By Powerscourt on 14/05/2020
Powerscourt Coronavirus Briefing – 14 May 2020
Markets fell sharply in the US and overnight in Asia as bearish comments both from the Chairman of the Federal Reserve and a scientist at the World Health Organisation poured cold water on any prospect of a swift economic bounceback.
Fed Chairman Jerome Powell talked on Wednesday of an economic downturn “without modern precedent” as he argued for further stimulus. He said he expected company revenues to be depressed for some time, triggering a wave of bankruptcies and lower investment in the job market.
His comments come as Soumya Swaminathan, Chief Scientist at the World Health Organisation, told the FT on Wednesday it could be four or five years before the virus is fully brought under control.
Researchers at the Pasteur Institute say that about 4.4% of the French population (i.e. 2.8m people) have been infected by the coronavirus compared to the official tested count of 177,000. In a paper published in the journal Science, Pasteur concludes that France is a long way short of herd immunity.
A tug of war continues between US economic reopening hawks, led by President Trump, and those urging restraint, led by senior US disease expert, Dr Anthony Fauci, who has argued reopening too fast will cause needless deaths. The debate is typically falling along ideological red state/blue state fault lines. On Wednesday the Wisconsin Supreme Court raised the stakes when it struck down a stay-at-home order imposed by the state’s Democrat governor.
European markets were hammered Wednesday with the pan-European STOXX index down nearly 2% amid negative news across a number of sectors. TUI, the world’s largest tour operator, announced plans to lay off 8,000 workers. Luxury carmaker Aston Martin said it had swung to a £120 million loss and several European banks took coronavirus-related provisions.
In the UK, passenger numbers on the London Underground were up nearly 7% Wednesday as some commuters started to return to work after nearly two months under the next stage of the UK government’s plan to restart economic activity. Lloyds of London said that the pandemic would lead to underwriting claims of $107 billion, on a par with the most extreme weather events.
An antibody test hailed by UK Prime Minister Boris Johnson as a “game changer” was passed for use by Public Health England, paving the way for mass antibody testing and making the lifting of restrictions earlier than indicated a possibility.
WHAT ARE COMPANIES SAYING?
Consumer and Retail
The stationer released its interim results today, announcing that it does not expect a recovery in trading until the Autumn, despite planning for a phased re-opening of its stores. It reported an 85 per cent drop in revenue for the last month, after travel revenue fell by 91 per cent, and high street revenue fell by 74 per cent. Currently only 300 of its 1,775 stores are open, with the majority of its travel division (accounting for over three-fifths of the group’s profit) shut as a result of the pandemic. Chief executive Carl Cowling said: “The emergence of Covid-19 and the associated global pandemic has affected all of us in ways that were unimaginable only a short while ago”.
The online British retailer faced calls to close its Barnsley warehouse yesterday after complaints of an outbreak of coronavirus at the site. The GMB union wrote to Chief Executive Nick Beighton, asking him to close the South Yorkshire warehouse for cleaning after a number of cases of the virus amongst staff. A spokesperson for ASOS said that the site “remains a safe place to work” due to the size of the warehouse, the levels of automation and the social distancing and safety measures in place.
The British pub chain has announced that it could survive for up to a year without reopening. The company has lifted its liquidity to almost £300 million after issuing £30 million of paper under the Bank of England’s Covid corporate financing facility, and has agreed a new £50 million loan facility with Natwest and HSBC. Since closing its pubs almost two months ago, it has furloughed almost 5,000 staff.
The British brewery, pub and hotel operator announced today in a Covid-19 update that all board members have volunteered significant cuts in pay and fees in acknowledgement of the challenges being faced by Marston’s employees, tenants and lessees, retailers, customers and communities. It also shared that it is planning for no dividends in the 2020 financial year, with future dividends to be reviewed in due course.
Watches of Switzerland
The UK’s largest luxury watch retailer has released its Q1 trading update today, in which it announced that FY20 Group revenue has increased by 5.9%, but the Covid-19 related closures of all stores in the UK and the US has impacted momentum in the last six weeks of the year. The Group’s e-commerce sales rose 45.8% during this period, however. Chief Executive Officer Brian Duffy said: “We remain confident the strong fundamentals that underpin the luxury watch category remain intact and will do so as we emerge from the current situation”.
Industrials & Transport
Germany’s largest car manufacturer is preparing to cut bonus payments for up to 18,000 managerial staff and pause the production of four key models, scarcely a fortnight after restarting operations at its manufacturing headquarters. Personnel manager Arne Meiswinkel said that the company needed to “align production with the expected market fluctuations”.
The Japanese carmaker has reported losses for the 4th quarter, as coronavirus impacts heavily upon car sales in China and Europe. In April, the group saw a 54 per cent fall in global vehicle sales compared to the same month last year, with a particularly big decline across Europe and the US. Revenue for the 4th quarter are down by 7 per cent, year-on-year.
Financial Services & Real Estate
Lloyd’s of London
London’s insurance and reinsurance market Lloyd’s announced today that it expects to pay out up to $4.3bn to customers as a result of the coronavirus pandemic. It said that the impact on the insurance market was on a par with that of the 9/11 attacks, but that the overall cost could be “far in excess” of past global catastrophes. They estimated the global insurance industry stands to lose approximately $203bn this year. Lloyd’s has also faced calls from some to consider whether the face to face style in which it currently operates is viable in the long term.
In a trading update, the UK retirement specialist said that its solvency ratio has fallen as a result of interest rates falling across its key markets. The company said that its solvency coverage ratio was at 138% to the end of April – the significance of this being that European Solvency II rules dictate that the ratio must remain above 100%, although higher levels are preferred. The firm said that its “total Retirement Income sales in the first quarter were in line with expectations” and that it continued to “maintain pricing discipline”.
The Swiss insurer has announced that it expects to pay out $750m in claims as a result of the coronavirus outbreak. It has also shared that its US business, Farmers, would be refunding about $300m of premiums to policyholders in areas such as motor insurance, with a drop of traffic during the lockdown reducing the number of accidents and subsequently the number of claims.
In a trading statement released today for the first four months of the year, the financial services company has announced that it has added £4.0 billion of new business, and seen year-to-date total revenue increase by 13% as a result of record dealing volumes. Assets under administration have decreased by 8.1%, but the company intends to continue with its stated dividend policy for the year.
The housebuilder has announced today that is has restored 65% of construction work on its sites across the UK, and will be reopening sales offices from Friday 15 May with social distancing restrictions in place. Its business in Scotland will remain closed however, under guidelines from the devolved administration.
The private equity company released its results for the year to 31 March 2020 today, reporting that “the pandemic has impacted our travel, retail and automotive portfolio companies, while companies in medical technology, personal care products, e-commerce and other specialty manufacturers are experiencing strong demand”. It reported total return of £253 million, down from £1,252 million for the same period last year, but will continue to pay its 2020 dividend.
The UK housebuilder announced today that its reported revenue has fallen 5% year on year, while reported operating profit has decreased by 32%. The business began a phased return to construction activity on 11 May 2020, following the closure of its sites on 25 March 2020, and included that it has been encouraged by virtual interest from potential customers despite private reservations being significantly lower in March and April. Chief Executive Iain McPherson said: “Whilst the market outlook remains highly uncertain, our resilient mixed-tenure business model and strong forward order book benefit us both operationally and financially as we work alongside our partners to restart our operations as efficiently as possible”.
In its half year results released today, the professional landlord announced that pre-tax profit has fallen to £49.6 million from £54.3 million year-on-year, while net rental income has risen 27% to £37.0 million. It has increased its interim dividend by 6% to 1.83p a share. Chief Executive Helen Gordon said “Grainger is in a strong position financially and our portfolio is performing as expected, showing a high degree of resilience during these uncertain times”.
Sirius Real Estate
The property company released an update today on the impact of Covid-19, sharing that it has seen no significant reduction in rent payments to date, with collection in April at 98.8% of normal levels. It intends to pay a dividend in August. Chief Executive Officer Andrew Coombs said: “We faced this crisis with the benefit of a strong balance sheet, significant covenant headroom and a capital structure well placed to absorb a prolonged period of uncertainty”.
The American internet media, news and entertainment company is to close its UK and Australian news operations, furloughing fourteen staff and putting them on notice of losing their jobs. This follows Chief Executive Jonah Peretti’s decision in late March to cut salaries from 5 – 25 per cent while forgoing his own as the company faced losses amid a drop in advertising revenues bought on by the coronavirus crisis. A spokesperson said that the decision to stop covering local news in the two countries has been made “both for economic and strategic reasons”.
The telecommunications infrastructure company released its Q1 results today, sharing that revenue increased by 9% year-on-year during the period, while operating profit increasing by 73%. It announced that while it continues to monitor the situation, Covid-19 has no significant operational impact to date, with mobile infrastructure operators classified as an ‘essential service’ in its markets across Africa, allowing the company to continue operating at normal levels of service.
IN THE NEWS
Bank of England can help UK avoid return to austerity, says Bailey – The Daily Telegraph
Boris Johnson told: Don’t raise taxes to pay for coronavirus – The Times
The big restart: how businesses are coming out of lockdown – The Financial Times