The US unemployment rate dipped to 13.3% and the country added 2.5m jobs back into the market.
This news came as a positive surprise to economists and the reversal of a two-month trend has been welcomed by the market as signals across the globe continue to improve. These initial gains are likely due to workers being rehired as businesses reopen, which should continue in the short term. We will only have a clear view on the underlying level of unemployment once the lockdown has ended.
• US unemployment falls by 2.5m.
• EU wants states to open their borders by the end of June.
• Turkey reverses plans to re-impose lockdown.
• BA considers taking UK government to court over quarantine plans.
• UK house prices fall 0.2% in May.
Buildings & Construction
• LSL Property Services – “As anticipated, the impact of the lockdown on housing market transactions was significant. Average metrics for LSL in the twelve weeks prior to the lockdown announced on 23 March 2020, compared to the average for the seven-week lockdown period up to 11 May 2020 were as follows: • In the Estate Agency branch networks, Residential Sales Exchange Income per week reduced by 63% whilst new lettings and renewals reduced by 24%.
• Mortgage applications (excluding Estate Agency network) reduced by 25%, with continuing demand for advice for remortgages and product transfers.
• Average Protection completions (excluding Estate Agency network) were highly resilient remaining at the same level in the period after lockdown.
• General Insurance renewals (excluding Estate Agency network) were also highly resilient, being in line with the period before lockdown.
• Average weekly Surveying valuations reduced by 80%, with all remaining valuations conducted on a remote basis, in line with lockdown requirements.”
• Taylor Wimpey – “Operational update
Construction – We have now restarted construction on the majority of our sites in England and Wales. Our first priority remains the health and safety of our customers, employees, subcontractors and wider communities, and we are extremely proud of the way our teams have adapted to the new ways of working. Our new site protocols have been implemented successfully and the new Taylor Wimpey Covid-19 Code of Conduct continues to receive strong support from our employees and subcontractors. These measures include detailed signage, phased sign-in times, strict protocols for social distancing, modification of welfare facilities and additional customised Taylor Wimpey PPE.
As our teams build experience in working under the Taylor Wimpey Covid-19 Code of Conduct, we are on track to reach meaningful production capacity from the end of June 2020. Our priority however remains scaling up operations in a controlled, safe and responsible way and delivering high quality homes to our customers. Our phased approach prioritises the protection of our customers, employees and subcontractors over the volumes achievable at these early stages.
Sales centres – Further to our announcement on 13 May, we have now safely reopened the majority of our sales centres and show homes in England, operating an appointment only service and with social distancing protocols in place. We will apply the same robust protocols after we receive support from the Scottish and Welsh Governments to resume trading from our sales centres in Scotland and Wales, which we hope will happen by early July.
Total Group completions (including joint ventures) in the 22 weeks to 31 May were 2,455 (2019 equivalent period: 4,052), reflecting the impact of site closures.
Our UK net sales rate has increased to 0.51 for week ending 31 May 2020 (2019 equivalent period: 0.85) and is now 0.72 for the five months to 31 May (2019 equivalent period: 0.99).
The UK order book has continued to increase and as at week ending 31 May 2020 its total value stood at approximately £2,779 million (2019 equivalent period: £2,515 million). This represents 11,228 homes (2019 equivalent period: 10,557 homes), excluding legal completions to date, of which 7,788 (69%) are exchanged (including affordable). We are operating on 231 selling outlets (2019 equivalent period: 255).
Cancellation rates have remained at a low level during the crisis. In the nine weeks since the start of lockdown there were 306 cancellations, which represents 5% of the private order book over that time (2019 equivalent period: 386 cancellations and 6% of the private order book).
Forward indicators have improved since reopening our sales centres in England and we have experienced a strong level of interest with a threefold increase in appointment bookings made in the week to 31 May 2020 and a 32% increase in website traffic compared to the same period last year. All of our digital methods of sale are becoming increasingly effective.
Active in the land market with increased opportunities – The Covid-19 pandemic disrupted activity in the land market in March and April with many deals agreed prior to the crisis not completing and with significantly reduced appetite for new land from many housebuilders and other land buyers.
Despite putting discretionary land spend on temporary hold early in the lockdown, we have maintained an active dialogue and strong relationships with land vendors and agents and are beginning to see increased opportunities on favourable terms, as a result of these strong relationships.
We are currently assessing a number of land opportunities across the country comprising a mix of small, medium and large sites in high quality locations and see an opportunity to balance the mix of our land portfolio in line with our strategy as outlined in February, and with the potential to embed future growth in our business over the medium term. We have also contracted on a small number of early purchases. Given the current backdrop, we expect the number of attractive land opportunities to grow over the coming months.
Employees – All of our employees have now returned to work as of the beginning of June with none remaining on furlough. Many are still working from home, including those shielding or those who are shielding someone vulnerable. It remains our policy not to ask anyone to return physically to work, if they do not feel it is safe for them to do so. Our offices remain closed to all but essential visits and our office-based employees and a large number of our Sales Executives continue to work remotely from home. We continue to regularly communicate with our employees through a number of different channels and are pleased that engagement remains at a very high level.”
• Volution Group – “Our non-UK revenues have been resilient across all of our markets. Our Nordics and German businesses have continued to operate at good revenue levels. With additional pick-up in activity in Belgium, and the resumption of operations in New Zealand enabled by the relaxation of restrictions since late April, May revenues in both our Continental Europe and Australasian segments are running at between 90-95% of prior year levels.
In the U.K. our activity has improved from approximately 30% of prior year levels in April, to 42% in May and already are at approximately 65% in early June trading. Return to construction sites by house-builders and the re-starting of commercial projects has enabled our new build residential and commercial sectors to start recovering but at a slow pace, whilst in the RMI category we are seeing public housing most impacted due to restrictions and inability of contractors to access customer properties.
Our ‘capex and overhead light’ operating model and strong working capital disciplines has ensured that the Group has continued to generate positive operating cash flows since the start of the pandemic. Whilst the crisis has reduced revenues through April and May, our asset light model gives us considerable flexibility and resilience to withstand the current downturn in activity.
Operational excellence – During the period, we have continued with our ongoing operational improvement programme. The Company has made a number of ERP platform investments in recent years to facilitate consistency and efficiency across our businesses. The most recent stage of this programme has focussed on streamlining process across certain parts of the Group which regrettably will result in a small number of job losses, predominantly in the U.K. Going forward, we will use this period of lower activity to drive forward our initiatives regarding the cross-selling of our different products.”
Food, Drinks & Household
• MP Evans# – “The global Covid-19 pandemic has had little effect on the Group’s operations. Preventative measures have been introduced to protect the Group's employees, including putting the Jakarta office onto remote working. All estates and mills have been working normally during the last three months.”
• Morgan Advanced Materials – “Sales for the 21 weeks from 1 January to 24 May 2020 were 8.8% lower for the Group, on an organic constant-currency basis, compared to the same period last year. This reflects a 3.2% decline in the first quarter, largely driven by shut-downs in China, followed by a decline of 19.5% in April and May, as the impact of the Covid-19 pandemic was felt more widely across the rest of the Group.
By business, the organic constant currency trends for the 21 weeks to 24 May 2020 compared to the same period last year are as follows:
• Carbon & Technical Ceramics division sales were 4.3% lower, with growth in Seals & Bearings partially offsetting declines in Electrical Carbon and Technical Ceramics.
• Thermal Products division sales were 14.6% lower.
Mitigating actions and financial position – We have taken action to reduce costs, improve cash flow and increase liquidity. These include reductions to capital expenditure other than for vital health, safety and environmental matters, a temporary hiring freeze for all but the most critical roles, a curtailment of discretionary expenditure and temporary salary reductions for the Executive team and Board.
We are also taking steps to improve the structural cost position of the Group for the longer term, so that we emerge from this downturn with an improved cost position. These actions will further reduce costs by £20m per annum by 2022, with an anticipated cash cost of £30m to deliver these savings; further details of this programme will be provided in the Group's half year results announcement which is due for release on 30 July 2020.
With respect to our liquidity position, we have no debt maturities until 2023, and as at 24 May 2020 we had net debt (excluding lease liabilities) of £177m, with cash of £95m and undrawn headroom of £115m under our revolving credit facility.
We have a global diversified business, a clear strategy and a strong balance sheet. We remain focussed on protecting our colleagues, serving our customers, containing our costs and preserving our financial position.”
• Somero Enterprises – “Even though the Covid-19 pandemic has resulted in current trading that has fallen approximately 25% below levels required to
achieve the market expectation at the start of the year of US$ 90.0m in 2020 revenues, the Company remains profitable and cash generative. The Board is confident that, following the actions taken by the Company described above, the Company would continue to be cash generative even in the scenario where revenues fall an additional 20% from current levels, to approximately $54.0m, which provides Management substantial flexibility during this challenging period.
Uncertainty around the scale, duration and impact of the Covid-19 pandemic on Somero's end markets in the non-residential construction industry, makes it difficult at this time to provide further guidance on the Company's financial performance in the rest of 2020 and beyond. While extended project backlogs reported by our customers prior to the Covid-19 pandemic, particularly in the US, indicate the non-residential construction market was active and healthy entering this period, financial performance for 2020 and beyond will depend on a number variables over which the Company has no control.
Somero's operating model enables the Company to adjust quickly to changing conditions, protect profitability and preserve its strong financial position. In addition, it is important to highlight that the cost saving actions taken by management are specifically designed to not impact investment in new product development, a key element to the Company's long-term growth strategy. In fact, new product development activity remains at the high level seen in recent years.
The range and depth of impact from the Covid-19 pandemic creates significant short-term uncertainty, but the Board remains confident in the health of our business and the long-term growth opportunities in front of us. The Company is positioned well to withstand impacts from Covid-19, benefitting from a strong financial position, a flexible operating model, and a continued pipeline of new products to fuel growth, until such time as non-residential construction activity reverts to more normalized activity.”
Oil & Gas
• GETECH – “Since 31 December 2019, the Covid-19 pandemic has led to unprecedented restrictions on social and business activity. These have deeply disrupted the global economy, and, in the face of sharp falls in oil demand, a relatively short-lived but untimely OPEC-Russia supply war added unwelcome complexity.
Oil prices have touched 20-year lows, and although production cuts are growing and evidence builds that demand is now recovering, significant uncertainty remains. In response, petroleum companies have cut c$178bln from their budgets, including a c35% reduction in 2020 capex.
2020 will undoubtedly be a very challenging and uncertain year but the combination of a strong balance sheet, a significantly enhanced order book and sustained recurring revenues will help Getech navigate this. Net cash at 31 December 2019 totalled £2.7 million. Our debt levels are low, and the repayment profile is back-end-loaded with an October 2023 maturity. We own a property asset with an ‘in use’ carrying value of £2.4 million. We have continued to close new sales in the current year and there have been no negative order book revisions. This has resulted in Q1 2020 revenue, forward sales and profitability all ahead of Q1 2019 and in April an important global software license was renewed.
Operationally, the move to home working has been smooth, with projects remaining on schedule – both in terms of time and cost. Having established solid remote communication practices early, we have also enhanced our ability to deliver online trials of our products. The uptake in product training from home working customers across our customer and contact base has been strong, and having expanded our programme of digital marketing, webinar attendance has increased significantly. Together, this creates a unique opportunity to both increase our profile and reach deeper into our customers' organisations and we have reshaped our sales and marketing activities to capture the benefit of this. We have also accelerated new business activities, focusing on the value that our transferable skills and technologies can deliver in new energy and infrastructure settings.
Like all businesses however, we do not know how long Covid-19 disruption and oil price weakness will last, and so to preserve capital we implemented a range of actions that have lowered Group monthly costs by c26%. Getech retains additional cost flexibility, but, importantly, we have also maintained our capacity to deliver our contracted order book and to maximise the impact of our sales and new business conversations.
We believe Getech is now well positioned to rapidly adjust to any further deterioration, or improvement, in our core markets. This flexibility, and our balance sheet strength, will underpin Getech throughout 2020 and 2021.
Conclusion and Outlook – The pace at which the Covid-19 pandemic has reshaped the global business environment is unprecedented. In energy markets the speed at which demand has fallen has triggered cuts to capital investment and, in oil and gas specifically, these have been faster and deeper than followed either the 2008 or 2014 oil price falls and our customers have placed many regional 'project-based' investment plans on hold. Although it remains too early to estimate how deep or long the downturn in our core markets will be, our order book is larger and our sales pipeline remains diverse and continues to benefit from 2019 campaigns in new regions, with new potential customers.
We expect May’s sharp rebound in oil prices, which has continued into June, to take time to filter through to our customer conversations. Getech's revenue is normally weighted 40:60 between H1 and H2 and there is the likelihood this weighting becomes accentuated into H2 in 2020. In H1 2020 we have focused on the replenishment of our order book and protecting annually recurring revenue. Year-to-date, we are cautiously encouraged by the renewal rate across our software products and we have won service extensions that deliver monthly revenue to year-end. We are also negotiating various licence renewals to our Globe knowledge product. These discussions would normally conclude in June and July. Globe contracts are an important part of our order book, and they set the shape and scale of our H2 2020 investment. As we plan this investment, we are confident that Getech’s financial strength, our flexibility and the transferable nature of our skills and technologies give us the toolkit to successfully navigate what are exceptional commercial conditions. We also see an opportunity to accelerate our diversification and growth plans - both through organic expansion and acquisition.
Navigating this extreme operational environment will require an unwavering focus on customer needs, continued operational delivery, and creativity in our thinking. In what are exceptionally challenging times, we thank our staff for their dedication, adaptability, and inspirational teamwork. We also thank our shareholders for their time, advice and continued support.”
• Workspace Group– “The immediate impact of the lockdown announced on 23 March 2020 was that the majority of our customers moved to work from home in line with Government guidance. Our business centres remained open with a number of key worker customers still in occupation and other customers visiting on an essential needs basis.
Given the impact that the lockdown was having on our customers and their cash flows, we took the immediate decision to offer the opportunity to defer rental payments for up to three months. We have also given the majority of our business centre customers an absolute rent reduction of 50% for the three months to the end of June 2020. We believed it was only fair to offer this rent reduction to customers irrespective of their size.
Since the Government announced the gradual relaxation of lockdown measures in England, we have taken action to ensure that our business centres are safe for the increasing number of customers returning to work. These extensive measures, in line with Government guidelines, include signage to promote social distancing, screens, hand sanitiser dispensers, one-way systems, restrictions on use of communal areas and increased daily cleaning of the common areas in our business centres. We are also supplying additional information and resources to help our customers on our website. We are fortunate that our buildings are low-rise so the severe lift restrictions that need to be put in place have limited impact. We are also looking at the opportunity to increase the amount of cycle storage at centres where possible.
I am pleased to say that our rent collection rates have been robust. The majority of rent is collected monthly in advance and taking account of the agreed rent discounts and deferrals we have received c.70% of the net rent due for the first quarter.
We are maintaining a tight focus on operating costs, minimising all non-essential spend but ensuring we don't compromise on health and safety issues. Likewise, we are controlling our capital expenditure commitments to ensure we can maintain prudent liquidity and headroom levels. We currently have no major capital projects underway or due to start over the next six months.
It is not possible at this time to give a near-term view for trading performance. We will undoubtedly see subdued operational performance and a reduction in rental income in the current year. For many of our existing customers there is a difficult period ahead as they look to rebuild their businesses. Some businesses will want to downsize, some will decide to continue working remotely, some may fail while others will recover quickly. Workspace is well positioned to provide them with the support they will need, and I believe the majority will see the value of retaining their Workspace office. Equally I believe our flexible offer will continue to attract new customers. This includes businesses reflecting on their property requirements following their experience operating remotely through the lockdown period.
I have been delighted with the success of our recently opened buildings and we have an extensive pipeline of refurbishment and redevelopment activity to deliver over the coming years. We will shortly be opening two buildings in Hackney and Bow that were completed just as the lockdown was announced. We are also continuing to track acquisition opportunities across London.
Despite the near-term uncertainty, I am confident that Workspace has a huge opportunity for growth in the medium and long term. The commercial property market is being redefined around fast-changing customer requirements, with lease and space flexibility becoming increasingly important. These are factors which play directly into the compelling offer we can provide.”
• Gap – “The Company noted first quarter results reflect the significant impacts of the global pandemic, including lost sales and corresponding merchandise margin from the temporary store closures, a non-cash impairment charge of $484 million related to the Company’s store assets and operating lease assets, as well as a $235 million non-cash inventory impairment charge.
The Company’s first quarter fiscal year 2020 net sales were down 43% year-over-year, as solid momentum in the first 35 days of the quarter was more than offset by meaningful deceleration in demand after temporary store closures beginning in mid-March. In response, the Company continued to serve customer demand online through its scaled e-commerce platform, which at over $4 billion in net sales in fiscal year 2019, represented about one quarter of the Company’s sales for that fiscal year. The Company’s first quarter 2020 online sales channel increased 13% compared to the first quarter fiscal year 2019, with the Company noting continued acceleration of online growth following the end of the quarter. The Company’s first quarter 2020 store sales decreased 61% compared to the first quarter fiscal 2019, driven by temporary store closures.
Additionally, the Company is not providing comparable sales results for the quarter because the metric is not meaningful as a result of temporary store closures in the period. Instead, the Company has provided net sales which consists of store sales and online sales, by brand. Store sales primarily include sales made at Company-operated and franchise stores. Online sales primarily include sales made through the Company’s online e-commerce channels, including ship-from-store sales, buy online pick-up in store sales, and order in-store sales. First quarter net sales details appear in the tables at the end of this press release.
Net sales by brand for the first quarter 2020 compared to the first quarter 2019 were as follows:
Old Navy Global: Net sales were down 42%; store sales were down 60% with online sales up 20%. Since the onset of the Covid-19 pandemic, Old Navy has seen a meaningful acceleration in its digital business. The Company noted it expects the off-mall, strip real estate that makes up approximately 75% of the fleet to be an advantage as customers return to stores and expects traffic in these locations to ramp up more quickly than other formats.
Gap Global: Net sales were down 50%; store sales were down 64% with online sales down 5%. Prior to the onset of the pandemic, Gap brand performance continued to be pressured by inconsistent execution of product and marketing messages. However, the Company noted the brand did experience steady improvements in its online performance throughout the quarter, attributable to the Company’s strategy to migrate customers online as the brand’s fleet rationalization efforts continue.
Banana Republic Global: Net sales were down 47%; store sales were down 61% with online sales down 2%. While the move to casual fashion during the stay-at-home requirements has benefited other brands in Gap Inc.’s portfolio, this shift left Banana Republic disadvantaged in its product mix. As a result, Banana Republic is taking aggressive action to adjust to consumer preferences and improve inventory mix.
Athleta: Net sales were down 8%; store sales were down 50% with online sales up 49%. Customer response to Athleta was strong given the values-driven active and lifestyle space the brand participates in as well as the brand’s deep customer engagement through its powerful omni-channel model.
Gross margin was 12.7%, reflecting a $235 million non-cash inventory impairment charge, rent and occupancy deleverage associated with store closures, and increased promotional activity. As previously disclosed, beginning in April, the Company suspended rent payments for closed stores. While the Company remains in active and ongoing discussions with its landlords, it noted that first quarter gross margin reflects the cost of rent payments, which are being accrued for accounting purposes.
Operating loss was $1.2 billion. This reflects the decline in gross margin, as well as a non-cash impairment charge of $484 million related to the Company’s stores to reduce the carrying amount of the store assets and the corresponding operating lease assets to their fair values, which have dramatically declined as a result of the pandemic. The Company noted that as part of its ongoing specialty fleet optimization efforts, the Company has undertaken a strategic review of its real estate portfolio to further advance its long-term strategic priorities that include a smaller, healthier fleet, particularly as it relates to its Gap brand and Banana Republic specialty fleets.”
• Biffa – “The Covid-19 crisis is of course unprecedented, and it has had a significant impact on our business. Since the emergence of the crisis we have focused on three priorities: protecting the health, safety and wellbeing of our people and the communities we serve; ensuring our business operations are able to continue with minimal disruption and that customers continue to receive the essential services that we provide; and protecting the financial strength of the Group.
We took swift action to protect our people, including a rapid shift to home working where possible and the introduction of new protocols to ensure that social distancing was observed where practical in our frontline operations. At all times we have been closely involved in the development of, and of course have strictly observed, industry and Government advice and guidelines. In addition to ensuring we kept our people as safe as possible, we offered enhanced financial benefits for those unable to work due to Covid-19-related sickness or absence.
The impact has varied across the range of services we provide. Our most severely impacted business is I&C, where we experienced a significant reduction in demand for our services and a 50% revenue decline during the lockdown period versus pre-Covid levels. Demand for our Municipal services was relatively unaffected however, ensuring services could continue in the face of significant workforce absence has been challenging. Our Resources & Energy business has been most notably affected in our Inerts business, with landfill revenues down c50% versus pre-Covid levels due to reduced volumes particularly from the construction sector. Other parts of the division have been less impacted.
Overall, Group revenues for the period of lockdown were down 30% versus pre-Covid levels. However, the Group saw an early stabilisation of these trends and in recent weeks we have seen increases in revenues, with revenue levels in both I&C and landfill operations now down about 40% from pre-Covid levels.
To support short-term cash preservation we have taken a number of proactive measures, deferring all discretionary capital and operating expenditure and other strategic investments such as acquisitions, settling the majority of earned bonuses from the 2019/20 year in equity, pay reductions for the Board, Executive Team and other leaders, the suspension of bonus schemes for the 2020/21 year and cancelling our year-end dividend. We have benefited from Government support through the deferral of indirect tax payments and furloughed approximately 1,500 people. As outlined in our Chief Financial Officer's Review, we negotiated waivers of lending covenants and secured agreement to £60m of additional headroom financing lines from our existing lending banks, should they be required. When combined, these measures have ensured that the Group is positioned to withstand the impact of the crisis and will help to ensure that we emerge strongly when the crisis passes.
I would like to offer my thanks and appreciation to all of Biffa's stakeholders, in particular our employees, for their exceptional response to the Covid-19 crisis.
Scenario Analysis – As a result of all the actions taken to control costs and enhance liquidity, the Group remains EBITDA positive and is seeing only modest monthly cash burn. As a result of mitigating actions, the Group has taken, we are confident that we can manage through FY21 without seeing a marked increase in debt. Consequently, the Group is in a position to weather the unprecedented operating backdrop and trade through all modelled scenarios.
However, it is clear that Covid-19 is having a very significant impact on some of the Group's markets and the duration of the pandemic's impact and the ongoing effect it may have on the Group's financial performance remains uncertain.
As a result, our balance sheet and liquidity planning is based upon a cautious base case scenario, which assumes lockdown restrictions continue to be imposed for the duration of Q1 FY21 and are followed by a subdued and incomplete recovery over the remainder of the year. Under this scenario:
• The I&C division is expected to recover slowly as customers begin to renew activity, exiting the FY21 year with run rate revenues of ~80-90% of FY20, and remaining at these levels as we enter FY22.
• The Resources & Energy division is expected to experience a continued and more marked decline in Landfill Gas revenues during FY22, based on known volume reductions and current electricity prices. The Group expects its recycling business to continue to grow across FY21 and FY22, with the new Seaham PET plant coming on-line and Material Recycling Facility contract improvements.
The impact of reduced EBITDA would see leverage increase at the end of FY21 to c.3x on the base case and 4x on worst case scenario (both on a pre-IFRS 16 basis).
As a consequence of the covenant amendments agreed with lenders, we have agreed a number of restrictions, relating to levels of capex, M&A and shareholder distributions, which we expect to remain in place for c.12-18 months. The Company is therefore continuing to consider its funding options on an ongoing basis, including raising equity capital, to allow it to continue with all the previously outlined growth investment opportunities across I&C, closed loop plastic recycling and Energy from Waste, without delay.
Outlook and Priorities - Our immediate priorities remain those associated with navigating the Covid-19 crisis. I am however hopeful and confident that as the year continues, and given the extensive measures we have taken, we will be able to refocus on delivering our strategic growth plans, make further progress against our Sustainability Strategy and ensure Biffa emerges as a stronger and better business.
Covid-19 will eventually pass and we will be able to restore underlying profitability over time, but the climate emergency is a continuing global challenge that will still be with us, and we at Biffa understand the vital role we have to play in helping the UK to address it.”
• Gamma Comms – “Since the period of lock down began: • Gamma’s business model has continued to be robust as the large majority of its revenue (93%) is recurring and billed each month.
• Growth in SIP Trunks and Cloud PBX seats has continued to be positive, albeit at a lower level than seen in the first quarter and the prior year.
• Cancellations of existing contracts are at normal (minimal) levels and we have seen no increase in the level of bad debt.
• New customer sales cycles have increased in the second quarter albeit prospect levels remain positive.
• As part of our commitment to being a socially responsible business we recognise that some customers, who are in contract, are temporarily not trading. We have allowed customers that are not able to trade to ‘hibernate’ their voice services until 30 June such that, if they are not using the service, they do not pay for it. We hope that this will provide support to businesses who are not able to trade at this time. Less than 5% of our end users have been in hibernation at any one time and on this basis the lost EBITDA for Gamma to 30 June is expected to be approximately £1.2m.
On 28 February 2020 we acquired Exactive Holdings Limited (‘Exactive’) a specialist in Microsoft Teams; Gamma has partnered with Exactive for the last five years. Despite the current situation we have continued to integrate that business into the Group and are pleased with our progress to date. Exactive has seen an increase in activity and received an increased level of enquires from Enterprise and Public Sector customers. In addition to the knowledge and capability that Exactive brings to Gamma, we launched our Microsoft Teams Direct Routing service making Gamma's market-leading SIP trunks available to Microsoft Teams users.
Our Dutch business continues to trade positively and as expected. It has seen similar trends to the UK – an increased interest in Cloud PBX products from new customers and low levels of cancellation from existing customers.
On 7 April, we acquired VOZTELECOM OIGAA360, S.A (‘Voz’) a specialist Cloud Communications company in Spain. Voz also has seen very similar trends in the Spanish markets to those we have experienced elsewhere with new sales prospects being at a lower level than in the first quarter. We believe, however, that Voz is well placed to benefit from the continuing interest in Cloud Communications in Spain where the adoption of cloud telephony services is only c.5%.
During the lock down period, at times, activity has been reduced and hence we have, on occasion, placed some staff on temporary ‘leave of absence’. As a committed employer, staff who have been on ‘leave of absence’ have continued to receive their full pay. Whilst we have met the criteria to make a claim under the UK Government’s Covid-19 Job Retention Scheme, we have decided not to make such a claim on the grounds that that scheme was designed to protect jobs rather than to boost profits for companies who have been able to continue to trade. We have also decided not to take advantage of a similar scheme operated by the Spanish government. The Board wishes to express its gratitude to all Gamma staff for their commitment, support and flexibility in these challenging times.
As a result of the current market environment, we have taken appropriate action to reduce our operational and capital spend. Notwithstanding this, we remain committed to executing our long term growth strategy, which includes:
• Continued investment in developing UCaaS skills and capabilities within our product development and product management teams. This includes the launch of our Cloud Contact Centre solution towards the end of 2020.
• Continued appraisal of acquisition opportunities in Western Europe, where cloud penetration has been very low to date, and where the longer-term growth opportunity for Gamma is significant.
• Continued implementation of our digital strategy which is starting to transform our customer delivery and service management processes. Despite the uncertainty around the depth and length of the coming recession, the Board remains positive about the prospects for the business. We are seeing high levels of interest in Cloud PBX and UCaaS products in all of our geographic markets albeit the restrictions on travel and physical meetings have extended sales cycles - particularly in the Enterprise market. We believe that growth levels will return to pre Covid -19 levels, but there will be a lag to this, the extent of which is difficult to forecast.
To date the SME market (our primary market) has proved to be robust. In the event of a prolonged recession, there may be an increase in small business failure which would result in increased levels of cancellation and bad debt. Based on the current trends, we expect the business to continue to add net new units of SIP and Cloud PBX throughout the rest of 2020. We will be monitoring these areas continuously and where necessary take action to preserve the profitability and prospects for the Group. The Group continues to be cash generative and the balance sheet remains strong.”
• The Czech Republic said it would fully open its borders with Austria, Germany and Hungary as of today, which is 10 days earlier than planned.
• Indonesia’s capital, Jakarta, opened its mosques, and other places of worship, for the first time in three months today.
• Premiership rugby – the top professional rugby union league in England hopes to restart its season on 15 August.
• European Home Affairs Commissioner Ylva Johansson says she wants all EU states on Friday to agree a date to reopen their internal borders by the end of June.
• Face coverings will become mandatory from 15 June on UK public transport.
• The NBA’s (America’s top basketball league), board of governors has approved a plan to restart the season on 31 July. The games are set to be played without fans at the Disney campus near Florida.
• IAG – says it's thinking about launching a legal challenge against the UK government over a new rule that will require incoming travellers to quarantine for 14 days. Ryanair has said it will join the action if it proceeds.
• The ONS estimates that 1 in 1,000 (0.1%) people in England have coronavirus in community settings, equating to 53,000 people. This is lower than last week's estimate of 133,000.
• 2.5 million jobs were added to the US economy in May, reversing the trend seen through March and April.
• Halifax has said the average price of a home in the UK dropped by 0.2% over the month of May and now stands at £237,808.
• Turkey’s President Erdogan has cancelled plans to reintroduce a lockdown in various cities, citing a need to avoid “social and economic consequences”.
• Fuji Rock Festival, Japan’s biggest annual music event, has been cancelled. This year’s festival was scheduled for three days from 21 August.
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