By Powerscourt on 13/05/2020
Powerscourt Coronavirus Briefing – 13 May 2020
ANALYSIS
German motorists saw motorway congestion double last weekend while other European countries also reported strong increases in car travel. But as Europe re-emerges, the debate in the US continues.
Anthony Fauci, the director of the US National Institute of Allergy and Infectious Diseases warned senators on Tuesday that pushing businesses to reopen without testing risked a damaging spike in the coronavirus infection rate.
The comments from Dr Fauci, who is one of the US’ most prominent infectious disease experts, mean he may move from adviser to the White House to President Trump’s Nemesis as the latter seeks to accelerate the reopening of America. Fauci’s comments seem to have prompted a wakeup call in the US as the economic implications of his words became clear.
Markets around the world dropped on Tuesday, with Standard and Poor’s Index falling by 2%, as America digested the prospect that the economic activity the President has been pushing for could do more harm than good. Asian markets opened lower. California State University announced that it would cancel all academic classes for the autumn, and Los Angeles County also reissued stay-at-home orders for a further three months.
Even when things reopen, life will be very different. The New York Times reports that Nielsen, the research giant, will no longer expect its 3,000 New York staff to come to work. Instead, they will stay at home most days. It reports Barclays, JP Morgan Chase and Morgan Stanley think it unlikely that all of their workers will return to their skyscraper offices.
Trump, in a now familiar tic, sought to use China to distract attention from the economic impasse created by the situation. On Tuesday he ordered the main US Federal pension fund not to invest in Chinese companies. Joe Biden, his opponent in November’s election, also pledged to be tougher on China.
In the UK a leaked Treasury document pointed to the expected scale of deficit in the wake of the coronavirus pandemic: suggesting the UK could face a “sovereign debt crisis” if the economy doesn’t recover quickly.
Political opposition in Britain under a newly reenergised Labour Party is homing in on the polarisation coronavirus will wreak upon society, with blue collar and lower-paid workers forced to shoulder higher risk as economies reopen, with white collar workers able to work safely. This could create problems for Boris Johnson’s fragile attempt to create consensus as the UK guides industry through the crisis.
On Wednesday the UK’s largest teaching union warned teachers not to “engage” with the UK Government’s direction to reopen some schools in early June.
WHAT ARE COMPANIES SAYING?
Consumer and Retail
TUI
The European travel company has labelled coronavirus “the greatest crisis the tourism industry and TUI has ever faced” in its half year results released today. The German-headquartered group has warned that it will need to cut its fixed cost base by 30% in order to survive the coronavirus pandemic, which could see 8,000 staff lose their jobs. TUI was forced to cancel the majority of its travel programme in March, and its finances have since been boosted by a 1.8 billion euro state-backed bridging loan in Germany.
Sainsbury’s
The supermarket chain has awarded 950,000 bonus shares, worth £1.85 million, to nine senior staff. Amongst them are departing CEO Mike Coupe, and his successor Simon Roberts. Executives will have to wait two years before they can sell their shares.
Uber
Uber is reportedly in talks to buy Grubhub in an all-share deal for $6 billion, as demand for restaurant deliveries rises during the pandemic. Uber Eats enables customers to order food from restaurants through a website or app and takes charge for the delivery of the food, while Grubhub takes food orders but relies on restaurants’ drivers for delivery. Shares in Grubhub jumped by 38 per cent by lunchtime in New York yesterday, while Uber’s shares rose by 8 per cent.
Moss Bros
The 169-year-old dress wear operator is resuming its online operations today for the first time since March, and is preparing to reopen shops next month. Executives have said that they are cutting jobs, reducing salaries and requesting payment discounts from suppliers, and rent holidays and deferrals from landlords in an attempt to curb costs, alongside lowering boardroom pay and fees by 60 to 70 per cent.
AO World
The CEO of the electrical retailer has described the shift to online shopping as “on steroids”, saying that the rise in demand for office equipment from people who have been forced to shop online was producing the sales equivalent of “Black Friday every day”. Roberts said: “In terms of online shopping behaviour, I believe we have seen five years accelerate into only five weeks”.
Industrials & Transport
Toyota
The Japanese carmaker has warned that the coronavirus will deliver a bigger shock to carmakers than the global financial crisis, as it shared that it expects profits to drop by 80 per cent this year. The company forecast global sales of 8.9 million vehicles, compared to 10.46 million for the previous 12 months. Akio Toyoda, the president of Toyota, said yesterday: “We anticipate a big drop in sales volumes, but despite that we are expecting to remain in the black. We hope to become a leader of the country’s economic recovery.”
Aston Martin Lagonda
The British manufacturer of luxury sports cars has seen core retail sales decline by 31% year-on-year for the first three months of the year as coronavirus took its toll on customer demand. It posted a £120m loss, with 93% of the dealer network closed or running with limited capacity at points during the quarter. Executive chairman Lawrence Stroll said: “While in the short-term, as anticipated, we will have some difficulties due to the onset of Covid-19, having been in the business for a few weeks now I am even more enthusiastic and confident in the multi-year plan that we have set out”.
AP Moller-Maersk
The world’s largest container shipping line has forecast that volumes across its business will fall by up to 25 per cent in the second quarter of 2020, after Covid-19 disrupted supply chains across the world. To deal with the slowdown in trade and keep freight rates from falling, Maersk said it had cancelled more than 90 sailings, or 3.5% of total shipping capacity, in the first quarter. It expects to cancel some 140 sailings in the April to June period.
Ferguson
In its Q3 trading update released today, the multinational plumbing and heating products distributor shared that trading volumes were lower in April as a result of the coronavirus pandemic, with revenue down 60.2% in the UK for the month. In the US, revenue decline was 9.3%. It was included that while showroom networks remained closed through April, with customers served using virtual consultations, in select markets they are starting to book face-to-face consultations with the necessary social distancing measures in place.
Spirax-Sarco Engineering
The thermal energy management specialist has released a trading update today for the first four months of the year, reporting that “despite the unprecedented economic environment trading has held up well” with all production facilities now open at varying levels of capacity. It included that over 50% of its sales are destined to critical sectors on the front line of the global pandemic, including the healthcare and pharmaceuticals. To date it has not furloughed any of its UK personnel, although the Board and over one hundred senior managers across the Group agreed in March to pay reductions ranging from 20% to 7%.
Marshalls
The UK-based manufacturer of hard landscaping products had released a trading update today on its response to the Covid-19 outbreak, sharing that “In line with our sector, we have seen a sharp drop in demand”. Sales in the first four months through to 30 April were down 27 per cent at £131 million. The Board and Executive management have agreed to a 20 per cent reduction in remuneration, while senior managers in the business have agreed to a 15 per cent reduction. As the group looks to take further steps to restructure its operations, it is noted that there are potentially up to 400 positions (representing 15 per cent of Marshalls total workforce) that may be impacted.
Vesuvius
The London-based engineered ceramics company has released a trading update today, in which it shared that its first quarter performance was marginally ahead of the previous quarter. It went on to explain however that the measures imposed by governments globally to slow the spread of the coronavirus has resulted in significant disruption to the business in recent weeks. This is reflected in its April 2020 sales, which declined by 28% compared to April 2019.
Financial Services & Real Estate
Taylor Wimpey
The British-based housebuilding company has announced today that its show homes and sales centres will reopen for pre-booked appointments from Friday 22 May 2020. It also shared that construction is now underway on the majority of sites across England and Wales. Pete Redfern, Chief Executive, commented: “This relaxation of the rules by Government and the clear desire to reopen the housing market is very welcome…Our people are looking forward to being able to welcome customers to their sales offices and show homes, energised by new skills developed in serving customers digitally over the last 7 weeks.”
Crest Nicholson
The British housebuilder has provided an update on Covid-19 today, sharing that from 18 May it will start to remobilise activity on its sites in a “phased and controlled” manner. It was included that despite all sites and operations being shut since early April, the company has continued to take moderate numbers of new sales, alongside continuing to process legal completions during this time.
TP ICAP
The interdealer broker reported in its Q1 trading update that revenue in the period was 17% higher than the equivalent period last year, which reflected higher client volumes as a result of the volatile market conditions caused by the coronavirus pandemic. Chief Executive Nicolas Breteau said: “Our group has performed strongly in the first quarter but it is too early to fully assess the impact of the Covid-19 pandemic to our full-year outlook.”
Brewin Dolphin
The British investment management firm has posted a fall in profits for the half year ended 31 March 2020, with assets under management falling by £3.6 billion, as a result of market sell-off towards the end of the period due to coronavirus.
TMT
Sage
The British multinational software company has reported in its half year results that organic total revenue has increased by 5.7%. It included that the early impacts of Covid-19 were seen towards the end of March, but the group is now starting to see the broader effects of sharp economic downturn caused by the pandemic, with some customers deferring purchase decisions. This has led to a slowdown in new customer acquisition. In April trading, reflecting the above, new customer acquisition was roughly half the level previously expected.
IN THE NEWS
UK manufacturers push back against 14-day quarantine plan – The Financial Times
1 in 3 small firms may shut for ever, warns FSB – The Times
Furlough scheme extended to October at cost of up to £100bn – The Daily Telegraph
