Powerscourt

By Powerscourt on 30/09/2020

Powerscourt Coronavirus Briefing – 30 September 2020

ANALYSIS

Throughout the coronavirus pandemic, governments have operated on the basis that calibrating the balance between health restrictions and economic incentives gives them some control over the prevalence of the virus.

Increasingly, an uncomfortable question arises for exhausted politicians and populations: does anything they do make any difference? This is now the central debate raging through many democracies and creating political rifts at the heart of many political parties.

While in most of Europe, following a summer lull, the virus is resurgent again, in Sweden, the most liberal of Europe’s countries in its approach to the virus, numbers are strikingly low again, as highlighted by a New York Times article.

New York, meanwhile, which for several months has contained virus levels compared with the rest of the US, is now in a bad place with virus infection levels rising sharply, just as the state prepares to allow diners to return to restaurants indoors. The possibility arises that politicians have overstated the degree to which they control the virus prevalence, raising the question as to whether it is worth the impact on economies and personal freedoms.

Last night this question became a central plot strand in the hotly anticipated first US election candidates debate, between President Trump and Democratic challenger Joseph Biden.

In a strikingly acrimonious televised debate, Biden landed a series of blows over Trump on his management of the virus, accusing him of contributing to the deaths of 200,000 Americans and contrasting America’s performance with that of the rest of the world.

But for those who accept the idea that governments have limited ability to control the virus in the first place, Trump’s strong record on keeping economies open may yet win the day.

In the UK meanwhile, the rules governing how citizens should behave is becoming increasingly Byzantine, so much so that the Prime Minister apparently struggles to keep up with it on a day to day basis.

Boris Johnson on Tuesday fumbled a press conference where he contradicted his own public policy on the impact of restrictions in the North East of England.

Daily cases in the UK have topped 7,000 for the first time based on Tuesday’s infection rate, double the rate of a week earlier and a sharp reversal after three days in which virus rates appeared to be falling. The rate of testing in the UK is far higher now than in the spring when the first lockdown was implemented so figures are not directly comparable. But the current data shows a record number of new infections.

It’s very clear, however, that the most recent round of restrictions imposed by the government three weeks ago, particularly the so-called “rule of six”, is not keeping the lid on the infection rate, and that further tightening is inevitable.

Johnson is expected to give a press conference today, flanked by his medical and scientific advisers Chris Whitty and Sir Patrick Vallance.  The immediate output of this is that the Liverpool area, the fourth largest urban centre in England, is expected to be subject to a ban on households mixing inside, and the likely spectre of a London lockdown is also expected to be raised. London has been on a watch list but due to its disproportionate effect on the UK economy and the symbolic impact of locking down the capital, the government has been extremely reluctant to increase restrictions.

But any further tightening is likely to enrage the group of backbench Tory MPs who believe the government has veered too far into authoritarian territory with arbitrary changes to the rules without proper scrutiny.

Figures from the Office of National Statistics Wednesday showed Britain’s economy shrunk by a record 20% in the second quarter when the full force of COVID lockdowns were in place.

Major stock markets closed lower on Tuesday and Asian markets failed to pick up into Wednesday, due to mounting anxiety about the increasingly fraught US election.

 

WHAT ARE COMPANIES SAYING?

 

Consumer & Retail

Boohoo
Boohoo released its interim results this morning and reported that revenues were up 45% year-on-year to £817m and pre-tax profits up 51% to £68m. Boohoo said group revenue growth for the year to 28 February 2021 is expected to be 28% to 32%, up from approximately 25% as previously guided, with adjusted EBITDA margin for the year at around 10%, increased from the 9.5% to 10% as previously guided.

Compass Group
In a pre-close trading update, the contract foodservice company’s organic revenue performance in the fourth quarter improved as clients in Education and Business & Industry began to return to schools and offices in our main markets. Q4 revenue was 36% lower than over the same period last year. In Q3 the group recorded a 44% decline and over the year as a whole revenue was down 19%. On outlook the company said “the pace at which our revenues and margins will recover remains unclear, especially given the possible increase in lockdown measures in the Northern Hemisphere through the winter months.”

Walt Disney 
Walt Disney is to cut 28,000 jobs in its US theme parks division as its resorts struggle with limited attendance and the continued closure of Disneyland in California due to the coronavirus pandemic according to The Times. About two thirds of the affected employees are part-time workers, the company said in a statement. “As heartbreaking as it is to take this action, this is the only feasible option we have in light of the prolonged impact of Covid-19 on our business, including limited capacity due to physical distancing requirements and the continued uncertainty regarding the duration of the pandemic,” Josh D’Amaro, chairman of the parks division, said yesterday.

City Pub Group
The Group reported that 37 of 48 trading pubs are now open. Since reopening, revenues have been strong at around 80% of previous levels generating positive cashflow. It has a “strong asset-backed balance sheet with approximately £13m of net debt and good levels of liquidity.” It has relaunched the City Club App now with over 140,000 downloads. H1 results were impacted by over 3 months of closure and the Group reported revenue of £12.1 million (H1 2019: £27.1 million) and adjusted profit / (loss) before tax** of £(3.5) million (H1 2019: £1.9 million). 

 

Industrials 

Royal Dutch Shell
Along with its third quarter update note, Shell said it expected to axe between 7,000 and 9,000 jobs by the end of 2022, with 1,500 people already having agreed to take voluntary redundancy this year. Shell said reduced organisational complexity, along with other measures, are expected to deliver sustainable annual cost savings of between $2.0 to $2.5 billion by 2022. This will partially contribute to the announced underlying operating cost reduction of $3.0 to $4.0 billion by the first quarter 2021.

 

Media

Time Out Group
The global media and leisure business, today announced its unaudited results for the six months ended 30 June 2020. Gross revenue declined 24% to £20.3m and net revenue declined 36% to £15.8m due to the temporary closure of the Time Out Markets and the sharp decline in advertising revenues generated from the travel and leisure sectors. Gross margin increased to 78% despite Group gross profit decline of 19% to £12.4m, which reflected Time Out Media’s higher digital revenue mix. The Group’s global brand audience increased by 29% to a monthly average of 73.3m (2019: 57.0m), reflecting the authority and continued relevance of Time Out’s content.  

Everyman Media Group
The cinema group released ts interim results reporting  revenue of £15.0m (H1 2019: £28.9m) and an operating loss of £12.3m (H1 2019: £1.6m profit). Despite the pandemic, Everyman opened two new venues over the summer on King’s Road, Chelsea and Lincoln, both of which have performed strong enough to place in the top half of its portfolio. Following reopening, performance indicators have been encouraging: admissions at c. 40% level of same period in 2019 and the average food and beverage spend of £10.55, up 41% on the same period last year. 

M&C Saatchi
M&C Saatchi announced today that it will not meet its Covid-19 extension filing deadline to publish its 2019 audited financial results by the 30 September 2020. The 2019 audit process has taken longer than had been expected as a result of the desire of the Company and its auditors to conduct significant testing in the context of the Company’s historical accounting misstatements in 2018 and prior years, in addition to the impact on working practices enforced by the Covid-19 pandemic. Auditors now expect that audited financial results will be published within a matter of weeks. After consultation with AIM Regulation, the Company expects that trading in the Company’s shares will be temporarily suspended with effect from 07.30 on 1 October 2020 until publication of the 2019 audited financial results. The Company released highlights from its unaudited results including net revenue up 2.4% to £256m and headline profit before tax down from £23.5m to £18.3m.

 

IN THE NEWS

Coronavirus: Record rate of infection puts Britain on red alert – The Times 

Coronavirus: Boris Johnson bids to head off Conservative rebellion over COVID-19 rules  – Sky  News

Dealmaking rebound drives busiest summer for M&A on record – Financial Times 




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