Coronavirus - Italian gambit

Italian gambit
Over the weekend, Italy locked-down more than 16 million people across 15 provinces until 3 April. This measure was praised by the WHO president, who commended the country’s “genuine sacrifices”. How effective the travel restrictions are remains to be seen. On a positive note, the early signs are that commercial operations are continuing. Elsewhere, the aggressive action taken in China has been rewarded by a rapid reduction in new cases.

Cases 3,888 - Deaths 228

Cases 110,182 - Deaths 3,827

Countries - 106

• Pirelli – Has not seen a production impact in Italy.
• Pebblebrook (US hotels) – Has seen a considerable rise in cancellations.
• Scandic Hotels – March sales 15% below prior year.
• Mind Gym – Sudden fall in revenues.
• First cases in Hawaii, Bulgaria, Paraguay and the Maldives over the weekend.
• First death in Australia over the weekend.
• China – Lowest number of new cases.

Chinese recovery
China reported 40 new cases of the coronavirus on Monday, its lowest number since its health commission began publishing nationwide data on 20 January. The draconian measures taken by the state seem to be working in controlling the disease.
The data is very encouraging for countries that continue to struggle to contain the spread. The figures show that if the right measures are taken, the disease can be pushed back. With these improving figures, China also seems to be getting back to work. Daily coal consumption at six major coal-fired power groups across China has picked up to more than 500,000 tonnes per day, a level last seen before the Lunar New Year, but it remains 24% lower than the same period last year.
However, the global spread could pose a continuing challenge to China’s economic recovery. The other concern is the rise in imported cases into China, The country’s progress in bringing infections down could be undone through wash-back of the disease, and several local authorities are imposing quarantines on those arriving from hard-hit areas.
Company news
• Abcam (healthcare) – “Confident in long-term outlook: five-year financial goals and investment plans unchanged. c£3m revenue reduction to date due to COVID-19, predominantly originating from the early spread of the virus in China. Operations began reopening on 14 February; supply chain largely unaffected to date. Broader China activity returning, albeit still below full levels prior to outbreak. Full financial impact on the business remains uncertain given the evolving global situation.”
• Belimo (measuring equipment) – Coronavirus is likely to affect revenues, especially in China.
• Clarkson (shipping solutions) – “Clarksons started 2020 with a stronger forward order book than in 2019, however, since the beginning of the year, the outbreak of the COVID-19 virus in Asia has contributed to significantly reduced short-term freight rates. The extent of its geographical reach and duration will determine by how much global GDP may be challenged, although it does already seem clear that the company's performance will be impacted in the first half of 2020. The board remains confident in the medium-term outlook for the shipping, offshore and renewables markets and the group.”
• El Al Airlines (Israeli airline) – Estimates decline in revenue of $140-$160m from January to April.
• Frey (clothing care products) – To date, the group has not identified any significant potential impact of the outbreak on the implementation of its business plan for 2020.
• Magic Software Enterprises (software) – Has said its 2020 guidance might be affected by the impact of coronavirus on the company and its customers.
• Mind Gym (corporate training) – “Underlying trading remained strong between the half year-end (30 September 2019) and the end of January 2020, however, the group has since experienced a material impact on revenues from the outbreak of the COVID-19 virus. As the virus has spread from region to region, we have observed an increased number of cancellations of booked sessions from clients and a material reduction in new bookings. Given the uncertainty about the extent and duration of the virus outbreak, it is difficult to forecast accurately the full-year impact, but we currently anticipate revenues to be in the range of a 10-15% increase on the prior year (£46.5m to £48.5m), which is below our previous expectations of revenue growth for the year. Whilst the group is focused on tight cost control, the sudden fall in revenues so close to the end of the financial year provides limited opportunity to reduce planned expenditure and investment. Accordingly, adjusted PBT is now expected to be between £5.8m and £7.3m (nb consensus £9.6m). The strong focus on cash continues, and the cash balance at 31 March 2020 is expected to remain in line or above market consensus of £14.0m.”
• Nissan – Chinese sales fell 80.3% in February due to the coronavirus outbreak.
• Pebblebrook – “We have seen a considerable rise in corporate group and convention-related cancellations due to concerns surrounding COVID-19, and therefore, we are unlikely to achieve our first quarter and full-year 2020 outlook. These cancellations, which have dramatically escalated in just the last 10 days, are largely for business previously on the books for March, April and May of 2020. We’ve also experienced significant cancellations and material declines in business transient demand, while leisure bookings have also been impacted, but to a lesser extent. This remains a rapidly evolving situation. As a result of the shift in demand, we are thoughtfully modifying our operations and implementing cost reduction plans to mitigate the impact on revenue that we are anticipating and experiencing today. In conjunction with our property operating teams, we are utilizing our unique set of best practices, just as we have successfully done during previous downturns and similar unexpected events. The impact of COVID-19 continues to quickly develop, and, thus, we do not expect to issue new guidance until we have more clarity on travel demand and more predictable overall operating fundamentals and trends.”
• Pirelli – There are no impacts on production activities. Today the Italian market accounts for 5.8% of the Pirelli group’s total revenues, and car tyre production in Italy represents 7.5% of the group’s total. There are 3,247 employees in Italy. The personnel needed to guarantee production, whose health is the absolute priority and for this reason safeguarded with all possible healthcare precautions, are working at the plants in Settimo Torinese and Bollate. Road transportation is allowed to and from “reinforced containment” areas and therefore we do not foresee the provisions issued having significant impacts on the transportation of goods. Pirelli’s structures are in constant contact with the relevant institutions to receive instructions in real time and best manage the logistics of production and supply. All other Pirelli operations in the world are fully operational and also the situation in China, where the company gained valuable experience, is quickly returning to normal.
• Ryman Hospitality (US hotels and resorts) – Has withdrawn its full-year 2020 outlook due to the impact of the virus outbreak.
• Scandic Hotels – The company has seen a decline in booking activity and an increase in cancellations. It expects sales in March to be 15% lower than previous year. The company expects that sales development over the next few months will be significantly below it expectations.
• Siltronic (silicon wafers) – The virus is having a significant impact on the company’s ability to make forecasts. If the effects of the coronavirus intensifies the economic environment will deteriorate significantly.
• Thor Industries (recreational vehicles) – The company has not seen any reduction of dealer orders nor negative impact on retail sales due to the outbreak of coronavirus
• Varian Medical Systems – “Across the company's Asia-Pacific geographies, healthcare resources are being prioritized for the treatment and management of the outbreak. Consequently, the company is experiencing delays in hardware and software installations and acceptance, as well as in the delivery of interventional oncology procedures. While no orders have been cancelled, the company expects revenues to be negatively impacted and, as of today, estimates second quarter of fiscal 2020 revenues to be in the range of $800 million to $825 million. While uncertainty remains around the duration, severity and geographic scope of the COVID-19 outbreak, the company preliminarily estimates 7 to 9 percent revenue growth for fiscal year 2020. The company's outlook could shift if the dynamics of the outbreak change materially.”
• Wilmington – “Over the last week, in response to the coronavirus, a significant number of US companies have placed travel restrictions on their staff. This appears to be having a disproportionate impact on larger events, and involves not only delegates but also sponsors and speakers. The group operates a multitude of face-to-face training courses, workshops, seminars, awards events and conferences, and many of these are held in the US. The period from March to June is particularly busy in the US with a significant volume of events planned to run. These include the group's flagship RISE Nashville event, which was due to run from 15 to 17 March 2020 and the Compliance Week Annual Conference which runs in mid May in Washington DC. In addition to these two major events, there are a number of other relatively smaller US based events in the Healthcare, Legal and Compliance areas. In total, these US events are expected to deliver around £8m of revenue in the remainder of this financial year, with £5m of that due to be delivered in March. In response to the situation the group has taken the following decisions regarding US events: RISE Nashville has been deferred, along with its sister event, Social Determinants of Health, which was due to run at the same time in an adjacent facility. These two events will now take place at the end of June 2020. The group expects to incur some additional costs from the change in date, but these are expected to be partly offset by incremental revenue which was running ahead of expectation prior to the coronavirus impact. The deferral of these events is overall expected to have a £0.5m adverse profit impact on the group's financial results for the year to 30 June 2020. Based on current information, our other US events scheduled for the rest of the financial year are not seeing the same level of challenge as RISE. Generally, these are smaller events with lower attendance levels and currently most organisations are allowing staff to travel to these types of events. Accordingly, all other US events scheduled by the group are currently still planned to go ahead. However, we are monitoring the situation very closely and will act as circumstances dictate. Outside of the US, the group is currently seeing limited disruption to events and face to face training as follows: Relatively small events in Hong Kong, Dubai and Madrid have been postponed, but again these are expected to be rescheduled to run before the financial year end. Insurance Week, the group's major event in Madrid, ran successfully two weeks ago with strong delegate and sponsorship attendance. Inevitably the turmoil being caused by coronavirus will have some negative impact both in and outside of the US on delegate and sponsor revenues and on costs for the rest of the year, other than the £0.5m impact detailed above. However, based on current observed effects, as explained above, these are not expected to have a material adverse impact on profit for the year to 30 June 2020 and no impact on the following year. Clearly if travel bans are imposed in other parts of the world or are extended beyond the end of April then that could result in a more material impact.”
• Indian Wells tennis tournament is postponed. It was due to be held in March in California’s Coachella Valley.
• Bahrain GP is restricted to participants only and no fans will be allowed to attend.
• All Romanian league matches will be played without spectators, Romanian Football Federation (FRF).
• The Saudi Games, Saudi Arabia’s largest sporting event, has been postponed until further notice.
• Asian FIFA World Cup 2022 qualifiers in March and June postponed.
• McDonald's has cancelled its biennial convention for franchisees due to the coronavirus outbreak. The four-day event was scheduled to be held in Florida in April.
• The lighting ceremony for the Tokyo 2020 Olympics, in Greece, will be staged without spectators.
• Champions League match between Paris St-Germain and Borussia Dortmund will be played behind closed doors in Paris on Wednesday.
• Japanese officials postpone the start of the professional baseball league season, scheduled for 20 March.
• The Greek government announces that all professional sports events for the next two weeks must be played without spectators.
• The Barcelona Marathon scheduled for 15 March, has been postponed until 25 October.
• KCON, a major K-pop and Korean culture festival has had its Japanese leg cancelled. It was due to take place from 3-5 April.
• The Six Nations rugby match between France and Ireland due to take place in Paris on 14 March has been postponed.
• St Patrick’s Day parade in Dublin has been cancelled.
• NatWest – £5bn additional funding for SMEs.
• Shanghai Disney resort partially reopens a limited number of shopping, dining, and recreational experiences.
• China has reported its lowest number of new cases. This report
• Wuhan shuts down makeshift hospitals. 11 of the 16 makeshift hospitals in the epicentre of the virus have closed.
• Tesco has begun restricting sales of essential food and household items as a result of customers stock piling key items.
• Philippines has declared a state of nationwide public health emergency amid the outbreak.
• UN – Outbreak to cut foreign direct investment by 5-15% vs previous forecasts for 2020-2021.
• Saudi Arabia suspends schools, universities and other educational institutions in response to the outbreak.
• Qatar suspends schools and universities in response to the outbreak.
• Iran has temporarily released 70,000 prisoners in a bid to contain coronavirus in the country.
• Exports from China have declined by 17.2% in the first two months of this year versus the same period last year.
• UK hospitality reports sales in restaurants and bars in London were down 7% last week on the same week last year.
• Six prisoners have died during prison riots in Italy in protest at restrictions to combat the spread of coronavirus. The riots were sparked after inmates were told that relatives and friends were banned from visiting due to the lockdown.