After the pandemic we must deal with global recession – but there will be corporate opportunities, too

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”.


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