Monday 11/02/19

  1. In MACROECONOMIC NEWS, Japan loses steam and there’s more evidence of a UK slowdown
  2. In UK HIGH STREET/CONSUMER NEWS, Office profits take a shoeing, Paperchase tries not to fold, Patisserie Valerie refuses Mike Ashley’s proposal to have his cake and eat it and US consumers are in for more price rises
  3. In INDIVIDUAL COMPANY NEWS, Tesla has service problems and meat-free alternatives continue to expand
  4. In OTHER NEWS, I bring you embarrassing parental moments. For more details, read on…



So Japan loses momentum and the UK shows more evidence of slowdown…

Japan Inc hit by China slowdown and trade disputes (Financial Times, Kana Inagaki and Leo Lewis) highlights Japan’s slowing economy as corporate third quarter profits fell at the steepest rate since the Fukushima aftermath in 2011 due to the China/global slowdown and the US-China trade dispute. Companies such as Nidec (small motors), Panasonic (consumer electronics) and Fanuc (industrial robots) are among those who announced profit downgrades and were hazy on the timing of a recovery. Downward revisions in the latest quarter were particularly rife in the electronics devices, transport and chemical sectors because of their exposure to the US-China trade shenanigans as well as slowing Chinese car and smartphone sales. Founder and chief exec of Apple supplier Nidec said that “In the 46 years of my management, I have never seen such a drastic fall in monthly orders” as he had to cut the company’s full year forecasts by an eye-watering 24% (as an aside, I’ve seen and been in meetings with Nagamori san on numerous occasions in my former life as a stockbroker, and he really is very straight-talking! Things must be really bad for him to say something like this…). * SO WHAT? * It certainly seems like the tide of news from Japanese corporates is turning

bad – and investors are getting so nervous these days that they seem to be looking for any excuse to sell. For instance, Sony’s share price fell by 14% last week after it warned that sales of image sensors and smartphones were slowing down, despite the fact that it was still on course to record a second consecutive year of record profits. Japan, like many other countries, will be hoping that a solution to the US-China impasse will be found sooner rather than later otherwise this negative sentiment could snowball, gathering momentum that will be difficult to stop.

UK economic growth expected to halve in final quarter of 2018 (The Guardian, Angela Monaghan) cites figures from the Office for National Statistics that are to be published today which will show that UK growth slowed right down in the last quarter of 2018 on deepening Brexit concerns. * SO WHAT? * This is just the latest bit of evidence of the UK slowdown in the face of major economic uncertainty and follows on from the Bank of England keeping interest rates unchanged last week whilst also downgrading previous growth forecasts. From a consumer perspective, the accompanying sluggishness in inflation (it’s expected to fall to 2% from 2.1% in December) and wage rises, means that we should be feeling richer as household incomes have stopped falling in real terms. However, this has not translated into buyer confidence as we continue to shun big purchases. Retail sales figures for January are due out this Friday and will offer a snapshot of whether this has changed in any way as we get closer to Brexit.



Office takes a big profit hit, Paperchase tries to restructure, Mike Ashley walks away from Patisserie Valerie and US consumer goods prices are about to rise again…

The gloomy mood continues on the UK high street with Office profits fall 40pc after collapse of House of Fraser (Daily Telegraph, Ashley Armstrong) which highlights how badly affected the South African-owned retailer was by House of Fraser’s demise as it said it was owed £700,000 from concession sales at the ailing department store and “according to administrators it is unlikely that this amount will be received by the company”. Office has 116 stores and 40 concessions and is trying to negotiate its position with House of Fraser’s new owner. * SO WHAT? * What is it about shoe shops?? Jones and Clarks are among those having problems at the moment – if people are avoiding buying shoes you would have thought that companies like Timpson (who repair them) may benefit. It seems that economic worries will quite literally make everyone down-at-heel.

Then there’s Paperchase restructuring plan to link rent to turnover (Daily Telegraph, Ashley Armstrong) which heralds a potential new type of Company Voluntary Arrangement (CVA) where the stricken tenant would link rent to store turnover which they argue give them more leeway to survive. KPMG is still looking for rescuers for Paperchase while the company simultaneously pursues this line of inquiry. A decision on what will happen to the business will have to be reached by the end of this month in order to give landlords enough warning in advance of its next rent payment. * SO WHAT? * CVAs have exploded in prevalence over the last 18 months as high street shops and restaurants have taken a pounding. They’ve become so common, in fact, that landlords are starting to complain that they are increasingly seen to be the easy way out of liabilities as Carpetright, New Look and Mothercare are

among the troubled chains who have sought refuge in such agreements. British Land and Hammerson are going one step further as they are currently in a legal battle with Supercuts owner Regis for what they see as “unfair” reductions to lease terms. Paperchase has 2,000 employees with 130 UK stores and 30 in Europe and the Middle East. Clearly some kind of common ground has to be found that will satisfy both sides otherwise everyone will suffer.

I was half-joking a few weeks back when I suggested that Mike Ashley might buy Patisserie Valerie, but then he only went and threw his hat in the ring on Friday to whip it back again (!) in Ashley abandons Patisserie bid after two days (The Times, Tabby Kinder, Dominic Walsh) where it turns out that he made a bid of over £15m, but was told by KPMG that he should pay at least £18m for it. * SO WHAT? * TBH, I think that Pat Val is toxic and could well face all sorts of investigations of its directors, auditors and lenders who all failed to spot the problems before they got ridiculously out of hand (which is probably why Ashley thought he could bowl in with a low-ball offer). Whoever ends up with this chain will have a serious job on their hands turning it around. I know Ashley likes a challenge, but surely this isn’t worth it?

Meanwhile, over in the States, Prepare to pay more for diapers, Clorox and cat litter (Wall Street Journal, Aisha Al-Muslim) shows that consumer goods companies such as Church & Dwight (whose brands include Arm & Hammer and OxiClean), Proctor & Gamble, Colgate-Palmolive and Clorox are confident enough to pass on increased raw materials, transportation and forex costs to their customers in a reversal of the trend of price cuts over the last ten years as consumers increasingly went for own-branded goods and online start-ups like Dollar Shave Club. However, earnings are now rising and the companies feel confident enough to raise prices. * SO WHAT? * It’s great to see such confidence, but then again finding the right price rises is a real balancing act between keeping/increasing your margin and losing your customer (possibly forever). With so many lower-priced options out there, I would have thought that brand loyalty won’t quite be what it once was, but if consumers are feeling richer they may not notice these price rises as much as they have done in the past.



Tesla has service issues and meat-free alternatives continue to advance…

Tesla is cranking out Model 3s – now it has to service them (Wall Street Journal, Tim Higgins) takes a closer look at issues facing Tesla in the aftercare market as owners have been finding that getting their cars repaired is a complete nightmare because of really long waits for car parts. * SO WHAT? * Although everyone has been concentrating on getting production numbers up, if Tesla doesn’t get the aftercare market right, sales will definitely suffer as more competitors encroach on this space with superior and battle-tested networks that people already know. Tesla fell six places to 27th out of 29 car brands on reliability in a survey by Consumer Reports last year – and if that doesn’t improve, pressure will intensify even more on the embattled brand. I still say that I think that the way forward for Tesla is to link up with an established manufacturer – like VW. Both companies would benefit – the established manufacturer would get better tech and Tesla would get instant distribution muscle. On the downside, an established manufacturer would also get massive debt (and an egotistical Elon Musk!) into the bargain.

You may have seen my video review of the Beyond Meat burger last year, so you know I’m actually quite interested to follow what’s going on in meat alternatives as per Moving mountains for meat-free tastes (The Times, Hazel Sheffield) which shows another “meat-free-meat” company, Moving Mountains (which is London-based), growing fast. It’s just signed a distribution deal with Jan Zandbergen, one of the biggest suppliers of meat in Europe, worth €25m in sales over three years –  which will obviously annoy the vegan/veggie purists – but Moving Mountains’ chief exec Simeon van der Molen explained that “partnering with the competition is the best solution to get our product out there fast”. Moving Mountains burgers are based on oyster mushrooms, whilst Beyond Meat burgers are based on pea protein – but they both have that juicy texture with “blood” being courtesy of the beetroot content. * SO WHAT? * These are exciting times for people who would like meat but don’t want to/can’t eat it for various reasons and the market seems to be really hotting up. It is highly fragmented at the moment, but with more meat producers looking to provide alternatives to their core offering there will no doubt be more deals to be done – and when the meat producers are on board, distribution just gets way better. I like the way that companies such as Beyond Meat and Moving Mountains are targeting meat-eaters and non-meat-eaters alike – and I think that this is the only way they can grow from being some niche product that’s only available in health food shops to something that’s available to everybody.



And finally, in other news…

I thought I’d leave you with what must be just one example of parental embarrassment in Adorable little girl caught doing something VERY rude in mum’s wedding photos (The Mirror, Zoe Forsey Flipping the bird at inopportune moments was hilarious for onlookers, but not so great for the parents I would have thought! Any of you reading this who are parents are probably thinking “I’m glad mine don’t do that” ???? Mind you, I recall doing something along the same lines when I was about five years old. I genuinely thought that I was “waving goodbye” to my dad when I was walking to school – turns out that I wasn’t ????

Some of today’s market, commodity & currency moves (as at 0816hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq *DAX *CAC-40 *Nikkei **Shanghai **
7,071 (-0.32%)25,106 (-0.25%)2,708 (+0.07%)7,29810,907 (-1.05%)4,962 (-0.48%)20,333 (-2.01%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

(markets with an * are at yesterday’s close, ** are at today’s close)