12 ★ FINANCIAL TIMES Thursday12 March 2020

COMPANIES

N

orwegian Air Shuttle as stumbled from crisish

to crisis in recent years. But the coronavirus-

inspired slump in demand is the most serious

test yet for Europe’s third-largest low-cost air-

line. The collapse in passenger numbers is

putting all airlines in atight spot, pushing them to cancel

flightsandseekwaysofcuttingcostsfastasrevenuesevap-

orate. Norwegian is especially exposed due to its high debt

burdenincurredthroughadecadeofrapidexpansion.

Analysts are worried it could breach its bond covenants

or simply run out of cash. Last year, it overcame similar

Doomsdayconcernstosurvivethroughamixtureofrights

issues and other radical actions. Can it pull off the same

trickagain?

At first, the litany of problems Norwegian has faced in

the past two years appear to be down to bad luck. The air-

line had big problems with the engines on itsBoeing 877

Dreamliner aircraft in 2018. A few months later, it was fur-

ther hurt when the same manufacturer’s 737 Max planes

were grounded after two fatal crashes. Now the coronavi-

rus has hit, sending Norwe-

gian’s shares down by almost

three-quarters in the past

month alone to theirlowest

level ince2005.s

But some analysts argue

that for all Norwegian’s ina-

bilitytocatchabreak,itsreal

problem is its lack of cash

reserves if something goes

wrong. The airline sector is an industry where unexpected

things are prone to occur; that leaves what Andrew Lob-

benberg at HSBC calls the “world’s most levered listed air-

line”susceptibletoshocks.

Norwegian’s net debt has increased from NKr22bn

($2.3bn) in 2017 to NKr58bn at the end of last year— ni

large part due to accounting rule changes on leases— ustj

as its equity market capitalisation has plunged to

NKr1.8bn. Analysts at ABG Sundal Collier show its net

debt to ebitda (earnings before interest, tax, depreciation

andamortisation)ratiois7.1,comparedwithanaverageof

1.8 for European carriers—and just 0.5 for low-cost air-

linessuchasRyanair nda easyJet.

Norwegian, like nearly all carriers, is taking action. On

Tuesday, it announced 3,000flight cancellations— ro

about 15 per cent of its capacity between mid-March and

mid-June— ndwarnedstaffinanote“tobepreparedforaa

scenariowherewereducecapacitybyupto50percent”.

Fewintheindustry— xecutives,analystsorinvestorse —

know how big the knock will be. Analysts at ABG already

worried last week that Norwegian could break the book

equity covenant on its bonds in the second quarter of this

year. They also forecast that

its net cash of NKr3bn—

compared with revenues of

NKr43.5bn last year— ouldc

shrink to just NKr880m by

theendofJune.

Mr Lobbenberg said on his

models of falls in unit reve-

nues this year of 3-7 per cent,

“Norwegian lives” in each

scenario. But, he added: “If it’s materially larger, you do

challengethosecovenants.”

Thus many speculate that Norwegian will need to tap

shareholders for the fourth time since March 2018. ABG

analysts estimated Norwegian could have to raise up to

NKr3bn, close to double its current market value, to avoid

facing the same worries next year. But raising capital dur-

ing such a crisis is far from straightforward. “It’s possible

that launching a rights issue in the current environment

wouldn'twork,”saidMrLobbenberg.

The market is looking closely at whatGeir Karlsen, Nor-

wegian’s chief financial officer, can do after he positively

surprised investors last year. He shifted the strategy from

growth to profitability, and unveiled a package of meas-

ures to shore up the balance sheet. Debt was restructured,

a long-awaited aircraft joint venture unveiled, and a stake

inthebanktheairlinefoundedsoldoff.

Then late last year Norwegian’s board upset many in the

market by passing over Mr Karlsen for the chief executive

job, instead choosing a former retail executive and McKin-

seyconsultant,JacobSchram.

AsthecoronavirusdeepensinEurope,theflightpathfor

MessrsSchramandKarlsentoguideNorwegiantosafetyis

gettingmoreandmoreturbulent.

[email protected]

INSIDE BUSINESS

EUROPE

Richard

Milne

Litany of problems

at Norwegian puts

safe landing in doubt

Norwegian’s real

problem is a lack

of cash reserves

if something

goes wrong

R I C H A R D M I L N E
NORDIC AND BALTIC CORRESPONDENT

Swedbank’s investigation into money
laundering has found 586 transactions
thatcouldhavebreachedUSsanctions.

Sweden’s oldest bank will report the
activity totalling $4.8m, uncovered by
Clifford Chance, the law firm, to the US
Treasury’s Office of Foreign Assets Con-
trol,andcouldfaceafine.
More than 500 of the potential
breachesrelatedtosalarypaymentsand
transactions covering the operation of a
shipinCrimea—subjecttoUSsanctions
— from Swedbank branches in the Bal-
tics,thelendersaidyesterday.
“This shows that the bank’s process
for know-your-customer, transaction
monitoring and internal governance
and control have had shortcomings,”
saidJensHenriksson,chiefexecutive.

“Atthesametime,itissomereliefthat

it regards a relatively low amount and

transactionssuchassalarypayments.”

Mr Henriksson took over as chief

executive in October after the scandal

cost the incumbent his job.Göran Pers-

son, former prime minister, was

brought in as chairman as part of plans

tostabilisethebank.

The chief executive, who has admit-

ted the lender was in an “existential

crisis”, has set out 152 initiatives to

improve anti-money laundering poli-

ciesandcombatfinancialcrime.

Shares in Swedbank, which have

fallen more than a third since the scan-

dal broke a year ago, rose 3 per cent yes-

terdaymorning.

Danske Bank, the Danish lender that

was the first in the Nordics to report a

big money-laundering scandal, has said

it had so far found no breaches of US

sanctions as it analysed €200bn of

potentiallysuspicioustransactions.

BNP Paribas, the French bank, agreed

in2014topayarecord$8.9bnforbreak-

ingUSsanctionsagainstSudan,Iranand

Cuba.

Clifford Chance’s findings, which will

be presented in two weeks, focused only

on US dollar transactions from Swed-

bank branches in Estonia, Latvia and

Lithuania for five years from March

2014 due to what the lender deemed the

“applicable statute of limitations”. But

the lender, the largest bank in the Baltic

region,saidtheoverallprobefocusedon

transactions going back to 2007, with-

outgivingfurtherdetails.

Swedbank is facing investigations by

US, Swedish and Estonian authorities.

Sweden’s financial regulator is due to

present its report into the bank’s anti-

moneylaunderingcontrolsnextweek.

Financials

Swedbank finds $4.8m in suspect activity

O L A F STO R B E C K —FRANKFURT

Adidaswarned that a sales collapse in

Asiawould wipe up to €1.1bnoff reve-

nues and €550moff operating profit in

thefirstquarter.

Adidas and rivalPuma aids that while

China revenueshad started to recover

slightly this month, business elsewhere

was suffering increasingly. In Europe,

the number of customers visiting shops

ofbothsportswearmakershasfallen.

“We are at the bottom of the food

chain,” saidKasper Rorsted, Adidas

chief executive,saying people in home

quarantine were more concerned about

restocking their fridge than buyingrun-

ning shoes. James Grzinic, an analyst

with Jefferies, wrotethat the virus hit

“looksworsethanfeared”.

Shares in Adidas dropped 9.1 per cent

whilePumawasdown4.5percent.

Adidaswasforecastinga ear-on-yeary

revenue decline of about 10 per cent in

the first quarter as sales in China, Japan

and Korea were expected to fall€1.1bn.

Revenue in the rest of the world was

poisedtorise6to8percent.

China has become one of Adidas’s

fastest-growing markets and last year

accounted for 23 per cent ofsales. Adi-

das cancelled all shipments to wholesal-

ers in the country in February and

expected many unsold shoes and

clothestobereturnedbyretailers.

Last month, it said sales in the coun-

try had fallen 85 per cent over roughly

threeweeks.

Mr Rorsted said the virus was an

“uncontrollable force” in the market

buta temporary setback. “We know

that the consumer will come back. The

secondhalfwillalsocome.”

Adidas saidsales in 2019 rose 6 per

cent to €23.6bn while its operating

profit margin widened to 11.3 per cent

from 10.8 per cent a year earlier. Mr

Rorsted described it as the “best year in

ourhistory”.

A potentialcancellation f the Uefao

European Football Championship and

the Olympic Games this year would cost

Adidasbetween€50mand€70minrev-

enue. “In the bigger context, the overall

impactismarginal,”saidMrRorsted.

Puma said it did not expect a quick

normalisationand dropped the full-

year growth target of about 10 per cent

thatitgavelastmonth.

Both companies said they were una-

ble to give any reliable full-year guid-

ance as the uncertainties weretoo large.

They pointed out that their supply

chains, which rely heavily on manufac-

turers in China, were not suffering sig-

nificantdisruptionsofar.

Personal & household goods

Asia sales collapse takes heavy toll on Adidas

F T R E P O RT E R S

Walt Disney s keeping its Paris themei
park open despite three staff testing
positive forcoronavirus nd a uniona
callingonthegrouptoclosethesite.
Disney has shut its parks in Hong
Kong, Shanghai and Tokyo since the
beginning of the outbreak but is still
hosting visitors at six US venues and its
park in Paris, which employs around
17,000 staff, citing advice from relevant
governmentauthorities.
In the past few days three “cast mem-
bers”, who worked on backstage main-
tenance at Disneyland Paris, are con-

firmedtohavecontractedthevirus.Dis-

ney said itwas confident none of them

had direct contact with visitors and it

has takenprecautions s uch as reducing

the number of employees playing

characters in some areas to minimise

contactwithvisitorstakingphotos.

“Given that Disneyland Paris site is

the biggest employer in the Seine-et-

Marne region, there is pressure to stay

open,” said Denis Gravouil, a represent-

ative of the CGT union. “For the health

of employees, it would be sensible to

close.”

Analysts have warned ofpotential

damage to Disney’sreputation if it mis-

judges the risks of continuing to host

families, even if it complies with guid-

ance given byauthorities. “The last

thing Disney needs is for somebody to

become seriously ill r, heaven forbid,o

die ha ving contracted Covid-19 while

visiting a Disney park or working in a

Disney park,” Bernstein analysts said.

“In addition to the human tragedy, the

financial and brand damage from that

would, obviously, be much worse than

the costs of shutting down the parks

temporarily.”

Disney shares havefallenmore than a

quarter in the past month, wiping out

almost$70bninmarketvalue.

Amid the turmoil the group

announced thatBob Iger, Disney’schief

executive for the past decade-and-a-

half, would bestepping back o bet

replacedbyBobChapek.

Speaking at Disney’s shareholder

meetingyesterday, Mr Igersaid he was

“sobered by the concern that we feel for

everyone affected by this global crisis.

What we’ve demonstrated repeatedly is

that we are incredibly resilient”. The

French government has adopted a grad-

ual approach to closing down public

events, large gatherings and schools

since the first cases of coronavirus

appearedinthecountryinlateJanuary.

At the end of February it decided to

ban all indoor events with more than

5,000 attendees. Earlier this week,

health authorities lowered that thresh-

old to ban gatherings of 1,000 people

that were “not indispensable to the con-

tinuityofthelifeofthenation”.

The Disneyland Paris park is not

affected by the 1,000-person rule

becauseitisconsideredaplacethatpeo-

ple pass through rather than an indoor

spacelikeatheatreorconferencehall.

Reporting by Alex Barker in London, Leila

Abboud in Paris and Anna Nicolaou in

New York

Travel & leisure

Disney Paris open despite virus cases

CGT union demands

closure of resort after

staff trio test positive

P E T E R C A M P B E L L
MOTOR INDUSTRY CORRESPONDENT

Fiat Chrysler as warned it may shuth
some of its Italian car factories as it
implements a set of extraordinary
measures to tryto prevent the spread of
coronavirus nitshomemarket.i
The group will cut production levels
so it can move assembly line staff
further apart from one another, while
all areas of the plants, including rest
areas and bathrooms, will receive
“intensive sanitisation”, the carmaker
said esterday.y
“As a result of taking these actions the
company will, where necessary, make
temporary closures of its plants across
Italy,”itadded.
The disruption marks an escalation
for the industry that has so far
seen upheaval from coronavirus
limited to Asian plants, with facilities in
China, Korea and Japan all witnessing
stoppages.
FCA has previously warned that it
faced parts shortages in Europe from
Chinese suppliers, whileJaguar Land
Rover arned it was flying componentsw
“in suitcases” rom China to keep itsf
UKplantsrunning.
However, few carmakers have been
forced to halt production lines in
EuropeorNorthAmerica,areasthatare
seeingasharpriseincoronaviruscases.
Italy has been theworst-hit esternW
nation with around 10,000 reported
cases and over800 deaths, leading the
government to prohibit all non-essen-
tialworktraveloutsidethehome.
The hardest-hit northern part of the
countryincludesseveralofFCA’splants,
aswellasFerrari’sMaranellofacility.On
Monday the supercar brand said it was
workingtokeepthefacilityoperational.
Four of FCA’s facilitiesaffected —
Pomigliano, Atessa, Melfi and Cassino —
areexpectedtoreopenbyMonday.
“To enable greater spacing of employ-
ees at their workstations, daily produc-
tion rates will be lowered to accommo-
date the adapted manufacturing proc-
esses,”thecompanysaid.
FCA is facing a drop in demand in its
largest European market. Italian car
sales fell by 9 per cent in February, and
are expected to decrease further during
March. Last month the group started
asking office staff to work from home,
whiletelling those at work to keep their
distancefromeachotheraswellas“con-
trolling employee numbers at company
cafeterias”.

Automobiles

Fiat Chrysler

warns of

temporary

plant closures

JAV I E R E S P I N OZ A— BRUSSELS

DAV I D K E O H A N E— PARIS

EU regulators are canvassing independ-

ent opticians across the continent on

whether Ray-Ban makerEssilorLuxot-

tica’s €7.1bn acquisition ofGrandVision

will drive up the cost of glasses, in a sign

that Brussels is stepping up scrutiny of

thedeal.

In questionnairesdispatchedbyBrus-

sels this week, small opticians were

asked for their views both on how com-

petitive they believe GrandVision and

EssilorLuxottica are on price and on the

proximityoftheirstores.

They were also polled on whether

Luxottica brands are a “must-have” for

opticiansiftheywanttoopenstoresthat

can be competitive with those of Grand-

Vision,accordingtothequestionnaire,a

copy of which was seen by the Financial

Times.

EssilorLuxottica’spurchase of Grand-

Vision ast July caps half a century ofl

empire building by Italian billionaire

Leonardo Del Vecchio, who founded

Luxottica nd in 2017 masterminded itsa

merger with France’s Essilor. Snapping

up GrandVision will increase Essilor-

Luxottica’s retail presence, adding more

than7,200storesaroundtheglobe.

The EU launched a full-blown probe

into the deal in February following con-

cerns among retailers and rival lens

makers that it would result in higher

pricesandlesscompetition.

It is now one of a handful of transac-

tions subject to a prolonged investiga-

tioninBrussels.

Regulators are also examining

whether EssilorLuxottica is able to use

data it gathers from rival retailers to its

own advantage, according to the

40-page document sent to independent

opticians.

“PleasedetailwhatEssilorLuxotticais

able to obtain... in your competitive-

ness at retail level through data that you

transmit through its IT systems,” the

questionnaire states. Opticians have

untilMarch16toreply.

EUregulatorshaveadeadlineofJuly

on whether to clear the deal, demand

divestments or block it. Earlier this

month, the Association of Optometrists

in the UK warned that EssilorLuxottica

“could use the market information it

holds about companies that it currently

supplies, in a way that will benefit the

newstoresitwillown”.

Analysts at Kepler Cheverux raised

concerns of further delays for the deal,

warning if it does not close by the end of

July EssilorLuxottica would have to lift

the purchase price by 1.5 per cent. The

original deal included a provision in

which the price jumps if the deal does

notclosewithin12months.

EssilorLuxottica declined to com-

ment. A commission spokesperson also

declinedtocomment.

The acquisition has already received

conditionalclearancefromregulatorsin

the US, Russia and Colombia, and

remains under review in Brazil, Chile,

Mexico and Turkey, according to RBC

CapitalMarkets.

It is not the first time that EssilorLux-

ottica has faced scrutiny in Brussels:

regulators signed-off on the original

mergerin2018afteralengthyprobe.

Retail

EU steps up scrutiny of GrandVision deal

Star quality: Dan Aykroyd and John Belushi wear Ray-Bans, now owned by EssilorLuxottica, in ‘The Blues Brothers’ —Allstar/Universal Pictures

Opticians

were polled

on whether

Luxottica

brands are a

‘must-have’

Few in the

industry

know how

big the knock

will be

Precautions

have been

taken such

as reducing

the number

of workers

playing

characters

to minimise

contact

MARCH 12 2020 Section:Companies Time: 3/202011/ - 18:32 User:andrea.crisp Page Name:CONEWS1, Part,Page,Edition:USA , 12, 1