Corporate Profit Update
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With soaring commodity prices and consumers restarting to spend outdoors, the global economic rebound brought about by Covid-19 boosted corporate earnings on Thursday.
Companies listed in the UK alone have announced more than $10 billion in dividends and share repurchases, and groups ranging from Royal Dutch Shell to brewer Diageo have reported a recovery in sales and profits.
After the economic shock of the coronavirus, strong demand drove commodity prices soaring, allowing Shell to increase its dividend by 40% after cutting last year. Anglo-American Said that it will return $4.1 billion to shareholders after the strongest profit in the miner’s 104-year history.
Anglo CEO Mark Cutifani said: “In the first six months of 2021, as the economy begins to regain lost ground under the stimulus of stimulus measures, demand and prices for many of our products are strong… Buying should tell you that we think it’s not as good as it gets.”
France’s TotalEnergies announced its highest half-year profit in five years and announced stock buybacks, while steel manufacturer ArcelorMittal announced its highest profit since 2008.
Mining giant Rio Tinto announced Record $9.1 billion As China’s economic rebound has led to a surge in iron ore demand, its half-year profit has exceeded the full-year profit of 2020.
As the economic recovery boosted demand for raw materials, consumers in countries such as the United States, the United Kingdom, and several European countries realized new freedoms by returning to bars, restaurants, and offices.
The relaxation of Covid-19 restrictions will help drive profit growth for Diageo and the world’s largest beer maker Anheuser-Busch InBev, as well as the world’s largest exhibition group Informa and pest control company Rentokil, whose sanitation business has benefited from the reopening of commercial premises.
Informa’s chief executive, Lord Stephen Carter, described the “gradual recovery of sports activities” in the company’s main markets, China “effectively returned to the level you would recognize in 2019”, and the United States “is accelerating pace”.
Although the earnings figures are flattered compared to the grim figures of the pandemic a year ago, the gains are far more than that. Nestlé, the world’s largest food manufacturer, announced its strongest first-half growth in a decade, thanks to a sharp increase in sales of its food, beverages and confectionery outside the home.
The resurgence of air travel has boosted the aerospace and defense group Airbus, which doubled its forecast for this year to 4 billion euros due to a rebound in demand for aircraft.
However, the spread of the Delta variant of the coronavirus has cast a shadow over the prospects of companies, and countries such as Brazil and India are still struggling to cope with the impact of the latest wave of viruses.
“Covid-19 is not over yet,” Airbus CEO Guillaume Forry warned. “Vaccination levels are very different around the world, and we cannot rule out that there will be another variant after the Delta variant, so we think we must be very cautious… In terms of recovery, this will be a bumpy road.”
Despite reporting an increase in net profit in the second quarter, South Korean electronics group Samsung warned that the new wave of Covid-19 is increasing risks to its supply chain, especially in Vietnam.
For consumer-driven companies, even if demand recovers, soaring commodity prices threaten profit margins.
Nestlé CEO Mark Schneider said: “What we have seen this year is a kind of turning point. After several years of low inflation, it suddenly accelerated very strongly.”
Reporting by Neil Hume, Sylvia Pfeifer, Sam Jones, Alistair Gray and Alex Barker