22 October 2015
Week In Brief: BUSINESS AND THE CITY
IRON-IC: Right on cue, as if designed to coincide with the state visit of the Chinese President to London, much of the British steel industry announced bad news. Caparo Industries, part of the Paul family owned group of heavy industries primarily trading in the UK and India, put its entire UK steel operations into administration, citing unsustainable losses and a very significant debt burden. It looks as though up to 1,700 jobs will be lost there, unless buyers come forward for at least parts of the business. A spokesman for the Caparo group blamed the massive incursion of cheap Chinese steel into the UK; high energy costs make it impossible for British firms to match current Chinese pricing. Bad news also from Tata Steel in the UK, blaming the same causes for having to lay off 1,200 workers at Scunthorpe and in Scotland. Redcar Steel, Thai owned, went under a month ago, closing its plants on Teeside, and firing about 1,800 employees. Experts reckon that China now produces half the world’s steel and that her surplus steel making is 250 million tonnes a year, much of which is being exported at cut prices to the West. In the UK, getting towards a third of our heavy steel making capacity has closed in less than three months. There are no protections or tariff barriers against this in the UK or Europe (unlike the USA, which has lower energy costs than Europe and tariff barriers to protect home industries), so there may be yet more bad news to follow. In the House of Commons, Mr Cameron said that he would raise the position with the Chinese President.
MIXED BAG: Turmoil in the supermarket world continues with the release of the last quarter’s trading figures for all the supermarket majors. In the first half it looked as though the UK’s big four (Tesco, Sainsbury, ASDA, and Morrison) were finally making some progress in clawing back market share from the German discounters Aldi and Lidl. But it has all gone wrong for them in the latest set of figures which show both of the Germans having year on year growth of 17% (from a much smaller base than the majors, of course – Aldi has 5.6% of the market against Tesco at around 22%). Some of this is because of continuing new store openings, so is not strictly comparable with previous figures, but the statistics for the UK majors told their own story – ASDA sales down 3%, Tesco down 1.7%, and Morrison down 1%. Only Sainsbury were able to reverse the trend – their sales were up 1%. The Co-op saw sales up 1% after emphasis on stronger trading from their smaller stores, and Iceland, the UK discount operator, also showed growth, at 3% up. And that perennial strong performer Waitrose continued to do well – up 2.1%.
Waitrose had a surprise announcement earlier this week – that Mark Price, Managing Director of Waitrose, which is owned by the John Lewis Partnership, would be leaving in April next year. Mr Price has run Waitrose – the nation’s favourite middle class grocer – for ten years, and has spent his whole career in the John Lewis group. On his watch the supermarket chain has been a watchword for reliability and quality; it has the highest loyalty rating of any food retailer. Price is 55 and wants to take on a portfolio of other activities. He may be leaving at the right time – even Waitrose is struggling now to maintain its market share and saw a slight drop in the first half of 2015 – though it was back up in the third quarter. It has now probably achieved the maximum coverage it needs and is increasingly having to run price promotions to keep volumes up and shoppers loyal. Price’s successor is insider Rob Collins.
PLAYGROUND OF THE SOUTH: Also coinciding with the Chinese President’s visit the promoters of a new leisure and theme park near Dartford in Kent, currently called London Paramount Entertainment Resort, perhaps not quite as snappy a title as, for instance, Disneyland, announced that they had secured £100m of Chinese investment financing to be provided by SinoFortune, a Chinese construction group, who will be involved with the construction works. But not yet. The park does not have planning permission and it may not be that easy to procure – the 900 acre site is currently zoned for housing and there is much local opposition to the proposals. The cost of the park is estimated at £3bn plus; Kleinwort Benson, the City investment bank have brought SinoFortune into the scheme and are helping with the next stage of capital raising. The promoters think that the park will provide 27,000 low wage jobs. They hope to get planning consent in 2017.
NUCLEAR OPTION: One final announcement to coincide with the state visit – though others are expected. The stalled EDF scheme to build two nuclear power plants at Hinkley Point in Somerset looks set to restart. Two Chinese state controlled power companies are taking financial stakes in the scheme in return for participating in some of the construction and technology work.
ONE TO WATCH: ITV, the television company which makes much of the drama and documentary output shown on independent television and has gradually taken over much of the industry, further consolidated its position with the announcement that it is now taking over the business of UTV (formerly Ulster Television), the largest TV company in Northern Ireland, in a deal which will cost ITV about £100m. The deal will require regulatory approval in both the UK and Southern Ireland, and so may take some time to close.
BANKERS’ BONUSES DOWN: Bonuses are down at Morgan Stanley, where the pool was reduced to US$3.4bn, 18% down on last year. This reflects poor trading in the bank with takeover activity well down, meaning the bank had less fee earning opportunities, though general advisory work was up. Also down was the bank’s own account trading income, so all in all profits were down by about half in the third quarter of 2015.
KEEPING YOU AWAKE: Network Rail has been looking at trading on its station concourses to see where it is doing well and what it could do better. Overall retail sales on stations were up 6%, compared with the same quarter last year – and in contrast to high streets, where sales fell slightly. In the course of its researches, it discovered that in the second quarter of the year 5.1 million cups of coffee were sold on railway stations. The biggest spend was at London Victoria where takings from coffee alone were £1.6m, with Waterloo tight behind at £1.5m. What happened to all those empty cardboard cups is not recorded.
KEY MARKET INDICES: (at 20th October 2015; comments refer to change on week; $ is US$)
Interest Rates:
UK£ Base rate: 0.5%, unchanged: 3 month 0.57% (steady); 5 year 1.27% (falling).
Euro€: 1 mth -0.13% (steady); 3 mth -0.1% (rising); 5 year 0.22% (steady)
US$: 1 mth 0.34% (steady); 3 mth 0.43% (steady); 5 year 1.35% (falling)
Currency Exchanges:
£/Euro: 1.36, £ steady
£/$: 1.55, £ rising
Euro/$: 1.13, € steady
Gold, oz: $1175, rising
Aluminium, tonne: £992 falling
Copper, tonne: £3385, rising
Oil, Brent Crude barrel: $48.61, fall
Wheat, tonne: £113, falling
London Stock Exchange: FTSE 100: 6,345. FTSE 350: 3,526
Briefly: The markets continue relatively steady with the FTSE indices holding most of their recent gains; commodities generally continue weak though copper has held some of its gains following Glencore cutting production. Oil seems to be drifting down again having briefly reached over US$50 a few days ago.
