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Breakingviews – Corona Capital: Julius Baer, Baidu, Imperial

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MILAN/HONG KONG/LONDON (Reuters Breakingviews) – Corona Capital is a daily column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.


– Julius Baer

– Baidu

– Imperial Brands

UPBEAT. Who says the pandemic is all bad news? Three months after unveiling a restructuring plan, new Julius Baer boss Philipp Rickenbacher is already ahead of his 2022 targets for returns and costs. In a trading update for the year to the end of April, the Swiss wealth manager said adjusted pre-tax profit was 35 basis points of assets under management, sharply up from 22 basis points in 2019 and above a mid-term target of up to 28 basis points. Costs meanwhile shrunk to 64% of revenue, beating a cost-to-income goal of below 67%.

Frantic trading amid global markets gyrations has boosted transaction fees, compensating for cratering interest rates and higher credit loss provisions. But Julius Baer’s improved profitability is also a measure of compressed expenditures: Lockdowns prevented private bankers from criss-crossing the world to visit wealthy clients. That’s a lot less money spent on first-class tickets and Michelin star dinners. As the emergency eases, expensive habits might re-emerge. (By Lisa Jucca)

HOME INVASION. It was a rough quarter for Chinese search engine operator Baidu, whose advertising revenue slumped by nearly a fifth from a year earlier, to $2 billion. Investments in artificial intelligence got a Covid-19 lift, however. DuerOS, the company’s answer to Amazon’s smart-speaker assistant Alexa, received 6.5 billion voice queries in March alone, as trapped users asked for the latest pandemic update or ordered food.

The $37 billion company doesn’t break out financial figures for its nascent smart-devices business, but they’re probably small. Baidu shipped 17 million AI-powered speakers last year, less than half Amazon’s volume, according to research outfit Canalys. Boss Robin Li envisions generating revenue from subscriptions, advertising and e-commerce down the road. Additional benefits may include locking in users to other apps and services. For now, Baidu will have to see if customers heading out more often will keep making themselves at home with DuerOs. (By Robyn Mak)

DYING EMBERS. Tobacco company Imperial Brands on Tuesday said it will cut its dividend by one-third as it struggles to contain a 13.5 billion pound adjusted net debt pile. The move should save the company about 650 million pounds. But with EBITDA expected to be around 4.1 billion pounds this year, using Refinitiv estimates, net debt of 3.3 times EBITDA is still way off its target of 2.5 by the end of 2022.

As well as further tarnishing Imperial’s “dividend stock” moniker, the cut points to more fundamental threats. The company last year dropped its dividend growth target, focusing instead on investing in the business. Imperial on Tuesday admitted that it has cut investments into its vaping product after poor returns last year. Net revenue fell 43% to 83 million pounds in that division. One of tobacco’s key survival strategies is going up in smoke. (By Dasha Afanasieva)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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