By Powerscourt on 15/04/2020

Powerscourt Coronavirus Briefing – 15 April 2020

ANALYSIS

The scale of the impact of the coronavirus pandemic on the world economy was laid bare overnight in stark forecasts which suggested a massive hit to output with far-reaching consequences for economies.

The toll of the coronavirus crisis on the world economy could be equal to the impact of the Great Depression, the International Monetary Fund warned yesterday, with an unprecedented global contraction of 3% in 2020.  A forecast from the UK’s Office of Budgetary Responsibility suggested the hit to UK output in the second quarter of 2020 could be 35%.

The stark forecasts are raising pressure on politicians around the world to restart their economies. But while some countries in Europe, including Italy and Austria, are allowing some small shops and businesses to reopen, public health officials continue to warn of the risks to health of moving too fast.

Vogue and GQ publisher Conde Nast has announced job cuts and furloughs amid a steep drop-off in advertising revenues. While traffic to established news brands has never been higher, it is not feeding through to advertising revenues, which are down by up to half at some daily and weekly publications, a potential tipping point for an industry in long-term decline.

Meanwhile, the political recriminations have begun. On Tuesday, US President Trump said he would suspend millions of dollars of funding to the World Health Organisation, whom he accused of “severely mismanaging” the pandemic. He separately lashed out at Anthony Fauci, head of the National Institute of Allergy and Infectious Diseases, as Fauci said the President’s target to reopen America on May 1st was too optimistic.

Similar tensions are at work in the UK, where the Faculty of Intensive Care criticised the UK government’s plan to produce ventilators made for short term critical care use saying the machines requested by the government were not fit for purpose. The government continued to defend itself against accusations it was not testing enough people for the virus and failing to disclose the numbers of deaths which have taken place outside hospitals.

US markets closed higher Tuesday, however, on growing optimism that the virus had peaked in certain hotspots, backed by better than expected China trade data.

WHAT ARE COMPANIES SAYING?

Consumer, Retail and Healthcare

GlaxoSmithKline

Pharmaceuticals giant GSK said that it had teamed up with French rival Sanofi to “join forces” and develop a coronavirus vaccine. The announcement was made yesterday that they have signed a letter of intent to develop the vaccine. Sanofi will provide its “S-protein COVID-19 antigen” and GSK will contribute its “pandemic adjuvant technology”. Both CEOs are quoted in the announcement, with GSK’s Emma Walmsley saying that she hoped the vaccine could “protect as many people as possible.

UDG Healthcare

The healthcare services provider released a trading statement this morning which included an update on the impact of Covid-19 and the response of the business. This has included the introduction of several additional health and safety procedures across its sites (including the provision of PPE, additional cleaning services and adapted shift patterns to enable social distancing), alongside cost control measures such as a recruitment freeze, temporarily reduced working hours, and the furloughing of employees. The Board and Senior Executive Team have also agreed to take a 20% reduction in their respective fees and base salary for at least the next three months.

Warehouse and Oasis

The high street fashion chains, owned by Icelandic bank Kaupthing, have filed for administration leaving about 2,300 workers at risk of losing their jobs. The group has 90 shops and 437 concessions in department stores including Debenhams and House of Fraser, all of which were temporarily closed last month under the government’s lockdown.

888 Holdings
Online gambling company 888 has announced in its scheduled results that it has seen increasing demand for its products during lockdown. The company saw a boost in its revenue for the full year, which was up 6% in 2019. It said that whilst it was unclear how the situation will evolve, the purely online nature of their business among other factors meant the board was “confident” of the company’s ability to manage the challenges.

Connect Group

Alongside announcing the disposal of one of its businesses for £15m, newspaper distributor Connect said that there was “significant and material uncertainty”  about the likely impact on their business. The Smiths News business has seen a temporary closure of 10% of retailers it supplies, and the company estimates a 25% reduction in the sale of newspapers in the two weeks following 23 March. The company also said that it had furloughed a “significant number of colleagues”. It withdrew its expectations for the full year.

Travel & Leisure 

Wizz Air

The low cost airline released a trading update yesterday, sharing that traffic in March was down 34% year-on-year, with the company currently operating at 3% of its pre-COVID-19 capacity. It detailed a number of the measures that have been put in place to mitigate the financial impact, which include reducing the workforce by 19% through 1,000 redundancies. The company has also furloughed a number of employees, and expects this number to increase in the short term. For FY21, the remuneration of the Chief Executive Officer, the Board of Directors and all senior Officers will be reduced by 22%, while salaries of pilots, cabin crew and office staff will be reduced by 14% on average.

Financial Services and Real Estate 

Equiniti Group
Today’s statement from the financial services outsourcer said that there has been an “almost complete transition to homeworking” with all services now delivered remotely by 95% of colleagues operating from home. The company highlighted that there has been a short term impact to their trading. Lower corporate activity has impacted their EQ Boardroom business and their EQ Paymaster business is seeing some projects be delayed. While no salaries have been cut yet, salary reviews have been deferred and “Government support packages are being utilised where appropriate.” Payment of the full year dividend has been cancelled.

Jupiter Asset Management
The investor manager said that its assets under management fell by 18 per cent during the first quarter of the year, while those at Merian (which Jupiter is in the process of acquiring) fell by 30 per cent. However, the company highlighted that its relative investment performance has strengthened, with 80% of AUM above median over three years and 75% in the top quartile. The company also said that it adopted remote working arrangements in early March, but there has been no material disruption to the business.  

GAM
The Swiss investment manager has said that its assets under management fell by 26% as a result of the coronavirus-induced market rout. The company has said it is accelerating its previously announced cost-cutting programme, including job cuts reducing full time employees from 817 to 680 by the end of 2020. The investor is also reviewing salaries across the group, aiming to minimise the impact of compulsory redundancies during the Covid-19 environment.

Hastings Group
Insurance company Hastings said as part of a scheduled trading update that with all colleagues working from home, underlying performance remains in line with management expectations. It highlighted that there has been a reduction in motor insurance accident frequencies reduced during March and they expect that to continue for the duration of restrictions. The statement said that the company had “no business lines with direct claims cost exposure resulting from COVID-19” as they do not provide travel or business interruption insurance.

Industrials

Ferguson
Multinational plumbing business Ferguson says in its statement that it “provides a critical function in the supply of essentially products and services” which had been recognised across its trading geographies. The business said that in the US they saw growth for the two months to 31 March, however anticipated lower activity levels going forward and so could not provide full year guidance. Cost saving measures have included a hiring freeze, reduction in overtime and temporary staff and some temporary lay-offs in the worse hit regions. The strategy in relation to the demerger of Wolseley UK remains on track and unchanged.

Glencore

In an update released yesterday, the multinational commodity trading and mining company announced that its joint venture in Peru had halted activity in line with Covid-19 guidelines. In Canada, mining has been classes as an essential activity with effect from today, and as such the company is looking to restart operations, while in Colombia and South Africa, operations currently remain on care and maintenance. The launch of a $25m Glencore Community Support Fund was also announced, which will “complement existing efforts by our local teams to provide the support their communities need most at this time”.

Smurfit Kappa
The paper packaging business said that it had been deemed in an essential business in most of the countries it operates in, with packaging provided for medical equipment, pharmaceutical, food and sanitation products. The company said it has introduced “several” group wide measures to ensure the safety of its employees base on experience from its Italian operations. They have postponed the dividend until later in the year, when they will also review the quantum. CEO Tony Smurfit said that the company remains “very well positioned both financially and operationally.”

Royal Philips
Dutch conglomerate Philips announced yesterday that it would be rolling out a new emergence-use ventilator to help relieve some of the burden on intensive care units. The Respironics E30 device can deliver high-flow oxygen both invasively and noninvasively. The company has set a goal of producing 15,000 units per week by the end of the month.

TMT

Spirent Communications
In a short update, telecoms business Spirent said that revenue was up 12 per cent I; the first quarter with robust profit growth. In particular, the positive impact of the development of 5G was felt in the business. The company said it had “acted quickly” to implement home working for staff in China at the start of the crisis and were “already implementing operational continuity plans” as it spread to new countries.

Crowdcube
UK based equity crowdfunding business Crowdcube said in a piece with trade publication AltFi that it was implement pay cuts for its two founders, Darren Westlake and Luke Lang. They will both be taking 20% gross pay cuts. Luke Lang said that the company had put a “limited number of employees on furloughed leave” but that they would be filling the gap to ensure that nobody suffered any loss of earnings as a result.

IN THE NEWS

Trump suspends funding to World Health Organization – Financial Times

Coronavirus: World facing worst recession since the Great Depression – IMF – Sky News