Powerscourt

By Powerscourt on 06/08/2020

Powerscourt Coronavirus Briefing – 06 August 2020

ANALYSIS

The future of coronavirus management may be local.

Increasingly, it appears that officials around the world are taking a local or regional approach to the management of the virus. Earlier this week it was reported that Greater Manchester, frustrated with the UK government’s ability to implement its track and trace programme, was taking matters into its own hands.

In France, several regions are reported to be taking localised approaches as infection rates rise. Biarritz, Lille and Nice have all mandated the wearing of masks everywhere, including outdoors.

New York has now sent officials to stand at the entrance to tunnels across the city warning visitors of the virus risk.

Governments in major European economies are watching apprehensively as reported infections creep up, fearing a resurgence to equal that which has devastated parts of the US, but the balance between “squeezing the brake” and allowing economic activity to normalise is a painfully difficult one.

France on Wednesday recorded its highest number of coronavirus infections in two months, with 1,695 cases in 24 hours. Spain recorded 1,772 cases over the same period. At the beginning of the week, the UK halted some planned economic reopening as virus cases started to creep up.

Three US Federal Reserve policymakers said the pandemic was hitting US economic output and would continue to do so for some time. The US economy began to grow in May and June after a sharp hit in June, but growth stalled in July amid a resurgence in different parts of the country, Robert Kaplan, Dallas Federal Reserve Bank President told CNN.

Cleveland Fed President Loretta Mester said in a speech to the Liberal Arts Macroeconomic Conference that the recovery may be more protracted than expected. Federal Reserve Chairman Richard Clarida told CNBC he didn’t expect the US economy to reach pre-pandemic levels until the end of 2021.

President Trump has clashed yet again with the titans of Silicon Valley over his public views on coronavirus. This time it was Facebook. The social media giant removed a video posted on the Trump election campaign which argued that children are “virtually immune” from coronavirus. Facebook argued that the post violated its policies around health misinformation.

A few hours later Twitter followed suit and removed the claim from its network.

 

WHAT ARE COMPANIES SAYING?

 

Retail & Consumer

Etsy
Etsy, the marketplace for handmade products, reported a surge in sales for the second quarter — helped by visitors buying almost 30 million face masks. Total revenue for the period was $429m, versus $181m in 2019. Net income was up 429 per cent. Etsy’s active buyer base is up 39 per cent to 60m, and non-mask GMS in the quarter was up 93 per cent, year-on-year. “We have a solid foundation for long-term growth and are well positioned to build on our momentum,” said Josh Silverman, Etsy’s chief executive.

Uber
Uber said on Thursday it was buying the British tech company Autocab, which sells booking and dispatch software to private hire firms. It said the acquisition will allow it to link people who open their Uber app in locations where it does not run, with other providers, starting in Britain but with other countries also in mind. “Autocab has worked successfully with taxi and private hire operators around the world for more than thirty years and Uber has a lot to learn from their experience,” said Uber’s Northern and Eastern European boss Jamie Heywood.

Capri Holding
Capri reported a smaller-than-expected quarterly loss helped by a recovery in demand for its Versace and Jimmy Choo brands in China and a surge in online shopping. The company, however, said revenue from its Hong Kong and Macau markets remained significantly below last year. The company warned that sales in Europe and North America would be slower to recover, with total revenue likely to be down 40% in the second quarter and 35% for the full year. “We’re at the peak season of where tourists would be coming to London, Paris, Milan, Florence and Barcelona, which are all very important cities where we do huge volume,” Capri Chief Executive Officer John Idol said.

Adidas
German sportswear firm Adidas said it expects a rebound in profits in the third quarter after reporting a big loss in the second quarter when the majority of its stores were closed due to coronavirus lockdowns. Adidas reported a second-quarter operating loss of 333 million euros (301.16 million pounds). The company said its sales were flat for the quarter in China, where it saw double-digit growth in May and June.

WH Smith
WH Smith said it had taken the “difficult decision” to review store operations across its high street and travel businesses, which includes units in airports and stations. This will result in collective consultation that could lead to up to 1,500 roles being made redundant, about 15 per cent of the company’s entire workforce. The job losses are expected to cost the business between £15 million and £19 million in redundancy pay. Carl Cowling, 46, chief executive, said: “We now need to take further action to reduce costs across our businesses.” 

 

Industrials & Transport

Lufthansa
Germany’s Lufthansa said it does not expect air travel demand to return to pre-crisis levels before 2024 and posted a second-quarter loss of 1.5 billion euros (1.36 billion pounds). It said the collapse in demand for air travel due to the pandemic led to an 80% drop in revenue to 1.9 billion euros compared to 9.6 billion euros a year earlier. It posted a net loss of 1.5 billion euros. “We will not be spared a far-reaching restructuring of our business,” Chief Executive Carsten Spohr said.

Siemens
German engineering group Siemens reported better-than-expected industrial profit for its third quarter. Siemens said adjusted industrial profit for the three months to the end of June rose 8% to 1.79 billion euros ($2.13 billion).

Toyota
Toyota posted a 98% plunge in its first-quarter operating profit on Thursday as the coronavirus pandemic halved it global sales. It reported a profit of 13.9 billion yen ($131.73 million) for the three months ended June, its worst since the June 2011 quarter. In the first quarter, global sales fell 50% to 1.16 million units, led by a 62% tumble in North America.Toyota expects production to largely return to normal levels this month.

Exxon
Exxon, the largest US oil company, is suspending the company’s contribution to the U.S. employee retirement savings plan beginning in October. Last week vowed to deepen cost cuts after posting back-to-back quarterly losses for the first time in its history. “Given the current business environment, the corporation is taking steps to reduce costs,” the company said in a message to employees. Exxon spokeswoman Ashley Alemayehu said the suspension was part of the company’s effort to reduce costs in response to the impact of the pandemic – “there is potential for further reductions based on long-term structural efficiencies, reduced activity and an evaluation of workforce requirements.”

Boeing
Boeing does not see the need to add to liquidity through additional debt offerings to manage the downturn in global aviation caused by the COVID-19 pandemic, chief financial officer Greg Smith said. Smith also told a conference that “priority one” for Boeing would be paying down its debt and getting its balance sheet back in order when the industry recovers.

Glencore
Glencore, Swiss based miner, has decided not to pay a proposed $2.6bn dividend after reporting a drop in half year profits due to weaker commodity prices and the impact of the coronavirus pandemic. Overall, the miner announced a net loss of $2.6bn for the period after taking $3.2bn of impairment charges, including a $1bn hit on the value of its struggling Colombian coal assets. Glencore chief executive Ivan Glasenberg said he expected net debt to be within the company’s target range of $10bn to $16bn by the end of the year – “notwithstanding our cash-generative business and secure liquidity positions, the Board has concluded that it would be inappropriate to make a distribution to shareholders in 2020, instead prioritising the acceleration of net debt reduction.”

 

Financials & Real Estate

Axa
French insurer AXA dropped its 2020 earnings target and added it would not make additional payouts to shareholders in the fourth quarter following a 40% decline in first-half net income. It reported that net profit fell to 1.43 billion euros (1.29 billion pounds) from 2.33 billion during the same period a year ago. AXA’s overall revenues fell by 10% to 52.4 billion euros.

Credit Agricole
French bank Credit Agricole said it will seek to reclaim the payments technology it was working on with Wirecard as part of their partnership. “By nature, we will reclaim the technology that we have developed ourselves,” Credit Agricole Chief Executive Philippe Brassac told a news conference. “On what was developed by them, yes, we will try to get back something one way or another. We are interested in reclaiming at least what was related to our development,” Brassac said.

ING
ING, the largest Dutch financial group, reported second-quarter pretax profit of 542 million euros (490.17 million pounds), and took 1.34 billion euros in provisions for bad loans amid the coronavirus pandemic. “The Covid-19 pandemic continued in the second quarter to strongly impact the economies where we operate and how we conducted our own business,” said CEO Steven van Rijswijk, who took the job in July.

MetLife
U.S. insurer MetLife posted a 43% drop in quarterly adjusted earnings, spurred by declining premium income and private equity investment losses. Adjusted earnings fell to $758 million in the second quarter from $1.3 billion a year earlier. “The decline in our private equity portfolio was squarely within our expectations,” MetLife Chief Executive Officer Michel Khalaf said.

Goldman Sachs
Goldman Sachs said that that by 2025 it wants 7% of its employees with the title vice president to be Black and 9% to be Latino professionals. The bank also aims for 40% of its employees with this title to be female, Goldman’s chief executive officer, David Solomon said in a statement to staff. “Progress on diversity will enhance our ability to execute our strategy and deliver for our clients,” Solomon said.

AIB
AIB has set aside €1.2bn to deal with losses due to Covid-19 across all its portfolios. The bank reported a loss of €700m for the first six months of this year. During the period AIB’s net interest income declined 8pc to €967m. As part of a continued focus on cost disciple, the number of people employed full-time has decreased by 6pc compared to June 2019. The bank said it is currently considering the future shape of the business in order to adjust to the financial impact of Covid-19, and “to examine the opportunities presented by the crisis, namely, the acceleration of themes such as digitisation, flexible working.”

UniCredit
Italy’s UniCredit confirmed next year’s earnings goal after reporting a smaller-than-expected drop in second-quarter profit, as trading gains and cost cuts helped offset weakening revenues. It reported net profit for the three months through June came in at 420 million euros (379.84 million pounds), down 77% from a year earlier.

Aviva
Aviva chief executive Amanda Blanc, said “we will focus Aviva on our strongest businesses in the UK, Ireland and Canada and aim to be the UK’s leading insurer. We are going to focus on those businesses where we have the necessary size, capability and brilliant customer service to generate superior shareholder returns. This is where we will invest and grow.” The insurer rposted a 12% drop in first-half operating profit to 1.2 billion pounds and announced that it will resume dividend payments after suspending them earlier in the year.

Hammerson
Shopping centre owner Hammerson is aiming to raise more than £800m in order to see it through the coronavirus crisis. It announced plans to raise £274m from the sale of its 50 per cent stake in its European shopping outlet business, VIA Outlets, and a further £552m from a rights issue. It has collected 72 per cent of the rent owed for the first half of the year, and a third of what is owed for the third quarter. 

 

TMT

Zynga
Game developer Zynga has lifted its 2020 earnings guidance twice during the pandemic, reflecting how more people are engaging with its ad-driven games. A record number of people have been playing poker and digital slot machines on their phones while under coronavirus lockdown, forming habits that Zynga thinks will lead to sustainable profits. Zynga now anticipates $2.2bn in bookings this year, up $360m from its June prediction, and 41 per cent higher than last year’s total.

TikTok
TikTok is to open its first data centre in Europe in a $500 million investment. Bytedance, the Chinese owner of the popular video-sharing app, said that TikTok would build its third data centre, picking Ireland alongside its two existing bases in America and Singapore. The company said that the plan to open a new data centre in Ireland had been in the works before Mr Trump suggested he might ban the app in the US. Theo Bertram, TikTok’s director of public policy in Europe, said: “This is an important symbol of our commitment to the long term in Europe and it shows the importance of Ireland for us.”

Thomson Reuters 
Thomson Reuters reported higher-than-expected second quarter profit and reaffirmed its 2020 forecast. “Results in the second quarter illustrate the resilience in our business,” Chief Executive Steve Hasker. Thomson Reuters said it saw no significant disruptions from the coronavirus crisis, adding that its 500,000 legal, tax and other professional clients were able to access its services online, working from home. It reported that quarterly revenue dipped 1% to $1.405 billion and operating profit fell 18% to $365 million, from $447 million a year ago.

ITV
ITV, Britain’s biggest free-to-air commercial broadcaster, reported a 50% drop in adjusted earnings for the first half after the COVID-19 pandemic hit advertising revenues and interrupted the production of shows. Ad revenue for the second quarter fell 43%, driving a 17% decline in total external revenue for the six months to the end of June to 1.22 billion pounds. Around 230 ITV productions were affected by the lockdown, causing problems for broadcast schedules as well as sales of shows to other buyers. ITV said 70 per cent had now been “delivered or are back in production”. Chief Executive Carolyn McCall said it had been “one of the most challenging times” in company’s history. 

 

IN THE NEWS

Recruiters report sharpest rise in UK job seekers since December 2008 –  Financial Times

Exclusive: Fauci says regulators promise politics will not guide vaccine timing – Reuters

Bank of England makes no changes to stimulus push – Reuters




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