By Powerscourt on 14/04/2020

Powerscourt Coronavirus Briefing – 14 April 2020

ANALYSIS

As we approach the end of the beginning, the UK wants to stay closed while the US is getting ready to reopen.

The Times reports this morning that Dominic Raab, effectively the acting Prime Minister, will announce this coming Thursday a lockdown extension for at least three weeks to May 7, eve of the UK’s special bank holiday to mark the 75 anniversary of victory in Europe at the end of World War ll.

In the US, Andrew Cuomo, Governor of New York, said that the “worst is over”. A number of state governors are in discussions as to how to co-ordinate their efforts to reopen for business. President Trump said that the decision pf returning to work rests with him, not the states. He has an aspiration date of May 1 for the return.

The economic reckoning continues with a look ahead to what is likely to be a bruising corporate earnings season. US markets reflected two perspectives on Monday, with the Dow and S&P 500 indices closing lower in anticipation of poor earnings from banks in particular. JP Morgan and Wells Fargo will report this week, with earnings expected to be impacted by the coronavirus crisis.  The Nasdaq closed higher, largely due to Amazon saying it expected to hire more workers to cope with high demand.

Asian markets moved higher earlier today following better than expected export data from China which suggested an improvement since the Chinese lockdown was lifted. London opened around the same level as Thursday’s pre-holiday close as investors digested a raft of COVID-19 updates.

Spain allowed some businesses to reopen Monday, with police handing out face masks to people embarking public transport. Elsewhere in Europe caution prevails. France has extended its lockdown until May 11.

WHAT ARE COMPANIES SAYING?

Consumer and Retail

Amazon

In yet another update from the retail delivery giant, Amazon has said that it is looking to hire an additional 75,000 staff to meet demand for online deliveries. This is further to the 100,000 people they hired in the last month for the same reason. This will bring their total workforce to just under 1 million worldwide, increasing their headcount by more than 20% this quarter.

Mitchells & Butlers
The restaurant group and pub owner said that it was in “good shape to address the challenge” of coronavirus. All of its sites have now been closed for three weeks. Their statement today highlighted current action, including 99% of employees being put on furlough, with basic pay for employees including the board being reduced to between 60% and 80% depending on seniority. Operating costs have been reduced to a minimum, and the company said that it has material cash resources to last it “well into the second half of the year.”

Revolution Bars Group
The UK bar operator outlined the measures it has taken since the forced closure of its bars on 20 March. 2,775, or 98%, of the company’s employees have been furloughed and the CEO, CFO and Non-Executive directors have all reduced salaries by 50%. Other senior employees remaining in work have also reduced salaries. They specifically outline that the group has now reduced weekly running costs to £0.4m per week. There has also been a significant increase to their existing debt facility.

Travel & Leisure 

Heathrow Group
The airport operator said that in March, passenger numbers had shrunk by 52% compared with the same month last year. Of the three million journeys made, many were expected to be repatriations. Initial forecasts from the business predict that April demand is set to decrease by over 90%. In response, they have said they will be consolidating traffic to Terminals 2 and 5 only.

National Express
In a trading update, the UK based coach operator said that two colleagues had died of Covid-19. While the statement said that the company has continued to generate positive EBITDA and cashflow (and cashflow projections have improved since their statement on 19 March), the company did announce the cancellation of its dividend. Part of the statement also highlights the “community contribution” they are making including free bus services for health workers, shuttle buses to and from hospitals. They also mention a driver trainer from Spain who is manufacturing face masks from home.

Industrials

Lamprell
The engineering company primarily focused on oil rigs said in a statement today that two current projects continue to be delivered to clients on time. They do expect some impact in the longer term and have therefore undertaken some cost reduction measures, including $10 million worth of reduced salaries (all board, senior management and professional staff down 25%), reduced working hours and finally some redundancies. The group also postponed the publication of its full year results.

Marshalls
The specialist landscape product group issued another update on measures it was taking in response to coronavirus. The group said that it was now using the Governments furlough scheme and deferring tax payments however did not provide any detail. The Board also announced that it would take a 20% reduction in remuneration including Executive and Non-Executive Directors. They also highlighted continued support from their banks with additional bank facilities of £255m.

Chemring
The aerospace and defence technology business said in its update today that its strong balance sheet and long-term prospects made it well placed to deal with the current crisis. All of its businesses remain open with their services in a number of key markets being designated critical. They also highlighted a recent $17m order as evidence for their ongoing work. They did not cancel their dividend which is due to be paid on 24 April.

Ultra Electronics
The defence systems provider said in a market update that it was currently trading “broadly in line” with expectations for Q1 and that demand remained robust. However, due to the high level of uncertainty and potential for further disruption, the company has postponed the payment of its full year dividend for 2019. It expects this to be paid as an additional interim dividend in the second half of 2020. The group also highlighted a strong balance sheet with significant cash and access to a £300m RCF.

Hochschild Mining
In a short update, the US focused mining business announced that due to “ongoing uncertainty caused by COVID-19” it would be withdrawing its proposal to pay a final dividend for 2019. They have however said that a decision on “any future shareholder distribution” will be taken when clarity is restored.

EN+ Group
The Russian energy and metals company announced this morning that one of its independent non-executive directors, Dr Igor Lojevsky, died on Saturday after a short illness. It is not made clear whether this is directly related to coronavirus. Lord Barker, Executive Chairman, said that Dr Lojevsky will be “sorely missed”.

TMT

Softbank
The Japanese group has warned of its biggest ever annual operating loss after its $100bn investment fund sustained a heavy hit from coronavirus induced market turmoil. It said in an update that it’s $12.5bn loss could be attributed to the “deteriorating market environment.” Share however closed up over 5%, with analysts guiding that the increased clarity was reassuring investors.

SDL
The intelligent language and content company said in its full year results statement that it had seen no material impact on revenues in the first quarter of 2020. However, the company said that it was early days and while it was still modelling a number of different scenarios, its full year guidance for 2021 would remain suspended. It also highlighted the strength of its balance sheet and cash flow position, that it has successfully rolled out large scale remote working and that is implementing an £8m cost reduction plan.

IN THE NEWS

UK lockdown expected to continue despite ‘positive signs’ – Financial Times

Tech giants use pandemic in effort to dodge tax – The Times