LONDON MARKET PRE-OPEN: easyJet Grounds Entire Fleet Due To Covid-19

(Alliance News) - Stock prices in London are seen opening flat on Monday even as the number of global coronavirus infections continued to rise.

In early UK company news, budget airline easyJet grounded its entire fleet in response to the freeze on the travel sector. Medical devices maker Smith & Nephew withdrew its full-year financial guidance, and speciality chemicals firm Johnson Matthey said it expects to take a hit from the Covid-19 pandemic.

IG futures indicate the FTSE 100 index is to open 6.77 points higher at 5,517.10. The blue-chip index closed down 305.40 points, or 5.3%, at 5,510.33 Friday.

easyJet said that, as a result of "unprecedented" travel restrictions imposed by governments in response to the new coronavirus pandemic and the implementation of national lockdowns across many European countries, it has fully grounded its entire fleet of aircraft.

Airlines have taken a hit as countries around the globe close their borders and ordered citizens to stay at home as much as possible to help contain the virus spread.

easyJet said that at this stage there can be no certainty of the date for restarting commercial flights and will continuously evaluate the situation based on regulations and demand.

"We continue to take every action to remove cost and non-critical expenditure from the business at every level in order to help mitigate the impact from the coronavirus. The grounding of aircraft removes significant cost," the company said.

The carrier stressed that it maintains a strong balance sheet, with no debt re-financings due until 2022.

Smith & Nephew said it has withdrawn prior financial guidance issued in February due to the rapid expansion of the virus beyond China since then and will not issue any further guidance until the situation becomes clearer.

The medical devices company had said it expected its underlying revenue growth to be in the range of 3.5% to 4.5% in 2020. In addition, the company had said it expected to deliver a 2020 trading profit margin at or slightly above 2019 level of 22.8%. In 2018, trading margin stood at 22.9%.

"Overall it is too early to determine the consequent impact of the Covid-19 pandemic on our business. In China, elective [surgical] procedures have restarted, but currently remain considerably below pre-outbreak levels. In Europe and the US a range of policy responses are now being implemented, including stopping all but the most urgent surgical procedures. It is difficult to determine how long the situation will last, the speed of normalisation thereafter, and the timing of catch-up of postponed procedures," the company said.

Smith & Nephew, which reports first quarter earnings in May, expects that underlying revenue growth for the first quarter will be around 8% lower on the first quarter of last year. It also expects that second quarter revenue and first half trading margin will be substantially down on the prior year.

S&N stressed it has a strong balance sheet with access to significant liquidity. As of December 31, the company had net debt of USD1.6 billion, excluding lease liabilities, compared to committed facilities of USD2.9 billion, as well as a further USD550 million of senior notes which will be drawn down this coming June.

Bernstein downgraded Smith & Nephew to Market Perform from Outperform.

Johnson Matthey said strategic progress for the financial year, which ends on Tuesday, has been good, but was unable to provide any outlook due to the coronavirus pandemic.

The platinum and speciality chemicals company said that it currently expects to take a hit of around GBP50 million on trading performance from Covid-19. This was due to a combination of reduced demand in its Clean Air business, which serves the auto industry, and around GBP20 million of delayed shipments caused by logistics challenges across other businesses, Johnson Matthey said.

As a result, the company now expects to deliver group operating performance below current market expectations.

In financial 2019, Johnson Matthey reported operating profit of GBP531 million.

"In 2019/20, we have made good strategic progress and were on track to deliver results in line with market expectations this year, prior to developments with Covid-19. The ongoing pandemic has led to a deterioration in some of our end markets and consequently we now expect to deliver group operating performance below market expectations. Looking beyond the current environment, given our leading market positions, strong technology offering, and operational and investment discipline, we remain confident in our medium term strategy," said Chief Executive Robert MacLeod.

Johnson Matthey said it has a strong balance sheet and good access to liquidity with substantial cash resources and significant undrawn bank facilities.

Further, Johnson Matthey said that given the high levels of uncertainty, it was not able to reasonably quantify the affects of the virus on operations and financial performance. The company will report annual results on May 28.

The global coronavirus death toll surged past 30,000 over the weekend as Europe and the US endured their darkest days of the crisis.

A senior US scientist issued a warning Sunday that the novel coronavirus could claim 100,000 to 200,000 lives in the US.

Anthony Fauci, who leads research into infectious diseases at the National Institutes of Health, told CNN that models predicting a million or more deaths were "almost certainly off the chart." "It's not impossible, but very, very unlikely." He offered a rough estimate of 100,000 to 200,000 deaths and "millions of cases".

But Fauci, a leading member of US President Donald Trump's coronavirus task force, quickly added, "I don't want to be held to that...It's such a moving target that you can so easily be wrong and mislead people."

Asked how soon the wider availability of testing might allow a lifting of travel and work restrictions, Fauci said, "It's going to be a matter of weeks. It's not going to be tomorrow and it's certainly not going to be next week. It's going to be a little bit more than that."

The Japanese Nikkei 225 index closed down 1.6%. In China, the Shanghai Composite is down 1.3%, while the Hang Seng index in Hong Kong is down 1.0%.

The pound was quoted at USD1.2381 early Monday, down from USD1.2427 at the London equities close Friday.

In the US on Friday, Wall Street ended lower, with the Dow Jones Industrial Average down 4.1%, S&P 500 down 3.4% and Nasdaq Composite down 3.8%.

On Friday, Trump signed into law the USD2 trillion rescue plan to salvage a US economy crippled by the novel coronavirus. Trump's signature brought an end to a dramatic, week-long legislative saga on Capitol Hill and triggered the distribution of millions of relief checks of up to USD3,400 for an average American family of four.

The euro was quoted at USD1.1075, flat from USD1.1071 late Friday. Against the yen, the dollar was quoted at JPY107.75, down from JPY108.07.

Brent oil was quoted at USD23.44 a barrel Monday morning, down from USD25.03 late Friday. Gold was quoted at USD1,613.07 an ounce, lower than USD1,626.20.

The economic events calendar on Monday has UK mortgage approvals at 0930 BST and Germany inflation readings at 1300 BST.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

Copyright 2020 Alliance News Limited. All Rights Reserved.