calculated on 30 June 2020. SigmaRoc retains the ability to draw further bank funding within its existing facilities but does not presently foresee the need to do so.

Summary and outlook – The Group has delivered excellent results in the face of uncertainty, rapidly changing conditions and challenging working environments, thereby further demonstrating the resilience of its business model.

Providing accurate guidance for the remainder of the year would, however, be premature. Too many uncertainties remain in terms of future demand for construction materials in our key markets, as well as the state of the wider economy. However, the resilience of the business through April, together with the recovery in activity levels during May, gives the Board confidence that SigmaRoc will be able to manage effectively through the crisis and maintain progress in its growth strategy.”


 S&U– “The current economic recession brought about by the Covid-19 lockdown and the uncertain path out of it confirms our decision on future guidance, although we aim to update the market further in our trading update on 11th August 2020.

What is clear, however, is that S&U has been able to protect the safety and morale of our employees and the operations which depend upon them. All are safe and have adapted very well to working from home, so that we are proudly amongst only a fifth of firms in the UK who have not relied upon Government support during the epidemic. Nevertheless, the plunge in the economy and the long-term effects caused by Covid-19, and by the Government's actions to overcome it, have understandably affected our customers.

Advantage Finance – Thus, at Advantage, our motor finance operation, sales initially fell to just 15% of normal levels as car dealers and broker introducers closed, deliveries ceased and car usage plummeted. In addition, Advantage sensibly restricted the categories of customer it was prepared to approve, restrictions which are likely to remain in place given the current uncertainties regarding employment and the labour market. Nevertheless, transactions have now steadily recovered to just over nearly 40% of normal. This improvement is expected gradually to continue as car sales outlets re-opened last week.

Similarly, collections have been affected by both lower consumer confidence and by the FCA measures put in place at the end of April offering borrowers a repayment "holiday" of up to 3 months. Whilst this remains under review it was both impulsive and, given the lenders' responsibilities under CONC and Treating Customers Fairly principles, unnecessary for consumer protection. The effect so far is to see regular monthly collections fall in the most recent month by about 20%. Over the period as a whole, regular monthly collections reduced by about 9%. New ‘holiday’ applications are now dwindling; these have accounted for virtually all of the short fall experienced in monthly collections and these are now stabilising.

Whilst these trends have yet to have their expected effect upon either bad debt or voluntary terminations, future collections and hence our provisioning for book debt impairment will largely be determined by the speed of economic recovery; in turn this will depend upon the extent of the labour market shake out after furlough measures come to an end. In the meantime, additional impairment provisions are being made which will inevitably have a significant effect on Advantage results this year.

Aspen Bridging – At Aspen, our property bridging business, greater optimism in the residential property market following the General Election result late last year, has been deflated by Covid-19, although, given the fundamentals under-pinning the residential market, it has not dissipated entirely. Thus, whilst transaction numbers have been under a quarter of those budgeted this year, recent applications have been robust allowing a good quality pipeline to increase. These trends are reflected in recent Right Move statistics on housing enquiries released late in May.

Better sentiment has also seen regular collections beating budget, whilst a longer ‘tail’ of late or defaulted cases has also recently shown a promising reduction. Nevertheless, we remain sensibly cautious in our new business approach.

Treasury – The operational sustainability of our business continues to be reflected in our strong treasury position. As predicted, recent cash generation has seen group borrowings fall to £98m, some £30m less than budget. Gearing is now around 55%. We have therefore taken the opportunity to repay £25m of group facilities slightly early, which reduces financing costs and still leaves over £30m of headroom.”

Food, Drinks & Household

 British American Tobacco – “The business is performing well against a backdrop of a very challenging and volatile trading environment. We continue to see good pricing and strong volume and value share growth across our combustibles business, together with good share growth across all three of the new categories – vapour, tobacco heating and modern oral. This strong operational performance is reflected in our continued commitment to our 65% dividend pay-out policy.

Results in developed markets (c.75% of Group revenue) are strong, with continued good pricing, little evidence of accelerated down trading to date and a particularly strong performance from our business in the US, which has been highly resilient throughout the Covid-19 crisis.

The impact of Covid-19 in emerging markets has been more pronounced, including in Bangladesh, Vietnam and Malaysia. In addition, closures and other lock-down measures in certain countries, in particular South Africa, Mexico and Argentina, have persisted longer than anticipated. In South Africa there are still no signs of the Covid-19 related tobacco sales ban being lifted.

Together with the previously-announced impact on International Travel Retail sales, this means that we now anticipate, in total, a FY headwind of c.3% from Covid-19 on constant currency adjusted revenue. As a result, we believe it prudent to anticipate a FY20 constant currency adjusted revenue growth in the 1-3% range.

In New Categories, the business is performing well, with share growth in all three categories and recent launches in THP showing encouraging early results. Covid-19 has disrupted consumer activation plans, reducing overall industry growth rates in New Categories. It has also led to the scaling back or postponement of some launches, as well as causing supply disruption and out-of-stocks earlier in the year. While the vapour category continues to recover following the global slowdown in H2 last year, the US market remains below historical levels.

Given these factors, while we continue to invest more in New Categories and make further progress towards our £5bn revenue ambition, growth this year will be slower. We now anticipate reaching the £5bn target in 2025 (previously 2023/24).

We provide the following guidance:

• FY constant currency adjusted revenue in the 1-3% range (previously ‘around the lower end of the 3-5% range’).

• Mid-Single Figure FY constant currency adjusted diluted EPS growth (previously ‘High-Single Figure’).

• Continued deleveraging of the balance sheet to around 3x Adjusted Net Debt to Adjusted EBITDA by end 2021, (previously ‘below 3x’), given the impact of Covid-19 on our operating results in 2020.

• A continued dividend pay-out ratio of 65% of adjusted diluted EPS and growth in sterling terms, supported by a strong liquidity position.

We expect the building blocks of this to be:

• Continued growth in FY cigarette volume and value share, currently up 50bps and 20bps YTD, respectively.

• Expectations for global industry cigarette and THP volume to be down c.7% (previously c.5%), as a result of Covid-19 lockdowns persisting longer than anticipated in some key emerging markets, most notably in South Africa, Mexico and Argentina.

• A strong performance in our US business, with continued value share growth, up 30bps YTD.

• Improved expectations for a US cigarette industry volume decline of c.4% (previously c.5%), following continued volume resilience in the market, down around -2% YTD May on a sales-to-retail (STR) basis.

• Good cigarette price mix at a group level, driven by a strong performance in our developed market businesses.

• Progress towards our 2025 ambition of £5bn in New Category revenue (previously 2023/4).

• Good improvement in adjusted operating margin at both the HY and FY, while continuing to invest in the total business to underpin future growth, fuelled in part by accelerated savings from Project Quantum.

• While we continue to expect the FY underlying tax rate to be around 25.5%, H1 adjusted diluted EPS is expected to benefit from a reduced underlying tax rate at H1, driven by a number of one-off items.

• Strong FY operating cash flow conversion in excess of 90% of adjusted profit from operations.


 Oxford Instruments – “In light of the emerging Covid-19 situation I established a dedicated Covid-19 leadership team to direct our rapid and agile response to the changing business conditions. We developed and implemented a phased approach to prioritise the health and wellbeing of our employees and

to support our customers through maintaining business continuity where possible and appropriate. This approach is in line with longer-term goals of creating positive futures for all our stakeholders.

To manage through the uncertainty and potential disruption, we developed a three-phased approach, which we then implemented in line with the local situation and government guidelines for each business and territory in which we operate.

• Phase one included preparations across the Group to enable business continuity in light of further potential business disruption and immediate actions to minimise our immediate exposure and that of our employees to coronavirus. This included ensuring all employees who could work off-site had secure remote working enabled and in place, developing working practices in our manufacturing sites to enable the implementation of social distancing guidelines, and proactively engaging with our supply chain. In addition, we minimised international and inter-site travel, and postponed large gatherings.

• Phase two was triggered in response to significant regional outbreaks. This included the implementation of social distancing guidelines within our facilities; in some sites this required implementing shifts, an extended working week and home working for all employees who could do so. We introduced remote communications to keep in touch with and support our teams working from home as well as to remain in contact with our customers.

• Phase three implemented support for our customers and mechanisms to maintain business continuity as best as possible if it became necessary to temporarily close a site.

Our early actions and approach enabled us to maintain business continuity and progress our strategic new product developments throughout the peak of the disruption. With ongoing global business disruption likely, at the start of the new financial year we developed phase four, our ‘Global Recovery’ phase. This includes the preparation and implementation of adapted business practices and capabilities, recognising ongoing business through the recovery phase will require, and benefit from, new approaches.

In response to the uncertainty regarding the timing and shape of global economic recovery, we have taken a number of measures to protect the financial health of the business through the short and medium term. I, along with the Group Finance Director, have taken a 20% reduction in salary, with an equivalent reduction in fees to the Board with effect from April, initially for a three-month period, which we will review throughout the year. In addition, we have taken a number of other measures, including the delay of the normal annual pay review from July until the second half of the year for all but our lowest paid employees and a deferral in the payment of performance-related bonus schemes related to the 2019/20 year. We have implemented a number of cost containment measures including a freeze on all non-time-critical recruitment and capex spend and we are utilising available Government business support and job protection schemes where appropriate. In light of this, the Board took the decision to prudently suspend the payment of the interim dividend that was due in April 2020. As a result of continued uncertainty, the Board will defer a decision on payment of dividends until we have assessed the level of disruption caused by Covid-19 on our markets and the consequent impact on the business.

We had a short period of closure at two of our sites in the US in order to comply with Government directives. However, all of our manufacturing sites are now open, albeit at a slightly reduced capacity to enable safe working environments, with plans to increase capacity through the implementation of our phase four response.”

Real Estate

 Big Yellow – “Following the imposition of the lockdown we experienced an immediate impact with heightened activity both in and out of the business, resulting in a net occupancy loss of 23,000 sq ft in the last two weeks of March, at a time when we would normally grow occupancy by a similar amount.

Demand from businesses has been relatively resilient over the lockdown period, however demand from short stay domestic event driven customers has been more affected. In the immediate aftermath of the lockdown both customer move-ins and move-outs were down approximately 50% and although the net impact on occupancy was negative it was modestly so given the external environment. More recently as some visibility has emerged regarding the exit from the lockdown we have and are seeing an increase in prospects and move-ins and move-outs. As of 8 June the net occupancy gain for the quarter to date is 38,000 sq ft (2019: gain of 24,000 sq ft). Prospect numbers have recovered and for the first week of June were up 20% on the equivalent period last year. Net rent per sq ft has grown by 1.4% since 1 April 2020. A key focus over this period has been our cash management. Over 80% of our customers pay by direct debit, and as of 8 June, we have collected 96.7% of our April and May revenue, which compares to 97.3% over the same period last year.

We, together with every other business, have experienced two seismic external shocks in twelve years. As was the case with the global financial crisis, the Covid-19 pandemic will most likely accelerate and accentuate pre-existing structural trends, challenges and opportunities and no doubt catalyse some that are currently unforeseen.

For this business there will be some negatives but a good deal of positives which we believe give us grounds for reasonable optimism. It will take time for those competing forces to play out and some clarity to emerge which will become evident in the performance of the business over the next few years.

Layered on to these powerful undercurrents will be cyclical challenges, the magnitude of which it is probably too early to judge. The events of the last few months have doubled down on our strongly held conviction that no management team in any business can confidently predict the timing of these momentous events, all we can assume and know with certainty is that they will happen again. It therefore leaves us in no doubt that this business should be financed conservatively with a modest amount of debt.

Although it has only been a couple of months, the business has so far proved to be relatively resilient through the initial lockdown phase, but as always, we caution that we have limited visibility as to future trading patterns.

In light of the above we will continue with our long-held strategy of building new stores in our core area of activity in London and its commuter towns, where we may see more opportunity in the next few years. We are actively continuing to pursue this external growth strategy, whilst maintaining a conservative capital structure.”

McKay Securities – “Covid-19 Update – 73.0% of the rent due for the quarter to 30 June 2020 collected, which increases to 95.0% when including rent which is now being paid monthly, or is subject to agreed deferment plans.

All assets have remained open, whilst complying with Government guidelines on providing safe office space.

The full impact of this unprecedented event on the Company remains to be seen, and although it is creating significant levels of uncertainty as well as some obvious threats, it may also create opportunities for a business of our size, with the benefit of our sector and geographic focus.

In the short term, occupier relocation decisions are likely to be put on hold, while businesses review operating models and cash flow. Investment activity has already been significantly reduced and is likely to remain subdued while investors take stock of the situation and try to assess the balance between risk and return. The divergence in value between sectors is likely to be exacerbated with the shutdown of high street retail, leisure and hospitality accelerating declines compared with the office, industrial and warehouse sectors.

Further to our Trading Update on 7 April 2020, and after working closely with our occupiers, 73.0% of the rent due for the quarter to June 2020 has now been collected, increasing to 95.0% including rent which is being paid monthly, or is subject to agreed deferment plans. Our office, industrial and logistics sectors were less affected by the lockdown than other real estate sub-sectors, but it has nevertheless been necessary to provide selective support to some of our occupiers, primarily those with short-term cash flow issues and who generate income directly from their premises, such as serviced offices. As the impact of the lockdown continues, we anticipate that rent collection will remain below historic levels to a varying degree for the remainder of the year.

The longer-term implications of Covid-19 on the commercial property market will be determined by its impact on the UK and global economy, and the extent of structural change that the virus necessitates for working practices.

The industrial and logistics sector has proved resilient and our assets may indeed benefit from increased demand generated by an acceleration of the shift to online retail. The inadequacies of global supply chains have been exposed, which may also lead to operating reviews and further support demand.

Office occupiers are likely to be faced with more challenging decisions regarding future operations and requirements, having to take into account factors including culture, cost, transportation and staff retention. Despite the ability of many businesses, including our own, to work remotely, we do not see this as the end of the office as a place of collaboration and cohesive business.

There will inevitably be shifts in office working practices, and we expect this to lead to an acceleration of many of the trends we have positioned the portfolio to respond to over recent years, such as a flexible lease structure, competitive operating costs, smart technology and high standards of customer service. Occupational costs in the South East are significantly lower than central London. Travel to work options are also more varied, with generous car parking at many of our office assets and local transport networks that avoid reliance on the most congested public transport networks. If these factors result in further decentralisation, as widely speculated, we are well placed to take advantage with our existing portfolio, sector knowledge and substantial funds for investment.”

Lifting restrictions

• Slovakia is to reopen its borders to 16 more European countries from 10 June and will no longer require people to wear face masks outside, the prime minister, Igor Matovic, has said. From Wednesday, there will be no restrictions on visitors from Germany, Liechtenstein, Switzerland, Slovenia, Croatia, Bulgaria, Greece, Cyprus, Malta, Estonia, Latvia, Lithuania, Finland, Norway, Denmark and Iceland.


• The WHO says the pandemic is ‘worsening’ globally. However, Tedros also said the WHO was encouraged by ‘positive signs’ in several countries.

• A £2.5m ($3.17m) fund set up to help musicians in the UK during the coronavirus crisis is set to run out of cash after just five days. More than 3,500 people have applied for financial assistance since Friday.

• Quash Quarantine, which represents 500 travel and hospitality firms, said it was continuing to look at legal options to challenge the 14-day quarantine rule that is currently in place.

• The plan for all primary school years in England to go back to school before the end of term is to be dropped by the government.

• New Zealand’s research institute in Antarctica is scaling back the number of projects for the upcoming season, in an effort to keep the continent free of coronavirus.

• Cathay Pacific has said it will get a $5bn Hong Kong government-backed bailout. As part of the restructuring plan. the company said it will also implement another round of executive pay cuts.

• It has been officially declared that the US economy is in recession. The National Bureau of Economic Research made the designation, citing the scale and severity of the current contraction.

• Total UK sales fell by 5.9% in May compared with the previous year, according to the British Retail Consortium (BRC). Despite the overall drop in total retail sale s, food sales rose strongly in May by 8.7% like-for-like.

• The government of Malta has handed its residents 100 euro vouchers to spend in the country’s bars, hotels and restaurants as the government seeks to kick-start the economy.

• The UK Treasury says 8.9 million workers are currently covered under the furlough scheme. In addition, a scheme aimed at helping self-employed workers has had 2.6 million claims.

• The US government is not going to disclose which companies are beneficiaries of a $500bn Covid-19 corporate aid fund.

• Seasonally adjusted German exports fell 24% in the month of May, while imports slid by 16.5%. The trade surplus shrank to €3.2bn, the federal statistics office said.

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