Powerscourt

By Powerscourt on 22/05/2020

Powerscourt Coronavirus Briefing – 22 May 2020

ANALYSIS

For the first time in more than two months, several of the world’s major business newspapers led with a non-coronavirus story on Friday morning, focusing on the planned move by the Chinese government to impose “national security legislation” in Hong Kong.

This appears designed to allow the Communist Party to target pro-democracy activists in the region, cementing Chinese ascendancy over Hong Kong. Separately, UK Prime Minister Boris Johnson is reported to have ordered officials to draw up plans to reduce the country’s reliance on China for medical supplies. 

China on Friday suspended its annual GDP target for the first time since 1990, when targets first began. This, along with further concerns about the impact of a prolonged trade war with the US, hit Asian shares overnight.

Although there are early signs that short-term commercial devastation of the crisis is bottoming out, a picture is emerging to suggest that jobs lost to the crisis may be lost forever, reshaping the way economies work. Economists at Stanford University forecast this week that 42% of recent US job layoffs may be permanent.

In a sign of what could be another crisis legacy, Facebook announced that it will “aggressively ramp up remote hiring” and expects almost half of its 48,000 strong workforce to work remotely within 10 years. Alongside the normalisation of working from home, this will likely trigger a dispersal of jobs away from Silicon Valley, the tech industry’s historic centre of gravity.

UK drugmaker AstraZeneca said Thursday it had received $1.2 billion in funding from the US government Biomedical Advanced Research and Development Authority (Barda) to support the development of the coronavirus vaccine it is developing in association with the University of Oxford and secure 300 million doses for the US.

Experts have warned of the dangers of so-called “vaccine nationalism”, with governments using the funding of home-grown vaccine candidates for a medical arms race.  The Oxford vaccine is competing against a rival from US-based Moderna Inc, which published promising early stage data in recent weeks

 

WHAT ARE COMPANIES SAYING?

 

Consumer and Retail

Burberry

Burberry delivered its preliminary results this morning and said the Company had strong momentum in brand, product and sales delivered before the COVID-19 outbreak, ahead of previous expectations. Nevertheless, sales were down 27% in Q4 with around 60% retail stores closed at end of March. The group reported a 57% fall in operating profit to £189m for the year to the end of March. Its CEO Marco Gobbetti said it was “encouraged by our strong rebound in some parts of Asia and are well-prepared to navigate through this period.”  

Fraser Group

Fraser Group issued a statement that Mike Ashley has sent a letter to all individuals within the Frasers Group in order to thank them for their support during the lockdown period. The Company announced it has decided payments to virtually all directly engaged employees, including those on casual contracts, will remain at 100% of normal salary levels for May. This applies to both furloughed and non-furloughed employees. The letter notes the Government’s proposals for the phased reopening of retail stores, which whilst not guaranteed may potentially see the Company’s stores begin to open from June 1st 2020. Meanwhile, Senior management including Chris Wootton (CFO), Sean Nevitt (Head of Commercial) and the non-executive directors, will remain on a reduced annual salary capped at £40,000 at this time. Mike Ashley will not be drawing a salary.

Greencore

Yesterday, Greencore Group, a leading manufacturer of convenience foods in the UK, announced that it has received confirmation of its eligibility to access funding under the Covid Corporate Financing Facility (“CCFF”) with an issuer limit under the CCFF of £300m.

Lululemon

Lululemon Athletica Inc. notched an all-time high Thursday after shares climbed 92% from a low in March according to Bloomberg as Wall Street bet that those working from home would purchase more athleisure wear. Before the pandemic, Lululemon’s online sales rose 35% in its last full year, growth is expected to have accelerated further this quarter. Meanwhile, many of the company’s physical stores remain closed in North America, with some markets beginning to reopen in accordance with local government mandates.

Clarks

The Times reported that loss of sales because of the global shutdown of its shops has prompted Clarks to axe 900 jobs and plan more store closures. The shoe retailer is making 160 immediate redundancies, including 108 jobs at its head office in Somerset. Clarks said about 700 more jobs would be lost over the next 18 months but the losses would be partially offset by 200 new roles it is planning. The cuts are being made as part of the company’s new “made to last” strategy launched by chief executive, Giorgio Presca.

Manchester United

Manchester United announced that the coronavirus pandemic has cost it an initial £28m and expect the final figure to be far higher. United revealed its third-quarter results to 31 March on Thursday. Chief financial officer Cliff Baty said it is set to hand back £20m in TV revenue to broadcasters even if the Premier League season is completed. United lost an additional £8m over the final three weeks of March, when t had three matches postponed. A total of 11 United matches have been postponed because of the pandemic.

 

Industrials & Transport 

United Utilities

The water company announced its full year results and said during Covid-19 it has offered the sector’s widest range of assistance schemes to help those struggling to pay their bills and has increased the number of customers eligible for reduced tariffs. The Company has also made £3.5 million available immediately to those most in need, with £71 million committed to help customers over the next five years. Sixty per cent of its staff are working from home, 80% designated as key workers and no employees furloughed.

Go-Ahead Group

The provider of passenger transport released a trading update this morning. During lockdown, the Group has been providing vital regional bus services in England supported by an essential Government funding package, which the Department for Transport has indicated will continue beyond June 2020. With the impact of COVID-19 and support measures, overall Group operating profit for the year ending 27 June 2020 is now expected to be in the range of £63m to £75m, down £121 million from last year.

National Grid

National Grid estimates new measures to keep the lights on as the pandemic takes its toll on electricity demand will cost about £500 million this summer according to The Times. The costs, including paying surplus power plants to switch off, will be passed on to suppliers and generators and ultimately charged to homes and businesses through their energy bills. This weekend National Grid is preparing to use the measures when demand is forecast to fall to record lows, threatening to leave the system overwhelmed with too much electricity.

 

Financial Services & Real Estate 

RBS

Royal Bank of Scotland Group has told more than 50,000 of its staff to work from home until at least the end of September in a sign of the long-lasting disruption that businesses face from the Covid-19 crisis.  The lender told staff in a memo yesterday that just 400 employees would be asked to return to the office in June.

Premier Miton

The AIM quoted fund management group, today announces its half year results. On COVID-19, the Group said though the “situation is changing rapidly but we have a clear response focused on several key areas: the health and wellbeing of our staff; playing an active role in trying to reduce the transmission of the virus in our wider community; and continuing to provide a full investment management service to our clients.” The Group said the merger had created a financially stronger and broader business which makes them better positioned to serve clients.

Close Brothers Group

During a trading update, the bank said that it has entered this period of economic uncertainty with a strong capital and liquidity position and is prudently funded. Their Commercial and Property businesses account for the vast majority of the value of loans, and the teams “remain in close contact with customers who have been granted forbearance to discuss their position and tailor the most appropriate financing solution for them.” The Group added to maximise its assistance for small businesses it is participating in the support schemes introduced by the UK government and is accredited to lend under the Coronavirus Business Interruption Loan Scheme.


TMT

Facebook

Facebook told staff it plans to shift towards a more remote workforce, becoming the latest tech group to permanently overhaul its working practices as a result of the pandemic. On a livestream to staff, Chief executive Mark Zuckerberg said that the 45,000-strong social media network company was “aggressively opening up remote hiring”, and estimated that half of its staff could work remotely in the next five to 10 years. Additionally, the BBC reported yesterday that Zuckerberg had to defends actions on virus misinformation and said it had and would remove any content likely to result in “immediate and imminent harm” to users. “Even if something isn’t going to lead to imminent physical harm, we don’t want misinformation to be the content that is going viral,” he said.

Future plc

The global platform for specialist media, today published results for the six months ended 31 March 2020. Covid-19 impacted the end of the period, driving an acceleration of audience growth which with their diversified revenue strategy helped to offset the impact of a significant slowdown in newstrade as travel stores shut and the cancellation of three large events in March. Online users have grown to 253m in H1, up 26% year-on-year. The global lockdowns have resulted in audiences around the world searching for advice and recommendations resulting in the Group achieving a record-breaking 329m online users in March 2020, up 66% year-on-year. Overall organic revenue growth totalled 11% due to continued momentum in Media revenues with organic growth of 21%.

Time Out Group

The Company today announces it is proposing to raise up to £49 million by way of a Placing and an Open Offer to raise gross proceeds of up to approximately £4 million. Among the reasons for the reasons for the placing and open offer include the temporary closure of its Time Out outlets in support of efforts to contain the spread of Covid-19. The pandemic had also led to a slowing of advertising revenues and that, given the material uncertainty of the situation, it was not possible to quantify the full trading impact of the outbreak. The Company said it had responded quickly to these unprecedented times with a temporary “Time In” rebrand and a launch of an e-version of the magazine, complementing its online digital content. In total, 47 per cent of employees or hourly paid workers have been furloughed or their contracts terminated.

 

IN THE NEWS

Coronavirus: Schools pushing parents to say if pupils will return – The Times

Immunity forms planned for coronavirus survivors– The Times

UK plans to track spread of coronavirus in sewageFinancial Times




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