08 September 2016
Week in Brief: Business and the City
BURGUR CHOMPED: It sounds like burger version of “Back to the Future”. Wimpey bars began the “eating with your hands” food movement, only to be almost swept away by MacDonald’s and its imitators and competitors. Then, increasing consumer wealth and interest in food quality and sourcing brought a whole new range of burger restaurants into the market, including Gourmet Burger Kitchen, Burger and Lobster, and Byron, who featured in The Shaw Sheet a couple of weeks ago. Now the burger is going back to basics – Wimpey – who still have 113 outlets in the UK (MacDonalds has over 1,200) has agreed to buy Gourmet Burger Kitchen for £120m. Recent growth in burger eating has been very strong and is forecast to continue as the new premium chains focus on the casual but quality dining end of the food market – forecasts say that the market may grow 40% in the next five years. The premium end offers higher margins and more add-on sales such as alcohol, starters and puds, compared with the value brands, though the latter get some compensation by having a much higher proportion of buy-to-go sales , cutting on their premises costs. Famous Brands, the South African retail conglomerate, who now own Wimpey, see virtue in diversity in this market, hence the acquisition – but they will continue to run the businesses as separate chains, each retaining its current branding and management. Famous Brands are getting a little extra with their new quality burger buy – the depreciation of sterling in recent weeks has made their purchase about 20% cheaper. Which should leave enough cash for a side order of fries and beer…
THAT SLIMMING LOOK: Marks & Spencer has for long being that great recovery that never quite works out. Chief executives come and go with plans for getting the former icon of British retailing back to the market leading position it used to enjoy, but none of them have yet succeeded. Now M&S has another new CEO, Steve Rowe, who has been getting to grips with his new charge, getting off to a bad start when he had to announce that the profits for the year before his arrival were 20% down, mainly due to problems in the fashion and clothing side of the business – food continues to perform though it is now seen as not having much more room for growth. Mr Rowe has started using his new broom at the top – in M&S’s London head office, centred around Paddington, where 525 jobs will be lost by a “significant changes to its UK head office structure”. This will involve mergers of head office departments and simplifications of reporting, with more internal flexibility. To save costs, another 400 jobs in back-office functions and IT could be moved from their current expensive West End location to London suburbs where space is often only one third of central London rental costs, and where many staff live. The view from the top is that Marks needs to be faster to respond to the demands of its customers and the manoeuvres of the competition, and that is best done from the front line – the stores, who know their business best, with support from head office, rather than being led from the centre.
FASTER MOTORS: 2015 was a record year for car sales in the UK, with 2.63m new vehicles sold, which looked to be as much as the market could take. This year’s first half showed continuing growth, but the lead up to, and aftermath, of the referendum in June was thought likely to slow things down. But no, even in July sales were up – though only by a fractional amount – and in August sales did the opposite to what everybody in the trade expected and were up 3.3%, most of that being to fleet customers (hire and company car buyers). Private sales were a little down, and it may be that the increase in company car sales are something to do with rumoured changes to tax treatment of cars as an employment benefit (more aggressive tax treatment, needless to say). However, it may also reflect optimism about the economic future, and current low levels of unemployment and low inflation (and low interest rates for those buying on credit). Dealers say that September forward orders are strong, so 2016 may be yet another record year for the British love of motoring.
THERE MAY BE TROUBLES-AHEAD… Motoring is not a practical alternative for long suffering London commuters via Southern trains, the operator hit by a series of strikes by union action ostensibly over changing work processes. They may not have been impressed to hear that Southern owner Go-Ahead (not the most appropriate name at the moment) has announced a 27% rise in profits for the last financial year (to end June 2016). Go-Ahead said this relates to record earnings in its bus division and a reasonable performance in its rail unit (which includes, via Govia, the joint venture operator, Thameslink, South-Eastern, and London Midland). The company specified that Southern lost money, without setting out any figures. It also blamed Network Rail, the track provider, for much of the trouble on its operations – NR is carrying out major signalling and rebuilding works around London Bridge Station through which many Southern services pass. The bus division reported a profit of £100m, and total revenues were up to £3.4bn; the share price rose 10% on the announcement of the results.
PRIORITY-TISE: Acadia Healthcare, the USA based healthcare and private hospital owner which in January this year bought the UK Priory Group, the private hospitals group whose flagship is the Priory Hospital in south west London, is seeking bids for a portfolio of 20 or so hospitals in the UK. Not that it wants to sell them – it is being forced to by the Competition and Markets Authority (“CMA”), the regulator, who says that the purchase of the Priory Group gave Acadia too great a share of the UK private healthcare market. The problem is particularly in the mental healthcare market, where it is thought that the merged group does control more than 50% of the private market. Of the assets to be sold, eleven are from the Priory Group and have sizable mental healthcare operations within them. The only good news for Acadia is that the CMA have said that the sale will be automatically approved – so long as it is not to another operator who would gain too much market share.
SALES HAMMERED? Those looking for some evidence that the Brexit vote was affecting markets point to the sizable, and still growing, auction market for small commercial and specialist residential real estate. Sales by auction have grown rapidly in the last few years – offering certainty and simplicity for purchasers and vendors, and by using on-line formats, a very easy way to participate. Both the number of property lots entered for auction and hammer prices fell just before and after the referendum – the number of auctions being down by around 10%. The next major round of auctions will be in October, so trend watchers will have to wait for further evidence of what may be happening.
KEY MARKET INDICES:
(as at 6th September 2016; comments refer to changes on last 7 days; $ is US$)
Interest Rates:
UK£ Base rate: 0.25%, unchanged: 3 month 0.42% (steady); 5 year 0.34% (falling).
Euro€: 1 mth -0.41% (falling); 3 mth -0.35% (falling); 5 year -0.32% (falling)
US$: 1 mth 0.51% (steady); 3 mth 0.83% (rising); 5 year 1.12% (falling)
Currency Exchanges:
£/Euro: 1.19, £ rising
£/$: 1.34, £ rising
Euro/$: 1.12, € steady
Gold, oz: $1,342 rising
Aluminium, tonne: $1,573, falling
Copper, tonne: $4,622, steady
Oil, Brent Crude barrel: $46.70, falling
Wheat, tonne: £120, falling
London Stock Exchange: FTSE 100: 6,826 (falling). FTSE Allshare: 3,726 (steady)
Briefly: A steady week; the only real movement being weakness in euro interest rates, though metal commodities continue to edge down, against many analysts expectation – predicting an upturn. Oil briefly passed the US$50 barrier, but then fell back.
If you enjoyed this article please share it using the buttons above.
Please click here if you would like a weekly email on publication of the Shaw Sheet
