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(Alliance News) - Stock prices in London are set to dive at the open on Thursday as the coronavirus outbreak continues to spread outside of China.
In early UK company news on Thursday, Reckitt Benckiser swing to big loss on a substantial impairment of Mead Johnson Nutrition, while Persimmon said its chief executive intends to step down, and Provident Financial more than doubled its payout.
IG says futures indicate the FTSE 100 index of large-caps will plunge 128.97 points to 6,913.50 on Thursday. The FTSE 100 index closed up 24.59 points, or 0.4%, at 7,042.47 on Wednesday.
"With more new cases being reported outside China, than inside, the centre of gravity as far as the coronavirus has shifted towards Europe, and the rest of the world. This shift has prompted real concerns about the longer-term economic impact of this virus on trade, on ports, on supply chains, and on consumer confidence," said Michael Hewson at CMC Markets.
"These concerns have resulted in a rollercoaster last 24 hours for global stock markets, with European markets managing, with the exception of the DAX managing to close yesterday in positive territory, as attempts were made to try and ascertain whether we had managed to find a short term base, after some precipitous declines over the last few days," he continued.
However, stocks in the US and Asia slipped further overnight.
In the US on Wednesday, Wall Street ended lower, with the Dow Jones Industrial Average ending down 123.77 points, 0.5%, the S&P 500 index down 0.4% and Nasdaq Composite 0.2% higher.
In Asia on Thursday, the Nikkei 225 index slumped 2.1% in Tokyo. In China, the Shanghai Composite ended up 0.1%, while the Hang Seng index in Hong Kong is flat.
The US Centre for Disease Control reported a coronavirus case in California in someone who "did not have relevant travel history or exposure to another known patient" – meaning it could represent the first instance of "community spread" in the US, though this was not yet confirmed.
Meanwhile, Germany's health minister warned that the country is "at the beginning of a coronavirus epidemic".
This came as Romania, Greece and neighbouring North Macedonia registered their first confirmed virus cases on Wednesday, involving people who recently travelled to Italy's afflicted north. The first cases reported in Austria, Croatia and Switzerland on Tuesday also had travel ties to northern Italy.
And Microsoft became the latest company to warn on a hit to results from the virus disruption.
"Although we see strong Windows demand in line with our expectations, the supply chain is returning to normal operations at a slower pace than anticipated," Microsoft said in a statement.
As a result, Microsoft said that in the current financial quarter its revenue will fall short of earlier forecasts, with Windows and Surface "more negatively impacted than previously anticipated".
Licensing Windows software to computer makers is a major source of revenue for Microsoft, meaning temporary closures or interruptions of production at factories run by partners can cobble its revenue. Surface tablet manufacturing can be directly impeded by such precautions.
CMC's Hewson said: "Against this backdrop we look set to see further heavy falls as positive sentiment collapses further, starting this morning as this stock market correction continues. On the other side of the ledger safe havens have continued to gain including bond markets where US treasury yields have continued to make new record lows, while gold has started to edge higher again."
Gold was quoted at USD1,651.43 an ounce early Thursday, up from USD1,637.00 on Wednesday.
The Japanese yen, another safe haven, also was higher. Against the yen, the dollar was quoted at JPY110.05, down from JPY110.52.
Oil, meanwhile, was trading around its lowest levels since December 2018. Brent oil was trading at USD52.53 a barrel early Thursday, lower than USD54.45 late Wednesday in London.
In early UK company news, Reckitt Benckiser swung to a loss on a hefty impairment of recent US acquistion Mead Johnson Nutrition.
Net revenue was up 2.0% for 2019 to GBP12.85 billion, with like-for-like growth of 0.8%. The group swung to a pretax loss of GBP2.11 billion versus a profit of GBP2.72 billion the year, however, hit by a GBP5.04 billion impairment of goodwill in respect of the Mead Johnson Nutrition acquisition.
Reckitt bought US baby food maker Mead Johnson Nutrition for GBP13.2 billion in 2017.
Adjusted operating profit was down 0.1% at GBP3.37 billion. The adjusted operating margin fell 50 basis points to 26.2%.
Despite swinging to a loss, Reckitt upped its dividend for the year by 2.3% to 174.6p from 170.7p.
Looking to 2020, Reckitt said it expects a better pace of like-for-like growth with the year off to a "strong start", though the environment is uncertain given the coronavirus outbreak.
"While the recent years have been difficult, I believe strongly in our ability to restore performance credibility, and over time, outperform, while making a positive impact on the world," said Chief Executive Laxman Narasimhan.
"We have a clear plan to invest GBP2 billion in our business over the next 3 years to make this happen. Specifically, in 2020 we will increase investment behind our digital capability, in-market competitiveness and operational resilience, particularly in customer service, as well as innovations, as we align around our new organisation," Narasimhan said. "While we are growing faster than last year - and in some areas, significantly faster - we are targeting a higher level of like-for-like net revenue growth than we achieved in 2019, reflecting some of the uncertainty around the impact of the COVID-19."
UK housebuilder Persimmon reported a fall in annual profit and said Chief Executive David Jenkinson intends to step down.
Revenue in 2019 was down 2.4% to GBP3.65 billion. Pretax profit dipped to GBP1.04 billion from GBP1.09 billion in 2018. The firm sold 15,855 new homes, down 4%, though at a higher average selling price of GBP215,709 versus GBP215,563.
The level of customer activity through the initial weeks of 2020 has been "encouraging", said Persimmon, with sales rates tracking above prior years.
Separately, Persimmon said Jenkinson intends to step down as CEO "in due course". He has signalled his intention early to give the board ample time to fund a successor.
"Dave will remain in the CEO role and fully committed to leading the ongoing programme of change for as long as the business requires," Persimmon said.
Jenkinson has only been in the role for a little over a year. He was made interim CEO in November 2018, promoted from managing director, and confirmed as permanent CEO in February 2019. Jenkinson replaced Jeff Fairburn, who had stepped down amid "distraction" over his pay packet.
Ad agency WPP reported a slump in profit for 2019 despite revenue edging up.
Revenue for 2019 was up 1.4% to GBP13.23 billion, but pretax profit slumped 22% to GBP982 million. Like-for-like billings fell 1.0%.
The profit hit was largely due to GBP68.4 million taken as revaluation of financial instruments, versus a GBP169.4 million gain the year before. Of 2019's charge, GBP63.4 million related to premiums on the early repayment of bonds.
Headline profit before interest and tax was down 5.8% to GBP1.62 billion.
"We said that we would make progress in the journey to return WPP to growth, simplifying our business and reducing our debt, and we have delivered against each of these goals - having met our guidance for 2019, achieved our restructuring targets and completed the sale of a majority stake in Kantar. The second half of 2019 was stronger than the first, with performance improving globally and in the United States, our largest market," said Chief Executive Mark Read.
British American Tobacco's revenue for 2019 was up 5.7% to GBP25.88 billion, but pretax profit fell to GBP7.91 billion from GBP8.35 billion.
Total cigarette and tobacco heating products volumes declined 4.4% to 677 billion sticks, with cigarette volumes down 4.7% and THP volumes up 32%.
For 2020, BAT said it expects global industry cigarette and THP volumes to be down 4%, with adjusted revenue growth in the 3% to 5% guidance range. Adjusted revenue grew 5.6% at constant currency in 2019.
Subprime lender Provident Financial boosted its dividend as it reported a substantial rise in profit for 2019.
Pretax profit was up 32% to GBP128.7 million, reflecting lower exceptional costs, the firm said. Revenue dropped to GBP998.3 million from GBP1.09 billion. Exceptional items fell 52% to GBP26.3 million.
Provident boosted its final dividend to 16.0p, from 10p a year ago, resulting in a total dividend for the year of 25p versus just 10p in 2018.
Provident paid no dividend in 2017 amid issues with its consumer credit division, but restored payments in 2018. In 2016, it paid out 134.60p.
"All of our businesses have progressively tightened underwriting over the last two years and we have built good momentum entering 2020 as we continue to adapt the group to the evolving regulatory landscape and to meet our customers' needs," said Chief Executive Malcolm Le May.
Sterling was quoted at USD1.2933 early Thursday, firm on USD1.2920 at the London equities close on Wednesday. The euro traded at USD1.0915 early Thursday, higher than USD1.0866 late Wednesday.
The economic events calendar on Thursday has US personal consumption expenditures data at 1330 GMT.
By Lucy Heming; lucyheming@alliancenews.com
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