14 may 2015
Week in brief: BUSINESS AND THE CITY
WATERFORD WEDGWOOD: Two of the oldest manufacturing companies in the British Isles, Waterford (fine crystal) and Wedgwood (fine china), brought together in a highly leveraged merger which ended in financial distress and administration in 2009, have been sold for US$437m. The vendor is the USA fund, KPS Capital Partners, which bought the collapsed group in 2009 and have turned it round, helped by strong Far Eastern demand for luxury goods, so that profits at the last reporting date were US$150m. The buyer is the Finnish homeware business Fiskars, even older than its new acquisition as it was founded in 1649. Waterford Wedgwood still has substantial operations in Southern Ireland and on its historic site at Barlaston, Staffordshire where it is building a new visitor centre to capitalise on the many American and Eastern visitors it receives.
FITNESS FIRST: The international operator of gyms and fitness studios reported a growth in UK revenues for 2014. This was a return to growth after Fitness nearly became unfit itself – it had to enter into a company voluntary arrangement (a form of protection against creditors) in 2012, and was rescued by Oaktree Capital Management, the venture fund. Oaktree is investing £200m new capital into Fitness and has strengthened management. A major refit of its gyms is now been carried out on a three year programme which is producing an uplift in memberships and revenue in those gyms. However, overall results are still not great – operating profits and memberships both fell outside the UK and Asia, showing the vital importance of that investment program.
BANKING: The election victory for the Conservatives made likely an early sale of the government’s share holdings in Royal Bank of Scotland and Lloyds HBOS, the two banks rescued by the government during the financial crash. Lloyds has recovered well, with the share price trading comfortably above the book value of the Treasury holding, enabling continuing part sales of its stake, with a further £500m worth of shares sold in the market recently. But RBS has recovered much more slowly, and the share price, at around 350p, is still well below the cost to the Treasury of rescue, computed at 500p. Nevertheless, Chancellor of the Exchequer, George Osborne is understood to be looking to an early exit, even at a loss, and the Treasury is thought to be preparing for the sale of both holdings this year.
The Lloyds shares will probably be sold by an offering to the public market, expected to realise in excess of £4bn. RBS is another matter. The government’s stake is worth around £31bn, and it seems likely that it will have to be sold in tranches so as not to overwhelm the markets. Just the sort of challenge the pre 2007 RBS would have relished….
COMMERCIAL PROPERTY: The two largest quoted UK property companies, now organised as real estate investment trusts (“REIT’s”), both announce their 2014 annual results at the end of this week. British Land plc and Land Securities plc were both built up by risk relishing mavericks (Sir John Ritblat and Lord Samuel respectively) but now are conservatively managed as vehicles for cautious investors wanting to ride the prime property markets. Both are presently concentrating on central London offices (their current newly built flagships being the Cheesegrater (more properly the Leadenhall Building) and the Walkie Talkie (20 Fenchurch Street) in the City of London) where record City rents are being achieved. But both also own and manage retail holdings and increasingly look to assemble large tracts of urban land where they can create complete managed environments. The property business is one which depends on large amounts of capital and debt; the low interest environment of the last few years has been very good for these strong borrowers who are likely to announce record value creation and profit performances.
LITIGATION: The legal battle being fought by the property entrepreneur Vincent Tchenguiz against the Serious Fraud Office and accountants Grant Thornton has taken an unexpected turn. Vincent and his brother Robert were arrested in 2011 regarding allegations as to their property financing arrangements, but no charges were brought and last year the SFO settled a £300m damages claim by the brothers for a total of £4.5m. The Tchenguiz’s continued a £2.2bn claim against Grant Thornton, who were advising the SFO. However Grant Thornton has now served High Court writs for libel and defamation against Vincent.
TROUBLE ON THE TRACKS: The rail unions are balloting members over Network Rail’s pay offer – a flat £500 for 2015 and then inflation rises only until 2019. The RMT union has already voted for a national strike and the other rail unions seem likely to follow suit. If so, this would be the first national rail strike for 20 years.
BUSINESS SECRETARY: Sajid Javid was appointed as the new Secretary of State for Business by David Cameron, replacing the Liberal Democrat Vincent Cable. Both men made their original careers in banking – but that is where the similarities probably end. Javid, a former investment banker is regarded as very much a proponent of enterprise and minimal regulation, whilst Cable, an economist, was more interested in control and intervention.
KEY MARKET INDICES: (at 12 May 2015; comments refer to change on week; $ is US$)
Bank rate: 0.5%, continues unchanged. 3 month rate 0.59%, (steady) 5 year rate 1.52% – UK rates are steady post election
£/Euro: 1.38, steady
£/$: 1.55, further modest recovery for sterling
Euro/$: 1.12, slight strengthening for €
Gold oz: $1189.2, steady in set trading pattern
Oil, Brent Crude: $64.91, previous gains now reversed
London Stock Exchange: FTSE 100: 6913. FTSE 350: 3810
The LSE gains immediately after the UK General Election result last Thursday have now evaporated and the market is almost exactly at the same point as Tuesday last week (which does represent continuing record high trading patterns set at the beginning of 2015).
