New Zealand businesses which found themselves looking into the abyss of a largely moribund economy can now lift their vision towards revival, as the government signals the move into lockdown level three.
To a degree the vision is still clouded: one of NZ’s biggest enterprises, Fonterra, has warned its farmer-suppliers of the imminent global recession, which it foresees will extend deep into 2021, while calling on them to be “cautious” with their on-farm decisions.
Fonterra chairman John Monaghan says the global recession will impact people’s purchasing power and that will be reflected in prices for all products and services.
“The scale of the impact is impossible for economists to predict right now.”
Clearly, it won’t be easy, nor speedy, to recover from the lockdown, and the impact of the pandemic.
According to the International Labour Organisation, sectors now facing a severe decline in output, and thus a high risk of lay-offs and furloughs, employ almost 38% of the global workforce – some 1.25bn workers. Hard on the heels of the global pandemic will come a global depression.
Government handouts in America and Europe should ease the pain of some of that unemployment — if fully implemented and if the benefit systems work. But many of the proposed beneficiaries, such as florists, gyms and bakeries, will still go short. Whether they scrape by or go under, that will prolong the slump in consumer confidence.
Forestry in NZ has suffered particularly from not being classified as “essential”. Even before NZ went into lockdown it had been virtually shut out of China’s market because of the outbreak of the coronavirus outbreak there.
Fortunately that market – as it re-opened – is at levels which will be encouraging for NZ logging businesses, even though competitors have been looking to get in first.
Manufacturers will have cashflow problems as they seek to re-establish supply chains, and regain export markets which may have been lost to competitors from other countries which were less restrictive.
Even those companies which were deemed “essential” and continued to operate during the lockdown expect earnings for the year to be lower than previously projected. For example, Skellerup whose products are critical to the continuity of safe food and water and the function of health and medical devices, said demand throughout March remained strong across its business but it was withdrawing previous guidance that net profit for the year would be consistent with the previous year’s.
Carpet manufacturer Cavalier Corp, saying it will be progressively opening its manufacturing operations in Auckland, Napier and Wanganui after the level 4 restrictions are lifted on 27 April, reports March and April trading has been impacted as expected, particularly in NZ, by the Covid-19 regime.
Since the government-mandated lockdown in NZ on March 26, retail sales in NZ have ceased. Website orders are still able to be taken with deliveries to restart once the lockdown lifts.
Trading activity has continued in Australia and sales volumes for the first three months of the year were above the previous year, although these have declined in April with the fall-off in consumer demand. The company has applied for $2.8m of the government wage subsidy in NZ.
Government support is also being considered in Australia and the board has agreed to take 20% of their directors’ fees in shares in the company to assist with cash flows and to better align their interests with those of shareholders.
Fisher & Paykel Healthcare which manufactures and markets products and systems for use in respiratory care, acute care, and surgery had a rather different problem. It decided to release its annual result on June 29 rather than May 28 because it has nearly 5,000 people around the world focussed on meeting the increased demand for respiratory products, which are being used in the treatment of patients with Covid-19.
Chief financial officer Lyndal York says:
“This time of year our financial controllers in our global offices would usually be dedicated to completing year end reporting. Because of the Covid-19 pandemic, many of these people are currently working remotely – assisting with customer enquiries, getting product into the hands of customers and providing operational support.
“One of our core beliefs is doing what is best for the patient, and it should come as no surprise that we think that these activities should take priority”.
That sample from the NZ manufacturing sector underlines the broad scope of how the post-Covid-19 scenario may play out.
As the London “Economist” noted last week, the gloom within countries is not evenly spread. Some sectors are doing worse than others and the fortunes of the most and least resilient are far apart. Should the coming recession not kill off animal spirits entirely, there will be lots of opportunities for corporate upheaval, takeovers and strategic shifts.
“Yet even as they walk through the valley of the shadow of death, chief executives and corporate strategists are beginning to look to the post-covid world to come. What they think they see, for good or ill, is an acceleration.
“Three existing trends—the deglobalisation unpicking the business world that grew up in the 2000s; the infusion of data-enabled services into ever more aspects of life; a consolidation of economic power into the hands of giant corporations—look likely to proceed at a faster rate than before, and perhaps to go further, too.
“Optimists—and business folk tend to look on the bright side—see this acceleration as offering new possibilities for reinvention, even resurrection. Pessimists see inefficiencies and insularity weighing on profitability for many years to come”.