Tuesday 13/08/19

1. In MACRO & OIL NEWS, Argentina’s peso falls 30% on Macri concerns and Saudi Aramco makes a big Indian investment
2. In CAR NEWS, hybrids fall out of favour for some makers and India’s electric car industry gets a jolt
3. In RETAIL & CONSUMER GOODS NEWS, retailers call for tax cuts, Thomas Cook asks for more money, Sleep and Simba climb into bed together while Doc Martens’ benefits from vegan boots
4. In OTHER NEWS, I bring you some epic DIY fails…

So Argentina gets a shock and Saudi Aramco invests in Reliance…

Argentinian peso falls 30% to record low as investors fear populist leader’s return (The Guardian, Richard Partington) heralds a bit of drama yesterday as the markets/business-friendly centre-right president, Mauricio Macri failed miserably in yesterday’s election primary – a precursor for next month’s presidential election. It now looks like the centre-left opposition leader Alberto Fernandez could be a shoe-in for president as a result given that he won a massive 47.4% of the vote to Macri’s 32.3%. * SO WHAT? * Analysts are worried that a left-leaning Argentinian government would increase the risk of it defaulting on its debt, which is what sent the markets into a tailspin. However, it’s not clear whether these fears are well-founded as there is still a chance that Fernandez may keep some of Macri’s reforms in place and not return to the populist

policies of his predecessor Cristina Fernandez de Kirchner, which dragged Argentina into the economic mire that it’s currently in at the moment. If that proves to be the case, the sell-off may be overdone…

Saudi Aramco to acquire 20% of Reliance’s oil refining unit (Financial Times, Benjamin Parkin and Anjli Raval) highlights a big deal as the world’s biggest crude oil exporter puts money into the world’s fastest-growing energy consumer. The deal values the business at $75bn including debt and counts as one of the largest ever foreign investments in India. It has yet to be finalised, is still subject to regulatory approval and is expected to complete in March 2020. * SO WHAT? * This seems to be a canny deal from a strategic perspective given that India’s middle classes are growing quickly, which is raising energy demand. Oil and gas majors have become very keen of late to get a piece of the action and so Saudi Aramco obviously saw a chance. Reliance also gets to reduce its debt pile that has been building up due to massive investments over the years.

Some makers decide to ditch hybrid in favour of fully-electric vehicles but India faces immediate problems with the government’s push in EVs…

GM, Volkswagen say goodbye to hybrid vehicles (Wall Street Journal, Mike Colias) shows two of the world’s biggest car manufacturers have decided to put all their eggs into a fully electric basket. They both said that they saw no future for hybrids in their US lineups and are concentrating their investment on fully electric vehicles (EVs). They see the tech as only being a bridge between now and when everything inevitably goes electric. This stands in stark contrast to other makers such as Toyota and Ford who are actually increasing their hybrid offerings in the US. * SO WHAT? * I’m going to stick my neck out here and say that I think GM and VW got it completely wrong. EVs still account for a tiny fraction of overall vehicle sales and, in a country where “gas” is king with SUVs and pick-ups being a common vehicle of choice, I think the makers are shooting themselves in both feet. Charging networks are still rubbish, the country is massive (so it will take decades to sort out any kind of viable network) and I

think that hybrids will prove to be a VERY long bridge between petrol and full electric. VW and GM have effectively cut themselves off from this (although if things really got that bad they could probably start importing them from outside).

Reforms drain India’s electric car industry (Financial Times, Benjamin Parkin) highlights difficulties in India following the government’s decision to push EVs in the country. This sounds counter-intuitive at first, especially because ministers announced a three-year $1.5bn subsidy package in March followed by the announcement last month of a cut in sales tax on EVs and chargers from 12% and 18% respectively down to 5%. However, the kicker here is that the new subsidy programme stipulated that about half of EV components should be produced in India to qualify. * SO WHAT? * Clearly this will benefit local suppliers in the long term, but the effect has been to kill short term sales as customers wait for more qualifying vehicles to come to market. Mind you, given that EVs only represent less than 0.1% of the market in India, perhaps the more pressing problem is the sharp recent slowdown in demand for conventional vehicles. Still, longer term, you can see why the government is pushing for EVs given that India has the world’s worst air pollution and a huge dependency in imported oil.

Retailers call for tax cuts, Thomas Cook asks for money, Eve and Simba cuddle up and Doc Martens’ rides the vegan wave…

In Retail chiefs demand tax cuts to protect high street businesses (The Guardian, Richard Partington) we see that the chief execs of over 50 major UK retailers, including M&S, John Lewis and Iceland, have sent a letter to chancellor Sajid Javid, demanding tax cuts from the government to save the UK high street. They said that the system of business rates is outdated and Clive Lewis, chief exec of River Island, observed that “The burden that rates places on all high street businesses not only stifles growth but is a major contributor to the closure of stores and the resulting decline in towns across the country”. * SO WHAT? * Retailers are the biggest private sector employers in the UK. The sector accounts for about 5% of GDP but pays about 10% of all business taxes and about 25% of business rates. Given that retailers have been facing growing costs (higher minimum wage, higher import costs because of the Brexit-weakened pound etc.), tough market conditions and ongoing pressure from online competition (which now accounts for about 20% of sales) it’s no wonder that gaps on our high street continue to increase. Just to give you an idea, Amazon pays £63.4m in business rates versus around £100m that Next pays – despite having double the sales! Whether this pressure works or not remains to be seen – but given that Boris Johnson is keen to get votes, you would have thought that addressing this high profile sector would be a decent move.

Thomas Cook asks for bailout as holiday firms take pounding (The Guardian, Jasper Jolly) reflects ongoing problems for the travel agent as the company announced that it wanted to raise another £150m from investors – after already raising £750m from investors – to help tide it over for the Christmas period when travel operators are usually skint due to bulk-buying hotel space. Its shares took a 20% hit in trading yesterday. A share will now cost you the princely sum of 7.5p – a far cry from what it was in

May last year when it was 140p! * SO WHAT? * Thomas Cook is in all kinds of trouble at the moment as it struggles with massive debts, intensifying online competition and the problem of wearing an expensive  network of physical outlets. It tried to sell off its airline in February to raise some money, but failed – and instead turned to its biggest shareholder Fosun to rescue the business. Although it stepped in, it has yet to reveal anything in the way of turnaround plans, which has led to concern among Thomas Cook’s 21,000 employees. Being a holiday operator these days is a tricky business as LateRooms and Super Break (owned by the Malvern Group) collapsed at the beginning of this month and On the Beach had a profit warning only last week due to the weak pound making their offering more expensive. Exposure to the UK market has been made more problematic as well because Brexit has led to people delaying their bookings and/or deciding to stay in the UK because of the weak pound.

Mattress sellers set to get into bed together (The Times, James Hurley) highlights the getting together of two struggling online mattress retailers as shares in Eve Sleep were suspended on news of a possible merger with Simba Sleep. Eve Sleep has lost over 95% of its value since it floated in 2017, but believes that an acquisition of one of its rivals will help a restructure. Simba had to cuts its own valuation from £200m to £20m in February to secure new finance. * SO WHAT? * This sounds like a nightmare coupling – two weak companies generally don’t make one strong one! You get the feeling that they would be like that last scene in Thelma and Louise where the two plucky heroines clasp hands in a show of strength before driving off the edge of a cliff. Which is probably what their share price will do if they remain a quoted company.

I thought I’d mention Vegan shoes no bovver at all for Dr Martens (The Times, Elizabeth Burden) because it’s a story that’s all over the newspapers today. Basically, sales of its vegan products (plastic replaces the leather upper) shot up by 70% and now make up 4-5% of total sales. Like-for-like sales were also up by a healthy 18%. Interestingly, its current private equity owner Permira is looking to exit the business next year – so news like this will be even more welcome than usual.

And finally, in other news…

I thought I’d leave you today with this gem: A woman asked people to send her the ‘worst’ design and architecture pictures they have, and the dozens of responses are hilarious (Insider, Frank Olito https://tinyurl.com/yytjcyl6). No wonder people are doing less DIY these days…