Monday 10/01/22

1. In MACRO NEWS, we look at NATO vs Russia
2. In BUSINESS SENTIMENT/TRENDS NEWS, UK companies are optimistic, SMEs struggle with higher energy bills, food import costs are set to rise, manufacturing warns of Brexit/admin impact and companies look to hire school-leavers while London law firms have hiring difficulties and Ikea gets serious about vaccines
3. In RETAIL NEWS, M&S has a good Christmas, rapid grocery delivery companies battle for supremacy and Specsavers looks good
4. In INDIVIDUAL COMPANY NEWS, we look at tech stocks and Campari’s optimism
5. AND FINALLY, I bring you cute sausage dogs…

NATO vs Russia is set to intensify this week…

Hello everyone! Watson’s Daily is officially back in 2022! There’s so much to come, so you will be noticing changes here and there that will enhance the existing offering over the course of the next few weeks and months. Just as an aside, I published a podcast yesterday about the background of Watson’s Daily along with my friend Jake Schogger of the Commercial Law Academy. We are both small business owners and thought you might be interested to know about some of the highs and lows we have experienced in the road so far! You can have a listen HERE. There will be other “themed” podcasts coming to you very soon – so look out for those in addition to the usual ones that will be starting again TODAY!

I will be launching the Watson’s Yearly on Thursday January 13th at 5pm with a 2021 review/2022 preview webinar with Jake Schogger from the Commercial Law Academy. PLEASE CLICK HERE TO SIGN UP! You will need to register to attend this event.

In Nato stands ready for conflict in Europe, says alliance chief (Financial Times, Henry Foy and Lauren Fedor) we see that the heat is rising between NATO and Russia regarding the latter’s foreign policy as tensions rise about the build-up of 100,000 troops on the Ukrainian border. President Putin says that he does not plan to invade but threatens military action if NATO continues to ignore its demands to reduce US and NATO capabilities in Europe. Formal talks between Russia and NATO start in Geneva today. The US, EU and others have said that they will impose economic sanctions on Russia if they escalate military actions.

West treads narrow path to common ground in Russia talks (Financial Times, Ben Hall and Max Seddon) suggests that expectations of agreement of a new security

arrangement are low but I guess at least the dialogue channels are open. It sounds like we find ourselves in the current situation because back in 1997 NATO said that it would not permanently station military forces in former members of the Soviet bloc and limit the number of troops and equipment there. However, this changed when Russia annexed Crimea from Ukraine in 2014 as NATO increased its presence in Poland and the Baltics. * SO WHAT? * I wonder what Putin is trying to do here. Is he trying to rattle NATO’s cage to stoke up nationalist sentiment in Russia and perhaps boost his popularity? I need to take more of a look at this, but is he using the world’s weakened state in the face of the global pandemic to force the west to the negotiation table? It looks to me like he’s taking advantage of the fact that the oil price is high (so he’s got money flowing in), that he’s got the foot on the throat of Europe regarding gas supplies (so they are going to HAVE to approve Nord Stream 2 at some point, surely!) and that he’s got a Covid vaccine that has a very good efficacy rate that has been taken up by a number of European countries that got fed up of Brussels faffing around. It’s also probably quite useful that America’s president is looking quite weak at the moment and that there is a palpable pressure on him to release more American troops from foreign obligations. Maybe it is all or none of these – but we shall soon see. Maybe this is what he wanted all along and was playing the long game in terms of Crimea (invading it to show that he is not afraid of doing so) and waiting for the right moment to pounce. I would expect oil prices, at the very least, to trend higher on rising tensions (this tends to happen when threat of military actions heighten). It will also be interesting to watch what happens to the gas price as this might be a proxy as to market sentiment on the likelihood of Nord Stream 2 coming online. If it DOES come online, this could be good news for manufacturing and any other industry that uses a lot of power because their bills will go lower.

Businesses get more optimistic but challenges remain…

UK companies optimistic about outlook for 2022 (Financial Times, Chris Giles) cites the findings of three surveys that will be coming out today generally seem to point towards improving business sentiment for 2022 after an Omicron “blip”. The surveys from Deloitte and Make UK all pointed to better times while BDO’s survey was a bit more downbeat due to the effect of Omicron. Small businesses struggle to survive soaring UK energy prices (Financial Times, Nathalie Thomas and Jim Pickard) emphasises the fact that small businesses are facing massive challenges in terms of energy bills. It takes the example of a hotel owner of the Crescent Hotel in Scarborough where bills to power its 20 guestrooms and restaurant ran to £1,000-2,000 per month until her supplier, CNG, went bust just before her energy deal came up for renewal. Following the appointment of her new supplier by utilities regulator Ofgem, her bills could shoot up to around £10,000 per month! In the Federation of Small Businesses’ latest survey, 45% of firms said that their costs had increased over the latest quarter because of energy bills. This is particularly unwelcome at a time when companies are facing supply chain disruptions, rising inflation, the increasing incidence of large business customers paying bills late and an upcoming tax increase in April. Interestingly, the 1.2m “micro businesses” (< 10 employees) in the UK who employ 4.2m people have less protection regarding energy than households do. Will the government step in here to help?? Food importers brace for costs of post-Brexit physical inspections (Daily Telegraph, Tom Rees) highlights rises in costs for importers as forthcoming post-Brexit checks that will incur new charges look set to worsen their headaches. From July, animal and plant products being imported from the EU will have to have export health certificates and may be stopped for inspections by border authorities that would involve the use of vets and other service providers.

The employment side of things doesn’t sound much better either so companies are having to change their usual modus operandi as per UK employers look to hire school leavers as skills shortages bite (Financial Times, Bethan Staton) which shows that many employers are planning to shift emphasis from hiring graduates to hiring school leavers as skills shortages continue to bite. Apparently, around 23% of companies that were surveyed by the Institute of Student Employers said that this “rebalancing” was going to be part of their hiring plans. Interestingly, accountancy firm Grant Thornton said that their trainee intake in 2011 contained 10-15% of school leavers, but that has since doubled over the past few years and the company now says that it aims to raise this further to 40%! Meanwhile, Hiring more older workers can solve the labour crisis (Daily Telegraph, Lucy Burton) looks at the other end of the age scale for a potential solution to the skills shortage. There had been calls pre-Covid for employers to look at older talent but a 2019 report by Anglia Ruskin

University showed that younger applicants were up to three times more likely than older candidates to make it to interview. It is also worth noting that age discrimination claims by older workers who lost their jobs shot up by over 70% in 2020. * SO WHAT? * I would have to say, as an ex head-hunter, that the problem of older people being discriminated against is rife. I would say that, at the beginning of a career, there is a degree of panic about getting that first “proper” job because your life is just stretching out before you and everyone else seems to be having such a great time. However, once that subsides and you get a bit of experience behind you, many people continue to aim higher but the fact is that the more senior you get, the fewer jobs there are available. Once you get to a certain level, it then actually becomes more cut-throat because it then often becomes a race to get certain positions by a certain point – and if you don’t, you are “past it”. I have seen so many excellent candidates in my time who have just been put on the scrap heap because someone else in their organisation got the senior job they were looking for and they were pushed aside. Once this happens, their options are limited because other employers balk at their wages and often search for someone younger and cheaper to step in. Anyway, I digress. I personally think that people need to be taken on on their merits regardless of age, sex, ethnicity or sexuality – but there is a long way to go yet. I do think that industries that value at least the “look” of experience need to make particular efforts to employ older people – e.g. accountants, financial advisers etc. who would arguably get more business from customers who value people who have more life experience (e.g. how many 60-year-old accountants would value retirement advice from a newly-qualified and fresh-looking 23 year old?). I think this is why many people in this position in their 40s and 50s start their own businesses because they don’t think that anyone will employ them, but of course this is not exactly a safe route to riches!

Talking of employee shortages, though, London law firms struggle to fill jobs as competition for applicants soars (Financial Times, Kate Beioley) shows that London-based law firms just can’t fill vacancies fast enough as rising demand for legal services, lawyer turnover and fewer lawyers coming to the UK from overseas is resulting in a shortage of permanent staff, especially at associate level. Despite record levels of hiring last year, firms are still struggling to fill roles because everyone is competing for the same talent. This has led to higher salaries and bonuses to keep everyone sweet.

Meanwhile, Ikea cuts sick pay for unvaccinated UK staff who are self-isolating (The Guardian, Jasper Jolly) shows quite a robust attitude to those who are not vaccinated, although the company will consider mitigating circumstances. Other companies such as Wessex Water and Morrisons are among those companies who impose financial penalties on those who do not get vaccinated. * SO WHAT? * It is interesting to see this happening and you do wonder whether this sort of thing is going to become more widespread among employers or whether they will just try to stick it out until restrictions just disappear to avoid any legal unpleasantness from affected employees. 

M&S does well, rapid grocery deliverers jockey for position and Specsavers doubles profits at a cost…

Following the all-important festive season, M&S serves up Christmas bonanza as shoppers treat themselves to luxury items (Daily Telegraph, Laura Onita) shows that early data suggests shoppers splurged on luxury products and M&S was very happy taking their cash! Speculation is mounting that M&S could be “overall winner” of Christmas as retailers announce trading updates this week. * SO WHAT? * This all sounds great – and I am pleased that retailers have done well, but I think that the prospects for the rest of this year are more unclear as they face ongoing labour shortages, higher raw material and admin costs – not to mention they could suffer from consumers feeling poorer (and therefore less likely to spend) due to rising inflation and higher utility bills.

Despite all the ongoing (and potentially increasing) pressures on household budgets, Race is on to be biggest in rapid groceries (The Times, Ashley Armstrong) shows that competition is intensifying in the world of rapid grocery delivery that has Gorillas, Getir, Zapp, Jiffy and Gopuff competing with each other for supremacy. America’s Gopuff has already bought British start-ups Dija,

Weezy and Fancy and analysts reckon that the rapid grocery delivery segment will reach a 5% share of the UK grocery market, which would be roughly the same size as Waitrose. * SO WHAT? * Businesses like this need scale and so I would have thought that further consolidation is a given. However, there are dangers such as customers losing interest and supermarkets using tie-ups as a learning exercise that will eventually cut them out (could this happen with Gorillas, for instance, as it has a tie-up with Tesco currently, but the supermarket is also working on its own offering in this space, Whoosh?). Some say that supermarket bosses reckon that there is profit to be had here if basket sizes reach £30, but it does seem to me to be a bit of a fad and perhaps niche business that will have great success in pockets (e.g. highly urbanised conurbations), but not overall success (for instance, I would have thought that the places that REALLY need this are those that are in the middle of nowhere – but the likes of Getir et.al are unlikely to do so because this would not be profitable). It’s still early in the game, though…

Meanwhile, Specsavers sees profits double after cutting staff (The Times, Ashley Armstrong) shows that a great performance last year came at the cost of cutting jobs as Europe’s biggest optician chain managed to increase profits despite a dip in sales. The company had managed to protect the business by postponing investment, cutting about 25% of it support staff and using government support.

We look at tech winners and hopes for cocktails…

In other news today, it was interesting to see Picking fruitful tech stocks while avoiding banana skins (The Times, Emma Powell), which reckons that Microsoft is worth buying due to its high earnings growth, a decent history of delivering on margin expectations and solid return on equity as it continues to evolve its offering to be more focused on commercial cloud products and services. I would say the risk here is that regulators could turn their focus on the company – especially if it gets too aggressive with the expansion of Teams (which Zoom, for one, is not going to take lying down). The article recommends avoiding Netflix, though, due to new competition, maturing subscriber growth and rising customer acquisition costs. It’s difficult to see how Netflix’s previous growth profile can be sustained and I think that it would need a whole load 0f Squid Game-like successes to alter that.

Meanwhile, Campari chief bets ‘cocktails at home’ will outlast pandemic (Financial Times, Silvia Sciorilli Borrelli) cites the head of the Italian group, which also comprises Aperol, Wild Turkey and Grand Marnier brands, as predicting that we’ll all be shakin’ it up at home. * SO WHAT? * Sorry, but I think that this is a load of rubbish! Making cocktails is a massive faff, involves buying loads of ingredients you hardly ever use and they are much better made by a pro. I think that they’ve only done well because of lockdown and that perhaps bar sales will be the way to go for spirits producers after this initial boom. Still, it’s nice that they did well under lockdown – and I do think that this has particularly revived the fortunes of gin, which I thought was looking like it was on the way out to be replaced by the next big drink!

…in other news…

I thought I’d leave you today with the cute dogs in Sassy sausage dogs – three minutes of dachshunds being total divas and melting hearts (The Mirror, Bethan Shufflebotham). A nice way to start the week!