Issue 110: 2017 0-6 22: Week In Brief Financial

22 June 2017


NEWS, the word in pink on a grey background

BAD WEEK BEHIND THE COUNTERS:  Maybe the bankers are going to be regulated less (see our article on the US this week) but Barclays, the 300 year old UK domiciled bank, must be wishing it had thrown itself on the regulatory mercies of the Bank of England during the financial crisis.   Instead Barclays went for self-help, with an institutional capital raising including a major contribution from the Gulf state of Qatar.   The terms on which this was done have caused rumour and trouble ever since.   As much of it is subject to various bits of litigation we will not get into details here, but in the most simple terms the Qataris and others provided loans of around £7.5bn to Barclays which were structured so they could be included as capital in regulatory calculations, and thus gave the bank the ability to meet the regulatory tests and also liquidity to enable it to continue to be active in business and assure its depositors.   The support was not cheap but it got Barclays through and was in due course repaid.   Even in Barclays elements of this were controversial, as were other aspects of the bank’s business.   This led to several change of senior executive board members, including the sudden departure of Bob Diamond, regarded as brilliant but too drawn to risk taking to head a clearing bank, and Antony Jenkins, regarded as a steady pair of hands but not a sufficiently imaginative leader.   Now Barclays has a new boss, Jes Staley, and a new strategy – cutting off much of the minor business overseas, but rebuilding the investment banking side.

But the past is suddenly back – to start with, Mr Staley’s hiring strategy, which was to lure in bright talent from JP Morgan where he himself had worked. This was so pronounced that there was a bit of a row (or “a polite conversation” chairman to chairman as is said in the City) and Barclays agreed not to recruit any more staff from JPM. Now the US Justice Department is having a look at this – not objecting to the enticements, but the fact that Barclays agreed to stop. The Justice Department thinks this might breach anti-trust laws. Those of our readers who tango will be aware that it takes two, but at the moment the interest seems to be in Barclay’s role, not JPM’s, who say that nobody agreed anything improper.

Then Mr Staley was announced to be under investigation for matters relating to an alleged whistle blowing incident in the bank. And the bank is under continuing investigation by the US authorities relating to alleged mis-selling of securities instruments in the time leading up to the 2008 financial crisis, charges which Barclays very strongly rebuts.

But all those troubles were dwarfed by the events of earlier this week where the British Serious Fraud Office arrested four senior former Barclays men; ex-chairman John Varley, the aforementioned Antony Jenkins, Thomas Kalaris former head of the private wealth unit, and Richard Boath, then of the global finance unit, and charged them with various offences relating to fraud by misrepresentation. The bank itself has also been charged with similar matters. This all centres around what was made public to investors when the bank did its huge fund raise in June 2008. This raise was not just the £4.5bn or so put in by the Qatar parties but by several other large international institutions, and it is understood that the SFO is concerned not all investors may have been made aware of the same facts.

Not surprisingly, this has not helped Barclays share price, nor presumably its standing among some of its major customers, though no doubt on reflection it will be remembered that the allegations relate to matters nine years ago, and that none of the accused are now in positions in the bank. Mr Staley must be reflecting that he wished he had stayed at JP Morgan.

COKING UP A REVIVAL:  It’s an unlikely place to be a centre of power generation – but the English Lake District is making an increasingly important contribution to Britain’s energy needs.   The nuclear power station complex at Sellafield is of course closed and the two power stations on the site are in the process of decommissioning and dismantling (but a new one is under construction creating 21,000 jobs and costing £10bn), but also the site is the centre of dealing with spent nuclear fuel in the UK, a vital role in keeping the remains of the nuclear generation capacity operational.   On the Lake District fells are a number of wind turbines, and lots more are going into the Irish Sea catching the strong winds that sweep across the Irish Sea.   The concept of a barrage across the estuary of Morecambe Bay continues to be researched – and another two bays east and west of Barrow-in-Furness are suitable for barrages and could follow if viability can be proven and environmental factors satisfied.   And now there is hope of a revival of West Cumberland’s ancient coal mining industry.   West Cumbria Mining, a new venture owned by an Australian venture capital fund, is well advanced in plans to reopen and extend mining operations under the sea south of the port of Whitehaven to extract what are believed to be large reserves of high quality coking coal, a vital component of steel production which the world is getting short of.   The price of this has risen recently to US$ 300 per tonne, which is around twice the price needed for viable production, and WCM says it has initial orders for about 500,000 tonnes per year for export.   Two more potential customers are Britain’s only major steel works at Scunthorpe and in South Wales.   The mine has finance in place and it is hoped that it may be operational by the end of 2019.

MR CORBYN WILL BE PLEASED:  We have followed the troubles of Co-op group for some time, where its banking arm has become a major problem as it continues a steep and troubled decline.   But what the Co-Op Group, the parent company which historically is closely allied with the Labour Party, has just revealed is that its historic main business, the retail operation which operates a big chain of supermarkets in northern and rural England is doing very well, and last year turned over £9.47bn, just behind the John Lewis Group.  And membership (the Co-op is owned by its members) is up 700,000 which suggests increasing customer loyalty and more good figures to come.

FIGHT AT THE TILL:  But one potential source of easy growth seems to have escaped the Co-op.   It was hoping to buy Nisa, a cooperative itself, which is a group of around 1,400 shopkeepers with a central supply business.   The majority apparently want to demutualise, not surprising as some could get payments of over £600,000, but they have decided to run with J Sainsbury, who want to add to its corner shop offerings.   However the deal is not done yet and it may not be – there is said to be major opposition from some members who want to remain independent.

KEY MARKET INDICES:  (as at 20th 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 0.63% (rise).

Euro€: 1 mth -0.37% (steady); 3 mth -0.33% (steady); 5 year 0.03% (fall)

US$: 1 mth 1.04% (steady); 3 mth 1.20% (steady); 5 year 1.82% (steady)

Currency Exchanges:

£/Euro: 1.13, £ steady

£/$: 1.27, £ steady

Euro/$: 1.12, € steady


Gold, oz: $1,244, modest fall

Aluminium, tonne: $1,861 slight fall

Copper, tonne: $5,686, slight rise

Iron Ore, tonne: $54.71, rising

Oil, Brent Crude barrel: $45.82 fall

Wheat, tonne: £146, steady

London Stock Exchange: FTSE 100: 7,472 (slight fall). FTSE Allshare: 4,087 (slight fall)


If you put your money in wheat and iron ore then you have had a good week – both moved significantly up, wheat on presumably the hot weather and the prospects for yields in this year’ harvest. Everything else, whether due to the heat or to investor nervousness, was pretty torpid. Apart that is, from oil – that had another bad week, with political events suggesting that the OPEC production agreements may fail.


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Issue 109:2017 06 15:Week in Brief Financial

15 June 2017


NEWS, the word in pink on a grey background

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,  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.


(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



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)


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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Issue 108:2017 06 08:Week in Brief Financial

8 June 2017

Week in Brief: BUSINESS AND THE CITYNEWS, the word in pink on a grey background

FASHIONING A NEW FUTURE:  These are difficult times for fashion retailers, especially those dealing with the mass market.  The old favourites are slowly slipping away – BHS, British Home Stores as was, the staple of many high streets for much of the second half of the twentieth century, has perhaps been the most high profile casualty of recent years.  It was sold (for £1) by Philip Green’s group of companies to a new owner.  That new ownership failed to make any impact on its ever diminishing customer support and lasted just over a year, the business sliding into bankruptcy, its pension scheme in major deficit, and its many store leases creating a problem for landlords who found themselves taking back premises that were of a size and presentation no longer attractive to potential new tenants.  But BHS had been a troubled case for many years – Green bought it as a bargain believing that he could turn it round and fashion (pardon the pun) a modern business out of it, as he had done with Top Shop, formerly Burton.  But, as we know, his magic did not work, and BHS is now a sad footnote to retailing history.

Green has made Top Shop a major success by that old Tesco policy of “piling it high and selling it cheap”.  His shops are by conventional measures over stocked and over crowded, creating an air of excitement among its teenies and twenties customer base, a sort of disco for cheap clothing, in which the prices are so low that the average customer will leave not with one item but with bags full – all bought so cheaply that they may well be worn once and thrown away.  Most stock is sourced from the Far East, made by fast manufacturing techniques, shipped in and put straight onto shopfloor racks, and then sold as fast to the customers.  It looks a simple model but requires close attention to trends and shifts in customer taste; a late spring or a pop idol wearing the wrong thing can mean jettisoning a lot of stock.  Top Shop has survived this; many of its rivals have not.  The rise and fall of hip fashion chains would make a book (in several volumes).  It would also be out of date before it even reached the shops…

Moving a little up market the customers may not be quite so fickle and (arguably) not so obsessed with what is in or out.  But trading conditions can be equally hard.  Marks and Spencer knows all about that, having spent more than twenty years in slow decline from being the nation’s favourite middle market clothes shop to become …a posh grocery store with a clothing shop tacked on.  Well, not quite, but almost; numerous chief executives have failed to find a way to keep fashion customers enthused; many drifted away to Next, and to smaller but smarter chains such as Jacques Vert and Jaeger.  But even they could not survive the treacherous shoals of shifting taste and price conscious shoppers.  Both Jaeger and Jacques Vert went into administration last month (and Store Twenty One, a Top Shop rival, is currently fighting off administration) .  All three are likely to survive, sold into new hopeful hands for nothing much, giving their shareholders a cold bath and enforcing discounts on their creditors and big rental concessions on their landlords.  Jacques Vert is rumoured to be going to three Asian investors who say most of the outlets will survive, which include concessions in several department store chains, as will 1,500 jobs (out of the current 1,900 employees).

But there is no evidence that conditions will get any easier.  Competition, including the increasing proportion of sales made on‑line, and ever more fickle customer tastes will continue to produce turmoil in retailing, which, like the clothes it sells, looks ever more like a throwaway business.

SHOPPERS TUCK IN:  The Brits still lead the world in at least one thing – food shopping.  Not only do we have one of the most competitive food supermarket arenas with at least eight national chains fighting for market share – ranging from the enormous (Tesco) to the quality (Waitrose) to the discounters (Aldi), nearly all of which are still expanding their network of shops and stores, we also have the biggest proportion of groceries bought on‑line. Recent data from Kantar Worldpanel which monitors spending in the grocery industry, says that we shop more frequently on‑line (15 times per year) and spend more – £65 a go – than any in other country when we do.  In fact our average spend is higher than our average supermarket spend – though that reflects the large number of quick purchases, a trend which is increasing as we pop into our local mini supermarket for a quick ready meal or casual item.

BUILDERS TUCK IN: After a wobble in late 2015 and in 2016, construction activity in the UK is increasing again.  This reflects more housing starts as residential buyers seem to have recovered confidence after the 2105 election and the 2016 Referendum (although it remains to be seen what effect the 2017 election will have) but also in the commercial sector.  London office construction has slowed, reflecting a market where demand and supply seems to be more finely balanced, but new starts in the regions, especially in regional cities such as Manchester and Birmingham, are increasing; and shopping centre owners seem to be increasing spending on refurbishment and extensions.  Indeed, such is the pace of recovery that builders are starting to see signs of bottlenecks in supply and a shortage of skilled workers – caused by the return of a number of skilled eastern European  immigrants to their home countries, reflecting growing economies there and Brexit related concerns here.

BANKERS TUCK IN:  The residential buy‑to‑let sector may be going into reverse as the changes in tax treatment of external debt make the economics less attractive to private owners, but some banks are still happy that the sector makes an attractive and low risk lending business.  Metro Bank, one of the most successful challenger banks, has just bought a large mortgage loan book from Cerberus, a US investment firm, which has in the past been a buyer of such books.  The book is of a face value of £597m, which will increase Metro Bank’s residential mortgage loan book to about £4.5bn.   Over 92% of the book being bought is in buy‑to‑let mortgages.

FASHIONING A DIFFERENT FUTURE:  Christopher Bailey, brought into Burberry in 2013 to turn around the faltering fashion business, but on a reward structure which has proved very controversial, recently announced he would give up the Chief Executive’s chair – to become Chief Designer.  It is an unusual step but one that Mr Bailey said reflected his ambitions and his core talents.  His move of offices will be softened by the vesting of the loyalty share bonus he received when he joined, which becomes his next month – and will give Mr Bailey shares worth around £10m.  As the share price has risen a third in the last 18 months, shareholders may feel that his tenure has been worth it.


(as at 6th 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 0.66% (slight rise).

Euro€: 1 mth -0.37% (steady); 3 mth -0.33% (steady); 5 year 0.05% (steady)

US$: 1 mth 1.04% (steady); 3 mth 1.20% (steady); 5 year 1.77% (falling)


Currency Exchanges:

£/Euro: 1.15, £ steady

£/$: 1.29, £ steady

Euro/$: 1.12, € steady



Gold, oz: $1,293, modest rise

Aluminium, tonne: $1,892, slight fall

Copper, tonne:  $5,540, slight fall

Iron Ore, tonne:   $54.49, fall

Oil, Brent Crude barrel: $49.85 fall

Wheat, tonne: £141 fall

London Stock Exchange: FTSE 100: 7,540 (slight rise).  FTSE Allshare: 4,116 (slight fall)


Our commodities basket seems to have ceased its slow upward movement and eased into a reverse, with further steep falls in iron ore, and with oil going below the US$50 level for the first time for several months.  No sign of election jitters in the UK stock market – the FTSE100 was up, though the Allshare was slightly down.


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Issue 107: 2017 06 01: Week In Brief Financial

01 June 2017


NEWS, the word in pink on a grey background

EDGING TOWARDS THE ABYSS:  It is nearly ten years since the beginning of the banking crisis which has so changed the financial landscape of the western world, with what almost became a complete banking failure – indeed, would have done so had it not been for the actions of central banks in providing liquidity to what were in truth bankrupt banks.  That rescue solution (ready lines of support; super low interest rates to ensure the survival of many over indebted customers, especially in the worlds of residential and commercial property; and new state provided capital, together with forced mergers) worked, but at a price we are still paying, and will go on paying for many years.  Low interest rates are great for business, but much less so for depositors, giving what we can see as perhaps a key issue for the next decade or two, the inadequate savings and investments of the generations now approaching retirement, who fear not least the rising costs of healthcare in old age – as Mrs May has just noticed.

And at a more micro level, the most troubled of the banks are still struggling with the legacy of their problems.  In the UK, Barclays seems to have recovered, after some major boardroom changes.  Lloyds finally got free of its governmental shareholding last week and has done remarkably well in rebuilding both its retail business (including Halifax) and its commercial side (though analysts, whilst praising the remarkable success story on the business side, point to low investment in technology and systems where Lloyds will now need to invest). RBS is still loss making and is likely to have a big UK government shareholding for a while yet.  RBS also has the distraction of some heavy litigation still on-going, most notably a class action by shareholders involved in the rights issue shortly before RBS’s effective collapse, many of whom would like to see former chief executive Fred Goodwin in the witness box.  Most shareholders have in the last few days accepted the bank’s offer of 82p per share to drop their action, but a few are determined to carry on, though whether they will depends on their willingness to fund the legal fees of the case – especially if they lose.

But most troubled is the Coop Bank, whose fortunes we have commented on before in these notes.  Coop is still struggling with bad loans on its books and a lack of profitability and is approaching the point at which the regulator is likely to ask it to close its doors and stop trading. The Cooperative Group now only owns 20% of the bank, and has financial troubles of its own, restricting its ability if asked to put new capital in the bank.  The other shareholders are hedge funds, professional investors who have been asked to convert their £450m or so of current loans into equity – and provide another £300m of new capital on top.  Fund managers are not noted for their sentimental streaks, or for their willingness to leap into the unknown, and to put £300m more at risk to save £450m will involve some serious thinking and calculating.  So far the shareholders have said nothing of their intentions, but time is starting to run out; it is not known what is happening to the bank’s deposit base but if the bank should fail, then depositors will be subject to the £85,000 safeguard insurance from the Financial Services Compensation Scheme, so money may start to drift out soon.  The bank is also for sale and there is believed to be one interested purchaser, but they will be presumably looking to an increasingly hard bargain as the clock ticks.

NOT SO GREAT:  Although the UK commercial property market is not showing any particular signs of trouble, some of the big players in the market are suffering from the modest shifts which have occurred over the last year.  Yields have eased slightly on all but “trophy” properties (those which tend to be bought for architectural or locational strengths), and incentives to tenants to take new space, especially in central London offices, have become a little more expensive.  Great Portland Estates plc, a FTSE250 company, specialises in London West End Offices and its results show that it is feeling the pinch from that market – having made over £550m in the year ended March 2016 this slumped to a loss of £140m in 2016/17, as the company found letting deals more difficult to do and had to down-value its stock.  But there is a bright side – if values continue to fall the company expects to be able to buy sites for future development at more reasonable prices.

RACING OFF:  Maybe the time is ripe to get out of real estate and into real cars.  Aston Martin has a new model out, the DB11, and it is selling remarkably well.  First quarter sales at £188m are up 75% with 1,203 cars in the hands of happy new owners (these are expensive cars, in case you did not realise), overall turnover doubled.  That swung the business back to profit for the quarter, only £5.9m it is true, but giving an outlook for the year of maybe £170m or more.  That implies annual sales of over 4,000 cars, so if you buy one it won’t be the rarest car on the road – but rare enough.

MOUNTAINS OF MONEY:  The British love affair with outdoor activity continues – and that is good news for Mountain Warehouse plc, who have the largest chain of specialist outdoor clothing stores in the UK – 262, of which 41 were opened in the last financial year.  There are plans for another 40 or so, but the future is likely to see an emphasis on expansion into central Europe – another area of mountains and enthusiasts who walk amongst them, and also into the USA.  Sales were up last year (to end of February) by 30%, at £184m, though the continuing costs of expansion meant the profit increase was a bit slower, at 22%, for a still healthy £20m.  Of that turnover, 25% was from overseas which was double the proportion of the previous year.

SHORT RATIONS:  We have been following the difficulties of Restaurant Group for some time.  Now it looks as though the corner may have been, if not turned, at least reached.  The company, which owns a number of family diners, most notably Frankie and Benny’s, has just reported on the 20 weeks trading to last week (we commend them on the efficiency of their management reporting).  Turnover followed recent trends in that it was down – though by only 2%, the good news being that customer numbers are now increasing.  New chief executive Andy McCue has been looking at pricing and what customers actually want, and now they are getting a bit less choice, but at lower prices, and with more focus on popular lines to cut out waste.  Mr McCue has also looked closely at where the chains do best and closed a number of less profitable or loss making branches, but is opening new restaurants where footfall is of the right type for the chains offerings – airports and next to cinemas being the best.  Investors liked all this, with the shares up over 10%.

KEY MARKET INDICES:  (as at 30th May 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 0.65% (fall).

Euro€: 1 mth -0.37% (steady); 3 mth -0.33% (steady); 5 year 0.05% (falling)

US$: 1 mth 1.04% (rise); 3 mth 1.20% (rise); 5 year 1.84% (steady)

Currency Exchanges:

£/Euro: 1.15, £ steady

£/$: 1.29, £ steady

Euro/$: 1.12, € steady


Gold, oz: $1,263, modest rise

Aluminium, tonne: $1,949, rise

Copper, tonne: $5,670, modest rise

Iron Ore, tonne: $58.15, 22% fall

Oil, Brent Crude barrel: $51.64 falling

Wheat, tonne: £144 steady

London Stock Exchange: FTSE 100: 7,532 (slight rise). FTSE Allshare: 4,123 (slight rise)


More slow upward movement for our commodities basket. That is, apart from iron ore (which suffered a dramatic collapse after a smart recovery over past weeks) unexpected by the market which is struggling to explain the reason – unexpectedly high stockholdings being the most popular explanation. Oil weakened; short term dollar interest rates moved up.

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Issue 106:2017 05 25 ;Week in Brief Financial

25 May 2017


NEWS, the word in pink on a grey background

ROOM TO LET: 50 CENTS:  The theme of the year when it comes to housing is homes to rent.  The rising affordability of owning homes is putting ownership out of the question for the young, but renting is filling the gap for many.  The liberalisation of the housing rental market in the late 1980’s has created a thriving rental sector, albeit with rapid rises in rents in some areas.  However, although private landlords have been quick to improve their letting standards and become “tenant friendly”, the larger property investors have been surprisingly slow to move in – often citing the lack of an established market to enable them to price transactions and to be sure of selling stock on at reliable yields.  The true reason is probably the fear of a return to regulation in the sector, the difficulties of managing a let portfolio of residential units, and, linked to that, the lack of modern stock built for the rental market, which typically has subtly different needs to stock built for sale – no gardens, smaller rooms, and easy to clean and service.  Now, in spite of occasional mutterings over the need for rent controls, the market seems to have broad political acceptance and is understand by tenants who welcome the safeguards and flexibility of modern contracts – if not always the upward movement of market rents.

One property company which has long specialised in the private rented sector is Grainger plc (formerly Grainger Trust) which has been in the business since the C19th when it originated in Newcastle on Tyne to take on the large residential holding of the Liddell Grainger family, ground land lords of much of central Newcastle.  Most of Grainger’s stock is outside central London – though widely spread around the UK – and it also has a substantial rental business in Germany, where renting a home is considered normal – around two thirds of Germans live in rented houses, increasingly owned by private investors.  Grainger announced its most recent six months trading results last week, and they make good reading for shareholders – and for other investors looking at entering the sector.  Gross rents were up 3.5%, whilst net rents were up 11%, reflecting an increasing predominance of new residential blocks in the portfolio, much easier to manage and with lower maintenance costs.  That pushed half year profits up to £41m, an increase of 12 % on the previous comparable half.  And the Chief Executive, Helen Gordon, says there is more to come as the weighting of new purpose built stock in the portfolio increases, with more under construction due to be available for occupation in 2019 and 2020. The company has spent over £400m in the last couple of years on new buildings, and expects to more than double that over the next two years.

But the one grey cloud to all this is that the sector is doing so well that it has finally attracted the attention of new investors, who are joining existing players such as Grainger to participate in what the UK property market now sees as a new asset class – and unlike offices and retail, with lower risks and further steady growth prospects.  That is driving up land prices for new residential blocks of apartments, and also the value of suitable existing blocks.  That means the development of new financial and ownership structures – particularly looking at the large swathes of let residences in the ownership of housing associations and local councils. Many local authorities, in particular, welcome help from outside in improving the condition and management of their residential holdings, and in return, are prepared to release surplus land, and sometimes even life expired buildings – as is being done in London’s Elephant and Castle with the Heygate Estate, a venture between London Borough of Southwark and developer Lend Lease.  We may not like the idea of not owning our own homes – but at least they will be as well built and specified as anything we may buy.

PIGGING OUT:  Entertainment One built its fortune on pigs, or really on one pig, Peppa Pig, the children’s TV favourite which it produces.  The cash flow from that has enabled the group – now known as eOne – to become a major player in media and entertainment with a focus on investing in new productions and also a distributor of its own productions and those of others.  Now it is going back to its roots in production, forming a joint venture with Brad Weston, the American film producer, to produce more original works – and in particular to retain the global copyrights which are now the main money-spinners in the global production business.  Once a production is made (and is a success) then the rights can produce income for many years, both from repeat fees and merchandising, with minimal costs beyond collecting the license fees.  Peppa is a case in point, continuing to be a children’s favourite in many countries – and with continuing market opportunities for spin-off souvenirs and toys (eOne does not produce these itself but licenses the rights, so collecting income streams at low cost and risk).

eOne is listed on the London Stock Exchange where its market value is around £1bn; an attempt last year from ITV to take it over at that price was rejected, the board believing that the net present value cash flow of those income rights considerably exceeded the stock market price.  It acquired Peppa Pig from its original producers in 2007 when it listed on Aim, since moving to the main market and now being in the FTSE 250.

It sees the deal with Mr Weston as an opportunity to further grow the business and to diversify into other forms of film production where it thinks that playing films on individual devices (rather than going along to the local cinema) is going to be one of the fastest growing parts of the entertainment business.

MORE ON BRENT:  Not Brent oil; Brent shopping.  The Brent Cross Shopping Centre in North West London was the first purpose built shopping mall in the UK, opened forty years ago; it is still one of the most successful.  Now joint owners Hammerson (a property company) and Standard Life, pension investor, have announced that they intend to spend £1.4bn doubling the size of the centre, to provide it with not just more shopping but also more leisure facilities (especially food outlets), over 6,000 flats, greatly expanded car parking, and an improved access by car and train – including a new garden bridge over the North Circular Road.  This has been a long time in the planning – ten years and more – but a detailed planning application is on its way to Brent Council, and it is hoped to get approval soon and start work early next year.

YET MORE BRENT:  Not Brent shopping, Brent oil.  As the oil price does another reversal (see below) BP have made the timely announcement that they are about to reopen their Shetlands field, which has been closed for 4 years.  This will cost about £4bn to modernise and reopen but recent testing suggests that the extractable reserves will double BP’s current North Sea production and extend the life of the field to at least 2035.  Good for oil users, one presumes, and for perhaps for the Scottish National Party…

KEY MARKET INDICES:  (as at 23rd May 2017; comments refer to changes on last 7 days; $ is US$)

Interest Rates:

UK£ Base rate: 0.25%, unchanged: 3 month 0.30% (fall); 5 year 0.67% (fall).

Euro€: 1 mth -0.37% (steady); 3 mth -0.33% (steady); 5 year 0.10% (steady)

US$: 1 mth 1.02% (rise); 3 mth 1.19% (rise); 5 year 1.84% (fall)

Currency Exchanges:

£/Euro: 1.15, £ weakening

£/$: 1.29, £ steady

Euro/$: 1.12, € strengthening


Gold, oz: $1,252, modest rise

Aluminium, tonne: $1,925, rise

Copper, tonne: $5,660, modest rise

Iron Ore, tonne: $70.22, rising

Oil, Brent Crude barrel: $54.32 rising

Wheat, tonne: £144 falling

London Stock Exchange: FTSE 100: 7,501 (slight fall). FTSE Allshare: 4,106 slight fall)


Commodities continue to rise modestly, except for wheat, which had a sharp fall (reflecting expectations of this year’s harvest). Oil continued its recovery. The LSE seems to be marking time, as does sterling; US short interest rates rose, starting to put pressure on sterling.

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Issue 105:2017 05 18:Week in Brief financial

18 May 2017


NEWS, the word in pink on a grey background

PENSIONED OFF:  How can you run a profitable business and still go bust?  Having an underfunded pension scheme is always a reliable way, as several British businesses have recently found out when trying to reorganise themselves.  Latest is Tata Steel, the UK arm of the Indian domiciled conglomerate which brought Corus (the company formerly known as British Steel) as long ago as 2006.  British Steel was in its day a major employer, its skilled workers well paid, a profile which lingers in its pension scheme which, with 130,000 members, is one of the largest in the UK.  Corus slowly shrank as it became less and less competitive against the lower cost base of many overseas producers, and closures and sales of parts of the business have recently accelerated.  So, a shrinking business has had to bear the increasing costs of the pension fund, an increasing headache for all concerned – the pensioners, the trustees of the pension scheme, the directors of Tata, and the Pensions Regulator.  This finally came to a head with Tata’s proposal to merge its UK operations with those of the German steelmaker Thyssenkrupp, also rolling in its European operations.  The new group refused to take on Corus unless the pension issue was sorted out on the grounds it was an uncapped and unsupportable liability.  Detailed discussions have been going on for some time and it looks as if an agreement has now been reached – one in which everybody will bear a share of the pain.  Tata will inject £550m into the scheme which will then be separated from the business into a freestanding scheme. Pension benefits will be reduced but still be not unreasonable – though those who don’t want to move can stay in the existing scheme and hope it will continue, with some compensation from the Pension Protection Fund for the risk of staying put.  Tata hopes and expects that most potential beneficiaries will move – the alternative it says, if they don’t, is that Tata Steel may go bust.  There is an extra benefit – at least it would appear to be a benefit – for those who move to the new scheme.  They will get ownership of 33% of the UK business, the main operation of which is the Port Talbot steel works, one of the biggest and most modern in the UK. The whole complex transaction needs to be signed off by the Pensions Regulator, but they are likely to agree – it solves a major headache and sets a model that might be used by other UK businesses with similar issues.

NATIONAL HOMES SERVICE?:  Sadiq Khan, the Mayor of London, is the latest in a long line of property developers to ponder on the property assets of the National Health Service.  Sadiq is not a commercial developer of course, but he does need to fulfil election promises – and government pressure – to create many more homes in London.  The NHS is believed to be sitting on some 420 acres of spare land – though that includes hospital grounds and car parks – which could provide upwards of 10,000 2 bedroomed homes. That makes the land worth getting on for £2bn, though the need to build some car parks and reorganise facilities and access might reduce that to around £1bn after costs.  But it is not the Mayor’s land.  It is mostly in the ownership of the various hospital trusts and they will, if they sell their spare assets, want full value to assist their stretched finances.  That means they might not want to sell to the mayor to build cheap housing but to private developers to build some swish luxury homes, though that market is admittedly weakening fast.  What the Mayor wants is cheap housing to ease the pressures on the young and poor who cannot afford to live in the capital anymore, a problem which is affecting essential services and forcing the young and aspirational out to regional cities.  The Mayor and the Greater London Authority have proposed some sort of joint ownership or administration of NHS land in the GLA area which would start to release land, subject to agreement as to how to deal with the proceeds.  This will follow on from the disposal of the GLA’s own surplus land and that of the Metropolitan Police, both now mostly dealt with, and that of TfL, a programme which is well underway.

BRENT, CROSS:  There is increasing discussion in the oil trading market as to whether Brent Crude – the benchmark for London pricing – is appropriate any more.  The problem is that oil is like fine wine, or more appropriately for oilmen perhaps, whisky.  It is not all the same and it is used for different purposes; Brent Crude, from the North Sea is sweet and light with low sulphur and suitable to be refined into petrol; West Texas Intermediate is lighter and better still, and easy to produce – all those nodding donkeys on the Texas plains; oil from the Arabian Gulf bordering countries (Dubai or Oman Crude) is more sulphurous and used for industrial purposes, but cheap to get out.  Brent Crude has been used as the reference point for many years and then other grades and types are priced off it, depending on quality, sulphur, and transportation costs to refining capacity.  So West Texas tends to trend and price as per Brent, but with discounts for Dubai, which is more costly to transport and refine.

Very little oil has come from the Brent field (named after the goose not the London suburb incidentally) for some time but oil from other parts of the North Sea is similar in quality and is thus priced the same way.  But even this is starting to run out and the reference market is becoming increasingly thin, which may be creating a rarity value and certainly could make the market easy to manipulate. Increasingly the market is pricing off West Texas (“WTI”) and, although they are similar products, there can be periods when local conditions can drive a significant price differential – indeed today WTI is $1.50 cheaper, reflecting the higher extraction, handling, and transportation costs of Brent.   We will continue to use Brent Crude in our index for now, but may switch in the future if market practice moves that way, as it seems to be doing.

ONE NOT FOR THE BIRDS:  Wind turbine builders and operators are relaxing again after a Court of Appeal hearing last week.  With increasing opposition to on-land windfarms – and their low levels of efficiency – the best prospect for future growth is seen to be  turbines in the seas around the UK coasts, which tend to have more reliable breezes and less vocal local residents, but do have lots of seabirds.  A Scottish court recently blocked four windfarms on the grounds that they would be very damaging to bird life, but the Court of Appeal overturned that last week.  The windfarms are not home and …er…dry yet – they need to get their subsidy contracts in place, which may or may not be easier after the election.

KEY MARKET INDICES:  (as at 16th May 2017; comments refer to changes on last 7 days; $ is US$)

Interest Rates:

UK£ Base rate: 0.25%, unchanged: 3 month 0.32% (steady); 5 year 0.70% (falling).

Euro€: 1 mth -0.37% (steady); 3 mth -0.33% (steady); 5 year 0.10% (falling)

US$: 1 mth 0.99% (steady); 3 mth 1.18% (steady); 5 year 1.88% (falling)

Currency Exchanges:

£/Euro: 1.17, £ weakening

£/$: 1.29, £ steady

Euro/$: 1.10, $ weakening


Gold, oz: $1,234, modest rise

Aluminium, tonne: $1,899, modest rise

Copper, tonne: $5,585, modest rise

Iron Ore, tonne: $67.56, rising (10% up)

Oil, Brent Crude barrel: $51.39 rising (WTI $49.90)

Wheat, tonne: £149 steady

London Stock Exchange: FTSE 100: 7,525 (rise). FTSE Allshare: 4,114 (rise)


Neat reversal of last week’s action in commodities – all up a little and iron ore up about 10%.  For oil, see our comment above.  The LSE continues to power up, reaching new heights.  Not so hot on the interest rate front which continue pretty static in the short ranges and off a little in the long, with a slight euro strengthening in foreign exchange.

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Issue 103: 2017 05 04: Week in Brief: Financial

04 May 2017


NEWS, the word in pink on a grey background

PUTTING A ROOF ON IT:  Taylor Wimpey drew a firm line under the recent controversy regarding ground rents on houses that they have sold leasehold.  The leases contain, in the normal way, annual ground rents payable by the long leaseholder to the freeholder.   Traditionally this gave freeholders a long term continuing interest in the management of their estates – as with the Duke of Westminster’s London estates – but, in an era of low interest rates, ground rents have become valuable investments.  Owned in large enough quantities to benefit from economies of scale in management, they provide reliable income (leaseholders rarely default on ground rents because of the danger of having their property repossessed for such a small amount) and occasional capital receipts – usually paid if a property owner wants to alter or extend his property and, later into the life of the lease, for lease extensions.  And they do not affect the sale value of the property when new – as they are typically £50 or £100, most purchasers do not take them in to account, but the rents sell well in bulk to specialist investors who will currently pay 20 or 25 times the ground rent, to give a 4% or 5% yield.  That is perhaps £2,500 extra receipts on a £100 annual ground rent on a single house sale, which for a large scale house builder comes to a useful extra sum per year. The Taylor Wimpey twist was to make the ground rent double every ten years, usually until capped at year 50.  TW does not hold the groundrents but has sold most of them on to professional investors. Householders, although usually legally advised on their purchases and able to calculate the cost of their mortgages, seem to have missed the financial effect of this doubling up – an initial ground rent of £100 agreed last year would rise to £3,200 per year by 2067 (at which point the cap cuts in). Of course if we go back to the bad old days of inflation this might look a bargain, but in the current climate it might be a considerable imposition and would affect the sale value of the house.

Some purchasers belatedly spotted this and called a foul and after some fuss Taylor Wimpey have agreed that perhaps it was unusual behaviour (though so is not reading the small print when buying a house, suggests our property lawyer) and that it will put things right. This may not be so easy though, as the investors who now own them have paid good money for their investments, so TW will either have to buy them back, or compensate the householders.  It is now in discussions as to what to do, and has put £130m aside to deal with the financial consequences.  However, the company reported that none of this seems to be affecting 2017 sales – which so far are 16% up on this period last year.

WEAKER FOUNDATIONS:  If volume house builders are having an improving time, it’s not so good at the top.  Residential property sales in the south-east, especially at the upper end of the market, continue to slow down, and the decreasing volumes are affecting residential estate agents.  Two of the largest agencies, LSL and Countrywide, both reported revenues down in the first quarter – Countrywide by 13% (LSL said 3% for them and that they had expected things to be worse).  Estate agency has high fixed costs (all those high street branches) and so is very sensitive to volumes.  The business is also migrating to the internet and becoming more competitive, forcing agency fees down, so for traditional agents with big branch networks there is a double squeeze.  Add in the usual slowing of sales caused by an election and the lookout for the first half figures must be grim, though perhaps the, also traditional, post-election bounce may help the full year figures.

FROM BRICKS TO AIR:  Also having a tricky time are aircraft builders Airbus, which is already considering the effect of Britain’s coming exit from the EU.  Airbus’s main activities are in the UK and France, and the company has traditionally been an example of how to run a cross border business, but recently it has been hit by a whole raft of problems.  It is having difficulty with its supply chain for its well-regarded new jet, the A350, the externally sourced engines for the A320 are suffering reliability issues, and the specialist military jet, the A400, has got major cost problems.  All that has hit profits for the first quarter of 2017 which are down by about half, though the company expects that it will resolve all these issues in the current year and is confident about its profit performance for the year as a whole.  As it should be – the forward order book has orders for a remarkable 6,700 aircraft – the only issue now is getting them into the hangers of the purchasers.

LIBERTY WELL:  The rise and rise of Liberty House in the UK steel industry continues.  Liberty is controlled by Sanjeev Gupta and is part of the Gupta family’s GFG Alliance, an industrial and investment conglomerate.  Mr Gupta has stepped boldly in on several occasions to buy parts of the steel industry that were been shed by Britain’s big steelmakers, Tata and Caparo.  Both said that most of the UK steel business had been rendered unviable by cheap steel imports, especially, but not solely, from China.  Mr Gupta though spotted that there were some specialist “added value” parts of the business, where local demand was strong and some tighter management and better marketing could both cuts costs and gain extra turnover.  His latest and by far his biggest acquisition is of the specialist steelworks at Rotherham which has a modern state of the art electric arc furnace and makes high end alloys for use in planes and cars.  It also is able to use scrap steel, which Liberty say will be an increasingly important aspect to the business – recycling steel is environmentally responsible but also economically sensible.  Not that it will only save old steel – it will also become a very significant customer of the former Tata steelworks at Scunthorpe, now owned by venture capitalist Greybull Capital (who bought it for £1 from Tata) who say the business is now in good heart.  In fact there is a bit of a steel renaissance going on, after some fierce cost cutting but also some relief from competition as world steel over-capacity reduces.  Sheffield Forgemasters, a long established steel casting business which supplies steel for the new nuclear submarines now being built, and which looked in a parlous state two years ago, said 2016 losses were down to £900,000 after being nearly £8m in 2015, and that it is on course to build further sales and to return to profitability this year.

KEY MARKET INDICES:  (as at 2nd May 2017; comments refer to changes on last 7 days; $ is US$)

Interest Rates:

UK£ Base rate: 0.25%, unchanged: 3 month 0.32% (slight fall); 5 year 0.69% (rising).

Euro€: 1 mth -0.37% (steady); 3 mth -0.33% (steady); 5 year 0.10% (rising)

US$: 1 mth 0.99% (steady); 3 mth 1.17% (rising); 5 year 1.94% (rising)

Currency Exchanges:

£/Euro: 1.18, £ steady

£/$: 1.28, £ steady

Euro/$: 1.09, € rising

Gold, oz: $1,255, falling

Aluminium, tonne: $1,929, slight fall

Copper, tonne: $5,688, rising

Oil, Brent Crude barrel: $51.12 falling

Wheat, tonne: £150 rise

London Stock Exchange: FTSE 100: 7,250 (fall). FTSE Allshare: 3,990 (slight fall)

Briefly: This was a very unexciting week, not much money for day traders in this sort of market – unless they are in wheat, which is edging up. Oil down a bit, UK stock market down a bit, copper up a bit.  The dollar is expecting interest rates to rise – as the Fed is signalling, not suiting Mr Trump who would like the dollar weaker.  At the moment it is going the Fed’s way.

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Issue 102:2017 04 27:Week in Brief Business

27 April 2017


NEWS, the word in pink on a grey background

ENGINEERING WOOD:  AMEC Foster Wheeler is one of those specialist engineering conglomerates which the fall of the oil price, and the consequent cost cutting in that sector, has knocked sideways.  The weakness in the oil market caught AMEC at exactly the wrong moment – it had just taken over the USA based Foster Wheeler business in 2014 and had taken on an oil tanker load of debt to do so.  Although the AMEC strategy has been to diversify into other major engineering activities and areas that are not oil related – the new Heathrow runway is one of its advisory projects – it has not been able to do that fast enough to build enough turnover and profits to support the debt burden; nor has it been able to make sufficient sales of peripheral businesses to get its obligations to the bankers down.  And in the core oil and gas based business not only has demand for specialist engineering fallen, with margins tightening to reduce profits, but the service side of the business has suffered as well, as facilities were closed or mothballed, or service issues deferred.  AMEC brought in Jon Lewis from American rival Halliburton as Chief Executive in 2016 but after a review of the business he says he can see no immediate upturn or easy solutions.

But into the breach has now stepped Wood Group, the Aberdeen based group which has been built from its specialist oil and gas activities and is a major rival to AMEC.  Wood has weathered the oil turndown much better, mainly through early cost cutting and by keeping its external indebtedness down.  However, although it thinks that the oil based side is going to recover soon with the oil price better and deferred works soon needing to be dealt with, it would also like to diversify; so it has offered to buy AMEC for £2.2bn.  This lifeline for AMEC could not be better timed.  The AMEC board has recommended the deal to shareholders and all is proceeding.  But that debt mountain continues to cast a long shadow.  There is a real danger that AMEC could shortly breach the banking covenants on its debt and put itself into default, thus enabling the bankers to demand immediate repayment of the loans.  So shareholders and board alike will be relieved that the banking consortium has now agreed modifications to the covenants which will avoid the potential default and will apply until June next year, time to get the deal done – or, if for any reason it does not happen, time to think of Plan B.

FINALLY FINE:  Tesco is finally closing the file on the accounting scandal which arose from its trading difficulties some five years ago; the trading problems were caused by the increasingly competitive nature of the food retail business and especially the rapid incursion of the two great German owned discount food retailers, Aldi and Lidl, into the UK market.  That put Tesco (and the other big four British supermarket chains) under increasing pressure over how to maintain profit margins.  Tesco, with heavy borrowings from its previous expansion and diversification, was concerned to avoid any potential breach of loan covenants and began in 2014 to anticipate profits to try to boost current year performance (and presumably hoped that in following years something would turn up).  When that was discovered, a full enquiry brought in the Serious Fraud Office and ultimately led to the resignation of Chief Executive Philip Clarke and the departure of finance director Carl Rogberg, along  with fellow executives John Scouler and Chris Bush.  The Serious Fraud Office has now concluded its investigation into the matter and Tesco has agreed to pay a fine of £129m, something the shareholders may not be totally happy with, having seen the value of their investments reduced by the scandal and its revelation and now having to pay a fine for it.  The SFO has also announced that Philip Clarke will not be charged with any offences resulting from this, although charges remain outstanding against the other three executives.  This leaves current chief executive Dave Lewis free to pursue his bid for Booker, itself causing waves currently.

ALL THAT GLISTERS …: … may be explosive.  There are many problems running a modern business, but Galantas Gold, which is, not surprisingly, a gold miner, and is quoted on the UK AIM market and on the Toronto exchange, has an odd problem which is outside the normal range of business difficulties.  It wants to build and operate a goldmine in Northern Ireland where prospecting has shown very hopeful signs.  Work is underway but to create a deep goldmine means digging a mine, and digging a mine requires explosives; and Northern Ireland is a place which is a bit sensitive about having quantities of explosives lying about.  Indeed, a licence for gelignite can only be obtained if arrangements can be made with the local police force for a police guard.  This, the Police Service of Northern Ireland says, it will only do two days a week and at a fee.  Galantas does not see why it should pay a fee for what is to it a normal commercial activity, and in any case needs to have the explosives available five days a week.  (It is not clear what happens to the stuff the other three days in a week – does senior management take it home for the weekend?).  At the moment things have reached an impasse with work on the mine stopped – which took the share price down a quarter on Monday.

NOT SO SWEET:  Willy Wonka it ain’t.  Things are not so good in the chocolate and confectionary industry, as competition hots up, and sales weaken with traditional markets increasingly going on health kicks.  Kraft Heinz’s recent failed bid for Unilever was a symbol of that; trying to diversify as its traditional lower and middle market food businesses (including Cadbury) struggle to maintain returns.  And that struggle to find consumers’ soft centres is affecting all the big food producers, including industry giant Nestle who own Cadbury’s UK rival ,Rowntrees.  Nestle has two concerns – one is maintaining profits in this fierce market; when you are the biggest in the market, getting continuing growth whilst maintaining profits becomes increasingly difficult; and the second is that even the biggest in the world is not immune from takeover at a time when investment bankers and other deal makers are also hungry for profits.  So keep the shareholders sweet is the game; which means looking very closely at costs.  To try to improve that bottom line and keep the dividends flowing, Nestle announced this week that it will be shedding around 700 jobs, an action it has traditionally tried to avoid.   About a third of them are in the UK, in York and Newcastle, from the former Rowntree business.

KEY MARKET INDICES:  (as at 25th 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 0.67% (rising).

Euro€: 1 mth -0.37% (steady); 3 mth -0.33% (steady); 5 year 0.09% (rising)

US$: 1 mth 0.99% (steady); 3 mth 1.15% (steady); 5 year 1.92% (rising)

Currency Exchanges:

£/Euro: 1.18, £ steady

£/$: 1.28, £ rising

Euro/$: 1.08, € rising

Gold, oz: $1,264, falling

Aluminium, tonne: $1,942, rising

Copper, tonne: $5,652, rising

Oil, Brent Crude barrel: $52, falling

Wheat, tonne: £148, slight rise

London Stock Exchange: FTSE 100: 7,275 (fall). FTSE Allshare: 3,992 (rising)

Briefly: News from France of the likely triumph of the middle was not good for the price of gold, but played well on the UK (and European) stock markets which have shown continuing strengthening.  Nothing seems to affect short term interest rates, though the dollar long rates, having come in, are now going back out.  And oil edged down again after that short recovery.

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Issue 101:2017 04 20:Week in Brief Financial

20 April 2017


NEWS, the word in pink on a grey background

GOLD SORES:  You know that the problems are real when Goldman Sachs misses its own performance forecasts; especially when they and fellow investment banks have been making positive noises, albeit unofficial, about the beneficial effects on their businesses of political change in the USA and Britain . Goldman’s first quarter this year was expected to show the investment banking giant powering on, but in fact the performance was flat – good results in mortgage and interest instrument trading were cancelled out by underperformance in commodity trading, credit related businesses, and currency trading.  The core reason seems to have been that Goldman expected interest rates to start rising under the new President and positioned their book accordingly – buying early in the expectation rates would be on the up. Initially that looked like a good call but then rates have fallen back, leaving the trading books showing losses at mark to market.  Once upon a time of course banks could re-mark their books as longer term holds and avoid mark downs, but no longer, books must be valued as if being sold at the valuation date.  But do not despair too much for the struggling bankers – in spite of the weak quarter, net revenues were up 27% against the comparative quarter last year, with especially strong performance in areas which are added value – advisory based activities, such as underwriting debt or equity raises or investment management.

The news has knocked Goldman’s already retreating share price, down 5% since the November election, and also knocked the share price of some competitors who it is thought in the market may be experiencing similar issues – without the cushion of Goldman’s strong position in added value products.

IRON AGE:  One commodity price we do not follow in our weekly round-up of market trends is that of iron ore, a basic but highly essential raw material of many industrial (and domestic) products.  Iron ore is a bit like oil – for a long time the world looked as though world reserves were running out whilst use kept going up, but then the rising price made exploration more interesting and massive new reserves were found.  Just as, needless to say, the world started to be much more efficient at using metal so demand, whilst not dropping, slowed.  And unlike oil, iron can be reused, over and over again – as the scale of the world’s scrappage business demonstrates.  It is true that Europe is pretty much mined out, the big suppliers now being in Australia, India, and Brazil – and the big users in India and China, and to a declining extent, the West.  Ore prices have also been behaving like oil recently, recovering to highs of over US$95 per tonne at the beginning of the year as demand seemed to be picking up among steel manufacturers, but now sliding back to around $65 as steel production reaches new records – but world demand for the stuff slows.  The ore industry knows what will happen next and the price reflects sharp concerns that both iron ore and steel are being stockpiled – indeed ore reserves ready for processing are said to be up about a third in the first three months of 2017.  The slow up in demand is now starting to affect mines which are easing up on production; an especial problem for Brazil where mining is a big (and relatively well paid) employer, it is also hitting the share prices of the big public mining companies most of which are also suffering from the slide in copper prices over the last few months.

LOOSE RIGGING:  The LIBOR rigging scandal just will not go away.  After a series of trials of individual traders accused of attempting to adjust the market rates for interest rate products, for their own benefit or that of mates, which produced a few convictions but also a lot of acquittals, further suggestions have been made that the real impetus came from higher up.  Recently revealed evidence suggests that this reached as high as the Court of the Bank of England, and linked in the Treasury, which is said to have wanted interest rates pushed down as low as possible to help in the crisis of 2008 – but it goes back  further than that.  The allegations have now been picked up by John McDonnell, Labour’s shadow Chancellor of the Exchequer and a close ally of Jeremy Corbyn, who has called for a public enquiry into exactly what went on and who knew what.  Given other distractions for politicians this week and into June, it seems unlikely the government will oblige him, but there may be more revelations to come about the relationships between the Bank, the regulators, and the clearing banks.

NOT GOOD ENOUGH: The legacy of 2008 still hangs over one major bank.  RBS was supposed to sell its recently carved out Williams and Glynn’s subsidiary (a loose successor to the bank of that heritage which was centred in the North West).  After years of trying to separate it off – complex reporting and management systems seemed to make that almost impossible – it was finally able to persuade the Treasury and is currently urging European Commission competition regulators to be allowed to keep it, provided that it injects about £750m into rather vaguely described initiatives to increase competition in the small business market.  RBS’s small competitors – the so-called “challenger banks”, do not like that at all, calling for the government to force RBS to divest itself of a range of assets into the market so that the RBS business can be shrunk and the challengers be given more of a leg up to become competitive.  They also want RBS to be forced to continue to provide basic services at cost so they do not have a one stop advantage over smaller banks that do not have capabilities in, say, foreign exchange or derivative provision.  The UK Treasury has said the RBS proposal is the best way ahead – but it is far from certain that the EC will take that view.

HEAVY BOOZERS: Good news for those facing the uncertainties and upsets of a General Election campaign – in 2016 45 new gin distilleries were opened, giving all the benefits of diversity and competition to a market which is so close to so many hearts.  Or livers.  For the first time gin sales exceeded £1billion, and HM Revenue and Customs, who has awarded itself the not unpleasant job of monitoring the sector says that British gin is exported to 139 counties.  Many of the new batch are artisan distilleries, capable of being run from a big garden shed or even a couple of back bedrooms.   A lovely way to sooth yourself to sleep.


(as at 18th 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 0.64% (falling).

Euro€: 1 mth -0.37% (steady); 3 mth -0.33% (steady); 5 year -0.01% (falling)

US$: 1 mth 0.99% (steady); 3 mth 1.15% (steady); 5 year 1.83% (falling)

Currency Exchanges:

£/Euro: 1.18, £ rising

£/$: 1.26, £ rising

Euro/$: 1.06, € steady

Gold, oz: $1,285, rising

Aluminium, tonne: $1,915, falling

Copper, tonne:  $5,620, falling

Oil, Brent Crude barrel: $55, rising

Wheat, tonne: £147, steady

London Stock Exchange: FTSE 100: 7,123 (fall).  FTSE Allshare: 3.9204 (slight fall)

Briefly:    Mrs May’s election announcement seems to have affected many things – even in international commodity markets.  That traditional shelter, gold, rose; the traditional index of nervousness, oil, also rose; and everything else fell.  On the financials front, though there was very little movement – sterling was slightly up and most longer term interest rates fell.  Or maybe it is just that everybody is away for Easter?


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Issue 100:2017 04 13:Week in Brief Financial

13 April 2017


Headline image saying £NEWS

TRY AGAIN:  The troubles of leading house builder Bovis may be coming to an end with the help of fellow residential builder Galliford Try – but not quite in the way that Bovis had in mind.  Bovis found both house sales and its share price in a downward spin last year after revelations that the company had been hustling customers to accept houses that were not quite finished, so as to book sales early, so advancing profits and, allegedly, senior management bonuses.   The chorus of complaints from new home owners and the concerns of shareholders led to the departure of the chief executive and a decision by the board to pursue a merger – the chosen mergee being Galliford Try.  But GT has now decided that this is not a deal, for reasons that are not entirely clear but may have something to do with the costs of integration and Bovis’s low margins compared with rivals in the industry.  So Bovis now is trying a different route.  It has taken on Galliford Try’s former chief executive, Greg Fitzgerald, as its new CEO.  Mr Fitzgerald has a very good reputation among house builders, having built up two small residential developers in the Home Counties, sold them and himself to GT, and then worked there for thirty years, the last ten as chief executive, building the firm up to become a major player in the industry.  He has agreed a three year deal at Bovis with most of his remuneration by bonus, but payable only in shares, to align his performance with returns to shareholders.  He has a big job to do in restoring confidence, cutting costs, and rebuilding the Bovis brand name, but most observers think that will be a challenge that he will meet.

POWERING ON – OR OFF:  We wrote in the Shaw Sheet last week about the sources of electrical supply now available and how perceptions of oil shortages and pressure on supply are misconceived.  As if to prove our point, the National Grid has now reported  that it expects problems with the supply of power this summer – Britain is likely to have too much of it.  As more and more capacity comes on line, especially from sustainable sources, the demand for power in the summer is actually falling and is predicted this year to be about 5% down on last.  This is mostly because of us users getting more and more efficient in how we use our electrical kit, those solar panels on the back roof making quite a contribution, and not least because the increases in prices coming through will enable suppliers to pay the green costs placed on them by government to encourage a move to sustainable carbon neutral production.  That is working well – especially in promoting solar panels which, of course, are at their most productive in the summer.  But National Grid has to manage forward supply, partly so that surges do not occur, damaging sensitive electrical equipment, but also so that production is not wasted – or fall short, as the Grid still has to pay for contracted power whether it gets used or not.  Last year the Grid was paying incentives to some industrial users to use more power at times of low demand – just as it sometimes pays during winter peaks to not use electricity.  Now they are looking at paying some wind farms and solar producers to not produce this summer.  Unfortunately for householders with panels on the roof or a turbine on the chimney, this offer will not apply to them.

NOT JUST SOFT SOAP: Unilever has shown its critics and grumbling shareholders that at least one of their recent criticisms was misplaced – exhibiting a remarkable fleetness of foot in putting up a series of proposals for moving the business on after repulsing the failed takeover bid from Kraft Heinz.  It has proposed a sale of its margarine and fats unit, and also an internal merger of its two food divisions, which should in fairly short time raise operating margins to around 20%, reducing the capital requirement of the business and enabling dividends to be improved.  The first sign of this will be a €5bn special dividend to be paid to shareholders in the next few months.  The strategic review has been completed in a month, but the reaction of the market was that this was a collection of sensible suggestions that addressed concerns about the business and would improve returns whilst strengthening the trading of the business by enabling concentration on core brands.

GIVE A LITTLE WHISTLE: In the UK and the US, the Financial Conduct Authority, the Prudential Regulation Authority, the Department of Justice and New York Department of Financial Services have all said that they will investigate the conduct of Barclay’s CEO Jes Staley and his efforts to discover the identity of the writer of a whistleblowing letter. Mr Staley has said that he was trying to protect a colleague and has apologised for his actions.  Whistleblowing is an important weapon in fighting corruption, but the process can only work if the whistleblower is confident that he will remain anonymous.  In this case the whistleblower has remained anonymous, but there will be concerns that the story will discourage others from coming forward.  Mr Staley will have his pay award adjusted by as much as £1.3m by Barclay’s as a result of his conduct.

OILING THE WHEELS: Having previously said that it only paid money to the Nigerian government, Shell has now admitted that it dealt with a convicted money-launderer when negotiating access to an oil field in Nigeria.  Shell and the Italian company ENI paid the Nigerian government $1.3 billion, of which it is claimed $1.1 billion was passed on to a firm called Malabu, controlled by Dan Etete, a man later convicted of money-laundering in a separate case.  Shell has said that they believe the settlement was a fully legal transaction.


(as at 12th 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: 1.18, £ rising

£/$: 1.25, £ stable

Euro/$: 1.06, € stable

Gold, oz: $1,275, rising

Aluminium, tonne: $1,907, falling

Copper, tonne:  $5,745, falling

Oil, Brent Crude barrel: $56, rising

Wheat, tonne: £148, stable

London Stock Exchange: FTSE 100: 7,349 (rising).  FTSE Allshare: 4018 (rising)

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 seems to be emerging there .  As always oil provides the main action – a push back up from the weakness of a couple of weeks ago seems likely to reverse as more benign conditions in Libya mean that supplies of crude from that market are increasing rapidly.


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