Tuesday 30/06/20

1. In MACRO & OIL NEWS, Beijing imposes a new security law on Hong Kong, India blocks Chinese apps, Merkel appeals to the “frugal four”, Ireland gets a new PM and BP sells its petrochemicals to Ineos
2. In CONSUMER/RETAIL-RELATED NEWS, we look at household finances and then what’s going on with Byron, Pizza Express and Frasers Group buying more Hugo Boss, Coty buying more Kardashian and Lululemon buying Mirror
3. In INDIVIDUAL COMPANY NEWS, Gilead charges for remdesivir, Wirecard repercussions continue and Lookers addresses shortfall
4. AND FINALLY, I bring you a steak-bake rug and a dog with its owner’s false teeth…

So Beijing gets tough, India gets tough, Merkel appeals to the “frugal four”, Ireland gets a new PM and BP backs out of petrochemicals…

China passes Hong Kong security law aimed at crushing protests (Wall Street Journal, Chun Han Wong and Wenxin Fan) highlights the approval today by China’s legislature of a major new law aimed at stamping out threats to national security in Hong Kong. The legislation was put together and approved incredibly quickly and is focused on preventing and punishing disruptive activities. The full text is expected to be released today – the contents have thus far been kept away from the public eye to avoid sparking further protests. The official line from China is that it will only affect a very small number of people and will bring more order and harmony to Hong Kong. Why Beijing is rushing to push through Hong Kong security law (Financial Times, Tom Mitchell) gives more detail about how and why Beijing has been so keen to get this legislation through and concludes that it is being brought out in time for the July 1st holiday, which is officially a day to celebrate Hong Kong’s return to China but has actually become a day associated with pro-democracy protests. Things are likely to get very tetchy tomorrow.

Talking about tetchy, India bans TikTok, dozens of other Chinese apps after border clash (Wall Street Journal, Rajesh Roy and Shan Li) highlights India’s response to the recent border clash between the two countries which resulted in 20 Indian soldiers losing their lives. Bans included apps such as TikTok and WeChat and the government says that the ban has been imposed due to security concerns. This could give other countries an excuse to do the same thing – the US is currently considering whether TikTok poses a national security risk. This is particularly bad news for ByteDance, which owns the app, as India ranked #1 for new users (making up 20% of downloads globally) and the US was #2 (9.3% of global downloads). * SO WHAT? * Six of the top ten downloaded apps in India come from Chinese tech companies so this ban is going to hurt their growth prospects if it continues. There are two forces at work here. On the one hand, you’ve got the Chinese companies who are keen to expand out of

their domestic market and see India as a country with huge potential and then on the other, it seems you have India being keen not to get overrun by Chinese tech to the extent that they will become over-reliant on it. I would say that, at the moment, India may bow to populist sentiment but you never know what will happen to the economy further down the road – India may have to swallow its pride and let China in.

Elsewhere, Merkel offers olive branch to ‘frugal four’ over EU crisis fund (Financial Times, Guy Chazan) shows that Germany’s chancellor is trying to appeal to the “frugal four” nations (Sweden, the Netherlands, Denmark and Austria) who are opposed to the European Commission’s plans for a €750bn coronavirus bailout fund by asking for EU countries to reform their economies. * SO WHAT? * That all sounds nice but the fact is that there are major divisions over how much of the €750bn should be in grants and how much in loans, how long it should go on for and when repayments should start, among other things. The ‘frugal four’ want a smaller fund and a higher percentage of loans WITH conditions attached. This debate will continue – but the parties will have to reach agreement soon. Europe’s unity is certainly being tested at the moment.

In Micheál Martin takes helm in historic Irish coalition deal (Financial Times, Arthur Beesley) we see that Ireland now has a new PM until December 2022 when he will have to relinquish his position to put Leo Varadkar back in office (he’ll be the deputy premier in the interim). This is all due to coalition politics 🥱 and seems a bit messy to me! Would YOU fancy his job at a time like this?? He plans to announce a new economic stimulus next month.

In oil, BP sells petrochemical business to Ineos for $5bn (The Guardian, Jasper Jolly) shows BP’s ongoing commitment to a lower carbon future (and to improving its balance sheet) as it has sold the business that includes the aromatics (produces chemicals for polyester used in clothing and packaging etc.) and acetyls (used in food flavourings, paint and glue) businesses. Once this completes, the company will have met its target of selling off $15bn-worth of assets that will go some way to paying down debt that stood at over $60bn at the end of the first quarter. BP/Ineos: good chemistry (Financial Times, Lex) says that this will cut about 10% of the company’s net debt and that a simplified structure will be applauded by investors.

UK consumers save, Byron and Pizza Express have issues while Monsoon surprises and Frasers buys more of Hugo Boss. Over in the US, Coty buys into the Kardashian brand and Lululemon buys Mirror…

Household deposits soar by record amount as lockdown hits spending (Financial Times, Valentina Romei) cites Bank of England data as showing that household savings have gone up by the largest amount since records began in 1997 while consumer credit borrowing was lower than usual. The same report was mentioned in UK home loans fall 90% since start of Covid-19 crisis (the Guardian, Larry Elliott) which showed that the number of approved new home loans fell to their lowest level since 1993. * SO WHAT? * Given that the housing market has been shut for months and that consumers haven’t been ABLE to spend their money in ways that they normally would, these figures are not surprising. They do paint a picture of a cautious consumer – however, if/when a vaccine/cure is found, it shows that there could be big upside if consumers start once more to use some of the money they’ve saved!

The UK high street is still a stage full of high drama in Job losses feared as burger chain prepares to be swallowed up (The Times, Dominic Walsh), which shows that Byron Burger is going to bring in the administrators. It is highly likely that loss-making outlets will be jettisoned and there will be resulting job losses – another nail in the coffin for casual dining. We cannot pay the rent, warns Pizza Express (Daily Telegraph, Rachel Millard) highlights another fellow sufferer on the high street who wrote to landlords to say that it was going to withhold rent payments until there was more visibility regarding future customer behaviour and Monsoon saves 57 more stores than planned after landlord truce on rents (Daily Telegraph, Laura Onita) shows that Monsoon Accessorize will keep 157 stores – 57 more than had originally been thought – due to agreements being reached with landlords over rent. Most landlords have agreed to switch from a flat

rate to turnover-based rent. In other developments, Frasers Group ups stake in Hugo Boss (Daily Telegraph) shows that The Company Formerly Known As Sports Direct has taken its 5.1% stake in the German fashion house to 10.1%. This goes to show that CEO Mike Ashley is serious about taking his company upmarket. * SO WHAT? * The Great High Street Shake-Up continues. Some retailers are now getting what they’ve asked for for ages – rent based on turnover. Previous pleas to do so have fallen on deaf ears as landlords have preferred to charge flat rates, but things are getting desperate out there right now. The balance of power seems to have shifted from landlord to tenant at the moment as some rent is always better than no rent in the current environment. The Frasers Group thing is interesting isn’t it? Mike Ashley is an ambitious and canny fella – Hugo Boss is a proper brand, so it’ll be interesting to see whether this investment results in more of a relationship with Frasers or whether this is just an investment thing.

Meanwhile, Coty to buy 20% stake in Kim Kardashian West’s beauty line (Financial Times, Leila Abboud and Arash Massoudi) highlights Coty’s purchase of a 20% stake in KKW for $200m – not long after it bought a 51% stake in younger sister Kylie Jenner’s beauty business. * SO WHAT? * Times are tougher now, so “only” buying a 20% stake signals a more cautious approach by Coty – although it does have the option to buy a majority stake further down the road. It’s all part of an attempt to use the Kardashian magic dust to makeover more tired brands that are currently in the Coty stable. Coty is owned by investment firm JAB Holdings, which also has stakes of varying sizes in Pret A Manger, Panera Bread, Keirig Dr Pepper and JDE Peet’s.

Lululemon buys Mirror, an at-home fitness start-up, for $500million (Wall Street Journal, Sharon Terlep) highlights Lululemon Athletica’s purchase of the company that sells a $1,500 tech-enabled mirror with speakers that enables customers to participate in live fitness classes at their own home. It only launched back in September 2018 – not bad, eh! * SO WHAT? * This sounds like a good idea from a strategic standpoint for Lululemon as it will give it another way of boosting revenue in addition to another avenue to market for its core products. Mirror is expected to become profitable by next year.

Gilead names its price, Wirecard has more problems and Lookers takes its medicine…

In other news doing the rounds today, Gilead to charge governments $2,340 for remdesivir (Financial Times, Donato Paolo Mancini and Mamta Badkar) shows that Gilead will be charging a chunky price for 5-day course of remdesivir, which is said to short coronavirus recovery times. That includes $390 a pop per vial and six vials over five days. The drug was originally used to treat Ebola.

Wirecard nightmares continue in Wirecard fallout spreads in UK and Singapore (Financial Times, Nicholas Megaw, Stefania Palma and Silvia Sciorilli Borrelli) and UK consumers dragged into Wirecard’s collapse (Financial Times, Nicholas Megaw) while EY prepares for backlash over Wirecard scandal (Financial Times, Tabby Kinder and Olaf Storbeck) shows that the accounting giant is readying itself for tough conversations with clients.

Talking of accounting holes, Lookers confirms £19m charge to correct books after fraud inquiry (The Guardian) shows that the embattled car dealership chain is going to book a £19m charge to plug the hole that a recent investigation uncovered in its accounts. What is it with accountants these days?? Are they worse than they used to be or just less adept at brushing things under the carpet?!?

…in other news…

During these coronavirus times, I think we all get our spirits lifted by a little retail therapy – either online or offline. Some people like to share the joy with others on social media. One woman’s purchase got a rather different reaction from the online community than she was expecting in Woman shows off new yellow rug but people say it looks like a Greggs steak bake (The Mirror, Paige Holland https://tinyurl.com/y92uuuz9). What do you see? I guess it depends how hungry you are when you look at it and/or whether you are vegetarian 😂. Then there’s something that’s sure to make you smile in Dog shows off hilarious toothy grin after stealing false teeth from drawer (The Mirror, Luke Matthews https://tinyurl.com/yd8n6q9b). I think that I might have included something similar in a previous Watson’s Daily, but you know I don’t think you can ever have too many videos of dogs running around wearing their owners’ false teeth 👍