Home > Business > Businesses warn of hit to profits as second U.K. lockdown deals ‘devastating blow’

Businesses warn of hit to profits as second U.K. lockdown deals ‘devastating blow’

184 Views

A series of U.K. companies across the airline, retail and hospitality sectors warned of a hit to profits on Monday, as they raced to count the cost of the nation’s latest COVID-19 lockdown, which comes into force this Thursday.

Under the new restrictions, restaurants, pubs, entertainment venues and nonessential shops in England will have to close until Dec. 2, although cabinet office minister Michael Gove has said the restrictions could extend beyond that date.

Read: England faces new lockdown as U.K. virus cases pass 1 million

Chancellor Rishi Sunak has extended the government furlough program for the length of the lockdown, making grants of up to £3,000 a month for companies forced to close their doors.

Adam Marshall, director general of the British Chambers of Commerce, said the new restrictions will be a “devastating blow” to business communities who have done everything in their power to adapt and operate safely.

“Business and market confidence have been hit hard by the unclear, stop-start approach taken by governments across the U.K. over the past eight months, with little end in sight,” Marshall said.

Read: How the Great British pub is reeling under new COVID-19 rules

”Many firms are in a much weaker position now than at the start of the pandemic, making it far more challenging to survive extended closures or demand restrictions,” he added.

His comments came as Ryanair
RYAAY,
+3.10%

said on Monday that it faced a “hugely challenging” winter as governments across Europe imposed travel restrictions to curb the spread of the virus.

Associated British Foods
ABF,
+1.44%
,
the owner of clothing retailer Primark, said it estimated it would lose £375 million ($484 million) of sales from temporary closures of its stores in major markets because of COVID-19 restrictions.

Helen Dickinson, chief executive of the British Retail Consortium, said retail faces “a nightmare before Christmas” as the government proposes to close thousands of retail premises under this new national lockdown, denying customers access to many of their favorite shops and brands.

“It will cause untold damage to the high street in the run up to Christmas, cost countless jobs, and permanently set back the recovery of the wider economy, with only a minimal effect on the transmission of the virus,” Dickinson said.

Meanwhile, GVC Holdings
GVC,
-3.43%
,
the owner of the Ladbrokes Coral betting group, warned on Monday of a £43 million hit to the profit of its gambling stores.

However, shares in Ocado
OCDO,
+8.04%

leapt 6% on Monday, as it upgraded earnings forecasts and investors saw greater demand for its online groceries amid the new lockdown measures. Gear4Music
G4M,
+10.48%

was also in demand, surging more than 8%, as it saw strong sales as people stuck at home turned to musical instruments to keep them busy.

“Drilling down into the U.K. equities space, it is clear to see that investors are sifting through the market looking for lockdown winners and dumping lockdown losers,” said Russ Mould, investment director at AJ Bell.

“Supermarkets are going to be in demand once again, with
chatter that big queues already started to form over the weekend. Sales could
improve for this sector over the coming month, but costs are also likely to be
higher as companies likely reintroduce measures to help keep customers safe and
crowds under control,” he added.

Ryanair
RYA,
+3.84%

reported a pretax loss of €197 million ($253 million) for the first six months to the end of September, compared with an €1.15 billion profit for the same period last year. Passenger numbers plunged by 80% to 17 million, compared with 85.7 million in 2019.

Shares in Ryanair were trading 2.92% higher on Monday morning. Shares in International Airlines Group
IAG,
-0.02%
,
owner of British Airways, fell 1%, while easyJet
EZJ,
+0.11%

were 0.59% lower.

Michael Hewson chief market analyst at CMC Markets U.K., said that even without the weekend news of another U.K.-wide tightening of restrictions, the outlook for the travel sector was already looking increasingly bleak.

“While politicians have held out the hope of a relaxation of restrictions at the beginning of December, the reality is that we could well go beyond that, and it would appear the softening up for just such an outcome is already beginning,” Hewson said.

Read: Heathrow boss hopeful of London-New York air bridge by Thanksgiving

Ryanair had its entire fleet grounded from mid-March to the end of June as a result of coronavirus measures,

The carrier said the second half of the year will continue to be “hugely challenging” as it kept its forecast to carry 38 million passengers this financial year, but said this guidance could be revised down if European governments continue to “mismanage air travel and impose more uncoordinated travel restrictions or lockdowns this winter.”

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said Ryanair’s descent into loss showed just how dramatically the COVID crisis has reversed the fortunes of airlines.

“The company does see a glint of hope through the stormy clouds for next summer, expecting a sharp lift in passenger numbers, but that could still be wishful thinking. Some combination of a vaccine and track-and-trace testing could prevent a third wave next year, but if this is just the start of a trend of rising infections and repeat restrictions, the company will struggle to climb out of the crisis,” Streeter said.

Read: Heathrow offers rapid one-hour COVID-19 tests — they aren’t cheap

Ryanair’s revenues in the six months to September dropped to €1.1 billion from €5.3 billion last year. The airline said that its cost base was reduced by 67% in the first half to €1.35 billion, and that it expects to receive its first Boeing
BA,
+2.37%

737-Max-200 aircraft early in 2021, with 30 in operation before peak summer season in 2021.

As of the end of September 2020, Ryanair said it had €4.5 billion cash on its balance sheet.

Read: Ryanair raises EUR400M in share placing

“As we look beyond the COVID-19 crisis, and the emergence of effective vaccines in early 2021, the Ryanair Group expects to have a lower cost base, a stronger balance sheet, which will enable it to fund lower fares, and add new lower-cost aircraft to capitalize on the many growth opportunities that will be available in all markets across Europe,” the airline said in a statement.

Source link

TAGS , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,
Hi guys, this is Kimmy, I started LicensetoBlog to help you with the latest updated news about the world with daily updates from all leading news sources. Beside, I love to write about several niches like health, business, finance, travel, automation, parenting and about other useful topics to keep you find the the original information on any particular topic. Hope you will find LicensetoBlog helpful in various ways. Keep blogging and help us grow as a community for internet lovers.