Monday 13/07/20

  1. In NEWS ON OPENINGS & CLOSURES, offices open for work, Disney World reopens with masks, shoppers return to the UK high street and Halfords closes stores
  2. In FINANCE NEWS, US banks are expected to report strong trading revenues and BDO splits off audit
  3. In TECH NEWS, BoJo is to make an announcement on Huawei and Apple’s tax appeal decision is expected
  4. In INDIVIDUAL COMPANY NEWS, WeWork states a positive outlook and Virgin Atlantic bags a rescue deal
  5. AND FINALLY, I bring you the right way to eat chocolate digestives and a weird photo…



So offices, Disney World and shops open while Halfords announces closures…

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Corporations begin cautious return to UK offices after lockdown (The Guardian, Joanna Partridge) shows that a number of big businesses are readying themselves for the return of the office worker. PwC reopened all of its UK offices last week, Deloitte had a limited reopening in London and other major cities while law firm Slaughter & May opened its London HQ. * SO WHAT? * Although a phased return to some kind of normality will be welcomed for a number of reasons, including mental health, the general success of remote working means that not all companies will be rushing to open their offices. 30 of the biggest employers in the City only plan to bring back 20-40% of their workers in the next few months as everyone else will continue to work from home. This is likely to have a devastating effect on operators in business districts who rely on a steady stream of office workers – Pret announced a number of store closures last week, for instance. They are OK for now, but I fear that many (especially the smaller ones) may not survive unless business levels increase appreciably from current levels.

Over in America, Disney World reopens with masks and without lines (Wall Street Journal, R.T. Watson – no relation 😂!) shows that Disney World’s two main parks, Magic Kingdom and Animal Kingdom opened in Orlando on Saturday with significantly reduced capacity, meaning that there were hardly any queues! There is no hugging of Mickey Mouse and Goofy (they wave now) and some customers have said that the deep cleaning makes it feel safer than going to the supermarket! * SO WHAT? * Disney generates a lot of revenue from its theme parks and its

official line is that it won’t reopen a park unless there’s a fighting chance of it at least covering its variable costs. Shanghai Disney reopened in May at 30% capacity. No doubt theme parks around the world will be watching Disney’s example with interest…

High street revival fizzles out as long queues deter shoppers (The Times, Ashley Armstrong) cites the latest figures from Springboard which say that high street footfall shot up by 44.5% in the first week following the June 15th reopening of “non-essential” stores, but then slowed to a rise of 2.4% in the second week. Consumers have been greeted with long queues and a restricted shopping experience, which is clearly limiting upside for the retailers themselves. Interestingly, out-of-town retail parks have done quite well as shoppers can get there by car whereas city centre locations have struggled because people are staying away from public transport. * SO WHAT? * Again, I would say that while it’s good that shops have been allowed to reopen, current business levels are unlikely to be sustainable for the long term. I would imagine that this is something that BoJo had at the back of his mind in his latest mild encouragement of the use of masks in public places. I suspect that compulsory measures are going to have to be relaxed significantly – and pretty quickly – in order to boost business levels in a meaningful way.

Halfords speeds up closures of stores, losing 60 this year (Daily Telegraph, Laura Onita) shows that Halfords plans have changed in response to the coronavirus and it is now renegotiating a number of leases that are up for renewal. Sales in the more profitable car-related business remain sluggish but sales of bikes and e-scooters have been very strong (sales of the latter were up by 220% versus the same time period last year!). The company will be looking forward to a recovery in the car-related business as the government has decreed that drivers will need to renew their MOTs by October. * SO WHAT? * I really think that Halfords could do OK in the coming months as I would expect the sales of bikes and e-scooters to continue to be strong as supply is still struggling to keep up with demand. In the meantime, the more profitable car business will start to kick in over the coming months as more people commute to work in their cars – and if you combine that with store closures and cheaper rents, it might just do OK. It’s early stages, but I think Halfords has got a chance of getting through this.



US banks’ reporting season is upon us and BDO splits out its audit business…

In Trading set to triumph in US banks’ second-quarter earnings (Financial Times, Laura Noonan) we see that Goldman Sachs and Morgan Stanley are expected to edge ahead of their peers in the second quarter as they have seen rising trading revenues and advisory fees and limited exposure to loan losses. Although M&A revenues aren’t likely to be strong, advisory fees for debt will have risen as clients raised money to keep them going through the pandemic and out the other side. JPMorgan Chase will start the US banks’ earning season tomorrow. * SO WHAT? * Everyone will be looking with interest at how the banks do as their health is a reasonable snapshot of the American economy. Observers will be keeping a particularly close eye on what’s going on with loan losses as many loans are

expected to go bad as a result of the coronavirus’ effect on the economy.

BDO audit split likely to see other firms follow suit (Daily Telegraph, Michael O’Dwyer) shows that the UK’s fifth largest audit firm has indicated to the Financial Reporting Council, the accounting regulator, that it will ring-fence its audit business. Last week, the FRC ordered the Big Four – Deloitte, EY, KPMG and PwC – to outline their plans to do so by October, but clearly BDO has decided to take the initiative. Grant Thornton, the UK’s sixth biggest accountancy firm, is also planning on doing the same thing. * SO WHAT? * Following the various scandals over the last few years over poor audits of the likes of BHS, Carillion and Patisserie Valerie it is about time that something was done! Clearly the accountants themselves appear to have wanted to drag their feet to keep the party going, but it’s about time that the businesses were properly separated to stop the practice of some auditors turning a blind eye to dodgier aspects of the accounts in order to win more lucrative contracts for the consultancy businesses.



BoJo is expected to make a U-turn on Huawei and the decision on Apple’s tax appeal is due…

Boris Johnson set to curb Huawei role in UK’s 5G networks (Financial Times, Sebastian Payne and George Parker) shows that BoJo is expected to outline plans this week that will phase Huawei out of the UK’s 5G rollout after increasing pressure from MPs and the Trump administration. * SO WHAT? * This would be a major U-turn as he has previously said that he would allow limited involvement by the controversial Chinese company. Huawei is trying to get some kind of stay of execution until at least 2025 but BoJo will be meeting with the National Cyber Security Centre tomorrow to review an official report on the company’s role. Presumably, if he does decide to give

Huawei the boot, costs for existing operators will rise considerably if they have to rip out Huawei gear and replace it and it will also dent previously-stated ambitions for the UK to be a leader in 5G.

Court set to rule on Apple tax row (The Times, Simon Duke) heralds an important week for Apple as it is due to hear the verdict from Europe’s second highest court on its appeal against the €13bn bill for back taxes slapped on it in 2016 by the European Commission. The EC decided back then that the Irish government had given it a tax benefit that it shouldn’t have done and demanded payback with interest. * SO WHAT? * The decision is due on Wednesday – and if it is overturned, it would be the second defeat in three months for Margrethe Vestager, the competition commissioner, as her decision to block the merger of O2 and Three was overturned in May. Whatever the decision, either side will probably appeal and take it to the European Court of Justice.



WeWork looks forward and Virgin Atlantic might be saved…

WeWork on track for profits and positive cash flow in 2021, says chairman (Financial Times, Arash Massoudi, Kana Inagaki and Eric Platt) shows that the embattled flexible-office provider is touting a positive outlook as its executive chairman said that it is on schedule to hit positive cash flow in 2021 after cutting over 8,000 employees, renegotiating leases and disposing of assets. He added that the company had seen strong demand for its flexible work spaces since the start of the pandemic. * SO WHAT? * The Softbank-backed, New York-based company has been through the mill over the last year as it had to drastically reduce its horrendous cash burn. It did so by cutting its employee numbers from 14,000 to 5,600 and is now saying that although it is losing some demand due 

to more people working from home, demand is rising from companies who want to provide satellite offices closer to where their workers live. This is bullish talk from a company that had a whole load of problems not so very long ago – it’ll be interesting to see whether it meets its targets.

Virgin Atlantic lands rescue deal (The Times, Dominic Walsh) shows that those at the airline may be breathing a sigh of relief as it is on the verge of signing a £1.2bn rescue deal with rejigged finances and a recapitalisation with US hedge fund Davidson Kempner. Shai Weiss, the chief executive, will outline a new strategy for the business to return it to profit by 2022 and no more new redundancies are expected. * SO WHAT? * This is welcome news for an industry that has been absolutely decimated by the coronavirus outbreak so far. I would argue that this industry, more than most, will be praying for a quick return to normality and a swift relaxation of travel restrictions given the massive costs involved. Fingers crossed 🤞



…in other news…

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

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