Tuesday 05/03/19

  1. In INDUSTRY NEWS, China’s tech sector sees cuts and UK construction stalls
  2. In CAR NEWS, we see the contrast between Ford’s failure and Toyota’s triumph in China plus Tesla’s new model
  3. In HIGH STREET NEWS, we see weaker sales, “Mr” Ted Baker standing down, more restaurant closures and Paperchase’s woes
  4. In OTHER NEWS, I bring you a ninja training opportunity. For more details, read on…



So China’s tech industry gets a dose of austerity while the UK construction sector weakens on Brexit…

Chinese tech scene hit by job cuts as austerity bites (Financial Times, Louise Lucas and Nian Liu) looks at how previously red-hot start-ups are cutting costs as the wider economy slows down after years of seemingly-unlimited cash flows. Didi Chuxing (ride-sharing) has cut free snacks and gym membership, ByteDance (internet tech company operating various content platforms, also developer of TikTok) cut its new year bonuses and others are cutting staff, fruitbowls and other perks. Online recruitment site Zhaopin.com, which has 180m registered users, is showing record numbers of CVs doing the rounds and Li Qiang, exec VP, pointed out that after a long period of growth, internet user numbers have plateaued while competition has intensified, margins have shrunk and regulations have got tighter. Investors believe that there will be more job cuts in the pipeline and, according to estimates from brokerage firm Jefferies, advertising budgets are only going to grow by 17% this year – half the rate it’s been for the last two years – which is notable considering that advertising spend is often seen as a leading economic indicator (i.e. reduced ad spend is a sign that the economy will slow down). * SO WHAT? * It was inevitable that the exponential growth that big Chinese tech names like Didi, JD.com, Alibaba, ByteDance and Meituan Dianping (food delivery app) have experienced in the last few years was bound to

hit the buffers given the broader economic slowdown. I guess that for them, what happens next will be important. I think that a pause for breath with a reshuffling of staff is not a bad thing but companies are clearly concerned that any sign of weakness could be pounced upon and negative chat could become a self-fulfilling prophecy – which is probably why many of the names above are keen to put a brave face on things. Having said that, I suspect that the Chinese government will be keen to support its tech industry and so would expect it to swoop in to help if things get really bad given that it is an area it has targeted as being key to its future economic success.

This is a bit of a “no-sh!t-Sherlock” kind of story but Construction industry stalls amid disquiet over the future (The Guardian, Richard Partington) cites the latest findings of the IHS Markit/CIPS Purchasing Managers’ Index (PMI) which show that, after 10 months of expansion, construction companies reported a drop in activity levels in February with commercial building and civil engineering projects being particularly weak. The no-sh!t-Sherlock conclusion is that the slowdown was due to Brexit uncertainty slowing down decision making, leading to weaker demand. Tim Moore, the economics associate director at IHS Markit, observed that “Risk aversion in the commercial sub-category has exerted a downward influence on workloads throughout the year so far. This reflects softer business spending on fixed assets such as industrial units, offices and retail space”. Interestingly, some companies found that stockpiling by manufacturers had led to shortages of transport availability, which meant that builders had to wait longer for products and materials.



We look at where Ford’s going wrong and Toyota’s going right in China as well as the imminent unveiling of Tesla’s new model…

Why Ford is stalling in China while Toyota succeeds (Financial Times, Tom Hancock) takes a look at how foreign manufacturers are faring in the Chinese market. There is a definite contrast in fortune between “losers” like Ford, which is one of many carmakers cutting production in China, and “winners” including makers like Toyota – whose joint venture with Guangzhou Automobile saw sales up 35% last year – and BMW, whose venture with Brilliance Auto saw a 20% rise. Ford was a late starter in China, now the world’s largest car market which accounts for 30% of global car sales, but enjoyed some good years initially until its sales started to fall at its main joint venture with Changan in 2017. Many believe that sales have continued to fall because their model line-up is too old – Jochen Siebert of consultancy JSC Automotive pointed out that “Their problem is really the model cycle, the majority of their cars are in year five or six, that’s when sales drop rapidly”. Ford then introduced new models last year, but this was when the whole market started to slow down. PSA Group (which owns the Peugeot and Citroen brands) saw sales at its joint venture with Dongfeng fall by 44% last year and, although it also introduced new models like Ford did, it suffered from its mid-market position as less flush customers felt the pinch of the economic downturn and stopped buying cars or went secondhand instead. The group also suffered as Chinese brands like Geely and BYD continue to climb the value chain and become more

competitive. JLR has suffered from a dent in its reputation following a number of safety recalls and inventories have been building up while Toyota, in contrast, sold a record 1.5m vehicles in China last year, and benefited from having a reputation for selling good quality, fuel efficient cars and consistently bringing new models to market. Mercedes, BMW and Audi all did pretty well as wealthier customers have been more insulated from the economic slowdown. * SO WHAT? * The main consolation for Ford is that because it was later than others to the market, its China business is not as key to worldwide sales as it is to players like GM and VW. Still, I think that it needs to get its act together otherwise it will just continue to drift. There may be opportunities for a refresh soon, though, as China’s abolition of the joint venture rule means that foreign companies will be able to buy majority stakes in their partners in 2021. Some of the Chinese partners won’t like this and will seek out alliances with other manufacturers – which is where Ford may be able to do a bit of a reset.

Tesla gets set to unveil new compact SUV next week (Daily Telegraph, Hannah Boland) heralds the imminent arrival of the Model Y SUV next week which Elon Musk says will cost about 10% more than the Model 3 and have slightly less range for the same battery. The Model Y is expected to go into volume production next year and will share many components with the Model 3 (and no, it won’t have those Falcon Wing doors of the larger Model X). Morgan Stanley’s Adam Jonas put a positive spin on the new model, saying that an “all-new mid-sized crossover/SUV is Tesla’s chance to take the learnings from the Model S, X and 3 in design and manufacturing to offer a product in a far larger and faster growing global segment” although there was a danger that something as “exciting” as this might cannibalise potential sales of the Model 3.



UK retail sales weaken, Ted Baker’s founder resigns, more restaurants suffer and Paperchase tries not to fold…

UK retailers suffer weaker sales due to Brexit uncertainty (The Guardian, Richard Partington) cites some research from the British Retail Consortium (BRC) and KPMG (the accountancy firm) which showed that retail sales weakened last month in the tense run-up to Brexit and the latest figures from Barclaycard, which processes about 50% of the UK’s credit and debit card transactions, also back that up. Hardly surprising, but evidence for if you needed it!

Then in a quick scoot around the UK high street, Ted Baker chief resigns after allegations of misconduct (Financial Times, Jonathan ELey and Camilla Hodgson) heralds a difficult ending for the clothing retailer’s founder, Ray Kelvin, who has decided to resign amidst allegations of inappropriate behaviour – the investigation into which is continuing. Acting chief exec Lindsay Page is to continue in the role, Kelvin is bound by a non-compete agreement and

still holds a 35% shareholding in the company. How will Ted Baker fare without Ray Kelvin at the helm? (Daily Telegraph, Julia Bradshaw) asks the question on everyone’s lips, given that he is so closely associated with its success and is widely seen to be a retailing genius. * SO WHAT? * Given yesterday’s share price reaction (they were up by about 5%), it seems that the market has come to terms with the loss for the moment and maybe it’s a good time for the company to have a bit of a shake-up. Long term, maybe this will help the culture and I guess it brings forward succession plans that were bound to come up at some point in the future anyway – they always do when one person is seen to be the main reason behind a company’s success.

Giraffe and Ed’s Easy Diner branch closures put 340 jobs at risk (The Guardian, Jasper Jolly) highlights the latest casualties in the casual dining sector as the owner of Giraffe and Ed’s Easy Diner, Boparan Restaurant Group (BPR), said yesterday that the brands would be entering into a company voluntary arrangement (CVA) which is likely to see restaurant closures and rental renegotiations. Paperchase prepares to close stores (The Times, Ben Martin) identifies another high street casualty which is also starting a CVA, closing some loss-making stores and renegotiating rents. * SO WHAT? * The high street carnage continues…



And finally, in other news…

I’ve got some great news for all you would-be ninjas out there in VR ninja dojo: battle as a shadow warrior at new virtual reality world in Tokyo (SoraNews24, Oona McGee https://tinyurl.com/y39g9xdv). Nice!

Some of today’s market, commodity & currency moves (as at 0828hrs 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 **
7,134 (+0.39%)25,820 (-0.79%)2,793 (-0.39%)7,57811,593 (-0.08%)5,287 (+0.41%)21,726 (-0.44%)3,054 (+0.88%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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