The industrial leaders of the British manufacturing are seeing dark clouds hovering over the industry after three years of steady growth. This was revealed in a survey conducted by Chartered Institute of Purchasing and Supply (Cips).
A fall in forward order was registered. Cips manufacturing index fell by 0.8 from 50.8 in May. Index 50 and below indicates fall in manufacturing. Roy Ayliffe, Cips’ director, attributed this fall to the surging raw material prices, cost of cutting technology and inflationary pressures. He observed that the sector is curbing the buying activity and the high costs of fuel, transportation and food are being passed on to the clients. Engineering Employers Federation (EEF) survey highlighted that some manufacturers were cutting down their profit margins to absorb effect of rising prices. Cips employment index was also down at 49.2, indicating adverse effect on jobs market.
The falling manufacturing output and the rising inflation have put the Bank of England’s Monetary Policy Committee in dilemma. The Bank in its Inflation Report strongly advocated doing away with rapid rate cuts. Howard Archer, chief economist at Global Insight, feels that Bank of England will not trim interest rates until August at the earliest.
Associated British Foods (ABF) has announced the merger of its Ryvita business with Jordans to achieve high single digit growth of both the brands. ABF is one of the biggest food and retail international groups, whereas Jordans is the renowned manufacturer of breakfast cereals and cereal bars.
ABF’s finance director John Bason is confident that merger would boost Jordans’ sales internationally and all the sales channels for both brands will reap the benefit. He pointed out that Jordans stands the highest growth potential in Europe and North America.
ABF stake in the business will be 62 per cent. It had already acquired 20 per cent stake in Jordan last September. Mr. Bason is forecasting combined sales of £150m from financial year up to September 2009. Ryvita brand came into existence 80 years ago, whereas Jordans’ cereal business was started by Bill and David Jordan in 1972. The Jordan family would continue its association with the business. ABF would not close any of the manufacturing plants, but could cut down office staff in the administration.
One of the world’s biggest private equity houses is set to take a stake of about 20 per cent in Bradford & Bingley. The reported move by large US investor Texas Pacific Group is likely to boost the finances of Britain’s major buy-to-let mortgage lender.
According to media reports, about £150m of funds are going to be injected into B&B, whereas existing stakeholders would be asked to provide about £250m of new capital. The news was made public as B&B’s chief executive opted to step down for health reasons. The events took place amidst a cautionary note that its profits are going to be much lower than what the City expects.
The former building society has over three million customers. However, the firm has been severely hit by the credit crisis, and even launched a rights issue in May asking current shareholders to pump in £300m. The new plan is nothing but a ‘scaling back’ of that demand, but owing to TPG’s contribution, the firm would end up raising more money than under the previous plan, close to £400m.
Four Seasons Health Care is in deep financial trouble. Its £1.5bn of borrowing is due for refinancing in the next three months. It faces a covenant on debt and has breached it already. One of Britain’s biggest nursing and care home groups, it was bought by a Qatari investor 2 years ago.
The financial crisis has triggered tensions between Paul Taylor, founder of Four Seasons’ owner Three Delta and the Qatar Investment Authority. The situation is heading to the worst. Three Delta and its lenders have so far not succeeded in tackling the serious issue of e refinancing. Their problems are further aggravated by the decision of banks to withdraw lending against commercial property which was the main asset base for Four Seasons.
The company has its £1.24bn senior debt due on September 2, and paid a small sum to avoid breach of covenant on its facilities. If the company fails to raise enough debt to refinance its loans, the private equity owners are not likely put up more money to ease the situation.
Attracted by the growth opportunities in health care sector, private equity firms have put in their heavy investments. Since January 2005, the sector registered 370 deals worth £33.3bn. Despite strong industry fundamentals, Four Seasons struggled mainly due to lower occupancy rates. It averaged 84 per cent against the industry average of 90-92 per cent.
GlaxoSmithKline, the UK-base drug group, were given a jolt by its brokers when one of them expressed serious reservations over its new vaccine and another stated that its research arm needed overhaul.
Investment bank Morgan Stanley expressing doubts over launch of Cervarix, vaccine to prevent cervilic cancer, in US until 2014, switched GSK to ‘underweight’.
This has given a severe blow to GSK in its attempts to capture the market currently dominated by Merck and Sanofi-Aventis, cancer vaccine Gardasil which is being sold in US and European Union. The bank says that GSK is facing series of patent enquiries and has lowered its 2010 earnings per share forecast by 10%. The vaccine under clouds of doubts represents a 25% of GKS’ revenue growth in the next 4 years, under such adverse conditions. The bank therefore switched it to ‘underweight’.
US Food and Drug Administration did not approve any adjuvant since the 1930s, and expressed apprehensions that vaccine could cause heart disease in elderly patients.GSK recently declared that the safety profile of Cervarix is very strong as reflected in the analysis involving over 65,000 patients. It saw no significant difference between Cervarix and control groups with respect to auto-immune disorders.
Britain witnessed the worst blackouts of the decade on Tuesday, due to sudden failure of seven power stations simultaneously. The blackouts led to cancellation of hospital operations, cutting of lights at shopping centre and put thousands of south London’s homes in darkness. Eight people were reported trapped in a lift in north east.
British Energy has woken up to restart its Sizewell B nuclear power station at the earliest. The other power stations which failed simultaneously include Longannet plant in Fife, Kent, South Humber, Deeside and Nottinghamshire. It was yet not clear why 7 power stations shut simultaneously. It was for the first time in 3 years that National Grid had to issue a Demand Control Imminent warning, indicating overload on the system.
David Porter, chief executive of the Association of Electricity Producers, dismissed this simultaneous disruption as a “gigantic coincidence”. He explains that such coincidences do take place under exceptional circumstances. The price of wholesale electricity went up to a record high of £95 a MW hour.
British Energy’s power plant problems have already cost it loss of profit in the last year and its 1,180MW plant is still inoperative. British Energy is buying power from open markets to meet its contracts. It blamed its recurring power plant failures for the substantial drop in its earnings which fell to £882m from £1.2bn last year.
British Airways fliers will have to shell out £30 per flight as the airlines announced increase in fuel charges on all the flights. This is the third time in the current year that BA is passing the higher fuel costs on to its passengers. The aviation industry is passing through a crippling situation due to unending surge in fuel prices. It is forced to resort to desperate measures like levying new surcharges, slashing expenses and cancelling routes. American Airlines, the largest global carrier is even planning to levy fee for baggage checking.
The industry is losing a grim battle against two fronts, the rising fuel prices and the dwindling number of passengers. According to the International Air Transport Association, there is a sharp increase in the number of empty seats on flights since last three months. Willie Walsh, BA’s chief executive is unsure of making a profit if oil prices remained above $125 a barrel. According to him every rise of $1 in oil eats away £16m of BA’s profit.
BA already announced rise by £3 each way on fuel surcharges effective June 3. The rise in surcharges will be £15 for long-haul flights of up to nine hours, and £30 for flights longer than nine hours.
Scottish & Southern Energy chief Ian Marchant has warned households of additional rise in their energy bills in the current year. Interestingly he made this statement while announcing a rise of 12 per cent in company’s annual profits.
Elaborating further he said that higher gas and coal prices are pushing up production costs of the UK energy industry. Ian added that company had to shell out about 90p a therm for buying gas for the coming winter. The rising prices of gas might compel his group to raise the energy charges. He however assured that SSE would be the last to do so.
Centrica, owner of British Gas had already indicated that further rise in its energy prices is inevitable.
Adopting a shrewd strategy, SSE is waiting for its rivals to raise the energy bills first. By doing so the group registered 700,000 new customers in its energy business during the year. The customers would reap the benefit till the next revision of energy prices.
Mr Marchant states that volatile gas prices are not likely to affect SSE as badly as compared to its rivals, since its plants are hydroelectric and coal fired. This enabled SSE to delay the price rise. SSE revenues were up to £15.3bn (£11.9bn), due to increased number of customers and rise in the energy bill. Profits rose to £1.2bn from £1bn.
In the face of exorbitant rise in the costs of fuel many companies are forced either to suspend or permanently close their important businesses. Silverjet is not an exception. On Friday it decided to stop the operations since it failed in getting emergency funds for the all-business class carriers.
The carrier runs regular flights from London’s Luton Airport to Dubai and New York. It was making desperate attempts to get the funds from potential investors to tide over its financial crunch. The talks are not yet proved to be fruitful. Silverjet is facing a serious threat to its survival due to recurring losses and the mounting fuel costs.
Two of its rivals Maxjet Airways and Eos Airlines of the US have already ceased their operations on account of bankruptcy. The airline was negotiating for funding from Viceroy Holdings, a Middle East and US based fund, but did not succeed. It asked London’s alternative investment market to suspend its shares.
The airline announced suspension of its flights soon after departure of Dubai to London Luton flight at 7.30 am London time on Friday. Silverjet would make further announcement soon. It requested customers to avail ticket refunds from their travel agents or credit card companies.
British waste management firm Shanks Group has forecast a jump of 11% in its year profits. It has recorded exceptional growth in UK and did well in European business. The company has its operations in, Belgium, Netherlands, UK and Canada. It witnessed more than double growth in UK business, courtesy environmental legislation.
New Chief Executive Tom Drury sees strong potential for growth for Shanks since it aligns its business to governments’ sustainable waste management strategies. The strategies are characterised by higher recovery of energy from waste, lesser reliance on landfill and enhanced recycling.
Shanks is predicting good results in 2008-2009 and expects continuation of growth thereafter. It registered 44.8 million pounds profit before tax, close to the expectations of 42 to 45 million pounds.
According to, Hargreaves Lansdown analyst Keith Bowman, currency movements and take-over rumours have worked in company’s favour.
Several bids, beginning 2006, were launched by Shanks to takeover rivals in waste management in UK and Europe. As per company reports, year end revenues were up 11 percent to 564 million pounds. UK trading profit rose to 109 per cent and Dutch profits went up by 18 percent. Belgium profits fell 6 percent due to low landfill volumes. Shanks raised its dividend by 5 percent to 6.2 pence.