By Powerscourt on 04/08/2020
Powerscourt Coronavirus Briefing – 04 August 2020
ANALYSIS
Yesterday the UK government’s ‘Eat out to help out’ scheme began. Diners flocked to restaurants to eat with the government sharing the tab (up to £10 a head per meal, no
booze). While some Londoners claimed to have eaten four or five meals over the day, restaurateurs are worried about the hangover. Some expressed concern about the impact the Monday-Wednesday scheme would have on the weekend, and others feel as yet unable to rehire or make firm plans beyond the duration of the scheme. The relaxation of guidelines promoting working from home saw less of a return to the office. Central London footfall was up only 2% compared to the Monday before.
Two UK companies became the latest to announce difficulties. Sports clothing retailer DW Sports, which employs 1,700 people, fell into administration, and Hays Travel announced almost 900 job cuts, attributing the need to Government restrictions imposed last week on travel to Spain. These have been added to the UK COVID Job Losses table provided by Sky News.
Looking ahead, a study published in The Lancet Child and Adolescent Health uses computer models to show that the combined effect of children returning to school and some parents then returning to places of work would be enough to cause a second wave if there were no effective test and trace programme. The wave would peak around December at twice the size of the last. The researchers determined that NHS Test and Trace England is currently falling significantly short of levels of detection required to be effective.
The US economy continues its slow return to better health as figures from the Institute for Supply Management show that the manufacturing recovery continues. Its manufacturing index has expanded for two months in succession and figures for the overall economy grew for the third month in a row. The US Treasury Department announced plans to borrow almost $1tn more to support this recovery.
In the US, too, teachers and support staff across more than 35 school districts spread across the nation protested plans for the return to school without scientific data to support it.
If you would also like to subscribe to our daily political briefing, which includes a weekly analysis of Prime Minister’s Questions, please click here.
WHAT ARE COMPANIES SAYING?
Retail & Consumer
Diageo
The drinks giant reported a sharp drop in operating profits for the year. The company described its first half performance as consistent and noted the significant impact of COVID-19 on its second half. The company took a £1.3bn writedown which it said reflected COVID-19 and the challenging conditions. CEO Ivan Menezes said: “While the trajectory of the recovery is uncertain, with volatility expected to continue into fiscal 21, I am confident in our strategy, the resilience of our business and am very proud of the way our people have responded. We are well-positioned to emerge stronger.”
Hays Travel
The independent travel agent, which bought Thomas Cook’s stores last year, announced that it will cut up to 878 jobs, representing nearly 20% of its workforce. John and Irene Hays said in an announcement: “Following the decision to ban [non-essential] travel to Spain and the changes in furlough conditions coming at the same time, we have had no choice. We are devastated that after all of our efforts and the huge investment we’ve made we now face losing some of our valued employees, through no fault of their own.”
DW Sports
The sports retailer and fitness club owners said it will go into administration. All stores will close but the company said it will work with administrators to save gyms. The company employs 1,700 people. CEO Martin Long said: “The decision to appoint administrators has not been taken lightly but will give us the best chance to protect viable parts of the business, return them to profitability, and secure as many jobs as possible.”
Industrials & Transport
BP
BP reported its second quarter results, highlighting that the severe impacts of COVID-19 continue to create a volatile and challenging trading environment. CEO Bernard Looney said: “These headline results have been driven by another very challenging quarter, but also by the deliberate steps we have taken as we continue to reimagine energy and reinvent bp. In particular, our reset of long-term price assumptions and the related impairment and exploration write-off charges had a major impact. Beneath these, however, our performance remained resilient, with good cash flow and – most importantly – safe and reliable operations.” The company also introduced a new strategy “as it pivots from an international oil company focused on producing resources to an integrated energy company focused on delivering solutions”.
AA
The motoring association responded to press speculation in an RNS this morning, confirming it is in discussions “with a number of parties in relation to a wide range of refinancing options”. The company said it has been approached by three interested parties about cash offers. It said it continued to consider other options, including an equity raise. Its announcement said the group had “demonstrated resilient trading performance” through COVID-19 and full year performance is expected to be only slightly worse than in the previous year. The group believes its remaining debt burden could prove an impediment to future progress.
Babcock
The aerospace and defence company said in a trading update that COVID-19 had a “significant impact” on its financial results but that demand for work “in critical areas” remains resilient. Social distancing measures have affected costs and efficiency, in turn affecting margins and profitability. The company did not give guidance due to the ongoing uncertainty caused by the pandemic. Chair Ruth Cairne said: “Our experience of the pandemic so far has demonstrated that the foundations of our business – long term programmes in critical and non-discretionary areas – provide a solid platform for delivery in the medium term.”
Easyjet
The airline said that after restarting flights it is seeing encouraging performance and is focused on only “profitable flying”. Total cash burn during the quarter was lower than its guided £1bn at £774m.The airline expects to fly approximately 40% capacity in Q4. CEO Johan Lundgren said: “Returning to the skies again allows us to do what we do best and take our customers on much-needed holidays. I am confident that easyJet will continue to serve our customers well, delivering our renowned friendly service and value across our unrivalled network.”
Ryanair
The airline released a short statement this morning highlighting the continued impact of COVID-19 airspace closures on traffic. Its July traffic fell 70% from last year, at 4.4m passengers. The airline operated 40% of its normal July schedule with a 72% load factor.
Wizz Air
The airline also announced passenger statistics, reporting a 53% drop in July customers compared to the previous year.
Financials & Real Estate
IWG
The workspace operator announced its half year results, describing a good performance overall given the impact of COVID-19 with increased revenue. The company has seen strong demand for home working and virtual office products. Looking ahead, it said it is “uniquely positioned to help companies adapt to the new world of working post COVID-19”. On this point CEO Mark Dixon said: “With our decentralised portfolio of workplace locations in over 1,100 towns and cities, both urban and suburban, we are uniquely positioned to help companies adapt to a new world of working.”
Direct Line
The insurance group announced its first half results, reporting a 9.5% fall in profit before tax which it said was mainly due to weather costs. It also announced it was increasing its dividend. CEO Penny James highlighted the company’s response to the crisis: “When the Covid-19 pandemic hit, we prioritised phone lines for existing customers, created new online journeys and offered additional value through various initiatives including mileage refunds and payment deferrals. We did not access Government support and chose to protect all roles and salaries at the Group through to the autumn and our Community Fund is providing £3.5million to help people in communities across the UK.”
Permanent TSB
In its half year results, the Irish bank reported a loss before tax of €57m. CEO Eamonn Crowley said: “The severity and duration of the Covid-19 pandemic and its impact on the economy remains unpredictable. However, I am confident of the Bank’s ability to remain resilient, to continue to support our customers, colleagues and communities building on our well established franchise in the Irish market.”
IN THE NEWS
Workers slow to return to offices after England relaxes rules – The Financial Times
Thousands of jobs face axe in leisure sector – The Times
Testing ‘may not prevent new coronavirus wave’ when schools reopen – BBC
