26th Feb 2020 08:06
(Alliance News) - London-listed companies on Wednesday continued to warn that the coronavirus outbreak is hurting their business, with Diageo and SSP the latest to step forward, following US companies Apple, MasterCard and United Airlines.
Smirnoff vodka maker Diageo said it expects a hit to profit amid the closure of bars and restaurants in the Asia Pacific region as countries attempt to contain the coronavirus outbreak.
Diageo said it expects a hit to organic net sales of around GBP225 million to GBP325 million in the current financial year, while organic operating profit is expected to be knocked by between GBP140 million to GBP200 million.
The brewer and distiller noted that bars and restaurants in China have largely been closed while there has been a "substantial reduction" in banqueting. In other Asian countries, particularly South Korea, Japan and Thailand, events have been cancelled and tourism has dropped.
"The COVID-19 situation is dynamic and continues to evolve and these ranges exclude any impact of the COVID-19 situation on other markets beyond those mentioned above. We will continue to monitor the situation closely," said Diageo.
"We remain confident in the growth opportunities in our Greater China and Asia Pacific business. We will continue to invest behind our brands, ensuring we are strongly positioned for the expected recovery in consumer demand."
Meanwhile, travel concessions operator SSP said it expects February sales for its Asian Pacific operations to halve.
In China, SSP said it has seen "sharp declines" in both domestic and international air passenger numbers, which are running around 90% lower year-on-year, with numbers also lower across other Asia Pacific countries such as Singapore, Thailand and the Philippines.
Accordingly, SSP expects February sales across the Asia Pacific region - which accounts for approximately 8% of group revenue - will halve on a year ago. Together with the impact in the Middle East and India, this is expected to reduce group revenue in February by around GBP10 million to GBP12 million. This will result in a knock-on hit to operating profit of around GBP4 million to GBP5 million.
Diageo shares were down 1.4% early Wednesday, while SSP's were down 3.7%.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: down 0.5% at 6,985.42
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Hang Seng: down 0.7% at 26,707.69
Nikkei 225: closed down 0.8% at 22,426.19
DJIA: closed down 879.44 points, 3.2%, at 27,081.36
S&P 500: closed down 3.0% at 3,128.21
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GBP: down at USD1.2985 (USD1.3009)
EUR: soft at USD1.0869 (USD1.0879)
Gold: down at USD1,644.90 per ounce (USD1,646.81)
Oil (Brent): down at USD54.62 a barrel (USD55.50)
(changes since previous London equities close)
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ECONOMICS AND GENERAL
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Wednesday's Key Economic Events still to come
0700 EST US MBA weekly mortgage applications survey
1000 EST US new residential sales
1030 EST US EIA weekly petroleum status report
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The new coronavirus epidemic swelled after infections appeared in previously untouched countries, prompting dire warnings that the world was not ready to contain it. The virus has rapidly spread in parts of Asia, Europe and the Middle East, even as the number of deaths and fresh cases decline at the disease epicentre in China. Towns and cities have been sealed off in an attempt to stop the contagion, while hotels in the Canary Islands and Austria were locked down on Tuesday because of suspected cases. South Korea reported 169 new infections on Wednesday, raising its total tally to 1,146 – by far the largest outside China – while an 11th person died. In Iran, which has reported 15 deaths out of nearly 100 infections, even the country's deputy health minister Iraj Harirchi said he had contracted the virus. Meanwhile Italy – which has reported 10 deaths and more than 300 cases – has locked down 11 towns and ordered Serie A football games to be played to empty stadiums. At the World Health Organization headquarters in Geneva, Bruce Aylward, who headed an international expert mission to China, hailed the drastic quarantine and containment measures taken by the country. But he told reporters that other nations were "simply not ready" to contain the outbreak.
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UK Prime Minister Boris Johnson has launched what is billed as the deepest review of Britain's foreign and security policy since the Cold War, with a warning that as the world changes "we must move with it". The cross-Whitehall review will cover all elements of foreign, defence, security and international development policy, as the government seeks to redefine its long-term strategic aims and objectives. Downing Street said it would go beyond the parameters of a traditional strategic defence and security review by looking at the "totality of opportunities and challenges" the UK faces. It will consider how the whole of government can be "structured, equipped and mobilised" in order to meet them. Unlike the 2015 review, a No 10 source said it will not be "cost neutral", meaning further spending commitments are not ruled out.
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Growth in house prices in UK cities nearly reached a three-year high, with the increase mainly driven by growth across southern cities in the country. According to the latest Zoopla UK Cities House Price Index, the UK city house price inflation in January stood at 3.9% year-on-year, with the average price at GBP258,100, having continued its rise since August. According to the data, all cities except for Aberdeen recorded price rises of at least 2% per annum since February 2017. Inflation ranges from 5.9% growth in Edinburgh and a 4.3% decline in Aberdeen. Zoopla however noted that growth in supply had failed to keep pace with demand, with the total stock of homes available to buy across UK cities was just 2.6% higher year-on-year.
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US President Donald Trump failed Tuesday to strike a trade deal with India at the end of a visit big on photo opportunities but short on substance and overshadowed by deadly riots. US-Indian trade relations have worsened in recent years as Trump's "America First" aim of reducing deficits has collided with the "Make in India" mantra of Prime Minister Narendra Modi. Speaking at the end of a short tour that saw him hold hands at the Taj Mahal with First Lady Melania and address a huge rally, Trump said only that they had made "tremendous progress" towards an accord. "The US has to be treated fairly and India understands that," he told a news conference, saying that "if a deal happens with India, it will be towards the end of the year." While minor compared to his battle with China, Trump has imposed tariffs on Indian steel and aluminium and suspended duty-free access for certain goods in an effort to cut the USD25 billion US trade deficit with Asia's third-biggest economy.
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BROKER RATING CHANGES
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BERENBERG RAISES J SAINSBURY TO 'BUY' ('HOLD') - TARGET 250 (235) PENCE
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BERENBERG CUTS MORRISON SUPERMARKETS TO 'HOLD' ('BUY') - TARGET 200 (225) PENCE
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CREDIT SUISSE RAISES BUNZL TO 'NEUTRAL' ('UNDERPERFORM') - TARGET 2000 (1925) PENCE
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GOLDMAN SACHS STARTS DIAGEO WITH 'BUY' - PRICE TARGET 3600 PENCE
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COMPANIES - FTSE 100
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Miner Rio Tinto reported a revenue rise in 2019, attributed to higher iron ore prices, but profits dipped on the absence of one-off gains in 2018. In 2019, sales revenue rose 6.5% to USD43.17 billion from USD40.52 billion, but pretax profit was down 35% to USD11.77 billion from USD18.20 billion. The higher iron ore prices were partially offset by lower copper and aluminium prices, the company said. For 2019, Rio Tinto reported a USD291 million net loss on consolidation and disposals, compared to a USD4.6 billion gain in 2018. It also booked impairment charges of USD3.49 billion, swinging from a USD132 million gain the year prior. Its full-year ordinary dividend per share was 24% higher at 382 cents from 307 cents. Total dividend, however, was 19% lower at 443.0 cents from 550.0 cents in 2018. Rio Tinto added that it is evaluating the impact of the coronavirus spread, "which could create significant uncertainty for our business in the near term".
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Housebuilder Taylor Wimpey posted a revenue climb with completions rising to a company record. Revenue in 2019 came in 6.4% higher at GBP4.34 billion from GBP4.08 billion, with pretax profit rising 3.1% to GBP835.9 million from GBP810.7 million. Before exceptional items however, pretax profit dipped 4.1% to GBP821.6 million from GBP856.8 million. In 2019, the company made a GBP14.3 million gain from such one-off items, swinging from a GBP46.1 million loss. The company upped its full-year dividend by 22% to 7.64 pence per share from 6.24p in 2018.
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Chris Grigg is preparing to step down as chief executive officer of British Land Co, Sky News reported. Grigg has been in the role for 11 years since 2009. Sky News reported that, according to a leading shareholder, his effective departure date depends on who the FTSE 100-listed real estate investment trust chooses as his successor. Should Chief Financial Officer Simon Carter be picked as the next CEO, Grigg could step down in the summer, Sky said. However, should the group appoint an external successor, Grigg could remain until next year.
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COMPANIES - FTSE 250
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Outsourcer Serco said it will pay a dividend for the first time since 2014 as it reported growth in both revenue and profit. Revenue for 2019 grew 15% to GBP3.25 billion, with pretax profit up 8.9% to GBP80.7 million versus GBP74.1 million in 2018. The company re-instated its dividend, paying out 1.0 pence. "When dividend payments were suspended in 2014, the board committed to resuming dividend payments to Serco's shareholders as soon as it judged it prudent to do so. 2019 has been a year of very strong operational and financial performance. It is also the last year of significant outflows of cash related to [onerous contract provisions] and restructuring exceptional costs. Our expectations for 2020 are for further good progress in increasing underlying earnings and reducing financial leverage," Serco explained. Looking ahead, revenue for 2020 is expected to grow by around 6% to 8% to around GBP3.4 billion to GBP3.5 billion. Underlying trading profit is expected around GBP145 million, which would be up 20% on 2019. "All this indicates that we have finally achieved escape velocity, leaving behind the gravitational pull of past mis-steps, and gives the board confidence to recommend paying a dividend for the first time since 2014, which is an important milestone," Chief Executive Rupert Soames said. On coronavirus, Serco said it has not yet seen "any material impact", though it is keeping a close eye on the situation.
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Restaurant Group swung to a loss for 2019 and suspended its dividend. Revenue for 2019 surged to GBP1.07 billion from just GBP686.0 million the year before, due to the addition of noodle chain Wagamama, whose acquisition was completed at the end of 2018. However, the company swung to a pretax loss of GBP37.3 million from a profit of GBP13.9 million. Profit was hit as Restaurant Group took GBP111.8 million in exceptional items, versus just GBP38.8 million a year ago. Of 2019's impairment, GBP103.1 million related to restaurants trading within its Leisure operating segment. Looking ahead, Restaurant Group said its focus is on growing the Wagamama, Concessions and Pubs businesses while rationalising its Leisure operations and accelerating its deleveraging profile. "In order to support these strategic priorities, the board has taken the decision to temporarily suspend the dividend. This will allow us to continue investing in our three high growth businesses, whilst facilitating an acceleration of our Leisure estate rationalisation and reducing our net debt," said Chief Executive Andy Hornby. Restaurant Group is therefore not recommending a final dividend payment and the total payout for the year is 2.1p.
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Wednesday's Shareholder Meetings
SSP Group
Van Elle Holdings (re dividend compliance issue)
Electra Private Equiy
Bankers Investment Trust
Aberdeen Diversified Income and Growth Trust
Jupiter Emerging & Frontier Income Trust
Polar Capital Global Healthcare Trust
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By Tom Waite; [email protected]
Copyright 2020 Alliance News Limited. All Rights Reserved.
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