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| Tuesday January 24 2017 |
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By Richard Fletcher
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Markets snap: The Nikkei closed down 0.55 per cent this morning at 18,787.99. The FTSE 100, which closed at 7,151.18 yesterday, is forecast to open 23 points higher when trading begins shortly. At 7.09am Brent crude was trading at $55.66 a barrel and the pound was trading at $1.247 against the dollar and at €1.161 against the euro. For the latest on the markets follow me on Twitter @fletcherr.
Good morning: Bad numbers take longer to add up, goes the old adage. That certainly seems to be the case at BT. In October the telecoms company admitted that it had uncovered “historical accounting errors” at its Italian business after a whistleblower prompted an investigation.
Embarrassing? Yes, but BT assured shareholders that the incident had “not affected its outlook for 2016 or materially affected reported earnings over the past two years”. The total write-off amounted to £145 million.
This morning BT has admitted that the “extent and complexity of inappropriate behaviour in the Italian business were far greater than previously identified and have revealed improper accounting practices and a complex set of improper sales, purchase, factoring and leasing transactions”.
The estimated cost to shareholders will now be at least £530 million, although BT is still evaluating “what proportion of the total adjustments should be treated as prior year errors and what proportion should be treated as the reassessment in the current year”.
BT also warned that the outlook for the British public sector and international corporate markets had deteriorated and cut its revenue and cash flow forecasts for next year. We’ll have a full story on www.thetimes.co.uk/business shortly.
“Please return to your seats. There may be some turbulence ahead." Shareholders in easyJet have had a bumpy ride of late, with the shares dropping 34 per cent over the past year. The budget airline said that it carried more passengers in the first quarter and that the decline in revenue per seat was better than it previously guided. This was despite a price war, low fuel prices and the Berlin Christmas market attack. Dame Carolyn McCall, the chief executive, said that sterling’s weakness and the impact of fuel combined are £35 million worse than expected but that it is cutting costs.
At first glance a 4 per cent rise in like-for-like sales at Carphone Dixons looks impressive but strip out the effect of store closures and like-for-like sales were flat. Nevertheless the FTSE 100 owner of Currys, PC World and Carphone Warehouse strikes an upbeat note. “I am pleased to be reporting another good Christmas period of growth, our fifth consecutive year,” says Seb James, group chief executive.
Elsewhere this morning we have full-year results from the housebuilder Crest Nicholson, half-year results from IG and an update from the oil explorer EnQuest.
On the economics front we get public sector borrowing figures for December at 9.30am. Boosted by the resilient economy, borrowing is expected to fall year on year to £6.7 billion, down from £7.2 billion.
The business, energy and industrial strategy committee holds the final public session of its inquiry into corporate governance. Sir Philip Hampton, chairman of GlaxoSmithKline, and Ken Olisa, deputy chairman of the Institute of Directors, will be among those quizzed by the MPs.
Finally, brace yourselves. The Supreme Court rules at 9.30am on whether the prime minister has the right to invoke Article 50 of the Lisbon Treaty, the formal mechanism for leaving the European Union, without a vote in parliament.
Even Downing Street concedes that it expects the Supreme Court justices to rule that MPs should have a vote. Of more interest will be whether the court decides that the devolved parliaments of Scotland, Wales and Northern Ireland must also get a say on whether to trigger Article 50. We’ll have full reports on www.thetimes.co.uk later.
Please do keep sending any thoughts or observations about The Times's business coverage to me at richard.fletcher@thetimes.co.uk.
Have a great day.
Richard
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| Richard Fletcher |
| Business Editor |
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Ten things you need to know
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1 Two brothers, Erwin and Krystian Markowski, have been jailed for six years after trafficking men from Poland to work for Sports Direct at its Shirebrook warehouse in Derbyshire.
2 British businesses will be helped to the front of the queue when bidding for government contracts as part of Theresa May’s industrial strategy. The shift in government procurement rules will allow UK companies to take advantage of Brexit.
3 A record-breaking surge in global stock markets ran out of steam as Donald Trump, America’s new president, made good on his promises to cut international trade ties and punish US manufacturers that make goods abroad.
4 EDF, the French state-controlled energy company, has raised the spectre of delays or cost overruns to its £18 billion Hinkley Point nuclear plant as a result of Brexit, warning that any restrictions to trade and movement of labour could hamper the delivery of projects.
5 J Sainsbury has revealed that it sanctioned David Tyler, its chairman, who turned 64 yesterday, for using an employee of the supermaket group to review plans for underfloor heating systems at his country retreat near Lewes, East Sussex.
6 Tesco has filed a 42-page defence in the High Court alleging that 111 institutional investors have made “vague and amorphous” claims that cannot be substantiated as it contested their assertion that they suffered millions of pounds of losses after the supermarket’s accounting scandal.
7 BP has announced the first oil from one of its biggest new projects in the Gulf of Mexico since the Deepwater Horizon disaster. The $850 million Thunder Horse South Expansion project began production in early December, 11 months ahead of schedule and $150 million below budget, BP said.
8 Ceri Powell, Royal Dutch Shell’s exploration chief who is its highest ranking woman employee pending the elevation of Jessica Uhl to chief financial officer, is changing jobs after seven years, as the energy company cuts back on drilling new wells.
9 Yahoo is being investigated in the United States and other countries over two huge hacking attacks that led to the theft of personal information from more than 1.5 billion of its customers’ accounts.
10 Bill Winters, the American who dreamt of being a diplomat but went into banking and now runs Standard Chartered, may need to dust off his diplomatic skills, as he is embroiled in a row with London’s theatreland as a result of his role as a trustee and benefactor of the Print Room, a Notting Hill theatre run by his wife.
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Editor’s picks
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As the City’s investment banks press the button on their Brexit contingency plans, Philip Aldrick explores whether there is a way for British-based lenders to retain their passporting rights. At stake are up to 35,000 jobs and £5 billion in tax receipts. European rules will permit foreign supervision of EU banks as long as there is "regulatory equivalence". That’s why the UK is pushing for equivalence defined by global standards and policed by the International Monetary Fund or the Financial Stability Board rather than by European institutions.
Alistair Osborne takes a look at Theresa May’s latest big idea, which she calls “Building our Industrial Strategy”. He likes a couple of the ideas in it, such as the £170 million investment in new institutes of technology and the £4.7 billion extra for research and development by 2020-21. But the rest, he believes, “reads like a wish list — and an undeliverable one at that, when the focus will be on the Brexit talks. “The green paper signs off with no fewer than 38 “questions for consultation”, including such gems as: “Do you agree the principles set out above are the right ones? If not, what is missing?” Anything resembling a strategy is the obvious answer.
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| Market Snap |
The FTSE 100 fell 47.26 points yesterday, or 0.66 per cent, to 7,151.18. The broader FTSE 250 slipped 34.81 points, or 0.19 per cent, to close at 18,116.03. More on yesterday’s market action here.
On Wall Street stocks were hit by President Trump's protectionist stance after he withdrew America from the Trans Pacific Partnership trade agreement and told US manufacturing executives that he would impose a hefty border tax on companies that import products after moving American factories overseas. The Dow Jones Industrial Average fell 27.4 points, or 0.14 per cent, to close at 19,799.85, while the broader S&P 500 fell 6.11 points, or 0.27 per cent, to 2,265.2.
Sterling surged to its highest level against the dollar in five weeks as the dollar fell. Investors priced in a defeat for the government in its appeal against the Article 50 ruling. The pound was at $1.249.5, its highest since December 19. The euro was up 0.5 per cent against the dollar at $1.0751, posting its seventh rise in the last nine days. The dollar fell to a seven-week low against a basket of major currencies.
Oil prices fell by 1 per cent as signs of a strong recovery in US drilling overshadowed news that Opec and non-Opec producers were in course to hit their output reduction goals. Brent crude settled down 26 cents, or 0.5 per cent at $55.23 a barrel.
If you are seeking exposure to US markets, says Tempus, you could do worse than North American Income Trust, even if the shares do not look especially cheap. SThree, along with the rest of the recruitment specialists, is seeing a dramatic slowdown in the UK after the referendum. Essentra has served up yet another profit warning, the first under the new chief executive. Read on here for more about the Tempus share tips of the day.
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The day’s front pages
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The Times
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A record-breaking surge in global stock markets ran out of steam yesterday as America's new president made good on his promises to cut international trade ties and punish US manufacturers that make goods abroad.
EDF has raised the spectre of delays or cost overruns to its £18 billion Hinkley Point nuclear plant as a result of Brexit, warning that any restrictions to trade and movement of labour could hamper the delivery of energy projects.
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Read the full update
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The Wall Street Journal
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President Trump said that the US would impose a “very major” border tax on companies that move some operations overseas, as he sharpens his focus on recasting America’s international trade relations. His formal withdrawal from the 12-nation Pacific trade agreement creates an American policy vacuum in a fast-growing region that includes China and longtime US allies.
Samsung Electronics blamed the overheating of its Galaxy Note 7 smartphones on manufacturing and design problems but acknowledged that it had not determined the “root cause” of the failure.
A Chinese fund manager was sentenced to prison for five and a half years for stock manipulation and insider trading in a case connected to China’s 2015 stock-market crash.
Yahoo pushed back its expected closing date for its deal with Verizon, citing “work required to meet closing conditions”.
China’s three largest bitcoin exchanges will seek to rein in speculation in the currency by charging customers trading fees.
A US judge blocked the proposed merger of the health insurers Aetna and Humana on antitrust grounds, a potentially fatal blow to the $34 billion deal.
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Read the full update
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Financial Times
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President Trump signalled that he would put protectionism at the heart of economic policy, withdrawing the US from a historic Pacific trade pact and threatening to punish companies for moving production overseas on his first working day in office. Mr Trump said pulling out of the 12-nation Trans-Pacific Partnership, a signature initiative of predecessor Barack Obama’s “pivot” to Asia, was a “great thing for the American worker”.
Theresa May’s promise to bolster Britain’s “world-leading” industries through a new industrial strategy was met with faint praise from business leaders amid claims it was little more than a sprawling discussion paper.
Robert Hannigan, the head of GCHQ, has announced his retirement earlier than expected. He took over as director in 2014 and had been expected to serve at least four years. He promised to promote greater openness and the organisation has undergone a public relations transformation on his watch. It even released a puzzle book and made an appearance on Twitter.
British and Chinese officials have revealed that Theresa May intends to visit China “relatively soon” to shore up trading arrangements.
Australia has ordered a sweeping security review of its critical infrastructure and is drawing up a register of key assets to help assess whether any privatisation or sale to overseas investors would raise national security concerns. The initiative was prompted by concerns about an increased risk of “sabotage, espionage and coercion” involving key water, energy and port facilities amid a surge in foreign investment from China.
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Read the full update
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The Daily Telegraph
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Banks are using the euro less and less in international transactions, with financiers preferring to use dollars, indicating the euro's declining importance in the global economy. Economists believe that sustained political risk in the eurozone, fears that the currency area could fall apart and the continuing hangover from the sovereign debt crisis have all contributed to the currency's relative decline.
Green energy subsidies for projects such as wind and solar farms which will cost every household £110 a year by 2020 will be cut amid concerns that they are too expensive, the government has suggested.
Barratt Developments has suspended three members of staff as part of a police investigation into alleged misconduct in awarding contracts for new housing developments. The three people are understood to work for its London operations. Alastair Baird, regional managing director for London, was suspended in October after being arrested with another former Barratt employee. The two have since been released on bail.
Sky has boosted its production business with the acquisition of True North, a Leeds-based maker of factual television programmes. True North's portfolio includes A New Life in the Sun, which is shown by Channel 4. It has also made investigations for Panorama on the BBC and Animal Rescue Squad for Channel 5.
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Read the full update
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The Sun
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Amazon's share of the music, film and video games market fell in the run-up to Christmas as supermarkets muscled in. The online giant made 20.4 per cent of all non-digital entertainment sales in the UK during the 12 weeks to December 20. The previous year it had made 20.8 per cent.
French Connection shareholders wrote to its board yesterday about their “distress” at its struggles. They called for a board shake-up “after nearly a decade of inaction and poor decision-making”, arguing that the company could reach “a negative cash balance” by summer. Shares have fallen 35 per cent since early September.
The easyHotel chain said that it was making “good progress” as it revealed plans for further growth. The “super-budget” brand is working on new hotels in Ipswich, Birmingham, Liverpool and Manchester. Sites in Sheffield and Leeds are due to follow next year. The chain also has permission for a 204-room hotel in Barcelona.
The average car insurance premium jumped £35 in the last three months of 2016, according to the AA. Over the year, the average rise was £66. The AA said that a rise in the cost of repairing accidental damage was a big factor.
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Read the full update
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richard.fletcher@thetimes.co.uk
@fletcherr
