06 April 2017

Week In Brief: BUSINESS AND THE CITY

BRAKES ON AT CARR’S: Carr’s is an unusual conglomerate, combining a traditional but sizeable business of selling agricultural supplies in the UK, New Zealand, and the USA, with a technical engineering business which is strong in nuclear.  The idea is that they are sufficiently diverse to make it likely that troubles in one area will be offset by good performance in the other.  Not this year; although Carr’s forecast last autumn that profits would improve in the current trading period, in the event performance has swerved from the expected path after problems in both areas late in 2016.  In the agricultural division, problems in the dairy based business arose from a reduction in demand coupled with pressure on Carr’s costs as oil prices recovered; whilst in the engineering part of the business several expected contracts did not materialise, mainly because of the well-publicised problems in finalising the Hinckley Point scheme.  Problems in the USA agricultural world mean that no upturn there is likely for the next couple of years, but in the UK the prognosis is a bit better. The UK dairy industry is also picking up, leading to hopes for early margin improvements there, as is also the case in New Zealand.  On the engineering side, Carr’s did win a contract in connection with work at Sellafield in North West England, and it says other nuclear work is going well; with the longer term outlook good.  Nevertheless, analysts say indications are that profits will be 20% down on forecasts made late last year, with a recovery in 2018.

SHRINKING SCOTT:  We have followed in these pages the continuing difficulties of the Guardian newspaper, which has for some time being unable to match its income to its outgoings. The reason that this has not caused to a crisis much earlier is the support of the Scott Trust, set up by the founding family many years ago, which is cash rich from sales of other publishing assets.  But the cash mountain has gradually shrunk and the board of the newspaper, having valiantly hoped that by keeping on a full journalistic staff and free reader access to the Guardian website, readership and revenue might recover, have finally decided they have to take action to reduce costs.   This follows an appeal last year for voluntary redundancies which apparently was fully subscribed, but there is now to be a series of compulsory job losses.  The management of the paper says that departments will be given cost reduction targets, overall equating to around 20% of the present cost base, and asked to submit proposals to achieve them; this will involve job reductions in all area, but it is thought likely to fall especially heavily on the editorial area which, still employing over 700 journalists, is believed to be by far the largest newsroom in any UK newspaper.  It employs about half the total staff.  Two hundred and fifty jobs went last time, though the number of posts now threatened is thought to be about half that.  The board want to get the group to a breakeven point by early 2019.  One further job loss may be current chief executive David Pemsel – he is rumoured to be a potential front runner to take over as chief executive of Channel 4 Group.

STICHING IT TOGETHER:  In a move which has engendered considerably less publicity than another pension matter which he has been involved in,  Philip Green has agreed to increase the contributions of his family holding company, Arcadia Group, to the pension deficits of the fashion retail businesses which it controls.  The best known of these is Topshop, but it includes various other high street brand names, where the pension funds have funding deficits along the same lines (but not so significant) as the BHS group, which was sold and then collapsed into administration a year ago.  The Green family resisted making up the deficit in the BHS scheme but has now agreed to put £363m into the scheme, which is estimated to be about 60% of the current shortfall.  Arcadia Group has now agreed to more than double the contributions into its pension scheme – though only from mid 2019 – to try and clear a deficit estimated at £565m.  It estimates that the deficit will be cleared by 2026.  This is now awaiting approval by the pensions regulator and Pensions Protection Fund, but they are thought likely to agree.

ANY STORM IN A PORT:  Not if the international cruising operator Global Ports Holding has anything to do with it.  It is believed to be sailing to a listing on the London Stock Exchange later this year and is busy strengthening its board of directors to go with its new status.  The London listing – the company is already listed on the Istanbul exchange – should raise about £700m, some of which will go to reduce debt and the rest to expand the group’s activities.  The group has developed the specialist business of servicing cruise liners in dedicated areas in ports, initially in Turkey where it began but it is now expanding across Europe and the eastern cruising circuit.  It has created a market which was not really known to exist – that of creating dedicated and secure high quality facilities for ship boarding passengers and the servicing of their ships, and has benefitted from the rapid expansion of this part of the tourism business.  Latest director to clamber on board is none other than Peter, Lord Mandelson, who, Global Ports says, will bring many important international connections to its business through political and commercial links from his time as EU Trade Commissioner.  Also going up the gangplank will be Thierry Deau, who founded and ran Meridiam, the major French asset manager.

CUTTING THE MUSTARD:  Reckitt Benckiser, formerly Reckitt and Coleman, is said to be preparing to sell one of its core brands – French’s Mustard, not to be confused with French mustard of course; this is the sizzler you squirt on your hot dog.  Reckitt bought French’s in 1926 when it was building world leadership in mustard; Colman’s went in 1994 and is now part of Unilever, and Reckitt has increasingly refocused as a specialist in health and hygiene products, recently buying Mead Johnson, the baby product specialist.  Increasingly it feels French’s, of which it sold 160 million bottles last year, has no natural place in the group, and thinks it might do better in new ownership.   Oddly though it has no plans to get rid of its ketchup division or its other famous American countertop brand, Frank’s Red Hot sauces.

KEY MARKET INDICES:  (as at 4th April 2017; comments refer to changes on last 7 days; $ is US$)

Interest Rates:

UK£ Base rate: 0.25%, unchanged: 3 month 0.34% (steady); 5 year 0.69% (falling).

Euro€: 1 mth -0.37% (steady); 3 mth -0.33% (steady); 5 year 0.20% (rising)

US$: 1 mth 0.98% (steady); 3 mth 1.15% (steady); 5 year 1.96% (falling)

Currency Exchanges:

£/Euro: 1.17, £ rising

£/$: 1.24, £ falling

Euro/$: 1.06, € falling

Gold, oz: $1,257, rising

Aluminium, tonne: $1,948, rising

Copper, tonne: $5,816, slight rise

Oil, Brent Crude barrel: $53, rising

Wheat, tonne: £147, falling

London Stock Exchange: FTSE 100: 7,309 (slight fall). FTSE Allshare: 3.984 (slight fall)

Briefly: Very steady week in most areas – with signs of the Easter break beginning early.  Gold continues to push gently upwards – a long term trend there seems to be emerging.  As always oil provides the main action – a push back up from the weakness of a couple of weeks ago seems likely to reverse in the next few days as more benign conditions in Libya means that supplies of crude from that market are increasing rapidly.

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