Coronavirus is now hurting Australian companies directly

Coronavirus Australian companies results profit
The economic impact of the coronavirus is starting to show up in reported company results.

The coronavirus threat is finally turning up in Australian company results – and it hasn’t been pretty.

Even as the Australian dollar continued to plunge to fresh decade lows and the ASX 200 shed 2.4% on Monday, a warning from Australian steel company BlueScope (ASX: BSL) sent further shivers through the market.

BlueScope shares plunged as much as 9% after the company warned its China operations are likely to be “heavily impacted” in February and March by coronavirus disruptions.

The company has seven manufacturing facilities in China, plus 32 sales and marketing offices with around 2,000 employees in the country.

Rate of recovery for rest of the year uncertain

Even more ominously, BlueScope said that the rate of recovery across the rest of the year “remains unclear at this point”.

BlueScope chief executive officer Mark Vassella said in an earnings call that all of the company’s four main operating sites in China have resumed operating, although he said that “operating throughput remains restricted”.

“Outside of China, we are aware of some impacts to our supply chains which, to date, have been mitigated. We continue to monitor the situation,” said Mr Vassella.

Profit down but pre-tax earnings above expectations

In its 1H 2020 results, BlueScope’s reported net profit after tax was down 70% to $185.8 million, which the company attributed to lower prices for the steel it produces, combined with higher raw material costs.

Underlying earnings before interest and tax (EBIT) were $302.4 million.

While the company’s first half EBIT fell 64% compared to the prior corresponding period’s $849.6 million result, the December’s half result came in well ahead of the company’s guidance for the half of about $225 million EBIT.

BlueScope’s underlying profit of $199.6 million was also higher than market expectations of a $179 million result.

“The $302 million underlying EBIT showcases yet again that BlueScope’s turnaround and transformation is real. The result is more than creditable in light of the weaker cyclical spreads and is a tribute to our strong team of 14,000 employees across 18 countries,” Mr Vassella said.

“Importantly, it confirms BlueScope is now a resilient, global company with a strong balance sheet and high-quality assets,” he added.

Economic impact of coronavirus remains uncertain

The company declared an unchanged, unfranked interim dividend of $0.06 per share, to be paid on 31 March.

For the upcoming 2H 2020, Bluescope has forecast that underlying EBIT will be similar to 1H, which was $302.4 million.

“Underlying demand across our major markets is generally stable, however the economic impact of COVID-19 has created uncertainty for our Asian businesses and Asian steel spreads in the near term,” Mr Vassella explained.

Last August, BlueScope announced a $1 billion expansion of a key steel manufacturing plant in the US, and the company said on Monday morning that work on the project was on schedule.

Air New Zealand follows Qantas in cutting flights, lowering profit expectations

Another company to forecast a hit from the coronavirus was Air New Zealand (ASX: AIZ), which followed Qantas (ASX: QAN) in slashing flights to Asia and across the Tasman as it prepares to take a financial hit of up to NZ$75 million (A$72 million).

The airline said it would cut capacity into Asia by 17% from February through to June, including the suspension of Seoul services from 7 March.

Air New Zealand has already suspended flights to Shanghai and reduced flight frequency to Hong Kong, with the coronavirus outbreak severely denting travel demand in Asia and taking a heavy toll on the region’s airlines.

Whole airline industry now expects decline in demand

Overall, the airline industry is now expecting 2020 to mark the first annual decline in global passenger demand in 11 years, with revenue losses at this stage estimated to be around $45 billion.

Air New Zealand said flights between New Zealand and Australia would be reduced by 3% from March through to May, while domestic flying will be cut 2% in March and April.

“The airline’s revenue outlook for the remainder of the year is expected to be adversely impacted as a result of softer demand for travel to and from Asian destinations,” Air New Zealand said in a statement.

Domestic travel plans also reduced

“Weaker forward bookings for travel on the Tasman and domestic networks have also emerged as a result.”

Qantas last week cut flights into Asia by 15%, trans-Tasman flights by 6% and domestic flights by 2% in light of the health crisis, which has result in travel bans on non-residents travelling from China.

The financial impact on Qantas would be up to $150 million this year.

Air New Zealand said it would take a hit of NZ$35 million to NZ$75 million, prompting it to downgrade its full-year profit guidance from between $350 million and $450 million, to between $300 million and $350 million.

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