What stocks are changing their business models to battle coronavirus?

Companies answer calls to join the fight against coronavirus

Companies around the world are trying to drastically overhaul their factories and production lines in response to the coronavirus. Many of them have answered the calls of governments to rally in what is being described as a wartime footing to help the fight. But, instead of producing guns and bullets, they are using their expertise to produce vital supplies like hand sanitiser, ventilators and personal protective equipment (PPE) – all of which are in short supply.

The voluntary effort of businesses has its benefits. It is good to keep governments on side, so when they ask a business to do something it is in their interests to comply. Most of the industries that have stepped up have seen demand for their usual products fall as people stay at home and countries enter lockdown, freeing up capacity that can either be shutdown, or put to good use. Keeping factories up and running keeps workers busy during times of uncertainty and should mean less disruption to production.

Plus, while most of the companies that have started to churn out coronavirus-fighting equipment are donating it to health services and those that need it, some are squeezing out whatever advantages are possible. BrewDog, for example, has turned its Scottish distillery from making alcoholic beverages to hand sanitiser and is giving it away for free – but has taken the marketing opportunity by branding the bottles and naming it ‘punk sanitiser’. The ability to quickly churn out entirely new products shows the innovation of industry, but their choice to brand them demonstrates their skill at finding opportunity in a time of crisis.

Still, the main reason companies should be putting their knowledge and capabilities to good use is because it is the right thing to do. Some companies have already had their reputations battered by their response to the coronavirus like retailer Frasers Group and pub chain JD Wetherspoons, both of which have been heavily criticised for failing to look after their staff and trying to stay open during the lockdown in the UK.

Perfume and alcohol companies start making hand sanitiser

Hand sanitiser has become a key product for people to defend themselves from the virus and help stop the spread. However, it is in short supply. Figures from Kantar suggest sales of hand sanitiser in the UK rocketed 225% in February – and that is before tougher measures were introduced by the government. The shortage is so bad that there have been reports of thefts of hand sanitiser from the end of patient’s beds in hospitals in the UK.

Most governments are advocating the use of sanitisers that include alcohol – putting breweries and distilleries in a good position to retool their operations, especially as demand for alcoholic drinks has suffered as the on-trade business to pubs and restaurants has practically collapsed.

Pernod Ricard, which boasts brands including Absolut Vodka, Chivas Regal whisky and Jacob’s Creek wine, has started both producing hand sanitiser in its factories around the world and supplying large quantities of pure alcohol to help other producers meet demand. It is doing this in France, Sweden, Ireland, Spain and the United States, and factories in other countries, including the UK, are to follow suit soon. ‘As the world is facing a major pandemic, companies must mobilise, not only to ensure the safety of their employees, but also to contribute to collective efforts in accordance with their capabilities,’ said Alexandre Ricard, the company’s chief executive and chairman.

Beer company ABinBev said it was doing its part ‘through production of hand sanitiser and disinfectants, bottling of emergency relief water and other actions.’ Luxury goods maker LVMH has also turned its French factories from producing perfumes like Christian Dior and Givenchy to making large quantities of hydroalcoholic gel after French authorities asked for help in filling supply shortages. LVMH said it will ‘honour this commitment for as long as necessary’.

Automotive, aerospace and engineering firms start making ventilators

Ventilators are vital for patients that suffer severe symptoms of the coronavirus and need hospitalisation, but again most countries do not have enough to meet the expected amount of cases at the peak of the outbreak. Shortness of breath is one of the symptoms of the virus and this can be more severe if the person has underlying health conditions.

Unlike alcohol and perfume makers, who are mostly redistributing resources they already had, governments have had to ask more technologically-advanced companies to bring their design and manufacturing expertise to the table in order to produce more ventilators.

The UK government is thought to have purchased 10,000 ventilators from vacuum cleaner and hairdryer producer Dyson, which has been built from scratch but ‘ready to go’. Its rival Gtech has done the same. The problem here is that the ventilators need to be tested and ensure they meet strict rules before they can be actively used in hospitals.

However, others have pooled together to ramp up production of existing ventilator models – which means they are already approved and ready to go - including those in the aerospace industry with Meggitt leading a consortium of firms that includes Airbus and Renishaw.

Elsewhere, electric car maker Tesla is in talks to produce ventilators that are usually made in Ireland by medical equipment maker Medtronic. Medtronic said it has increased manufacturing of its ventilators by 40% in response to the crisis and says it is aiming to eventually double normal output by redeploying staff and turning to a 24/7 operation. ‘No single company will be able to fill the current demands of global healthcare systems. However, with all manufacturers increasing their production and through partnerships with governments, hospitals and global health organisations, Medtronic is committed to getting more ventilators into the market and to the right locations in the world to help doctors and patients dealing with COVID-19,’ said Bob White, Medtronic’s executive vice-president.

Smiths Group, another company already producing ventilators from its plant in Luton, is trying to make 30,000 of them by ramping up its own output and partnering with others. It is currently ‘in dialogue with contract manufacturers in the US’.

US carmaker Ford, which also produces engines in the UK, has said it is working on separate projects to build approved ventilators made by both 3M and GE. General Motors has also teamed up with Ventec Life Systems to produce the life-saving equipment.

Companies start making Personal Protective Equipment (PPE)

Others are making their contribution by supplying PPE to health workers that have been left short of key protection gear.

Italian carmaker Fiat Chrysler has said it is aiming to produce a million face masks each month in North America to help the fight in the US, Canada and Mexico.

Taiwanese outfit Foxconn Technology Group, a key supplier to Apple, has temporarily adjusted its manufacturing lines to produce surgical masks to make up for the lull in demand for iPhones, allowing it to keep production going and staff in work.

And a slew of fashion brands are also starting to make their own face masks, including Inditex-owned Zara, H&M and Prada. 3M, one of the existing leaders in PPE, plans to make a billion more masks than originally intended this year as it steps up to increased demand.

What does this mean for investors?

The coronavirus outbreak has forced governments around the world to take unprecedented action to try and stop the invisible enemy. It has changed the way the economy works over the immediate future and will have permanent consequences once it is over. For businesses, the choice is to either adapt and try to make the best of the situation or batten down the hatches and wait for the crisis to blow over.

Many companies seem unable or unwilling to adapt and are therefore bunkering down. They are slashing expenditure and furloughing staff. Management are freezing or sacrificing salaries, and an increasing number of shareholders are having to go without their dividends and buybacks as everyone does their part to battle this global pandemic. For investors, this means many safe income stocks are in jeopardy and finding stocks that can continue to deliver on all fronts during this pandemic is difficult.

However, those companies rising to the occasion will be rewarded and investors should consider them if they looking to adjust their portfolio so they can weather the storm. Although most production of goods like sanitisers, ventilators and PPE are being donated to those that need it, companies like BrewDog have demonstrated the marketing opportunity it offers. Plus, if the pandemic lasts longer than currently expected and this becomes the new norm for longer, it could provide viable new businesses for those that are willing to adapt.

Companies can either do their part to help the world recover from its biggest challenge since the Second World War, or they can waive their responsibility and simply hope they are still afloat when everything starts to recover – but they will be remembered for better or worse whatever decision they make.