Powerscourt

By Powerscourt on 01/05/2020

Powerscourt Coronavirus Briefing – 01 May 2020

ANALYSIS

America went into lockdown after Europe but is coming out earlier with about half of US states starting to relax restrictions with as unemployment surges.

UK Prime Minister Boris Johnson, in his first coronavirus briefing to the media after recovering from the virus, Thursday promised to set out a “roadmap” for the UK, based on testing and tracing, which would allow the economy to restart while preventing a damaging second peak in the infection.

The Prime Minister’s return to work may have drawn a line under the most acute phase of the crisis for the UK. But anxiety, both about the pace of ending the lockdown and about broader economic prospects, is very much the order of business globally.

There are few sunny economic uplands visible in the second quarter of 2020.

Stock markets began May on a restrained note, with some of the froth of recent days giving way to a more sober assessment of corporate prospects. The S&P 500 began to turn late Thursday following its best month in 33 years, with the pessimism infecting Asian markets overnight.

Apple and Amazon, two of the corporate giants thought to have held up well through the crisis on Thursday sounded a downbeat note on second quarter trading, with Apple withholding guidance for the quarter and Amazon saying that it would spend most of its second quarter profit on coronavirus-related costs.

This came after the President of the European Central Bank, Christine Lagarde, on Thursday sounded a grim note on the prospects for the coming quarter, saying Europe faced an “unprecedented” peacetime slump as she promised the ECB would provide the support needed. 

In one bit of news to cheer bored workers on furlough, the heads of the UK’s main sporting bodies, including the Football Premier League and organisers of cricket, rugby and horse-racing, will meet to plan the restarting of sporting events.  The sport organisers are discussing holding events in “bio-secure” locations in the coming weeks.

 

WHAT ARE COMPANIES SAYING?

 

Consumer and Retail

Altria

Altria, the tobacco group behind Marlboro cigarettes, cancelled its full year earnings guidance due the uncertainties related to the impact of the Covid-19 pandemic”. It also rescinded a $1bn share repurchase programme but still plan to pay a dividend. Altria reported a 13 per cent rise in revenue during the first quarter of the year to $6.3bn, driven by a jump in demand and prices of cigarettes. Net earnings were up 39 per cent at $1.5bn.

Gilead

The California-based company said it spent $50m on remdesivir R&D in the first quarter, increasing its overall R&D investment to $1.1bn. Daniel O’Day, Gilead chief executive, said “our focus at this time is on both our work with remdesivir and our ongoing commitments to the people who depend on our medicines today.”

Greggs

Greggs, the UK bakery retailer, has dropped its plan to reopen 20 shops in the Newcastle area in a “controlled trial” early next week, saying it fears “excessive numbers of customers” could affect its ability to test coronavirus-related social distancing and safety measures. Chief executive Roger Whiteside said Greggs would now operate the trial “behind closed doors only” with walk-in customers invited “only when we can be confident of doing so in the controlled manner we intended”.

GVC

GVC Holdings PLC, the global sports betting and gaming group, announced that the Board and Remuneration Committee agreed it would be appropriate for the Board of Directors and members of the Group’s Executive Committee to take a voluntary 20% reduction in basic salary and fees for three months from today (1 May 2020).  The Executive Board Directors and ExCo members have also decided to forego their bonuses for 2020.

Kellogg

Organic sales jumped 8 per cent in the first quarter at Kellogg, maker of Special K, Rice Crispies and All-Bran. Demand increased significantly in March, and Kellogg said consumption accelerated across its main categories and brands, which also include Pop-Tarts, Froot Loops and Apple Jacks. The company posted net income of $347m, up from $282m last year, on sales of $3.4bn .

Kraft Heinz

Kraft Heinz reported the biggest rise in quarterly sales since the group’s creation in 2015. Kraft Heinz said on Thursday that it produced net sales of $6.2bn in the three months ended March, a rise of 6.2 per cent from a year ago on an organic basis. It expected net sales to rise by a “low to mid-single-digit” percentage in the second quarter, but cautioned that the impact of the pandemic on full-year results was uncertain.

McDonald’s

Chief Executive Officer Chris Kempczinski said he believed the world’s largest fast-food company “reached a trough in terms of number of restaurants closed in late March… As markets start to open up, this desire to really return to familiar favourites, to brands that are known, is very, very powerful.” Net income fell to $1.11 billion, or $1.47 per share, in the first quarter ended March 31 from $1.33 billion, or $1.72 per share, a year earlier. Revenue fell 6.2% to $4.71 billion.

Oasis/Warehouse

Oasis and Warehouse’s 92 stores across the UK will close after administrators fail to find another buyer for the business. Deloitte, the joint administrator said, “It is with great sadness that we have to announce a sale of the business has not been possible and that we are announcing so many redundancies today.”

Tapestry

Tapestry, the company behind Coach and Kate Spade said it will begin reopening stores in North America in May as it reported quarterly sales fell by a fifth. The company has already reopened five locations in Germany and Austria and is planning a phased reopening in Europe. “We entered the calendar year with strong underlying momentum. As the novel coronavirus expanded across the globe, our results materially weakened,” chief executive Jide Zeitlin, said. The company said that “the impact of the Covid-19 pandemic transcends near-term results” and warned “consumer behaviours are changing”.

 

Financial Services & Real Estate

Allianz

Allianz reported a 30% fall in first-quarter net profit and cancelled its profit target for 2020. Its operating earnings dropped 23 per cent year-on-year between January and March. It said, “the macroeconomic development caused by the current pandemic” will make it impossible to reach the targeted operating profit of €11.5bn to €12.5bn this year. Allianz expects to announce more complete details of its quarterly earnings on May 12.

Barratt Developments

Barratt Developments, Britain’s largest housebuilder, provided an update on its plans for a phased reopening of its construction sites saying that “Work on our construction sites will recommence from 11 May, initially to implement the changes required under our new working practices and protocols. We will then start a phased return to construction, with 180 sites – around 50% of the total – in the first phase.” The board implemented immediate measures to manage the Group’s cost base and cash flows to ensure resilience including suspending all land buying activity, and cancelling its interim dividend, furloughing workers and a voluntary 20% reduction in base salary and fees for senior executives.

Janus Henderson

Janus Henderson’s assets dropped by a fifth in the first quarter. The global active fund manager made an operating loss of £332m. “We are managing our expenses carefully and the focus we have had on cost discipline will also support our positioning through this period,” said Dick Weil, Janus Henderson’s chief executive. Revenues fell 1.6 per cent year-on-year, to £3.2bn, and RBS said the recent interest rate cuts would hit its revenue generation for the foreseeable future.

Intu Properties Plc

Intu announced the appointment of David Hargrave as Chief Restructuring Officer. It has negotiated waivers to covenants related to its £600m revolving credit facility until June 26. The company continued to collect rent and have now received 40 per cent of the rent and service charge for the quarter. It is offering monthly rents to the end of 2020 and are in advanced discussions with customers representing a further 28 per cent of the amounts due. In the circumstances where large, well-capitalised brands who have the ability to pay but chose not to, Intu is prepared to take more robust action to enforce the legally binding terms of those leases. In addition to furloughing staff, the Board will be taking a 20 per cent salary reduction for the next three months. The company also identified around £3 million of cost savings in the short-term.

Natwest

Natwest reported a profit of £8 million for Q1 2020 compared with a loss of £306 million in Q4 2019 and a profit of £118 million in Q1 2019, due to strong levels of customer activity and own credit adjustments which more than offset traded credit write-downs and hedging costs following the Covid-19 outbreak. It notes that effects of the Covid-19 pandemic have had, and are likely to continue to have, a material adverse impact on the business’ operations and may affect its financial performance and ability to meet its targets going forward.

RBS

Royal Bank of Scotland’s bad debt provisions increased almost 10-fold in the first quarter. It put aside £802m to deal with an expected increase in future defaults, compared with £86m in the first quarter of last year. As a result, net profit dropped 59 per cent to £288m.

Visa

Spending on Visa’s payments networks has recovered in recent weeks, the company said as it reported its results for the March quarter. Revenues and earnings at the company, at $5.9bn and $1.38 a share, rose 7 per cent and 6 per cent, respectively in the first three months of the year, as much of the quarter’s activity was not affected by the coronavirus pandemic.

 

Industrials & Transport 

American Airlines

American Airlines reported a $2.2bn net loss and said it will use an average of $70m per day in the second quarter due to the effects of the pandemic. earnings per share of $0.41 in the first quarter of 2019 fell to a loss per share of $5.26. Operating revenue tumbled nearly 21 per cent to $7.7bn.

“Never before has our airline, or our industry, faced such a significant challenge,” said chief executive Doug Parker. “We have moved quickly and aggressively to reduce our costs and bolster our liquidity.”

Boeing

Boeing raised $25 billion (19.9 billion pounds) in a bond offering on Thursday which was bigger than expected. “As a result of the response, and pending the closure of this transaction expected Monday, May 4, we do not plan to seek additional funding through the capital markets or the U.S. government options at this time,” Boeing said in a statement.

Ford

Chief operating officer Jim Farley said the company has learned from restarting plants in China, which are now 90 per cent open, and will apply that to reopening plants in Europe on May 4 and eventually North America. It announced new health screening routines including a health self-assessment before going into work and temperature checks after arriving onsite. It will issue employees with protective gear kits each day. Employees who report feeling poorly on the health assessment, Ford has arranged for hospitals and clinics near their plants to administer tests.

Heathrow Airport

Heathrow Airport expects passenger numbers to have dropped by around 97 per cent in April and that demand will remain weak until governments deem it safe to lift travel restriction. “When we have beaten this virus, we will need to get Britain flying again so that the economy can recover as fast as possible,” said John Holland-Kay, chief executive of Heathrow. It reported that it fell to a £278m loss before tax in the first quarter of the year, compared with a profit of £132m in the same period the previous year, as revenues fell 12.7 per cent to £593m. Passenger numbers for the quarter fell to 14.6m, down 18.3 per cent.

IAG

Two of International Consolidated Airlines Group’s subsidiaries, Iberia and Vueling, have signed syndicated financing agreements for €750m and €260m respectively, and will ask the Spanish business relief scheme to guarantee those loans. IAG has warned that a return to 2019 passenger levels would take several years, and this week reported an operating loss before exceptional items of €535m for the first quarter, compared with a profit of €135m last year.

Japan Airlines

Japan Airlines reported a net loss of ¥22.9bn ($219bn) in the first quarter as the coronavirus outbreak led to a shutdown of international travel. It cancelled its year-end dividend “to secure liquidity at hand.”

Ryanair

Ryanair is preparing to cut 3,000 jobs, up to 15 per cent of its 19,000 workforce and introduce pay cuts of up to 20 per cent as it warned about a slow recovery from the coronavirus crisis. It expected it will now take at least two years for a return to 2019 passenger demand and pricing, estimating summer 2020 at the earliest.

Nissan

Nissan will not reopen its Sunderland car plant until at least June. “We are currently planning a phased resumption of production in early June,” the Japanese carmaker told staff on Thursday. “During this period the majority of plant employees will remain furloughed, and we are grateful for the government support that has enabled us to take this action,” it added.

 

Energy

ConcoPhillips

world’s largest independent oil and gas producer, ConcoPhillips announced its second cut to production in less than two weeks with a drop in June output by more than a third. “We’d be curtailing as much as we could right now,” Chief Executive Ryan Lance said on an analyst call. “We set the dividend back in 2015-2016 that we thought we could maintain through the downturns, through the cycles of our industry experiences, so we’re very comfortable with where we sit,” Lance said. 

 

TMT

Amazon

The ecommerce company reported record first-quarter net sales of $75.5bn, while its operating expenses increased to $71.5bn, up from $55.3bn a year ago. Net income for the quarter was down 30 per cent compared to last year. Amazon said it expected to record revenues of between $75bn and $80bn in the second quarter. The company said operating income could swing between a loss of $1.5bn or a gain of the same amount due to coronavirus related pressures. “Under normal circumstances, in this coming Q2, we’d expect to make some $4bn or more in operating profit,” said Jeff Bezos, Amazon’s chief executive. “But these aren’t normal circumstances … Instead, we expect to spend the entirety of that $4bn, and perhaps a bit more, on Covid-related expenses getting products to customers and keeping employees safe.”

Apple

The California tech group reported $58.3bn in revenue for the three months to March, its fiscal second quarter, up 1 per cent from a year ago. It saw strong growth in Apple services and accessories including Airpods and watches which offset decreasing iPhone sales of 6.7 per cent in the three months to March. “We’re proud to report that Apple grew for the quarter, driven by an all-time record in services and a quarterly record for wearables,” said chief executive Tim Cook.

Twitter

Twitter’s audience jumped by 24 per cent, with average monetisable daily active users hitting 166m in the first quarter. Twitter said that its advertising revenue fell 27 per cent between March 11, when lockdowns began in the US, and March 31, when the quarter ended. “The downturn we saw in March was particularly pronounced in the US, and advertising weakness in Asia began to subside as work and travel restrictions were gradually lifted,” Twitter said a letter to shareholders. It also reported its first quarterly net loss in more than two years at $8.4m, down from net income of $190.8m in the same period a year ago. Costs and expenses increased 18 per cent to $815m. “In this difficult time, Twitter’s purpose is proving more vital than ever. We are helping the world stay informed, and providing a unique way for people to come together to help or simply entertain and remind one another of our connections,” said Jack Dorsey, CEO.

 

IN THE NEWS

Boris Johnson promises road map out of lockdown – Financial Times

ECB launches fresh push to lend to banks at ultra-low rates – Financial Times

Global stocks slip as coronavirus hits corporate earningsFinancial Times

Coronavirus flight refunds: airlines told to pay despite financial riskThe Times

 




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