By Powerscourt on 29/04/2020

Powerscourt Coronavirus Briefing – 29 April 2020


Asian markets rose early Wednesday to their highest level in seven weeks amid slow but sure signs that economic restrictions around the world are being lifted.

On the face of it, the economic news remains grim. White House economic adviser Kevin Hassett on Tuesday warned Americans to prepare for a severe economic shock, with unemployment reaching between 16% and 20% and GDP falling by as much as 40% for the second quarter. Huge numbers of cattle, pigs and poultry are being slaughtered and dumped because of a collapse in demand and a damaged supply chain.

Reuters calculated that US passed a grim milestone on Tuesday with a total of 58,220 deaths so far from COVID-19 – more than all the American dead in Vietnam. More than 1m have been diagnosed with the disease in the US.

It looks as though the UK is up to three weeks from a relaxation of lockdown. Its new “test, track and trace” app requires 18,000 people working as contact tracers and Matt Hancock, health secretary, said yesterday: “We’re expecting that to be ready by the middle of May.”

Meanwhile the aviation industry continues to pitch from one body blow to the next. BA on Tuesday warned that it would cut almost 30% of its 42,000 strong workforce, Scandinavian airline SAS said it would permanently cut about half its workforce and a report emerged that Germany’s Lufthansa planned to file for creditor protection.

As companies print out corporate earnings, a picture emerges of an economy which is crimping growth even in situations where a company is benefiting. For example, Pepsico yesterday reported that although sales of crisps such as Doritos have soared, earnings had been hurt by the closure of convenience stores, limiting consumers’ ability to make discretionary drinks purchases.

However, signs are beginning to emerge that where restrictions are being lifted, demand is returning. In countries which have started to relax restrictions, such as Italy and Spain, so called “high frequency” data – such as electricity consumption and footfall – points to signs of early revival, according to Capital Economics.

Meanwhile Google said late Tuesday that it had seen signs that consumer behaviour was starting to return to more “normal behaviour” in April. Amazon, which has taken a central role in providing goods to people locked at home, reports Wednesday.

A note from Liberum Capital cites recent research from Otto Beisheim School of Management on the impact of media coverage on share price performance. Two findings are striking from the research, as summarised by Liberum, emphasising the polarising effect of good or bad coverage, particularly for smaller companies:

-“If a smaller company becomes the focus of negative media coverage the share price can be dramatically impacted. If a smaller company becomes the focus of positive media coverage, its share price can skyrocket. Thus, managing the media coverage and the media image is much more important for smaller companies than for larger ones”

-“Companies that rank in the top quartile in terms of ESG scores tend to suffer much less from negative media coverage than companies that rank in the bottom quartile. For company executives, this should be yet another incentive to increase their efforts in the ESG space. It may not lead to a higher share price, but it seems to insure you against a sudden drop in share price due to negative media coverage.”




Consumer and Retail

Dixons Carphone

Dixons Carphone said its home electricals ecommerce operation has recouped two-thirds of the sales lost to stores closed in the UK, although it still does not intend to pay a dividend for the year to May. Online sales grew 166 per cent in the UK in the five weeks to April 25 and in Greece, where stores are also closed, online sales grew almost sevenfold. The group said it had secured additional lending facilities and would save money by not declaring a final dividend in respect of the year about to end. Senior management have also taken a 20 per cent pay cut and will receive no bonuses this year. It warned that the aftermath of the pandemic will be felt for “longer than first anticipated” with retailers facing lower sales “even after full lockdown measures have been lifted”.

Grafton Group Plc

Grafton Group, the international distributor of building materials and DIY retailer, noted that the impact of Covid-19 became visible over the second half of March and intensified following the introduction of Government restrictions leading to national lock downs. The UK distribution business is currently trading at circa ten per cent of normal volumes from the provision of materials for emergency supplies and essential projects. The Group is taking appropriate actions to manage its cost base while protecting jobs and ensuring that our businesses are strongly positioned for a phased return to trading as restrictions in the UK and Ireland are relaxed.  The Group is availing of job retention scheme arrangements for almost 9,000 colleagues in the UK and Ireland out of a total workforce of circa 11,000 in the two countries.


GVC Holdings PLC, the global sports betting and gaming group, today announces that it has agreed a new £535m Revolving Credit Facility with existing lending banks. Rob Wood, CFO, commented, “”Having taken early and decisive actions to mitigate the impact of COVID-19 on our business, we are confident that we can achieve our target of breakeven cashflow per month during this crisis. I am delighted that we have reached agreement with our key lending banks on this revised RCF which will provide us with further financial flexibility to continue on our path of excellent growth momentum. We remain well placed to take advantage of a range of attractive growth opportunities which we believe will be available to us.”.


Retailer Next said that the fall off in sales since the lockdown has been “faster and steeper” than anticipated in its March stress test and the company is now modelling lower sales for the second half of the year.


Pepsico is going ahead with plans to give $7.5billion to shareholders this year as its snack product sales offset a slump in demand for its beverages in bars and restaurants. This includes dividends worth $5.5billion and buy backs of $2 billion worth of shares. Hugh Johnston, chief financial officer, said he expected organic revenue growth to decline at a low single digit rate in the second quarter and also said the company’s operating margin would be “negatively impacted by the weakness in immediate consumption channels”.


Pharma company Pfizer has reported an 8 per cent decrease in overall sales for the first quarter, but backed its yearly guidance for revenues and adjusted diluted earnings-per-share. The company said it has and will maintain the ability to meet its liquidity needs “for the foreseeable future”. It increased its guidance for adjusted research and development expenses by $500m to a range of $8.6bn to $9bn, as it moves to investigate possible Covid-19 interventions.

Royal Mail

Royal Mail is temporarily suspending the delivery of letters on Saturdays until further notice, effective from May 2, because of the coronavirus pandemic. The privatised postal operator said it was seeing high levels of staff absences as it announced the change. “we have also listened to our hard-working colleagues who have asked use to ease the additional burden on them if possible”.


Starbucks plans to have 90% of its company-operated outlets in the US opening by early June but cautioned that it would be far from returning to business as usual. Starbucks said it expected the financial pain from coronavirus to intensify in the current quarter after like-for-like sales in the three months to the end of March dropped a tenth and net income slumped by half. It expected the sales it generates from China to “substantially recover”, it was more cautious about the US.


WPP, the world’s largest advertising company, said like-for-like sales dropped 7.9 per cent in March, prompting it to cut more costs, as clients hold back spending on advertising.


Financial Services & Real Estate


Barclays said its profit fell in the first quarter as the U.K. bank set aside GBP2.1 billion ($2.6 billion) in provisions for losses from loans affected by the coronavirus pandemic. “Given the uncertainty around the developing economic downturn and low interest rate environment, 2020 is expected to be challenging,” Barclays Chief Executive Jes Staley said.

Nordea Bank

Frank Vang-Jensen, CEO, commenting on the Nordea’s first quarter results 2020 said, “Although we see early signs of some countries opening up, the duration and extent of the economic impact of COVID-19 remain highly uncertain, and it is too early to predict the shape of the recovery… Our portfolio is well diversified with low exposures to industries expected to be immediately affected by COVID-19”. It noted that it is too early to give an outlook for loan losses, as the economic impact of the COVID-19 is still very uncertain.


Housebuilder Persimmon said that there was a good level of customer enquiries through the lockdown period, an encouraging sign that demand for new houses will be resilient. Its builders will return to sites this week, after the government was clear that it wanted construction companies to restart building operations.

Standard Chartered

UK-based bank Standard Chartered said it was seeing “encouraging early signs” of a recovery in China as it posted pre-tax quarterly profits and operating income above analyst estimates. It reported nearly 12% drop in pre-tax profits in the first quarter compared to the same period last year. It warned that it was “not possible to reliably quantify” the impact of the coronavirus on future performance but said it expected “a gradual recovery” from the pandemic and for the global economy to move out of recession in the later part of the year led by emerging markets. Standard Chartered increased its provisions for bad loans by over 1,100 per cent to $956m from $78m in the same quarter last year.


Industrials & Transport 


3M, known as a maker of the N95 face masks, reported first-quarter profits. It saw total revenues rise 2.7 per cent from a year ago to $8.1bn in the first quarter, with increases in sales from its health care and consumer divisions helping offset declines in other segments.


Airbus reported a consolidated net loss of €481m, against a €40m profit for the same period a year earlier, and adjusted earnings before interest and taxes fell 49 per cent to €281m. Consolidated revenues slipped 15 per cent year on year to €10.6bn, reflecting 40 fewer aircraft delivered in the first quarter. “We saw a solid start to the year both commercially and industrially but we are quickly seeing the impact of the Covid-19 pandemic coming through in the numbers,” said chief executive Guillaume Faury. “We are now in the midst of the gravest crisis the aerospace industry has ever known.”

British Airways

British Airways is looking at cutting almost 30 per cent of its 42,000 workforce. The airline announced plans to make up to 12,000 of its employees redundant, subject to consultation, as the aviation industry battles the worst crisis in its history. In a letter to staff, chief executive Alex Cruz cautioned that “the outlook for the aviation sector has worsened further and we must take action now… There is no government bailout standing by for BA and we cannot expect the taxpayer to offset salaries indefinitely. Any money we borrow now will only be short-term and will not address the longer-term challenges we face”.


Finnair is planning a €500m rights issue to prop up its balance sheet due to the effects of the coronavirus on the airline industry. Finnair said it could not judge the pace of the recovery yet so had no outlook for the second half of the year. It repeated its warning that it would suffer a significant fall in revenues and a large loss amid the worst crisis “in the entire 100-year history of commercial aviation”.

Fresnillo plc

Fresnillo plc, the world’s largest primary silver producer and Mexico’s largest gold producer, announced its first quarter production for three months ending 31 March 2020. Octavio Alvídrez, Chief Executive Officer, said, “Operationally, quarterly silver production was in line with expectations, down slightly against the previous quarter mainly due to lower grades at San Julián DOB. Gold production was also in line with expectations, down against the previous quarter due to lower volumes of ore processed at Herradura. We expect production to be back-end-weighted this year.” In light of the evolving environment, Fresnillo will keep full year production guidance under constant review. Fresnillo is well funded with sufficient cash balance to withstand any temporary disruption.

Ford Motor Co

Jim Hackett, Chief Executive, said that the pandemic will “slide the timing” of critical product launches scheduled for this year and next. Ford expected an adjusted $5bn loss before interest and taxes in the second quarter as fewer vehicles were sold globally. The company announced that it would reopen European factories on May 4, and other locations during the second quarter, the only plants producing and selling cars at present are its joint ventures in China. Its UK engine plants at Bridgend and Dagenham, which are closely linked to Jaguar Land Rover’s production sites, do not yet have a re-start date.


The German carrier is considering filing for creditor protection. In comments to staff, Lufthansa chief executive Carsten Spohr warned the airline would not be back to normal until 2023.


Scandinavia’s biggest network airline, SAS AB, is eliminating5,000 jobs. The company said that the dismissals, amounting to 40% of the workforce, are necessary because employees have an average notice period of six months and it needs to prepare for what may be years of sluggish demand. “It’s a painful message to give,” SAS Chief Executive Officer Rickard Gustafson said in a phone interview. “We are prepared to shift if demand returns more quickly and pull back some of the announced cuts.”

Synthomer Plc

Synthomer plc, a FTSE250 British-based chemicals business, issued a trading update for the quarter ended 31st March 2020. The Group continues to operate 37 of its 38 global manufacturing sites, with speciality chemicals designated as key industrial assets in the geographies in which Synthomer operates. To date, the Group has experienced no significant issues with regards to raw material supply, the distribution of finished goods or the availability of operating personnel. Q2 sales into industrial markets including Automotive and the Oil & Gas sector are currently being impacted. However, demand for Nitrile continues to be strong particularly as a result of the COVID-19 pandemic. Given the unprecedented uncertainty around the impact of COVID-19, the Group is withdrawing its previous guidance for the year ending 31st December 2020 and will update the market when there is better visibility.




Orsted beat first-quarter profit expectations on Wednesday and said the coronavirus would not “materially” hit earnings this year although it might slow U.S. projects. Earnings before interest, taxation, depreciation and amortisation (EBITDA) rose 33% to 6.8 billion Danish crowns ($989 million), beating the $5.85 billion forecast by 10 analysts in a poll compiled by Orsted, the world’s largest offshore wind developer. Earnings from offshore and onshore wind farms in operation increased by 25% to DKK 5.2 billion. CEO Henrik Poulsen affirmed that despite the “profound impact” of COVID-19 on the world, Orsted has had a “very good start to the year with strong financial results and solid operational performance across the entire business”.




Alphabet, Google’s parent company, said its revenue growth slowed to 13 per cent, compared to 18 per cent in the final months of 2019. Ruth Porat, chief financial officer, said Google — which supplies almost all of Alphabet’s revenue — had a strong start to the year, before the company “experienced a significant slowdown in ad revenues” in March.

Ascential Plc

Ascential, the specialist information, data and analytics company, announced that as a result of the impact of COVID-19 restrictions, the Company has cancelled the 2020 edition of the Cannes Lions Festival and its associated regional events, which comprised just over half total revenues in the Marketing Segment in 2019. In addition to existing measures undertaken, Ascential has identified a further £20-£40m of prudent cost saving measures in the current financial year, which can be deployed as the year evolves.  The company’s objective will be to balance near-term cost focus with the importance of preserving and nurturing Ascential’s market leading positions and capabilities and its ability to deliver a strong rebound in 2021.

Samsung Electronics

Samsung Electronics, the world’s largest producer of computer chips, smartphones and electronic displays, forecasted weaker earnings for the second quarter after a fall in first-quarter net profit and its expectation that the coronavirus pandemic will batter global demand for electronic devices. “The duration and impact of the pandemic remain unknown,” the company said.Samsung expects memory-chip demand to remain “robust” for servers and PCs due to an increased number of people working from home, but it forecasts sales of smartphones and TVs will fall “significantly” as the pandemic leads to store and plant closures globally.


Trainline, the transportation ticket sales platform, said that its lenders have waived the debt covenants for its £350m revolving credit facility until August 2021.



Coronavirus: Trump orders meatpacking plants to stay open – BBC News

Coronavirus: UK contact-tracing app ‘ready in two to three weeks’– BBC News

How close is the UK to easing coronavirus lockdown? – Financial Times

European economic activity shows early signs of post-lockdown rise – Financial Times

Warren, Ocasio-Cortez propose M&A ban during crisis – Financial Times

Public against swift coronavirus reopening, poll shows – The Times