Coronavirus - West Side Story
5 March 2020
Washington state reported the first COVID-19 case in the United States on 20 January. Given the subsequent lethargic response and ineffective testing in the US, the virus could have been circulating in the state for six weeks. Hundreds could already be infected, giving the virus a springboard into the country. California has now declared a state of emergency after its first death from the virus and its cases reached 53. Other states are likely to follow suit.
• California – Has declared a state of emergency.
• Spire – Has warned of “plausible breach of banking covenants”.
• Hyve – Events postponed/cancelled and reduced attendees.
• PageGroup – Expects a significant impact in March.
• LSE – No longer letting people from France or those recently in contact with travellers from France into Paternoster Square.
• New Jersey – Announced first case.
• Canada – 50bp cut in interest rates.
• HSBC – Evacuated part of its Canary Wharf trading floor & research.
• South Africa – Reported first case.
• Switzerland – First death.
• American Eagle Outfitters (fashion retailer) – Does not anticipate near-term supply chain issue. 100% of the company’s factories are back in operation and are running at 75% capacity.
• Coats# (thread manufacturer) – “The impact for Coats to date has been in our China business which currently represents approximately 12% of group sales, and four of our 50 global manufacturing facilities are in the country. These four facilities are now operational following the enforced government closures after the Chinese new year with the majority of our employees now back at work. We are in the process of returning the four facilities to full capacity, which we expect to happen by the end of March. Following the temporary shutdown of our facilities we have seen an $8 million year-on-year reduction in our China sales in the first two months of 2020. China remains important to the wider A&F supply chain, producing around 40% of the world’s garments and footwear. Looking forward we face uncertainty around the impact of the virus on the industry supply chain, both inside and outside of China. We will continue to monitor the situation carefully and respond as necessary. Coats has an unrivalled global footprint and is uniquely placed to help brands and manufacturers as they look to further de-risk their own exposures to the largest sourcing market of China by moving incremental production volumes to alternative locations.”
• Diamond Shipping (oil transportation) – Coronavirus has had a significant impact on global commodity trade and specifically end-market demand from China.
• Foxconn (electronics manufacturer) – Revenue reduced by 18% in February.
• Finnair (Finnish airline) – Coronavirus affects the company significantly.
• Flybe (UK regional airline) – Goes into administration.
• Hugo Boss (fashion retailer) – Expects economic consequences of spread of coronavirus to have a significant impact, especially in the first quarter. “After a very good start to 2020, our business in Asia is currently being significantly impacted by the spread of the coronavirus. After a very encouraging start to the new year, more than half of the group’s around 150 points of sale in mainland China, Hong Kong and Macau have been closed since the end of January. The remaining points of sale mostly operate with severely limited opening hours and have experienced a significant decline in visitors. In addition, the company is currently recording a noticeable decline in sales in other key markets. Currency-adjusted sales in the Asia/Pacific region are forecasted to decline by a single-digit percentage rate.”
• JCDecaux (advertising) – Has warned its sales have been impacted by the outbreak looking at Q1 2020. “We expect our adjusted organic revenue to be down around -10%, despite positive current trading in Street Furniture, reflecting the very material impact from the COVID-19 outbreak and taking into account the Q1 2019 high comparable in transport. In Asia-Pacific, our business has been significantly affected since the beginning of February, with a very important decline in China in passengers and commuters in the airports and metros where we operate. All our landlords in China fully recognise the significant setback for the advertising business and have all already expressed their intention to grant us rent reductions. During the past few weeks, we have been talking to our clients / advertisers and we are supporting them with exceptional temporary reliefs. Regarding Travel Retail, most of our clients want to keep their premium locations and their long-term commitments in our airports. Given the magnitude of the COVID-19 disruption, our group operating margin should be negatively affected in 2020, despite saving measures being implemented without compromising our operational quality and efficiency, to mitigate the impact. With strong and effective measures notably taken by the Chinese government, a rebound of the economic growth could pave the way for a recovery with consumption and investment activities resuming, once the epidemic is under control.'
• JetBlue Airways – Has reduced capacity by c5% to address fall in demand due to the virus outbreak.
• Mandarin Oriental International (hotels) – The group’s performance is being significantly impacted by the ongoing coronavirus outbreak, particularly in Hong Kong.
• Melrose – “10% of group sales are manufactured in China, of which only 5% is sold in China. GKN Automotive has the largest exposure through its SDS joint venture, but all except one site are operational after the new year break. Whilst there is clearly going to be a material impact on the Chinese economy, at the time of writing there are increasing signs of a return to normal levels of production.”
• Myer (Australian department store) – Anticipates challenging macro environment will continue into the second half of the year in relation to COVID-19.
• Norwegian Air – “Given the uncertainty and ongoing impact on overall demand for air travel, Norwegian withdraws its 2020 guidance provided to the market on February 13, 2020. Have cancelled 22 flights between Europe and the US due to reduced demand on some routes resulting from the COVID-19 virus.”
• PageGroup (recruitment) – “The slowing growth that we saw in the second half of 2019, caused by a number of macro-economic challenges, have continued in the first two months of this year. In addition, we have seen the emergence of COVID-19 in Greater China. This, combined with the existing challenges, led group gross profit to decline by -3% in these first two months. In our market-leading Greater China business, where COVID-19 first emerged, we have around 550 people across nine offices, we reacted swiftly in challenging circumstances, recognising that the health and safety of our employees, candidates and clients was our top priority. With consultants continuing to work via home access, we were able to maintain contact with both candidates and clients. After periods of office closure in some cities, we had over 90% of consultants back in our offices by the end of February. Business was transacted using a range of technologies and while there was almost no face to face contact, in the first two months we were still able to deliver gross profit at c65% compared to 2019. Looking forward, in Greater China, many of our clients have not been able to return to work with the same speed and therefore we expect a significant impact in March, one of our largest months of the year, and potentially beyond. With COVID-19 now impacting other markets around the world, it is too early to estimate the impact on the group's operations. We will continue to monitor the situation closely and will provide updates as necessary.”
• Saga (travel) – “For our Cruise business, bookings until recently have been very strong, with forward sales for the current year of 80% of the full year revenue target as of 29 February. The remaining 20% of our full-year revenue target is weighted towards Q3 and Q4 2020 cruises. While we have seen a higher level of cancellations for departures in the near-term and more generally a lower level of bookings for departures further out, our two most recent departures had load factors of around 80%. The Cruise business continues to only depart and return to UK ports and we have flexibility on destinations visited. Our Tour Operations businesses have experienced an
• Skyworks (wireless semiconductors) – “The company now expects for the second fiscal quarter of 2020: Revenue between $760 million and $770 million, compared to the prior outlook of between $800 million and $820 million; Non-GAAP diluted earnings per share of $1.34 at the midpoint of the updated revenue range, compared to the prior outlook of $1.46 at the midpoint of the prior revenue range. Although COVID-19 has caused no significant disruption within Skyworks’ manufacturing operations to date, the current demand environment for our products has been negatively impacted by interruptions in global supply chains.”
• Southwest Airlines – “In recent days, the company has experienced a significant decline in customer demand, as well as an increase in trip cancellations, which is assumed to be attributable to concerns relating to reported cases of COVID-19. Based on these recent revenue trends, which are currently expected to impact the remainder of March 2020, the company now estimates its first quarter 2020 operating revenues to be negatively impacted in the range of $200 million to $300 million, and RASM to be in the range of down 2 percent to up 1 percent, year-over-year, as compared with its previous guidance of a year-over-year increase in the range of 3.5 to 5.5 percent. Relative to previous expectations, the company’s cost outlook has improved, which is offsetting a portion of the estimated first quarter 2020 COVID-19 revenue impact.”
• Spire (private health) –“The group’s approach for assessing the impact of COVID-19 is based on the Government's Stretch Scenario as set out in their action plan published on 3 March 2020. However, the circumstances concerning COVID-19 are unprecedented and are impossible to accurately determine at this stage. It is plausible that a breach of banking covenants could arise without mitigating actions. Account has been taken of Government and Bank of England statements to support business and the UK economy.”
• Tyman (housing components) – “The situation regarding coronavirus is rapidly evolving and may create headwinds for our business in 2020.”
• Woolworths (Australia's largest supermarket chain) – Has limited the number of toilet rolls customers can purchase after coronavirus fears prompted a surge in buying.
• The producers of No time to Die, the Bond film due out this year, have decided to push the release date back from April to November.
• IBM’s Think 2020 has cancelled the public part of the event and will now be online only.
• England's Six Nations games against Italy set to be postponed. This includes both the men’s and women’s fixtures.
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