Thursday 24/01/19

  1. In UK HIGH STREET NEWS, we take stock of job losses so far, Patisserie Valerie attracts a serious bidder and John Lewis closes a Southsea department store whilst Wetherspoons and Joules unveil decent sales figures
  2. In BANKS NEWS, Metro shares crater on a loans blunder, Santander announces job cuts and branch closures and Lloyds switches computer systems
  3. In CONSUMER GOODS NEWS, P&G raises its outlook
  4. In OTHER NEWS, I bring you some unusual noodles. For more details, read on…



So retail job losses continue, Patisserie Valerie might get saved and John Lewis announces a closure but Wetherspoons and Joules are altogether more upbeat…

UK retailers shed 70,000 jobs and plan more cuts (The Guardian, Sarah Butler) cites the latest figures from a British Retail Consortium survey which show that 70,000 jobs were lost in the retail sector going into the close of 2018 and almost a third of businesses are planning on cutting staff numbers further in the next few months. The survey also showed that hours for both full-time and part-time staff had been shortened and the BRC’s chief exec Helen Dickinson observed that “The retail industry is undergoing a profound change and the latest employment data underpins those trends”. The news that John Lewis to shut store as strain grows (The Times, Alex Ralph) only served to emphasise the point as the company announced that it is to close its first store for 13 years with 127 jobs hanging in the balance. The company said that this was branch-specific and that they had no more closures planned.

Following on from Patisserie Valerie’s collapse, it seems that there may be some hope in Bid to save Patisserie Valerie stores (Daily Telegraph, Oliver Gill) as David Scott, a restaurateur who sold his former Druckers business to Pat Val over ten years ago, has assembled some advisors with a view to making a bid for the outlets that haven’t been shut down. If a successful bid does not materialise, 2,000 jobs will be under threat. If you want to know more detail about Pat Val and what the hell happened there, The questions piling up about the fall of Patisserie Valerie (Daily Telegraph, Oliver Gill) is a great place to look – and it also lists the huge amount of jobs that chairman Luke

Johnson has! The tone of this article suggests that any buyer is going to have to take a big leap of faith as the dodgy books – which caused all the problems in the first place – will make it very difficult for anyone to make a decent estimate of how much the business will cost to run. Then there’s the prospect of future legal action as shareholders will no doubt try to claim that they invested on the basis of false data. It’s been a rough ride for the company, but I think that there are still storms ahead.

In Higher wages bite into profits as sales rise at Wetherspoon (Daily Telegraph, LaToya Harding) we see that like-for-like sales were up by 7.2% for the latest quarter and 6.3% over the half year but chairman Tim Martin pointed out that “Costs, as previously indicated, are considerably higher than the previous year, especially labour, which has increased by about £30m in the period, but also in other areas, including interest, utilities, repairs and depreciation”. * SO WHAT? * £30m is a fairly chunky sum and you would think that there is scope for this to rise considerably if there is a messy Brexit.

Joules bucks gloom in high street with 17pc surge in sales (Daily Telegraph, Charlie Taylor-Kroll) sounds an altogether brighter note as total sales rose by an impressive 17% in the six months to November versus the equivalent period in 2017 with burgeoning online sales making up almost 50% of revenues. Pre-tax profits were up by 11% as it seems that the company has its offline/online retail offering balance just right. Licensing deals in the offing will no doubt add to the appeal as Joules’ patterns will be used on branded DFS sofas, branded toiletries at Boots and Vision Express glasses. * SO WHAT? * This sounds like a pretty impressive performance and goes to show what can be done when you strike the right balance between offline and online offerings. I’m not sure how those licensing deals will work out (who wants a sofa to match their trousers??) but it’s all money in the bank for Joules in the meantime – and if it DOES work, then this sort of thing is scaleable.



Metro Bank takes a beating, Santander announces cuts and Lloyds gets a new IT platform…

Metro Bank shares drop 40% after loans blunder revealed (The Guardian, Patrick Collinson) highlights a rather tricky revelation from the challenger bank as it turns out that it made major mistakes in how it classifies its loan book, news of which sent the company’s share price down by 39% as panic spread about the bank having to raise more capital only six months after the last raising as a result. The main problem was that it gave many commercial property loans a 50% risk weighting when they should have been at 100% – and it was worse in the commercial buy-to-let book where many loans were given a 35% rather than a 100% risk weighting. The bank also said that difficult trading conditions had meant underlying profits had been almost 20% below expectations, although they were 136% higher than the previous year. Chief exec Craig Donaldson put a brave face on it all and said that “Metro Bank remains well positioned to support our growth strategy as we navigate an uncertain period for the UK”. * SO WHAT? * Accountants seem to be getting a bad rap at the moment, what with the Big Four trying to defend themselves against been forcibly broken up and high profile business failures such as Carillion and, most recently, Patisserie Valerie being casualties of dodgy accounting. I suspect that investors will be trying to sniff out other banks who might have made the same mistake – so I would not be surprised to see other banks coming out with statements saying that their risk weightings were all above board to reassure the market. If this is a one-off, then there will be some short-

-term trading opportunities here, but if others have the same problem then this thing could snowball.

Santander puts 1,200 jobs under threat in cut to 140 branches (The Guardian, Jasper Jolly) heralds even more bad news for the banking sector as the Spanish-owned bank announced that it is going to close almost 20% of its UK bank branches, which will put 1,200 jobs at risk. The bank said that branch transaction numbers had fallen by 23% in the last three years whilst digital transactions have doubled. * SO WHAT? * Given the changing behaviour of the bank’s customers, it is unsurprising that the cuts are continuing.

Talking about cuts, Lloyds plans to cut costs with start-up’s IT platform (Financial Times, Nicholas Megaw) shows that Lloyds Banking Group is planning on cutting annual tech costs by changing its computer systems over to a new platform developed by fintech start-up Thought Machine. If the initial trial is successful, it could roll the system out across all of its businesses in the next few years as it hopes that this will help to reduce costs further whilst also allowing it to offer new, more personalised products to its customers. Thought Machine’s “Vault” core banking platform is cloud based, unlike mainframe based systems of yore, which means that it will be cheaper to run, more scaleable and offer better insight on customer data. * SO WHAT? * This sounds like a sensible decision as it has thus far, like other banks, relied on incremental improvements to increasingly creaky IT systems. During this time, digital banking upstarts have been able to catch traditional banks off-guard with cutting-edge systems that enable new products that customers value, so at least Lloyds is taking action. It will be interesting to see whether others buy in something like this or whether they will attempt to invest in something proprietary. 



Proctor & Gamble announces a positive outlook…

P&G raises outlook after another quarter of strong sales (Wall Street Journal, Aisha Al-Muslim) highlights some good news for the consumer products giant as it announced strong quarterly sales, with profits for the maker of Pampers rising 28%, even before planned price rises kick in. This contrasted with rival Kimberly-Clark Corp,

the company behind Huggies and Kleenex, which announced weaker sales in the final quarter of 2018 due to rising commodity costs and currency fluctuations. * SO WHAT? * Both P&G and Kimberly-Clark have been subject to increasing competition with consumers moving towards smaller brands as well as higher raw material and transportation costs but it seems that P&G edged K-C with a more aggressive pricing strategy. There are tough times ahead, but P&G seems to be getting it right at the moment.



And finally, in other news…

Today seems to be a quiet day on the “alternative news” front, so I thought I’d leave you with this: Noodle lovers – you need to feast on these 12ft noodles at Murger HanHan (Metro, Bar Fox I can’t vouch for it as I’ve not been there, but it does look good!

Some of today’s market, commodity & currency moves (as at 0824rs 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 **
6,843 (-0.85%)24,576 (+0.70%)2,639 (+0.22%)7,02611,072 (-0.17%)4,840 (-0.15%)20,575 (-0.09%)2,592 (+0.41%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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