By Powerscourt on 12/05/2020

Powerscourt Coronavirus Briefing – 12 May 2020

ANALYSIS

Ryanair, Europe’s biggest carrier, said this morning that it plans to restore 40% of its flights from July 1 (subject to government restrictions lifting). It could be argued that the airline did more for public morale than recent government announcements.

Boris Johnson’s Sunday night speech on leaving lockdown was followed by more details on Monday. It is fair to say that the map for plotting a course out of the current mess was quickly torn and frayed.

Labour and the unions attacked the plan for failing to provide adequate protection for workers in construction and manufacturing – among the industries Mr Johnson said on Sunday should go back to work. The Prime Minister was later forced to clarify guidance to workers not to return until Wednesday amid widespread confusion and images of packed tube trains.

But the good news is that it seems likely that there is a way back. Denmark started to reopen in mid-April (primary schools, hairdressers) and said yesterday that the reproduction rate of the virus continued to fall. France allowed some businesses to reopen from Monday.

China’s rebound continues apace. Smartphone shipments from Chinese factories were up 17% in April from the same month in 2019.

In the US, a coronavirus outbreak in the White House itself has not helped morale as President Trump attempts to restart the economy.  There is a patchwork of approaches across the nation, with some states returning full throttle and others at slower speeds. As a generalisation, health experts warn that some states are rushing it.  

Electric carmaker Tesla announced Monday that it will restart car production at its Fremont, CA headquarters in violation of the laws of that county and threatening a standoff with county authorities.  CEO Elon Musk has become an unlikely poster boy for a movement portraying restrictive laws as a violation of American freedoms.

There’s a growing consensus from economic experts that the hoped-for “V Shaped recovery” – a sharp bounceback to economic growth once the health crisis has receded – is unlikely to occur. Economists now think a so-called “swoosh shaped” recovery, named after the Nike logo, is the more likely trajectory, with data from industries including airlines and consumer goods suggesting it will be several quarters, if not years, until economic activity normalises.

BP CEO Bernard Looney told the Financial Times on Monday that the prospect of “peak oil” – the point at which global consumption and production reaches its apex – may have been accelerated by the coronavirus crisis.

But Andy Haldane, the Bank of England’s Chief Economist, has identified a rare positive economic indicator: Spotify downloads of REM’s “It’s The End of The World As We Know It” peaked  two weeks after lockdown was imposed in the UK.

Meanwhile, Asian equity markets were weaker, possibly caused by the return of cases in Seoul and in Wuhan, China which has seen six new cases, the first since early April.

 

WHAT ARE COMPANIES SAYING?

 

Consumer and Retail

Morrisons

In its Q1 trading update released today, the supermarket chain announced that coronavirus has “created unprecedented challenges and changed both our near-term priorities and how we operate”, as it shared that like-for-like sales (excluding fuel) were up 5.7% for the first quarter. Chief Executive David Potts said: “We are facing into the unprecedented current challenges and are playing our full part to help feed the nation: working with determination, creativity and pace to serve customers as well as we possibly can”.

The Body Shop

The cosmetics company is to restart direct selling in the US after more than a decade, as it looks to use self-employed sales consultants to help mitigate revenue loss from stores closed by the coronavirus pandemic. The UK chain owned by Brazilian health and beauty group Natura said direct sales in its home market had increased 80 per cent this year, accounting for about 30 per cent of UK revenues, compared with 20 per cent before the Covid-19 outbreak. It will accelerate the US launch by three months because of consumer demand and an appetite for additional income among workers facing increased economic uncertainty.

Kingfisher

In its Q1 trading update, the home improvement company reported that sales fell 24% to £2.2bn across its UK, Irish, French and other international businesses as a results of the store closures enforced to slow the spread of coronavirus. The company also announced within the update that it had ringfenced all remained stock of PPE and donated it to frontline healthcare workers, with total committed donations amounting to over £1million so far. Chief Executive Thierry Garnier said: “It has been inspiring and humbling for all of us to see how Kingfisher’s teams have risen to meet these significant challenges…These challenging times have underscored both the agility of our teams and the importance to customers of our offering, which gives me a lot of confidence for the future.”

 

Industrials & Transport 

International Airlines Group

Chief executive Willie Walsh has criticised the prime minister for causing confusion with comments over plans to quarantine air passengers. The head of the conglomerate came under attack himself from MPs on the House of Commons transport committee, who accused him of “a predetermined decision” to use the coronavirus crisis to lay off 12,000 British Airways staff. Speaking to the select committee via video link yesterday, Mr Walsh said “there was nothing positive in what I heard the prime minister say” and warned that if the government goes ahead with a 14-day quarantine on inbound air passengers, British Airways would have to review its flying plans for this summer.

P&O Ferries

The British ferry operator is expected to make more than a quarter of its workforce redundant due to a collapse in seaborne traffic as a result of the travel restrictions imposed to slow the spread of coronavirus. About 1,100 staff are expected to lose their jobs, following the furloughing of around 1,400. A spokesperson said: “Since the beginning of the crisis, P&O Ferries has been working with its stakeholders to address the impact of the loss of the passenger business. It is now clear that right-sizing the business is necessary to create a viable and sustainable P&O Ferries to get through Covid-19”.

BP

Chief Executive Bernard Looney has warned that the impact of coronavirus on crude oil consumption is likely to extend beyond the end of the pandemic. Speaking to the Financial Times, he has explained that the crisis was only “adding to the challenges of oil in the years ahead” as travel bans and lockdowns cause consumption to fall by a third. He noted that the use of technology to enable remote working and reduce the need for travel may continue into the future. 

Virgin Group

Richard Branson is to sell his majority stake in Virgin Galactic, worth around $500m, in order to “support its [the group’s] portfolio of global leisure, holiday and travel businesses that have been affected by the unprecedented impact of Covid-19”. This follow’s Branson’s failure to secure a £500m Government bail-out for Virgin Atlantic, which faces potential administration due to the near-total shutdown of air travel caused by the pandemic.

Ryanair

The low-cost carrier is to restart flying about 40 per cent of its normal scheduled flights from July 1, laying out plans to resume operations from most of its 80 bases across the continent. Since restrictions were introduced in March, it has been flying just 30 times a day. These proposals would see this figure rise to nearly 1,000. It has warned that the plans are subject to government restrictions on intra-EU flights being lifted, alongside effective health and safety measures being implemented in airports.

Renishaw

The British engineering company has published a trading update in which it reported lower revenue for the first three quarters of the current financial year, compared to the same period last year, which it has attributed to reduced demand in China during the third quarter as the Chinese government took action to deal with the Covid-19 outbreak. All of the Groups manufacturing facilities around the world are open, although many are operating at lower capacity, with a number of measures in place to protect the health and welfare of its employees. To manage costs, the majority of non-manufacturing staff across the Group are either working reduced hours or are part of the UK Government’s furloughing scheme. The members of the Renishaw Board and the senior management team across the Group have all agreed to have their salaries reduced during the period.

Saudi Aramco

The Saudi Arabian multinational energy company has reported a 25 per cent drop in its first quarter earnings, as it suffered from a collapse in oil prices and a fall in demand due to the lockdowns and travel bans introduced to slow the spread of coronavirus. Chief Executive Amin Nasser said: “The Covid-19 crisis is unlike anything the world has experienced in recent history”.

 

Financial Services & Real Estate 

Blackrock

The asset manager’s top shareholder, PNC Financial, is to sell its $17bn stake in order to free up the bank to pursue potential acquisitions. It’s decision comes as US banks set aside billions of dollars to weather potential losses endured as a results of coronavirus, with the expectation that rising unemployment and shuttered businesses will lead  to some borrowers being unable to repay their debts.

Bank of Ireland

Ireland’s second largest lender has warned that coronavirus will have a “material impact” on its 2020 performance, as it reported a pre-tax loss in the first quarter and saw shares fall over 12 per cent. It warned that the number of new loans it would issue this year could drop by half from the previous year. Chief Executive Francesca McDonagh said: “The economic outlook for our core markets in Ireland and the UK has deteriorated, with reduced levels of activity across our business”.

Land Securities

In its financial results for the year ended 31 March 2020, the property developer reported a fall in revenue of 6.3%, and announced that it will cancel its final dividend. It warned that it does not expect economic recovery to pre-crisis levels before 2020 at the earliest, as it plans for more business failures and higher vacancy rates, particularly in the leisure and retail sectors. In response to the Covid-19 crisis, the company has established an £80m rent relief fund to support occupiers, with a focus on food and beverage operators and small businesses alongside broader options of rent deferrals and monthly payments. £500,000 of grants will be immediately available to existing charity partners, further supplemented by the Board of Directors waiving 20% of their base salaries or fees for an initial period of three months.

Allianz

The German insurance giant has seen a 22 per cent year-on-year fall in first quarter operating profits, with the economic fallout of the coronavirus pandemic heavily impacting its property and casualty insurance business. Its life and health insurance business has also suffered, reporting a 25 per cent drop in operating profit for the quarter.

Standard Life Aberdeen

The global investment company announced today that estimated net outflows in the first four months of the year reached £24bn, linked to the withdrawal of a large mandate by Lloyds banking group. Stripping the Lloyds assets out, the asset manager reported that it has seen net inflows of £1billion during this period.

 

TMT

Vodafone

Reporting its FY20 preliminary results today, the multinational telecommunications company shared that it has narrowed its losses despite the coronavirus crisis, and has grown revenues by 3 per cent year-on-year to €44.9bn. It has broken ranks with a number of major corporations, by pledging to pay out a dividend of €0.09 per share. The company warned that the impact of coronavirus was set to be significant, as it sees roaming charges plummet due to the collapse in international travel, but stressed that it had seen “significant increases” in data volumes as more people used internet during the lockdown. Chief Executive Nick Read said: “I want to give my personal thanks to the entire Vodafone team, who through their dedication, expertise and professionalism, have kept families, friends and communities connected, enabled students to continue their education, helped businesses operate and proactively supported governments to deliver critical services.”

 

IN THE NEWS

Boris Johnson draws criticism over return to work guidance – The Financial Times

Furlough scheme will help low‑paid as it winds down, vows Johnson – The Times

Asia stocks fall on fears over new coronavirus infections – The Financial Times