The popular drinks firm, Diageo, which owns brands like Johnnie Walker and Guinness said that it would face a challenging market, after witnessing very little growth in profits. Diageo’s profits fell down to £2.093bn in the last 12 months ending July 30 from £2.095bn during the same period last year.
The loss of the South Korean license for the firm hit Asia Pacific, which was a source of strong sales for the company. However, the loss was offset to some extent due to increased demand for its beer products in Africa and whisky products in Latin America. The net sales of the world’s largest drinks producer rose by 7%.
Diageo’s chief executive, Paul Walsh, said that they were entering the new financial year in the face of global slowdown in GDP growth and even more challenging trends relating to the international economy. While the company pre-tax profits fell, the operating profits increased from £2.159bn to £2.226bn. The company’s outlook for 2009 is inevitably less bullish and the current increase in commodity prices could also eat into the company’s operating profits.
However, the company is well poised to counter the slowing growth in economy. The firm’s strength was in its diversity of products like wine, beers and spirits, added Mr Walsh.
US car giant, GM, is hopeful of becoming profitable again in the year 2010, according to a top executive of the firm. In eighteen months, GM has lost nearly £31.36bn. GM closed down many factories and laid-off a lot of staff, however they were still struggling to counter the slow moving economy and increasing fuel prices.
If the car sales recover in the year 2010 and GM continues to cut costs, the corporation would be profitable again, according to Vice Chairman Bob Lutz. He added that at this point of time, the future is very cloudy in terms of development of the market and when it would pick up again.
The company is losing money on almost all of its model lines, according to Mr Lutz. He believes that the prices for fuel efficient small cars would rise as demand grows.
Slowdown of Hummer
The rising cost of fuel has slowed down the demand for popular sports vehicles that GM is most famous for. The company has previously indicated that it wants to sell off Hummer, its iconic brand. Among those who are interested in buying the popular brand are Russian Machines, an engineering company that makes planes, trains and automobile parts and Mahindra & Mahindra, the Indian car maker.
Owing to the announcement that a key pipeline, responsible for carrying crude oil from Asia to the West, is unlikely to function for up to 15 days due to the damages sustained as a result of an explosion on Thursday 7th July. Traders said prices had actually dropped on Wednesday owing to the good news of a jump in US crude reserves
New York’s main contract, light sweet crude for September delivery gained 98 cents to $119.56 a barrel in electronic deals on Thursday. Brent North Sea crude for September rallied around $1.03 to $118.03 a barrel. There was an announcement on Thursday that the Baku-Tbilist-Ceyhan oil pipeline would remain shut for about 15 days after a blast had occurred in a pump at a section in eastern Turkey.
According to an official from Turkey’s state-run oil and gas company BOTAS, who spoke to the Anatolia news agency, the fire which started on Tuesday is likely to take another two days to burn out, due to the oil remaining in the pipe.
As a fault in the system was detected before the blast, the possibility of sabotage is ruled out by the local authorities.
There is no end in sight for firms in the UK, which are experiencing the ecenomic gloom that has enveloped their businesses in the past few months. Two independent surveys reveal that firms are facing the toughest business environment since early 1990s.
According to Institute of Chartered Accountants (ICAEW), firms have lost more confidence in the last quarter of the year. Another survey by the Lloyds Business Barometer reveals that company confidence in trading prospects has reached its lowest in July.
Lloyds TSB Corporate Markets has reported that the percentage of firms that believe their trading will increase over the next 12 months has fallen from 32% to 22%, which is well below the 51% in 2002. According to its chief economist Trevor Williams, the rising costs of materials and weakening of exports in the European markets are responsible for the loss in confidence. He notes a strong correlation exists between business confidence and the performance of the economy. With so many companies losing confidence, he predicts the UK economic growth would continue to suffer through next year.
According to the ICAEW’s Business Confidence Monitor, the confidence for the three months leading to June 30 dropped by 25.7%, reported in the case of firms that are slightly less or much less confident about their trading prospects. Executive director of operations and finance, Robin Fieth, remarked that there is a new realism among businesses as they are projecting a significant drop in staff recruitment and capital investment in their budgets.
BAA has been approached by the Manchester airport owner for the purchase of Gatwick airport. It is learnt that Competition Commission is likely to force the sale of Gatwick this week. The Manchester Airport Group (MAG) has made this offer to Sir Nigel Rudd, chairman of BAA, ahead of a report from the Commission.
According to MAG chief executive, Geoff Muirhead, who is owner of the Humberside, East Midlands and Bournemouth airports, the group wants to add company value, for its shareholders, by acquiring more airports. He claims that MAG has a large number of skilled people with a good record of running airport operations.
However, MAG would not be able to buy Gatwick on its own, instead the company may have to team up with other investors. Gatwick airport is likely to cost up to £3bn. Other expected bidders include German construction group Hotchtief, Global Infrastructure Partners and Australian financial service group Macquaire. A provisional findings report by the Competition Commission into BAA will probably be issued on Wednesday or Thursday.
BAA, taken over by a consortium in 2006, was fully aware that it would have to sell its London airport after the publication of the Commission’s report. There is also a possibility that BAA may be forced to sell Stansted and one of its Scottish airports if the Commission deems it necassary for them to go under separate control. Ryanair boss is keenly interested in buying Stansted for £2bn. BAA did not comment.
The British holiday lovers seem to be unaffected by the credit crunch, as they continue to splash out on holidays to locations such as Turkey and Egypt. According to Manny Fontenla-Novoa, chief executive at Thomas Cook, customers are undeterred by the credit crunch and the company is posting good trading for the summer 2008 period. He adds that the oncoming winter and summer 2009 trading climate is already much further ahead than last year.
According to him customers are spending less on home improvement, furniture, clothing and cars, instead saving money to enjoy summer holidays. Fontenla-Novoa adds, the UK customers were cutting back on weekend breaks to Ibiza, Spain and Majorca, and flocking to exotic places such as Egypt and Turkey due to the strong Euro and stable holiday prices at these destinations.
Thomas Cook’s winter booking for five-star holidays is up by 13% and for all-inclusive holidays it is 10% higher than last year, for all destinations. After the acquisition of MyTravel, Thomas Cook reduced its third-line holiday capacity by 7% and would consider a further reduction of 8% if needed.
According to Killik Capital analyst, Jonathan Jackson, steps like capacity downsizing and fuel hedging would enable Thomas Cook to cope with the downturn successfully. Fontenla-Nova claims that Thomas Cook was 92% hedged against crude oil price fluctuations for the current year, probably the best placed among all other companies.
The manufacturers of grocery products in the UK have secretly shrunk the sizes of some of their popular products, whilst prices remain unchanged, in a bid to curtail the soaring costs of manufacturing.
The sizes of Kraft Food’s Dairylea triangles, Nestlé’s Rolo and Cadbury’s chocolate bars have been reduced in size along with other products, but the consumers have been denied any price reduction by the supermarkets.
Consumer organisations are more concerned that people are made to pay more when they are already struggling to cope with food, water, petrol and energy prices shooting upwards.
Policy expert, Jeff Allder, at the National Consumer Council states that they are very concerned about this underhand approach by manufacturers, which amounts to cheating the unsuspecting shoppers who are unable to cope due to soaring household and motoring costs. He emphasises that this trend comes from the US, which is already known as the ‘Grocery Shrink Ray’ in America, is highly undesirable in the UK.
A Cadbury spokesman explained that their company offered consumers value for money by keeping its confectionery affordable. He claimed the company had reduced sizes of larger packs only marginally, instead of raising prices directly.
Grocers are insisting that they are passing on prices of reduced pack sizes to the manufacturers and cannot afford to offer any reductions to their customers since it would cut their own margins considerably.
The sales figures for the retail industry reveal that the sector failed to protect itself from the economic downturn in July. The sector witnessed a drop of 0.9 percent in like-for-like sales, which are much lower than previous years when comparing the months from April to July. According to the British Retail Consortium, this performance is the worst since summer of 2005.
The trend is the cause of serious concern until the Christmas period. Many in the retail sector are apprehending that consumer spending would not improve, at least until next year. According to Stephen Robertson, director general BRC, consumers would not be indulging in frivolous shopping since they focus more on value and durability of the product. He warned that the worst in the slowdown has yet to come.
The slump is wide spread, affecting all kinds of retail sales. The clothing and footwear sector sales fell far below last years level. Meanwhile homeware and furniture retailers also failed to come out of their prolonged slump, despite offering heavy discounts and attempting aggressive promotion of their products.
According to KMPG’s Helen Dickinson, who has spoken to many retailers, no one is optimistic about improvements in the market conditions during the current year.
Food and drink retailers were the exception and registered a higher growth in July 2008 compared to July 2007.
Drug companies have strongly refuted the charges of over-pricing put against them by the chairman of National Institute for Health and Clinical Excellence (NICE). Prof Sir Michael Rawlins has accused drug firms of making profits by selling new medicines at 10 times of their production cost.
The Association of the British Pharmaceutical Industry (ABPI) hit back at the chairman for making baseless charges.
NICE was criticised by the industry for not granting approval to the expensive cancer drugs.
According to Sir Michael, it was a pressure tactic by the drug firms to earn more profits by hiking prices. He claimed that the hike was largely linked to profit-driven share prices and the salaries of the company executives, resulting in the increased prices.
Sir Michael adds that pharmaceutical companies had been reaping the benefits of double-digit growth all these years, and are pushing hard to maintain that trend.
ABPI informs that it did not see any linking of drug pricing with employee pay packets or company profits. According to its spokesman, Prof Michael is ignoring the huge contribution of the pharmaceutical companies to public healthcare and its initiatives in reducing drug prices. He points out that drug prices in the UK have fallen by 21% in the last ten years. The spokesman also claims that pharmaceuticals have made massive investments in research and development work, an average £550m, which is bound to reflect in drug prices; a fact that is being overlooked by Prof Michael.
The UK electrical retailer is following the trend shown by other retailers, which involves axing some of their staff to cope with rising costs and tough trading conditions in the retail sector. Comet is planning on giving the pink slip to 100 of its employees.
Kesal Electricals, the owner of all 250 stores in the chain, including Comet, would scrap the role of deputy store manager and start a consultation period with the people affected this week.
Like other retailers, Comet is affected by a decline in the sale of high value items such as washing machines, dishwashers and fridges.
According to a Comet spokeswoman, the staff reduction proposal is aimed at facing highly competitive market conditions; the company is trying to find out alternative roles for the existing employees based on their abilities and experience. She informs that a decision regarding the job reduction is not yet finalised.
Comet has 10,000 strong staff, 202 of which are deputy managers.
Kesal Electricals’ chief executive, Jean-Noel Labroue, had last month stated that the sale of white goods was down by between 8 and 10 percent all over the UK.
According to Robert Clark, a senior partner from the market research firm Retail Knowledge Bank, since fewer people are shifting their houses, purchases of new washing machines and fridges are less likely to take place. He insists that retailers are taking the convenient route of axing their staff and closing unprofitable stores to lower costs.