Thursday 23/01/20

  1. In MACRO NEWS, US-UK trade tension builds and UK manufacturing gets a “Boris bounce”
  2. In CAR NEWS, German carmakers have a hard time, JLR announces job losses, Tesla hits $100bn and GM unveils its first fully autonomous EV
  3. In UK RETAIL NEWS, high street job carnage continues, Ted Baker’s situation is worse than expected and Sainsbury’s boss steps down but, on the plus side, Burberry and Pets at Home do well
  4. In INDIVIDUAL COMPANY NEWS, Johnson & Johnson puts in a good performance and Amazon Music catches up with Apple Music
  5. In OTHER NEWS, I bring you sleeping positions and a well-travelled man…



So US-UK trade tension builds and UK manufacturing gets more confident…

Chancellor pledges to push ahead with digitial tax despite US anger (Daily Telegraph, Ben Wright) says that UK chancellor Sajid Javid is adamant that the UK government will continue with plans to impose a digital tax despite threats by the US to target UK car manufacturers with tariffs. Javid is proposing to implement a 2% tax on digital revenues earned by companies with over £500m of global turnover, but the OECD wants the UK to “hang fire” and Kristalina Georgieva, MD of the International Monetary Fund (IMF) also weighed in, saying that it would be preferable to implement such a tax more broadly. * SO WHAT? * I think that the OECD and IMF have been characteristically useless at doing something about a problem that has been getting progressively worse for years (digital companies shuffling revenues around the world to drastically minimise their tax bill). Boris Johnson’s spokesman said yesterday that “It is taking too long to address this issue at international level and so we will continue to introduce our digital services tax in April in the

absence of a global solution. The tax will be repealed once a global solution is in place”. TBH, I think that this is just a play by Javid to get the ball rolling in US-UK trade talks and a bit of a dig at the international organisations that have done b*gger all about taxing the tech giants. I think that Javid is a clever bloke, so surely he can’t be serious about being the ONLY country to impose a tax? OK, so the UK has a decent workforce that tech companies won’t want to abandon at the drop of a hat BUT business is business and so if you are a company faced with the UK being the ONLY place imposing taxes on you, surely you will go elsewhere. I think this is largely hot air…

Manufacturers given a Boris bounce (Daily Telegraph) cites findings from the latest Confederation of British Industry (CBI) survey which show the biggest swing in confidence from pessimism to optimism since 1953! Although businesses reported a sharp fall in total orders during the course of the quarter they said in the survey that they are planning on boosting investment. * SO WHAT? * This is very interesting to see given how difficult things have been in the manufacturing sector since the referendum. Whether this optimism actually turns into orders and investment remains to be seen, however. If this proves to be a leading indicator, then the future for British manufacturing looks pretty good.



German carmakers suffer, JLR announces job cuts, Tesla hits the $100bn mark and GM announces its first fully-autonomous EV…

Germany’s luxury car makers lose their shine (Wall Street Journal, William Boston) shines a light on continued woes for Germany’s luxury carmakers as Daimler (owner of the Mercedes-Benz marque) announced its third profit warning in only nine months, with profits almost 50% down on last year. * SO WHAT? * Although Daimler, BMW and VW are still seeing rising sales, they are making less in terms of profit and losing market share following a string of legal scandals, weaker global sales generally and the increased costs involved in developing EVs. Competitors such as Tesla and a perked-up Volvo are increasingly encroaching on the Germans’ territory while ongoing legal battles regarding the emissions scandal and price fixing are forcing them to put larger amounts of money aside to cover future fines/compensation – money that isn’t going to EV R&D. It’s difficult to see how things can get better for them in the near term – so I think they will just have to plough on with new models and concentrate on their luxury niche. In the meantime, I think that it may be worth them doubling down on service as many luxury marques seem to fall short in this regard – and it would be something they could get on with straight away. IMO, this will make customers more loyal and less likely to “have a go” at a competitor down the road due to frustration with inferior service. There is too much competition now to give arrogance any room!

Jaguar Land Rover to cut up to 500 jobs at Halewood factory (The Guardian, Jasper Jolly) highlights JLR’s ongoing woes as 10% of the jobs at Halewood could go. The company said that this was more about improving efficiency rather than a reduction in production volumes but it is thought that sluggish growth in demand for the Range Rover Evoque and Land Rover Discovery that Halewood produces was a contributory factor. JLR is trying to make £2.5bn-worth of cost savings to allocate more resource to EV development. * SO WHAT? * It just looks to me like UK car manufacturing is dying the death of a thousand cuts. Current US threats to punish the UK’s insistence on a digital services tax with slapping tariffs on car imports from the UK would just be the icing on a very

unpalatable cake. I think that UK car manufacturing has to find its niche pronto – otherwise more and more production will leach out of the country over time. Maybe the government needs to give companies MASSIVE tax breaks to build gigafactories over here? Alternatively, I think it would be better to put much more production effort into batteries. With Foxconn announcing its entry into car assembly recently (it’s in joint venture talks with Fiat), you do wonder whether margins on that will get way thinner if assembly continues down this road – which means that perhaps batteries could be where it’s at rather than the cars themselves (although that may not be long-term either as you’d think that could be largely automated potentially).

Following on from recent speculation, Musk set for big payday as Tesla smashes $100bn mark (The Times, James Dean) shows that his company has breached the $100bn valuation, making it the world’s second most valuable carmaker (Toyota is #1). Breaching this barrier also triggers a potential $346m bonus for the founder if the company’s valuation can stay above $100bn on average for the next six months. Achieving this would set him on a path to unlocking up to $55.8bn in bonuses if he hits more targets! The company’s share price shot up after it published a surprise third-quarter profit. * SO WHAT? * Tesla continues to go from strength to strength despite producing fewer cars than pretty much everyone else and having a much slimmer distribution and supplier network. Competition is only going to get tighter as traditional car companies churn out electric models to avoid big fines.

Elsewhere, Cruise debuts GM’s first fully autonomous electric vehicle (Financial Times, Patrick McGee) heralds a historic moment for General Motors as its minivan-eque self-driving Origin was unveiled in San Francisco on Tuesday. Cruise, which is the self-driving division of General Motors, said it could be made “at roughly half the cost” of a traditional car but hasn’t said when it would be commercially available and what production numbers would look like. Cruise is majority-owned by GM but has backing from Japan’s Honda and SoftBank and was most recently valued at $19bn last year although it hasn’t yet really delivered on anything (including profitability!). * SO WHAT? * Lovely idea, but I remain highly sceptical about its near-term introduction due to all sorts of legal, insurance and ethical problems that won’t just be solved overnight! Also, would YOU be willing to be an early adopter and get into an autonomous taxi in the middle of London?? I think not 😂 Still, this is a notable moment.



Jobs on the high street look tricky, Sainsbury’s boss steps down and Ted Baker’s problems are bigger than it had first thought but Burberry and Pets at Home do well…

In a quick scoot around retail stuff, Struggling retail sector sheds thousands of jobs (The Times, Miles Costello) highlights a report from the British Retail Consortium (BRC) which shows that the number of employees in retailing has fallen by 1.8% in the fourth quarter of last year versus the same quarter in the previous year. It added that, after the Christmas frenzy, 38% of its members were planning to hire fewer staff in the first quarter. Hardly surprising, but this is just more evidence of gloom (if, indeed, any were needed!).

Ted Baker balance sheet error worse than feared as woes deepen (The Guardian, Jasper Jolly) shows that the accounting error recently discovered by the company’s new CFO was actually larger than feared. The original error (which overestimated the value of stock it held) was thought to be somewhere between £20m and £25m, but subsequent investigation of its accounts by Deloitte found the hole to be over twice the size at £58m! * SO WHAT? * Wow! It doesn’t just rain – it POURS for Ted Baker, the former stock-market darling that has been having an absolute nightmare since the beginning of last year. Its

share price has fallen by over 75% since then and by about 90% since their peak in November 2015. The company is in dire need of a management shake-up after the most recent profit warning led to the departure of its top brass. Has the opportunity got even more attractive for disgraced founder Ray Kelvin to make a return and take the company private??

Following on from yesterday’s job loss announcements, Coupe in line for £4m as he steps down as Sainsbury’s boss (Daily Telegraph, Laura Onita) shows that the chief exec will fall on his sword less than a year after his failed attempt at taking over Asda. There will be a changeover with the current head of retail and operations and if Coupe hits certain targets before he leaves, he will get a fat bonus. * SO WHAT? * Actually, this might be a good thing for incoming boss Simon Roberts if they can work together because Coupe can get all the nastiest stuff out of the way and Roberts can play the role of hero and do all the “nice” stuff when he comes in. There’s still a lot to do, though, and the competition is not sleeping.

On a more positive note, Burberry sales rise despite Hong Kong protest disruption (Daily Telegraph, Hannah Uttley) shows stronger revenues at the British fashion house as it weathered the protests, but fears of an outbreak of the new coronavirus in China is likely to put pressure on the share price. Then in Pets at Home takes the lead with bumper sales (The Times, Ashley Armstrong) we see that animal lovers powered the company’s sales forward over the Christmas season with dog grooming being especially lucrative. This must be especially satisfying for chief exec Peter Pritchard who has turned the company around in the last two years.



Johnson & Johnson gets some good news and Amazon Music catches up with Apple

Johnson & Johnson is regaining its health (Wall Street Journal, Charley Grant) shows that things maybe looking up a bit for J&J after a disastrous year last year where it was hit by lawsuits over opioids, baby powder and other products. The company set aside $4bn for opioid settlements and it also faces punitive damages of $6.8bn over antipsychotic drug Risperdal, among other things.

However, despite this, its fourth quarter results were OK but unspectacular. * SO WHAT? * IF – and it is a big if – the company can overcome its legal issues (and/or reduce its fines/compensation awards), the underlying business is actually doing quite well. The company has a reputation of having conservative guidance so things could actually be better than thought. A major cloud is still hanging over them, however.

Then in Amazon Music subscriber numbers close in on Apple (Financial Times, Anna Nicolaou) we see that Amazon’s music streaming service has made up huge ground to become a proper contender to Apple and Spotify. It now has 55m users versus Apple’s 60m, although it still has a way to go to beat Spotify’s 248m monthly users. Good news for consumers!



And finally, in other news…

I thought I’d leave you today with the sometimes-bizarre People are divided over ‘best’ position to sleep in – which one are you (The Mirror, Courtney Pochin – I mean, #10?? I’m probably a #17. Then there’s the impressive A man who was paid to travel around the world in 52 weeks without a day off says it’s the hardest job he’s ever had (Insider, Sophie-Claire Hoeller Having said that, I bet Greta Thunberg wouldn’t be impressed!

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Some of today’s market, commodity & currency moves (as at 0917hrs 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 **
7,567 (-0.56%)29,209 (+0.07%)3,324 (+0.12%)9,38413,508 (-0.31%)6,009 (-0.60%)23,795 (-0.98%)2,977 (-2.75%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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