15 June 2017
Week in Brief: BUSINESS AND THE CITY
RIDING HIGH: As the traditional demarcations in the motoring industry fall away, another crossover. JLR, owned by Tata, the Indian conglomerate, which makes Land Rover and Jaguar cars in the UK, is investing a trial US$25m into Lyft, an American rival to Uber. Market wisdom is that self driving will change the whole way we own and use cars, and that car sharing and rides for hire will increasingly take over from individual ownership of cars. So cars will be another form of public transport, albeit one we can call up at will and direct to our individual needs. Uber is seen as the precursor of a lot of changes just beginning now, and is admired among those leading the technology revolution in the motoring world for its innovative approach (although perhaps less so for its corporate style, following this week’s revelations that founder and CEO Travis Kalanick will temporarily step down as part of efforts to address internal behavioural issues). Lyft, which is trading in the US in major cities, is hoping to be slightly upmarket of Uber (in its vehicles) and the tie up gives it capital for expansion but also a tie up with the luxury car maker which will enable it to use Jaguars and Land Rovers for its services. Lyft also wants to trial driverless vehicles for its taxi services, another area JLR is working on, so the association and investment should be very beneficial for both parties. JLR is the smallest of the upmarket luxury car brands and is seeking ways to accelerate its growth to become a major worldwide player. It is not the only auto manufacturer investor into Lyft though – US giant General Motors and Chinese maker Alibaba are also shareholders, Lyft having rasied US$500m in a share issue in the spring. That values the business at an impressive US$6.9bn and is enabling Lyft to make speedy progress in growth, including into specialist, mainly urban, niches such as specialist medical transport. They hope to arrive in the UK soon and challenge Uber, with, no doubt, JLR vehicles.
SMALLER GUARDIANS: The broadprint newspaper sector is shrinking further. The Guardian has finally decided to go to a tabloid format. At the moment it prints to its own size – smaller than a traditional broadsheet but bigger than tabloid, a size known as Berliner. That means it has to have special presses as no other significant printing is done to that scale; the Guardian had to spend £80m building its own presses when it switched to that size some ten years ago. Now as they approach renewal and the Guardian tries to find production economies to match its declining circulation and revenues, it has decided that it must outsource its printing – probably to Trinity Mirror group, a rival publisher with spare capacity. That will save capital expenditure and also increase flexibility as to where the newspaper is printed – currently limited to those Berliner presses in London and Manchester. This will increase pressure on the remaining broadprints – most notably, the Telegraph – to follow suit, both for economic reasons and for easier handling by the distributers.
GREEN REVERSAL: We spoke a bit soon last week when we said that Philip Green’s retail chain whose flag ship is Top Shop continued to outperform the troubled retail fashion market. Figures released at the end of last week showing turnover and profits for the group were both down, by 7% for turnover and about 20% on profits. The UK was the worst performer, offset by expansion in Europe and the USA, but even so total turnover was only just a touch over £2bn. More worryingly for Green’s employees, the pension fund deficit in the group widened from £189m to £426m, although the Green contribution to the fund has been increased, following pressure from the Pensions Regulator, to £50m a year for the next three years. The group blames uncertainty among UK consumers, and the growth of internet trading.
BACK TO THE DRAWING BOARD: The internet’s power in fashion retail does not work for everybody though. Conde Nast, the doyen of fashion magazine owners (Vogue, Vanity Fair, GQ, etc), has been pouring resources into its own on-line shopping portal, Style.com. The idea was that magazine readers would see the temptations in the magazines and then be able to order their fancy on the website. But is seems the average fashionista still likes the physical thrill of shopping, not just clicking, and the website has failed to make much impact at all. Conde Nast is now throwing in the (no doubt very stylish) towel and selling what it can to the UK luxury fashion firm, Farfetch, who will relaunch the concept and offer linking services to Conde Nast to try and reinvigorate the wreckage.
NO MONEY FOR MONITISE: And more troubles elsewhere in the technology based sector. Monitise is a UK based business which made its name by developing software for the mobile payments sector, a key component of internet trading which needs instant but secure payment facilities to give service to on-line customers. Initially – which means less than ten years ago in this fast moving sector – it was a major success, valued by 2014 at over £1bn, and its systems were used by most major British banks, and by international card processor, Visa, which owned 15% of the company. But Visa then announced that it would develop its own payment systems and although Monitise developed improved and enhanced versions of its own, FinKit, it did not recover from this blow. Now it has been sold for £70m to a US rival Fiserv, with whom it has been working on joint systems. Monitise in spite of its rapid sales growth (and decline) never managed to make a significant profit and lost £243m in 2016, a sad end to a brave enterprise.
NO DELIVERY: Just to prove technology problem stories come in threes, J Sainsbury is also struggling with technology issues, in this case in its on-line delivery service. This has suffered a number of glitches recently and then failed altogether earlier this week. Although the supermarket chain very quickly got things running again, it lost many customers orders and prompted an online chorus of complaints and a dip in the share price. This is embarrassing for the chain which is trying to build itself as the leader in on-line food retailing. The problem seems to have stemmed from the new technology being introduced by Sainsbury, who are said to have large teams of IT specialists working on catapulting Sainsbury ahead of its competitors. Not without customers getting their cheddar and tubs of Ben and Jerry’s they won’t.
SURPLUS ENERGY: The oil price may be back in the doldrums, but oil products are still worth money to some. Two men from Essex and one from Scotland have just been jailed for creating an intercept into an oil products pipeline where it crossed the Chevening estate in Kent and siphoning off some of what was passing through – red diesel for farm machinery on the day the police found the intrusion into the pipeline. We should make clear that although Chevening House is the government grace and favour residence of three men – Boris Johnson, David Davies, and Liam Fox – they were not the three men jailed.
KEY MARKET INDICES:
(as at 13th June 2017; comments refer to changes on last 7 days; $ is US$)
Interest Rates:
UK£ Base rate: 0.25%, unchanged: 3 month 0.30% (unchanged); 5 year 0.59% (fall).
Euro€: 1 mth -0.37% (steady); 3 mth -0.33% (steady); 5 year 0.04% (steady)
US$: 1 mth 1.04% (steady); 3 mth 1.20% (steady); 5 year 1.82% (rising)
Currency Exchanges:
£/Euro: 1.13, £ weakening
£/$: 1.27, £ weakening
Euro/$: 1.12, € steady
Commodities:
Gold, oz: $1,269, modest fall
Aluminium, tonne: $1,876 slight fall
Copper, tonne: $5,658, slight rise
Iron Ore, tonne: $51.87, fall
Oil, Brent Crude barrel: $48.25 fall
Wheat, tonne: £141, steady
London Stock Exchange: FTSE 100: 7,527 (slight fall). FTSE Allshare: 4,119 (slight rise)
Briefly:
Given political events last week, the markets remain surprisingly steady – oil and iron ore continue to fall but other commodities seem settled within tight trading patterns. The UK stock markets did reverse last week but are now back more or less where they were. Sterling has fallen but interest rates also remain pretty steady.
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