LONDON/HONG KONG (Reuters Breakingviews) – Corona Capital is a daily column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.
– Lockdown smoking
– UK aid
– Baidu’s new app
UP IN SMOKE. Big Tobacco is reaping the benefits of a captive customer base. Imperial Brands said here on Tuesday that 2020 revenue was boosted by a fall in illegal cigarette sales and smuggling. Chief Executive Stefan Bomhard delivered nearly 8 billion pounds of adjusted group revenue for the 12 months ending Sept. 30, up 0.8% from the previous year. The 13 billion pound cigarette maker’s share price rose over 3%.
The boost may not last. Although Imperial Brands expects better profits in 2021, a vaccine and an end to lockdowns are likely to mean fewer days working at home, where people can smoke more easily. A return to normal could also revive the cigarette black market. Bomhard is revealing plans to tackle the problem at an investor day on Jan 27. But with e-cigarette sales down and fewer opportunities for smokers to light up, 2020’s win may just be a puff of smoke. (By Aimee Donnellan)
BAD TIMING. Charity seems to begin at home for the British government. Prime Minister Boris Johnson is considering a temporary cut to overseas aid spending, to 0.5% of gross national income from 0.7%, to help strained public finances, the Times newspaper reported on Monday. True, the cost of mitigating the economic damage of Covid-19 has pushed public debt above 2 trillion pounds, or nearly 104% of GDP. And as finance minister Rishi Sunak pointed out earlier this month, Britain will have to reduce its structural deficit overtime to bring borrowing back to sustainable levels.
But the cut would come at the worst possible time for the poorer economies that benefit from such aid, many of whom have far less fiscal and monetary wiggle-room than their developed peers to stimulate activity. Johnson said here in 2018, before he became prime minister, that the international aid budget should focus on national priorities. On this issue, he seems to be sticking to its word. (By Swaha Pattanaik)
TIP TOP. Baidu is seeking diversification. China’s $50 billion search engine operator on Monday said it will buy a local live-streaming app, YY Live, for $3.6 billion. The business relies on legions of fans tipping video stars with virtual gifts, of which the host platforms take a cut. YY’s sales hit $1.8 billion last year.
China’s recovery from Covid-19 helped Baidu report a rise in advertising revenue in the third quarter, but the business remains under pressure from e-commerce and other more exciting apps. Competition in video-streaming, though, is intensifying. Rivals are raising capital, including Kuaishou Technology, which is eyeing a mooted $5 billion Hong Kong offering. Its prospectus cites forecasts of slowing annual growth in virtual gift sales, from over 100% in the last five years to just 20%. Diversification is smart, so long as the new business offers more than another ailing revenue stream. (By Jennifer Hughes)
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