By Powerscourt on 16/04/2020
THE IMF warned this morning that six decades of economic growth in Asia had come to a (temporary) halt. The institution said that economies in the Asia Pacific would be flat this year for the first time in 60 years but predicted growth of 7.6% in the region next year, if anti-pandemic measures work.
Asian equity indices were marginally down on the day, following the Dow Jones Industrial Average which closed almost 2% down. The FTSE 100 and FTSE 250 opened marginally higher today.
The UK government is expected to confirm Thursday that the coronavirus lockdown will be extended at least until May 7, although there are promising indications in the UK data that the peak in the infection rate has now been reached.
UK Health Secretary Matt Hancock indicated Wednesday that it was too soon to relax restrictions. But Chief Medical Officer Chris Whitty said data showed the graph was beginning to flatten out overall and that the National Health Service appears so far to have been able to manage the level of infection. The UK lags Germany, which announced yesterday it would marginally relax some restrictions from next week. Older school children will be allowed to return to school in early May, albeit with severe restrictions: smaller classes, face masks and social distancing on school buses. France yesterday confirmed it will extend its lockdown.
The relaxation can’t come too early for the battered global economy: US President Trump yesterday convened a series of calls with what he is calling the Great American Economic Revival Industry Groups, a council of representatives of large companies and industry bodies, to plan reopening the US economy, but was warned repeatedly that a lack of testing was holding workers back from feeling the confidence they need to return to work.
US data from two sectors: industrial production and retail, both show a brutal hit since the beginning of the crisis. Industrial production – a broad measure which includes output from factories, mines and utilities, contracted by 5.4% in March compared with the previous month, the steepest drop since 1946.
Global retail data yesterday demonstrated the dramatic impact of the crisis on shopping, which was undergoing significant disruption before the coronavirus. US retail sales fell by just under 9% for March, according to the US Commerce Department, the sharpest fall since records began.
UK data from different sources also showed a dramatic polarisation in retail trends in March, with essential shopping booming but discretionary spend falling off a cliff. While travel expenditure fell 40%, and spending in bars and restaurants by 36%, according to Barclaycard data, spending to supermarkets grew by 21%, with a 17% increase in demand for online digital services.
WHAT ARE COMPANIES SAYING?
Consumer and Retail
With the giant benefitting from the huge surge in internet shopping by people forced to stay home during the lockdown, Amazon boss has seen his wealth jump by $24 billion. Jeff Bezos, who founded Amazon in 1996 with $100,000 in personal and family money, now has a fortune of $138 billion, cementing his position as the world’s richest man, according to the Bloomberg Billionaires Index. Bezos owns an 11% stake in Amazon, whose shares closed up another $24.36, or 1.1%, at $2,307.68 yesterday, valuing the company at $1.21 trillion. However, this morning Amazon has announced the temporary closure of all six of its French distribution centres, one day after a French court ruled it was not doing enough to protect its workers in the country amid the pandemic.
Following the government’s introduction of nationwide social restrictions, Dunelm previously announced that they would be temporarily closing all retail operations, across stores and online, in order to comply with the new measures. However, after a phased restart of their online business, the group is now fully operational with the exception of some 2-man delivery products. Stores remain closed and the company has received confirmation from the Bank of England that they are eligible to access funding under the COVID Corporate Financing Facility.
The Texas-based department store chain said it would miss a bond payment due on Wednesday, putting it on course for a default or debt restructuring in one of the starkest signs yet the coronavirus shutdown is causing financial distress among US retailers. JCPenney disclosed in a filing with the SEC that it will not pay $12m to bondholders, utilising their 30 day grace period to make the payment before it is deemed to have defaulted.
Oasis and Warehouse
The two British fashion stalwarts owned by Icelandic bank Kaupthing are the latest casualties of the high streets’ dire straits, with both looking set to go into administration in the coming days. Collectively, they have 90 stores and 437 concessions at Debenhams – which itself entered into administration last week. This move puts a total of 2,300 jobs at risk, yet it may ultimately allow the troubled chains to avoid liquidation, as well as any potential legal action from creditors and continue trading once the crisis is over.
Pret a Manger
Following increasing demand from NHS workers, the sandwich chain is set to reopen a handful of stores from Thursday for takeaway and delivery in locations near hospitals. The limited menu offered will include sandwiches, salads, drinks and snacks, as well as essential items such as milk, butter and tea. Pret will also continue to donate food to homeless charities, with 7,000 additional meals a week sent to their charity partners. NHS workers will receive a 50% discount on all purchases until the end of April.
The international consumer products group today announced that the impact of COVID-19 continues to be significant, with exceptionally high demand for Carex hand wash and sanitiser gel products and Imperial Leather soap in the UK. However, the Beauty business has been negatively impacted with marketing activities planned for Q4 being cancelled and the business expected to be slow to recover. The Indonesian business has continued to trade largely as normal with increased customer demand for hygiene products offsetting reductions in lotions and creams.
Rentokil Initial’s pest control and hygiene services have been designated as an essential service but have been negatively impacted by the virus due to the contractual nature of the businesses. Other impacts of the virus vary across country operations, depending on the prevalence of the outbreak and the extent to which the country has been placed under lockdown. For example, revenues were down 15.3% in Italy and 20.1% in India in March. While the full impact of the pandemic remains uncertain, Rentokil expects the Q2 impact to be greater than in the last two weeks of March.
The world’s largest pork producer, Smithfield Foods has announced that it has closed two more US factories temporarily after employees tested positive for COVID-19. They also warned of bottlenecks in the US food supply chain after being forced to close a South Dakota factory which accounts for 4-5% of the US pork production capacity.
Amid the current crisis for the pub industry, Wetherspoon boss Tim Martin is looking at hefty paper losses as analysts warn he may be forced to tap shareholders for extra funds. The chain may need to raise as much as £250m to survive the pandemic after the closure of all 850 of its pubs. With a net debt already standing at 3805m, analysts predict that Mr Martin is unlikely to want to issue a new stock as it would hit the value of his own holdings in the business. However, lender are expected to be unwilling to step in and support the chain, leaving Mr Martin with no alternative.
Financials and Real Estate
The specialist emerging markets asset manager provided an update this morning in respect of the quarter ended 31 March 2020, stating that assets under management declined by US$21.6 billion over the quarter, reflecting negative investment performance of US$18 billion and net outflows of US$3.6 billion. However, the Group stated that their strong, liquid balance sheet with no debt and over £700 million of financial resources provides them with resilience that underpin the firm’s ability to continue to protect returns for shareholders. Whilst the full extent of the pandemic remains unclear, Ashmore is confident in its ability to maintain daily operations and a flexible operating model to cope with the downturn in markets.
Barratt Developments, Britain’s largest housebuilder, announced this morning that the Group delivered 1,349 home completions between 23 March and 12 April 2020, resulting in a total completion of 11,713 homes in the period to 12 April 2020. However, whilst sales centres and construction sites remain closed, they expect further home developments and reservations to be limited. In addition to previous actions announced by the Board, Barratt Developments is in the process of furloughing approximately 85% of employees, promising to pay furloughed employees their normal pay until at least the end of May 2020. A number of the executive team has agreed to a voluntary 20% reduction in base salary and fees and the group continues to be financially strong, with a well-capitalised balance sheet and robust cash and liquidity position.
The fifth largest accounting group in Britain by revenues told its 5,500 employees yesterday that it was furloughing 700 staff from Monday, affecting 470 first-year trainees and 230 support staff. Pay reviews and promotions to staff have also been deferred until next January. BDO is the latest firm to tighten up its workforces as the professional service sector prepares for a coronavirus-related slump in revenues.
Charles Stanley Group
Reflecting the impact on global markets of the COVID-19 pandemic, Charles Stanley Group reported total funds under management and administration decreased by 20.2% over the three months following 31 December 2019. The FuMA also declined by 13.4%, however Group revenues rose by 12.6% in the same period. Given the current trading conditions, comparatives for the financial year to 31 March 2021 are expected to be far less favourable, relative to the year just ended. This reflects the sharp decline in market values and cuts to interest rates since February.
Similarly to their US rivals of Citigroup and Bank of America Merrill Lynch, Goldman Sachs has reported a 46% fall in profits for the first quarter after putting aside almost $1bn to cover potential losses. As the banking industry braces for recession, America’s largest four banks have now set aside a combined $14.2bn in loan loss provisions, according to Reuters.
The FTSE250 motor insurer announced in a trading update that its “capital position, cash generation and liquidity remain strong”, resulting in them proceeding with a £36.4 million dividend payment to shareholders. Despite mounting scrutiny of cash returns to investors across the insurance sector, Hasting Group will distribute to investors on May 29.
The established provider of non-standard financial services has launched a fully remote lending product within its Home Collected Credit division, allowing customers to remotely deposit funds directly into a bank account of onto a Morses Club Card. This means that despite the impact of COVID-19, collections are running at 74% of pre-COVID-19 expectations as 33% of repayments have transferred from face to face to remote collections in three weeks.
In a trading update for Q1, Peter Harrison, CEO of Schroders, stated that the business has proven to be resilient “during a period of extreme market volatility”, with net new business of £30.4 billion. This is in addition to the remainder of the Scottish Widows mandate which contributed net new business of £29.5 billion. He also announced the companies intention to materially increase support for charities, including the establishment of a company-wide ‘collective action’ scheme that enables employees to voluntarily donate up to 25% of three months’ salary.
Berkshire-based Apacor Ltd has gained approval from the Medicines & Healthcare products Regulatory Agency (MHRA) to supply coronavirus antigen tests, with the first 150,000 able to be flown to Britain overnight. However, Public Health England has not yet taken up the offer amid growing concerns the government’s 100,000-a-day target is now unreachable. The South Korean test, already in use in Germany, has not yet been tested by the PHE laboratory in Colindale and is unlikely to be tested until next week.
Clinigen Group, the global pharmaceutical and services company, has signed an exclusive licensing and distribution agreement with Porton Biopharma to commercialise Erwinase, a medication for patient with Acute Lymphoblastic Leukaemia. In addition, the group released a trading update regarding COVID-19, stating that trading is in line with the Board’s expectations and the business has had a strong first nine months of the year with organic gross profit growth of over 10%. They have experienced only marginal disruption from the pandemic and remain with significant levels of liquidity available to the Group.
The global leader in engineering and industrial software confirmed that they entered the COVID-19 pandemic in a strong position and will continue to drive its business model transition to subscription. For the financial year ended 31 March 2020, the Group experienced some interruption from the global crisis but still maintained a satisfactory close to the year. Revenue growth is expected to be approximately 9% with progress continuing to be made toward a medium-term target of 30% adjusted EBIT margins.
Barrick Gold, one of the world’s largest mining companies with assets spread from Papua New Guinea to Nevada and the Dominican Republic, has purchased more than 800000 finger-prick antibody testing kits to screen workers and the communities living close to its mines. CEO Mark Bristow has stated the company has already invested a lot in the tests, which can be used to determine if a person’s immune system has COVID-19 or has recovered from it. Barrick Gold was quick to recognise the threat posed by coronavirus, starting in mid-February when it started to increase supplies of key commodities, such as fuel, and counselled employees about the symptoms of the virus and the risk of contracting the infection.
Big Yellow Group
In anticipation of the likely delay of their preliminary announcement, the Board of Big Yellow Group today provided a trading update for the fourth quarter ended 31 March 2020. Like-for-like revenue increased by 3.7% alongside the 4,000 sq ft growth in occupancy, compared to the same quarter the previous year. Construction on Battersea and Camberwell development sites has been halted and is due to recommence as appropriate, following the relaxation of lockdown measures.
Capital Drilling, a leading mining services company focused on the African markets has announced revenues of US$32.5 million, a 20.4% increase on Q1 2019, with mine-site services continuing to underpin revenue streams. The COVID-19 pandemic continues to create uncertainty globally however, mining and production activity has continued uninterrupted, allowing for strong Q1 revenue results. The group’s supply chain also remains largely unaffected due to the majority of restrictions being attributed to air-freight movements and not their primarily land and sea movements.
Easyjet has come under fire from French airlines for using the country’s government-backed furlough scheme while paying corporate tax in the UK. The British low-cost carrier has furloughed its 1,700 French staff, with workers continuing to receive 80% of their net pay. The airline, which has grounded its fleet, has reached a similar agreement with its British-based cabin crews, who have also been furloughed. In their trading update for the six month ending 31 March 2020, easyJet expects to deliver a first half headline loss before tax in the range of £185m to £205m.
The international exhibitions, events, information services and advanced learning group has today provided an update on trading, stating that the company is announcing further cost-reductions and the temporary suspension of dividends as past of their COVID-19 Action Plan. In addition, the company is having discussions on a debt covenant waiver and the issue of additional new equity. Supported by resilient performances and cashflows from its subscription businesses, Informa expects these actions to provide stability and the opportunity for long-term growth once on the other side of the pandemic.
Management Consulting Group
Management Consulting Group this morning released a trading update, stating that the market and general economic turmoil unleashed in recent weeks has presented, and is expected to continue to present, significant challenges for the company. The start of 2020 was positive, however during February, a number of Asian projects were deferred, followed by the majority of worldwide projects being put on hold in March as the virus spread. The consulting group is therefore managing liquidity and cost base tightly, including the deferral of non-essential expenditure. This includes temporary salary reductions across the business and the deferral of variable pay and bonus payments.
Apple is preparing to potentially delay the launch of its first 5G iPhone as the coronavirus pandemic threatens global demand and disrupts the company’s product development schedule. The California-based tech giant has held internal discussion on the possibility of delaying the launch by three months, with supply chain hurdles creating difficulties in releasing on schedule.
In their final results for 2019, Aquis Exchange announced a revenue increase of 73% to £6.9m and adjusted EBITDA loss of £0.2m. Aquis’ technology systems are confirmed to be efficiently dealing with higher market volumes, with the exchange being run entirely remotely. Whilst the long-term economic impact remains difficult to predict, the group believes their technology platforms will enable them to deal efficiently with the current volatility.
The leading global cybersecurity provider, Avast plc, announced this morning that adjusted revenue was up 6.5% to $214.6m. Due to an increase in working from home, the company has experienced an improvement in Desktop conversion rates and billings through the latter part of the first quarter. In early April, Avast also extended the right to distribute Google Chrome offers to users of Avast and AVG anti-virus.
Learning Technologies Group
In light of the potential impact of COVID-19, Learning Technologies Group management has taken proactive measures to prioritise the strong liquidity and net cash position of the Group, including postponing the final dividend until market conditions normalise. In addition, the CEO and two members of the leadership team and the Non-Executive Directors have deferred their entire salaries for the period of the staff deferral scheme. Learning Technologies Group estimates that the combined cash saving in 2020 from these measures will be in excess of £20 million.
IN THE NEWS
Three-week lockdown extension set to be approved – BBC
Asia stocks fall as IMF warns of coronavirus growth standstill – Financial Times
Coronavirus ventilators given green light for production – The Times