26th Feb 2020 07:45
(Alliance News) - Stocks in London are set to extend the week's losses even further on Wednesday as the coronavirus outbreak continued to spread through Europe.
In early UK company news, distiller Diageo and travel concessions operator SSP both warned of hits to profit from the spread of coronavirus. Outsourcer Serco declared its first dividend since 2014, while Restaurant Group suspended its own payout.
IG says futures indicate the FTSE 100 index of large-caps to open 56.18 points lower at 6,961.70 on Wednesday. The FTSE 100 index closed down 138.95 points, or 1.9%, at 7,017.88 on Tuesday, and is down 5.2% since the week began.
Stocks across the globe this week have been shaken by the spread of coronavirus outside China, with South Korea and Italy in particular reporting a raft of cases.
In Asia on Wednesday, the Japanese Nikkei 225 index closed down 0.8%. In China, the Shanghai Composite ended down 0.8%, while the Hang Seng index in Hong Kong is down 0.9%.
In the US on Tuesday, Wall Street ended deep in the red, with the Dow Jones Industrial Average ending down 3.2%, the S&P 500 sinking 3.0% and Nasdaq Composite off 2.8%. The Dow lost almost 900 points, having lost 1,000 points on Monday.
"What we appear to be seeing is the realisation that global economic growth could well come to a halt as the combined effects of a flu virus and belated attempts to stem the spread of it across the globe, raise the prospect of an economic sneeze, as consumers stop spending, and supply chains seize up, due to workers and consumers staying at home," said Michael Hewson at CMC Markets.
"It certainly looks like the revenue warning from Apple just over a week ago was the canary in the coal mine for this move lower, and while it can be argued that there might be some comfort in the fact that flu cases in China appear to be levelling out, more and more cases are starting to get reported across Europe," Hewson continued. "Spain became the latest country to report an outbreak, while in the US, the [Centre for Disease Control & Prevention] said that a coronavirus pandemic was now likely, while also reporting that 53 cases had been diagnosed in the US."
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.
The virus has killed 2,715 people and infected over 78,000 in China. There were 52 more deaths reported on Wednesday – the lowest in three weeks – with no fatalities outside the epicentre in central Hubei province. The National Health Commission also reported a drop in new infections to 406, with only five outside Hubei – a figure that will boost confidence that the rest of the country is containing the epidemic.
The disease has now reached dozens of countries, however, with Austria, Croatia and Switzerland the latest to declare cases.
The disruption from the virus was apparent in some updates made to the London Stock Exchange on Wednesday.
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.
The FTSE 100 constituent continued: "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.
Outside of the virus, there were a number of full-year results in London.
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.
"The results for 2019 represent the first year of revenue growth since 2013 and the second successive year of growth in profits, and we expect continued strong progress in 2020. 15% revenue growth of which 8% was organic, 29% underlying profit growth and GBP5.4 billion of order intake compares favourably with a market growing at 2% to 3%," said Chief Executive Rupert Soames.
"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," he added.
On coronavirus, Serco said it has not yet seen "any material impact", though it is keeping a close eye on the situation.
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.
Hornby added that the firm has made an "encouraging" start to 2020 with like-for-like sales up 5.3% in the first six weeks. For 2019, like-for-like sales were up 2.7%.
In forex, sterling was quoted at USD1.2982 early Wednesday, lower than USD1.3009 at the London equities close on Tuesday.
The euro traded at USD1.0866 early Wednesday, soft compared to USD1.0879 late Tuesday. Against the yen, the dollar was quoted at JPY110.42, firm versus JPY110.12.
Gold was quoted at USD1,644.83 an ounce early Wednesday, soft versus USD1,646.81 on Tuesday. Brent oil was trading at USD54.56 a barrel early Wednesday, lower than USD55.50 late Tuesday.
By Lucy Heming; [email protected]
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