Powerscourt

By Powerscourt on 01/07/2020

Powerscourt Coronavirus Briefing – 01 July 2020

ANALYSIS

Officials in the US on Tuesday announced that 48,000 new coronavirus cases had been identified in states across the country; the largest one-day rise so far. Officials in Alaska, Arizona, California, Georgia, Idaho, Oklahoma, South Carolina and Texas all announced single-day highs.

Also on Tuesday Dr Anthony Fauci, the most senior infectious disease expert in the US, testified before Congress to say he believed the number of daily cases in the US could double to nearly 100,000 if the current outbreaks were not contained more aggressively. Local leaders in Texas have asked the state Governor Gregg Abbott for permission to bring local lockdowns into place to combat the virus.

In a symbol of the recent bifurcation between the US and Europe in the containment of the virus, today countries in the European Union and some other European nations are open to non-essential travellers, but not those from the US. US citizens may still travel to the UK and Ireland, but must quarantine for two weeks.

Authorities around the world are considering how to manage the delicate balance between containing regional outbreaks without cratering nascent economic recoveries at a national level. The UK is itself a few days into a local lockdown of Leicester, following a recent spike, amid concerns about how local businesses will cope with the stop and start nature of the lockdown.

In the UK Andy Haldane, Chief Economist for the Bank of England, yesterday issued a relatively upbeat prediction on the economic recovery for the UK, saying the UK was already two months into its recovery. He said recent data showed the cumulative damage to UK GDP from the pandemic would be 8%, much lower than the 17% modelled earlier by the Bank of England. Despite this, job losses announced at Airbus, easyjet, TM Lewin amongst others were a start reminder of the consequences of continued lockdown.

Global M&A has been one of the casualties of the coronavirus crisis, according to data from Refinitiv Wednesday, which showed that the value of global deals since the end of April has fallen by over 50%.

 

WHAT ARE COMPANIES SAYING?

Consumer & Retail 

FedEx
Parcel delivery company FedEx reported better than expected results in a quarter that was “severely affected” by the pandemic helped by a surge in ecommerce deliveries as people worked from home during lockdowns. FedEx, which is typically regarded as a bellwether for global economic activity, said revenues slid 2 per cent from a year ago to $17.4bn in the fourth quarter. However, that exceeded analysts’ expectations for $16.4bn. Fedex shares rose 9% in after-hours trade to $153.37. Chief Executive Frederick Smith said: “Virtually all revenue and expense line items were affected by the Covid-19 pandemic during the quarter”. 

Sainsbury’s
Sainsbury’s said online grocery sales almost doubled in the first quarter of the year, driving overall growth to 8.5%, but said it expected group profit to remain flat year-on-year. Total grocery sales were up 10.5% in the 16 weeks to June 27, with general merchandise up 7.2%. But there was no change to the guidance offered at the time of the company’s full-year results, with £500m of additional costs related to Covid-19 broadly offset by the benefit of increased sales. The sales figures do not include fuel, sales of which more than halved as lockdown curtailed car travel. Including fuel, which is low margin but has a significant working capital benefit, sales were down 2.1% in total in the period.

B&M
Value retailer B&M said like-for-like sales rose by 27% in the quarter to June 27, compared with the same time last year, thanks to cost-conscious shoppers flocking to its stores during lockdown. Chief executive Simon Arora warned that this stunning performance may not be repeated because “there are a great deal of uncertainties ahead”.

SSP
The operator of sandwich shops and restaurants at airports and railway stations including Upper Crust and Ritazza, has announced plans to cut 5,000 jobs. With passenger numbers across railways – the majority of its UK business – down 85%, the group has warned that it expects that only 20% of units in the UK will have reopened by autumn.

 

Industrials & Transport 

Byton
Chinese electric car start-up Byton is suspending operations and furloughing staff, making it the first high-profile victim of a shakeout in the country’s electric vehicle sector exacerbated by the coronavirus outbreak. From today Byton will furlough all staff involved in production and halt the majority of its operations in China for six months, it said in a statement, and will begin a process of cost-cutting and reorganisation: “Covid-19 has posed great challenge to Byton’s funding and business operation,” adding that management and shareholders are “working closely” on a road map for the future. Founded in 2017 by former Nissan and BMW executives, Byton had become a leading name among hundreds of electric vehicle start-ups seeking to capitalise on a shift away from traditional fuel-burning cars in the world’s largest automotive market.

Airbus
Airbus is cutting 15,000 jobs, marking the biggest single reduction in its passenger jet business since the creation of Europe’s flagship aircraft maker 20 years ago. The cuts, forced by the collapse in air travel as a result of the pandemic, come as Guillaume Faury, chief executive, warned that he did not expect air traffic to recover to 2019 levels before 2023 and potentially as late as 2025. The job cuts account for roughly 17% of the group’s 90,000-strong commercial aerospace workforce and have been carefully calibrated to avoid rivalry between unions in France and Germany. Roughly 5,000 jobs will go in each country, with a further 1,700 in the UK, 900 in Spain and the rest worldwide. The reduction was expected to be complete by next summer, the group said. Guillaume Faury, Airbus chief executive, said that “Airbus is facing the gravest crisis this industry has ever experienced”.

Aeroméxico
The Mexican flag carrier, filed for Chapter 11 bankruptcy in the US on Tuesday, becoming the country’s biggest corporate casualty of the pandemic. The airline, in which US airline Delta has a 49% stake, said in a statement to Mexico’s BMV stock exchange that the company and some of its subsidiaries had “begun a process of voluntary financial restructuring under Chapter 11 legislation, which will continue while it continues operating as an ongoing concern”. The company said it was “in conversations to obtain new preferential financing…as part of the restructuring” and was confident that, together with existing cash flow, it would have enough liquidity to continue meeting its obligations. Aeroméxico this week announced it was reopening routes and nearly doubling the number of domestic flights and quadrupling the number of international routes from June levels as of July.

Ryanair 
Ryanair is planning around 3,500 job losses if it cannot agree pay cuts with its staff, the airline’s boss Michael O’Leary said today. Europe’s biggest budget airline had previously said that it had cut more than 250 staff from its office around Europe and was looking at up 3,000 cuts among pilot and cabin crew. O’Leary told the BBC: “We’ve already announced about 3,500 job losses but we’re engaged in extensive negotiations with our pilots, our cabin crew and we’re asking them to all take pay cuts as an alternative to job losses”.

 

Financials & Real Estate 

British Land  
The property group whose office and retail portfolio includes Broadgate in the City of London and the Meadowhall mall in Sheffield, revealed it had collected just 36% of the rent due from shopping centre tenants in the June quarter. “We are holding productive discussions with larger retail and leisure operators who have been disproportionately affected by lockdown,” the group said. Its discussions with tenants involve “moves to monthly rents, deferrals and partial settlement of March and June rents, typically in return for the removal of lease breaks, lease extensions, reduced incentives or commitments for additional space,” British Land explained. Office rent collection was much better, with 88 per cent of rents collected.

Redrow
One of Britain’s biggest housebuilders has announced plans to quit London because the coronavirus outbreak has led to buyers seeking larger homes and access to parks or the countryside. Redrow, which built 6,443 homes last year, said that it would focus on the regions and its heritage product, traditional houses outside the capital. John Tutte, executive chairman of Redrow, said: “This change in priorities as a result of people’s lockdown experience has certainly put more emphasis on our heritage product. It tends to be on average bigger than our competitors, with quite a lot of internal space and access to green space”. The London market accounts for about 15 per cent of turnover. Redrow will complete the development of around six sites where it is already active. It has warned of impairment costs from its decision to scale back further investment. Tutte said: “Our ambition is to reduce our capital investment in London and divert it into achieving higher growth in the regions”.

 

TMT

Google 
Google said late on Tuesday it was delaying the reopening of its U.S. offices by around two months because of a surge in the number of coronavirus cases in some states. All of Google’s U.S. offices will now remain closed at least until September 7, Google spokeswoman Katherine Williams told Reuters. Google said in late May it would reopen buildings in more cities at roughly 10% of their capacity beginning July 6 and scale it up to 30% in September, if conditions permitted. Williams confirmed a Bloomberg report that cited an internal memo to employees sent by a Google executive. Chris Rackow, Google’s vice president of global security, said: “For all of you that are working from home, please continue to do so unless you are told otherwise by your manager…We don’t expect this guidance to change until Monday, September 7 (Labor Day) at the earliest…COVID-19 is still very much alive”.

Indivior
The UK-listed drugs company, has said that the former chief executive Shaun Thaxter has pleaded guilty to a US criminal charge of sharing false and misleading information about the safety of Suboxone. Thaxter, who stepped down suddenly on Monday after six years as chief executive, has pleaded guilty despite insisting that he was unaware of the alleged misstatement. He has agreed to pay $600,000 in fines and forfeiture and could serve up to a year in prison when sentenced in September. In a brief statement Indivior said: “The plea agreement between Mr Thaxter and the Department of Justice is in his personal capacity and not on behalf of the group. As the group has previously noted, it continues to pursue its strategy to resolve outstanding investigations and litigation’s as expeditiously as possible”.

 

IN THE NEWS

Bank predicts V-shaped recovery from coronavirus pandemic – The Times 

Global dealmaking drops to lowest level in over a decade – Financial Times

UK employers demand action now to survive COVID crisis – Reuters




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