First, it was the trade war between the US and China that weighed on demand in the company’s key Asian market, in combination with pro-democracy protests in Hong Kong, then, since January, coronavirus lockdowns have squeezed the region’s economies.
With many of the group's stores closed in the final quarter of its financial year to March 31, 2020, the company has already indicated that sales will fall by around 30% for the quarter and that its final dividend is also likely to take a hit.
Key will be the company’s online operation, which will either indicate that customer shopping habits have shifted to the internet or if shoppers have decided to hold off luxury purchases entirely during the crisis.
It’s in the water
The water company said in March that it had a “robust” liquidity position but that the economic effects of the coronavirus crisis are expected to significantly increase its pension surplus.
In response to the pandemic, the North West-focused firm put in place measures designed to protect employees, while also offering innovative affordability schemes for customers experiencing difficulty in the current economic climate.
Revenue and underlying operating profit in 2020 are expected to be higher than last year, reflecting regulatory changes, though reported profit will be hit by an £80mln depreciation charge.
UU’s robust liquidity position extends out for 24 months “at the upper end of our policy range” to leave the business “well protected against financial shocks that may be experienced as a result of the outbreak in the short to medium term”, though the wider economic situation remains highly uncertain.
As of last month, UK water companies were the pick of the utility stock through the crisis for analysts at Deutsche Bank.
Retail sales eyed
On the macro front, the markets will focus on UK retail sales numbers for the month of April.
After March sales slid to a record low of 5.1% after just over the week of the coronavirus lockdown, April is expected to reach a new bottom with everyone forced to stay at home.
“On-line sales may well take up some of the slack, along with groceries, but even with that the April numbers including fuel are expected to come in at a record -15%, with consumption expected to fall off a cliff,” according to Michael Hewson, senior analyst at CMC Markets.
Significant announcements expected for Friday:
Economic data: UK retail sales