Powerscourt

By Powerscourt on 05/05/2020

Powerscourt Coronavirus Briefing – 05 May 2020

ANALYSIS

The world is inching towards what it hopes will be a new normal, with hope and fear in the balance.

Some of the countries to be worst-hit by coronavirus are relaxing restrictions on work and life, to relief and optimism. But scientific modellers are warning that moving too fast back to normality could trigger a dangerous “second peak” in the coronavirus.

Researchers at the University of Washington say that the US death toll, currently around 68,000, will double to 135,000 by August reflecting “rising mobility” as US states end their lockdowns.

Italy, one of the world’s worst-hit countries, on Monday allowed 4.5 million people to return to work, and eased restrictions preventing family members from seeing one another. Spain, Portugal, Belgium, Finland, Nigeria, India, Malaysia and Thailand also moved to reopen some factories, construction sites, parks, hairdressers and libraries.

The UK is also poised to unveil its “roadmap” for reopening later this week. Figures published on Monday showed that nearly one in four employees are being supported by the Government, either through benefits or the furlough scheme. But trades unions and the Labour Party are warning that the government’s plans to get British businesses back to work don’t provide adequate protection for employees.

US shares lifted after a two-day slump on Monday reflecting progress back to normality. Asian stock rose on Tuesday.

However, a slew of negative news from industrials and continued concerns over the war of words, and ideas, between the US and China provide a sense of the urgency of getting economies moving. On the latter, Chinese media featured a slew of colourful denunciations of Mike Pompeo, Secretary of State, for his weekend claims of “enormous evidence” that the novel coronavirus came from a Chinese laboratory.

Shares in airline companies continued to be hammered following remarks by Berkshire Hathaway Chairman Warren Buffett over the weekend that he had sold out of all his airline holdings. GE on Monday announced plans to cut 10,000 aerospace jobs, and VW said the cost of car components has risen significantly because of the outbreak.

 

WHAT ARE COMPANIES SAYING?

 

Consumer and Retail

Hugo Boss

The German fashion house has warned that sales over the second quarter will collapse by at least 50% as most of its retail stores in Europe and the Americas are still closed due to coronavirus lockdowns while sales in China are picking up only slowly. Between January and March, currency-adjusted sales fell 17% year on year to €555m, and the company suffered an operating loss of €14m, compared with an operating profit of €57m a year earlier. In a statement, the company said it is “confident that from the third quarter on, the retail environment will gradually improve”. In China, where all shops reopened at the end of March, sales in April were 15-20 % lower than a year earlier. The company said: “Hugo Boss expects that consumer behaviour and store traffic will continue to improve gradually in this strategically important market”. Notably, Hugo Boss was struggling even before the outbreak of the pandemic and warned on profits twice in late 2019, citing macroeconomic uncertainties as well as the political unrest in Hong Kong, which dented sales in the area. Over the past three months, shares in Hugo Boss fell 44% to the lowest level in more than a decade. The company has embarked on a €600m cost-cutting programme as it is scrambling to safeguard its liquidity, and among other things is cutting its 2020 investment budget by a third.

Beiersdorf

Nivea-maker Beiersdorf has said that its La Prairie premium skincare brand has been hit hard by the drop in international travel due to the coronavirus pandemic but sales of its medicinal creams and plasters jumped. Beiersdof had already scrapped its 2020 outlook due to the pandemic, and released preliminary first-quarter sales that showed a 3.6% fall from a year earlier. This morning, it said sales of La Prairie dropped 36% and its Nivea brand dipped 0.6% in the quarter, while medicinal Eucerin and Aquaphor brands saw sales rise 11.5% and its healthcare business behind Hansaplast plasters, saw growth of 10.1%.

Pandora

The Danish jeweller said that sales to customers have improved to be only about 55% lower than last year at the end of April due to strong online sales and a gradual re-opening of physical stores, after falling by as much as 70%.

Shake Shack

Quarterly earnings published yesterday showed average weekly sales at Shake Shack’s domestic outlets operated by the company had doubled from lows of $24,000 to $49,000 by the end of April but remained 45% lower than last year’s levels.

EssilorLuxottica

The Oakley and Ray-Ban maker has reported a steep decline in first-quarter sales as the coronavirus prompted store closures. First-quarter sales at the eyewear company, which is both a manufacturer and a retailer with a vast shop network, fell 10.1% from a year earlier, to 3.78 billion euros ($4.12 billion). EssilorLuxottica, which previously suspended its dividend on 2019 results and scrapped its 2020 guidance after the virus outbreak, said revenue had further declined in April.

GrandVision

The optical retailer, which operates in more than 40 different countries this morning, has provided a Q1 update in which it notes that first quarter revenue has declined by 4.4% at constant exchange rates – “strongly impacted by the coronavirus pandemic”. Meanwhile, comparable growth was -8.2%, “reflecting a negative COVID-19 impact in the second half of March, following a strong start to the year with 5.5% comparable growth in January and February”.

HelloFresh

The German meal-kit delivery firm has raised its 2020 guidance today, as continued coronavirus lockdowns boosted its first-quarter performance in the United States and other international markets. HelloFresh, which outplayed struggling rival Blue Apron in its core market United States and is active in countries such as Germany, Britain, Australia and Canada, saw benefits from more frequent orders from existing and new customers, as increased brand recognition leads to lower marketing costs. The Berlin-based company, which allows customers to choose among online recipes and have pre-portioned ingredients delivered to their doorsteps, now expects revenue growth between 40% and 55% on a constant currency basis, up from a previously announced range of 22% to 27%.

 

Financial Services & Real Estate

AIG

The insurer posted a 93% drop in quarterly adjusted profit, as it set aside money to cover claims related to the COVID-19 outbreak, which it called the single largest catastrophe loss the industry has ever seen. Chief Executive Officer Brain Duperreault said in a statement: “We believe COVID-19 will be the single largest CAT (catastrophe) loss the industry has ever seen”. AIG’s total net investment income, on an adjusted basis, fell by $1 billion, to $2.7 billion, from a year ago.

BNP Paribas

Profits at BNP Paribas fell by 33.1% in the first quarter as the coronavirus crisis hit equity trading and prompted the eurozone’s biggest bank to set aside more than half a billion of euros in loan provisions. Net income fell to 1.28 billion euros ($1.40 billion) in the quarter, while revenue fell 2.3% to 10.9 billion euros. BNP Paribas said it would “amplify the initially planned decrease in operating expenses” and warned that its 2020 net income could be about 15% to 20% lower than in 2019.

Vonovia

German residential real estate company Vonovia has today stood by its profit forecasts for 2020, saying it expected a very low, temporary reduction in rental payments due to hardship caused by the coronavirus pandemic. Chief Executive Officer Rolf Buch said in a statement that: “We assured our tenants early on that they do not need to worry about their apartment due to financial difficulties caused by short-time work, job losses or a decline in orders”. Adding, that “we are finding individual solutions together with our tenants in case of payment difficulties”.

 

Industrials & Transport 

Wizz Air Holdings

The low-cost airline in Central and Eastern Europe today announced passenger and CO2 emission statistics for April 2020. Most notably, the airline operated at just 3% of its total capacity. However, its figures will improve this month as it became one of the first European airlines to restart commercial routes from London Luton and Vienna on 1 May. The company also said a new airline it is planning to launch with flights between Abu Dhabi in the Middle East and eastern Europe is progressing in line with its initial timeline to start flying this year.

Ryanair

The airline’s April air traffic data shows a 99.6% year-on-year fall in passengers to 0.04 million, down from 13.5 million. The company operated 600 flights in April, which included several rescue and medical flights on behalf of various governments. Ryanair also expects “minimal traffic” in the months of May and June as European government continue to restrict travel.

Air France

The French carrier is to require all passengers on board its flights to wear masks from May 11 to comply with French government guidelines on COVID-19 protection measures. The company said in a statement that passengers would have to supply the masks themselves and would be expected to keep them on for the duration of their flight.

Vestas

The world’s largest wind turbine maker has fallen to a first-quarter operating loss and said it kept its outlook for the year suspended amid the uncertainty around the coronavirus even though it would still be possible to meet its initial guidance. The Danish firm reported an operating loss before special items of 54 million euros ($58.9 million) versus the 91 million operating profit forecast by analysts.

Siemens Healthineers

The medical imaging and diagnostics company has abandoned its profit guidance for its ongoing fiscal year, citing uncertainties caused by the COVID-19 pandemic even after it reported better-than-expected quarterly earnings. Its previous outlook for the year through September for growth in adjusted earnings per share of 6% to 12% would likely not be achieved, it said in a statement today: “There are no reliable forecasts for the duration or intensity of the COVID-19 pandemic, or for the associated opportunities and risks”.

Volkswagen

The world’s largest car maker says the cost of crucial car components has risen sharply because of the coronavirus outbreak, putting further pressure on profits as the industry enters deep recession. The company which began restarting production at its Wolfsburg headquarters last week, revealed parts makers operating at a fraction of their capacities were passing on increased expenses. “Suppliers invested in manufacturing facilities for large volumes,” Stefan Sommer, VW’s board member for procurement, told the Financial Times. “Now there are depreciations, while the overhead costs remain and they can’t be reduced overnight”.

 

Energy

Total

The French energy major has kept its dividend stable despite a sharp fall in first quarter profit on falling oil prices and falling demand due to the economic impact of the coronavirus outbreak. Total saw its net adjusted profit fall by 35% in the first quarter compared to the same period last year, to $1.78bn. Total’s decision to keep its dividend stable is at odds with Royal Dutch Shell, which at the end of April cut its dividend for the first time since the second world war. Total also further slashed at costs and investments. The group cut net investment for this year by a quarter to €14bn, increasing the 20% cut it made in March to 25%. The 2020 cost savings plan was also increased by “at least one billion”.

 

TMT

OC Oerlikon

Swiss industrial group OC Oerlikon has withdrawn its full-year outlook and slashed 800 jobs, citing a high degree of market uncertainty triggered by the coronavirus crisis. The group had previously expected full-year 2020 order intake and sales of between 2.5 billion and 2.6 billion Swiss francs ($2.6 billion to $2.7 billion) and earnings before interest, taxes, amortisation and depreciation (EBITDA) margin before exceptional items to improve to 15% to 15.5%. In the first quarter, Oerlikon reported a 38% drop in EBITDA at 58 million francs, which came above estimates of a company-compiled consensus of 51 million francs.

 

IN THE NEWS

Download tracing app and get UK back to work – The Times

Johnson’s ‘back to work’ plan puts UK business and unions at odds ­– Financial Times

 




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