12 November 2015
Week in Brief:BUSINESS AND THE CITY
KEEP IT SECRET: It’s a very topical time for Sophos to issue its first trading results in its new quoted identity. The Abingdon based company, which was floated in July in the LSE’s largest ever technology flotation, at around US$1bn, specialises in security for technology users. Its two principle areas of activity are network security systems for larger firms who depend on complete confidence in their networks and thus want completely firewalled systems, and a subtly different operation providing end users security at access points. With the recent troubles at TalkTalk, and Tim Cook’s comments at an Apple forum in London this week (that threats to commerce were much more sugnificant than any potential detection of terrorist threats and that if security could be accessed via a back door by government agencies then that back door could be opened by anybody), most senior executives now have to spend a lot of time – and money – making their business systems as tight as possible and yet still easy to operate for their customers. This is all good for Sophos and it showed in their interim results, with all vital indicators trending upwards and the company stating that it now expected growth between sixteen and twenty percent for the year, with many new customers recruited. The share price rose 16p, to 270p.
EASY-CHANGE: The pace of change in the flight business was further demonstrated this week when EasyJet, the budget airline, announced that it was looking at formal tie ups with a long haul major airlines, so that it would take on their short haul business in exchange for joint marketing and guaranteed connections. That should be a good model for both types of airline, removing some competition on short haul routes, enabling more efficient use of landing slots, now in very short supply at some airports, and giving both sides some cross marketing opportunities. But the main winners may well be the big hauliers, with very high fixed costs, often from operating local feeders which they dare not give up in case they get grabbed by a rival and the more lucrative long haul connections get diverted elsewhere. The economy airlines are much better at this sort of thing and more flexible. EasyJet is thought to be talking to Air France/KLM and Lufthansa about the possibility. They are both particularly high cost base carriers but with a strong union presence. It may not be easy to divest their routes to EasyJet as the idea only works with major redundancies and the economy airlines do not run the same reward regimes as the majors – i.e. they pay a lot less!
EasyJet was not the first on to this – that was the newly customer-friendly but fierce EasyJet rival, Ryanair, who are talking to Virgin Atlantic and, perhaps not surprisingl, having suffered many rebuffs in their attempts to take it over, Aer Lingus, whose short haul business would fit especially well.
ALSO IN ITALY: The latest round of costs saving in the autumn round of banking announcements has been by major Italian bank, Unicredit, which has mainly European based businesses in both retail and commercial banking. The bank says it will cut 18,200 jobs by 2018, right across its activities, as it gets rid of unprofitable and peripheral areas of business. However, the major cuts will fall on its retail banking and their attendant branches; with a particular emphasis on Austria, where competition is intense. The bank is profitable – it reported Euro 507m profits for the third quarter of this year, but returns on capital are not good enough. By 2018 the bank wants to be making annual profits of around Euro 5bn. Like many major banks it cites compliance and regulatory costs as a major growth factor in the debit side of the balance sheet; it also wants to invest much more in technology, what it calls its digital revolution, where it intends to inject Euro1.2bn, to improve customer service and internal reporting systems. However, unlike some rivals, it says it does not need to raise fresh capital for all this – it can do it from internal cash generation.
SIZZLING: The World Health Organisation (“WHO”) stunned many enthusiastic breakfasters and supper eaters when it said in a recent report that even moderate sausage consumption significantly raised the chances of getting cancer. Most sausage producers saw their share prices fall, though, interestingly, smaller firms of artisan makers said their sales had shown significant rises. Now, one of those larger firms adversely affected has lashed out at WHO, accusing it of “taking leave of its senses”. Denis Lynn, the founder and CEO of Lynn’s Country Foods, one of the largest sausage makers in the UK, and supplier to all of the large supermarkets, says that the report was clumsily structured and badly explained and classified. As a result of the sausage scare, his business’s share price has dropped 20%. The risk, Lynn says, is not in the mincing of the meat, but in how it is preserved. In Britain sausage makers use sodium metabisulphite, a safe preservative; eating a British sausage, he says, is no more risky than eating the meat from which it was minced. The problem is with European sausages which use nitrate based preservatives; they keep longer but that probably is more risky to human health. Lynn has heavy weight backing for his crusade to save the British sausage – former Environmental Secretary (and leading anti-European Community campaigner) Owen Paterson. Lynn has threatened legal action against the WHO unless they clarify the report and clear the British sausage.
QUIET SUNDAY: George Osborne, the Chancellor of the Exchequer, has long been a proponent of further liberalisation of the Sunday trading laws, which currently restrict shops other than small units from opening more than six hours on Sundays. George feels that this is a brake on the economy and enterprise, though it is hard to see it as much of one, given the hours they already do open. He also agrees with the argument that it is unfair that online trading is seven days a week, twenty four hours a day, whilst the high street shops with much higher fixed costs are restricted in their hours, and that a modification might help preserve the high streets, under pressure from on-line trading (as are business rates in the retail sector as the pool of bricks and mortar shops shrink). It is thought that his neighbour in Downing Street, Mr Cameron, is less keen on further relaxation of the current rules, but agreed to make Parliamentary time available for a bill to enable George’s reforms. However, Labour and most of the Liberal Party, and the SNP needless to say, oppose the changes; so, as it turned out when the bill was introduced, did about twenty Tory MP’s. The bill was hastily withdrawn for further consideration. Which may take some time…
KEY MARKET INDICES: (at 10th November 2015; comments refer to change on week; $ is US$)
Interest Rates:
UK£ Base rate: 0.5%, unchanged: 3 month 0.57% (steady); 5 year 1.45% (rising).
Euro€: 1 mth -0.13% (steady); 3 mth -0.05% (steady); 5 year 0.15% (falling)
US$: 1 mth 0.31% (steady); 3 mth 0.55% (steady); 5 year 1.64% (rising)
Currency Exchanges:
£/Euro: 1.40, £ steady
£/$: 1.51, £ falling
Euro/$: 1.07, € falling
Gold, oz: $1,088, falling
Aluminium, tonne: £983 rising
Copper, tonne: £3,265, falling
Oil, Brent Crude barrel: $47.54, falling
Wheat, tonne: £113, steady
London Stock Exchange: FTSE 100: 6,320 (fall). FTSE 350: 3,519 (fall)
Please note: From next week we will be reporting the FTSE Allshare, a broader indicator, rather than the FTSE 350. The Allshare this week was at 3,469
Briefly: The FTSE indices weakened slightly after a run at stronger levels. Interest rates even up to five years remain steady, though with pressure on long term rates; the five year dollar rate keeps pushing up. Commodities generally are still falling. Oil failed to hold at the $50 + level and is back in the former band of high $40’s.
